Financial Statements June 30, 2012 and 2011 Boise State University Foundation, Inc.

Transcription

1 Financial Statements Boise State University Foundation, Inc.

2 Table of Contents Independent Auditor s Report... 1 Financial Statements Statements of Financial Position... 2 Statements of Activities... 4 Statements of Cash Flows

3 Independent Auditor s Report To the Board of Directors Boise State University Foundation, Inc. Boise, Idaho We have audited the accompanying statements of financial position of Boise State University Foundation, Inc. (the Foundation) as of, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the Foundation s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over the financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Foundation s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Foundation at, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Boise, Idaho August 22, W. Main St., Ste. 800 Boise, ID T F EOE

4 Statements of Financial Position Assets Current Assets Cash and cash equivalents $ 1,595,155 $ 3,574,773 Accrued interest and other receivables 437, ,810 Pledges receivable 10,272,054 6,345,502 Investment in lease - technology building, current portion 353, ,393 Total current assets 12,658,195 10,646,478 Noncurrent Assets Restricted cash and cash equivalents 4,869,800 6,806,685 Pledges receivable 11,756,860 11,392,432 Investments 115,962, ,134,038 Interest in perpetual trusts 2,793,868 2,843,549 Investments in real estate 9,812,835 9,927,836 Funds held by trustee 568, ,703 Investment in lease- technology building 1,568,231 1,921,725 Other assets 703, ,390 Total noncurrent assets 148,035, ,275,358 $ 160,693,870 $ 155,921,836 See 2

5 Statements of Financial Position Liabilities and Net Assets Current Liabilities Accounts payable $ 1,554,641 $ 238,697 Interest payable 36,698 42,994 Prepaid memberships and suites/pressbox 2,913,679 2,890,649 Liability for split interest trusts 119,252 81,387 Trust earnings payable to trust beneficiaries 20,364 20,364 Long-term liabilities current portion 1,315, ,000 Deferred revenue current portion 219,707 76,607 Total current liabilities 6,179,341 3,655,698 Noncurrent Liabilities Bonds and certificates payable 5,983,000 6,288,000 Deferred revenue 879, ,832 Deferred suites/pressbox revenue 248, ,091 Liability under split interest trust agreements 1,657,778 1,024,727 Amounts held in custody for others 636,016 1,216,361 Trust earnings payable to trust beneficiaries 233, ,933 Total noncurrent liabilities 9,637,567 9,371,944 Total liabilities 15,816,908 13,027,642 Net Assets Permanently restricted 65,063,804 63,137,670 Temporarily restricted 71,301,186 71,428,605 Unrestricted 8,511,972 8,327,919 Total net assets 144,876, ,894,194 $ 160,693,870 $ 155,921,836 See 3

6 Statement of Activities Year Ended June 30, 2012 Temporarily Permanently Unrestricted Restricted Restricted Total Operating Revenues Gifts $ 30,264 $ 25,230,738 $ 1,117,582 $ 26,378,584 In-kind contributions 12, ,183 BAA membership 3,852,553 59,685-3,912,238 Non-charitable income 300,678 1,918, ,553 2,800,132 Interest and dividends 1,556,396 1,705,686-3,262,082 Change in split interest trusts - (204,618) 62,906 (141,712) Change in fair value of investments (1,059,583) (2,051,836) - (3,111,419) Total revenues 4,692,491 26,658,556 1,761,041 33,112,088 Contribution from BSU Alumni Association 460,390 10, ,086 Total revenues and gains 5,152,881 26,669,252 1,761,041 33,583,174 Net assets released from restrictions through satisfaction of Program restrictions 26,882,936 (26,882,936) - - Write-off of pledges receivable 40,660 - (40,660) - Board and donor designated transfers (53,000) (152,753) 205,753 - Total operating revenues 32,023,477 (366,437) 1,926,134 33,583,174 Operating Expenses Distribution of scholarships 3,682, ,682,459 Distribution of funds for academic programs 13,867, ,867,466 Distribution of funds for athletic programs Program services 9,925, ,925,135 Fundraising expenses 7, ,943 Management and general 305, ,765 Uncollectable pledge expense 610, ,016 Administrative expenses Program services 493, ,944 Fundraising expenses 1,571, ,571,814 Management and general 954, ,586 Total operating expenses 31,419, ,419,128 Operating Income (Loss) 604,349 (366,437) 1,926,134 2,164,046 Nonoperating Revenues (Expenses) Lease income 31, , ,575 Alumni center building expense (34,385) (34,385) Amortization of deferred income - 76,607-76,607 Loss on sale of property Interest on capital asset related debt (276,910) - - (276,910) Depreciation and amortization expense (140,165) - - (140,165) Total nonoperating revenues (expenses) (420,296) 239,018 - (181,278) Change in Net Assets 184,053 (127,419) 1,926,134 1,982,768 Net Assets, Beginning of Year 8,327,919 71,428,605 63,137, ,894,194 Net Assets, End of Year $ 8,511,972 $ 71,301,186 $ 65,063,804 $ 144,876,962 See 4

