DAEMEN COLLEGE Financial Statements for the Years Ended May 31, 2016 and 2015, Federal Awards Information for the Year Ended May 31, 2016 and

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1 DAEMEN COLLEGE Financial Statements for the Years Ended May 31, 2016 and 2015, Federal Awards Information for the Year Ended May 31, 2016 and Independent Auditors Reports

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3 DAEMEN COLLEGE Table of Contents Years Ended May 31, 2016 and 2015 Independent Auditors Report... 1 Financial Statements: Statements of Financial Position... 3 Statements of Activities Statements of Cash Flows... 6 Notes to Financial Statements Federal Awards Information: Schedule of Expenditures of Federal Awards Notes to the Schedule of Expenditures of Federal Awards Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditors Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance in Accordance with the Uniform Guidance Schedule of Findings and Questioned Costs Summary Schedule of Prior Year Findings and Corrective Action Plan Page

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5 Drescher & Malecki LLP 3083 William Street, Suite 5 Buffalo, New York Telephone: Fax: Certified Public Accountants INDEPENDENT AUDITORS REPORT The Board of Trustees Daemen College: Report on the Financial Statements We have audited the accompanying financial statements of Daemen College (the College ), which comprise the statements of financial position as of May 31, 2016 and 2015, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these 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 audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity 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

6 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the College as of May 31, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Other Information Our audit was conducted for the purpose of forming opinions on the financial statements as a whole. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by the audit requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards ( Uniform Guidance ), and is not a required part of the 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 financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the 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 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 August 24, 2016 on our consideration of the College s internal control over financial reporting and 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. August 24,

7 FINANCIAL STATEMENTS

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9 DAEMEN COLLEGE Statements of Financial Position May 31, 2016 and ASSETS Cash and cash equivalents $ 7,429,438 $ 12,135,868 Student accounts receivable, net 627, ,920 Other receivables 318, ,191 Contributions receivable, net 1,070,932 1,450,077 Prepaid and other assets 388, ,051 Accrued interest receivable 10,046 8,163 Notes receivable 2,435,380 2,612,330 Funds held by bond trustees 3,300,791 3,310,987 Investments held for long-term purposes 17,145,501 17,481,673 Charitable gift annuity 99, ,120 Property, plant and equipment, net 50,982,198 49,023,533 Total assets $ 83,807,146 $ 87,135,913 LIABILITIES AND NET ASSETS Liabilities: Accounts payable $ 713,115 $ 1,184,853 Accrued salaries, wages and pension 1,871,322 2,389,575 Accrued interest 95,537 99,245 Deferred revenue 1,231,649 1,582,331 U.S. government advances 852, ,561 Amounts held on behalf of others 110, ,641 Derivative liability 7,532,356 7,151,526 Bonds, notes payable and capital lease obligations, net 28,272,417 29,214,899 Total liabilities 40,679,464 42,666,631 Net assets: Unrestricted 34,930,828 36,046,701 Temporarily restricted 7,379,124 7,667,510 Permanently restricted 817, ,071 Total net assets 43,127,682 44,469,282 Total liabilities and net assets $ 83,807,146 $ 87,135,913 The accompanying notes are an integral part of these financial statements

10 DAEMEN COLLEGE Statement of Activities Year Ended May 31, 2016 Temporarily Permanently Unrestricted Restricted Restricted Totals REVENUES Student tuition and fees $ 59,900,393 $ 428,594 $ - $ 60,328,987 Less: Scholarships and grants (24,862,386) - - (24,862,386) Net student tuition and fees 35,038, ,594-35,466,601 Grants and gifts 715,323 2,591,772-3,307,095 Investment income: Interest income 332, , ,731 Net realized gains 427, ,432 Net unrealized gains (losses) (788,355) - - (788,355) Interest on loans receivable Other income Sales and services of auxiliary enterprises Total operating revenues Net assets released from restrictions Total operating revenues and net assets released from restrictions EXPENSES Educational and general: Instruction Academic support Library Student services Public services General administrative and institutional support Operation and maintenance of physical plant Interest on debt service Depreciation Total educational and general Auxiliary enterprises: Direct operating expenses Interest on debt service Depreciation Total auxiliary enterprises Total operating expenses Change in net assets from operating activities - 51,988-51, , , ,818 8,671, ,671,274 45,119,836 3,421,748-48,541,584 3,608,393 (3,608,393) ,728,229 (186,645) - 48,541,584 19,317, ,317,349 3,306, ,306, , ,559 7,733, ,733, , ,217 5,856, ,856,230 2,064, ,064, , ,821 2,409, ,409,647 42,661, ,661,995 4,952, ,952, , , , ,317 6,403, ,403,202 49,065, ,065,197 (336,968) (186,645) - (523,613) NON-OPERATING ACTIVITIES Contributions 2,659 79,806 62, ,124 Investment income: Interest income 62,930 47, ,821 Net realized gains (losses) (80,930) (61,588) - (142,518) Net unrealized gains (losses) (312,644) (237,940) - (550,584) Change in value of derivative instrument (380,830) - - (380,830) Reclassification of net assets (5,883) 5, Transfers (64,207) 64, Change in net assets from non-operating activities (778,905) (101,741) 62,659 (817,987) Change in net assets Net assets beginning of year Net assets end of year (1,115,873) (288,386) 62,659 (1,341,600) 36,046,701 7,667, ,071 44,469,282 $ 34,930,828 $ 7,379,124 $ 817,730 $ 43,127,682 The accompanying notes are an integral part of this financial statement

