ML17088A828

Nc State University - Submittal of License Renewal Package for Pulstar Reactor: Financial Qualifications Report

ML17088A828
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Site:	North Carolina State University
Issue date:	03/29/2017
From:	North Carolina State University
To:	Office of Nuclear Reactor Regulation
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PULSTAR REACTOR FINANCIAL QUALIFICATIONS REPORT NORTH CAROLINA STATE UNIVERSITY RALEIGH, NORTH CAROLINA 27695 LICENSE NO. R-120 DOCKET NO. 50-297 29-MARCH-2017

2 Contents

1.

Introduction..................................................................................................................................... 3

2.

Annual Funding and Operating Expenditures.................................................................................. 3

3.

Decommissioning Report................................................................................................................. 4 3.1.

Decommissioning Cost Estimate...................................................................................................... 4 3.1.1.

PULSTAR Decommissioning Cost as based on 1988 Estimate............................................ 4 3.1.2.

Comparison with recent representative decommissioning projects.................................. 4 3.1.3.

Discussion of Costs.............................................................................................................. 5 3.1.4.

2017 NC State PULSTAR Decommissioning Estimate:........................................................ 6 3.2.

Funding Method.............................................................................................................................. 7 3.3.

Adjustment of Decommissioning Cost Estimate.............................................................................. 7

4.

References....................................................................................................................................... 8 North Carolina State University Annual Financial Report 2016 Statement of Intent (SOI) Regarding Decommissioning Funding for the PULSTAR Reactor Facility at NC State University

3

1. INTRODUCTION This Financial Qualifications Report is submitted pursuant to the requirements of 10 CFR 50.33, 10 CFR 50.71, and 10 CFR 50.75. Pursuant to 10 CFR 50.33(f)(2), none of the provisions of 10 CFR 50.33(d) apply. The applicant is a government institution of the State of North Carolina. Pursuant to 10 CFR 50.71(b), a copy of the most recent financial statement for North Carolina State University is appended to this report. Please reference Attachment 1, North Carolina State University Annual Financial Report 2016.

2. ANNUAL FUNDING AND OPERATING EXPENDITURES Pursuant to 10 CFR 50.33(f)(2), the estimated annual funding for the first 5 year period after the projected license renewal are given in Table 1. The annual operating expenditures for the first 5 year period after the projected license renewal are given in Table 2. As indicated below, the projected annual funding levels of the reactor facility are equal to the projected annual operating expenditures.

Table 1 - PULSTAR Reactor Facility Annual Funding Fiscal Year 2018 2019 2020 2021 2022 State Budget Allocation 2

$532,800

$538,100

$543,500

$548,900

$554,400 Services Cost Recovery 3

$418,700

$428,300

$438,200

$448,300

$458,600 Federal Contracts and Grants 4

$1,303,800

$1,333,800

$1,364,500

$1,395,900

$1,428,000 Total Funding

$2,255,300

$2,300,200

$2,346,200

$2,393,100

$2,441,000 Table 2 - PULSTAR Reactor Facility Annual Operating Expenditures Fiscal Year 2018 2019 2020 2021 2022 Total Personnel 5

$1,273,800

$1,303,100

$1,333,100

$1,363,700

$1,395,100 Total Operating and F&A6

$981,500

$997,100

$1,013,100

$1,029,400

$1,045,900 Total Expenditures

$2,255,300

$2,300,200

$2,346,200

$2,393,100

$2,441,000 Bases and Assumptions:

1. The budgeted figures detailed in the tables above represent likely funding and expenditures for the specified fiscal years (which run from July 1 of the preceding year through June 30 of the year indicated). Expenses are projected to increase at an estimated 2.3% annual rate of inflation.

2. The state allocation is provided via NC State Universitys 2-15461 account and is estimated for future years based on a 1% rate of growth.

3. Operating funds required over-and-above the annual state allocation are provided by reactor services revenue and are budgeted for reactor operating expenditures via the university trust account 3-76676.

4

4. Federal funding for the development of experimental capabilities has been included in these budget estimates. The development of experimental capabilities is funded through sponsored research programs.

5. The budget estimate for Personnel includes salaries and wages for all facility administrative, operating and research staff, graduate students, and student reactor operators.

6. The estimates for total Operating and Facilities and Administrative (F&A) costs include all direct and in-direct (non-personnel) costs of operating and supporting the reactor facility.

3. DECOMMISSIONING REPORT Pursuant to 10 CFR 50.33(k) and 10 CFR 50.75(d), the following is a decommissioning report containing the following:

1) Cost estimate for decommissioning the facility.

2) Indication of the funding method to be used to provide funding assurance for decommissioning.

3) A means of adjusting the cost estimate and associated funding level periodically over the life of the facility.

3.1. Decommissioning Cost Estimate 3.1.1. PULSTAR Decommissioning Cost as based on 1988 Estimate In the North Carolina State University Statement of Financial Qualifications letter dated July 1, 1988[1],

the cost estimate for decommissioning the NC State PULSTAR was given as approximately $800,000 to $1,000,000 dollars. The basis provided for this estimate was the experience at North Carolina State University in decommissioning the 10 kW MTR type reactor (license # R-3) in 1980 and from discussions with reactor personnel from both the University of Texas at Austin 100 kW reactor (being relocated to a new building off-campus) and the University of California at Berkeley 1 MW reactor (being permanently shutdown). The estimate included removal of all activated reactor components, demolition of the reactor biological shield, and disposal costs for radioactive materials. It did not include salaries of PULSTAR reactor personnel contributing to the decommissioning effort, or costs associated with demolition of the reactor high bay (it was assumed the high bay would be renovated and re-used). Applying the methodology of NUREG-1307 Rev 15 Report on Waste Burial Charges; Changes in Decommissioning Waste Disposal Costs at Low-Level Waste Burial Facilities[2], and using the 1988 estimate of $1M as a basis, the cost for decommissioning the NC State PULSTAR would be projected to be $4.8 million in 2017 dollars.

3.1.2. Comparison with recent representative decommissioning projects Per NUREG 1537 Part 1 Guideline for Preparing and Reviewing Applications for the Licensing if Non-Power Reactors - Format and Content Section 15.3[3], as an additional basis for estimating the decommissioning costs of the PULSTAR Reactor, actual recent decommissioning costs from two representative reactor facilities are considered:

1) The Ford Reactor at the University of Michigan, decommissioning completed in 2015, at an actual cost of $14.4 million. The 2 MW reactor structure and associated experimental facilities were decommissioned and removed, but the reactor building was left in place. The

5 bulk of the deconstruction activity and low level radioactive waste shipments occurred in 2007. This information was obtained in discussions with officials from the reactor facility at the University of Michigan.

2) The PULSTAR Reactor Facility at SUNY Buffalo, decommissioning completed in 2015, at an actual cost of $14.1 million. The entire reactor facility, including the 2 MW reactor structure, containment building, and associated administrative building was decommissioned and removed. The bulk of the deconstruction activity and low level radioactive waste shipments occurred in 2014. This information was obtained in discussions with officials from the reactor facility at SUNY Buffalo.

The two reactors referenced resided in states that were not members of a radioactive waste compact at the time the facilities were decommissioned. The low level radioactive waste from the deconstruction and decommissioning of these facilities was shipped to the LLW disposal facility in Clive, Utah. This would also be the case for the PULSTAR reactor, as the State of North Carolina is also not currently part of a waste compact.

Applying the methodology of NUREG-1307[2] and using the known costs of the two representative reactor facility decommissioning efforts as bases, cost estimates for decommissioning these facilities in 2017 dollars are given in Table 3 below.

Table 3 - Estimated 2017 Decommissioning costs for two representative research reactors Reactor Facility Primary Year of Deconstruction Total Actual Cost Labor Adj.

Lx Energy Adj.

Ex Waste Burial Adj. Rx Estimated 2016 Decom.

Cost1 Corrected 2017 Decom.

Cost2 Ford Reactor 2007

$14.4M 1.192 0.796 1.317

$16,800,000

$17,100,000 Buffalo PULSTAR 2014

$14.1M 1.047 0.892 1.011

$14,400,000

$14,600,000 1: The estimated decommissioning cost is corrected from the primary year of deconstruction to 2016 based on the formulas of NUREG-1307 Section 3[2] and applying the labor, energy, and waste burial correction factors as given.

2: The Corrected 2017 Decommissioning Cost is calculated by applying an Organization for Economic Cooperation and Development (OECD) projected 2017 U.S. inflation factor of 1.9%[4].

3.1.3. Discussion of Costs The PULSTAR decommissioning estimate derived from the assumptions in 1988 (as detailed in section 2.1.1) is inconsistent with the estimates obtained in section 2.1.2 from recent representative RTR decommissioning projects. The estimates from the recent representative RTR decommissioning projects are considered to have stronger bases than the dated estimate from 1988, so will form the basis for the updated estimate for the NC State PULSTAR Facility.

Out of the two cases studied, the decommissioning of the Buffalo PULSTAR is considered the most representative relative to the NC State PULSTAR reactor based on the following factors:

1) The facilities were both built with 2 story reactor bio-shields containing beam-ports, and similarly configured primary and secondary cooling systems with N-16 delay tanks and shield vaults. Both facilities were built within a high bay with an internal crane, and containing an experimental beam floor.

6

2) The Buffalo reactor containment building was removed as part of decommissioning; it is anticipated that the NC State PULSTAR confinement building would be decommissioned as well.

3) The decommissioning of the Ford Reactor at the University of Michigan did not include the removal of the reactor building. Significant additional costs were incurred given the logistics of deconstructing the reactor facility without removing the surrounding building. This approach differs significantly from the anticipated approach for decommissioning the NC State PULSTAR.

4) The Buffalo PULSTAR decommissioning effort differed in several ways from the projected NC State PULSTAR decommissioning effort, all resulting in increased relative costs:

5) The Buffalo facility reactor bio-shield was somewhat more complex and massive, including a hot cell facility and additional exposure caves, leading to additional decommissioning costs.

6) An entire administration building wing was decommissioned and removed as part of the Buffalo project. It is anticipated that the Burlington Laboratory building adjacent to the PULSTAR reactor would not be decommissioned.

7) Significant cost overruns were incurred for the Buffalo project when the NYS DEC required that all of the clean concrete rubble be disposed of out of state, leading to additional shipping costs.

3.1.4. 2017 NC State PULSTAR Decommissioning Estimate:

Given the discussion in 2.1.3 above, it is apparent that the decommissioning cost for the NC State PULSTAR would be very conservatively bounded by the $14.1M cost of the Buffalo PULSTAR decommissioning effort. In reviewing the decommissioning costs of the Buffalo facility, and in discussions with the Buffalo facility administrative staff, it is reasonable to make the following conservative corrections in adjusting the 2014 Buffalo costs to be consistent with the NC State PULSTAR facility estimate: 1) subtract $1.0M due to cost overruns for out of state disposal of clean concrete rubble, and 2) subtract $0.5M for demolition of the administration building and disposal.

This yields an estimated 2014 decommissioning cost of $12.6M for the NC State PULSTAR facility.

Table 4 - Estimated 2017 Decommissioning costs for NC State PULSTAR Reactor Facility Primary Year of Deconstruction Total 2014 Cost Labor Adj.

Lx Energy Adj.

Ex Waste Burial Adj. Rx Estimated 2016 Decom.

Cost1 Corrected 2017 Decom.

Cost2 Buffalo PULSTAR 2014 (actual)

$14.1M 1.047 0.892 1.011

$14,400,000

$14,600,000 NC State PULSTAR 2014 (basis)

$12.6M est.

1.047 0.892 1.011

$12,800,000

$13,100,000 Applying the methodology of NUREG 1307[2] (see Table #4 above), the estimate for decommissioning the NC State PULSTAR is $12.8 million in 2016 dollars as corrected from 2014. Applying an Organization for Economic Cooperation and Development (OECD) projected 2017 U.S. inflation estimate of 1.9%[4] to correct from 2016 to 2017 dollars yields an estimated PULSTAR facility decommissioning cost of $13.1 million in 2017 dollars. This total may be subdivided into labor, materials, and services (65%) at $8.5 million, energy and transportation (13%) at $1.7 million, and waste burial (22%) at $2.9 million. Adding a 25% contingency factor per NRC requirements would increase the total estimated cost to $16.4 million. This estimate assumes that NC State will utilize the

7 DECON method of decommissioning, removing and disposing of all radioactive waste offsite. The estimate does not include salaries of PULSTAR reactor personnel contributing to the decommissioning effort.

3.2. Funding Method Pursuant to 10 CFR 50.75(e)(1)(iv), North Carolina State University intends to use a Statement of Intent (SOI) as the method to provide decommissioning funding assurance. Please reference : Statement of Intent (SOI) regarding Decommissioning Funding for the PULSTAR Reactor Facility at NC State University, dated February 24, 2017[5, 6].

3.3. Adjustment of Decommissioning Cost Estimate The 2016 Decommissioning cost estimate for the NC State PULSTAR Reactor Facility is $12.8 million as detailed in section 1.4 above. This estimate will be updated periodically as required using the methodology described in NUREG 1307[2] and detailed below:

From NUREG 1307 Section 3: Estimated Cost (Year X) = (2016 $ Cost)*(ALx + BEx + CBx)

Where:

2016 $ Cost = $12.8 million A = Labor fraction (65%)

B = Energy fraction (13%)

C = Burial fraction (22%)

Lx = Labor Cost adjustment (REF BLS Code CUI2010000000220I for South region)

Ex = Energy Cost adjustment Px = Industrial Electric Power Index (REF BLS Code WPU0543)

Fx = Light Fuel Oils Index (REF BLS Code WPU0573)

Bx = Burial Cost adjustment (REF NUREG 1307 Table 2-1)

Adjustment factors would be calculated as follows (as referenced to 2016 Bureau of Labor Statistics Labor and Producer Price Indices[7]:

Lx = Average ECI (South for Year X) / Average ECI (South for 2016)

= Average ECI (South for Year X) / 125.7 Ex = 0.58Px + 0.42Fx (PWR)

Where:

Px = (Average Year X value of code 0543) / (Average 2016 value of code 0543)

Px = (Average Year X value of code 0543) / 214.1 Ex = (Average Year X value of code 0573) / (Average 2016 value of code 0573)

Ex = (Average Year X value of code 0573) / 134.5 Bx

= Table 2-1 Value for Generators in Unaffiliated States (PWR Year X) / (PWR 2016)

= Table 2-1 Value for Generators in Unaffiliated States (PWR Year X) / 12.471

8

4. REFERENCES 1

Statement of Financial Qualifications Letter, July 1, 1988, North Carolina State University, https://www.nrc.gov/docs/ML1513/ML15134A200.pdf 2

Report on Waste Burial Charges; Changes in Decommissioning Waste Disposal Costs at Low-Level Waste Burial Facilities, NUREG-1307, REV. 15, U.S. Nuclear Regulatory Commission, January 2013; https://www.nrc.gov/docs/ML1302/ML13023A030.pdf 3

Guideline for Preparing and Reviewing Applications for the Licensing of Non-Power Reactors

- Format and Content, NUREG 1537 Part 1, U.S. Nuclear Regulatory Commission, February 1996; https://www.nrc.gov/reading-rm/doc-collections/nuregs/staff/sr1537 4

Organization for Economic Cooperation and Development (OECD) 2017 U.S. Inflation Forecast; https://data.oecd.org/price/inflation-forecast.htm 5

North Carolina General Statutes - Chapter 116, Higher Education, Article 1, University of North Carolina; http://www.ncga.state.nc.us/enactedlegislation/statutes/html/bychapter/chapter_116.html 6

North Carolina State University Regulation 01.20.02, Delegation of Authority to Sign Contracts, REV. March 29, 2016; https://policies.ncsu.edu/regulation/reg-01-20-02/

7 2016 Bureau of Labor Statistics Labor and Producer Price Index; http://www.bls.gov/data/

North Carolina State University Annual Financial Report 2016

NC STATE UNIVERSITY Annual Financial Report 2016

2

1 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT TABLE OF CONTENTS Prepared by the University Controllers Office For the Fiscal Year Ended June 30, 2016 A constituent institution of the University of North Carolina and a component unit of the State of North Carolina Mission Statement Message from the Chancellor Letter of Transmittal NC State Pride Points Financial Highlights NC State University Board of Trustees Executive and Administrative Officers INTRODUCTORY SECTION Report of the Independent Auditor Managements Discussion and Analysis Statement of Net Position Statement of Revenues, Expenses, and Changes in Net Position Statement of Cash Flows Component Foundations Statement of Financial Position Component Foundations Statement of Activities Index to the Notes to the Financial Statements Notes to the Financial Statements Required Supplementary Information FINANCIAL SECTION Ratio of Net Gain in Endowment Investments Revenue Bond Coverage Admissions, Enrollment and Degree Statistics Faculty Statistics Campus Maps 03 04 05 06 09 10 11 14 19 40 42 43 48 49 51 52 85 88 89 90 96 98 SUPPLEMENTARY INFORMATION SECTION

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 2

3 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT MISSION STATEMENT As a research-extensive land-grant university, North Carolina State University is dedicated to excellent teaching, the creation and application of knowledge, and engagement with public and private partners. By uniting our strength in science and technology with a commitment to excellence in a comprehensive range of disciplines, NC State promotes an integrated approach to problem solving that transforms lives and provides leadership for social, economic, and technological development across North Carolina and around the world.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 4

Randy Woodson, Chancellor NC State University FROM THE CHANCELLOR At NC State, were on a mission to achieve our full potential.

Theres never been a time when our Think and Do attitude was more important for the work on our campus and around the globe. This university community is driving tremendous positive change at the very moment the world needs us most.

The past year has shown incredible achievements, growth and widespread recognition for NC State. For example, our faculty were awarded some of the nations and worlds top academic honors including the Global Energy Prize, the National Medal of Technology and Innovation and the Wolf Prize. NC State students won two Goldwater scholarships, five Fulbright scholarships, one Churchill scholarship and a record-breaking 32 National Science Foundation graduate re-search fellowships. Two NC State alums received the World Food Prize for their work with breed-ing biofortified sweet potatoes These examples are just a few of many that confirm the patient, strategic investments weve made over the past few years to attract and support world-leading faculty and high-performing students are paying off.

NC States upward trajectory is being noticed. The journal Nature, for example, placed our uni-versity among the Rising Stars of scientific research: NC State rates the top public university in North America and 31st of all universities worldwide for the accelerating pace of our research output. The university again was ranked by US News & World Report and the Princeton Review as a best value school. Education Trust reported that NC State is one of the top universities in the nation for reducing the disparity in graduation rates for white and underrepresented minority students and increasing the completion rate across the board.

It was also an outstanding year in terms of partnerships and donor support. Citizens of North Carolina overwhelmingly passing the Connect NC Bond which provided core funding for two critical projects: the Engineering Oval building and Plant Sciences Initiative. Industry partnerships remain among the top in the nation and donor giving boosted the university endowment to an all-time high of $998.6 million.

As we reflect on the success of the past year and look forward to what the NC State community will achieve in the future, we are excited to kickoff this year the Think and Do the Extraordinary Campaign. Achieving the Campaigns goal of raising $1.6 billion in private support from the univer-sitys remarkable alumni and friends will allow this university to achieve its full potential as one of the most vital and prestigious research universities in the country.

Because of our amazing students, faculty, staff, alumni and supporters, I am confident this uni-versitys future, and its wide-ranging impact, will be nothing less than extraordinary.

5 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT LET TER OF TRANSMIT TAL Scott R. Douglass Vice Chancellor, Finance and Administration NC State University To:

Chancellor W. Randolph Woodson and the Board of Trustees North Carolina State University I am pleased to present North Carolina State Universitys 2016 Annual Financial Report. Prepared by Finance and Administration staff in accordance with generally accepted accounting principles for public colleges and universities as defined by the Governmental Accounting Standards Board, the report contains detailed information about the universitys financial activities. This includes key financial data for the past five years, complete financial statements with management dis-cussion and analysis, the Office of the State Auditors report, and recent achievements. Supple-mental information includes trend data relating to admissions, enrollment, degree, faculty, en-dowment investments, and debt coverage. The information enclosed is accurate in all material respects and reported in a manner fairly representing the universitys financial position to the best of our knowledge. Finance and Administration maintains an effective system of internal controls to ensure that assets are safeguarded and transactions are properly executed and recorded.

Financial Report Highlights The universitys financial assets were $3.13 billion with net position of $1.99 billion.

Net position grew by $73.4 million or 3.8% during the reporting period.

Revenues and expenses (operating, nonoperating and other) were $1.49 billion and $1.42 billion, respectively.

Revenues exceeded expenses by $40.8 million (net income) before capital revenues of

$18.5 million and additions to endowments of $14.0 million.

Revenues (operating, nonoperating and other) increased by $43.1 million or 3.0%, primar-ily due to increases in student tuition and fees, state appropriations, sales and services and contracts and grants income.

State noncapital appropriations increased $21.0 million, and capital appropriations in-creased $9.0 million.

Operating expenses increased by $67.7 million or 5.1%, with instruction, research and auxiliary enterprises, showing the largest increases.

NC State upholds its commitment to financial stewardship and its overarching goal of solving the grand challenges of an increasingly complex world. In this way the university preserves its founding mission to create economic, societal and intellectual prosperity for the people of North Carolina and the United States.

Sincerely,

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 6

NC STATE PRIDE POINTS Essential Facts and Figures 34,015 students, 2,323 faculty and 6,733 staff Student-faculty ratio 14:1 12 colleges representing all major academic fields 20 residence halls and 14 Living and Learning Villages 600+ student organizations Largest university in North Carolina

$1.48 billion budget for fiscal year 2016

$349 million in sponsored research for fiscal year 2016

$998.6 million endowment Educating more North Carolinians than any other university Cooperative Extension Service provides services to citizens in all 100 counties and among the Eastern Band of Cherokee Indians Industry Expansion Solutions helps the states small manufacturers boost efficiencies, creating $3.4 billion in economic benefit since 2000 Ranked Among the Best

1. 1 best value among North Carolina public universities (SmartAsset.com)

1. 3 veterinary medicine program nationally (U.S. News & World Report)

1. 8 return on investment nationally for degrees in science technologies (U.S. Department of Education College Scorecard)

1. 9 online MBA nationally (Princeton Review)

1. 10 best value nationally among public universities (U.S. News & World Report)

Four undergraduate engineering programs are among the top 20 nationally (U.S. News & World Report) 11 graduate programs are among the top 30 in their fields nationally (U.S. News & World Report)

Academic Excellence: Brightest Students, Best Faculty NC State students won two Goldwater scholarships, five Fulbright scholarships, one Churchill scholarship and a record-breaking 32 National Science Foundation graduate research fellowships in the 2015-2016 academic year Recent freshman classes boast the highest high school GPAs and SAT scores in university history The Chancellors Faculty Excellence Program has hired 41 world-leading educators and researchers in 20 interdisciplinary clusters, including bioinformatics, geospatial analytics and personalized medicine Faculty have recently won the Global Energy Prize and the National Medal of Technology and Innovation 23 faculty are members of the National Academies NC State ranks in the top 20 nationwide for producing Fulbright Scholars Driving Economic Prosperity NC States 100+ startups and spinoffs have attracted $1.6 billion in venture capital

1. 6 nationwide in commercialization agreements based on university research; No. 1 among universities without a medical school 850+ U.S. patents and 1,500+ worldwide, yielding 500+ consumer products NC State and its students, alumni and associated startups generate $6.5 billion of North Carolina income annually

7 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT NC STATE PRIDE POINTS A National Leader in Attracting Sponsored Research One of only two universities in the nation leading two National Science Foundation Engineering Research Centers: the FREEDM Systems Cen-ter, researching smart-grid technology; and the ASSIST Center, developing wearable, self-powered health monitors NC State leads three federally funded collaborative institutes:

$140 million PowerAmerica initiative, developing an advanced power electronics manufacturing sector for the Department of Energy

$60 million Laboratory for Analytic Sciences, studying data analytics for the National Security Agency

$25 million Consortium for Nonproliferation Enabling Capabilities, combating the spread of nuclear weapons for the National Nuclear Security Administration Rising Levels of External Support

$162.6 million in gifts and new commitments for FY16; 82 percent growth since 2010 Gift receipts rose nearly 7 percent over last year to $129 million, topping $100 million for the fifth year in a row Two $5 million gifts funded the Annable Scholarship Endowment, a need-based scholarship program in the College of Veterinary Medicine Athletic Acheivement The athletics program ranked 32nd in the national Directors Cup competitive standings for 2015-2016, up 35 spots from 2010 Five Wolfpack athletes competed in the 2016 Olympics, and swimmer Ryan Held won a gold medal for the United States in the 4x100 relay Five athletics department programs finished in the top 11 of their respective national polls, and nine teams finished ranked in the top 25 NC States student-athletes also excelled in the classroom, posting the departments highest-ever rates of graduation success and academic progress Interdisciplinary Partnerships That Make a Difference Eastman Chemical, LexisNexis and ABB are among our on-campus partners benefiting from next-door proximity to NC State faculty, staff and students NC States Supply Chain Resource Cooperative, Entrepreneurship Initiative and Nonwovens Institute combine academic scholarship with real-world experience to create knowledge, teach students and benefit partners NC States expertise in biomanufacturing, nonwoven textiles and clean energy stimulates formation of industry clusters, drawing companies and jobs to North Carolina NC States Centennial Campus A national model for partnership-driven research campuses Centennial Campus is a public-private research campus where 70+ corporate, government and nonprofit partners work alongside 70+ NC State research and academic units.

