OFFICIAL STATEMENT $45,415,000 ARIZONA BOARD OF REGENTS NORTHERN ARIZONA UNIVERSITY SYSTEM REVENUE REFUNDING BONDS SERIES 2015

Transcription

1 OFFICIAL STATEMENT NEW ISSUE BOOK-ENTRY-ONLY RATINGS: See Ratings Herein In the opinion of Ballard Spahr LLP, Phoenix, Arizona, Bond Counsel to the Arizona Board of Regents (the Board ) for and on behalf of Northern Arizona University (the "University"), based on existing law and assuming continuing compliance by the Board with the requirements of Federal tax laws, interest on the 2015 Bonds (as defined below) is excludable from the gross income of the owners thereof for Federal income tax purposes. Interest on the 2015 Bonds is not a preference item for either individual or corporate Federal alternative minimum tax purposes; however, interest paid to corporate holders of the 2015 Bonds may be indirectly subject to alternative minimum tax under the circumstances described in TAX MATTERS herein. Interest on the 2015 Bonds is exempt from State of Arizona (the State ) income tax. See TAX MATTERS herein. $45,415,000 ARIZONA BOARD OF REGENTS SYSTEM REVENUE REFUNDING BONDS SERIES 2015 Dated: Date of Delivery Due: June 1, as shown on the inside front cover The $45,415,000 Northern Arizona University System Revenue Refunding Bonds, Series 2015 (the 2015 Bonds ) are being issued by the Board, acting for and on behalf of the University, only in fully registered form without coupons and, when issued, will be available to purchasers in denominations of $5,000 of principal or any integral multiple thereof, only through a book-entry-only system maintained by The Depository Trust Company ( DTC ). The 2015 Bonds will initially be registered in the name of DTC or its nominee as described herein. As long as the book-entry-only system is maintained for the registration of the 2015 Bonds, no physical delivery of the 2015 Bonds will be made to the ultimate purchasers thereof and all payments of principal of, premium, if any, and interest on the 2015 Bonds will be made to such purchasers through DTC, as described herein. See Appendix F BOOK-ENTRY-ONLY SYSTEM herein. Interest on the 2015 Bonds at the interest rates set forth on the inside front cover hereof is payable on each June 1 and December 1, commencing December 1, 2015, until maturity or prior redemption. Principal of the 2015 Bonds, at maturity or upon redemption, will be paid by U.S. Bank National Association, as trustee, registrar and paying agent (the Trustee ). The 2015 Bonds are subject to redemption as described under THE 2015 BONDS Redemption Provisions herein. The scheduled payment of principal of and interest on the 2015 Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the 2015 Bonds by BUILD AMERICA MUTUAL ASSURANCE COMPANY. The 2015 Bonds are being issued for the purpose of providing funds to (i) refund in advance of maturity the Bonds to be Refunded (as defined herein) issued by the Board for and on behalf of the University and (ii) pay costs relating to the issuance of the 2015 Bonds. See PLAN OF REFUNDING herein. The 2015 Bonds are limited obligations of the Board and, together with the Outstanding Bonds (each as defined herein), and any bonds subsequently issued on a parity therewith, are payable solely from and secured solely by a pledge of and first lien on the Gross Revenues (as defined herein) of the University. See SOURCES OF PAYMENT AND SECURITY herein. NEITHER THE FULL FAITH AND CREDIT OF THE BOARD, THE UNIVERSITY OR THE STATE NOR THE TAXING POWER OF THE STATE IS PLEDGED FOR THE PAYMENT OF THE 2015 BONDS. THE 2015 BONDS DO NOT CONSTITUTE A DEBT OF THE BOARD, THE UNIVERSITY OR THE STATE WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. THE BOARD HAS NO TAXING POWER. SEE INSIDE FRONT COVER FOR MATURITY SCHEDULE AND ADDITIONAL INFORMATION This cover page contains only a brief description of the 2015 Bonds and the security therefor. It is not a summary of all material information with respect to the 2015 Bonds. Investors should read this entire Official Statement to obtain information necessary to make an informed investment decision. The 2015 Bonds are offered, when, as and if issued by the Board and received by the underwriter listed below (the Underwriter ), subject to the approving opinion of Ballard Spahr LLP, Bond Counsel, as to validity and tax exemption. In addition, certain legal matters will be passed upon for the Board by the Senior Vice President for Academic, Legal and External Affairs of the Board, for the University by its General Counsel and for the Underwriter by Greenberg Traurig, LLP. It is expected that the 2015 Bonds will be available for delivery in book-entry-only form in New York, New York, on or about May 19, April 14, 2015 Citigroup

2 $45,415,000 ARIZONA BOARD OF REGENTS SYSTEM REVENUE REFUNDING BONDS SERIES 2015 MATURITY SCHEDULE Maturity (June 1) Principal Amount Interest Rate Yield 2019 $ 960, % 1.38% 2X ,040, Y ,085, Z ,295, A ,410, B ,520, C ,650, D ,790, (b) 3E ,925, (b) 3F ,505, (b) 3G ,230, (b) 3H ,915, (b) 3J ,305, (b) 3K ,665, (b) 3L ,795, (b) 3M ,935, (b) 3N ,800, (b) 3P ,240, (b) 3Q ,350, (b) 3R7 CUSIP (a) (664754) (a) CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services ( CGS ) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright 2015 CUSIP Global Services. All rights reserved. CUSIP data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP numbers are provided for convenience of reference only. None of the Board, the University, the Underwriter, the Financial Advisor (as defined herein) or their respective agents or counsel take responsibility for the accuracy of such numbers. (b) Yield calculated to June 1, 2025, first optional redemption date.

3 ARIZONA BOARD OF REGENTS Ex Officio Members Doug Ducey Diane Douglas Governor of Arizona Superintendent of Public Instruction Appointed Members Term Expires Mark Killian, Chair January 2018 Jay Heiler, Vice Chair January 2020 Greg Patterson, Secretary January 2020 Rick Myers, Treasurer January 2018 Valerie Hanna, Assistant Treasurer, Student Regent June 2015 Mark Naufel, Student Regent June 2016 LuAnn Leonard January 2016 Ram Krishna January 2020 William Ridenour January 2022 Ronald Shoopman January 2022 Staff Eileen Klein Nancy Tribbensee, Esq. President Senior Vice President for Academic, Legal and External Affairs SPECIAL SERVICES BOND COUNSEL Ballard Spahr LLP Phoenix, Arizona INDEPENDENT AUDITORS State of Arizona Office of the Auditor General Phoenix, Arizona TRUSTEE U.S. Bank National Association Phoenix, Arizona FINANCIAL ADVISOR RBC Capital Markets, LLC Phoenix, Arizona i

4 FLAGSTAFF, ARIZONA ADMINISTRATION Dr. Rita Hartung Cheng... President Mr. Jennus L. Burton... Vice President for Finance and Administration Mr. Robert G. Norton... Associate Vice President, Financial Services and Comptroller Dr. Laura Huenneke *... Provost and Vice President for Academic Affairs Dr. Mason S. Gerety... Senior Vice President of University Advancement Dr. William Grabe... Vice President for Research * Dr. Huenneke has announced that she will return as a full-time member of faculty effective July 1, A national search is underway for her replacement. ii

5 No dealer, broker, salesman or other person has been authorized to give any information or to make any representations, other than those contained in this Official Statement, including the cover page, the inside front cover and the Appendices hereto (this Official Statement ), in connection with the offering contained herein, and, if given or made, such information or representation must not be relied upon as having been authorized by the State of Arizona (the State ), the Arizona Board of Regents (the Board ), Northern Arizona University (the University ), the financial advisor or the underwriter identified on the cover page hereof (the Underwriter ). This Official Statement does not constitute an offer to sell, or the solicitation of an offer to buy, any securities other than the original offering of the Board s Northern Arizona University System Revenue Refunding Bonds, Series 2015 (the 2015 Bonds ), nor will there be any sale of the 2015 Bonds, by any person in any jurisdiction where such offer, or solicitation or sale would be unlawful. The information contained in this Official Statement has been obtained from the Board, the University and other sources believed to be reliable, but the accuracy or completeness of such information is not guaranteed by any of the foregoing. The presentation of such information, including tables of receipts of revenues and other sources, is intended to show recent historic information and is not intended to indicate future or continuing trends. No representation is made that the past experience, as shown by such financial and other information, will necessarily continue or be repeated in the future. This Official Statement contains, in part, estimates and matters of opinion, whether or not expressly stated to be such, which are not intended as statements or representations of fact or certainty, and no representation is made as to the correctness of such estimates and opinions, or that they will be realized. All estimates, projections, forecasts or matters of opinion are forward looking statements, which must be read with an abundance of caution and which may not be realized or may not occur in the future. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder will, under any circumstances, create any implication that there has been no change in the affairs of the State, the Board, or the University since the date hereof. The information in Appendix F BOOK-ENTRY-ONLY SYSTEM herein has been furnished by The Depository Trust Company and no representation is made by the Board, the University or the Underwriter, or any of their counsel or agents, as to the accuracy or completeness of such information. A wide variety of other information, including financial information, concerning the Board and the University is available from publications and websites of the Board and the University and others. Any such information that is inconsistent with the information set forth in this Official Statement should be disregarded. No such information is a part of or incorporated into this Official Statement, except as expressly noted herein. The 2015 Bonds will not be registered in accordance with the Securities Act of 1933, as amended, or any state securities law, and will not be listed on any stock or other securities exchange. Neither the Securities and Exchange Commission nor any other Federal, state or other governmental entity or agency has passed upon the accuracy of this Official Statement. The Board has undertaken to provide continuing disclosure with respect to the 2015 Bonds to enable the Underwriter to comply with Rule 15c2-12 promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. See CONTINUING DISCLOSURE UNDERTAKING and Appendix E FORM OF CONTINUING DISCLOSURE UNDERTAKING herein. Build America Mutual Assurance Company ( BAM ) makes no representation regarding the 2015 Bonds or the advisability of investing in the 2015 Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading BOND INSURANCE and Appendix G SPECIMEN MUNICIPAL BOND INSURANCE POLICY. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE 2015 BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors pursuant to Federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The Trustee assumes no responsibility for this Official Statement and has not reviewed or undertaken to verify any information contained herein. iii

6 TABLE OF CONTENTS Page INTRODUCTION... 1 THE BOARD... 2 THE UNIVERSITY... 2 AUTHORIZATION AND USE OF FUNDS... 3 PLAN OF REFUNDING... 3 MATHEMATICAL VERIFICATION... 5 SOURCES AND USES OF FUNDS... 5 THE 2015 BONDS... 5 General Description... 5 Redemption Provisions... 6 Notice of and Procedure for Redemption... 6 BOND INSURANCE... 6 Bond Insurance Policy... 6 Build America Mutual Assurance Company... 6 BOND INSURANCE RISK FACTORS... 8 SOURCES OF PAYMENT AND SECURITY... 9 Gross Revenue Pledge... 9 Schedule of Historical Gross Revenues... 9 Obligations Payable from Gross Revenues... 9 Schedule of Debt Service Requirements Rate Covenant Issuance of Additional Bonds No Acceleration of Bonds FUTURE BORROWINGS LITIGATION TAX MATTERS Original Issue Premium Backup Withholding Changes in Federal and State Tax Law FINANCIAL ADVISOR APPROVAL OF LEGAL MATTERS UNDERWRITING INDEPENDENT AUDITORS RATINGS CONTINUING DISCLOSURE UNDERTAKING ADDITIONAL INFORMATION Appendix A - Northern Arizona University Programmatic, Demographic and Financial Data Appendix B - Audited Financial Statements of the University for the Fiscal Year Ended June 30, 2014 Appendix C - Summary of Certain Provisions of the Bond Resolution Appendix D - Form of Approving Bond Opinion Appendix E - Form of Continuing Disclosure Undertaking Appendix F - Book-Entry-Only System Appendix G - Specimen Municipal Bond Insurance Policy iv

7 OFFICIAL STATEMENT $45,415,000 ARIZONA BOARD OF REGENTS SYSTEM REVENUE REFUNDING BONDS SERIES 2015 INTRODUCTION This Official Statement, including the cover page, the inside front cover and the Appendices hereto (this Official Statement ), is provided to furnish certain information with respect to the issuance and sale by the Arizona Board of Regents (the Board ), acting for and on behalf of Northern Arizona University (the University ), of $45,415,000 aggregate principal amount of its Northern Arizona University System Revenue Refunding Bonds, Series 2015 (the 2015 Bonds ). The Board is issuing the 2015 Bonds to provide funds to (i) refund in advance of maturity the Bonds to be Refunded (as defined herein) issued by the Board for and on behalf of the University and (ii) pay costs relating to the issuance of the 2015 Bonds. See PLAN OF REFUNDING herein. The 2015 Bonds are limited obligations of the Board which, together with the Board s outstanding Northern Arizona University System Revenue Refunding Bonds, Series 2004 (the 2004 Refunding Bonds ), Northern Arizona University System Revenue Bonds, Series 2005 (the 2005 Bonds ), Northern Arizona University System Revenue Refunding Bonds, Series 2006 (the 2006 Refunding Bonds ), Northern Arizona University System Revenue Bonds, Series 2007 (the 2007 Bonds ), Northern Arizona University System Revenue Bonds, Series 2008 (the 2008 Bonds ), Northern Arizona University System Revenue Bonds, Series 2009 (the 2009 Bonds ), Northern Arizona University System Revenue Bonds, Series 2012 (the 2012 Bonds ), Northern Arizona University System Revenue and Refunding Bonds, Series 2014 (the 2014 Bonds and, together with the 2004 Refunding Bonds, the 2005 Bonds, the 2006 Refunding Bonds, the 2007 Bonds, the 2008 Bonds, the 2009 Bonds, the 2012 Bonds, the 2015 Bonds and any hereinafter described Parity Bonds that the Board subsequently issues pursuant to the herein defined Bond Resolution, the Bonds ), are payable solely from and secured solely by a pledge of and first lien on the Gross Revenues (as defined herein) of the University. See SOURCES OF PAYMENT AND SECURITY herein. Unless and until discontinued, the 2015 Bonds will be held in book-entry-only form by The Depository Trust Company, a registered securities depository ( DTC ), and beneficial interests therein may only be purchased and sold, and payments of principal of and interest on the 2015 Bonds will be made only to the beneficial owners of the 2015 Bonds, through participants in the DTC system. Beneficial interests in the 2015 Bonds will be offered and sold in $5,000 denominations and any integral multiples thereof. See Appendix F BOOK-ENTRY-ONLY SYSTEM herein. Certain capitalized terms used in this Official Statement and not otherwise defined herein have the meanings given to such terms in Appendix C SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION herein. NEITHER THE FULL FAITH AND CREDIT OF THE BOARD, THE UNIVERSITY OR THE STATE OF ARIZONA (THE STATE ) NOR THE TAXING POWER OF THE STATE IS PLEDGED FOR THE PAYMENT OF THE 2015 BONDS. THE 2015 BONDS DO NOT CONSTITUTE A DEBT OF THE BOARD, THE UNIVERSITY OR THE STATE WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. THE BOARD HAS NO TAXING POWER. For a discussion of the University, its programs, campus, students, faculty, sources of revenues and financial condition, see THE UNIVERSITY and Appendix A Programmatic, Demographic and Financial Data. The audited financial statements of the University for the fiscal year ended June 30, 2014 are included in this Official Statement as Appendix B. 1

8 The descriptions and summaries of various documents contained herein do not purport to be comprehensive or definitive and reference is made to each document for the complete details of all its terms and conditions. All statements herein are qualified by reference to each such document in its entirety and are further qualified in their entirety by reference to laws and principles of equity relating to or affecting the enforceability of creditors rights. Copies of the Bond Resolution may be obtained, until the delivery of the 2015 Bonds, from the underwriter named on the cover page hereof (the Underwriter ) upon request to: Citigroup Global Markets Inc., 601 Union Street, Suite 5130, Seattle, Washington 98101, Attention: Public Finance Department, and thereafter from the Comptroller of the University. THE BOARD The Board is the governing body of the State s three public universities. In 1885, the Territorial Legislature created the Governing Board of The University of Arizona at Tucson, Arizona. Separate boards were later appointed to govern the schools subsequently established in Tempe, Arizona (Arizona State University) and Flagstaff, Arizona (the University). In 1945, the State Legislature placed all three State institutions of higher learning under the control of one body, known today as the Arizona Board of Regents. The Board is comprised of ten voting members, eight of whom are appointed by the Governor to serve eight-year terms, and two of whom, the Governor and the State Superintendent of Public Instruction, serve ex officio. In addition, two students selected from among the three State universities are appointed by the Governor to serve staggered two-year terms, the first year as a non-voting member and the second year as a voting member. The Constitution of the State provides that the State Legislature will appropriate moneys for the purpose of operating and maintaining all State institutions of higher learning. Such moneys are derived from taxation, as well as from other sources as determined by the State Legislature, to insure the proper maintenance of the institutions. The direction and control of all moneys appropriated for the use and benefit of State institutions is vested in the Board. Arizona Revised Statutes, Title 15, Chapter 13, sets forth the general powers of the Board, which include expenditures of State funds for the support and maintenance of State institutions of higher learning, their buildings and grounds, and for any other purpose the Board deems expedient, if not inconsistent with provisions of any appropriations. See Appendix A Programmatic, Demographic and Financial Data herein. THE UNIVERSITY The University is a fully-accredited, four-year degree-granting institution of higher learning (Carnegie Classification: Doctoral, Public, High Research), supported by the State and governed by the Board. The University s 2014 fall semester total headcount was estimated at 27,715 students, including undergraduate (19,361) and graduate (1,812) full-time students, and undergraduate (4,484) and graduate (2,058) part-time students. The University emphasizes undergraduate education while offering graduate programs leading to master s and doctorate degrees in selected fields. For almost 100 years, the University s philosophy has been to preserve a friendly campus atmosphere and to maintain close student-faculty relationships through quality teaching in the classroom and through faculty guidance for each individual student. The University s Mission Statement embodies a number of themes and goals which provide guidance for University programs. These include: promote high levels of student access, engagement, achievement, and affordability; expand the boundaries of knowledge to improve lives; advance the internationalization of the university to prepare students for global citizenship; promote issues of diversity, civility, democracy, citizenship, and community engagement and collaboration; become one of the nation s leading universities serving Native Americans; and exemplify a sustainable, innovative, and effective university. The University s main campus is located on a 730-acre site in Flagstaff, Arizona ( Flagstaff ). Flagstaff is a four-season city, with a 2014 estimated population of 69,391, located on the Colorado Plateau at an altitude of 7,000 feet. Flagstaff is the county seat of Coconino County, Arizona and serves as the population and economic center of the northern part of the State. Immediately north of the campus are the 12,600 foot high San Francisco Peaks, which feature a winter sports center. The University is at the junction of Interstate Highways 40 and 17, less than a three-hour drive from Phoenix, Arizona and approximately five hours from Tucson, Arizona; Albuquerque, New Mexico; and Las Vegas, Nevada. 2

9 The University also has a distance-learning mission to provide educational services and higher education courses leading to degrees and certificates for residents throughout the State, the region and the nation. Courses are taught in traditional classrooms by full-time and part-time faculty, and increasingly online. Thirty-five sites have been established around the State to serve this mission with about one-third of the total student body receiving instruction off-campus. Among the largest of these are North Valley and Paradise Valley, both in the Phoenix, Arizona metropolitan area; Northern Arizona University-Yuma in cooperation with Arizona Western College; and Northern Arizona University-Yavapai in cooperation with Yavapai Community College. Instruction, through offering complete degree and certificate programs in response to community needs, is the major component of the University s Extended Campuses activity. In turn, public service to local school districts, public and private employers and other local constituencies is a function of the academic programs and services offered locally. Extended Campuses programs function through a collaboration of a broad spectrum of campus-based academic and service units, to provide quality instruction and associated support services in support of degree programs for individuals unable to pursue their higher education on a traditional campus. The University has recently implemented a competency-based approach to higher education called Personalized Learning, which allows selfmotivated students to achieve a bachelor s degree at a pace that suits their personal situation. See Appendix A Programmatic, Demographic and Financial Data for additional information about the University. AUTHORIZATION AND USE OF FUNDS The 2015 Bonds are being issued and offered by the Board pursuant to Title 15, Chapter 13, Article 5 of the Arizona Revised Statutes, and pursuant to the provisions of a resolution adopted by the Board on April 25, 1986, as thereafter supplemented and amended, including by a resolution adopted by the Board on September 27, 2012 in connection with the issuance of the 2015 Bonds (the Bond Resolution ). See Appendix C SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION herein. Proceeds of the 2015 Bonds will be used to refund in advance of maturity certain Outstanding Bonds and pay the costs of issuing the 2015 Bonds. See PLAN OF REFUNDING below. PLAN OF REFUNDING Approximately $52,820,000 of the proceeds of the 2015 Bonds will be placed in a depository trust account (the Depository Trust ) with U.S. Bank National Association, serving as depository trustee (the Depository Trustee ) pursuant to the terms of a Depository Trust Agreement between the Board and the Depository Trustee to be applied to the payment of the bonds being refunded as identified below (the Bonds to be Refunded ). Such funds will be used to pay the principal of and interest on the Bonds to be Refunded upon redemption as shown below. See MATHEMATICAL VERIFICATION herein. 3

10 Issue Series Maturity Date (June 1) Coupon BONDS TO BE REFUNDED Principal Amount Outstanding Bonds to be Refunded Redemption Date (June 1) CUSIP (664754) 2004 Refunding Bonds 2032 (a) 4.750% $245,000 $245, V (a) 4.750% 255, , V % 270, , V Bonds % 540, , W (b) 4.500% 565, , F (b) 4.500% 590, , F (b) 4.500% 615, , F (b) 4.500% 640, , F % 670, , F Bonds % 860, ,000 - L % 990, , L % 1,040,000 1,040, L % 1,085,000 1,085, L % 1,145,000 1,145, L % 1,200,000 1,200, L % 1,255,000 1,255, M % 1,315,000 1,315, M % 1,380,000 1,380, M % 1,450,000 1,450, M (c) 5.000% 1,515,000 1,515, M (c) 5.000% 1,595,000 1,595, M (c) 5.000% 1,670,000 1,670, M (c) 5.000% 1,755,000 1,755, M % 1,845,000 1,845, M (d) 5.000% 1,935,000 1,935, M (d) 5.000% 2,035,000 2,035, M (d) 5.000% 2,135,000 2,135, M (d) 5.000% 2,240,000 2,240, M % 2,350,000 2,350, M Bonds % 880, ,000 - N % 1,150,000 1,150, P % 1,215,000 1,215, P % 1,270,000 1,270, P % 1,340,000 1,340, P % 1,415,000 1,415, Q % 1,485,000 1,485, Q (e) 5.250% 1,645,000 1,645, Q (e) 5.250% 1,720,000 1,720, Q B Bonds % 2,890, ,000 - S25 $50,195,000 $47,595,000 (a) Represents a mandatory redemption requirement for a term bond maturing June 1, (b) Represents a mandatory redemption requirement for a term bond maturing June 1, (c) Represents a mandatory redemption requirement for a term bond maturing June 1, (d) Represents a mandatory redemption requirement for a term bond maturing June 1, (e) Represents a mandatory redemption requirement for a term bond maturing June 1,

11 MATHEMATICAL VERIFICATION Concurrently with the delivery of and payment for the 2015 Bonds, Grant Thornton LLP, a firm of independent certified public accountants, will deliver to the Board its verification report indicating that it has verified, in accordance with standards established by the American Institute of Certified Public Accountants, the mathematical accuracy of certain computations prepared using information provided by the Underwriter relating to (a) the sufficiency of the anticipated receipts from the Government Obligations, together with the initial cash deposit to the Depository Trust, to pay interim interest payments and, when redeemed, the principal of and accrued interest on the Bonds to be Refunded, and (b) the yield on the Government Obligations and the 2015 Bonds. The report of Grant Thornton LLP will state that the scope of its engagement was limited to verifying the mathematical accuracy of the computations contained in schedules provided to it by the Underwriter and that it has no obligation to update its report because of events occurring, or data or information coming to its attention, subsequent to the date of its report. SOURCES AND USES OF FUNDS The following table sets forth the sources and uses of funds for the 2015 Bonds. Sources of Funds: Principal Amount of 2015 Bonds $45,415, Amortizable Premium 7,700, Total Sources of Funds $53,115, Uses of Funds: Deposit to the Depository Trust $52,819, Costs of Issuance (a) 295, Total Uses of Funds $53,115, (a) Includes the Underwriter's discount, the premium for the Policy (as defined herein) and other costs of issuance associated with the issuance of the 2015 Bonds. General Description THE 2015 BONDS The 2015 Bonds will be dated the date of delivery and will bear interest from that date or from the most recent interest payment date to which interest has been paid or provided for until maturity or prior redemption. The 2015 Bonds will mature in the amounts and on the dates, and bear interest at the rates, set forth on the inside front cover hereof. Interest on the 2015 Bonds will be payable semiannually on each June 1 and December 1, commencing December 1, 2015 (each such date being referred to herein as an Interest Payment Date ). The 2015 Bonds will be delivered in the form of fully registered securities without coupons in the name of Cede & Co., as registered owner and nominee for DTC. U.S. Bank National Association, as trustee, registrar and paying agent (the Trustee ) will treat the registered owner as the absolute owner of the 2015 Bonds for all purposes, including making payments and sending notices. 5

12 Redemption Provisions The 2015 Bonds maturing on or before June 1, 2025 are not subject to redemption prior to their stated maturities. The 2015 Bonds maturing on or after June 1, 2026 are subject to redemption at the option of the Board on June 1, 2025 and on any date thereafter, in whole or in part, in $5,000 increments, from such maturities as may be selected by the Board and by lot within a maturity, at a redemption price equal to the principal amount thereof plus interest accrued to the date of redemption, without premium. Notice of and Procedure for Redemption For purposes of any redemption of less than all 2015 Bonds of a single maturity, the particular 2015 Bonds to be redeemed will be selected randomly by the Trustee by the method used by DTC. Notice of any redemption, identifying the redemption date, the redemption price, and the particular 2015 Bonds, or portions thereof, to be redeemed will be sent by electronic media not less than 30 nor more than 60 days prior to the date fixed for redemption to DTC. Any notice of redemption given as described in the preceding paragraph will also contain a statement that on the redemption date, the redemption price of such 2015 Bonds called for redemption will become due and payable and that, from and after such date, the 2015 Bonds being redeemed will cease to accrue interest; provided, that such redemption notice will also state that the call for redemption is conditioned upon the deposit with the Trustee of an amount sufficient to pay the principal of and premium (if any) due on the 2015 Bonds on the redemption date. Failure to mail any such notice to a particular owner, or any defect therein, will not affect the validity of any proceedings for redemption of any other 2015 Bond for which notice was properly given. Such notice having been given and funds for such redemption having been timely deposited with the Trustee, the 2015 Bonds so called for redemption will, on the redemption date, become due and payable, and interest thereon will cease to accrue. In addition to the items required above, each notice of redemption may further state that such redemption shall be conditioned upon the receipt by the Trustee on or prior to the date fixed for such redemption of moneys sufficient to pay the principal of and interest on such 2015 Bonds to be redeemed and that if such moneys shall not have been so received said notice shall be of no force and effect and such 2015 Bonds shall not be required to be redeemed. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption shall not be made and the Trustee shall within a reasonable time thereafter give notice, one time, in the same manner in which the notice of redemption was given, that such moneys were not so received. Bond Insurance Policy BOND INSURANCE Concurrently with the issuance of the 2015 Bonds, Build America Mutual Assurance Company ( BAM or the Bond Insurer ) will issue its Municipal Bond Insurance Policy for the 2015 Bonds (the Policy ). The Policy guarantees the scheduled payment of principal of and interest on the 2015 Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Build America Mutual Assurance Company BAM is a New York domiciled mutual insurance corporation. BAM provides credit enhancement products solely to issuers in the U.S. public finance markets. BAM will only insure obligations of states, political subdivisions, integral parts of states or political subdivisions or entities otherwise eligible for the exclusion of 6

13 income under section 115 of the U.S. Internal Revenue Code of 1986, as amended. No member of BAM is liable for the obligations of BAM. The address of the principal executive offices of BAM is: 200 Liberty Street, 27 th Floor, New York, New York 10281, its telephone number is: , and its website is located at: BAM is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York and in particular Articles 41 and 69 of the New York Insurance Law. BAM s financial strength is rated AA/Stable by Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ). An explanation of the significance of the rating and current reports may be obtained from S&P at The rating of BAM should be evaluated independently. The rating reflects the S&P s current assessment of the creditworthiness of BAM and its ability to pay claims on its policies of insurance. The above rating is not a recommendation to buy, sell or hold the 2015 Bonds, and such rating is subject to revision or withdrawal at any time by S&P, including withdrawal initiated at the request of BAM in its sole discretion. Any downward revision or withdrawal of the above rating may have an adverse effect on the market price of the 2015 Bonds. BAM only guarantees scheduled principal and scheduled interest payments payable by the issuer of the 2015 Bonds on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the Policy), and BAM does not guarantee the market price or liquidity of the 2015 Bonds, nor does it guarantee that the rating on the 2015 Bonds will not be revised or withdrawn. Capitalization of BAM BAM s total admitted assets, total liabilities, and total capital and surplus, as of December 31, 2014 and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $475.7 million, $26.9 million and $448.8 million, respectively. BAM is party to a first loss reinsurance treaty that provides first loss protection up to a maximum of 15% of the par amount outstanding for each policy issued by BAM, subject to certain limitations and restrictions. BAM s most recent Statutory Annual Statement, which has been filed with the New York State Insurance Department and posted on BAM s website at is incorporated herein by reference and may be obtained, without charge, upon request to BAM at its address provided above (Attention: Finance Department). Future financial statements will similarly be made available when published. BAM makes no representation regarding the 2015 Bonds or the advisability of investing in the 2015 Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading BOND INSURANCE. Additional Information Available from BAM Credit Insights Videos. For certain BAM-insured issues, BAM produces and posts a brief Credit Insights video that provides a discussion of the obligor and some of the key factors BAM s analysts and credit committee considered when approving the credit for insurance. The Credit Insights videos are easily accessible on BAM's website at buildamerica.com/creditinsights/. Obligor Disclosure Briefs. Subsequent to closing, BAM posts an Obligor Disclosure Brief on every issue insured by BAM, including the Bonds. BAM Obligor Disclosure Briefs provide information about the gross par insured by CUSIP, maturity and coupon; sector designation (e.g. general obligation, sales tax); a summary of financial information and key ratios; and demographic and economic data relevant to the obligor, if available. The Obligor Disclosure Briefs are also easily accessible on BAM's website at buildamerica.com/obligor/. 7

14 Disclaimers. The Obligor Disclosure Briefs and the Credit Insights videos and the information contained therein are not recommendations to purchase, hold or sell securities or to make any investment decisions. Creditrelated and other analyses and statements in the Obligor Disclosure Briefs and the Credit Insights videos are statements of opinion as of the date expressed, and BAM assumes no responsibility to update the content of such material. The Obligor Disclosure Briefs and Credit Insight videos are prepared by BAM and have not been reviewed or approved by the issuer of or the underwriter for the Bonds, and they assume no responsibility for their content. BAM receives compensation (an insurance premium) for the insurance that it is providing with respect to the 2015 Bonds. Neither BAM nor any affiliate of BAM has purchased, or committed to purchase, any of the 2015 Bonds, whether at the initial offering or otherwise. BOND INSURANCE RISK FACTORS In the event of default of the payment of principal or interest with respect to the 2015 Bonds when all or some becomes due, any owner of the 2015 Bonds shall have a claim under the Policy for such payments. However, in the event of any acceleration of the due date of such principal by reason of redemption the payments are to be made in such amounts and at such times as such payments would have been due had there not been any such acceleration. The Policy does not insure against redemption premium, if any. The payment of principal and interest in connection with redemption of the 2015 Bonds by the Board which is recovered by the Board from the bond owner as a voidable preference under applicable bankruptcy law is covered by the Policy, however, such payments will be made by the Bond Insurer at such time and in such amounts as would have been due absent such redemption by the Board unless the Bond Insurer chooses to pay such amounts at an earlier date. Under most circumstances, default of payment of principal and interest does not obligate acceleration of the obligations of the Bond Insurer without appropriate consent. The Bond Insurer may direct and must consent to any remedies and the Bond Insurer s consent may be required in connection with amendments to any applicable bond documents. In the event the Bond Insurer is unable to make payment of principal and interest as such payments become due under the Policy, the 2015 Bonds are payable solely from the moneys received pursuant to the applicable bond documents. In the event the Bond Insurer becomes obligated to make payments with respect to the 2015 Bonds, no assurance is given that such event will not adversely affect the market price of the 2015 Bonds or the marketability (liquidity) for the 2015 Bonds. The long-term ratings on the 2015 Bonds are dependent in part on the financial strength of the Bond Insurer and its claims paying ability. The Bond Insurer s financial strength and claims paying ability are predicated upon a number of factors which could change over time. No assurance is given that the long-term ratings of the Bond Insurer and of the ratings on the 2015 Bonds insured by the Bond Insurer will not be subject to downgrade and such event could adversely affect the market price of the 2015 Bonds or the marketability (liquidity) for the 2015 Bonds. See description of RATINGS herein. The obligations of the Bond Insurer are general obligations of the Bond Insurer and in an event of default by the Bond Insurer, the remedies available may be limited by applicable bankruptcy law or other similar laws related to insolvency. None of the Board, Bond Counsel, the Financial Advisor, the Underwriter or Underwriter s Counsel have made any independent investigation of the claims paying ability of the Bond Insurer, and no assurance or representation regarding the financial strength or projected financial strength of the Bond Insurer is given. Thus, when making an investment decision, potential investors should carefully consider the ability of the Board to pay principal and interest on the 2015 Bonds and the claims paying ability of the Bond Insurer, particularly over the life of the investment. See BOND INSURANCE herein for further information provided by the Bond Insurer regarding the Bond Insurer and the Policy, which includes further instructions for obtaining current financial information concerning the Bond Insurer. 8

15 SOURCES OF PAYMENT AND SECURITY Gross Revenue Pledge The Bonds now or hereafter Outstanding, including the 2015 Bonds, are payable from and secured solely by a pledge of and first lien on the Gross Revenues of the University. Gross Revenues, as defined in the Bond Resolution and used in this Official Statement, means and includes all: (i) tuition, registration, matriculation, laboratory, admission and other fees from students matriculated, registered or enrolled at and attending the University, and (ii) fees, rentals and other charges from students, faculty, staff members and others using or being served by, or having the right to use or the right to be served by, any revenue producing facility, building or project within the System of Building Facilities (as defined in the Bond Resolution), including interest received on and profits realized from the sale of investments made with moneys derived from any revenue producing facility, building or project within the System of Building Facilities. See Appendix C SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION herein. Gross Revenues do not include moneys appropriated by the State Legislature or endowment fund income or other restricted revenue sources. The table below reflects the Gross Revenues of the University for the five most recent fiscal years. SCHEDULE OF HISTORICAL GROSS REVENUES (Dollars in Thousands) Academic Year Summer Total Other Receipts From Other Total Fiscal Year Nonresident Tuition (a) Resident Tuition (a) School and Other Fees (b) Tuition And Fees Miscellaneous Income Major Revenue Sources (c) Gross Revenues 2010 $42,150 $72,011 $34,150 $148,311 $169 $49,717 $198, ,190 83,546 40, , , , ,845 83,286 44, , , , ,312 89,323 40, , , , ,683 87,075 48, , , ,469 (a) Tuition and registration fees revenue is shown on a cash basis net of waivers for certain students on scholarships, faculty and staff members enrolled in courses, and certain dependents of faculty and staff enrolled in courses. For a further discussion of tuition and registration fees revenue, see FINANCIAL CONDITION OF THE UNIVERSITY Tuition and Fees in Appendix A. (b) Consists of summer school registrations and other student-related fees and charges not included in the tuition and registration fees revenue. Other fees include fees for transcripts, graduation, late registration and other special fees. (c) For a further discussion of receipts from other major revenue sources, see FINANICAL CONDITION OF THE UNIVERSITY Receipts from Other Major Revenue Sources in Appendix A. Source: Northern Arizona University, Office of the Comptroller. Obligations Payable from Gross Revenues The Board has Outstanding Bonds secured by a first (or senior) lien on Gross Revenues and other obligations secured by a subordinate lien on Gross Revenues (the Subordinate Obligations ), as discussed below. 9

