Archdiocese of Chicago Consolidated Financial Statements as of and for the Years Ended June 30, 2015 and 2014, and Independent Accountants’ Review ReportARCHDIOCESE OF CHICAGO, TABLE OF CONTENTS INDEPENDENT ACCOUNTANTS’ REVIEW REPORT CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED JUNE 30, 2015 AND 2014: Consolidated Statements of Financial Posi Consolidated Statements of Activities Consolidated Statements of Cash Flows. Notes to Consolidated Financial Statements Page 36 8-40Deloitte. cece & Jet 41312486 1000 Fort 312485 1486 ‘ma deotecom INDEPENDENT ACCOUNTANTS’ REVIEW REPORT Most Reverend Blase J. Cupich Archbishop of Chicago: We have reviewed the accompanying consolidated financial statements of the Archdiocese of Chicago (the “Archdiocese”), which comprise the consolidated statements of financial position as of June 30, 2015 and 2014, and the related consolidated statements of activities and cash flows forthe years then ended, and the related notes to the consolidated financial statements. A review includes primarily applying analytical procedures to management's financial data and making inguities of the Archdiocese’s ‘management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the consolidated financial statements as a whole, Accordingly, we do not express such an opinion. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated 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 consolidated financial statements that are free from material misstatement Whether due to fraud or error. Accountants’ Responsibility ur responsibility is to conduct the review in accordance with Statements on Standards for Accounting and Review Services promulgated by the American Institute of Certified Public Accountants. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the consolidated financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our conclusion, ‘Accountants’ Conclusion Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements in order for them to be in conformity with accounting Principles generally accepted in the United States of America, D plait, ® Touch, OLATTS ‘wioL peeuisp poo, poretropen—pominsn ‘su3S8¥ 1aN NY Sauer ‘aroway uty pep oso 0 Su pe ode tas emnosce pata ms res aa e507 weer ar oust Tar oozes ese siassv au ‘pa-tanadinbs pas Seping por ones pargmuno3e ser odin pn etn pu ee, seta et wonseaste Sys padaiopen saNarunbe ONY SONIaTING “ONY 0 pu fpeg—AINAONE ANEISINGD sens neues UR sna syqoasss spd pu “aanooe Sy, smievAo4 SINSWISGANI sv GaLoRUSTE SINTIVAINDS HSW9 ONY HSYD suassy Tepuesnow ui sveHoG) ‘yloz aN St0z ‘oe BNA 40 SY NOUISOd "WIONVNI4 40 SLNAWLV1S G31VEMOSNOO ODVOIHD JO ASSOOIGHONYARCHDIOCESE OF CHICAGO. CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 (WITH COMPARATIVE TOTALS FOR 2014) (Dollars in thousands) 2018 “Temporarily Permanenty Unrestricted Restricted Restricted =Total REVENUES: Parishes: Collections and setivites S$ sors 8 s- 3 307544 “Tuition and related foes 307,199 307199 Charitable atvities: Program services 238,866 238866 Fund appeals and bequests 6843915972 11.226 95.637 ‘Cemeteries sales and services 46078 46,078 ‘Archdicesan Pastoral Center 94.361 201 sv 95079 PRMAA 2700 2,700 ‘Annual Catholic Appeal 16.469 16.469 Capital Campaign = TTWC1 10655 105585 Investment income 40 85 2416 other 2 2788 Net assets released from restitions (35.268 2191 oval revenves 1155275 (8955) M411 EXPENSES! Parishes ‘Schoo! programs 334362 334,362 General operations 268,835 268,838, ‘Charitable asivities 323,709 323,708, Cemeteries $971 40.171 ‘Archdicesan Pastoral Center 179933 179.953 PRMAA 12,008 12,008 ‘Annval Catholic Appeal fundraising expenses 1 soa 1594 Depreciation and accretion 65.607 Interest expense 965 ‘Total expenses 14.260 CHANGE IN NET ASSETS BEFORE OTHER ITEMS 88.985) (18.988) 14,111 93,820) 2016 S791 278,983 528,025 49,040 170.925 13261 Ls 65.981, 8.532 123.646) (Continved)ARCHDIOCESE OF CHICAGO CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 (WITH COMPARATIVE TOTALS FOR 2014) {Dollars in thousands) 2014 Unrestricted Total Total (CHANGE INET ASSETS BEFORE. OTHER ITEMS S$ 88985) $ (48955) $1411 S38 —-$ (123,646) NET INVESTMENT RETURN 4.036) 1282 193 2561) 180,320 NET GAINS ON PROPERTY SALES. 25208 252398, 2,129 PARISH BUILDING FUND REVENUES 20811 20811 19.069 ‘TEWCI REVENUES i,m 21.774 45,236 (CHANGE IN FUTURE CEMETERY (CARE COSTS: 0.202 10202 (12,032) PENSION-RELATED CHANGES OTHER THAN NET PERIODIC PENSION COSTS (96,570) (6,570) 8580) POSTRETIREMENT-RELATED CHANGES ‘OTHER THAN NET PERIODIC POSTRETIREMENT COSTS 10,499 ‘ 10,499) 3.187 (CHANGE IN NET ASSETS. (142,716) 3,138 (2527) 195,645 1.709450 _ 163.988 1.916.664 _1.811,021 SUS66TH $167,126 $57,590 $1,791,390 $1,916,664 ‘See independent accountans” review report and notes to consolidated financial statements. (Concluded)ARCHDIOCESE OF CHICAGO, CONSOLIDATED STATEMENT OF ACTIVITIES. FOR THE YEAR ENDED JUNE 30, 2014 (Dollars in thousands) REVENUES: Parishes: Collections and activites Tuition and related feos Charitable activities: Program services Fund appeals and bequests (Cemeteries sales and services Archdiocesan Pastoral Center PRMAA ‘Annual Catholic Appeal Investment income Other [Net assets released fom restrictions Total venues EXPENSES: Parishes: School programs General operations Charitable activities Cemeteries Archidiogesan Pastoral Center PRMAA ‘Annual Catholic Appee! fundraising expenses Depreciation and secretion Interest expense ‘Total expenses (CHANGE IN NET ASSETS BEFORE. (OTHER ITEMS. Unrestricted S306482 2923881 252.226 66,564, 36,599 9x98, 3492 9.386 1.116683, siz911 278953 325,023 49,040 i098 13261 Las 65951 8532 1.231.350 114.667 Temporarily Permanently Restricted Restricted s- s MMT 448 2,300 366 56 80 (0.65 121 M12) S73 14.152) _5.173. Total 306,442 292,881 252.26 85,559) 36,599) 101619 3492 9.356 19.269 231 1,107,704 sing 2783953 325,025 49,040 0.98 13261 L182 65951 8.532 231,350 123.646) (Continved)ARCHDIOCESE OF CHICAGO CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2014 (Dollars in thousands) Temporarily Unrestricted Restricted (CHANGE IN NET ASSETS BEFORE ‘OTHER ITEMS S(sG67) $14,152) [NET INVESTMENT RETURN 174886 sais NET GAINS ON PROPERTY SALES 2129 PARISH BUILDING FUND REVENUES 19,069 ‘TIWCI REVENUES 45,286 (CHANGE IN FUTURE CEMETERY CARE Costs (12,032) PENSION-RELATED CHANGES OTHER ‘THAN NET PERIODIC PENSION COSTS (6,580) POSTRETIREMENT-RELATED CHANGES OTHER THAN NET PERIODIC POSTRETIREMENT Cos sur (CHANGE IN NET ASSETS 0,119 10.230 NET ASSETS—Beginning of year 1619.31 153.258 NET ASSETS—End of year $1709.45 $ 163.988 ‘See independent accountants’ review report and notes to consolidated financial statements Permanently Restricted $5173 a Total 5123646) 180,320 219 19,069 45,236, 12,032) 8.580) 347 105,688 1.811.021 $1,916,664 (Concluded)ARCHDIOCESE OF CHICAGO CONSOLIDATED STATEMENTS OF CASH FLOWS, FOR THE YEARS ENDED JUNE 30, 2015 AND 2014 (Dollars in thousands) ‘CASHEFLOWS FROM OPERATING ACTIVITES: ‘Change in net cet “Adjmtens recone change net assets tone cash prove by perting ats (Change i defined bene pens and postetzement plans lke than Pend persion ad psteremet expense Chang ture cemetery cae costs Ietgnns on property ses Depreciation and cection Penmanenty earced conser Contbutins fr sequston and construction of fish propery Fur rae of wont conttadions recived ‘Changes in ssts and aie Receivables (Ceetery propery ready and ana For use Deposits ar accounts payable and acered expenses Deferred evense ‘Ucar etal income ‘Ase tiemen iptons Net csh provide by operating estes ‘CASH FLOWS FROM INVESTING ACTIVITIES Proceed rom sales of invesinents epost to rected cash Preceds fom sales of prope ‘CASI FLOWS FROM FINANCING ACTIVITES: ‘Repyment of mowing: Receipt for sequen and eneraton of parish propery ‘Netcash provide by ancing tvs (CHANGE INCASHE AND CASILEQUIVALENTS cas 15 Beginning of year 1 AND CASH EQUIVAL (CASH AND CASH EQUIVALENTS Gr of sae SUPPLEMENTAL. DISCLOSURES OF CASH FLOW INFORMATION Accounts payable for consrution and xe ase phases Property acquired to sete ter asset Purchase of investment ince in accra expense See independent aecountns eve rood an reso consolidated financial staernens “7 sc2sz (4020) (25398) 2361 anny 29999), (4599) (69.490) 0336), al ee 205) on so 4947 6025) sas ae 58.285) s 10s.03 ap e129) (a0'320) e951 cans) (503) (3336) 0s Bs aii 20s) oo 30 65.318 (606185) 330) Sst 0.081) (59,105) (13386) 2a400ARCHDIOCESE OF CHICAGO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED JUNE 30, 2015 AND 2014 (See independent accountants’ review report) (Dollars in thousands) 1. NATURE OF OPERATIONS ‘The consolidated financial statements include the accounts of certain organizations which are overseen by The Catholic Bishop of Chicago (CBC) and which operate under the auspices of the Archdiocese of Chicago (the “Archdiocese”) as follows: Parishes and Related Schools—Parishes of the Archdiocese (“Parishes”) include the parishes, schools, ‘and various shrines and oratories operated in Cook and Lake counties of Illinois. These sites minister to the spiritual, social, and educational needs of the faithful. They provide eatechesis for people at all age levels—from young children to the elderly—as part of the educational ministry of the Archdiocese. Parishes’ fiscal operations include sacramental services, religious education training, formal preschool through 12th grade educational instruction, fundraising, and investment of reserve funds. Operating support is derived primarily from parishioners” contributions, tuition and fees, and fundraising activities. Archdiocesan Pastoral Center—The Archdiocesan Pastoral Center (the “Pastoral Center”) is the ministerial and administrative center for the Archdiocese. Its purpose is to provide support and services to Parishes and other church agencies in Cook and Lake counties. It operates the Archdiocesan Bank, which provides savings and loan services to Parishes; administers a centralized employee benefit and property and casualty insurance program; provides financial support to those parishes unable to sustain themselves; operates a seminary system for the education of priests; provides a nutritional lunch and breakfast program for students; publishes a biweekly newspaper and various liturgical-related publications; and invests available funds. Operating support is derived primarily from Parishes and Catholic Cemeteries (the “Cemeteries”) assessments, employee benefit and property and casualty insurance program assessments, contributions and bequests, food service revenue, interest on loans to Parishes, the Annual Catholic Appeal, and investment earnings. Catholic Cemeteries Cemeteries assists the CBC in caring for the faithful departed by performing the most ancient corporal work of mercy—the burial of the dead. Cemeteries further assists the CBC by providing appropriate facilities for burial and for celebration of the funeral rites for members of the Catholic community. Operating support is derived primarily from the sale of easements providing for graves, crypts, and burial services, and from investment earnings. Charitable Activities—The charitable activities organizations, which consist of Catholic Charities, (°Charities”), Maryville Academy (“Maryville”), Misericordia Home, and Mission of Our Lady of Mercy (also known as Mercy Home for Boys and Girls) (“Mercy”), provide assistance to people in need. through four primary service areas, Senior services provide in-home or personal care and residential and health care facilities. Children’s services protect children from abuse and provide education, health care, and counseling, Basic human needs services include emergency shelter, food, and clothing. Family and individual services help address unemployment, poverty, inadequete housing, illness, addiction, physical limitations, and domestic violence. A significant portion of the funding for several of the programs is received from federal, state, and local governmental agencies,Priests’ Retirement and Mutual Aid Association—The Priests’ Retirement and Mutual Aid Association (PRMAA) administers retirement, disability, health, and other benefits for the priests of the Archdiocese. Operating support