Rochester Institute of Technology Consolidated Financial Statements June 30, 2015 and 2014

Rochester Institute of Technology Index June 30, 2015 and 2014 Page(s) Independent Auditor’s Report..................................................................................................................................1 Consolidated Financial Statements Balance Sheets…………………..................................................................................................................................2 Statements of Activities...........................................................................................................................................3–4 Statements of Cash Flows..........................................................................................................................................5 Notes to Consolidated Financial Statements........................................................................................................6–23

Independent Auditor's Report To The Board of Trustees Rochester Institute of Technology We have audited the accompanying consolidated financial statements of the Rochester Institute of Technology (the University), which comprise the consolidated balance sheets as of June 30, 2015 and June 30, 2014, and the related consolidated statements of activities and consolidated statements of cash flows for the years then ended. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the University’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University'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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Rochester Institute of Technology at June 30, 2015 and June 30, 2014, and its changes in net assets and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

November 13, 2015

PricewaterhouseCoopers LLP, 1100 Bausch & Lomb Place, Rochester, NY 14604-2705 T: (585) 232 4000, F: (585) 454 6594, www.pwc.com/us 1

Rochester Institute of Technology Consolidated Balance Sheets June 30, 2015 and 2014 (in thousands)

2015 Assets Cash and cash equivalents Cash and cash equivalents, held with trustees Accounts receivable, net Inventories and other assets Contributions receivable, net Student loans receivable, net Investments, at fair value Property, plant and equipment, net Total assets

$

Liabilities Accounts payable and accrued expenses Deferred revenues and other liabilities Accrued postretirement benefits Federal Perkins Loan Program advances Long-term debt, net Total liabilities Net assets Expendable resources Net investment in plant Unrestricted Temporarily restricted Permanently restricted Total net assets Total liabilities and net assets

38,191 13,948 32,206 9,717 16,313 45,785 919,412 647,463 $ 1,723,035

66,824 11,904 28,987 10,178 14,946 45,309 893,415 636,894 $ 1,708,457

$

$

40,788 50,831 163,958 22,064 282,869 560,510

$

47,121 52,774 151,602 21,931 290,994 564,422

380,211 378,542 758,753 253,455 150,317 1,162,525

360,269 375,602 735,871 262,392 145,772 1,144,035

$ 1,723,035

$ 1,708,457

The accompanying notes are an integral part of these Consolidated Financial Statements. 2

2014

Rochester Institute of Technology Consolidated Statements of Activities For the fiscal years ended June 30, 2015 and 2014 (in thousands)

Temporarily Permanently Unrestricted Restricted Restricted Operating revenues Tuition and fees, net of scholarships of $164,494 and $153,855, respectively Sales and services of auxiliaries Government grants and contracts Private grants and contracts Private contributions Investment return Other sources Net assets released from restrictions Total operating revenues Operating expenses Salaries and wages Benefits Postretirement benefits Purchased services Materials and supplies Depreciation Interest Utilities, taxes and insurance Travel for scholarship, professional development and recruitment Other Total operating expenses Net operating activities Nonoperating activities Investment return, net Net assets released from restrictions Contributions for long-term assets Government grants and contracts for long-term assets Postretirement benefits Beneficiary payments and change in value of deferred giving arrangements Other Net nonoperating activities

$

$

Increase (decrease) in net assets Net assets at beginning of year Net assets at end of year

$

281,599 81,562 97,801 5,694 2,611 14,217 19,788 19,975 523,247

$

5,779 14,854 (19,975) 658

$

-

$

2015

2014

Total

Total

281,599 81,562 97,801 5,694 8,390 29,071 19,788 523,905

$

269,785 79,130 92,413 5,784 9,408 31,114 18,436 506,070

261,698 79,354 5,094 36,499 42,142 38,425 7,961 12,706

-

-

261,698 79,354 5,094 36,499 42,142 38,425 7,961 12,706

255,659 78,021 4,856 35,494 40,978 37,185 9,199 13,525

8,706 10,019 502,604 20,643

658

-

8,706 10,019 502,604 21,301

8,146 9,102 492,165 13,905

(3,674) 7,282 4,514

$

(6,081) (7,282) 4,062

3,214 (6,365)

-

(2,732) 2,239

$

87 4,784

$

(9,668) 13,360

$

80,221 14,400

85 -

3,299 (6,365)

458 (6,272)

(320) 26 (9,595)

(378) (33) 4,545

(698) (2,739) (2,811)

(508) (15,931) 72,368

22,882

(8,937)

4,545

18,490

86,273

735,871

262,392

145,772

1,144,035

1,057,762

758,753

$ 253,455

$ 150,317

$ 1,162,525

$ 1,144,035

The accompanying notes are an integral part of these Consolidated Financial Statements. 3

Rochester Institute of Technology Consolidated Statement of Activities For the fiscal year ended June 30, 2014 (in thousands)

2014 Temporarily Permanently Unrestricted Restricted Restricted Operating revenues Tuition and fees, net of scholarships of $153,855 Sales and services of auxiliaries Government grants and contracts Private grants and contracts Private contributions Investment return Other sources Net assets released from restrictions Total operating revenues Operating expenses Salaries and wages Benefits Postretirement benefits Purchased services Materials and supplies Depreciation Interest Utilities, taxes and insurance Travel for scholarship, professional development and recruitment Other Total operating expenses Net operating activities Nonoperating activities Investment return, net Net assets released from restrictions Contributions for long-term assets Government grants and contracts for long-term assets Postretirement benefits Beneficiary payments and change in value of deferred giving arrangements Other Net nonoperating activities

$

269,785 79,130 92,413 5,784 2,869 16,873 18,436 19,234 504,524

$

$

-

$

269,785 79,130 92,413 5,784 9,408 31,114 18,436 506,070

-

-

255,659 78,021 4,856 35,494 40,978 37,185 9,199 13,525

8,146 9,102 492,165 12,359

1,546

-

8,146 9,102 492,165 13,905

41,822 1,770 5,290

$ 36,932 (1,770) 2,472

$

1,467 6,638

$

80,221 14,400

281 (6,272)

-

177 -

458 (6,272)

