DE SMET JESUIT HIGH SCHOOL

FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT YEAR ENDED JUNE 30, 2017 (With comparative totals for 2016) Contents

Page

Independent Auditors' Report 1 - 2

Financial Statements

Statement of Financial Position 3 - 4

Statement of Activities 5

Statement of Cash Flows 6

Notes to Financial Statements 7 - 27 Independent Auditors' Report

Board of Trustees De Smet Jesuit High School St. Louis, Missouri

We have audited the accompanying financial statements of De Smet Jesuit High School (the "High School"), which comprise the statement of financial position as of June 30, 2017, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the High School’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the High School’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Page 1 Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of De Smet Jesuit High School as of June 30, 2017, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Report on Summarized Comparative Information

We have previously audited De Smet Jesuit High School's 2016 financial statements, and we expressed an unmodified audit opinion on those audited financial statements in our report dated August 18, 2016. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2016, is consistent, in all material respects, with the audited financial statements from which it has been derived.

August 25, 2017

Page 2 De Smet Jesuit High School Statement of Financial Position June 30, 2017 (With comparative totals for 2016)

Assets

Temporarily Permanently Totals Unrestricted Restricted Restricted 2017 2016 Current Assets Cash $ 229,527 $ - $ - $ 229,527 $ 340,454 Accounts receivable - students, net 391,224 - - 391,224 332,191 Accounts receivable - other 285,694 - - 285,694 138,024 Pledges receivable, net 60,742 - 1,200 61,942 36,182 Investments, at fair value 3,164,499 - - 3,164,499 3,483,803 Due from other funds 44,281 - 5,448 49,729 417,543 Prepaid expenses 242,717 - - 242,717 168,192 Inventories 108,086 - - 108,086 90,603 Total Current Assets 4,526,770 - 6,648 4,533,418 5,006,992

Property and Equipment Land 4,134,475 - - 4,134,475 4,134,475 Land improvements 5,043,337 - - 5,043,337 4,719,642 Buildings and improvements 17,821,347 - - 17,821,347 17,810,807 Chapel and improvements 914,509 - - 914,509 914,509 House and improvements 726,513 - - 726,513 726,513 Condominium 35,000 - - 35,000 35,000 Vehicles 266,174 - - 266,174 266,174 Furniture and equipment 4,829,694 - - 4,829,694 4,722,885 Library books 347,449 - - 347,449 347,449 34,118,498 - - 34,118,498 33,677,454 Accumulated depreciation 16,785,516 - - 16,785,516 16,017,349 17,332,982 - - 17,332,982 17,660,105 Construction in progress 91,312 - - 91,312 86,665 Total Property and Equipment 17,424,294 - - 17,424,294 17,746,770

Other Assets Pledges receivable, less current portion 90,000 - - 90,000 - Cash surrender value of life insurance - 37,471 - 37,471 35,434 Investments, at fair value 5,146,115 3,374,484 3,225,236 11,745,835 11,874,422 Total Other Assets 5,236,115 3,411,955 3,225,236 11,873,306 11,909,856

Total Assets $ 27,187,179 $ 3,411,955 $ 3,231,884 $ 33,831,018 $ 34,663,618

See notes to financial statements Page 3 De Smet Jesuit High School Statement of Financial Position June 30, 2017 (With comparative totals for 2016)

Liabilities and Net Assets

Temporarily Permanently Totals Unrestricted Restricted Restricted 2017 2016 Current Liabilities Accounts payable $ 285,851 $ - $ - $ 285,851 $ 285,202 Accrued interest 19,956 - - 19,956 19,790 Accrued expenses 98,296 - - 98,296 255,566 Due to other funds - 49,729 - 49,729 417,543 Current maturities of: Bonds payable 720,000 - - 720,000 695,000 Capital lease obligations 255,836 - - 255,836 255,938 Deferred income 979,900 - - 979,900 599,501 Total Current Liabilities 2,359,839 49,729 - 2,409,568 2,528,540

Long-Term Debt Bonds payable, net 8,724,174 - - 8,724,174 9,434,901 Capital lease obligations 261,271 - - 261,271 299,343 Interest rate swap obligation 751,762 - - 751,762 1,124,579 Total Long-Term Debt 9,737,207 - - 9,737,207 10,858,823

Total Liabilities 12,097,046 49,729 - 12,146,775 13,387,363 Net Assets Unrestricted 15,090,133 - - 15,090,133 15,027,459 Temporary restricted - 3,362,226 - 3,362,226 3,123,474 Permanently restricted - - 3,231,884 3,231,884 3,125,322 Total Net Assets 15,090,133 3,362,226 3,231,884 21,684,243 21,276,255

Total Liabilities and Net Assets $ 27,187,179 $ 3,411,955 $ 3,231,884 $ 33,831,018 $ 34,663,618

See notes to financial statements Page 4 De Smet Jesuit High School Statement of Activities Year Ended June 30, 2017 (With comparative totals for 2016)