is derived primarily from contributions from the Pastoral Center. All significant interorganizational balances and transactions have been eliminated, The activities of religious orders, lay societies, and religious organizations that operate within the Archdiocese, but are not fiscally responsible to the CBC, are not included in the accompanying consolidated financial Statements, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates—The preparation of consolidated financial statements in conformity with accounting, principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ‘Subsequent Events—The Archdiocese evaluated subsequent events through March 28, 2016, the date the consolidated financial statements were available for issuance. Classification of Net Assets—Resources are classified into three classifications of net assets according to externally (donor) imposed restrictions. Unrestricted net assets are free of donor-imposed restrictions and include all revenues, expenses, gains, and losses that are not changes in restricted net assets. Donor-restricted contributions whose restrictions are met in the same accounting period are also reported as unrestricted, Temporarily restricted net assets, consisting primarily of funds restricted for parish capital improvements or programs administered by the charitable activities, are those whose use has, been limited by donors to a specific time period or purpose. When a donor restriction expires, that is, \when a stipulation ends or purpose of restriction is accomplished, temporarily restricted net assets are reclassified as unrestricted net assets and reported in the consolidated statements of activities as net assets released from restrictions. ‘Temporarily restricted net assets as of June 30, 2015 and 2014, are available for the following purposes: 2018 2014 ‘Time-restricted contributions $ SI $4154 Program operations (including other endowments) 50,972 49,091 Capital development 109,788 109,556 Other 81 60 Seminary Endowment Fund Lud 1,127 $167,126 $163,988 Permanently restricted net assets are donated with stipulations that they be invested to provide a permanent source of income (e.g., endowment funds); such restrictions can neither expire with the passage of time nor be removed by fulfillment of a stipulated purpose.Permanently restricted net assets as of June 30, 2015 and 2014, are available for the following purposes: 2016 2014 Seminary Endowment Fund $17,029 $16,146 Merey Home Scholarships 20,484 19,426 Misericordia Endowment 12,504 Other 73513 1,654 857530 $43,226 ‘Cash Equivalents—Cash equivalents are defined as all highly liquid debt instruments with original maturities of three months o less used for the operating activities of the Archdiocese and are stated at cost, which approximates fair value. Restrieted Cash—Restricted cash includes amounts included in a separate bank account for the benefit of lenders for debt service in accordance with a debt agreement. Investments—Investments are carried at fair value. ‘The estimated fair values of alternative investments that do not have readily determinable fair values (that is, investments not listed on national exchanges or over-the-counter markets, or for which quoted market prices are not available from sources such as financial publications or exchanges) are based on estimates developed by external investment managers and are accepted or adjusted through a valuation review process performed by management. A range of possible values exis for these investments, ancl therefore, the estimated values may differ from the values that would have been recorded had a ready market for these investments existed. Investment income and return (including realized and unrealized gains and losses on investments, interest, and dividends) is reported as an increase or decrease in unrestricted net assets, unless such temporarily or permanently restricted by explicit donor stipulation or by law :n—The To Teach Who Christ Is (TTWCI) capital fundraising campaign is an effort to raise $350,000 in funds to support parishes, Catholic education and faith formation initiatives over a five ‘The campaign is being managed in two distinct areas: a major gift portion with a 1g goal of $100,000 and a parish phase seeking $250,000. Within the parish phase, 60% of the goal amount ($150,000) will be retained at parishes for parish specific needs; 40% ($100,000) will be allocated to Archdiocese level needs. Overall, the campaign is expected to provide $150,000 for parishes, $150,000 for a scholarship endowment, $30,000 for urgent capital repairs, $12,000 for religious education programs, and $8,000 for academic excellence in Catholic schools. An independent trust has been established to oversee and manage the scholarship endowment. TTWCI revenue for the Pastoral Center is presented as a component of total revenues on the consolidated statement of activities. Since TTWCI revenue for Parishes will primarily be used to address their capital needs, TTWCI revenue for Parishes is presented as an Other Item on the consolidated statement of activities. TTWCI expenses are included in Archdiocesan Pastoral Center expenses in the consolidated statements of activities and were $10,595 and $5,185 in 2015 and 2014, respectively. = 10-Parish Building Fund Pledges Receivable—From time to time, individual parishes solicit funds from parishioners to assist in the financing of parish capital projects. Management makes assumptions regarding the ultimate collectibility of these receivables. Actual results could differ from those estimates. Cemetery Property—Ready and Available for Use—Developed graves and crypts are carried at average Cost, which includes land and construction costs. Such costs are experised when easements for ‘graves and crypts are sold. Land, Buildings, and Equipment—Undeveloped realty represents sites held for future development and is cartied at cost. Land, buildings, and equipment are carried at cost. Where historical cost is unavailable, buildings are carried at the reported insurable value as of July I, 1980, with subsequent additions recorded at cos. Land is carried at the estimated fair values as of July 1, 1980, with subsequent additions recorded at cost. Depreciation is recorded on buildings and equipment, Buildings, equipment, major improvements, and betterments are capitalized and depreciated, using the straight-line method, over the estimated useful lives of the assets, which range from 3 to 75 years. Repairs and maintenance which do not extend the life of the applicable assets are charged to expense as incurred. Asset Impairment—The Archdiocese reviews long-lived assets for impairment by comparing the future cash flows expected from the asset tothe carrying value of the asset. The Archdiocese did not record an impairment loss on long-lived assets in 2015 or 2014, Accrued Cemetery Maintenance—Accrued cemetery maintenance costs represents the liability for the estimated cost to maintain the Cemeteries’ existing graves and erypts in the future, discounted to present value. For this estimate, the discount rates used for the years ended June 30, 2015 and 2014, are 4.93% and 4.82%, respectively, and current maintenance costs are assumed! to escalate 2.03% for both 2015 and 2014, The undiscounted estimated costs may vary materially from actual future costs. Annually, ‘management updates its estimates and assumptions, including the discount rate. Any change in the present value of the estimated future costs is recorded in the year such change is made, Such changes ‘may be material to the consolidated financial statements. Pursuant to cemetery maintenance agreements and commitments, a portion of the proceeds from sales of easement of graves and crypts is invested by Cemeteries in the pooled investment fund. Interest and dividends eamed on such investments are withdrawn currently to fund current maintenance costs, while net capital gains realized are reinvested Insurance—Insurance claims reserves are an accumulation of the estimated amounts necessary to settle ‘outstanding claims, including incurred but not reported claims, based on the facts in each case and the Archdiocese’s experience with similar cases. These estimates are reviewed and updated regularly and. any resulting adjustments are reflected in current operations, Property casualty risks of Parishes and participating religious organizations of the Arehdiocese are covered in part by self-insurance programs administered through the Pastoral Center, Property/casualty losses in excess of self-insured retention levels are insured under commercial excess policies. Medical and health insurance for employees are provided through a combination of HMO and self-insured PPO plans. The Pastoral Center assesses Parishes and participating religious organizations of the Archdiocese to fund the costs of such programs. MeDuring 2015 and 2014, the Pastoral Center settled several legal claims related to allegations of past sexual misconduct by priests with settlements totaling $3,789 and $16,714, respectively. Asset Retirement Obligations Management records all known asset retirement obligations for which the fair value can be reasonably estimated. A liability is initially recorded at fair value if the fair value of the obligation to retire an asset can be reasonably estimated. Unearned Rental Income—In May 2008, the CBC executed a land lease agreement for the site of the then Pastoral Center operational headquarters building. The lease has a term of 99 years commencing January 1, 2009, and gives the tenant the right to renew the term of the lease for two additional 25-year periods. The agreement allows for escalating rental payments during each rent adjustment year. In addition, base rent will be adjusted annually by a factor of the percentage increase in the Consumer Price Index, not to exceed 5% annually, commencing with the third lease year. The tenant made an initial rent payment of $18 million at the inception of the agreement, which will be recognized on a straight-line basis over the 99-year lease term, Refundable Grant Advanees—Development and construction are being or have been substantially funded under non-interest-bearing morigage agreements with the U.S. Department of Housing and Urban Development (HUD). The residences are not required to make principal or interest payments on the mortgage notes, provided they maintain housing in accordance with the Capital Advance Program Use and Regulatory Agreements. [fall requirements continue to be met, the grant advances will be considered earned between 40 and 55 years or an earlier date if approved by HUD. The refundable grant advances are collateralized by the residences’ property and equipment associated with the advance. Revocable Estates—From time to time, the Archdiocese is named as beneficiary of a revocable estate. Itis the Archdiocese’ policy to recognize revenue on such estate when either the cash is received or the commitment from the estate becomes irrevocable. Charitable Activities Grant Revenue Recognition—Grant revenue is recognized when the related grant expenditure has been incurred. Revenue Recognition —Unconditional promises to give cash and other assets to the Archdiocese are reported at fair value atthe date the promise is received. Conditional promises to give and indications of intentions to give are reported at fair value at the earlier ofthe date the contribution is received or when the promise becomes unconditional Gift annuity obligations are actuarially determined using the market interest rate at the inception of the gift annuity and are based upon the annuitant’s age and life expectancy. The excess of the funds granted to the Archdiocese over the calculated annuity payable is recorded as contributions. Cemeteries sells easements providing for graves and crypts and for optional and complete cemetery services (including related merchandise) on a preneed basis. The entire portion of the sales price allocated to grave or crypt (as well as graves and erypis that are sold without additional services) is recorded as reventie atthe date of sale, 95% of the optional and complete cemetery services is recorded