RHODES COLLEGE CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION. As of and for the years Ended June 30, 2016 and 2015

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION As of and for the years Ended June 30, 2016 and 2015 And Report of Independent Auditor

2 TABLE OF CONTENTS REPORT OF INDEPENDENT AUDITOR CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Financial Position... 3 Consolidated Statements of Activities Consolidated Statements of Cash Flows... 6 Notes to the Consolidated Financial Statements SUPPLEMENTARY INFORMATION Report of Independent Auditor on Internal Control over Financial Reporting and on Compliance and other Matters Based on an Audit of Consolidated Financial Statements Performed in Accordance with Government Auditing Standards Report of Independent Auditor on Compliance for Each Major Federal Program and Internal Control Over Compliance Required by the Uniform Guidance Schedule of Findings and Questioned Costs Schedule of Expenditures of Federal Awards Notes to the Schedule of Expenditures of Federal Awards... 31

3 Report of Independent Auditor The Board of Trustees Rhodes College Memphis, Tennessee Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Rhodes College (the College ), which comprise the consolidated statements of financial position as of June 30, 2016 and 2015, and the related consolidated statements of activities and cash flows for the years then ended and the related notes to the consolidated financial statements. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these 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. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the College s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the College s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the College at June 30, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

4 OTHER MATTERS Other Information Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The supplemental information, including the schedule of expenditures of federal awards as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards ( Uniform Guidance ), is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting, and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 11, 2016 on our consideration of the College s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the College s internal control over financial reporting and compliance. Charlotte, North Carolina October 11,

5 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ASSETS Cash and cash equivalents $ 37,086,737 $ 31,180,698 Contributions receivable, net 17,406,598 20,694,877 Student receivables, net 3,214,681 3,724,682 Other receivables, net 192, ,580 Investments, at fair value 298,387, ,898,012 Investments held in charitable remainder trusts 8,795,269 8,924,753 Assets held in trust by others 57,295,766 59,766,707 Other assets 2,555,019 2,528,168 Property and equipment, net 145,647, ,719,739 Total Assets $ 570,582,408 $ 590,621,216 LIABILITIES AND NET ASSETS Liabilities: Accounts payable and accrued expenses $ 15,156,626 $ 14,327,378 Due to annuitants 4,760,936 5,065,614 Unearned income 2,909,420 3,569,320 Amounts held in custody for others 254, ,265 Refundable government advances 1,629,128 1,446,957 Accrued postretirement benefits 14,238,000 13,609,000 Long-term debt 68,332,014 69,491,065 Total Liabilities 107,280, ,763,599 Net Assets: Unrestricted 211,617, ,358,265 Temporarily restricted 67,247,493 92,860,081 Permanently restricted 184,436, ,639,271 Total Net Assets 463,301, ,857,617 Total Liabilities and Net Assets $ 570,582,408 $ 590,621,216 The accompanying notes to the consolidated financial statements are an integral part of these statements. 3

6 CONSOLIDATED STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2016 (WITH COMPARATIVE TOTALS FOR 2015) Temporarily Permanently 2015 Unrestricted Restricted Restricted Total Total Operating: Revenues: Tuition and fees $ 87,887,012 $ - $ - $ 87,887,012 $ 84,057,724 Less student financial aid (45,828,649) - - (45,828,649) (42,792,846) Net tuition and fees 42,058, ,058,363 41,264,878 Gifts and grants 2,674,398 3,623,644-6,298,042 5,865,898 Endowment income and gains distributed 7,723,666 7,292,558-15,016,224 13,174,935 Investment income 567,697 6, , ,477 Income from auxiliary enterprises 16,381, ,381,150 15,681,992 Other income 615,718 1,573,989-2,189,707 2,342,961 Net assets released from restrictions 13,932,374 (13,932,374) Total Revenues 83,953,366 (1,435,731) - 82,517,635 78,914,141 Expenses: Academic instruction 33,205, ,205,003 31,654,924 Academic support 8,218, ,218,171 7,806,548 Student services 17,089, ,089,278 16,101,150 Institutional support 9,426, ,426,034 8,369,846 Auxiliary enterprises 13,770, ,770,751 13,564,280 Total Expenses 81,709, ,709,237 77,496,748 Change in net assets from operating activities 2,244,129 (1,435,731) - 808,398 1,417,393 Nonoperating: Gifts and grants 282,321 1,291,862 6,116,460 7,690,643 14,503,291 Endowment income and gains distributed (7,723,666) (7,292,558) - (15,016,224) (13,174,935) Investment income 3,186, ,570 73,449 3,437,628 3,063,989 Net realized and unrealized investment gains (losses) (4,185,919) (8,410,374) (2,310,266) (14,906,559) 14,060,068 Other (1,265,547) - - (1,265,547) (2,628,371) Net assets released from restrictions 9,995,827 (9,995,827) Change in value of charitable remainder trust agreements - 52,470 (81,977) (29,507) (210,881) Change in net assets from nonoperating activities 289,625 (24,176,857) 3,797,666 (20,089,566) 15,613,161 Other changes in net assets: Actuarial gain (loss) on postretirement benefit obligation (275,000) - - (275,000) 2,371,000 Change in net assets 2,258,754 (25,612,588) 3,797,666 (19,556,168) 19,401,554 Net assets, beginning of year 209,358,265 92,860, ,639, ,857, ,456,063 Net assets, end of year $ 211,617,019 $ 67,247,493 $ 184,436,937 $ 463,301,449 $ 482,857,617 The accompanying notes to the consolidated financial statements are an integral part of these statements. 4