Temporarily Permanently Totals Unrestricted Restricted Restricted 2017 2016 Revenue, Gains and Other Support Tuition and student fees $ 11,402,313 $ - $ - $ 11,402,313 $ 10,991,877 Less: student aid (2,484,922) - (2,484,922) (2,089,897) Auxiliary enterprises 892,208 - - 892,208 968,042 Student activities 168,421 - - 168,421 158,440 Fundraising events, net 428,721 - - 428,721 459,817 Gifts Jesuit Community 26,000 - - 26,000 24,247 Other 1,083,781 690 54,623 1,139,094 1,057,842 Gain (loss) on sale of property and equipment (2,289) - - (2,289) 12,500 Investment income, net 654,416 711,464 51,939 1,417,819 139,759 Other 60,478 2,036 - 62,514 48,080 12,229,127 714,190 106,562 13,049,879 11,770,707 Net Assets Released from Restrictions 475,438 (475,438) - - - Total Revenue, Gains and Other Support 12,704,565 238,752 106,562 13,049,879 11,770,707

Expenses Instruction 5,323,883 - - 5,323,883 5,046,537 Principal’s office 1,112,754 - - 1,112,754 934,956 Administration 1,208,289 - - 1,208,289 1,060,179 Admissions office 384,549 - - 384,549 331,712 Alumni 117,019 - - 117,019 116,401 Development 690,688 - - 690,688 479,073 Auxiliary enterprises and athletics 920,196 - - 920,196 969,401 Student activities 177,722 - - 177,722 166,845 Plant operation and maintenance 1,249,916 - - 1,249,916 1,302,983 Depreciation 1,344,681 - - 1,344,681 1,328,564 Interest 274,710 - - 274,710 252,168 Bond expenses 210,301 - - 210,301 210,864 Total Expenses 13,014,708 - - 13,014,708 12,199,683

Change in Net Assets (310,143) 238,752 106,562 35,171 (428,976)

Net Assets, Beginning of Year 15,027,459 3,123,474 3,125,322 21,276,255 21,865,326

Unrealized Gain (Loss) on Interest Rate Swap 372,817 - - 372,817 (160,095)

Net Assets, End of Year $ 15,090,133 $ 3,362,226 $ 3,231,884 $ 21,684,243 $ 21,276,255

See notes to financial statements Page 5 De Smet Jesuit High School Statement of Cash Flows Year Ended June 30, 2017 (With comparative totals for 2016)

2017 2016 Cash Flows From Operating Activities Change in net assets $ 35,171 $ (428,976) Adjustments to reconcile change in net assets to net cash provided by operating activities: Decrease in allowance for doubtful accounts - pledges - (2,500) Depreciation 1,344,681 1,328,564 Amortization of deferred financing costs 9,273 9,274 Realized gain from sales of investments (424,846) (400,765) Unrealized (gain) loss on investments (745,610) 551,353 (Gain) loss on sale of property and equipment 2,289 (12,500) (Increase) decrease in assets: Accounts receivable (59,033) (94,284) Other receivable (147,670) 37,619 Pledges receivable (115,760) (13,554) Prepaid expenses (74,525) 4,459 Inventories (17,483) (12,649) Increase (decrease) in liabilities: Accounts payable 649 (54,255) Accrued interest 166 934 Accrued expenses (157,270) 138 Deferred income 380,399 51,400 Other liabilities - (163,600) Net Cash Provided by Operating Activities 30,431 800,658

Cash Flows From Investing Activities Purchases of investments (3,344,433) (3,205,277) Proceeds from sales of investments 4,962,779 3,867,964 Purchases of property and equipment (733,119) (440,921) Proceeds from sale of equipment - 12,500 Increase in cash surrender value of life insurance (2,037) - Net Cash Provided by Investing Activities 883,190 234,266

Cash Flows From Financing Activities Principal payments on bonds (695,000) (675,000) Principal payments on capital lease obligations (329,548) (307,056) Net Cash Used in Financing Activities (1,024,548) (982,056)

Net Increase (Decrease) in Cash (110,927) 52,868

Cash, Beginning of Year 340,454 287,586

Cash, End of Year $ 229,527 $ 340,454

Supplemental Disclosures of Cash Flow Information Cash paid for Interest $ 270,816 $ 247,157

Noncash Investing and Financing Activities During 2017 and 2016, the High School entered into capital leases for equipment which totaled $291,375 and $331,585, respectively. During 2017 and 2016, the High School received contributed stock in the amount of $66,960 and $73,289, respectively.

See notes to financial statements Page 6 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

1. Nature of Operations and Basis of Presentation

Statement of Purpose

De Smet Jesuit High School (the "High School") is a not-for-profit organization established as a private, Catholic denominational, secondary school for young men located in St. Louis, Missouri.