as deferred revenue until the related service is performed, and the remaining 5% is recognized as revenue atthe time of the sale to cover certain administrative expenses. The sales price allocated to entombment services associated with preneed crypt sales is recorded as deferred revenue atthe time of sale and recorded as revenue in the period performed. Interment and entombment services sold at time of need are recorded as revenue in the period performed. A sales allowance has been established to reflect estimated returns. This amount is recorded as a contra-receivable in the consolidated statements of financial posi -12-Accounting Standards Updates Adopted— In April 2013, the FASB issued ASU No. 2013-06, Services Received from Personnel of an Affitiate, to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate, The amendments in this update require a recipient not-for-profit entity to recognize al services received from personnel of an affiliate that directly benefit the recipient not-for-profit entity. Those services should be measured at the cost recognized by the affiliate for the personnel providing those services. However, if measuring a service received from personnel of an affiliate at cost will significantly overstate or understate the value of the service received, the recipient not-for-profit entity may elect to recognize that service received at either (1) the cost recognized by the affiliate for the personnel providing that service or (2) the fair value of that service. The new guidance was effective for reporting periods bei after June 15, 2014. The adoption of this ASU did not have a material effect on the consolidated financial statements. Accounting Standards Updates Issued not Yet Adopted —In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU No, 2014-08 changes the requirements for reporting discontinued operations. A disposal of ‘component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the component of an entity or group of components meets the criteria to be classified as held for sale, is disposed of by sale, or is disposed of other than by sale (for ‘example, by abandonment or in a distribution to owners ina spinoff). ASU No. 2014-08 also requires an ‘entity to present, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation separately in the asset and liability sections, respectively, ofthe statement of financial position. ASU No, 2014-08 is effective for the reporting periods beginning after December 15, 2014. ASU No 2014-08 is not expected to have an impact on the consolidated financial statements as no disposals are contemplated. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU No. 2014-09 creates Topic 606, Revenue from Contracts with Customers, and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition. ASU No. 2014-09 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. The guidance also specifies the accounting for some costs to obtain or fulfil a contract with a customer, and indicates an entity should 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. ASU 2015-14 deferred the effective date of ASU 2014-09. ASU No. 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, Management has not yet determined the impact on its consolidated financial statements. In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs ASU No. 2015-13 simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet asa direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement ‘guidance for debt issuance costs are not affected by the amendments in ASU No. 2015-03. ASU No. 2015-03 is effective for the reporting period beginning on July 1, 2016. ASU No. 2015-03 is not expected to have a material impact on the consolidated financial statements. In May 2015, the FASB issued ASU No. 2015-07, Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent). ASU No. 2015-07 addresses the diversity in practice related to how certain investments measured at net asset value with future redemption dates are categorized, the amendments in this ASU remove the requirement to categorize investments for which fir values are measured using the net asset value per share practical expedient. It also limits disclosures “13.3. to investments for which the entity has elected to measure the fair value using the practical expedient. ASU No. 2015-07 is effective for the reporting period beginning on July 1, 2017. The adoption of ASU ‘No. 2015-07 is not expected to have a material impact on the consolidated financial statement disclosures. INVESTMENTS As of June 30, 2015 and 2014, the Archdiocese’s investments consisted of the following: 2015 2014 Invested cash 5% $93,783 7% $112,134 Common stock and equity mutual funds 30 497,279 30 489,427 Fixed income securities and fixed income mutual funds 19 327,671 16, 265,929 Alternative investments: Marketable alternative equity 30 503,968 29 485,505 Fixed income 4 68,186 s 80,644 Marketable energy and commodities 1 18,453 1 18,670 Real estate 9 26,742 0 4,126 Private equity 2 155,440 2 193,930 Total alternative investments 46 772,789 47 782,875 Total 100% $1,691,522 100 % $1,650,365 Invested cash includes short-term investments and investments in money market mutual funds, Investments, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investments, itis reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect the amounts reported in the consolidated statements of financial position and consolidated statements of activities. o14eAs of June 30, 2015 and 2014, investments are held by the following entities: 2016 2014 Cemeteries S$ 607,970 $630,053, Pastoral Center 156,020 128,196 Pastoral Center—on behalf of Parishes 100,420 102,082 Pastoral Center—on behalf of seminaries 76,804 73,503 Misericordia 490,182 462,983 Maryville 72473 63,835 Charities, 77,646 80,892 Mercy 102,717 101,641 PRMAA 7,290 7,180 Total $1,691,522 $1,650,365 Net investment income and return for the years ended June 30, 2015 and 2014, are as follows: 2018 2014 Interest and dividends $ 27416 $ 19,269 Realized gains—net 41,937 37,701 Change in unrealized gains/losses—net (44,498) _ 122,619 Net investment income and return $24,855 $199,589 PARISHES Revenues Contributions at the parish level are one of the most significant sources of funds for the Archdiocese. In addition to being used to pay local church, school, and general parish operating costs, they also provide funds for the Archdiocesan assessment. Included in collections are special parish collections for building funds, school support, and memorials. Not included in this later category are various annual collections, either for national campaign or local Archdiocesan causes, The Pastoral Center usually receives the proceeds from each parish's special collections and undertakes the distribution of the funds to the applicable office, program, or national campaign. -15-Expenses—General Operations—For the years ended June 30, 2015 and 2014, the summary of the ‘general operations, other than for the sehooi programs, prior to consolidation, eliminations, and teclassifications, is as follows 2015 2014 Salaries, wages, and benefits $124,623 $136,577 and insurance 84,842 85,463 (CCD)— including salaries and expenses 20,241 20,879 Other expenses—including administrative, depreciation, church, and rectory operating costs, 111,053 _105,186 Total expenses—general operations $340,759 $348.10: Each parish pays an annual assessment for continuing Archdiocesan programs. Ordinary income is the ‘main factor considered in arriving at the individual assessments. The assessment is used to support the activities ofthe Pastoral Center and amounted to $25,283 and $23,115 in 2015 and 2014, respectively, This assessment is eliminated in the consolidated financial statements, Expenses—School Programs—As of June 30, 2015, the Archdiocese and Parishes operated 197 elementary schools and six high schools. A summary of school programs expenses for the years ended June 30, 2015 and 2014, prior to consolidation, eliminations, and reclassifications is as follows: 2015 2014 Salaries, wages, and benefits $266,652 $255,250 Utilities, repairs, and insurance 30,942 29,146 Books and instructional materials 13,974 11,960 Depreciation and other expenses 35,900 34,617 Total expenses—school programs $347,468 $330,973 Expenses exceeded school revenues (tuition and related fees) by $40,269 and $38,092 in 2015 and 2014, respectively. These excess costs were financed from general parish revenues and reserves, special fundraising activities, and grants from the Archdiocese. The data above does not include seven private elementary schools and 30 private high schools within Cook and Lake counties, operated by various religious orders. LAND, BUILDINGS, AND EQUIPMENT ‘The Archdiocese purchases sites that are reasonably foreseen to be necessary for future development and disposes of bequeathed income property and church facilities no longer expected to be used. “16-Undeveloped realty as of June 30, 2015 and 2014, consists of the following sites for future development: 2015 2014 Future parish sites $9,998 Cemeteries 16,946 $26,944 In addition to undeveloped realty, the Archdiocese had land, buildings, and equipment as of June 30, 2015, as follows: Buildings ‘and Construction Accumulated Land Equipment in Progress Depreciation Total, Parishes $162,096 $182,510 $ (1,147,235) $_ 887371 Charitable activities 43,437 431,290 16,921 (180,701) 310,947 Pastoral Center 24,986 193,381 (115,795) 102,572 Cemeteries 6,750 64,839 3 33,955 31,727 Total $237,269 $2,532,020 $17,014 $1,477,686) $1,308,617 In addition to undeveloped realty, the Archdiocese had land, buildings, and equipment as of June 30, 2014, as follows: Buildings ‘and. Construction Held for Accumulated Land Equipment in Progress Sale Depreciation Total, Parishes $162,096 $1,826051 53392 (1104459) $887,085 Charitable etivitis aud "407022 15,759 (171405) 292,820 Pastoral Center 25.107 193.988 auisia) 107551 Cemeteries 6.750 63.831 (32104) 38.477 Total $235.07 $2.490.865 $15,759 $3392 $UH19,182) $1,325,991 Depreciation expense for the years ended June 30, 2015 and 2014, was $64,733 and $64,959, respectively. “7-6. BORROWINGS A summary of borrowings as of June 30, 2015 and 2014, is as follows: 2016 204 Pastoral Center $100,000 notes payable due April 2S, 2032 interest rae is fned a 5.14% S$ o683 $2989 Pastoral Cente $60,000 nots payable, due October 22024, interest rat i fined at 5.85% ‘60000 $ 60,000 Choc Charities revenue refunding bond Series 2014, loan payable to Wintust Bank, doe Snary 1, 2028 intrest ate adjusted monthly, weightd-averege interes rate 1,07%6 in 2015 tnd 05% in 2014 107010070 Porta Coe nte payable City of Chicago, de in a lump sum on Devember 1, 2054, interest fre 760 co St Sabina note payable lo City of Chisago, dein lamp sum on June 1, 203, intrest ce 388 388 |All Sains not payable to Cty of Chicago, due in a ump sum on December 2,205 imerest fee a3 993 Catholic Charts note payable to Sisters of Saint Casimir, du in annua installments through December 1, 2034, intrest ie +4000 Catholic Chtties note payable to Iino Facies Fund, de 2015, 28 Catholic Charities not payable to lino Facies Fund, dc 2023, interest ate 675% on 713 Catholie Charis mortgages payable HUD due in equal monthly installments ‘rough 2033, interest rae 8.375% 5,107 sam Catholic Chattes mortgages payable oIiois Housing Development Authority, ‘ue in equal moat installment, with additional principal payments required teased on residual ci, interest fre 1s 1017 13363 1975 Less discount of interes fee note payable ps1) Sims signs ‘The carrying value of debt approximates fair value. During fiscal year 201, Catholic Charities purchased the Saint Casimir Motherhouse and in exchange entered into a loan agreement with the Sisters of Saint Casimir. The terms of the loan require Catholic CChiarties to make $200 equal payments over 20 years at zero percent interest. The total payments were discounted using a 2.74% interest rate, During fiscal year 2014, Catholic Charities refinanced $10,070 of the Series 1993 A and Series 1993 B adjustable demand revenue bonds by entering into a bond agreement with the llinois Finance Authority (“Authority”). The Authority issued a $10,070 bond referred to as revenue refunding bond of the Series 2014 that was purchased by Wintrust Bank. The proceeds of the Series 2014 bond were used to refund the Series 1993 A and Series 1993 B adjustable demand revenue bonds. ‘On September 26, 2013, the Pastoral Center executed a note purchase agreement in the amount of ‘$60,000. The notes have an interest rate of 5.85% with principal maturity dates from April 2, 2022, through October 2, 2024. -18-Principal payments as of June 30, 2015, are due as follows: Years Ending June 30 2016 $3,760 2017 3,958 2018, 4,167 2019 4,387 2020 4619 ‘Thereafter Total $172,612 Debt Covenants—The Pastoral Center, along with Cemeteries, and Charities are required to meet certain debt covenants related to minimum liquidity levels and investment-to-debt ratios. The Pastoral Center, along with Cemeteries, and Charities were in compliance with financial debt covenants at June 30, 2015 and 2014. Deferred Debt Issuance Costs—Expenses related to the procurement and underwriting of the direct obligation notes and revenue bonds have been deferred and are being amortized. These costs, net of accumulated amortization are $7,095 and $2,054 as of June 30, 2015 and 2014, respectively, and are included in other assets in the consolidated statements of financial position. During the fiscal year 2014, Catholic Charities early extinguished the 1993 Series A and 1993 Series B ‘bonds. Asa result a loss on early retirement of debt was recognized in the amount of $84 which was due to the write-off of unamortized debt issuance costs. REFUNDABLE GRANT ADVANCES. During the years ended June 30, 2015 and 2014, Charities received certain HUD Supportive Housing for the Elderly—(Section 202) grant advances of $8,466 and $5,490, respectively, under the terms of the federally funded program. 