11 DAEMEN COLLEGE Statement of Activities Year Ended May 31, 2015 Temporarily Permanently Unrestricted Restricted Restricted Totals REVENUES Student tuition and fees $ 57,464,401 $ 327,516 $ - $ 57,791,917 Less: Scholarships and grants (23,952,516) - - (23,952,516) Net student tuition and fees 33,511, ,516-33,839,401 Grants and gifts 672,396 4,130,431-4,802,827 Investment income: Interest income 58, , ,600 Net realized gains 68, ,043 Net unrealized gains 246, ,996 Interest on loans receivable Other income Sales and services of auxiliary enterprises Total operating revenues Net assets released from restrictions Total operating revenues and net assets released from restrictions The accompanying notes are an integral part of this financial statement ,448-50, , , ,503 8,769, ,769,044 43,974,216 4,822,646-48,796,862 4,495,156 (4,495,156) ,469, ,490-48,796,862 EXPENSES Educational and general: Instruction 18,978, ,978,059 Academic support 3,149, ,149,426 Library 764, ,986 Student services 7,081, ,081,991 Public services 388, ,260 General administrative and institutional support 5,349, ,349,568 Operation and maintenance of physical plant 2,282, ,282,362 Interest on debt service 866, ,792 Depreciation 2,089, ,089,320 Total educational and general 40,950, ,950,764 Auxiliary enterprises: Direct operating expenses 5,033, ,033,750 Interest on debt service 941, ,895 Depreciation 509, ,008 Total auxiliary enterprises 6,484, ,484,653 Total operating expenses 47,435, ,435,417 Change in net assets from operating activities 1,033, ,490-1,361,445 NON-OPERATING ACTIVITIES Contributions - 1,124, ,026 1,692,095 Investment income: Interest income 158, , ,114 Net realized gains 130,892 92, ,260 Net unrealized gains 59,962 42, ,275 Change in value of derivative instrument (616,484) - - (616,484) Reclassification of net assets - (14,799) 14,799 - Transfers (69,000) 69, Change in net assets from non-operating activities (335,687) 1,425, ,825 1,672,260 Change in net assets Net assets beginning of year Net assets end of year 698,268 1,752, ,825 3,033,705 35,348,433 5,914, ,246 41,435,577 $ 36,046,701 $ 7,667,510 $ 755,071 $ 44,469,282

12 DAEMEN COLLEGE Statements of Cash Flows Years Ended May 31, 2016 and CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ (1,341,600) $ 3,033,705 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and unamortized interest expense 3,107,308 2,748,672 Gain on sale of property, plant and equipment (12,078) - Change in value of derivative instrument 380, ,484 Cancellation of refundable government loan funds (34,885) (31,515) Non-cash donations (73,113) (10,400) Changes in operating assets and liabilities: (Increase) decrease in student accounts receivable, net (54,127) 240,370 (Increase) decrease in other receivables (146,057) 1,778,855 Decrease (increase) in contributions receivable, net 379,145 (796,876) (Increase) decrease in prepaid expenses and other assets (120,016) 65,946 (Increase) decrease in accrued interest receivable (1,883) 1,952 (Decrease) increase in accounts payable (471,738) 93,225 (Decrease) increase in accrued salaries, wages and pension (518,253) 147,955 (Decrease) in accrued interest (3,708) (6,843) (Decrease) in deferred revenue (350,682) (95,485) (Decrease) in amounts held on behalf of others (46,249) (99,578) Net cash provided by operating activities 692,894 7,686,467 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (1,567,603) (1,107,591) Construction in progress (3,405,067) (3,496,802) Proceeds from sale of property, plant and equipment 69,131 - Purchases of investments (15,807,876) (13,338,286) Proceeds from sales of investments 14,780,847 11,290,863 Proceeds from reserves (359,793) (1,069,119) Net repayment of loans from students 176, ,708 Death benefit proceeds to operating reserves - (37,498) Net unrealized loss (gains) on investments 1,338,939 (349,271) Net cash (used by) investing activities (4,774,471) (7,871,996) CASH FLOWS FROM FINANCING ACTIVITIES Gifts received for long-term investment 457, ,940 Proceeds from issuance of indebtedness 116,266 - Decrease (increase) in funds held by bond trustee 10,196 (30,062) Repayment of principal on indebtedness (1,209,093) (1,138,661) Net cash (used by) financing activities (624,853) (345,783) Net change in cash and cash equivalents (4,706,430) (531,312) Cash and cash equivalents beginning of year 12,135,868 12,667,180 Cash and cash equivalents end of year $ 7,429,438 $ 12,135,868 Supplemental cash flow disclosure: Cash paid for interest on long-term debt $ 1,592,217 $ 1,665,186 The accompanying notes are an integral part of these statements

