BLOOMSBURG UNIVERSITY OF PENNSYLVANIA OF THE STATE SYSTEM OF HIGHER EDUCATION FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

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1 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEARS ENDED

2 TABLE OF CONTENTS YEARS ENDED INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS BALANCE SHEETS PRIMARY INSTITUTION 3 STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION PRIMARY INSTITUTION 5 STATEMENTS OF CASH FLOWS PRIMARY INSTITUTION 6 COMBINED STATEMENTS OF FINANCIAL POSITION COMPONENT UNITS 8 COMBINED STATEMENTS OF ACTIVITIES COMPONENT UNITS 9 10 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULES OF FUNDING PROGRESS FOR THE SYSTEM PLAN AND REHP (OPEB) 38

3 CliftonLarsonAllen LLP INDEPENDENT AUDITORS REPORT Council of Trustees Bloomsburg University of Pennsylvania of the State System of Higher Education Bloomsburg, Pennsylvania Report on the Financial Statements We have audited the accompanying financial statements of the business type activities and the aggregate discretely presented component units of Bloomsburg University of Pennsylvania of the State System of Higher Education ( University ), as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the University s basic financial statements as listed in the table of contents. 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 opinions on these financial statements based on our audit. We did not audit the financial statements of the discretely presented component units, which represent 100% percent, 100% percent, and 100% percent, respectively, of the assets, net assets, and revenues of the discretely presented component units of the University. Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the discretely presented component units, is based solely on the reports of the other auditors. We conducted our audit 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 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 opinions. An independent member of Nexia International (1)

4 Council of Trustees Bloomsburg University of Pennsylvania of the State System of Higher Education Opinions In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the business type activities and the aggregate discretely presented component units of the University as of June 30, 2013, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Schedules of Funding Progress for the System Plan and REHP (OPEB) on page 38 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Management has omitted the Management s Discussion and Analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of the financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. Our opinion on the basic financial statements is not affected by this missing information. Other Information The financial statements of Bloomsburg University of Pennsylvania of the State System of Higher Education as of June 30, 2012, were audited by other auditors whose report dated November 27, 2012, expressed an unmodified opinion on those statements. CliftonLarsonAllen LLP Harrisburg, Pennsylvania November 15, 2013 (2)

5 BALANCE SHEETS PRIMARY INSTITUTION ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 100,139,620 $ 98,199,301 Accounts Receivable: Governmental Grants and Contracts 349, ,960 Students, Net of Allowance for Doubtful Accounts of $1,384,148 in 2013 and $1,172,384 in ,989,954 6,415,385 Other 524, ,867 Interest Income Receivable 109, ,737 Inventories 161, ,646 Prepaid Expenses 2,196,867 1,753,564 Loans Receivable 169, ,684 Due from Component Units 239, ,529 Other Assets 6,008 7,044 Total Current Assets 109,885, ,360,717 NONCURRENT ASSETS Loans Receivable, Net of Allowance for Doubtful Accounts of $775,965 in 2013 and $752,104 in , ,551 Capital Assets, Net 147,902, ,846,903 Due from Component Units 224, ,236 Other Assets 319,814 24,338 Total Noncurrent Assets 149,325, ,109,028 Total Assets $ 259,211,215 $ 253,469,745 See accompanying Notes to Financial Statements. (3)

6 BALANCE SHEETS PRIMARY INSTITUTION (CONTINUED) LIABILITIES AND NET POSITION CURRENT LIABILITIES Accounts Payable and Accrued Expenses $ 13,742,406 $ 11,433,502 Unearned Revenue 7,590,327 7,536,343 Students' Deposits 1,054, ,439 Workers' Compensation 341, ,365 Compensated Absences and Postretirement Benefit Obligations 5,103,006 5,036,041 Notes Payable 1,681,000 Current Portion of Bonds Payable, Net 2,781,615 2,748,889 Due to System, Academic Facilities Renovation Bond Program (AFRP) 302, ,168 Due to Component Units 3,653,378 6,960,577 Total Current Liabilities 36,250,359 35,257,324 NONCURRENT LIABILITIES Unearned Revenue 289,541 36,917 Workers' Compensation 471, ,437 Compensated Absences and Postretirement Benefit Obligations 72,987,181 67,091,887 Bonds Payable, Net 69,337,965 72,118,497 Due to System, AFRP 2,757,840 3,060,601 Other Noncurrent Liabilities 1,045,646 1,093,500 Total Noncurrent Liabilities 146,889, ,788,839 Total Liabilities 183,140, ,046,163 NET POSITION Net Investment in Capital Assets 69,822,934 67,878,790 Restricted for: Expendable: Scholarships and Fellowships Research 11,162 39,458 Capital Projects 1,335, ,785 Other 375, ,204 Unrestricted Net Position 4,525,777 5,105,245 Total Net Position 76,070,965 74,423,582 Total Liabilities and Net Position $ 259,211,215 $ 253,469,745 See accompanying Notes to Financial Statements. (4)