2195In addition, Charities received certain Affordable Housing Residence Loans of approximately $226 and ‘$822 during the years ended June 30, 2015 and 2014, respectively. Total advances as of June 30, 2015 and 2014, were as follows: Advance Advance End of Project 2018 2014 Commitment Matthew Manor $ 4016 $ 4016 December 2035 Tolton Manor 5515 5515 July 2036 Frances Manor 4,823 4,823 April 2037 Lawrence Manor 8215 8215 October 2039 Bemardin Manor 13,990 13,990 “June 2040 St. Ailbe Faith Apartments 6,836 6,836 July 2040 St. Sabina Elders Village 6,728 6,728 September 2040 St. Ailbe Hope Apartments 814 814 March 2041 Ozanam Village Apartments 5,152 5,152 May 2041 St. Ailbe Love Apartments 6,300 6,300 February 2042 St. Peter Claver Courts 7789 7749 March 2043, Bishop Goedert Residence 9,592 9,592 December 2044 St. Vincent De Paul Residence 10,891 10,891 November 2045 Donald W. Kent Residence 8,975 8,975 January 2046 Pope John Paul Il Residence 2,253 2,253 September 2046 Roseland Manor 912 912 March 2047 St. Francis of Assisi Residence 11,319 11,319 November 2047 Hayes Manor 631 631 June 2048 St. Brendan Apartments 8,828 8,828 July 2060 All Saints Residence 7017 7.017 November 2052 Porta Coeli Residence 14,357 5890 November 2054 Total HUD grant advances 144,913 136,446 Affordable housing project loans 9,982 9,756 Various through 2060 Total refundable grant advances $154,895 $146,202 FAIR VALUE MEASUREMENTS Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most ‘transparent or reliable: Level !—Quoted prices for identical instruments in active markets Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs are observable in active markets. Level 3—Valvations derived from valuation techniques in which one or more significant inputs are not observable. =20-‘The Archdiocese attempts to establish fair value as an exit price in an orderly transaction consistent wit normal seitlement market conventions. The Archdiocese is responsible forthe valuation process and seeks to obtain quoted market prices forall securities. When quoted market prices inactive markets are not available, the Archdiocese uses independent pricing services to establish fair value. Assets Measured at Fair Value—Asscts measured at fair value on a recurring basis as of June 30, 2015 and 2014, are summarized below: 2015 Levelt Level2 Level 3. Total Invested cash $93,783 S$ s_- S_ 93,783 Common stock and equity mutual funds 480,397 16,882 497,279 Fixed income securities and fixed income mutual funds 160,634 _167,026 u Alternative investment Marketable alternative equity 208,580 295,388 503,968 Fixed income 48,325 19,861 68,186 Marketable energy and commodities 8,196 10,257 18,453, Real estate 26,142 26,742 Private equity 155,440 155.440 Total alternative investments : 507,688 Total $734,814 — $449,009 $507,699 $1,691,522 -21-2014 Level 1 Lovel 3 Total Invested cash $112,134 $ $_- $112,134 Common stock and equity mutual funds 473,296 16,131 489,427 Fixed income securities and fixed income mutual funds 87,496 _178,422 u Alternative investments: Marketable alternative equity 233,833 251,672 485,505 Fixed income 47,928 32,716 80,644 Marketable energy and commodities 10,545 8,125 18,670 Real estate 4,126 4,126 Private equity 193,930 193,930 ‘Total altemative investments : 202,306 _490,569 782,875 Total $672,926 $486,859 $490,580 $1,650,365 ‘The table below presents a reconciliation forall assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3), and presents changes in unrealized gains or losses recorded in change in net assets for the years ended June 30, 2015 and 2014, for Level 3 assets: 2016 2014 Balance—uly 1 $490,580 $435,975 Purchases 67,623 62,657 Sales (67,365) (69,454) Realized and change in unrealized gains—net 20,408 61,402 ‘Transfers out of Level 3 547) Balance—June 30 $507,699 $490,580 ‘The amount of total gains (losses) for the year i changes in net assets attributable to the change in unrealized gains/losses relating to assets still held at June 30 S$ 16591 $ 21,748 Investments that the Archdiocese is able to fully redeem at the net asset value (NAY) per unit in the “near term” have been classified as Level 2 investments. Investments that cannot be fully redeemed at the NAV in the “near term” have been classified as Level 3. Management has determined that investments that are not able to be redeemed at the NAV in the “near term” are investments that generally have one or more of the following characteristics: gated redemptions, all or a portion of the investment is side-pocketed, or have lock-up periods greater than 90 days. Certain investments may be split between Level 2 and Level 3 if different share classes have different redemption or liquidity characteristics. As of June 30, 2015 and 2014, the Archdiocese did not have any investments split between Level 2 and Level 3 in the fair value hierarchy. 22+‘A summary of the nature and risk of the Archdiocese’s alternative investments by major category as of June 30, 2015 and 2014, is as follows: loved Radeon Rademoon _scePoceet_ Laka! sow Fanvive —Conmnente—Fequney —NateaPered—ivetnats” Gate Manculeakenatrecaig" Sst 5 ‘y-S6mots 120d» $18 analy ig atin” ans aa 104s amy ting Macc 0 cones sas acts 2-50 ays analy ing Reale" 25702 Motiy —>90du 26a Pate 10a NA wa Wa Tout sms 5s ss, Uotunded Redemption Redemption SiePocet_ Loupe mou Fabius Commitments Freeney NocePaiod nvesinens ates Maeableatenaivequiy” —$485508 $= ay-S6mons 1-120 SLA 1Banmly ling Fixe income st Viemonths—10-4Sdays 81am ong Matte eegy nd «ommodies 18670 I-t2months 22-503 1 ously ong Reet 426 Monthly >90days 26yeus Private oui 353036721 NA Nia NA Tot sss sent sate Marketable allertive equity investmens ae comprised of investment indo funds nd hedge Funds that inves pinay in marketable equity secures nd equated undying secuntes. © Fixed income atemtive investments are comprised of hedge funds investments hat invest in pian fsed income securities and sed income ented uring secures "© Marketable ener ad comets are comprise of inte puters an hedge Tanta invest in maski eerste ‘nergy and commodity secs, "© rivate equity cludes investent in nied partnerships and pivate equity fans pinay invested ino a oa, ‘ate These investment ar ot redeemable erodeally at the iseetion ofthe investor Instead the rare ofthe vest in this ‘ategory shat isto are veeived through Ue general partners Igudaio ofthe underying ast fhe funds extraed at ‘th underying ase of hse fads wil beige in 7 15 ous. © The Archdiocese may pricipotin side pocket investments, either atthe Archdicese's iscetion otha fhe investment adviser ho manages he investent fd in which be Ateocese invests. Asie pocket ivesner generally les lil han oes ‘nvestmen fend and wl be sujet to dierent toms nd enatons, lang rae significant escuons om edempion’. ‘The following section describes the valuation methodologies used to measure different assets at fair value, including an indication of the level in the fair value hierarchy in which the asset is generally classified. The Archdiocese uses prices and inputs that are current as of the measurement date, obtained through a third-party custodian from independent pricing services or the underlying investment. managers. Invested cash includes money market mutual funds are valued based on the NAV as computed once per day and are generally categorized in Level | of the fair value hierarchy. Common stock is valued based on quoted prices from an exchange. To the extent these securities are actively traded, valuation adjustments are not applied and they are generally categorized in Level 1 of the fair value hierarchy. -23-% Equity mutual funds and fixed income mutual funds are valued based on the NAV as computed once per day based on the quoted market prices ofthe securities in the Fund's portfolio and are generally categorized in Level | of the fair value hierarchy. Marketable alternative equity investments are comprised of investments in fund of funds and hedge funds. Marketable alternative equity investments that cannot be fully redeemed at the NAV in the “near term” are investments that cannot be redeemed at its NAV within 90 days after June 30. The marketable alternative equity investments that can be redeemed within the “near term” are categorized in Level 2 of the fair value hierarchy. The marketable alternative equity investments that cannot be redeemed withis the “near term” are categorized in Level 3 ofthe fair value hierarchy. These investments are valued using estimates developed by external investment managers and are accepted or adjusted through a valuation review performed by management Fixed income alternative investments are comprised of hedge funds investments. Fixed income alternative investments that cannot be fully redeemed at the NAV in the “near term” are investments that cannot be redeemed at its NAV within 90 days after June 30. The fixed income alternative investments that can be redeemed within the “near term” are categorized in Level 2 of the fair value hierarchy. The fixed income alternative investments that cannot be redeemed within the “near term” are categorized in Level 3 ofthe fair value hierarchy. These investments are valued using estimates developed by external investment managers and are accepted or adjusted through a valuation review performed by management. Marketable energy and commodities are investments in marketable alternative equity fund of funds and hedge funds. Marketable energy and commodities that cannot be fully redeemed at the NAV in the “near term” are investments that cannot be redeemed at its NAV within 90 days after June 30, The marketable energy and commodities investments that can be redeemed within the “near term” are categorized in Level 2 ofthe fair value hierarchy. The marketable energy and commodities investments that cannot be redeemed within the “near term” are categorized in Level 3 of the fair value hierarchy. These investments are valued using estimates developed by external investment managers and are accepted or adjusted through a valuation review performed by management, Real estate alternative investments are comprised of investments in diversified real estate funds. Real estate alternative investments that cannot be fully redeemed at the NAV in the “near term” are vestments that cannot be redeemed at its NAV within 90 days after June 30. The real estate altemative investments