16 Senior Lien Bonds Pursuant to the laws of the State and the provisions of the Bond Resolution, the Board is authorized to issue system revenue bonds in addition to the 2015 Bonds which are payable solely from and secured solely by a pledge of and a first (or senior) lien on the Gross Revenues on a parity with the Outstanding Bonds (the Parity Bonds ). See Issuance of Additional Bonds herein. The Board, on behalf of the University, currently has Outstanding $326,755,000 principal amount of Bonds, prior to the issuance of the 2015 Bonds. After the issuance of the 2015 Bonds, the Board will have $324,575,000 principal amount of Outstanding Bonds as indicated in the following table: Original Principal Amount Outstanding Principal Amount System Revenue Bonds Dated 2004 Refunding Bonds $39,675, $ 5,870, Bonds 15,255, ,905, Refunding Bonds 42,260, ,825, Bonds 38,695, ,460, Bonds 43,130, ,990, Bonds 114,500, ,500, Bonds 23,955, ,945, Bonds and Refunding Bonds 67,260, ,260,000 Subtotal $326,755,000 Less: The Bonds to be Refunded (47,595,000) Plus: The 2015 Bonds 45,415,000 Total Principal Amount of Bonds to be Outstanding $324,575,000 Subordinate Obligations The Board, on behalf of the University, currently has outstanding $139,975,000 principal amount of Subordinate Obligations. Pursuant to State law and the provisions of a resolution adopted by the Board (the SPEED Bond Resolution ), the Board is authorized to issue additional Subordinate Obligations which are payable solely from and secured solely by a pledge of and a junior lien on Gross Revenues. See Issuance of Additional Bonds herein. The following table sets forth outstanding Subordinate Obligations of the University: Subordinate Obligations Original Principal Amount Dated Outstanding Principal Amount 2010 SPEED Bonds $64,785, $64,785, SPEED Bonds 75,190, ,190,000 Total Principal Amount of Subordinate Obligations Outstanding $139,975,000 10

17 The following table sets forth the University s annual debt service requirements on Bonds to be Outstanding after the issuance of the 2015 Bonds, and on outstanding Subordinate Obligations. Outstanding Bonds Debt Service Requirements (2) SCHEDULE OF DEBT SERVICE REQUIREMENTS (1) Bonds to be Refunded 2015 Bonds Total Bonds Debt Service Requirements Outstanding Subordinate Obligations Debt Service Requirements (5) Total Debt Service Requirements (6) Fiscal Year Direct Payments (3) Principal Interest (4) Direct Payments (3) 2015 $25,595,579 ($2,411,053) $1,182,895 $22,001,631 $ 7,401,138 ($1,350,589) $28,052, ,540,768 (2,411,053) 4,395,790 $2,346,442 21,080,367 10,746,138 (1,350,589) 30,475, ,525,943 (2,411,053) 2,273,090 2,270,750 23,112,550 12,293,440 (1,300,645) 34,105, ,526,949 (2,359,640) 2,273,090 2,270,750 23,164,969 12,234,142 (1,242,720) 34,156, ,484,312 (2,304,974) 3,263,090 $ 960,000 2,270,750 23,146,998 12,179,783 (1,180,435) 34,146, ,418,005 (2,247,432) 3,263,590 1,040,000 2,222,750 23,169,733 12,107,437 (1,112,834) 34,164, ,491,051 (2,186,268) 3,256,590 1,085,000 2,170,750 22,303,943 12,031,059 (1,042,264) 33,292, ,430,396 (2,121,184) 4,412,340 2,295,000 2,116,500 22,308,372 11,956,755 (965,157) 33,299, ,316,066 (2,051,864) 4,414,715 2,410,000 2,001,750 23,261,237 11,877,403 (881,034) 34,257, ,223,749 (1,978,179) 4,403,928 2,520,000 1,881,250 23,242,892 11,787,249 (791,380) 34,238, ,410,397 (1,899,792) 4,407,640 2,650,000 1,755,250 22,508,215 11,687,445 (696,686) 33,498, ,321,243 (1,807,919) 4,414,828 2,790,000 1,622,750 22,511,246 11,587,033 (596,617) 33,501, ,217,890 (1,712,128) 4,411,540 2,925,000 1,483,250 22,502,472 11,478,945 (487,124) 33,494, ,116,861 (1,612,302) 2,845,428 1,505,000 1,337,000 22,501,131 11,361,341 (372,900) 33,489, ,015,160 (1,508,096) 4,494,678 3,230,000 1,261,750 22,504,136 11,250,205 (253,831) 33,500, ,910,374 (1,399,509) 5,018,565 3,915,000 1,100,250 22,507,550 11,126,672 (129,569) 33,504, ,796,613 (1,286,311) 3,209,925 2,305, ,500 22,509,877 5,140,075 27,649, ,720,851 (1,166,480) 3,456,750 2,665, ,250 22,551,871 5,139,075 27,690, ,588,556 (1,041,383) 3,451,313 2,795, ,000 22,546,860 5,141,825 27,688, ,460,255 (910,903) 3,454,775 2,935, ,250 22,545,827 4,491,575 27,037, ,478,881 (774,806) 3,171,400 2,800, ,500 17,702,175 4,490,575 22,192, ,310,830 (632,741) 2,469,500 2,240, ,500 17,678,089 4,487,575 22,165, ,169,043 (484,590) 2,467,500 2,350, ,500 17,684,453 4,487,325 22,171, ,543,283 (329,886) 15,213,397 4,489,325 19,702, ,680,630 (168,395) 12,512,235 4,488,075 17,000, ,007,000 5,007,000 4,489,975 9,496, ,119,250 4,119,250 4,489,488 8,608, ,645,250 2,645,250 4,491,213 7,136, ,646,000 2,646,000 4,489,725 7,135, ,646,000 2,646,000 2,646,000 (1) Figures may not total due to rounding. (2) Consists of $326,755,000 Outstanding principal amount of Bonds. (3) Direct Payments represent subsidy payments expected to be received by the University from the federal government with respect to its Build America Bonds. Such amounts are not pledged towards the repayment of any Parity Bonds and Subordinate Obligations, however, the University currently intends to expend the Direct Payments on debt service payments on such obligations. In addition, the amount of Direct Payments are subject to any reductions in such amounts made by the federal government. For fiscal year , Direct Payments expected to be received by the University will be reduced by 7.3% due to sequestration reductions imposed by the federal government. Direct Payments received by the University for fiscal year were reduced by 7.2%. Such reductions in Direct Payments to issuers of Build America Bonds are expected to continue. (4) The first Interest Payment Date on the 2015 Bonds will be December 1, (5) Consists of $139,975,000 outstanding principal amount of Subordinate Obligations. (6) The Gross Revenues of the University for fiscal year 2014 are times greater than the highest aggregate annual debt service on the Bonds to be Outstanding after the issuance of the 2015 Bonds, and 7.50 times greater than the highest aggregate annual debt service on the Bonds and Subordinate Obligations, in each case not taking into consideration the payments expected to be received from the United States Treasury. See footnote (3). 11

18 Rate Covenant Bond Resolution Covenant. The Board has covenanted in the Bond Resolution to fix, revise and collect tuition, registration, matriculation, laboratory, and admission fees, and all other fees, admissions, rentals and other charges received from students, faculty, staff members and others using or being served by the System of Building Facilities, in an aggregate amount so that Gross Revenues for each year will be equal to at least 200% of the Maximum Annual Debt Service Requirement due in any fiscal year on the Bonds, including the 2015 Bonds, and sufficient at all times to continually operate and maintain the System of Building Facilities and to make the necessary debt service deposits at the times and in the amounts specified in the Bond Resolution, if any. Gross Revenues for fiscal year 2014 are 1,111% of the Maximum Annual Debt Service Requirement on all Bonds to be outstanding after the issuance of the 2015 Bonds. See SCHEDULE OF DEBT SERVICE REQUIREMENTS. SPEED Bond Resolution Covenant. The Board has further covenanted in the SPEED Bond Resolution to fix and revise from time to time, and collect, tuition, registration, matriculation, health services, laboratory and admission fees from students matriculated, registered or enrolled at and attending the University, and all fees, admissions, rentals, and other charges received from students, faculty, staff members and others using or being served by the System of Building Facilities, in aggregate amounts such that the Gross Revenues of the University for each fiscal year will be (i) at least equal to 100% of the annual debt service due on all Bonds and any Subordinate Obligations in such fiscal year and (ii) sufficient at all times to operate and maintain the System of Building Facilities. Issuance of Additional Bonds Bond Resolution Requirement. In accordance with the Bond Resolution, the Board may issue additional Parity Bonds payable from and secured by the Gross Revenues of the University, if Gross Revenues received for the fiscal year preceding the issuance of such Parity Bonds, as shown by a certificate of the University, are at least equal to 200% of the Maximum Annual Debt Service Requirement on all outstanding Bonds and the proposed Parity Bonds. SPEED Bond Resolution Requirement. Pursuant to the SPEED Bond Resolution, the Board may issue additional Parity Bonds if: (i) no default exists and all deposits and obligations pursuant to the Bond Resolution and SPEED Bond Resolution are current, (ii) the aggregate Gross Revenues of the University for the prior fiscal year were at least equal to 200% of the Maximum Annual Debt Service on all Bonds Outstanding, including the proposed Parity Bonds to be issued, and (iii) the aggregate Gross Revenues of the University for the prior fiscal year were at least 150% of the Maximum Annual Debt Service on all Bonds Outstanding and Subordinate Obligations outstanding, including the proposed Parity Bonds to be issued. Compliance with the requirements of the Bond Resolution and the SPEED Bond Resolution will be demonstrated by the University at the time of issuance of the 2015 Bonds using Gross Revenues information for fiscal year In addition, pursuant to State law, the Board has the power to issue bonds to acquire any project or projects, provided that: (i) as of the date of issuance of bonds for any of the State s universities, projected debt service on the bonds and certificates of participation then outstanding and proposed to be issued by or for the benefit of such State university, as shown in each fiscal year in the most recent capital improvement plan for such university, as reported to the Board and certified by the Board as such in its adopted capital improvement plan, may not exceed, in any fiscal year shown therein, more than eight percent (8%) of such university s total projected expenditures and mandatory transfers and (ii) the project to be acquired with the proceeds of the bonds is reviewed by the State Legislature s Joint Committee on Capital Review. No Acceleration of Bonds Under no circumstances is the payment of principal of and interest on the Bonds, including the 2015 Bonds, subject to acceleration upon the occurrence of an Event of Default under the Bond Resolution. 12

19 FUTURE BORROWINGS The Board, on behalf of the University, currently has no plans to issue any additional Parity Bonds or Subordinate Obligations for new money purposes through the end of calendar year LITIGATION The Senior Vice President for Academic, Legal and External Affairs of the Board will render an opinion concurrently with delivery of the 2015 Bonds to the effect that there are no lawsuits pending or, to the best of such counsel s knowledge, threatened against the Board which question its right to adopt or comply with the provisions of the Bond Resolution or the validity or enforceability thereof or to consummate the transactions described therein or herein; nor are there lawsuits pending or, to the best of such counsel s knowledge, threatened against the Board which, if decided adversely to the Board, would, individually or in the aggregate, impair the Board s ability to comply with all the requirements set forth in the Bond Resolution or have a material adverse effect upon the financial condition of the Board or the University. TAX MATTERS The Internal Revenue Code of 1986, as amended (the Code ), contains a number of restrictions and requirements that apply to the 2015 Bonds including, without limitation, (i) investment restrictions, (ii) requirements for periodic payments of arbitrage profits to the United States, and (iii) rules regarding the proper use of the proceeds of the 2015 Bonds and the facilities financed with such proceeds. The Board has covenanted to comply with all of the restrictions and requirements of the Code that must be satisfied in order for the interest on the 2015 Bonds to be and remain excluded from the gross income of the owners thereof for Federal income tax purposes (the Tax Covenants ). In the opinion of Ballard Spahr LLP, Phoenix, Arizona, Bond Counsel, interest on the 2015 Bonds is excludable from gross income for purposes of Federal income tax under existing laws as enacted and construed on the date of initial delivery of the 2015 Bonds, assuming the accuracy of the certifications of the Board and continuing compliance by the Board with the Tax Covenants. Interest on the 2015 Bonds is not an item of tax preference for either the individual or corporate Federal alternative minimum tax purposes; however, interest on the 2015 Bonds held by certain corporations (other than an S corporation, regulated investment company, or real estate investment trust) may be indirectly subject to Federal alternative minimum tax because of its inclusion in the adjusted current earnings of a corporate holder. Interest on the 2015 Bonds is exempt from State of Arizona income tax. Bond Counsel will express no opinion regarding other tax consequences of ownership, disposition of, or the accrual or receipt of interest on the 2015 Bonds. In rendering its opinion, Bond Counsel will rely on, and will assume the accuracy of, certain representations and certifications, and compliance by the Board with certain covenants, including the Tax Covenants. Bond Counsel will not independently verify the accuracy of the Board s representations and certifications. In addition, Bond Counsel has not been engaged, and will not undertake, to monitor compliance with the Tax Covenants or to inform any person as to whether the Tax Covenants are being complied with; nor has Bond Counsel undertaken to determine or to inform any person whether any actions taken or not taken, or events occurring or not occurring, after the date of issuance of the 2015 Bonds may affect the Federal tax status of the interest on the 2015 Bonds. Failure to comply with certain of the Tax Covenants could result in the inclusion of the interest on the 2015 Bonds in the gross income of the owners for Federal income tax purposes, retroactive to the date of issuance of the 2015 Bonds. Certain requirements and procedures contained or referred to in the Bond Resolution and certain other documents executed in connection with the issuance of the 2015 Bonds may be changed and certain actions (including, without limitation, defeasance of the 2015 Bonds) may be taken or omitted in the future if a legal opinion is rendered at the time to the effect that such action will not cause the interest on the 2015 Bonds to be included in the gross income of the owners for Federal income tax purposes. The opinion of Bond Counsel rendered in connection with the initial issuance of the 2015 Bonds will not address any such actions. 13

20 Original Issue Premium The 2015 Bonds being offered at a premium ( original issue premium ) equal generally to the excess of their public offering price over their principal amount are referred to herein as the Premium Bonds. For Federal income tax purposes, original issue premium is amortizable periodically over the term of a Premium Bond through reductions in the holder s tax basis for such 2015 Bond for determining taxable gain or loss from sale or from redemption prior to maturity. Amortization of premium does not create a deductible expense or loss. Holders should consult their tax advisers for an explanation of the amortization rules. Backup Withholding A person making payments of tax-exempt interest to a holder of the 2015 Bonds is generally required to report the payments to the Internal Revenue Service ( IRS ) and to implement backup withholding if a holder of the 2015 Bonds does not provide an IRS Form W-9 to the payor. Backup withholding requires the payor to withhold tax from the interest payments at the backup withholding rate, currently 28%. Form W-9 states the holder s taxpayer identification number or basis of exemption from backup withholding. If a holder purchasing 2015 Bonds through a brokerage account has executed a Form W-9 in connection with the account, as generally can be expected, there should be no backup withholding from the interest on the 2015 Bonds. If backup withholding occurs, it does not affect the exclusion of the interest on the 2015 Bonds from gross income for Federal income tax purposes. Any amounts withheld pursuant to backup withholding would be allowed as a refund or a credit against the holder s Federal income tax liability once the required information is furnished to the Internal Revenue Service. Changes in Federal and State Tax Law From time to time, there are Presidential proposals, proposals of various Federal committees, and legislative proposals in the Congress and in the states that, if enacted, could alter or amend the Federal and state tax matters referred to herein or adversely affect the marketability or market value of the 2015 Bonds or otherwise prevent holders of the 2015 Bonds from realizing the full benefit of the tax exemption of interest on the 2015 Bonds. Further, such proposals may impact the marketability or market value of the 2015 Bonds simply by being proposed. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to bonds issued prior to enactment. In addition, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if implemented or concluded in a particular manner, could adversely affect the market value, marketability or tax status of the 2015 Bonds. It cannot be predicted whether any such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the 2015 Bonds would be impacted thereby. Purchasers of the 2015 Bonds should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The disclosures and opinions expressed herein are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of issuance and delivery of the 2015 Bonds, and no opinion is expressed as of any date subsequent thereto or with respect to any proposed or pending legislation, regulatory initiatives or litigation. The foregoing is only a general summary of certain provisions of the Code as enacted and in effect on the date hereof and does not purport to be complete; holders of the 2015 Bonds should consult their own tax advisors as to the effects, if any, of the Code in their particular circumstances. See Appendix D hereto for the proposed Form of Approving Opinion of Bond Counsel. 14

21 FINANCIAL ADVISOR RBC Capital Markets, LLC is employed as the Financial Advisor to the Board in connection with the issuance of the 2015 Bonds. The fees for the Financial Advisor are contingent upon the issuance, sale and delivery of the 2015 Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification and does not guarantee the accuracy, completeness, or fairness of the information in this Official Statement. The Financial Advisor may also receive a fee for conducting a competitive bidding process regarding the investment of certain proceeds of the 2015 Bonds. APPROVAL OF LEGAL MATTERS Certain legal matters incident to the issuance of the 2015 Bonds are subject to the approving opinion of Ballard Spahr LLP, Bond Counsel. The proposed form of the opinion of Bond Counsel is set forth in Appendix D. Fees of Bond Counsel will be paid from 2015 Bond proceeds only upon issuance of the 2015 Bonds. Certain legal matters will be passed upon for the Board by the Senior Vice President for Academic, Legal and External Affairs of the Board and for the University by its General Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Greenberg Traurig, LLP. UNDERWRITING The Underwriter has agreed, subject to certain conditions, to purchase the 2015 Bonds from the Board at a price of $53,014, (representing the par amount of the 2015 Bonds less Underwriter s discount of $100, and plus amortizable premium of $7,700,402.95). The public offering prices may be changed from time to time by the Underwriter. The Underwriter may subsequently offer and sell the 2015 Bonds to dealers (including dealers depositing the 2015 Bonds into investment trusts) and others at prices lower than such initial public offering prices. The Underwriter will be obligated to purchase all of the 2015 Bonds if any are purchased. INDEPENDENT AUDITORS The audited financial statements of the University as of June 30, 2014 and for the fiscal year then ended have been audited by the State Office of the Auditor General (the Auditor General ), independent auditors, as indicated in their report thereto, and are included in Appendix B to this Official Statement. The University has advised the Auditor General of the inclusion of such audited financial statements, together with the Auditor General s report thereon, in this Official Statement but has not requested or received the consent of the Auditor General to do so since such request and consent would have required the Auditor General to review all of the information contained herein. The Auditor General has not reviewed this Official Statement, or performed any further procedures with respect to the University s audited financial statements for the fiscal year ended June 30, RATINGS S&P has assigned the rating AA to the 2015 Bonds with the understanding that upon delivery of the 2015 Bonds, the Policy will be issued by the Bond Insurer. In addition, Moody s Investors Service, Inc. ( Moody s ) and S&P have assigned underlying ratings of A1 and A+ respectively, to the 2015 Bonds. Such ratings reflect only the view of Moody s and S&P, respectively. An explanation of the significance of such ratings may be obtained from Moody s at 250 Greenwich Street at 7 World Trade Center, New York, New York and S&P at 55 Water Street, New York, New York The ratings are not a recommendation to buy, sell or hold the 2015 Bonds and there is no assurance that such ratings will continue for any given period of 15

22 time or that either will not be revised downward or withdrawn entirely by Moody s or S&P if, in their judgment, circumstances so warrant. The Board expects to furnish the rating agencies with information and materials that they may request. The Board, however, assumes no obligation to furnish requested information materials, and may issue debt for which a rating is not requested. Failure to furnish requested information and materials, or the issuance of debt for which a rating is not requested, may result in the suspension or withdrawal of a rating on the 2015 Bonds. Any downward revision or withdrawal of a rating may have an adverse effect on the market price or the marketability of the 2015 Bonds. CONTINUING DISCLOSURE UNDERTAKING The Board has undertaken for the benefit of the Owners of the 2015 Bonds from time to time to provide certain financial information and operating data relating to the University in accordance with a continuing disclosure undertaking, the form of which is set forth in Appendix E hereto (the 2015 Undertaking ). The Board, on behalf of the University, previously entered into continuing disclosure undertakings (the Prior Undertakings ) with respect to obligations of the Board on behalf of the University which require the filing on or before February 1 of each year of certain financial information and operating data relating to the University similar to that required by the 2015 Undertaking (together, the Annual Information ), and notices of the occurrence of certain listed events. Due to oversight, the University did not file all of the Annual Information required by the Prior Undertakings for 2010 and To address this issue, the University filed on January 22, 2013, through the Electronic Municipal Market Access system, the Annual Information required pursuant to all of the Prior Undertakings for each of these years. The University filed the Annual Information for each of the years from 2012 through 2014 required to be filed on or before February 1, 2013, 2014 and 2015, respectively, on or prior to such dates. Other than as noted above, to the best of the University s knowledge and belief, it has complied with all of its obligations and requirements under its Prior Undertakings for the previous five years. The University has reviewed its filing requirements pursuant to the Prior Undertakings and implemented written procedures to address future compliance. The University believes its procedures for compliance with its continuing disclosure obligations are reasonably adequate to mitigate the likelihood of future non-timely filings. ADDITIONAL INFORMATION The summaries of the 2015 Bonds, the Bond Resolution, opinions, contracts, agreements, and other related documents described in this Official Statement are only brief descriptions of certain provisions thereof and do not constitute complete statements of such documents or provisions. Reference is hereby made to the complete documents for further information, copies of which are available as set forth under INTRODUCTION herein. Any statements made in this Official Statement involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of such opinions or estimates will be realized. The attached Appendices are integral parts of this Official Statement and must be read together with all of the foregoing. The Board and the University have approved and authorized the distribution of this Official Statement. By /s/ Robert G. Norton Associate Vice President, Financial Services and Comptroller 16

23 General Description PROGRAMMATIC, DEMOGRAPHIC AND FINANCIAL DATA APPENDIX A The University is a fully-accredited, four-year degree-granting institution of higher learning (Carnegie Classification: Doctoral, Public, High Research), supported by the State and governed by the Board. The University s 2014 fall semester total headcount was estimated at 27,715 students (including full-time and part-time undergraduate and graduate students). The University emphasizes undergraduate education while offering graduate programs leading to master s and doctorate degrees in selected fields. For almost 100 years, the University s philosophy has been to preserve a friendly campus atmosphere and to maintain close student-faculty relationships through quality teaching in the classroom and through faculty guidance for each individual student. The University s Mission Statement embodies a number of themes and goals which provide guidance for University programs. These include goals to be a learning-centered university with a deep commitment to student success and high expectations for student achievement; provide responsive educational programs to State citizens wherever they live and work; further the environmental, economic, social, and cultural vitality of our communities through collaborative stewardship of place; advance the internationalization of the University to prepare students for global citizenship; create a culture of inclusion that contributes to a rich learning experience and helps prepare students for engaged social responsiveness in a global environment; become the nation s leading university serving Native Americans; and to exemplify an innovative, effective, and accountable learning community. The University s main campus is located on a 730-acre site in Flagstaff, Arizona ( Flagstaff ). Flagstaff is a four-season city, with an estimated 2014 population of 69,391, located on the Colorado Plateau at an altitude of 7,000 feet. Flagstaff is the county seat of Coconino County, Arizona and serves as the population and economic center of the northern part of the State. Immediately north of the campus are the 12,600 foot high San Francisco Peaks, which feature a winter sports center. The University is at the junction of Interstate Highways 40 and 17, less than a three-hour drive from Phoenix, Arizona and approximately five hours from Tucson, Arizona; Albuquerque, New Mexico; and Las Vegas, Nevada. The University also has a distance learning mission to provide educational services and higher education courses leading to degrees and certificates for residents throughout the State, the region and the nation. Courses are taught in traditional classrooms by full-time and part-time faculty, and increasingly online. Thirty-seven sites have been established around the State to serve this mission with about one-third of the total student body receiving instruction off-campus. Among the largest of these are North Valley and Paradise Valley, both in the Phoenix, Arizona metropolitan area; and Northern Arizona University Yuma in cooperation with Arizona Western College. Instruction, through offering complete degree and certificate programs in response to community needs, is the major component of Extended Campuses activity. In turn, public service to local school districts, public and private employers and other local constituencies is a function of the academic programs and services offered locally. Extended Campuses programs function through a collaboration of a broad spectrum of campus-based academic and service units, to provide quality instruction and associated support services in support of degree programs for individuals unable to pursue their higher education on a traditional campus. History The University was established in 1899 as Northern Arizona Normal School, with 33 students and a single building. In 1925, the State Legislature changed the institution s status from a normal school to a four-year, degreeconferring college, granting the Bachelor of Education. The same year, the name of the school was changed to Northern Arizona State Teachers College. In 1929, the name was changed to Arizona State Teachers College at Flagstaff. The name was changed again in 1945 to Arizona State College at Flagstaff when majors leading to the Bachelor of Arts and the Bachelor of Science degrees were added. Effective May 1, 1966, the institution was designated a university by the State Legislature and was given its present name. A-1

24 Graduate work at the University began in 1937, with a program leading to the Master of Arts in Education degree. In 1954, the Board authorized the granting of the Educational Specialist degree and in 1955, the Master of Arts and Master of Science degrees. Approval for programs leading to the Doctor of Philosophy and the Doctor of Education degrees was given in In 1973, the first doctoral students were graduated. Organization and Administration The University is governed by the Board. The general administrative powers of the Board include the enactment of ordinances for the governance of the institutions under its control, the setting of tuitions and fees, the appointment and employment of University administrative officers and faculty members, and the establishment of curricula. The administrative officers of the University are responsible for its operation and maintenance in accordance with the rules and policies established by the Board. The following table lists the names of the principal administrators of the University followed by brief resumes. Name Dr. Rita Hartung Cheng Mr. Jennus L. Burton Mr. Robert G. Norton Dr. Mason S. Gerety Dr. Laura Huenneke * Dr. William Grabe Position President Vice President for Finance and Administration Associate Vice President, Financial Services and Comptroller Senior Vice President of University Advancement Provost and Vice President for Academic Affairs Vice President for Research Dr. Rita Hartung Cheng became the 16th President of Northern Arizona University on August 15, President Cheng was previously Chancellor of Southern Illinois University ( SIU ) Carbondale and served as Provost and Vice Chancellor for Academic Affairs at the University of Wisconsin-Milwaukee. In taking the President s position, Dr. Cheng spoke of the importance of the University s mission of providing the next generation with the skills necessary to succeed in the world s changing economy and building the University s position as an institution of innovation and impactful research. During her tenure as Chancellor of SIU, Dr. Cheng led a transformation of the campus, enhancing recruitment and admission of new students, increasing student success, developing innovative programs to enhance the teaching, learning and research environment, expanding technology, improving community engagement, and enhancing regional economic development initiatives. The 2013 freshman class at SIU was the largest in 20 years and double digit percentage increases were attained in undergraduate international enrollment. Dr. Cheng also holds an appointment as Professor of Accounting in the W. A. Franke College of Business at the University. A certified public accountant and certified government financial manager (inactive status), Dr. Cheng is internationally recognized for her research in governmental and nonprofit accounting. She earned her Ph.D. in management from the Fox School of Business and Management at Temple University, her Master s of Business Administration from the University of Rhode Island and Bachelor of Business Administration degree with honors from Bishop s University in Quebec, Canada. Mr. Jennus L. Burton was appointed Vice President for Finance and Administration of the University in Prior to the University, Mr. Burton served as vice president for finance and administration for Arkansas State University. He held the position of Vice President for System Operations for the Arkansas State University System from December 2007 until June 2010, and prior to that was the Vice President for Finance and Administration for * Dr. Huenneke has announced that she will return as a full-time member of faculty effective July 1, A national search is underway for her replacement A-2

25 Arkansas State University from October 1997 until December A graduate of Arizona State University, Mr. Burton received his Bachelor s degree in accounting and a Master s of Business Administration in Management. Mr. Robert G. Norton was appointed Comptroller of the University in His current position is Associate Vice President, Financial Services and Comptroller. Prior to joining the University, Mr. Norton served as Comptroller for Trinity University, San Antonio, Texas. He earned his Masters degree in Business Administration in 1997 from Grand Canyon University in Phoenix, Arizona, and is licensed in the State as a certified public accountant. He is a member of the American Institute for Certified Public Accountants and the Arizona Society for Certified Public Accountants, and is registered with the Arizona State Board of Accountancy. Dr. Laura F. Huenneke was appointed Provost and Vice President for Academic Affairs of the University in She originally came to the University in 2003 as the Dean of Engineering, Forestry and Natural Sciences before stepping into the position of Vice President for Research at the University. Before coming to the University, Dr. Huenneke spent 16 years on the faculty at New Mexico State University in Las Cruces, New Mexico, where she became Regents Professor and served five years as department chair in Biology. She is currently Lead Investigator for the Partnership for Native American Cancer Prevention, a multi-million-dollar NIH investment to build the University s research and training capacity. Dr. Mason Gerety was appointed as Vice President of University Advancement and President of the Northern Arizona University Foundation in He also serves as CEO of Northern Arizona Real Estate Holdings, LLC and NAU Ventures, LLC. Previously, Dr. Gerety served as Dean of the W.A. Franke College of Business ( ) at the University. From 1993 to 2001, he served as a member of the faculty at The W.A. Franke College of Business, as Director of the MBA program, and as Associate Dean of Graduate Programs. Prior to coming to the University he taught at Clemson University and the University of Maryland. His academic qualifications include Doctor and Master of Arts of Economics from the University of Washington, and Bachelor of Arts in Economics from the University of New Mexico. Dr. William Grabe was appointed as Vice President for Research of the University in Previously, Dr. Grabe served in various administrative capacities at the University, including: Interim Vice-Provost for Research, Executive Director of the Academic Chair s Council, and Department Chair. He is Regents Professor of Applied Linguistics and has been at the University since He was a co-founder of the PhD program in Applied Linguistics in 1989, the first such program in the State. His academic qualifications include a PhD and Masters of Arts in Linguistics from the University of Southern California and a Bachelors of Arts in History and in Political Sciences from Valparaiso University. Faculty and Staff The full-time faculty of the University was comprised of approximately 1,055 persons as of fall semester An additional 1,179 persons were employed by the University in the areas of adjunct faculty, teaching associates, post-doctoral scholars and other related positions. More than 1,892 persons were employed on a fulltime basis at that time in a variety of staff and administrative positions (including administrative faculty), while regular-status part-time staff employment was comprised of approximately 166 persons. The University s total payroll for fiscal year 2014 was approximately $293.7 million. The Campuses Main Campus in Flagstaff. The University s emphasis throughout its history has been the development of the humanistic traditions in the setting of a mid-size university. In keeping with this tradition, the University s administration has chosen a pattern of growth that will permit the accommodation of additional students and at the same time provide for the preservation of the identity and individuality of each student. The University campus consists of approximately 730 acres, with more than 100 major structures enclosing approximately six million five hundred thousand gross square feet. Approximately 807,000 square feet of campus facilities (not including residence halls) have been added since 2000 with an additional 283,000 square feet planned over the next five years. In an effort to accommodate a multitude of student needs, the University continued to upgrade its recreational, residential and academic facilities in the decade of the 1990 s. A comprehensive master plan was adopted in 1990 to guide physical facility A-3

26 development. The plan, which was generated through a cooperative effort among many University departments and organizations, focuses on the idea that the institution should be functional yet sensitive to a human scale philosophy. The idea of a pedestrian campus is being implemented through elimination of some roads and construction of pedestrian walkways and bicycle paths. Additionally, surface parking is being pushed to the outer boundaries of campus while parking structures remain more central. The master plan continues to be updated on a regular basis, with the latest update in Some of the more striking structures on campus include a 12,000 seat indoor athletic stadium, a recreational facility, a 200,000 square foot state-of-the-art library, a 100,000 square foot College of Business Administration, a 91,000 square foot laboratory building, a 60,000 square foot Applied Research and Development building which was designed to achieve, and did achieve, a platinum LEED rating, and the 257,000 square foot Health and Learning Center constructed in Northern Arizona University-Yuma Campus. Northern Arizona University-Yuma ( NAU-Yuma ) is located on the campus of Arizona Western College ( AWC ) in Yuma, Arizona. NAU-Yuma and AWC share facilities on the AWC campus and work together to expand higher education opportunities in the southwestern portion of the State. AWC offers lower division coursework while NAU-Yuma offers upper division coursework and graduate programs. Classes are currently offered by NAU-Yuma to complete degrees in fields such as education, business, criminal justice, psychology, sociology and Spanish. Northern Arizona University-Yavapai Campus. Located in Prescott Valley, Arizona, Northern Arizona University-Yavapai is the newest and the most innovative addition to the University s educational portfolio. The four-year degree campus that opened its doors in fall 2009 as a result of partnership among the University, Yavapai College, and Prescott Valley, Arizona will offer baccalaureate degrees that are relevant to the community within a very structured curriculum, delivered in 5- to 10-week formats in a combination of in-person and online instruction. Currently, the leased facility houses five classrooms, a computer commons, seminar room, administrative offices and a student advising and registration area. Phoenix BioMedical Campus. The University began a partnership relationship with the University of Arizona in downtown Phoenix. This partnership involves shared uses of spaces; however, the University has 13,620 square feet of dedicated space within which it teaches Physician Assistants, Physical Therapists and Occupational Therapy students. This is an expansion of the Flagstaff allied health programs. Cline Library and Collections Cline Library. As the information center for the University, the Cline Library provides Internet access to more than 175 academic databases and 60,000 journals and also houses books, journals, maps, newspapers, pamphlets, college catalogues, microforms, bound periodicals, telephone books, videos, music, and government publications. The collection of the Cline Library comprises almost 1.5 million volumes, approximately 370,000 microform units and more than 6,800 periodical and serial subscriptions. Computer access to productivity software which supports information management plus the ability to borrow research materials from other libraries enhances the University s local resources. The Cline Library is a depository for United States Government materials and State publications. In addition to the general collections for research, information, teaching, and recreation, Cline Library has several collections of special interest including the Forestry Collection and the Media Center. Special Collections and Archive Department. The mission of Special Collections, located in the Cline Library, is to collect, preserve, and make available archival material that documents the history and development of the Colorado Plateau, with an emphasis on the northern part of the State. Interdisciplinary in nature, the collections consist of 7 million manuscripts, 750,000 photographs, 950 oral histories, 35,000 books, and 2,000 maps. Over 100,000 of these materials are available online, which are accessed nearly 6,000,000 times per year. The department also serves as the home for the University Archives and the holdings of the Arizona Historical Society/Pioneer Museum. The materials found in Special Collections provide primary and secondary information for both the general reader and serious researchers. Topics covered range from environmental issues to Native American culture to A-4