7 STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION PRIMARY INSTITUTION YEARS ENDED OPERATING REVENUES Tuition and Fees $ 90,648,724 $ 89,368,673 Less: Scholarship Discounts and Allowances (17,447,560) (17,459,813) Net Tuition and Fees 73,201,164 71,908,860 Governmental Grants and Contracts: Federal 2,378,674 2,357,275 State 8,466,909 9,805,384 Nongovernmental Grants and Contracts 1,136,392 1,057,176 Sales and Services of Educational Departments 2,784,118 2,667,033 Auxiliary Enterprises 34,252,736 34,137,715 Other Revenues 287,055 1,983,956 Total Operating Revenues 122,507, ,917,399 OPERATING EXPENSES Instruction 64,117,275 61,099,340 Research 457, ,086 Public Service 1,669,974 1,699,747 Academic Support 13,878,663 12,204,305 Student Services 13,207,077 12,168,978 Institutional Support 20,356,731 21,165,341 Operations and Maintenance of Plant 12,219,555 12,202,352 Depreciation 9,948,433 10,141,072 Student Aid 6,597,679 7,051,788 Auxiliary Enterprises 23,074,498 22,223,774 Total Operating Expenses 165,527, ,438,783 NET OPERATING LOSS (43,020,796) (36,521,384) NONOPERATING REVENUES (EXPENSES) State Appropriations, General and Restricted 33,525,055 33,061,319 Pell Grants 11,607,349 11,898,765 Investment Income, Net of Related Investment Expense of $21,109 in 2013 and $21,120 in ,202,812 1,202,734 Gifts for Other than Capital Purposes 386, ,385 Interest Expense (3,198,265) (3,423,952) Loss on Disposal of Assets (27,037) (3,780) Other Nonoperating Revenue 127, ,400 Nonoperating Revenues, Net 43,623,789 43,706,871 INCOME BEFORE OTHER REVENUES 602,993 7,185,487 OTHER REVENUES State Appropriations, Capital 974,845 1,919,851 Capital Gifts and Grants 69, ,510 Total Other Revenues 1,044,390 2,121,361 CHANGE IN NET POSITION 1,647,383 9,306,848 Net Position Beginning of Year 74,423,582 65,116,734 NET POSITION END OF YEAR $ 76,070,965 $ 74,423,582 See accompanying Notes to Financial Statements. (5)

8 STATEMENTS OF CASH FLOWS PRIMARY INSTITUTION YEARS ENDED CASH FLOWS FROM OPERATING ACTIVITIES Net Tuition and Fees $ 73,852,177 $ 72,171,402 Grants and Contracts 12,374,653 15,943,873 Payments to Suppliers for Goods and Services (36,299,989) (37,115,179) Payments to Employees (104,610,504) (102,648,181) Loans Issued to Students (98,000) (134,000) Loans Collected from Students 150, ,551 Student Aid (6,597,679) (7,051,788) Auxiliary Enterprise Charges 34,322,790 33,605,627 Sales and Services of Educational Departments 2,849,494 2,588,180 Other Operating (Payments) Receipts (3,265,662) 2,910,351 Net Cash Used by Operating Activities (27,322,607) (19,596,164) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations 33,525,055 33,061,319 Gifts and Nonoperating Grants for Other than Capital Purposes 11,994,049 12,720,150 PLUS, Stafford, and Other Loans Receipts (Non Perkins) 72,448,138 71,503,463 PLUS, Stafford, and Other Loans Disbursements (Non Perkins) (72,448,138) (71,503,463) Agency Transactions, Net 59,309 (26,422) Other 127, ,400 Net Cash Provided by Noncapital Financing Activities 45,705,588 45,905,447 CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES Proceeds from Debt 1,681,000 16,359,494 Capital Appropriations 881, ,413 Capital Gifts and Grants Received 37, ,863 Proceeds from Sales of Capital Assets Purchases of Capital Assets (13,999,294) (14,358,965) Principal Paid on Debt (2,723,179) (6,381,737) Interest Paid on Debt (3,548,941) (2,930,704) Net Cash Used by Capital Financing Activities (17,671,864) (6,629,636) CASH FLOWS PROVIDED BY INVESTING ACTIVITIES Interest Income 1,229,202 1,203,082 NET INCREASE IN CASH AND CASH EQUIVALENTS 1,940,319 20,882,729 Cash and Cash Equivalents Beginning of Year 98,199,301 77,316,572 CASH AND CASH EQUIVALENTS END OF YEAR $ 100,139,620 $ 98,199,301 See accompanying Notes to Financial Statements. (6)

9 STATEMENTS OF CASH FLOWS PRIMARY INSTITUTION (CONTINUED) YEARS ENDED RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating Loss $ (43,020,796) $ (36,521,384) Adjustments to Reconcile Operating Loss to Net Cash Used by Operating Activities: Depreciation Expense 9,948,433 10,141,072 Expenses Paid by Commonwealth or Donor 93,581 1,213,151 Changes in Assets and Liabilities: Receivables, Net 795,716 4,042,698 Inventories (342) 14,194 Other Assets (645,161) (211,530) Accounts Payable and Accrued Expenses 2,369,588 (5,435,792) Unearned Revenue 306,608 (679,235) Students' Deposits 83,145 (15,448) Compensated Absences 236,642 1,208,665 Loans to Students 52,113 (449) Other Liabilities 2,457,866 6,647,894 Net Cash Used by Operating Activities $ (27,322,607) $ (19,596,164) SUPPLEMENTAL DISCLOSURE OF NONCASH CAPITAL FINANCING ACTIVITIES Capital Assets Acquired by Gift or Donation $ 32,259 $ 225,935 Like Kind Exchanges $ 107,126 $ 10,376 See accompanying Notes to Financial Statements. (7)