13 1. DESCRIPTION OF ORGANIZATION DAEMEN COLLEGE Notes to Financial Statements Years Ended May 31, 2016 and 2015 Daemen College (the College ), is an independent, coeducational institution offering liberal arts and professional programs in its undergraduate, graduate and continuing education programs. The College is primarily funded by tuition and fees charged for programs offered. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The College prepares its financial statements in accordance with generally accepted accounting principles promulgated in the United States of America ( U.S. GAAP ) for not-for-profit entities. The significant accounting and reporting policies used by the College are described subsequently to enhance the usefulness and understandability of the financial statements. Basis of accounting The College prepares its financial statements using the accrual basis of accounting and accounting principles generally accepted in the United States of America. Use of estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period and the reported amounts of assets and liabilities at the date of the financial statements. On an ongoing basis, the College s management evaluates the estimates and assumptions based upon historical experience and various other factors and circumstances. Management believes that the estimates and assumptions are reasonable in the circumstances; however, the actual results could differ from those estimates. Net assets The financial statements report net assets and changes in net assets in three classes that are based upon the existence or absence of restriction on use that are placed by its donors, as follows: Unrestricted net assets Unrestricted net assets represent resources that are not subject to donorimposed stipulations and thus are generally available for support of the College s activities, with certain limitations, as follows: Uses of certain unrestricted net assets are committed through contractual agreements. Such amounts primarily consist of matching funds under student loan programs of the Federal Government, and required trustee balances under longterm debt agreements. In addition, grants and contracts are received that are for the performance of certain services or functions that are reported in the unrestricted net asset category. The Board of Trustees, through voluntary resolutions, has set aside portions of the College s unrestricted net assets and future earnings thereon to function as quasiendowment and for property, plant and equipment purposes. Temporarily restricted net assets The College reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Certain accumulated net investment gains earned on permanently restricted net assets are included within temporarily - 7 -

14 restricted net assets. In accordance with New York State law as interpreted by the College, the appropriation and spending of such gains, absent donor directives, is subject to a standard of prudence, as more fully discussed under the accounting policy note on investments. Permanently restricted net assets Permanently restricted net assets are resources whose use by the College is limited by donor-imposed restrictions that neither expire by being used in accordance with a donor s restriction nor by the passage of time. The portion of the College s donor-restricted endowment funds that must be maintained in perpetuity are classified in this net asset class. All revenues and net gains are reported as increases in unrestricted net assets in the statement of activities unless the use of the related resources is subject to temporary or permanent donor restrictions. All expenses and net losses other than losses on endowment investments are reported as decreases in unrestricted net assets. Net losses on endowment investments reduce temporarily restricted net assets to the extent that net gains of the fund from prior years are unspent and classified there; remaining losses are classified as decreases in unrestricted net assets. If an endowment fund has no net gains from prior years, such as when a fund is newly established, net losses are classified as decreases in unrestricted net assets. Cash and cash equivalents Cash and cash equivalents include cash on hand, cash on deposit with financial institutions and other highly liquid investments with maturities at the date of purchase of three months or less and are carried at cost which approximates fair value. Investments Investments are reported at their fair values. The College has interpreted New York State law to allow the spending of income and gains on investments of permanently restricted net assets, absent explicit donor stipulations that all or a portion of such income or gains be maintained in perpetuity. New York State law allows the College to appropriate and spend such income and gains as is prudent, considering such factors as the College s long and short-term needs, present and anticipated financial requirements, expected total return on investments, price level trends, and general economic conditions. Accordingly, such realized and unrealized gains and losses on investments of permanently, temporarily restricted and unrestricted net assets are reported as temporarily restricted or unrestricted, based upon the presence or absence of donor stipulations as to their use. Contributions receivable, net Contributions receivable are unconditional promises to give that are recognized as contributions when the promise is received. Contributions receivable that are expected to be collected in less than one year are reported at net realizable value. Contributions receivable that are expected to be collected in more than one year are recorded at fair value at the date of promise. That fair value is computed using a present value technique applied to anticipated cash flows. Amortization of the resulting discount is recognized as additional contribution revenue. The allowance for uncollectible contributions receivable is determined based on management s evaluation of the collectability of individual promises. Prepaid and other assets Prepaid and other assets consists primarily of prepaid travel expenses and contract services. Notes receivable Notes receivable represent the money due to the College for Perkins Loans granted to students and for loans made from the Daemen Parent Loan Program. Charitable gift annuity The College has established an investment account for a deferred-giving program. Donors will be able to make irrevocable transfers of assets to the College. In exchange, the donor receives periodic payment for his or her lifetime