7 CONSOLIDATED STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Operating: Revenues: Tuition and fees $ 84,057,724 $ - $ - $ 84,057,724 Less student financial aid (42,792,846) - - (42,792,846) Net tuition and fees 41,264, ,264,878 Gifts and grants 2,660,337 3,205,561-5,865,898 Endowment income and gains distributed 5,995,772 7,179,163-13,174,935 Investment income 576,889 6, ,477 Income from auxiliary enterprises 15,681, ,681,992 Other income 627,003 1,715,958-2,342,961 Net assets released from restrictions 13,794,541 (13,794,541) - - Total Revenues 80,601,412 (1,687,271) - 78,914,141 Expenses: Academic instruction 31,654, ,654,924 Academic support 7,806, ,806,548 Student services 16,101, ,101,150 Institutional support 8,369, ,369,846 Auxiliary enterprises 13,564, ,564,280 Total Expenses 77,496, ,496,748 Change in net assets from operating activities 3,104,664 (1,687,271) - 1,417,393 Nonoperating: Gifts and grants 463,986 12,763,977 1,275,328 14,503,291 Endowment income and gains distributed (5,995,772) (7,179,163) - (13,174,935) Investment income 2,665, ,465 84,168 3,063,989 Net realized and unrealized investment gains (losses) 6,854,253 7,560,907 (355,092) 14,060,068 Other (2,628,371) - - (2,628,371) Net assets released from restrictions 9,738,704 (9,738,704) - - Change in value of charitable remainder trust agreements - (166,758) (44,123) (210,881) Change in net assets from nonoperating activities 11,098,156 3,554, ,281 15,613,161 Other changes in net assets: Actuarial gain on postretirement benefit obligation 2,371, ,371,000 Change in net assets 16,573,820 1,867, ,281 19,401,554 Net assets, beginning of year 192,784,445 90,992, ,678, ,456,063 Net assets, end of year $ 209,358,265 $ 92,860,081 $ 180,639,271 $ 482,857,617 The accompanying notes to the consolidated financial statements are an integral part of these statements. 5

8 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED Operating activities: Change in net assets $ (19,556,168) $ 19,401,554 Adjustments to reconcile change in net assets to net cash from operating activities: Net realized and unrealized investment (gains) losses 14,906,559 (14,060,068) Depreciation 7,426,413 7,045,080 Gifts for restricted purposes (11,242,257) (7,689,327) Income restricted for long-term investment (73,449) (84,168) Change in value of charitable remainder trust agreements 29, ,881 Provision for postretirement benefits 354, ,000 Actuarial (gain) loss on postretirement benefit obligation 275,000 (2,371,000) Amortization of bond premium (168,066) (42,014) Changes in operating assets and liabilities: Contributions receivable, net 3,288,279 (6,193,078) Student receivables, net 510,001 18,200 Other receivables, net (9,150) (58,482) Accounts payable and accrued expenses 91,261 (538,660) Unearned income (659,900) (656,658) Refundable government advances 182,171 (17,681) Other 6,111 (505,068) Net cash from operating activities (4,639,688) (4,894,489) Investing activities: Purchases of property and equipment (13,616,413) (15,721,566) Purchases of investments (10,490,596) (40,040,039) Proceeds from sales of investments 24,705,111 34,782,834 Net change in assets held in trust (10,519) 590,097 Net cash from investing activities 587,583 (20,388,674) Financing activities: Gifts for restricted purposes 11,242,257 7,689,327 Income restricted for long-term investment 73,449 84,168 Proceeds from borrowing - 23,796,698 Payments on long-term debt (1,023,377) (983,413) Payments to annuitants (602,124) (656,763) Increase in due to annuitants 267, ,009 Net cash from financing activities 9,958,144 30,404,026 Net increase in cash and cash equivalents 5,906,039 5,120,863 Cash and cash equivalents, beginning of year 31,180,698 26,059,835 Cash and cash equivalents, end of year $ 37,086,737 $ 31,180,698 Supplemental disclosure of cash flow information: Cash paid for interest $ 2,603,942 $ 1,825,293 Noncash investing activities : Purchase of property and equipment and assumption of note payable $ - $ 3,759,049 Change in construction payables $ (737,987) $ 292,331 The accompanying notes to the consolidated financial statements are an integral part of these statements. 6