The campus is also home to the College of Engineering, the College of Textiles, the College of Veterinary Medicine and the Institute for Emerg-ing Issues, a think tank focused on tackling big issues that affect North Carolinas prosperity.

Centennials Office of Technology Commercialization and New Ventures helps faculty and entrepreneurs transfer discoveries from the lab to the marketplace.

The Technology Incubator supports high-tech startups by facilitating unparalleled access to world-leading researchers.

The James B. Hunt Jr. Library, winner of the prestigious Stanford Prize for Innovation in Research Libraries, is one of the most technologically advanced learning and collaboration spaces in the world.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 8

9 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT FINANCIAL HIGHLIGHTS 2012 2013 2014 2015 2016 University Net Position Invested in Capital Assets, Net of Related Debt

$1,300.1

$1,221.3

$1,326.7

$1,382.7

$1,413.8 Restricted Nonexpendable

$83.0

$86.1

$94.9

$106.6

$119.3 Restricted Expendable (1)

$147.4

$285.8

$241.3

$211.5

$217.7 Unrestricted

$214.4

$230.8

$256.2

$217.1

$240.4 Total Net Position

$1,744.9

$1,824.0

$1,919.1

$1,917.9

$1,991.2 Gifts Noncapital Gifts

$57.8

$59.4

$66.3

$68.1

$71.2 Capital Gifts

$6.3

$5.1

$2.8

$16.2

$7.0 Contracts & Grants Federal Contracts & Grants

$132.0

$136.0

$140.7

$146.7

$158.1 State and Local Contracts and Grants

$38.8

$35.5

$35.3

$39.4

$36.3 Nongovernmental Contracts and Grants

$75.0

$72.5

$71.8

$83.0

$83.9 Total Contracts and Grants

$245.8

$244.0

$247.8

$269.1

$278.3 Appropriations and Tuition and Fees Federal Appropriations

$19.4

$18.7

$19.8

$16.9

$13.8 State Appropriations for Operations

$466.1

$484.0

$473.0

$481.5

$502.5 State Appropriations for Capital Projects

$0.0

$2.1

$12.2

$0.0

$9.0 Tuition and Fees (Gross)

$293.3

$321.5

$336.0

$360.3

$384.4 Foundation Support

$49.7

$53.9

$56.9

$72.9

$65.1 Endowment Investments

$161.4

$177.4

$205.0

$230.1

$209.0 Investment Fund Return 2.60%

11.9%

15.7%

9.0%

-1.4%

Capital Assets Total University Capital Assets

$2,384.5

$2,584.9

$2,732.0

$2,819.8

$2,940.5 Total University Capital Assets, Net of Accumulated Depreciation

$1,713.8

$1,857.6

$1,948.8

$1,977.2

$2,025.3 University Debt Short-term Debt

$50.0

$0.0

$10.0

$10.0

$40.1 Bonds Payable

$296.1

$528.7

$513.6

$499.0

$484.3 Notes Payable

$81.1

$79.5

$80.6

$76.2

$71.8 Estimated Expenses for Full-Time Students Living on Campus - N.C.

Residents (dollars are in whole numbers)

Tuition and Fees

$7,018

$7,788

$8,206

$8,296

$8,581 Books and Supplies

$1,000

$1,000

$1,058

$1,076

$1,076 Room Rent (Average)

$5,176

$5,434

$6,034

$6,244

$6,375 Meals (Average)

$3,360

$2,980

$3,400

$3,786

$3,936 Other Personal Expenses

$2,083

$2,668

$2,700

$2,690

$1,500 Transportation

$751

$774

$786

$798

$890 Total

$19,388

$20,644

$22,184

$22,890

$22,358 For the Years ended June 30, 2012-2016 (dollars are in millions)

1.

Sources for funding Restricted Expendable Net Assets include gifts, contracts and grants, unexpended capital appropriations, endowment income, unexpended debt proceeds, required reserves, and loan funds.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 10 BOARD OF TRUSTEES Dr. James W.

Owens, Peoria Heights, IL Chair Benjamin P.

Jenkins III, Charlotte NC Wendell H.

Murphy, formerly of Rose Hill, NC Susan Ward, Raleigh, NC As of June 30, 2016 Khari Cyrus Student Body President Dewayne N.

Washington, Wake Forest, NC Thomas Cabaniss, Richmond, VA Ann B. Goodnight, Cary, NC Jimmy D. Clark, Greensboro, NC Randall C. Ramsey, Beaufort, NC Robert Andrews III, Raleigh, NC Stanhope A. Kelly, Winston-Salem, NC Dr. Ronald W.

Prestage Camden, SC

11 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT EXECUTIVE AND ADMINISTRATIVE OFFICERS EXECUTIVE OFFICERS W. Randolph Woodson Marc I. Hoit Alan Rebar Chancellor Vice Chancellor for Information Tech-nology Vice Chancellor for Research, Innova-tion and Economic Development Warwick Arden Kevin D. Howell Michael D. Mullen Provost and Executive Vice Chancel-lor Assistant to the Chancellor for External Affairs Vice Chancellor and Dean for the Divi-sion of Academic and Student Affairs Deborah A. Yow Brian C. Sischo PJ Teal Director of Athletics Vice Chancellor for Secretary of the University University Advancement Eileen S. Goldgeier Scott Douglass Vice Chancellor and Vice Chancellor for General Counsel Finance and Business DEANS Richard Linton Maureen Grasso William Ditto Dean of College of Dean of Graduate School Dean of College of Sciences Agriculture and Life Sciences Mark Hoversten Jeffrey P. Braden David Hinks Dean of College of Design Dean of College of Humanities Dean of College of Textiles and Social Sciences Mary Ann Danowitz Annette Ranft Michael D. Mullen Dean of College of Education Dean of Poole College of Management Vice Chancellor and Dean for the Divi-sion of Academic and Student Affairs Louis Martin-Vega Mary Watzin D. Paul Lunn Dean of College of Dean of College of Dean of College of Engineering Natural Resources Veterinary Medicine

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 12

13 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT NORTH CAROLINA STATE UNIVERSITY 2016 ANNUAL FINANCIAL REPORT FINANCIAL SECTION

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 14

15 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the 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 reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of North Carolina State University, and its discretely presented component units, as of J,une 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter As discussed in Note 20 to the financial statements, during the year ended June 30, 2016, North Carolina State University adopted new accounting guidance, Governmental Accounting Standards Board Statement No. 72 - Fair Value Measurement and Application.

Our opinion is not modified with respect to this matter.

Other Matters - Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis and other required supplementary information, as

, 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 Accountin,g Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information The introductory and supplementary sections are presented for purposes of additional analysis and are not required as part of the basic financial statements. This information is the responsibility of management and was derived from and relates directly to the underlying

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 16

17 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT

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2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 18

19 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT NORTH CAROLINA STATE UNIVERSIT Y MANAGEMENTS DISCUSSION AND ANALYSIS Introduction Managements Discussion and Analysis of the financial report provides an overview of the accompanying basic financial statements. It includes comparative financial analysis with discussion of significant changes from the prior year. The overview also includes information on cur-rently known facts, decisions, or conditions affecting the financial affairs of the University.

Using the Financial Statements The Universitys financial statements are prepared in accordance with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board, (GASB), which establishes standards for external financial reporting for public colleges and universities.

The full scope of the Universitys activities is considered to be a single business-type activity and accordingly, is reported within a single column in the basic financial statements.

North Carolina State University is a constituent institution of the multi-campus University of North Carolina System, which is a component unit of the state of North Carolina and an integral part of the States Comprehensive Annual Financial Report. Also, NC State blends two component units as if they were part of the University, and three entities are reported as discretely presented component units based on the nature and significance of their relationship to the University. Note 1A provides detailed information on the Universitys financial reporting entity.

The Universitys three financial statements are used to evaluate financial position as of June 30th and the results of operations for the fiscal year then ended. The Statement of Net Position provides information relative to the evaluation of financial position. The Statement of Revenues, Expenses, and Changes in Net Position provides information relative to the evaluation of the results of operations. Its ending net position agrees to the total net position on the Statement of Net Position.

The financial statements also include a Statement of Cash Flows. This statement is used to identify the Universitys sources and uses of cash. The ending cash on the Statement of Cash Flows agrees to the total cash reported on the Statement of Net Position. Also, this statement reconciles the net operating loss reported in the Statement of Revenues, Expenses, and Changes in Net Position to the net cash used by operating activities.

In using the financial statements, the Notes to the Financial Statements accompanying the financial statements should be read in conjunction with the financial statements. The notes provide information regarding the significant accounting principles applied in the financial statements, authority for and associated risk of deposits and investments, detailed information on long-term liabilities, detailed information on accounts receivable, accounts payable, revenues and expenses, required information on pension plans and other postemployment benefits, insurance against losses, commitments and Financial Highlights NC State Universitys net position increased by $73.4 million to $1.99 billion in fiscal year 2016. Net position represents the Universitys equity. It is the residual of all the other elements of the statement of financial position, the assets and deferred outflows of resources less liabili-ties and deferred inflows of resources. As required by the Governmental Accounting Standards Board (GASB),

NC State University implemented GASB Statement No.

72, Fair Value Measurement and Application in fiscal year 2016. Based on GASB 72, the University restated En-dowment Fund holdings in real estate from investments to capital assets. Although total net position was not af-fected, the net position balances related to the reclassi-fied real estate were moved to net investment in capital assets. Using the restated 2015 balances, unrestricted net position grew $33.9 million supported by increases in tuition and fees and sales and services. Restricted expendable net position increased $15.5 million, driven by the increase in capital projects net position funded by capital appropriations and commercial paper proceeds.

Restricted nonexpendable net position increased $14.7 million, and net investment in capital assets increased by

$9.3 million.

Revenues increased by $43.1 million or 3.0%, to $1.49 bil-lion in fiscal year 2016. Revenues represent amounts re-ceived or accrued that are operating, nonoperating or oth-er revenues on the accompanying financial statements.

Increases in tuition and fees, state appropriations, sales and services and research contracts and grants were ma-jor factors in the revenue growth. These increases were partially offset by decreases in investment income and student financial aid grants.

Operating expenses grew 5.1% in 2016, up $67.7 million compared to fiscal year 2015. Operating expenses rep-resent amounts paid or accrued for operating purposes.

Instruction, research, auxiliary enterprises, institutional support and depreciation showed the largest increases, while other functional categories had small increases or decreases.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 20

21 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT contingencies, and accounting changes. If necessary, the disclosures include a discussion of adjustments to prior periods and events subsequent to the Universitys financial statement period. Overall, these disclosures provide information to better understand details, risk, and uncertainty associated with amounts reported in the financial statements.

Comparative Condensed Financial Statement Information Statement of Net Position The Statement of Net Position provides information regarding the Universitys assets, deferred outflows and inflows of resources, liabilities, and net position as of June 30, 2016. Asset and liability balances are classified as either current or noncurrent. Assets classified as current are those that are available to pay for current liabilities or current year expenditures. Liabilities classified as current are those that are due and payable in the next fiscal year. The net position balances are classified as either net investment in capital assets, restricted or unrestricted. In addition, net position balances classified as restricted are classified as either nonexpendable or expendable. Overall, the Statement of Net Position provides information to evaluate the financial strength of the University and its ability to meet current and long-term obligations.

Following is a comparative analysis on the condensed balances reported in the Statement of Net Position as of June 30, 2016 and June 30, 2015. The 2015 balances were restated in response to the fiscal year 2016 implementation of GASB Statement No. 72, Fair Value Measurement and Application. GASB 72 defines investments as assets held primarily for the purpose of income or profit and as having a present service capacity based solely on the ability to generate cash or to be sold to generate cash. The NC State Endowment Fund held real property that had been classified as investments in real estate. However, this real estate had operational purposes, not just the generation of profit. Based on the provisions of GASB 72, $21.9 million in investments were reclassified to capital assets and the related net position moved to Net Investments in Capital Assets.

2016 2015 (As Restated)

Increase/

(Decrease)

Assets Current Assets 403,005,557 347,304,826 55,700,731 Capital Assets, Net 2,025,328,291 1,999,505,101 25,823,190 Other Noncurrent Assets 706,572,216 619,611,354 86,960,862 Total Assets 3,134,906,064 2,966,421,281 168,484,783 Deferred Outflows of Resources Accumulated Decrease in Fair Value of Hedging Derivatives 13,837,267 11,808,389 2,028,878 Deferred Outflows Related to Pensions 31,284,957 30,789,269 495,688 Total Deferred Outflows of Resources 45,122,224 42,597,658 2,524,566 Liabilities Current Liabilities 161,035,104 114,987,149 46,047,955 Noncurrent Liabilities Long Term Liabilities 682,735,164 649,413,731 33,321,433 Other Noncurrent Liabilities 327,500,338 235,849,957 91,650,381 Total Liabilities 1,171,270,606 1,000,250,837 171,019,769 Deferred Inflows of Resources Deferred Inflows Related to Pensions 17,506,004 90,871,239 (73,365,235)

Net Position Net Investment in Capital Assets 1,413,824,172 1,404,535,777 9,288,395 Restricted Nonexpendable 119,263,539 104,600,621 14,662,918 Expendable 217,731,322 202,260,477 15,470,845 Unrestricted 240,432,645 206,499,988 33,932,657 Total Net Position

$ 1,991,251,678 1,917,896,863 73,354,815

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 22

23 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT The following graph illustrates the assets, deferred outflows, liabilities and net position of the University as of June 30, 2016, as compared to restated June 30, 2015 balances (in thousands).

Assets totaled $3.13 billion, an increase of $168.5 million over the prior year. This change in assets includes an increase in current assets of $55.7 million, capital asset growth of $25.8 million and an increase in other noncurrent assets of $87.0 million.

Current assets increased by $55.7 million in fiscal year 2016. This increase was primarily the result of a $53.8 million increase in cash and cash equivalents, driven by the management flexibility carryforward change from 2.5% to 5% and the $32.6 million liquidation of an Intermediate Term Fund investment on June 30, 2016.

Accounts receivable grew by $6.2 million but this was largely offset by a $5.2 million decrease in due from primary government. The drop in due from primary government was related to state contracts and grants, and the largest decreases were in amounts due from the Department of Transportation and the Department of Public Instruction.

The capital asset growth of $25.8 million is due to construction funding from commercial paper financing, capital appropriations and capital grants and gifts. The University added $30 million in commercial paper funding in 2016, received $9.0 million in capital appropriations resources and $9.5 million in capital gifts and grants.

Further discussion of capital asset activity is included below.

The $87.0 million increase in other noncurrent assets is made up of increases in restricted cash and partially offsetting decreases in other long-term investments.

Restricted cash and cash equivalents increased $116.0 million in fiscal year 2016. This large increase was caused by the Hofmann timber deed proceeds of $78.0 million received on June 30 and capital allotment increases of

$29.2 million. Other long-term investments decreased

$33.2 million with the $32.6 million liquidation of an Intermediate Term Fund investment.

The deferred outflows of resources for the Universitys swap agreements and the deferred outflows for pensions are shown in a separate section of the financial statements. GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, which was implemented in fiscal year 2013, established deferred sections of the financial statements. Most of the $2.5 million increase in deferred outflows is related to the accumulated decrease in the fair value of hedging derivatives account. This $2.0 million change is due to market fluctuations. The deferred outflows for pensions account reflects the Universitys allocated portion of deferred outflows for the TSERS cost-sharing pension plan. Amounts in this account are amortized over time as pension expense. The $0.5 million increase in the deferred outflows for pensions is due to changes in the pension contributions and the Universitys proportionate share of contributions to the plan.

Liabilities totaled $1.17 billion, an increase of $171.0 million over the prior year. The increase in liabilities is attributable to an increase in current liabilities of $46.0 million and an increase in noncurrent liabilities of $125.0 million.

Current liabilities totaled $161.0 million. These liabilities include accounts payable and accrued liabilities, due to other entities, unearned revenue, and the current portion 206,500 202,260 104,601 1,404,536 976,135 114,987 662,209 1,999,505 347,305 240,433 217,731 119,264 1,413,824 1,027,742 161,035 751,694 2,025,328 403,006 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 2,200,000 Unrestricted Restricted Expendable Restricted Nonexpendable Net Investment in Capital Assets Noncurrent Liabilities and Deferred Inflows Current Liabilities Other Noncurrent Assets and Deferred Outflows Capital Assets, Net Current Assets 2016 2015 Thousands

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 24

25 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT Deferred inflows for pensions was new for fiscal year 2015, required by the implementation of GASB Statement No. 68, Accounting and Financial Reporting for Pensions. This $17.5 million deferred inflows of resources is another allocation of TSERs cost-sharing pension plan balances. The $73.4 million drop in deferred inflows is driven by the higher pension liability related to the difference between projected and actual investment earnings. These deferred inflows for pensions are amortized over time as pension expense.

Net position totaled $1.99 billion, an increase of $73.4 million over the prior year. Unrestricted net position increased by $33.9 million, with major factors being tuition and fees and sales and services revenues.

Restricted expendable net position rose $15.5 million and the largest increase was in capital projects net position, which is related to the additional commercial paper and capital appropriations funding. Restricted nonexpendable net position grew by $14.7 million with endowed professorships showing the largest gain due to new gifts and matching funding from UNC General Administration. Net investment in capital assets rose

$9.3 million to $1.41 billion as capital projects were completed and equipment was capitalized during the fiscal year.

The Universitys current assets are more than sufficient to cover current liabilities, with a ratio of 2.5 times compared to 3.0 times in the prior year. The Universitys total assets are significantly more than the Universitys liabilities with a ratio of 2.7 times as compared to 3.0 times in the prior year. These financial ratios are indicators of NC States financial strength and its ability to meet current and long-term obligations.

of University debt. The current liabilities increase of

$46.0 million was primarily caused by the increase in short-term debt. The University issued an additional

$30.0 million in commercial paper in fiscal year 2016 to help fund Reynolds Coliseum and Carmichael Gym renovations. Accounts payable and accrued liabilities also increased $9.8 million, mainly due to a $5.8 million increase in construction payables and $1.0 million in timber deed payables. Unearned revenue rose $5.6 million, with the largest increases in advance football ticket sales, contract and grant unearned revenues and the current part of the Hofmann Forest timber deed earnings.

Noncurrent liabilities totaled $1.01 billion, and include deposits payable, funds held for other entities, funds held in trust in the investment pool, unearned revenue, long-term liabilities and the hedging derivative liability.

The primary factors in the $125.0 million increase in noncurrent liabilities was unearned revenue and long-term liabilities. The $78.0 million Hofmann Forest timber deed drove the large new unearned revenue balance. Long-term liabilities increased $33.3 million, with the pension liability being the major cause. The net pension liability rose $53.7 million due to differences in the expected and actual earnings in the Teachers and State Employees Retirement System (TSERS) pension plan. Still within long-term liabilities, the pension liability increase was partially offset by a $14.8 million decrease in bonds payable and $4.4 million decrease in notes payable. These decreases are due to regular principal payments and also paying off the Series 2005A bonds and a note on the golf course clubhouse.

Funds held for others and funds held in trust for pool participants increased by a total of $13.4 million, driven by increases in deposits by foundations. The hedging derivative liability increases and decreases based on market values and showed a $2.0 million increase in fiscal year 2016. Other noncurrent liabilities increased or decreased by small amounts.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 26

27 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT Statement of Revenues, Expenses, and Changes in Net Position The Statement of Revenues, Expenses, and Changes in Net Position provides information regarding the Universitys activities for the year ending June 30, 2016. The activity balances are classified as operating, nonoperating, or other revenues, expense, gains or losses.

Activities classified as operating include all revenues of the University except those considered nonoperating or those associated with funds received to enhance capital assets or permanent endowments. Operating expenses are all expenses except those related to interest expense on financing activities, loss on disposal of capital assets, and investment expenses (shown as net against investment income). Activities classified as nonoperating include state appropriations, noncapital gifts and grants revenue, investment income (net of investment expenses), and gains or losses on disposal of capital assets. Activities classified as other include capital gifts or grants and additions to permanent endowments. Overall, the Statement of Revenues, Expenses, and Changes in Net Position provides information to evaluate the Universitys management of operations and maintenance of financial strength.

Following is a comparative analysis on the condensed balances reported in the Statement of Revenues, Expenses, and Changes in Net Position for the fiscal years ended June 30, 2016, and June 30, 2015.

2016 2015 Increase/

(Decrease)

Operating Revenues Student Tuition and Fees, Net 291,175,319 270,139,559 21,035,760 Federal Appropriations 13,847,694 16,930,633 (3,082,939)

Grants and Contracts 278,330,058 269,113,771 9,216,287 Sales and Services, Net 238,447,749 224,940,804 13,506,945 Other 14,551,643 18,427,520 (3,875,877)

Total Operating Revenues 836,352,463 799,552,287 36,800,176 Operating Expenses Salaries and Benefits 857,250,567 829,085,258 28,165,309 Supplies and Materials 127,911,047 118,371,721 9,539,326 Services 251,765,902 223,104,891 28,661,011 Scholarships and Fellowships 43,820,372 45,376,020 (1,555,648)

Utilities 32,028,497 35,750,321 (3,721,824)

Depreciation/Amortization 88,721,461 82,078,817 6,642,644 Total Operating Expenses 1,401,497,846 1,333,767,028 67,730,818 Net Operating Loss (565,145,383)

(534,214,741) 30,930,642 Nonoperating Revenues (Expenses)

State Appropriations 502,533,982 481,548,424 20,985,558 Noncapital Grants - Student Financial Aid 44,705,577 48,061,723 (3,356,146)

Other Noncapital Grants and Gifts 72,024,499 68,457,698 3,566,801 Investment Income 1,569,316 19,742,861 (18,173,545)

Other (14,855,864)

(12,785,462) 2,070,402 Net Nonoperating Revenues 605,977,510 605,025,244 952,266 Gain Before Other Revenue 40,832,127 70,810,503 (29,978,376)

Capital Appropriations, Gifts, and Grants 18,483,657 18,518,437 (34,780)

Additions to Permanent Endowments 14,039,031 11,524,687 2,514,344 Increase in Net Position 73,354,815 100,853,627 (27,498,812)

Beginning Net Position 1,917,896,863 1,817,043,236 100,853,627 Ending Net Position

$ 1,991,251,678 1,917,896,863 73,354,815 Fiscal year 2015-2016 total revenues are $,1,491,595,178 and total expenses are $1,418,240,363.

