2016-17 FINANCIAL REPORT - Udayton.edu

MANAGEMENT’S DISCUSSION AND ANALYSISFor Fiscal Year Ended June 30, 2017 The University’s enrollment dropped slightly from 2016 to 2017 at both the undergraduate andgraduate levels. Total enrollment was 10,118. The number of full-time undergraduate studentsfrom outside Ohio increased to 56.7% from 55.5% in the previous year. International studentscomprised 9.9% of the undergraduate student population, a decline from 11.5% in 2016 that mirrorsnational and regional trends. Investments increased by 91.1 million (12.8%) to a total of 802.0 million. The endowment, whichis the largest component of investments, increased by 51.1 million (10.8%) to a total of 524.2million. The primary drivers of the endowment increase include investment gains for 51.7 million,gifts and other additions of 9.4 million and investment income of 9.4 million. This strong growthsupported the University’s endowment draw of 19.4 million. The University entered into a joint venture with an equal partner to execute the purchase ofapproximately 38 acres located adjacent to campus. The University presented investment assetsof 7.5 million and investment income of 2.3 million in its financial statements for 2017. The jointventure moves into a planning phase for the real estate beginning in fall 2017. The University and its partner substantially completed renovations to the hotel adjacent to campus.Assets grew in this entity to 40.3 million from 34.1 million due to this renovation. These assets,along with the liabilities of 25.9 million and net operating margin of 0.1 million were consolidatedinto the University’s financial statements. The minority partner has an interest of 0.1 million. During fiscal year 2017, the University completed the purchase of the building it occupies in Suzhou,China for the University of Dayton China Institute (UDCI). UDCI has assets of 9.7 million which areconsolidated into the University’s financial statements. The University began an extensive Arena Transformation project in spring 2017. This is a multiphase project estimated to cost 71.8 million. The first phase was completed this summer in timefor the start of the basketball season. Phases two and three will follow over the next two summerswith completion expected in fall 2019. The University added 40.8 million in fixed assets during fiscal year 2017. These additions includedthe previously mentioned hotel renovation and UDCI building purchase, as well as ongoingrenovations for research labs, teaching labs, and residential facilities. In the fall of 2016, the University issued 20.9 million in bonds in order to refinance a portion ofexisting revenue bonds. This resulted in an annual interest savings of approximately 600,000 peryear and a net present value savings of 5.5 million over ten years.Consolidated Statements of Financial Position2016-17 FINANCIAL REPORT Total assets increased by 122.0 million to 1.66 billion. Investment return of 61.5 million was aprimary driver of this increase. Other increases included net fixed asset growth of 40.8 millionand an increase in pledges receivables for the Arena Transformation and a proposed performingarts center that is currently in the planning stages.14