9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1 Nature of activities Rhodes College (the College ) founded in 1848, is a private, not-for-profit, coeducational institution located in Memphis, Tennessee with an enrollment of approximately 2,000 students. The primary mission of the College is to provide a liberal arts education at the undergraduate level. The College derives revenue primarily from tuition, room and board charges to students, gifts received from donors, and income earned on investments. The consolidated financial statements include the accounts of Lynxco, LLC ( Lynxco ), a wholly-owned subsidiary of the College. Lynxco was formed solely for the purpose of acquiring, holding, operating, and maintaining certain land, building, and equipment (the Property ) and to assume the seller s outstanding note payable and perform the obligations thereunder. Lynxco is not engaged in any business unrelated to the acquisition, ownership, management, or operation of the Property. The College eliminates all material intercompany accounts and transactions in consolidation. Note 2 Summary of significant accounting policies Basis of Presentation The College s consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ( GAAP ). Based on the existence or absence of donor-imposed restrictions, the College classifies resources into three categories: unrestricted, temporarily restricted, and permanently restricted net assets. Unrestricted Net Assets Unrestricted net assets are free of donor-imposed restrictions. All revenues, gains, and losses that are not restricted by donors are included in this classification. All expenditures are reported in the unrestricted class of net assets, including expenditures funded by restricted contributions. Expenditures funded by restricted contributions are reported in the unrestricted net asset class because the use of restricted contributions in accordance with donors stipulations results in the release of such restrictions. Temporarily Restricted Net Assets Temporarily restricted net assets are limited as to use by donorimposed stipulations that expire with the passage of time or that can be satisfied by action of the College. Temporarily restricted net assets are designated by donors for specific purposes, and include unconditional pledges, split-interest agreements, and accumulated appreciation on donor-restricted endowments which have not been appropriated by the Board of Trustees (the Board ) for distribution. Permanently Restricted Net Assets Permanently restricted net assets are amounts required by donors to be held in perpetuity. Permanently restricted net assets include unconditional pledges, donor-restricted endowments (value of donor contributions exclusive of appreciation), split-interest agreements, and interests in trusts held by others. The donors of substantially all permanently restricted net assets permit the College to use a portion of the income earned on the related investments for specified purposes. Expirations of temporary restrictions on net assets as the result of the passage of time and/or fulfilling donorimposed stipulations are reported as net assets released from restrictions between the applicable classes of net assets in the consolidated statements of activities. Cash and Cash Equivalents Cash and cash equivalents, reported at fair value; include cash and all highly liquid investments with a maturity of three months or less when purchased. Student Receivables Student receivables consist of amounts due to the College related to tuition and fees. An allowance for uncollectible accounts has been recorded based upon management s judgment and historical bad debt experience. 7

10 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 2 Summary of significant accounting policies (continued) Student Receivables (continued) The College performs a monthly analysis of outstanding accounts receivable from students to assess the likelihood of collection. For balances on which full payment of amounts owed is not expected, the College establishes an allowance to adjust the balance of the receivable to reflect its best estimate of the amount that will ultimately be collected. Contributions Receivable and Revenue Contributions, including unconditional promises to give, are recognized as revenue in the period received. Conditional promises to give are not recognized until donor stipulations are met. Unconditional promises to give that are expected to be collected within one year are recorded at net realizable value. Unconditional promises to give, with payments due to the College beyond one year, are recorded as temporarily restricted or permanently restricted net assets at the estimated present value of the expected future cash flows, using credit risk adjusted rates applicable to the years in which the promises are expected to be received. Amortization of the discounts is recorded as contribution revenue in the appropriate net asset class. An allowance for uncollectible contributions receivable is provided based upon management s judgment of such factors as prior collection history, type of contribution and other relevant factors. Investments Investments, investments held in charitable remainder trusts, and assets held in trust by others are recorded at fair value and include investments in securities and alternative investments. Investments in securities include equity securities, fixed income instruments, and registered mutual funds. Fair value for these investments is based on quoted prices in active markets, if available. If the market is inactive, fair value is determined by underlying managers and reviewed by the College after considering the sources of information. Alternative investments consist primarily of investments in funds of funds and are included in investments and assets held in trust by others on the consolidated statements of financial position. The underlying investments of the College s funds of funds investments include investments in publicly traded equity securities, long/short hedged equity, private equity companies, private real estate, commodities, timber, and funds that employ a variety of trading styles or strategies, including, but not limited to, convertible and fixed income arbitrage, event driven investing, distressed debt, and other market neutral strategies. The underlying assets are reflected at estimated fair value. Depending on the underlying asset, the estimated fair value is determined by the investment manager utilizing the net asset valuations provided by the underlying asset s manager or through national exchange prices for securities with a readily determinable value. Due to the inherent uncertainty of these estimates, these values may differ from the values that would have been used had a ready market for these investments existed and the differences could be material. Donated investments are recorded at fair value at the date of the gift to the College. All significant investments are recorded at fair value. In addition, all gains and losses (both realized and unrealized) are reported in the consolidated statements of activities. The Board designates only a portion of the College s cumulative investment return for support of current operations; the remainder is retained to support operations of future years and to offset potential market declines. The College utilizes a spending rate policy to determine the amount available to support current operations. Fair Value of Financial Instruments Investments, investments held in charitable remainder trusts, and assets held in trust by others, which are substantially comprised of debt and equity securities, are carried at fair value. The carrying amounts of cash and cash equivalents, receivables, accounts payable, due to annuitants, amounts held in custody for others, and long-term debt with variable interest rates approximate fair value at June 30, 2016 and