Fiscal year 2014-2015 total revenues are $1,448,540,778 and total expenses are $1,347,687,151.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 28

29 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT OPERATING AND NONOPERATING REVENUES OPERATING AND NONOPERATING EXPENSES Operating and Nonoperating Activities The following illustrates the relationships of operating and nonoperating revenue sources and expense functions to total revenue/expenses for the fiscal year 2016 and 2015, and the consistency of relationships between the two years. The pension expense was allocated to the other functional captions for fiscal year 2015 to be consistent with the required presentation for fiscal year 2016 reporting.

Title

% to Total 2016

% to Total 2015 Instruction 30%

30%

Research 19%

19%

Public Service 8%

9%

Auxiliary Enterprises 12%

11%

Operations & Maintenance of Plant 6%

6%

Academic Support 6%

6%

Institutional Support 7%

6%

Depreciation/Amortization 6%

6%

Student Financial Aid 3%

4%

Student Services 2%

2%

Other 1%

1%

Total 100%

100%

Title

% to Total 2016

% to Total 2015 State Appropriations 35%

34%

Research Contracts and Grants 19%

19%

Student Tuition and Fees 20%

19%

Sales and Services 16%

16%

Noncapital Grants and Gifts 8%

8%

Federal Appropriations 1%

1%

Other 1%

3%

Total 100%

100%

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 30

31 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT OPERATING AND NONOPERATING REVENUES OPERATING AND NONOPERATING EXPENSES The following graphs illustrate the Universitys operating and nonoperating revenues/expenses by source/function (in thou-sands). As in the chart above, the pension expense was allocated to the other functional captions for fiscal year 2015, to be consistent with the required fiscal year 2016 reporting presentation.

155,824 224,941 269,114 270,140 498,479 134,738 238,448 278,330 291,175 516,382 100,000 200,000 300,000 400,000 500,000 600,000 Other Sales and Services Research Contracts and Grants Student Tuition and Fees Appropriations 2016 2015 Thousands 13,920 82,079 152,614 162,109 73,151 376,556 487,258 16,743 88,721 165,422 172,756 74,534 387,725 512,339 100,000 200,000 300,000 400,000 500,000 600,000 Other Depreciation/Amortization Auxiliary Costs Institutional Support and Operations & Maintenance Student Services and Financial Assistance Research and Public Service Instruction and Academic Support 2016 2015 Thousands

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 32

33 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT Total revenues (operating, nonoperating, and other) in-creased $43.1 million or 3.0% compared to the prior year.

Student tuition and fees increased $21.0 million, as rates increased in 2016 for resident and nonresident students.

The largest tuition change was a 6% increase for non-resident undergraduates. State appropriations were also up by $21.0 million or 4.4%, due to enrollment growth, employee bonus funding and other small adjustments.

Sales and services revenues grew $13.5 million or 6.0%.

Dining grew $6.6 million and there were smaller increas-es in various services including veterinary services, the bookstore, housing and athletics. Research contracts and grants rose by $9.2 million, mostly in federal contracts and grants. Noncapital gifts were up slightly, $3.1 mil-lion or 4.5%. However, investment income decreased

$18.2 million, with $16.2 million in unrealized losses in the fluctuating market. Also, other operating revenues decreased by $3.9 million, driven by less patent royalty in-come. Student financial aid grants dropped $3.4 million, with decreases in federal and state funding.

Total expenses (operating and nonoperating) increased

$70.6 million or 5.2% compared to the prior year. Sala-ries and benefits increased $28.2 million or 3.4% in 2016.

The largest salary increases were in instruction, $16.7 million, and auxiliary enterprises, $4.8 million. There was a $750 legislative bonus in fiscal year 2016 but other sal-ary increases and the related benefits also contributed to the salaries growth. The next large increase in expenses was in services. Services grew $28.7 million, driven by increases in subcontracts, repairs, maintenance agree-ments and communications. Research and instruction showed the largest increases in services. Supplies ex-penses were also up, by 9.5 million or 8.1%. Auxiliary enterprises and operations and maintenance of plant had the largest increases, as some items from construction projects were expensed and completed buildings re-quired more supplies. As capital assets rose, the related depreciation/amortization expense also increased by $6.6 million or 8.1%. With fewer active construction proj-ects, less interest was capitalized during 2016 so inter-est and fees on debt rose $4.8 million Partially offsetting these expense increases, utilities dropped $3.7 million or 10.4%, due to lower fuel oil and natural gas spending.

Tightening government budgets also affected scholar-ships and fellowships, which decreased by $1.6 million as financial aid grants were reduced and more funding was used for tuition and fees, dining and housing.

Other Activity Other activity totaled $32.5 million, up $2.5 million from the prior year. The University received an additional $9.0 million from the state in capital appropriations. Howev-er, capital gifts fell $9.2 million, as the NC State Student Aid Association, Inc. gave the University the Close-King Indoor Practice Facility in the prior year. Capital grants showed minimal growth but additions to permanent en-dowment was up $2.5 million.

Capital Assets and Long-Term Debt Activities Capital Assets The University capitalizes assets that have a value or cost equal to or greater than $5,000 at the date of acquisition and an expected useful life of more than one year ex-cept for internally generated software which is capitalized when the value or cost is $1,000,000 or greater and other intangible assets which are capitalized when the value or cost is $100,000 or greater. Repairs and renovations that do not extend the life of the building beyond the expected useful life at acquisition, nor increase the future service potential of the building are expensed and not capitalized.

Machinery and equipment are depreciated over their es-timated useful lives, generally 4 to 22 years beginning in the year of acquisition. Buildings and general infrastruc-ture are depreciated over their estimated useful lives, generally 10 to 50 years for buildings and 15 to 75 years for general infrastructure beginning in the year that the construction is completed or, if purchased after construc-tion, when acquired. Computer software is amortized over a useful life of 2 to 15 years. Land, construction in progress, and computer software in development are nondepreciable capital assets. When a construction proj-ect is completed, the capital project costs are moved from the construction in progress account to either build-ings or general infrastructure as appropriate.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 34

35 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT In addition to costs incurred, the University had $20.7 million in outstanding commitments for construction proj-ects with an additional $0.2 million in software in devel-opment contract commitments as of June 30, 2016.

During fiscal year 2016 NC State continued construction on new facilities and work on renovations to modernize campus. Funding for these improvements came from funds provided by University debt financing and state-issued bonds and certificates of participation.

The University completed all work on Talley Student Cen-ter in fiscal year 2016. This completed a multi-year reno-vation/new building project that is now the hub and heart of the University. Talley is now a foundation for student life at NC State, providing extracurricular opportunities, employment and academic resources that will propel stu-dents to success.

The Carmichael Gym locker room renovation was com-pleted in June 2016. The upgrades add approximately 5,000 square feet of fitness center space and repurpose underutilized and inefficient locker rooms. The upgrade finishes in the locker room provide a health club look and feel. The renovations also address facility accessibil-ity and safety deficiencies.

A major classroom SCALE-UP project for Cox Hall was completed in March 2016. The primary goal of the Stu-dent-Centered Active Learning Environment with Upside-down Pedagogies (SCALE-UP) Project was to establish a highly collaborative, hands-on, computer-rich, interactive learning environment for large-enrollment courses. This project scope included renovating office space into high-technology classrooms on the first floor. The renovations include modifications to the building infrastructure to ac-commodate this space including new restrooms and a new lactation room. The renovations provided Scale-Up audio/visual upgrades and associated equipment clos-ets supplying the digital cabling and brains for each classroom. Miles of new cabling was installed for this upgrade.

Scale-Up Classrooms came about as a result of the last decades success of adult education, computer-rich class-rooms, focused on circles of student dialogue and shared information. Scale-up classrooms are a move away from the pedagogical practice of lectures while using a more engaging approach to student research and discovery.

The Ricks Hall upgrade project is Phase 2 of a two phase project to renovate the third floor of Ricks Hall for the Bio-informatics staff. The project includes architectural and mechanical renovations. The architectural renovations in-volve selective demolition within the third floor with the installation of new offices with new walls, painting, light-ing, floor coverings, and doors. The mechanical renova-tions involve the installation of new subsurface areaways to serve a new basement mechanical room with new me-chanical equipment and a future mechanical room. The project will also install new supply and return ductwork from the basement up to the third floor and new variable air volume terminal units. The mechanical work also in-cludes new fire alarm devices, new standpipes, and new fire protection sprinklers on the third floor. New alumi-num framed, energy efficient windows will be installed.

2016 2015 (As Restated)

Increase/

(Decrease)

Land 62,457,494$

59,544,940 $

2,912,554 Construction in Progress 61,591,561 54,956,500 6,635,061 Computer Software in Development 323,600 659,874 (336,274)

Buildings 2,228,388,315 2,161,039,192 67,349,123 Machinery and Equipment 359,435,354 342,643,333 16,792,021 General Infrastructure 207,764,589 205,771,161 1,993,428 Compter Software 20,544,306 17,514,419 3,029,887 Total Capital Assets 2,940,505,219 2,842,129,419 98,375,800 Accumulated Depreciation (915,176,928)

(842,624,318) 72,552,610 Net Capital Assets 2,025,328,291 $

1,999,505,101 $

25,823,190 As shown in the following table, the University increased its net capital assets by $25.8 million during fiscal year 2016. The 2015 balances were restated for $21.9 million in investments reclassified to capital assets based on the provisions on GASB 72.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 36

37 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT Economic Factors That Will Affect the Future The State of North Carolina continues to experience moderate, steady economic growth. Employment growth is improving as employment markets continue to stabilize. The states economic growth is projected to keep pace with that of the nation as a whole. The states unemployment rate decreased to 4.7% as of July 2016.

The main drivers of revenue, employment and personal income, remain stable. Employment gains continue to improve prospects for better income growth over the next few years. The state ended FY 15-16 with over $450 million of revenue earmarked to the Savings Reserve, bringing the total reserve to almost $1.6 billion, which is about 7.5% of the prior year General Fund operating budget.

The North Carolina General Assembly passed and the Governor signed a 2016-17 Appropriation Bill that adjusted NC State Universitys state appropriated funds for 2016-17 as follows. The Appropriation bill included recurring state operating funds of $1.9 million for anticipated 2016-17 enrollment change, although in future years the University is planning for only very gradual enrollment change that is focused on graduate students. The University received

$6.9 million for repairs and renovations for facilities and infrastructure, $7 million for a 1.5% continuing salary increase and associated benefits for eligible employees, and $10 million in additional tuition receipts from increases approved by the UNC Board of Governors in February, 2015 for the second year of the biennium.

The University was allocated a $10.7 million continuing and $691,000 one-time state appropriated budget reduction for FY 16-17, which was allocated to campus.

The Universitys projected enrollment growth through 2025 flattens and somewhat stabilizes undergraduate and masters degree enrollment with a focus on growing doctoral enrollment, especially in the STEM (Science, Technology, Engineering, Mathematics) disciplines. The quality of the undergraduate student body continues to increase. Retention and graduation rates continue to improve with graduating student debt at a very modest level among major public research universities. The University continues to be rated as one of the countrys best values in higher education.

2016 2015 Increase/

(Decrease)

Bonds Payable 484,255,411$

499,043,276 $

(14,787,865)

Net Pension Liability 78,841,126 25,160,037 53,681,089 Notes Payable 71,817,697 76,194,309 (4,376,612)

Capital Leases Payable 541,177 210,875 330,302 Compensated Absences 67,831,331 68,534,279 (702,948)

Total Long-term Liabilities 703,286,742$

669,142,776 $

34,143,966 Long-Term Debt Activities The University incurs long-term debt and other liabilities to finance construction projects, to purchase equipment using lease arrangements and to provide for accumulated unused vacation benefits for employees. As shown in the following chart, the University increased its long-term debt during fiscal year 2016.

Long-term liabilities grew by $34.1 million, due to the increase in the Universitys share of the net pension liability for the Teachers and State Employees Retirement System (TSERS) plan. The primary cause of the $53.7 million increase in the net pension liability was the difference in the projected and actual investment earnings in the TSERS plan. Principal payments of notes and bonds partially offset the pension liability increase.

The final payments for the General Revenue Bonds, Series 2005A and the Carol Johnson Poole Clubhouse Note were made in fiscal year 2016. Also, the University issued $64.5 million in North Carolina State University at Raleigh Variable Rate General Revenue Bonds, Series 2015 refunding bonds in a current refunding of $64.5 million of outstanding North Carolina State University at Raleigh Variable Rate General Revenue Bonds, Series 2008A bonds. The refunding was undertaken to convert the bonds from a publicly traded issue to a private placement issue and convert the variable rate index base from SIFMA to LIBOR.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 38

39 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT UNIVERSITY FINANCIAL STATEMENTS NORTH CAROLINA STATE UNIVERSITY 2016 ANNUAL FINANCIAL REPORT

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 40 NORTH CAROLINA STATE UNIVERSITY Statement of Net Position Exhibit A-1 June 30, 2016 Page 1 of 2 ASSETS Current Assets:

Cash and Cash Equivalents 209,752,180 Restricted Cash and Cash Equivalents 101,792,199 Receivables, Net (Note 5) 72,890,879 Due from Primary Government 6,883,419 Due from State of North Carolina Component Units 2,614,871 Inventories 5,927,680 Notes Receivable, Net (Note 5) 3,144,329 Total Current Assets 403,005,557 Noncurrent Assets:

Restricted Cash and Cash Equivalents 176,042,224 Endowment Investments 209,047,256 Restriced Investments 198,784,761 Other Investments 114,747,421 Notes Receivable, Net (Note 5) 7,950,554 Capital Assets - Nondepreciable (Note 6) 124,372,655 Capital Assets - Depreciable, Net (Note 6) 1,900,955,636 Total Noncurrent Assets 2,731,900,507 Total Assets 3,134,906,064 DEFERRED OUTFLOWS OF RESOURCES Accumulated Decrease in Fair Value of Hedging Derivatives 13,837,267 Deferred Outflows Related to Pensions 31,284,957 Total Deferred Outflows of Resources 45,122,224 LIABILITIES Current Liabilities:

Accounts Payable and Accrued Liabilities (Note 7) 45,594,682 Due to Primary Government 7,671,671 Due to State of North Carolina Component Units 514,053 Unearned Revenue 42,255,442 Interest Payable 4,347,678 Short-Term Debt (Note 8) 40,100,000 Long-Term Liabilities - Current Portion (Note 9) 20,551,578 Total Current Liabilities 161,035,104 Noncurrent Liabilities:

Deposits Payable 2,834,127 Funds Held for Others 30,873,700 U.S. Government Grants Refundable 5,026,290 Funds Held in Trust for Pool Participants 199,492,467 Unearned Revenue 75,436,487 Hedging Derivative Liability (Note 10) 13,837,267 Long-Term Liabilities, Net (Note 9) 682,735,164 Total Noncurrent Liabilities 1,010,235,502 Total Liabilities 1,171,270,606 DEFFERED INFLOWS OF RESOURCES Deferred Inflows Related to Pension (Note 14) 17,506,004

41 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT NORTH CAROLINA STATE UNIVERSITY Statement of Net Position Exhibit A-1 June 30, 2016 Page 2 of 2 NET POSITION Net Investment in Capital Assets 1,413,824,172 Restricted for:

Nonexpendable:

Scholarships and Fellowships 11,576,865 Endowed Professorships 91,436,822 Departmental Uses 7,951,186 Loans 8,298,666 Expendable:

Scholarships and Fellowships 28,774,194 Research 14,618,087 Endowed Professorships 65,708,515 Departmental Uses 33,183,853 Loans 1,110,201 Capital Projects 59,319,171 Debt Service 15,017,301 Unrestricted 240,432,645 Total Net Position 1,991,251,678 The accompanying notes to the financial statements are an integral part of this statement.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 42 NORTH CAROLINA STATE UNIVERSITY Statement of Revenues, Expenses, and Changes in Net Position For the Fiscal Year Ended June 30, 2016 Exhibit A-2 REVENUES Operating Revenues:

Student Tuition and Fees, Net (Note 12) 291,175,319 Federal Appropriations 13,847,694 Federal Grants and Contracts 158,076,378 State and Local Grants and Contracts 36,305,745 Nongovernmental Grants and Contracts 83,947,935 Sales and Services, Net (Note 12) 238,447,749 Interest Earnings on Loans 259,520 Other Operating Revenues Net, (Note 12) 14,292,123 Total Operating Revenues 836,352,463 EXPENSES Operating Expenses:

Salaries and Benefits 857,250,567 Supplies and Materials 127,911,047 Services 251,765,902 Scholarships and Fellowships 43,820,372 Utilities 32,028,497 Depreciation/Amortization 88,721,461 Total Operating Expenses 1,401,497,846 Operating Loss (565,145,383)

NONOPERATING REVENUES (EXPENSES)

State Appropriations 502,533,982 Noncapital Grants - Student Financial Aid 44,705,577 Noncapital Grants 793,723 Noncapital Gifts 71,230,776 Investment Income (Net of Investment Expense of $1,041,058) 1,569,316 Interest and Fees on Debt (16,742,517)

Federal Interest Subsidy on Debt 1,136,485 Other Nonoperating Expenses 750,168 Net Nonoperating Revenues 605,977,510 Income Before Other Revenues 40,832,127 Capital Appropriations 9,013,500 Capital Grants 2,508,299 Capital Gifts 6,961,858 Additions to Endowments 14,039,031 Increase in Net Position 73,354,815 NET POSITION Net Position - July 1, 2015 1,917,896,863 Net Position - June 30, 2016 1,991,251,678 The accompanying notes to the financial statements are an integral part of this statement.

43 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT NORTH CAROLINA STATE UNIVERSITY Statement of Cash Flows For the Fiscal Year Ended June 30, 2016 Exhibit A-3 Page 1 of 2 CASH FLOWS FROM OPERATING ACTIVITIES Received from Customers 826,173,442 Payments to Employees and Fringe Benefits (876,612,264)

Payments to Vendors and Suppliers (408,956,030)

Payments for Scholarships and Fellowships (43,820,372)

Loans Issued (874,571)

Collection of Loans 2,076,555 Interest Earned on Loans 258,211 Other Receipts 14,313,885 Net Cash Used by Operating Activities (487,441,144)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations 502,533,982 Noncapital Grants - Student Financial Aid 44,705,577 Noncapital Grants 214,926 Noncapital Gifts 71,230,776 Additions to Endowments 14,039,031 Proceeds from Hofmann Forest Timber Deed 76,976,007 William D. Ford Direct Lending Receipts 110,989,300 William D. Ford Direct Lending Disbursements (112,575,224)

Related Activity Agency Receipts 56,207,299 Related Activity Agency Disbursements (46,750,262)

External Participation in Investment Fund Receipts 25,902,256 External Participation in Investment Fund Disbursements (12,910,099)

Other Receipts 2,812,560 Net Cash Provided by Noncapital Financing Activities 733,376,129 CASH FLOWS FROM CAPITAL FINANCING AND RELATED FINANCING ACTIVITIES Proceeds from Capital Debt 64,455,000 Capital Appropriations 9,013,500 Capital Grants 2,708,911 Capital Gifts 3,780,267 Proceeds from Sale of Capital Assets 381,741 Acquisition and Construction of Capital Assets (106,793,582)

Principal Paid on Capital Debt and Leases (52,424,667)

Interest and Fees Paid on Capital Debt and Leases (16,765,396)

Federal Interest Subsidy on Debt Received 1,136,485 Other Payments (435,209)

Net Cash Used by Capital Financing and Related Financing Activities (94,942,950)

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments 58,594,886 Investment Income 3,217,548 Purchase of Investments and Related Fees (41,055,157)

Net Cash Provided by Investing Activities 20,757,277 Net Increase in Cash and Cash Equivalents 171,749,312 Cash and Cash Equivalents - July 1, 2015 315,837,291 Cash and Cash Equivalents - June 30, 2016 487,586,603

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 44 NORTH CAROLINA STATE UNIVERSITY Statement of Cash Flows Exhibit A-3 For the Fiscal Year Ended June 30, 2016 Page 2 of 2 RECONCILIATION OF NET OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating Loss (565,145,383)

Adjustments to Reconcile Operating Loss to Net Cash Used by Operating Activities:

Depreciation/Amortization Expense 88,721,461 Allowances and Write-Offs (74,969)

Pension Expense 8,589,794 Changes in Assets, Liabilities and Deferred Outflows of Resources:

Receivables, Net (6,154,998)

Due from Primary Government 5,240,017 Inventories 803,458 Notes Receivable, Net 1,242,744 Accounts Payable and Accrued Liabilities 3,291,899 Due to Primary Government 102,068 Due to State of North Carolina Component Units (236,411)

Unearned Revenue 4,068,204 Deferred Outflows for Contributions Subsequent to the Measurement Date (28,562,190)

Compensated Absences (702,947)

Deposits Payable 1,376,109 Net Cash Used by Operating Activities (487,441,144)

RECONCILIATION OF CASH AND CASH EQUIVALENTS Current Assets:

Cash and Cash Equivalents 209,752,180 Restricted Cash and Cash Equivalents 101,792,199 Noncurrent Assets:

Restricted Cash and Cash Equivalents 176,042,224 Total Cash and Cash Equivalents - June 30, 2016 487,586,603 NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES Assets Acquired through the Assumption of a Liability 350,919 Assets Acquired through a Gift 3,181,591 Change in Fair Value of Investments (3,415,953)

Loss on Disposal of Capital Assets (742,156)

Amortization of Bond Premiums/Discounts (1,322,866)

The accompanying notes to the financial statements are an integral part of this statement.

45 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT

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2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 46

47 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT COMPONENT UNIT FINANCIAL STATEMENTS NORTH CAROLINA STATE UNIVERSITY 2016 ANNUAL FINANCIAL REPORT

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 48 NORTH CAROLINA STATE UNIVERSITY FOUNDATIONS Statement of Financial Position June 30, 2016 Exhibit B-1 North Carolina NC State The North Carolina State University Student Aid Agricultural Foundation, Inc.

Association, Inc.

Foundation, Inc.

ASSETS Cash and Cash Equivalents 19,964,337 7,649,157 17,611,893 Current Investments 8,046,884 Intermediate Investments 6,201,887 18,258,283 Long-term Investments 230,492,053 24,242,162 76,817,480 Closely Held Stock 4,890 Cash Surrender Value of Life Insurance 114,620 Assets Held in Charitable Trusts and Annuities 21,871,415 1,271,453 Donated Property and Land 1,096,350 32,605,980 Land and Property Held for Others 1,000,000 Receivables, Net 500,371 236,791 4,445,783 Pledges Receivable/Promises 63,937,451 22,992,908 7,122,930 Land Held for Investment 7,353,929 Prepaid Expenses 37,505 Notes/Loans Receivable, Net 2,046,739 Cash Restricted for Long-term Purposes 6,618,203 Property and Equipment, Net 6,710,523 29,913,142 82,848 Other Assets 245,988 74,145 Total Assets 352,020,375 108,476,754 159,070,971 LIABILITIES Accounts Payable and Accrued Expenses 523,895 1,619,429 350,972 Due to Others 1,805,046 1,586,416 169,245 Life Income Funds Payable 13,853,734 4,052,534 Deferred Revenue 2,334,099 212,980 Contingent Liability 219,738 Funds Held for Others 929,710 Long-Term Debt 22,089,250 Total Liabilities 17,112,385 27,629,194 5,005,469 NET ASSETS Unrestricted 12,347,845 25,926,288 3,084,710 Temporarily Restricted 97,642,601 18,877,286 70,785,602 Permanently Restricted 224,917,544 36,043,986 80,195,190 Total Net Assets 334,907,990 80,847,560 154,065,502 Total Liabilities and Net Assets 352,020,375 108,476,754 159,070,971 The accompanying notes to the financial statements are an integral part of this statement.

49 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT NORTH CAROLINA STATE UNIVERSITY FOUNDATIONS Statement of Activities For the Fiscal Year Ended June 30, 2016 Exhibit B-2 North Carolina NC State The North Carolina State University Student Aid Agricultural Foundation, Inc.

