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 Attachment 1 North Carolina State University Annual Financial Report 2016 Attachment 2 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 201

6. 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&A 6 $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 University's 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 REPO RT 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.

3.1.3.1.1.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 facilitie s in 2017 dollars are given in Table 3 below.

Table 3 - Estimated 2017 Decommissioning costs for t wo representative research reactors Reactor Facility Primary Year of Deconstruction Total Actual Cost Labor Adj. L x Energy Adj. E x Waste Burial Adj. R x Estimated 2016 Decom. Cost 1 Corrected 2017 Decom. Cost 2 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. L x Energy Adj. E x Waste Burial Adj. R x Estimated 2016 Decom. Cost 1 Corrected 2017 Decom. Cost 2 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.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.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 1Statement of Financial Qualifications Letter, July 1, 1988, North Carolina State University, https://www.nrc.gov/docs/ML1513/ML15134A200.pdf 2Report 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 3Guideline 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 4Organization for Economic Cooperation and Development (OECD) 2017 U.S. Inflation Forecast; https://data.oecd.org/price/inflation

-forecast.htm 5North 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 6North Carolina State University Regulation 01.20.02, Delegation of Authority to Sign Contracts, REV. March 29, 2016; https://policies.ncsu.edu/regulation/reg 20-02/ 72016 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

1TABLE OFCONTENTSPrepared by the University Controller's Of~ceFor the Fiscal Year Ended June 30, 2016A constituent institution of the University of North Carolina and a component unit of the State of North CarolinaMission StatementMessage from the Chancellor Letter of Transmittal NC State Pride Points Financial Highlights NC State University Board of Trustees Executive and Administrative Of~cers INTRODUCTORY SECTIONReport of the Independent Auditor Management's 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 StatementsNotes to the Financial StatementsRequired Supplementary InformationFINANCIAL SECTIONRatio of Net Gain in Endowment InvestmentsRevenue Bond Coverage Admissions, Enrollment and Degree Statistics Faculty Statistics Campus Maps03 04 05 06 09 10 1114 19 40 42 43 48 49 51 52 85 88 89 90 96 98SUPPLEMENTARY INFORMATION SECTION 2

3MISSIONSTATEMENTAs 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.

4Randy Woodson, ChancellorNC State UniversityFROM THE CHANCELLORAt NC State, we're on a mission to achieve our full potential. There's 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 nation's and world's 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, ~ve Fulbright scholarships, one Churchill scholarship and a record-breaking 32 National Science Foundation graduate re

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search fellowships. Two NC State alums received the World Food Prize for their work with breed

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ing bioforti~ed sweet potatoesThese examples are just a few of many that con~rm the patient, strategic investments we've made over the past few years to attract and support world-leading faculty and high-performing students are paying off.NC State's upward trajectory is being noticed. The journal Nature, for example, placed our uni

-versity among the "Rising Stars" of scienti~c 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 reect 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 Campaign's goal of raising $1.6 billion in private support from the univer

-sity's 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 con~dent this uni

-versity's future, and its wide-ranging impact, will be nothing less than extraordinary.

5LETTER OF TRANSMITTALScott R. DouglassVice Chancellor, Finance and AdministrationNC State UniversityTo: Chancellor W. Randolph Woodson and the Board of Trustees North Carolina State Universit yI am pleased to present North Carolina State University's 2016 Annual Financial Report. Prepared by Finance and Administration staff in accordance with generally accepted accounting principles for public colleges and universities as de~ned by the Governmental Accounting Standards Board, the report contains detailed information about the university's ~nancial activities. This includes key ~nancial data for the past ~ve years, complete ~nancial statements with management dis

-

cussion and analysis, the Of~ce of the State Auditor's report, and recent achievements. Supple

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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 university's ~nancial 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 university's ~nancial 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 ~nancial 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, 6NC STATEPRIDE POINTSEssential Facts and Figures34,015 students, 2,323 faculty and 6,733 staffStudent-faculty ratio 14:112 colleges representing all major academic ~elds20 residence halls and 14 Living and Learning Villages600+ student organizationsLargest university in North Carolina$1.48 billion budget for ~scal year 2016$349 million in sponsored research for ~scal year 2016$998.6 million endowmentEducating more North Carolinians than any other universityCooperative Extension Service provides services to citizens in all 100 counties and among the Eastern Band of Cherokee IndiansIndustry Expansion Solutions helps the state's small manufacturers boost ef~ciencies, creating $3.4 billion in economic bene~t since 2000Ranked Among the Best#1 best value among North Carolina public universities (SmartAsset.com)#3 veterinary medicine program nationally (U.S. News & World Report)#8 return on investment nationally for degrees in science technologies (U.S. Department of Education College Scorecard)#9 online MBA nationally (Princeton Review)#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 ~elds nationally (U.S. News & World Report) Academic Excellence: Brightest Students, Best FacultyNC State students won two Goldwater scholarships, ~ve Fulbright scholarships, one Churchill scholarship and a record-breaking 32 National Science Foundation graduate research fellowships in the 2015-2016 academic yearRecent freshman classes boast the highest high school GPAs and SAT scores in university historyThe Chancellor's Faculty Excellence Program has hired 41 world-leading educators and researchers in 20 interdisciplinary clusters, including bioinformatics, geospatial analytics and personalized medicineFaculty have recently won the Global Energy Prize and the National Medal of Technology and Innovation23 faculty are members of the National AcademiesNC State ranks in the top 20 nationwide for producing Fulbright ScholarsDriving Economic ProsperityNC State's 100+ startups and spinoffs have attracted $1.6 billion in venture capital #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 7NC STATEPRIDE POINTSA National Leader in Attracting Sponsored ResearchOne 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 monitorsNC 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 AdministrationRising 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 ~fth year in a row Two $5 million gifts funded the Annable Scholarship Endowment, a need-based scholarship program in the College of Veterinary MedicineAthletic AcheivementThe 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 ~nished in the top 11 of their respective national polls, and nine teams ~nished ranked in the top 25 NC State's student-athletes also excelled in the classroom, posting the department's highest-ever rates of graduation success and academic progressInterdisciplinary Partnerships That Make a DifferenceEastman Chemical, LexisNexis and ABB are among our on-campus partners bene~ting from next-door proximity to NC State faculty, staff and students NC State's Supply Chain Resource Cooperative, Entrepreneurship Initiative and Nonwovens Institute combine academic scholarship with real-world experience to create knowledge, teach students and bene~t partners NC State's expertise in biomanufacturing, nonwoven textiles and clean energy stimulates formation of industry clusters, drawing companies and jobs to North CarolinaNC State's Centennial CampusA national model for partnership-driven research campusesCentennial Campus is a public-private research campus where 70+ corporate, government and nonpro~t 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 Carolina's prosperity. Centennial's Of~ce 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.

8 9FINANCIAL HIGHLIGHTS20122013201420152016University Net PositionInvested in Capital Assets, Net of Related Debt$1,300.1$1,221.3$1,326.7$1,382.7$1,413.8Restricted Nonexpendable$83.0$86.1$94.9$106.6$119.3Restricted Expendable (1)$147.4$285.8$241.3$211.5$217.7 Unrestricted$214.4$230.8$256.2$217.1$240.4Total Net Position$1,744.9$1,824.0$1,919.1$1,917.9$1,991.2GiftsNoncapital Gifts$57.8$59.4$66.3$68.1$71.2Capital Gifts$6.3$5.1$2.8$16.2$7.0 Contracts & GrantsFederal Contracts & Grants $132.0$136.0$140.7$146.7$158.1State and Local Contracts and Grants$38.8$35.5$35.3$39.4$36.3Nongovernmental Contracts and Grants$75.0$72.5$71.8$83.0$83.9Total Contracts and Grants$245.8$244.0$247.8$269.1$278.3Appropriations and Tuition and FeesFederal Appropriations$19.4$18.7$19.8$16.9$13.8State Appropriations for Operations$466.1$484.0$473.0$481.5$502.5State Appropriations for Capital Projects$0.0$2.1$12.2$0.0$9.0Tuition and Fees (Gross)$293.3$321.5$336.0$360.3$384.4Foundation Support $49.7$53.9$56.9$72.9$65.1Endowment Investments$161.4$177.4$205.0$230.1$209.0Investment Fund Return2.60%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$2,940.5Total University Capital Assets, Net of Accumulated Depreciation$1,713.8$1,857.6$1,948.8$1,977.2$2,025.3University Debt Short-term Debt$50.0$0.0$10.0$10.0$40.1Bonds Payable$296.1$528.7$513.6$499.0$484.3Notes Payable$81.1$79.5$80.6$76.2$71.8Estimated 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$8,581Books and Supplies$1,000$1,000$1,058$1,076$1,076Room Rent (Average)$5,176$5,434$6,034$6,244$6,375Meals (Average)$3,360$2,980$3,400$3,786$3,936Other Personal Expenses$2,083$2,668$2,700$2,690$1,500Transportation$751$774$786$798$890Total$19,388$20,644$22,184$22,890$22,358 F OR THE Y EARS ENDED J UNE 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.

10BOARD OF TRUSTEES As of June 30, 2016Thomas Cabaniss,Richmond, VAAnn B. Goodnight, Cary, NC 11EXECUTIVE AND ADMINISTRATIVE OFFICERS EXECUTIVE OFFICERSW. Randolph Woodson Marc I. HoitAlan Rebar ChancellorVice Chancellor for Information Tech-nologyVice Chancellor for Research, Innova-tion and Economic DevelopmentWarwick ArdenKevin D. HowellMichael D. MullenProvost and Executive Vice Chancel

-lorAssistant to the Chancellor for External AffairsVice Chancellor and Dean for the Divi-sion of Academic and Student AffairsDeborah A. YowBrian C. SischoPJ TealDirector of AthleticsVice Chancellor forSecretary of the UniversityUniversity Advancement Eileen S. GoldgeierScott Douglass Vice Chancellor andVice Chancellor for General Counsel Finance and Business DEANSRichard Linton Maureen GrassoWilliam Ditto Dean of College ofDean of Graduate School Dean of College of SciencesAgriculture and Life SciencesMark HoverstenJeffrey P. Braden David Hinks Dean of College of Design Dean of College of HumanitiesDean of College of Textiles and Social SciencesMary Ann DanowitzAnnette RanftMichael D. Mullen Dean of College of EducationDean of Poole College of ManagementVice Chancellor and Dean for the Divi-sion of Academic and Student AffairsLouis Martin-VegaMary WatzinD. Paul Lunn Dean of College of Dean of College of Dean of College of EngineeringNatural ResourcesVeterinary Medicine 12 13NORTH CAROLINASTATE UNIVERSITY2016 ANNUALFINANCIAL REPORTFINANCIAL SECTION 14 15 16 17[This Page Left Blank Intentionally]

18 19NORTH CAROLINASTATE UNIVERSITYMANAGEMENT

'SDISCUSSIONAND ANALYSISIntroductionManagement's Discussion and Analysis of the ~nancial report provides an overview of the accompanying basic

~nancial statements. It includes comparative ~nancial analysis with discussion of signi~cant changes from the prior year. The overview also includes information on cur

-rently known facts, decisions, or conditions affecting the

~nancial affairs of the University.Using the Financial StatementsThe University's ~nancial statements are prepared in accordance with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board, (GASB), which establishes standards for external

~nancial reporting for public colleges and universities.

