CONCORDIA COLLEGE Moorhead, Minnesota

Moorhead, Minnesota Audit Report on Financial Statements and Federal Awards As of and for the Year Ended April 30, 2016

TABLE OF CONTENTS Independent Auditors' Report 1-2 Statements of Financial Position 3 Statements of Activities 4-5 Statements of Cash Flows 6 Notes to Financial Statements 7-29 Schedule of Expenditures of Federal Awards 30 Notes to Schedule of Expenditures of Federal Awards 31 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 32-33 Report on Compliance for the Major Federal Program and Report on Internal Control over Compliance Required by the Uniform Guidance 34-35 Schedule of Findings and Questioned Costs 36 Summary Schedule of Prior Audit Findings 37

Baker Tilly Virchow Krause, LLP 225 S Sixth St, Ste 2300 Minneapolis, MN 55402-4661 tel 612 876 4500 fax 612 238 8900 bakertilly.com INDEPENDENT AUDITORS' REPORT To the Board of Regents Concordia College Moorhead, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of Concordia College (the "College"), which comprise the statements of financial position as of April 30, 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. Auditors' 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 auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the 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. Page 1

Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Concordia College as of April 30, 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 Report on Supplementary Information Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis 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 information 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 Concordia 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 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. Minneapolis, Minnesota August 24, 2016 Page 2

STATEMENTS OF FINANCIAL POSITION As of April 30, 2016 and 2015 ASSETS 2016 2015 Cash and cash equivalents $ 27,551,993 $ 19,800,674 College student accounts receivable, net of allowance for doubtful accounts of $463,000 and $480,000 769,006 695,391 Language Villages and other receivables 6,903,288 1,613,751 Inventories 934,249 1,016,174 Prepaid expenses and other assets 684,304 792,445 Investments Endowment 107,211,380 110,992,267 Deferred gift 45,424,687 48,111,194 Agency 179,133 178,961 Other 5,970,064 6,231,212 Student notes receivable, net 8,404,988 8,346,017 Deposits held by trustee Cash and short-term investments 19,463,230 95,180 Corporate and government bonds 2,115,187 Construction in progress 5,156,833 3,146,004 Property, plant and equipment, net 114,267,826 117,915,858 TOTAL ASSETS $ 342,920,981 $ 321,050,315 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable $ 1,645,595 $ 1,103,135 Accrued liabilities 9,829,431 8,751,228 Deposits 554,291 633,653 Deferred revenue 3,571,553 3,884,748 Annuities payable 19,194,485 19,284,078 Funds held for others 3,555,698 3,756,067 Long-term debt, net 42,667,097 23,149,291 Government grants refundable 8,185,405 8,092,966 Total Liabilities 89,203,555 68,655,166 NET ASSETS Unrestricted 123,253,767 129,269,695 Temporarily restricted 35,389,280 37,281,199 Permanently restricted 95,074,379 85,844,255 Total Net Assets 253,717,426 252,395,149 TOTAL LIABILITIES AND NET ASSETS $ 342,920,981 $ 321,050,315 See accompanying notes to financial statements. Page 3