Basis of Presentation

The accompanying financial statements have been prepared in accordance with the provisions of the Financial Accounting Standards Board ("FASB"), Accounting Standards Codification (the "FASB ASC"), which is the source of authoritative, non-governmental accounting principles generally accepted in the United States of America ("GAAP"). All references to authoritative accounting guidance contained in our disclosures are based on the general accounting topics within the FASB ASC.

Net assets and revenues, expenses, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the High School and changes therein are classified into three categories of net assets, as applicable, and reported as follows:

Unrestricted net assets - Net assets that are not subject to donor-imposed stipulations. Board designated funds are established by the Board of Trustees and represent unrestricted net assets that have been set aside for a particular purpose.

Temporarily restricted net assets - Net assets subject to donor-imposed stipulations that may be met by actions of the High School and/or the passage of time.

Permanently restricted net assets - Net assets subject to donor-imposed stipulations required to be maintained permanently by the High School. The income earned on any related investments would also be subject to donor-imposed stipulations.

The financial statements include certain prior-year summarized comparative information in total but not by class of net assets. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the High School's financial statements for the year ended June 30, 2016, from which the summarized information was derived.

Page 7 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Fair Value Measurements

The High School follows guidance issued by the FASB on fair value measurements, which establishes a framework for measuring fair value, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. This guidance applies whenever fair value is the applicable measurement. The three general valuation techniques used to measure fair value are the market approach, cost approach, and income approach.

Investments

The High School carries investments in marketable securities with readily determinable fair values and investments in debt securities at their fair values in the statement of financial position. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Purchases and sales of securities are recorded on the trade-date basis. Dividends are recorded on the ex-dividend date. Realized and unrealized gains and losses are included in investment income on the statement of activities.

Accounts Receivable

Accounts receivable consist of amounts due from students and Smart Tuition for billings through June 30.

The High School provides an allowance for doubtful accounts equal to the estimated losses that will be incurred in the collection of accounts receivable. This estimate is based on a review of the current status of existing receivables. The allowance and associated accounts receivable are reduced when the receivables are determined to be uncollectible. The allowance for doubtful accounts totaled $200,000 as of June 30, 2017 and 2016.

Pledges Receivable

Pledges receivable due in the next year are recorded at their net realizable value. Pledges receivable due in subsequent years are reported at the present value of their net realizable value using risk-free interest rates applicable to the years in which the promises are to be received.

Page 8 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

The High School provides an allowance for doubtful pledges receivable equal to the estimated losses that will be incurred in the collection of pledges receivable. This estimate is based on management's judgment of potential defaults. The determination included such factors as prior collection history, type of contribution, and nature of the fundraising activity. The allowance and associated pledges are reduced when the pledges are determined to be uncollectible. The allowance for doubtful pledges receivable totaled $2,500 as of June 30, 2017 and 2016.

Inventories

Inventories at the High School consist of bookstore inventory and auction items. Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method and market is considered the lower of prevailing replacement cost or net realizable value.

Property and Equipment

Purchased property and equipment is stated at cost, and donated assets are recorded at fair value at the date of donation. Such donations are reported as increases in unrestricted net assets unless the donor has restricted the donated asset to a specific purpose. Major additions and improvements are capitalized, while maintenance and repairs are expensed as incurred. When assets are sold or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts. Any gain or loss arising from such disposition is included as income or expense in the year of disposition.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

The estimated lives for computing depreciation and amortization on property and equipment are:

Classification Years

Land improvements 6-39 Buildings and improvements 5-50 Chapel and improvements 7-33 House and improvements 10-26 Vehicles 3-10 Furniture and equipment 2-30 Library books 2-25

Page 9 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

Long-Lived Asset Impairment

The High School evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset are less than the carrying amount of the asset, the asset cost is adjusted to fair value, and an impairment loss is recognized as the amount by which the carrying amount of a long- lived asset exceeds its fair value. No asset impairment was recognized during the years ended June 30, 2017 and 2016.

Endowment Fund

The State of Missouri enacted the State Prudent Management of Institutional Funds Act ("SPMIFA") effective August 28, 2009. The High School follows FASB guidance on accounting for the net assets classification of restricted endowment funds for a not-for- profit organization that is subject to the enacted version of the SPMIFA. The High School has determined that the donor restricted contributions meet the definition of endowment funds under SPMIFA.

The High School has interpreted the SPMIFA as requiring the preservation of the original gift amount. As a result of this interpretation, the High School classifies as permanently restricted net assets the original value of gifts donated to the permanent endowment. The remaining portion of funds is appropriated for expenditure by the High School in a manner consistent with the standard of prudence prescribed by SPMIFA.

Deferred Income

Deferred income consists of payments received for advanced tuition and fee payments for the fall semester. These payments will be recognized as income in the period in which they are earned.