11 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 2 Summary of significant accounting policies (continued) Fair Value of Financial Instruments (continued) The fair value of long-term debt with fixed interest rates is based on recent trading activity and on rates assumed to be currently available for bond issues with similar terms, average maturities, and credit quality as determined by independent debt rating agencies. Assets Held in Trust by Others Assets held in trust by others represent resources that are intended to benefit the College s endowment fund but which are held and administered by outside fiscal agents. The College records these assets because it has legally enforceable rights or claims related to the assets or the income therefrom. The College s share of these assets is recorded at fair value. Assets held in trust by others is permanently restricted by donors and, accordingly, is reflected as permanently restricted net assets. Charitable Remainder Trust Agreements The College receives gifts under charitable remainder trust agreements whereby the College will pay the donor a certain amount for a specified time, normally until the death of the donor. At the donor s death or upon fulfillment of a specified condition, the College obtains the right to utilize the remaining assets of each trust based on the terms of the agreement. The College records these gifts, net of amounts due to annuitants, as temporarily or permanently restricted revenue depending on donor restrictions. Due to annuitants is recorded at the net present value of estimated future cash payments to beneficiaries specified in the charitable remainder trust agreements. The weighted average discount rate used to determine the amount due to annuitants was 7.30% and 7.40% at June 30, 2016 and 2015, respectively. Beneficiary life expectancy assumptions were determined from the 2001 Commissioners Standard Ordinary Mortality Table. Property and Equipment Property and equipment is recorded at cost at the date of acquisition or fair value at the date of gift. The cost of repairs and maintenance is generally charged to expense in the year incurred. Depreciation of buildings is recorded using the straight-line method over their estimated useful lives of 50 years. Depreciation of furniture, fixtures and equipment, and library books is recorded using the straight-line method over their estimated useful lives of 3 to 20 years. Refundable Government Advances The College makes uncollateralized student loans through the Perkins Loan Program to assist students in funding their education. The United States Department of Education ( DOE ) provides funds along with the College, which are used to make loans to eligible students. The College acts as agent for the DOE in administering the Perkins Loan Program. The availability of funds for loans under the Perkins Loan Program is dependent on reimbursements to the loan pool from repayments on outstanding loans. Funds advanced by the DOE under the Perkins Loan Program are refundable to the Federal government upon liquidation of the program and are classified as liabilities in the consolidated statements of financial position. Concentration of Credit Risk The College places its cash and cash equivalents on deposit with financial institutions. The Federal Deposit Insurance Corporation insures substantially all depository accounts up to $250,000. The College typically has amounts on deposit in excess of the insured limits. At June 30, 2016, the College had approximately $34,200,000 in excess of the insured amounts. Fundraising Costs Fundraising expense for the years ended June 30, 2016 and 2015 was approximately $2,725,000 and $2,565,000, respectively. Income Taxes The Internal Revenue Service has determined that the College is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. As a qualified tax-exempt organization, the College must operate in conformity with the Internal Revenue Code in order to maintain its tax-exempt status. The College is also exempt from state corporate income tax. 9

12 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 2 Summary of significant accounting policies (continued) Income Taxes (continued) The College follows the guidance contained in Accounting Standard Codification ( ASC ) Topic , Accounting for Uncertainty in Income Taxes. ASC Topic prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken. Based upon its evaluation, the College concluded that there are no significant uncertain tax positions requiring recognition in its consolidated financial statements. The College is subject to audit by taxing jurisdictions; however, there are currently no audits in progress for any tax periods. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating Activities Changes in net assets from operating activities in the consolidated statements of activities excludes non-operating activities. Non-operating activities include contributions added to endowment, contributions supporting major capital purchases, contributions and other activity related to charitable remainder trusts, and endowment income and gains and losses, net of amounts distributed to support operations in accordance with the spending policy. Additionally, investment income and investment gains and losses related to contributions supporting major capital purchases and charitable remainder trusts are included in nonoperating activities. Revenue Recognition The College s revenue recognition policies are as follows: Net Tuition and Fees Student tuition and fees are recorded as revenue in the fiscal year that the related academic services are rendered. Student tuition and fees received in advance of services to be rendered are recorded as unearned income. Financial aid provided by the College is reflected as a reduction of tuition and fees. Auxiliary Enterprises Auxiliary enterprises furnish services primarily to students and are comprised predominantly of residence halls and food service. Income from auxiliary enterprises is recorded as revenue in the fiscal year that the related services are rendered. Expiration of Donor-Imposed Restrictions Net assets are released from donor restrictions by incurring expenses to satisfy the restricted purposes or by occurrence of events specified by the donors, including the passage of time. New Accounting Pronouncements In April 2015, the FASB issued Accounting Standards Update ("ASU") , Interest - Imputation of Interest (Subtopic ), Simplifying the Presentation of Debt Issuance Costs. The ASU requires that debt issuance costs related to a recognized debt liability be presented in the statement of financial position as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The College has elected to early adopt ASU and has retrospectively applied the updates by reclassifying unamortized deferred financing costs totaling $704,255 as of June 30, 2015, as a deduction from the carrying amount of the bonds payable (see Note 9). Prior to the adoption of ASU , the College s policy was to present unamortized deferred financing costs in other assets. 10

13 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 3 Contributions receivable Contributions receivable are recorded at the net present value (based on a weighted average imputed interest rate of 3.74% and 4.50% at June 30, 2016 and 2015, respectively) of the estimated future cash flows from the contributions. Most unconditional promises to give are restricted by donors for scholarships, support of academic instruction, and property and equipment purchases and are due as follows: June 30, Less than one year $ 6,818,514 $ 7,459,847 One to five years 10,602,733 14,089,384 Thereafter 950, ,000 18,371,247 22,224,231 Less present value discount (667,880) (1,179,875) Less allowance for uncollectible contributions (296,769) (349,479) $ 17,406,598 $ 20,694,877 Pledges from five donors comprise approximately 58% of undiscounted contributions receivable. Contributions receivable from Board members amounted to approximately $8.0 million and $12.1 million at June 30, 2016 and 2015, respectively. Note 4 Student receivables Student receivables as of June 30 were as follows: Perkins loans receivable $ 2,814,828 $ 3,149,724 Other student receivables 2,140,590 2,310,166 4,955,418 5,459,890 Less allowance for uncollectible Perkins loans (296,231) (373,283) Less allowance for student receivables (1,444,506) (1,361,925) $ 3,214,681 $ 3,724,682 The aging of the Perkins loans receivable as of June 30, 2016 is presented as follows: Borrowers Currently Days Past Due Enrolled or in Total Grace Period Current Receivable Loans receivable $ 1,158,543 $ 1,346,728 $ 59,939 $ 27,265 $ 12,496 $ 209,858 $ 2,814,828 Percentage of total 41.16% 47.84% 2.13% 0.97% 0.44% 7.46% % 11