15 Property, plant and equipment Property, plant and equipment are reported in the statement of financial position at cost, if purchased, and at fair value at the date of donation, if donated, net of accumulated depreciation. All land and buildings are capitalized. Equipment is capitalized if it has a cost of $5,000 or more and a useful life when acquired of more than one year. Repairs and maintenance that do not significantly increase the useful life of the asset are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, as follows: Buildings Improvements other than buildings General equipment Computer equipment Computer software systems Library books Leasehold improvements 40 years 10 years 5 years 3 years 5-10 years 7-10 years 5 years Property, plant and equipment are reviewed for impairment when a significant change in the assets use or another indicator of possible impairment is present. No impairment losses were recognized in the financial statements in the current period. The College reports gifts of property, plant and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about how those long-lived assets must be maintained, the College reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service. Endowment investments Endowment investments consist of investments purchased with the following resources: Donor-restricted permanent endowments, which are contributions restricted by donors to investment in perpetuity with only investment income and appreciation being used to support the organization s activities. Donor-restricted term endowments, which are contributions restricted by donors to investment for the term specified by the donor. During that term, the donor may either require investment income and appreciation to be reinvested in the fund, or may permit the organization to spend those amounts in accordance with the donor s restrictions on use. Board-designated endowments, which are resources set aside by the Board of Trustees for an indeterminate period to operate in manner similar to a donor-restricted permanent endowment. Because a board-designated endowment results from an internal designation, it can be spent upon action of the Board of Trustees. Deferred revenue Deferred revenue is principally comprised of receipts relating to tuition for the upcoming summer term, new student registration fees and tuition, and room and board deposits in advance for the fall term. The College will recognize unrestricted revenue to the extent these services are provided over the coming fiscal year. The student deposits received in advance are generally nonrefundable

16 Amounts held on behalf of others The College performs administration functions for three agencies. The amounts reported represent the assets the College has fiduciary duties to maintain and control. Revenues and expenses have not been reported on the Statement of Activities. Deferred bond issuance costs Deferred bond issuance costs represent underwriting, legal and other direct costs incurred in connection with the issuance of bonded debt. These costs, shown as net of the related debt and liability, are being amortized over the term to maturity of the related liability. The College recorded annual amortization of $150,345 and $150,344 for the years ended May 31, 2016 and 2015, respectively. Grants and contracts Revenue from grants and contracts is generally recognized as earned, that is, as the related costs are incurred under the grant or contract agreements. Amounts received in advance are deferred and reported as U.S. government advances. Tax status The College is incorporated exempt from federal income taxation under Section 501(c)(3) of the Internal Revenue Code ( IRC ), though it would be subject to tax on income unrelated to its exempt purposes (unless that income is otherwise excluded by the IRC). All applicable tax forms for the College have been filed and accepted by the Internal Revenue Service through the year ended May 31, The tax years ending May 31, 2015, 2014, and 2013 are still open to audit for federal purposes. Contributions to the College are tax deductible to donors under Section 170 of the Internal Revenue Code. The College is not classified as a private foundation. Non-operating activities Certain unrestricted and restricted contributions, investment income earned, gains and losses on investments held for long-term purposes, and changes in the value of derivative instruments are considered non-operating activities in the accompanying Statement of Activities. Federal and New York State Tuition Assistance Program Activity of the United States Department of Education Federal Pell Grant ( Pell ), the Department of Veterans Affairs ( VA ) benefit programs and New York State Tuition Assistance ( TAP ) programs are not reflected in the College s financial statements. The College s students received $3,284,736 and $3,220,615 from Pell, $554,098 and $603,464 from VA and, $2,406,873 and $2,216,554 from TAP in the years ended May 31, 2016 and 2015, respectively. Scholarships from private sources Activity of scholarships received from private sources which are designated for specific individuals are not reflected in the College s financial statements since the College does not have discretion over who receives the scholarships. The amount of scholarships from private sources for the years ended May 31, 2016 and 2015 were $778,695 and $894,666, respectively. Student Association of Daemen College The College exercises fiscal and financial control over the Student Association of Daemen College. The College has elected to report the balances and activities of the Student Association as part of the financial statements of the College. Net asset reclassification During the year ended May 31, 2016, management of the College reviewed the balances of the unrestricted, temporarily restricted and permanently restricted net assets. $5,883 of previously reported unrestricted net assets have been reclassified to temporarily restricted net assets to more appropriately reflect donor stipulations for the year ended May 31, Reclassifications Certain items in the statement of financial position for the year ended May 31, 2015 have been reclassified to be consistent with the current year presentation