that can be redeemed within the “near term” are categorized in Level 2 ofthe fair value hierarchy. The real estate alternative investments that cannot be redeemed within the “near term” are categorized in Level 3 of the fair value hierarchy. These investments are valued using estimates, developed by external investment managers and are accepted or adjusted through a valuation review performed by management. Private equity investments include investments in limited partnerships and private equity funds. These investments are valued using estimates developed by external investment managers and are accepted or adjusted through a valuation review performed by management. Private equity investments are generally categorized in Level 3 of the fair value hierarchy. EMPLOYEE BENEFITS Parishes—Certain insurance (medical, ife, and auto) and other aid are provided to retired priests. Retired priests do not contribute to the cost of these benefit plans, and the plans are currently not funded, ‘These benefits are administered and partially funded through PRMAA. -24-Pastoral Center—The Archdiocese has a noncontributory defined benefit pension plan covering substantially all ay employees of the Pastoral Center, Parishes, and participating charitable organizations. The Pastoral Center charges Parishes and participating charitable organizations for pension costs. The plan provides annual retirement benefits (over and above normal Social Security benefits) equal to 1.375% of annual pay for each year of employment based on the career average salary ‘without limitation as to amount of salary or term of service before normal retirement age. For employment years prior to 1997, the salary was updated for the average salary during 1997 to 2001. A participant is 100% vested after five years of service. Effective July 1, 2007, the pension plan was amended to freeze benefit accruals and participation as of that date. ‘The Pastoral Center has a defined contribution plan under Intemal Revenue Code Section 403(b), which includes an employer matching contribution. The matching contribution is available to all lay benefits-eligible employees of the Pastoral Center, Parishes, and certain other Archdiocesan entities. The employer match is 50% of an employee's contribution, up to a maximum of 2% of gross salary. Vesting in the match occurs at 25% per year. The Archdiocese contributed to the plan and incurred expense of {$4,096 and $4,206 in 2015 and 2014, respectively. Effective July 1, 2007, the Archdiocese implemented the share plan to replace the defined benefit pension plan for full-time and benefits-eligible part-time employees. Under the share plan, the Archdiocese makes a contribution to the eligible employees’ 403(b) retirement plan accounts. The contribution isa percentage of gross pay and is deposited each quarter. For eligible employees hired on or before June 30, 2007, the quarterly contribution is an age-weighted percentage of the employee’s gross earings, and that percentage increases as employees advance in age, based on age as of January 1 each year. Share plan contributions for employees who became eligible or were hited on or after July 1, 2007, are based on a flat percentage of gross earnings, regardless of age. The fat contribution can range from 1.25% to $% as determined annually by the Archdiocese. The share plan has the same five-year cliff vesting as the defined benefit pension plan. The Archdiocese contributed to the plan and incurred expense of $12,444 and $12,304 in 2015 and 2014, respectively. ‘Cemeteries—Cemeteries has a contributory defined benefit retirement plan for field employees and a noncontributory defined benefit plan for administrative employees. Eligibility for both plans is based on certain minimum service requirements. Benefits for both plans are based on compensation and years of service. The contributory defined benefit plan is funded through contracts administered by Metropolitan Life Insurance Company. The noncontributory defined benefit plan is funded through contracts administered by Metropolitan Life Insurance Company and Prudential Insurance Company. Cemeteries funds the plans based on actuarial funding recommendations using the aggregate cost method. Cemeteries also provides health care benefits to retired employees. The postretirement health care plan is unfunded. Charitable Activities—Charities sponsors a noncontributory defined benefit pension plan covering. substantially all lay employees. The plan is funded through the plan trustee. The plan provides annual retirement benefits (over and above normal Social Security benefits) equal to 1% of average earnings within the last five years of service multiplied by the number of years of full-time service up to 15 years, plus 1.5% of average earnings, as defined above, multiplied by the number of years of service in excess of 15 years. Plan assets consist primarily of common stock and fixed income securities. 225-Charities has a defined contribution plan under Internal Revenue Service Code Section 403(b) covering. all new employees hired after July 1, 2002, as well as employees hired before July 1, 2002, who have ‘opted out of the postretirement medical and dental benefits plan. The eligibility guidelines are based on ‘one year of service and employees who work at least 20 hours per week. Charities contributes 1% of all participants’ compensation, plus matching contributions of 1.5% of the individual participant's. compensation, Total employer contributions and expense for the years ended June 30, 2015 and 2014, ‘were approximately $814 and $763, respectively. Charities offers certain medical and dental benefits for retired employees. Charities amended this policy as of February 1, 2002. A cap was placed on the net employer contribution tothe cost of medical coverage for employees retiring on or after July 1, 2002. The cap is equal to $0.5 per month for retirees with single coverage and $0.7 per month for retirees with family coverage. The amended policy also states that all new employees hired after July 1, 2002, would not be offered postretirement medical and dental benefits, and empioyees must maintain coverage in the active employee medical plan to be eligible for medical coverage during retirement. Employees hired before July 1, 2002, had a choice of continuing their eligibility for postretirement medical and dental benefits or electing to participate in the 403(b) plan and permanently forgo any eligibility for future postretirement medical and dental benefits. Maryville sponsors a noncontributory defined benefit pension plan covering substantially all lay employees. The plan is funded through the plan trustee. The plan provides annual retirement benefits (over and above normal Social Security benefits) equal to 1.125% of average earings within the last five years of service multiplied by the number of years of full-time service up to 15 years, plus 1.5% of average earnings, as defined above, multiplied by the number of years of service in excess of 15 years. Plan assets consist primarily of mutual funds and fixed income securities. Maryville provides certain medical and dental benefits for retired employees. Maryville’s employees do not contribute to the cost of this benefit plan. The obligation is funded by Maryvilie on an annual basis and the assets for this plan are segregated and held in a separate legal trust. Merey offers a 403(b) plan to all full-time and benefits-eligible employees of Mercy. The plan offers both a matching and a gift component to all eligible employees. There are separate vesting periods for the matching and gift components. Mercy made contributions and expensed $678 and $675 for the years ‘ended June 30, 2015 and 2014, respectively. PRMAA—In 1999, PRMAA established a defined contribution plan covering substantially all active priests. The plan operates as a deferred salary arrangement under Section 403(b) of the Internal Revenue Code. Under the plan, participating priests may defer a portion of their pretax earnings. PRMAA. ‘matches 50% of each priest’s contributions up to a maximum matching contribution of $0.5; however, PRMAA’s contributions are discretionary. PRMAA’s contributions to the plan and incurred expense for 2015 and 2014 were $539 and $501, respectively. ‘The Archdiocese sponsors, through PRMAA, a defined benefit pension plan covering all the priests of the Archdiocese. The pension plan provides a flat benefit that varies depending on whether the retired priest resides in an ecclesiastical institution. The plan is funded based on actuarial funding determinations. Plan assets primarily consist of equity mutual funds and marketable alternative equity investments. Plan expenses are borne by the pension plan. ‘The Archdiocese uses a June 30 measurement date for its plans. -26-‘Summary information for all plans as of June 30, 2015 and 2014, is as follows: Pension Benefits Postretiromont Bonofits 1s 2018 2016 2014 Accumulated benefit bligation—overfanded plans Ss - smes os . $ . ‘Accumulated benefit obligation—underfunded plans 1.069.581 _ 256.548 188,782 _ 170.155 ‘Accumulated bereft obligation total $1,069,581 $977,183 $188,782 $ 170.155 Projected benefit obligation—overfunded plans S + smoes 8 - $ Projected benefit obligation underfunded plans 1069581 _ 273.914 190,188 _172.487 Projected benef obligation tot S.1069.54 $.994549 — § 19018 $172,487 Plan assets at fi value—overfaned plans s mn $ - $ - Plan asset at fi value—undsfunded pans 23376 _156.095, 207 400s Plan asset at fr vlue—totl Sms goss, $42) $4 Funded status $.1146.165) $ $6028 S$ U85971) — $.4168.032) Prepaid pension asset (acrued benefit cos) $146,165) $6028) — $U8S.97H) $468,032) Amounts rsognized in statements of Financial poston ‘sels Bere seal ise ee Liabilities 146,165) (17819) 185971) (168,032) Net amount recognized at end of ear $146,165) $ ($6028) SUBSTI) $.4168.052) Benefit cost S_s4or $4100 §_13051 $13,564 Employer contributions S947 $ 668s S$ 57H SSI Panisipant contributions Sm sm swe st Medicare Prt D subsidy cieeeeneen Sus sae Benefits pid S_us.198) woo — $37) $_ GOTH) ‘The pension and postretirement plans accumulated losses and prior service credits not yet recognized as ‘a component of periodic pension and postretirement expense but accumulated in unrestricted net assets for the years ended June 30, 2015 and 2014, are as follows: Pension Benefits 2016 2014 2016 2014 Unrecognized actuarial loss $126917 $30,688 $53,011 $43,244 Unrecognized prior service cost (credit) 985 644 2.074) _@,805) ‘Total accumulated in unrestricted net assets $127,902 $31332 $0937 $40.439 -27-‘An estimated $19 in prior service costs and $3,945 in net actuarial loss will be included as components of periodic pension expense in 2016, An estimated $89 in prior service costs and $1,997 in net actuarial loss will be included as components of periodic postretirement expense in 2016, ‘The pension plans and postretirement plans items not yet recognized as a component of periodie pension and postretirement expense, but included as a separate charge to net assets during 2015 and 2014, are as follows: Pension Benefits Postretirement Benefits 2018 2014 2015 2014 Actuarial (gain) loss arising during the year $102,599 $12,325 $11,681. $1,712) Curtaitment gain 449 Curtailment gain not yet recognized ‘as cost (income) (1,859) Reclassification adjustment for recognition of prior service (Cost) credit 8,162) 2,155) 192 sil Reclassification adjustment for recognition of actuarial loss 1.457) (659) G37) _0,946 Total recognized as a separate charge (credit) to net assets $96,570 $9511 $10,499 $3,147) Actuarial assumptions for the plans as of June 30, 2015 and 2014, are as follows: 2018 2014 Ponsion _Pastrlrement Pension Postreirement Benefits Benefits Benefits Benefits Range of weighted-average assumptions use to determine benefit obligations and costa of Tune 30: Discount rate (obligation) 438-4.60% 4.20-450% 3.844.609 iscount rate (cost) 420-450 460-510 428-5.10 Expected etum on plan assets 6.00-8.00, 590-800 0-200 Rate of compensation inerease 0-400 0-40 0-400 ‘The Archdiocese determined the overall long-term rate of return on the plans” assets by considering