STATEMENT OF ACTIVITIES For the Year Ended April 30, 2016 Long-Term Operating Investment Plant Total UNRESTRICTED NET ASSETS Revenues, Gains and Other Support Tuition and fees $ 75,717,295 $ 75,717,295 Less: Scholarships and grants (35,608,061) (35,608,061) Net tuition and fees 40,109,234 40,109,234 Government grants 1,696,359 1,696,359 Private gifts 1,561,658 $ 43,913 1,605,571 Endowment income $ 286,029 286,029 Endowment spending 4,503,367 (4,503,367) Other sources 2,285,776 (701) 174,124 2,459,199 Investment (losses) gains, net (41,623) (1,274,454) 3,376 (1,312,701) Sales and services of auxiliary enterprises 14,749,160 14,749,160 Sales and services of independent operations 10,214,839 10,214,839 Redesignation of prior year gifts 1,767 1,767 Adjustment of actuarial liability for annuities payable (685,972) (685,972) 75,080,537 (6,178,465) 221,413 69,123,485 Gain on bond redemption 110,362 110,362 Net assets released from restrictions 2,874,233 2,855,433 2,246,740 7,976,406 Total Revenue, Gains and Other Support 77,954,770 (3,323,032) 2,578,515 77,210,253 Expenses and Losses Program expenses Instruction 25,970,762 2,968,911 28,939,673 Research 309,585 309,585 Public service 149,797 149,797 Academic support 4,401,345 497,694 4,899,039 Student services 9,095,829 1,485,693 10,581,522 Auxiliary enterprises 12,439,950 1,980,890 14,420,840 Independent operations 9,862,784 502,782 10,365,566 Support expenses Institutional support 12,301,039 35,693 1,080,327 13,417,059 Allocable expenses Operation and maintenance 5,598,303 1,937,348 7,535,651 Depreciation, amortization and accretion 5,685,576 5,685,576 Interest 893,373 893,373 Less: Allocable expenses (5,598,303) (8,516,297) (14,114,600) Loss on disposal of plant assets 143,100 143,100 Total Expenses and Losses 74,531,091 35,693 8,659,397 83,226,181 Change in Unrestricted Net Assets 3,423,679 (3,358,725) (6,080,882) (6,015,928) TEMPORARILY RESTRICTED NET ASSETS Private gifts 3,356,446 79,541 5,180,169 8,616,156 Endowment income 1,601,551 1,601,551 Investment losses, net (3,472,045) (3,472,045) Other sources (76,672) (76,672) Increase in cash surrender value 122,857 122,857 Adjustment of actuarial liability for annuities payable (624,314) (624,314) Deferred gift reclassification (83,046) (83,046) Net assets released from restrictions (2,731,504) (2,998,162) (2,246,740) (7,976,406) Change in Temporarily Restricted Net Assets 548,270 (5,373,618) 2,933,429 (1,891,919) PERMANENTLY RESTRICTED NET ASSETS Private gifts 9,320,448 9,320,448 Endowment income 71,217 71,217 Other sources 19,467 19,467 Redesignation of prior year gifts (1,767) (1,767) Deferred gift reclassification 83,046 83,046 Adjustment of actuarial liability for annuities payable (262,287) (262,287) Change in Permanently Restricted Net Assets 9,230,124 9,230,124 TRANSFERS Transfer to operating fund 1,161,476 (1,161,476) Transfer for debt service (1,536,140) 1,536,140 Operating to plant (2,956,890) 2,956,890 Total Transfers (3,331,554) (1,161,476) 4,493,030 CHANGE IN NET ASSETS 640,395 (663,695) 1,345,577 1,322,277 NET ASSETS - Beginning of Year 11,121,050 134,179,767 107,094,332 252,395,149 NET ASSETS - End of Year $ 11,761,445 $ 133,516,072 $ 108,439,909 $ 253,717,426 See accompanying notes to financial statements. Page 4

STATEMENT OF ACTIVITIES For the Year Ended April 30, 2015 Long-Term Operating Investment Plant Total UNRESTRICTED NET ASSETS Revenues, Gains and Other Support Tuition and fees $ 79,182,069 $ 79,182,069 Less: Scholarships and grants (36,068,375) (36,068,375) Net tuition and fees 43,113,694 43,113,694 Government grants 1,495,538 1,495,538 Private gifts 1,329,286 $ 27,369 $ 40,999 1,397,654 Endowment income 256,283 256,283 Endowment spending 3,828,910 (3,828,910) Other sources 2,128,202 377 81,357 2,209,936 Investment gains (losses), net (110,911) 931,296 13,401 833,786 Sales and services of auxiliary enterprises 15,558,084 15,558,084 Sales and services of independent operations 9,669,966 9,669,966 Redesignation of prior year gifts (26,596) (26,596) Deferred gift reclassification 73,981 73,981 Adjustment of actuarial liability for annuities payable 423,644 423,644 76,986,173 (2,115,960) 135,757 75,005,970 Net assets released from restrictions 3,585,086 3,132,838 1,853,256 8,571,180 Total Revenue, Gains and Other Support 80,571,259 1,016,878 1,989,013 83,577,150 Expenses and Losses Program expenses Instruction 26,282,973 2,602,896 28,885,869 Research 319,363 319,363 Public service 213,679 213,679 Academic support 4,549,003 456,812 5,005,815 Student services 8,930,109 1,399,660 10,329,769 Auxiliary enterprises 13,250,662 1,901,157 15,151,819 Independent operations 9,824,852 496,832 10,321,684 Support expenses Institutional support 11,735,524 38,832 1,026,453 12,800,809 Allocable expenses Operation and maintenance 5,970,706 1,228,744 7,199,450 Depreciation, amortization and accretion 5,903,863 5,903,863 Interest 751,203 751,203 Less: Allocable expenses (5,970,706) (7,883,810) (13,854,516) Loss on disposal of plant assets 105,227 105,227 Total Expenses and Losses 75,106,165 38,832 7,989,037 83,134,034 Change in Unrestricted Net Assets 5,465,094 978,046 (6,000,024) 443,116 TEMPORARILY RESTRICTED NET ASSETS Private gifts 3,803,996 45,853 5,296,956 9,146,805 Government grants (9,978) (9,978) Endowment income 1,361,166 1,361,166 Investment gains (losses), net 2,591,033 (18,953) 2,572,080 Other sources (81,822) (81,822) Increase in cash surrender value 178,031 178,031 Adjustment of actuarial liability for annuities payable 254,892 254,892 Redesignation of prior year gifts 21,596 21,596 Deferred gift reclassification (1,549,184) (1,549,184) Net assets released from restrictions (3,351,447) (3,405,247) (1,814,486) (8,571,180) Change in Temporarily Restricted Net Assets 360,749 (523,456) 3,485,113 3,322,406 PERMANENTLY RESTRICTED NET ASSETS Private gifts 8,964,564 8,964,564 Endowment income 67,812 67,812 Other sources 14,471 14,471 Redesignation of prior year gifts 5,000 5,000 Deferred gift reclassification 1,475,203 1,475,203 Adjustment of actuarial liability for annuities payable 467,359 467,359 Change in Permanently Restricted Net Assets 10,994,409 10,994,409 TRANSFERS Transfer for debt service (1,528,721) 1,528,721 Operating to plant (3,253,820) 3,253,820 Total Transfers (4,782,541) 4,782,541 CHANGE IN NET ASSETS 1,043,302 11,448,999 2,267,630 14,759,931 NET ASSETS - Beginning of Year 10,077,748 122,730,768 104,826,702 237,635,218 NET ASSETS - End of Year $ 11,121,050 $ 134,179,767 $ 107,094,332 $ 252,395,149 See accompanying notes to financial statements. Page 5