7 Statement of Activities Year Ended June 30, 2011 Temporarily Permanently Unrestricted Restricted Restricted Total Operating Revenues Gifts $ 42,733 $ 17,814,396 $ 1,297,560 $ 19,154,689 In-kind contributions 12, ,183 BAA membership 2,996,261 27,885-3,024,146 Non-charitable income 335,035 1,734, ,343 2,970,018 Interest and dividends 1,528,070 1,593,090-3,121,160 Change in split interest trusts - (207,541) 7,812 (199,729) Change in fair value of investments 816,370 11,421,642-12,238,012 Total revenues and gains 5,730,652 32,384,112 2,205,715 40,320,479 Net assets released from restrictions through satisfaction of Program restrictions 17,376,935 (16,713,783) (663,152) - Board and donor designated transfers 655 (74,021) 73,366 - Total operating revenues 23,108,242 15,596,308 1,615,929 40,320,479 Operating Expenses Distribution of scholarships 3,351, ,351,270 Distribution of funds for academic programs 4,468, ,468,946 Distribution of funds for athletic programs Program services 9,874, ,874,175 Fundraising expenses 7, ,821 Management and general 306, ,684 Uncollectable pledge expense 629, ,017 Administrative expenses Program services 241, ,105 Fundraising expenses 1,210, ,210,465 Management and general 1,065, ,065,043 Total operating expenses 21,154, ,154,526 Operating Income 1,953,716 15,596,308 1,615,929 19,165,953 Nonoperating Revenues (Expenses) Lease income - 210, ,669 Amortization of deferred income - 76,607-76,607 Loss on sale of property - (2,207) - (2,207) Interest on capital asset related debt (339,479) - - (339,479) Depreciation and amortization expense (140,165) - - (140,165) Total nonoperating revenues (expenses) (479,644) 285,069 - (194,575) Change in Net Assets 1,474,072 15,881,377 1,615,929 18,971,378 Net Assets, Beginning of Year 6,853,847 55,547,228 61,521, ,922,816 Net Assets, End of Year $ 8,327,919 $ 71,428,605 $ 63,137,670 $ 142,894,194 See 5

8 Statements of Cash Flows Years Ended Operating Activities Change in net assets $ 1,982,768 $ 18,971,378 Adjustments to reconcile change in net assets to net cash from operating activities Noncash contributions (1,931,276) (921,264) Noncash donation from Alumni Association (361,850) - Loss on sale of property - - Realized (gain) loss on investments 411,026 (447,360) Unrealized (gain) loss on investments 2,700,393 (11,790,652) Depreciation and amortization 140, ,165 Change in receivables Accrued interest and other receivable, net (44,682) (2,793) Pledges receivable (3,929,130) (1,729,071) Change in value of other assets (47,812) 15,877 Change in payables and liabilities Accounts payable and accrued liabilities 2,039,672 (350,065) Prepaid memberships and suites/pressbox (45,977) 411,956 Amounts held in custody for others (580,345) 138,248 Liabilities under trust agreements 670, ,907 Net Cash from Operating Activities 1,003,868 4,664,326 Investing Activities Purchase of investments (168,644,760) (115,101,513) Proceeds from sale of investments 164,622, ,406,772 Collection on College of Technology capital lease 333, ,024 Net Cash used for Investing Activities (3,688,486) (1,371,717) Financing Activities Principal payments on College of Technology debt (305,000) (295,000) Principal payments on Park Center debt (990,000) (990,000) Proceeds from Trinity Health loan 2,000,000 - Net Cash from (used for) Financing Activities 705,000 (1,285,000) Net Change in Cash and Cash Equivalents (1,979,618) 2,007,609 Cash and Cash Equivalents, Beginning of Year 3,574,773 1,567,164 Cash and Cash Equivalents, End of Year $ 1,595,155 $ 3,574,773 Supplemental Information Interest paid during the year $ 283,206 $ 345,567 See 6

9 Note 1 - Organization and Summary of Significant Accounting Policies Foundation Operations The Boise State University Foundation, Inc., (the Foundation) was established in 1964 to engage in activities to benefit and support Boise State University (the University), including receiving contributions and holding, protecting, managing, and investing donated funds. The Foundation is a nonprofit corporation incorporated in accordance with the laws of the State of Idaho and managed by a volunteer Board of Directors. Under the Idaho State Board of Education s administrative rules, the Foundation must be independent of, and cannot be controlled by, the University. A memorandum of understanding between the Foundation and the University defines the relationship between the two entities in accordance with the State Board of Education s rules. The significant accounting policies followed by the Foundation are described below to enhance the usefulness of the financial statements to the reader. Basis of Accounting The accompanying financial statements of the Foundation have been prepared on the accrual basis of accounting in conformity with Generally Accepted Accounting Principles. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. The statements of activities are statements of financial activities within the current reporting period. The Foundation classifies net assets, revenues, gains, and other support and expenses based on the existence or absence of donor-imposed restrictions. Accordingly, the net assets of the Foundation and changes therein are classified and reported as follows: Permanently Restricted Net Assets Permanently Restricted Net Assets are donor-designated gifts which will be maintained permanently by the Foundation. The investment income earned on these permanently restricted net assets is generally restricted as to purpose and is recorded as temporarily restricted net assets. Temporarily Restricted Net Assets Temporarily Restricted Net Assets are primarily available to support the University by providing funds for student scholarships, capital improvements, research, other educational purposes and discretionary spending. Discretionary spending net assets are gifts that were designated by the donor to be spent by a specific area or school for general needs. Unrestricted Unrestricted Net Assets are not subject to donor-imposed restrictions. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates used in the financial statements relate to the present value of the pledges receivable and the obligations under the split interest agreements. Cash and Cash Equivalents For purposes of cash flows, the Foundation considers all cash on deposit in demand savings and time deposits with an original maturity date of three months or less to be cash equivalents. Cash and cash equivalents held by investment managers are considered investments and are shown as restricted cash and cash equivalents as the 7