the historical returns and expected future returns for each asset class, as well as the target asset allocation of cach plan, The Archdiocese’s investment strategy is to meet its obligations to retired employees. To achieve this objective, the Archdiocese generally invests in a diversified portfolio of investments, including come securi ‘The Archdiocese plans to contribute $6,979 to the pension plans and $6,290 to the postretirement plans, in 2016. +28-‘The benefit payments, which reflect expected future services, as appropriate, as of June 30, 2015, are expected to be paid as follows: Years Ending Pension Postretirement June 30 Benefits Benefits 2016 $48,705 $6,594 2017 51,051 6,947 2018 53,323 7,376 2019 55,422 7,825 2020 57,482 8,276 2021-2024 312,507 48,571 For measurement purposes, a 8% and 9% gross health care trend rate was used for 2015 and 2014, respectively. Trend rates were assumed to decrease gradually to 5% in fiscal year 2018 and remain at that level beyond, Plan Assets—The primary retum objectives of the plans are (a) the preservation of principal, (b) to earn ‘competitive total return consistent with prudent levels of risk, and (c) to create a stream of investment returns to ensure the systematic and adequate funding of actuarially determined benefits through contributions from the Archdiocese and professional management ofthe plan assets. This is accomplished through diversification of assets in accordance with the various investment policies. The pension plan assets are primarily invested in fixed-income securities. The pension assets also include invested cash, marketable alternative equity investments, and marketable alternative energy ‘and commodity investments, Invested cash includes money market mutual funds, which are valued based on the NAV as computed daily, and is generally categorized in Level | of the fair value hierarchy. ed income securities are comprised of U.S. government securities, U.S. government agency securities, and corporate bond securities. U.S. government securities and U.S. government agency securities are comprised of noncallable agency issued debt securities and are generally valued using quoted market prices, Actively traded noncaliable agency issued debt securities are categorized in Level 2 ofthe fair value hierarchy. The fair value of corporate bond securities is estimated using recently executed transactions, market price quotations (where observable), or bond spreads. If the spread data does not reference the issuer, then data that reference a comparable issuer is used, These corporate bonds are generally categorized in Level 2 of the fait value hierarchy. Marketable alternative equity investments are comprised of investments in fund of funds and hedge funds. Marketable alternative equity investments that cannot be fully redeemed at the NAV in the “near term’ are investments that cannot be redeemed at its NAV within 90 days after June 30. The marketable alternative equity investments that can be redeemed within the “near term” are categorized in Level 2 of the fair value hierarchy. The marketable alternative equity investments that cannot be redeemed within the “near term” are categorized in Level 3 of the fair value hierarchy. These investments are valued using estimates developed by external investment managers and are accepted or adjusted through a valuation review performed by management. Marketable energy and commodities are investments in marketable alternative equity fund of funds and hhedge funds with @ concentration in the energy and commodities sectors. Marketable energy and commodities that cannot be fully redeemed at the NAV in the “near term” are investments that cannot be -29-redeemed at its NAV within 90 days after June 30. The marketable energy and commodities investments, that can be redeemed within the “near term” are categorized in Level 2 of the fair value hierarchy. The marketable energy and commodities investments that cannot be redeemed within the “near term” are categorized in Level 3 of the fair value hierarchy. These investments are valued using estimates developed by external investment managers and are accepted or adjusted through a valuation review performed by management. Equity separate accounts are privately managed accounts with underlying investments primarily in equity securities of large-cap, mid-cap, and small-cap companies located in both the United States and offshore. The underlying equity securities are valued based on quoted prices from an exchange, but the separate equity accounts are not actively traded and are, therefore, categorized in Level 2 of the fair value hierarchy. ‘Commingled fund is an unregistered investment fund with a daily NAV that invests in large-cap companies located in the United States. This commingled fund allows investors to sell their interests ‘with a one-day notice. Such commingled fund is categorized in Level 2 of the fair value hierarchy. Fixed income altemative investment separate accounts ate privately managed accounts with underlying. investments in U.S. government securities, U.S. government agency securities, and corporate bond securities, The U.S. government securities are valued using quoted market prices. The U.S. government agency securities are comprised of noncallable agency issued debt securities and are generally valued using quoted market prices. The fair value of corporate bond securities are estimated using recently executed transactions, market price quotations (where observable), or bond spreads. Ifthe spread data does not reference the issuer, then data that reference a comparable issuer is used. These fixed-income alternative investments are categorized in Level 2 ofthe fair value hierarchy. Real estate separate accounts are privately managed accounts with underlying investments primarily in real estate investment trust (REIT) investments, The underlying REIT investments are valued based on quoted prices from an exchange, but the separate accounts are not actively traded and are, therefore, categorized in Level 2 of the fair value hierarchy. -30-‘The information about the Archdiocese’s pension plan assets measured at fair value as of June 30, 2015 and 2014, by fair value hierarchy, is as follows 2018 Levelt Level? Level. «Total Invested cash $15,365 : Sia $15,365 Common stock and equity mutual funds 61,436 61,436 ‘Commingled fund 19,048 19,048 Fixed income: Corporate bonds 421,941 421,941 Municipal bonds 17,409 17,409 USS. government agency 200,776 200,776 US. government 120,160 120,160 Total fixed income - 760,286 : 760,286, Separate accounts: Equity 17,808 17,808 Fixed income alternative 11,531 11,531 Real estate 1,043 1,043 ‘Total separate accounts - 30,382 : 30,382 ‘Alternative investments: Marketable alternative equity 28,776 28,776 Marketable energy and commodities 7611 76l1 Real estate 472 472 Total alternative investments : 7611 29,248 _36,859 Total fair value of plan assets $817,327 $29,248 $923,376 ale2014 Invested cash ‘Common stock and equity mutual funds ‘Commingled fund Fixed income: Corporate bonds Municipal bonds US. government agency US. government Foreign government agency Foreign government Total fixed income ‘Separate accounts: Equity Fixed ineome alternative Real estate Total separate accounts Alternative investments: Marketable alternative equity Marketable energy and commodities Fixed income Real estate Total alternative investments Total fair value of plan assets Level 4 $22,088 61,145 $83,233, -32- Level 2 18,099 333,233 28,052 122,376 167,486 1,878 5,981 659,006 17,765 10,945 1391 30,101 120,727 120,727 $827,933 Level 3 26,732 ‘623 27.355 $27.355 Total $22,088 61,145 18,099 333,233 28,052 122,376 167,486 1,878 5981 659,006 17,765 10,945 1391 30,101 26,732 623 120,727 148,082 $938,521The information about the Archdiocese’s postretirement plan assets measured at fair value as of June 30, 2015 and 2014, by fair value hierarchy, is as follows: 2015 Levelt Level Level. Total Invested cash and short-term investments S_286 $_ 286 Equity mutual funds 1,460 1,460 Fixed income: Corporate bonds 998 998 USS. government agency 604 604 US. government 869 869 Total fixed income 2471 2471 Total $1746 $2471 $ - $4217 2014 Levelt Level2 Level3 Total Invested cash and short-term investments $137 $137 Equity mutual funds 1,099 1,099 Fixed income: Corporate bonds 1121 1121 USS, government agency 957 957 USS. government 11 LI Total fixed income : 3,189 : 3,189 Total -33-10, ‘The table below presents the reconciliation of all pension plan assets measured at fair value on & recurring basis using significant unobservable inputs (Level 3), and presents changes in unrealized gains or losses included within pension-related changes other than net periodic pension expense, a component of the change in net assets for the year ended June 30, for Level 3 assets and liabilities. 2015 2014 Balance as of July 1 $27,355 $21,146 Purchases 921 4,393 Sales (591) (330) Realized and unrealized gains—net 1,563 2.146 Balance as of June 30 $29,248 $27,355 ‘The amount of total gains (losses) for the year included in ppension-related changes other than net periodic pension expense attributable to the change in unrealized gains or losses relating to assets still held at June 30 $1,053 $ 2.170 NONCASH ASSISTANCE During the years ended June 30, 2015 and 2014, Chatities received certain food commodities with a value of approximately $4,133 and $4,165, respectively, under the terms of a federally funded program whereby Charities acts as a distributor. The receipt and subsequent distribution of these commodities are not shown as revenues or expenditures in the consolidated financial statements. Charities recorded in-kind donations of gifts in the amount of $1,430 and $1,260 during the years ended June 30, 2015 and 2014, respectively, which it distributed to the families it serves. NET ASSETS. Net assets as of June 30, 2015, comprise the following: Unrestricted Unrestricted Temporarily Permanently Undesignated Designated Restricted Restricted Total Parishes s- S 698,234 § 88457 Ss S_ 786,691 Charitable activities 730,769 39,518 40,501 810,788 Cemeteries 104,033, 104,033 Pastoral Center (153,123) 52410 38,540 17,028 (45,144) PRMAA. (20,887) (20,887) Reclassifications Gi) on Consolidating entries 155,909 155,909 Total $153,123) $1,719.857 $167,126 $57,530 $1,791,390 “MeR Net assets as of June 30, 2014, comprise the Following: Unrestricted Unrestricted Temporarily Permanently Undosignatod Dosignated Restricted Restricted, Total Parishes 8 3 696.856 $9451 Ss 8 787,307 Charitable activities 721802 34,880 26,714 783,436 Cemeteries 125,868 125,868 Pastoral Center (28,892) 55,129 38,046 16,512 80,795 PRMAA 4.725) (14,725) Reclassifications (611) ou : ‘Consolidating entries 153,983 153,983 Total $028,892) $1,738,342 $163,988 $43,226 $1,916,664 All net assets are designated for the use of the specific consolidating organization, with the exception of the Pastoral Center’s net asset. ENDOWMENTS. The Archdiocese endowments include funds established for a variety of purposes and include both donor-restrieted endowment funds and designated funds designated to function as endowments. As required by GAAP, net assets associated with permanently restricted funds, including designated funds, are classified and reported based on the existence or absence of donor-imposed restrictions. ‘The Archdiocese has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value ofthe original gift, as of the gift date of the «donor permanently restricted funds, absent explicit donor stipulations to the contrary. As a result ofthis interpretation, the Archdiocese classifies as permanently restricted net assets (a) the original value of ifts, (b) the original value of subsequent gifts, and (c) accumulations made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund, ‘The remaining portion of the donor-restricted fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the “organization in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the organization considers the following factors in making a determination, to appropriate or accumulate donor-restricted funds ‘The duration and preservation of the fund ‘The purposes