MANAGEMENT’S DISCUSSION AND ANALYSISFor Fiscal Year Ended June 30, 2017 Total liabilities decreased by 10.8 million. The 2017 Bond principal payments of 11.8 millionaccounted for nearly all of this decrease. The decrease in the accrued postretirement obligation of 7.9 million and the change in unrealized loss on interest rate swap obligations of 6.1 million offsetthe increase in accounts payable of 13.0 million due to increased construction activity on campusand at the hotel compared to the prior year. Total unrestricted net assets incresed by 101.2 million compared to 5.1 million in 2016. Thisincrease was due to the strong operating returns plus the strong non-operating gains on investments.Also contributing were the changes in post-retirement benefit obligations and the changes in theunrealized loss on interest rate swap agreements. Restricted and temporarily restricted net assets increased by 31.7 million due to the pledgesreceived for the Arena Transformation and an arts center along with strong investment returns onthe true endowments. This compared to a decrease of 16.3 million in restricted and temporarilyrestricted net assets in 2016.Consolidated Statements of Activities Total revenues increased from 519.1 million to 549.3 million. Net tuition revenue decreased from 214.3 million in 2016 to 197.5 million in 2017. This decrease was due to lower enrollment and higherinstitutional financial aid. Private gifts, grants and other increased to 80.4 million from 53.1 millionin fiscal year 2017. This increase was due to increased pledges for the Arena Transformation andan arts center and the recognition of previously deferred revenue on special projects. Governmentgrants and contracts increased by 17.1 million (15.7%) to a total of 126.1 million. This was due tocontinued record governmental contract activity in the University’s Research Institute as well as oncampus faculty-driven research. While operating revenues increased by 5.8%, operating expenditures increased by 7.1% from 459.9 to 492.5 million driven primarily by personnel costs and contracting and maintenance activity. Salariesand benefits grew from 256.1 to 268.4 million. Contract services and maintenance grew from 63.6to 73.5 million, largely driven by increased subawards issued on sponsored research contracts andgrants. Other expenditures increased from 49.3 million to 58.5 million due to the loss on disposalof several buildings which were undergoing renovations throughout the year and other ongoingmaintenance. The University experienced controlled costs in the remaining cost categories due tothe implemented fiscal stewardship practices and additional procurement strategies.Consolidated Statements of Cash FlowsCash decreased by 27.9 million in fiscal year 2017. The 58.4 million of cash generated by operationswas more than offset by the 8.0 million of cash used for investments, the fixed asset acquisitions of 67.9 million and cash used for financing activities of 10.4 million, which included a reduction of longterm debt of approximately 14.5 million.152016-17 FINANCIAL REPORT

2016-17CONSOLIDATEDFINANCIALSTATEMENTS

INDEPENDENT AUDITOR’S REPORTBoard of TrusteesUniversity of DaytonDayton, OhioReport on the Financial StatementsWe have audited the accompanying consolidated financial statements of the University of Dayton whichcomprise the consolidated statements of financial position as of June 30, 2017 and 2016, and therelated consolidated statement of activities and cash flows for the years then ended and the relatednotes to the consolidated financial statements.Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with accounting principles generally accepted in the United States ofAmerica; this includes the design, implementation, and maintenance of internal control relevant tothe preparation and fair presentation of consolidated financial statements that are free from materialmisstatement, whether due to fraud or error.Auditor’s ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on ouraudits. We conducted our audits in accordance with auditing standards generally accepted in the UnitedStates of America. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe consolidated financial statements. The procedures selected depend on the auditor’s judgment,including the assessment of the risks of material misstatement of the consolidated financialstatements, whether due to fraud or error. In making those risk assessments, the auditor considersinternal control relevant to the entity’s preparation and fair presentation of the consolidated financialstatements in order to design audit procedures that are appropriate in the circumstances, but not forthe purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly,we express no such opinion. An audit also includes evaluating the appropriateness of accountingpolicies used and the reasonableness of significant accounting estimates made by management, as wellas evaluating the overall presentation of the consolidated financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.2016-17 FINANCIAL REPORTOpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all materialrespects, the consolidated financial position of the University of Dayton as of June 30, 2017 and2016, and the changes in its net assets and its cash flows for the years then ended in accordance withaccounting principles generally accepted in the United States of America.Dayton, OhioOctober 17, 201718

CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONJUNE 30, 2017 and 2016(IN THOUSANDS)20162017AssetsCash 46,522 74,4433,8751,465Accounts receivable - net (Note 4)54,16844,637Pledges receivable - net (Note 4)34,15817,8826,60615,87837,84838,713Investments (Note 5 and 11)801,990710,927Land, buildings, and equipment (Note 7)674,337633,548Collateral held for securities lending agreement (Note 3)Prepaid expenses, inventories and otherNotes receivable - net (Note 4)Total assets 1,659,504 30,169 1,537,493LiabilitiesAccounts payable17,126Accrued payroll and compensated absences21,56521,772Liability under securities lending agreement (Note 3)4,0831,698Other liabilities20,09217,597Deferred revenue and student deposits22,68522,861Split interest agreement obligations (Note 6)12,08312,003Interest rate swap obligations (Note 9)12,08918,157380,193394,690Accrued postretirement benefits (Note 10)78,61186,526Advances from government for federal tedness (Note 8)Total liabilitiesNet Assets (Note 12)Temporarily restricted98,98670,572Permanently restricted163,707160,456Noncontrolling Interest1221131,065,979933,153Total net assets Total liabilities and net assetsSee notes to consolidated financial statements.191,659,504 1,537,4932016-17 FINANCIAL REPORTUnrestricted