Association, Inc.

Foundation,Inc.

CHANGES IN UNRESTRICTED NET ASSETS Revenues and Gains:

Contributions 3,414 $

11,410,146 $

1,700,292 Clubs Income 239,755 Donated Services and Salaries 1,227,000 1,288,000 Disposal of Other Assets Leasehold Improvements 154,788 Net Investment Income (896,500)

(1,067,013)

(20,764)

Advertising Income 795,973 Special Events 219,677 Interest and Dividends 181,823 221,258 Other Income 2,397,101 100,983 49,001 Net Assets Released from Restrictions: Program or Time Restrictions 16,524,864 12,897,919 Net Assets Released from Restrictions: Facility Improvements 9,307,227 Total Unrestricted Revenues, Gains and Other Support 19,592,490 21,006,748 16,135,706 Expenses and Losses:

Scholarships and Fellowships 5,674,551 3,312,116 University Support 6,724,269 12,161,122 7,051,158 University Facilities Support 475,186 9,258,627 1,051,323 Other Contracted Services 950,532 Other Current Services 620,137 2,019,434 Administrative 662,191 1,337,520 376,000 Fund Raising 3,236,326 2,478,754 2,193,201 Other 1,970,773 Total Expenses 20,313,965 25,236,023 16,003,232 Loss on Sale of Asset 4,375 Total Expenses and Losses 20,313,965 25,240,398 16,003,232 Increase (Decrease) in Unrestricted Net Assets (721,475)

(4,233,650) 132,474 CHANGES IN TEMPORARILY RESTRICTED NET ASSETS Contributions 11,311,915 6,489,935 10,582,392 Grant Revenue 499,081 Change in Pledges Receivables (3,541,484)

(272,260)

Donated Property 95,000 Disposal of Other Assets (36,358)

(4,375)

(41,491)

Vaughn Towers 3,257,904 Net Investment Income (2,798,915) 12,226 (1,164,883)

Royalties Interest and Dividends 153,778 329,425 Other Income 2,737,057 870,241 Net Assets Released from Restrictions: Program or Time Restrictions (16,524,864)

(12,897,919)

Net Assets Released from Restrictions: Facility Improvements (9,307,227)

Increase (Decrease) in Temporarily Restricted Net Assets (8,698,871) 448,463 (2,000,414)

CHANGES IN PERMANENTLY RESTRICTED NET ASSETS Contributions 5,909,850 316,353 4,593,253 Change in Pledges Receivable (1,214,982)

(2,121,749)

Donated Property 1,342,463 Disposal of Other Assets (214,616)

(225,575)

Net Investment Income (1,847,798) 18,503 Change in Value of Split Interest Agreements and Trusts 1,050,412 (23,571)

(120,324)

Interest and Dividends 99,685 96,842 Other Income 193,334 355,864 Increase in Permanently Restricted Net Assets 3,975,885 292,782 3,939,277 Increase (Decrease) in Net Assets (5,444,461)

(3,492,405) 2,071,337 Net Assets at Beginning of Year 340,352,451 84,339,965 151,994,165 Net Assets at End of Year 334,907,990 $

80,847,560 $

154,065,502 The accompanying notes to the financial statements are an integral part of this statement.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 50

51 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT INDEX TO THE NOTES TO THE FINANCIAL STATEMENTS 52 56 60 62 62 63 64 64 65 68 70 70 71 71 74 75 76 77 78 80 80 81 Note 1 Note 2 Note 3 Note 4 Note 5 Note 6 Note 7 Note 8 Note 9 Note 10 Note 11 Note 12 Note 13 Note 14 Note 15 Note 16 Note 17 Note 18 Note 19 Note 20 Note 21 Note 22 Significant Accounting Policies Deposits and Investments Fair Value Measurements Endowment Investments Receivables Capital Assets Accounts Payable and Accrued Liabilities Short-Term Debt Long-Term Liabilities Derivative Instruments Lease Obligations Revenues Operating Expenses by Function Pension Plans Other Postemployment Benefits Risk Management Commitments and Contingencies Related Parties Blended Component Units Changes in Financial Accounting and Reporting Subsequent Events Discretely Presented Component Units

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 52 A.

Financial Reporting Entity - The concept underlying the definition of the financial reporting entity is that elected officials are accountable to their constituents for their actions. As required by accounting principles generally accepted in the United States of America (GAAP),

the financial reporting entity includes both the primary government and all of its component units. An organization other than a primary government serves as a nucleus for a reporting entity when it issues separate financial statements. North Carolina State University (University) is a constituent institution of the multi-campus University of North Carolina System, which is a component unit of the State of North Carolina and an integral part of the States Comprehensive Annual Financial Report.

The accompanying financial statements present all funds belonging to the University and its component units. While the Board of Governors of the University of North Carolina System has ultimate responsibility, the Chancellor, the Board of Trustees, and the Board of Trustees of the Endowment Fund have delegated responsibilities for financial accountability of the Universitys funds. The Universitys component units are either blended or discretely presented in the Universitys financial statements. See below for further discussion of the Universitys component units.

Blended Component Units - Although legally separate, the NC State Investment Fund, Inc. (Investment Fund) and the NC State University Partnership Corporation (Corporation),

component units of the University, are reported as if they were part of the University.

The Investment Fund is governed by a board consisting of six ex officio directors and five elected directors. The Investment Funds purpose is to support the University by operating an investment fund for charitable, nonprofit foundations, associations, trusts, endowments, and funds that are organized and operated primarily to support the University. The Investment Fund is a governmental external investment pool. Because the elected directors of the Investment Fund are appointed by the members of the North Carolina State University Board of Trustees and the Investment Funds primary purpose is to benefit North Carolina State University, its financial statements have been blended with those of the University.

The Corporation is governed by a five member Board of Directors appointed based on their positions held with North Carolina State University. Additional members of the board may be appointed by the Chancellor of North Carolina State University. The Corporations purpose is to support and benefit the University with the aims of creating new knowledge and improving the lives of the people of North Carolina. The Corporation formed NC State University Centennial Development, LLC on January 25, 2002 to construct, own and operate a golf course located on the North Carolina State University Centennial Campus. In addition, the Corporation formed NC State Upfit, LLC on October 27, 2006 to develop, construct, own, finance, manage and otherwise upfit facilities and other infrastructure on Centennial Campus. Also, the Corporation formed NC State CBC Land I, LLC on June 1, 2007 to acquire, develop, own, lease, hold, manage, sell, and otherwise exercise all right of ownership of land and flex lab facilities on Centennial Biomedical Campus. Additionally, the Corporation formed NC State American Home, LLC on August 8, 2007 and changed its name to Bell Tower Holdings LLC on December 14, 2009. The purposes of Bell Tower Holdings LLC are to acquire, develop, own, lease, hold, manage, sell and otherwise exercise all right of ownership of real property and enter into any related agreements for assisting with the acquisition, development, financing, construction, management and operation of real property.

On March 31, 2008 the Corporation formed NC State CC Holdings I, LLC to acquire, develop, own, lease, hold, manage, sell and otherwise exercise all right of ownership of land and facilities on Centennial Campus. Leaders in Innovation and Nonwovens Commercialization, LLC (LINC), was established on July 9, 2012 to foster economic development and creation of new knowledge by facilitating commercialization of technologies developed at the Nonwovens Institute at NC State University. Because the Corporations Board consists of University employees and members appointed by the Chancellor and its sole purpose is to support and benefit the University, the Corporation and the LLCs are considered part of the University for financial reporting purposes.

Separate financial statements for the Investment Fund and for the Corporation and the LLCs may be obtained from the Foundations Accounting and Investments Office, Campus Box 7207, Raleigh, NC 27695, or by calling (919) 513-7149.

Other related foundations and similar non-profit corporations for which the University is not financially accountable are not part of the accompanying financial statements.

Condensed combining information regarding blended component units is provided in Note 19.

Discretely Presented Component Units - The North Carolina State University Foundation, Inc. (Foundation), NC State Student Aid Association, Inc. (Athletic Club) and The North Carolina Agricultural Foundation, Inc. (Agricultural Foundation) are legally separate nonprofit corporations and are reported as discretely presented component units based on the nature and significance of their relationship to the University.

The Foundation, Athletic Club and Agricultural Foundation are legally separate, tax-exempt component units of the University. These entities act primarily as fund-raising organizations to supplement the resources that are available to the University in support of its programs. Separate Boards of Directors govern these entities independent of the Universitys Board of Trustees. Although the University does not control the timing or amount of receipts from these NOTE 1 Significant Accounting Policies

53 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT entities, the majority of resources, or income thereon that these entities hold and invest are restricted to the activities of the University by the donors. Because these restricted resources held by these entities can only be used by, or for the benefit of the University, these entities are considered component units of the University and are reported in separate financial statements because of the difference in their reporting model, as described below.

The Foundation, Athletic Club and Agricultural Foundation are private nonprofit organizations that report their financial results under Financial Accounting Standards Board (FASB)

Statements. As such, certain revenue recognition criteria and presentation features are different from Governmental Accounting Standards Board (GASB) revenue recognition criteria and presentation features. No modifications have been made to their financial information in the Universitys financial reporting entity for these differences.

During the year ended June 30, 2016, the Foundation distributed $15,475,629 to the University for both restricted and unrestricted purposes. Complete financial statements for the Foundation can be obtained from the Foundations Accounting and Investments Office, Campus Box 7207, Raleigh, NC 27695, or by calling (919) 513-7149.

During the year ended June 30, 2016, the Athletic Club distributed $15,140,969 to the University for both restricted and unrestricted purposes. Complete financial statements for the Athletic Club can be obtained from the NC State Student Aid Association, PO Box 37100, Raleigh, NC 27627, or by calling (919) 865-1500.

During the year ended June 30, 2016, the Agricultural Foundation distributed $14,553,966 to the University for both restricted and unrestricted purposes. Complete financial statements for the Agricultural Foundation can be obtained from the Foundations Accounting and Investments Office, Campus Box 7207, Raleigh, NC 27695, or by calling (919) 513-7149.

B.

Basis of Presentation - The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America as prescribed by the GASB.

Pursuant to the provisions of GASB Statement No. 34 - Basic Financial Statements - and Managements Discussion and Analysis - for State and Local Governments, as amended by GASB Statement No. 35 - Basic Financial Statements

- and Managements Discussion and Analysis - for Public Colleges and Universities, the full scope of the Universitys activities is considered to be a single business-type activity and accordingly, is reported within a single column in the basic financial statements.

C.

Basis of Accounting - The financial statements of the University have been prepared using the economic resource measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred, regardless of the timing of the cash flows.

Nonexchange transactions, in which the University receives (or gives) value without directly giving (or receiving) equal value in exchange, include state appropriations, certain grants, and donations. Revenues are recognized, net of estimated uncollectible amounts, as soon as all eligibility requirements imposed by the provider have been met, if probable of collection.

D.

Cash and Cash Equivalents - This classification includes undeposited receipts, petty cash, cash on deposit with private bank accounts, money market accounts, cash on deposit with fiscal agents, and deposits held by the State Treasurer in the Short-Term Investment Fund (STIF). The STIF maintained by the State Treasurer has the general characteristics of a demand deposit account in that participants may deposit and withdraw cash at any time without prior notice or penalty.

E.

Investments - To the extent available, investments are recorded at fair value based on quoted market prices in active markets on a trade-date basis. Additional information regarding the fair value measurement of investments is disclosed in Note 3. Because of the inherent uncertainty in the use of estimates, values that are based on estimates may differ from the values that would have been used had a ready market existed for the investments. The net increase (decrease) in the fair value of investments is recognized as a component of investment income.

Endowment investments include the principal amount of gifts and bequests that, according to donor restrictions, must be held in perpetuity or for a specified period of time, along with any accumulated investment earnings on such amounts. Further, endowment investments also include amounts internally designated by the University for investment in an endowment capacity (i.e. quasi-endowments),

along with accumulated investment earnings on such amounts. Land and other real estate held as investments by endowments are reported at fair value, consistent with how investments are generally reported.

Restricted investments include funds of affiliated entities that are neither part of the Universitys reporting entity nor reported discretely but invested through the Investment Fund.

F.

Receivables - Receivables consist of tuition and fees charged to students and charges for auxiliary enterprises sales and services. Receivables also include amounts due from the federal government, state and local governments, and private sources in connection with reimbursement of allowable expenditures made pursuant to contracts and grants. Receivables are recorded net of estimated uncollectible amounts.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 54 G.

Inventories - Inventories, consisting of expendable supplies and merchandise for resale, are valued at cost using the first-in, first-out method. Exceptions are the bookstore, which uses the retail inventory method, and physical plant, which uses the moving weighted average method.

H.

Capital Assets - Capital assets are stated at cost at date of acquisition or acquisition value at date of donation in the case of gifts. Donated capital assets acquired prior to July 1, 2015 are stated at fair value as of the date of donation.

The value of assets constructed includes all material direct and indirect construction costs. Interest costs incurred are capitalized during the period of construction.

The University capitalizes assets that have a value or cost of $5,000 or greater at the date of acquisition and an estimated useful life of more than one year except for internally generated software which is capitalized when the value or cost is $1,000,000 or greater and other intangible assets which are capitalized when the value or cost is

$100,000 or greater.

Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets in the following manner:

Asset Class Estimated Useful Life Buildings 10 - 50 years Machinery & Equipment 4 - 22 years General Infrastructure 15 - 75 years Computer Software 2 - 15 years The University does not capitalize its Arts and Design or Historic collections. These collections adhere to the Universitys policy to maintain for public exhibition, education, or research; protect, keep unencumbered, care for, and preserve; and requires proceeds from their sale to be used to acquire other collection items. Accounting principles generally accepted in the United States of America permit collections maintained in this manner to be charged to operations at time of purchase rather than be capitalized.

I.

Restricted Assets - Certain resources are reported as restricted assets because restrictions on asset use change the nature or normal understanding of the availability of the asset. Resources that are not available for current operations and are reported as restricted include resources restricted for the acquisition or construction of capital assets, resources legally segregated for the payment of principal and interest as required by debt covenants, unspent debt proceeds, and endowment and other restricted investments.

J.

Funds Held in Trust for Pool Participants -

Funds held in trust for pool participants represent the external portion of the Universitys governmental external investment pool more fully described in Note 2.

K.

Noncurrent Long-Term Liabilities - Noncurrent long-term liabilities include principal amounts of revenue bonds payable, net pension liability, notes payable, capital lease obligations, and compensated absences that will not be paid within the next fiscal year.

Revenue bonds payable are reported net of unamortized premiums or discounts. The University amortizes bond premiums/discounts over the life of the bonds using the straight-line method. Losses on refunding and issuance costs on bonds payable are not material to the accompanying financial statements and are expensed in the year incurred.

The net pension liability represents the Universitys proportionate share of the collective net pension liability reported in the State of North Carolinas 2015 Comprehensive Annual Financial Report. This liability represents the Universitys portion of the collective total pension liability less the fiduciary net position of the Teachers and State Employees Retirement System. See Note 14 for further information regarding the Universitys policies for recognizing liabilities, expenses, and deferred outflows and inflows related to pensions.

L.

Compensated Absences - The Universitys policy is to record the cost of vacation leave when earned. The policy provides for a maximum accumulation of unused vacation leave of 30 days which can be carried forward each January 1 or for which an employee can be paid upon termination of employment. When classifying compensated absences into current and noncurrent, leave is considered taken using a last-in, first-out (LIFO) method.

Also, any accumulated vacation leave in excess of 30 days at year-end is converted to sick leave. Under this policy, the accumulated vacation leave for each employee at June 30 equals the leave carried forward at the previous December 31 plus the leave earned, less the leave taken between January 1 and June 30.

In addition to the vacation leave described above, compensated absences include the accumulated unused portion of the special annual leave bonuses awarded by the North Carolina General Assembly. The bonus leave balance on December 31 is retained by employees and transferred into the next calendar year. It is not subject to the limitation on annual leave carried forward described above and is not subject to conversion to sick leave.

There is no liability for unpaid accumulated sick leave because the University has no obligation to pay sick leave upon termination or retirement. However, additional service credit for retirement pension benefits is given for accumulated sick leave upon retirement.

M.

Net Position - The Universitys net position is classified as follows:

Net Investment in Capital Assets - This represents the Universitys total investment in capital assets, net of outstanding liabilities related to those capital assets. To

55 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of Net Investment in Capital Assets.

Additionally, deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of capital assets or related debt are also included in this component of net position.

Restricted Net Position Nonexpendable Nonexpendable restricted net position includes endowments and similar type assets whose use is limited by donors or other outside sources, and, as a condition of the gift, the principal is to be maintained in perpetuity.

Restricted Net Position - Expendable - Expendable restricted net position includes resources for which the University is legally or contractually obligated to spend in accordance with restrictions imposed by external parties.

Unrestricted Net Position - Unrestricted net position includes resources derived from student tuition and fees, sales and services, unrestricted gifts, royalties, and interest income.

Restricted and unrestricted resources are tracked using a fund accounting system and are spent in accordance with established fund authorities. Fund authorities provide rules for the fund activity and are separately established for restricted and unrestricted activities. When both restricted and unrestricted funds are available for expenditure, the decision for funding is transactional based within the departmental management system in place at the University. For projects funded by tax-exempt debt proceeds and other sources, the debt proceeds are always used first. Both restricted and unrestricted net position include consideration of deferred outflows and inflows of resources.

N.

Scholarship Discounts - Student tuition and fees revenues and certain other revenues from University charges are reported net of scholarship discounts in the accompanying Statement of Revenues, Expenses, and Changes in Net Position. The scholarship discount is the difference between the actual charge for goods and services provided by the University and the amount that is paid by students or by third parties on the students behalf. Student financial assistance grants, such as Pell grants, and other federal, state, or nongovernmental programs, are recorded as nonoperating revenues in the accompanying Statement of Revenues, Expenses, and Changes in Net Position. To the extent that revenues from these programs are used to satisfy tuition, fees, and other charges, the University has recorded a scholarship discount.

O.

Revenue and Expense Recognition - The University classifies its revenues and expenses as operating or nonoperating in the accompanying Statement of Revenues, Expenses, and Changes in Net Position.

Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the Universitys principal ongoing operations. Operating revenues include activities that have characteristics of exchange transactions, such as (1) student tuition and fees, (2) sales and services of auxiliary enterprises, (3) certain federal, state, and local grants and contracts that are essentially contracts for services, and (4) interest earned on loans. Operating expenses are all expense transactions incurred other than those related to capital and noncapital financing or investing activities as defined by GASB Statement No. 9 - Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting.

Nonoperating revenues include activities that have the characteristics of nonexchange transactions. Revenues from nonexchange transactions that represent subsidies or gifts to the University, as well as investment income, are considered nonoperating since these are either investing, capital, or noncapital financing activities. Capital contributions are presented separately after nonoperating revenues and expenses.

P.

Internal Sales Activities - Certain institutional auxiliary operations provide goods and services to University departments, as well as to its customers. These institutional auxiliary operations include activities such as Central Stores, the Creamery, Telecommunications, Physical Plant, and Motor Pool. In addition, the University has other miscellaneous sales and service units that operated either on a reimbursement or charge basis. All internal sales activities to University departments from auxiliary operations and sales and service units have been eliminated in the accompanying financial statements. These eliminations are recorded by removing the revenue and expense in the auxiliary operations and sales and service units and, if significant, allocating any residual balances to those departments receiving the goods and services during the year.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 56 A.

Deposits - Unless specifically exempt, the University is required by North Carolina General Statute 147-77 to deposit moneys received with the State Treasurer or with a depository institution in the name of the State Treasurer. However, the University of North Carolina Board of Governors, pursuant to G.S. 116-36.1, may authorize the University to deposit its institutional trust funds in interest-bearing accounts and other investments authorized by the Board of Governors, without regard to any statute or rule of law relating to the investment of funds by fiduciaries.

Although specifically exempted, the University may voluntarily deposit institutional trust funds, endowment funds, special funds, revenue bond proceeds, debt service funds, and funds received for services rendered by health care professionals with the State Treasurer. Special funds consist of moneys for intercollegiate athletics and agency funds held directly by the University.

Cash on hand at June 30, 2016 was $447,912. The carrying amount of the Universitys deposits not with the State Treasurer was $38,110,721 and the bank balance was

$57,590,519. Custodial credit risk is the risk that in the event of a bank failure, the Universitys deposits may not be returned to it. The University follows the Cash Management Plan (Plan) approved by the North Carolina Office of the State Controller. As provided by the Plan, imprest checking accounts are established with outside banks when considered effective in meeting management objectives. All imprest checking accounts are authorized by the University Treasurer and are limited to the minimum amount needed for sanctioned purposes. In addition, pursuant to G.S. 116-36(e), the University invests certain endowment funds with outside bank accounts. The University does not have a deposit policy for custodial credit risk. As of June 30, 2016, the Universitys bank balance exposed to custodial credit risk (amounts that are uninsured and uncollateralized) was

$56,160,921.

B.

Investments - The University is authorized by The University of North Carolina Board of Governors pursuant to G.S. 116-36.2 and Section 600.2.4 of the Policy Manual of the University of North Carolina to invest its special funds and funds received for services rendered by health care professionals in the same manner as the State Treasurer is required to invest, as discussed below.

Additionally, the University has also been delegated authority by the President of The University of North Carolina pursuant to G.S. 116-36.1 and Section 600.2.4.1 of the Policy Manual of the University of North Carolina to invest its trust funds in the same manner as the State Treasurer is required to invest, as discussed below.

G.S. 147-69.1(c), applicable to the States General Fund, and G.S. 147 69.2, applicable to institutional trust funds, authorize the State Treasurer to invest in the following: obligations of or fully guaranteed by the United States; obligations of certain federal agencies; repurchase agreements; obligations of the State of North Carolina; certificates of deposit and other deposit accounts of specified financial institutions; prime quality commercial paper; asset-backed securities with specified ratings, specified bills of exchange or time drafts, and corporate bonds/notes with specified ratings; general obligations of other states; general obligations of North Carolina local governments; and obligations of certain entities with specified ratings.

In accordance with the bond resolutions, bond proceeds and debt service funds are invested in obligations that will by their terms mature on or before the date funds are expected to be required for expenditure or withdrawal.

G.S. 116-36(e) provides that the trustees of the Endowment Fund shall be responsible for the prudent investment of the Fund in the exercise of their sound discretion, without regard to any statute or rule of law relating to the investment of funds by fiduciaries but in compliance with any lawful condition placed by the donor upon that part of the Endowment Fund to be invested.

Investments of the Endowment Fund, including those invested in the Investment Fund, a University component unit, are subject to and restricted by G.S. 36E Uniform Prudent Management of Institutional Funds Act (UPMIFA) and any requirements placed on them by contract or donor agreements.

Investments of various funds may be pooled unless prohibited by statute or by terms of the gift or contract. The University utilizes investment pools to manage investments and distribute investment income.

Investments are subject to the following risks:

Interest Rate Risk: Interest rate risk is the risk the University may face should interest rate variances affect the fair value of investments. The University does not have a formal policy that addresses interest rate risk.

Credit Risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations.

The University does not have a formal policy that addresses credit risk.

Short-Term Investment Fund - At June 30, 2016, the amount shown on the Statement of Net Position as cash and cash equivalents includes $449,027,970 which represents the Universitys equity position in the State Treasurers Short-Term Investment Fund (STIF). The STIF (a portfolio within the State Treasurers Investment Pool, an external investment pool that is not registered with the Securities and Exchange Commission or subject to any other regulatory oversight and does not have a credit rating) had a weighted average maturity of 1.5 years as of June 30, 2016. Assets and shares of the STIF are valued at fair value. Deposit and investment risks associated with the State Treasurers NOTE 2 Deposits and Investments

57 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT Investment Pool (which includes the State Treasurers STIF) are included in the State of North Carolinas Comprehensive Annual Financial Report. An electronic version of this report is available by accessing the North Carolina Office of the State Controllers Internet home page http://www.osc.

nc.gov/ and clicking on Reports or by calling the State Controllers Financial Reporting Section at (919) 707-0500.