10 COMBINED STATEMENTS OF FINANCIAL POSITION COMPONENT UNITS ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 2,385,344 $ 2,400,228 Accounts Receivable 600, ,998 Prepaid Expenses 77,868 51,579 Pledges Receivable 3,385,093 3,580,128 Due from University 3,653,378 6,960,577 Interest Income Receivable 41,147 38,410 Inventories 772, ,736 Investments 31,948,484 22,295,884 Other Current Assets 129, ,109 Total Current Assets 42,994,510 36,726,649 NONCURRENT ASSETS Restricted Cash 2,135,792 1,962,940 Capital Assets, Net 16,829,359 16,577,619 Land Held for Development 2,731,514 3,961,078 Other Assets 1,096,495 1,069,280 Total Noncurrent Assets 22,793,160 23,570,917 Total Assets $ 65,787,670 $ 60,297,566 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts Payable and Accrued Expenses $ 606,976 $ 645,485 Compensated Absences and Postretirement Benefit Obligation 553, ,144 Annuity Liabilities 486, ,903 Current Portion of Long Term Debt 380, ,773 Due to University 173,807 72,529 Other Deposits Liability 1,200,672 1,058,983 Total Current Liabilities 3,400,601 3,199,817 NONCURRENT LIABILITIES Long Term Debt 17,426,884 17,807,155 Due to University 30,118 20,236 Derivative Financial Instrument, at Fair Value 624, ,574 Total Noncurrent Liabilities 18,081,303 18,512,965 Total Liabilities 21,481,904 21,712,782 NET ASSETS Unrestricted 16,209,786 14,331,409 Temporarily Restricted 3,348,049 2,681,913 Permanently Restricted 24,747,931 21,571,462 Total Net Assets 44,305,766 38,584,784 Total Liabilities and Net Assets $ 65,787,670 $ 60,297,566 See accompanying Notes to Financial Statements. (8)

11 COMBINED STATEMENTS OF ACTIVITIES COMPONENT UNITS YEARS ENDED CHANGES IN UNRESTRICTED NET ASSETS Revenues and Other Additions: Contributions $ 648,986 $ 483,166 Investment Income 211, ,230 University Store 6,404,802 6,193,523 Student Activity Fees 2,355,970 2,287,003 Rents and Related Income 2,525,260 2,467,800 Contract Revenue 1,887,141 1,838,663 Other Revenues 970, ,681 Endowment Fees to Fund Foundation Operations 467, ,189 Net Assets Released from Restrictions 1,077,925 1,049,128 Gain on Derivative Financial Instruments 61,273 Total Revenues and Other Additions 16,610,513 15,563,383 Expenses and Other Deductions: Program Expenses 4,029,032 3,693,877 Supporting Services Expenses 353, ,873 Student Activities 1,647,168 1,528,062 University Store 4,696,934 4,689,658 Management and General 4,005,402 4,352,882 Loss on Derivative Financial Instruments 685,574 Total Expenses and Other Deductions 14,732,136 15,278,926 Increase in Unrestricted Net Assets 1,878, ,457 CHANGES IN TEMPORARILY RESTRICTED NET ASSETS Contributions 1,680,095 1,161,912 Investment Income 474, ,729 Other Additions 54,337 49,349 Investment Gains 2,447 13,849 Endowment Fees to Fund Foundation Operations (467,759) (383,189) Net Assets Released from Restrictions (1,077,925) (1,049,128) Increase in Temporarily Restricted Net Assets 666, ,522 CHANGES IN PERMANENTLY RESTRICTED NET ASSETS Contributions 946,775 2,721,304 Other (Deductions)/Additions 55,336 (85,436) Investment Gains 2,174,358 77,797 Increase in Permanently Restricted Net Assets 3,176,469 2,713,665 CHANGE IN NET ASSETS 5,720,982 3,211,644 Net Assets Beginning of Year 38,584,784 35,373,140 NET ASSETS END OF YEAR $ 44,305,766 $ 38,584,784 See accompanying Notes to Financial Statements. (9)

12 NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Bloomsburg University of Pennsylvania of the State System of Higher Education (the University ), a public four year institution located in Bloomsburg, Pennsylvania, was founded in The University is one of fourteen universities of the Pennsylvania State System of Higher Education (PASSHE). PASSHE was created by the State System of Higher Education Act of November 12, 1982, P.L. 660, No. 188, as amended ( Act 188 ). PASSHE is a component unit of the Commonwealth of Pennsylvania (the Commonwealth ). Reporting Entity The University functions as a Business Type Activity, as defined by the Governmental Accounting Standards Board (GASB). The University has determined the Community Government Association of Bloomsburg University (the Association ), Bloomsburg University Foundation (the Foundation ), and the Husky Research Corporation, Inc. (the Corporation ) should be included in the University s financial statements as discretely presented component units. A component unit is a legally separate organization for which the primary institution is financially accountable or closely related. The Association is a legally separate, tax exempt entity, which is responsible for the operations of the University Store, student and community activities, and student housing. Although the University does not control the resources of the Association, the activities of the Association are solely for the benefit of the University and its students. Because these resources are held by the Association and can only be used to benefit the University and its students, the Association is considered a component unit of the University and is discretely presented in the University s financial statements. The financial activity of the Association is presented as of May 31, 2013 and The Foundation is a legally separate, tax exempt entity, which acts primarily as a fund raising organization to supplement the resources that are available to the University in support of its programs. Although the University does not control the timing or amount of receipts from the Foundation, the majority of resources, or income thereon, that the Foundation holds and invests are restricted to activities of the University by the donors. Because these restricted resources held by the Foundation can only be used by, or for the benefit of, the University, the Foundation is considered a component unit of the University and is discretely presented in the University s financial statements. The financial activity of the Foundation is presented as of June 30, 2013 and (10)