STATEMENTS OF CASH FLOWS For the Years Ended April 30, 2016 and 2015 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 1,322,277 $ 14,759,931 Adjustment to reconcile change in net assets to net cash flows from operating activities Depreciation, amortization and accretion 5,685,576 5,903,863 Loss on disposal of property 143,100 105,227 Losses (gains) on investments 4,784,746 (3,405,866) Gain on bond redemption (110,362) Change in allowance for uncollectible student loans 11,222 14,104 Actuarial adjustment of annuities payable 1,035,118 (578,658) Loan cancellations and write-offs 99,765 130,637 Changes in current assets and liabilities College student accounts receivables (73,615) 47,830 Language Villages and other receivables (283,544) 383 Inventories 81,925 (86,293) Prepaid expenses and other assets 108,141 101,750 Accounts payable 43,103 (206,390) Accrued liabilities 1,094,073 (685,944) Deposits (79,362) (1,163,795) Deferred revenue (313,195) 917,237 Funds held for others (200,369) (166,502) Investment income restricted for reinvestment (71,217) (67,812) Non-cash gifts (1,389,562) (9,313,730) Contributions restricted for plant and long-term investment (14,288,129) (4,947,790) Net Cash Flows From Operating Activities (2,400,309) 1,358,182 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investments (4,460,103) (10,634,568) Proceeds from sales of investments 7,618,547 11,923,509 Change in deposits held by trustee, net 3,639,861 (4,949) Purchases of property, plant and equipment (3,692,542) (3,495,023) Disbursements of loans to students (1,392,863) (1,518,931) Repayments of loans from students 1,222,905 1,366,157 Net Cash Flows From Investing Activities 2,935,805 (2,363,805) CASH FLOWS FROM FINANCING ACTIVITIES Payments of principal on indebtedness (1,280,000) (845,000) Increase in government grants refundable, net 92,439 117,284 Payments to annuitants (2,108,242) (2,145,574) Increase in annuities payable from new gifts 1,158,273 1,484,819 Investment income received restricted for reinvestment 71,217 67,812 Contributions received restricted for plant and long-term investment 9,282,136 4,947,790 Net Cash Flows From Financing Activities 7,215,823 3,627,131 Net Change in Cash and Cash Equivalents 7,751,319 2,621,508 CASH AND CASH EQUIVALENTS - Beginning of year 19,800,674 17,179,166 CASH AND CASH EQUIVALENTS - END OF YEAR $ 27,551,993 $ 19,800,674 See accompanying notes to financial statements. Page 6