(18,760) 24,131

12 2,900 40,546

(520) (71) 7,691

(508) (15,931) 72,368

36,490

42,092

7,691

86,273

699,381

220,300

138,081

1,057,762

735,871

$ 262,392

$ 145,772

$ 1,144,035

Increase in net assets Net assets at end of year

6,539 14,241 (19,234) 1,546

255,659 78,021 4,856 35,494 40,978 37,185 9,199 13,525

$

Net assets at beginning of year

$

Total

The accompanying notes are an integral part of these Consolidated Financial Statements. 4

Rochester Institute of Technology Consolidated Statements of Cash Flows For the fiscal years ended June 30, 2015 and 2014 (in thousands) 2015 Cash flows from operating activities Change in net assets

$

18,490

2014 $

86,273

Adjustments to reconcile change in net assets to net cash provided by operating activities Depreciation, amortization and accretion expense Loss on disposal of property, plant and equipment Realized and unrealized net gains on investments Contributions and government grants restricted for long-term purposes Noncash contributions of property, plant, equipment and securities Asset retirement obligation liquidation and adjustment

37,468 510 (7,478) (8,159) (6,001) (1,735)

36,133 847 (102,659) (10,508) (5,264) 1,654

Changes in assets and liabilities: Accounts receivable Inventories, prepaids and deferred charges Contributions receivable Student loans receivable Accounts payable and accrued expenses Deferred revenues and other liabilities Accrued postretirement benefits

(3,219) 201 (1,367) 361 (4,233) (1,304) 12,356

5,426 (243) 2,300 416 (886) 4,122 18,641

Net cash provided by operating activities

35,890

36,252

(204,338) 187,306 (6,542) 5,705 (2,044) (46,894)

(293,306) 314,341 (7,696) 4,672 2,201 (48,612)

(66,807)

(28,400)

7,288 871 (6,008) 133

10,387 121 (5,276) 397 (20) 107

Cash flows from (used in) investing activities Purchases of investments Proceeds from the sales and maturities of investments Loans made to students Payments received on student loans (Increase) decrease in cash and cash equivalents held with bond trustees Acquisition of property, plant and equipment Net cash used in investing activities Cash flows from (used in) financing activities Contributions and government grants restricted for long-term purposes Proceeds from sale of contributed securities Payments of long-term debt Proceeds from the issuance of debt Bond issuance costs Increase in refundable government grants for student loans

2,284

5,716

(Decrease) increase in cash and cash equivalents

Net cash provided by financing activities

(28,633)

13,568

Cash and cash equivalents - beginning of year

66,824

53,256

Cash and cash equivalents - end of year

$

38,191

Supplemental disclosures of cash flow information Interest paid (including capitalized interest of $2,090 and $1,118 in 2015 and 2014, respectively) $ 12,044 Contributions of long-term assets 4,513 Contributions of marketable securities 2,728 (Decrease) increase in construction-related payables (2,100) Assets exchanged under capital lease The accompanying notes are an integral part of these Consolidated Financial Statements . 5

$

66,824

$

12,638 5,264 246 2,271 490

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

1.

Summary of Significant Accounting Policies a. Organization Rochester Institute of Technology (University, RIT) is a privately endowed, co-educational university comprised of nine colleges: Applied Science and Technology, Business, Computing and Information Sciences, Engineering, Health Sciences, Imaging Arts and Sciences, Liberal Arts, National Technical Institute for the Deaf (NTID) and Science. The University, which occupies 1,300 acres in Rochester, New York, has approximately 18,063 full and part-time undergraduate and graduate students and 3,321 employees. The following organizations are consolidated into the financial statements of the University:  5257 West Henrietta Road, LLC (Inn), doing business as the RIT Inn & Conference Center, is a not-for-profit single member limited liability company with the University as its sole member. The Inn is a dual-use 305-room full service hotel with approximately half of the rooms dedicated to student housing during the academic year.  Magic Spell Studios, LLC (MAGIC Spell) is a not-for-profit single member limited liability company with the University as its sole member. MAGIC Spell operates a center for research and development of digital media directly supporting the charitable and educational activities of the University.  RIT Campus Club, Inc. (Campus Club) is a not-for-profit subsidiary of the University. Campus Club was established to support certain aspects of the University’s dining operations.  RIT Global Delivery Corporation, Inc. (GDC) is a wholly owned not-for-profit subsidiary of the University established to develop and deliver global instruction. RIT Croatia, a subsidiary of GDC, is a not-for-profit entity that delivers instructional services in Croatia. GDC also operates RIT Dubai in conjunction with the Dubai Silicon Oasis Authority and the American University in Kosovo in conjunction with the American University in Kosovo Foundation to deliver instructional services in the United Arab Emirates and Kosovo, respectively.  RIT Venture Fund I, LLC (Fund I) is a for-profit limited liability company; the University is its investor member

and sole investor. The Fund was formed to make investments in seed, venture and growth-stage companies that involve RIT students, faculty, technologies or incubator or similar facilities. b. Basis of Accounting The Consolidated Financial Statements of the University are prepared on the accrual basis of accounting in conformity with generally accepted accounting principles in the United States of America. All significant intercompany transactions and accounts have been eliminated. c. Classifications of Net Assets The University reports its net assets and changes therein according to three classifications: unrestricted, temporarily restricted and permanently restricted based upon the existence or absence of donor-imposed restrictions. Unrestricted Net Assets Unrestricted net assets reflect resources that are not subject to externally imposed stipulations. Certain net assets classified as unrestricted are designated for specific purposes or uses under various internal operating and administrative arrangements of the University. Temporarily Restricted Net Assets Temporarily restricted net assets represent resources subject to externally imposed stipulations that may or will be met either by actions of the University and/or the passage of time. Temporarily restricted net assets include amounts subject to legal restrictions such as realized and unrealized gains and losses on the endowment until appropriated for spending in accordance with New York State law. 6