13 NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Reporting Entity (Continued) The Corporation is a legally separate, tax exempt entity, which is organized to administer grants, contracts, and special programs for the University. Because the Corporation exists for the benefit of the University and its students, the Corporation is considered a component unit of the University and is discretely presented in the University s financial statements. The financial activity of the Corporation is presented as of June 30, 2013 and Complete financial statements for the Association, the Foundation, and the Corporation may be obtained at the University s administrative office. Measurement Focus, Basis of Accounting and Basis of Presentation The accompanying financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America, as prescribed by GASB. The economic resources measurement focus reports all inflows, outflows, and balances that affect an entity s net position. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements have been met. The accompanying financial statements of the component units, which are all private nonprofit organizations, are reported in accordance with Financial Accounting Standards Board (FASB) requirements. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. No modifications for these differences have been made to the component units financial information presented herein. Operating Revenues and Expenses The University records tuition; all academic, instructional, and other student fees; student financial aid; auxiliary activity; and corporate partnerships as operating revenue. In addition, governmental and private grants and contracts in which the grantor receives equal value for the funds given to the University are recorded as operating revenue. All expenses, with the exception of interest expense and losses on the disposal of assets, are recorded as operating expenses. Appropriations, Pell grants, investment income, gifts for other than capital purposes and parking and library fines are reported as nonoperating revenue. (11)

14 NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Scholarship Discounts and Allowances Student tuition and fee revenues, and certain other revenues from students, are reported net of scholarship discounts and allowances in the statement of revenues, expenses and changes in net position. Scholarship discounts and allowances are the difference between the stated charge for goods and services provided by the University and the amount that is paid by students and/or third parties making payments on students behalf. To the extent that revenues from such programs are used to satisfy tuition and fees and other student services, the University has recorded a scholarship discount and allowance. Net Position (formerly referred to as Net Assets) The University maintains the following classifications of net position. The term net position has replaced the term net assets as required by GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. Net investment in capital assets (previously referred to and the same as Invested in capital assets, net of related debt ; terminology was changed by GASB in Statement No. 63): Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction, repair or improvement of those assets. Restricted nonexpendable: Net position subject to externally imposed conditions requiring that they be maintained by the University in perpetuity. Restricted expendable: Net position whose use is subject to externally imposed conditions that can be fulfilled by the actions of the University or by the passage of time. Unrestricted: All other categories of net position. Unrestricted net position may be designated for specific purposes by the University s Council of Trustees. When both restricted and unrestricted funds are available for expenditure, the decision as to which assets are used first is left to the discretion of the University. Cash Equivalents The University considers all demand and time deposits, money market funds and overnight repurchase agreements to be cash equivalents. (12)

15 NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounts and Loans Receivable Accounts receivable consist of tuition and fees charged to current and former students and amounts due from federal and state governments in connection with reimbursements of allowable expenditures made pursuant to grants, contracts, and other miscellaneous sources. Loans receivable consist of funds loaned to students under federal loan programs. Accounts and loans receivable are reported at net realizable value. Accounts are written off when they are determined to be uncollectible based upon management's assessment of individual accounts. The allowance for doubtful accounts is estimated based upon the University's historical losses and periodic review of individual accounts. Inventories Inventories consists mainly of supplies and coal and is stated at the lower of cost or market, with cost determined principally on the weighted average method. Capital Assets Land and buildings at the University s campus acquired or constructed prior to the creation of the PASSHE on July 1, 1983, are owned by the Commonwealth and made available to the University. Since the University neither owns such assets nor is responsible to service associated bond indebtedness, no value is ascribed thereto in the accompanying financial statements. Likewise, no value is ascribed to the portion of any land or buildings acquired or constructed utilizing capital funds appropriated by the Commonwealth after June 30, 1983, and made available to the University. All assets with a purchase cost, or fair value if acquired by gift, in excess of $5,000 with an estimated useful life of two years or greater are capitalized. Buildings, portions of buildings, capital improvements, and equipment and furnishings acquired or constructed by the University after June 30, 1983, through the expenditure of University funds or the incurring of debt, are stated at cost less accumulated depreciation. All library books are capitalized and depreciated. The University provides for depreciation on the straight line method over the estimated useful lives of the related assets. Normal repair and maintenance expenditures are not capitalized because they neither add to the value of the property nor materially prolong its useful life. The University does not capitalize collections of art, rare books, historical items, etc., as they are held for public exhibition, education, or research rather than financial gain. Impairment of Capital Assets Management reviews capital assets for impairment whenever events or changes in circumstances indicate that the service utility of an asset has declined significantly and unexpectedly. Any writedowns due to impairment are charged to operations at the time impairment is identified. No writedown of capital assets was required for the years ended June 30, 2013 and (13)