The full scope of the University's activities is considered to be a single business-type activity and accordingly, is reported within a single column in the basic ~nancial 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 State's 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 signi~cance of their relationship to the University. Note 1A provides detailed information on the University's ~nancial reporting entity.The University's three ~nancial statements are used to evaluate ~nancial position as of June 30th and the results of operations for the ~scal year then ended. The Statement of Net Position provides information relative to the evaluation of ~nancial 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 ~nancial statements also include a Statement of Cash Flows. This statement is used to identify the University's 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 ~nancial statements, the Notes to the Financial Statements accompanying the ~nancial statements should be read in conjunction with the ~nancial statements. The notes provide information regarding the signi~cant accounting principles applied in the ~nancial 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 bene~ts, insurance against losses, commitments and Financial HighlightsNC State University's net position increased by $73.4 million to $1.99 billion in ~scal year 2016. Net position represents the University's equity. It is the residual of all the other elements of the statement of ~nancial position, the assets and deferred outows of resources less liabili

-

ties and deferred inows 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 ~scal 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

-

~ed 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 ~scal year 2016. Revenues represent amounts re

-

ceived or accrued that are operating, nonoperating or oth

-

er revenues on the accompanying ~nancial 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 ~nancial aid grants.Operating expenses grew 5.1% in 2016, up $67.7 million compared to ~scal 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.

20 21contingencies, and accounting changes. If necessary, the disclosures include a discussion of adjustments to prior periods and events subsequent to the University's

~nancial statement period. Overall, these disclosures provide information to better understand details, risk, and uncertainty associated with amounts reported in the

~nancial statements.Comparative Condensed Financial Statement Information Statement of Net Position The Statement of Net Position provides information regarding the University's assets, deferred outows and inows of resources, liabilities, and net position as of June 30, 2016. Asset and liability balances are classi~ed as either current or noncurrent. Assets classi~ed as current are those that are available to pay for current liabilities or current year expenditures. Liabilities classi~ed as current are those that are due and payable in the next

~scal year. The net position balances are classi~ed as either net investment in capital assets, restricted or unrestricted. In addition, net position balances classi~ed as restricted are classi~ed as either nonexpendable or expendable. Overall, the Statement of Net Position provides information to evaluate the ~nancial 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 ~scal year 2016 implementation of GASB Statement No. 72, Fair Value Measurement and Application. GASB 72 de~nes investments as assets held primarily for the purpose of income or pro~t 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 classi~ed as investments in real estate. However, this real estate had operational purposes, not just the generation of pro~t. Based on the provisions of GASB 72, $21.9 million in investments were reclassi~ed to capital assets and the related net position moved to Net Investments in Capital Assets.20162015(As Restated)Increase/(Decrease)

Assets Current Assets

$403,005,557$347,304,826$55,700,731 Capital Assets, Net2,025,328,2911,999,505,10125,823,190 Other Noncurrent Assets706,572,216619,611,35486,960,862 Total Assets3,134,906,0642,966,421,281168,484,783Deferred Out~ows of Resources Accumulated Decrease in Fair Value of Hedging Derivatives13,837,26711,808,3892,028,878 Deferred Outows Related to Pensions31,284,95730,789,269495,688Total Deferred Outows of Resources45,122,22442,597,6582,524,566 Liabilities Current Liabilities161,035,104114,987,14946,047,955 Noncurrent Liabilities Long Term Liabilities682,735,164649,413,73133,321,433 Other Noncurrent Liabilities327,500,338235,849,95791,650,381 Total Liabilities1,171,270,6061,000,250,837171,019,769Deferred In~ows of Resources Deferred Inows Related to Pensions17,506,00490,871,239(73,365,235)Net PositionNet Investment in Capital Assets1,413,824,1721,404,535,7779,288,395 Restricted Nonexpendable119,263,539104,600,62114,662,918 Expendable217,731,322202,260,47715,470,845 Unrestricted240,432,645206,499,98833,932,657 Total Net Position

$1,991,251,678$1,917,896,863$73,354,815 22 23The following graph illustrates the assets, deferred outows, 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 ~scal year 2016. This increase was primarily the result of a $53.8 million increase in cash and cash equivalents, driven by the management exibility 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 ~nancing, 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 ~scal 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 outows of resources for the University's swap agreements and the deferred outows for pensions are shown in a separate section of the ~nancial statements. GASB Statement No. 63, Financial Reporting of Deferred Out~ows of Resources, Deferred In~ows of Resources, and Net Position, which was implemented in ~scal year 2013, established deferred sections of the

~nancial statements. Most of the $2.5 million increase in deferred outows is related to the accumulated decrease in the fair value of hedging derivatives account. This $2.0 million change is due to market uctuations. The deferred outows for pensions account reects the University's allocated portion of deferred outows 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 outows for pensions is due to changes in the pension contributions and the University's 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 2,200,000UnrestrictedRestricted ExpendableRestricted NonexpendableNet Investment in Capital AssetsNoncurrent Liabilities and Deferred InflowsCurrent LiabilitiesOther Noncurrent Assets and Deferred OutflowsCapital Assets, NetCurrent Assets 2016 2015Thousands 24 25Deferred inows for pensions was new for ~scal year 2015, required by the implementation of GASB Statement No. 68, Accounting and Financial Reporting for Pensions. This $17.5 million deferred inows of resources is another allocation of TSER's cost-sharing pension plan balances. The $73.4 million drop in deferred inows is driven by the higher pension liability related to the difference between projected and actual investment earnings. These deferred inows 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

~scal year. The University's current assets are more than suf~cient to cover current liabilities, with a ratio of 2.5 times compared to 3.0 times in the prior year. The University's total assets are signi~cantly more than the University's liabilities with a ratio of 2.7 times as compared to 3.0 times in the prior year. These ~nancial ratios are indicators of NC State's ~nancial 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 ~scal 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

~scal year 2016. Other noncurrent liabilities increased or decreased by small amounts.

26 27 Statement of Revenues, Expenses, and Changes in Net PositionThe Statement of Revenues, Expenses, and Changes in Net Position provides information regarding the University's activities for the year ending June 30, 2016. The activity balances are classi~ed as operating, nonoperating, or other revenues, expense, gains or losses.

Activities classi~ed 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

~nancing activities, loss on disposal of capital assets, and investment expenses (shown as net against investment income). Activities classi~ed 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 classi~ed 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 University's management of operations and maintenance of ~nancial strength.Following is a comparative analysis on the condensed balances reported in the Statement of Revenues, Expenses, and Changes in Net Position for the ~scal years ended June 30, 2016, and June 30, 2015. 20162015 Increase/(Decrease)Operating Revenues Student Tuition and Fees, Net$291,175,319$270,139,559$21,035,760 Federal Appropriations13,847,69416,930,633(3,082,939)

Grants and Contracts278,330,058269,113,7719,216,287 Sales and Services, Net238,447,749224,940,80413,506,945 Other14,551,64318,427,520(3,875,877)Total Operating Revenues836,352,463799,552,28736,800,176Operating Expenses Salaries and Bene~ts857,250,567829,085,25828,165,309 Supplies and Materials127,911,047118,371,7219,539,326 Services251,765,902223,104,89128,661,011 Scholarships and Fellowships43,820,37245,376,020(1,555,648)

Utilities32,028,49735,750,321(3,721,824)

Depreciation/Amortization88,721,46182,078,8176,642,644Total Operating Expenses1,401,497,8461,333,767,02867,730,818Net Operating Loss(565,145,383)(534,214,741)30,930,642Nonoperating Revenues (Expenses)

State Appropriations502,533,982481,548,42420,985,558 Noncapital Grants - Student Financial Aid44,705,57748,061,723(3,356,146) Other Noncapital Grants and Gifts72,024,49968,457,6983,566,801 Investment Income 1,569,31619,742,861(18,173,545)

Other(14,855,864)(12,785,462)2,070,402Net Nonoperating Revenues605,977,510605,025,244 952,266Gain Before Other Revenue40,832,12770,810,503(29,978,376)Capital Appropriations, Gifts, and Grants18,483,65718,518,437 (34,780)Additions to Permanent Endowments14,039,03111,524,6872,514,344Increase in Net Position73,354,815100,853,627(27,498,812)Beginning Net Position1,917,896,8631,817,043,236100,853,627Ending Net Position$1,991,251,678$1,917,896,863$73,354,815Fiscal 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.

28 29OPERATING AND NONOPERATING REVENUESOPERATING AND NONOPERATING EXPENSESOperating and Nonoperating ActivitiesThe following illustrates the relationships of operating and nonoperating revenue sources and expense functions to total revenue/expenses for the ~scal year 2016 and 2015, and the consistency of relationships between the two years. The pension expense was allocated to the other functional captions for ~scal year 2015 to be consistent with the required presentation for ~scal year 2016 reporting.

Title% to Total 2016% to Total 2015Instruction30%30%Research19%19%Public Service8%9%Auxiliary Enterprises12%11%Operations & Maintenance of Plant6%6%Academic Support6%6%Institutional Support7%6%Depreciation/Amortization6%6%Student Financial Aid3%4%Student Services2%2%Other1%1%Total100%100%Title% to Total 2016% to Total 2015State Appropriations35%34%Research Contracts and Grants19%19%Student Tuition and Fees 20%19%Sales and Services16%16%Noncapital Grants and Gifts8%8%Federal Appropriations1%1%Other1%3%Total100%100%

30 31OPERATING AND NONOPERATING REVENUESOPERATING AND NONOPERATING EXPENSESThe following graphs illustrate the University's 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 ~scal year 2015, to be consistent with the required ~scal year 2016 reporting presentation.155,824 224,941 269,114 270,140 498,479 134,738 238,448 278,330 291,175 516,382 - 100,000 200,000 300,000 400,000 500,000 600,000OtherSales and ServicesResearch Contracts and GrantsStudent Tuition and FeesAppropriations 2016 2015Thousands13,920 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 - 100,000 200,000 300,000 400,000 500,000 600,000OtherDepreciation/AmortizationAuxiliary CostsInstitutional Support andOperations & MaintenanceStudent Services andFinancial AssistanceResearch andPublic ServiceInstruction andAcademic Support 2016 2015Thousands 32 33Total 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 uctuating market. Also, other operating revenues decreased by $3.9 million, driven by less patent royalty in

-

come. Student ~nancial 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 bene~ts 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 ~scal year 2016 but other sal

-

ary increases and the related bene~ts 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

~nancial aid grants were reduced and more funding was used for tuition and fees, dining and housing.

Other ActivityOther 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 ActivitiesCapital AssetsThe 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.

34 35In 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 ~scal 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 ~nancing and state-issued bonds and certi~cates of participation.The University completed all work on Talley Student Cen

-ter in ~scal 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 ~tness center space and repurpose underutilized and inef~cient locker rooms. The upgrade

~nishes in the locker room provide a "health club" look and feel. The renovations also address facility accessibil

-ity and safety de~ciencies. 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 of~ce space into high-technology classrooms on the ~rst oor. The renovations include modi~cations 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 decade's 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 oor 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 oor with the installation of new of~ces with new walls, painting, light

-ing, oor 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 oor and new variable air volume terminal units. The mechanical work also in

-cludes new ~re alarm devices, new standpipes, and new

~re protection sprinklers on the third oor. New alumi

-num framed, energy ef~cient windows will be installed. 20162015(As Restated) Increase/(Decrease)

Land$62,457,494$59,544,940 $ 2,912,554Construction in Progress 61,591,56154,956,5006,635,061Computer Software inDevelopment323,600659,874(336,274)

Buildings2,228,388,3152,161,039,19267,349,123Machinery and Equipment 359,435,354342,643,33316,792,021General Infrastructure207,764,589205,771,1611,993,428Compter Software 20,544,30617,514,4193,029,887Total Capital Assets2,940,505,2192,842,129,41998,375,800Accumulated Depreciation(915,176,928)(842,624,318)72,552,610Net Capital Assets

$2,025,328,291$1,999,505,101 $ 25,823,190As shown in the following table, the University increased its net capital assets by $25.8 million during ~scal year 2016. The 2015 balances were restated for $21.9 million in investments reclassi~ed to capital assets based on the provisions on GASB

72.