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

Permanently Restricted Net Assets Permanently restricted net assets are subject to externally imposed restrictions that the University maintains in perpetuity. Generally, the donors of these assets permit the University to use all or part of the income earned, and net appreciation on related investments, for general or specific purposes. Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donorimposed restrictions. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments and other assets or liabilities are reported as nonoperating increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. d. Operations Revenues earned and expenses incurred during the fiscal year are classified on the University’s Consolidated Statements of Activities as either operating or nonoperating activity. Operating revenues and expenses consist primarily of those items attributable to the University’s education and training programs, auxiliary enterprises and research activities. Nonoperating activities consist primarily of realized and unrealized gains and losses on investments and other revenue and expenses not directly associated with education and training programs, or research activities. e. Revenue Recognition Tuition revenue is recognized over the academic term to which it relates. Revenues from auxiliary enterprises are also generally recognized over the academic term, with the exception of dining debit card balances which are included in deferred revenue until spent by the cardholder. Revenues from grants and contracts are generally recognized as earned, that is, as the related costs are incurred under the grant or contract agreements. Amounts received in advance are reported as deferred revenues until expenditures are incurred. f. Classification of Operating Expenses Operating expenses are reported by natural classification on the Consolidated Statements of Activities, and by function in Note 13. g. Cash and Cash Equivalents Cash and cash equivalents are carried at fair value and include cash on deposit with financial institutions and money market funds with maturities of three months or less when purchased. Cash and cash equivalents on deposit with bond trustees include cash, money market funds and U.S. government securities with maturities of three months or less when purchased. Securities and cash and cash equivalents maintained by the University's investment managers as part of the intermediate and long-term investment portfolios are included in investments on the Consolidated Balance Sheets. h. Inventories The University’s electronics and photo stores’ inventories are valued at cost using the first-in, first-out (FIFO) retail method. Other inventories are stated at the lower of cost, generally on a FIFO basis, or market value. i. Contributions Contributions, including unconditional promises to give, are recognized as revenues in the period received. Conditional promises to give are not recognized until the conditions on which they depend are substantially met. Contributions to be received after one year are discounted at a range from 1.7% to 5.1%, to their fair value, based upon the fiscal year in which the contribution is to be received. Amortization of discount is recorded as additional contribution revenue in accordance with donor-imposed restrictions, if any, on the contributions. An allowance for potentially uncollectible contributions receivable is provided based upon management’s judgment and analysis of the creditworthiness of the donors, past collection experience and other relevant factors. j. Investments Investments are recorded at fair value based on quoted market prices where available. The estimated fair value for certain investments in private equity, real asset, hedge and other externally managed funds are based on valuations provided by 7

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

external investment managers. The valuations necessarily involve estimates, appraisals, assumptions and methods which are reviewed by the University and external investment management. To minimize the risk of loss, externally managed hedge fund investments are diversified by strategy, manager and number of positions. The risk of any derivative exposure associated with such funds is limited to the amount invested with each manager. The University’s interest rate risk management strategy provides for maximum flexibility within its debt structure, seeks to lower its cost of capital, and manages risk on a portfolio basis. The University does not hold or issue derivative financial instruments for trading purposes; however, the Board of Trustees has authorized investments in derivatives to maintain asset class ranges, hedge non-U.S. dollar investments and currencies, and provide for defensive portfolio strategies. Derivative investments are recorded at fair value and valuation gains and losses are included on the Consolidated Statements of Activities. k. Life Income, Gift Annuities, and Interest in Perpetual Trusts Held by Others The University’s split-interest agreements with donors consist primarily of gift annuity agreements and irrevocable charitable remainder trusts for which the University serves as trustee. Assets held in the trusts are included in investments. Contribution revenues are recognized when trusts (or annuity agreements) are established, after recording liabilities for the present value of the estimated future payments to be made to beneficiaries. The liabilities are adjusted annually for changes in the value of assets, accretion of the discount, and other changes in the estimates of future benefits. The University is also the beneficiary of certain perpetual trusts held and administered by others. The present value of the estimated future cash receipts from the trusts is recognized in investments and as contribution revenue. The carrying value of the investments is adjusted annually for changes in fair value. l. Property, Plant and Equipment Land, buildings, capital improvements, equipment, capitalized software, special collections and construction-in-progress are stated at cost at the time of acquisition or fair value (if contributed). Asset retirement costs are initially recorded at fair value and are included in buildings and capital improvements. Special collections include works of art, literary works, historical treasures and artifacts that are maintained in the University’s libraries and public areas of the campus. These collections are protected and preserved for public exhibition, education, research and the furtherance of public service. Contributed property, plant and equipment, including special collections, are recognized as revenue in the period in which the items are gifted. Property, plant and equipment acquired through federal appropriations, grants and contracts where the federal government retains a reversionary interest is also capitalized and depreciated. Interest on borrowings to finance facilities is capitalized during construction. Depreciation is recognized using the straight-line method with useful lives of 30 to 50 years for buildings, 8 to 30 years for building improvements, 10 to 30 years for site improvements, 4 to 15 years for automobiles, furniture, fixtures and equipment, and 3 to 10 years for software. Land, special collections and construction-in-progress are not depreciated. The cost and accumulated depreciation of property, plant and equipment sold or retired have been eliminated. Costs incurred for maintenance, repairs and renewals of relatively minor items are expensed as incurred. m. Income Taxes The University and its consolidated subsidiaries, except for Fund I, are not-for-profit organizations, and generally exempt from income taxes on related income under Section 501(c)(3) of the IRC but are subject to unrelated business income tax on activities not related to their exempt purposes. Fund I, a limited liability company of which RIT is the investor member, is classified as a disregarded entity for federal income tax purposes. The accounting for income taxes Topic of the FASB Accounting Standards Codification addresses the determination of whether certain tax positions result in benefits claimed or expected to be claimed on a tax return and whether they should be recorded in the Consolidated Financial Statements. For tax-exempt entities, tax positions include the entity’s tax-exempt status and assumptions used

8

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

to determine unrelated business taxable income. The University believes its tax positions meet the more-likely-than-not recognition threshold referenced in the Topic. n. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, 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 may differ from estimates. o. Premium and Discount on Long-Term Debt Premiums and discounts arising from the original issuance of long-term debt are amortized on either the effective interest method or the straight-line basis, which approximates the effective interest method, over the life of the debt. The unamortized portion of these premiums and discounts are included in long-term debt on the Consolidated Balance Sheets. p. Accounting Pronouncements There were no changes made to the Consolidated Financial Statements and accompanying notes related to implementation of new accounting pronouncements. q. Risks and Uncertainties The University's investments are exposed to various risks, such as interest rate, market and credit. Due to the level of risk associated with certain investments and the level of uncertainty related to changes in the value of investments, it is at least possible that changes in risks in the near term would materially affect the amounts reported in the financial statements. r. Reclassification Certain amounts for 2014 have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. The University concluded that it was appropriate to classify its sponsored project grants and contracts receivable and student and other accounts receivable on a single line in addition to disclosing the student loans receivable separately on the Consolidated Balance Sheets. Previously, student accounts receivable were combined with student loans receivable as a single line item on the Consolidated Balance Sheets. Accordingly, the University has reclassified $17,587 from “Student loans receivable, net” to “Accounts receivable, net” for 2014. Corresponding reclassifications have been made to the Consolidated Statement of Cash Flows for 2014. This change in classification does not affect previously reported cash flows from operations or from investing activities in the Consolidated Statements of Cash Flows.