Investment Fund - The Investment Fund began operations in April 1999 and is classified as a non-rated 2a7-like governmental external investment pool that is not registered with the Securities and Exchange Commission (SEC) as an investment company, but has a policy that it will, and does, operate in a manner consistent with the SECs Rule 2a7 of the Investment Company Act of 1940. The Endowment Fund of North Carolina State University, The North Carolina Agriculture Foundation, Inc., and the North Carolina State University Foundation, Inc. represent the Investment Funds internal participants. The North Carolina Agricultural Foundation, Inc. and the North Carolina State University Foundation, Inc. are discretely presented component units in the accompanying financial statements. Other affiliated organizations not included in the Universitys reporting entity represent the Investment Pools external participants. The external portion of the Investment Pool is presented in the accompanying financial statements as Funds Held in Trust for Pool Participants. The Investment Fund includes the Long-Term Investment Pool (LTIP) and the newly created Intermediate Term Fund (ITF) which was established on July 3, 2014 for the collective investment of the participants excess operating funds.

The Investment Fund is not subject to any formal oversight other than that provided by the Investment Fund Members Board or its Board of Directors. The Members Board is responsible for adopting investment objectives and policies and for monitoring policy implementation and investment performance. The Members Board has chosen not to make individual security selection decisions.

The Board of Directors has the responsibility to oversee the allocation of the Investment Funds portfolio among the asset classes, investment vehicles, and investment managers. Authority to manage the ITF in accordance with the investment policy has been granted jointly to the Universitys Vice Chancellor and Associate Vice Chancellor for Finance and Administration.

Bank of New York Mellon is the custodian for the Investment Fund and provides the University with quarterly statements defining income and fair value information, which is then allocated among the funds participants. Each participant holds Master Trust Units of the Investment Fund. The unit price fluctuates based on the investment experience of the investment pool. There are no involuntary participants in the Investment Fund.

The University has not provided or obtained any legally binding guarantees during the period to support the value for the Investment Funds investments. The annual financial report for the Investment Fund may be obtained from the Foundations Accounting and Investment Office, Campus Box 7207, Raleigh, NC 27695 or by calling (919) 513-7149 or at http://foundationsaccounting.ofa.ncsu.

edu/investment-fund.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 58 Investment Maturities (in Years)

Less Amount Than 1 1 to 5 Investment Type Debt Securities Collective Investment Funds 34,817,974 34,817,974 0

Debt Mutual Funds 137,760,322 137,760,322 Total Debt Securities 172,578,296 34,817,974 137,760,322 Other Securities UNC Investment Fund 623,702,676 Private Equity Limited Partnerships 23,912,641 Total Investment Fund 820,193,613 INVESTMENT FUND UNC Investment Fund, LLC - At June 30, 2016, the Universitys investments include $623,702,676 which represents the Universitys equity position in the UNC Investment Fund, LLC (UNC Investment Fund). The UNC Investment Fund is an external investment pool that is not registered with the Securities and Exchange Commission, does not have a credit rating, and is not subject to any regulatory oversight. Investment risks associated with the UNC Investment Fund are included in audited financial statements of the UNC Investment Fund, LLC which may be obtained from UNC Management Company, Inc., 1400 Environ Way, Chapel Hill, NC 27517.

At June 30, 2016, investments in the Investment Fund had the following credit quality distribution for securities with credit exposure (based on S&P ratings):

BB/Ba AAA and Amount Aaa A

Below Unrated Collective Investment Funds 34,817,974 $

4,340,803 4,564,123 699,498 25,213,550 Debt Mutual Funds 137,760,322 102,889,694 34,870,628 Totals 172,578,296 $

4,340,803 107,453,817 699,498 60,084,178 The following table presents investments by type and investments subject to interest rate risk at June 30, 2016, for the Investment Fund.

59 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT Non-Pooled Investments - The following table presents investments by type and investments subject to interest rate risk at June 30, 2016, for the Universitys non-pooled investments.

Investment Maturities (in Years)

Less Amount Than 1 Investment Type Debt Securities Money Market Mutual Funds 569,782 569,782 Other Securities Domestic Stocks 25,587 Collections and Mineral Rights 65,134 Total Non-Pooled Investments 660,503 NON-POOLED INVESTMENTS AAA Amount Aaa Money Market Mutual Funds 569,782 569,782 At June 30, 2016, the Universitys non-pooled investments had the following credit quality distribution for securities with credit exposure (based on Moodys and S&P ratings):

Amount Investment Type Debt Securities Collective Investment Funds 34,817,974 Debt Mutual Funds 137,760,322 Money Market Mutual Funds 569,782 Other Securities UNC Investment Fund 623,702,676 Private Equity Limited Partnerships 23,912,641 Domestic Stocks 25,587 Collections and Mineral Rights 65,134 Total Investments 820,854,116 Total Investments - The following table presents the total investments at June 30, 2016:

Total investments include $298,274,678 held in the Investment Fund for the North Carolina State University Foundation, Inc. and The North Carolina Agricultural Foundation, Inc. This amount is excluded from the University prepared financial statements and included in the accompanying component unit financial statements.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 60 A financial instruments level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The following describes the hierar-chy of inputs used to measure fair value and the primary valu-ation methodologies used for financial instruments measured at fair value on a recurring basis:

Level 1 Investments whose values are based on quoted prices (unadjusted) for identical assets or liabilities in active markets that a government can access at the measurement date.

Level 2 Investments with inputs - other than quoted prices included within Level 1 - that are ob-servable for an asset or liability, either directly or indirectly.

Level 3 Investments classified as Level 3 have un-observable inputs for an asset or liability and may require a degree of professional judg-ment.

NOTE 3 Fair Value Measurements To the extent available, the Universitys investments and de-rivatives are recorded at fair value as of June 30, 2016. GASB Statement No. 72 - Fair Value Measurement and Applica-tion, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measure-ment date. This statement establishes a hierarchy of valu-ation inputs based on the extent to which the inputs are observable in the marketplace. Inputs are used in applying the various valuation techniques and take into account the assumptions that market participants use to make valuation decisions. Inputs may include price information, credit data, interest and yield curve data, and other factors specific to the financial instrument. Observable inputs reflect market data obtained from independent sources. In contrast, unob-servable inputs reflect the entitys assumptions about how market participants would value the financial instrument.

Valuation techniques should maximize the use of observ-able inputs to the extent available.

The following table summarizes the Universitys investments within the fair value hierarchy at June 30, 2016:

Fair Value Measurements Using Fair Value Level 1 Level 2 Level 3 Investment by Fair Value Level Debt Securities Collective Investment Funds 34,817,974 34,817,974 $

0 $

0 Debt Mutual Funds 137,760,322 137,760,322 Money Market Mutual Funds 569,782 569,782 Total Debt Securities 173,148,078 173,148,078 Other Securities Short Term Investment Fund 449,027,970 449,027,970 UNC Investment Fund 623,702,676 623,702,676 Domestic Stocks 25,587 25,587 Total Investments by Fair Value Level 1,245,904,311 173,148,078 $

449,027,970 $

623,728,263 Investments Measured at the Net Asset Value (NAV)

Private Equity Limited Partnerships 23,912,641 Collection and Mineral Rights 65,134 Total Investments Measured at the NAV 23,977,775 Total Investments Measured at Fair Value 1,269,882,086 Derivative Instruments Hedging Derivative Instruments Interest Rate Swaps 13,837,267 0 $

13,837,267 $

0

61 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT Short-Term Investment Fund - Ownership interest of the STIF is determined on a fair market valuation basis as of fiscal year end in accordance with the STIF operating procedures. Valuation of the underlying assets is performed by the custo-dian.

UNC Investment Fund - Ownership interests of the UNC Investment Fund are determined on a market unit valuation basis each month and in accordance with the UNC Investment Funds operating procedures.

Debt and Equity Securities - Debt and equity securities classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities.

Domestic Stock - Domestic stock classified as Level 3 of the fair value hierarchy are valued at book value. There is no readily determinable fair value.

Derivative Instruments - Derivative instruments classified as Level 2 of the fair value hierarchy are valued at present value using discounted cash flows.

The valuation of investments measured at the Net Asset Value (NAV) per share (or its equivalent) is presented on the fol-lowing table.

Redemption Fair Unfunded Frequency Redemption Value Commitments (If Currently Eligible)

Notice Period Private Equity Limited Partnerships 23,912,641 n/a n/a n/a Collection and Mineral Rights 65,134 n/a n/a n/a Total Investments Measured at the NAV 23,977,775 A.

Private Equity Limited Partnerships - Private equities include venture capital partnerships, buy-outs, and inter-national funds. The valuation of the underlying private companies requires significant judgment and interpretation by the general partners of the underlying investment partnerships due to the absence of quoted market values, inherent lack of liquidity and the long-term nature of such investments. Private companies are initially valued based upon transaction price, with subsequent adjustments to values which reflect the consideration of available market data, including primarily observations of the trading multiples of public companies considered comparable to the private companies being valued.

Valuations are also adjusted to give consideration to the financial condition and operating results specific to the issuer, the lack of liquidity inherent in a non-public investment, credit markets, and the fact that comparable public companies are not identical to the companies being valued.

B.

Art Collection: The Kamphoefner art collection, with an estimated value of $27,300, was gifted to the Endowment Fund in 1979. This collection is to be held for the use of the D. H. Hill Library at NC State University.

C.

Mineral Rights: Virginia Rock and Mineral rights were gifted to the Endowment Fund in 1987. This was a gift for the use of the NC State Geology Department. There have been three sales of these mineral rights since the original receipt of the gift. The most recent sale from July 2016 was used to adjust the value per acre.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 62 Investment return of the Universitys endowment funds is predicated on the total return concept (yield plus appreciation). Annual payouts from the University pooled endowment funds are determined by applying 4% (the Board approved spending rate) to the average market value of the long term investment pool (for a 20 quarter period), divided by the number of investment units in the pool to determine the average spending amount per unit of investment. The individual endowment fund payout or spending budget is then determined by applying the average spending amount to the number of investment units held by the individual endowment fund. To the extent that the total return for the current year exceeds the payout, the excess is added to principal. If current year earnings do not meet the payout requirements, the University uses accumulated income and appreciation from restricted and unrestricted, expendable net position endowment balances to make up the difference. At June 30, 2016, net appreciation of $119,322,265 was available to be spent, of which $111,655,019 was restricted to specific purposes.

The remaining portion of net appreciation available to be spent is classified as unrestricted net position.

Receivables at June 30, 2016, were as follows:

Less Allowance Gross for Doubtful Net Receivables Accounts Receivables Current Receivables:

Students 1,291,997 1,234,081 57,916 Student Sponsors 2,633,779 2,633,779 Accounts 31,822,462 1,765,040 30,057,422 Intergovernmental 39,787,552 39,787,552 Interest on Loans 465,440 416,901 48,539 Federal Interest Subsidy on Debt 305,671 305,671 Total Current Receivables 76,306,901 3,416,022 72,890,879 Notes Receivable:

Notes Receivable - Current:

Federal Loan Programs 2,831,415 10,476 2,820,939 Institutional Student Loan Programs 325,635 2,245 323,390 Total Notes Receivable - Current 3,157,050 12,721 3,144,329 Notes Receivable - Noncurrent:

Federal Loan Programs 8,376,561 672,990 7,703,571 Institutional Student Loan Programs 384,189 137,206 246,983 Total Notes Receivable - Noncurrent 8,760,750 810,196 7,950,554 Investments of the Universitys endowment funds are pooled, unless required to be separately invested by the donor. If a donor has not provided specific instructions, state law permits the Board of Trustees to authorize for expenditure the net appreciation, realized and unrealized, of the investments of the endowment funds. Under the Uniform Prudent Management of Institutional Funds Act (UPMIFA), authorized by the North Carolina General Assembly on March 19, 2009, the Board may also appropriate expenditures from eligible nonexpendable balances if deemed prudent and necessary to meet program outcomes and for which such spending is not specifically prohibited by the donor agreements, or applicable State of NC law.

However, a majority of the Universitys endowment donor agreements prohibit spending of nonexpendable balances and therefore the related nonexpendable balances are not eligible for expenditure. During the year, the Board did not appropriate expenditures from eligible nonexpendable endowment funds.

NOTE 4 Endowment Investments NOTE 5 Receivables

63 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT NOTE 6 Capital Assets A summary of changes in the capital assets for the year ended June 30, 2016, is presented as follows:

Balance July 1, 2015 Balance (As restated)

Increases Decreases June 30, 2016 Capital Assets, Nondepreciable:

Land 59,544,940 2,912,554 0

62,457,494 Construction in Progress 54,956,500 46,149,722 39,514,661 61,591,561 Computer Software in Development 659,874 2,693,613 3,029,887 323,600 Total Capital Assets, Nondepreciable 115,161,314 51,755,889 42,544,548 124,372,655 Capital Assets, Depreciable:

Buildings 2,161,039,192 74,192,113 6,842,990 2,228,388,315 Machinery and Equipment 342,643,333 27,241,779 10,449,758 359,435,354 General Infrastructure 205,771,161 1,993,428 207,764,589 Computer Software 17,514,419 3,029,887 20,544,306 Total Capital Assets, Depreciable 2,726,968,105 106,457,207 17,292,748 2,816,132,564 Less Accumulated Depreciation/Amortization for:

Buildings 572,653,899 60,268,623 6,696,723 626,225,799 Machinery and Equipment 203,903,022 19,944,948 9,472,128 214,375,842 General Infrastructure 58,456,045 5,093,750 63,549,795 Computer Software 7,611,352 3,414,140 11,025,492 Total Accumulated Depreciation/Amortization 842,624,318 88,721,461 16,168,851 915,176,928 Total Capital Assets, Depreciable, Net 1,884,343,787 17,735,746 1,123,897 1,900,955,636 Capital Assets, Net 1,999,505,101 69,491,635 43,668,445 2,025,328,291 During the year ended June 30, 2016, the University incurred $21,835,312 in interest costs related to the acquisition and construction of capital assets. Of this total, $17,354,384 was charged in interest expense, and $4,480,928 was capitalized.

Due to the implementation of GASB 72, $21,878,102 of assets previously classified as investments in real estate are now shown as land and buildings.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 64 NOTE 7 Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities at June 30, 2016, were as follows:

Amount Current Accounts Payable and Accrued Liabilities Accounts Payable 19,386,637 Accounts Payable-Capital 12,388,491 Accrued Payroll 9,399,284 Contract Retainage 2,401,344 Other 2,018,926 Total Current Accounts Payable and Accrued Liabilities 45,594,682 NOTE 8 Short-Term Debt - Commercial Paper Program The University has available Commercial Paper Program financing for short-term debt credit up to $100,000,000 to finance capital construction projects. The Universitys available funds are pledged to the Commercial Paper Program financing with the anticipation of converting to general revenue bond financing in the future. As of June 30, 2016, $40,000,000 in Tax-Exempt Commercial Paper was outstanding.

The NC State University Partnership Corporation, through the NC State University Centennial Development LLC has available a Line of Credit, from SunTrust Bank, up to $250,000 for operations at the Lonnie Poole Golf Course. The line is unsecured and must maintain a zero balance for at least 30 consecutive days during each twelve months. As of June 30, 2016, $100,000 was outstanding.

Short-term debt activity for the year ended June 30, 2016, was as follows:

Balance July 1, 2015 Balance June 30, 2016 Draws Repayments Commercial Paper Program 10,000,000 240,000,000 210,000,000 40,000,000 Partnership Corporation - Line of Credit 100,000 100,000 10,000,000 240,100,000 210,000,000 40,100,000

65 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT NOTE 9 Long-Term Liabilities A. Changes in Long-Term Liabilities - A summary of changes in the long-term liabilities for the year ended June 30, 2016, is presented as follows:

Balance Balance Current July 1, 2015 Additions Reductions June 30, 2016 Portion Revenue Bonds Payable 475,555,000 $

64,455,000 77,920,000 462,090,000 13,985,000 Plus: Unamortized Premium 23,488,276 1,322,865 22,165,411 Total Revenue Bonds Payable, Net 499,043,276 64,455,000 79,242,865 484,255,411 13,985,000 Net Pension Liability 25,160,037 53,681,089 78,841,126 Notes Payable 76,194,309 4,376,612 71,817,697 3,034,536 Capital Leases Payable 210,875 350,919 20,617 541,177 154,589 Compensated Absences 68,534,279 39,826,483 40,529,431 67,831,331 3,377,453 Total Long-Term Liabilities 669,142,776 $ 158,313,491 124,169,525 703,286,742 20,551,578 Additional information regarding capital lease obligations is included in Note 11.

Additional information regarding the net pension liability is included in Note 14.

B. Revenue Bonds Payable - The University was indebted for revenue bonds payable for the purposes shown in the following table:

Interest Rate/

Ranges Final Maturity Date Original Amount of Issue Principal Paid Through June 30, 2016 Principal Outstanding June 30, 2016 Purpose Series GENERAL REVENUE Housing System Projects/Doak Field Projects 2003B 3.54% swap*

10/01/2027 45,660,000 3,240,000 42,420,000 Various Construction Projects 2005A 5%

10/01/2015 81,615,000 81,615,000 Various Construction Projects 2008A 3.86% swap*

10/01/2028 66,605,000 66,605,000 Various Construction Projects 2008B 4% - 4.25%

10/01/2020 26,955,000 25,485,000 1,470,000 Various Construction Projects 2010A 4% - 5%

10/01/2022 18,065,000 6,685,000 11,380,000 Various Construction Projects 2010B 5.079% - 6.027%**

10/01/2035 59,565,000 59,565,000 Advance Refund Series 2003A 2012 4% - 5%

10/01/2018 16,265,000 6,100,000 10,165,000 Adv Refund 2005A/Wolf Ridge Housing 2013A 2%-5%

10/01/2042 132,440,000 132,440,000 Adv Refund 2005A/Talley Student Union 2013B 0.849%-4%

10/01/2041 141,650,000 1,455,000 140,195,000 Refund 2008A 2015 3.86% swap*

10/01/2028 64,455,000 64,455,000 Total Revenue Bonds Payable (principal only) 653,275,000 191,185,000 462,090,000 Plus: Unamortized Premium 22,165,411 Total Revenue Bonds Payable, Net 484,255,411

• For variable rate debt, interest rates in effect at June 30, 2016, are included. For variable rate debt with interest rate swaps, the synthetic fixed rates are included.

• • The Unviersity has elected to treat these bonds as federally taxable Build America Bonds for the purposes of the American Recovery and Reinvestment Act and to receive a cash subsidy from the U.S. Treasury equal to 32%

of the interest payable on these bonds. For these bonds, the interest rate included is the taxable rate, which does not factor in the cash subsidy from the U.S. Treasury.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 66 C.

Demand Bonds - Included in bonds payable is a variable rate demand bond issue. Demand bonds are securities that contain a put feature that allows bondholders to demand payment before the maturity of the debt upon proper notice to the Universitys remarketing or paying agents.

With regard to the following demand bond, the University has entered into take out agreements, which would convert the demand bonds not successfully remarketed into another form of long-term debt.

North Carolina State University at Raleigh Variable Rate General Revenue Bonds, Series 2003B On June 20, 2003 the University issued tax-exempt variable rate revenue demand bonds in the amount of $45,660,000 that have a final maturity date of October 1, 2027. The bonds are subject to mandatory sinking fund redemption that began on October 1, 2004. The Universitys proceeds of this issuance were used to pay a portion of the costs of certain improvements on the campus of the University, to refund certain debt previously incurred for that purpose, and to pay the costs incurred in connection with the issuance of the 2003B bonds.

While bearing interest at a weekly rate, the bonds are subject to purchase on demand with seven days notice and delivery to the paying agent, U.S. Bank National Association.

Effective October 15, 2015, U.S. Bank National Association has been appointed as the successor trustee for all of the outstanding series of General Revenue Bonds issued on behalf of North Carolina State University at Raleigh. Upon notice from the paying agent, the Remarketing Agent, Wells Fargo Bank, N.A., has agreed to exercise its best efforts to remarket the bonds for which a notice of purchase has been received.

Under a Standby Bond Purchase Agreement (Agreement) between the Board of Governors of the University of North Carolina and Wells Fargo Bank, N.A., a Liquidity Facility has been established for the Trustee (U.S. Bank National Association) to draw amounts sufficient to pay the purchase price and accrued interest on bonds delivered for purchase when remarketing proceeds or other funds are not available.

Effective November 18, 2015, Wells Fargo Bank, N.A. issued a substitute liquidity facility and the prior liquidity facility issued by Bayerische Landesbank was simultaneously terminated. This Agreement requires a commitment fee equal to 0.36% of the available commitment, payable quarterly in arrears, beginning on February 1, 2016 and on each May 1, August 1, and November 1 thereafter until the expiration date or the termination date of the Agreement.

Under the Agreement, any bonds purchased through the Liquidity Facility become Liquidity Provider Bonds and shall, from the date of such purchase and while they are Liquidity Provider Bonds, bear interest at the Base rate (the greater of the bank prime commercial lending rate plus 1.00%,

the federal funds rate plus 2.00%, and 7.00%). Upon remarketing of Liquidity Provider Bonds and the receipt of the sales price by the Liquidity Provider, such bonds are no longer considered Liquidity Provider Bonds. Payment of the interest on the Liquidity Provider Bonds is due the first business day of each quarter in which Liquidity Provider Bonds are outstanding. At June 30, 2016, there were no Liquidity Provider Bonds held by the Liquidity Facility. The Liquidity Facility is scheduled to expire on November 18, 2020, unless otherwise extended based on the terms of the Agreement.

Upon expiration or termination of the Agreement, the University is required to redeem (purchase) the Liquidity Provider Bonds held by the Liquidity Facility in 6 semi-annual installments, beginning 181 days from the date of the last draw at the Term Loan Rate (Base Rate + 1.00%).

In the event the outstanding $42,420,000 of demand bonds was put and not resold, the University would be required to pay $16.2 million a year for three years under this agreement assuming an 8.00% interest rate.

67 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT E.

Bond Defeasance The University has extinguished long-term debt obligations by the issuance of new long-term debt instruments as follows:

On November 18, 2015 the University issued

$64,455,000 in North Carolina State University at Raleigh Variable Rate General Revenue Refunding Bonds, Series 2015. The bonds were issued for a current refunding of

$64,455,000 of North Carolina State University at Raleigh Variable Rate General revenue Bonds, Series 2008A.

The refunding was undertaken to convert the bonds to a private placement with BB&T Community Holdings Co., eliminate the need for a standby credit facility and to change the index basis from SIFMA to 1 month LIBOR.

There is no economic gain or loss on this transaction.

D.

Annual Requirements - The annual requirements to pay principal and interest on the long-term obligations at June 30, 2016, are as follows:

Annual Requirements Revenue Bonds Payable Notes Payable Interest Rate Fiscal Year Principal Interest Swaps, Net Principal Interest 2017 13,985,000 16,271,713 2,332,081 3,034,536 2,726,449 2018 14,510,000 15,865,763 2,201,596 3,558,787 2,602,284 2019 14,140,000 15,454,088 2,065,932 4,012,877 2,458,647 2020 14,685,000 15,135,710 1,924,745 4,505,104 2,296,412 2021 15,245,000 14,861,176 1,778,035 4,987,707 2,114,936 2022 - 2026 86,105,000 69,267,358 5,595,179 33,126,932 7,125,177 2027 - 2031 110,415,000 55,732,813 256,380 18,591,754 826,431 2032 - 2036 68,525,000 34,379,066 2037 - 2041 85,205,000 17,712,900 2042 - 2046 39,275,000 1,889,900 Total Requirements 462,090,000 256,570,487 16,153,948 71,817,697 20,150,336 Interest on the variable rate 2003B general revenue bonds is calculated at 0.40% at June 30, 2016 Interest rate is reset each week by the remarketing agent based upon University credit ratings and market condition Interest on the variable rate 2015 general revenue bonds is calculated at 0.8037% at June 30, 2016 Interest rate is reset each month based upon 1 month LIBOR This schedule also includes the debt service requirements for debt associated with interest rate swaps. More detailed information abouut interest rate swaps is presented in Note 10 Derivative Instruments Prior Year Defeasances - During prior years, the University defeased certain bonds by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the Universitys financial statements.