10 funds have been designated by the Foundation for investment purposes. Cash deposits at times during the years ended, exceeded FDIC insured limits. Investments Investments are recorded in accordance with Accounting Standards Codification (ASC) 958. Investments in equity and debt securities that have readily determinable fair values are recorded at quoted market prices. Investment securities without quoted market prices are valued at estimated fair value using appropriate valuation methods that consider the underlying assets and financial reports. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the near term could materially affect account balances and the amounts reported in the accompanying financial statements. Fair Value Measurements The Foundation has determined the fair value of certain assets and liabilities in accordance with the provisions of ASC 820, which provides a framework for measuring fair value under generally accepted accounting principles. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also establishes a fair value hierarchy, which prioritizes the valuation inputs into three broad levels. Level 1 inputs consist of quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the related asset or liability. Level 3 inputs are unobservable inputs related to the asset or liability. Pledges Receivable Unconditional promises to give (pledges) are recognized as an asset and contribution revenue in the period in which the promise is received less an allowance, if any, for uncollectible pledges based on past collection experience. Pledges to be received after one year are discounted to present value. Initial measurement of the fair value of pledges receivable are classified within level 3 of the fair value hierarchy. Amortization of discount is recorded as additional contribution revenue in accordance with donor-imposed restrictions, if any, on the contributions. Pledges Receivable in Current Assets includes pledges that are due within one year. New pledges during fiscal year 2012 and fiscal year 2011 were discounted to fair value when the pledge was made and are not re-valued during the life of the pledge. As of, the fair values of the pledges received during each year were $10,378,011 and $6,437,805, respectively. Investments in Real Estate Investments in real estate are stated at cost when purchased or constructed, or if acquired by gift, at the estimated fair market value at the date of the gift. Cost includes expenditures for major improvements and the net amount of 8

11 interest cost associated with significant capital additions. Gains and losses from sales are included in income as they occur. Routine repairs and maintenance are charged to operating expense in the period in which the expense was incurred. Depreciation expense for the years ended June 30, 2012 and June 30, 2011 was $115,000. Depreciation is computed using the straight-line method over the estimated useful life of the assets, generally 40 years for buildings. Split Interest Agreements Split interest agreements held by the Foundation are irrevocable charitable remainder trusts and charitable gift annuities. Assets and liabilities related to split interest agreements for which the Foundation is trustee and is the designated remainderman for the trusts assets are included in the accompanying statements of financial position as restricted cash and cash equivalents and investments. Trust assets are recorded at fair market value and a liability is recorded for the present value of estimated distributions to the beneficiaries. The liability is calculated using life expectancy tables and discount rates published by the Internal Revenue Service. Revenue Recognition The Foundation reports gifts of cash and other assets as restricted support if they are received with donor restrictions that limit the use of the donated assets. Donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets depending on the nature of the restrictions. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted. Gifts of cash subject to donor conditions are recorded as deferred revenue until the condition is met at which time they are recorded as gifts. Noncash tangible assets, other than marketable securities, contributed to the Foundation are recorded on the date legal title passes at the appraised value when it is provided by an independent third party acceptable to the Foundation s management. If no such independent third party appraisal is available, the asset is recorded at an objective, verifiable basis which is, in the judgment of the Foundation s management, a fair value to the Foundation for its purposes. If it is not practicable to determine an objective, verifiable valuation, the contribution is not recorded. Marketable securities contributed to the Foundation are recorded at market value at the date of gift. The Foundation records various types of in-kind support including equipment, contributed facilities, professional services, advertising and materials. Recognition of contributed support and facilities is described in Note 18. Contributions of tangible assets are recognized at fair market value when received. The amounts reflected in the accompanying financial statements as in-kind support are offset by like amounts included in expenses or additions to property and equipment. Revenues of the Foundation that are for its primary purposes, which are to support fundraising efforts for Boise State University and to manage and invest the resulting charitable gifts, are recorded as operating revenue. The amount shown as contributions and gifts represents only the monies that were donated through the Foundation. They do not represent all contributions to the University. Administrative Fees The Foundation charges administrative fees to individual Foundation accounts as delineated in the Foundation Fee Policy. These fees are charged to financial assets held by the Foundation, and proceeds are used to support the operations of the Foundation and Department of University Advancement and specific projects approved by the Boise State University President. 9