9

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

2.

Accounts Receivable Accounts receivable as of June 30 are as follows: 2015 Sponsored project grants and contracts Government Private Total sponsored project grants and contracts

3.

$

17,332 2,912 20,244

2014 $

14,530 2,787 17,317

Student accounts and other Student accounts Other Total student accounts and other

14,145 758 14,903

14,024 588 14,612

Total accounts receivable Less: allowance for doubtful accounts Accounts receivable, net

35,147 (2,941) 32,206

31,929 (2,942) 28,987

$

$

Contributions Contributions receivable, less related allowances for uncollectible receivables and discounts for present value on longterm pledges at June 30, are summarized as follows: 2015 Unconditional promises expected to be collected in: Less than one year One year to five years Over five years Contributions receivable Less: allowance and discount Contributions receivable, net

$

$

7,920 7,539 1,725 17,184 (871) 16,313

2014 $

$

5,913 8,185 1,694 15,792 (846) 14,946

At June 30, 2015, the University has received other conditional promises to give totaling $1,320. These conditional promises are not recognized as assets. Contributions to acquire property, plant and equipment are recorded as temporarily restricted net assets and are released from restrictions at the time the asset is placed in service. As a result, $7,372 and $11,143 of assets contributed to acquire property, plant and equipment are recorded as temporarily restricted net assets as of June 30, 2015 and 2014, respectively. 4.

Student Loans Receivable and Credit Disclosures The University participates in the Federal Perkins Loan Program (Program) and makes uncollateralized loans to students based on financial need as determined by Program eligibility requirements.

10

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

At June 30, student loans included in the Consolidated Balance Sheets consist of the following: 2015 Federal Perkins Loan Program Less: allowance for doubtful accounts Student loans receivable, net

$ $

2014

49,493 (3,708) 45,785

$ $

48,831 (3,522) 45,309

The University’s student loans receivable represents the amounts due from current and former students under the Program. The availability of funds for loans under the Program is dependent on reimbursements to the pool from repayments on outstanding loans. Loans disbursed under the Program are assigned to the Federal Government in certain non-repayment situations. Allowances for doubtful accounts are established when a non-deferred loan is delinquent for 240 days. Outstanding loans cancelled under the Program result in a reduction of the funds available and a decrease in the liability to the government. Program advances of $22,064 and $21,931 at June 30, 2015 and 2014, respectively, are ultimately refundable to the U.S. government and are classified as liabilities on the University’s Consolidated Balance Sheets. In addition to the Federal matching requirement, the University has advanced $178 and $2,369 for the years ended June 30, 2015 and 2014, respectively, to provide additional loans to qualified students under the Program. The student loans receivable aging analysis at June 30 is as follows: 2015 Current 1-60 days past due 61-90 days past due >91 days past due Total student loans receivable

5.

$

$

2014

42,046 1,588 501 5,358 49,493

$

$

41,984 1,319 488 5,040 48,831

Investments Total investments for the fiscal years ended June 30 are as follows: 2015 Cost

2014 Fair Value

Cost

Fair Value

Cash and cash equivalents Domestic fixed income Global fixed income Domestic equity securities Global equity securities Hedge funds Private equity Real assets

$

50,242 161,852 34,703 122,830 158,472 78,337 102,982 62,240

$

50,242 161,650 34,909 132,617 184,814 163,508 127,256 64,416

$

19,745 154,495 30,470 120,199 158,927 87,056 88,835 66,396

$

19,745 156,196 32,787 124,873 196,716 173,812 111,210 78,076

Total investments

$

771,658

$

919,412

$

726,123

$

893,415

11

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

Assets and liabilities measured and reported at fair value are classified and disclosed within one of the following categories: Level 1 Quoted prices (unadjusted) in active markets for identical assets as of the measurement date. An active market is one in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Market price data is generally obtained from exchange or dealer markets. Investments within Level 1 may include active listed equities and exchange traded funds, option contracts traded in active markets, and certain U.S. government investments and money market securities. Level 2 Pricing inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the same term of the assets. Inputs are obtained from various sources including market participants, dealers and brokers. Investments within Level 2 may include investment-grade corporate bonds, commingled funds, less liquid listed equities, option contracts, certain mortgage products, bank loans, U.S. government investments and hedge funds. Level 3 Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Investments within Level 3 primarily consist of the University’s ownership in private equity, real asset and hedge fund limited partnerships. Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Furthermore, the fair value hierarchy does not correspond to a financial instrument’s relative liquidity in the market or to its level of risk. The University assumes that any transfers between levels occur at the beginning of any period. Following is a summary of the University’s investments carried at fair value as of June 30, 2015:

Level 1 Cash and cash equivalents Domestic fixed income Global fixed income Domestic equity securities Global equity securities Hedge funds Private equity Real assets Total investments at fair value

$

$

12

31,965 98,245 510 33,254 29,703 9,138 202,815

Level 2 $

$

18,277 63,264 34,399 97,658 155,111 84,135 452,844

Level 3 $

$

141 1,705 79,373 127,256 55,278 263,753

Total $

$

50,242 161,650 34,909 132,617 184,814 163,508 127,256 64,416 919,412

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

Following is a summary of the University’s investments carried at fair value as of June 30, 2014:

Level 1 Cash and cash equivalents Domestic fixed income Global fixed income Domestic equity securities Global equity securities Hedge funds Private equity Real assets Total investments at fair value

$

Level 2

16,530 94,914 832 32,207 30,976 12,810 188,269

$

$

3,215 61,153 31,955 90,974 165,740 93,131 446,168

$

Level 3 $

129 1,692 80,681 111,210 65,266 258,978

$

Total $

19,745 156,196 32,787 124,873 196,716 173,812 111,210 78,076 893,415

$

Following is a reconciliation of beginning and ending balances of Level 3 investments for the years ended June 30: Level 3 Balance June 30, 2014 Domestic fixed income $ Domestic equity securities Hedge funds Private equity Real assets Total $