27 regional politics. Collections of note include: Bruce Babbitt s presidential campaign papers; the exploration and history of the Grand Canyon contained in the notes and images of Emery Kolb, Bill Belknap, Lois Jotter Cutter, P.T. Reilly, Eddie McKee, Georgie Clark, and Harvey Butchart; records from organizations such as the Arizona Lumber and Timber Company, Saginaw and Manistee, and Inland Forest Research; and perspectives on cultural interaction in materials from A.F. Whiting, Jo Mora, Leo Crane and the Navajo trade relationships project. An Internet imaging database ( allows worldwide access to a sampling of these collections. Accreditation and Affiliations The University is accredited by the North Central Association of Colleges and Schools. Professional programs in the University s various colleges, schools, divisions and departments are accredited by the appropriate national bodies. The University is affiliated with the American Council on Education, American Association of Colleges for Teacher Education, American Association of State Colleges and Universities, and many other national and international associations. A list of all affiliations and accreditations can be found at Degrees and Academic Organizations The University supports 91 programs leading to a bachelor s degree, 49 programs leading to a master s degree and 11 programs leading to a doctoral degree. The University is organized into eight colleges and the Extended Campuses Unit. 1) College of Arts and Letters 6) College of Health and Human Services 2) W.A. Franke College of Business 7) Extended Campuses 3) College of Education 8) Graduate College 4) College of Engineering, Forestry and Natural Sciences 9) University College 5) College of Social and Behavioral Sciences Education programs in each of the colleges are described below. College of Arts and Letters The College of Arts and Letters consists of academic disciplines that serve as the basis for other fields of study as well as those that focus on artistic performance. The Schools of Art and Music, along with the departments of English, History, Comparative Cultural Studies, Global Languages and Culture, Philosophy and Theatre provide the opportunity for students to master the skills of literacy and analytical reasoning before applying them to other fields of professional study. By teaching the evolution and structure of western civilization, this college offers students insight into modern cultures as well as an appreciation for the products of our civilization. Art, music and theatre students learn the value of professionalism and the acquisition of a solid technique and self-expression in the arts. W.A. Franke College of Business The W.A. Franke College of Business, which includes the School of Hotel and Restaurant Management ( HRM ), is the University s first named college. It offers six undergraduate business degree programs: Accountancy, Business Economics, Computer Information Systems, Finance, Management, and Marketing. Each of these undergraduate degree programs require 13 core courses (39 semester credit hours) in business disciplines and 18 to 30 credit hours in the student's selected degree program. Programs stress effective teaching, emphasizing written and oral communication, computer skills, and ethical and international considerations. Courses are typically taught by full-time doctoral qualified professors in small classes. The average class size is 35 students. The W.A. Franke College of Business also offers a Master of Business Administration degree with an integrated core and cross-functional focus that emphasizes communication and team skills. A-5

28 HRM, located in the W.A. Franke College of Business, is a nationally recognized professional school whose mission is to prepare students for leadership responsibility in the many fields of hospitality. HRM s curriculum and culture are designed to help students develop technical, professional, and people skills for an industry that is high-tech and high-touch. Two majors are offered within the undergraduate degree: Hotel/Restaurant Management and International Hospitality Management. HRM is committed to student-centered teaching balanced with faculty involvement in meaningful research. HRM was one of the University s earliest developers of distance and on-line learning and has developed innovative partnership programs in the cities of Scottsdale and Tucson, Arizona, and on tribal lands to help build a professional workforce for one of the State s and America s leading economic sectors. College of Education The mission of the College of Education is to prepare education professionals to create the schools of tomorrow. This preparation takes many forms: this college educates beginning teachers, provides graduate work for practicing educators and prepares counselors, school psychologists, administrators, and leaders in higher education. In addition, it engages in partnerships with schools and communities around the State, with particular attention to rural and Native American needs. These community partnerships focus upon the three important areas of recruiting and preparing local educators, assisting with programs designed to enhance student achievement and dropout prevention, and supporting the review and development of educational policy. Faculty members in the College of Education conduct research to expand knowledge about effective practices for teaching and learning. The College of Education has pioneered models of site-based teacher education and is a leader in technological and distance learning practices. The College of Education includes four academic departments, an extensive student services division, a statewide network of professional educators, and a division dedicated to community engagement. College of Engineering, Forestry and Natural Sciences The College of Engineering, Forestry and Natural Sciences ( CEFNS ) combines the University s departments of Biological Sciences, Chemistry and Biochemistry, Mathematics and Statistics, Physics and Astronomy, Civil and Environmental Engineering/Construction Management, Electrical Engineering and Computer Science, Mechanical Engineering and as well as the Schools of Forestry and Earth Sciences and Sustainable Environments. CEFNS provides a range of educational and research services and is staffed by internationally recognized faculty who develop and provide nationally and internationally competitive undergraduate and graduate curricula. This combination offers numerous opportunities for collaboration among disciplines that are growing closer together. CEFNS offers a number of undergraduate and graduate degrees including Doctorates in Biology, Forestry and Earth Sciences, and Sustainability. CEFNS s undergraduate engineering programs are accredited by the Engineering Accreditation Commission of the Accreditation Board for Engineering and Technology, Incorporated. This college s Construction Management program is accredited by the American Council for Construction Education. The core of all of its programs is the study of mathematics, science, computer science and liberal studies. The Forestry program is nationally recognized and known for innovations in forestry education. In addition to offering forestry degrees at the bachelor, master and doctoral levels, it is home to the nation s only Native American Forestry Program. The Forestry program has an active research program with particular strengths in forest ecology, health and restoration. College of Social and Behavioral Sciences Students and faculty in the College of Social and Behavioral Sciences ( SBS ) seek to understand and influence the complexities of the social world around us. SBS comprises seven departments: Anthropology, Applied Indigenous Studies, Criminology and Criminal Justice, Geography, Planning and Recreation, Political Science, Psychology, and Sociology/Social Work as well as the School of Communication. Interdisciplinary programs in Ethnic Studies and Women s and Gender studies are also located in this college. Students studying the subjects outside the School of Communication have the opportunity to learn about human origins and the diversity of human cultures and human nature, society and its organizations, the environment, and ultimately, the complex interplay of all these systems. SBS offers a variety of both graduate and undergraduate degrees. It has a strong emphasis on applied research and many of the students in SBS programs participate in internships, both at the graduate and undergraduate levels. The programs in SBS are also highly interdisciplinary. A-6

29 The School of Communication, a part of SBS, strives to meet the communication needs of the information age by integrating oral, written and visual communication. The School of Communication encompasses the disciplines of strategic communications, communication studies, visual communication, electronic media and film, and photography. By providing classroom study combined with practical experience working with campus media and professional internships, students become competitive in today s professional and academic markets. By examining the creation, transmission and analysis of communication, students become critical thinkers. By studying the process, effects and applications of communication, students learn to appreciate freedom of expression, the value of ethics, and the importance of communication as a force within society. The University believes that this combination of departments, schools and programs leads to unique opportunities for collaboration and sparking new ways of viewing traditional disciplines. College of Health and Human Services The College of Health and Human Services includes the School of Nursing and the departments of Physical Therapy and Athletic Training, Communication Sciences and Disorders, Dental Hygiene, Health Sciences, Occupational Therapy and Physician Assistant Studies. The School of Nursing offers a number of options for bachelor s degrees in nursing both on and off of the Flagstaff campus, as well as a unique 2+2 partnership with the Maricopa County community colleges. It also offers a master s of science degree with three different tracks (Nurse Practitioner, Rural Health Education and Rural Health Public Health) and a post-baccalaureate certificate in case management. The college also offers a doctoral program in physical therapy (both in Flagstaff and Phoenix), a master s in clinical speech-language pathology, and undergraduate degrees in dental hygiene (including an on-line bachelor s completion program), physical education and community health. Physician Assistant Studies, a program located in Phoenix, offers a master s degree. A doctoral degree in Occupational Therapy began in the fall of Graduate College A Master of Administration degree is offered through the graduate college at the University (the Graduate College ). This all on-line degree is focused on working professionals seeking to augment their current administrative skills, or to build new ones. A more detailed description of the colleges can be found on the University s website at A description of the Extended campuses programs can be found online at Admission Policy Undergraduate Admissions: below: Students are offered undergraduate admission to the University upon meeting certain criteria as outlined Assured Admission Students who meet the following qualifications will be offered undergraduate admission to the University: Aptitude: a cumulative grade point average ( GPA ) of 2.5 or above in the 16 core courses as prescribed by the Board ( Competencies: a cumulative GPA of 2.0 or above in the 16 core courses as prescribed by the Board Delegated Admission Students will be considered for undergraduate admission to the University if they meet the following qualifications: Aptitude: a cumulative GPA of 2.5 or above in the 16 core courses as prescribed by the Board Competencies: Lack no more than one credit in two of the basic competency subjects required for assured admission, except not in both math and lab science A-7

30 The competencies that must be completed for each subject area are as follows: English 4 years of high school English with an average GPA of 2.0 or better One transferable 3 credit hour College English course from a regionally accredited institution A score of at least 21 in the English area of the ACT or a score of at least 530 in the verbal area of the SAT Mathematics 4 years of high school math with the fourth year coursework having algebra 2 as a pre-requisite and approved by the Board One 3 credit hour math course for which intermediate algebra is a pre-requisite from a regionally accredited institution A score of 24 or greater on the ACT mathematics test or a 540 or greater math score on the SAT Laboratory Science 3 years of lab science, preferably from 3 different sciences with an average GPA of 2.0 or better ACT score of 20 or more in Natural science can substitute for one lab science requirement 3 transferable courses, each equivalent to 4 semester credit hours, from a regionally accredited institution Foreign Language 2 years of the same foreign language with an average GPA of 2.0 or better 2 transferable courses in the same foreign language from a regionally accredited institution Minimum score as stated in the University catalog for CLEP or Advanced Placement in language Social Science One year of American History and at least one additional year of social science with a subject GPA of 2.0 or better 2 transferable courses of 3 credit hours from a regionally accredited institution Fine Arts One year of high school fine art with a GPA of 2.0 or better One transferable 3 credit hour course in fine arts from a regionally accredited institution Graduate Admissions: Admission to the Graduate College is open to qualified applicants who hold the minimum of a bachelor's degree from an appropriately accredited institution, or the equivalent. Applicants who apply for admission to the Graduate College are evaluated on the individual merits of their academic achievements and individual scholarly potential to complete graduate level course work and curriculum requirements. Admission is granted only after the applicant s record is reviewed and approved by both the Graduate College and the department/program in which the applicant proposes to study. Admission decisions are based on a composite of qualitative and quantitative information that include, but are not limited to an applicant s: undergraduate GPA, statement of purpose, letters of recommendation, relevant academic and professional activities and achievements, admissions test scores, and previous grades as well as the recommendation of the faculty in the area to which the applicant seeks admission. It is expected that each student will have adequate undergraduate preparation for the intended major area of study. Depending on the program, as little as a minor (18 hours), or as much as a major may be required as preparation for graduate study in a particular field. In addition, the faculty advisor may require certain prerequisites for a student s graduate study, such as undergraduate courses normally required of undergraduate majors in the field. In many departments, admission is competitive, and only highly qualified students are admitted to a limited amount of spots in a program. Not every student whose credentials meet stated quantitative standards is admitted to a program. A-8

31 Student Enrollments The table below sets forth the fall semester enrollments of the University for the past five years. Fall Semester Northern Arizona University Total Student Enrollment (Headcount) Undergraduate Students Graduate Students ,194 5,010 25, ,750 4,614 25, ,774 4,228 26, ,670 3,936 26, ,845 3,870 27,715 Source: Northern Arizona University, Office of Planning and Institutional Research. Total Student Enrollment The following tables set forth the University s undergraduate and graduate new student and transfer student application, admittance and enrollment figures for the fall terms of the last five years: Northern Arizona University Freshman Applications, Admissions and Enrollments Fall Semester Applications Admissions Enrollments ,773 20,724 4, ,995 20,727 3, ,462 26,358 4, ,989 31,057 4, ,855 24,991 4,981 Source: Northern Arizona University, Office of Planning and Institutional Research. Northern Arizona University Transfer Applications, Admissions and Enrollments Fall Semester Applications Admissions Enrollments ,073 4,255 2, ,292 4,544 2, ,111 4,729 2, ,302 4,852 2, ,008 3,853 2,783 Source: Northern Arizona University, Office of Planning and Institutional Research. A-9

32 Northern Arizona University Graduate Applications, Admissions and Enrollments Fall Semester Applications Admissions Enrollments ,144 2,709 1, ,824 2,331 1, ,907 2,347 1, ,970 2,105 1, ,761 1,827 1,153 Source: Northern Arizona University, Office of Graduate Admissions. Degrees Conferred The overall number of degrees conferred by the University for each of the last five years is shown below: Academic Year Northern Arizona University Degrees Conferred Total Degrees Conferred Bachelor Degrees Advanced Degrees ,635 1,790 5, ,647 1,795 5, ,497 1,655 6, ,725 1,525 6, ,264 1,461 6,725 Source: Northern Arizona University, Office of Planning and Institutional Research. Activities and Associations Student Services A complement of comprehensive services is provided to University students in support of their academic experience on the Flagstaff campus. This includes: housing, food service, health care, personal counseling, career guidance and employment services, recreational activities, academic support services, including tutoring, both a math assistance and writing center, supplemental instruction and individual assistance for students; services for students with physical and learning disabilities, entertainment activities, Native American student services, a multicultural student center, opportunities for membership in over 330 student organizations, leadership training and community service experiences. Student Organizations Associated Students. The Associated Students of Northern Arizona University ( ASNAU ) is the student government of the University. It is the official representative of the undergraduate Flagstaff Campus student body in matters of University governance and budgeting. ASNAU carries out its responsibilities through the ASNAU Executive Council, the Student Senate, the ASNAU Supreme Court, Student State Affairs, and University boards and committees. ASNAU provides students with various direct, support and referral services that are designed to meet a wide variety of needs and interests. Services provided by ASNAU include legal and activity programs as well as funding for student organizations. A-10

33 Through ASNAU, opportunities are available for students to develop individual leadership qualities and to supplement and complement formal education. Programs sponsored by ASNAU include Fall Fling, homecoming, a spring concert, student legal counsel, and late night hours at Cline Library. Fraternities and Sororities. Twelve sororities and fourteen fraternities offer a range of opportunities for interested students. Programs are coordinated by the Interfraternity Council, College PanHellenic Council, and United Greek Council to foster communication between chapters, reward scholastic achievement, and promote University and community service projects. Campus Organizations. At the University over 330 official student organizations provide opportunities for students to participate in a wide range of activities. These organizations include academic, religious, cultural, service, Greek, honorary, and special interest groups. Research The University is classified as a High Research Public University according to the current Carnegie classification system. The University s research expenditures for fiscal year 2014 were $31.6 million ($17.0 million in federal award expenditures). Total awards received for fiscal year 2014 were $54.0 million. The research strengths of the University are in microbiology and bioengineering, forestry, environmental sciences, health sciences, astronomy, and informatics and computing. The University has multiple National Institute of Health ( NIH ) programs that work with Native American groups and support various areas of Native American health issues. Major federal funding agencies, in addition to NIH, include the National Science Foundation, Department of Energy, Department of Defense, Homeland Security, Department of the Interior, and NASA. Athletics Intramurals, Club Sports and Recreation. The Competitive and Recreational Sports Programs serves nearly 10,000 University students annually, through 40 intramural sports offerings, 42 active sport clubs, and an expanding summer sports league program. The University s student-centered approach to programs creates an environment where participants may compete, meet new friends, relieve stress, and have fun. Activities range from lacrosse to dance, basketball to inner-tube water polo, and table tennis to indoor soccer all built to ensure that no matter what a student s sporting interest may be, the University has something for everyone. Intercollegiate Athletics. The Intercollegiate Athletics Department at the University conducts men s programs in five sports and women s programs in eight sports. The University is a member of the National Collegiate Athletic Association, Division I. Both men s and women s programs are conducted under NCAA rules and participate in NCAA championships. Both the men s and women s athletic programs compete in the Big Sky Conference (women s swimming competes in the Western Athletic Conference). Programs include football (men only), basketball, track and field, cross-country and tennis. In addition, athletic programs include swimming and diving, golf, soccer, and volleyball (women only). A-11

34 FINANCIAL CONDITION OF THE UNIVERSITY Introduction The audited financial statements of the University are presented in Appendix B as Audited Financial Statements of the University for the Fiscal Year Ended June 30, The University maintains its accounts in accordance with generally accepted accounting principles of fund accounting for colleges and universities. Fund accounting requires a separation of assets and liabilities into various fund groups. The group designation of a particular asset or liability is determined by the source or use of, or restrictions upon, the respective item. Funds of the University are divided into Current Operating Funds, consisting of the General Operating Fund, Designated Fund, Auxiliary Enterprises Fund and Restricted Fund, and Non- Operating Funds consisting of the Student Loan Fund, Endowment Funds and Plant Funds. The University s audited financial statements presented in Appendix B include three financial statements, (1) the Statement of Net Position, (2) the Statement of Revenues, Expenses and Changes in Net Position, and (3) the Statement of Cash Flows. These statements were prepared in accordance with Governmental Accounting Standards Boards ( GASB ) principles. GASB statements require that financial statements be presented on a consolidated basis to focus on the University as a whole, with resources classified for accounting and reporting purposes into three net asset categories (restricted, unrestricted and invested in capital assets). During the fiscal year ended June 30, 2004, the University implemented the provisions of GASB No. 39, which requires reporting as component units those organizations that raise and hold economic resources for the direct benefit of the University. Information herein should be read in conjunction with the financial statements and accompanying notes in Appendix B. Combined University and Component Units In reviewing and analyzing the overall financial status of the University, it is important to include the component units due to their significant assets and annual revenues used in support of the University and its students. It is also important to know whether the combined net assets of the University and its component units are increasing or decreasing; and to know the composition of the net assets in order to determine the discretion available by the University or its component units in the use of these funds. A high level summary of fiscal years 2012, 2013 and 2014 financial activity of the University and its component units on a combined basis follows (dollars in millions): University Component University Component University Component University Units Combined University Units Combined University Units Combined Net assets at beginning of the year $417.9 $91.7 $509.6 $434.4 (a) $88.9 $523.3 $435.2 (a) $ (a) $537.6 Increase/(decrease) in net assets 15.1 (1.5) Net assets at end of year $433.0 $90.2 $523.3 $436.8 $102.4 $539.2 $439.5 $ $ (a) As restated. Source: Northern Arizona University, Office of the Comptroller. At the combined net assets (fund balance) level, there should be no significant accounting eliminations between the University and its component units. Eliminations would primarily be at the revenues and expenses, and assets and liabilities, levels. In fiscal year 2014, the University had an increase of $4.3 million in net assets and the University s component units had a $21.6 million increase in net assets. On a combined basis of the University and its component units, there was a $25.9 million increase in net assets in fiscal year 2014, equating to approximately 4.9% of total University and component unit revenues. A-12

35 End of the year net assets for fiscal years 2012, 2013 and 2014 consisted of the following (dollars in millions): University Component University Component University Component University Units Combined University Units Combined University Units Combined Invested in capital assets $218.7 $ - $218.7 $215.8 $ - $215.8 $ $ $234.2 Restricted net assets: Nonexpendable/ $ Permanently Expendable/ Temporarily Unrestricted net assets Net assets at end of year $433.0 $90.2 $523.3 $436.8 $102.4 $539.2 $ $124.0 $563.5 Source: Northern Arizona University, Office of the Comptroller. [Remainder of page intentionally left blank.] A-13

36 Statement of Revenues, Expenses and Changes in Net Assets The table below is a summary of the University s actual revenues, expenses, and changes in Net Assets for fiscal years 2010 through 2014, and estimated information for fiscal year STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE FISCAL YEARS ENDED JUNE 30 (Thousands of dollars) Fiscal Year Ended June 30 Audited Estimated (b) OPERATING REVENUES Tuition & fees, net of scholarship allowance $126,414 $147,224 $157,865 $172,565 $188,816 $205,500 Government grants & contracts 17,705 26,185 18,462 19,521 19,594 20,500 Private grants & contracts 1,977 1,436 2,119 3,518 2,865 3,000 Auxiliary enterprises Residential Life, net of scholarship allowance 27,842 29,480 29,534 30,541 29,870 33,000 Other auxiliaries 14,903 17,693 16,272 20,096 21,424 22,500 Other 10,125 10,603 17,190 17,410 20,246 21,000 Total operating revenues $198,965 $232,621 $241,440 $263,651 $282,815 $305,500 OPERATING EXPENSES Educational and general: Instruction $123,077 $132,116 $134,272 $142,282 $156,021 $163,500 Research 22,306 23,178 21,766 19,886 23,584 25,000 Public service 26,878 27,300 28,352 26,935 25,699 26,000 Academic support 27,194 30,321 28,858 32,164 33,877 35,200 Student services 25,312 33,958 36,274 42,145 50,504 53,000 Institutional support 37,627 39,946 41,789 47,265 53,702 55,000 Scholarships and fellowships 23,431 29,218 25,576 23,259 26,693 28,500 Operation and maintenance of plant 16,591 17,426 21,781 24,211 25,413 26,000 Auxiliary enterprises 29,339 34,351 37,035 44,386 32,759 42,000 Depreciation 21,606 21,990 27,261 31,388 33,256 35,000 Total operating expenses $353,361 $389,806 $402,963 $433,921 $461,507 $489,200 Operating income (loss) (154,395) (157,185) (161,523) (170,270) (178,692) (183,700) NONOPERATING REVENUES AND EXPENSES: State appropriations $128,449 $128,529 $103,670 $101,469 $105,588 $110,880 Share of state sales tax (a) 10,913 11,189 11,157 11,492 12,308 12,200 Government grants and contracts 53,515 56,324 60,200 57,569 56,414 60,000 Private gifts, grants, and contracts 10,873 8,003 10,367 9,925 10,919 11,000 Federal ARRA Stimulus 10, Net Investment income/(loss) 4,178 2,984 2,678 3,174 5,702 3,500 Interest expense on capital asset related debt (14,450) (14,023) (22,852) (23,456) (23,696) (25,000) Loss on renegotiation of capital lease (817) Gain/Loss on disposal of fixed assets (1,240) (144) 64 (755) Other nonoperating revenues/expenses 988 4,882 4,373 5,639 9,742 9,600 Total nonoperating revenues and expenses $204,583 $196,938 $169,449 $165,876 $176,223 $182,180 Income(loss) before other revenues, expenses, gains or losses 50,188 39,753 7,926 (4,394) (2,469) (1,520) OTHER REVENUES: Capital appropriations $5,900 $5,900 $5,900 $5,900 $5,900 $5,492 Capital grants & gifts 46 2, Additions to permanent endowments Total other revenues $6,672 $9,314 $7,207 $6,845 $6,790 $6,392 Increase (decrease) in net assets 56,860 49,066 15,133 2,451 4,320 4,872 NET ASSETS: Net Assets at Beginning of Year $311,970 $368,830 $417,897 $434,364 (c) $435,219 (c) 439,539 Net Assets at End of Year $368,830 $417,897 $433,030 $436,815 $439,539 $444,411 (a) Reflects the University s share of sales tax revenues collected by the State that are distributed per law to the public universities in the State. (b) Reflects estimates prepared by the University based on actual revenues and expenditures through February 20, The information presented constitutes forward looking statements which must be read with an abundance of caution and may not be realized or may not occur in the future. (c) As restated. Source: Prepared from audited financial reports (for fiscal years 2010 through 2014) and University records by the University s Office of the Comptroller. For the complete audited financial statements for fiscal year 2014, see Appendix B. A-14

37 Tuition and Fees Tuition and fee collections are a significant source of revenue to the University. These amounts are included both in current operating revenues and as described herein in Gross Revenues. The following table summarizes tuition and registration fees for the fiscal years shown: (a) SCHEDULE OF TUITION AND REGISTRATION FEES PER STUDENT Resident Tuition Undergraduate (b) Graduate (b) Part-Time Part-Time Fiscal Year Full-Time (Per Semester) (Per Hour Registered) Full-Time (Per Semester) (Per Hour Registered) 2010 $2,793 $299 $3,002 $ , , , , , , , , , , Nonresident Tuition Undergraduate (b) Graduate (b) Part-Time Part-Time Fiscal Year Full-Time (Per Semester) (Per Hour Registered) Full-Time (Per Semester) (Per Hour Registered) 2010 $8,048 $684 $8,260 $ , , , ,047 1, , ,327 1, , ,498 1, , ,690 1,077 (a) Certain graduate and undergraduate programs assess differential tuition or program tuition. Additionally, all students pay mandatory fees such as a technology fee, financial aid trust fee, wellness fee, activity fee, Associated Students of Northern Arizona University fee, green fee and associated students fee. (b) Resident students carrying seven or more hours pay full-time tuition. Nonresident undergraduate students carrying 12 or more hours pay full-time tuition. Graduates are full-time at nine hours. Source: Northern Arizona University, Office of the Comptroller. The following tables summarize registration fee and tuition revenue for the University for the fiscal years 2010 through Revenues are shown on a cash basis net of waivers for certain students on scholarships, faculty and staff members enrolled in courses, and certain dependents of faculty and staff members enrolled in courses. A-15

38 STUDENT REGISTRATION FEES AND TUITION (Dollars in Thousands) Fiscal Resident Nonresident Total Year Enrollment (a) Tuition Enrollment (a) Tuition Enrollment (a) Tuition ,158 $72,011 6,046 $42,150 25,204 $114, ,955 83,546 6,409 50,190 25, , ,962 83,286 7,040 61,845 26, , ,877 89,323 7,729 72,312 26, , ,532 87,075 8,363 84,683 27, ,758 (a) Fall semester enrollment. Source: Northern Arizona University, Comptroller s Office and Office of Planning and Institutional Research. (a) SUMMER SCHOOL & OTHER FEES (a) (Dollars in Thousands) Fiscal Year Summer School & Other Fees 2010 $34, , , , ,328 Consists of summer school registration and other student related fees and charges not included in the tuition and registration fees columns shown in the preceding two tables. Other fees include fees for transcripts, graduation, late registration and other special fees. Source: Northern Arizona University, Office of the Comptroller. The State Budgeting and Appropriations Process The State Constitution provides that the State Legislature shall appropriate moneys for the purpose of operating and maintaining all State universities. Such funds are derived from taxation, as well as from other sources as determined by the Legislature to insure the proper maintenance of the State universities. The direction and control of all moneys appropriated for the use and benefit of State universities is vested in the Board. Arizona Revised Statutes, Title 15, Chapter 13, sets forth the general powers of the Board, which include the expending of State funds for the support and maintenance of State universities, their buildings and grounds, and for any other purpose the Board deems expedient, if not inconsistent with provisions of any appropriations. The University derives its financial support primarily from State appropriated general revenues, appropriated and retained tuition and fees, governmental and private grants and contracts, private gifts and income from the operation of auxiliary enterprises. The existing constitutional provisions relating to State support of educational institutions and the policies of the Board have ensured that the universities in the State have continued to be recipients of State appropriated general revenues. The University prepares its annual budget in two steps. A budget consisting of State General Fund monies and a portion of tuition revenues collected by the University is submitted through the Board to the Governor's Office of Strategic Planning and Budgeting with a copy concurrently submitted to the State Legislature's Joint Legislative Budget Committee. The State Legislature and the Governor subsequently enact an appropriation of State General Fund monies in support of the University. While the approval of such appropriation is vested in the State Legislature and the Governor, once the appropriation has been enacted, the responsibility and authority for its allocation and expenditure is vested in the Board. Specifically, Section of the Arizona Revised Statutes exempts State universities from the appropriation allocation and budget transfer process, thereby effectively A-16

39 converting the State's appropriation to a lump sum appropriation to the University. The remainder of the University's Annual Operating Budget, consisting of Auxiliary, Unrestricted and Restricted revenues and expenditures are approved solely by the Board. State appropriated funds represent a significant percentage of the University s Current Operating Funds Revenues. In the five fiscal years 2010 through 2014, this funding has represented 32%, 29%, 24%, 23%, and 23% respectively, of the University s total revenues. The table below indicates State appropriations to the University for the fiscal years 2010 through The State has reported that it is facing budgetary shortfalls for fiscal years 2016 and 2017, absent legislative action. Specifically, the Governor s Office of Strategic Planning and Budgeting has reported an estimated budget deficiency of $533.7 million for fiscal year 2016 and $929.0 million for fiscal year To address the fiscal year 2016 situation, the Legislature recently enacted a budget for the State for fiscal year 2016 that includes, among other measures, various expenditure reductions and the reallocation of monies from certain separate agency funds to the State s general fund. Included in the enacted fiscal year 2016 budget is a reduction of $99 million in the appropriations to the State s universities (including the University, Arizona State University and The University of Arizona). Of this expenditure reduction amount, approximately $17.3 million is reductions to State appropriations to the University, which amounts to approximately 3.3% of the University s overall operating budget from all sources. LEGISLATIVE APPROPRIATIONS (a) (b) Fiscal Year Operations Appropriation TGEN (c) Research Infrastructure (d) Total 2010 (e) $127,218,100 $0 $5,900,000 $133,118, ,218, ,900, ,118, (f) 102,351, ,900, ,251, ,042, ,900, ,942, ,435, ,900, ,335, ,879,700 3,000,000 5,491, ,371,200 (a) Figures shown for fiscal years 2010 through 2014 are from audited financial information; fiscal year 2015 reflects the appropriation amount enacted by the State Legislature and signed by the Governor, which can be adjusted during the fiscal year by action of the State Legislature and the Governor. (b) State legislation has deferred distribution of a portion of the operations appropriations for the State s university system until the first quarter of the following fiscal year. The University s share of this deferral was $30.5 million in fiscal years 2010 through (c) Reflects a pass-through appropriation to the Translational Genomics Research Institute ( TGEN ), a nonprofit medical research foundation that specializes in biotechnology. (d) Reflects continuing appropriation of $5.9 million per year in Section of the Arizona Revised Statutes. Such amounts can only be used by the Board on behalf of the University to pay lease payments securing certain certificates of participation financings undertaken by the Board on behalf of the University. Appropriated amount for fiscal year 2015 reduced by Legislative enactment to reflect reduced lease payments due to a prior refinancing undertaken by the Board on behalf of the University. (e) The original operations appropriation for fiscal year 2010 was $128.7 million, with a mid-year reduction totaling $1.5 million due to budgetary pressures at the State resulting in an adjusted operations appropriation of $127.2 million. (f) The original operations appropriation for fiscal year 2012 was $96.0 million, with mid-year additions totaling $6.4 million due to an extra (or 27 th ) pay period in fiscal year 2012 resulting in an adjusted operations appropriation of $102.4 million. Source: Prepared from audited financial statements of the University and information from the Office of the Comptroller and University Budget Office. A-17

40 Various factors outside the control of the Board and the University may materially affect the funding levels from State appropriations and from the other sources referred to above. In addition, the State Legislature may change the process by which it makes appropriations for the University. No assurances can be given that the amount of State appropriations to the University will not be reduced by the State Legislature in the future or that any such reductions will not be substantial. Receipts from Other Major Revenue Sources A significant component of Gross Revenues is derived from a variety of revenue producing facilities and other activities, including enterprises which provide goods and services to the faculty, staff and students, such as the University Bookstore, and to the general public, such as sporting events. The table below summarizes receipts from other major revenue sources for the most recent five fiscal years. RECEIPTS FROM OTHER MAJOR REVENUE SOURCES Fiscal Year Ended June 30 th Bookstore (a) $ 882,121 $ 863,058 $ 877,933 $ 891,822 $ 1,615,006 Student Activity Centers 872,586 1,014,224 1,121,637 1,214,896 1,041,546 Housing Facilities (b) 25,555,137 27,493,883 27,136,720 34,038,360 34,926,428 Intercollegiate Athletics 2,556,273 1,851,788 2,882,395 3,029,412 2,865,947 Dining Halls (c) 7,182,419 1,203,161 9,924,564 5,490,886 6,470,026 Parking Services 3,730,817 4,372,497 4,047,343 5,028,482 4,567,590 Concession Operations 266, , , , ,539 Skydome Programming 153,574 87, , , ,181 Health Center 1,563,030 1,566,830 1,881,930 2,354,338 2,991,560 Newspaper Advertising 158, , , , ,108 Indirect Cost Recovery 5,543,858 6,454,976 6,538,157 6,589,066 6,364,106 Investment Income 1,251,666 1,295,093 1,266,265 1,086,450 1,136,765 GRAND TOTAL $49,716,935 $46,600,734 $56,234,037 $60,724,365 $62,881,802 (a) In December 2006, the University outsourced bookstore operations. Revenues received under the contract are based on a percentage of gross revenues generated by bookstore operations. (b) Excludes certain dormitory buildings whose revenues are pledged to payment of certain student housing bonds. See Note 5 to the audited financial statements in Appendix B. (c) Year-to-year amounts reflect variable timing of cash flow payments from the food service provider to the University. Source: Northern Arizona University, Office of the Comptroller. Gifts, Grants and Contracts Gifts, grants and contracts are an important source of revenues to the University and direct revenues therefrom are reflected in the following table and in the audited financial statements. A significant portion of the University's research programs (including graduate student participation therein) is supported by Federal grants and contracts. Agreements are principally with Federal government agencies but significant support of the University's research, laboratories, students and faculty also comes in the form of research and education agreements with state and local government agencies, and private foundations and corporations. A-18

41 The following summarizes the University s receipts from gifts, grants and contracts during the fiscal years 2010 through SUMMARY OF GIFTS, GRANTS & CONTRACTS UNIVERSITY WIDE (1) Fiscal Year Grants & Contracts Financial Aid Grants (2) Gifts Total Gifts, Grants & Contracts 2010 $52,244,889 $29,930,623 $12,850,281 $95,025, ,105,729 37,695,023 9,439,509 92,240, ,957,743 37,050,409 12,485,648 88,493, ,540,026 36,419,849 13,443,295 90,403, ,458,329 36,549,823 13,784,363 89,792,515 (1) See Appendix B Audited Financial Statements of the University for Fiscal Year Ended June 30, 2014 for additional detailed information. (2) Includes Pell Grants. Source: Northern Arizona University, Office of the Comptroller. OTHER INDEBTEDNESS OF THE UNIVERSITY The information that follows outlines other indebtedness of the University in addition to the Bonds and the Subordinate Obligations. Certificates of Participation The following table sets forth the lease-purchase certificate of participation financings of the University that are currently outstanding. Original Principal Amount Outstanding Principal Amount Certificates of Participation Dated 2004 Certificates $37,585, $ 1,240, Certificates 40,255, ,850, Certificates 12,445, , Refunding Certificates 36,005, ,005,000 Total Certificates $59,960,000 Other Obligations In September 2006, the Board, acting for and on behalf of the University, entered into a ground lease and a lease agreement (the 2006 LLC Lease Agreement ) with North Campus Facilities L.L.C., an Arizona limited liability company ( North Campus LLC ). North Campus LLC issued tax-exempt lease revenue bonds currently outstanding in the principal amount of $10,870,000, the proceeds of which are being applied to develop, construct and equip a conference center and parking garage on the University campus. The Board, acting for and on behalf of the University, is obligated, subject to annual appropriation, to make rental payments sufficient to pay debt service on the bonds and other related expenses, which average approximately $820,000 per year. While no source of funds is pledged to make the rental payments on the 2006 LLC Lease Agreement, the Board anticipates making such payments primarily from revenues received from the operations of the conference center and parking garage, which are part of the University s auxiliary enterprise revenues. A-19