12 Donated Materials Donated materials are reflected as contributions at their estimated fair market values at date of receipt. Income Taxes The Foundation is exempt from income taxes as defined by Section 501(c)(3) of the Internal Revenue Code. Accordingly, no provision has been made for income taxes in the accompanying financial statements. The Foundation adopted the provisions of FASB ASC Topic 740. As of, respectively, the unrecognized tax benefit accrual was zero. The Foundation will accrue any unrecognized tax benefits, unrecognized tax expenses or penalties if any such items should be incurred. The Foundation is no longer subject to Federal and state tax examinations by tax authorities for years before Reclassifications Certain balances from 2011 have been reclassified to match the 2012 presentation. Subsequent Events Subsequent events have been evaluated through August 22, 2012 which is the date the financial statements were available to be issued. Note 2 - Pledges Receivable Gift pledges receivable are unconditional promises to give, which will be received by the Foundation in future years. These receivables are reflected at the present value of estimated future cash flows using a discount rate based on Treasury bond rates at the date of the pledge ranging from.75% to 3.55% as of along with an allowance for uncollectible pledges based on past collection experience. Receivable maturities as of June 30 are: Receivable in less than one year $ 10,272,054 $ 6,345,502 Receivable in one to five years 13,722,107 13,214,368 Receivable in more than five years 280, ,847 24,274,276 20,344,717 Less allowance (933,695) (890,000) Less discount (1,311,667) (1,716,783) Total $ 22,028,914 $ 17,737,934 A conditional gift of $786,881 was received as of June 30, 2012 and is included in deferred revenue. Conditional pledges totaled $13,700,000 as of June 30,

13 Note 3 - Investments The following details each major category of investments and the related fair market values at June 30: Percent Investment Type of Total Certificates of Deposit $ 2,840,000 $ 2,650, % US Treasury Bonds 11,567,750 8,392, % Corporate Bonds 25,199,678 24,291, % Bond Mutual Funds 20,871,001 19,224, % Equity Funds 39,960,391 41,120, % Private Equity Inv. 2,665,937 2,152, % Real Estate and Specialty Assets 5,737,488 6,027, % Hedge Funds 6,814,834 6,969, % Insurance Annuities 305, , % Total Investment Securities $ 115,962,331 $ 111,134, % Note 4 - Custodial, Credit, and Interest Rate Risk Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in possession of an outside party. The custodial credit risk for investments is the risk that in the event of the failure of the counterparty (e.g. broker-dealer) to a transaction, the Foundation will not be able to recover the value of its investment or collateral securities that are in possession of another party. The Foundation does not have a policy restricting the amount of deposits and investments subject to custodial credit risk. As of, deposits that were uninsured and uncollateralized totaled $456,749 and $3,282,559, respectively. Investments of the Foundation, except for the certificates of deposit, are uninsured and uncollateralized and held in the name of either the Foundation or the broker. 11

14 Credit Risk The risk that an issuer of debt securities or another counterparty to an investment will not fulfill its obligation is commonly expressed in terms of the credit quality rating issued by a nationally recognized statistical rating organization such as Moody s, Standard & Poor s, and Fitch s. The ratings presented below use the Moody s scale. US Treasury Corporate Bond Mutual Investment Type Bonds Bonds Funds Total Aaa $ 11,558,592 $ 2,028,430 $ 6,926,078 $ 20,513,100 Aa1-1,485,204-1,485,204 Aa2-2,065,107-2,065,107 Aa3-3,784, ,454 4,114,295 A1-2,310,690-2,310,690 A2-5,765,184 9,453,573 15,218,757 A3-5,874,509-5,874,509 Baa1-1,006,973 4,025,792 5,032,765 Baa2-878,740 66, ,540 Ba ,380 59,380 B ,924 9,924 Unrated 9, ,158 $ 11,567,750 $ 25,199,678 $ 20,871,001 $ 57,638,429 While the Foundation does not have a restrictive policy regarding rated investments, it does have a legal agreement with its expendable restricted fund manager which defines ratings acceptable to the Foundation and its policy defines benchmark indices by which to measure overall performance of these investments. Interest Rate Risk Investments in debt securities that are fixed for longer periods are likely to experience greater variability in their fair values due to future changes in interest rates. While the Foundation does not have a policy regarding maturities of investments, it does have a legal agreement with its expendable restricted fund manager which defines the targeted duration of the portfolio and its policy defines benchmark indices by which to measure overall performance of these investments. Investment Type Fair Value Less than 1 Yr 1-3 Yr 3-10 Yr >10 Yr US Treasury Bonds $ 11,567,750 $ 3,492,672 $ 1,011,486 $ 7,063,592 $ - Corporate Bonds 25,199,678 16,220, ,004 8,544,679 - Bond Mutual Funds 20,871,001-4,081,644 16,602, ,567 Total Rated Securities $ 57,638,429 $ 19,713,667 $ 5,527,134 $ 32,211,061 $ 186,567 12