CONSOLIDATED STATEMENTS OF ACTIVITIESYEAR ENDED JUNE 30, 2017(IN s, gains and other support:Student tuition and feesLess: student aid 363,877(166,397) 53,68710,135126,060Net assets released from restrictionsTotal revenues, gains, and other supportExpenditures:Salaries and benefitsInterest expenseDepreciationCost of salesContract services and maintenanceSuppliesUtilities and communicationsOther expenditures23,688Total 34,254100,973Change in net assets from operations43,07510,5303,19956,804Non-operating activities:Investment return net of amountsdesignated for current operations (Note 5)33,50227,9645261,518Actuarial change in annuitiesChange in unrealized gain on interestrate swap agreements6,068Change in postretirement benefit obligation (Note 10)9,744Net assets released from restrictions8,772Change in net assetsLess: change in net assets attributableto the noncontrolling 16128,4143,251132,82699Change in net assets attributable tothe University of DaytonNet assets at beginning of yearNet assets at end of year(1,308)(1,308)Change in non-operating activities2016-17 FINANCIAL REPORT -197,480Private gifts, grants and other (Note 14)Private research contractsGovernment grants and contractsInvestment return designated forcurrent operations (Note 5)Auxiliary enterprises-PermanentlyRestricted 40163,707 1,065,857803,164See notes to consolidated financial statements.20 98,986

CONSOLIDATED STATEMENTS OF ACTIVITIESYEAR ENDED JUNE 30, 2016(IN THOUSANDS)UnrestrictedRevenues, gains and other support:Student tuition and feesLess: student aid 365,697(151,440)214,257Private gifts, grants and other (Note 14)44,420TemporarilyRestricted 3,671PermanentlyRestricted Total vate research contractsGovernment grants and contractsInvestment return designated forcurrent operations (Note 5)9,184108,970--32,718--32,718Auxiliary enterprises100,893--100,893Net assets released from 3,422)4,976519,089Total revenues, gains, and other support517,535Expenditures:Salaries and benefitsInterest expenseDepreciationCost of salesContract services and maintenanceSuppliesUtilities and communicationsOther expendituresChange in net assets from operationsNon-operating activities:Investment return net of amountsdesignated for current operations (Note ,962)20Actuarial change in annuities(2,641)59,154(53,852)(2,641)Change in unrealized loss on interest(5,039)(5,039)(5,142)(5,142)Change in postretirement benefit obligation (Note 10)(3,556)Net assets released from restrictionsChange in non-operating activitiesChange in net assetsLess: change in net assets attributableto the noncontrolling ,248)4,996(11,076)101Change in net assets attributable to theUniversity of Dayton5,075Net assets at beginning of yearNet assets at end of year(3,556)9,223 7702,012 70,572 160,456 933,040See notes to consolidated financial statements.212016-17 FINANCIAL REPORTrate swap agreementsBond issuance cost adjustment