42 In April 2008, the Board, acting for and on behalf of the University, entered into a ground lease and a lease agreement (the 2008 LLC Lease Agreement ) with Pine Ridge Village/Campus Heights L.L.C., an Arizona limited liability company ( Pine Ridge LLC ). Pine Ridge LLC issued tax-exempt lease revenue bonds currently outstanding in the principal amount of $33,095,000, the proceeds of which have been applied to refund and pay the remaining, outstanding principal amount of the Variable Rate Demand Revenue Bonds, Series 2005, which were originally issued by Pine Ridge LLC to finance two student housing projects on the Northern Arizona University campus. Additional bonds may be issued by Pine Ridge LLC to complete, acquire or construct improvements or additions to the student housing projects (as well as, from time to time, to refund any of Pine Ridge LLC s outstanding bonds). The Board, acting for and on behalf of the University, is obligated, subject to annual appropriation, to make rental payments pursuant to the 2008 LLC Lease Agreement sufficient to pay debt service on the bonds and other related expenses, which average approximately $2,700,000 per year. While no source of funds is pledged to make the rental payments on the 2008 LLC Lease Agreement, the Board anticipates making such payments primarily from student housing revenues from the projects, which are part of the University s auxiliary enterprise revenues. In August 2014, the Board, acting for an on behalf of the University, entered into a ground lease and a lease agreement (the 2014 LLC Lease Agreement ) with the Student and Academic Services L.L.C., an Arizona limited liability company ( SAS LLC ). SAS LLC issued tax-exempt lease revenue bonds currently outstanding in the principal amount of $34,265,000, the proceeds of which are being applied to construct and equip a new Student and Academic Services Building on the University s campus in Flagstaff, Arizona. The Board, acting for and on behalf of the University, is obligated, subject to annual appropriation, to make rental payments sufficient to pay debt service on the bonds, and other related expenses, which average approximately $2,260,000 per year. While no source of funds is pledged to make the rental payments on the 2014 LLC Lease Agreement, the Board anticipates making such payments primarily from Tuition and Other General or Unrestricted Revenues. The Board has the authority to enter into other future agreements which entail similar financial obligations as those described above. Retirement Benefits UNIVERSITY PENSION AND RETIREMENT PLANS Substantially all permanent employees of the University are covered either by the State-administered retirement program, the Arizona State Retirement System ( ASRS ), or by one of two private plans approved by the Board. The two private plans are defined contribution plans that are sponsored by the Teachers Insurance and Annuity Association College Retirement Equities Fund and by Fidelity Investments. A brief description of the various retirement programs in which University employees participate is located in the Notes to the 2014 Audited Financial Statements in Appendix B. The ASRS, a cost-sharing, multiple employer defined benefit plan in which the University participates, has reported increases in its unfunded liabilities. The most recent annual reports for ASRS may be accessed at: The effect of the increase in the ASRS unfunded liabilities on the University, or on the University s and its employees annual contribution to the ASRS, are projected to increase in future years. For the year ended June 30, 2014, active plan members were required by statute to contribute at the actuarially determined rate of percent (11.30 percent for retirement and 0.24 percent for long-term disability) of the members annual covered payroll. The University was also required by statute to contribute at the actuarially determined rate of percent (10.70 percent for retirement, 0.60 percent for health insurance premium, and 0.24 percent for long-term disability) of the members annual covered payroll. For fiscal year 2015 (starting July 1, 2014), the rate, including retirement and long-term disability, was increased to percent for the University and to percent for employees. Additional increases have been projected by the actuary through fiscal year The University s contributions to the ASRS for fiscal years 2013 and 2014 were $9.52 million and $10.8 million, respectively, both of which were equal to the required contributions for the year. Enacted State legislation made changes to how the ASRS operates, effective July 1, 2011, which includes requiring employers to pay an alternative contribution rate for retired members of the ASRS that return to work, A-20

43 changing the age at which an employee can retire without penalty based upon years of service, limiting permanent increases in retirement benefits and establishing a study committee that will review the feasibility and cost to changing the current defined benefit plan to a defined contribution plan. New Reporting Requirements. The Governmental Accounting Standards Board adopted Statement Number 68, Accounting and Financial Reporting for Pensions ( GASB 68 ), which, beginning with fiscal years starting after June 15, 2014, requires cost-sharing employers to report their proportionate share of the plan s net pension liability and pension expense in their government-wide financial statements and pension expense. The new reporting requirements imposed by GASB 68 will change the financial statements of the University, but the specific impact is unknown at this time. Other Post Employment Benefits Governmental Accounting Standards Board Statement Number 45, ( GASB 45 ), Accounting by Employers for Other Post Employment Benefits ( OPEB ), requires the University to report the actuarially accrued cost of post-employment benefits, other than pensions, such as health and life insurance for current and future retirees. GASB 45 requires that such benefits be recognized as current costs over the working lifetime of employees and, to the extent such costs are not pre-funded, the reporting of such costs as a financial statement liability. University employees, their spouses and survivors may be eligible for certain retiree health care benefits under health care programs provided through the State. Employees on long-term disability and their spouses may also qualify for retiree health care benefits through the State. It is expected that substantially all University employees that reach normal or early retirement age while working for the University will become eligible for such benefits. Currently, such retirees may obtain the health care benefits offered by the State by the retiree paying 100% of the applicable health care insurance premium available to all participants, whether retired or not, in the State s health care program. The University makes no payments for OPEB costs for retirees. Even though the retirees are paying 100% of the insurance premiums there is, however, according to GASB 45, an implicit rate subsidy because the retirees are paying a lower premium than what would be paid if the insurance premiums were based on the retiree s age. The State commissioned actuarial valuations of the OPEB costs associated with the health care programs available to retirees through the State in order to meet the requirements of GASB 45. The actuarial firm has allocated the financial impacts to the State agencies having separately audited financial statements. The amount allocated to the University for fiscal years 2010 through 2014 were, however, not deemed to be material to the University s financial statements, and therefore, no amounts have been allocated to the University for inclusion in its financial statements. The University provides certain non-health care related post employment benefits, such as reduced tuition and discounts at the University bookstore. Such benefits are administered by the University and are not considered by the University to be material to the overall financial statements of the University. A-21

44 (THIS PAGE IS INTENTIONALLY LEFT BLANK)

45 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE UNIVERSITY FOR THE FISCAL YEAR ENDED JUNE 30, 2014 B-1

46 (THIS PAGE IS INTENTIONALLY LEFT BLANK)

47 Comprehensive Annual Financial Report Year Ended June 30, 2014 Included as an Enterprise Fund of the State of Arizona

48 Comprehensive Annual Financial Report For the year ended June 30, 2014 Flagstaff, AZ Prepared by the Associate Vice President for Financial Services / Comptroller s Office COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014 ǀ i

49 Table of Contents INTRODUCTORY SECTION Message from the President... 2 Letter of Transmittal... 3 GFOA Certificate of Achievement... 8 Organizational Chart... 9 Arizona Board of Regents...10 Executive Administration...10 FINANCIAL SECTION Independent Auditors Report...12 Management s Discussion and Analysis...14 Statement of Net Position...22 Statement of Financial Position Component Unit...24 Statement of Revenues, Expenses, and Changes in Net Position...25 Statement of Activities Component Unit...27 Statement of Cash Flows...28 Notes to Financial Statements...30 STATISTICAL SECTION Table of Contents...49 Net Position by Component...50 Changes in Net Position...51 Operating Expenses by Natural Classification...55 Academic Year Tuition and Required Fees...56 Principal Revenue Sources...57 Long-Term Debt...58 Summary of Ratios...59 Debt Coverage for Senior Lien System Revenue Bonds...65 Admissions, Enrollment, and Degrees Earned...66 Demographic Data...67 State of Arizona Principal Employers...67 Faculty and Staff...68 Capital Assets...68 ii ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

50 Introductory Section COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014 ǀ 1

51 A Message from the President Northern Arizona University is energized by growth and anticipating change during its first year under new leadership since As the transition ensues, I present the university s comprehensive annual financial report. Key indicators point to NAU s overall upward trajectory. Enrollment continues its long run of annual increases, as this year the university welcomed more than 5,000 freshmen. Ongoing investments include the grant-funded build-out of the Phoenix Biomedical Campus, residence hall expansion through a public-private partnership and classroom renovation. New or ongoing projects are evidence of infrastructure enhancements that directly benefit students. The Science and Health Building, Student and Academic Services Building and the Aquatics Center will provide new labs, centralize and streamline the enrollment process and offer our student athletes top-of-the-line facilities. Financially, the university is experiencing improvement overall, with increases in total sources of revenues and a stable outlook on revenue bonds. As we hold to our core values, we must adapt to the realities of modern higher education: dwindling state resources, tuition approaching the market maximum and funding tied to performance metrics. With federal policy and accreditation agencies allowing a deeper exploration of competency-based education and other alternative approaches to course delivery, we can innovate with technology to better serve our students while potentially reducing costs. Our Personalized Learning program is a prime example of how NAU can leverage policy changes and transformative educational technology to open the possibility of an affordable college degree to a wider audience. Especially considering Arizona s fluid and uncertain economic outlook, we need to cultivate new revenue sources, extend our campus-wide initiative to identify efficiencies and partner with external groups. Such has been the case with American Campus Communities, our partner in recent on-campus housing expansions. We also understand our obligation to serve Arizona. Our commitments to being accessible to more undergraduate students, to expanding the workforce in areas of need, to conducting research that is meaningful to the citizens of Arizona all must be renewed with a fresh outlook. Achieving higher levels of success will entail thoughtful growth to demonstrate our determination to conduct a sustainable, responsible operation. Strategic investments in online learning, retention and student recruitment with close attention to an underserved Native American population exemplify the need to make wise choices in the allocation of our resources while fulfilling our mission. Rita Cheng President 2 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

52 Letter of Transmittal October To President Cheng, Members of the Arizona Board of Regents, and Citizens of Arizona: We are pleased to present the Northern Arizona University Comprehensive Annual Financial Report (CAFR) for the year ended June 30, The report includes the financial statements for the year as well as other useful information to help ensure the University s accountability. University management is responsible for the accuracy and completeness of the information presented, including all disclosures. The cost of internal control should not exceed anticipated benefits, consequently, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements, and provide reasonable assurance that assets are safeguarded from unauthorized use or disposition. State law, federal guidelines, and certain bond covenants require that the University s accounting and financial records be audited each year. For the year ended June 30, 2014, the State of Arizona Office of the Auditor General has issued an unmodified opinion on Northern Arizona University s financial statements. The independent auditors report is in front of the financial section. The University s CAFR is intended to fulfill the State of Arizona s Transparency Law, Arizona Revised Statutes Management s Discussion and Analysis (MD&A) provides a narrative introduction, overview and analysis of the basic financial statements. MD&A is located immediately following the independent auditors report and complements this letter of transmittal and should be read in conjunction with it. Profile of the University The University is a fully-accredited, four-year degree-granting institution of higher learning (Carnegie Classification: Doctoral, Public, High Research), supported by the State and governed by the Board. The University s fiscal year 2014 fall semester total headcount was 26,606. Headcount was comprised of 22,670 undergraduate and 3,936 graduate students. The University emphasizes undergraduate education while offering graduate programs leading to master s and doctorate degrees in selected fields. For almost 100 years, the University s philosophy has been to preserve a friendly campus atmosphere and to maintain close student-faculty relationships through quality teaching in the classroom and through faculty guidance for each individual student. The University s Mission Statement embodies a number of themes and goals which provide guidance for University programs. These include goals to be a learning-centered University with a deep commitment to student success and high expectations for student achievement; provide responsive educational programs to State citizens wherever they live and work; further the environmental, economic, social, and cultural vitality of our communities through collaborative stewardship of place; advance the internationalization of the University to prepare students for global citizenship; create a culture of inclusion that contributes to a rich learning experience and helps prepare students for engaged social responsiveness in a global environment; become the nation s leading University serving Native Americans and to exemplify an innovative, effective, and accountable learning community. COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014 ǀ 3

53 History The University was established in 1899 as Northern Arizona Normal School, with 33 students and a single building. In 1925, the State Legislature changed the institution s status from a normal school to a four-year, degree-conferring college, granting the Bachelor of Education. The same year, the name of the school was changed to Northern Arizona State Teachers College. In 1929, the name was changed to Arizona State Teachers College at Flagstaff. The name was changed again in 1945 to Arizona State College at Flagstaff when majors leading to the Bachelor of Arts and the Bachelor of Science degrees were added. Effective May 1, 1966, the institution was designated a University by the State Legislature and was given its present name. Graduate work at the University began in 1937, with a program leading to the Master of Arts in Education degree. In 1954, the Board authorized the granting of the Educational Specialist degree and, in 1955, the Master of Arts and Master of Science degrees. Approval for programs leading to the Doctor of Philosophy and the Doctor of Education degrees was given in In 1973, the first doctoral students were graduated. The Arizona Board of Regents (ABOR) governs Northern Arizona University as well as the other two public universities in the State. ABOR is comprised of twelve members that include appointed, ex-officio, and student regents. The Governor appoints and the Arizona Senate confirms the eight appointed regents to staggered eight-year terms as voting members of ABOR. The Governor and Superintendent of Public Instruction serve as ex-officio voting members while they hold office. Two student regents each serve twoyear terms, the first year as a nonvoting board member and the second as a voting member. The University is classified as a state instrumentality per Internal Revenue Code Section 115. Fiscal responsibility for the University remains with the State of Arizona. The University is considered a part of the reporting entity for the State s financial reporting purposes and is included in the State s CAFR. The financial reporting entity for NAU s financial statements is comprised of the University and two component units. The University s financial statements are prepared in accordance with Governmental Accounting Standards Board (GASB) reporting requirements. The component units include the NAU Foundation and Northern Arizona Capital Facilities Finance Corporation. The component units are non-profit, tax-exempt organizations. The NAU Foundation is a discretely presented component unit and the Northern Arizona Capital Facilities Finance Corporation is a blended component unit, based on the nature and significance of their relationship to the University. The University is responsible for controlling its budget and using its resources to fulfill its educational, research, and public service mission. It is also responsible for planning, developing, and controlling budgets and expenses within authorized allocations in accordance with University, Arizona Board of Regents, state, and federal policies and procedures. Arizona Economy The following economic summary is based on the Arizona Department of Administration Employment Forecast, released on May 1, The Office of Employment and Population Statistics within the Arizona Department of Administration is forecasting gradual gains in nonfarm employment in Arizona for the 2014 through 2015 time period. An over-the-year gain of 53,500 nonfarm jobs is expected in 2014 and 60,400 in 2015, representing growth of 2.1% in 2014 and 2.4% in 2015 across the State of Arizona. The overall employment situation in Arizona continues to improve. Arizona s nonfarm employment growth rate exceeded the national average in both 2012 and ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

54 Arizona s nonfarm employment is forecast to continue a slow subpar growth in 2014 and gradually gain momentum in The combined effect of many of the post-recession policies that were enacted continue to have some aftereffects, which has resulted in economic uncertainty and made investment planning more problematic, thus creating an environment not conducive to strong growth. However, these risks are outweighed by positive factors, including continued improvement in real Gross Domestic Product (GDP), real personal income, employment, and retail sales. Household net worth continues to climb gradually and the fraction of disposable income used for household debt continues to decline. Residential real estate markets in Arizona are showing improvement with rising levels of building permits and rising home prices. With an improving domestic economy and employment growth, consumers are expected to spend more, although demand may be slightly lower in the short-run due to employment insecurity, lower wages and benefits, debt, and rising prices for essentials that limits the amount of funds available for discretionary spending. Planning and Initiatives Northern Arizona University Strategic Planning Northern Arizona University s mission focus is to provide an outstanding undergraduate residential education strengthened by research, graduate and professional programs, and sophisticated methods of distance delivery and innovative new campuses and programs throughout the state. The University s strategic goals are aligned with the Arizona Board of Regents directions to promote student learning and success, advance educational attainment in Arizona, expand research, and impact Arizona. Northern Arizona University Values Excellence in Education: Offer a rigorous, high-quality education to all students. Student Success: Place learner needs at the center of our academic and service planning, policies, and programs. Educational Access: Provide all qualified students with access to higher education. Diversity: Achieve multicultural understanding as a priority of educational and civic life. Integrity: Operate with fairness, honesty, and the highest ethical standards to sustain a community of trust. Civility: Support a civil, engaging, and respectful campus climate. The University continues to invest in and improve facilities. Recent projects include: Build out of the existing Phoenix Biomedical Building, in partnership with the University of Arizona. Expansion of our partnership with American Campus Communities to build a new housing facility which opened in August 2014 at no expense to NAU except use of land. COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014 ǀ 5

55 Continued renovation of numerous classrooms on the Flagstaff campus. We are improving the look and feel of the classroom environments along with improved technology to assist Faculty in their teaching mission. Addressing Fire, Life, Safety issues in Residence Halls and Academic Buildings, including fire systems, elevators, campus accessibility, and roofing systems. New projects planned or underway include: Construction on a new 118,000 sq. ft. Science and Health Building to accommodate all the teaching and research needs currently housed in the outdated Chemistry Building. A Chemical Storage facility to comply with current EPA handling and storage requirements that will make teaching labs safer for students and faculty. Design of an International Student Pavilion to be used in the recruitment and retention of international students. Construction of a new Student and Academic Services Building to provide sorely needed space for faculty (42,000 sq. ft.) to accommodate current enrollment growth needs, one stop shopping to assist in student retention (22,000 sq. ft.) and a permanent location for the Lumberjack Mathematics Center (30,000 sq. ft.). Construction of a 120,000 sq. ft. Aquatics Building to replace the Wall Aquatic Center that has outlived its building usefulness along with 90,000 square feet of regulation outdoor tennis courts that are desperately needed. The University continues to improve financially. In fiscal year 2014 the University s total revenues were $490 million and total net position increased by $4.3 million. The University maintains a Moody s A1 rating on NAU s system revenue bonds, A2 rating on Series 2010 SPEED revenue bonds, and A2 ratings on other rated certificates of participation and lease revenue bonds with a stable outlook. The ratings from Standard and Poor s are A long-term rating on the University s outstanding SPEED revenue bonds, A+ long-term and underlying rating (SPUR) on the board of regents system revenue bonds issued for NAU; AA SPUR on the University s lease revenue bonds; and A SPUR on NAU s outstanding Certificates of Participation (COPs). The outlook on all bonds is stable. Awards and Acknowledgements The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to Northern Arizona University for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, This was the first year that NAU has achieved this prestigious award. In order to be awarded a Certificate of Achievement, NAU had to publish an easily readable and efficiently organized CAFR that satisfied both generally accepted accounting principles and applicable program requirements. 6 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

56 A Certificate of Achievement for Excellence in Financial Reporting is valid for a period of one year only. However, we believe that our current CAFR continues to meet the Certificate of Achievement for Excellence in Financial Reporting Program s requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate. The preparation of this report would not have been possible without the skill, effort, and dedication of the entire staff of Financial Accounting Services Office and other University administrators, faculty and staff. In addition, the State of Arizona Office of the Auditor General provided invaluable assistance. Jennus L. Burton Vice President for Finance and Administration COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014 ǀ 7

57 8 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

58 ORGANIZATIONAL CHART Rita Cheng President Sarah Bickel VP & Chief of Staff Laura Huenneke Provost & VP for Academic Affairs Mason Gerety VP for University Advancement Lisa Campos VP for Intercollegiate Athletics Mark Neumayr VP & General Counsel Jennus Burton VP for Finance & Administration Christy Farley VP for Government Affairs & Business Partnerships Fred Estrella Chief Information Technology Officer Bill Grabe VP for Research Liz Grobsmith Sr. Advisor to the President, Strategic & International Initiatives Fred Hurst Sr. VP for Extended Campuses Pat Haeuser VP for Institutional Effectiveness Deborah Craig Faculty Athletics Representive Joseph Martin Special Advisor to the President, Native American Affairs David Camacho Special Assist. to the President & Assoc VP for Inclusion Vacant VP for Enrollment Management & Student Affairs As of August 15, 2014 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014 ǀ 9

59 Arizona Board of Regents AS OF JUNE 30, 2014 EX-OFFICIO MEMBERS Honorable Janice K. Brewer Governor of Arizona Honorable John Huppenthal Superintendent of Public Instruction APPOINTED MEMBERS Rick M yers Chair Mark Killian Vice Chair LuAnn Leonard Treasurer Ron Shoopman Jay Heiler Bill Ridenour Greg Patterson Ram Krishna Valerie Hanna Student Regent Kaitlin Thompson Student Regent Executive Administration AS OF JUNE 30, 2014 John D. Haeger President Sarah Bickel Executive Vice President and Chief of Staff Jennus L. Burton Vice President for Finance and Administration Lisa Campos Vice President for Intercollegiate Athletics Christy Farley Vice President for Government Affairs and Business Partnerships Mason Gerety Vice President for University Advancement William Grabe Vice President for Research Patricia Haeuser Vice President for Planning, Budget and Institutional Effectiveness Laura Huenneke Provost and Vice President for Academic Affairs Fred Hurst Senior Vice President for Extended Campuses Mark Neumayr Vice President and General Coun sel Robert Norton Associate Vice President for Financial Services/Comptroller 10 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

60 Financial Section ǀ 11 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

61 Independent Auditors Report Members of the Arizona State Legislature The Arizona Board of Regents Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities and discretely presented component unit of Northern Arizona University as of and for the year ended June 30, 2014, 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 U.S. generally accepted accounting principles; 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 unit. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the discretely presented component unit, is based solely on the report of the other auditors. We conducted our audit in accordance with U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The financial statements of the discretely presented component unit were not audited by the other auditors in accordance with Government Auditing Standards. 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 auditors consider internal control relevant to the University 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 University s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audit and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and discretely presented component unit of Northern Arizona University as of June 30, 2014, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with U.S. generally accepted accounting principles NORTH 44 th STREET SUITE 410 PHOENIX, ARIZONA (602) FAX (602) ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

62 Emphases of Matters As described in Note 1, the University s financial statements are intended to present the financial position, the changes in financial position and, where applicable, cash flows of only those portions of the business-type activities, major fund, and aggregate discretely presented component units of the State of Arizona that are attributable to the transactions of the University. They do not purport to, and do not, present fairly the financial position of the State of Arizona as of June 30, 2014, the changes in its financial position, or, where applicable, its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles. Our opinion is not modified with respect to this matter. As discussed in Note 9 to the financial statements, for the discretely presented component unit, certain errors resulting in an understatement of permanently and temporarily restricted net assets and an overstatement of unrestricted net assets as of June 30, 2013, were discovered by the Foundation s management during the current year. Accordingly, unrestricted, temporarily, and permanently restricted net assets have been restated as of June 30, 2013, to correct the error. Our opinion is not modified with respect to these matters. Other Matters Required Supplementary Information U.S. generally accepted accounting principles require that the Management s Discussion and Analysis listed in the table of contents 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 U.S. generally accepted auditing standards, 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. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the University s basic financial statements. The introductory and statistical sections listed in the table of contents are presented for purposes of additional analysis and are not required parts of the basic financial statements. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we will issue our report on our consideration of the University s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters at a future date. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the University s internal control over financial reporting and compliance. October 24, 2014 Debbie Davenport Auditor General ǀ 13 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

63 Management s Discussion and Analysis The discussion and analysis of Northern Arizona University s financial statements provides an overview of the University s financial activities for the year ended June 30, Management has prepared the financial statements and the accompanying note disclosures along with the discussion and analysis. Responsibility for the completeness and fairness of this information rests with the University s management. USING THIS COMPREHENSIVE ANNUAL FINANCIAL REPORT This annual financial report includes the independent auditors report, management s discussion and analysis, the financial statements in the format referred to below, notes to the financial statements, which include the summary of significant accounting policies, and statistical data. The financial statements presented by the University include the Statement of Net Position, the Statement of Revenues, Expenses, and Changes in Net Position, and the Statement of Cash Flows. The Statement of Net Position presents the financial position of the University at the end of the fiscal year. This statement is classified between current assets, noncurrent assets, and deferred outflows of resources less current liabilities and noncurrent liabilities. In addition, capital assets are depreciated over the useful life of the asset and the annual depreciation amount is shown as a current year expense. The Statement of Revenues, Expenses, and Changes in Net Position distinguishes between operating and non-operating revenues and expenses, with state appropriations reported as nonoperating revenue. Student tuition and fees revenues, and certain other revenues from students, are reported net of scholarship discounts and allowances. The Statement of Cash Flows provides information about the University s sources and uses of cash during the year. In accordance with Governmental Accounting Standards Board (GASB) Statement No. 61, The Financial Reporting Entity: Omnibus, an amendment of GASB Statements No. 14 and No. 34, the University reports as a component unit those organizations that raise and hold economic resources for the direct benefit of the University or its constituents. Based on GASB 61, the University identified two component units, the Northern Arizona University Foundation (Foundation), and the Northern Arizona Capital Facilities Finance Corporation (NACFFC). The Foundation is discretely presented in this report, NACFFC is blended with the financial activities of the University. Information on the University s discretely presented component unit can be found in this report in the component unit Statement of Financial Position and Statement of Activities, as well as Note 9. The Management s Discussion and Analysis focuses only on the University and does not address the component unit, and should be read in conjunction with the financial statements and notes. FINANCIAL HIGHLIGHTS Total net position increased $4.3 million, 1.0 percent from July 1, 2013 to June 30, 2014 based on total sources of funds of $490.3 million and $486.0 million of uses. Total sources of revenues increased by $30.2 million or 6.6 percent while total uses of funds increased by $28.3 million or 6.2 percent. State and capital appropriations increased $4.1 million from the prior year, a 3.8 percent increase. Student tuition and fees increased 9.4 percent from the previous year or about $16.3 million. Government grants and contracts decreased $1.1 million, a 1.4 percent reduction. Net investment income increased $2.5 million from the previous fiscal year, a 79.7 percent increase. Auxiliary enterprise revenues increased by $657 thousand, or 1.3 percent. The University share of state sales tax revenue increased $816 thousand, a 7.1 percent increase. 14 ǀ

64 STATEMENT OF NET POSITION The Statement of Net Position presents the financial position of the University at the end of the fiscal year and includes all assets, deferred outflows of resources, and liabilities of the University. A summarized comparison of the University s assets, dererred outflows of resources, liabilities, and net position at June 30, 2014 and 2013 (in thousands), as follows: (restated) Current assets $210,377 $213,012 Noncurrent assets Cash, cash equivalents, investments, and student loans receivable 138, ,126 Endowment investments 26,500 22,080 Capital assets - net of accumulated depreciation 727, ,343 Other noncurrent assets 3,293 3,216 Total noncurrent assets 895, ,765 Total assets 1,106,057 1,042,777 Deferred outflow of resources 5,487 Long-term liabilities 600, ,500 Other liabilities 71,249 56,058 Total liabilities 672, ,558 Net position $439,539 $435,219 A review of NAU s Statement of Net Position at June 30, 2014 and 2013 shows that the University s financial position continues to improve with an increase in net position of $4.3 million. Current assets consist primarily of cash and investments, state appropriation receivable, government grants and contracts receivable, and accounts receivable. Current assets are generally considered to be convertible to cash within one year. Current assets decreased overall by $2.6 million over the prior fiscal year. The change was the result of a decrease in cash of $12.2 million offset by increases in investments of $3.2 million, a $3.3 million increase in accounts receivables and a $2.6 million increase in grants and contracts receivable. Noncurrent assets increased $65.9 million over the prior year due to an increase of $32.4 million in capital assets, and a $32.8 million increase in cash and investments. Capital assets, not being depreciated, increased $40.3 million primarily due to the construction of the new Science and Health building, the Aquatic Center, Phoenix BioMedical build out, and the Fieldhouse renovations. Capital assets net of accumulated depreciation, decreased $8.0 million over the prior fiscal year. The changes in capital assets are discussed in more detail in the Capital Assets and Debt Administration section. The net increase of $32.8 million in noncurrent cash and investments was due to an increase of $28.4 million in cash and cash equivalents held by trustee and $4.4 million in endowment investments. Long-term liabilities increased by $49.3 million over the prior fiscal year. The increase is mainly attributable to the increase of long-term debt, which is discussed further in the Capital Assets and Debt Administration section. Current liabilities increased $15.2 million over the prior fiscal year. The increase is due to increases in accounts payable of $5.1 million, current portion of debt payable $3.0 million, accrued expenses of $2.7 million, and unearned revenue of $2.1 million. ǀ 15 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

65 NET POSITION A summarized comparison of the University s net position at June 30, 2014 and 2013 (in thousands), is as follows: (restated) Net investment in capital assets $234,187 $215,847 Restricted: Nonexpendable 21,770 20,430 Expendable 29,462 26,658 Unrestricted 154, ,284 Total net position $439,539 $435,219 Net investment in capital assets increased $18.3 million, resulting from a $32.4 million increase in capital assets (net of depreciation) offset by $14.1 million of related debt. Net position at June 30, 2014 increased in total by $4.3 million or 1.0 percent from This is a result of total combined sources of $490.3 million and total uses of $486.0 million. REVENUES ANALYSIS The Statement of Revenues, Expenses, and Changes in Net Position presents the University s operating, non-operating, and capital related financial activity during the fiscal year. Tuition and fees and state appropriations continue to be the major funding sources for operations related to educational purposes. Operating revenues are provided as a result of the University s ongoing operations such as tuition and fees, government grants and contracts, and auxiliary enterprises. Operating revenues (which does not include state appropriations) increased by $19.2 million or 7.3 percent from fiscal year Tuition and fees revenue increased $16.3 million or 9.4 percent, due to higher student enrollment coupled with an increase in board approved tuition rates. Other revenues increased by $2.8 million, a 16.3 percent increase. Auxiliary enterprises expense decreased $11.6 million or 26.2 percent. Depreciation expense increased by $1.9 million or 6.0 percent, as the University constructed new buildings and made improvements and renovations. Depreciation expense is expected to continue to increase as the University continues to construct new buildings and renovate older ones. Net Investment Income Total Sources of Funds 1% Non-operating revenues increased overall by $11.1 million or 5.8 percent. State and capital appropriations increased $4.1 million or 3.8 percent from the prior fiscal year. The share of state sales taxes - technology and research initiated funding (TRIF) revenues increased $0.8 million or 7.1 percent over the 2013 fiscal year. Net investment income totaled $5.7 million in 2014 compared to $3.2 million in 2013, an increase of 79.7 percent. Share of State Sales Tax Private Gifts, Grants and Contracts Other Sources 3% 3% 6% EXPENSES ANALYSIS Overall, operating expenses increased $27.6 million or 6.4 percent. Auxiliary Enterprises 10% Educational and general expenses increased $37.3 million or 10.4 percent. Within educational and general expenses, instruction increased $13.7 million or 9.7 percent. Research increased $3.7 million or 18.6 percent. Student services increased $8.4 million or 19.8 percent, reflecting investments made in technology and support services to support higher enrollment levels. Institutional support increased $6.4 million or 13.6 percent. Operation and maintenance of plant increased $3.4 million or 14.8 percent. Scholarships and fellowships increased $1.2 million or 5.0 percent. Government Grants and Contracts State Appropriations Tuition and Fees 16% 22% 39% 16 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

66 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION The Statement of Revenues, Expenses, and Changes in Net Position presents the operating results of the University, as well as the non-operating revenues and expenses. Annual state appropriations, while budgeted for operations, are considered non-operating revenues according to U.S. generally accepted accounting principles. A summarized comparison of the University s revenues, expenses, and changes in net position for the years ended June 30, 2014 and 2013 (in thousands), is as follows: Operating revenues: Tuition and fees, net of scholarship allowances $188,816 $172,565 Grants and contracts 22,459 23,039 Auxiliary enterprises 51,294 50,637 Other 20,246 17,410 Total operating revenues 282, ,651 Nonoperating revenues: State appropriations 105, ,469 Share of state sales tax - technology and research initiative funding 12,308 11,492 Grants and gifts 67,333 67,494 Net investment income 5,703 3,174 Net gain on disposal of capital assets 65 Other nonoperating revenues 9,742 5,892 Total nonoperating revenues 200, ,586 Total revenues 483, ,237 Operating expenses: Educational and general 395, ,148 Auxiliary enterprises 32,759 44,386 Depreciation 33,256 31,387 Total operating expenses 461, ,921 Nonoperating expenses: Interest expense on capital asset related debt 23,696 23,456 Other nonoperating expenses Total nonoperating expenses 24,451 23,710 Total expenses 485, ,631 Decrease before capital appropriations, capital grants and gifts and endowment additions (2,470) (4,394) Capital appropriations, capital grants and gifts and endowment additions 6,790 6,844 Increase in net position $4,320 $2,450 ǀ 17 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

67 EXPENSES - BY FUNCTIONAL CLASSIFICATION A comparative summary of the University s operating expenses by functional classification for the years ended June 30, 2014 and 2013, is as follows: Operating: Instruction $156,020,998 $142,282,297 Research 23,584,493 19,886,287 Public service 25,699,145 26,935,344 Academic support 33,876,693 32,163,479 Student services 50,504,072 42,145,206 Institutional support 53,701,910 47,265,354 Operation and maintenance of plant 26,692,770 23,258,886 Scholarships and fellowships 25,412,539 24,210,772 Total educational and general expenses 395,492, ,147,625 Auxiliary enterprises 32,759,258 44,385,785 Depreciation 33,255,545 31,387,521 Total operating expenses 461,507, ,920,931 Non-operating: Interest and other 24,450,575 23,710,011 Total expenses $485,957,998 $457,630,942 EXPENSES BY FUNCTIONAL CLASSIFICATION Auxiliary enterprises 7% Depreciation 7% Scholarships and fellowships 5% Instruction 34% Operation and maintenance of plant 6% Institutional support 12% Student services 11% Academic support 7% Public service 6% Research 5% 18 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

68 EXPENSES - BY NATURAL CLASSIFICATION In addition to their functional (program) classification, it is also informative to review operating expenses by their natural (expense) classification. A comparative summary of the University s expenses by natural classification for the years ended June 30, 2014 and 2013, is as follows: Operating: Personal services and benefits $293,654,435 $268,887,721 Operations 109,184, ,434,917 Scholarships and fellowships 25,412,539 24,210,772 Depreciation 33,255,545 31,387,521 Total operating expenses 461,507, ,920,931 Non-operating: Interest and other 24,450,575 23,710,011 Total expenses $485,957,998 $457,630,942 EXPENSES BY NATURAL CLASSIFICATION Operations 24% Scholarships and fellowships 5% Personal services and benefits 64% Depreciation 7% ǀ 19 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

69 CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets at June 30, 2014 At June 30, 2014, the University had $727.7 million invested in capital assets. During the year the University added $66.5 million in new capital assets and retired $6.0 million of obsolete assets. Accumulated depreciation increased by $28.1 million. Details of capital assets at June 30, 2014 and 2013 are as follows: Land $6,921,409 $6,851,409 Construction in progress 53,176,663 12,906,733 Infrastructure 137,037, ,462,942 Buildings and improvements 810,678, ,957,026 Equipment 73,651,651 73,020,098 Library books and media 45,706,428 46,480,283 Accumulated depreciation (399,473,764) (371,335,952) Total Capital Assets $727,698,554 $695,342,539 Outstanding Debt at June 30, 2014 At June 30, 2014 the University had $613.4 million in outstanding bonds, certificates of participation, other long-term obligations, and capital leases, an increase of approximately $47.2 million, or 8.3 percent from fiscal year This is due to the issuance of $74.9 million in system revenue bonds and other long-term obligations and principal reductions of $27.7 million. The table below summarizes the University s outstanding debt from fiscal years 2014 and 2013: System revenue bonds $510,695,000 $467,425,000 Capital leases 17,746,376 17,935,376 Certificates of participation 62,850,000 65,630,000 Subtotal 591,291, ,990,376 Plus bonds premium 22,123,421 15,215,503 Total Outstanding Debt $613,414,797 $566,205,879 The University generally finances capital improvements and acquisitions through the issuance of System Revenue Bonds (SRBs) and Certificates of Participation (COPs). Prior to issuing any Bonds or COPs, the University must submit a financing and funding plan to the Arizona Board of Regents for approval and to the State Joint Committee on Capital Review for their review. The amount of debt the University is able to issue is limited by a debt ratio of 8 percent as defined by State law (Arizona Revised Statutes ) and ABOR policy 7-102(D)(3). The debt ratio is determined by annual debt service on Bonds and COPs as a percentage of total operating expenses and debt service. At June 30, 2014, the University s debt ratio was 5.09 percent. The University s credit ratings on its outstanding System Revenue Bonds are A1 by Moody s and A by Standard and Poor s. Significant capital additions completed or in progress, and the resources that funded their acquisitions for fiscal year 2014 were: New Aquatic/Tennis Center, $4.0 million, bond proceeds Phoenix BioMed Build out, $3.5 million, bond proceeds Ceramics/chemical storage, $1.1 million, unrestricted net assets Residence Life FLS, $1.8 million, bond proceeds Field House renovation, $3.6 million, unrestricted net assets Science and Health Building, $27.0 million, bond proceeds A $34 million Student and Academic Services Classroom Building is a project planned to commence in fiscal year 2015, funded from system revenue bonds. In accordance with Arizona Revised Statutes , NAU receives $5.9 million in state appropriations annually for lease-purchase capital financing of research infrastructure projects. For more detailed information on longterm debt activity and capital asset activity please review the relevant disclosures in the notes to the financial statements (Note 4 and Note 5). 20 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