17 3. FAIR VALUE MEASUREMENTS The College reports its fair value measures using a three-level hierarchy that prioritizes the inputs used to measure fair value. This hierarchy, established by GAAP, requires that entities maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure fair value are as follows: Level 1. Quoted prices for identical assets or liabilities in active markets to which the College has access at the measurement date. Level 2. Inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets in markets that are not active; Observable inputs other than quoted prices for the asset or liability (for example, interest rates and yield curves; and Inputs derived principally from, or corroborated by, observable market data by correlation or by other means. Level 3. Unobservable inputs for the asset or liability. Unobservable inputs should be used to measure the fair value to the extent that observable inputs are not available. 4. INVESTMENTS Investments consisted of the following at May 31, 2016 and 2015: May 31, 2016 May 31, 2015 Fair Value Cost Fair Value Cost Treasury money market funds $ 799,452 $ 799,452 $ 870,743 $ 870,743 Treasury bills 702, , , ,633 Government bonds 756, , , ,174 Corporate bonds 2,030,286 1,987,068 1,212,374 1,218,035 Common stock 6,455,745 5,940,886 7,038,796 5,958,497 Guaranteed income contracts 2,762,960 2,758,909 2,501,339 2,501,339 Mutual funds 6,176,951 6,125,439 5,995,642 5,144,941 Money funds 827, ,678 1,655,488 1,655,486 Other 33,487 33,487 29,436 29,436 Total investments 20,545,790 19,904,923 20,892,780 18,949,284 Less: Charitable gift annuity (99,498) (99,498) (100,120) (100,120) Less: Funds held by bond trustees (3,300,791) (3,300,791) (3,310,987) (3,310,987) Investments held for long-term purposes $ 17,145,501 $ 16,504,634 $ 17,481,673 $ 15,538,177 All of the College s investments at May 31, 2016 and May 31, 2015 were considered to be Level

18 Funds held by bond trustees The financing documents relating to the Wick Center Bonds and AIDA Series 2006A and B required certain deposits to be held by trustees. These deposits at May 31, 2016 and 2015 are as presented below: May 31, HSBC as trustee for Wick Center Bond of Debt Service Reserve $ - $ 46,998 M&T as trustee for AIDA Daemen College: Project Series 2006A and B Debt Service Reserve 2,501,339 2,501,339 Project Series 2006A Bond Fund 496, ,320 Project Series 2006B Bond Fund 302, ,330 Total funds held by Bond Trustees $ 3,300,791 $ 3,310,987 The Funds held by bond trustees are payments of principal into debt service sinking funds, which will be used for current year payments. 5. STUDENT AND OTHER ACCOUNTS RECEIVABLE The College makes uncollateralized loans to students based on financial need. Student loans are funded through federal government loan programs or institutional resources. Student accounts receivable at May 31, 2016 and 2015 are presented below. May 31, Student loans $ 1,124,242 $ 1,223,491 Less: Allowance for doubtful accounts Beginning of year (650,571) (797,073) Increases (2,932) (2,372) Write-offs 156, ,874 End of year (497,195) (650,571) Student accounts receivable, net $ 627,047 $ 572,920 Allowance for doubtful accounts is established based on prior collection experience and current economic factors which, in management s judgment, could influence the ability of loan recipients to repay amounts due. Institutional loan balances are written off only when they are deemed to be permanently uncollectible. Other accounts receivable for the years ended May 31, 2016 and 2015 are presented below: May 31, Grants $ 225,840 $ 134,181 Tuition Assistance Program ("TAP") 6,235 - Miscellaneous 86,173 38,010 Other accounts receivable $ 318,248 $ 172,