Prior year defeased bonds were called on October 1, 2015. At June 30, 2016, the outstanding balance of prior year defeased bonds was $0.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 68 NOTE 10 Derivative Instruments Derivative instruments held at June 30, 2016 are as follows:

Change in Fair Value Fair Value at June 30, 2016 Type Notional Amount Classification Decrease Classification Liability Hedging Derivative Instruments Cash Flow Hedges Pay-Fixed Interest Rate Swap 2003 B Bonds 24,655,000 Deferred Outflow of Resources 1,403,594 Hedging Derivative Liability 5,629,388 Pay-Fixed Interest Rate Swap 2015 Bonds 48,400,000 Deferred Outflow of Resources 625,284 Hedging Derivative Liability 8,207,879 Total Derivative Instruments 2,028,878 13,837,267 F.

Notes Payable - The University was indebted for notes payable for the purposes shown in the following table:

Interest Rate/

Ranges Final Maturity Date Original Amount of Issue Principal Paid Through June 30, 2016 Principal Outstanding June 30, 2016 Financial Institution Compounded Interest Purpose Energy Conservation Loan BB&T 3.25%

09/01/2028 19,700,703 $

2,542,262 707,470 17,865,911 Energy Conservation Loan Bank of America 4.07%

08/17/2028 56,060,010 5,631,162 3,522,938 53,951,786 Carol Johnson Poole Clubhouse Suntrust Variable 07/30/2016 3,049,447 3,049,447 Total Notes Payable 78,810,160 11,222,871 4,230,408 71,817,697 Hedging derivative instruments held at June 30, 2016 are as follows:

Notional Effective Maturity Type Objective Amount Date Date Terms Pay-Fixed Interest Rate Swap Hedge changes in cash flows on General Revenue 2003B Series Bonds 24,655,000 06/20/03 10/01/27 Pay 3.54%

Receive 75%

LIBOR Pay-Fixed Interest Rate Swap Hedge changes in cash flows on General Revenue 2015 Series Bonds 48,400,000 09/01/08 10/01/26 Pay 3.862%

Receive SIFMA

69 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT As of June 30, 2016, the synthetic interest rates on the swapped portion of the 2003B and 2015 bonds were 3.59%

and 4.25% respectively. The fair value of the pay-fixed interest rate swaps was estimated using the discounted cash flows method adjusted for credit risk. This method calculates the fair market value of the instruments.

Future Swaps: The University has also entered into a future dated interest rate swap agreement for $22,382,500 to be effective March 1, 2017, on the General Revenue Series 2015 bonds.

Hedging Derivative Risks Credit Risk: At June 30, 2016, the University was not exposed to credit risk on its interest rate swaps because the swaps had negative fair values. However, should interest rates change and the fair value of the swap becomes positive, the University would be exposed to credit risk in the amount of the derivatives positive fair value. The swap agreements require termination should the Universitys or the counterpartys credit rating fall below either Baa2 as issued by Moodys or BBB as issued by S&P or Fitch.

Also, under the terms of the swap agreements, should one party become insolvent or otherwise default on its obligations, provisions permit the nondefaulting party to accelerate and terminate all outstanding transactions. To mitigate the potential for credit risk, if the counterpartys credit quality falls below A3 as determined by Moodys or A-as determined by S&P, the swap will be collateralized by the counterparty with cash, U.S. government or agency securities. If the counterparty is required to collateralize, then the collateral will be posted with a third party custodian or secured party. The swap agreements entered into by the University are held with separate counterparties. All the counterparties are rated A or better.

Interest Rate Risk: The University is exposed to interest rate risk on its interest rate swaps. The fair values of these instruments are highly sensitive to interest rate changes.

Because rates have changed since the effective dates of the swaps, both of the swaps have a negative fair value as of June 30, 2016. The negative fair value may be countered by a reduction in total interest payments required under the variable-rate bonds, creating lower synthetic interest rates.

Because the coupons on the Universitys variable-rate bonds adjust to changing interest rates, the bonds do not have corresponding fair value increases. The fair values are the market values as of June 30, 2016. Both of the swaps outstanding have termination dates greater than 10 years.

As the yield curve rises, the value of the swaps will increase and as rates fall, the value of the swaps will decrease.

Basis Risk: The University is exposed to basis risk on the swaps when the variable payment received is based on an index other than Securities Industry and Financial Markets Association (SIFMA). Should the relationship between London Interbank Offering Rate (LIBOR) and SIFMA move to convergence, the expected cost savings may not be realized. The current outstanding swaps and the related bonds reset rates weekly/monthly and pay monthly. As of June 30, 2016, the SIFMA rate was 0.41% whereas 75% of LIBOR was 0.35%

Termination Risk: The University or the counterparty may terminate any of the swaps if the other party fails to perform under the terms of the contract. If any of the swaps are terminated, the associated variable-rate bonds would no longer carry synthetic interest rates. Also, if at the time of termination the swap has a negative fair value, the University would be liable to the counterparty for that amount.

Rollover Risk: By definition, the University is exposed to rollover risk because the swap related to the 2008A bonds terminates October 1, 2026, two years before the related bonds mature on October 1, 2028. It is not the intent of the University, at this time, to re-hedge the bonds.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 70 NOTE 11 Lease Obligations A.

Capital Lease Obligations - Capital lease obligations relating to equipment are recorded at the present value of the minimum lease payments. Future minimum lease payments under capital lease obligations consist of the following at June 30, 2016:

B.

Operating Lease Obligations - The University entered into operating leases for equipment and property rental. Future minimum lease payments under noncancelable operating leases consist of the following at June 30, 2016:

Fiscal Year Amount 2017 177,071 2018 168,193 2019 132,732 2020 103,699 2021 14,843 Total Minimum Lease Payments 596,538 Amount Representing Interest (9.28% Rate of Interest) 55,361 Present Value of Future Lease Payments 541,177 Machinery and equipment acquired under capital lease amounted to $693,019 at June 30, 2016.

Depreciation for the capital assets associated with capital leases is included in depreciation expense, and accumulated depreciation for assets acquired under capital lease totaled

$159,924 at June 30, 2016.

Rental expense for all operating leases during the year was

$9,543,859.

Fiscal Year Amount 2017 7,986,337 2018 6,211,743 2019 5,456,268 2020 4,928,265 2021 4,498,783 2022-2026 20,399,946 2027-2031 6,050,030 Total Minimum Lease Payments 55,531,372 NOTE 12 Revenues Internal Less Less Gross Sales Scholarship Allowance for Net Revenues Eliminations Discounts Uncollectibles Revenues Operating Revenues:

Student Tuition and Fees, Net 384,353,238 786,343 92,512,605 (121,029) $

291,175,319 Sales and Services, Net 326,253,538 $

67,501,870 20,236,097 67,822 $

238,447,749 Other Revenues, Net 20,168,569 $

5,898,208 0

(21,762) $

14,292,123 A summary of eliminations and allowances by revenue classification is presented as follows:

71 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT service, or at any age with 30 years of creditable service.

General employee plan members are eligible to retire with partial retirement benefits at age 50 with 20 years of creditable service or at age 60 with five years of creditable service. Survivor benefits are available to eligible benefi-ciaries of general members who die while in active ser-vice or within 180 days of their last day of service and who also have either completed 20 years of creditable service regardless of age, or have completed five years of service and have reached age 60. Eligible beneficiaries may elect to receive a monthly Survivors Alternate Benefit for life or a return of the members contributions. The plan does not provide for automatic post-retirement benefit increases.

Increases are contingent upon actuarial gains of the plan.

Contributions: Contribution provisions are established by General Statute 135-8 and may be amended only by the North Carolina General Assembly. Employees are required to contribute 6% of their annual pay. The con-tribution rate for employers is set each year by the NC General Assembly in the Appropriations Act based on the actuarially-determined rate recommended by the actuary. The Universitys contractually-required contribu-tion rate for the year ended June 30, 2016 was 9.15%

of covered payroll. The Universitys contributions to the pension plan were $28,562,190, and employee contribu-tions were $18,729,305 for the year ended June 30, 2016.

NOTE 13 Operating Expenses by Function Salaries and Benefits Supplies and Materials Services Scholarships and Fellowships Utilities Depreciation/

Amortization Total Instruction

$ 361,878,608 $

24,116,529 $

42,657,531 $

0 $

5,441 $

0 $

428,658,109 Research 168,828,741 21,385,218 77,246,361 954,611 268,414,931 Public Service 80,420,990 10,400,241 28,079,282 409,729 119,310,242 Academic Support 45,251,093 18,319,102 20,089,901 20,707 83,680,803 Student Services 18,372,847 2,092,883 7,831,358 202,910 28,499,998 Institutional Support 69,216,676 4,438,557 20,107,650 5,664 93,768,547 Operations and Maintenance of Plant 35,442,516 10,510,234 9,915,554 23,119,349 78,987,653 Student Financial Aid 1,262,882 110,546 840,646 43,820,372 46,034,446 Auxiliary Enterprises 76,576,214 36,537,737 44,997,619 7,310,086 165,421,656 Depreciation/Amortization 88,721,461 88,721,461 Total Operating Expenses 857,250,567 $

127,911,047 $

251,765,902 $

43,820,372 $

32,028,497 $

88,721,461 $

1,401,497,846 The Universitys operating expenses by functional classification are presented as follows:

NOTE 14 Pension Plans A.

Defined Benefit Plan Plan Administration: The State of North Carolina ad-ministers the Teachers and State Employees Retire-ment System (TSERS) plan. This plan is a cost-sharing, multiple-employer, defined benefit pension plan estab-lished by the State to provide pension benefits for gen-eral employees and law enforcement officers (LEOs) of the State, general employees and LEOs of its compo-nent units, and employees of Local Education Agencies (LEAs) and charter schools not in the reporting entity.

Membership is comprised of employees of the State (state agencies and institutions), universities, community colleges, and certain proprietary component units along with the LEAs and charter schools. Benefit provisions are established by General Statute 135-5 and may be amended only by the North Carolina General Assembly.

Benefits Provided: TSERS provides retirement and sur-vivor benefits. Retirement benefits are determined as 1.82% of the members average final compensation times the members years of creditable service. A members av-erage final compensation is calculated as the average of a members four highest consecutive years of compensa-tion. General employee plan members are eligible to re-tire with full retirement benefits at age 65 with five years of creditable service, at age 60 with 25 years of creditable

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 72 The TSERS Plans financial information, including all in-formation about the plans assets, deferred outflows of resources, liabilities, deferred inflows of resources, and fiduciary net position, is included in the State of North Carolinas fiscal year 2015 Comprehensive Annual Finan-cial Report. An electronic version of this report is avail-able by accessing the North Carolina Office of the State Controllers Internet home page http://www.osc.nc.gov/

and clicking on Reports or by calling the State Con-trollers Financial Reporting Section at (919) 707-0500.

TSERS Basis of Accounting: The financial statements of the TSERS plan were prepared using the accrual ba-sis of accounting. Plan member contributions are rec-ognized in the period in which the contributions are due. Employer contributions are recognized when due and the employer has a legal requirement to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of each plan. The plans fiduciary net position was deter-mined on the same basis used by the pension plan.

Methods Used to Value TSERS Investment: Pursuant to North Carolina General Statutes, the State Treasurer is the custodian and administrator of the retirement sys-tems. The State Treasurer maintains various investment portfolios in its Investment Pool. The pension trust funds are the primary participants in the Long-term Invest-ment portfolio and the sole participants in the External Fixed Income Investment, Equity Investment, Real Es-tate Investment, Alternative Investment, Credit Invest-ment, and Inflation Protection Investment portfolios. The investment balance of each pension trust fund repre-sents its share of the fair market value of the net posi-tion of the various portfolios within the pool. Detailed descriptions of the methods and significant assumptions regarding investments of the State Treasurer are provid-ed in the 2015 Comprehensive Annual Financial Report.

Net Pension Liability: At June 30, 2016, the Univer-sity reported a liability of $78,841,126 for its proportion-ate share of the collective net pension liability. The net pension liability was measured as of June 30, 2015.

The total pension liability used to calculate the net pen-sion liability was determined by an actuarial valua-tion as of December 31, 2014, and update procedures were used to roll forward the total pension liability to June 30, 2015. The Universitys proportion of the net pension liability was based on the present value of fu-ture salaries for the University relative to the present value of future salaries for all participating employers, actuarially-determined. As of June 30, 2015, the Univer-sitys proportion was 2.14%, which was a decrease of

.01 from its proportion measured as of June 30, 2014.

Actuarial Assumptions: The following table presents the actuarial assumptions used to determine the total pension liability for the TSERS plan at the actuarial valuation date:

Valuation Date 12/31/2014 Inflation 3%

Salary Increases*

4.25% - 9.10%

Investment Rate of Return**

7.25%

• Salary increases include 3.5% inflation and productivity factor

• • Investment rate of return is net of pension plan investment expense, including inflation.

TSERS currently uses mortality tables that vary by age, gender, employee group (i.e. teacher, general, law enforce-ment officer) and health status (i.e. disabled and healthy).

The current mortality rates are based on published tables and based on studies that cover significant portions of the U.S. population. The healthy mortality rates also con-tain a provision to reflect future mortality improvements.

The actuarial assumptions used in the Decem-ber 31, 2014 valuations were based on the re-sults of an actuarial experience study for the pe-riod January 1, 2005 through December 31, 2009.

Future ad hoc Cost of Living Adjustment (COLA) amounts are not considered to be substantively auto-matic and are therefore not included in the measurement.

The projected long-term investment returns and inflation assumptions are developed through review of current and historical capital markets data, sell-side investment research, consultant whitepapers, and historical perfor-mance of investment strategies. Fixed income return pro-jections reflect current yields across the U.S. Treasury yield curve and market expectations of forward yields projected and interpolated for multiple tenors and over multiple year horizons. Global public equity return projections are estab-lished through analysis of the equity risk premium and the fixed income return projections. Other asset categories and strategies return projections reflect the foregoing and historical data analysis. These projections are combined to produce the long-term expected rate of return by weight-ing the expected future real rates of return by the target as-set allocation percentage and by adding expected inflation.

73 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 3.19%. All rates of return and inflation are annualized.

Discount Rate: The discount rate used to measure the total pension liability was 7.25%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current contribution rate and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, the pension plans fiduciary net position was project-ed to be available to make all projected future benefit payments of the current plan members. Therefore, the long-term expected rate of return on pension plan in-vestments was applied to all periods of projected ben-efit payments to determine the total pension liability.

Sensitivity of the Net Pension Liability to Changes in the Discount Rate: The following presents the net pension liability of the plan calculated using the dis-count rate of 7.25%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (6.25%) or 1-per-centage point higher (8.25%) than the current rate:

Best estimates of arithmetic real rates of return for each major asset class included in the pension plans target as-set allocation as of June 30, 2015 (the valuation date) are summarized in the following table:

Asset Class Long-Term Expected Real Rate of Return Fixed Income 2.2%

Global Equity 5.8%

Real Estate 5.2%

Alternatives 9.8%

Credit 6.8%

Inflation Protection 3.4%

The information above is based on 30-year expectations developed with the consulting actuary for the 2014 as-set, liability and investment policy study for the North Carolina Retirement Systems. The long-term nomi-nal rates of return underlying the real rates of return are arithmetic annualized figures. The real rates of re-turn are calculated from nominal rates by multiplica-tively subtracting a long-term inflation assumption of Net Pension Liability (Asset) 1% Decrease (6.25%)

Current Discount Rate (7.25%)

1% Increase (8.25%)

237,290,032 78,841,126 (55,621,041)

Deferred Inflows of Resources and Deferred Outflows of Resources Related to Pensions: For the year ended June 30, 2016, the University recognized pension expense of $8,589,794. At June 30, 2016, the University reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Employer Balances of Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions by Classification:

Deferred Outflows Deferred Inflows of Resources of Resources Difference Between Actual and Expected Experience 0

8,964,236 Changes of Assumptions Net Difference Between Projected and Actual Earnings on Pension Plan Investments 8,541,768 Change in Proportion and Differences Between Agencys Contributions and Proportionate Share of Contributions 2,722,767 Contributions Subsequent to the Measurement Date 28,562,190 Total 31,284,957 17,506,004

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 74 The amount of $28,562,190 reported as deferred out-flows of resources related to pensions will be included as a reduction of the net pension liability in the fiscal year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

Schedule of the Net Amount of the Employers Balances of Deferred Outflows of Resources and Deferred Inflows of Resources That will be Recognized in Pension Expense:

Year Ended June 30:

Amount 2017 (9,358,103) 2018 (9,358,103) 2019 (9,175,819) 2020 13,108,788 Total (14,783,237)

B.

Defined Contribution Plan - The Optional Retire-ment Program (Program) is a defined contribution pension plan that provides retirement benefits with options for payments to beneficiaries in the event of the participants death. Administrators and eligible faculty of the University may join the Program instead of the TSERS. The Board of Governors of The University of North Carolina is respon-sible for the administration of the Program and designates the companies authorized to offer investment products or the trustee responsible for the investment of contributions under the Program and approves the form and contents of the contracts and trust agreements.

Participants in the Program are immediately vested in the value of employee contributions. The value of employer contributions is vested after five years of participation in the Program. Participants become eligible to receive distri-butions when they terminate employment or retire.

Participant eligibility and contributory requirements are established by General Statute 135-5.1. Employer and member contribution rates are set each year by the North Carolina General Assembly. For the year ended June 30, 2016, these rates were set at 6.84% of covered payroll for employers and 6% of covered payroll for members. The University assumes no liability other than its contribution.

For the current fiscal year, the University had a total payroll of $746,705,027, of which $281,006,528 was covered under the Optional Retirement Program. Total employer and employee contributions for pension benefits for the year were $19,220,847 and $16,860,392, respectively. The amount of pension expense recognized in the current year related to ORP is equal to the employer contributions. The University had forfeitures reflected in pension expense for the current fiscal year of $720,767.

NOTE 15 Other Postemployment Benefits A.

Health Benefits - The University participates in the Comprehensive Major Medical Plan (the Plan), a cost-sharing, multiple-employer defined benefit health care plan that provides postemployment health insurance to eligible former employees. Eligible former employees include long-term disability beneficiaries of the Disability Income Plan of North Carolina and retirees of the Teachers and State Em-ployees Retirement System (TSERS) or the Optional Retire-ment Program (ORP). Coverage eligibility varies depending on years of contributory membership service in their retire-ment system prior to disability or retirement.

The Plans benefit and contribution provisions are estab-lished by Chapter 135, Article 3B, of the General Statutes, and may be amended only by the North Carolina General Assembly. The Plan does not provide for automatic post-retirement benefit increases.

By General Statute, a Retiree Health Benefit Fund (the Fund) has been established as a fund in which accumulated contributions from employers and any earnings on those contributions shall be used to provide health benefits to re-tired and disabled employees and applicable beneficiaries.

By statute, the Fund is administered by the Board of Trust-ees of TSERS and contributions to the Fund are irrevocable.

Also by law, Fund assets are dedicated to providing benefits to retired and disabled employees and applicable beneficia-ries and are not subject to the claims of creditors of the employers making contributions to the Fund. Contribution rates to the Fund, which are intended to finance benefits and administrative expenses on a pay-as-you-go basis, are established by the General Assembly.

For the current fiscal year the University contributed 5.60%

of the covered payroll under TSERS and ORP to the Fund.

Required contribution rates for the years ended June 30, 2015, and 2014, were 5.49% and 5.40%, respectively.

The University made 100% of its annual required con-tributions to the Plan for the years ended June 30, 2016, 2015, and 2014, which were $33,217,050, $31,585,734, and

$29,986,156, respectively. The University assumes no liabil-ity for retiree health care benefits provided by the programs other than its required contribution.

Additional detailed information about these programs can be located in the State of North Carolinas Comprehensive Annual Financial Report. An electronic version of this re-port is available by accessing the North Carolina Office of the State Controllers Internet home page http://www.osc.

nc.gov/ and clicking on Reports or by calling the State Controllers Financial Reporting Section at (919) 707-0500.

B.

Disability Income - The University participates in the Disability Income Plan of North Carolina (DIPNC), a cost-sharing, multiple-employer defined benefit plan, to pro-vide short-term and long-term disability benefits to eligible

75 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT members of TSERS and ORP. Benefit and contribution pro-visions are established by Chapter 135, Article 6, of the General Statutes, and may be amended only by the North Carolina General Assembly. The Plan does not provide for automatic post-retirement benefit increases.

Disability income benefits are funded by actuarially de-termined employer contributions that are established by the General Assembly. For the fiscal year ended June 30, 2016, the University made a statutory contribution of.41%

of covered payroll under TSERS and ORP to the DIPNC.

Required contribution rates for the years ended June 30, 2015, and 2014, were.41% and.44%, respectively. The University made 100% of its annual required contribu-tions to the DIPNC for the years ended June 30, 2016, 2015, and 2014, which were $2,431,963, $2,358,862, and

$2,443,316, respectively. The University assumes no liabil-ity for long term disability benefits under the Plan other than its contribution.

Additional detailed information about the DIPNC is dis-closed in the State of North Carolinas Comprehensive An-nual Financial Report.

NOTE 16 Risk Management The University is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters.

These exposures to loss are handled via a combination of methods, including participation in state-administered insurance programs, purchase of commercial insurance, and self-retention of certain risks. There have been no sig-nificant reductions in insurance coverage from the previous year and settled claims have not exceeded coverage in any of the past three fiscal years.

A.

Employee Benefit Plans

1.

State Health Plan University employees and retirees are provided compre-hensive major medical care benefits. Coverage is funded by contributions to the State Health Plan (Plan), a discretely presented component unit of the State of North Carolina.

The Plan has contracted with third parties to process claims.

2.

Death Benefit Plan of North Carolina Term life insurance (death benefits) of $25,000 to $50,000 is provided to eligible workers. This Death Benefit Plan is ad-ministered by the State Treasurer and funded via employer contributions. The employer contribution rate was.16% for the current fiscal year.

B.

Other Risk Management and Insurance Activities 1.

Automobile, Fire, and Other Property Losses The University is required to maintain fire and lightning cov-erage on all state-owned buildings and contents through the State Property Fire Insurance Fund (Fund), an internal service fund of the State. Such coverage is provided at no cost to the University for operations supported by the States General Fund. Other operations not supported by the States General Fund are charged for the coverage. Losses covered by the Fund are subject to a $5,000 per occurrence deductible. University departments, as an individual busi-ness decision, may also purchase through the Fund primary extended coverage for buildings and contents. Coverage may also be purchased through the Fund for theft, vandal-ism, sprinkler leakage, or all-risk perils. University depart-ments also have the option to purchase all-risk coverage for computers and miscellaneous equipment on a scheduled basis. Flood insurance may also be purchased through the Fund for qualifying assets. Receipts-supported auxiliary units insure assets for additional perils coverage, as per the options noted above, in addition to the fire and lightning perils. General-funded departments and units insure for the perils of fire and lightning with the exception of certain coastal properties which are also insured for extended cov-erage perils and the peril of flood.

All state-owned vehicles are covered by liability insurance through a private insurance company and handled by the North Carolina Department of Insurance. The liability limits for losses are $1,000,000 per claim and $10,000,000 per occurrence. The University pays premiums to the North Carolina Department of Insurance for the coverage.

2.

Public Officers and Employees Liability Insurance The risk of tort claims of up to $1,000,000 per claimant is retained under the authority of the State Tort Claims Act. In addition, the State provides excess public officers and em-ployees liability insurance up to $10,000,000 via contract with a private insurance company. The University pays the premium, based on a composite rate, directly to the private insurer.

3.