Deferred Financing Costs

Costs incurred in connection with financing activities are deferred and amortized to interest expense using the straight-line method over the terms of the related debt agreements. Deferred financing costs of $231,837 are included as a direct deduction from the carrying amount of the related debt liability in the accompanying statement of financial position, net of accumulated amortization of $136,011 and $126,738, as of June 30, 2017 and 2016, respectively. Amortization of deferred financing costs totaled $9,273 and $9,274 for the years ended June 30, 2017 and 2016, respectively.

Page 10 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

Derivatives

The High School uses derivative instruments to manage exposure related to movement in interest rates. Derivative instruments designated and qualifying as cash flow hedges are reported at fair value in the statement of financial position. Fair value is determined based on a valuation model which utilizes observable inputs including interest rates and volatilities. The gain or loss on the effective portion of the hedge is reported in the statement of activities. Cash flows from these financial instruments accounted for as cash flow hedges are included in interest expense. The High School documents its risk management strategy and hedge effectiveness at the inception of and during the term of each hedge. The High School's interest rate risk management strategy is to stabilize cash flow requirements by maintaining interest rate swap contracts to convert the variable-rate to an effective fixed rate. The High School does not enter into derivatives for speculative or trading purposes.

Tuition and Student Fees

Tuition and student fees are recognized over the school year to which they relate. Student aid and scholarships are offset against gross tuition and fees to the extent they exceed incremental costs incurred.

Support and Revenue

Contributions, including pledges receivable, are recorded as received. All contributions are available for unrestricted use unless specifically restricted by the donor. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Pledges receivable are recognized when the conditions on which they depend are substantially met. Donor restricted contributions, in which the restrictions are met within the same year as received, are reported as unrestricted contributions in the accompanying financial statements.

Contributed property and equipment is recorded at fair value at the date of donation. If donors stipulate how long the assets must be used, the contributions are recorded as restricted support. In the absence of such stipulations, contributions of property and equipment are recorded as unrestricted support.

Advertising

The High School expenses advertising costs as they are incurred. Advertising costs totaled $49,458 and $40,505 for the years ended June 30, 2017 and 2016, respectively, and are included in Admissions office expense.

Page 11 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

Income Taxes

The High School is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code (the "Code"), except on net income derived from unrelated business activities as defined in the Code. Currently, the High School has no obligation for any unrelated business income tax.

The High School follows guidance issued by the FASB on accounting for income taxes and has evaluated its tax positions, expiring statues of limitations, changes in tax law and new authoritative rulings, and believes that no provision for income taxes is necessary to cover any uncertain tax positions.

Reclassifications

Certain amounts in the 2016 financial statements have been reclassified to conform to the current year's presentation.

Recent Accounting Pronouncements

Revenue from Contracts with Customers

The FASB has issued new guidance on the recognition of revenue from contracts with customers. This guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this, an entity should apply a five step process to (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also requires an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance will be required for the first fiscal year beginning after December 15, 2018. The High School has not yet determined what impact, if any, this new guidance will have on its financial statements.

Page 12 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

Leases

The FASB has issued new guidance on the recognition of lease assets and lease liabilities by lessees for those leases previously classified as operating leases. The guidance requires a lessee to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. There continues to be a differentiation between finance leases and operating leases. However, the principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the statement of financial position. The guidance will be required for the first fiscal year beginning after December 15, 2019. Based on a preliminary analysis, the High School does not expect the new guidance to have a significant impact on its financial statements.

Not-for-profit Entities

The FASB has issued new guidance on financial reporting for not-for-profit entities. The guidance requires a not-for-profit entity to present on the face of the statement of financial position amounts for two classes of net assets at the end of the period, rather than for the currently required three classes. That is, a not-for-profit entity will report amounts for net assets with donor restrictions and net assets without donor restrictions, as well as the currently required amount for total net assets. The guidance also requires a not-for-profit entity to present on the face of the statement of activities the amount of the change in each of the two classes of net assets rather than that of the currently required three classes. Not-for-profit entities will continue reporting the currently required amount of the change in total net assets for the period. The guidance also requires a not-for-profit entity to continue to present on the face of the statement of cash flows the net amount for operating cash flows using either the direct or indirect method of reporting but no longer requires the presentation or disclosure of the indirect method (reconciliation) if using the direct method. The guidance also requires enhanced disclosures about the following:

Page 13 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

 Amounts and purposes of governing board designations, appropriations, etc.,  Composition of net assets with donor restrictions at the end of the period,  Qualitative information that communicates how an entity manages its liquid resources,  Quantitative and additional qualitative information as necessary that communicates the availability of an entity's financial assets,  Amounts of expenses by both their natural classification and their functional classification,  Method(s) used to allocate costs among program and support functions,  Underwater endowment funds.

The guidance also requires that the High School report investment return net of external and direct internal investment expenses and no longer require disclosure of those netted expenses. The guidance also requires that the High School use, in the absence of explicit donor stipulations, the placed-in-service approach for reporting expirations of restrictions on gifts of cash or other assets to be used to acquire or construct a long- lived asset.