of the organization and the donor-restricted fund General economic conditions ‘The possible effect of inflation and deflation ‘The expected total return from income and the appreciation of investments Other resources of the organization ‘The investment policies of the organization -35-Endowment net asset composition by type of fund as of June 30, 2015 and 2014, is as follows: 2015 Donor-restricted finds Designated funds Total funds 2014 Donor-restricted funds Designated funds ‘Total funds Changes in endowment net assets for the years ended June 30, 2015 and 2014, are as follo\ 2016 Endowment net assets—beginning, of year Investment return: Dividend and interest ineome—net Realized and unrealized gains/losses—net ‘Total investment return Contributions ‘Transfer of net assets Appropriation of endowment assets for expenditures Endowment net assets—end of year Temporarily Permanently Unrestricted Restricted Restricted —Total S$ G37) -$16207 $57,530 $73,400 531,419 531,419 $531,082 $16,207 $57,530 $604,819 Temporarily Permanently Unrestricted Restricted Restricted ~—Total S$ (89) $16,569 $43,226 $59,706 520,223 520,223, $520,134 $16,569 $43,226 $579,929 Temporarily Permanently Unrestricted Restricted Restricted Total $520,134 $16,569 $43,226 $579,929 11,586 701 85 12372 4,398 (28) 285 4,655, 15,984 6B 370 17,027 881 279 11,743 12,903 (728) 2.214 1,486 (5,189) _(1,314) (23) (6.526) $531,082 $16,207 ‘$57,530 $604,819 -36-2014 Temporarily Permanently Unrestricted Restricted Restricted ‘Total Endowment net assets—beginning of year $441,709 $12,910 —-$37.932 $492,551 Investment return: idend and interest income—net 9am 482 9.983 Realized and unrealized ains/losses—net 58,525 4.786, 63,513 ‘Total investment return 67,996 5.268 202 3466 Contributions 2747 114s 5214 9,106 ‘Transfer of net assets 10,122 10,122 Appropriation of endowment assets for expenditures 2,440) 2,754 122) 5316) Endowment net assets—end of year $520,134 $16,569 $43,226 $579,920 Funds with Deficiencies—From time to time, the fair value of assets associated with individual donor permanently restricted funds may fall below the level that the donor or UPMIFA requires the Archdiocese to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies ofthis, nature are reported in unrestricted net assets and were $337 and $89 as of June 30, 2015 and 2014, respectively. These deficiencies resulted from unfavorable investment performance due to unfavorable ‘market conditions for the investments supporting the permanently restricted and designated funds during fiscal years 2015 and 2014 Return Objectives and Risk Parameters—The Archdiocese has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the Archdiocese must hold in perpetuity or for a donor-specified period(s) as well as designated funds. The Archdiocese expects its endowment funds, over time, to provide an average rate of return of approximately 8% annually. Actual returns in any given year may vary from this amount. ‘Strategies Employed for Achieving Objectives—To satisfy its long-term rate-of-return objectives, the ‘Archdiocese relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). Spending Policy and how the Investment Objectives Relate to Spending Policy—The Pastoral Center has a policy of appropriating for distribution each year 5% of its designated endowment fund's average fair value over the prior four quarters through March 31 preceding the fiscal year in which the distribution is planned. In establishing this policy, the Pastoral Center considered the long-term expected return on its endowment, Accordingly, over the long term, the Pastoral Center expects the current spending policy to allow its endowment to grow at an average of 3% annually. This is consistent with the organization’s objective to maintain the purchasing power of the endowment assets held in perpetuity or fora specified term as well as to provide additional real growth through new gifts and investment return, -37-13. Misericordia Home’s investment committee has a policy that provides a spending goal of 5% of 12-quarter moving-average fair value of the portfolio as of March 31 each year. This formula is set as a base to determine the spendable earnings for the next fiscal year. It is at the diseretion of Misericordia Home's investment committee to spend more or les than the annual percentage goal. Accordingly, the return objective for the endowment is to generate a long term (five-year) real return of 5%, (ie. Consumer Price Index, plus 5%) annually. This return is based on income received, as well as capital appreciation (a total return emphasis). Significant emphasis is placed on capital protection throughout, the investment process. Charities has a policy of appropriating endowment distributions each year of up to 5% of a rolling, three-year average of its board-designated endowment fund's average fair value. In establishing this, policy, Charities considered the long term expected return on its board-designated endowment. COMMITMENTS AND CONTINGENCIES ‘Cemeteries owns two landfills, which are the subjects of certain environmental remediation plans required by the Illinois Environmental Protection Agency. Both landfills have been closed for more than 25 years. The ultimate cost ofthe remediation has been shared by two parties, including Cemeteris ‘who is the owner, and an unrelated party who is the operator. While the owner and the operator have each engaged engineers to study the issues related to these sites and develop plans and estimates related to remediation, and remediation has begun, the future costs are only estimable within a wide range covering a period of more than 20 years. The engineering estimates for the total costs of remediation for both the owner and the operator are likely to fallin a range of $9,000 to $38,000. The accrued landfill liability balance related to the Cemeteries” landfil liability obligation was $20,600 and $21,400 as of June 30, 2015 and 2014, respectively, and includes compensation and litigation costs. The estimates will ‘change in the future and are sensitive to factors, such as testing results, the success of current remediation efforts, technological developments in the field of environmental remediation, regulatory ‘changes, and the continued participation of the operator in funding remediation. In 2012, the operator informed Cemeteries that they will no longer share in the funding of remediation. During 2014, the Cemeteries and the operator reached an agreement whereby all interest in the escrow and operating accounts assets were assigned to the Cemeteries and the operator was released from all, past and future claims. In order to demonstrate financial assurance that the funds necessary to meet the costs of post-closure care for the landfills will be available when needed, an irrevocable standby letter of credit has been secured in the amount of $1,800 for the benefit of the Ilinois Environmental Protection Agency, ‘The Archdiocesan Finance Council and its Investment Committee oversee a pooled investment fund for various entities in the Archdiocese, including the Pastoral Center, Parishes, the Cemeteries, PRMAA, and certain charitable activities’ agencies. The Pooled Investment Fund invests with a number of investment managers in various equity and fixed income products. A portion of the investments are in nonmarketable investments through limited partnerships. At any point in time, the Archdiocese has open ‘commitments to fund additional capital cals to the limited partnerships. The aggregate amount of open commitments for the Pooled Investment Fund as of June 30, 2015 and 2014, is $44,259 and $38,721, respectively. Other various legal actions and governmental proceedings involve the CBC or separately incorporated jous organizations under its control. These actions can involve claims for compensatory or pun damages, as well as other types of relief. Among the pending or potential legal claims against the ‘Archdiocese are some related to allegations of past sexual misconduct by priests. Cost of settlement and legal defense for such claims are managed and reported through an insurance claims reserve (see -38-14. Note 2). The outcome of these matters is not presently determinable, but in the opinion of management, ‘the ultimate liability will not have a material effect on the net assets of the Archdiocese beyond the reserve for insurance claims already reflected in the consolidated statements of financial position. The ultimate liability will change in the future and is sensitive to precedents established by pending court cases, possible legislative action, particularly related to the statutes of limitation, and additional claims that may be asserted in the future LEASES Charities leases office space under conditional operating leases that generally contain rent escalation provisions. Rent expense under the leases is recognized based on straight-line amortization of total rent ‘over the term of the lease. Rent expense of $8,133 and $6,898 was incurred for the years ended June 30, 2015 and 2014, respectively. Future minimum rental expense related to this operating lease as of June 30, 2015, is as follows: Years Ending June 30 2016 8 5,712 2017 2,689. 2018 827 2019 420 2020 331 ‘Thereafter 774 Total $17,7531S, FUNCTIONAL EXPENSES ‘The summary of expenses by functional classification and reconciliation to total expenses for the years ended June 30, 2015 and 2014, is as follows: 2018 2014 Program activities: Pastoral Center program activities $ 122,194 $118,932 Cemetery services 45,884 43,797 Educational activities 347,468 330,973 Parish operations 299,412 310,370 Charitable activities programs 291,051 303,186 PRMAA expense 12,004 13,261 Total program activities 1,118,013 1,122,519 Fundraising and development expenses 27,845 19,619 Management and general expenses 88,797 80,040 Total functional expenses 1,234,655 1,222,178 Annual appeal distributions 640 640 Interest expense 8.965 8,532 Expenses—net $1,244,260 $1,231,350 16, TAX-EXEMPT STATUS ‘The CBC, Charities, Maryville, Mercy, and Misericordia Home are tax-exempt organizations under Section 501(a) as an organization described in Section 501(c(3) of the Internal Revenue Code. -40-ARCHDIOCESE OF CHICAGO. ARCHDIOCESE OF CHICAGO EXPLANATORY STATEMENT ON PASTORAL CENTER FINANCIALS: April 6, 2016 The following summary provides explanatory detail regarding the financial results of the Pastoral Center of the Archdiocese of Chicago. The Pastoral Center comprises the central services that support parishes in their local ministries, provides required administrative functions across the Archdiocese and offers financial support to needy parishes and schools. The financial results of the Pastoral Center do not include the operations of individual parishes or schools, Catholic Charities, Catholic Cemeteries and other charitable organizations, which are all separate organizations with separate operations and financial reporting. Please also refer to attached exhibits A and B that group similar activities in the Pastoral Center financial report together for easier understanding. Key financial results for FY2015: Key financial statistics for the Pastoral Center for FY2015 are as follows: ‘© Ongoing operating loss of -$4.6 million. * Change in net assets of -$125.9 milion, primarily as a result of non-operating expenses and pension-related changes. © Net assets at year-end FY2015 of -$45.1 million. Summary commentary: The following is an explanatory summary of the FY2015 financial results of the Pastoral Center: * The Archdiocese of Chicago has made significant progress in stabilizing its core operations. The ongoing operating loss in FY2015 of $-4.6 million is a significant improvement from an ongoing operating loss of -$75.6 million in FY2012 that hasinvolved many very difficult decisions. Key factors behind the improvement include the following: © Cost reductions at the Pastoral Center. The Archdiocese has been focused on improving the efficiency of its operations by reviewing expenses, evaluating activities relative to the benefits provided, automating activities and improving business processes. The efforts over the past couple years