Employee Dishonesty and Computer Fraud The University is protected for losses from employee dis-honesty and computer fraud. This coverage is with a private insurance company and is handled by the North Carolina Department of Insurance. Universities are charged a pre-mium by the private insurance company. Coverage limit is

$1,000,000 per occurrence. The applicable deductible is

$25,000 per occurrence.

4.

Statewide Workers Compensation Program The North Carolina Workers Compensation Program pro-vides benefits to workers injured on the job. All employees of the State and its component units are included in the program. When an employee is injured, the Universitys pri-mary responsibility is to arrange for and provide the nec-essary treatment for work related injury. The University is responsible for paying medical benefits and compensation in accordance with the North Carolina Workers Compensa-tion Act. The University retains the risk for workers com-pensation.

Additional details on the state-administered risk manage-ment programs are disclosed in the States Comprehensive

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 76 alty and Forfeiture Fund. The manner in which the judg-ment will be settled is uncertain and is to be determined by the North Carolina General Assembly. At issue for NC State University is approximately $6,749,207 in trans-portation fines collected since January 1, 1996, to June 30, 2005. Of this amount, the university has transferred

$2,273,817 to the Office of State Budget and Management leaving approximately $4,475,390 still outstanding. Since July 2005, the University has been forwarding transpor-tation fine collections, less collection costs, to the Office of State Budget and Management on a monthly basis.

As previously reported, on September 16, 2005, Ward Transformer Company, Inc. and related entities (collectively the Ward Performing Parties) entered into a Settlement Agreement with the United States Environmental Protec-tion Agency (EPA). In the Agreement, the Ward Perform-ing Parties agreed to fund and carry out a removal action to address PCB contamination at and in the vicinity of the 11 acre Ward Transformer facility on Mount Herman Road near the Raleigh-Durham International Airport. It is currently es-timated that the removal action will involve the excavation and onsite treatment or offsite disposal of approximately 60,000 cubic yards, or about 220,000 tons, of PCB con-taminated soils. Current estimates indicate that the costs may be in the range upwards of $70 million (the Univer-sity would be responsible for a portion of this amount). The Ward Performing Parties have notified NC State that they believe that the University is responsible for some of the PCB contamination because NC State allegedly had Ward repair and refurbish transformers during the 1960s through the 1990s. On March 24, 2010, the Court granted the Uni-versitys Motion to Dismiss based on the 11th Amendment sovereign immunity. However, this case is still open pend-ing an appeal by the plaintiffs. In January 2013, the EPA in-dicated its desire to pursue a global settlement involving all parties for all past and future remediation costs, and indicat-ed that parties not participating in the global settlement ne-gotiations will face enforcement action by the EPA. As the University would not have a sovereign immunity defense available in an enforcement action brought by the EPA, on March 5, 2013, the University communicated its intent to participate in future global settlement negotiations with the EPA. On August 19, 2016, NCSU agreed to pay $110,000 no later than September 9, 2016 in the global settlement.

The University is a party to other litigation and claims in the ordinary course of its operations. Since it is not possible to predict the ultimate outcome of these matters, no provi-sion for any liability has been made in the financial state-ments. University management is of the opinion that the liability, if any, for any of these matters will not have a mate-rial adverse effect on the financial position of the University.

Annual Financial Report, issued by the Office of the State Controller.

5.

Other Insurance Held by the University The University purchased other authorized coverage from private insurance companies through the North Carolina Department of Insurance and the States Agent of Record.

The types of insurance policies purchased include: medi-cal professional liability, veterinary professional liability, fine arts property, master crime, inland marine property for mu-sical instruments, campers accident and sickness, athletic accident, boiler and machinery, watercraft, oceanographic equipment, data breach, and nuclear energy liability.

NOTE 17 Commitments and Contingencies A.

Commitments - The University has established an encumbrance system to track its outstanding commitments on construction projects and other purchases. Outstanding commitments on construction contracts were $20,666,282 and on other purchases were $215,000 at June 30, 2016.

The University has amended the Use Agreement for the PNC Arena with the Centennial Authority (a related party) and therein agreed to make scheduled capital contributions totaling $6,000,000 to the Authoritys Building Enhancement Fund over a 15 year period. The total outstanding commit-ment on this agreement was $3,100,000 as of June 30, 2016.

B.

Pending Litigation and Claims - As previously reported, the Environmental Protection Agency (EPA) filed a civil action against the University pursuant to the Comprehensive Environmental Response, Compensa-tion and Liability Act. The complaint sought relief that would cause the University to enter into remediation of a hazardous waste site known as Lot 86. The Univer-sity is involved in ongoing discussions and negotiations with the EPA concerning the appropriate means for ad-dressing the remediation. A Consent Decree executed by North Carolina State University and the EPA has been approved by the Court. Remedial clean-up pursuant to the Consent Decree continues. The remediation costs remaining are estimated to be approximately $2,000,000.

As previously reported, the NC School Boards Association, et. al. filed a civil action against various state officials in their official capacity seeking a judicial determination as to whether the state constitution requires certain monetary payments collected by state agencies to be paid to the lo-cal county school funds. On July 1, 2005, the NC Supreme Court held in favor of the school boards with regard to park-ing fines. The matter was remanded back to the trial court for disposition in accordance with the Superior Courts decision. On August 8, 2008, the Wake County Superior Court issued judgment that the estimated amounts col-lected from January 1, 1996, to June 30, 2005, by UNC Campuses belong and should have been paid to the public schools of the State by payment to the States Civil Pen-

77 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT NOTE 18 Related Parties Foundations - There are 10 separately incorporated nonprofit foundations associated with the University. These foundations are The North Carolina Agricultural Foundation, Inc., North Carolina State University Foundation, Inc., North Carolina Tobacco Foundation, Inc., North Carolina State University College of Sciences Foundation, Inc., NC State Engineering Foundation, Inc., North Carolina Veterinary Medical Foundation, Inc., NC State Natural Resources Foundation, Inc., North Carolina Textile Foundation, Inc.,

NC State Student Aid Association, Inc., and the North Carolina State University Alumni Association, Inc.

These organizations serve as the primary fundraising arm of the University through which individuals, corporations, and other organizations support University programs by providing scholarships, fellowships, faculty salary supplements, and unrestricted funds to specific colleges and the Universitys overall academic environment. As described in Note 1 to the financial statements, The North Carolina Agricultural Foundation, Inc., the North Carolina State University Foundation, Inc. and the NC State Student Aid Association, Inc. are considered component units of the University for reporting purposes and their financial statements are presented separately as part of the Universitys financial statements. The Universitys financial statements do not include the assets, liabilities, net position, or operational transactions of the other foundations, except for support from each organization to the University. This support of the foundations, excluding amounts from The North Carolina Agricultural Foundation, Inc., the North Carolina State University Foundation, Inc. and the NC State Student Aid Association, Inc.

approximated $19,882,474 for the year ended June 30, 2016.

Reynolds Coliseum - The NC State Student Aid Association has agreed to fund $20,000,000 of the

$35,000,000 project to renovate the Universitys Reynolds Coliseum.

Case Commons Residence Hall - The NC State Student Aid Association has agreed to fund the construction of an athletics residence hall for the University. The project is estimated to cost approximately $15,000,000 plus interest, and payments are scheduled to begin in 2018.

Nonprofit Corporation - The Centennial Authority (Authority) was created by the 1995 General Assembly (Senate Bill 606) for the purpose of studying, designing, planning, constructing, owning, promoting, financing and operating a regional facility on land owned by the State.

Prior to this act, the General Assembly authorized the construction by the University of a facility to be known as the Entertainment and Sports Arena (ESA). This facility serves as a regional sports entertainment center and is available for cultural performances, sporting events and other activities of the University or of other entities (the Centennial Center project). With the 1995 legislation, the Centennial Center project was transferred to the Authority.

The Authority entered into a Ground Lease with the State of North Carolina to lease land for the ESA for a period of 99 years at an annual rent of $1. The University entered into a Use Agreement with the Authority. Both parties agreed that the University shall be the primary and preferred user of all areas of the ESA. The University is required to pay the greater of 10% of gross ticket revenues or $51,577 for each mens and $22,559 for each womens basketball game to compensate the Authority for facility rental and operating expenses. Rent and expense payments for miscellaneous events will be negotiated on an event by event basis based on the availability of the ESA and the anticipated attendance. In fiscal year 2012, the name of the ESA was changed to PNC Arena.

In fiscal year 2008, the University entered a Capital Improvement Plan Agreement with the Authority to pay

$6,000,000 in quarterly installments over 15 years.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 78 NOTE 19 Blended Component Units NC State University Partnership Corporation North Carolina State University NC State Investment Fund, Inc Eliminations Total ASSETS Current Assets 363,229,022 34,225,218 5,551,317 0

403,005,557 Capital Assets 2,004,443,996 20,884,295 2,025,328,291 Other Noncurrent Assets 214,337,260 521,918,935 1

(29,683,979) 706,572,216 Total Assets 2,582,010,278 556,144,153 26,435,612 (29,683,979) 3,134,906,064 Total Deferred Outflows of Resources 45,122,224 45,122,224 LIABILITIES Current Liabilities 160,065,864 375,393 593,847 161,035,104 Long-Term Liabilities, Net 679,949,414 2,785,750 682,735,164 Other Noncurrent Liabilities 356,742,187 442,130 (29,683,979) 327,500,338 Total Liabilities 1,196,757,465 375,393 3,821,727 (29,683,979) 1,171,270,606 Total Deferred Inflows of Resources 17,506,004 17,506,004 NET POSITION Net Investement in Capital Assets 1,396,273,608 17,550,564 1,413,824,172 Restricted - Nonexpendable (436,505,221) 555,768,760 2

119,263,539 Restricted - Expendable 217,451,651 279,671 217,731,322 Unrestricted 235,648,995 4,783,650 240,432,645 Total Net Position 1,412,869,033 555,768,760 22,613,885 0

1,991,251,678 Condensed Statement of Net Position June 30, 2016 Condensed combining information for the Universitys blended component units for the year ended June 30, 2016, is presented as follows:

1. Total investments in the NC State Investment Fund., Inc. audit report included $298,274,678 held in the Investment Fund for the North Carolina State University Foundation, Inc. and The North Carolina Agricultural Foundation, Inc. This amount is excluded from the University prepared financial state-ments and included in the accompanying component unit financial statements. See Note 2 to the financial statements. It will therefore be excluded from the Condensed Statement of Net Position and the Condensed Statement of Revenues, Expenses, and Changes in Net Position.

2. Restricted Nonexpendable assets are held in the NC State Investment Fund, Inc. while the associated liabilities are held in North Carolina State University statements resulting in a negative net position before blending.

79 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT NC State University Partnership Corporation North Carolina State University NC State Investment.

Fund, Inc.

Elimination Total OPERATING REVENUES Operating Revenue 831,151,521 $

0 $

8,939,738 $

(3,738,796) $

836,352,463 OPERATING EXPENSES Operating Expenses 1,310,175,252 1,857,782 6,060,008 (5,316,657) 1,312,776,385 Depreciation/Amortization 88,283,225 438,236 88,721,461 Total Operating Expenses 1,398,458,477 1,857,782 6,498,244 (5,316,657) 1,401,497,846 Operating Income (Loss)

(567,306,956)

(1,857,782) 2,441,494 1,577,861 (565,145,383)

NONOPERATING REVENUES (EXPENSES)

State Appropriations 502,533,982 502,533,982 Noncapital Grants 45,499,300 45,499,300 Noncapital Gifts 71,230,776 71,230,776 Investment Income (5,688,899) 7,258,215 1,569,316 Other Nonoperating Expenses (14,822,534)

(33,330)

(14,855,864)

Net Nonoperating Revenues (Expenses) 598,752,625 7,258,215 (33,330) 605,977,510 Capital Appropriations 9,013,500 9,013,500 Capital Grants 2,508,299 2,508,299 Capital Gifts 6,960,812 1,578,907 (1,577,861) 6,961,858 Additions to Endowments 14,039,031 14,039,031 Increase in Net Position 63,967,311 5,400,433 3,987,071 73,354,815 NET POSITION Net Position, July 1, 2015 1,348,901,722 550,368,327 18,626,814 1,917,896,863 Net Position, June 30, 2016 1,412,869,033 $

555,768,760 $

22,613,885 $

0 $

1,991,251,678 Condensed Statement of Revenues, Expenses, and Changes in Net Position For the Fiscal Year Ended June 30, 2016

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 80 ing for Pension Plans, and Statement 68 for pension plans and pensions that are within their respective scopes.

GASB Statement No. 76 reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP.

GASB Statement No. 79 establishes criteria for an external investment pool to qualify for making the election to mea-sure all of its investments at amortized cost for financial reporting purposes.

North Carolina State University NC State Investment Fund, Inc.

NC State University Partnership Corporation Total Net Cash Provided (Used) by Operating Activities (490,055,767) 0 2,614,623 (487,441,144)

Net Cash Provided by Noncapital Financing Activities 733,376,129 733,376,129 Net Cash Used by Capital and Related Financing Activities (94,740,697)

(202,253)

(94,942,950)

Net Cash Provided (Used) by Investing Activities (11,385,943) 32,143,220 20,757,277 Net Increase in Cash and Cash Equivalents 137,193,722 32,143,220 2,412,370 171,749,312 Cash and Cash Equivalents, July 1, 2015 310,799,226 2,081,998 2,956,067 315,837,291 Cash and Cash Equivalents, June 30, 2016 447,992,948 34,225,218 5,368,437 487,586,603 Condensed Statement of Cash Flows June 30, 2016 For the fiscal year ended June 30, 2016, the University implemented the following pronouncements issued by the Governmental Accounting Standards Board (GASB)

GASB Statement No. 72, Fair Value Measurement and Application GASB Statement No. 73, Accounting and Financial Re-porting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amend-ments to Certain Provisions of GASB Statements 67 and 68 GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Government GASB Statement No. 79, Certain External Investment Pools and Pool Participants GASB Statement No. 72 provides guidance for de-termining a fair value measurement for financial re-porting purposes. This statement also provides guid-ance for applying fair value to certain investments and disclosures related to all fair value measurements.

GASB Statement No. 73 establishes requirements for defined benefit pensions that are not within the scope of Statement No. 68, Accounting and Financial Reporting for Pensions, as well as for the assets accumulated for pur-poses of providing those pensions. In addition, it estab-lishes requirements for defined contribution pensions that are not within the scope of Statement 68. It also amends certain provisions of Statement No. 67, Financial Report-NOTE 20 Changes in Financial Accounting and Reporting On August 12,

2016, Golden LEAF Foundation awarded North Carolina State University a $45 mil-lion grant that will help support a new research facil-ity for the North Carolina Plant Sciences Initiative.

On August 23, 2016, the University issued an ad-ditional

$10 million in Commercial

Paper, bring-ing total outstanding to $50 million. These funds provide interim funding for the Reynolds Coliseum Reno-vation and the Carmichael Locker Room Renovation.

NOTE 21 Subsequent Events

81 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT NOTE 22 Discretely Presented Component Units The Universitys discretely presented component units use the accounting and reporting standards promulgated by FASB. Selected disclosures from the discretely presented component units audited financial statements follow:

NORTH CAROLINA STATE UNIVERSITY FOUNDATION, INC.

Long-Term Investments The Foundation invests in various investment securities.

Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of financial position.

Cost Fair Value STIF 250,343 $

250,343 NC State Investment Fund, Inc.

Long Term Investment Pool (LTIP) 166,104,657 214,207,848 SRI Fund 9,269,614 9,887,699 Wells Fargo - Life Income Funds 5,886,277 6,146,163 Total 181,510,891 $ 230,492,053 Investments at June 30, 2016 consisted of:

Investments held by the LTIP at June 30, 2016 were made up of limited partnerships, an investment with a Blackrock Liquid Policy Portfolio (LPP), a bundle of exchange-traded funds, and the STIF. As of June 30, 2016, approximately 91.2% of these limited partnerships were with the UNC Management Company, 3.5% were committed to or in other private equity investments with JP Morgan, Blackrock, and SEI, 5.1% was invested in the LPP, and 0.2% was invested in the STIF. The LTIPs net assets were valued at approximately $683,380,000 at June 30, 2016. The Foundations investment in the LTIP represents approximately 31.3% of the member equity of the LTIP at June 30, 2016.

The SRI Fund assets are invested in a socially responsible manner through a diversified portfolio of managers that consider environmental, social, and governance issues.

As of June 30, 2016, approximately 27.7% of total assets were invested with RBC SRI Wealth Management Group (RBC), 51.9% with Generation IM Global Equity A Fund, and 20.4% with Calvert Bond Portfolio.

The Foundations investments held by Wells Fargo - Life Income Funds consist of a diversified portfolio of bond and equity mutual funds.

Life Income Funds The consolidated financial statements include assets and liabilities of charitable gift annuities and unitrust agreements for which the Foundation is trustee. The grantors and/or beneficiaries retain future income interests in these assets until their death. These life income funds are recorded at fair value at the date of gift. Life income funds at June 30, 2016 have asset balances of $6,146,163.

The liabilities for distributions to grantors and/or beneficiaries are computed using Internal Revenue Code annuity valuation tables, the distribution terms of the agreements, and the life expectancy of the beneficiaries, and totaled $3,283,841 at June 30, 2016. Payments from these funds were $466,547 during the year ended June 30, 2016. An unrestricted reserve account has been established in the Foundations Charitable Gift Annuity (CGA) pool to receive 5% from all new CGAs established in order to offset the liabilities for any annuities that reach exhaustion. The goal is to build the unrestricted reserve fund to equal 5% of the total value of the Foundations CGA pool. As of June 30, 2016, the CGA reserve balance was $0.

In addition to the above life income funds, the Foundation was named the recipient of an externally managed trust in 2011 which represents irrevocable life income funds with a market value totaling $18,843,468 and life income funds payable of $10,569,983 as of June 30, 2016. The Foundation is not serving as trustee for these funds. These life income funds have been reflected in the accompanying consolidated financial statements at their fair value.

Estimated future distributions to the beneficiaries have been reflected in the accompanying consolidated financial statements and were computed using Internal Revenue Code annuity valuation tables, the distribution terms of the agreements, and the life expectancy of the beneficiaries.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 82 Pledges Receivable Pledges receivable are stated at their present value, estimated by discounting the future cash flows using Federal Reserve rates of return, and are as follows:

Receivable in less than one year 7,696,632 Receivable in one to five years 57,679,162 Receivable in greater than five years 23,366 Total gross pledges receivable 65,399,160 Less allowance for uncollectible pledges 420,000 Less unamortized discount 1,041,709 Net Pledges Receivable 63,937,451 An allowance for doubtful accounts has been established and is updated annually to reflect 5% of the Foundations outstanding pledge balance, excluding three large pledges for which signed memorandums of understanding exist and therefore the Foundation is reasonably assured of collecting. Such pledges represented approximately

$57.0 million of total pledges receivable at year ended June 30, 2016. Active past due pledges receivable are reviewed semi-annually by the Advancement Services office in order to determine if it is appropriate to write off such pledges.

NC STATE STUDENT AID ASSOCIATION, INC.

Pledges Receivable The Association carries its pledges receivable at cost less a discount for pledges receivable due in more than a year and less an allowance for doubtful accounts. On a periodic basis, the Association evaluates its receivables and establishes an allowance for doubtful accounts, based on history of past write-offs and current credit conditions.

Pledges receivable at June 30, 2016 are as follows:

Pledges Receivable 31,852,944 Less Allowance for Uncollectible Pledges 1,592,647 Less Discount on Pledges 7,267,389 22,992,908 Less Current Portion 4,331,237 Pledges Due After One Year 18,661,671 Pledges receivable due in more than one year are reflected at the present value of estimated future cash flows using a discount rate of 6%.

Receivable in less than one year 4,559,198 Receivable in one to five years 11,933,187 Receivable in more than five years 15,360,559 31,852,944 Less allowance for uncollectible pledges 1,592,647 Less discount on pledges 7,267,389 Net Pledges Receivable 22,992,908 INVESTMENTS The Association held the following investments at June 30, 2016:

Historical Market Cost Value Marketable Equity Securities 14,074,876 15,102,501 Other Marketable Debt Securities 6,013,732 6,103,186 U.S. Government Obligations 4,169,782 4,202,121 Alternative Investments 5,864,504 5,795,374 Mutual Funds 1,043,543 1,085,864 Total 31,166,437 32,289,046 Investment income (loss) consists of the following:

Interest 339,528 Dividends 349,159 Realized Gain on Sale of Investments 1,094,344 Unrealized Loss on Investments (2,583,573)

Investment Expenses (254,245)

Total (1,054,787)

Long-Term Debt Bond Indentures--Vaughn Towers In March 2013, the Association refinanced bonds originally issued in 2004 to finance the construction of the Vaughn Towers press box at Carter-Finley Stadium. The refinancing was with Branch Banking & Trust Company (BB&T) through a $12,660,000 Series 2013 bond, issued through the North Carolina Capital Facilities Finance Agency. The bond pays interest monthly at a variable rate based on the monthly London Interbank Offered Rates (LIBOR). The variable rate was 1.40357% at June 30, 2016. Principal payments of $1,055,000 are due annually until the bond matures in September 2024. The outstanding bond principal was

$9,495,000 at June 30, 2016.

Note Payable--Wolves Den In June 2015, the Association entered into a note agreement in the amount of $450,000 with BB&T in order to finance the renovation of a portion of Vaughn Towers into a new premium seating option at Carter-Finley Stadium, referred to as the Wolves Den. Annual principal payments of $112,500 are payable beginning in January 2016 until the note matures in January 2019. Interest is payable annually at a rate equal Under the Vaughn Towers Management and Use Agree-ment dated March 2013, Goal Line Drive and Wolfpack Pride campaign pledge revenues totaling $7,206,915 were committed to be paid to NCSU to retire certain facility debt and other obligations related to NCSUs athletic facilities.

Payments in the amount of $1,441,383 are due annually over five years through May 2017. The remaining commit-ment at June 30, 2016 was $1,441,383.

83 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT to the One Month LIBOR (0.46885% at June 30, 2016) plus 1.15% per annum. The outstanding balance of the note payable was $337,500 at June 30, 2016.

Note Payable--North End Zone In November 2012, the Association refinanced the existing notes payable originally issued to finance the stadium expansion of the North End Zone area of Carter-Finley Stadium to one note payable to BB&T. Annual principal payments of $256,750 are payable until the note matures in November 2016. Interest is payable monthly at a rate equal to the One Month LIBOR (0.46885% at June 30, 2016) plus 1.15% per annum. The Association must maintain a cash flow coverage ratio of 1.00 times debt service. The outstanding note balance was $256,500 at June 30, 2016.

Notes Payable--Indoor Practice Facility In May 2014, the Association entered into multiple note agreements with Branch Banking and Trust Company (BB&T) in order to finance the construction of a new Indoor Practice Facility for the football program at NCSU.

The total financing available through the notes payable is

$14,000,000. The notes mature at various times through May 2026 and bear interest at fixed rates (ranging from 1.84% to 2.75%) and variable rates (One Month LIBOR plus 0.9%). The Association must maintain a debt service coverage ratio of 1.00 to 1.00, maintain unrestricted liquid assets of $4,000,000 until such point that the credit available and outstanding total to less than $10,000,000, and meet certain pledge targets. The notes payable are collateralized by pledges and cash received from the related capital campaign. The total outstanding balance of the notes payable was $12,000,000 at June 30, 2016.

Long-term debt consists of the following at June 30, 2016:

Vaughn Towers Project - - Series 2013 Bond 9,495,000 Note Payable - - BB&T (Wolves Den) 337,500 Note Payabel - - BB&T (North End Zone) 256,750 Note Payable - - BB&T (Indoor Practice Facility) 12,000,000 22,089,250 Less Amount Classified as Current Liability 2,624,250 Amount Due After One Year 19,465,000 Maturities of long-term debt are as follows:

Year Ending June 30 2017 2,624,250 2018 2,367,500 2019 2,367,500 2020 2,255,000 2021 2,255,000 Thereafter 10,220,000 Total 22,089,250 THE NORTH CAROLINA AGRICULTURAL FOUNDATION, INC.