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES Concordia College is a four-year liberal arts college affiliated with the Evangelical Lutheran Church in America. The College also operates language village educational facilities for elementary and secondary students, the activity of which has been classified as independent operations in the accompanying financial statements. The accounting policies of the College reflect practices common to colleges and universities and conform to accounting principles generally accepted in the United States of America ( GAAP ). The more significant accounting policies are summarized below: Net Asset Classifications - For the purposes of financial reporting, the College classifies resources into three net asset categories pursuant to any donor-imposed restrictions and applicable law. Accordingly, the net assets of the College are classified in the accompanying financial statements in the categories that follow: Permanently Restricted Net Assets - Net assets subject to donor-imposed stipulations that they be maintained permanently by the College. Generally, the donors of these assets permit the College to use all or part of the income earned on related investments for general or specific purposes. Temporarily Restricted Net Assets - Net assets subject to donor-imposed stipulations that will be met by action of the College and/or the passage of time. Unrestricted Net Assets - Net assets not subject to donor-imposed stipulations. Revenues from sources other than contributions are generally reported as increases in unrestricted net assets. Expenses are reported as decreases in unrestricted net assets. Income earned on donor restricted funds is initially classified as temporarily restricted net assets and is reclassified as unrestricted net assets when expenses are incurred for their intended purpose. Contributions are recognized as revenues in the period received and are reported as increases in the appropriate categories of net assets in accordance with donor restrictions. Expirations of temporary restrictions on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications between the applicable classes of net assets. Conditional promises to give are not recognized until they become unconditional, that is, when the conditions on which they depend are substantially met. Contributions of property and equipment without donor stipulations concerning the use of such long-lived assets are reported as unrestricted revenues. Contributions of cash or other assets to be used to acquire property and equipment are reported as temporarily restricted revenues; the restrictions are considered to be released at the time such long-lived assets are placed in service. In the absence of donor stipulations or law to the contrary, losses on the investments of a donor-restricted endowment fund reduce temporarily restricted net assets to the extent that donor-imposed temporary restrictions on net appreciation of the fund have not been met before the loss occurs. Any remaining loss reduces unrestricted net assets. If losses reduce the assets of a donor-restricted endowment fund below the level required by the donor stipulations or law, gains that restore the fair value of the assets of the endowment fund to the required level are classified as increases in unrestricted net assets. Gains and losses on investments of endowment funds created by a board designation of unrestricted funds are included in changes in unrestricted net assets. Page 7

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash Equivalents - The College considers all highly liquid investments, except for those held for long-term investment, with maturities of three months or less when purchased to be cash equivalents. Certain cash held by the College is restricted for the Federal Perkins Loan Fund. Receivables - Student accounts receivable are carried at the unpaid balance of the original amount billed to students less an estimate made for doubtful accounts based on a review of all outstanding amounts. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Student accounts are charged interest and fees when past due, and are written off when deemed uncollectible. Recoveries of student accounts previously written off are recorded when received. Receivables are generally unsecured. At April 30, 2016, other receivables includes $5,006,000, net, of gifts receivable from a related party. The gifts will be paid over two to nine years, with $1,000,000 due in one year, $2,750,000 due in one to five years and $1,500,000 due in more than 5 years. The amount recorded is net of a $244,000 discount, which was calculated using a discount rate of 1.42%. Inventories - Bookstore, dining service and language villages inventories are valued at lower of cost (first-in, first-out) or market. Investments - Investments in publicly traded securities are stated at fair value based on quoted market prices from national security exchanges. Investments for which quoted prices are not available, are stated at fair value as estimated by management using values provided by external investment managers or general partners. Other investments are recorded at cost, except those items received as gifts, which are valued at fair value at the date of the gift. Deposits Held by Trustee - Cash, short-term investments and government corporate and bonds held by trustee include amounts restricted for construction projects, debt service and renewal and replacement as required by the trust indentures. Physical Plant and Equipment - Physical plant assets are stated at cost, less accumulated depreciation, computed on a straight-line basis over the estimated useful lives of buildings (50 years), improvements (10-20 years) and equipment (5-12 years). Library books are depreciated over 20 years. Normal repair and maintenance expenses and equipment replacement costs are charged to operations as incurred. The College capitalizes physical plant additions in excess of $1,000. Impairment of Long-Lived Assets - The College reviews long-lived assets, including property and equipment and intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment loss would be recognized when the estimated future cash flows from the use of the asset are less than the carrying amount of that asset. To date, there have been no such losses recorded. Deferred Revenue - Certain revenue related to summer courses and programs is deferred and recognized as revenue in the same period expenses are recognized. Students are generally billed for courses and programs prior to the start of the course or program. Page 8