15 Note 5 - Fair Value of Assets and Liabilities Assets and liabilities measured at fair value on a recurring basis at are as follows: Assets Investments Growth investments US equities $ 18,093,745 $ 20,586,798 International equities 22,056,121 20,777,462 Private equity/special situations 2,665,937 2,152,099 Risk reduction investments Cash and certificates of deposit 7,709,800 9,456,685 US/Global fixed income 57,754,206 51,969,881 Hedge funds 6,814,834 6,969,811 Real estate 5,737,488 6,027, ,832, ,940,723 Investments in perpetual trusts US equities 1,010, ,529 International equities 402, ,849 Risk reduction investments Cash and certificates of deposit 135,153 91,670 US/Global fixed income 675, ,328 Hedge funds 285, ,214 Real estate 285, ,959 2,793,868 2,843,549 Total assets, at fair value $ 123,625,999 $ 120,784,272 Liabilities Liabilities under split interest trust agreements $ 1,777,030 $ 1,106,114 Trust earnings payable to trust beneficiary 253, ,297 Total liabilities, at fair value $ 2,030,894 $ 1,347,411 13

16 The related fair values of these assets and liabilities are determined as follows: As of June 30, 2012 Other Quoted Prices in Observable Unobservable Active Markets Inputs Inputs (Level 1) (Level 2) (Level 3) Assets Investments Growth investments US equities $ 17,904,270 $ 189,475 $ - International equities 22,056, Private equity/special situations - - 2,665,937 Risk reduction investments Cash and certificates of deposit 4,869,800 2,840,000 US/Global fixed income 57,638, ,777 Hedge funds - 3,714,679 3,100,155 Real estate 5,054, , ,523,531 6,859,931 6,448,669 Investments in perpetual trusts Growth investments US equities 1,010, International equities 402, Risk reduction investments Cash and certificates of deposit 135, US/Global fixed income 675, Hedge funds 285, Real estate 169, ,942 2,677, ,942 Total assets, at fair value $ 110,201,457 $ 6,859,931 $ 6,564,611 Liabilities Liabilities under split interest trust agreements $ - $ - $ 1,777,030 Trust earnings payable to trust beneficiary ,864 Total liabilities, at fair value $ - $ - $ 2,030,894 14

17 As of June 30, 2011 Other Quoted Prices in Observable Unobservable Active Markets Inputs Inputs (Level 1) (Level 2) (Level 3) Assets Investments Growth investments US equities $ 20,343,222 $ 243,576 $ - International equities 20,777, Private equity/special situations - - 2,152,099 Risk reduction investments Cash and certificates of deposit 6,806,685 2,650,000 - US/Global fixed income 51,907,860 62,021 - Hedge funds - 3,626,619 3,343,193 Real estate 5,386, , ,221,272 6,582,216 6,137,235 Investments in perpetual trusts Growth investments US equities 849, International equities 590, Risk reduction investments Cash and certificates of deposit 91, US/Global fixed income 742, Hedge funds 283, Real estate 170, ,942 2,727, ,942 Total assets, at fair value $ 107,948,880 $ 6,582,216 $ 6,253,177 Liabilities Liabilities under split interest trust agreements $ - $ - $ 1,106,114 Trust earnings payable to trust beneficiary ,297 Total liabilities, at fair value $ - $ - $ 1,347,411 15

18 The fair value for securities is determined by reference to quoted market prices. Investments in real estate are valued based on periodic appraisals of properties. Values of Hedge funds may be based on marketable securities or other periodic appraisal of assets. Certain private equity investments, liability under trust agreements and trust earnings payable have fair value estimated at the present value of expected future cash flows. Following is a reconciliation of activity for 2012 for assets measured at fair value based upon significant unobservable (non-market) information. Hedge Funds Real Estate/Real Estate Investment Private Equity/ Special Situations Liabilities Under Split Interest Trust Agree Trust Earnings Payable to Trust Balance, beginning of year $ 3,343,193 $ 757,885 $ 2,152,099 $ 1,106,114 $ 241,297 Realized and unrealized gains included in earnings 12,582 41, , Purchases 170, , ,493 Sales (425,640) (398) (513,255) - - New trust agreements Payments on annuity payments (138,992) (20,364) Adjustments to pledges or liability present value discounting ,415 32,931 Balance, end of year $ 3,100,155 $ 798,520 $ 2,665,936 $ 1,777,030 $ 253,864 The amount of the total gains (losses) for the period or included in changes in net assets attributable to the change in unrealized gains or losses related to assets still held at the reporting date $ 106,634 $ 40,635 $ (62,124) $ - $ - 16

19 Following is a reconciliation of activity for 2011 for assets measured at fair value based upon significant unobservable (non-market) information. Hedge Funds Real Estate/Real Estate Investment Trusts Private Equity/ Special Situations Liabilities Under Split Interest Trust Agree Trust Earnings Payable to Trust Beneficiary Balance, beginning of year $ 3,653,452 $ 623,099 $ 1,668,123 $ 878,207 $ 239,357 Realized and unrealized gains included in earnings 311, , , Purchases, issuances and settlements (net of distributions) (621,571) (126) 27, ,434 - New trust agreements Payments on annuity payments (80,450) (20,364) Adjustments to pledges or liability present value discounting ,923 22,304 Balance, end of year $ 3,343,193 $ 757,885 $ 2,152,099 $ 1,106,114 $ 241,297 The amount of the total gains (losses) for the period or included in changes in net assets attributable to the change in unrealized gains or losses related to assets still held at the reporting date $ 314,264 $ 134,786 $ 313,918 $ - $ - Gains and losses (realized and unrealized) included in changes in net assets for the period are reported in change in fair value of investments in the statements of activities. 17