14 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 4 Student receivables (continued) The aging of the Perkins loans receivable as of June 30, 2015 is presented as follows: Borrowers Currently Days Past Due Enrolled or in Total Grace Period Current Receivable Loans receivable $ 1,516,145 $ 1,224,690 $ 114,662 $ 46,229 $ 34,775 $ 213,223 $ 3,149,724 Percentage of total 48.14% 38.88% 3.64% 1.47% 1.10% 6.77% % Note 5 Fair value measurements ASC 820 establishes a three-level hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets or liabilities fall within different levels of the hierarchy, the classification is based on the lowest level input that is significant to the fair value measurement of the asset or liability. Classification of assets and liabilities within the hierarchy considers the markets in which the assets and liabilities are traded and the reliability and transparency of the assumptions used to determine fair value. The hierarchy requires the use of observable market data when available. The levels of the hierarchy are defined as follows: Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets. Level 2 Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and market-corroborated inputs. Level 3 Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value measurement. In determining fair value, the College uses various methods, including the market, income, and cost approaches. The College uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The College has evaluated the various types of securities and investment funds in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and observable market inputs. Level 1 investments include those traded on an active exchange, such as the New York Stock Exchange. Level 2 investments include municipal bonds and corporate debt securities. The College has estimated the fair value of Level 2 investments on the basis of quoted bond prices provided by investment managers. Due to the significance of unobservable inputs required in measuring the fair value of alternative investments, which consist primarily of investments in fund of funds, they are valued at Net Asset Value ( NAV ) or its equivalent and are separately disclosed in note 6. 12

15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 5 Fair value measurements (continued) Level 3 fair value measurements include assets held in trust by others. The College has estimated the fair value of these assets based on its proportionate share of the fair value of the underlying investments. As of June 30, 2016, there were no financial assets or liabilities measured at fair value on a nonrecurring basis. During fiscal years ended June 30, 2016 and 2015, there were no transfers of investments between levels. The following table presents the balances of assets measured at fair value on a recurring basis as of June 30, 2016, by level within the fair value hierarchy: Level 1 Level 2 Level 3 Total Investments: Equity securities: Domestic equity $ 1,710,799 $ 95,709 $ - $ 1,806,508 Debt securities: U.S. treasury securities 9,580, ,580,726 U.S. government agencies and sponsored entities - 4,680,309-4,680,309 Corporate bonds - 6,682,473-6,682,473 Total debt securities 9,580,726 11,362,782-20,943,508 Real assets 11,664, ,425-11,885,440 Other investments 19,246, ,246,286 Investments measured within the fair value hierarchy 42,201,826 11,679,916-53,881,742 Investments measured using NAV 244,506,140 Total investments 298,387,882 Investments held in charitable remainder trusts: Equity securities: Domestic equity 5,286, ,286,039 Debt securities: U.S. treasury securities 3,368, ,368,462 U.S. government agencies and sponsored entities Total debt securities 3,368, ,368,540 Real assets 14, ,995 Other investments 125, ,695 Total investments held in charitable remainder trusts 8,795, ,795,269 Assets held in trust by others ,295,766 57,295,766 Total $ 50,997,017 $ 11,679,994 $ 57,295,766 $ 364,478,917 13

16 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 5 Fair value measurements (continued) The following table presents the balance of assets measured at fair value on a recurring basis as of June 30, 2015, by level within the fair value hierarchy: Level 1 Level 2 Level 3 Total Investments: Equity securities: Domestic equity $ 1,773,350 $ 55,650 $ - $ 1,829,000 Debt securities: U.S. treasury securities 9,496, ,496,566 U.S. government agencies and - sponsored entities - 5,532,955-5,532,955 Corporate bonds - 6,785,142-6,785,142 Total debt securities 9,496,566 12,318,097-21,814,663 Real assets 15,428, ,425-15,574,678 Other investments 25,442, ,442,374 Investments measured within the fair value hierarchy 52,140,543 12,520,172-64,660,715 Investments measured using NAV 260,237,297 Total investments 324,898,012 Investments held in charitable remainder trusts: Equity securities: Foreign equity 5,600, ,600,248 Debt securities: U.S. treasury securities 3,270, ,270,902 U.S. government agencies and sponsored entities Total debt securities 3,270, ,271,310 Other investments 53, ,195 Total investments held in charitable charitable remainder trusts 8,924, ,924,753 Assets held in trust by others ,766,707 59,766,707 Total $ 61,064,888 $ 12,520,580 $ 59,766,707 $ 393,589,472 14