70 ECONOMIC OUTLOOK Languid... The Merriam-Webster definition is showing or having very little strength, energy, or activity; drooping or flagging from or as if from exhaustion, sluggish in character or disposition, lacking force or quickness of movement. In many ways, that has described Arizona s economy for the last few years and is unfortunately an apt description for the near future as well. After decades of being one of the most vibrant economies in the nation, Arizona is now experiencing much slower growth. By nearly any metric, Arizona s economy is performing below expectations. For many years, Arizona has experienced significant population growth due to a combination of retirees and young adults moving to the state in search of employment. But the Great Recession nearly stopped both those groups from moving. Because of declining property values and investment losses, the number of people retiring and moving to the state has fallen. As well, Arizona experienced significant job losses and has been slow to recover them. This has led to very slow population growth. In the years from 1960 through 2000, Arizona had only one year in which population growth fell below 2.0 percent. Yet for the last seven years, our population growth has not reached that high and it does not appear that the string of slow-growth years will end soon. As is often mentioned, this has manifested itself most obviously in the construction and real estate industries. During the Great Recession, Arizona lost nearly three hundred thousand (-300,000) jobs across nearly every industry. In 2012 and 2013 the state recovered slightly over 50,000 jobs a year and it appears that the state might recover about that many in Which means the Arizona job market will be halfway to recovering the jobs lost from 2008 through 2010 and at this pace will take until 2017 or into 2018 to get back to the peak of 2,719,700 jobs recorded in December Unless unexpected growth returns soon, it will take ten years to recover the jobs lost. To put that in perspective, the national economy and many other states have already recovered all the jobs they lost. Historically, Arizona and Nevada have been the fastest growing states in the nation in terms of population and jobs. While Nevada now ranks second in year to date job growth, Arizona ranks 16 th. Among large and small states growing more quickly are Texas at third, Utah at fourth, Florida at fifth, Oregon at sixth, Colorado at seventh and California at ninth. It is nearly undeniable that slow population and job growth has had an impact on Arizona tax revenues. The state has three primary sources of revenue with sales taxes accounting for about 48 percent, individual income taxes accounting for 43 percent and corporate income taxes accounting for the remaining 9 percent. After significant declines in FY2008 through 2010, sales tax growth turned slightly positive in FY2011 and reached a peak of 6.1 percent in FY2012. FY2013 slowed to 4.9 percent growth and the forecast is for even slower growth in the next few years. Individual income tax growth has been even more pronounced. It peaked in FY2011 at 18.0 percent before slowing to 7.8 percent in FY2012 and 9.9 percent in FY2013. Following the trend in sales tax collections, FY2014 through FY2017 show growth rates of 4.1 to 5.6 percent. This will be insufficient to fund the structural growth of the state budget. On the positive side, Arizona continues to grow and is projected by national consulting firms to be among the best places to relocate or start a business. A favorable business climate, desirable lifestyles and attractive climate are likely to keep the economy growing. But the state has a number of challenges ahead as it diversifies its economy and competes with other states in an overall climate of slow national growth. Reversing the trends that have developed will take significant time and effort. In years to come, languid will hopefully change to energetic. ǀ 21 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

71 STATEMENT OF NET POSITION June 30, 2014 Financial Statements Business- ASSETS Type Activities Current assets: Cash and cash equivalents $54,487,564 Investments 83,447,310 Receivables (net of allowance for uncollectibles): Accounts receivable 20,523,508 Accrued interest 429,427 Endowment 7,320 Government grants and contracts 18,296,047 Student loans, current portion 1,352,155 State appropriation receivable 30,531,817 Other assets 925,968 Inventories 375,680 Total Current Assets $210,376,796 Noncurrent assets: Restricted cash and cash equivalents held by trustee for capital projects $117,047,239 Investments 15,853,207 Student loans receivable, net of allowance 5,288,258 Endowment investments 26,500,517 Other noncurrent assets 3,292,927 Capital assets, not being depreciated 60,098,072 Depreciable capital assets, net of depreciation 667,600,482 Total Noncurrent Assets $895,680,702 Total Assets $1,106,057,498 DEFERRED OUTFLOW OF RESOURCES Deferred charge on refunding $5,486,525 LIABILITIES Current liabilities: Accounts payable $16,659,958 Accrued payroll and employee benefits 7,760,773 Interest payable 5,973,498 Unearned revenues 16,526,814 Accrued compensated absences 6,495,486 Deposits held in custody for others 3,795,733 See Notes to Financial Statements 22 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

72 STATEMENT OF NET POSITION (continued) Current portion of long-term debt funded by: University operating revenues 11,147,140 State appropriations and share of state sales tax 2,890,000 Total Current Liabilities $71,249,402 Noncurrent liabilities: Deposits held in custody for others $1,378,000 Long-term debt funded by: University operating revenues 427,437,657 State appropriations, share of state sales tax, and lottery revenue 171,940,000 Total Noncurrent Liabilities $600,755,657 Total Liabilities $672,005,059 NET POSITION Net investment in capital assets $234,187,285 Restricted: Nonexpendable: Scholarships and fellowships 14,480,773 Student loans 7,289,507 Expendable: Scholarships and fellowships 10,569,428 Academic department uses 18,892,136 Unrestricted 154,119,835 Total Net Position $439,538,964 See Notes to Financial Statements ǀ 23 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

73 STATEMENT OF FINANCIAL POSITION - COMPONENT UNIT June 30, 2014 NAU FOUNDATION ASSETS Cash and cash equivalents $1,290,086 Pledges receivable, net 7,059,393 Bequests receivable 38,974 Other receivables 97,155 Net investment in direct financing lease 7,375,395 Due from Northern Arizona University 400,000 Investments 129,782,960 EBS licenses, net 964,168 Donated assets held for sale 41,942 Assets held under split-interest agreements 3,961,901 Cash surrender value of life insurance 4,469,130 Beneficial interest in perpetual trusts 3,547,227 Other assets 45,000 Total assets $159,073,331 LIABILITIES Accounts payable and accrued liabilities $146,167 Assets held in custody for others 27,545,109 Deferred revenue 5,421,596 Obligations under split interest agreements 2,001,819 Total liabilities $35,114,691 NET ASSETS Unrestricted $12,285,462 Temporarily restricted 52,378,085 Permanently restricted 59,295,093 Total net assets $123,958,640 TOTAL LIABILITIES AND NET ASSETS $159,073,331 See Notes to Financial Statements 24 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

74 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION For the Year Ended June 30, 2014 Business- REVENUES Type Activities Operating Revenues Tuition and fees (net of scholarship allowances of $76,659,632) $188,816,077 Government grants and contracts 19,594,435 Private grants and contracts 2,865,004 Auxiliary enterprises Residence life (net of scholarship allowances of $5,939,360) 29,869,683 Other auxiliaries 21,423,598 Other 20,246,265 Total operating revenues $282,815,062 EXPENSES Operating Expenses Educational and general: Instruction $156,020,998 Research 23,584,493 Public service 25,699,145 Academic support 33,876,693 Student services 50,504,072 Institutional support 53,701,910 Operation and maintenance of plant 26,692,770 Scholarships and fellowships 25,412,539 Auxiliary enterprises 32,759,258 Depreciation 33,255,545 Total operating expenses $461,507,423 Operating loss $(178,692,361) NONOPERATING REVENUES AND (EXPENSES) State appropriations $105,588,275 Share of state sales tax - technology and research initiative funding 12,308,055 Government grants 56,413,717 Private grants and gifts 10,919,359 Net investment income 5,702,338 Interest expense on capital asset related debt (23,695,674) Net loss on disposal of capital assets (754,901) Other nonoperating revenues, net 9,741,713 Total nonoperating revenues and expenses $176,222,882 See Notes to Financial Statements ǀ 25 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

75 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION (continued) Loss before other revenues, expenses, gains or losses $(2,469,479) Capital appropriations $5,900,000 Capital grants and gifts 63,518 Additions to permanent endowments 826,227 Increase in net position $4,320,266 NET POSITION Total net position, July 1, 2013 (as restated) $435,218,698 Total net position, June 30, 2014 $439,538,964 See Notes to Financial Statements 26 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

76 STATEMENT OF ACTIVITIES - COMPONENT UNIT For the Year Ended June 30, 2014 NAU FOUNDATION Temporarily Permanently SUPPORT AND REVENUES Unrestricted Restricted Restricted Total Public contributions $1,981,495 $9,156,244 $2,329,916 $13,467,655 EBS revenue 1,369,652 1,369,652 Investment return 1,168,203 15,304,964 64,524 16,537,691 Interest income on direct financing leases 406, ,059 Change in beneficial interest in perpetual trusts 269, ,712 Change in value of split-interest agreements 188, ,209 Change in cash surrender value of life insurance 1,113,175 1,113,175 Other income and support 89, , ,279 Reclassification of donor intent 98,000 (267,207) 169,207 Net assets released from restrictions 10,477,449 (10,477,449) Total support and revenues $15,778,316 $15,394,243 $2,833,873 $34,006,432 EXPENSES Program expenses: Disbursements for educational purposes $3,638,827 $3,638,827 Scholarships 2,114,166 2,114,166 Facilities 87,518 87,518 Other University programs 1,337,340 1,337,340 Total program expenses $7,177,851 $7,177,851 Supporting services: Fundraising $3,073,797 $3,073,797 Management and general 516, ,811 Amortization of EBS licenses 1,175,929 1,175,929 Total supporting services $4,766,537 $4,766,537 Total expenses $11,944,388 $11,944,388 Loss on uncollectible pledges ($471,908) ($471,908) Change in net assets $3,833,928 $14,922,335 $2,833,873 $21,590,136 Net assets, beginning of year (restated) 8,451,534 37,455,750 56,461, ,368,504 Net assets, end of year $12,285,462 $52,378,085 $59,295,093 $123,958,640 See Notes to Financial Statements ǀ 27 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

77 STATEMENT OF CASH FLOWS For the Year Ended June 30, 2014 Business- Type Activities Cash flows from operating activities: Tuition and fees $184,627,643 Grants and contracts 19,326,165 Payments to suppliers and providers of goods and services (104,098,113) Payments for employee wages and benefits (286,037,362) Payments to students for scholarships and fellowships (25,412,539) Payments to students for loans (1,942,476) Collection of loans to students 1,094,589 Auxiliary enterprise receipts: Residence halls 30,578,487 Other auxiliaries 21,635,199 Other receipts 15,903,208 Net cash used for operating activities $(144,325,199) Cash flows from noncapital financing activities: State appropriations $105,551,258 Share of state sales tax - technology and research initiative funding 12,308,055 Gifts and grants for other than capital purposes 67,333,077 Federal direct lending receipts 147,245,897 Federal direct lending disbursements (147,214,284) Deposits held in custody for others received 20,019,015 Deposits held in custody for others disbursed (17,987,708) Financial aid trust funds 826,227 Net cash provided by noncapital financing activities $188,081,537 Cash flows from capital and related financing activities: Capital appropriations $5,900,000 Proceeds from issuance of capital debt 57,447,072 Build America Bonds - federal subsidy 9,215,707 Proceeds from sale of capital assets 99,394 Capital grants and gifts received 63,518 Purchases of capital assets (66,465,855) Principal paid on capital debt and leases (9,538,182) Interest paid on capital debt and leases (22,707,234) Net cash used for capital and related financing activities $(25,985,580) Cash flows from investing activities: Proceeds from sales and maturities of investments $86,979,815 Interest on investments 5,983,151 Purchase of investments (94,488,818) Net cash used for investing activities $(1,525,852) Net increase in cash and cash equivalents $16,244,906 Cash and cash equivalents - July 1, ,289,897 Cash and cash equivalents - June 30, 2014 $171,534,803 See Notes to Financial Statements 28 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

78 STATEMENT OF CASH FLOWS (continued) For the Year Ended June 30, 2014 Reconciliation of operating loss to net cash used for operating activities: Operating loss $(178,692,361) Adjustments to reconcile operating loss to net cash used for operating activities: Depreciation expense 33,255,545 Miscellaneous nonoperating expenses (259,311) Changes in assets and liabilities - cash increase (decrease) related to: Receivables: Accounts receivable (3,736,468) Government grants and contracts receivable (2,552,447) Student loans receivable and accrued interest from student loans (1,283,814) Inventories (19,682) Other assets (244,024) Accounts payable 4,423,842 Accrued payroll and employee benefits 2,266,766 Unearned revenues 2,062,120 Accrued compensated absences 454,635 Net cash used for operating activities $(144,325,199) Significant noncash transactions: State appropriation receivable $30,531,817 Refinancing of long-term debt 16,315,000 See Notes to Financial Statements ǀ 29 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

79 Notes to Financial Statements June 30, 2014 Note 1 Summary of Significant Accounting Policies Financial Statement Presentation The accompanying financial statements include all activities that are directly controlled by the University. In addition, the financial statements include the financial position and activities of the University s discretely presented component unit as described in Note 9. Fiscal responsibility for the University remains with the State of Arizona; therefore, the University is an integral part of the State of Arizona s Tri-University system, which is an enterprise fund in the State of Arizona s Comprehensive Annual Financial Report. The accounting policies of the University conform to U.S. generally accepted accounting principles applicable to public institutions of higher education engaged only in businesstype activities adopted by the Governmental Accounting Standards Board (GASB). For the year ended June 30, 2014, the University implemented the provisions of GASB Statement No. 65, Items Previously Reported as Assets and Liabili es; GASB Statement No. 66, Technical Correc ons , an Amendment of GASB Statements No. 10 and No. 62; and GASB Statement No. 70, Accoun ng and Financial Repor ng for Nonexchange Financial Guarantees. GASB Statement No. 65 establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities. The implementation of GASB Statements No. 66 and 70 had no significant impact on the University s fiscal year 2014 financial statements or notes. The implementation of GASB Statement No. 65 did impact the financial statements, the beginning net position balance for FY2014 was restated, more information is available in Note 2. Reporting Entity The accompanying financial statements present the activities of the University, its discretely presented component unit, the Northern Arizona University Foundation (Foundation) and its blended component unit, the Northern Arizona Capital Facilities Finance Corporation (NACFFC). The Foundation was incorporated as a legally separate not-for-profit corporation in the State of Arizona in January 1959 and operates exclusively for the benefit of Northern Arizona University. The Foundation receives gifts and bequests, administers and invests in securities and property, and disburses payments to and on behalf of the University for Advancement of its mission. The University does not control the timing or amount of receipts from the Foundation. The restricted resources of the Foundation can only be used by, or for, the benefit of the University or its constituents. Consequently, the Foundation is considered a component unit of the University and is discretely presented in the University s financial statements. NACFFC was incorporated in October 2001 as a legally separate not-forprofit corporation under the laws of the State of Arizona for the purpose of acquiring, developing, constructing and operating student housing and other capital facilities and equipment for the use and benefit of the University s students. Because the NACFFC Board of Directors is appointed by the University, NACFFC is controlled and operated by University personnel, and NACFFC s outstanding debt is expected to be repaid entirely or almost entirely with resources from the University, NACFFC s financial statements have been blended with those of the University in accordance with GASB Statement No. 61. For financial reporting purposes, both the Foundation and NACFFC follow the Financial Accounting Standards Board (FASB) statements for not-forprofit organizations. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. No modifications have been made to the Foundation s financial information included in the University s financial report. Accordingly, those financial statements have been reported on separate pages following the University s respective counterpart financial statements. For financial reporting purposes, only the Foundation s statements of financial position and activities are included in the University s financial statements as required by generally accepted accounting principles for public colleges and universities. Since NACFFC s financial results are blended with the University s financial results, adjustments were made to present NACFFC s financial results in accordance with the GASB reporting model. In addition, the University eliminated all duplicate financial transactions for reporting purposes. The Foundation and NACFFC have a June 30 year end. Complete financial statements as originally presented for the Foundation and NACFFC can be obtained from the Northern Arizona University Comptroller s Office, P.O. Box 4069, Flagstaff, AZ During the year ended June 30, 2014, the Foundation distributed $7.2 million to the University. 30 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

80 Basis of Presentation and Accounting The University s financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded at the time liabilities are incurred, regardless of when the cash flow takes place. State appropriations are recognized as revenue in the year in which the appropriation is first made available for use. Grants and donations are recognized as revenue as soon as all eligibility requirements imposed by the provider are met. All significant transactions resulting from internal activity have been eliminated. The financial statements include a statement of net position; a statement of revenues, expenses, and changes in net position; and a statement of cash flows. The statement of net position provides information about the University s assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position of the University at the end of the year. Assets and liabilities are classified as either current or noncurrent. Net position is classified according to external donor restrictions or availability of assets to satisfy University obligations. Net investment in capital assets represents the value of capital assets net of accumulated depreciation less any outstanding debt incurred to acquire or construct the assets. Nonexpendable restricted net position includes gifts that have been received for endowment purposes, the corpus of which cannot be expended and monies that are restricted for the purpose of issuing student loans. Expendable restricted net position represent grants, contracts, gifts, and other resources that have been externally restricted for specific purposes. Unrestricted net position consists of all other resources, including those that have been designated by management to be used for other than general operating purposes. The statement of revenues, expenses, and changes in net position provides information about the University s financial activities during the year. Revenues and expenses are classified as either operating or non-operating, and all changes in net position are reported, including capital contributions and additions to endowments. Operating revenues and expenses are those that generally result from exchange transactions generated from providing instructional, research, public, and auxiliary services, which are consistent with the University s mission. Accordingly, revenues such as tuition and fees, sales and services of auxiliary enterprises and most government and nongovernment research grants and contracts, in which each party receives and gives up essentially equal values, are considered operating. Certain significant revenue streams relied upon for operations are recorded as non-operating revenues as defined by GASB Statement No. 35, including state appropriations, non-exchange grants, gifts, and investment income result from transactions in which parties do not exchange equal values. Operating expenses include the cost of sales and services, administrative expenses, and depreciation on capital assets. Other expenses, such as interest expense on debt, are considered to be non-operating expenses. The statement of cash flows provides information about the University s sources and uses of cash and cash equivalents during the year. Increases and decreases in cash and cash equivalents are classified as operating, non-capital financing, capital financing, or investing activities. The University has both restricted and unrestricted resources available for its operations. Generally, the use of these resources is managed at the department level. Restricted resources are primarily externally provided sponsored research grants and contracts and externally provided student financial aid. When both restricted and unrestricted resources are available for use, restricted resources will typically be used first. University policy is that the funding source to be used is determined by each department based on: (1) relative priorities of the department in accordance with University strategic initiatives, (2) externally imposed matching requirements of the restricted grants and contracts, and (3) any pertinent lapsing provisions of the restricted or unrestricted funding resources available for the expense. Cash and Cash Equivalents The University considers all shortterm, highly liquid investments with maturities of less than three months from the date of acquisition to be cash equivalents. Cash and investments held by trustee are also considered cash equivalents. Investments Investments are reported at fair value. Fair value typically is the quoted market price for investments. Receivables Student loans and accounts receivable as of June 30, 2014, are reported less allowances for both estimated uncollectible amounts and collection costs of $1,120,100 and $6,871,100 respectively. The fiscal year 2014 appropriation to Arizona Board of Regents for the support and maintenance of institutions under its jurisdiction was deferred in the amount of $200 million to fiscal year 2015 with payment to be no later than October 1, Northern Arizona University s $30,531,817 portion of the $200 million deferred appropriation payment was recorded as a receivable in fiscal year Inventories Inventories are stated at the lower of cost or market. The cost of inventories is determined generally using the first-in, first-out or weighted average cost methods. Special Collections The University does not capitalize its special collections because the items ǀ 31 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

81 are held for educational and research purposes and not for financial gain. The items are preserved, unencumbered, and protected. It is the University s policy to acquire other items to further or enhance collections with any proceeds from the disposal of special collection items. Compensated Absences Compensated absences consist of vacation leave and compensatory time earned by employees based on services already rendered. Employees may accumulate up to 264 hours of vacation depending on years of service and full-time equivalent employment status, but any vacation hours in excess of the maximum amount that are unused at December 31 are forfeited. Upon termination of employment, all unused vacation benefits not exceeding 176 hours (annual accrual amount), depending on years of service and fulltime equivalent employment status, and compensatory time are paid to employees. Accordingly, vacation benefits and compensatory time are accrued as a liability in the financial statements. Generally, sick leave benefits provide for ordinary sick pay and are cumulative but are forfeited upon termination of employment. Because sick leave benefits do not vest with employees, a liability for sick leave benefits is not accrued in the financial statements. However, upon retirement, employees who have accumulated at least 500 hours of sick leave are paid a formulated benefit amount. The University makes contributions each pay period to the State s Retiree Accumulated Sick Leave Fund and the State makes benefit payments directly to the retired employees from the fund. Consequently, the University does not have liability for these sick leave benefits. Deferred Outflows of Resources The statement of net position includes a separate section for deferred outflows of resources. Deferred outflows of resources represent a consumption of net position that applies to future periods that will be recognized as an expense in future periods. Investment Income Investment income is composed of interest, dividends, and net changes in fair value of applicable investments. Scholarship Allowances Student tuition and fees 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. A scholarship discount and allowance is the difference between the stated charge for goods and services provided by the University and the amount that is paid by students or third parties making payments on behalf of the student. Accordingly, some types of student financial aid such as Pell grants and scholarships awarded by the University are considered to be scholarship allowances. These allowances are netted against tuition and fees and certain auxiliary enterprise revenues in the statement of revenues, expenses, and changes in net position. Capital Assets Capital assets are reported at actual cost. Donated assets are reported at estimated fair value at the time received. Capitalization thresholds, depreciation methods, and estimated useful lives of capital assets reported in the financial statements are as follows: Capitalization Threshold Depreciation Method Estimated Useful Life Building improvements $5 thousand Straight Line 20 years Buildings All Straight Line 40 years Infrastructure All Straight Line years Land All None Equipment Machinery, vehicles, and other equipment $5 thousand Straight Line 5-15 years Intangible assets: Computer software > $10 million $10 million Straight Line 10 years Computer software < $10 million $1 million Straight Line 5 years All other (1) $100 thousand Straight Line (1) Library books and media All Straight Line 10 years (1) Includes websites, non-software licenses and permits, patents, copyrights and trademarks, rights-of-way and easements, natural resource extraction rights and other intangible assets. In general, the estimated useful life is the shorter of the legal or the estimated useful life. 32 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

82 Note 2 Beginning Net Position Balance Restated Effective July 1, 2013, the University implemented GASB Statement No. 65, Items Previously Reported as Assets and Liabili es. With this change, bond issuance costs are expensed as incurred with the exception of prepaid insurance costs which are still expensed over the life of the bonds. To record the cumulative effect of the reporting change, the University s July 1, 2013, net position balance was restated downward by $1,596,072 to reflect the unamortized amount of bond issuance cost no longer treated as an asset. Beginning net position was adjusted as follows: Net posi on as of July 1, 2013 $436,814,770 Less: Bond issuance costs 1,596,072 Net posi on as of July 1, 2013 as restated $435,218,698 Note 3 Deposits and Investments Arizona Revised Statutes (A.R.S.) require that deposits of the University not covered by federal deposit insurance be secured by government bonds or by a safekeeping receipt of the institution accepting the deposit. Further, policy regarding deposits is provided by the Arizona Board of Regents (ABOR). Deposits can be made only at depository banks approved by the Board. A.R.S. and ABOR policies constitute the University s policy regarding custodial credit risk for deposits. There is no statutory requirement that governs university investment activities. A.R.S gives the ABOR jurisdiction and control over the universities, and A.R.S allows ABOR to authorize the universities to adopt regulation, policies, rules, or measures as deemed necessary. ABOR investment policies require that the University invest its operating funds only in the State Treasurer s Local Government Investment Pool, collateralized time certificates of deposit and repurchase agreements, U.S. Treasury securities, and obligations of other agencies sponsored by the federal government. In addition, ABOR has authorized the University to establish an investment committee. The investment committee establishes investment policies and makes investment decisions. ABOR policies guide the investment committee decisions. The University s deposit and investment policies mirror that of the ABOR policies. University policy states that restricted (gift) and endowment funds will be invested according to the conditions stipulated by the donor, but if no conditions are imposed, such funds may be invested under the direction of the investment committee in such a manner as to obtain the most favorable rate of return and income stability. The bond indentures constitute the investment policy for University monies held with bond trustees. The bond indentures authorize the bond trustees to invest in obligations of or guaranteed by the federal government or any agency or instrumentality thereof, municipal obligations, collateralized certificates of deposit with federally insured banks, trust companies, savings and loan associations within the State of Arizona, or repurchase agreements. Deposits At June 30, 2014, cash on hand was $22,978, the carrying amount of the University s deposits was $54,100,481 and the bank balance was $57,095,318. Beyond the requirements established by A.R.S. and ABOR, the University does not have a policy that specifically addresses custodial credit risk. At June 30, 2014, $56,095,318 of the University s bank balance was exposed to custodial credit risk as follows: Uninsured and uncollateralized $41,488,378 Uninsured with collateral held by the pledging financial ins tu on 14,606,940 $56,095,318 U.S. agency securities include Federal National Mortgage Association, Federal Farm Credit Bank, Federal Home Loan Bank and Federal Home Loan Mortgage Corporation. Trust agreements between the University and the NAU Foundation, Inc. authorize the Foundation to invest certain University restricted (gift) and endowment monies. The NAU Foundation Investment Pool invests in a variety of asset classes, including common stocks and fixed income and international equity funds. The Foundation s Board of Directors appointed Investment Committee is responsible for oversight of the Pool in accordance with NAU Foundation policies and procedures. The fair value of the University s position in the Pool is based on the University s proportionate share of the Pool and is not identified with specific investments. The University s ownership interest is recorded in the Foundation s records. As of June 30, 2014 the Foundation held $27,300,616 in custody for the University. The Arizona Student Financial Aid Trust Fund (ASFAT) was established in accordance with A.R.S for the purpose of providing aid to students with verifiable financial need. The Northern Arizona University Foundation holds and manages the University s share of ASFAT within its pool. The University s ownership interest is recorded in the Northern Arizona University Foundation s records. The fair value of the ASFAT at June 30, 2014 was $19,426,668. ǀ 33 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

83 Investments Amount Bond Trustee Funds: Government Money Market Mutual Fund $117,047,239 U.S. agency securi es 98,714,060 NAU Founda on Investment Pool 27,300,616 State Treasurer s Investment Pool 5 150,463 $243,212,378 Credit Risk For its operating funds, University policy requires negotiable certificates of deposit; corporate bonds, debentures, and notes; banker acceptances; and State of Arizona bonds to carry a minimum rating of BBB or better from Standard and Poor s Rating Service. There is no formal policy with regards to gift and endowment funds. Gift and endowment funds are held in the NAU Foundation Investment Pool, which is not rated. At June 30, 2014, credit risk for the University s investments in debt securities was as follows: Investment Type Rating Rating Agency Amount Bond Trustee Funds: Government Money Market Mutual Fund AAAm Standard and Poor s $117,047,239 U.S. agency securities AA+ Standard and Poor s 98,714,060 State Treasurer s Investment Pool 5 AAAf/S1+ Standard and Poor s 150,463 $215,911,762 Custodial Credit Risk For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the University will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The University does not have a formal policy in regards to custodial credit risk. At June 30, 2014, the University had $98,714,060 of U.S. agency securities that were uninsured, not registered in the University s name and held by the counterparty. Concentration of Credit Risk University policy limits investments in a single issuer to 5 percent or less of the fair value of the total portfolio. However, securities issued or expressly guaranteed by the federal government are exempt from this provision. The following investments represent five percent or more of the University s investments at June 30, 2014: Federal Home Loan Bank, percent, Federal Home Loan Mortgage Corporation, percent, and Federal National Mortgage Association, percent. A reconciliation of cash, deposits, and investments to amounts shown on the Statement of Net Position is as follows: Cash, deposits and investments: Statement of Net Position: Cash on hand $22,978 Cash and cash equivalents $54,487,564 Cash in bank 54,100,481 Current investments 83,447,310 Total investments 243,212,378 Restricted cash and cash equivalents $297,335,837 held by trustee for capital projects 117,047,239 Noncurrent investments 15,853,207 Endowment investments 26,500,517 $297,335, ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

84 Interest Rate Risk University policy for its operating funds limits the maximum maturity of any fixed or variable rate security to five years. Maturity Investment Type Fair Value Less than 1 Year 1-5 Years Government Money Market Mutual Fund $117,047,239 $117,047,239 U.S agency securities** 98,714,060 83,447,310 $15,266,750 * State Treasurer s Investment Pool 5 150, ,463 Total $215,911,762 $200,645,012 $15,266,750 *These securities mature in fiscal year **At June 30, 2014, the University held $98,714,060 or percent of investments in U.S. agency securities, including the Federal National Mortgage Association, Federal Farm Credit Bank, Federal Home Loan Bank and Federal Home Loan Mortgage Corporation, which may be considered to be highly sensitive to interest rate fluctuations because borrower repayment terms may vary. ǀ 35 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

85 Note 4 Capital Assets Capital asset activity for the year ended June 30, 2014 was as follows: Balance Balance July 1, 2013 Additions Retirements Transfers June 30, 2014 Capital assets not being depreciated: Land $6,851,409 $70,000 $ $ $6,921,409 Construction in progress 12,906,733 59,940,039 (19,670,109) 53,176,663 Total capital assets not being depreciated 19,758,142 60,010,039 (19,670,109) 60,098,072 Capital assets being depreciated: Infrastructure 134,462, ,478 1,961, ,037,550 Buildings and improvements 792,957,026 1,676,054 1,663,442 17,708, ,678,617 Equipment 73,020,098 3,820,315 3,188,762 73,651,651 Library books and media 46,480, ,789 1,131,644 45,706,428 Total capital assets being depreciated 1,046,920,349 6,467,636 5,983,848 19,670,109 1,067,074,246 Less accumulated depreciation for: Infrastructure 41,519,014 4,151,874 45,670,888 Buildings and improvements 241,126,599 22,451, , ,726,216 Equipment 44,413,961 6,044,032 3,134,470 47,323,523 Library books and media 44,276, ,402 1,131,643 43,753,137 Total accumulated depreciation 371,335,952 33,255,545 5,117, ,473,764 Total capital assets being depreciated, net 675,584,397 (26,787,909) 866,115 19,670, ,600,482 Capital assets, net $695,342,539 $33,222,130 $866,115 $ $727,698,554 Construction - The University had major contractual commitments related to various capital projects at June 30, 2014, including construction of a Science and Health Building, a new Aquatic/Tennis Center, major building renovations and major infrastructure upgrades. At June 30, 2014, the University had spent $52.9 million on these projects and had remaining contractual commitments with contractors of $88.6 million. These projects are being financed with a combination of system revenue bonds monies, series 2009, 2010, 2012, 2013, and 2014, and University reserves. 36 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

86 Note 5 Long Term Liabilities Long-term liability activity for the year ended June 30, 2014 was as follows: Balance Balance Due Within July 1, 2013 Additions Reductions June 30, 2014 One Year (restated)* Capital leases $17,935,376 $189,000 $17,746,376 $967,876 Certificates of participation 65,630,000 2,780,000 62,850,000 2,890,000 Revenue bonds payable 467,425,000 67,260,000 23,990, ,695,000 9,150,000 Discounts/premiums 15,215,503 7,607, ,972 22,123,421 1,029,264 Total long-term liabilities $566,205,879 $74,867,890 $27,658,972 $613,414,797 $14,037,140 *Long-term liabilities were restated July 1, 2013 to reclassify deferred charges on refunding as deferred outflows of resources. The following schedule details debt service requirements to maturity for the University s bonds payable at June 30, 2014 Revenue Bonds Principal Interest Year ending June 30, 2015 $9,150,000 $26,966, ,750,000 26,336, ,555,000 25,779, ,725,000 25,122, ,395,000 24,385, ,705, ,899, ,250,000 81,738, ,505,000 49,358, ,930,000 21,285, ,730,000 3,934,635 The following schedule details debt service requirements to maturity for the University s certificates of participation payable at June 30, 2014 Certificates of Participation Principal Interest Year ending June 30, 2015 $2,890,000 $2,748, ,015,000 2,644, ,860,000 2,559, ,885,000 2,469, ,920,000 2,380, ,105,000 9,802, ,830,000 4,967, ,345, ,292 Total $62,850,000 $27,926,912 Total $510,695,000 $393,808,494 Funding responsibility for the June 30, 2014 outstanding principal (dollars in thousands) Current Noncurrent Portion Portion Total From Northern Arizona University operating revenues $11,147 $427,438 $438,585 From State of Arizona provided state appropriations, share of state sales tax, and lottery revenue 2, , ,830 $14,037 $599,378 $613,415 ǀ 37 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

87 The University s bonded debt and certificates of participation (COPs) consist of various issues that are generally callable at a prescribed date with interest payable semiannually. All issues are at a fixed rate. Bond proceeds primarily pay for acquiring, constructing or renovating capital facilities. Systems revenue bonds are repaid from pledged gross revenues that primarily consist of student tuition and fees and certain auxiliary revenues. Revenue Bonds Payable and Certificates of Participation at June 30, 2014 (dollars in thousands) Average Interest Final Balance Balance Current Rate Maturity 7/1/2013 Additions Reductions 6/30/2014 Portion Revenue Bonds: 2004 Systems Refunding 4.749% 6/1/2034 $16,930 $11,060 $5,870 $1, Systems Revenue 4.685% 6/1/ ,580 9,675 3, Systems Refunding 4.675% 6/1/ , , Lease Revenue 4.894% 6/1/ , , Systems Revenue 4.929% 6/1/ , , Systems Revenue 5.041% 6/1/ , , Lease Revenue Refunding 4.614% 6/1/ , , A Systems Revenue 6.490% 6/1/ , , B Systems Revenue 5.000% 6/1/2016 5,640 5,640 2, Systems Revenue 6.164% 8/1/ ,785 64, Systems Revenue 4.459% 6/1/ , , Systems Revenue 4.174% 8/1/ ,190 75, Systems Revenue Refunding 4.982% 6/1/2044 $67,260 67, Subtotal: Par Amount of Bonds $467,425 $67,260 $23,990 $510,695 $9,150 Certificates of Participation: 2004 Certificates of Participation 4.852% 9/1/2030 $3,565 $1,140 $2,425 $1, Certificates of Participation 4.650% 9/1/ ,390 1,245 23,145 1, Certificates of Participation 4.350% 9/1/2017 1, , Refunding COPs 4.781% 9/1/ ,005 36,005 Subtotal: Par Amount of COPs $65,630 $2,780 $62,850 $2,890 Total Par amount of Bonds, COPs $533,055 $67,260 $26,770 $573,545 $12,040 Premium on Sale of Bonds and COPs $15,215 $7,608 $700 $22,123 $1,029 Total Bonds Payable/COPs $548,270 $74,868 $27,470 $595,668 $13, ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