16 NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Unearned Revenue (previously Deferred Revenue) Unearned revenue includes amounts for tuition and fees, grants, corporate sponsorship payments and certain auxiliary activities received prior to the end of the fiscal year but earned in a subsequent accounting period. The University previously referred to unearned revenue as deferred revenue, but changed the terminology in accordance with new GASB requirements. Compensated Absences Employees right to receive annual leave and sick leave payments upon termination or retirement for services already rendered is recorded as a liability. Pension Plans Employees of the University are required to enroll in one of three available retirement plans immediately upon employment. The University recognizes annual pension expenditures equal to its contractually required contributions to the plans. Scholarships and Waivers In accordance with a formula prescribed by the National Association of College and University Business Officers (NACUBO), the University allocates the cost of scholarships, waivers, and other student financial aid between Scholarship discounts and allowances (netted against tuition and fees) and Student Aid expense. Scholarship and waivers of room and board fees are reported in Auxiliary enterprises. The cost of tuition waivers granted to employees is reported as employees benefits expense. Income Taxes The University, as a member of PASSHE, is tax exempt under Section 115(1) of the Internal Revenue Code; accordingly, no provision for income taxes has been made in the accompanying financial statements. 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, disclosures 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. (14)

17 NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) New Accounting Standards In November 2010, GASB issued Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements. Statement No. 60 establishes guidance for accounting and financial reporting for service concession arrangements, which are a type of public private or public public partnership. The University was required to adopt Statement No. 60 for the fiscal year ending June 30, The University has determined that Statement No. 60 has no effect on its financial statements. In June 2011, GASB issued Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflow of Resources, and Net Position. In March 2012, GASB issued Statement No. 65, Items Previously Reported as Assets and Liabilities. With Statements No. 63 and 65, GASB has reclassified certain assets and liabilities as deferred outflows and deferred inflows of resources. Further, GASB has replaced the term net assets with net position, and has changed the balance sheet presentation to assets, plus deferred outflows of resources equals liabilities, plus deferred inflows of resources, plus net position. The University was required to adopt Statement No. 63 for the fiscal year ending June 30, 2013, and is required to adopt Statement No. 65 for the fiscal year ending June 30, The University has determined that Statement No. 63 has no effect on the substance of its financial statements; however, the changes increase the complexity of the financial statements to its readers, as the new presentation differs from the traditional and familiar business reporting model. The University has determined that the adoption of Statement No. 65 will require that bond issuance costs, which previously were netted against the associated bond discount on bond premium on the balance sheet and amortized over the life of the associated bonds payable, now will be expensed in the period incurred. The amount of fiscal year 2012/13 bond issuance costs that will be restated as an expense on next year s financial statements is $410,000. In June 2012, GASB issued Statement No. 68, Accounting and Financial Reporting for Pensions. Statement No. 68 will require the University to report its share of the pension liabilities that the Commonwealth of Pennsylvania State Employees Retirement System (SERS) and Public School Employees Retirement System (PSERS) must record beginning in fiscal year ending June 30, Although the University has not received an estimate of its share of the pension liabilities from either organization, the liabilities are expected to be significant and have a detrimental effect on its financial statements. In January 2013, GASB issued Statement No. 69, Government Combinations and Disposals of Government Operations. Statement No. 69 establishes accounting and financial reporting standards related to government combinations and disposals of government operations. In April 2013, GASB issued Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees. Statement No. 70 specifies the information required to be disclosed by governments that extend nonexchange financial guarantees. The University has determined that Statements No. 69 and 70 have no effect on its financial statements. (15)

18 NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Reclassifications Certain reclassifications have been made to the 2012 financial statements in order for them to conform to the 2013 presentation. These reclassifications had no effect on prior year change in net position. NOTE 2 CONDENSED COMPONENT UNITS INFORMATION The following represents combining condensed statement of financial position information for the component units as of June 30, 2013: The The The Association* Foundation Corporation Total Capital Assets, Net $ 15,447,843 $ 1,381,516 $ $ 16,829,359 Other Assets 14,386,144 30,676, ,441 45,304,933 Due from University 3,652, ,653,378 Total Assets $ 33,486,864 $ 32,057,864 $ 242,942 $ 65,787,670 Due to University $ 9,216 $ 73,518 $ 121, $ 203,925 Long Term Debt 15,105,000 2,701,884 17,806,884 Derivative Financial Instrument, at Fair Value 624, ,301 Other Liabilities 2,300, ,142 18,613 2,846,794 Total Liabilities 18,038,556 3,303, ,804 21,481,904 Net Assets: Unrestricted 15,448, , ,138 16,209,786 Temporarily Restricted 3,348,049 3,348,049 Permanently Restricted 24,747,931 24,747,931 Total Net Assets 15,448,308 28,754, ,138 44,305,766 Total Liabilities and Net Assets $ 33,486,864 $ 32,057,864 $ 242,942 $ 65,787,670 * Information for The Association is presented as of May 31, 2013 (16)