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued) Asset Retirement Obligations - The College recognizes the fair value of a liability for legal obligations associated with asset retirements in the period in which it is incurred, if a reasonable estimate of the fair value of the obligation can be made. When the liability is initially recorded, the cost of the retirement obligation is capitalized by increasing the carrying value of the related asset. Over time, the liability is accreted to its present value each year and the capitalized cost associated with the retirement obligation is depreciated over the useful life of the related asset. Upon settlement of the obligation, any difference between the cost to settle the asset retirement obligation and the liability recorded is recognized as a gain or loss in the statement of activities. The College reviews its estimates annually and adjusts the recorded liability as needed. Substantially all of the College s asset retirement obligations relate to estimated costs to remove asbestos from campus facilities. The estimate of the losses that are probable for asbestos removal was calculated using the expected cash flow approach and based on an inventory of the College's long-lived assets combined with an estimate of the current market prices to remove the asbestos. The College utilized a credit-adjusted risk-free rate to discount the asset retirement obligation. Changes in the accrual for asset retirement obligations, which is included in accrued liabilities on the statement of financial position, during the years ended April 30, 2016 and 2015 are as follows: 2016 2015 Balance, Beginning of the Year $ 1,782,063 $ 1,697,203 Abatements (99,974) Accretion expense 84,104 84,860 Balance, End of the Year $ 1,766,193 $ 1,782,063 Government Grants Refundable - Funds provided by the United States Government under the Federal Perkins Loan Program are loaned to qualified students and may be re-loaned after collections. These funds are ultimately refundable to the government and are included as liabilities in the statements of financial position. Revenues from other government grants are recognized as they are earned in accordance with the agreement. Any funding received before it is earned is recorded as a refundable advance. Expenses incurred before cash is received are recorded as receivables. Unemployment Compensation - The College has elected to pay unemployment compensation claims as they arise. A provision of $19,500 has been established for claims incurred but not reported. Tuition and Fees and Auxiliary Revenues - Tuition revenue is recognized in the period the classes are provided. Revenue from auxiliary enterprises is recognized when goods or services are provided. Financial assistance in the form of scholarships and grants that cover a portion of tuition, living and other costs is reflected as a reduction of tuition and fees revenues. Revenues and Expenses of Independent Operations - Certain costs related to seasonal education programs are included in prepaid expenses and recognized as expenses in the same period related revenues are recognized. Tuition and fees are recognized proportionally in the period earned. Students are generally billed for each course/camp prior to the course starting. Amounts billed to students related to the Language Villages, but not received or earned as of April 30, 2016 and 2015, approximated $4,330,000 and $4,026,000, respectively. These amounts are not included in the College s financial statements until earned and/or received. Page 9

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued) Functional Allocation of Expenses - The costs of providing the various programs and other activities have been summarized on a functional basis in the statement of activities. Accordingly, certain expenses have been allocated among the programs and supporting services benefited. Pledges - All pledge documents used by the College include the notation that pledged amounts are not considered by the College to be an enforceable obligation to the donor. Accordingly, all pledges are regarded as expressions of intent to contribute, rather than promises to give and, therefore, not recorded as assets. At April 30, 2016 and 2015, intentions to give that have been identified by the College, along with their intended purpose, are as follows: 2016 2015 Operating $ 1,641,000 $ 1,830,000 Endowment 678,000 7,048,000 Plant 13,728,000 4,262,000 $ 16,047,000 $ 13,140,000 Income Tax Status - 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. However, any unrelated business income may be subject to taxation. The College is also exempt from state income taxes. The College follows the accounting standards for contingencies in evaluating uncertain tax positions. This guidance prescribes recognition threshold principles for the financial statement recognition of tax positions taken or expected to be taken on a tax return that are not certain to be realized. No liability has been recognized by the College for uncertain tax positions as of April 30, 2016 and 2015. The College s tax returns are subject to review and examination by federal and state authorities. The tax returns for fiscal years 2013 and thereafter are open to examination by federal and state authorities. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fund-Raising Expenses - Fund-raising expenses totaled $2,400,000 and $2,500,000 for the years ended April 30, 2016 and 2015, respectively. Advertising Expenses - Advertising costs are expensed when incurred. Retirement Plan - Retirement benefits are provided for the College's staff through Teachers Insurance and Annuity Association (TIAA), a national organization used to fund pension benefits for educational institutions. Under this arrangement, the College and plan participants make annual contributions to TIAA to purchase individual annuities equivalent to retirement benefits earned. The College's share of the cost of these benefits was approximately $1,980,000 and $1,990,000 for the years ended April 30, 2016 and 2015, respectively. Grants to Specified Students - Amounts received from state and federal agencies designated for the benefit of specified students are considered agency transactions, and therefore, are not reflected as revenues and expenses of the College. Page 10

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued) New Pronouncements - In May 2014, the Financial Accounting Standards Board ( FASB ) issued Accounting Standards Update ( ASU ) 2014-09, Revenue from Contracts with Customers. This new accounting guidance outlines a single comprehensive model for entities to use in accounting for revenue from contracts with customers. For public business entities, including not-for-profit organizations that have issued, or are a conduit bond obligor for, securities that are traded, listed or quoted on an exchange or an over-the-counter market, ASU No. 2014-09 is effective for fiscal years beginning after December 15, 2017. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2018. Early application is permitted for all entities for fiscal years beginning after December 15, 2016. The College is assessing the impact this new standard will have on its financial statements. In April 2015, FASB issued ASU 2015-03, Interest- Imputation of interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. Under the new guidance, debt issuance costs related to a recognized debt liability are presented as a direct reduction to the carrying amount of that debt liability. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. The College elected to adopt the guidance in fiscal 2016. ASU 2015-03 is to be applied retrospectively, and as a result, the guidance was retrospectively applied to fiscal 2015. The adoption of the standard did not have a significant impact on the College s statement of financial position or results of operations. In May 2015, FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). Under the new guidance, investments measured at net asset value, as a practical expedient for fair value, are excluded from the fair value hierarchy disclosure requirements. For non-public business entities, ASU 2015-07 is effective for fiscal years beginning after December 15, 2016 with early application permitted. The College elected to adopt the guidance in fiscal 2016. ASU 2015-07 is to be applied retrospectively, and as a result, the guidance was retrospectively applied to fiscal 2015. The adoption of the standard did not have a significant impact on the College s statement of financial position or results of operations. In January 2016, FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This new guidance is intended to improve the recognition and measurement of financial instruments and eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for Institutions that are not public business entities. For non-public business entities, ASU 2016-01 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted for fiscal years beginning after December 15, 2017. However, the new guidance permits entities that are not public business entities to adopt upon issuance the provision that eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost. The College elected to adopt this provision in fiscal 2016. ASU 2016-01 is to be applied by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption of ASU 2016-01. The College is assessing the impact the remainder of this standard will have on its financial statements. Page 11