88 Revenue Bonds Payable and Certificates of Participation On May 8, 2014, the University sold $67,260,000 of Systems Revenue and Refunding Bonds Series 2014 for the purpose of the construction and equipping of approximately 120,000 square feet of regulation indoor aquatic and tennis spaces for athletic and intramural activities, 90,000 square feet of regulation outdoor tennis courts and a recreation field, renovation of approximately 254,000 gross square feet of existing residential units containing five residential properties to current fire codes, and improvements to infrastructure, including installation of new water supply piping through rock, roads, and existing landscaping. The Systems Revenue and Refunding Bond Series 2014 include serial bonds of $43,015,000 with interest rates ranging from 3.0 percent to 5.0 percent. The 2014 Bonds also include two term bonds that are subject to annual sinking fund contributions. The first term bond is for $14,865,000 with an interest rate of 5.0 percent that matures June 1, The second term bond is for $9,380,000 with an interest rate of 5.0 percent that matures June 1, Refunded were $6,915,000 of the 2004 Systems Revenue Bonds for maturities from June 1, 2018 to June 1, 2031, and $9,400,000 from the Systems Revenue Bonds Series 2005 for maturities from June 1, 2016 through June 1, 2029 and June 1, 2036 through June 1, The refunding set aside $17,420,818 into escrow that purchased SLGS Certificates with maturities between June 1, 2014 and June 1, The present value of refunded debt prior to May 8, 2014 was $18,618,641 and the net present value of savings was $938,307. The advanced refunding decreases the University s debt service by $377,000 in year one. In addition, annual debt service decreases by an average of $33,000 in years two through twenty seven. In the current and prior years, the University defeased certain revenue bonds and Certificates of Participation by either placing the proceeds of new bonds, or cash and investments accumulated in a sinking fund, in an irrevocable trust to provide for all future debt service payments on the refunded bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the University s financial statements. At June 30, 2014 the University had $15,210,000 and $9,400,000 in Systems Revenue Series 2004, 2005, respectfully, and $28,020,000, $9,225,000, $8,720,000 in Certificates of Participation Series 2004, 2005, and 2006, respectively, outstanding that are considered defeased. The Series 2009A and 2010 Bonds were issued as designated Build America Bonds under the provisions of the American Recovery and Reinvestment Act. As such, the University is eligible to receive direct payments from the U. S. Treasury Department equal to 35 percent of the interest payments on such bonds on each interest payment date. In order to receive such payments, the University must file certain required information with the Federal government between 90 and 45 days prior to the interest payment date. The amount paid to the University by the Federal government may be reduced or eliminated due to such issues as failure by the University to submit the required information, any amounts owed by the University to the Federal government, or changes in the law that would reduce or eliminate such payments. During fiscal year 2014, the Federal government reduced federal direct payment claims filed between December 1, 2013 and September 1, 2014 by 8.7 percent due to the federal budget sequestration resulting in a $270,838 reduction in direct payments to the University. For accounting purposes, any direct payments received from the U. S. Treasury Department are recorded as non-operating revenue. For the 2010 and 2013 revenue bonds, up to 80 percent of the debt service payments are payable from the University s SPEED (Stimulus Plan for Economic and Educational Development) revenue bond account monies, which are derived from certain revenues of the Arizona State Lottery. To the extent SPEED revenue bond account monies are not sufficient to make debt service payments, the SPEED revenue bonds are secured by a pledge of certain gross revenues, such as student tuition and fees, but that pledge is subordinate to the pledge of those gross revenues for the University s system revenue bonds. The University has pledged portions of its gross revenues towards the payment of debt related to system revenue bonds, system revenue refunding bonds, and SPEED revenue bonds outstanding at June 30, The bonds generally provide financing for various capital projects of the University. These pledged revenues include student tuition and fees, certain auxiliary enterprises revenue, investment income, and indirect cost recovery revenue. Pledged revenues do not include state appropriations, gifts, endowment income, or other restricted revenues. Pledged revenues have averaged $214.1 million for the prior five years. For fiscal year 2014 pledged revenues totaled $252.2 million of which 10.1 percent ($25.4 million) was required to cover current year debt service. Future annual principal and interest payments on the bonds are expected to require approximately 12 percent of pledged revenues. Future pledged revenues required to pay all remaining related debt service for the bonds through final maturity of June 1, 2044 is $904.5 million. ǀ 39 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

89 Capital Leases During fiscal year 2013, Northern Arizona Real Estate Holdings (NAREH), a wholly-owned subsidiary of the Northern Arizona Foundation, Inc. constructed a building on land on the Northern Arizona University campus owned by the Arizona Board of Regent s at a total initial direct cost of $9,780,185. NAREH then leased the University Services Building to Northern Arizona University under a direct financing lease with a 19 year term. The University treated the arrangement as a capital lease and capitalized the University Services Building at the $9,780,185 cost. On June 28, 2012 the University entered into an Energy Conservation Equipment Lease-Purchase Agreement with Capital One Public Funding LLC for the acquisition, construction, and installation of energy efficient equipment at the University facilities over two years. The interest rate is 3.530% and the first two years of the University s payments are interest-only payments of approximately $438,000. After two years, the University s payments are approximately $1.2 million each year through June 1, The lease-purchase agreement was initially recorded as a long-term obligation in the amount of $12,420,289, but reclassified to a capital lease effective July 1, Capital Lease commitments to lessors at June 30, 2014 Average Balance Balance Interest Final June 30, June 30, Current Rate Maturity 2013 Additions Reductions 2014 Portion Energy Conservation Equipment Lease-Purchase 3.5% 6/1/2027 $12,420,289 $12,420,289 $767,876 Northern Arizona Real Estate Holdings, LLC 5.5% 9/30/2030 5,515, ,000 5,326, ,000 $17,935,376 $189,000 $17,746,376 $967,876 The following schedule details debt service requirements to maturity for the University s capital leases payable at June 30, 2014: Year Ending 2015 $1,692, ,691, ,690, ,687, ,444, ,246, ,473,225 Total minimum lease payments $23,927,132 Less amount representing interest (6,180,756) Present value of net minimum lease payments $17,746,376 Operating Leases The University leases numerous classroom facilities for extended campus instruction and a limited number of administrative facilities under long-term lease agreements classified as operating leases for accounting purposes. Rental expenses under the terms of operating leases were $2.6 million for the year ended June 30, The operating leases have remaining non-cancelable terms from 1 to 8 years and provide renewal options. The future minimum payments required under the operating leases at June 30, 2014 were as follows: Capital Lease Financing - Following is a summary of capital assets financed by capital leases at June 30, 2014 Buildings $9,780,185 *Building Improvements 16,252,747 Total cost of assets 26,032,932 Less: accumulated depreciation 3,123,515 Carrying value of assets $22,909,417 * The value of the building improvements includes other funding sources of $3,832,458. Year ending June 30, 2015 $976, , , , , ,117 Total minimum lease payments $2,642, ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

90 Note 6 Retirement Plans The University participates in a cost-sharing multipleemployer defined benefit pension, health, and long-term disability plan all of which are administered by the Arizona State Retirement System (ASRS) and a defined contribution pension plan available through one of two independent insurance and annuity companies approved by the Arizona Board of Regents. Under the University s defined benefit plan, the ASRS (through its Retirement Fund) provides retirement (i.e., pension), death, and survivor benefits; the Health Benefit Supplement Fund provides health insurance premium benefits (i.e., a monthly subsidy); and the Long-Term Disability Fund provides long-term disability benefits. Benefits are established by state statute. The System is governed by the Arizona State Retirement System Board according to the provisions of A.R.S. Title 38, Chapter 5, Article 2. The ASRS issues a Comprehensive Annual Financial Report that includes its financial statements and required supplementary information. That report may be obtained by writing to the ASRS, 3300 North Central Avenue, P.O. Box 33910, Phoenix, Arizona , calling (602) or (800) , or online at The Arizona State Legislature establishes and may amend active plan members and the University s contribution rates. For the year ended June 30, 2014, active plan members were required by statute to contribute at the actuarially determined rate of percent (11.30 percent for retirement and 0.24 percent for long-term disability) of the members annual covered payroll and the University was required by statute to contribute at the actuarially determined rate of percent (10.70 percent for retirement, 0.60 percent for health insurance premium, and 0.24 percent for long-term disability) of the members annual covered payroll. Regents. During the fiscal year ended June 30, 2014, plans offered by the Teachers Insurance Annuity Association/ College Retirement Equities Fund (TIAA/CREF) and Fidelity Investments Tax-Exempt Service Company (Fidelity) were approved by the Board. Benefits under these plans depend solely on the contributed amounts and the returns earned on investments of those contributions. Contributions made by members vest immediately, and University contributions vest after five years of benefit eligible employment. Defined Contribution Pension Plans For the year ended June 30, 2014, University and member contributions are summarized below. Plan University Member Total Contributions Contributions Contributions TIAA/CREF $3,621,481 $3,621,481 $7,242,962 Fidelity $2,263,494 $2,263,494 $4,526,988 Employee and University contributions and associated returns earned on investments may be withdrawn upon termination of employment, death, or retirement. The distribution of contributions and associated investment earnings are made in accordance with the member s contract with the applicable insurance and annuity company. The Arizona State Legislature establishes and may amend active plan members and the University s contribution rates. For the year ended June 30, 2014, plan members and the University were each required by statute to contribute an amount equal to 7 percent of a member s compensation. The University s contributions for the current and two preceding years, all of which were equal to the required contributions, were as follows: Years Health Benefit Long-Term Ended Retirement Supplement Disability June 30, Fund Fund Fund 2014 $10,011,037 $561,367 $221, $8,757,865 $555,377 $204, $7,975,201 $509,055 $193,755 In accordance with A.R.S , University faculty, academic professionals, and administrative officers have the option to participate in defined contribution pension plans. These plans are administered by independent insurance and annuity companies approved by the Arizona Board of ǀ 41 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

91 Note 7 Risk Management Pursuant to A.R.S , Northern Arizona University (University) participates in a self-insurance program administered by the State of Arizona, Department of Administration, Risk Management Section. The State s Risk Management Program covers the University, subject to certain deductibles, for risks of loss related to such situations as theft, damage and destruction of property, buildings, and equipment; errors and omissions; injuries to employees; natural disasters; and liability for acts or omissions of any nature while acting in authorized governmental or proprietary capacities and in the course and scope of employment or authorization, except as prescribed in A.R.S Loss risks not covered by the Risk Management Section and for which the University has no insurance coverage are losses resulting from contractual breaches and losses that arise out of and are directly attributable to an act of omission determined by a court to be a felony. From time to time, various claims and lawsuits associated with the normal conduct of University business are pending or may arise against the University. In the opinion of University management, any losses from the resolution of any other pending claims or litigation not covered by the Risk Management Section should not have a material effect on the University s financial statements. All estimated losses for unsettled claims and actions covered by the State s Risk Management Program are determined on an actuarial basis and are included in the State of Arizona Comprehensive Annual Financial Report. Note 8 Expense Classification The University s operating expenses presented in the Statement of Revenues, Expenses, and Changes in Net Position by natural and functional classification are summarized in the table below: For the Year Ended June 30, 2014 Personal Services and Benefits Operations Scholarships Depreciation Total Functional Classification: Educational and general Instruction $137,014,834 $19,006,164 $156,020,998 Research 15,856,927 7,727,566 23,584,493 Public service 12,938,824 12,760,321 25,699,145 Academic support 27,173,997 6,702,696 33,876,693 Student services 33,514,634 16,989,438 50,504,072 Institutional support 35,271,159 18,430,751 53,701,910 Operation and maintenance of plant 7,550,273 19,142,497 26,692,770 Scholarships and fellowships 25,412,539 25,412,539 Auxiliary enterprises 24,333,787 8,425,471 32,759,258 Depreciation 33,255,545 33,255,545 Total $293,654,435 $109,184,904 $25,412,539 $33,255,545 $461,507, ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

92 Note 9 Discretely Presented Component Unit Disclosures A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of Northern Arizona University Foundation, Inc. (Foundation) are consolidated financial statements, which include Northern Arizona Real Estate Holdings and NAU Ventures (limited liability companies) wholly owned subsidiaries, have been prepared on the accrual basis of accounting. Financial Statement Presentation The consolidated financial statements are presented in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) ), Not-for-Profit - Presenta- on of Financial Statements. Under FASB ASC , the Foundation is required to report information regarding their financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Unrestricted net assets - Includes unrestricted amounts associated with the operating activities of the Foundation. Certain unrestricted net assets have been designated as quasi-endowments by the Board of Directors of the Foundation. Temporarily restricted net assets - Includes amounts for which donorimposed restrictions have not been met. Donor-restricted contributions for which restrictions are met within the same fiscal year as they are received are reported as temporarily restricted net assets. Expenditures that fulfill the temporary restriction are shown as expenses in unrestricted net assets and a reduction in temporarily restricted revenue as a release from restriction. Permanently restricted net assets - Includes amounts for which the donor-imposed restrictions state that the corpus is to be invested in perpetuity with the income to be made available for specified programs or uses. Cash and Cash Equivalents Highly liquid investments with an original maturity of three months or less are classified as cash equivalents and are stated at fair value. Investments The Foundation accounts for its investments in accordance with FASB ASC , Not for-profit - Investments-Debt and Equity Securi es. Under FASB ASC , the Foundation is required to report investments in equity securities that have readily determinable fair values, and all investments in debt securities, at fair value. The fair value is based on 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 consolidated financial statements. For management efficiency, investments of the unrestricted and restricted net assets are pooled, except for certain net assets that the Board of Directors or the donors have designated to be segregated and maintained separately. The Foundation investment policy is approved by the Investment Committee of the Foundation s Board of Directors. The spending policy defines the calculation of the amount made available for spending from the endowment pools which is based on a three year rolling average. Revenue Recognition Contributions, including unconditional promises to give, are recognized as revenues in the period received. Conditional promises to give are not recognized until they become unconditional, that is, when the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value. Contributions to be received after one year are discounted at rates commensurate with the risks involved. Amortization of discount is recorded as additional contribution revenue in accordance with donor-imposed restrictions, if any, on the contributions. An allowance for uncollectible contributions receivable is provided based upon management s judgment including such factors as prior collection history. Contributions received for prospective endowments that have not yet met the minimum requirements for acceptance as an endowment are accumulated in temporarily restricted accounts. The accumulated contributions are transferred to permanently restricted endowment accounts when the minimum requirements are fulfilled. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ǀ 43 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

93 Tax Status The Foundation is a public foundation and is exempt from Federal and State income taxes under Section 501(c)(3) of the Internal Revenue Code. Accordingly, no provision for Federal or State taxes has been made. Continued tax-exempt status is contingent on future operations being in compliance with the Internal Revenue Code. B. ASSETS HELD BY TRUSTEE The Foundation has an irrevocable right to receive income earned from the trusts assets held in perpetuity. The Foundation will never receive the trusts assets. The trust agreements are administered and related assets are invested by an individual or organization other than the Foundation. Initial recognition and subsequent adjustments to the assets carrying value are recognized as public contributions and changes in value of perpetual trusts, respectively, and are classified as permanently restricted. Income earned is reported as increases in unrestricted, temporarily restricted or permanently restricted net assets depending on the nature of the restrictions of each trust. C. ENDOWMENTS The Foundation s endowment (the Endowment) consists of approximately 688 individual funds established by donors to provide annual funding for specific activities and general operations. The Endowment also includes certain unrestricted net assets designated for quasi-endowment by the Board of Directors, and quasi-endowments set up by donors that are working to the level of required investment to qualify as an Endowment under the Foundation s donor guidelines. Net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. The Foundation s Board of Directors has interpreted the Arizona Management of Charitable Funds Act (MCFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds, unless there are explicit donor stipulations to the contrary. At June 30, 2014, there were no such donor stipulations. As a result of this interpretation, the Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the Endowment, (b) the original value of subsequent gifts donated to the Endowment (including promises to give net of discount and allowance for doubtful accounts, and (c) accumulations to the endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added. The remaining portion of the donorrestricted endowment 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 MCFA. The Foundation considers the following factors in making a determination to appropriate or accumulate donorrestricted endowment funds: The duration and preservation of the fund The purposes of the organization and the donor-restricted endowment fund General economic conditions The possible effect of inflation and deflation The expected total return from income and the appreciation of investments Other resources and the investment policies of the organization The Foundation uses an endowment spending-rate formula to determine the amount to spend from the Endowment each year. The rate, determined and adjusted from time to time by the Board of Directors, is applied to the average fair value of the Endowment investments for the prior three years at December 31 in February of each year to determine the spending amount for the upcoming year. During 2014, the spending rate was 4.00%. In establishing this policy, the Foundation considered the long-term expected return on the Endowment, and set the rate with the objective of maintaining the purchasing power of the Endowment over time. The Foundation has adopted investment and spending policies for the Endowment that attempt to provide a predictable stream of funding for operations while seeking to maintain the purchasing power of the endowment assets. Over time, long-term rates of return should be equal to an amount sufficient to maintain the purchasing power of the Endowment assets, to provide the necessary capital to fund the spending policy, and to cover the costs of managing the Endowment investments. The target minimum rate of return, net of investment fees, is equal or greater than 4% plus inflation over long periods of time. Actual returns in any given year may vary from this amount. To satisfy this long-term rate-of-return objective, the investment portfolio is structured on a total- return approach through which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). A significant portion of the funds are invested to seek growth of principal over time. The Foundation investment policy is approved by the Investment Committee of the Foundation s Board of Directors. The spending policy defines the calculation of the amount made available for spending from the endowment pools which is based on a three year rolling average. 44 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

94 The endowment net asset composition by type of fund as of June 30, 2014 is as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Board-designated quasi-endowment $9,286,096 $9,286,096 Donor-restricted quasi-endowment $3,807,798 3,807,798 Donor-restricted for permanent endowment (1,729) 22,969,267 $55,160,706 78,128,244 $9,284,367 $26,777,065 $55,160,706 $91,222,138 Changes in Endowment net assets for the year ended June 30, 2014 are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $6,765,624 $15,398,320 $52,658,636 $74,822,580 Investment return Investment income, net of fees 250,121 1,463,690 1,713,811 Net realized and unrealized gain 1,024,672 10,861,266 64,524 11,950,462 1,274,793 12,324,956 64,524 13,664,273 Contributions 717, ,015 2,268,339 3,939,954 Reclassification of donor intent 637,331 (42,838) 169, ,700 Recovery of deficiency in original gift value of permanently restricted funds below fair value 52,176 52,176 Appropriation of endowment assets pursuant to spending-rate policy (163,157) (1,857,388) (2,020,545) Endowment net assets, end of year $9,284,367 $26,777,065 $55,160,706 $91,222,138 From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or MCFA requires the Foundation to retain as a fund of perpetual duration. In accordance with FAAP, deficiencies of this nature that are reported in unrestricted net assets total $1,729 as of June 30, These deficiencies resulted from unfavorable market fluctuations and are reported in unrestricted net assets. D. PROMISES TO GIVE Pledges receivable for the Foundation consist of the following unconditional promises to give: Gross amounts due in: Less than one year $3,157,374 One to five years 4,264,321 More than five years 127,259 Gross pledges receivable 7,548,954 Discount to net present value (113,478) Allowance for uncollectible pledges (376,083) Total pledges receivable, net $7,059,393 E. NET INVESTMENT RETURN Net investment return consists of the following for the year ended June 30, 2014: Interest and dividends $2,157,744 Net realized and unrealized gain 14,447,658 Less investment management and custodial fees (67,711) $16,537,691 A concentration of credit risk exists with the unconditional promises to give at June 30, 2014 as approximately 60% of the gross pledges receivable balance at June 30, 2014 is from three donors. ǀ 45 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

95 F. CORRECTION OF AN ERROR Management determined that the Foundation did not properly account for the unrestriced, temporarily restricted, and permanently restricted net assets for the year ended June 30, A summary of the effect of the correction of the June 30, 2013 net assets are as follows: As Previously Restatement As Reported Adjustment Restated Net Assets Unrestricted net assets $32,281,531 $(23,829,997) $8,451,534 Temporarily restricted net assets 23,510,531 13,945,219 37,455,750 Permanently restricted net assets 46,576,442 9,884,778 56,461,220 $102,368,504 $ - $102,368,504 G. LEASE AGREEMENTS Educational broadcast system licenses - The Foundation has been granted several educational broadcast system (EBS) licenses from the Federal Communications Commission (FCC). Additionally, the Foundation entered into an agreement to purchase EBS licenses with funding from an outside corporation. Under the agreement, which is considered an exchange transaction and not a contribution under FASB ASC , the Foundation will purchase the EBS licenses and then lease the licenses to the outside corporation. In fiscal year 2008, the Foundation received approximately $15,000,000 from the outside corporation to purchase the licenses. As of June 30, 2014, the cumulative purchased EBS licenses total $8,880,045. One EBS license totaling $10,000 was purchased in fiscal year In addition, the Foundation received a one-time bonus of $1,300,000 in fiscal year The remaining balances to be purchased, plus $601,641 in interest earned on investments of the advanced funds, comprise the deferred revenue balance in the accompanying consolidated statement of financial position. For the year ended June 30, 2014, amortization expense of $1,175,929 was computed using the straight line method over estimated useful lives of 10 years and accumulated amortization expense at June 30, 2014 totaled $7,915,877. The Foundation leases the licenses after purchase. The leases are granted for ten-year terms, in accordance with the license terms, which are due to expire at various dates through May The FCC has certain educational programming requirements. As part of the lease agreements, the lessees are responsible for ensuring that the educational requirements are met. After the educational requirements are met, there is excess frequency capacity that can be used. The Foundation receives monthly lease payments for the use of the excess capacity. In addition to the monthly payment terms, several leases require the lessee to pay an initial fee. The terms of the related lease agreements correspond with the terms of the licenses. Most leases have renewal clauses, which provide for a maximum lease term of 30 years. Total revenue received from these agreements was $1,369,652 for the year ended June 30, 2014 Minimum future lease receipts under these direct financing leases are as follows as of June 30, 2014: Year Ending June 30, 2015 $1,149, ,148, ,148, , ,575 Thereafter 5,877,260 Direct Financing Lease $10,302, ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

96 H. ASSETS HELD IN CUSTODY FOR OTHERS The Foundation maintains certain assets on behalf of others. The balances of assets held in custody for others consist of the following at June 30, 2014: Cash $993,310 Unconditional promises to give 1,304 Investments 25,886,996 Beneficial interest in perpetual trust 663,499 $27,545,109 Assets held on behalf of: Northern Arizona University $27,300,616 NAU Parents Association 244,493 $27,545,109 ǀ 47 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

97 Statistical Section 48 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

98 Table of Contents Statistical Section FINANCIAL TRENDS These schedules contain trend information to help the reader understand how the University s financial performance has changed over time. Net Position by Component...50 Changes in Net Position...51 Operating Expenses by Natural Classification...55 REVENUE CAPACITY These schedules contain information to help the reader assess the University s revenue sources. Academic Year Tuition and Required Fees...56 Principal Revenue Sources...57 DEBT CAPACITY These schedules present information to help the reader assess the University s current level of outstanding debt. Long-Term Debt...58 Summary of Ratios...59 Debt Coverage for Senior Lien System Revenue Bonds...65 DEMOGRAPHIC AND ECONOMIC INFORMATION These schedules offer demographic and economic indicators to help the reader understand the environment within which the University s financial activities take place. Admissions, Enrollment, and Degrees Earned...66 Demographic Data...67 State of Arizona Principal Employers...67 OPERATING INFORMATION These schedules contain service and infrastructure data to help the reader understand how the University s financial information relates to the activities it performs. Faculty and Staff...68 Capital Assets...68 ǀ 49 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

99 Net Position by Component Fiscal Year Ended June 30, Restated 2012 Restated (Dollars in thousands) Invested in Capital Assets $ 234,187 $ 215,847 $ 218,676 $ 200,274 $ 157,565 $ 150,766 $ 152,828 $ 126,930 $ 129,359 $ 124,849 Restricted, Non-expendable 21,770 20,430 19,517 19,047 18,253 17,504 16,493 16,251 16,971 15,177 Restricted, Expendable 29,462 26,658 17,571 16,366 19,373 18,919 22,951 22,401 20,193 18,345 Unrestricted 154, , , , , ,781 80,149 70,716 47,337 45,075 Total Net Position $ 439,539 $ 435,219 $ 434,364 $ 417,897 $ 368,830 $ 311,970 $ 272,421 $ 236,298 $ 213,860 $ 203,446 Expressed as a percent of the total % % % % % % % % % % Invested in Capital Assets Restricted, Non-expendable Restricted, Expendable Unrestricted Total Net Position Percentage increase/(decrease) from prior year % % % % % % % % % % Invested in Capital Assets 8.5 (1.3) (1.3) 20.4 (1.9) Restricted, Non-expendable (4.2) Restricted, Expendable (15.5) 2.4 (17.6) Unrestricted (10.5) (3.5) (2.0) Total Net Position ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

100 Changes in Net Position Fiscal Year Ended June 30, 2014 (Dollars in thousands) Revenues 2013 Restated 2012 Restated Operating Revenues Student tuition and fees, net 188, , , , , ,075 99,151 89,162 82,012 74,121 Governmental grants and contracts 19,594 19,521 18,461 26,185 17,706 14,690 14,625 55,459 51,151 54,026 Private grants and contracts 2,865 3,518 2,119 1,437 1,977 3,518 3,527 4,108 3,881 4,068 Sales and services Residence Life 29,870 30,541 29,534 29,480 27,841 25,448 22,804 21,755 17,942 15,798 Other auxiliaries 21,424 20,096 16,272 17,692 14,903 13,520 13,051 16,856 20,499 18,250 Other revenues 20,246 17,410 17,190 10,603 10,124 8,826 9,185 7,236 6,083 5,273 Total Operating Revenues 282, , , , , , , , , ,536 Expenses Operating Expenses Educational and general Instruction 156, , , , , , , , ,438 98,138 Research 23,584 19,886 21,766 23,178 22,306 21,463 21,433 21,353 21,232 19,615 Public Service 25,699 26,935 28,352 27,301 26,878 28,794 29,333 27,509 25,965 22,185 Academic support 33,877 32,164 28,858 30,321 27,194 27,064 29,185 26,668 25,895 20,564 Student services 50,504 42,145 36,274 32,995 25,312 28,228 27,836 23,907 21,388 20,032 Institutional support 53,702 47,265 41,789 40,909 37,627 35,789 36,676 32,385 32,868 27,208 Operation & maintenance of plant 26,693 23,259 21,781 17,426 16,591 19,658 22,610 17,874 16,399 16,435 Scholarship and fellowship 25,412 24,211 25,576 29,218 23,431 16,644 13,848 13,031 11,797 10,628 Auxiliary enterprises 32,759 44,386 37,035 34,351 29,339 28,716 28,645 33,491 35,977 27,885 Depreciation 33,256 31,388 27,260 21,990 21,605 20,731 18,926 17,867 15,807 16,227 Total Operating Expenses 461, , , , , , , , , ,917 Operating loss (178,692) (170,270) (161,523) (157,185) (154,395) (176,727) (193,222) (136,057) (129,198) (107,381) ǀ 51 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

101 Changes in Net Position (continued) 2013 Fiscal Year Ended June 30, 2014 Restated Nonoperating Revenues (Expenses) 2012 Restated State operating appropriations 105, , , , , , , , , ,635 Federal fiscal stabilization funds ,935 23, Share of state tax - TRIF 12,308 11,492 11,157 11,189 10,913 12,246 16,424 16,913 11,861 13,475 Government grants 56,413 57,569 60,200 56,324 53,515 43,468 42, Private gifts and grants 10,920 9,925 10,367 8,003 10,873 8,880 10,469 5,275 5,175 3,348 Net investment return (loss) 5,703 3,174 2,678 2,983 4,178 (1,192) 4,700 8,933 6,814 3,550 Interest on debt (23,696) (23,456) (22,852) (14,023) (14,450) (13,422) (12,206) (10,506) (10,043) (7,296) Other revenue (expenses) 8,987 5,703 4,229 3, (117) (1,664) 942 (390) (1,049) Net Nonoperating Revenues 176, , , , , , , , , ,045 Income (loss) before other revenues, expenses, gains, or losses (2,469) (4,394) 7,926 39,753 50,188 32,228 20,917 22,621 9,198 22,664 Capital appropriations 5,900 5,900 5,900 5,900 5,900 5,900 5,900 2,647 n/a n/a Capital grants and gifts , , Additions to permanent endowments , Increase (Decrease) in Net Position 4,320 2,451 15,133 49,066 56,861 39,549 30,464 25,853 10,414 23,324 Total Revenues 489, , , , , , , , , ,586 Total Expenses 485, , , , , , , , , ,262 Increase (Decrease) in Net Position 4,320 2,451 15,133 49,066 56,861 39,549 30,464 25,853 10,414 23, ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

102 Changes in Net Position (continued) Fiscal Year Ended June 30, 2014 Restated Restated % % % % % % % % % % Expressed as a percent of Total Revenues / Total Expenses Revenues Operating Revenues Student tuition and fees, net Governmental grants and contracts Private grants and contracts Sales and services Residence Life Other Auxiliaries Other revenues Total Operating Revenues Expenses Operating Expenses Educational and general Instruction Research Public Service Academic support Student services Institutional support Operation & maintenance of plant Scholarships and fellowships Auxiliary enterprises Depreciation Total Operating Expenses Operating loss (36.5) (37.0) (36.6) (34.7) (36.4) (43.2) (48.3) (37.1) (39.0) (34.6) Non-Operating Revenues (Expenses) State operating appropriations Federal fiscal stabilization funds Share of state tax - TRIF Financial aid grants Private gifts Net investment return (loss) (0.3) Interest on debt (4.9) (5.1) (5.4) (3.5) (3.9) (3.6) (3.3) (3.1) (3.1) (2.5) Other expenses (0.0) (0.5) 0.3 (0.1) (0.4) Net Nonoperating Revenues Income (loss) before other revenues, expenses, gains, or losses (0.5) (0.9) Capital appropriations Capital grants Additions to permanent endowments Increase (Decrease) in Net Position ǀ 53 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

103 Changes in Net Position (continued) Fiscal Year Ended June 30, 2014 Restated Restated % % % % % % % % % % Percentage increase (decrease) from prior year 54 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY Revenues Operating Revenues Student tuition and fees, net Governmental grants and contracts (29.5) (73.6) 8.4 (5.3) 4.4 Private grants and contracts (18.6) (27.3) (43.8) (0.3) (14.1) 5.8 (4.6) 14.6 Sales and services Residence Life (2.2) Other Auxiliaries (8.0) (22.6) (17.8) Other revenues (3.9) (7.2) Total Operating Revenues (16.6) Expenses Operating Expenses Educational and general Instruction (3.6) Research 18.6 (8.6) (6.1) Public Service (4.6) (5.0) (6.7) (1.8) Academic support (4.8) (7.3) Student services (10.3) Institutional support (2.4) 13.2 (1.5) Operation & maintenance of plant (15.6) (13.1) (0.2) 19.6 Scholarships and fellowships 5.0 (5.3) (12.5) (10.9) Auxiliary enterprises (26.2) (14.5) (6.9) 29.0 (5.8) Depreciation (2.6) 1.0 Total Operating Expenses (0.4) (0.2) Operating loss (12.6) (8.5) (0.8) Non-Operating Revenues (Expenses) State operating appropriations 4.1 (2.1) (19.3) 0.1 (5.3) (11.7) Federal fiscal stabilization funds n/a n/a (100.0) (97.3) (53.5) n/a n/a n/a n/a n/a Share of state tax - TRIF (0.3) 2.5 (10.9) (25.4) (2.9) 42.6 (12.0) 40.9 Government grants & contracts (2.0) (4.4) ,439.4 (10.4) (24.3) 4.1 Private gifts 10.0 (4.3) 29.5 (26.4) 22.4 (15.2) (7.1) Net investment return (loss) (10.2) (28.6) (450.5) (125.4) (47.4) Interest on indebtedness (3.0) Other expenses ,029.8 (246.2) (93.0) (276.6) (341.5) (62.8) (1,427.8) Net Nonoperating Revenues 6.2 (2.1) (14.0) (3.7) (2.1) (2.4) Income (loss) before other revenues, expenses, gains, or losses (43.8) (155.4) (80.1) (20.8) (7.5) (59.4) 63.8 Capital appropriations n/a n/a n/a Capital grants 0.0 (86.2) (82.4) 5,513.0 (94.0) (74.3) 4, (39.5) (65.5) Additions to permanent endowments (6.3) (55.3) Increase (Decrease) in Net Position 76.3 (83.8) (69.2) (13.7) (55.4) 59.5

104 Operating Expenses by Natural Classification Fiscal Year Ended June 30, (Dollars in thousands) Personal Services and Benefits $ 293,654 $ 268,888 $ 254,396 $ 248,043 $ 231,613 $ 237,591 $ 231,571 $ 216,465 $ 195,330 $ 182,662 Operations 109, ,435 95,731 90,555 76,711 79,838 91,220 83,269 87,832 69,400 Scholarships 25,412 24,211 25,576 29,218 23,431 16,644 13,848 13,032 11,797 10,628 Depreciation 33,256 31,387 27,260 21,990 21,605 20,731 18,926 17,867 15,807 16,227 Total Operating Expenses by Natural Classification $ 461,507 $ 433,921 $ 402,963 $ 389,806 $ 353,360 $ 354,804 $ 355,565 $ 330,633 $ 310,766 $ 278,917 Expressed as a percent of the total % % % % % % % % % % Personal Services and Benefits Supplies and Services Student Aid Depreciation Total Operating Expenses by Natural Classification Percentage increase (decrease) from prior year % % % % % % % % % % Personal Services and Benefits (2.5) Supplies and Services (0.2) (3.9) (12.5) 9.5 (5.2) 26.6 (3.5) Student Aid 5.0 (5.3) (12.5) (10.9) Depreciation (2.6) 1.0 Total Operating Expenses by Natural Classification (0.4) (0.2) ǀ 55 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

105 Academic Year Tuition and Required Fees Fiscal Year Ended June 30, PLEDGE* Resident Undergraduate Northern Arizona University 9,738 9,271 8,824 7,667 6,627 5,446 4,841 4,546 4,393 4,072 percent increase from prior year 5.0% 5.1% 15.1% 15.7% 21.7% 12.5% 6.5% 3.5% 7.9% 13.3% ABOR Peers with a 4 year guarantee 12,197 11,506 11,026 10,411 9,971 9,294 percent increase from prior year 6.0% 4.4% 5.9% 4.4% 7.3% n/a ABOR Peers Average 6,945 7,136 6,682 6,231 percent increase from prior year -2.7% 6.8% 7.2% 19.4% PLEDGE* Non-Resident Undergraduate Northern Arizona University 22,093 21,626 21,179 20,067 17,854 16,544 14,495 13,487 13,023 12,592 percent increase from prior year 2.2% 2.1% 5.5% 12.4% 7.9% 14.1% 7.5% 3.6% 3.4% 4.0% ABOR Peers with a 4 year guarantee 23,044 22,079 21,117 19,854 18,832 16,869 percent increase from prior year 4.4% 4.6% 6.4% 5.4% 11.6% n/a ABOR Peers Average 16,678 16,498 15,577 14,697 percent increase from prior year 1.1% 5.9% 6.0% 6.6% * PLEDGE tuition rate means new freshman and transfer students will pay the same tuition rate for four years. The PLEDGE rate began in fall Resident Graduate Northern Arizona University 8,768 8,378 8,008 7,398 6,546 5,616 5,214 4,898 4,733 4,273 percent increase from prior year 4.7% 4.6% 8.2% 13.0% 16.6% 7.7% 6.5% 3.5% 10.8% 14.6% Non-Resident Graduate Northern Arizona University 19,862 19,472 18,910 18,172 17,060 15,976 14,896 14,032 13,381 12,793 percent increase from prior year 2.0% 3.0% 4.1% 6.5% 6.8% 7.3% 6.2% 4.9% 4.6% 4.4% Sources: ABOR History Tuition and Fees: ABOR Base Tuition and Fees Source: Peers - ABOR Peer Comparisons Prepared Annually for Tuition Setting Board Meeting 56 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

106 Principal Revenue Sources Fiscal Year Ended June 30, (Dollars in thousands) Tuition and Fees, net of scholarship allowance 188, , , , , ,075 99,151 89,162 82,012 74,121 percent of total revenue 39% 38% 36% 33% 30% 27% 25% 24% 25% 24% percent increase/(decrease) from prior year 9% 9% 7% 16% 13% 13% 11% 9% 11% 5% State appropriations 105, , , , , , , , , ,635 Technology and research iniatives funding 12,308 11,492 11,157 11,189 10,913 12,246 16,424 16,913 11,861 13,475 Capital appropriations 5,900 5,900 5,900 5,900 5,900 5,900 5,900 2, State grants and contracts 6,370 8,639 9,041 10,630 10,943 10,773 10,693 13,718 13,142 10,025 AZ State Government 130, , , , , , , , , ,135 percent of total revenue 27% 28% 29% 34% 37% 40% 47% 46% 45% 45% percent increase (decrease) from prior year 2% -2% -17% 0% -5% -12% 10% 14% 6% 9% Federal grants and contracts 69,637 68,451 69,620 71,879 60,278 47,385 46,769 42,000 38,298 66,383 Federal fiscal stablization funds ,935 23, Federal Government 69,637 68,451 69,620 72,170 71,213 70,877 46,769 42,000 38,298 66,383 percent of total revenue 14% 15% 16% 16% 17% 17% 12% 11% 12% 21% percent increase (decrease) from prior year 2% -2% -4% 1% 0% 52% 11% 10% -42% 53% Total from principal revenue payers 388, , , , , , , , , ,639 percent of total revenue 79% 80% 81% 83% 83% 85% 83% 82% 81% 91% percent increase (decrease) from prior year 5% 3% -5% 6% 2% 4% 10% 12% -4% 15% ǀ 57 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