20 Financial Accounting Standards Board Update , Fair Value Measurement and Disclosure (Topic 820): Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent) requires disclosures of certain attributes in entities that calculate a net asset value per share (or its equivalent) and do not have a readily determinable fair value. The following table sets forth the disclosure of the attributes at June 30, 2012 and 2011: 2012 Fair Value Unfunded Redemption Redemption Not available Private equity $ 2,665,937 $ 1,988,125 for redemption n/a Limited partnership - International Value equity 5,420,847 - Monthly 6 days Limited partnership - International Fixed income 4,025,792 - Monthly 10 days Real estate fund 613,099 - Quarterly 60 days Quarterly Hedge funds - Fund of funds 6,814,834 - to annually 60 to 120 days $ 19,540,509 $ 1,988, Fair Value Unfunded Redemption Redemption Not available Private equity $ 2,152,099 $ 2,798,958 for redemption n/a Limited partnership - International Value equity 5,903,861 - Monthly 6 days Limited partnership - International Fixed income 3,551,228 - Monthly 10 days Real estate fund 593,358 - Quarterly 60 days Quarterly Hedge funds - Fund of funds 6,974,565 - to annually 60 to 120 days $ 19,175,111 $ 2,798,958 Private equity This category includes three secondary private equity funds that invest in a diversified portfolio of existing private equity partnerships. Although these investments cannot be redeemed, secondary funds tend to create distributions within the first 12 months of operation from the purchase of more mature funds. The category also includes one secondary private equity fund which is currently in the process of paying final distributions. 18

21 The funds have anticipated life of nine to 14 years from the closing of the fund to additional investment. Limited Partnership-International Equity This category includes one fund which employs a bottoms-up, valueoriented investment approach which exploits the inefficiencies in international markets. It focuses on buying businesses offering sound franchises at prices which allow returns to compound meaningfully over time. The investment objective is to construct a well-diversified portfolio of non-us stocks. Investors have monthly liquidity with 10 days notice. Limited Partnership-International Fixed Income This category includes one fund with a value-oriented investment philosophy centering on the belief that bonds should be valued in terms of the income they will generate in real (inflation-adjusted) terms. The expected real yield is defined as nominal yield minus estimated future inflation. The portfolio is invested in high quality sovereign debt and is constructed to maximize expected real return across countries, sectors, and maturities. Investors have monthly liquidity with six days notice. Real Estate Fund - The fund is an open-end private REIT that invests in a diversified portfolio of predominantly value-added real estate investments. Such investments are across the residential, office, retail and industrial segments of the US real estate market. Investors are offered quarterly liquidity, with no lock-up, provided that investors make the redemption request at least 60 days prior to the end of the quarter. Hedge Funds This category includes three hedge fund of funds which are invested in diversified, multi-strategy portfolios of alternative investments. One fund is currently in the process of redemption. The other two are redeemable annually and semi-annually with 60 to 100 days notice. One of the funds is subject to lock-up. Changes in Fair Value Levels The availability of observable market data is monitored annually to assess the appropriate classifications of financial instruments within the fair value hierarchy. Changes in economic conditions or other factors may require transfer of financial instruments from one fair value level to another. For the year ended June 30, 2012, there were not significant transfers in or out of levels 1, 2, or 3. Note 6 - Disclosure of Custodial and Investment Advisory Fees The Foundation has various levels of fees paid for the ongoing investment of Foundation financial assets. Costs of investment include fees for Investment Consultant, custodial fees, and individual asset manager and fund fees. Due to the nature of the investments, not all fees are expensed directly into financial statements. According to the Foundation s investment consultant, Mercer Investment Consulting, the annual fees paid for investment management and all associated costs are estimated to be $796,963 and $772,677 for 2012 and 2011, respectively. 19

22 Note 7 - Temporarily Restricted Net Assets Temporarily restricted net assets are available for the following purposes at June 30, 2012: Scholarships $ 7,867,233 Administrative 6,353,259 Athletic 4,512,585 Capital Projects 34,887,861 Charitable Trusts 393,772 Gift Annuities (46,467) Research - Faculty 381,517 Research - Student 46,655 Special Purpose 16,264,755 Student Assistantship 344,858 Technology and Park Center Buildings 295,158 Total $ 71,301,186 Temporarily restricted net assets released from restrictions consisted of the following at June 30, 2012: Scholarships and Grants $ 3,682,459 Distribution of Funds for Academic Programs 13,867,466 Distribution of Funds for Athletic Programs Program services 6,856,509 Fundraising expenses 7,943 Management and general 87,947 Uncollectable pledge expense 525,722 Management and General 1,437,815 Interest on Capital Asset - Related Debt 276,910 Depreciation and amortization 140,165 26,882,936 Board and Donor Designated Transfers 152,753 Total $ 27,035,689 20