CONSOLIDATED STATEMENTS OF CASH FLOWSYEAR ENDED JUNE 30, 2017 and 2016(IN THOUSANDS)20172016Operating activities:Change in net assetsAdjustments to reconcile change in net assets to net cashprovided by operating activities: 132,826 990)(3,035)(4,976)Gifts for restricted purposes(82,443)Net realized and unrealized (gains) losses on investments32,536Income restricted for long-term investment(602)(859)Change in postretirement benefit obligation(7,915)5,607(6,068)5,039(Gain) loss on interest rate swap agreementsCash provided by operating assets and liabilities:Increase in receivablesDecrease (increase) in prepaid expenses, inventories and otherIncrease (decrease) in accounts payable, accrued liabilities,and other liabilities(Decrease) increase in deferred revenue and student depositsNet cash provided by operating 6)1,78758,37944,404Investing activities:602859Proceeds from the sale of investments327,490626,890Purchases of investments(336,135)(613,282)Additions of land, buildings and equipment, net of nominal disposals(67,886)(52,236)(75,929)(37,769)Income restricted for long term investmentNet cash used in investing activitiesFinancing activities:Increase in advances from government for federal loansGifts for restricted purposes573,0354,9768651,034Proceeds on indebtedness20,87028,000Premium on bond issuance(344)Payments on indebtedness(34,842)(39,285)Net cash used in financing activities(10,371)(5,218)Net (decrease) increase in cash(27,921)1,417Decrease in notes receivable2016-17 FINANCIAL REPORT45-Cash:74,443Beginning EndingSee notes to consolidated financial statements.2246,52273,026 74,443

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS)Note 1. Description of the OrganizationThe University of Dayton (the University) is an independent, coeducational institution founded andsponsored by the Society of Mary (the Marianists), a Roman Catholic Institute of Consecrated Life. TheUniversity is located in Dayton, Ohio and is one of the nation’s largest Catholic institutions of higher learning.Its students are actively recruited from all states, as well as from over seventy foreign nations. The studentpopulation approximates 7,900 undergraduate and 2,200 graduate students. The University awardsbaccalaureate, masters, and selected doctoral degrees in programs within the College of Arts and Sciencesand four professional schools: the School of Business Administration, the School of Education and HealthSciences, the School of Engineering, and the School of Law. Through these academic units and its ResearchInstitute, the University conducts a wide variety of academic and scientific research.The accompanying consolidated financial statements present the accounts of the following entities,hereafter referred to as the University: The University of Dayton;Nine legal limited liability companies that own interests in real estate near the University’scampus, and of which the University is the sole member;UDCI, Ltd., a limited liability company established to hold the University’s interests in itsoperations in China, and of which the University is the sole member;The River Park Community Corporation, a separate not for profit corporation engaged in activitiesrelated to the University, and of which the University is the sole member;111 River Park, LLC, a wholly owned affiliate of The River Park Community Corporation;River Park Development II, LLC, a wholly owned affiliate of The River Park CommunityCorporation;1414 South Patterson, LLC, a limited liability company established to hold the University’sinterests in a real estate joint venture, and of which the University is the sole member; andDayton Hotel II, LLC and Concord Dayton Hotel II, LLC, both of which are controlled by 1414 SouthPatterson, LLC and established to own and operate a hotel adjacent to the University’s campus.Note 2. Summary of Significant Accounting PoliciesBasis of presentation: The consolidated financial statements include the accounts of all controlledaffiliates that are required to be consolidated, and all intercompany transactions and balances have beeneliminated. Investments in joint ventures for which the University does not have control or is not theprimary beneficiary, but has the ability to exercise significant influence over the operating and financialpolicies, are accounted for under the equity method. Accordingly, the University’s share of net earnings andlosses from these ventures is included in the consolidated statements of activities.232016-17 FINANCIAL REPORTThe following is a summary of significant accounting policies followed in the preparation of theaccompanying consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(IN THOUSANDS)Note 2. Summary of Significant Accounting Policies (Continued)Net assets: Net assets are classified into three categories: unrestricted, which have no donor-imposedrestrictions; temporarily restricted, which have donor-imposed restrictions that will expire in the future; andpermanently restricted, which have donor-imposed restrictions that do not expire.The expiration of a donor-imposed restriction on a contribution or endowment income is recognizedin the period in which the restriction expires, and, at that time, the related resources are reclassified tounrestricted net assets. A restriction expires when the stipulated time has elapsed,

53 2016-17 FINANCIAL REPORT ADMINISTRATION Eric F. Spina, Ph.D. president Paul H. Benson, Ph.D. provost Andrew T. Horner vice president for finance and administrative services Troy W. Washington vice president for human resources William M. Fischer, J.D. vice president for student development Rev. James F. Fitz, S.M. vice president for mission and rector .