17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 5 Fair value measurements (continued) The following table summarizes changes in Level 3 assets measured at fair value on a recurring basis for the year ended June 30, 2016: Assets Held in Trust by Others Beginning balance as of July 1, 2015 $ 59,766,707 Investment income 856,153 Unrealized investment losses (1,111,417) Redemptions from Level 3 (2,215,677) Ending balance as of June 30, 2016 $ 57,295,766 The following table summarizes changes in Level 3 assets measured at fair value on a recurring basis for the year ended June 30, 2015: Assets Held in Trust by Others Beginning balance as of July 1, 2014 $ 60,008,480 Investment income 1,211,016 Unrealized investment gains 615,457 Redemptions from Level 3 (2,068,246) Ending balance as of June 30, 2015 $ 59,766,707 Note 6 Investments carried at Net Asset Value The table below sets forth a summary of investments that are valued using NAV at June 30, This category includes the following types of investments: (a) Investment in a fund of funds that invests primarily in long domestic equities. (b) Investments in fund of funds that invests primarily in long non-u.s equities. (c) Investment in a fund of funds that invests primarily in closed-end bond mutual funds. (d) Equities held in both long and short positions in the global market. (e) Investments in various strategies, including credit-oriented hedges, long/short hedged equity, master limited partnerships, energy/commodities, various relative value arbitrage strategies such as convertible and statistical arbitrage, as well as various other value-oriented hedges. (f) Investments in private equity fund of funds investment vehicles that invest in private investment funds operated by private equity investment managers specializing in distressed, special situations, traditional buyouts, secondary funds, and venture capital. (g) Investment funds consisting of diversified real assets of real estate, oil and gas, minerals, timber, farmland, and other commodities. (h) Investment in debt instruments that allow insurance-related risk and return to be transferred to investors. The instruments may be issued by life insurance or reinsurance companies, by special purpose vehicles such companies establish, or by entities involved in a mortality-related business. 15

18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 6 Investments carried at Net Asset Value (continued) Fair Unfunded Redemption Redemption June 30, 2016 Value Commitments Frequency Notice Period Domestic equity fund of funds (a) $ 17,449,504 $ - Quarterly 60 days Foreign equity fund of funds (b) 41,703,190 - Quarterly - Annually days Debt securities fund of funds (c) 1,451,434 - Monthly 1 day Long/Short hedged equity (d) 73,849,127 - Annual 90 days Multi-strategy (e) 52,644,635 - Annual 90 days Private equity (f) 40,987,734 23,989,018 N/A N/A Private real assets (g) 16,024,392 14,850,000 N/A N/A Distressed debt (h) 396,124 - N/A N/A Total assets measured at NAV $ 244,506,140 Fair Unfunded Redemption Redemption June 30, 2015 Value Commitments Frequency Notice Period Domestic equity fund of funds (a) $ 19,210,348 $ - Quarterly 60 days Foreign equity fund of funds (b) 43,393,177 - Quarterly - Annually days Debt securities fund of funds (c) 1,310,579 - Monthly 1 day Long/Short hedged equity (d) 79,481,034 - Annual 90 days Multi-strategy (e) 54,972,308 - Annual 90 days Private equity (f) 45,764,209 25,750,031 N/A N/A Private real assets (g) 15,794,210 10,910,000 N/A N/A Distressed debt (h) 311,432 - N/A N/A Total assets measured at NAV $ 260,237,297 Note 7 Property and equipment, net Major classes of property and equipment consist of the following at June 30: Land $ 1,409,026 $ 1,409,026 Buildings and improvements 205,550, ,308,883 Furniture, fixtures, and equipment 26,707,580 26,490,862 Library books 14,125,747 14,016,646 Construction in progress 13,365,464 13,268, ,158, ,493,536 Less accumulated depreciation (115,510,526) (109,773,797) $ 145,647,726 $ 138,719,739 For the years ended June 30, 2016 and 2015, depreciation expense totaled $7,426,413 and $7,045,080, respectively. The College did not have any losses on disposals of assets during the aforementioned periods. 16

19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 8 Endowment funds ASC 958 provides guidance on the net asset classification of donor-restricted endowment funds for a not-forprofit organization that is subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 ( UPMIFA ) and requires additional disclosures about an organization s endowment funds. The College s endowment consists of approximately 600 individual funds established for a variety of purposes. The endowment includes both donor-restricted endowment funds and funds designated by the Board of Trustees to function as endowments. Net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law The College has interpreted UPMIFA as the prudent preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the College classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment 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 endowment 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 College in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the College considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: a. The duration and preservation of the fund b. The purposes of the College and the donor-restricted endowment fund c. General economic conditions d. The possible effect of inflation and deflation e. The expected total return from income and the appreciation of investments f. Other resources of the College g. The College s investment policies At June 30, 2016, the endowment net asset composition by type of fund consisted of the following: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted funds $ - $ 52,207,358 $ 184,202,904 $ 236,410,262 Board-designated funds 81,643, ,643,120 Total funds $ 81,643,120 $ 52,207,358 $ 184,202,904 $ 318,053,382 17

20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 8 Endowment funds (continued) At June 30, 2015, the endowment net asset composition by type of fund consisted of the following: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted funds $ - $ 69,138,289 $ 180,368,424 $ 249,506,713 Board-designated funds 90,581, ,581,456 Total funds $ 90,581,456 $ 69,138,289 $ 180,368,424 $ 340,088,169 Changes in endowment net assets for the fiscal year ended June 30, 2016, consisted of the following: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 90,581,456 $ 69,138,289 $ 180,368,424 $ 340,088,169 Investment return: Investment income 3,186,197-51,860 3,238,057 Net realized and unrealized investment losses (4,227,369) (7,777,315) (2,627,326) (14,632,010) Total investment return (1,041,172) (7,777,315) (2,575,466) (11,393,953) Contributions - - 6,026,860 6,026,860 Appropriation of endowment assets for expenditure (7,723,666) (7,292,558) - (15,016,224) Other changes (173,498) (1,861,058) 383,086 (1,651,470) Endowment net assets, end of year $ 81,643,120 $ 52,207,358 $ 184,202,904 $ 318,053,382 Changes in endowment net assets for the fiscal year ended June 30, 2015, consisted of the following: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 86,944,571 $ 69,010,091 $ 179,123,865 $ 335,078,527 Investment return: Investment income 2,664,266-14,000 2,678,266 Net realized and unrealized investment gains (losses) 6,768,221 8,560,432 (198,665) 15,129,988 Total investment return 9,432,487 8,560,432 (184,665) 17,808,254 Contributions 245,308-1,275,328 1,520,636 Appropriation of endowment assets for expenditure (5,995,772) (7,179,163) - (13,174,935) Other changes (45,138) (1,253,071) 153,896 (1,144,313) Endowment net assets, end of year $ 90,581,456 $ 69,138,289 $ 180,368,424 $ 340,088,169 18