23 Note 8 - Endowment The Foundation s endowment consists of approximately 969 individual funds established for a variety of purposes. Its endowment includes both donor-restricted endowment funds and funds designated by the Board of Directors to function as endowments. As required by generally accepted accounting principles, net assets associated with endowment funds, including funds designated by the Board of Directors to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law The Board of Directors of the Foundation approved a revision to its Foundation Fee Policy in fiscal year 2010 which allows expenditure of 20% of the historical gift value of donor-restricted endowment funds absent explicit donor stipulations to the contrary. In accordance with the State Prudent Management of Institutional Funds Act (SPMIFA), the Foundation considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) The duration and preservation of the fund (2) The purposes of the Foundation and the donor-restricted endowment fund (3) General economic conditions (4) The possible effect of inflation and deflation (5) The expected total return from income and the appreciation of investments (6) Other resources of the Foundation (7) The investment policies of the Foundation The Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Foundation in a manner consistent with the standard of prudence prescribed by SPMIFA. The composition of Endowment Net Assets by fund type as of June 30, 2012 is as follows: At June 30, 2012 Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ - $ 6,529,016 $ 65,063,804 $ 71,592,820 Board-designated endowment funds 4,373, ,373,194 $ 4,373,194 $ 6,529,016 $ 65,063,804 $ 75,966,014 21

24 The composition of Endowment Net Assets by fund type as of June 30, 2011 is as follows: At June 30, 2011 Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ - $ 10,500,800 $ 63,137,670 $ 73,638,470 Board-designated endowment funds 4,835, ,835,056 $ 4,835,056 $ 10,500,800 $ 63,137,670 $ 78,473,526 Changes in Endowment Net Assets for the years ending, respectively, are as follows: 2012 Unrest. Temp Rest. Perm Rest. Total At June 30, 2012 Endowment net assets, beginning of year $ 4,835,056 $ 10,500,800 $ 63,137,670 $ 78,473,526 Investment return Investment income 170, , ,016 Realized and unrealized appreciation (315,994) (2,158,580) - (2,474,574) Gifts - - 1,657,475 1,657,475 Appropriation of endowed assets for expenditure (315,946) (2,106,556) - (2,422,502) Other changes Board and donor designated transfers - (14,586) 205, ,168 Change in value of insurance premiums ,905 62,905 Endowment net assets, end of year $ 4,373,194 $ 6,529,016 $ 65,063,804 $ 75,966,014 22

25 2011 Unrest. Temp Rest. Perm Rest. Total At June 30, 2011 Endowment net assets, beginning of year $ 3,279,885 $ 1,057,554 $ 61,521,741 $ 65,859,180 Investment return Investment income 165, , ,907 Realized and unrealized appreciation 1,592,139 11,253,397-12,845,536 Gifts - - 1,534,751 1,534,751 Appropriation of endowed assets for expenditure (202,761) (1,954,571) - (2,157,332) Other changes Board and donor designated transfers - (126,694) 73,366 (53,328) Change in value of insurance premiums - - 7,812 7,812 Endowment net assets, end of year $ 4,835,056 $ 10,500,800 $ 63,137,670 $ 78,473,526 The components of endowment funds classified as temporarily restricted net assets and permanently restricted net assets as of, respectively, are as follows: Temporarily Restricted Net Assets The portion of perpetual endowment funds subject to a time restriction under SPMIFA With purpose restrictions $ 6,529,016 $ 10,500,800 $ 6,529,016 $ 10,500,800 Permanently Restricted Net Assets The portion of perpetual endowment funds that is required to be retained permanently either by explicit donor, board or by SPMIFA $ 65,063,804 $ 63,137,670 23

26 Funds with Deficiencies From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the level that the donor, SPMIFA, or Foundation policy requires the Foundation to retain as a fund of perpetual duration. In accordance with generally accepted accounting principles, deficiencies of this nature are reported in unrestricted net assets. There were no such deficiencies as of June 30, 2012 and June 30, Return Objectives and Risk Parameters Objective: The Investment objective is to provide a rate of return over inflation sufficient to support in perpetuity the mission of the Foundation. It is particularly important to preserve the value of the assets in real terms to enable the Foundation to maintain the purchasing power of the spending on programs and administration without eroding the real value of the principal of the Foundation. General Investment Considerations and Constraints: Risk: The Investment Committee will seek to limit the overall level of risk commensurate with the chosen Policy Asset Allocation. Liquidity: At times, cash may be required to satisfy the needs of the Foundation. The Foundation should have sufficient liquid assets to meet such foreseeable requirements. Time Horizon: The Foundation has an infinite life. An investment Time Horizon of 20 years is appropriate. Taxes: The Foundation is tax-exempt. Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, the Foundation 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 Foundation targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term objectives within prudent risk constraints. In recognition of these facts, the Foundation s Investment Committee will consider the Foundation s total return from both income and net realized and unrealized capital gains when recommending the Spending Rate Policy. When distributions are made, they will be withdrawn from the Foundation regardless of the portion of the total return that is from capital gains or from income, subject to applicable gift agreement restrictions. Under this policy, as approved by the Board of Directors, the endowment assets are invested in a manner that is intended to provide an average rate of return of approximately 8% annually. Actual returns in any given year may vary from this amount. 24