19 NOTE 2 CONDENSED COMPONENT UNITS INFORMATION (CONTINUED) The following represents combining condensed statement of financial position information for the component units as of June 30, 2012: The The The Association* Foundation Corporation Total Capital Assets, Net $ 15,802,068 $ 775,551 $ $ 16,577,619 Other Assets 9,479,007 27,138, ,021 36,759,370 Due from University 6,960,577 6,960,577 Total Assets $ 32,241,652 $ 27,913,893 $ 142,021 $ 60,297,566 Due to University $ 10,749 $ 34,679 $ 47,337 $ 92,765 Long Term Debt 15,440,000 2,704,928 18,144,928 Derivative Financial Instrument, at Fair Value 685, ,574 Other Liabilities 2,032, ,570 2,500 2,789,515 Total Liabilities 18,168,768 3,494,177 49,837 21,712,782 Net Assets: Unrestricted 14,072, ,341 92,184 14,331,409 Temporarily Restricted 2,681,913 2,681,913 Permanently Restricted 21,571,462 21,571,462 Total Net Assets 14,072,884 24,419,716 92,184 38,584,784 Total Liabilities and Net Assets $ 32,241,652 $ 27,913,893 $ 142,021 $ 60,297,566 * Information for The Association is presented as of May 31, 2012 (17)

20 NOTE 2 CONDENSED COMPONENT UNITS INFORMATION (CONTINUED) The following represents combining statement of activities for the component units for the year ended June 30, 2013: The The The Association* Foundation Corporation Total CHANGES IN UNRESETRICTED NET ASSETS Revenues and Other Additions: Contributions $ $ 648,986 $ $ 648,986 Bloomsburg University Fee for Service Contract 1,300,000 1,300,000 Investment Income 209,472 1, ,370 University Store 6,404,802 6,404,802 Student Activity Fees 2,355,970 2,355,970 Rents and Related Income 2,525,260 2,525,260 Contract Revenue 587, ,141 Other Revenues 502, ,313 2, ,027 Endowment Fees to Fund Foundation Operations 467, ,759 Net Assets Released from Restrictions 1,077,925 1,077,925 Gain on Derivative Financial Instrument 61,273 61,273 Total Revenues and Other Additions 12,059,739 3,960, ,893 16,610,513 Expenses and Other Deductions: Program Expenses 3,468, ,150 4,029,032 Supporting Services Expenses 353, ,600 Student Activities 1,647,168 1,647,168 University Store 4,696,934 4,696,934 Management and General 3,986,613 18,789 4,005,402 Total Expenses and Other Deductions 10,684,315 3,468, ,939 14,732,136 Increase in Unrestricted Net Assets 1,375, ,999 10,954 1,878,377 CHANGES IN TEMPORARILY RESTRICTED NET ASSTS Contributions 1,680,095 1,680,095 Investment Gains 2,447 2,447 Investment Income 474, ,941 Other Additions 54,337 54,337 Endowment Fees to Fund Foundation Operations (467,759) (467,759) Net Assets Released from Restrictions (1,077,925) (1,077,925) Increase in Temporarily Restricted Net Assets 666, ,136 CHANGES IN PERMANENTLY RESTRICTED NET ASSETS Contributions 946, ,775 Other Additions 55,336 55,336 Investment Gains 2,174,358 2,174,358 Increase in Permanently Restricted Net Assets 3,176,469 3,176,469 CHANGE IN NET ASSETS 1,375,424 4,334,604 10,954 5,720,982 Net Assets Beginning of Year 14,072,884 24,419,716 92,184 38,584,784 NET ASSETS END OF YEAR $ 15,448,308 $ 28,754,320 $ 103,138 $ 44,305,766 * Information for The Association is presented as of May 31, 2013 (18)

21 NOTE 2 CONDENSED COMPONENT UNITS INFORMATION (CONTINUED) The following represents combining statement of activities for the component units for the year ended June 30, 2012: The The The Association* Foundation Corporation Total CHANGES IN UNRESETRICTED NET ASSETS Revenues and Other Additions: Contributions $ $ 483,166 $ $ 483,166 Bloomsburg University Fee for Service Contract 1,300,000 1,300,000 Investment Income 253,704 2, ,230 University Store 6,193,523 6,193,523 Student Activity Fees 2,287,003 2,287,003 Rents and Related Income 2,467,800 2,467,800 Contract Revenue 538, ,663 Other Revenues 493, , ,681 Endowment Fees to Fund Foundation Operations 383, ,189 Net Assets Released from Restrictions 1,049,128 1,049,128 Total Revenues and Other Additions 11,695,089 3,329, ,663 15,563,383 Expenses and Other Deductions: Program Expenses 3,214, ,823 3,693,877 Supporting Services Expenses 328, ,873 Student Activities 1,528,062 1,528,062 University Store 4,689,658 4,689,658 Management and General 4,349,094 3,788 4,352,882 Loss on Derivative Financial Instrument 685, ,574 Total Expenses and Other Deductions 11,581,261 3,214, ,611 15,278,926 Increase in Unrestricted Net Assets 113, ,577 55, ,457 CHANGES IN TEMPORARILY RESTRICTED NET ASSETS Contributions 1,161,912 1,161,912 Investment Gains 13,849 13,849 Investment Income 420, ,729 Other Additions 49,349 49,349 Endowment Fees to Fund Foundation Operations (383,189) (383,189) Net Assets Released from Restrictions (1,049,128) (1,049,128) Increase in Temporarily Restricted Net Assets 213, ,522 CHANGES IN PERMANENTLY RESTRICTED NET ASSETS Contributions 2,713,665 2,713,665 CHANGE IN NET ASSETS 113,828 3,042,764 55,052 3,211,644 Net Assets Beginning of Year 13,959,056 21,376,952 37,132 35,373,140 NET ASSETS END OF YEAR $ 14,072,884 $ 24,419,716 $ 92,184 $ 38,584,784 * Information for The Association is presented as of May 31, 2012 (19)