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued) New Pronouncements (continued) - In February 2016, FASB issued ASU No. 2016-02, Leases. ASU No. 2016-02 was issued to increase transparency and comparability among entities. Lessees will need to recognize nearly all lease transactions (other than leases that meet the definition of a short-term lease) on the statement of financial position as a lease liability and a right-of-use asset (as defined). Lessor accounting under the new guidance will be similar to the current model. For public business entities, including not-for-profit organizations that have issued, or are a conduit bond obligor for, securities that are traded, listed or quoted on an exchange or an over-the-counter market, ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2019. Early application is permitted for all entities. Upon adoption, lessees and lessors will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that entities may elect to apply. The College is assessing the impact this standard will have on its financial statements. In August 2016, FASB issued ASU 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. The new guidance improves and simplifies the current net asset classification requirements and information presented in financial statements and notes that is useful in assessing a not-for-profit s liquidity, financial performance and cash flows. ASU 2016-14 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. ASU 2016-14 is to be applied retroactively with transition provisions. The College is assessing the impact this standard will have on its financial statements. Reclassifications - Certain amounts appearing in the 2015 financial statements have been reclassified to conform with the 2016 presentation. The reclassifications have no effect on the reported amounts of total net assets or change in total net assets. NOTE 2 - FAIR VALUE OF FINANCIAL INSTRUMENTS Fair Value Hierarchy - Fair value is defined in the accounting guidance as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the assets or liability in an orderly transaction between market participants at the measurement date. Under this guidance, a three-level hierarchy is used for fair value measurements which is based on the transparency of information, such as the pricing source, used in the valuation of an asset or liability as of the measurement date. Financial instruments measured and reported at fair value are classified and disclosed in one of the following three categories. Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can 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. This includes 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, or marketcorroborated inputs. Page 12

NOTE 2 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Level 3 - Inputs are unobservable for the asset or liability. Unobservable inputs reflect the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk) using the best information available in the circumstances, which may include using the reporting entity s own data. (a) Assets Level 1 - Level 1 assets include investments in government obligations and domestic and international publicly traded common stocks and mutual funds. Level 2 - Level 2 assets primarily include investments in corporate bonds. The fair values are estimated using Level 2 inputs based on multiple sources of information, which may include market data and/or quoted market prices from either markets that are not active or are for the same or similar assets in active markets. Level 3 - Level 3 assets include beneficial interest in funds held in trust by others as the fair values are estimated using an income approach by calculating the present value of the future distributions expected to be received based on a combination of Level 2 inputs (interest rates and yield curves) and significant unobservable inputs (entity specific estimates of cash flows). Since the College has an irrevocable right to receive the income earned from the trust s assets, the fair value of the College s beneficial interest is estimated to approximate the fair value of the trusts assets. (b) Liabilities Level 2 - Level 2 liabilities include annuities payable related to annuity trusts as the fair values are estimated using an income approach based on present value techniques and level 2 inputs for interest rates, yield curves, life expectancy tables and contractual cash flows. Level 3 - Level 3 liabilities include annuities payable related to unitrusts as the fair values are estimated using an income approach based on present value techniques and a combination of Level 2 inputs (age, life expectancy, and the applicable discount rate) and significant unobservable inputs (entity specific estimates of cash flows). Certain mutual funds and alternative investments are measured at fair value using the net asset value (NAV) per share (or its equivalent) of such investment funds as a practical expedient for fair value. The College has estimated the fair value of these funds by using the net asset value provided by the investee. The College adopted ASU 2015-07, Disclosures for Investment in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), during the year ended April 30, 2016. Under the new guidance, investments measured using the net asset value per share (or its equivalent) practical expedient are not classified in the fair value hierarchy. A financial instrument s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Except for the implementation of ASU 2015-7, there have been no changes in the techniques and inputs used as of April 30, 2016 and 2015. While the College believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Page 13