27 Spending Policy and How the Investment Objectives Relate to Spending Policy In its Investment Policy Statement, the Foundation has set a total return spending policy which specifies 4% of the 3-year rolling average of the ending market value of each individual account be made available for expenditure toward the established purpose. The Foundation Fee Policy specifies that each endowed fund is assessed a management fee of 1.5% of market value. In establishing these policies, the Foundation considered the long-term expected return on its endowment. Accordingly, over the long term, the Foundation expects the current spending policy to allow its endowment to grow at an average of 2.5% annually (not including the effect of inflation). This is consistent with the Foundation'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. Note 9 - Investment in Unconsolidated Affiliates Deer Point Tower Venture, LLC was formed between the Foundation and three local radio and television broadcast entities. The common property is owned 20% by the Foundation, exclusive radio property is owned 33% by the Foundation and is accounted for under the equity method of accounting. The Foundation s earnings in the current year was a loss of $48,049 (in fiscal year 2011 loss of $44,010) and is included in the statements of activities under non-charitable income. Summarized combined financial information (unaudited) as of of Deer Point Tower Venture, L.L.C. is as follows: Total assets $ 3,041,433 $ 3,048,371 Total equity $ 3,041,433 $ 3,048,371 Net income (loss) $ 347,495 $ (320,715) As of, the Foundation s equity investment in Deer Point Tower Venture, L.L.C. totaled $526,495 and $541,692, respectively, and is included in other assets on the statements of financial position. 25

28 Note 10 - Investment in Real Estate All activity for the year ended was as follows: Capital Assets not Depreciated Land $ 5,653,669 $ 5,653,669 Other Capital Assets Buildings 4,600,000 4,600,000 Less accumulated depreciation (440,834) (325,833) Other Capital Assets, Net 4,159,166 4,274,167 Capital Assets, Net of Depreciation $ 9,812,835 $ 9,927,836 Note 11 - Net Investment in Financing Lease The Foundation leases the Boise State University College of Technology building, land, and equipment to the State of Idaho through the Idaho State Board of Education (SBOE). The lease provides for automatically renewable annual rental payments including base rent equal to the debt service requirements of the Foundation for the Certificates of Participation (the Certificates), not to exceed $500,000, and additional rent equal to the executory costs of the lease incurred by the Foundation. The excess of annual rental payments, excluding executory costs, over the net investment of $1,921,725 is equal to the future interest costs on the Certificates. The SBOE has the right to cancel the lease should the state legislature fail to appropriate funds for the annual rental payments. The lease agreement does not specify a final lease term but is expected to expire when the related debt is repaid. At the end of the lease, the Foundation will either donate the building to the University or continue to lease the building for $1 annually. Year Ended June 30, Interest Principal 2013 $ 77,259 $ 353, , , , , , , , ,117 $ 218,933 $ 1,921,725 26

29 Note 12 - Certificates of Participation In 1988, the Foundation issued $5,620,000 in tax-exempt Certificates of Participation to fund construction of the BSU College of Technology Building. In 1991, the Foundation refunded the Series 1988 Certificates of Participation and issued $6,045,000 in taxexempt Certificates of Participation. In 2002, the Foundation refunded the Series 1991 Certificates of Participation and issued $4,855,000 in taxexempt Certificates of Participation. The 2002 Certificates are collateralized by rights under a lease between the SBOE and the Foundation, (see Note 10) the Boise State University College of Technology Building, and reserve funds held by a trustee. Such reserve funds are reported in the statements of financial position as funds held by a trustee. The bonds are due in annual principal payments from $305,000 in fiscal year 2012 ($295,000 in fiscal year 2011) to $415,000 through October 1, At June 30, 2012, the remaining principal balance on the Series 2002 Certificates totaled $2,220,000 ($2,525,000 at June 30, 2011) at interest rates ranging from 4.80% in fiscal year 2012 (4.75% in fiscal year 2011) to 5.35%. Mandatory Sinking Fund Redemptions are required under a trust indenture which coincides with the rental payments under the lease agreement with the Board of Directors. The Legislature of the State of Idaho appropriates sufficient funds annually to satisfy the semi-annual certificate payments. At June 30, 2012, the lease payment account had a balance of $11 ($15 at June 30, 2011). The carrying amount of the Certificates payable approximates fair value based on rates and terms available for similar borrowings at. All activity for the year ended June 30, 2012 was as follows: Principal Principal Balance Interest Balance June 30, 2011 Additions Reductions June 30, 2012 Certificates payable $ 2,525,000 $ - $ (305,000) $ 2,220,000 $ 2,525,000 $ - $ (305,000) $ 2,220,000 Principal maturities of all certificates and notes payable at June 30, 2012 was as follows: Year Ended June 30, Interest Principal 2013 $ 105,753 $ 325, , , , , , , , , , ,000 $ 363,861 $ 2,220,000 27