Realized Gains

129 1,692 80,681 111,210 65,266 258,978

$

$

48 3,466 12,103 8,271 23,888

Unrealized Gains (Losses)

Purchases

$

$

12 (35) (2,414) 1,854 (5,826) (6,409)

$

6,500 35,175 8,912 50,587

$

Sales $

(8,860) (33,086) (21,345) (63,291)

$

Balance June 30, 2015 $

141 1,705 79,373 127,256 55,278 263,753

$

Level 3 Balance Realized June 30, 2013 Gains Domestic fixed income $ Domestic equity securities Hedge funds Private equity Real assets Total $

119 1,484 91,435 92,038 54,867 239,943

$

37 1,807 3,410 $ 5,254

Unrealized Gains

Purchases

$

$

12 171 10,060 12,905 6,977 $ 30,125

$

19,495 9,344 28,839

Sales $

$

(2) (302) (15,035) (9,332) (24,671)

Transfers $

$

(20,512) (20,512)

Balance June 30, 2014 $

$

129 1,692 80,681 111,210 65,266 258,978

Transfers out of Level 3 into Level 2 are a result of increased liquidity due to the expiration of redemption lockups on underlying assets. The University is permitted as a practical expedient under generally accepted accounting principles to estimate the fair value of an investment at the measurement date using the reported net asset value (NAV) without further adjustment unless the entity expects to sell the investment at a value other than NAV or if the NAV is not calculated in accordance with U.S. GAAP. The University’s investments in commingled funds, hedge funds, and private equity and real asset limited partnerships are recorded at fair value based on the most recent NAV reported by the investment manager. The NAV of these investments is determined by the investment manager, and is based on appraisal or other estimates that require 13

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

varying degrees of judgment. If no public market exists for the investment securities, the fair value is determined by the investment manager, taking into consideration, among other things, the cost of the securities, prices of recent significant placements of securities of the same issuer, and subsequent developments concerning the companies to which the securities relate. The University has performed due diligence around these investments to ensure that NAV is an appropriate measure of fair value as of June 30 and has concluded that these valuations are a reasonable estimate of fair value as of June 30, 2015 and 2014, but are subject to uncertainty and, therefore, may differ from the value that would have been used had an active market for all of the investments existed. Investments that can be redeemed at NAV by the University on the measurement date or in the near term (90 days or less) are classified as Level 2. Investments that cannot be redeemed on the measurement date or in the near term are classified as Level 3. The following table provides additional information concerning the University’s investments that are recorded at NAV:

Fair Value

Asset Class Global fixed income Domestic equity securities Global equity securities Hedge funds Private equity Real assets

$

Total

$

1

Unfunded Commitments

18,038 97,828 155,265 163,508 127,256 55,278

$

617,173

$

78,927 40,635

Redemption Frequency (if currently eligible)

Redemption Notice Period

Monthly Monthly Monthly 30 to more than 365 days

1 - 15 days 1 - 15 days 1 - 15 days 35 - 90 days

1

1

NA 1 NA

NA 1 NA

119,562

The University does not have redemption rights in these investments; the remaining lives are between 1 and 10 years.

Total Investment Return Following is a summary of the total investment return and its classification on the Consolidated Statements of Activities at June 30: 2015 Total investment return Interest and dividends Realized and unrealized gains on investments, net of investment management fees and other expenses Total investment return Consolidated Statements of Activities classification Allocated for operating activities per spending policy Interest and dividends Total operating investment return Nonoperating investment return Total investment return

6.

2014

$

15,856

$

12,759

$

3,547 19,403

$

98,576 111,335

$

$

26,415 2,656 29,071 (9,668) 19,403

$

$

28,061 3,053 31,114 80,221 111,335

Endowment The University’s endowment includes both donor-restricted endowment funds and funds designated by the Board of Trustees to function as endowments. As required by generally accepted accounting principles, net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. 14

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

The New York Prudent Management of Institutional Funds Act (NYPMIFA) governs the management and investment of funds held by not-for-profit corporations and other institutions. Absent donor stipulations to the contrary, the statutory guidelines contained in NYPMIFA relate to the prudent management, investment and expenditure of donor-restricted endowment funds without regard to the original value of the gifts. However, NYPMIFA contains specific factors that must be considered prior to making investment decisions or appropriating funds for expenditure. The Board of Trustees’ interpretation of its fiduciary responsibilities for donor-restricted endowment funds under New York State’s Not-for-Profit Corporation Law, including NYPMIFA, is to preserve intergenerational equity to the extent possible by prudently managing, investing, and spending from the endowment funds. This principle holds that future endowment beneficiaries should receive at least the same level of economic support that the current generation receives. As a result of this interpretation, the University classifies as permanently restricted net assets the unappropriated portion of (a) the original value of gifts donated to a true endowment; (b) the original value of subsequent gifts to a true endowment fund; and, (c) accumulations to a true endowment fund made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. Unspent appropriations related to donor-restricted endowment funds are classified as temporarily restricted net assets until the amounts are expended by the University in a manner consistent with the donor’s intent. The remaining portion of donor-restricted endowment funds not classified as permanently or temporarily restricted net assets are classified as unrestricted net assets. The Board of Trustees determines the appropriate amount to withdraw from endowment and similar funds on an annual basis to provide support for operations with prudent concern for the long-term growth in the underlying assets as well as the specific factors detailed in NYPMIFA. To satisfy its long-term rate-of-return objectives, the University 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 University targets a diversified asset allocation that places a greater emphasis on equity-based and alternative investments to achieve its long-term objectives within prudent risk constraints. The University currently accounts for endowment activity in two investment pools, Pool I and Pool II. Pool I is comprised of contributions, both donor-restricted and board-designated, made to the University for a variety of purposes, as well as contributions transferred from Pool II. Pool II is comprised of contributions, both donor-restricted and board-designated, made to NTID. Each pool has a separate investment and spending policy. Pool I – The University has a policy of appropriating for distribution each year 5% of its endowment fund’s average fair value over the prior 20 quarters through March of the preceding fiscal year in which the distribution is planned. The total spending distribution should be at least equal to 3.50% but not greater than 5.25% of the beginning of year portfolio market value. The distribution excludes those funds with deficiencies due to unfavorable market fluctuations. During periods when investment return exceeds the distribution, such excess return is added to these investments. Likewise, when investment return is less than the distribution, such deficit is funded by accumulated return. In establishing the distribution policy, the University considered the long-term expected return on its endowment. New gifts to existing funds participate in the spending policy in the quarter that begins subsequent to the date of the gift. New funds participate in the spending policy in the quarter that begins one year subsequent to the date of the gift. Accordingly, over the long term, the University expects the current spending policy to allow its endowment to grow at a rate exceeding expected inflation, consistent with the University’s objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return. In 1994, the University’s Board of Trustees established a quasi-endowment fund within Pool I to finance a portion of the University’s postretirement medical obligations. Distributions have been reinvested in the fund each year since inception, and, accordingly, were not available to support the general operations of the University. In November 2013, the University’s Board of Trustees approved a resolution allowing, with the approval of the chair of the Finance Committee, a portion or all of a year’s distributions related to the post-retirement quasi-endowment fund to be allocated to support the general operations of the University. No distributions were made during the year ended June 30, 2015. During the year ended June 30, 2014, $2,812 was distributed in accordance with this resolution. The market value for this quasi-endowment fund was $136,988 and $133,987 at June 30, 2015 and 2014, respectively. 15