included a reduction in the workforce, as welll as an early retirement program. The employee headcount at the Pastoral Center today is 365 vs. 435 in FY2012, a 16% reduction. © Savings in aid to parishes and schools. The aid savings are the result of operating improvements at parishes and schools, increased scholarship funding by generous donors, including the Big Shoulders Fund, and, unfortunately, some closures. Since FY2012, the Archdiocese has closed 5 parishes and 23 schools. Importantly, the Archdiocese has also helped parishes improve their financial results by improving operating practices and continues to invest in programs that help parishes and schools implement best practice. The Archdiocese is taking additional actions in order to reach break-even in the next several months on an ongoing operating basis. We are grateful for all of the efforts by our priests, other religious, staff and lay advisory councils in supporting our progress to-date. ‘The Archdiocese of Chicago faces continued financial pressure in 2 key areas: © The financial stability of our parishes and schools. Despite recent progress, some of our parishes and schools have low parishioner and/or student counts, unstable operating results and unsustainable capital repair needs. More importantly, resources that are strained or spread too thinly hamper a parish or school's overall vitality. These issues are factors that will be addressed in the "Renew My Church’ initiative, which is focused on renewing the vitality of our parishes and the mission of our Church in the Chicago area. We will also continue to support parishes and schools in implementing best operating practices in order to stabilize their financial situations. © The financial cost of misconduct settlements. Over the past 30 years, the Archdiocese of Chicago has paid more than $140 million in settlements to compensate the victims of priest sexual abuse. Current open claims and associated expenses comprise a significant portion of the $168.6 million contingent liability on the Pastoral Center balance sheet. Most of the claims stem from a period before 1992, when the Archdiocese implemented reforms in its handling of abuse cases. The financial cost of misconduct has had a significant impact on our ability to support the mission of our Church and is one of the drivers of our negative net worth at the Pastoral Center in FY2015.Funding for misconduct settlements has come from the sales and leasing of assets; parish assets or donations are not used for these settlements or associated expenses. The Archdiocese remains committed to providing healing to true victims of abuse. We are also committed to the protection of children and others and to preventing abuse, and we expend significant resources to our Office for the Protection of Children and Youth as a ministry. * The Archdiocese of Chicago is committed to the careful stewardship of its resources and looks forward to investing in the future vitality of the Catholic Church in the Chicago area. We believe that our parishes and schools, through God's grace, transform the lives of Chicago area residents, and we are committed to strong efforts to renew parish and school vitality. As we embark on our vitality efforts, we are grateful for the more than 42,000 donors who have made a contribution to the To Teach Who Christ Is capital campaign, with more than $260 million pledged to the campaign to-date. Most of the funds benefit parish needs and establish scholarships for families otherwise unable to attend Catholic school. An independent trust that is separate from the Archdiocese has been established to govern the scholarship endowment fund. Each year, the Archdiocese of Chicago serves more than one million Chicago area residents, Catholic and non-Catholic alike, through our parishes, schools and social service programs. These programs provide vital social services to our Chicago area communities, and we look forward to investing in continued partnership with the communities we serve.FREQUENTLY ASKED QUESTIONS What were the most significant actions taken that have led to the strong improvement in ongoing operating results? The Archdiocese of Chicago has been focused on a very broad range of actions over the last few years in order to stabilize our ongoing operating budget. These actions have been focused on improving the efficiency and effectiveness of the Pastoral Center, as well as stabilizing the operations of our parishes and schools. How would you explain the decline in revenue and the increase in expenses in the Capital Campaign from FY2014 to FY2015? The capital campaign recorded lower revenue in 2015 because of a temporary hiatus in the campaign as we redirected our approach. Accordingly, fewer parishes participated in the campaign in FY2015 compared to FY2014. ‘The Archdiocese has experienced significant benefits as a result of the redirection. More than $260 million has been pledged to the campaign; the Archdiocese has exceeded its original $100 million major gift goal; and the large majority of parishes are meeting their individual campaign goals. Capital campaign expenses include both expenses for managing the campaign, as well as initial disbursements in line with the case statement. To-date, the majority of disbursements from the campaign have been for scholarships. Where do the costs for misconduct appear in the financial statements? In the Pastoral Center financial statements, misconduct-related expenses are part of the line item “insurance and retirement benefit program’ in the Statement of Activities. Contingent liabilities for future misconduct settlements are part of the “Insurance claims’ line item on the balance sheet. Please note that the Archdiocese does not have any insurance for these claims; they are listed on the “Insurance claims’ line item for historical reasons when insurance was available. What accounts for the borrowings on the balance sheet? The Archdiocese of Chicago borrowed $160 million between 2012 and 2013 in order to meet the liquidity needs of the Archdiocese, particularly given a gap in timing between funding needs and the proceeds from sales of assets.What caused a significant change in the pension liability in FY2015—from a net asset of $61.8 million in FY2014 to a net liability of $9.4 MM In FY2015? ‘The primary cause of the change in the pension liability results from the revised mortality tables issued by the Society of Actuaries during FY2015. The Society of Actuaries made these changes as a result of longer average life expectancies, which increased the amount of liability based on longer expected pension payments. In addition, pension liability changed because of negative market returns in some of the pension investments in FY2015. What accounts for the increase in insurance claims on the balance sheet from 2014 to 2015? The Archdiocese experienced an increase in claims for priest sexual misconduct following the release of historical internal documents in January and November 2014. These claims led to an increase in expected future settlements, leading to the higher contingent liability listed on the balance sheet. What is the “Renew My Church” initiative? The ‘Renew My Church’ initiative is a mutt-year planning effort launched by Archbishop Cupich to revitalize the life of our parishes. The effort will address the impact of changing demographics, high capital needs, the availabilty of priests and thinly-spread resources on our parishes. The initiative will also focus on other areas that can create parish renewal, such as support and leadership development for our priests and religious education for our youth. How much deferred maintenance do you have on Archdiocesan buildings? Many buildings in the Archdiocese are magnificent structures built many decades ago. The cost to maintain these buildings is very significant and many of our parishes have not been able to keep with the required level of ongoing maintenance. Accordingly, many of our parishes do have capital needs that are unsustainable. The Archdiocese will be undertaking a more detailed review of our capital infrastructure to determine the magnitude of our capital needs. The Archdiocese also recognizes the contribution some of our buildings make to the historical and architectural heritage of the Chicago area and is working on plans for these important structures.Do you expect to have more closures of parishes and schools? Over the past few years, we have focused significant effort on improving the financial stability of parishes and schools by helping these institutions implement best operating practices. Many of these efforts have been successful and we will continue to work with parishes and schools to improve their operations. At the same time, other parishes and schools are facing a number of challenges, such as changing demographics, low parishioner and student counts and unsustainable capital repairs. While there are no specific plans for closures at this time, we do expect the “Renew My Church" initiative to lead to changes in the configurations of our parishes and schools.EXHIBIT A Archdiocese of Chicago - Pastoral Center Historical trends--FY2012 to FY2015* Statement of Activities For the Years Ended June 30, 2012 through 2015 {Amounts in thousands) Gain/{Loss) 2012 2013, 2014 2015 General Revenue Sources Assessments $ 30473 $ 28233 28,15 30,288 ‘Annual Catholic Appeal (ACA) 7,740 6465 7,604 9,743 Contributions and bequests 2,922 2,998 2,162 1382 Investment returns designated for current operations 3,281 1,897 2,711 4,990 Interest income - parish and agency loans 7,789 7,762 6,724 7,093 Other 2,101 2,129 S 4,649 Total general revenue sources 54,306 49,484 53,291 57,890 Department Services Pastoral Center services (41,987) (38,696) (33,246) (33,733) Other (3,230) (3,179) (5,002) __(7,085) Total Department Services (45,217) (41,875) (38,248) (40,818) Parish / School aid Operating grants (12,354) (23,042) (8,899) (8,203) Provision for uncollectible loans & receivables (68,524) (22,307) (18,475) (15,240) Capital grants (6,793) (4,004) (2,012) (2,293) Total parish / school (87,671) (39,352) (28,385) (24,736) Other PRMAA - : : Food service 3,818 912 2,104 a7 Seminaries (2,493) (78) 3,739 1g01 Publications 1,619 504 358 256 Total other 2,944 1,038 6201 3,028 ONGOING OPERATING Loss (75,638) (30,705) (7,444) (4,636) Depreciation (6,189) (6348) (6,042) (5,802) Interest expense - borrowings (1,975) (5,153) (7,624) (8,286) Insurance and retirement benefit programs (18,380) 20,383 (39,951) (42,089) Capital campaign-TTWC (net of disbursements) (1,882) (2,103) 17,320 60 LOSS FROM OPERATIONS 'S (104,068) $ (23,926) $ (43,437) $ (60,753) * Please see Ex! using this format, it 8 for detail on how the numbers from the audited Statement of Activites line upEXHIBIT B. Archdiocese of Chicago - Pastoral Center Summary format detail--for FY2015* Statement of Activities For the Year Ended June 30, 2015, (Amounts in thousands) Revenue Expenses _ Gain/{Loss) General Revenue Sources Assessments $ 30,283 $ 30,283 ‘Annual Catholic Appeal (ACA) 11,337 1594 9,743 Contributions and bequests 4,182 1182 Investment returns designated for current operations 49” 31 4,940 Interest income - parish and agency loans 8525 1,432 71083 Other 4,649 4,649 ‘Total general revenue sources 60,947 3057 57,880 Department Services Pastoral Center services 21,616 55,369 (33,733) Other 7,085 085) Total Department Services 21,616 62,434 (40,818) Parish / School ald Operating grants 8,203 (8,203) Provision for uncollectibie loans & receivables 25,240 (15,240) Capital grants (1,293) Total parish / school aid > (24,736) Other PRMAA 1A79 - Food service 46,093 an Seminaries 14,254 1,901 Publications 7516 256 Total other 75,342 3,028 ONGOING OPERATING LOSS 157,905 § 162,541 $ (4,636) Depreciation 5,802 (5,802) Interest expense - borrowings 8,286, (3,286) Insurance and retirement benefit programs. 105,739 147,828 (42,089) Capital campaign--TTWCI (net of disbursements} 10,655, 10,595 60 LOSS FROM OPERATIONS 274,298 § 335,052 § (60,753) * This format uses the same line items from the audited Statement of Activities but groups similar items together for easier understanding,