19 The College maintains that the credibility of these other receivables is such that no allowance for doubtful accounts is established for the years then ended May 31, 2016 and CONTRIBUTIONS RECEIVABLE Contributions are recorded as revenue upon receipt of the unconditional promise to give. Outstanding contributions receivable are discounted using the U.S. Treasury rate for investments of similar periods and are comprised of the following at May 31, 2016 and 2015: May 31, Amounts receivable in less than 1 year $ 509,099 $ 528,326 Amounts receivable in 1 to 5 years 633,562 1,047,500 Gross contributions receivable 1,142,661 1,575,826 Less: Allowance for uncollectible contributions receivable (57,134) (78,791) Unamortized discount (14,595) (46,958) Net contributions receivable $ 1,070,932 $ 1,450, ENDOWMENT The College s endowment consists of approximately 43 individual funds established for a variety of purposes. Its endowment includes both donor-restricted endowment funds and funds designated by the Board of Trustees to function as endowments. As required by GAAP, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. The State of New York enacted the New York State Prudent Management of Institutional Funds Act ( NYPMIFA ) effective September 17, NYPMIFA establishes law for the management and investment of donor-restricted endowment funds. The Board of Trustees of the College has interpreted NYPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted permanent endowment funds unless there are 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 organization in a manner consistent with the standard of prudence prescribed by NYPMIFA. In accordance with NYPMIFA, the College considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) the duration and preservation of the fund, (2) the purposes of the organization and the donor-restricted endowment fund, (3) general economic conditions, (4) the possible effect of inflation and deflation, (5) the expected total return from income and the appreciation of investment, (6) other resources of the organization, and (7) the investment policies of the College

20 Endowment net assets consist of the following at May 31, 2016: Temporarily Permanently Unrestricted Restricted Restricted Total Donor restricted endowment $ - $ 4,593,335 $ 817,730 $ 5,411,065 Board-designated endowment 7,068, ,068,757 Total endowment $ 7,068,757 $ 4,593,335 $ 817,730 $ 12,479,822 Endowment net assets consist of the following at May 31, 2015: Temporarily Permanently Unrestricted Restricted Restricted Total Donor restricted endowment $ - $ 4,408,423 $ 755,071 $ 5,163,494 Board-designated endowment 7,136, ,136,790 Total endowment $ 7,136,790 $ 4,408,423 $ 755,071 $ 12,300,284 Changes in endowment net assets for the year ended May 31, 2016, are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment May 31, 2015 $ 7,136,790 $ 4,408,423 $ 755,071 $ 12,300,284 Investment return: Investment income 62,930 47, ,822 Net (depreciation) (429,208) (326,644) - (755,852) Total investment (loss) (366,278) (278,752) - (645,030) Contributions and transfers 298, ,404 62, ,308 Scholarship awards (44,740) - - (44,740) Net assets released from restricted 44,740 (44,740) - - Endowment, May 31, 2016 $ 7,068,757 $ 4,593,335 $ 817,730 $ 12,479,

21 Changes in endowment net assets for the year ended May 31, 2015, are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment May 31, 2014 $ 5,930,986 $ 3,919,363 $ 172,246 $ 10,022,595 Investment return: Investment income 114,955 81, ,081 Net appreciation 190, , ,536 Total investment return 305, , ,617 Contributions and transfers 900, , ,026 1,786,637 Scholarship awards (30,565) - - (30,565) Net assets released from restricted 30,565 (30,565) - - Reclassification of net assets - (14,799) 14,799 - Endowment, May 31, 2015 $ 7,136,790 $ 4,408,423 $ 755,071 $ 12,300,284 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 NYPMIFA requires the College to retain as a fund of perpetual duration. These deficiencies result from unfavorable market fluctuations that occur after the investment of permanently restricted contributions and continued appropriation for certain programs that was deemed prudent by the Board of Trustees. Subsequent gains that restore the fair value of the assets of the endowment fund to required level will be classified as an increase in temporarily restricted net assets. There were no material deficiencies of this nature that are reported in temporarily restricted or unrestricted net assets as of May 31, 2016 and May 31, Return Objectives and Risk Parameters The College has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the organization must hold in perpetuity or for a donor-specified period(s) as well as board-designated funds. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results that exceed the price and yield results of several benchmarks reflecting the College s asset allocation while assuming a moderate level of investment risk. The College expects its endowment funds, over time, to provide an average rate of return of approximately 5 percent plus the increase in the consumer price index 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 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 targets a diversified asset allocation that places emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. Spending Policy and How the Investment Objectives Relate to Spending Policy The College has a policy of appropriating for distribution annually to the operating budget an amount not to exceed five (5) percent of the long-term investment portfolio s average total value of the past 20 quarter-ends ending with March 31 preceding the budget year. It is understood that the basis for calculating spending is sanctioned by NYPMIFA setting guidelines under which Daemen College is permitted to spend an