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

Pool II – The University established a separate investment pool (Pool II) for NTID during 1989 in accordance with the federal program established by Public Law 99-371 (August 4, 1986) to support NTID. Pool II assets are invested in a manner intended to produce price and yield results that are at least equal to a blended benchmark of 70% of the S&P 500 Index and 30% of the Barclays Capital Aggregate Bond Index, assuming a moderate level of investment risk. The federal program stipulates that the investment of annual additions to Pool II is restricted to IRC 501(f) investment organizations. The federal guidelines authorize a spending distribution from Pool II of not more than 50% of current year’s investment income (interest and dividends only). After a period of 10 years, the University can elect to invest the funds consistent with the University’s overall long-term investment strategy (Pool I). At June 30, 2015, the endowment net asset composition by type of fund consists of the following: Temporarily Restricted

Unrestricted Donor-restricted funds Board-designated funds Total funds

$ $

400,757 400,757

$ $

213,031 553 213,584

Permanently Restricted $

Total

147,595 147,595

$

$ $

360,626 401,310 761,936

Following are changes in endowment net assets for the year ended June 30: Temporarily Restricted

Unrestricted Endowment net assets, June 30, 2014

$

Investment return: Investment income Net appreciation Total investment return

391,617

$

219,720

Permanently Restricted $

Total

142,614

$

753,951

6,767 2,333 9,100

6,040 2,612 8,652

2 2 4

12,809 4,947 17,756

Contributions Amounts appropriated for expenditure

(11,562)

1,310 (14,788)

4,981 (4)

6,291 (26,354)

Other changes: Transfers to create board-designated endowment funds Endowment net asset reclassification Total other changes

10,292 1,310 11,602

(1,310) (1,310)

-

10,292 10,292

Endowment net assets, June 30, 2015 $

400,757

$

213,584

$

147,595

$

761,936

At June 30, 2014, the endowment net asset composition by type of fund consists of the following: Temporarily Restricted

Unrestricted Donor-restricted funds Board-designated funds Total funds

$ $

391,617 391,617

16

$ $

219,155 565 219,720

Permanently Restricted $ $

142,614 142,614

Total $ $

361,769 392,182 753,951

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

Following are changes in endowment net assets for the year ended June 30: Temporarily Restricted

Unrestricted Endowment net assets, June 30, 2013

$

349,905

$

Permanently Restricted

183,322

$

Total

135,905

$

669,132

Investment return: Investment income Net appreciation Total investment return

4,951 49,879 54,830

4,498 46,153 50,651

225 225

9,449 96,257 105,706

Contributions Amounts appropriated for expenditure

(13,820)

500 (14,237)

6,485 (1)

6,985 (28,058)

Other changes: Transfers to create board-designated endowment funds Endowment net asset reclassification Total other changes

186 516 702

(516) (516)

Endowment net assets, June 30, 2014 $

391,617

$

-

219,720

$

186 186

142,614

$

753,951

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 the NYPMIFA requires the University to retain as a fund of perpetual duration. Subsequent gains that restore the fair value of the assets of such endowment funds to the required level are classified as an increase in unrestricted net assets. There were less than $1 of such deficiencies as of June 30, 2015 and no deficiencies of this nature as of June 30, 2014. 7.

Property, Plant and Equipment Property, plant and equipment, less related depreciation on certain asset categories at June 30, is as follows: 2015 Buildings and capital improvements Equipment and software Less: accumulated depreciation Depreciable property, plant and equipment, net Land Special collections Construction-in-progress Property, plant and equipment, net

$

$

935,789 151,050 (465,631) 621,208 10,758 10,029 5,468 647,463

2014 $

$

869,314 142,149 (433,295) 578,168 10,750 9,446 38,530 636,894

Total depreciation expense for 2015 and 2014 was $38,425 and $37,185, respectively. 8.

Asset Retirement Obligations The University recalculates its asset retirement obligations annually, adjusting both the liability, included in deferred revenues and other liabilities, and the associated asset retirement costs, included in property, plant and equipment, on the Consolidated Balance Sheets.

17

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

The following schedule reflects changes in asset retirement obligations: 2015 Beginning balance Change in estimate Abatement liability settled Accretion expenses Ending balance

$

$

2014

21,731 (1,174) (366) 900 21,091

$

$

19,567 1,947 (595) 812 21,731

The change in estimate was made in conjunction with associated changes in asset retirement cost and accumulated depreciation as follows: 2015 Asset Retirement Cost Beginning balance Change in estimate

$

Depreciation expense Ending balance

9.