22 NOTE 3 DEPOSITS AND INVESTMENTS The University predominantly maintains its cash balances on deposit with PASSHE. PASSHE maintains these and other PASSHE funds on a pooled basis. Although PASSHE pools its funds in a manner similar to an internal investment pool, individual PASSHE entities do not hold title to any assets in the fund. PASSHE as a whole owns title to all assets. The University does not participate in the unrealized gains or losses on the investment pool; instead, the University holds shares equal to its cash balance. Each share has a constant value of $1, and income is allocated based on the number of shares owned. Revenue realized at PASSHE level is calculated on a daily basis and posted monthly to each entity s account as interest income. The University s portion of pooled funds totals $98,588,184 and $96,612,196 at June 30, 2013 and 2012, respectively. Included in the University s portion of pooled funds are $3,652,877 and $6,960,577 of amounts held on behalf of the Association at June 30, 2013 and 2012, respectively. Board Policy A, Investment, authorizes PASSHE to invest in obligations of the U.S. Treasury, repurchase agreements, commercial paper, certificates of deposit, banker s acceptances, U.S. money market funds, municipal bonds, corporate bonds, collateralized mortgage obligations (CMOs), asset backed securities, and internal loan funds. Restricted nonexpendable funds and amounts designated by the Board or university trustees may be invested in the investments described above as well as in corporate equities and approved pooled common funds. For purposes of convenience and expedience, universities use local financial institutions for activities such as deposits of cash. In addition, universities may accept gifts of investments from donors as long as risk is limited to the investment itself. Restricted gifts of investments fall outside the scope of the investment policy. In keeping with its legal status as a system of public universities, PASSHE recognizes a fiduciary responsibility to invest all funds prudently and in accordance with ethical and prevailing legal standards. Investment decisions are intended to minimize risk while maximizing asset value. Adequate liquidity is maintained so that assets can be held to maturity. High quality investments are preferred. Reasonable portfolio diversification is pursued to ensure that no single security or investment or class of securities or investments will have a disproportionate or significant impact on the total portfolio. Investments may be made in U.S. dollar denominated debt of high quality U.S. and non U.S. corporations. Investment performance is monitored on a frequent and regular basis to ensure that objectives are attained and guidelines are followed. Safety of principal and liquidity are the top priorities for the investment of PASSHE s operating funds. Within those guidelines, income optimization is pursued. Speculative investment activity is not allowed; this includes investing in asset classes such as commodities, futures, short sales, equities, real or personal property, options, venture capital investments, private placements, letter stocks, and unlisted securities. (20)

23 NOTE 3 DEPOSITS AND INVESTMENTS (CONTINUED) PASSHE s operating funds are invested and reinvested in the following types of instruments with qualifications as provided. (See Board Policy A, Investment, for a complete list of and more details on permissible investments and associated qualifications.) Investment Categories United States Government Securities Repurchase Agreements Commercial Paper Municipal Bonds Corporate Bonds Collateralized Mortgage Obligations (CMOs) Qualifications/Moody s Ratings Requirements Together with repurchase agreements must comprise at least 20% of the market value of the fund. Underlying collateral must be direct obligations of the United States Treasury and be in PASSHE s or its agent s custody. P 1 and P 2 notes only, with no more than 5% and 3%, respectively, of the market value of the fund invested in any single issuer. Total may not exceed 20% of the market value of the fund. Bonds must carry long term debt rating of A or better. Total may not exceed 20% of the market value of the fund. 15% must carry long term debt rating of A or better; 5% may be rated Baa2 or better. Total may not exceed 20% of the market value of the fund. Must be rated Aaa and guaranteed by U.S. government. Total may not exceed 20% of the market value of the fund. Asset Backed Securities System Investment Fund Loans (University Loans and Bridge Notes) Must be Aaa rated. Total may not exceed 20% of the market value of the fund, with no more than 5% invested in any single issuer. Total may not exceed 20% of the market value of the fund, and loan terms may not exceed 5 years. CMO Risk: CMOs are sometimes based on cash flows from interest only (IO) payments or principalonly (PO) payments and are sensitive to prepayment risks. The CMOs in PASSHE s portfolio do not have IO or PO structures; however, they are subject to extension or contraction risk based on movements in interest rates. Moody s Rating: PASSHE uses ratings from Moody s Investors Service, Inc., to indicate the credit risk of investments, i.e., the risk that an issuer or other counterparty to an investment will not fulfill its obligations. An Aaa rating indicates the highest quality obligations with minimal credit risk. Ratings that begin with Aa indicate high quality obligations subject to very low credit risk; ratings that begin with A indicate upper medium grade obligations subject to low credit risk; and ratings that begin with Baa indicate medium grade obligations, subject to moderate credit risk, that may possess certain speculative characteristics. Moody s appends the ratings with numerical modifiers 1, 2, and 3, with 1 indicating a higher ranking and 3 indicating a lower ranking within the category. For shortterm obligations, a rating of P 1 indicates that issuers have a superior ability to repay short term debt obligations, and a rating of P 2 indicates that issuers have a strong ability to repay short term debt obligations. (21)