22 amount in excess of the current yield (interest and dividends earned) to include realized and unrealized appreciation. In establishing this policy, the College considered the long-term expected return on its endowment. Accordingly, the College expects the current spending policy to allow its endowment to maintain the purchasing power by growing at a higher rate than the planned payouts. Additional real growth will be provided through new gifts and any excess investment returns. In recent years, the College has not withdrawn any actual spending from the Endowment Fund as it pursues efforts to increase the fund. 8. PROPERTY, PLANT AND EQUIPMENT As of May 31, 2016 and 2015, the College s investment in physical plant is as follows: May 31, Property, plant and equipment, not being depreciated: Land $ 1,078,615 $ 981,115 Construction in progress 284,888 2,256,515 Total property, plant and equipment, not being depreciated 1,363,503 3,237,630 Property, plant and equipment, being depreciated: Buildings 65,076,487 59,707,598 Improvements other than buildings 3,092,323 2,797,550 General equipment 17,670,092 17,434,517 Computer system software 1,565,377 1,488,425 Leasehold improvements 899, ,643 Equipment acquired by capital lease 116,266 - Library books 9,083,578 8,741,410 Total property, plant and equipment, being depreciated 97,503,766 91,069,143 Less accumulated depreciation (47,885,071) (45,283,240) Total property, plant and equipment, being depreciated, net 49,618,695 45,785,903 Total property, plant and equipment, net $ 50,982,198 $ 49,023,533 During the year ended May 31, 2016, renovations of the former YMCA to the new Athletic and Wellness Center and renovation of several lecture halls/classrooms were completed. The Welcome Center was moved and renovated, and security cameras and locks were updated throughout campus. Depreciation expense was $2,956,964 and $2,598,328 for the years ended May 31, 2016 and 2015, respectively

23 9. BONDS, NOTE PAYABLE AND CAPITAL LEASE OBLIGATIONS During the year ended May 31, 2016, the College implemented Accounting Standards Update ( ASU ) , Interest-Imputation of Interest; as a result, the costs incurred in connection with the issuance of debt are presented as a reduction in the carrying amount of the debt. Bonds, note payable and capital lease obligations at May 31, 2016, are as follows: Town of Amherst Industrial Development Agency ( AIDA ) Series 2006A Bonds $20,925,000 of Series 2006A Bonds were issued on June 30, 2006 through the Town of Amherst Industrial Development Agency (the AIDA ). The Series A Bonds were issued to refund and defease previously issued Series 2001A Bonds for the construction of student residence halls. Annual installments range from $335,000 to $1,345,000 from October 1, 2006 to October 1, The Bonds bore interest at 4.20% through October 2, 2011 and at October 3, 2011 the Bonds were subject to mandatory tender and were converted to variable rate bonds. As a means to lower borrowing costs, the College entered into a forward interest rate exchange agreement effective as of October 3, The interest rate exchange agreement provides that the College pay interest to a counter party on a notional amount equal to $17,650,000 at a fixed rate of 4.047%. Town of Amherst Industrial Development Agency ( AIDA ) Series 2006B Bonds $17,075,000 of Series B Bonds were issued to fund the construction and certain equipment within the new Research and Information Commons. Final maturity of Series B is in The Series 2006B Bonds bear interest at adjustable rates determined weekly by the remarketing agent. In conjunction with this issue, in a means to lower future borrowing costs, the College entered into an interest rate exchange agreement that was effective on the date of issuance. The interest rate exchange agreement provides that the College pay interest on a notional amount equal to $13,775,000 at a fixed rate of 3.906%. The interest rate exchange agreement was entered into primarily to hedge the College s risk of interest rate changes with respect to the Series 2006B Bonds. Hallmark Note Payable In September of 2013 the College entered into an agreement with Hallmark Management for the renovation of the College dining hall and kitchen equipment for the sum of $561,000. Hallmark Management contributed $66,000 of the equipment. The College will recognize this contribution over the life of the loan. The remaining portion of the cost of the renovation and equipment was financed as a seven-year note payable for $495,000 which is subject to interest at a fixed rate of 4.35%. Equipment Leases The College entered into a lease on August 31, 2015 for the sum of $116,266 to lease equipment that may be purchased for a nominal amount at the expiration of the lease. The interest rate implicit in this lease is 5.25%. Monthly payments at May 31, 2016 are $3,409 and the lease expires October 31, The lease is secured by equipment with an original purchase price of $116,266 and accumulated amortization of $38,