The guidance will be required for the first fiscal year beginning after December 15, 2017. Based on a preliminary analysis, the High School does expect the new guidance will have a significant impact on its financial statements.

3. Change in Accounting Principle

During the year ended June 30, 2017, the High School changed its method of presentation and disclosure of deferred financing fees in accordance with Accounting Standards Update ("ASU") 2015-03, Interest - Imputation of Interest. The major changes associated with ASU 2015-03 are to present the deferred financing fees as a direct deduction from the carrying amount of the related debt liability. The change resulted in a change in presentation of deferred financing fees for the year ended June 30, 2016.

The following financial statement line items for the year ended June 30, 2016 were affected by the change in accounting principle:

Statement of Financial Position As Computed Under As Computed Previous Under ASU Effect of Guidance 2015-03 Change

Other Assets $ 105,099 $ - $ (105,099) Bonds payable, net $ 9,540,000 $ 9,434,901 $ (105,099)

Page 14 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

4. Fair Value Measurements

The framework for measuring fair value establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into Levels 1, 2, and 3. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described as follows:

Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical instruments in active markets.

Level 2 Inputs to the valuation methodology to include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in inactive markets, inputs other than quoted prices that are observable for the instrument, or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The instrument's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs.

Carrying amounts of certain financial instruments such as cash, receivables, accounts payable, accrued expenses, and long-term debt approximate fair value due to their short maturities or because the terms are similar to market terms. There have been no changes in the methodologies used at June 30, 2017 and 2016.

Following is a description of the valuation methodologies used for instruments measured at fair value:

Level 1 Investments consist of short-term investments and publicly traded mutual funds. These securities are valued at the net asset value ("NAV") of shares held by the High School at year-end.

Level 2 Instruments consist of an interest rate swap agreement. The fair value is determined through the use of a counterparty, which utilizes observable inputs such as market interest. Observable inputs reflect market data obtained from independent sources.

Page 15 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

The following table presents the fair value measurements of instruments recognized in the accompanying statement of financial position measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements are categorized at June 30, 2017 and 2016:

2017 Fair Value Measurements Total Level 1 Level 2 Level 3 Investments: Money market accounts $ 687,587 $ 687,587 $ - $ - Mutual Funds - Fixed Income Inflation-protected bond 360,140 360,140 - - Intermediate term bond 2,486,994 2,486,994 - - Short term government 306,276 306,276 - - Short term bond 2,428,617 2,428,617 - - Total Mutual Funds - Fixed Income 5,582,027 5,582,027 - - Mutual Funds - Equity Diversified emerging markets 452,362 452,362 - - Foreign large blend 1,496,676 1,496,676 - - Large growth 1,748,047 1,748,047 - - Large value 1,761,935 1,761,935 - - Mid-cap blend 1,339,968 1,339,968 - - Real estate 382,442 382,442 - - Small blend 1,459,290 1,459,290 - - Total Mutual Funds - Equity 8,640,720 8,640,720 - - Total Investments $ 14,910,334 $ 14,910,334 $ - $ - Liabilities: $7.5M 70% LIBOR interest rate swap $ 751,762 $ - $ 751,762 $ -

Page 16 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

2016 Fair Value Measurements Total Level 1 Level 2 Level 3 Investments: Money market accounts $ 1,501,035 $ 1,501,035 $ - $ - Mutual Funds - Fixed Income Inflation-protected bond 380,927 380,927 - - Intermediate term bond 2,503,882 2,503,882 - - Short term government 309,285 309,285 - - Short term bond 2,397,407 2,397,407 - - Total Mutual Funds - Fixed Income 5,591,501 5,591,501 - - Mutual Funds - Equity Diversified emerging markets 437,228 437,228 - - Foreign large blend 1,398,435 1,398,435 - - Large growth 1,658,349 1,658,349 - - Large value 1,706,702 1,706,702 - - Mid-cap blend 1,275,797 1,275,797 - - Real estate 380,838 380,838 - - Small blend 1,408,340 1,408,340 - - Total Mutual Funds - Equity 8,265,689 8,265,689 - - Total Investments $ 15,358,225 $ 15,358,225 $ - $ - Liabilities: $7.5M 70% LIBOR interest rate swap $ 1,124,579 $ - $ 1,124,579 $ -

5. Investments

The following table presents investments as classified on the statement of financial position as of June 30:

2017 2016

Short-term investments $ 3,164,499 $ 3,483,803 Long-term investments 11,745,835 11,874,422 $ 14,910,334 $ 15,358,225

A summary of the cost and fair value of the High School's investments as of June 30, is as follows:

2017 Amortized Unrealized Unrealized Cost Gains Losses Fair Value

Money market accounts $ 687,587 $ - $ - $ 687,587 Mutual funds - Fixed income 5,582,332 37,229 37,534 5,582,027 Mutual funds - Equity income 4,665,188 3,975,532 - 8,640,720 $ 10,935,107 $ 4,012,761 $ 37,534 $ 14,910,334