Long-Term Investments The Foundation invests in various investment securities.

Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of financial position.

Investments at June 30, 2016 consisted of:

Cost Fair Value STIF 208,207 $

208,207 NC State Investment Fund, Inc.

Long Term Investment (LTIP) 49,876,222 67,709,880 Wells Fargo - Life Income Funds 8,674,688 8,899,393 Total 58,759,117 $

76,817,480 Investments held by the LTIP at June 30, 2016 were made up of limited partnerships, an investment with a Blackrock Liquid Policy Portfolio (LPP), a bundle of exchange-traded funds, and the STIF. As of June 30, 2016, approximately 91.2% of these limited partnerships were with the UNC Management Company (UNCMC), 3.5% were committed to or in other private equity investments with JP Morgan, Blackrock, and SEI, 5.1% was invested in the LPP, and 0.2%

was invested in the STIF. The LTIPs net assets were valued at approximately $683,380,000 at June 30, 2016. The Foundations investment in LTIP represents approximately 9.91% of the members equity of the LTIP at June 30, 2016.

The Foundations investments in Life Income Funds consist of a diversified portfolio of bond and equity mutual funds.

Pledges Receivable Pledges receivable consisted of the following at June 30:

Receivable in less than one year 3,567,591 Receivable in one to five years 3,446,661 Receivable in greater than five years 550,000 Total gross pledges receivable 7,564,252 Less allowance for uncollectible pledges 279,000 Less unamortized discount (discount rate of 0.55% to 1.44%)

162,322 Net Pledges Receivable 7,122,930

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 84 An allowance for doubtful accounts has been established and is updated annually to reflect 5% of the Foundations outstanding pledge balance, excluding the Prestage Family Department of Poultry Science Endowment for Excellence pledge which the Foundation is reasonably assured of collecting. Active past due pledges receivable are reviewed twice yearly by the Advancement Services office in order to determine if it is appropriate to write off such pledges.

Three donors represent approximately $4.55 million of total undiscounted pledges receivable at June 30, 2016.

85 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT NORTH CAROLINA STATE UNIVERSITY 2016 ANNUAL FINANCIAL REPORT REQUIRED SUPPLEMENTARY INFORMATION

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 86 NORTH CAROLINA STATE UNIVERSITY Required Supplementary Information Schedule of the Proportionate Net Pension Liability Teachers and State Employees Reirement System Last Three Fiscal Years 2015 2014 2013 Proportionate share percentage of collective net pension liability 2.14%

2.15%

2.12%

Proportionate share of TSERS collective net pension liability 78,841,126 25,160,037 128,553,827 Covered-employee payroll 308,539,969 305,353,765 306,165,883 Net pension liability as a percentage of covered-employee payroll 25.55%

8.24%

41.99%

Plan fiduciary net position as a percentage of the total pension liability 94.64%

98.24%

90.60%

NORTH CAROLINA STATE UNIVERSITY Required Supplementary Information Schedule of University Contributions Teachers and State Employees Reirement System Last Ten Fiscal Years 2016 2015 2014 2013 2012 Contractually required contribution 28,562,190 28,231,407 26,535,242 25,503,618 22,231,989 Contributions in relation to the con-tractually determined contribution 28,562,190 28,231,407 26,535,242 25,503,618 22,231,989 Contribution deficiency (excess)

Covered-employee payroll 312,155,082 308,539,969 305,353,765 306,165,883 298,817,058 Contributions as a percentage of covered-employee payroll 9.15%

9.15%

8.69%

8.33%

7.44%

2011 2010 2009 2008 2007 Contractually required contribution 15,004,360 10,741,148 10,536,565 9,039,835 7,478,544 Contributions in relation to the con-tractually determined contribution 15,004,360 10,741,148 10,536,565 9,039,835 7,478,544 Contribution deficiency (excess)

Covered-employee payroll 304,348,067 300,872,483 313,588,252 296,388,035 281,148,259 Contributions as a percentage of covered-employee payroll 4.93%

3.57%

3.36%

3.05%

2.66 NORTH CAROLINA STATE UNIVERSITY Notes to Required Supplementary Information Schedule of University Contributions Teachers and State Employees Reirement System Last Ten Fiscal Years 2015*

2014 2013 2012 2011 2010 2009 2008 2007 2006 1.00%

N/A 1.00%

N/A N/A N/A 2.20%

2.20%

3.00%

2.00%

Changes of Benefit Terms:

Changes of assumptions. In 2008, and again in 2012, the rates of withdrawal, mortality, service retirement and salary increase for active mem-bers and the rates of mortality for beneficiaries were adjusted to more closely reflect actual experience. Assumptions for leave conversions and loads were also revised in 2012.

• Per the 2015 State of North Carolina Comprehensive Annual Financial Report, the 1.00% cost of living adjustment applies to retirees whose retirement began on or before July 1, 2013.

Cost of Living Increase

87 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT NORTH CAROLINA STATE UNIVERSITY 2016 ANNUAL FINANCIAL REPORT SUPPLEMENTARY INFORMATION SECTION

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 88 88 Ratio of Net Gain in Endowment Investments Ten Year History For the Year Ended June 30, (in thousands)

University Endowment Investments - Market Value Fiscal Year End of Year Beginning of Year Yearly Change Ratio 2006-2007 173,193 155,116 18,077 11.65 2007-2008 161,208 173,193 (11,985)

(6.92) 2008-2009 129,619 161,208 (31,589)

(19.60) 2009-2010 143,112 129,619 13,493 10.41 2010-2011 161,402 143,112 18,290 12.78 2011-2012 161,385 161,402 (17)

(0.01) 2012-2013 177,402 161,385 16,017 9.92 2013-2014 205,010 177,402 27,608 15.56 2014-2015 230,099 205,010 25,089 12.24 2015-2016 209,047 230,099 (21,052)

(9.15)

89 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT Revenue Bond Coverage Ten Year History For the Year Ended June 30, (in thousands)

Fiscal Year Gross Operating Revenues Direct Operat-ing Ex-penses Net Revenue Available for Debt Service Principal Interest Total Coverage Ratio 2006-2007 107,220 81,337 25,883 3,945 1,600 5,545 4.67 2007-2008 96,438 65,895 30,543 3,915 1,273 5,188 5.89 2008-2009 5,941 5,941 785 108 893 6.65 2009-2010 5,599 337 5,262 845 51 896 5.87 2010-2011 6,674 309 6,365 300 11 311 20.47 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 Revenue Bond Coverage calculations are for the University's Revenue Bonds secured by specific revenue streams and do not include University Bonds secured by Available Funds. The University began using Available Funds to secure borrowings in Fiscal Year 2002. The Centennial Campus 1997A Revenue Bonds were the last bonds with a pledged source of revenues and they matured in fiscal year 2011.

Available Funds For the Year Ended June 30, (in thousands) 2012 2013 2014 2015 2016 Total Unrestricted Revenue 1,012,317 1,073,637 1,090,045 1,140,445 1,196,096 Less:

State Appropriations (466,082)

(484,022)

(473,005)

(481,548)

(502,534)

Tuition and Fees (188,766)

(205,180)

(215,694)

(229,771)

(244,013)

Plus:

Beginning Unrestricted Net Assets 177,833 214,419 230,802 165,234 217,106 Total Available Funds 535,302 598,854 632,148 594,360 666,655 Debt service requirements subtracted is only for the specific revenue bonds which were outstanding as of the 2002 move to available funds. The last specific revenue bonds outstanding, the Centennial Campus 1997A Revenue Bonds, matured in fiscal year 2011.

• Beginning Unrestricted Net Position was restated, decreased by $91.0 million for the required GASB 68 pension entires.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 90 Admissions, Enrollment and Degree Statistics Ten Year History of Fall Enrollment (Headcount)

Freshman Admissions 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Applied 15,500 16,437 17,661 18,502 19,148 19,634 20,435 21,619 20,213 21,101 Accepted 9,470 9,869 10,371 10,242 10,372 10,372 10,137 10,137 10,395 10,582 Enrolled 4,559 4,791 4,669 4,637 4,558 4,564 4,225 4,165 4,374 4,210 SAT Total 1,177 1,171 1,176 1,184 1,186 1191 1,218 1,243 1,248 1,250 SAT Verbal 569 568 569 572 575 579 591 604 607 610 SAT Math 608 603 607 612 611 612 627 639 641 640 High School GPA 4.11 4.12 4.17 4.19 4.24 4.28 4.37 4.43 4.45 4.44 High School Valedictorians 77 70 67 81 93 107 110 125 146 130 High School Salutatorians 65 67 57 81 66 81 93 83 129 102 Transfer Admissions Applied 3,990 3,976 3,766 3,869 4,157 3,807 3,747 3,923 3,628 4,164 Accepted 1,413 1,358 1,410 1,390 1,493 1,313 1,503 1,519 1,640 1,470 Enrolled 1,075 1,029 1,089 1,097 1,141 1,027 1,209 1,215 1,253 1,107 Graduate Admissions Applied 8,440 7,882 8,119 12,126 13,607 14,004 14,395 14,433 15,404 15,387 Accepted 3,166 3,330 3,533 3,800 3,811 3,865 3,533 3,500 3,597 3,575 Enrolled 1,914 2,100 2,284 2,362 2,516 2,613 2,599 2,609 2,839 2,892 (Percentage of Total Applications)

Freshman Admissions 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Accepted 61.1%

60.0%

58.7%

55.4%

54.2%

52.8%

49.6%

46.9%

51.4%

50.1%

Enrolled 29.4%

29.1%

26.4%

25.1%

23.8%

23.2%

20.7%

19.3%

21.6%

20.0%

Transfer Admissions Accepted 35.4%

34.2%

37.4%

35.9%

35.9%

34.5%

40.1%

38.7%

45.2%

35.3%

Enrolled 26.9%

25.9%

28.9%

28.4%

27.4%

27.0%

32.3%

31.0%

34.5%

26.6%

Graduate Admissions Accepted 37.5%

42.2%

43.5%

31.3%

28.0%

27.6%

24.5%

24.2%

23.4%

23.2%

Enrolled 22.7%

26.6%

28.1%

19.5%

18.5%

18.7%

18.1%

18.1%

18.4%

18.8%

(Degrees Conferred) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Bachelors 4,478 4,558 4,571 4,611 4,797 5,175 5,423 5,468 5,535 5,594 Masters 1,485 1,457 1,507 1,665 1,795 2,080 2,341 2,335 2,455 2,338 Doctoral 369 411 328 457 422 395 446 488 494 512 First Professional (DVM) 75 75 74 73 77 77 79 72 81 79 Professional Total 6,407 6,501 6,480 6,806 7,091 7,727 8,289 8,363 8,565 8,523

91 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT Admissions, Enrollment and Degree Statistics Ten Year History of Fall Enrollment (Headcount) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Undergraduate 21,438 22,070 22,874 23,392 23,636 23,770 23,430 23,125 23,019 22,574 Graduate 6,481 6,826 7,243 7,674 8,267 8,924 8,808 8,780 8,937 9,358 Lifelong Education 3,211 2,906 2,755 2,753 2,473 2,073 2,102 2,104 2,033 2,083 Full-time 24,026 24,989 25,940 26,736 27,290 27,438 27,108 26,770 26,965 26,767 Part-time 7,104 6,813 6,932 7,083 7,086 7,329 7,232 7,239 7,024 7,248 Male 17,411 17,732 18,344 18,777 19,077 19,441 19,176 18,913 18,945 18,769 Female 13,719 14,070 14,528 15,042 15,299 15,326 15,164 15,096 15,044 15,246 White 23,593 23,766 24,279 24,606 24,663 24,458 24,019 23,586 22,911 22,590 African-American 2,773 2,739 2,809 2,701 2,758 2,634 2,531 2,314 2,212 2,163 Asian 1,473 1,507 1,509 1,573 1,640 1,620 1,583 1,644 1,678 1,625 Hispanic 721 774 790 953 1,065 1,163 1,296 1,309 1,392 1,487 Other 2,570 3,016 3,485 3,986 4,250 4,892 4,911 5,156 5,796 6,150 In-state 26,831 27,293 27,850 28,484 28,613 28,336 27,739 27,185 26,699 26,440 Out-of-state 2,582 2,573 2,802 2,963 3,233 3,399 3,642 3,688 3,823 3,733 International 1,717 1,936 2,220 2,372 2,530 3,032 2,959 3,136 3,467 3,842 Total Enrollment 31,130 31,802 32,872 33,819 34,376 34,767 34,340 34,009 33,989 34,015 (Percentage of Total)

Undergraduate 68.9%

69.4%

69.6%

69.2%

68.8%

68.4%

68.2%

68.0%

67.7%

66.4%

Graduate 20.8%

21.5%

22.0%

22.7%

24.0%

25.6%

25.7%

25.8%

26.3%

27.5%

Lifelong Education 10.3%

9.1%

8.4%

8.1%

7.2%

6.0%

6.1%

6.2%

6.0%

6.1%

Full-time 77.2%

78.6%

78.9%

79.1%

79.4%

78.9%

78.9%

78.7%

79.3%

78.7%

Part-time 22.8%

21.4%

21.1%

20.9%

20.6%

21.1%

21.1%

21.3%

20.7%

21.3%

Male 55.9%

55.8%

55.8%

55.5%

55.5%

55.9%

55.8%

55.6%

55.7%

55.2%

Female 44.1%

44.2%

44.2%

44.5%

44.5%

44.1%

44.2%

44.4%

44.3%

44.8%

White 75.8%

74.7%

73.9%

72.8%

71.7%

70.3%

69.9%

69.4%

67.4%

66.4%

African-American 8.9%

8.6%

8.5%

8.0%

8.0%

7.6%

7.4%

6.8%

6.5%

6.4%

Asian 4.7%

4.7%

4.6%

4.7%

4.8%

4.7%

4.6%

4.8%

4.9%

4.8%

Hispanic 2.3%

2.4%

2.4%

2.8%

3.1%

3.3%

3.8%

3.8%

4.1%

4.4%

Other 8.3%

9.6%

10.6%

11.7%

12.4%

14.1%

14.3%

15.2%

17.1%

18.0%

In-state 86.2%

85.8%

84.7%

84.2%

83.2%

81.5%

80.8%

79.9%

78.6%

77.7%

Out-of-state 8.3%

8.1%

8.5%

8.8%

9.4%

9.8%

10.6%

10.9%

11.2%

11.0%

International 5.5%

6.1%

6.8%

7.0%

7.4%

8.7%

8.6%

9.2%

10.2%

11.3%

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 92 Admissions, Enrollment and Degree Statistics Enrollment by County Student Enrollment, Fall Semester 2015 Residence Total Residence Total Residence Total Residence Total Alamance 341 Cumberland 447 Johnston 659 Randolph 218 Alexander 38 Currituck 29 Jones 14 Richmond 37 Alleghany 8

Dare 90 Lee 141 Robeson 95 Anson 18 Davidson 260 Lenoir 92 Rockingham 104 Ashe 37 Davie 108 Lincoln 143 Rowan 196 Avery 21 Duplin 70 McDowell 31 Rutherford 75 Beaufort 67 Durham 924 Macon 20 Sampson 126 Bertie 15 Edgecombe 58 Madison 26 Scotland 35 Bladen 37 Forsyth 675 Martin 44 Stanly 81 Brunswick 130 Franklin 161 Mecklenburg 1,827 Stokes 57 Buncombe 481 Gaston 278 Mitchell 21 Surry 105 Burke 100 Gates 17 Montgomery 28 Swain 6

Cabarrus 402 Graham 7

Moore 252 Transylvania 29 Caldwell 108 Granville 150 Nash 239 Tyrrell 3

Camden 18 Greene 29 New Hanover 611 Union 633 Carteret 168 Guilford 1,339 Northhampton 17 Vance 76 Caswell 46 Halifax 80 Onslow 200 Wake 9,802 Catawba 273 Harnett 170 Orange 632 Warren 37 Chatham 203 Haywood 61 Pamlico 28 Washington 22 Cherokee 29 Henderson 149 Pasquotank 34 Watauga 99 Chowan 39 Hertford 25 Pender 83 Wayne 203 Clay 10 Hoke 29 Perquimans 14 Wilkes 50 Cleveland 136 Hyde 8

Person 74 Wilson 185 Columbus 53 Iredell 425 Pitt 282 Yadkin 50 Craven 165 Jackson 29 Polk 27 Yancey 16 Total 26,440

93 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT Admissions, Enrollment and Degree Statistics Five Year Comparison of Enrollment by Level and College Student Enrollment, Fall Semester 2011 2012 2013 2014 2015 Undergraduate Provosts Office 81 27 13 10 30 Agriculture and Life Sciences 4,544 4,459 2,371 2,424 2,461 Design 584 606 595 581 556 Education 880 762 656 574 540 Engineering 5,961 6,093 5,960 6,186 6,243 Natural Resources 1,321 1,336 1,357 1,332 1,272 Humanities and Social Sciences 4,147 3,896 3,632 3,453 3,341 Management 2,557 2,536 2,589 2,639 2,623 Physical and Mathematical Sciences 898 886 2,997 2,909 2,714 Textiles 926 931 985 995 991 University Undesignated (1) 1,528 1,507 1,584 1,577 1,472 Agriculture Institute 343 391 386 339 331 Lifelong Education 1,406 1,403 1,411 1,454 1,537 Total Undergraduate 25,176 24,833 24,536 24,473 24,111 Total FTE Undergraduate 22,669 22,597 22,125 22,058 21,654 Graduate Provosts Office 201 91 113 133 160 Agriculture and Life Sciences 1,039 1,071 937 1,028 1,039 Design 263 241 259 246 232 Education 1,254 1,227 1,139 1,060 1,050 Engineering 2,804 2,819 2,843 3,072 3,273 Natural Resources 459 493 488 459 425 Humanities and Social Sciences 900 852 821 804 817 Management 648 651 696 630 754 Physical and Mathematical Sciences 785 793 877 858 933 Textiles 179 168 185 202 213 Veterinary Medicine 392 402 422 445 462 Lifelong Education 667 699 693 579 546 Total Graduate 9,591 9,507 9,473 9,516 9,904 Total FTE Graduate 6,312 6,327 6,202 6,409 6,561 Total Headcount 34,767 34,340 34,009 33,989 34,015 Total FTE Enrollment 28,981 28,924 28,327 28,467 28,215 Percentage of Students (FTE) from Outside State 18.3%

18.7%

19.4%

21.0%

22.1%

(1) Includes First Year College.

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 94 Fall Enrollment Freshman Admissions by Year SAT Scores Freshman Admissions by Year 0

5,000 10,000 15,000 20,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Applied Accepted Enrolled 0

100 200 300 400 500 600 700 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 SAT Verbal SAT Math

95 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT Student Profile Fall 2015 Hispanic 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Level Status Gender Ethnicity Residence Lifelong Education Graduate Under Graduate Part Time Full Time Female Male Other White International Out of State In State African American Asian

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 96 Faculty by Rank Full Time Faculty by Tenure 0

100 200 300 400 500 600 700 800 Professor Assoc Professor Asst Professor Instructor Lecturer Not Ranked Fall 2014 Fall 2015 0

200 400 600 800 1,000 1,200 Tenured Tenure Track Other - Not on Track, Phased, and Retired Fall 2014 Fall 2015

97 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 98 Physical Master Plan NC STATE UNIVERSITY

99 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 100 ELECTRONIC AVAILABILITY: This document is available online at http://www.fis.ncsu.edu/controller/financial_reports/

default.asp We printed minimal copies of this report to maintain our sustainable principles. Please think twice before printing it.

PRINT AVAILABILITY: 35 COPIES OF THIS PUBLIC DOCUMENT WERE PRINTED AT A COST OF $691.25 OR $19.75 PER COPY EQUAL OPPORTUNITY STATEMENT: NC State University is dedicated to equality of opportunity. The University does not condone discrimination against students, employees, or applicants in any form. NC State commits itself to positive action to secure equal opportunity regardless of race, color, creed, national origin, religion, sex, age, or disability.

In addition, NC State welcomes all persons without regard to sexual orientation.

101 2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT

2016 NORTH CAROLINA STATE UNIVERSITY FINANCIAL REPORT 102 Statement of Intent (SOI) regarding Decommissioning Funding for the PULSTAR Reactor Facility at NC State University

NC STATE UNIVERSITY February 24, 2017 Office of Finance and Administration Vice Chancellor ofa.ncsu.edu U.S. Nuclear Regulatory Commission Document Control Desk Washington, DC 20555

Reference:

North Carolina State University PULSTAR Reactor Docket No. 50-297, License No. R-120 Campus Box 7201 Raleigh, NC 27695-7201 P: 919.515.2155 F: 919.515.5121

Subject:

Statement of Intent (SOI) regarding Decommissioning Funding for the PULSTAR Reactor Facility at NC State University.

Gentlemen:

In accordance with the provisions of 10 CFR 50.75(e)(1)(iv}, North Carolina State University hereby provides this 'Statement of Intent', stating that it is a State government organization and that decommissioning funding obligations are fully backed by the State government of North Carolina.

Decommissioning funds will be appropriated when necessary following the provisions of North Carolina General Statute 116-11 (9)(a}.

The cost estimate for decommissioning the PULSTAR Reactor Facility is $13.1 million in 2017 dollars as documented in the "Financial Qualifications Report" dated 1 /25/2017 and included in the NC State University PULSTAR License renewal application package. Per NRC requirements, adding a 25%

contingency factor yields an upper bound of $16.4 million for the decommissioning estimate.

Supporting Documentation The University of North Carolina is incorporated under North Carolina General Statute Chapter 116 Article 1 Section 3. NCGS 116-4 provides that North Carolina State University at Raleigh is a constituent institution of the University of North Carolina. NCGS 116-11 (9)(a) provides that the university Board of Governors shall develop, prepare and present to the Governor and the General Assembly a single, unified recommended budget for all of the constituent institutions of The University of North Carolina. Decommissioning funding would be requested under sub-paragraph (iii) of this section. NCGS 116-11(9)(b) states that "Funds for the third category (iii) in paragraph (a) of this subdivision shall be appropriated to the Board in a lump sum for allocation to the institutions."

In accordance with the provisions of 10 CFR 50.75(e)(1 )(iv), the signatory of this statement of intent, the Vice Chancellor for Finance and Administration, is authorized to execute said document that binds North Carolina State University.

U.S. Nuclear Regulatory Commission February 24, 2017 Page 2 Supporting Documentation NC State University Regulation 01.20. 02, Delegation of Authority to Sign Contracts, section 1.1 states that "Full executive and administrative power is vested in the Chancellor by N.C. Gen. Stat. 116-34(a) and Section 502A of The Code of the Board of Governors of the University of North Carolina.

Inherent within this power is the authority to sign contracts binding North Carolina State University, and to delegate and permit the further delegation of such authority not otherwise retained by the Board of Governors, the Board of Trustees or other state administrative agencies or officials."

Section 3.2 of University REG 01.20.02 states that "The Vice Chancellor for Finance and Administration is delegated the authority to sign all contracts for which the Chancellor has signature authority that may be further sub-delegated." Section 4.7.1.5 of REG 01.20.02 further specifies that "Authority to sign University contracts for use by campus departments, or contracts originating from vendors where the monetary consideration or the value of the agreement, whether monetary consideration is paid or not, or the revenue generated for the University exceeds two hundred fifty thousand dollars ($250,000) is delegated to the Vice Chancellor for Finance and Administration."

If you have any questions in this matter, please direct them to Dr. Ayman Hawari, Director of the Nuclear Reactor Program, at (919)515-7294, or via email at ayman.hawari@ncsu.edu.

I declare under penalty of perjury that the forgoing is true and correct. Executed on 24 February 2017.

Sincerely, S~iZi:J)L~

Scott R. Douglass Vice Chancellor, Finance and Administration SCD/mh cc:

Dr. Ayman Hawari, Director, Nuclear Reactor Program