NOTE 2 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) The following table presents financial instruments that are measured at fair value on a recurring basis as of April 30, 2016: Total Level 1 Level 2 Level 3 ASSETS Common stocks Domestic equity funds $ 4,458,557 $ 4,458,557 International equity funds 2,623,698 2,623,698 Domestic corporate bonds 7,953,219 $ 7,953,219 International corporate bonds 1,158,682 1,158,682 Government obligations 1,013,163 1,013,163 Mutual funds Domestic equity funds 51,572,142 51,572,142 International equity funds 18,736,158 18,736,158 Domestic fixed income funds 21,092,184 21,092,184 International fixed income funds 3,088,384 3,088,384 Funds held in trust by others 2,735,251 $ 2,735,251 Subtotal assets by valuation hierarchy 114,431,438 $ 102,584,286 $ 9,111,901 $ 2,735,251 Investments measured using NAV Mutual funds International equity funds 12,136,897 Domestic fixed income funds 1,778,476 Alternative investments Hedge funds 11,504,291 Private equity funds 5,737,360 Real asset funds 2,831,949 Subtotal assets by NAV 33,988,973 Total assets at fair value $ 148,420,411 Total Level 1 Level 2 Level 3 LIABILITIES Annuities payable $ 19,194,485 $ $ 8,819,234 $ 10,375,251 Page 14

NOTE 2 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) The following table presents financial instruments that are measured at fair value on a recurring basis as of April 30, 2015: Total Level 1 Level 2 Level 3 ASSETS Common stocks Domestic equity funds $ 3,508,184 $ 3,508,184 International equity funds 1,986,683 1,986,683 Domestic corporate bonds 8,392,777 $ 8,392,777 International corporate bonds 1,065,863 1,065,863 Government obligations 1,281,173 1,281,173 Mutual funds Domestic equity funds 52,871,560 52,871,560 International equity funds 22,491,196 22,491,196 Domestic fixed income funds 20,407,461 20,407,461 International fixed income funds 4,151,147 4,151,147 Funds held in trust by others 2,938,467 $ 2,938,467 Deposits held by trustee Government obligations 2,115,187 2,115,187 Subtotal assets by valuation hierarchy 121,209,698 $ 108,812,591 $ 9,458,640 $ 2,938,467 Investments measured using NAV Mutual funds International equity funds 13,392,463 Domestic fixed income funds 1,835,788 International fixed income funds 2,013,577 Alternative investments Hedge funds 10,052,178 Private equity funds 5,894,320 Real asset funds 2,900,988 Subtotal assets by NAV 36,089,314 Total assets at fair value $ 157,299,012 Total Level 1 Level 2 Level 3 LIABILITIES Annuities payable $ 19,284,078 $ $ 8,941,215 $ 10,342,863 Page 15

NOTE 2 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) The following table presents a reconciliation of the statement of financial position amounts for financial instruments measured at fair value on a recurring basis using significant unobservable inputs (level 3) for the year ended April 30, 2016: Balances April 30, 2015 Net realized and unrealized losses included in change in net assets Purchases and additions Sales and maturities Balances April 30, 2016 Assets Funds held in trust by others $ 2,938,467 $ (203,216) $ - $ - $ 2,735,251 Liabilities Annuities payable $ 10,342,863 $ (323,174) $ 1,131,213 $ (775,651) $ 10,375,251 The amount of total losses for the period included in change in net assets attributable to the change in unrealized losses relating to level 3 assets still held at April 30, 2016. $ (128,092) The amount of total losses for the period included in change in net assets attributable to the change in unrealized losses relating to level 3 liabilities still held at April 30, 2016. $ (323,174) The following table presents a reconciliation of the statement of financial position amounts for financial instruments measured at fair value on a recurring basis using significant unobservable inputs (level 3) for the year ended April 30, 2015: Balances April 30, 2014 Net realized and unrealized losses included in change in net assets Purchases and additions Sales and maturities Balances April 30, 2015 Assets Funds held in trust by others $ 2,958,192 $ (19,725) $ - $ - $ 2,938,467 Liabilities Annuities payable $ 8,999,321 $ (117,982) $ 1,482,021 $ (20,497) $ 10,342,863 The amount of total losses for the period included in change in net assets attributable to the change in unrealized gains relating to level 3 assets still held at April 30, 2015. $ 18,321 The amount of total losses for the period included in change in net assets attributable to the change in unrealized losses relating to level 3 liabilities still held at April 30, 2015. $ (117,982) Page 16