Page 17 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

2016 Amortized Unrealized Unrealized Cost Gains Losses Fair Value

Money market accounts $ 1,501,035 $ - $ - $ 1,501,035 Mutual funds - Fixed income 5,465,961 125,540 - 5,591,501 Mutual funds - Equity income 5,165,899 3,099,790 - 8,265,689 $ 12,132,895 $ 3,225,330 $ - $ 15,358,225

Investment income for the years ended June 30, is summarized as follows:

2017 2016

Interest and dividend income $ 317,871 $ 350,746 Net realized and unrealized gains (losses) on investments reported at fair value 1,170,456 (150,609) Total investment income 1,488,327 200,137 Less investment fees 70,508 60,378 $ 1,417,819 $ 139,759

6. Pledges Receivable

Pledges receivable at June 30, are as follows:

2017 2016

Less than one year $ 64,442 $ 38,682 One to five years 90,000 - 154,442 38,682 Less: Allowance for uncollectible contributions 2,500 2,500 Net pledges receivable $ 151,942 $ 36,182

The amounts are classified on the statements of financial position as follows:

2017 2016

Pledges receivable - current $ 61,942 $ 36,182 Pledges receivable - long-term 90,000 - $ 151,942 $ 36,182

Page 18 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

7. Line of Credit

The High School has a line of credit agreement (the "Agreement") of $1,500,000 scheduled to expire on April 22, 2018. Borrowings are charged an interest rate of 1.85 percent plus the Daily Reset LIBOR Rate which results in a combined rate of 2.91 percent at June 30, 2017. The High School is subject to certain restrictions and covenants as defined in the Agreement. The High School was in compliance with all covenants at June 30, 2017. At June 30, 2017 and 2016, there were no borrowings outstanding under the line of credit.

8. Capital Lease Obligations

The High School leases computer tablets and solar panels under agreements that are classified as capital leases. The cost of the assets under the capital leases are included in the statement of financial position as property and equipment in the amount of $1,287,615 and $1,271,424 at June 30, 2017 and 2016, respectively. Accumulated depreciation of the leased assets at June 30, 2017 and 2016 was $776,107 and $732,450, respectively. The assets and liabilities under the capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. Depreciation of the assets under the capital leases is included in depreciation expense.

Minimum future lease payments under capital leases as of June 30, 2017 for each of the next four years are as follows:

June 30, Amount 2018 $ 275,432 2019 178,282 2020 87,720 2021 6,678 Total minimum lease payments 548,112 Less amount representing interest 31,005 $ 517,107

The capital leases are classified on the statement of financial position as follows:

2017 2016

Current liability $ 255,836 $ 255,938 Long term liability 261,271 299,343 $ 517,107 $ 555,281

Interest expense under the capital leases was $30,287 and $30,006 for the years ended June 30, 2017 and 2016, respectively, and is included in auxiliary enterprises and athletics expense.

Page 19 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

9. Long-Term Debt

Long-term debt at June 30, is as follows:

2017 2016

The High School issued $15,000,000 of bonds maturing through November 1, 2027, payable in annual variable installment payments starting November 1, 2008, secured by a negative pledge agreement. Interest is payable monthly on the balance of the bonds at a floating rate through November 1, 2027. The High School also entered into an interest swap agreement effective on October 31, 2002 to reduce the impact of the interest rate on $7,500,000 of its bond obligation. $ 9,540,000 $ 10,235,000 Less unamortized deferred financing costs 95,826 105,099 Less current maturities 720,000 695,000 $ 8,724,174 $ 9,434,901

Maturities of long-term debt as of June 30, 2017 are as follows:

June 30, Amount

2018 $ 720,000 2019 745,000 2020 770,000 2021 805,000 2022 835,000 Thereafter 5,665,000 $ 9,540,000

Page 20 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

10. Derivative Instruments - Interest Rate Swap Agreement

The High School used variable-rate debt to finance the Series 2002 Health and Educational Facilities Authority of the State of Missouri Variable Rate Demand Educational Facilities Revenue Bonds. The debt obligation exposes the High School to variability in interest payments due to changes in interest rates. Management believes it is prudent to limit the variability of its interest payments. To meet this objective, management entered into an interest rate swap agreement to manage fluctuations in cash flows resulting from interest rate risk on half of the bond issue. This swap changed the variable-rate cash flows exposure on half of the debt obligations to fixed-cash flows. Under the terms of the interest rate swap, the High School receives variable interest rate payments and makes fixed interest payments, thereby creating the equivalent of fixed- rate debt.