5,592 587

Accumulated Depreciation $

$

6,179

2014

4,216 391

Asset Retirement Cost $

120 $

4,727

5,986 (394)

Accumulated Depreciation $

$

5,592

4,198 (92) 110

$

4,216

Benefit Plans a. Retirement Benefit Plan The Rochester Institute of Technology Retirement Savings Plan (Plan) is a defined contribution plan subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and in accordance with IRC Section 403(b). The Plan is available to all employees who meet certain eligibility requirements. Plan contributions are invested in one or more of the funding vehicles made available to participants under the Plan. Contributions may be allocated to annuity contracts offered by Teachers Insurance Annuity Association-College Retirement Equities Fund (TIAA-CREF) and/or custodial accounts which are invested in regulated investment companies (mutual funds) offered by Fidelity Investments (Fidelity). In addition, employees may choose to invest in a self-directed brokerage account through which they can access additional mutual fund options. TIAA-CREF and Fidelity are recordkeepers of the Plan. It is the University’s policy to currently fund defined contribution pension costs as they are incurred. Total retirement contribution expense for 2015 and 2014 was $19,215 and $18,706, respectively. b. Postemployment Benefits The accrued postemployment benefits of the University were $3,205 and $3,055 at June 30, 2015 and 2014, respectively. c. Postretirement Benefits The University sponsors a defined benefit postretirement medical plan that covers substantially all employees. Employees may retire if they are at least 55 years old (50 if hired prior to July 1996) with at least 10 years of full-time service (5 years if hired prior to July 1, 1990) and age plus service totals at least 70 at retirement. The plan is contributory and retiree contributions are assumed to increase at the same rate as active employee contributions. The University's postretirement medical plan is not funded. The University offers an employer funded Retirement Medical Account (RMA) for retirees hired on or after January 1, 2004. The funds in the RMAs may be used for Medicare and private medical insurance premiums only. During fiscal year 2008, the RMA contributions for retirees increased and eligibility was extended to all employees under 35 years of age as of January 1, 2008, irrespective of their adjusted date of hire.

18

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

The Plan’s obligations and applicable discount rates as of June 30 are as follows: 2015 Change in projected benefit obligation Postretirement benefit obligation at beginning of year Service cost Interest cost Participants' contributions Actuarial losses Benefits paid Postretirement benefit obligation at end of year

$

$

Amounts recognized in unrestricted net assets consist of: Net prior service credit Net losses Accumulated loss in unrestricted net assets

151,602 4,362 6,418 1,174 5,510 (5,108) 163,958

$ $

Discount rates Net periodic benefit cost Year-end benefit obligation

(49) 18,630 18,581

2014 $

$

$ $

4.54% 4.61%

132,961 4,242 6,655 820 11,818 (4,894) 151,602

(60) 13,810 13,750

5.09% 4.54%

The components of net periodic postretirement benefit costs are as follows at June 30: Service cost Interest cost Amortization of unrecognized prior service benefit Amortization of net losses Net periodic postretirement benefit cost

$

$

4,362 6,418 (10) 689 11,459

$

$

4,242 6,655 (10) 241 11,128

For the fiscal year ending June 30 2015, $5,094 and $6,365 in postretirement benefit expense was allocated to operating and non-operating activities, respectively, on the University’s Consolidated Statements of Activities. The University expects to recognize a postretirement benefit amortization loss in fiscal year 2016 of $2,166 relating to $10 of prior service credits partially offset by $2,176 of net actuarial losses. Amortization of the net gain or loss resulting from experience different from that assumed and from changes in assumptions (excluding asset gains and losses not yet reflected in market-related value) is included as a component of Net Periodic Postretirement Benefit Cost/(Income) for a year. The amortization is the net gain or loss divided by the average remaining service period to full eligibility for participating employees expected to receive benefits under the Plan. As of the end of the measurement period, 6.5% was assumed as the annual rate of increase for the per capita cost of covered medical and prescription drug benefits, respectively, for fiscal year 2016 with a 0.5% decrease each subsequent year to 5% in 2019 and remaining at that level thereafter.

19

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

The health care cost trend rate assumption has a significant effect on the amounts reported; a 1% point change in the assumed health care cost trend rates would have the following effects: 1% Point Increase Effect on total of service and interest cost components Effect on postretirement benefit obligation

$ $

1% Point Decrease

1,381 24,416

$ $

(1,143) (19,803)

Benefit Payments At June 30, the University’s aggregated future estimated postretirement benefit payments, which reflect future services, are as follows: 2016 2017 2018 2019 2020 2021-2025

$

4,980 5,476 5,940 6,334 6,805 42,626

d. Self-insurance Plans The University is self-insured for medical, prescription drug and dental benefits. Based on estimates provided by its actuaries, the University’s obligation for health care claims incurred but not reported was $2,331 and $2,357 as of June 30, 2015 and 2014, respectively. The University is also self-insured for workers compensation and has established a liability for asserted and unasserted claims totaling $3,250 and $3,373 as of June 30, 2015 and 2014, respectively. These amounts are included in accounts payable and accrued expenses on the Consolidated Balance Sheets. 10.

Long-Term Debt The University has entered into various agreements for the purpose of financing construction, renovation and improvement of its facilities and equipment. Long-term debt outstanding for these purposes, net of applicable unamortized discount or premium as of June 30, is as follows: Issue

Interest Rate(s)

Type of Rate

Maturity

2015

2014

Tax-exempt revenue bonds Dormitory Authority of the State of New York (DASNY) Series 2002B

4.00% - 5.00%

Fixed

7/1/2016

990

1,460

Series 2006A

5.00% - 5.25%

Fixed

7/1/2022

35,655

39,235

Series 2008A

4.00% - 5.00%

Fixed

7/1/2019

2,500

3,000

Series 2010

4.00% - 5.00%

Fixed

7/1/2040

74,725

75,510

Series 2012

3.00% - 5.00%

Fixed

7/1/2042

145,540

146,030

Other debt

0.53% -7.87%

Variable

Various

790

973

260,200

266,208

22,669

24,786

Total long-term debt, principal Bond premium/discount, net Total long-term debt, net

$ 20

282,869

$

290,994

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

The required principal payments for long-term debt for each of the years in the five-year period ending June 30, 2020 and thereafter are presented below. The schedule has been prepared based on the contractual maturities of the debt outstanding at June 30: 2016 2017 2018 2019 2020 Thereafter