36 37Economic Factors That Will Affect the FutureThe State of North Carolina continues to experience moderate, steady economic growth. Employment growth is improving as employment markets continue to stabilize. The state's economic growth is projected to keep pace with that of the nation as a whole. The state's 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 University's 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 bene~ts 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 University's projected enrollment growth through 2025 attens and somewhat stabilizes undergraduate and master's 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 country's best values in higher education.20162015Increase/ (Decrease)Bonds Payable$484,255,411$499,043,276 $ (14,787,865)Net Pension Liability78,841,12625,160,03753,681,089Notes Payable71,817,69776,194,309(4,376,612)Capital Leases Payable541,177210,875 330,302 Compensated Absences67,831,331 68,534,279 (702,948)Total Long-term Liabilities$703,286,742$669,142,776 $34,143,966Long-Term Debt ActivitiesThe University incurs long-term debt and other liabilities to ~nance construction projects, to purchase equipment using lease arrangements and to provide for accumulated unused vacation bene~ts for employees. As shown in the following chart, the University increased its long-term debt during ~scal year 2016. Long-term liabilities grew by $34.1 million, due to the increase in the University's 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 ~nal payments for the General Revenue Bonds, Series 2005A and the Carol Johnson Poole Clubhouse Note were made in ~scal 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.

38 39UNIVERSITYFINANCIALSTATEMENTSNORTH CAROLINASTATE UNIVERSITY2016 ANNUALFINANCIAL REPORT 40NORTH CAROLINA STATE UNIVERSITYStatement of Net Position Exhibit A-1June 30, 2016Page 1 of 2ASSETSCurrent Assets:Cash and Cash Equivalents $209,752,180Restricted Cash and Cash Equivalents101,792,199Receivables, Net (Note 5) 72,890,879Due from Primary Government6,883,419Due from State of North Carolina Component Units2,614,871Inventories5,927,680Notes Receivable, Net (Note 5)3,144,329Total Current Assets403,005,557Noncurrent Assets:Restricted Cash and Cash Equivalents176,042,224Endowment Investments209,047,256Restriced Investments198,784,761Other Investments114,747,421Notes Receivable, Net (Note 5)7,950,554Capital Assets - Nondepreciable (Note 6)124,372,655Capital Assets - Depreciable, Net (Note 6)1,900,955,636Total Noncurrent Assets2,731,900,507Total Assets3,134,906,064DEFERRED OUTFLOWS OF RESOURCESAccumulated Decrease in Fair Value of Hedging Derivatives13,837,267Deferred Outows Related to Pensions 31,284,957Total Deferred Outows of Resources45,122,224 LIABILITIESCurrent Liabilities:Accounts Payable and Accrued Liabilities (Note 7) 45,594,682Due to Primary Government7,671,671Due to State of North Carolina Component Units514,053Unearned Revenue 42,255,442Interest Payable4,347,678Short-Term Debt (Note 8)40,100,000Long-Term Liabilities - Current Portion (Note 9) 20,551,578Total Current Liabilities161,035,104Noncurrent Liabilities:Deposits Payable2,834,127Funds Held for Others30,873,700U.S. Government Grants Refundable 5,026,290Funds Held in Trust for Pool Participants199,492,467Unearned Revenue 75,436,487Hedging Derivative Liability (Note 10)13,837,267Long-Term Liabilities, Net (Note 9)682,735,164Total Noncurrent Liabilities1,010,235,502Total Liabilities1,171,270,606DEFFERED INFLOWS OF RESOURCESDeferred Inows Related to Pension (Note 14)17,506,004 41NORTH CAROLINA STATE UNIVERSITYStatement of Net Position Exhibit A-1June 30, 2016Page 2 of 2NET POSITIONNet Investment in Capital Assets1,413,824,172Restricted for:Nonexpendable:Scholarships and Fellowships11,576,865Endowed Professorships 91,436,822Departmental Uses7,951,186Loans 8,298,666 Expendable:Scholarships and Fellowships28,774,194Research14,618,087Endowed Professorships65,708,515Departmental Uses33,183,853Loans1,110,201Capital Projects59,319,171Debt Service15,017,301 Unrestricted 240,432,645Total Net Position$1,991,251,678The accompanying notes to the ~nancial statements are an integral part of this statement.

42NORTH CAROLINA STATE UNIVERSITYStatement 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)$291,175,319Federal Appropriations13,847,694Federal Grants and Contracts158,076,378State and Local Grants and Contracts36,305,745Nongovernmental Grants and Contracts83,947,935Sales and Services, Net (Note 12)238,447,749Interest Earnings on Loans 259,520Other Operating Revenues Net, (Note 12)14,292,123Total Operating Revenues 836,352,463 EXPENSES Operating Expenses:Salaries and Bene~ts857,250,567 Supplies and Materials127,911,047Services251,765,902Scholarships and Fellowships 43,820,372 Utilities 32,028,497Depreciation/Amortization 88,721,461Total Operating Expenses1,401,497,846Operating Loss(565,145,383)NONOPERATING REVENUES (EXPENSES)

State Appropriations 502,533,982Noncapital Grants - Student Financial Aid 44,705,577 Noncapital Grants 793,723Noncapital Gifts71,230,776Investment Income (Net of Investment Expense of $1,041,058)1,569,316Interest and Fees on Debt(16,742,517)Federal Interest Subsidy on Debt1,136,485 Other Nonoperating Expenses750,168Net Nonoperating Revenues605,977,510Income Before Other Revenues40,832,127 Capital Appropriations9,013,500 Capital Grants 2,508,299Capital Gifts 6,961,858 Additions to Endowments14,039,031Increase in Net Position73,354,815 NET POSITION Net Position - July 1, 20151,917,896,863Net Position - June 30, 2016$1,991,251,678The accompanying notes to the ~nancial statements are an integral part of this statement.

43NORTH CAROLINA STATE UNIVERSITY Statement of Cash FlowsFor the Fiscal Year Ended June 30, 2016 Exhibit A-3 Page 1 of 2CASH FLOWS FROM OPERATING ACTIVITIES Received from Customers$826,173,442Payments to Employees and Fringe Bene~ts(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 Loans2,076,555Interest Earned on Loans258,211Other Receipts 14,313,885Net Cash Used by Operating Activities(487,441,144)CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES

State Appropriations 502,533,982Noncapital Grants - Student Financial Aid 44,705,577 Noncapital Grants214,926Noncapital Gifts71,230,776 Additions to Endowments14,039,031Proceeds from Hofmann Forest Timber Deed76,976,007William D. Ford Direct Lending Receipts110,989,300William D. Ford Direct Lending Disbursements(112,575,224)Related Activity Agency Receipts56,207,299Related Activity Agency Disbursements (46,750,262)External Participation in Investment Fund Receipts 25,902,256External Participation in Investment Fund Disbursements(12,910,099)Other Receipts 2,812,560Net Cash Provided by Noncapital Financing Activities733,376,129CASH FLOWS FROM CAPITAL FINANCING AND RELATED FINANCING ACTIVITIES Proceeds from Capital Debt64,455,000 Capital Appropriations9,013,500 Capital Grants2,708,911Capital Gifts 3,780,267Proceeds from Sale of Capital Assets381,741Acquisition 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 Received1,136,485Other 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 58,594,886Investment Income3,217,548Purchase of Investments and Related Fees(41,055,157)Net Cash Provided by Investing Activities20,757,277Net Increase in Cash and Cash Equivalents171,749,312Cash and Cash Equivalents - July 1, 2015315,837,291Cash and Cash Equivalents - June 30, 2016$487,586,603 44NORTH CAROLINA STATE UNIVERSITY Statement of Cash Flows Exhibit A-3For the Fiscal Year Ended June 30, 2016Page 2 of 2RECONCILIATION OF NET OPERATING LOSSTO NET CASH USED BY OPERATING ACTIVITIESOperating Loss$(565,145,383)Adjustments to Reconcile Operating Loss to Net Cash Used by Operating Activities:Depreciation/Amortization Expense 88,721,461Allowances and Write-Offs(74,969)Pension Expense 8,589,794Changes in Assets, Liabilities and Deferred Outows of Resources:Receivables, Net(6,154,998)Due from Primary Government5,240,017Inventories 803,458Notes Receivable, Net1,242,744Accounts Payable and Accrued Liabilities 3,291,899Due to Primary Government102,068Due to State of North Carolina Component Units(236,411)Unearned Revenue 4,068,204Deferred Outows for Contributions Subsequent to the Measurement Date(28,562,190)

Compensated Absences (702,947)Deposits Payable1,376,109Net Cash Used by Operating Activities$(487,441,144)RECONCILIATION OF CASH AND CASH EQUIVALENTSCurrent Assets:Cash and Cash Equivalents$209,752,180Restricted Cash and Cash Equivalents101,792,199Noncurrent Assets:Restricted Cash and Cash Equivalents176,042,224Total Cash and Cash Equivalents - June 30, 2016$487,586,603NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIESAssets Acquired through the Assumption of a Liability350,919Assets Acquired through a Gift3,181,591Change 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 ~nancial statements are an integral part of this statement.

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46 47COMPONENT UNITFINANCIALSTATEMENTSNORTH CAROLINASTATE UNIVERSITY2016 ANNUALFINANCIAL REPORT 48NORTH CAROLINA STATE UNIVERSITY FOUNDATIONSStatement of Financial PositionJune 30, 2016 Exhibit B-1North Carolina NC StateThe North CarolinaState University Student Aid AgriculturalFoundation, Inc.Association, Inc.Foundation, Inc.ASSETSCash and Cash Equivalents

$19,964,337$7,649,157$17,611,893Current Investments 8,046,884Intermediate Investments6,201,88718,258,283Long-term Investments 230,492,05324,242,16276,817,480Closely Held Stock 4,890Cash Surrender Value of Life Insurance114,620Assets Held in Charitable Trusts and Annuities21,871,415 1,271,453Donated Property and Land 1,096,350 32,605,980Land and Property Held for Others1,000,000Receivables, Net500,371 236,791 4,445,783Pledges Receivable/Promises 63,937,451 22,992,9087,122,930Land Held for Investment7,353,929Prepaid Expenses37,505Notes/Loans Receivable, Net 2,046,739Cash Restricted for Long-term Purposes6,618,203Property and Equipment, Net6,710,52329,913,142 82,848 Other Assets 245,98874,145Total Assets 352,020,375108,476,754159,070,971 LIABILITIES Accounts Payable and Accrued Expenses 523,8951,619,429 350,972Due to Others 1,805,0461,586,416169,245Life Income Funds Payable13,853,734 4,052,534Deferred Revenue 2,334,099212,980 Contingent Liability219,738Funds Held for Others929,710Long-Term Debt 22,089,250Total Liabilities17,112,38527,629,1945,005,469NET ASSETS

Unrestricted 12,347,845 25,926,2883,084,710Temporarily Restricted97,642,60118,877,286 70,785,602Permanently Restricted224,917,544 36,043,98680,195,190Total Net Assets334,907,99080,847,560154,065,502Total Liabilities and Net Assets

$352,020,375$108,476,754$159,070,971The accompanying notes to the ~nancial statements are an integral part of this statement.