By using a derivative financial instrument to hedge its exposure to changes in interest rates, the High School exposes itself to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the High School, which creates credit risk for the High School. When the fair value of a derivative contract is negative, the High School owes the counterparty and, therefore, it does not possess credit risk. The High School minimizes the credit risk in derivative instruments by entering into transactions with high-quality counterparties and does not anticipate nonperformance under the terms of the derivative contract by them.

The approximate fair value of the instrument at June 30, 2017 and 2016, resulted in a liability of $751,762 and $1,124,579, respectively, which is reflected as long-term debt in the statement of financial position.

Market risk is the adverse effect on the value of a financial instrument that results from a change in the interest rates. The market risk associated with the interest-rate contract is managed by establishing the monitoring parameters that limit the types and degree of market risk that may be undertaken.

On October 31, 2002, the High School entered into a $7,500,000 U.S. Dollar Rate Swap Transaction with an effective date of October 22, 2002, and a termination date of November 1, 2028. The swap was executed with the purpose of fixing the rate on half of the bonds issued by the Health and Educational Facilities Authority of the State of Missouri. Under the terms of the agreement, the High School pays a fixed rate of 3.97% to US Bank National Association on a monthly basis and, in return, US Bank pays the High School 70% of the USD LIBOR BBA rate. At June 30, 2017 and 2016, the swap contract had a notional amount of $5,117,500 and $5,455,000, respectively. The difference between interest earned and the interest obligation accrued is received or paid the first day of each month and is recorded as a charge or credit to interest expense. For the fiscal years ended June 30, 2017 and 2016, total interest expense of the High School on the bonds was $240,862 and $216,217, respectively. Under the interest rate swap agreement, US Bank paid $26,716 and $12,622 of interest expense for the years ended June 30, 2017 and 2016, respectively.

Page 21 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

11. Unrestricted Net Assets

A portion of the High School's unrestricted net assets was designated for specific purposes at June 30 as follows: 2017 2016

Plant Fund $ 10,916,360 $ 10,197,006 Renewals and replacements 3,459,429 3,901,246 Board designated 90,680 81,213 Total designated funds 14,466,469 14,179,465 Undesignated funds: General unrestricted 623,664 847,994 $ 15,090,133 $ 15,027,459

The High School's Board of Trustees have designated unrestricted net assets at June 30 as follows: 2017 2016

General Fund - club organizations/sports $ 90,680 $ 81,213

12. Restricted Net Assets

Temporarily restricted net assets are available at June 30 for the following purposes:

2017 2016 Gifts and other unexpended revenues and gains (losses) restricted to: Scholarships $ 3,102,606 $ 2,877,486 Faculty development 202,292 192,178 Student retreat expenses 48,414 45,586 Transportation equipment 5,558 5,558 Plant renovations 3,356 2,666 $ 3,362,226 $ 3,123,474

Permanently restricted net assets at June 30 are restricted to:

2017 2016 Investment in perpetuity, the income of which is expendable to support: Scholarships $ 2,923,782 $ 2,817,220 Faculty development 257,130 257,130 Student retreat expense 50,972 50,972 $ 3,231,884 $ 3,125,322

Page 22 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

Net assets released from restrictions for the years ended June 30 are as follows:

2017 2016

Scholarships $ 418,689 $ 356,962 Faculty development 47,521 18,038 Student retreat expenses 9,228 348 Transportation equipment - 132,842 Plant renovations - 133,119 $ 475,438 $ 641,309

13. Endowment Funds

The High School has adopted investment and spending policies, approved by the Board of Trustees, for endowment assets that attempt to provide a predictable stream of funding to the High School, while also maintaining the purchasing power of those endowment assets over the long-term. Disbursements, other than amounts to pay investment fees, require the approval of the Board of Trustees. The High School considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds:

1) The duration and preservation of the fund 2.) The purposes of the High School and the donor-restricted endowment fund 3.) General economic conditions 4.) The possible effect of inflation and deflation 5.) The expected total return from income and the appreciation of investments 6.) Other resources of the High School 7.) The investment policies of the High School

Endowment funds at June 30, are as follows:

2017 Total Temporarily Permanently Endowment Restricted Restricted Assets

Donor-restricted endowment fund investments in perpetuity, the income from which is to support faculty development, student retreats and need based financial assistance $ 3,353,312 $ 3,231,884 $ 6,585,196

Page 23 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

2016 Total Temporarily Permanently Endowment Restricted Restricted Assets

Donor-restricted endowment fund investments in perpetuity, the income from which is to support faculty development, student retreats and need based financial assistance $ 3,115,250 $ 3,125,322 $ 6,240,572

Changes in endowment net assets for the years ended June 30, are as follows:

2017 Total Temporarily Permanently Endowment Restricted Restricted Assets

Endowment net assets, beginning of year $ 3,115,250 $ 3,125,322 $ 6,240,572 Contributions - 54,623 54,623 Investment income 371,466 27,623 399,089 Net unrealized appreciation 342,034 24,316 366,350 Amounts appropriated for expenditure (475,438) - (475,438) Endowment net assets, end of year $ 3,353,312 $ 3,231,884 $ 6,585,196