107 Long-Term Debt Fiscal Year Ended June 30, (Dollars in thousands) System Revenue Bonds $510,695 $467,425 $353,820 $ 335,700 $ 360,010 $ 187,270 $ 150,710 $ 122,565 $ 131,805 $ 126,860 Unamortized Premium 16,550 9,305 4,283 3,356 4,265 4,601 4,937 4,044 3,781 4,038 Deferred amount on Refundings - (1,200) (1,325) (1,455) (1,847) (2,007) (2,167) (2,464) (1,558) (1,824) Net System Revenue Bonds $ 527,245 $ 475,530 $ 356,778 $ 337,601 $ 362,428 $ 189,864 $ 153,480 $ 124,145 $ 134,028 $ 129,074 Certificates of Participation $ 62,850 $ 65,630 $ 69,540 $ 80,835 $ 83,315 $ 85,705 $ 88,030 $ 90,285 $ 90,285 $ 37,585 Unamortized Premium 5,574 5, ,028 1,072 1,117 - Deferred amount on Refundings - (3,502) Net Certificates of Participation $ 68,424 $ 68,039 $ 70,389 $ 81,729 $ 84,253 $ 86,688 $ 89,058 $ 91,357 $ 91,402 $ 37,585 Total Bonds Payable $ 527,245 $ 475,530 $ 356,778 $ 337,601 $ 362,428 $ 189,864 $ 153,480 $ 124,145 $ 134,028 $ 129,074 COPs Payable 68,424 68,039 70,389 81,729 84,253 86,688 89,058 91,357 91,402 37,585 Capital and Operating Leases Payable 17,746 17,936 58,652 47,217 48,135 49,234 50,202 36,699 14,791 15,244 Total $ 613,415 $ 561,505 $ 485,819 $ 466,547 $ 494,816 $ 325,786 $ 292,740 $ 252,201 $ 240,221 $ 181,903 LONG TERM DEBT (whole dollars) per Student FTE $ 24,719 $ 23,195 $ 21,156 $ 20,511 $ 23,585 $ 16,675 $ 16,013 $ 14,421 $ 14,447 $ 10,831 per Dollar of State Appropriations and State Aid $ 5.50 $ 5.23 $ 4.43 $ 3.47 $ 3.68 $ 2.30 $ 1.84 $ 1.81 $ 1.93 $ 1.55 per Dollar of Total Grants and Contracts $ 8.07 $ 7.28 $ 6.18 $ 5.65 $ 6.95 $ 5.60 $ 5.09 $ 4.53 $ 4.67 $ 3.34 DATA USED IN ABOVE CALCULATIONS Total Student FTE 24,816 24,208 22,964 22,746 20,980 19,537 18,281 17,489 16,628 16,794 State Appropriations and State Capital Appropriations $ 111,488 $ 107,369 $ 109,570 $ 134,429 $ 134,348 $ 141,500 $ 159,479 $ 139,509 $ 124,690 $ 117,635 Grants and Contracts $ 76,007 $ 77,090 $ 78,661 $ 82,509 $ 71,221 $ 58,158 $ 57,462 $ 55,718 $ 51,440 $ 54, ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

108 Summary of Ratios Fiscal Year Ended June 30, COMPOSITE FINANCIAL INDEX + Primary Reserve Ratio / Strength Factor = Ratio / Strength Factor * Weighting Factor 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% = Ratio Subtotal = Ratio Cap Subtotal Return on Net Assets Ratio 4.8% 3.0% 2.7% 14.4% 16.8% 8.3% 11.0% 17.6% 6.5% 12.9% / Strength Factor 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% = Ratio / Strength Factor * Weighting Factor 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% = Ratio Subtotal = Ratio Cap Subtotal Net Operating Revenues Ratio 0.3% -0.3% 1.9% 9.8% 13.2% 7.2% 5.8% 7.2% 3.5% 7.6% / Strength Factor 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% = Ratio / Strength Factor * Weighting Factor 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% = Ratio Subtotal = Ratio Cap Subtotal Viability Ratio / Strength Factor = Ratio / Strength Factor * Weighting Factor 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% = Ratio Subtotal = Ratio Cap Subtotal Composite Financial Index Composite Financial Index w/10.00 Cap The Composite Financial Index (CFI) provides a methodology for a single overall financial measurement of the institution s health based on the four core ratios. The CFI uses a reasonable weighting plan and allows a weakness or strength in a specific ratio to be offset by another ratio result, which provides a more balanced measure. The CFI provides a more holistic approach to understanding the financial health of the institution. The CFI scores are not intended to be precise measures; they are indicators of ranges of financial health that can be indicators of overall institutional well-being when combined with non-financial indicators. Ratio/Strength are capped at a maximum of 10 before the weighting factors are applied so that a higher CFI does not unduly mask a weakness in a component ratio. ǀ 59 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

109 Summary of Ratios (continued) Fiscal Year Ended June 30, (Dollars in thousands) PRIMARY RESERVE RATIO Unrestricted Net Position 154, , , , , ,781 80,149 70,716 47,337 45,075 Unrestricted Net Assets - Component Units 12,285 32,282 29,470 30,222 24,951 17,464 20,139 15,944 10,030 7,373 Expendable Restricted Net Position 29,462 26,658 17,571 16,366 19,373 18,919 22,951 22,401 20,193 18,345 Temp. Restricted Net Assets - Component Units 52,378 23,511 18,357 22,263 15,403 17,146 22,846 25,025 15,668 14,533 Expendable Net Assets 248, , , , , , , ,086 93,228 85,326 Operating Expenses 461, , , , , , , , , ,917 Nonoperating Expenses 14,709 23,456 22,852 14,023 14,450 14,731 13,870 10,506 10,433 8,345 Component Unit Total Expenses 11,944 10,822 11,363 13,424 11,289 11,506 37,868 28,203 7,001 18,206 Total Expenses 488, , , , , , , , , ,468 Expendable Net Position / Net Assets 248, , , , , , , ,086 93,228 85,326 Total Expenses 488, , , , , , , , , ,468 Ratio Measures the financial strength of the institution by indicating how long the institution could function using its expendable reserves to cover operations should additional net assets not be available. A positive ratio and an increase in amount over time denotes strength. RETURN ON NET ASSETS RATIO Change in Total Net Position 25,910 15,925 13,714 64,088 64,205 29,355 34,843 46,645 16,320 28,543 Total Net Position (Beginning of Year) 537, , , , , , , , , ,068 Ratio 4.8% 3.0% 2.7% 14.4% 16.8% 8.3% 11.0% 17.6% 6.5% 12.9% Measures total economic return. While an increasing trend reflects strength, a decline may be appropriate and even warranted if it represents a strategy on the part of the institution to fulfill its mission. NET OPERATING REVENUES RATIO Income/(Loss) Before Other Revenues, Expenses, Gains, or Losses (2,469) (4,394) 7,926 39,753 50,188 32,228 20,917 22,621 9,198 22,664 Component Units Change in Unrestricted Net Assets Before Extraordinary or Special Items 3,834 2, ,271 7,488 (2,676) 4,195 5,816 2,657 2,446 Adjusted Income/(Loss) Before Other Revenues, Expenses, Gains or Losses and Component Units Change in Unrestricted Net Assets Before Extraordinary or Special Items 1,365 (1,582) 8,572 45,024 57,676 29,552 25,112 28,437 11,855 25,110 Total Operating Revenues 282, , , , , , , , , ,536 State Appropriation and State related revenues 117, , , , , , , , , ,110 Non-capital Gifts and Grants, net 67,333 67,494 70,567 64,327 64,388 52,348 53,306 5,534 5,464 3,730 Investment Income (Loss), net 5,703 3,174 2,678 2,983 4,178 (1,192) 4,700 8,933 6,814 3,550 Component Units Total Unrestricted Revenue 15,778 13,634 12,009 18,696 18,777 8,830 42,063 34,018 9,657 20,652 Adjusted Net Operating Revneues 489, , , , , , , , , , ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

110 Summary of Ratios (continued) Fiscal Year Ended June 30, Adjusted Income/(Loss) Before Other Revenues, Expenses, Gains or Losses and Component Units Change in Unrestricted Net Assets Before Extraordinary or Special Items 1,365 (1,582) 8,572 45,024 57,676 29,552 25,112 28,437 11,855 25,110 Adjusted Net Operating Revenues 489, , , , , , , , , ,578 Ratio 0.3% -0.3% 1.9% 9.8% 13.2% 7.2% 5.8% 7.2% 3.5% 7.6% Measures whether the institution is living within available resources. A positive ratio and an increasing amount over time generally reflects strength. VIABILITY RATIO Unrestricted Net Position 154, , , , , ,781 80,149 70,716 47,337 45,075 Unrestricted Net Assets - Component Units 12,286 32,282 29,470 30,222 24,951 17,464 20,139 15,944 10,030 7,373 Expendable Restricted Net Position 29,462 26,658 17,571 16,366 19,373 18,919 22,951 22,401 20,193 18,345 Temporarily Restricted Net Assets - Component Units 52,378 23,511 18,357 22,263 15,403 17,146 22,846 25,025 15,668 14,533 Expendable Net Position / Net Assets 248, , , , , , , ,086 93,228 85,326 University LT Debt, net capital leases with CUs 613, , , , , , , , , ,903 Component Units Long Term Debt ,894 47,741 48,522 49,139 47,778 35,391 35,480 Total Adjusted University Debt 613, , , , , , , , , ,383 Expendable Net Position / Net Assets 248, , , , , , , ,086 93,228 85,326 Total Adjusted University Debt 613, , , , , , , , , ,383 Ratio Measures the ability of the institution to cover its debt as of the balance sheet date, should the institution need to do so. A positive ratio of greater than 1:1 generally denotes strength. ǀ 61 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

111 Summary of Ratios (continued) Fiscal Year Ended June 30, (Dollars in thousands) OPERATING MARGIN EXCLUDING GIFTS Income (Loss) Before Other Revenues, Expenses, Gains, or Losses Adjusted Income (Loss) Before Other Revenues, (2,469) (4,394) 7,926 39,753 50,188 32,228 20,917 22,621 9,198 22,664 Expenses, Gains, or Losses (2,469) (4,394) 7,926 39,753 50,188 32,228 20,917 22,621 9,198 22,664 Total Operating Revenuies 282, , , , , , , , , ,536 State appropriation and share of sales tax 117, , , , , , , , , ,110 Federal fiscal stabilization funds ,935 23,492 Investment Income/(Loss), net 5,703 3,174 2,678 2,983 4,178 (1,192) 4,700 8,933 6,814 3, , , , , , , , , , ,196 (2,469) (4,394) 7,926 39,753 50,188 32,228 20,917 22,621 9,198 22,664 Adjusted Net Operating Revenues less Noncapital Gifts and Grants Adjusted Income (Loss) Before Other Revenues, Expenses, Gains, or Losses Adjusted Net Operating Revenues less Noncapital Gifts and Grants 406, , , , , , , , , ,196 Ratio -0.6% -1.2% 2.2% 10.6% 14.2% 9.3% 6.2% 6.3% 2.8% 7.4% A more restrictive measure of whether the institution is living within available resources. A positive ratio and an increasing amount over time generally reflects strength. EXPENDABLE RESOURCES TO DEBT Unrestricted Net Position $ 154,120 $ 172,284 $ 178,600 $ 182,210 $ 173,639 $ 124,781 $ 80,149 $ 70,716 $ 47,337 $ 45,075 Expendable Restricted Net Position 29,462 26,658 17,571 16,366 19,373 18,919 22,951 22,401 20,193 18,345 Expendable Net Position $ 183,582 $ 198,942 $ 196,171 $ 198,576 $ 193,012 $ 143,700 $ 103,100 $ 93,117 $ 67,530 $ 63,420 Expendable Net Position $ 183,582 $ 198,942 $ 196,171 $ 198,576 $ 193,012 $ 143,700 $ 103,100 $ 93,117 $ 67,530 $ 63,420 Total Bonds, COPS, and Capital Leases $ 613,415 $ 561,505 $ 485,819 $ 466,547 $ 494,816 $ 325,786 $ 292,740 $ 252,201 $ 240,221 $ 181,903 Ratio Measures the ability of the institution to cover its debt using expendable resources as of the balance sheet date. TOTAL FINANCIAL RESOURCES TO DIRECT DEBT Unrestricted Net Position $ 154,120 $ 172,284 $ 178,600 $ 182,210 $ 173,639 $ 124,781 $ 80,149 $ 70,716 $ 47,337 $ 45,075 Expendable Restricted Net Position 29,462 26,658 17,571 16,366 19,373 18,919 22,951 22,401 20,193 18,345 Non-expendable Restricted Net Position 21,770 20,430 19,517 19,047 18,253 17,504 16,493 16,251 16,971 15,177 Total Financial Resources $ 205,352 $ 219,372 $ 215,688 $ 217,623 $ 211,265 $ 161,204 $ 119,593 $ 109,368 $ 84,501 $ 78,597 Total Financial Resources $ 205,352 $ 219,372 $ 215,688 $ 217,623 $ 211,265 $ 161,204 $ 119,593 $ 109,368 $ 84,501 $ 78,597 Total Bonds, COPS, and Capital Leases $ 613,415 $ 561,505 $ 485,819 $ 466,547 $ 494,816 $ 325,786 $ 292,740 $ 252,201 $ 240,221 $ 181,903 Ratio A broader measure of the ability of the institution to cover its debt as of the balance sheet date. 62 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

112 Summary of Ratios (continued) Fiscal Year Ended June 30, DIRECT DEBT TO ADJUSTED CASH FLOW Net Cash Used by Operating Activities $ (144,325) $ (143,659) $ (147,552) $ (137,184) $ (126,391) $ (151,474) $ (176,809) $ (120,301) $ (105,630) $ (91,999) State Appropriations and Federal Stabilization Fund 105, , , , , , , , , ,635 Share of State Sales Tax - TRIF 12,308 11,492 11,157 11,189 10,913 12,246 16,424 16,913 11,861 13,475 Non-capital Grants and Contracts, Gifts, Other 67,333 67,494 70,567 64,327 64,388 52,348 53,306 5,534 5,464 3,730 Adjusted Cash Flow from Operations $ 40,867 $ 36,796 $ 37,842 $ 67,152 $ 88,293 $ 72,212 $ 46,500 $ 39,008 $ 36,385 $ 42,841 Total Bonds, COPS, and Capital Leases $ 613,415 $ 561,505 $ 485,819 $ 466,547 $ 494,816 $ 325,786 $ 292,740 $ 252,201 $ 240,221 $ 181,903 Adjusted Cash Flow from Operations $ 40,867 $ 36,796 $ 37,842 $ 67,152 $ 88,293 $ 72,212 $ 46,500 $ 39,008 $ 36,385 $ 42,841 Ratio Measures the financial strength of the institution by indicating how long (in years) the institution would take to repay the debt using the cash provided by its operations. A decreasing ratio over time denotes strength. DEBT SERVICE TO OPERATIONS Interest and Fees Paid on Debt and Leases $ 23,696 $ 23,456 $ 22,851 $ 14,023 $ 14,450 $ 13,422 $ 12,206 $ 10,506 $ 10,043 $ 7,296 Principal Paid on Debt and Leases (1) 9,538 51,997 18,115 27,708 10,034 9,863 48,482 52,277 10,763 35,901 Principal Paid from Refinancing Activities (2) (16,315) (37,245) (8,720) (18,700) - - (35,345) (41,130) - (25,555) Debt Service $ 16,919 $ 38,208 $ 32,246 $ 23,031 $ 24,484 $ 23,285 $ 25,343 $ 21,653 $ 20,806 $ 17,642 Debt Service $ 16,919 $ 38,208 $ 32,246 $ 23,031 $ 24,484 $ 23,285 $ 25,343 $ 21,653 $ 20,806 $ 17,642 Operating Expenses $ 461,507 $ 433,921 $ 402,963 $ 389,806 $ 353,360 $ 354,804 $ 355,565 $ 330,633 $ 310,766 $ 278,917 Ratio 3.7% 8.8% 8.0% 5.9% 6.9% 6.6% 7.1% 6.5% 6.7% 6.3% Measures the institution s dependence on borrowed funds as a source of financing its mission and the relative cost of borrowing to overall expenditures. The ratio measures the relative cost of debt to overall expenses and a declining trend is generally desirable, however the ratio can spike during times of specific funding activity. (1) Obtained from "Long-term liability activity for the year ended June 30, 2014" table in Note 5 of the audited Notes to the Financial Statements. (2) Obtained amount from refunding bonds official statements. ǀ 63 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

113 Summary of Ratios (continued) Fiscal Year Ended June 30, (Dollars in thousands) RESEARCH EXPENSES TO TOTAL OPERATING EXPENSES Operating Expenses 461, , , , , , , , , ,917 Scholarships and Fellowships (25,413) (24,211) (25,576) (29,218) (23,431) (16,644) (13,848) (13,031) (11,797) (10,628) Interest on Debt 23,696 23,456 22,852 14,023 14,450 13,422 12,206 10,506 10,043 7,296 Total Adjusted Operating Expenses 459, , , , , , , , , ,585 Research Expenses 23,584 19,886 21,766 23,178 22,306 21,463 21,433 21,353 21,232 19,615 Total Adjusted Operating Expenses 459, , , , , , , , , ,585 Ratio 5% 5% 5% 6% 6% 6% 6% 7% 7% 7% Measures the institution's research expense to the total operating expenses. NET TUITION PER STUDENT Student Tuition and Fees, net 188, , , , , ,075 99,151 89,162 82,012 74,121 Financial Aid Grants 6,370 8,639 9,041 10,630 10,943 10,773 10,693 13,718 13,142 10,025 Scholarships and Fellowships (25,413) (24,211) (25,576) (29,218) (23,431) (16,644) (13,848) (13,031) (11,797) (10,628) Net Tuition and Fees 169, , , , , ,204 95,996 89,849 83,357 73,518 Net Tuition and Fees 169, , , , , ,204 95,996 89,849 83,357 73,518 Student FTE 24,816 24,208 22,964 22,746 20,980 19,537 18,281 17,489 16,628 16,794 Net Tuition per Student (whole dollars) $ 6,841 $ 6,485 $ 6,154 $ 5,655 $ 5,430 $ 5,436 $ 5,251 $ 5,137 $ 5,013 $ 4,378 Measures the institution's net student tuition and fees received per student. STATE APPROPRIATIONS PER STUDENT State Appropriations 105, , , , , , , , , ,635 Capital State Appropriations 5,900 5,900 5,900 5,900 5,900 5,900 5,900 2, Adjusted State Appropriations 111, , , , , , , , , ,635 Adjusted State Appropriations 111, , , , , , , , , ,635 Student FTE 24,816 24,208 22,964 22,746 20,980 19,537 18,281 17,489 16,628 16,794 Adjusted State Appropriation per Student (whole dollars) $ 4,493 $ 4,435 $ 4,771 $ 5,910 $ 6,404 $ 7,243 $ 8,724 $ 7,977 $ 7,499 $ 7,005 Measures the instituion's dependency on state appropriations. 64 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

114 Debt Coverage for Senior Lien System Revenue Bonds Fiscal Year Ended June 30, (Dollars in thousands) Bond Resolution Covenant: The Gross Revenues of the University for each fiscal year will be at least 150% of the Maximum Annual Debt Service due in any fiscal year. Revenues Available for Debt Service Tuition and Fees, net of scholarship allowance $ 188,816 $ 172,565 $ 157,864 $ 147,224 $ 126,414 $ 112,075 $ 99,151 $ 89,162 $ 82,012 $ 74,121 Receipts from Other Major Revenue Sources (Facilities Revenues) Net Revenues Available for Debt Service 63,383 61,277 56,355 46,770 49,886 40,726 35,565 39,644 40,646 28,280 $ 252,199 $ 233,842 $ 214,219 $ 193,994 $ 176,300 $ 152,801 $ 134,716 $ 128,806 $ 122,658 $ 102,401 Senior Lien Bonds Debt Service Interest on Debt $ 14,990 $ 15,248 $ 15,112 $ 15,133 $ 10,139 $ 8,774 $ 7,350 $ 5,922 $ 6,170 $ 6,060 Principal Paid on Debt 6,615 6,610 5,835 5,610 6,545 6,470 10,455 10,140 10,090 10,065 Direct Payment - Build America Bonds (2,237) (2,306) (2,411) (2,411) (1,098) Senior Lien Bonds Debt Service Requirements Coverage $ 19,368 $ 19,552 $ 18,536 $ 18,332 $ 15,586 $ 15,244 $ 17,805 $ 16,062 $ 16,260 $ 16, SPEED Bond Resolution Covenant: The Gross Revenues of the University for each fiscal year will be at least 100% of the annual debt service due on all outstanding parity bonds and subordinate obligations. Subordinate Lien Bonds Debt Service Interest on Debt $ 7,315 $ 3,859 $ 3,859 $ 3,870 $ 665 Direct Payment - Build America Bonds Direct Payment - State Lottery Revenue (1,243) (1,351) (1,351) (1,024) (2,489) (2,007) (2,007) (2,426) Subordinate Lien Bonds Debt Service Requirements $ 3,583 $ 501 $ 502 $ 419 $ 665 Combined Senior/Subordinate Lien Debt Service $ 22,951 $ 20,053 $ 19,038 $ 18,751 $ 16,251 $ 15,244 $ 17,805 $ 16,062 $ 16,260 $ 16,125 Coverage ǀ 65 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

115 Admissions, Enrollment, and Degrees Earned Fall Enrollment of Fiscal Year ADMISSIONS - FRESHMEN Applications 33,435 29,108 24,482 22,845 21,035 16,492 13,022 9,814 7,014 7,821 Accepted 30,561 26,010 20,620 20,562 19,076 14,745 11,563 8,894 6,254 7,107 Enrolled 4,772 4,254 3,872 4,132 3,702 3,588 3,171 2,846 2,279 2,528 Accepted as Percentage of Application 91% 89% 84% 90% 91% 89% 89% 91% 89% 91% Enrolled as Percentage of Accepted 16% 16% 19% 20% 19% 24% 27% 32% 36% 36% Average SAT scores - Total Verbal Math Source: NAU-Planning and Institutional Research Fall Enrolment of Fiscal Year ENROLLMENT Student FTE 24,816 24,208 22,964 22,746 20,980 19,537 18,281 17,489 16,628 16,794 Student Headcount 26,606 26,002 25,364 25,204 23,600 22,507 21,352 20,562 19,069 19,426 Men (Headcount) 10,802 10,534 10,165 9,906 8,999 8,432 7,929 7,565 6,963 7,225 Percentage of Total 40.6% 40.5% 40.1% 39.3% 38.1% 37.5% 37.1% 36.8% 36.5% 37.2% Women (Headcount) 15,804 15,468 15,199 15,298 14,601 14,075 13,423 12,997 12,106 12,201 Percentage of Total 59.4% 59.5% 59.9% 60.7% 61.9% 62.5% 62.9% 63.2% 63.5% 62.8% African American (Headcount) Percentage of Total 3.2% 3.2% 3.3% 3.3% 3.4% 3.2% 3.0% 2.7% 2.2% 2.3% White (Headcount) 17,023 16,917 16,848 17,030 16,497 16,053 15,325 14,789 13,981 14,334 Percentage of Total 64.0% 65.1% 66.4% 67.6% 69.9% 71.3% 71.8% 71.9% 73.3% 73.8% Other (Headcount) 8,744 8,254 7,674 7,351 6,308 5,731 5,386 5,218 4,662 4,650 Percentage of Total 32.9% 31.7% 30.3% 29.2% 26.7% 25.5% 25.2% 25.4% 24.4% 23.9% Source: NAU-Planning and Institutional Research DEGREES EARNED FY 2014 FY 2013 FY 2012 FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 FY 2006 FY 2005 Bachelor's 4,359 4,005 4,497 4,020 3,635 3,277 2,935 2,895 2,845 2,853 Master's 1,089 1,192 1,546 1,707 1,699 1,719 1,767 1,760 1,926 1,895 Doctoral Total Degrees 5,556 5,293 6,152 5,822 5,425 5,099 4,789 4,743 4,853 4, ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

116 Demographic Data Fiscal Year Ended June 30, Arizona Population 6,626,624 6,553,255 6,482,505 6,413,158 6,343,154 6,280,362 6,167,681 6,029,141 5,839,077 5,652,404 Arizona Personal Income (in millions) 244, , , , , , , , , ,026 Arizona Per Capita Personal Income 36,823 35,979 35,062 33,773 33,560 36,059 35,441 34,326 32,223 30,080 Arizona Unemployment Rate 8.00% 8.30% 9.50% 10.50% 9.90% 6.00% 3.70% 4.10% 4.70% 5.00% Sources: U.S. Bureau of Economic Analysis & Arizona Department of Administration State of Arizona Principal Employers Calendar Year Ended December 31, 2013 Calendar Year Ended December 31, 2004 Percentage of Total State Percentage of Total State Employer Employees Rank Employment Employees Rank Employment State of Arizona 49, % 49, % Wal-Mart Stores, Inc 32, % 19, % Banner Health 25, % 14, % City of Phoenix 14, % 13, % Wells Fargo 14, % 11, % Maricopa County 12, % 15, % Arizona State University 12, % 10, % Intel Corp. 11, % JPMorgan Chase & Co. 11, % Bank of America 11, % Honeywell International 12, % U.S. Postal Service 11, % Raytheon Missile Systems 0.00% 10, % 195, % 167, % Sources: Phoenix Business Journal, Book of Lists 2014 and 2005 for employers: Arizona Department of Administration website, for annual state employment ǀ 67 COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

117 Faculty and Staff Fall employment of fiscal year FACULTY Full-time Part-time Total Faculty 1,589 1,539 1,496 1,501 1,414 1,515 1,500 1,492 1,374 1,317 Percentage Tenured 53.0% 52.0% 60.0% 63.0% 69.0% 71.0% 75.0% 76.0% 77.0% 80.0% STAFF Full-time 1,842 1,779 1,707 1,651 1,608 1,710 1,620 1,571 1,574 1,492 Part-time* Total Staff 2,557 2,430 2,368 2,257 2,290 2,384 2,262 2,248 2,244 2,188 Total Faculty and Staff 4,146 3,969 3,864 3,758 3,704 3,899 3,762 3,740 3,618 3,505 *Part-time staff counts do not include temporary employees Source: Northern Arizona University Planning and Institutional Research Capital Assets Fiscal Year Ended June 30, Academic/Support Facilities Auxiliary Facilities Total Does not include leased facilities. Source: NAU - Capital Improvement Plan - Building Inventory Report Section 68 ǀ COMPREHENSIVE ANNUAL FINANCIAL REPORT FY2014

118 Comptroller s Office PO Box 4069 Flagstaff AZ 86011

119 APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION The following is a brief summary of certain provisions of the Bond Resolution, as supplemented, and should not be considered a full statement thereof. It is qualified in its entirety by reference to the entire Bond Resolution. DEFINITIONS For the purpose of this summary, the following words and phrases have the following meanings: 1986 Resolution means the Third Supplemental Resolution of the Board adopted April 25, 1986, authorizing the issuance of the Northern Arizona University System Revenue Bonds, Series Refunding Bonds means the Northern Arizona University System Revenue Refunding Bonds, Series 2004, authorized by the 2004 Refunding Resolution Refunding Resolution means the Thirteenth and Fourteenth Supplemental Resolutions of the Board adopted October 19, 2004 and November 19, 2004, respectively, authorizing the issuance of the 2004 Refunding Bonds Bonds means the Northern Arizona University System Revenue Bonds, Series 2005, authorized by the 2005 Resolution Resolution means the Fifteenth Supplemental Resolution of the Board adopted September 29, 2005, authorizing the issuance of the 2005 Bonds Refunding Bonds means the Northern Arizona University System Revenue Refunding Bonds, Series 2006, authorized by the 2006 Refunding Resolution Refunding Resolution means the Sixteenth Supplemental Resolution of the Board adopted December 1, 2006, authorizing the issuance of the 2006 Refunding Bonds Bonds means the Northern Arizona University System Revenue Bonds, Series 2007, authorized by the 2007 Resolution Resolution means the Seventeenth Supplemental Resolution of the Board adopted June 22, 2007, authorizing the issuance of the 2007 Bonds Bonds means the Northern Arizona University System Revenue Bonds, Series 2008, authorized by the 2008 Resolution Resolution means the Eighteenth Supplemental Resolution of the Board adopted June 19, 2008, authorizing the issuance of the 2008 Bonds Bonds means the Northern Arizona University System Revenue Bonds, Series 2009A and the Northern Arizona University System Revenue Bonds (Federally Taxable Direct Payment Build America Bonds), Taxable Series 2009B, authorized by the 2009 Resolution Resolution means the Nineteenth Supplemental Resolution of the Board adopted August 7, 2009, authorizing the issuance of the 2009 Bonds Resolution means the Twentieth Supplemental Resolution of the Board adopted September 22, 2011, authorizing the issuance of the 2012 Bonds 2012 Bonds means the Northern Arizona University System Revenue Bonds, Series 2012, authorized by the 2011 Resolution 2014 Bonds means the Northern Arizona University System Revenue and Refunding Bonds, Series 2014, authorized by the 2014 Resolution and the Refunding Resolution. C-1

120 2014 Resolution means the Twenty-First Supplemental resolution of the Board adopted February 6, 2014, authorizing the issuance of the 2014 Bonds Bonds means the Northern Arizona University System Revenue Refunding Bonds, Series 2015, authorized by the Refunding Resolution. Assumed Interest Rate means, with respect to Variable Rate Indebtedness, 110% of the greater of (i) the rate per annum in effect at the end of a calendar month ending within the last 60 days, or if issued too recently for the foregoing to apply, the rate per annum which was in effect on the date of issuance, or (ii) the weighted average rate per annum for the most recent 12 full calendar months or such lesser period the obligations have been Outstanding. For computing the Maximum Annual Debt Service Requirement in connection with the issuance of Parity Bonds, the Assumed Interest Rate will not be less than the 25 Revenue Bond Index published in The Bond Buyer, or any comparable successor index, as of the end of a calendar month ending within 60 days of the date of determination. Board means the Arizona Board of Regents. Bond or Bonds means any bond or bonds issued and outstanding pursuant to the Bond Resolution, including the 2004 Refunding Bonds, the 2005 Bonds, the 2006 Refunding Bonds, the 2007 Bonds, the 2008 Bonds, the 2009 Bonds, the 2012 Bonds, the 2014 Bonds, the 2015 Bonds and any Parity Bonds hereafter issued. Bond Resolution or Resolution means, collectively, the 1986 Resolution, as thereafter supplemented and amended, including by the 2004 Refunding Resolution, the 2005 Resolution, the 2006 Refunding Resolution, the 2007 Resolution, the 2008 Resolution, the 2009 Resolution, the 2011 Resolution, the 2014 Resolution, the Refunding Resolution and any further supplement and amendment to the 1986 Resolution. Credit Enhanced Indebtedness means (i) any series of Parity Bonds payment when due of the principal of and interest on which are fully secured by an irrevocable letter of credit, surety bond, insurance policy or other credit facility or arrangement pursuant to which the Board is obligated to reimburse the issuer thereof for advances made thereunder to pay such principal or interest, or (ii) any series of Parity Bonds, a feature of which is an option on the part of the holders thereof to tender, or a requirement that such holders tender, all or a portion of such Parity Bonds to the Board, or a trustee or other fiduciary for such holders, or another party, for payment of a purchase price or similar payment prior to their specified maturity or due date, if and to the extent that a party other than the Board has undertaken to provide the monies necessary for such payment. Defeasance Obligations means (i) Government Obligations; (ii) Tax-exempt obligations provisions for all payments on which have been made by the irrevocable deposit of Government Obligations or securities described in clause (i) above, which will provide sufficient moneys to pay all amounts when due on the obligations; and (iii) Tax-exempt obligations timely payments on which have been insured by a policy of municipal bond insurance or surety bond and which are rated in the highest investment grade rating category by S&P or Moody s. (iv) With respect to the 2004 Refunding Bonds, the 2005 Bonds, the 2006 Refunding Bonds, the 2007 Bonds, the 2008 Bonds, the 2009 Bonds, the 2012 Bonds, the 2014 Bonds and the 2015 Bonds but only if such Bonds are insured by a policy of municipal bond insurance, only noncallable direct obligations of the United States of America and any other obligations approved by the issuer of such policy of municipal bond insurance. Fiscal Year means the period commencing July 1 and ending June 30 of each succeeding calendar year, unless otherwise determined and designated by the Board. Government Obligations means obligations issued or guaranteed by the United States of America or any department, agency or instrumentality thereof. Gross Revenues means and includes (a) all tuition, registration, matriculation, laboratory, admission and other fees from students matriculated, registered or enrolled at and attending the University, and (b) all fees, rentals and other charges from students, faculty, staff members and others using or being served by, or having the right to use and to be served by any revenue producing facility, building, or project within the System of Building Facilities, including interest received on and profits realized from the sale of investments made from moneys from any revenue producing facility, building or project within the System of Building Facilities. C-2

121 Maximum Annual Debt Service Requirement means the greatest amount required to be paid in any Fiscal Year for payment of principal of and interest on the Bonds; for the purposes of such computation, (i) Variable Rate Indebtedness will be treated as bearing interest at the Assumed Interest Rate, (ii) debt service on Credit Enhanced Indebtedness will include any periodic fees payable to the issuer of any liquidity or credit facility, and (iii) debt service on Credit Enhanced Indebtedness will not be based upon the terms of any reimbursement obligation to the issuer of any liquidity or credit facility except for payments actually required to be made pursuant to the reimbursement obligation as a result of the issuer s unreimbursed advances of funds thereunder. Outstanding, when used with reference to the Bonds means Bonds which are outstanding and unpaid, but such term shall not include Bonds (a) which have matured and for which moneys are on deposit with the proper paying agents, or are otherwise available, sufficient to pay all principal and interest thereof, or (b) provision for payment of which has been made by the Board by the deposit in an irrevocable trust or escrow of funds or Defeasance Obligations, the principal and interest of which will be sufficient to pay at maturity or at prior redemption all the principal, interest and premium, if any, of such Bonds. Owner or Owners means the registered holder or holders of any Bond or Bonds. Parity Bonds means and includes all Bonds hereinafter authorized, issued and Outstanding in accordance with the Bond Resolution, on a parity with the Outstanding 2004 Refunding Bonds, 2005 Bonds, 2006 Refunding Bonds, 2007 Bonds, 2008 Bonds, 2009 Bonds, 2012 Bonds, 2014 Bonds and 2015 Bonds. Refunding Resolution means the Refunding Resolution of the Board adopted September 27, 2012, authorizing, among other things, the issuance of refunding system revenue bonds. System of Building Facilities collectively means the projects, buildings, structures and facilities of the University including administrative offices, exhibition and lecture halls, classrooms, auditoriums, libraries infirmaries, laboratories, museums, observatories, gymnasiums, activity centers, off-street parking facilities, dining halls, stadiums, student unions and any and all other unencumbered buildings, structures and facilities including housing and any and all improvements thereto; and may also include the acquisition or construction of any building, structure or facility for the University authorized and designated to be in the System of Building Facilities by the Arizona Legislature, and/or the Board. Treasurer means the Treasurer duly appointed by the Board and his or her successors in office. Trustee means U.S. Bank National Association or any successor appointed and acting in such capacity with respect to such bonds. University means Northern Arizona University. Variable Rate Indebtedness means any series of Bonds the rate of interest on which is not established at the time of issuance as one or more numerical rates applicable throughout the term thereof or for specified periods during the term thereof, so that at the time of issuance or at the time of any calculation with respect thereto the numerical rate of interest which will be in effect during all remaining portions of the term thereof cannot be determined Pledge and Application of Revenues PLEDGE The 2015 Bonds, together with the Outstanding 2004 Refunding Bonds, 2005 Bonds, 2006 Refunding Bonds, 2007 Bonds, 2008 Bonds, 2009 Bonds, 2012 Bonds, 2014 Bonds and any Parity Bonds that may subsequently be issued and Outstanding, are payable from a pledge of, and secured by a first lien on, the Gross Revenues. The pledge of, and lien on, the Gross Revenues is irrevocably made and created for the payment of the principal of and interest on the Bonds, and to create and maintain the funds as specified in the Bond Resolution. None of the Bonds is entitled to priority or distinction one over the other in the application of the Gross Revenues pledged. C-3