$

$

8,172 8,498 8,853 9,238 9,588 215,851 260,200

The estimated fair value of the University’s tax exempt bonds was $281,131 and $287,799 at June 30, 2015 and 2014, respectively. Estimated fair value is based on quoted market prices for the same or similar issues. The University is not required to settle its debt obligations at fair value. Tax-Exempt Bonds The University’s tax-exempt bonds are issued through DASNY, a New York State agency serving as a conduit issuer of tax-exempt debt. Deposits with bond trustees consist of debt service funds and the unexpended proceeds of certain debt. These funds will be used for construction of, or payment of, debt service on certain facilities. Deposits with bond trustees totaling $13,948 and $29,703 are included in cash and cash equivalents held with bond trustees and investments on the Consolidated Balance Sheets as of June 30, 2015 and 2014, respectively. Proceeds from tax-exempt revenue bonds were used as follows: DASNY 2002B Series Insured revenue bonds were issued to construct and renovate various buildings on campus. During fiscal year 2013, the University advance refunded a portion of 2002B Series bonds which were outstanding in the principal amount of $10,850 (see DASNY 2012 Series). A portion of the proceeds from the 2012 Series bonds was used to purchase U.S. government securities which were deposited in an irrevocable trust solely for the purpose of making debt service payments on the 2002B Series bonds. Accordingly, the refunded 2002B Series bonds were legally extinguished and neither the indebtedness nor the assets of the irrevocable trust are included on the Consolidated Balance Sheets as of June 30, 2015 or 2014. DASNY 2006A Series Insured revenue bonds were issued to advance refund a substantial portion of the outstanding aggregate principal amount of the University’s 1997 Series bonds which had been issued to refund the remaining obligation of general and unconditional obligation Series E revenue bonds. Proceeds were also used to renovate on-campus housing facilities and improve the technological infrastructure of the University. DASNY 2008A Series Unsecured bonds were issued to construct a new mixed-use residential on-campus housing and retail complex; the renewal, replacement and expansion of existing heating and cooling infrastructure and energy management; and the renovation of academic and administrative buildings. During fiscal year 2013, the University advance refunded a portion of 2008A Series bonds which were outstanding in the principal amount of $76,100 (see DASNY 2012 Series). A portion of the proceeds from the 2012 Series bonds was used to purchase U.S. government securities which were deposited in an irrevocable trust solely for the purpose of making debt service payments on the 2008A Series bonds. Accordingly, the refunded 2008A Series bonds were legally extinguished and neither the

21

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

indebtedness nor the assets of the irrevocable trust are included on the Consolidated Balance Sheets as of June 30, 2015 or 2014. DASNY 2010 Series Secured revenue bonds were issued for the construction of a new academic building, the construction of a green data center, the expansion of athletic facilities, various other campus-wide improvements and the advance refunding of DASNY 2002A Series bonds. DASNY 2012 Series Secured revenue bonds were issued to advance refund a portion of DASNY 2002B Series bonds (see DASNY 2002B Series) and a portion of 2008A Series bonds (see DASNY 2008A Series) and for the construction of a new athletic and multi-purpose facility, renovations and improvements to academic facilities, replacement of electrical infrastructure and the acquisition of on-campus residential housing (University Commons Project II). Other Debt Other debt consists of amounts borrowed from the Power Authority of the State of New York to fund improvements to the University’s energy systems and amounts associated with agreements the University has entered into with respect to capital leases of equipment and furniture. 11.

Student Aid Student tuition and fees are presented on the Consolidated Statements of Activities net of scholarships funded as follows: 2015 Institutional support

1

Sponsored support 2 Total student aid

12.

$

153,968

$

10,526 164,494

2014 $

143,832

$

10,023 153,855

1

Institutional support includes financial aid and merit scholarships awarded to students from unrestricted operating resources.

2

Sponsored support includes financial aid and scholarships funded from restricted and University designated resources and external sources, including federal, state or private grants and/or contributions.

National Technical Institute for the Deaf Under an agreement with the U.S. Department of Education (Department), the University established NTID in 1968 to provide post-secondary education and technical training for deaf and hard of hearing persons. NTID is the world’s first and largest technical college for deaf students with approximately 1,387 students from the United States and other countries. The federal appropriation covers approximately 74% of NTID’s total operating costs and provides matching funds for the University’s Federal Endowment Fund. Funding is applied for annually and is subject to the federal government’s continued support of the program. Operating Revenues The federal appropriation partially covers direct operating expenses and reimbursement to the University for tuition, fees, room and board and indirect costs for NTID students using RIT facilities. These revenues are included in government grants and contracts on the Consolidated Statements of Activities and totaled $65,767 and $62,928 at June 30, 2015 and 2014, respectively. The remaining operating expenses are funded by tuition and fees collected from NTID students and other revenues.

22

Rochester Institute of Technology Notes to Consolidated Financial Statements For the fiscal years ended June 30, 2015 and 2014 (in thousands)

Nonoperating Activities The appropriation may also be used to match qualifying contributions received from donors for the NTID’s Federal Endowment Fund. Included in permanently restricted nonoperating government grants and contracts for long-term assets on the Consolidated Statements of Activities are Federal matching funds totaling $85 and $177 at June 30, 2015 and 2014, respectively. In addition to the federal appropriation, the University received incremental revenue from the Department to support approved NTID construction and renovation projects totaling $634 and $3 at June 30, 2015 and 2014, respectively. These revenues are included in unrestricted government grants and contracts for long-term assets on the Consolidated Statements of Activities. 13.

Consolidated Statements of Activities – Operating Expenses by Function 2015 Instruction Research Public service Academic support Student services Institutional support 1 Auxiliary enterprises Independent organizations Operating expenses by function 1

14.

$

$

237,095 34,085 11,573 51,564 43,956 40,926 83,071 334 502,604

2014 $

$

228,118 33,141 11,268 49,212 40,108 48,291 81,808 219 492,165

Includes fundraising expenses of $8,997 and $8,924 in 2015 and 2014, respectively.

Commitments and Contingencies The University is involved in legal actions arising in the normal course of activities and is subject to periodic audits and inquiries by various regulatory agencies. Although the ultimate outcome of such matters is not determinable at this time, management, after taking into consideration advice of legal counsel, believes that the resolution of pending matters will not have a materially adverse effect, individually or in the aggregate, upon the University's financial statements. The University is committed under several construction contracts amounting to approximately $5,756 and $27,939 at June 30, 2015 and 2014, respectively. These contracts relate to the renovation and construction of various on-campus facilities including projects totaling $1,416 funded by federal and state grants and $776 funded by private donors.

15.

Subsequent Events Subsequent events have been evaluated through November 13, 2015, the date the Consolidated Financial Statements were issued.

23