24 Deferred bond issuance costs Deferred bond issuance costs represent underwriting, legal and other direct costs incurred in connection with the issuance of bonded debt. These costs, shown as net of the related liability, are being amortized over the term to maturity of the related liability. At May 31, 2016 and 2015, the College reports $2,255,165 and $2,405,510, of unamortized deferred bond issuance costs and recorded annual amortization of $150,345 and $150,344 during the years ended May 31, 2016 and 2015, respectively. Bonds Notes Capital Year ending May 31, Payable Payable Lease Total 2017 $ 1,130,000 $ 69,436 $ 40,906 $ 1,240, ,185,000 72,517 40,906 1,298, ,235,000 75,736 17,037 1,327, ,295,000 79,097-1,374, ,350,000 27,138-1,377, ,915, ,915,000 Total payments 30,110, ,924 98,849 30,532,773 Less portion representing interest - - (5,191) (5,191) Bonds, notes payable or capital lease obligation 30,110, ,924 93,658 30,527,582 Unamortized bond issuance costs (2,255,165) - - (2,255,165) Bonds, notes payable and capital lease obligations, net $ 27,854,835 $ 323,924 $ 93,658 $ 28,272,417 Derivative liability Changes in the fair value of the aforementioned swap agreements are recorded in earnings. The derivative liability for the swap agreements for the years ended May 31, 2016 and 2015 was $7,532,356 and $7,151,526, respectively. The College recognized unrealized holding losses of $380,830 and $616,484 for the years ended May 31, 2016 and 2015, respectively, related to the changes in value of the swap agreements. These values have been compiled based on market rates at the close of business on May 31, 2016 and The swap agreements are valued using pricing models that rely on observable market inputs, such as interest rate curves and treasury spreads (Level 2). Line of Credit The College has available an unsecured line-of-credit with Manufacturers and Traders Trust Company in the amount of $500,000 with interest at prime plus 1/2%. At May 31, 2016 and 2015, the College had not exercised any borrowings against the line-of-credit. 10. RETIREMENT PLAN The College maintains a contributory retirement annuity plan covering substantially all of its full-time employees. Retirement costs for the year ended May 31, 2016 and 2015, based on net payments to Teachers Insurance and Annuity Association/College Retirement Equities Fund ( TIAA-CREF ), amounted to $1,352,522 and $1,276,293, respectively. There are no unfunded past service costs

25 11. NET ASSETS Unrestricted net assets consist of the following at May 31, 2016 and 2015: May 31, Unrestricted net assets: Undesignated $ 1,149,941 $ 4,876,597 Designated for loan programs: Perkins loan program 787, ,692 Designated for endowment: Balance in "Board Designated" fund 7,068,757 7,136,789 Designated for plant and plant improvements: Net investment in plant 25,924,229 23,119,623 Total unrestricted net assets $ 34,930,828 $ 36,046,701 Temporarily restricted net assets at May 31, 2016 and 2015 are available for the following purposes or periods: May 31, Purpose restrictions, available for spending: Student activities and clubs $ 193,266 $ 205,600 Scholarships 893, ,264 Program expenses 184, ,327 Purchase books - 5,442 Collections of Perkins loans 786, ,057 Collections of outstanding parent loans 43,265 47,650 Capital campaign for Wellness Center - 235,000 Endowment 4,593,335 4,408,423 Time restricted net assets 685, ,747 Total temporarily restricted funds $ 7,379,124 $ 7,667,510 Permanently restricted net assets at May 31, 2016 and 2015 are resources invested in perpetuity, the income of which is available for the following purpose: May 31, Endowment requiring current income to be used for scholarship purposes $ 817,730 $ 755,

26 12. CONCENTRATION OF CREDIT RISK The amounts held in financial institutions that are occasionally in excess of the Federal Deposit Insurance Corporation limits are collateralized with securities held by the pledging financial institution s trust department or agent in the College s name. The College deposits its cash with high quality financial institutions, and management believes the College is not exposed to significant credit risk on those amounts. The organization s investments are subject to various risks, such as interest rate, credit, and overall market volatility risks. Further, because of the significance of the investments to the organizations financial position and the level of risk inherent in most investments, it is reasonable possible that changes in the values of these investments could occur in the near term and such changes could materially affect the amounts reported in the financial statements. Management is of the opinion that the diversification of its invested assets among the various asset classes should mitigate the impact of changes in any one class. 13. SUBSEQUENT EVENTS Management has evaluated subsequent events through August 24, 2016, which is the date the financial statements are available for issuance, and has determined there are no subsequent events that require disclosure under generally accepted accounting principles. * * * * * *