NOTE 2 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) The College s interests in many of its partnership investments represent commitments that are not subject to redemption; instead the College is a limited partner in funds that invest in private companies or properties, or pursue specific investment strategies. The nature of these investments is that distributions are received through the liquidation of the underlying assets of the partnership. The NAV reported by each fund is used as a practical expedient to estimate the fair value of the College s interest therein, unless management has deemed the NAV to be an inappropriate representation of the fair value under the College s valuation policy. A summary of the significant categories of such investments and their attributes is as follows: Fair value April 30, 2016 Unfunded commitments Redemption frequency (if currently eligible) Redemption notice period Strategy Estimated life Asset Class International equity funds $ 12,136,897 Bimonthly 2 days Invest in international equity funds Indefinite Domestic fixed income funds 1,778,476 Quarterly 60 days Invest in senior loan funds Liquidated in June 2016 Hedge funds 11,504,291 Biannual 60 days Produce consistent capital appreciation with controlled volatility Private equity funds 5,737,360 $ 2,326,420 N/A N/A Invest in distressed debt, venture capital, etc. Real asset funds 2,831,949 2,328,387 Quarterly* 60 days Invest in income producing real properties Indefinite 1-12 years 10 years Total $ 33,988,973 * One of the College s alternative investments in real estate totaling $87,812 has suspended quarterly redemption rights and begun winding-down the fund. Page 17

NOTE 3 - RESTRICTIONS AND LIMITATIONS ON NET ASSET BALANCES At April 30, 2016 and 2015, the College's unrestricted net assets were allocated as follows: 2016 2015 Operations $ 10,130,137 $ 10,038,012 Long-term investment 19,600,960 24,121,161 Plant 93,522,670 95,110,522 Temporarily restricted net assets consist of the following: $ 123,253,767 $ 129,269,695 Gifts and other unexpended revenues and gains available for: Scholarships, instruction and other departmental support $ 1,631,308 $ 1,083,038 Earnings not yet appropriated for spending 11,267,075 16,102,722 Acquisition of buildings and equipment 14,917,239 11,983,810 Annuity, life income and similar funds 7,573,658 8,111,629 Permanently restricted net assets consist of the following: $ 35,389,280 $ 37,281,199 Endowment funds $ 87,746,952 $ 76,379,136 Student loan funds 1,651,781 1,618,459 Annuity, life income and similar funds 5,675,646 7,846,660 $ 95,074,379 $ 85,844,255 Page 18

NOTE 4 - INVESTMENTS The following summarizes the College s investments, which are reported at fair value unless noted otherwise, at April 30, 2016 and 2015: 2016 2015 ENDOWMENT FUNDS Funds held in trust by others $ 2,735,251 $ 2,938,467 Mutual funds 80,993,038 85,060,923 Alternative investments 20,073,600 18,847,486 Notes receivable (at cost) 3,236,052 3,968,800 Real estate (at cost) 173,439 176,591 $ 107,211,380 $ 110,992,267 DEFERRED GIFT FUNDS Cash and short-term investments (at cost) $ 921,279 $ 393,906 Common stocks 6,956,028 5,359,721 Corporate bonds and government obligations 5,554,436 5,948,028 Mutual funds 26,564,408 31,194,127 Real estate (at cost) 2,915,450 2,765,450 Cash surrender value of life insurance (at cost) 2,513,086 2,449,962 $ 45,424,687 $ 48,111,194 AGENCY FUNDS Cash and short-term investments (at cost) $ 336 $ 709 Common stocks 53,340 47,771 Mutual funds 125,457 130,481 $ 179,133 $ 178,961 OTHER FUNDS Cash and short-term investments (at cost) $ 461,062 $ 430,857 Common stocks 72,887 87,375 Corporate bonds and government obligations 4,570,628 4,791,785 Mutual funds 721,338 777,660 Other investments (at cost) 122,641 91,034 Real estate (at cost) 21,508 52,501 $ 5,970,064 $ 6,231,212 Total investments $ 158,785,264 $ 165,513,634 Page 19

NOTE 4 - INVESTMENTS (Continued) Included in notes receivable of the Endowment Funds are four notes payable to the College that are due from the children of a member of the Board of Regents. In June 2014, the College was gifted closely-held corporate stock that was valued through a qualified appraisal. In October 2014, the stock was sold to the four children in exchange for the notes receivable. The notes are secured and are payable over five years with 4% simple interest. Through the College's alternative investments, the College is indirectly involved in investment activities such as securities lending, trading in futures, forward contracts and other derivative products. Derivatives are used to adjust portfolio risk exposure. While these instruments may contain varying degrees of risk, the College s risk with respect to such transactions is limited to its respective share in each investment pool. The net investment return on alternative investments was $(1,596,000) and $1,309,700 for the years ended April 30, 2016 and 2015, respectively. Investments, in general, are subject to various risks, including credit, interest and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the financial statements. NOTE 5 - NET ASSETS RELEASED FROM RESTRICTIONS Net assets were released from temporary donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of events specified by the donors during the year ended April 30, 2016 and 2015 as follows: 2016 2015 Acquisition of land, building and equipment $ 2,246,740 $ 1,853,256 Scholarships, instruction and other departmental support 5,729,666 6,717,924 $ 7,976,406 $ 8,571,180 Page 20