49NORTH CAROLINA STATE UNIVERSITY FOUNDATIONSStatement of Activities For the Fiscal Year Ended June 30, 2016 Exhibit B-2North CarolinaNC StateThe North CarolinaState University Student Aid AgriculturalFoundation, Inc.Association, Inc.Foundation,Inc.CHANGES IN UNRESTRICTED NET ASSETSRevenues and Gains:

Contributions

$3,414$11,410,146$1,700,292 Clubs Income 239,755Donated Services and Salaries1,227,0001,288,000Disposal of Other AssetsLeasehold Improvements154,788Net Investment Income(896,500)(1,067,013)(20,764)Advertising Income 795,973 Special Events219,677Interest and Dividends181,823 221,258 Other Income2,397,101100,98349,001Net Assets Released from Restrictions: Program or Time Restrictions16,524,86412,897,919Net Assets Released from Restrictions: Facility Improvements9,307,227Total Unrestricted Revenues, Gains and Other Support19,592,49021,006,74816,135,706Expenses and Losses:Scholarships and Fellowships5,674,5513,312,116University Support 6,724,26912,161,1227,051,158University Facilities Support475,186 9,258,627 1,051,323Other Contracted Services 950,532Other Current Services620,1372,019,434Administrative662,1911,337,520376,000Fund Raising 3,236,326 2,478,7542,193,201 Other 1,970,773Total Expenses 20,313,965 25,236,02316,003,232 Loss on Sale of Asset 4,375 Total Expenses and Losses20,313,965 25,240,39816,003,232Increase (Decrease) in Unrestricted Net Assets (721,475)(4,233,650)132,474CHANGES IN TEMPORARILY RESTRICTED NET ASSETS

Contributions11,311,915 6,489,93510,582,392Grant Revenue 499,081Change in Pledges Receivables (3,541,484)

(272,260)Donated Property95,000Disposal of Other Assets (36,358)(4,375)(41,491)Vaughn Towers3,257,904Net Investment Income(2,798,915)12,226(1,164,883)Royalties Interest and Dividends153,778 329,425 Other Income2,737,057 870,241Net 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 5,909,850316,353 4,593,253Change in Pledges Receivable(1,214,982)(2,121,749)Donated Property 1,342,463Disposal of Other Assets(214,616)(225,575)Net Investment Income(1,847,798)18,503Change in Value of Split Interest Agreements and Trusts1,050,412 (23,571)(120,324)Interest and Dividends 99,685 96,842 Other Income 193,334 355,864Increase in Permanently Restricted Net Assets 3,975,885 292,782 3,939,277Increase (Decrease) in Net Assets (5,444,461)

(3,492,405) 2,071,337Net Assets at Beginning of Year 340,352,451 84,339,965151,994,165Net Assets at End of Year

$334,907,990$80,847,560$154,065,502The accompanying notes to the ~nancial statements are an integral part of this statement.

50 51INDEX TO THE NOTES TO THEFINANCIALSTATEMENTS 52 56 60 62 62 63 64 64 65 68 70 70 71 7174 75 76 77 78 80 80 81Note 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 Signi~cant 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 Bene~ts Risk Management Commitments and Contingencies Related Parties Blended Component Units Changes in Financial Accounting and Reporting Subsequent Events Discretely Presented Component Units 52A. Financial Reporting Entity - The concept underlying the de~nition of the ~nancial reporting entity is that elected of~cials are accountable to their constituents for their actions. As required by accounting principles generally accepted in the United States of America (GAAP),

the ~nancial 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 ~nancial 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 State's Comprehensive Annual Financial Report

.The accompanying ~nancial 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 ~nancial accountability of the University's funds. The University's component units are either blended or discretely presented in the University's ~nancial statements. See below for further discussion of the University's 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 of~cio directors and ~ve elected directors. The Investment Fund's purpose is to support the University by operating an investment fund for charitable, nonpro~t 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 Fund's primary purpose is to bene~t North Carolina State University, its ~nancial statements have been blended with those of the University.The Corporation is governed by a ~ve 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 Corporation's purpose is to support and bene~t 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 Up~t, LLC on October 27, 2006 to develop, construct, own,

~nance, manage and otherwise up~t 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 ex 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, ~nancing, 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 Corporation's Board consists of University employees and members appointed by the Chancellor and its sole purpose is to support and bene~t the University, the Corporation and the LLCs are considered part of the University for ~nancial reporting purposes. Separate ~nancial statements for the Investment Fund and for the Corporation and the LLCs may be obtained from the Foundations Accounting and Investments Of~ce, Campus Box 7207, Raleigh, NC 27695, or by calling (919) 513-7149.

Other related foundations and similar non-pro~t corporations for which the University is not ~nancially accountable are not part of the accompanying ~nancial 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 nonpro~t corporations and are reported as discretely presented component units based on the nature and signi~cance 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 University's Board of Trustees. Although the University does not control the timing or amount of receipts from these NOTE 1Signicant Accounting Policies 53entities, 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 bene~t of the University, these entities are considered component units of the University and are reported in separate ~nancial statements because of the difference in their reporting model, as described below.The Foundation, Athletic Club and Agricultural Foundation are private nonpro~t organizations that report their ~nancial 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 modi~cations have been made to their ~nancial information in the University's

~nancial 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 ~nancial statements for the Foundation can be obtained from the Foundations Accounting and Investments Of~ce, 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 ~nancial 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

~nancial statements for the Agricultural Foundation can be obtained from the Foundations Accounting and Investments Of~ce, Campus Box 7207, Raleigh, NC 27695, or by calling (919) 513-7149.B. Basis of Presentation - The accompanying ~nancial 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 Management's Discussion and Analysis - for State and Local Governments, as amended by GASB Statement No. 35 - Basic Financial Statements - and Management's Discussion and Analysis - for Public Colleges and Universities, the full scope of the University's activities is considered to be a single business-type activity and accordingly, is reported within a single column in the basic ~nancial statements.C. Basis of Accounting - The ~nancial 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 ows.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 classi~cation includes undeposited receipts, petty cash, cash on deposit with private bank accounts, money market accounts, cash on deposit with ~scal 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 speci~ed 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 af~liated entities that are neither part of the University's 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.

54G. Inventories - Inventories, consisting of expendable supplies and merchandise for resale, are valued at cost using the ~rst-in, ~rst-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 ClassEstimated Useful Life Buildings10 - 50 yearsMachinery & Equipment4 - 22 yearsGeneral Infrastructure15 - 75 years Computer Software2 - 15 yearsThe University does not capitalize its Arts and Design or Historic collections. These collections adhere to the University's 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 University's 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 ~scal 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

~nancial statements and are expensed in the year incurred.The net pension liability represents the University's proportionate share of the collective net pension liability reported in the State of North Carolina's 2015 Comprehensive Annual Financial Report. This liability represents the University's portion of the collective total pension liability less the ~duciary net position of the Teachers' and State Employees' Retirement System. See Note 14 for further information regarding the University's policies for recognizing liabilities, expenses, and deferred outows and inows related to pensions.L. Compensated Absences - The University's 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, ~rst-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 bene~ts is given for accumulated sick leave upon retirement.M. Net Position - The University's net position is classi~ed as follows:

Net Investment in Capital Assets - This represents the University's total investment in capital assets, net of outstanding liabilities related to those capital assets. To 55the 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 outows of resources and deferred inows 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 ~rst. Both restricted and unrestricted net position include consideration of deferred outows and inows 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

~nancial 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 classi~es 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 University's 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 ~nancing or investing activities as de~ned 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 ~nancing 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 ~nancial statements. These eliminations are recorded by removing the revenue and expense in the auxiliary operations and sales and service units and, if signi~cant, allocating any residual balances to those departments receiving the goods and services during the year.

56A. Deposits - Unless speci~cally 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 ~duciaries.

Although speci~cally 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 University's 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 University's deposits may not be returned to it. The University follows the Cash Management Plan (Plan) approved by the North Carolina Of~ce 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 University's 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 State's 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; certi~cates of deposit and other deposit accounts of speci~ed ~nancial institutions; prime quality commercial paper; asset-backed securities with speci~ed ratings, speci~ed bills of exchange or time drafts, and corporate bonds/notes with speci~ed ratings; general obligations of other states; general obligations of North Carolina local governments; and obligations of certain entities with speci~ed 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 ~duciaries 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 ful~ll 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 University's equity position in the State Treasurer's Short-Term Investment Fund (STIF). The STIF (a portfolio within the State Treasurer's 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 Treasurer's NOTE 2Deposits and Investments 57Investment Pool (which includes the State Treasurer's STIF) are included in the State of North Carolina's Comprehensive Annual Financial Report. An electronic version of this report is available by accessing the North Carolina Of~ce of the State Controller's Internet home page http://www.osc.

nc.gov/ and clicking on "Reports" or by calling the State Controller's Financial Reporting Section at (919) 707-0500.Investment Fund - The Investment Fund began operations in April 1999 and is classi~ed 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 SEC's 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 Fund's internal participants. The North Carolina Agricultural Foundation, Inc. and the North Carolina State University Foundation, Inc. are discretely presented component units in the accompanying ~nancial statements. Other af~liated organizations not included in the University's reporting entity represent the Investment Pool's external participants. The external portion of the Investment Pool is presented in the accompanying ~nancial 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 Fund's 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 University's 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 de~ning income and fair value information, which is then allocated among the fund's participants. Each participant holds Master Trust Units of the Investment Fund. The unit price uctuates 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 Fund's investments. The annual

~nancial report for the Investment Fund may be obtained from the Foundations Accounting and Investment Of~ce, Campus Box 7207, Raleigh, NC 27695 or by calling (919) 513-7149 or at http://foundationsaccounting.ofa.ncsu.

edu/investment-fund

.

58Investment Maturities (in Years)Less AmountThan 1 1 to 5Investment Type Debt SecuritiesCollective Investment Funds

$34,817,974$34,817,974 0Debt Mutual Funds137,760,322$137,760,322Total Debt Securities172,578,296$34,817,974$137,760,322 Other SecuritiesUNC Investment Fund$623,702,676Private Equity Limited Partnerships23,912,641Total Investment Fund$820,193,613 INVESTMENT FUNDUNC Investment Fund, LLC - At June 30, 2016, the University's investments include $623,702,676 which represents the University's 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 ~nancial 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 ABelow UnratedCollective Investment Funds$34,817,974$4,340,803$4,564,123$699,498$25,213,550Debt Mutual Funds137,760,322102,889,694 34,870,628Totals$172,578,296$4,340,803$107,453,817$699,498$60,084,178The following table presents investments by type and investments subject to interest rate risk at June 30, 2016, for the Investment Fund.

59Non-Pooled Investments - The following table presents investments by type and investments subject to interest rate risk at June 30, 2016, for the University's non-pooled investments. Investment Maturities (in Years)Less AmountThan 1Investment Type Debt SecuritiesMoney Market Mutual Funds

$569,782$569,782 Other SecuritiesDomestic Stocks 25,587 Collections and Mineral Rights65,134Total Non-Pooled Investments

$660,503NON-POOLED INVESTMENTS AAA Amount AaaMoney Market Mutual Funds$569,782$569,782At June 30, 2016, the University's non-pooled investments had the following credit quality distribution for securities with credit exposure (based on Moody's and S&P ratings):

AmountInvestment Type Debt SecuritiesCollective Investment Funds$34,817,974Debt Mutual Funds137,760,322Money Market Mutual Funds 569,782 Other SecuritiesUNC Investment Fund623,702,676Private Equity Limited Partnerships23,912,641Domestic Stocks 25,587 Collections and Mineral Rights65,134Total Investments$820,854,116Total 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 ~nancial statements and included in the accompanying component unit ~nancial statements.

60A ~nancial instrument's level within the fair value hierarchy is based on the lowest level of any input that is signi~cant 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 ~nancial instruments measured at fair value on a recurring basis:Level 1Investments 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 2Investments with inputs - other than quoted prices included within Level 1 - that are ob-servable for an asset or liability, either directly or indirectly.Level 3Investments classi~ed as Level 3 have un-observable inputs for an asset or liability and may require a degree of professional judg-

ment.NOTE 3Fair Value MeasurementsTo the extent available, the University's investments and de

-

rivatives are recorded at fair value as of June 30, 2016. GASB Statement No. 72 - Fair Value Measurement and Applica

-

tion, de~nes 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 speci~c to the ~nancial instrument. Observable inputs reect market data obtained from independent sources. In contrast, unob

-

servable inputs reect the entity's assumptions about how market participants would value the ~nancial instrument.