21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 8 Endowment funds (continued) Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or UPMIFA requires the College to retain as a fund of perpetual duration. There were no material deficiencies of this nature that are reported in unrestricted net assets as of June 30, 2016 and Return Objectives and Risk Parameters Endowment assets include those assets of donor-restricted funds that the College must hold in perpetuity or for a donor-specified period as well as board-designated funds. The College has adopted investment and spending policies for endowment assets that attempt to maintain the purchasing power of the endowment assets in perpetuity and achieve investment returns sufficient to sustain the level of spending necessary to support ongoing College operations. Under the College s investment policy, as approved by the Board, the endowment assets are invested in a manner that is intended to produce an average annual real return, net of inflation and investment management costs, of at least 5% over the long term. Actual returns in any given year may vary from this amount. A secondary investment objective of the fund is to constrain the volatility of the total fund through a program of broad diversification. In practice, the fund should have a standard deviation of less than ten over rolling three and five year time frames. Central to the achievement of this goal is the concept of investing in asset classes and investment strategies that demonstrate relatively low correlation to one another. Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, the College 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). The College s asset allocation policy is to provide a diversified strategic mix of asset classes that places emphasis on investments in equity securities and funds, fixed income securities and funds, and real assets to achieve its long-term return objective within a prudent risk framework. Spending Policy The College s spending policy was developed with the objectives of meeting the current operating needs of the College, providing year-to-year budget stability, and protecting the future purchasing power of the endowment assets against the impact of inflation. Under the College s spending rate policy, the amount of endowment fund investments appropriated to support current operations is increased by 4% from the previous year provided that the resulting amount does not exceed 5.5% of the average market value of endowment assets for the three prior fiscal years and is not less than 4.5% of the average market value of endowment assets for the three prior fiscal years. Beginning in 2016 and continuing for a period of eight years, the College s Board of Trustees has authorized management to appropriate a supplemental endowment allocation to augment funding for capital needs. For the years 2016 through 2019, the College may appropriate a maximum of 0.5% of the average market value of endowment assets for the three prior fiscal years to supplement funding for capital needs. Beginning in 2020 and continuing through 2023, the maximum supplemental appropriation for capital needs is reduced annually from the preceding year by 0.1% of the average market value of endowment assets for the three prior fiscal years. Note 9 Long term debt During the year ended June 30, 2015, Educational Facilities Revenue Bonds, Series 2015 ( 2015 Bonds ) (with final payment due in August 2045) in the amount of $21,350,000 were issued to finance the construction of a new academic building. The 2015 Bonds bear interest at rates ranging from 2.00% to 5.00%. The 2015 Bonds are not secured by any assets of the College. The outstanding balance of the 2015 bonds at June 30, 2016 and 2015 was $23,586,618 and $23,754,684, including unamortized premium of $2,236,618 and $2,404,684, respectively. 19

22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 9 Long term debt (continued) Educational Facilities Revenue Bonds, Series 2011 ( 2011 Bonds ) (with final payment due in August 2040) bear interest at rates ranging from 3.00% to 5.50%. The 2011 Bonds are not secured by any assets of the College. The principal balance outstanding was $31,640,000 and $31,835,000 at June 30, 2016 and 2015, respectively. Educational Facilities Revenue Bonds, Series 2000 ( 2000 Bonds ) (with final payment due in August 2025) bear interest at a rate necessary to enable the bonds to be sold at par; the rate is determined weekly by the remarketing agent. The interest rate on the 2000 Bonds was 0.46% and 0.07% at June 30, 2016 and 2015, respectively. The 2000 Bonds are not secured by any assets of the College. The bonds were secured by an irrevocable letter of credit which expired December 31, 2015, and was not renewed. The principal balance outstanding was $10,115,000 and $10,890,000 at June 30, 2016 and 2015, respectively. During the year ended June 30, 2015, Lynxco purchased land and a building for a total purchase price of $6,100,000, which included $2,340,954 for the land and building, plus the College s assumption of the seller s outstanding note payable related to the property in the amount of $3,759,046. The note payable bears interest at a fixed rate of 5.40% and requires monthly debt service payments of $21,338 continuing through October 2023, with a balloon payment due at maturity, November The note is secured by the acquired property, which had a net book value at June 30, 2016 of $5,590,511. The outstanding balance of the note payable was $3,662,260 and $3,715,636 at June 30, 2016 and 2015, respectively. The scheduled maturities of long-term debt for the next five fiscal years and in total are as follows: Year 2017 $ 1,449, ,493, ,536, ,660, ,664,160 Thereafter 58,963,373 Par amount of long-term debt 66,767,260 Unamortized bond premium 2,236,618 Unamortized deferred bond expense (671,864) Total long-term debt $ 68,332,014 The College capitalizes interest cost incurred on funds used to construct property and equipment. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset s estimated useful life. Interest cost capitalized was $901,505 and $206,428 during the years ended June 30, 2016 and 2015, respectively. Total interest cost incurred, inclusive of capitalized interest, was $2,770,630 and $2,030,174 during the years ended June 30, 2016 and 2015, respectively. The fair value of all outstanding long-term debt at June 30, 2016 and 2015 was approximately $75,302,000 and $74,887,000, respectively. 20