2016 Total Temporarily Permanently Endowment Restricted Restricted Assets

Endowment net assets, beginning of year $ 3,488,582 $ 3,031,172 $ 6,519,754 Contributions - 94,009 94,009 Investment income 271,613 18,994 290,607 Net unrealized depreciation (269,597) (18,853) (288,450) Amounts appropriated for expenditure (375,348) - (375,348) Endowment net assets, end of year $ 3,115,250 $ 3,125,322 $ 6,240,572

Page 24 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the UPMIFA requires the High School to retain as a fund of perpetual duration. Certain individual donor endowment funds have requirements that the investment earnings be added to the principal until it reaches a certain net asset level.

Endowment assets include those assets of donor-restricted funds that the High School must hold in perpetuity or for a donor-specified period. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results that exceed the price and yield results of the S&P 500 index while assuming a moderate level of investment risk. The High School expects its endowment funds, over time, to provide an average rate of return of greater than the inflation rate.

To satisfy its long-term rate-of-return objectives, the High School relies on a total return strategy in which investment returns are achieved through both capital appreciation and current yield. The High School targets a diversified asset allocation within prudent risk constraints.

14. Classification of Expenses

The statement of activities and changes in net assets discloses expenses by natural classification. The classification of expenses by function for the years ended June 30 is as follows: 2017 2016

Program expense $ 10,998,712 $ 10,544,030 Management and general 1,214,314 1,076,371 Fundraising 801,682 579,282 $ 13,014,708 $ 12,199,683

15. Retirement Plan

The High School is a participant in a contributory, money purchase pension plan for academic and non-academic personnel. The High School matches the employee's contribution up to 7% of the annual compensation. Total pension expense for the years ended June 30, 2017 and 2016 was $313,806 and $299,612, respectively.

16. Reduction in Force Program

During 2014, the High School implemented a reduction in force program which included termination benefits being offered for a period of time in exchange for employees' voluntary termination of service as of June 30, 2014. The total liability and current portion for the reduction in force program as of June 30, 2016 was $171,236, and is included in accrued expenses. This amount was paid during the year ended June 30, 2017.

Page 25 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

17. Fundraising Income

During the years ended June 30, the High School engaged in several fundraising activities. These include the following:

2017 2016 Auction: Gross revenues $ 513,105 $ 505,991 Gross expenses 97,797 101,041 Net income from auction 415,308 404,950 Golf Tournament: Gross revenues - 74,713 Gross expenses - 35,688 Net income from golf tournament - 39,025 Spartan Trivia: Gross revenues 18,518 16,842 Gross expenses 5,105 1,000 Net income from spartan trivia 13,413 15,842 Total fundraising income, net $ 428,721 $ 459,817

18. Risks and Uncertainties

Concentration of Credit Risk

Financial instruments, which potentially subject the High School to concentrations of credit risk, consist principally of cash, receivables, and investments. The High School maintains its cash primarily with one financial institution. Deposits at this bank are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. At June 30, 2017, there were cash balances of $221,338 in excess of federally insured limits at the bank. The High School maintains allowances, as needed, for potential credit losses. Although the High School is directly affected by the financial stability of its customer base, management does not believe significant credit risk exists at June 30, 2017. The High School maintains its investments primarily with one brokerage firm. Securities held at this firm are insured by the Securities Investor Protection Corporation ("SIPC") up to $500,000. As of June 30, 2017, there were investment balances of $14,336,795 in excess of SIPC limits at the brokerage firm.

Investments

The High School invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the accompanying statement of financial position.

Page 26 De Smet Jesuit High School Notes to Financial Statements June 30, 2017 (With comparative totals for 2016)

19. Commitments and Contingencies

Leases

The High School has operating leases for various items of office equipment. Future minimum lease payments at June 30, 2017 are as follows:

Years Ending June 30, Amount

2018 $ 12,925 2019 6,463 $ 19,388

Rent expense related to operating leases for the years ended June 30, 2017 and 2016 totaled $52,228 and $52,771, respectively.

Other

In May 2014, the High School entered into an agreement with an athletic trainer effective July 1, 2014 through June 30, 2024. The High School agreed to pay $22,500 annually through July 31, 2017 and $25,000 annually from August 1, 2017 to June 30, 2024.

The remaining balances on significant commitments totaled $263,228 as of June 30, 2017.

20. Subsequent Events

In August 2017, the High School entered into an agreement with a financial institution to finance the purchase of 235 personal computer tablets. The tablets were delivered in July 2017, at which time a capital lease obligation of $304,325 was recorded. Monthly capital lease payments will be $6,981 payable over a 48 month term, with the initial payment due August 2017.

The High School has evaluated subsequent events through August 25, 2017, the date on which the financial statements were available to be issued.

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