Valuation techniques should maximize the use of observ

-able inputs to the extent available. The following table summarizes the University's investments within the fair value hierarchy at June 30, 2016:Fair Value Measurements UsingFairValueLevel 1Level 2Level 3Investment by Fair Value Level Debt SecuritiesCollective Investment Funds

$34,817,974$34,817,974$0$0Debt Mutual Funds137,760,322137,760,322Money Market Mutual Funds 569,782 569,782Total Debt Securities173,148,078173,148,078 Other SecuritiesShort Term Investment Fund449,027,970449,027,970UNC Investment Fund623,702,676623,702,676Domestic Stocks 25,587 25,587Total Investments by Fair Value Level1,245,904,311$173,148,078$449,027,970$623,728,263Investments Measured at the Net Asset Value (NAV)Private Equity Limited Partnerships23,912,641 Collection and Mineral Rights65,134Total Investments Measured at the NAV23,977,775Total Investments Measured at Fair Value$1,269,882,086Derivative InstrumentsHedging Derivative InstrumentsInterest Rate Swaps

$13,837,267$0$13,837,267$

0 61Short-Term Investment Fund - Ownership interest of the STIF is determined on a fair market valuation basis as of ~scal 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 Fund's operating procedures.Debt and Equity Securities - Debt and equity securities classi~ed in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Domestic Stock - Domestic stock classi~ed as Level 3 of the fair value hierarchy are valued at book value. There is no readily determinable fair value.

Derivative Instruments - Derivative instruments classi~ed as Level 2 of the fair value hierarchy are valued at present value using discounted cash ows.The valuation of investments measured at the Net Asset Value (NAV) per share (or its equivalent) is presented on the fol-lowing table.RedemptionFair UnfundedFrequencyRedemptionValueCommitments(If Currently Eligible)Notice PeriodPrivate Equity Limited Partnerships$23,912,641n/a n/a n/a Collection and Mineral Rights65,134n/a n/a n/aTotal 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 signi~cant 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 reect 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 ~nancial condition and operating results speci~c 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.

62Investment return of the University's 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 speci~c purposes.

The remaining portion of net appreciation available to be spent is classi~ed as unrestricted net position. Receivables at June 30, 2016, were as follows:LessAllowance Grossfor Doubtful NetReceivablesAccountsReceivablesCurrent Receivables:Students$1,291,997 $1,234,081$57,916Student Sponsors 2,633,779 2,633,779Accounts 31,822,4621,765,04030,057,422Intergovernmental39,787,55239,787,552Interest on Loans 465,440416,901 48,539Federal Interest Subsidy on Debt 305,671 305,671Total Current Receivables$76,306,901$3,416,022$72,890,879Notes Receivable:Notes Receivable - Current:Federal Loan Programs$2,831,415$10,476$2,820,939Institutional Student Loan Programs 325,635 2,245 323,390Total Notes Receivable - Current$3,157,050$12,721$3,144,329Notes Receivable - Noncurrent:Federal Loan Programs$8,376,561$672,990$7,703,571Institutional Student Loan Programs384,189137,206 246,983Total Notes Receivable - Noncurrent$8,760,750$810,196$7,950,554Investments of the University's endowment funds are pooled, unless required to be separately invested by the donor. If a donor has not provided speci~c 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 speci~cally prohibited by the donor agreements, or applicable State of NC law.

However, a majority of the University's 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 4Endowment InvestmentsNOTE 5Receivables 63NOTE 6 Capital AssetsA summary of changes in the capital assets for the year ended June 30, 2016, is presented as follows:BalanceJuly 1, 2015Balance(As restated)IncreasesDecreasesJune 30, 2016Capital Assets, Nondepreciable:

Land$59,544,940$2,912,554$0$62,457,494Construction in Progress54,956,50046,149,72239,514,66161,591,561Computer Software in Development659,8742,693,6133,029,887323,600Total Capital Assets, Nondepreciable115,161,31451,755,88942,544,548124,372,655Capital Assets, Depreciable:

Buildings2,161,039,19274,192,1136,842,9902,228,388,315Machinery and Equipment342,643,33327,241,77910,449,758359,435,354General Infrastructure205,771,1611,993,428207,764,589Computer Software17,514,4193,029,887 20,544,306Total Capital Assets, Depreciable2,726,968,105106,457,20717,292,7482,816,132,564Less Accumulated Depreciation/Amortization for:

Buildings572,653,89960,268,6236,696,723626,225,799Machinery and Equipment203,903,02219,944,9489,472,128214,375,842General Infrastructure58,456,0455,093,750 63,549,795Computer Software7,611,3523,414,14011,025,492Total Accumulated Depreciation/Amortization842,624,31888,721,46116,168,851915,176,928Total Capital Assets, Depreciable, Net1,884,343,78717,735,7461,123,8971,900,955,636Capital Assets, Net

$1,999,505,101

$69,491,635

$43,668,445

$2,025,328,291During 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 classi~ed as investments in real estate are now shown as land and buildings.

64NOTE 7Accounts Payable and Accrued LiabilitiesAccounts payable and accrued liabilities at June 30, 2016, were as follows:

AmountCurrent Accounts Payable and Accrued LiabilitiesAccounts Payable$19,386,637Accounts Payable-Capital12,388,491Accrued Payroll 9,399,284Contract Retainage2,401,344 Other2,018,926Total Current Accounts Payable and Accrued Liabilities

$45,594,682NOTE 8Short-Term Debt - Commercial Paper ProgramThe University has available Commercial Paper Program ~nancing for short-term debt credit up to $100,000,000 to ~nance capital construction projects. The University's available funds are pledged to the Commercial Paper Program ~nancing with the anticipation of converting to general revenue bond ~nancing 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:BalanceJuly 1, 2015BalanceJune 30, 2016DrawsRepaymentsCommercial Paper Program$10,000,000$240,000,000$210,000,000$40,000,000Partnership Corporation - Line of Credit$

$100,000$$100,000$10,000,000$240,100,000$210,000,000$40,100,000 65NOTE 9Long-Term LiabilitiesA. 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:BalanceBalanceCurrentJuly 1, 2015AdditionsReductionsJune 30, 2016PortionRevenue Bonds Payable$475,555,000$64,455,000$ 77,920,000$462,090,000$ 13,985,000Plus: Unamortized Premium 23,488,2761,322,86522,165,411Total Revenue Bonds Payable, Net499,043,27664,455,000 79,242,865484,255,41113,985,000Net Pension Liability25,160,03753,681,08978,841,126Notes Payable76,194,309 4,376,61271,817,6973,034,536Capital Leases Payable210,875350,91920,617541,177154,589 Compensated Absences68,534,27939,826,48340,529,43167,831,3313,377,453Total Long-Term Liabilities$669,142,776$158,313,491$124,169,525$703,286,742$20,551,578Additional 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:

InterestRate/Ranges FinalMaturity Date Original Amount of IssuePrincipalPaid ThroughJune 30, 2016PrincipalOutstandingJune 30, 2016Purpose Series GENERAL REVENUEHousing System Projects/Doak Field Projects2003B3.54% swap*10/01/2027$ 45,660,000 $3,240,000$ 42,420,000 Various Construction Projects2005A5%10/01/2015 81,615,000 81,615,000Various Construction Projects2008A3.86% swap*10/01/2028 66,605,000 66,605,000Various Construction Projects2008B4% - 4.25%10/01/2020 26,955,000 25,485,0001,470,000Various Construction Projects2010A4% - 5%10/01/2022 18,065,000 6,685,00011,380,000Various Construction Projects2010B5.079% - 6.027%**10/01/2035 59,565,000 59,565,000Advance Refund Series 2003A20124% - 5%10/01/2018 16,265,000 6,100,00010,165,000Adv Refund 2005A/Wolf Ridge Housing2013A2%-5%10/01/2042 132,440,000 132,440,000Adv Refund 2005A/Talley Student Union2013B0.849%-4%10/01/2041 141,650,000 1,455,000140,195,000Refund 2008A20153.86% swap*10/01/202864,455,00064,455,000Total Revenue Bonds Payable (principal only)$653,275,000$191,185,000$462,090,000Plus: Unamortized Premium22,165,411Total 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 ~xed 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.

66C. 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 University's 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 2003BOn June 20, 2003 the University issued tax-exempt variable rate revenue demand bonds in the amount of $45,660,000 that have a ~nal maturity date of October 1, 2027. The bonds are subject to mandatory sinking fund redemption that began on October 1, 2004. The University's 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 suf~cient 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 ~rst 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.

67E. 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 RequirementsRevenue Bonds PayableNotes PayableInterest RateFiscal YearPrincipalInterestSwaps, NetPrincipalInterest2017$13,985,000$16,271,713$2,332,081$3,034,536$2,726,4492018 14,510,00015,865,763 2,201,596 3,558,787 2,602,2842019 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 4,505,1042,296,412 2021 15,245,000 14,861,176 1,778,035 4,987,7072,114,936 2022 - 202686,105,000 69,267,358 5,595,179 33,126,932 7,125,177 2027 - 2031 110,415,000 55,732,813 256,38018,591,754 826,431 2032 - 203668,525,000 34,379,066 2037 - 204185,205,000 17,712,900 2042 - 204639,275,000 1,889,900 Total Requirements$462,090,000$256,570,487$16,153,948$71,817,697$20,150,336Interest on the variable rate 2003B general revenue bonds is calculated at 0.40% at June 30, 2016Interest rate is reset each week by the remarketing agent based upon University credit ratings and market conditionInterest 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 LIBORThis 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 InstrumentsPrior 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 University's ~nancial 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.

68NOTE 10Derivative InstrumentsDerivative instruments held at June 30, 2016 are as follows:Change in Fair ValueFair Value at June 30, 2016Type Notional AmountClassi~cationDecreaseClassi~cationLiabilityHedging Derivative Instruments Cash Flow HedgesPay-Fixed Interest Rate Swap 2003 B Bonds

$24,655,000Deferred Outow of Resources$1,403,594 Hedging Derivative Liability $5,629,388Pay-Fixed Interest Rate Swap 2015 Bonds

$48,400,000Deferred Outow of Resources$625,284Hedging Derivative Liability

$8,207,879Total Derivative Instruments$2,028,878$13,837,267F. Notes Payable - The University was indebted for notes payable for the purposes shown in the following table:

InterestRate/Ranges FinalMaturity Date Original Amount of IssuePrincipalPaid ThroughJune 30, 2016PrincipalOutstandingJune 30, 2016 FinancialInstitution Compounded InterestPurposeEnergy Conservation LoanBB&T3.25%09/01/2028$19,700,703 $2,542,262$707,470 $17,865,911Energy Conservation LoanBank of America4.07%08/17/202856,060,010 5,631,1623,522,938 53,951,786Carol Johnson Poole ClubhouseSuntrustVariable07/30/20163,049,447 3,049,447Total Notes Payable$78,810,160$11,222,871$4,230,408 $71,817,697Hedging derivative instruments held at June 30, 2016 are as follows: NotionalEffectiveMaturityTypeObjectiveAmountDateDateTermsPay-Fixed Interest Rate SwapHedge changes in cash ows on General Revenue 2003B Series Bonds$24,655,000 06/20/0310/01/27Pay 3.54%

Receive 75%

LIBORPa y-Fixed Interest Rate SwapHedge changes in cash ows on General Revenue 2015 Series Bonds$48,400,000 09/01/0810/01/26Pay 3.862%

Receive SIFMA 69As 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-~xed interest rate swaps was estimated using the discounted cash ows 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 derivative's positive fair value. The swap agreements require termination should the University's or the counterparty's credit rating fall below either Baa2 as issued by Moody's 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 counterparty's credit quality falls below A3 as determined by Moody's 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 University's 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 de~nition, 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.

70NOTE 11Lease ObligationsA. 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 Amount2017177,0712018168,193 2019132,732 2020103,699 202114,843 Total Minimum Lease Payments 596,538Amount 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 Amount20177,986,337 20186,211,7432019 5,456,268 2020 4,928,265 2021 4,498,783 2022-2026 20,399,9462027-2031 6,050,030 Total Minimum Lease Payments$55,531,372 NOTE 12Revenues InternalLessLess Gross SalesScholarshipAllowance for NetRevenuesEliminationsDiscountsUncollectiblesRevenuesOperating 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)$14,292,123A summary of eliminations and allowances by revenue classi~cation is presented as follows:

71service, or at any age with 30 years of creditable service. General employee plan members are eligible to retire with partial retirement bene~ts at age 50 with 20 years of creditable service or at age 60 with ~ve years of creditable service. Survivor bene~ts are available to eligible bene~

-

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 ~ve years of service and have reached age 60. Eligible bene~ciaries may elect to receive a monthly Survivor's Alternate Bene~t for life or a return of the member's contributions. The plan does not provide for automatic post-retirement bene~t 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 University's contractually-required contribu

-

tion rate for the year ended June 30, 2016 was 9.15%

of covered payroll. The University's 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 13Operating Expenses by Function Salaries and Bene~tsSupplies and MaterialsServicesScholarships and FellowshipsUtilities Depreciation/AmortizationTotalInstruction$361,878,608 $24,116,529$42,657,531$0$5,441$0$428,658,109Research168,828,741 21,385,21877,246,361 954,611268,414,931Public Service80,420,99010,400,24128,079,282 409,729119,310,242Academic Support45,251,09318,319,10220,089,901 20,707 83,680,803Student Services18,372,8472,092,8837,831,358202,910 28,499,998Institutional Support69,216,6764,438,557 20,107,650 5,664 93,768,547 Operations and

Maintenance of Plant35,442,51610,510,2349,915,55423,119,34978,987,653Student Financial Aid1,262,882110,546840,64643,820,372 46,034,446Auxiliary Enterprises76,576,21436,537,73744,997,6197,310,086165,421,656 Depreciation/Amortization88,721,461 88,721,461 Total Operating Expenses$857,250,567$127,911,047$251,765,902$43,820,372$32,028,497$88,721,461$1,401,497,846The University's operating expenses by functional classi~cation are presented as follows:NOTE 14Pension Plans A. Dened Benet Plan Plan Administration: The St ate of North Carolina ad

-ministers the Teachers' and State Employees' Retire

-ment System (TSERS) plan. This plan is a cost-sharing, multiple-employer, de~ned bene~t pension plan estab

-

lished by the State to provide pension bene~ts for gen

-

eral employees and law enforcement of~cers (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. Bene~t provisions are established by General Statute 135-5 and may be amended only by the North Carolina General Assembly.Bene~ts Provided: TSERS provides retirement and sur

-vivor bene~ts. Retirement bene~ts are determined as 1.82% of the member's average ~nal compensation times the member's years of creditable service. A member's av

-erage ~nal compensation is calculated as the average of a member's four highest consecutive years of compensa

-

tion. General employee plan members are eligible to re

-

tire with full retirement bene~ts at age 65 with ~ve years of creditable service, at age 60 with 25 years of creditable 72The TSERS Plan's ~nancial information, including all in

-formation about the plan's assets, deferred outows of resources, liabilities, deferred inows of resources, and

~duciary net position, is included in the State of North Carolina's ~scal year 2015 Comprehensive Annual Finan

-

cial Report. An electronic version of this report is avail

-

able by accessing the North Carolina Of~ce of the State Controller's Internet home page http://www.osc.nc.gov/ and clicking on "Reports" or by calling the State Con

-

troller's Financial Reporting Section at (919) 707-0500. TSERS Basis of Accounting: The ~nancial 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. Bene~ts and refunds are recognized when due and payable in accordance with the terms of each plan. The plan's ~duciary 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 Ination 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 signi~cant 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 University's 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

-sity's 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 Date12/31/2014Ination 3%Salary Increases*4.25% - 9.10%Investment Rate of Return**7.25%* Salary increases include 3.5% ination and productivity factor** Investment rate of return is net of pension plan investment expense, including ination.TSERS currently uses mortality tables that vary by age, gender, employee group (i.e. teacher, general, law enforce

-

ment of~cer) and health status (i.e. disabled and healthy).

The current mortality rates are based on published tables and based on studies that cover signi~cant portions of the U.S. population. The healthy mortality rates also con

-

tain a provision to reect 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 ination 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 reect 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

~xed income return projections. Other asset categories and strategies' return projections reect 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 ination.

733.19%. All rates of return and ination are annualized.Discount Rate: The discount rate used to measure the total pension liability was 7.25%. The projection of cash ows 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 plan's ~duciary net position was project

-

ed to be available to make all projected future bene~t 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

-

e~t 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 plan's target as-set allocation as of June 30, 2015 (the valuation date) are summarized in the following table:Asset ClassLong-Term ExpectedReal Rate of ReturnFixed Income 2.2%Global Equity 5.8%Real Estate 5.2%Alternatives 9.8%Credit 6.8%Ination 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 ~gures. The real rates of re

-

turn are calculated from nominal rates by multiplica

-

tively subtracting a long-term ination 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 Inows of Resources and Deferred Outows 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 outows of resources and deferred inows of resources related to pensions from the following sources:Employer Balances of Deferred Out~ows of Resources and Deferred In~ows ofResources Related to Pensions by Classication:Deferred OutowsDeferred Inowsof Resourcesof ResourcesDifference Between Actual and Expected Experience

$0$8,964,236Changes of AssumptionsNet Difference Between Projected and Actual Earnings on Pension Plan Investments8,541,768Change in Proportion and Differences Between Agency's Contributions and Proportionate Share of Contributions2,722,767 Contributions Subsequent to the

Measurement Date28,562,190Total$31,284,957$17,506,004 74The amount of $28,562,190 reported as deferred out-ows of resources related to pensions will be included as a reduction of the net pension liability in the ~scal year ended June 30, 2017. Other amounts reported as deferred outows of resources and deferred inows of resources related to pensions will be recognized in pension expense as follows:Schedule of the Net Amount of the Employer's Balances ofDeferred Out~ows of Resources and Deferred In~ows of Resources That will be Recognized in Pension Expense:Year Ended June 30:

Amount2017$(9,358,103)2018(9,358,103)2019(9,175,819) 202013,108,788Total$(14,783,237)B. Dened Contribution Plan - The Optional Retire-ment Program (Program) is a de~ned contribution pension plan that provides retirement bene~ts with options for payments to bene~ciaries in the event of the participant's 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 ~ve 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 ~scal 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 bene~ts 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 reected in pension expense for the current ~scal year of $720,767. NOTE 15Other Postemployment Benets A. Health Benets - The University participates in the Comprehensive Major Medical Plan (the Plan), a cost-sharing, multiple-employer de~ned bene~t health care plan that provides postemployment health insurance to eligible former employees. Eligible former employees include long-term disability bene~ciaries 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 Plan's bene~t 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 bene~t increases.By General Statute, a Retiree Health Bene~t 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 bene~ts to re

-

tired and disabled employees and applicable bene~ciaries.

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 bene~ts to retired and disabled employees and applicable bene~cia

-

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 ~nance bene~ts and administrative expenses on a pay-as-you-go basis, are established by the General Assembly.For the current ~scal 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 bene~ts provided by the programs

other than its required contribution.Additional detailed information about these programs can be located in the State of North Carolina's Comprehensive Annual Financial Report. An electronic version of this re

-

port is available by accessing the North Carolina Of~ce of the State Controller's Internet home page http://www.osc.

nc.gov/ and clicking on "Reports" or by calling the State Controller's 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 de~ned bene~t plan, to pro

-

vide short-term and long-term disability bene~ts to eligible 75members of TSERS and ORP. Bene~t 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 bene~t increases.Disability income bene~ts are funded by actuarially de

-termined employer contributions that are established by the General Assembly. For the ~scal 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 bene~ts under the Plan other

than its contribution.Additional detailed information about the DIPNC is dis

-closed in the State of North Carolina's Comprehensive An

-

nual Financial Report.NOTE 16Risk ManagementThe 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

-

ni~cant reductions in insurance coverage from the previous year and settled claims have not exceeded coverage in any of the past three ~scal years.

A. Employee Bene t Plans1. State Health PlanUniversity employees and retirees are provided compre

-hensive major medical care bene~ts. 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 Benet Plan of North Car olinaTerm life insurance (death bene~ts) of $25,000 to $50,000 is provided to eligible workers. This Death Bene~t Plan is ad

-

ministered by the State Treasurer and funded via employer contributions. The employer contribution rate was .16% for the current ~scal year.B. Other Risk Management and Insurance Activities1. Automobile, Fire, and Other Property LossesThe University is required to maintain ~re 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 State's General Fund. Other operations not supported by the State's 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 ~re and lightning perils. General-funded departments and units insure for the perils of ~re and lightning with the exception of certain coastal properties which are also insured for extended cov

-erage perils and the peril of ood. 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 Ofcers' and Employees' Liability InsuranceThe 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 of~cers' 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 FraudThe 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 ProgramThe North Carolina Workers' Compensation Program pro

-vides bene~ts 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 University's pri

-

mary responsibility is to arrange for and provide the nec

-

essary treatment for work related injury. The University is responsible for paying medical bene~ts 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 State's Comprehensive 76alty 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 ~nes collected since January 1, 1996, to June 30, 2005. Of this amount, the university has transferred

$2,273,817 to the Of~ce of State Budget and Management leaving approximately $4,475,390 still outstanding. Since July 2005, the University has been forwarding transpor

-tation ~ne collections, less collection costs, to the Of~ce 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 noti~ed 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 1960's through the 1990's. On March 24, 2010, the Court granted the Uni

-

versity's 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 ~nancial 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 ~nancial position of the University. Annual Financial Report, issued by the Of~ce of the State Controller.

5. Other Insurance Held by the Univ ersityThe University purchased other authorized coverage from private insurance companies through the North Carolina Department of Insurance and the State's Agent of Record.

The types of insurance policies purchased include: medi

-

cal professional liability, veterinary professional liability, ~ne 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 17Commitments 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 Authority's 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) ~led 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. ~led a civil action against various state of~cials in their of~cial 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 ~nes. The matter was remanded back to the trial court for disposition in accordance with the Superior Court's 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 State's Civil Pen

-

77NOTE 18Related PartiesFoundations - There are 10 separately incorporated nonpro~t 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 speci~c colleges and the University's overall academic environment. As described in Note 1 to the ~nancial 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

~nancial statements are presented separately as part of the University's ~nancial statements. The University's

~nancial 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 University's 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.Nonprot 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, ~nancing 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 men's and $22,559 for each women's 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 ~scal year 2012, the name of the ESA was changed to "PNC Arena."In ~scal year 2008, the University entered a Capital Improvement Plan Agreement with the Authority to pay

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

78NOTE 19Blended Component UnitsNC State UniversityPartnership Corporation North CarolinaState UniversityNC State InvestmentFund, Inc EliminationsTotalASSETSCurrent Assets

$363,229,022$34,225,218$5,551,317$0$403,005,557Capital Assets2,004,443,996 20,884,295 2,025,328,291Other Noncurrent Assets214,337,260521,918,9351 (29,683,979)706,572,216Total Assets2,582,010,278556,144,15326,435,612 (29,683,979)3,134,906,064Total Deferred Outows of Resources45,122,22445,122,224 LIABILITIESCurrent Liabilities160,065,864 375,393 593,847161,035,104Long-Term Liabilities, Net679,949,414 2,785,750682,735,164Other Noncurrent Liabilities356,742,187442,130 (29,683,979)327,500,338Total Liabilities1,196,757,465 375,393 3,821,727 (29,683,979)1,171,270,606Total Deferred Inows of Resources17,506,00417,506,004 NET POSITIONNet Investement in Capital Assets 1,396,273,60817,550,5641,413,824,172Restricted - Nonexpendable (436,505,221)555,768,7602119,263,539Restricted - Expendable217,451,651 279,671217,731,322 Unrestricted 235,648,995 4,783,650 240,432,645Total Net Position$1,412,869,033$555,768,760$22,613,885$0$1,991,251,678Condensed Statement of Net PositionJune 30, 2016Condensed combining information for the University's 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 ~nancial state-ments and included in the accompanying component unit ~nancial statements. See Note 2 to the ~nancial 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.

79NC State UniversityPartnership CorporationNorth CarolinaState UniversityNC State Investment.Fund, Inc.

EliminationTotalOPERATING REVENUESOperating Revenue

$831,151,521$0$8,939,738$(3,738,796)$836,352,463OPERATING EXPENSES Operating Expenses1,310,175,2521,857,7826,060,008(5,316,657)1,312,776,385 Depreciation/Amortization 88,283,225 438,236 88,721,461Total Operating Expenses 1,398,458,4771,857,782 6,498,244(5,316,657)1,401,497,846Operating Income (Loss)(567,306,956)(1,857,782) 2,441,4941,577,861(565,145,383)NONOPERATING REVENUES (EXPENSES)State Appropriations 502,533,982 502,533,982Noncapital Grants45,499,30045,499,300Noncapital Gifts71,230,77671,230,776Investment Income (5,688,899)7,258,2151,569,316 Other Nonoperating Expenses(14,822,534)

(33,330)(14,855,864)Net Nonoperating Revenues (Expenses) 598,752,6257,258,215 (33,330)605,977,510Capital Appropriations9,013,5009,013,500Capital Grants 2,508,299 2,508,299Capital Gifts6,960,812 1,578,907(1,577,861)6,961,858Additions to Endowments14,039,03114,039,031Increase in Net Position63,967,3115,400,4333,987,07173,354,815 NET POSITIONNet Position, July 1, 20151,348,901,722 550,368,32718,626,8141,917,896,863Net Position, June 30, 2016

$1,412,869,033$555,768,760$22,613,885$0$1,991,251,678Condensed Statement of Revenues, Expenses, andChanges in Net PositionFor the Fiscal Year Ended June 30, 2016 80ing 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 speci~ed 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 ~nancial

reporting purposes.North CarolinaState UniversityNC State Investment Fund, Inc.NC State UniversityPartnership CorporationTotalNet Cash Provided (Used) by Operating Activities$(490,055,767)$0$2,614,623$(487,441,144)Net Cash Provided by Noncapital Financing Activities733,376,129733,376,129Net 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)32,143,22020,757,277Net Increase in Cash and Cash Equivalents137,193,72232,143,2202,412,370171,749,312Cash and Cash Equivalents, July 1, 2015310,799,226 2,081,998 2,956,067315,837,291Cash and Cash Equivalents, June 30, 2016$447,992,948$34,225,218$5,368,437$487,586,603Condensed Statement of Cash Flows June 30, 2016For the ~scal year ended June 30, 2016, the University implemented the following pronouncements issued by the Governmental Accounting Standards Board (GASB)

GASB St atement No. 72, Fair Value Measurement and Application GASB St atement 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 St atement No. 79, Certain External Investment Pools and Pool ParticipantsGASB Statement No. 72 provides guidance for de

-

termining a fair value measurement for ~nancial 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 de~ned bene~t 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 de~ned contribution pensions that are not within the scope of Statement 68. It also amends certain provisions of Statement No. 67, Financial Report

-NOTE 20Changes in Financial Accounting and ReportingOn 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 21Subsequent Events 81NOTE 22Discretely Presented Component UnitsThe University's discretely presented component units use the accounting and reporting standards promulgated by FASB. Selected disclosures from the discretely presented component units' audited ~nancial statements follow:NORTH CAROLINA STATE UNIVERSITY FOUNDATION, INC.Long-Term InvestmentsThe 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 ~nancial position.

CostFair ValueSTIF$250,343$250,343NC State Investment Fund, Inc. Long Term Investment Pool (LTIP)166,104,657214,207,848SRI Fund9,269,6149,887,699Wells Fargo - Life Income Funds5,886,2776,146,163Total$181,510,891$230,492,053Investments 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 LTIP's net assets were valued at approximately $683,380,000 at June 30, 2016. The Foundation's 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 diversi~ed 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 Foundation's investments held by Wells Fargo - Life Income Funds consist of a diversi~ed portfolio of bond and equity mutual funds.Life Income Funds The consolidated ~nancial statements include assets and liabilities of charitable gift annuities and unitrust agreements for which the Foundation is trustee. The grantors and/or bene~ciaries 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 bene~ciaries are computed using Internal Revenue Code annuity valuation tables, the distribution terms of the agreements, and the life expectancy of the bene~ciaries, 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 Foundation's 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 Foundation's 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 reected in the accompanying consolidated ~nancial statements at their fair value.

Estimated future distributions to the bene~ciaries have been reected in the accompanying consolidated ~nancial statements and were computed using Internal Revenue Code annuity valuation tables, the distribution terms of the agreements, and the life expectancy of the bene~ciaries.

82Pledges ReceivablePledges receivable are stated at their present value, estimated by discounting the future cash ows using Federal Reserve rates of return, and are as follows:Receivable in less than one year$7,696,632Receivable in one to ~ve years57,679,162Receivable in greater than ~ve years 23,366 Total gross pledges receivable65,399,160Less allowance for uncollectible pledges420,000Less unamortized discount 1,041,709 Net Pledges Receivable$63,937,451An allowance for doubtful accounts has been established and is updated annually to reect 5% of the Foundation's 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 of~ce in order to determine if it is appropriate to write off such pledges.NC STATE STUDENT AID ASSOCIATION, INC.Pledges ReceivableThe 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$31,852,944Less Allowance for Uncollectible Pledges 1,592,647Less Discount on Pledges7,267,389 22,992,908Less Current Portion 4,331,237Pledges Due After One Year$18,661,671Pledges receivable due in more than one year are reected at the present value of estimated future cash ows using a discount rate of 6%.Receivable in less than one year$4,559,198Receivable in one to ~ve years11,933,187Receivable in more than ~ve years15,360,559 31,852,944Less allowance for uncollectible pledges 1,592,647Less discount on pledges7,267,389Net Pledges Receivable$22,992,908INVESTMENTSThe Association held the following investments at June 30, 2016:HistoricalMarket CostValueMarketable Equity Securities$14,074,876$15,102,501Other Marketable Debt Securities6,013,7326,103,186 U.S. Government Obligations4,169,7824,202,121Alternative Investments5,864,5045,795,374Mutual Funds1,043,5431,085,864Total$31,166,437$32,289,046Investment income (loss) consists of the following:

Interest$339,528 Dividends349,159Realized Gain on Sale of Investments 1,094,344Unrealized Loss on Investments (2,583,573)Investment Expenses (254,245)Total$(1,054,787)Long-Term DebtBond Indentures--Vaughn TowersIn March 2013, the Association re~nanced bonds originally issued in 2004 to ~nance the construction of the Vaughn Towers press box at Carter-Finley Stadium. The re~nancing 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 ~nance 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 NCSU's athletic facilities.

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

83to 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 ZoneIn November 2012, the Association re~nanced the existing notes payable originally issued to ~nance 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 ow 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 ~nance the construction of a new Indoor Practice Facility for the football program at NCSU.

The total ~nancing available through the notes payable is

$14,000,000. The notes mature at various times through May 2026 and bear interest at ~xed 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$9,495,000Note Payable - - BB&T (Wolves Den)337,500Note Payabel - - BB&T (North End Zone) 256,750Note Payable - - BB&T (Indoor Practice Facility)12,000,000 22,089,250Less Amount Classi~ed as Current Liability 2,624,250Amount Due After One Year$19,465,000Maturities of long-term debt are as follows:Year Ending June 302017$2,624,25020182,367,50020192,367,500 20202,255,000 20212,255,000Thereafter10,220,000Total$22,089,250THE NORTH CAROLINA AGRICULTURAL FOUNDATION, INC.Long-Term InvestmentsThe 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 ~nancial position.Investments at June 30, 2016 consisted of:

CostFair ValueSTIF$208,207$208,207NC State Investment Fund, Inc. Long Term Investment (LTIP)49,876,22267,709,880Wells Fargo - Life Income Funds8,674,6888,899,393Total$58,759,117$76,817,480Investments 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 LTIP's net assets were valued at approximately $683,380,000 at June 30, 2016. The Foundation's investment in LTIP represents approximately 9.91% of the member's equity of the LTIP at June 30, 2016. The Foundation's investments in Life Income Funds consist of a diversi~ed portfolio of bond and equity mutual funds.Pledges ReceivablePledges receivable consisted of the following at June 30:Receivable in less than one year$3,567,591Receivable in one to ~ve years 3,446,661Receivable in greater than ~ve years550,000 Total gross pledges receivable7,564,252Less allowance for uncollectible pledges279,000Less unamortized discount (discount rate of 0.55% to 1.44%)162,322 Net Pledges Receivable$7,122,930 84An allowance for doubtful accounts has been established and is updated annually to reect 5% of the Foundation's 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 of~ce 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.

85NORTH CAROLINASTATE UNIVERSITY2016 ANNUALFINANCIAL REPORTREQUIREDSUPPLEMENTARYINFORMATION 86NORTH CAROLINA STATE UNIVERSITYRequired Supplementary Information Schedule of the Proportionate Net Pension Liability Teachers' and State Employees' Reirement System Last Three Fiscal Years201520142013Proportionate share percentage of collective net pension liability2.14%2.15%2.12%Proportionate share of TSERS collective net pension liability$78,841,126$25,160,037$128,553,827Covered-employee payroll$308,539,969$305,353,765$306,165,883Net pension liability as a percentage of covered-employee payroll 25.55%8.24%41.99%Plan ~duciary 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 Years20162015201420132012Contractually 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 contribution28,562,190$28,231,407$26,535,242$25,503,618$22,231,989Contribution de~ciency (excess)$-$-$-$-$

-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 payroll9.15%9.15%8.69%8.33%7.44%20112010200920082007Contractually 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 contribution15,004,360$10,741,148$10,536,565$9,039,835$7,478,544Contribution de~ciency (excess)$-$-$-$-$

-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%2.66NORTH CAROLINA STATE UNIVERSITYNotes to Required Supplementary Information Schedule of University Contributions Teachers' and State Employees' Reirement SystemLast Ten Fiscal Years2015*2014201320122011201020092008200720061.00%N/A1.00%N/AN/AN/A2.20%2.20%3.00%2.00%Changes of Bene~t 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 bene~ciaries were adjusted to more closely reect 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 87NORTH CAROLINASTATE UNIVERSITY2016 ANNUALFINANCIAL REPORTSUPPLEMENTARYINFORMATIONSECTION 88 88Ratio of Net Gain in Endowment InvestmentsTen Year History For the Year Ended June 30, (in thousands)University Endowment Investments - Market ValueFiscal YearEnd of YearBeginning of YearYearly Change Ratio2006-2007173,193155,11618,077 11.652007-2008161,208173,193(11,985)(6.92)2008-2009129,619161,208 (31,589)(19.60)2009-2010143,112129,61913,493 10.41 2010-2011161,402143,11218,29012.782011-2012161,385161,402(17)(0.01)2012-2013177,402161,38516,017 9.922013-2014205,010177,40227,60815.562014-2015230,099205,010 25,08912.242015-2016209,047 230,099 (21,052)(9.15) 89Revenue Bond CoverageTen 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 Ratio2006-2007 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 2010-20116,6743096,36530011311 20.472011-2012-------2012-2013-------2013-2014-------2014-2015-------2015-2016-------Revenue Bond Coverage calculations are for the University's Revenue Bonds secured by speci~c 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 ~scal year 2011. Available FundsFor the Year Ended June 30, (in thousands)20122013201420152016Total Unrestricted Revenue$ 1,012,317$1,073,637$1,090,045$1,140,445$1,196,096Less:

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:BeginningUnrestricted Net Assets177,833214,419230,802165,234*217,106Total Available Funds$535,302$598,854$632,148$594,360$666,655Debt service requirements subtracted is only for the speci~c revenue bonds which were outstanding as of the 2002 move to available funds. The last speci~c revenue bonds outstanding, the Centennial Campus 1997A Revenue Bonds, matured in ~scal year 2011.* Beginning Unrestricted Net Position was restated, decreased by $91.0 million for the required GASB 68 pension entires.

90Admissions, Enrollment and Degree StatisticsTen Year History of Fall Enrollment (Headcount)Freshman Admissions2006200720082009201020112012201320142015 Applied15,50016,43717,66118,50219,14819,63420,43521,61920,21321,101Accepted9,4709,86910,37110,24210,37210,37210,13710,13710,39510,582 Enrolled4,5594,7914,6694,6374,5584,5644,2254,1654,3744,210SAT Total1,1771,1711,1761,1841,18611911,2181,2431,2481,250SAT Verbal569568569572575579591604607610SAT Math608603607612611612627639641640High School GPA4.114.124.174.194.244.284.374.434.454.44High School Valedictorians7770678193107110125146130High School Salutatorians6567578166819383129102Transfer Admissions Applied3,9903,9763,7663,8694,1573,8073,7473,9233,6284,164Accepted1,4131,3581,4101,3901,4931,3131,5031,5191,6401,470 Enrolled1,0751,0291,0891,0971,1411,0271,2091,2151,2531,107Graduate Admissions

Applied 8,4407,8828,11912,12613,60714,00414,39514,43315,40415,387Accepted3,1663,3303,5333,8003,8113,8653,5333,5003,5973,575 Enrolled1,9142,1002,2842,3622,5162,6132,5992,6092,8392,892(Percentage of Total Applications)Freshman Admissions2006200720082009201020112012201320142015Accepted61.1%60.0%58.7%55.4%54.2%52.8%49.6%46.9%51.4%50.1%

Enrolled29.4%29.1%26.4%25.1%23.8%23.2%20.7%19.3%21.6%20.0%Transfer AdmissionsAccepted35.4%34.2%37.4%35.9%35.9%34.5%40.1%38.7%45.2%35.3%

Enrolled26.9%25.9%28.9%28.4%27.4%27.0%32.3%31.0%34.5%26.6%Graduate AdmissionsAccepted37.5%42.2%43.5%31.3%28.0%27.6%24.5%24.2%23.4%23.2%

Enrolled22.7%26.6%28.1%19.5%18.5%18.7%18.1%18.1%18.4%18.8%(Degrees Conferred)2006200720082009201020112012201320142015Bachelors 4,478 4,558 4,571 4,611 4,7975,1755,4235,4685,5355,594 Masters 1,485 1,457 1,507 1,665 1,7952,0802,3412,3352,4552,338 Doctoral 369 411 328 457 422395446488494512First Professional (DVM) 75 75 74 73 777779728179Professional - - - - --Total 6,407 6,501 6,480 6,806 7,0917,7278,2898,3638,5658,523 91Admissions, Enrollment and Degree StatisticsTen Year History of Fall Enrollment (Headcount)2006200720082009201020112012201320142015 Undergraduate21,43822,07022,87423,39223,63623,77023,43023,12523,01922,574 Graduate6,4816,8267,2437,6748,2678,9248,8088,7808,9379,358Lifelong Education3,2112,9062,7552,7532,4732,0732,1022,1042,0332,083Full-time24,02624,98925,94026,73627,29027,43827,10826,77026,96526,767Part-time7,1046,8136,9327,0837,0867,3297,2327,2397,0247,248 Male17,41117,73218,34418,77719,07719,44119,17618,91318,94518,769Female13,71914,07014,52815,04215,29915,32615,16415,09615,04415,246 White23,59323,76624,27924,60624,66324,45824,01923,58622,91122,590 African-American2,7732,7392,8092,7012,7582,6342,5312,3142,2122,163Asian1,4731,5071,5091,5731,6401,6201,5831,6441,6781,625 Hispanic 7217747909531,0651,1631,2961,3091,3921,487 Other2,5703,0163,4853,9864,2504,8924,9115,1565,7966,150In-state26,83127,29327,85028,48428,61328,33627,73927,18526,69926,440Out-of-state2,5822,5732,8022,9633,2333,3993,6423,6883,8233,733 International1,7171,9362,2202,3722,5303,0322,9593,1363,4673,842Total Enrollment31,13031,80232,87233,81934,37634,76734,34034,00933,98934,015(Percentage of Total)

Undergraduate68.9%69.4%69.6%69.2%68.8%68.4%68.2%68.0%67.7%66.4%

Graduate20.8%21.5%22.0%22.7%24.0%25.6%25.7%25.8%26.3%27.5%Lifelong Education10.3%9.1%8.4%8.1%7.2%6.0%6.1%6.2%6.0%6.1%Full-time77.2%78.6%78.9%79.1%79.4%78.9%78.9%78.7%79.3%78.7%Part-time22.8%21.4%21.1%20.9%20.6%21.1%21.1%21.3%20.7%21.3%

Male55.9%55.8%55.8%55.5%55.5%55.9%55.8%55.6%55.7%55.2%Female44.1%44.2%44.2%44.5%44.5%44.1%44.2%44.4%44.3%44.8%

White75.8%74.7%73.9%72.8%71.7%70.3%69.9%69.4%67.4%66.4%

African-American8.9%8.6%8.5%8.0%8.0%7.6%7.4%6.8%6.5%6.4%Asian4.7%4.7%4.6%4.7%4.8%4.7%4.6%4.8%4.9%4.8%

Hispanic2.3%2.4%2.4%2.8%3.1%3.3%3.8%3.8%4.1%4.4%

Other8.3%9.6%10.6%11.7%12.4%14.1%14.3%15.2%17.1%18.0%In-state86.2%85.8%84.7%84.2%83.2%81.5%80.8%79.9%78.6%77.7%Out-of-state8.3%8.1%8.5%8.8%9.4%9.8%10.6%10.9%11.2%11.0%

International5.5%6.1%6.8%7.0%7.4%8.7%8.6%9.2%10.2%11.3%

92 Admissions, Enrollment and Degree StatisticsEnrollment by CountyStudent Enrollment, Fall Semester 2015ResidenceTotalResidenceTotalResidenceTotalResidenceTotalAlamance341Cumberland447Johnston659Randolph218Alexander38Currituck29Jones 14Richmond37Alleghany8Dare 90Lee141Robeson 95 Anson 18Davidson260Lenoir92Rockingham104Ashe37Davie108 Lincoln143Rowan196Avery21Duplin70McDowell31Rutherford75Beaufort67Durham924Macon20Sampson126Bertie 15Edgecombe58Madison26Scotland 35 Bladen37Forsyth675Martin44Stanly 81Brunswick130Franklin161Mecklenburg1,827Stokes 57Buncombe481Gaston278Mitchell21Surry105Burke100 Gates 17Montgomery28Swain 6Cabarrus402Graham7Moore252Transylvania29Caldwell108Granville150 Nash239Tyrrell 3 Camden 18Greene29New Hanover611 Union 633 Carteret168Guilford1,339Northhampton 17Vance 76Caswell46Halifax80Onslow200Wake 9,802Catawba273Harnett170 Orange632Warren 37Chatham203Haywood61Pamlico28Washington22Cherokee29Henderson149Pasquotank34Watauga 99Chowan39Hertford25Pender83Wayne 203Clay 10Hoke29Perquimans 14Wilkes 50Cleveland136Hyde8Person 74Wilson185Columbus53Iredell425Pitt282Yadkin 50Craven165Jackson29Polk27Yancey 16Total26,440 93Admissions, Enrollment and Degree StatisticsFive Year Comparison of Enrollment by Level

and CollegeStudent Enrollment, Fall Semester20112012201320142015 UndergraduateProvost's Of~ce8127 13 10 30Agriculture and Life Sciences4,5444,4592,3712,4242,461 Design584606595581556 Education 880762 656574 540 Engineering 5,9616,0935,9606,1866,243Natural Resources1,3211,3361,3571,3321,272 Humanities and Social Sciences4,1473,8963,6323,4533,341 Management2,5572,5362,5892,6392,623Physical and Mathematical Sciences8988862,9972,9092,714Textiles926931985995991University Undesignated (1)1,5281,5071,5841,5771,472Agriculture Institute343391386339331Lifelong Education1,4061,4031,4111,4541,537Total Undergraduate25,17624,83324,53624,47324,111Total FTE Undergraduate22,66922,59722,12522,05821,654 Graduate Provost's Of~ce201 91113133160Agriculture and Life Sciences1,0391,0719371,0281,039 Design263241259246232 Education1,2541,2271,1391,0601,050 Engineering 2,8042,8192,8433,0723,273Natural Resources459493488459425 Humanities and Social Sciences900852821804817 Management648651696630754Physical and Mathematical Sciences785793877858933Textiles179168185 202213Veterinary Medicine392402422445462Lifelong Education667699693579546Total Graduate9,5919,5079,4739,5169,904Total FTE Graduate6,3126,3276,2026,4096,561Total Headcount34,76734,34034,00933,98934,015Total FTE Enrollment28,98128,92428,32728,46728,215Percentage of Students (FTE) from Outside State18.3%18.7%19.4%21.0%22.1%(1) Includes First Year College.

94Fall EnrollmentFreshman Admissions by YearSAT ScoresFreshman Admissions by YearAppliedAcceptedEnrolled 0100200300400500600700SAT VerbalSAT Math 95Student Pro~leFall 2015Hispanic0%10%20%30%40%50%60%70%80%90%100%LevelStatusGenderEthnicityResidenceLifelongEducationGraduateUnderGraduatePart TimeFull TimeFemaleMaleOtherWhiteInternationalOut of StateIn StateAfricanAmericanAsian 96Faculty by RankFull Time Faculty by Tenure 0 100 200 300 400 500 600 700 800ProfessorAssocProfessorAsstProfessorInstructorLecturerNot RankedFall 2014Fall 2015 0 200 400 600 8001,0001,200TenuredTenure TrackOther - Not on Track,Phased, and RetiredFall 2014Fall 2015 97 98 Physical Master PlanNC STATE UNIVERSITY 99 100ELECTRONIC AVAILABILITY: This document is available online at http://www.~s.ncsu.edu/controller/~nancial_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 COPYEQUAL 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.

101 102 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 Adm inistration Vice Chancel l or 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 Fac ili ty at NC State Univers i ty. 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 decommiss ioni ng the PUL S TAR Reactor Fa cility 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 i ncorporated 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 ins titut ion 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 re commended budget for all of the constituent inst itutions of The Univer sity of North Carolina. Decommissioning funding would be requested under sub-paragraph (iii) of this sec tion. NCGS 116-11(9)(b) states that " Funds for the third ca tegory (iii) in paragraph (a) of thi s 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. Nuclea r Regulatory Co mm i ssion February 24 , 2017 Page 2 Supporting Documentation NC State Univers i ty Regulation 01.20. 02 , Delegation of Authority to Sign Contracts , section 1.1 states that " Full ex ecutive and adm i nistrative 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 Carol i na. Inherent within this power is the authority to sign contracts binding North Carol i na State Uni v ersity , and to delegate and permit the further delegation of such authority not otherwise retained by the Board of Go v ernors , the Board of Trustees or other state admin i strat i ve 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

." Se c tion 4.7.1.5 of REG 01.20.02 further specifies that "Author i ty 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 Uni v ersity exceeds two hundred fifty thousand dollars ($250 , 000) is de l egated to the Vice Chancellor for Finance and Administration

." If you have any questions in this matter , please di rect them to Dr. Ayman Hawari, Di rector of the Nu c lear 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. Si ncerely , Sc ott R. Douglass V ic e Chancellor , Finance and Adm i nistration SCD/mh cc: Dr. Ayman Hawari , Director , Nuclear Rea c tor Program