23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 10 Retirement plans Employees with more than two years of service are eligible to participate in contributory pension plans wherein benefits are provided solely through individually owned, fully funded, and vested annuity contracts. The College s contributions vary between 8% and 12% of the employees salaries. Total pension expense recognized and funded by the College for the years ended June 30, 2016 and 2015, was approximately $2,907,000 and $2,744,000, respectively. The College also sponsors a postretirement medical and life insurance plan for full-time employees hired prior to January 1, 1995, who have ten consecutive years of service with the College subsequent to the age of fifty. The plan is contributory, with contributions adjusted annually, and contains other cost-sharing features such as deductibles and coinsurance. The following table sets forth the change in the College s accumulated postretirement benefit obligation related to the plan, as determined by consulting actuaries, for the years ended June 30: Benefit obligation, beginning of year $ 13,609,000 $ 15,334,000 Service cost 329, ,000 Interest cost 529, ,000 Actuarial (gain) loss 275,000 (2,371,000) Benefits paid (504,000) (289,000) Benefit obligation, end of year $ 14,238,000 $ 13,609,000 The large actuarial gain during the year ended June 30, 2015 is because per capita claims cost assumptions were updated to reflect more recent experience and the weighted-average discount rate used to determine the accumulated postretirement benefit obligation was increased. Net periodic postretirement benefit cost includes the following components, as determined by consulting actuaries, for the years ended June 30: Service cost $ 329,000 $ 418,000 Interest cost 529, ,000 Net periodic postretirement benefit cost $ 858,000 $ 935,000 The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) is 6.79% for 2017 and is assumed to decrease at varying amounts until it reaches 4.50% for 2028 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation by $2,192,000 at June 30, The weighted-average discount rate used to determine the accumulated postretirement benefit obligation was 3.54% and 4.35% at June 30, 2016 and 2015, respectively. 21

24 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 10 Retirement plans (continued) Estimated Future Benefit Payments The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid, as determined by consulting actuaries: Year 2017 $ 525, , , , , ,928,000 Note 11 Nature and amount of temporarily and permanently restricted net assets Temporarily restricted net assets are available for the following purposes at June 30: Student financial aid $ 34,627,170 $ 44,430,108 Academic instruction 22,253,042 27,252,522 Academic support 399, ,878 Student services 156, ,189 Institutional support 1,077,352 1,773,523 Plant operations 1,184,123 1,808,238 Purchases of property and equipment 2,218,819 10,395,471 Other 5,330,572 5,711,152 $ 67,247,493 $ 92,860,081 Permanently restricted net assets consist of investments in perpetuity, the income from which is restricted for the following purposes at June 30: Student financial aid $ 131,282,671 $ 128,950,125 Academic instruction 43,977,075 41,836,124 Academic support 1,738,784 1,736,734 Student services 1,534,884 1,219,634 Plant operations 3,197,611 3,197,611 Other 2,705,912 3,699,043 $ 184,436,937 $ 180,639,271 22

25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 11 Nature and amount of temporarily and permanently restricted net assets (continued) The College released temporarily restricted net assets for the following purposes during the years ended June 30: Student financial aid $ 3,289,820 $ 2,830,233 Academic instruction 2,424,059 2,827,111 Academic support 56,339 15,255 Student services 805, ,996 Institutional support 19,502 - Auxiliary enterprises 44,720 - Plant operations Endowment distributions 7,292,558 7,179,163 Purchases of property and equipment 9,995,827 9,738,704 $ 23,928,201 $ 23,533,245 Note 12 Commitments and contingencies At June 30, 2016, open contracts related to construction of the College s science facilities and building renovations amounted to approximately $20,800,000. The College is engaged in various legal actions occurring in the normal course of activities. While the final outcomes cannot be determined at this time, management is of the opinion that the resolution of these matters will not have a material adverse effect on the College s financial position. Note 13 Subsequent events The College has evaluated subsequent events for potential recognition and/or disclosure through October 11, 2016, the date the consolidated financial statements were available to be issued. 23

26 SUPPLEMENTARY INFORMATION

27 Report of Independent Auditor on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Consolidated Financial Statements Performed in Accordance with Government Auditing Standards The Board of Trustees Rhodes College Memphis, Tennessee We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the consolidated financial statements of Rhodes College (the College ) as of and for the year ended June 30, 2016, and the related notes to the consolidated financial statements, which collectively comprise the College s basic consolidated financial statements, and have issued our report thereon dated October 11, Internal Control over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered the College's internal control over financial reporting ( internal control ) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of the College s internal control. Accordingly we do not express an opinion on the effectiveness of the College s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the College s consolidated financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. We have communicated additional matters to management in a separate letter dated October 11, Compliance and Other Matters As part of obtaining reasonable assurance about whether the College s consolidated financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 24

28 Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the College s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the College s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Charlotte, North Carolina October 11,

29 Report of Independent Auditor on Compliance For Each Major Federal Program and on Internal Control Over Compliance Required by the Uniform Guidance The Board of Trustees Rhodes College Memphis, Tennessee Report on Compliance for Each Major Federal Program We have audited Rhodes College s (the College ) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on the College s major federal program for the year ended June 30, The College s major federal program is identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for the College s major federal program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards ( Uniform Guidance ). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the College s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination of the College s compliance. Opinion on Each Major Federal Program In our opinion, the College complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended June 30, Report on Internal Control Over Compliance Management of the College is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the College s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the College s internal control over compliance. 26