24 NOTE 3 DEPOSITS AND INVESTMENTS (CONTINUED) Modified Duration: PASSHE denotes interest rate risk, or the risk that changes in interest rates will affect the fair value of an investment, using modified duration. Duration is a measurement in years of how long it takes for the price of a bond to be repaid by its internal cash flows. Modified duration takes into account changing interest rates. PASSHE maintains a portfolio duration target of 1.8 years with an upper limit of 2.5 years for the intermediate term component of the operating portion of the investment portfolio. PASSHE s duration targets are not applicable to its long term investments. Demand and time deposits On June 30, 2013 and 2012, the carrying amount of the University s demand and time deposits were $1,551,436 and $1,587,105, respectively, as compared to bank balances of $1,515,046 and $1,605,738, respectively. The differences are primarily caused by items in transit and outstanding checks. Of the bank balances at June 30, 2013 and 2012, $250,000 was covered by federal government depository insurance; $162,977 and $223,138, respectively, was uninsured and uncollateralized; and $1,102,069 and $1,132,600, respectively, was uninsured and uncollateralized but covered under the collateralization provisions of the Commonwealth of Pennsylvania Act 72 of 1971 (Act 72), as amended. Act 72 allows banking institutions to satisfy the collateralization requirements by pooling eligible investments to cover total public funds on deposit in excess of federal insurance. Such pooled collateral is pledged with the financial institutions trust departments. At June 30, 2013 and 2012, none of the University s demand and time deposits are exposed to foreign currency risk. Trust funds held by others The University is the beneficiary of trust funds held by others with an approximate fair value of $3,142,000 and $3,065,000 on June 30, 2013 and 2012, respectively. Since the University has neither possession nor control of these trusts, the principal is not included in the accompanying balance sheet. (22)

25 NOTE 4 CAPITAL ASSETS Capital assets acquired or constructed by the University through the expenditures of University funds or the incurrence of debt consist of the following: 2013 Estimated Beginning Ending Lives (in Balance Balance Years) July 1, 2012 Additions Retirements Reclasses June 30, 2013 Land $ 925,488 $ 1,656,925 $ $ $ 2,582,413 Construction in Progress 13,155,359 8,723,731 (289,196) 21,589,894 Total Capital Assets Not being Depreciated 14,080,847 10,380,656 (289,196) 24,172,307 Buildings, including Improvements ,685, ,924 (10,958) 289, ,501,918 Improvements Other than Buildings (Land and Improvements) 20 19,278,740 19,278,740 Furnishings and Equipment, Including Capital Leases ,496,769 3,081,492 (2,990,541) 27,587,720 Library Books 10 6,190, ,607 (10,740) 6,318,545 Total Capital Assets being Depreciated 213,651,943 3,758,023 (3,012,239) 289, ,686,923 Less: Accumulated Depreciation: Buildings, including Improvements (54,014,032) (5,925,323) 10,958 (59,928,397) Land Improvements (6,634,829) (929,255) (7,564,084) Furnishings and Equipment Including Capital Leases (18,074,001) (2,913,550) 2,856,378 (18,131,173) Library Books (5,163,025) (180,305) 10,740 (5,332,590) Total Accumulated Depreciation (83,885,887) (9,948,433) 2,878,076 (90,956,244) Total Capital Assets being Depreciated, Net 129,766,056 (6,190,410) (134,163) 289, ,730,679 Capital Assets, Net $ 143,846,903 $ 4,190,246 $ (134,163) $ $ 147,902,986 (23)

26 NOTE 4 CAPITAL ASSETS (CONTINUED) 2012 Estimated Beginning Ending Lives (in Balance Balance Years) July 1, 2011 Additions Retirements Reclasses June 30, 2012 Land $ 925,488 $ $ $ $ 925,488 Construction in Progress 3,892,907 9,337,752 (75,300) 13,155,359 Total Capital Assets Not being Depreciated 4,818,395 9,337,752 (75,300) 14,080,847 Buildings, including Improvements ,176,612 1,433,844 75, ,685,756 Improvements Other than Buildings (Land and Improvements) 20 19,199,071 79,669 19,278,740 Furnishings and Equipment, Including Capital Leases ,767,859 3,681,481 (952,571) 27,496,769 Library Books 10 6,134,518 62,530 (6,370) 6,190,678 Total Capital Assets being Depreciated 209,278,060 5,257,524 (958,941) 75, ,651,943 Less: Accumulated Depreciation: Buildings, including Improvements (47,767,961) (6,246,071) (54,014,032) Land Improvements (5,707,771) (927,058) (6,634,829) Furnishings and Equipment Including Capital Leases (16,249,353) (2,763,062) 938,414 (18,074,001) Library Books (4,964,514) (204,881) 6,370 (5,163,025) Total Accumulated Depreciation (74,689,599) (10,141,072) 944,784 (83,885,887) Total Capital Assets being Depreciated, Net 134,588,461 (4,883,548) (14,157) 75, ,766,056 Capital Assets, Net $ 139,406,856 $ 4,454,204 $ (14,157) $ $ 143,846,903 NOTE 5 ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following at June 30: Employees $ 7,451,039 $ 7,201,397 Suppliers and Service 6,151,110 4,055,700 Interest 134, ,985 Other 5,471 4,420 Total $ 13,742,406 $ 11,433,502 (24)