122 Funds and Accounts FLOW OF FUNDS The Bond Resolution provides that the Board is to maintain with the Trustee the following funds and accounts: (a) Revenue Fund. The Treasurer is required to remit to the Trustee at the end of each six-month period, ending on each May 31 and November 30, for deposit into the Revenue Fund, the amounts of the Gross Revenues of the University as are available and necessary to maintain the funds and accounts established by the Bond Resolution and to make the payments required with respect to the Parity Bonds. To the extent sufficient amounts of the Gross Revenues of the University have been deposited with the Trustee to satisfy the requirements set forth above at the end of each six-month period, the remaining Gross Revenues of the University that have been collected in any period will be surplus revenues and will be available to the Board for any lawful purpose for the University. (b) Bond Fund. The Treasurer is required to cause to be deposited in the Bond Fund all accrued interest and any premium received from the sale of any Parity Bonds. The Trustee is required to transfer from the Revenue Fund to the Bond Fund on or before each December 1 or June 1, an amount which, together with any moneys on deposit in the Bond Fund, is equal to the next interest payment on the Bonds plus an amount equal to one-half of the principal payment or payments coming due in the next Fiscal Year with respect to the Bonds. Surplus Revenues and Deficiencies After all required payments and transfers have been made and any deficiencies from any previous Fiscal Year have been remedied, the Trustee is required to transfer from the Revenue Fund amounts necessary to pay the fees of the Trustee and depository trustee for the Bonds. After all required payments and transfers have been made, all moneys remaining in the Revenue Fund on May 31 of each Fiscal Year in excess of amounts required to be transferred to the Bond Fund on the succeeding June 1 constitute surplus revenues and may be used by the Board for any lawful purpose for the University. If the moneys in the Revenue Fund are not sufficient to make the transfers described above, any deficiency is required to be made up from the first moneys thereafter received and available for transfers under the terms of the Bond Resolution, and the transfer of any sum or sums to said fund or accounts as may be necessary to make up any deficiency are required to be in addition to the then-current transfers required to be made pursuant to the Bond Resolution. PARTICULAR COVENANTS WITH BONDHOLDERS The Board has covenanted and agreed with the Owners of Bonds Outstanding from time to time as follows: (1) Title to the System of Building Facilities and the Project Sites. It will retain title to the sites of the System of Building Facilities and it will not sell, lease, mortgage, pledge or otherwise dispose of or encumber the System of Building Facilities or the sites, or any part or facility necessary to the operation and use thereof, or voluntarily cause or permit to be created any debt, lien, pledge, assignment or any other charge against the Gross Revenues pledged under the Bond Resolution for the payment of any obligation ranking prior to the Bonds. The Board reserves the right to dispose of or remove any building or facility comprising a part of the System of Building Facilities, but only when its disposition will not adversely affect the production of Gross Revenues to meet the requirements of the Bond Resolution. (2) Operation of System of Building Facilities. It will maintain, preserve and keep the System of Building Facilities in good repair, working order and condition so that the System of Building Facilities will be available for maximum use and occupancy, and that it will continuously operate and manage the System of Building Facilities in an efficient manner and at economical cost. (3) Rate Covenant. It will fix, revise from time to time, and collect (i) tuition, registration, matriculation, laboratory, and admission fees from students matriculated, registered or enrolled at and attending the University and (ii) fees, admissions, rentals and other charges received from students, faculty, staff members and others using or being served by, or having the right to use or the right to be served by, the System of Building Facilities, in an aggregate amount so that the Gross Revenues will be at least equal to 200% of the Maximum Annual Debt Service Requirement becoming due in any year on all Bonds then Outstanding, and sufficient at all times continually to operate and maintain the System of Building Facilities and provide moneys at the times and in the amounts as required by the Bond Resolution. C-4

123 (4) Parietal Rules. The Board will require and adopt parietal rules and regulations designed to assure the maximum use of the System of Building Facilities until all of the Bonds have been fully paid. It will not permit any free use of the System of Building Facilities unless the Gross Revenues are adequate to meet all requirements of the Bond Resolution. (5) Insurance. It will keep the System of Building Facilities, including furnishings, equipment and facilities continuously insured against loss or damage by fire and lightning, and boiler explosion, if applicable, in amounts as to maintain the System of Building Facilities with the exceptions and in a manner as to meet all requirements of the Bond Resolution. (6) Audit Reports. There will be furnished to the Trustee, and to any holder of the Bonds upon written request, not more than 120 days after the close of each Fiscal Year copies of the audit reports prepared by a certified public accountant or firm of such accountants in accordance with generally accepted accounting principles. (7) Equal Use and Occupancy. It will not discriminate in the use or occupancy of the System of Building Facilities because of race, color, creed or national origin. (8) Pledge of Faith and Credit It pledges its full faith and credit to the punctual performance of all its duties and obligations with reference to the System of Building Facilities. (9) Bondholders Remedies. Build America Mutual Assurance Company, as the insurer of the 2015 Bonds, is deemed to be the holder of all Outstanding 2015 Bonds and may, subject to the provisions of the Bond Resolution, by an action at law or in equity compel the Board to perform all duties imposed upon it by the Bond Resolution. INVESTMENT OF INCOME AND REVENUES Moneys in any fund or account in excess of the amount necessary to meet expenditures are required to be invested by the Trustee. Investments are required to be made by the Trustee in accordance with instructions received from the Board. All obligations acquired with investments of moneys in any fund or account will be part of that fund or account. Investment income is required to be credited to and any loss thereon will be charged to that fund or account, except as otherwise provided. The Board may not permit any of the proceeds of the Bonds or any other moneys of the Board to be used directly or indirectly to acquire any securities or obligations the acquisition of which would cause any Bonds to be arbitrage bonds. The Trustee will not be liable for any depreciation in the value of any obligations in which moneys of the funds or accounts are invested or for any loss arising from any investment, except for its own negligence or default. Moneys in any fund or account established or continued pursuant to the Bond Resolution, other than moneys which have been segregated and invested so as to render one or more series of Bonds no longer Outstanding, may be invested in any investment in which the Board may lawfully invest moneys, which mature or are redeemable, at the sole option of the holder, in amounts and on dates as may be necessary to provide moneys to make when due any payments required to be made from the fund or account. Remedies DEFAULTS; CONCERNING THE TRUSTEE Upon the occurrence of any event of default on the part of the Board in failing to make required payments into the Bond Fund, as provided in the Bond Resolution, or in failing to pay principal of any Bonds at the time specified for payment or by required redemption, or in failing to pay interest on any Bonds on the date specified, or in failing to perform any of the covenants, conditions and agreements contained in the Bond Resolution and in the Bonds, which default continues for a period of thirty (30) days after notice has been given to the Board and the University by the Trustee specifying the default and requiring the same to be remedied, then the Trustee may, and upon the written request of the Owners of 25% of the principal amount of the Bonds then Outstanding (treating the insurer of any series of Bonds as the Owner of such Bonds for such purpose so long as it has not failed to comply with its payment obligations pursuant to its insurance policy with respect to such Bonds), the Trustee is required to, proceed to protect and enforce the rights of the Trustee and the holders of the Bonds by suit, action or proceeding in equity or at law. C-5

124 Indemnity The Trustee is under no obligation to institute any proceeding, or to take any steps in the enforcement of any rights and powers pursuant to the Bond Resolution, unless and until it has been indemnified to its satisfaction against any and all costs and expenses, outlays, counsel fees, and other disbursements. If any judgment, decree or recovery be obtained by the Trustee, payment of all sums due the Trustee will be a first charge against the amount of any recovery. Removal and Resignation The Trustee may be removed at any time by an instrument signed by the Owners of not less than 65% of the principal amount of the Bonds then Outstanding (treating the insurer of any series of Bonds as the Owner of such Bonds for such purpose so long as it has not failed to comply with its payment obligations in accordance with its insurance policy with respect to such Bonds). The Trustee may resign and become discharged from the trust. Written notice of any such resignation is required to be given to the Board and the University at least thirty (30) days before the resignation becomes effective, and the resignation is required to take effect upon the appointment and qualification of a new trustee if the new trustee is appointed and qualified before the time limited by the notice. If the Trustee resigns or is removed, or becomes dissolved, or otherwise incapable of acting in accordance with the Bond Resolution, a successor Trustee may be appointed by the Owners of a majority in principal amount of the Parity Bonds then Outstanding (treating the insurer of any series of Bonds as the Owner of such Bonds for such purpose so long as it has not failed to comply with its payment obligations under its insurance policy with respect to such Bonds) by an instrument signed by such Owners and filed with the Secretary of the Board, provided that in case there is at any time a vacancy in the office of the Trustee, the Board is required promptly to appoint a Trustee to fill the vacancy until a new Trustee is appointed by the Owners of the Bonds. Any successor Trustee appointed is required to be a trust company or bank having the powers of a trust company as to trusts, which is a member of the Federal Deposit Insurance Corporation and of the Federal Reserve System and has an officially reported combined capital stock account, paid in surplus and undivided profits of not less than $45,000,000. Limit on Right of Action of Bondholders No Owner of any of the Bonds will have any right to institute any action, suit or proceeding in equity or in law for any remedy afforded by the Bond Resolution unless the Owner has made a written request of the Trustee and has afforded the Trustee reasonable opportunity either to proceed to exercise the powers granted by the Bond Resolution, or to institute the action, suit or proceeding in its or their name, and unless also there has been offered to the Trustee security and indemnity satisfactory to it against all costs, expenses and liability to be incurred. Amendments The Owners of 51% in principal amount of the Parity Bonds Outstanding (treating the insurer of any series of Bonds as the Owner of such Bonds for such purpose so long as it has not failed to comply with its payment obligations under its insurance policy with respect to such Bonds) may consent to and approve adoption by the Board of a resolution modifying or amending the Bond Resolution and, in addition, the Board may, without the consent of or notice to any of the Owners of the Bonds, adopt one or more resolutions modifying or amending the Bond Resolution for the following purposes: (a) to cure any ambiguity or formal defect or omission in the Bond Resolution or to correct or supplement any provision in the Bond Resolution which may be inconsistent with any other provision in the Bond Resolution, or to make any other provisions with respect to matters or questions arising pursuant to the Bond Resolution, provided the action will not, in the opinion of the Trustee, materially adversely affect the interests of the Owners of the Bonds; (b) to grant or confer upon the Owners of the Bonds any additional rights, remedies, powers or authority that may lawfully be granted or conferred upon them; (c) to secure additional revenues or provide additional security or reserves for payment of the Bonds; (d) to comply with the requirements of any state or Federal securities laws or the Trust Indenture Act of 1939, as from time to time amended, if required by law or regulation lawfully issued thereunder, (e) to provide for the appointment of a successor trustee; (f) to permit, (i) so long as lawful, the issuance of Bonds in book entry form not evidenced by physical certificates, or (ii) the issuance of Bonds in bearer form if, in the opinion of nationally recognized bond counsel received by the Board and the Trustee, such form will not cause the interest on any Bonds to become subject to Federal income taxes; and (g) to preserve the exemption of the interest income on the Bonds from Federal or State income taxes and to preserve the power of the Board to continue to issue bonds or other obligations (specifically not limited to the Bonds C-6

125 authorized by the Bond Resolution) the interest income on which is likewise exempt from Federal and State income taxes. The Trustee will not take the bond insurance policy with respect to any series of Bonds into account in determining whether the rights of the Owners of such series of Bonds are adversely affected. Notwithstanding the foregoing, however, the Bond Resolution may not be modified or amended to: (a) change the maturity of any of the Bonds; (b) change the rate of interest borne by any of the Bonds; (c) reduce the principal amount of; or redemption premium payable on, the Bonds; (d) modify the terms of payment of the principal of, or the interest or redemption premiums on, any of the Bonds, or impose any conditions with respect to payment; (e) create any lien on or pledge of the Gross Revenues ranking prior to the lien thereon and pledge thereof created by the Bond Resolution; (f) create any preference or priority of any Bond or Bonds over any other Bond or Bonds of the several series of Bonds authorized by the Bond Resolution; (g) reduce the percentage of Bonds required for the approval of any amendatory resolution; or (h) affect the rights of the holders of not less than all of the Bonds then Outstanding. Procedure Whenever the Board proposes to amend or modify the Bond Resolution and the consent of Owners of the Bonds is required, notice of the proposed amendment will be mailed by registered or certified mail to each registered Owner of the Bonds, at the address shown on the bond register. If, within one year from the date of the mailing of said notice, there is filed in the office of the Secretary of the Board instruments executed by the Owners of the required principal amount of the Bonds then Outstanding (treating the insurer of any series of Bonds as the Owner of such Bonds for such purpose so long as it has not failed to comply with its payment obligations under its insurance policy with respect to such Bonds) specifically consent to and approve the adoption of the proposed amendment; the Board may adopt the amendatory resolution and it will become effective. Effect If the Owners of the required principal amount of the Bonds have consented to and approved the adoption thereof, no Owner of any Bond, whether or not the Owner has consented to or has revoked any consent, will have any right to object to the adoption of the amendatory resolution or to object to any of the terms or provisions contained therein or to the operation thereof or to enjoin or restrain the Board from taking any action pursuant to the provisions thereof. Any consent given by the Owner of a Bond will be irrevocable for a period of six months from the date of the mailing of the notice and will be conclusive and binding upon all future Owners of the same Bond during the period. Consent may be revoked at any time after six months from the date of the mailing of the notice by the Owner who gave consent or by a successor in title by filing notice of the revocation with the Secretary of the Board, but the revocation will not be effective if the Owners of the required aggregate principal amount of the Bonds Outstanding prior to the attempted revocation consented to and approved the amendatory resolution. DEFEASANCE Provision for Payment of all Parity Bonds; Release of Bond Resolution If any Bonds have become due and payable either at maturity or through prior redemption, or irrevocable instructions have been given by the Board to the Trustee with respect to prior redemption of all Bonds then subject to call for redemption, and the whole amount of the principal, interest and premium, if any, due and payable upon all of the Bonds then Outstanding have been transferred to and deposited with the Trustee; or if moneys or Defeasance Obligations, have been deposited and are held by the Trustee for that purpose, and the principal of and interest on which, when due, will provide sufficient moneys for payment and redemption of all Bonds, then the Bond Resolution will no longer be effective as to such Bonds, except for administering the payment of principal of, premium (if any) and interest on such Bonds from the source or sources made available therefor. All balances held by the Trustee and the Board in any fund or account not required to be used to secure unpaid Bonds are required to then revert to the Board free and clear of any claim by Trustee or the Owners of the Bonds, and thereafter the Board will not be required to transfer any Gross Revenues to the Trustee for the payment of the Bonds. Providing for Payment of Parity Bonds Any Bond of any series will be deemed to be paid when: (a) payment of the principal of and premium, if any, on such Bond plus interest thereon to the maturity or redemption date: (1) has been made or caused to be made in accordance with the terms thereof, or (2) has been provided for by irrevocably depositing with the Trustee C-7

126 in trust and irrevocably setting aside exclusively for the payment, (i) moneys sufficient to make such payment, and/or (ii) Defeasance Obligations maturing as to principal and interest in the amounts and at times as will insure the availability of sufficient moneys to make the payment, and (b) all necessary and proper fees, compensation and expenses of the Trustee pertaining to the Bonds have been paid or provided for to the satisfaction of the Trustee. At the time a Bond is deemed to be paid, the Bond will no longer be secured by or entitled to the benefits of the Bond Resolution, and will no longer be deemed to be Outstanding, except for the purposes of payment from the moneys or Defeasance Obligations held for that purpose. No payment by any insurer or other guarantor or credit enhancer of principal of or interest on any Bond will result in a defeasance of the Bond Resolution with respect to that Bond. C-8

127 APPENDIX D FORM OF APPROVING LEGAL OPINION, 2015 Arizona Board of Regents Phoenix, Arizona Ladies and Gentlemen: Re: $45,415,000 Northern Arizona University System Revenue Refunding Bonds, Series 2015 We are members of the Arizona Bar and have acted as Bond Counsel in connection with the authorization, issuance and sale, and the initial delivery on the date hereof, by the Arizona Board of Regents (the Board ) acting for and on behalf of Northern Arizona University (the University ) of $45,415,000 in aggregate principal amount of its Northern Arizona University System Revenue Refunding Bonds, Series 2015 (the Series 2015 Bonds ), dated May 19, 2015, pursuant to the laws of the State of Arizona and a resolution adopted by the Board on April 25, 1986 (the 1986 Resolution ), as thereafter supplemented and amended, including by the resolution adopted by the Board on September 27, 2012 (the Refunding Resolution ). (The 1986 Resolution, as amended and supplemented to date, including by the Refunding Resolution are collectively referred to herein as the Bond Resolution ). Capitalized terms used, and not otherwise defined, herein have the respective meanings set forth in the Bond Resolution. In connection with our engagement, we have examined the law, the Bond Resolution and such certified proceedings and other documents and matters as we deemed necessary to render this opinion. We have assumed and have not verified (i) the genuineness of the signatures on all documents, the authenticity of documents submitted to us as originals and the conformity to the originals of documents submitted to us as copies, and (ii) the legal capacity of each individual signing the documents and the Series 2015 Bonds. As to questions of fact, we have relied upon and assumed compliance with the provisions of the documents and have assumed the accuracy of the certified proceedings and other certifications and representations of public officials furnished to us without undertaking to verify the same by independent investigation. Based upon the foregoing, it is our opinion, and we herewith advise you, as follows: 1. The Series 2015 Bonds have been duly authorized, issued, sold and delivered by the Board and are valid and binding special obligations of the Board, payable, together with any bonds heretofore and hereafter issued and outstanding on a parity therewith, solely from and secured solely by a pledge of and a first lien on the Gross Revenues (as defined in the Bond Resolution), consisting generally of student tuition and fees, rents and charges from the operation of the System of Building Facilities (as defined in the Bond Resolution) at the University. 2. Interest on the Series 2015 Bonds is excludable from the gross income of the owners for Federal income tax purposes under existing laws as enacted and construed on the date of initial delivery of the Series 2015 Bonds, assuming the accuracy of the certifications of the Board and continuing compliance by the Board with the requirements of the Internal Revenue Code of 1986, as amended (the Code ). Interest on the Series 2015 Bonds is not an item of tax preference for either the individual or corporate Federal alternative minimum tax purposes; however, interest on the Series 2015 Bonds held by certain corporations (other than an S corporation, regulated investment company, or real estate investment trust) may be indirectly subject to Federal alternative minimum tax because of its inclusion in the adjusted current earnings of a corporate holder. D-1

128 Arizona Board of Regents, 2015 Page 2 The opinions set forth in paragraph 2 above are subject to the condition that the Board comply with all requirements of the Code that must be satisfied in order for interest on the Series 2015 Bonds to be, or continue to be, excludable from the gross income of the owners thereof for Federal income tax purposes. The Board has covenanted to comply with such requirements. Failure to comply with such requirements may cause the interest on the Series 2015 Bonds to be included in the gross income of the owners for Federal income tax purposes retroactive to the date of issuance of the Series 2015 Bonds. 3. Interest on the Series 2015 Bonds is exempt from State of Arizona income tax. Bond Counsel does not express any other opinion regarding the tax consequences of ownership, disposition of, or the accrual or receipt of interest on the Series 2015 Bonds. Certain terms, requirements and procedures contained or referred to in the Bond Resolution may be changed and certain actions may be taken under the circumstances and subject to the terms and conditions set forth in the Bond Resolution. The opinions set forth above are qualified to the extent that we express no opinion as to whether, following any such change or the taking of any such action, interest on the Series 2015 Bonds will continue to be excluded from the gross incomes of the owners of the Series 2015 Bonds for Federal income tax purposes. The opinions set forth above are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof, including subsequent interpretations of the applicable law by competent judicial, regulatory or administrative authorities that modify, revoke, supplement, reverse, overrule or otherwise change applicable law and current interpretations thereof. We have not undertaken to determine, or to inform any person, whether such actions or events are taken or do occur. Our engagement with respect to the Series 2015 Bonds and the opinions set forth herein concludes with the delivery of this opinion, and we disclaim any obligation to update this letter. This opinion is addressed to and is solely for the benefit of the Board and may not be relied upon by any other person without our express written consent. Respectfully submitted, D-2

129 APPENDIX E FORM OF CONTINUING DISCLOSURE UNDERTAKING $45,415,000 ARIZONA BOARD OF REGENTS SYSTEM REVENUE REFUNDING BONDS SERIES 2015 CONTINUING DISCLOSURE UNDERTAKING This Continuing Disclosure Undertaking (the Disclosure Undertaking ) is executed and delivered by the Arizona Board of Regents (the Board ), acting for and on behalf of Northern Arizona University (the University ), in connection with the issuance by the Board of $45,415,000 principal amount of its Northern Arizona University System Revenue Refunding Bonds, Series 2015 (the 2015 Bonds ). The 2015 Bonds are being issued pursuant to a resolution adopted by the Board on April 25, 1986, as thereafter supplemented and amended, including by the refunding resolution adopted September 27, 2012 and the supplemental resolution adopted February 5, 2015 (collectively, the Bond Resolution ). Certain terms are defined in Section 10. The Board undertakes and agrees as follows: 1. Purpose of the Disclosure Undertaking. This Disclosure Undertaking is being executed and delivered by the Board for the benefit of the Bondholders and in order to assist each Participating Underwriter in complying with the Rule. 2. Annual Information and Audited Financial Statements. Subject to the provisions of Section 12 hereof, the Board agrees to provide or cause to be provided to the MSRB through its Electronic Municipal Market Access (EMMA) system at in a format required by the MSRB: Fiscal Year; and (a) Annual Information for the preceding Fiscal Year not later than the Filing Date for each (b) Audited Financial Statements for the preceding Fiscal Year not later than the later of the Filing Date for each Fiscal Year or promptly after becoming available to the Board. Any or all of the items listed above may be included by specific reference to other documents; provided that if the document included by reference is not a final official statement, it must have been provided previously to the MSRB or the Securities and Exchange Commission, and if the document included by reference is a final official statement, it must be available from the MSRB. 3. Notice of Listed Events and Failure to Provide Annual Information. The Board agrees to provide or cause to be provided to the MSRB, in a timely manner: (a) notice of the occurrence of any of the Listed Events with respect to the 2015 Bonds within ten (10) business days of the occurrence of such Listed Event; and (b) notice of its failure to provide or cause to be provided the Annual Information on or before the applicable Filing Date. E-1

130 Notwithstanding the foregoing, notice of Listed Events consisting of bond calls or defeasances need not be given pursuant to this subsection any earlier than the date on which notice of the underlying event is given to the registered owners of affected 2015 Bonds pursuant to the Bond Resolution, and notice of the occurrence of a mandatory, scheduled redemption, not otherwise contingent upon the occurrence of an event, is not required if the terms of the redemption pursuant to which the redemption is to occur are set forth in detail in the Official Statement and the only open issue is which 2015 Bonds will be redeemed in the case of a partial redemption. 4. Termination of Reporting Obligation. The obligations of the Board pursuant to this Disclosure Undertaking will terminate at such time as no 2015 Bonds remain Outstanding (within the meaning of the Bond Resolution) or all of the 2015 Bonds have been legally defeased, redeemed or paid in full. The Board will give prompt notice to the MSRB if this Section becomes applicable. 5. Dissemination Agent. The Board may, from time to time, appoint or engage a dissemination agent to assist it in carrying out its obligations pursuant to this Disclosure Undertaking, and may discharge any dissemination agent, with or without appointing a successor dissemination agent. 6. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Undertaking, the Board may amend this Disclosure Undertaking, and any provision of this Disclosure Undertaking may be waived; provided, however, that no amendment or waiver may take effect unless the following conditions are satisfied: (a) the amendment or waiver may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person (within the meaning of the Rule) with respect to the 2015 Bonds, or the type of business conducted; (b) this Disclosure Undertaking, as amended or taking into account such waiver, in the opinion of counsel of national reputation experienced in bond or Federal securities law selected by the Board, would have complied with the requirements of the Rule at the time of the original issuance of the 2015 Bonds, taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the amendment or waiver either (i) is approved by the registered owners of the 2015 Bonds in the same manner as provided in the Bond Resolution for amendments to the Bond Resolution with the consent of registered owners of the 2015 Bonds, or (ii) does not materially impair the interests of the Bondholders as determined by the opinion of counsel of national reputation experienced in bond or Federal securities law unaffiliated with the Board but which may be selected by the Board, or as determined by another party unaffiliated with the Board but which may be selected by the Board. 7. Additional Information. Nothing in this Disclosure Undertaking will be deemed to prevent the Board from disseminating any other information, using the means of dissemination set forth in this Disclosure Undertaking or any other means of communication, or including any other information in any Annual Information or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Undertaking. If the Board chooses to include any such other information in any Annual Information or notice of occurrence of any Listed Event or any other event, in addition to that which is specifically required by this Disclosure Undertaking, the Board will have no obligation pursuant to this Disclosure Undertaking to update the information or include it in any future Annual Information or notice of occurrence of Listed Event. 8. Failure to Perform. Any Bondholder may enforce the Board s obligation to provide or cause to be provided information or notice pursuant to this Disclosure Undertaking by commencing an action in a court of competent jurisdiction to seek specific performance by court order to compel the Board to provide or cause to be provided such information or notice; provided, however, that any Bondholder must first as a condition precedent to commencing the action provide at least 30 days prior written notice to the Board of its failure to perform, giving reasonable detail of such failure, following which notice the Board will have 30 days to perform. Failure by the Board to perform its obligations pursuant to this Disclosure Undertaking will not be deemed an event of default with respect to the 2015 Bonds or pursuant to the Bond Resolution or any other document and the sole remedy pursuant to this Disclosure Undertaking in the event of any failure of the Board to comply with this Disclosure Undertaking will be an action to compel performance. E-2

131 9. Beneficiaries. This Disclosure Undertaking is solely for the benefit of the Board and the Bondholders from time to time, and will create no rights in any other person or entity. 10. Definitions. In addition to the definitions set forth in the Bond Resolution which apply to any capitalized term used in this Disclosure Undertaking unless otherwise defined in this Disclosure Undertaking, the following capitalized terms will have the following meanings: (a) Annual Information means: (1) quantitative financial information and operating data concerning the operations of the University of the type set forth in the Official Statement under the headings: (i) (ii) Schedule of Historical Gross Revenues; Receipts from Other Major Revenue Sources. (2) unaudited annual Financial Statements of the University unless Audited Financial Statements are provided at the same time. In addition to the information described above, (A) if any part of the Annual Information described in (i) can no longer be generated because the operations to which it relates have been materially changed or discontinued, the Board will include a statement to that effect as part of the Annual Information for the year in which the change or discontinuation occurs, and (B) the Annual Information for the year in which any amendment or waiver of a provision of this Disclosure Undertaking occurs will describe and explain the amendment or waiver, the reason for it and its impact on the type of information being provided, and if the amendment relates to the accounting principles to be followed in preparing financial statements, the Annual Information for the year in which the change is made will present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. University. (b) Audited Financial Statements means audited annual Financial Statements of the (c) Bondholder means a beneficial owner of a 2015 Bond, with beneficial ownership determined on a basis consistent with the provisions of Rule 13d-3 adopted by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, or, if those provisions do not adequately address the situation in question (in the opinion of counsel of national reputation experienced in bond or Federal securities law selected by the Board), with beneficial ownership determined on the basis of ownership for Federal income tax purposes. Any assertion of beneficial ownership must be established by evidence in writing with full documentary support filed with the Board. (d) Filing Date means the first business day of the eighth month following the end of each Fiscal Year, beginning February 1, (e) Financial Statements means annual financial statements of the University prepared in conformity with generally accepted accounting principles as reflected in the governmental accounting standards promulgated from time to time by the Government Accounting Standards Board of the American Institute of Certified Public Accountants. (f) Fiscal Year means each fiscal year of the University, commencing with the fiscal year that began July 1, 2014, and ends June 30, E-3

132 (g) Listed Events means any of the following events: i) principal and interest payment delinquencies; ii) iii) iv) non-payment related defaults, if material*; unscheduled draws on debt service reserves reflecting financial difficulties**; unscheduled draws on credit enhancements reflecting financial difficulties; v) substitution of credit or liquidity providers, or their failure to perform; vi) vii) viii) ix) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form TEB) or other material* notices or determinations with respect to the tax status of the 2015 Bonds, or other material* events affecting the tax status of the 2015 Bonds; modifications to rights of holders of the 2015 Bonds, if material*; bond calls, if material*, and tender offers; defeasances; x) release, substitution, or sale of property securing repayment of the 2015 Bonds, if material*; xi) xii) xiii) xiv) rating changes; bankruptcy, insolvency, receivership or a similar event of the Board; the consummation of a merger, consolidation, or acquisition involving the Board or the sale of all or substantially all of the assets of the Board other than in the ordinary course of business, the entry into a definitive agreement to undertake any such action or the termination of a definitive agreement relating to any such action, other than pursuant to its terms, if material*; and appointment of a successor or additional trustee or the change of name of a trustee, if material*. * Materiality will be determined in accordance with the applicable Federal securities laws. ** As of the date of this Disclosure Undertaking, there exists no, and the Board has no obligation or intention to provide, obtain or maintain any, debt service reserves with respect to the 2015 Bonds. (h) MSRB means the Municipal Securities Rulemaking Board. (i) Official Statement means the final Official Statement dated April 14, 2015, with respect to the initial offering of the 2015 Bonds. (j) Participating Underwriter means each broker, dealer, or municipal securities dealer acting as an underwriter in the primary offering of the 2015 Bonds, including Citigroup Global Markets Inc. (k) Rule means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, as applicable to the 2015 Bonds. E-4

133 (l) State means the State of Arizona. 11. Governing Law; Forum. This Disclosure Undertaking will be governed by the law of the State. Any action to enforce this Disclosure Undertaking against the Board may be brought only in a State court. 12. Budget Requirement. In accordance with the law of the State, no expenditures may be made by the Board in any Fiscal Year for a purpose not included in the budget, and no expenditure may be made or obligation or liability incurred or created by the Board in any Fiscal Year in excess of the amount specified for each purpose in the budget, for that Fiscal Year, except as otherwise provided by law, and the Board s undertaking in this Disclosure Undertaking is subject to this limitation of State law on expenditures by the Board for costs of performing its obligations in accordance with this Disclosure Undertaking. In the event of non-compliance by the Board with its covenants herein due to a failure to budget for and appropriate the necessary funds, the Board agrees to provide prompt notice of such fact to the MSRB. Date:, ARIZONA BOARD OF REGENTS By: Robert G. Norton Associate Vice President for Financial Services and Comptroller E-5

134 (THIS PAGE IS INTENTIONALLY LEFT BLANK)

135 APPENDIX F BOOK-ENTRY-ONLY SYSTEM THE INFORMATION PROVIDED UNDER THIS HEADING BOOK-ENTRY-ONLY SYSTEM HAS BEEN PROVIDED BY DTC. NO REPRESENTATION IS MADE BY THE UNIVERSITY, THE BOARD, THE UNDERWRITER, THE FINANCIAL ADVISOR, THE TRUSTEE, OR ANY OF THEIR COUNSEL OR AGENTS AS TO THE ACCURACY OR ADEQUACY OF SUCH INFORMATION OR AS TO THE ABSENCE OF MATERIAL ADVERSE CHANGES IN SUCH INFORMATION SUBSEQUENT TO THE DATE HEREOF. DTC will act as securities depository for the 2015 Bonds. The 2015 Bonds will be issued as fullyregistered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered 2015 Bond certificate will be issued for each maturity of the 2015 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized bookentry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is a wholly owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of : AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of 2015 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2015 Bonds on DTC s records. The ownership interest of each actual purchaser of each 2015 Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2015 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in 2015 Bonds, except in the event that use of the book-entry system for the 2015 Bonds is discontinued. To facilitate subsequent transfers, all 2015 Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of 2015 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2015 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such 2015 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. F-1

136 Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of 2015 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2015 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the 2015 Bond documents. For example, Beneficial Owners of 2015 Bonds may wish to ascertain that the nominee holding the 2015 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Trustee and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the 2015 Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 2015 Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Board as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts 2015 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, interest and redemption payments on the 2015 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Board or Trustee, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Trustee, or the Board, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, interest and redemption proceeds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Board or Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the 2015 Bonds at any time by giving reasonable notice to the Board or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, 2015 Bond certificates are required to be printed and delivered. The Board may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, 2015 Bond certificates will be printed and delivered to DTC. NONE OF THE UNIVERSITY, THE BOARD, THE UNDERWRITER, THE FINANCIAL ADVISOR, THE TRUSTEE OR THEIR COUNSEL OR AGENTS WILL HAVE RESPONSIBILITY OR OBLIGATION TO PARTICIPANTS WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, ANY DIRECT PARTICIPANT, OR ANY INDIRECT PARTICIPANT; (2) ANY NOTICE THAT IS PERMITTED OR REQUIRED TO BE GIVEN TO THE OWNERS OF THE 2015 BONDS UNDER THE BOND RESOLUTION; (3) THE SELECTION BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY PERSON TO RECEIVE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE 2015 BONDS; (4) THE PAYMENT BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL OR REDEMPTION PREMIUM, IF ANY, OR INTEREST DUE WITH RESPECT TO THE 2015 BONDS; (5) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS THE OWNER OF 2015 BONDS; OR (6) ANY OTHER MATTERS. So long as Cede & Co. is the registered Owner of the 2015 Bonds, as nominee for DTC, references herein to Owner or registered Owners of the 2015 Bonds (other than under the caption TAX MATTERS ) shall mean Cede & Co., as aforesaid, and shall not mean the Beneficial Owners of such 2015 Bonds. When reference is made to any action which is required or permitted to be taken by the Beneficial Owners, such reference shall only relate to those permitted to act (by statute, regulation or otherwise) on behalf of such Beneficial Owners for such purposes. When notices are given, they shall be sent by the University or the Trustee to DTC only. F-2

137 SPECIMEN MUNICIPAL BOND INSURANCE POLICY APPENDIX G

138 (THIS PAGE IS INTENTIONALLY LEFT BLANK)

139 MUNICIPAL BOND INSURANCE POLICY ISSUER: [NAME OF ISSUER] Policy No: MEMBER: [NAME OF MEMBER] BONDS: $ in aggregate principal amount of [NAME OF TRANSACTION] [and maturing on] Effective Date: Risk Premium: $ Member Surplus Contribution: $ Total Insurance Payment: $ BUILD AMERICA MUTUAL ASSURANCE COMPANY ( BAM ), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the Trustee ) or paying agent (the Paying Agent ) for the Bonds named above (as set forth in the documentation providing for the issuance and securing of the Bonds), for the benefit of the Owners or, at the election of BAM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the first Business Day following the Business Day on which BAM shall have received Notice of Nonpayment, BAM will disburse (but without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of the Bonds, the face amount of principal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner s right to receive payment of such principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner s rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any of whom may submit an amended Notice of Nonpayment. Upon disbursement under this Policy in respect of a Bond and to the extent of such payment, BAM shall become the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or interest on such Bond and shall be fully subrogated to the rights of the Owner, including the Owner s right to receive payments under such Bond. Payment by BAM either to the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpayment shall discharge the obligation of BAM under this Policy with respect to said Nonpayment. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. Business Day means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer s Fiscal Agent (as defined herein) are authorized or required by law or executive order to remain closed. Due for Payment means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. Nonpayment means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. Nonpayment shall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction. Notice means delivery to BAM of a notice of claim and certificate, by certified mail, or telecopy as set forth on the attached Schedule or other acceptable electronic delivery, in a form satisfactory to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, (d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. Owner means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that Owner shall not include the Issuer, the Member or any other person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds.