Management s Discussion and Analysis

Transcription

1 Management s Discussion and Analysis This section of Tennessee State University s annual financial report presents a discussion and analysis of the financial performance of the University during the fiscal year ended June 30, 2014, with comparative information presented for the fiscal years ended June 30, This discussion has been prepared by management along with the financial statements and related note disclosures and should be read in conjunction with the financial statements and notes. The financial statements, notes, and this discussion are the responsibility of management. The University has one discretely presented component unit, the Tennessee State University Foundation. More detailed information about the foundation is presented in Note 18 to the financial statements. This discussion and analysis focuses on the University and does not include the foundation. Overview of the Financial Statements The financial statements have been prepared in accordance with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB), which establishes standards for external financial reporting for public colleges and universities. The financial statements are presented on a consolidated basis to focus on the University as a whole. 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 financial statements. The University's financial report includes the Statement of Net Position, the Statement of Revenues, Expenses, and Changes in Net Position, and the Statement of Cash Flows. Notes to the financial statements are also presented to provide additional information that is essential to a full understanding of the financial statements. The Statement of Net Position The Statement of Net Position is a point in time financial statement. The Statement of Net Position presents the financial position of the University at the end of the fiscal year. To aid the reader in determining the University's ability to meet immediate and future obligations, the statement includes all assets, liabilities, deferred outflows/inflows, and net position of the University and segregates the assets and liabilities into current and noncurrent components. Current assets are those that are available to satisfy current liabilities, inclusive of assets that will be converted to cash within one year. Current liabilities are those that will be paid within one year. The Statement of Net Position is prepared under the accrual basis of accounting; assets and liabilities are recognized when goods or services are provided or received despite when cash is actually exchanged.

2 From the data presented, readers of the statement are able to determine the assets available to continue the operations of the University. They are also able to determine how much the University owes vendors, lenders, and others. Net position represents the difference between the University's assets and liabilities, along with the difference between deferred outflows and deferred inflows, and is one indicator of the University's current financial condition. The Statement of Net Position also indicates the availability of net position for expenditure by the University. Net position is divided into three major categories. The first category, net investment in capital assets, represents the University's total investment in property, plant, and equipment, net of outstanding debt obligations related to these capital assets. To the extent debt or deferred inflows of resources has been incurred but not yet expended for capital assets, such amounts are not included. The next category is restricted net position, which is sub-divided into two categories, nonexpendable and expendable. Nonexpendable restricted net position includes endowment and similar resources 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. Expendable restricted net position is available for expenditure by the University but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the resources. The final category is unrestricted net position. Unrestricted net position is available to the University for any lawful purpose of the University. The following table summarizes the University's assets, liabilities, deferred outflows/inflows, and net position at June 30, 2014, and June 30, 2013.

3 Statement of Net Position (in thousands of dollars) Assets: Current assets 36,210 41,699 Capital assets, net 164, ,281 Other assets 63,659 61,023 Total Assets 264, ,003 Deferred Outflows of Resources Deferred loss on debt refunding Total Deferred Outflows Liabilities: Current liabilities 22,200 21,878 Noncurrent liabilities 45,356 48,718 Total Liabilities 67,556 70,596 Net Position: Net investment in capital assets 131, ,935 Restricted nonexpendable Restricted expendable 5,720 5,891 Unrestricted 58,911 61,604 Total Net Position 196, ,504 Comparison of FY 2014 to FY2013 Current assets were reduced due to current cash paying off over $3 million in liabilities; and through investments maturing and being reinvested into longer term investments. The Statement of Revenues, Expenses, and Changes in Net Position The Statement of Revenues, Expenses, and Changes in Net Position presents the results of operations for the fiscal year. Revenues and expenses are recognized when earned or incurred, regardless of when cash is received. The statement indicates whether the University's financial condition has improved or deteriorated during the fiscal year. The statement presents the revenues received by the University, both operating and nonoperating, and the expenses paid by the University, operating and nonoperating, and any other revenues, expenses, gains, or losses received or spent by the University. Generally speaking, operating revenues are received for providing goods and services to the various customers and constituencies of the University. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the University. Nonoperating revenues are revenues received for which goods and services are not provided directly to

4 the payor. Although Tennessee State University is dependent upon state appropriations and gifts to fund educational and general operations, under GASB standards these funding sources are reported as nonoperating revenues, as is investment income. As a result, the University has historically reported an excess of operating expenses over operating revenues, resulting in an operating loss. A summary of the University's revenues, expenses, and changes in net position for the year ended June 30, 2014, and June 30, 2013, follows. Summary of Revenues, Expenses, and Changes in Net Position (in thousands of dollars) Operating revenues 108, ,215 Operating expenses 182, ,626 Operating loss (74,667) (70,411) Nonoperating revenues and expenses 67,747 65,044 Loss before other revenues, expenses, (6,920) (5,367) gains, or losses Othere revenues, expenses, gains, or losses 6,109 9,235 Increase in net position (811) 3,868 Net position at beginning of year 196, ,636 Prior period adjustment Net position at end of year 196, ,504 Operating Revenues The following summarizes the operating revenues by source that were used to fund operating activities for the last two fiscal years:

5 $60,000 Operating Revenues (in thousands of dollars) $50,000 $40, $30,000 $20,000 $10,000 $- Comparison of FY 2014 to FY 2013 No material variances were noted when comparing FY 2014 to FY2013. Operating Expenses Operating expenses may be reported by nature or function. The University has chosen to report the expenses in their natural classification on the statement of revenues, expenses, and changes in net position and has displayed the functional classification in the notes to the financial statements. The following summarizes the operating expenses by natural classifications for the last two fiscal years:

6 Natural Classification (in thousands of dollars) $100,000 $80, $60,000 $40,000 $20,000 $- Comparison of FY 2014 to FY 2013 No material variances were noted when comparing FY 2014 to FY2013.

7 Nonoperating Revenues and Expenses Certain revenue sources that the University relies on to provide funding for operations, including state noncapital appropriations, certain gifts and grants, and investment income, are defined by the GASB as nonoperating. Nonoperating expenses include capital financing costs and other costs related to capital assets. The following summarizes the University's nonoperating revenues and expenses for the last two fiscal years: Nonoperating Revenues & Expenses (in thousands of dollars) $40,000 $35,000 $30, $25,000 $20,000 $15,000 $10,000 $5,000 $- $(5,000) Comparison of FY 2014 to FY 2013 No material variances were noted when comparing FY 2014 to FY2013.

8 Other Revenues This category is composed of State appropriations for capital purposes, capital grants and gifts, and additions to permanent endowments. These amounts were as follows for the last two fiscal years: Other Revenues (in thousands of dollars) $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $ Comparison of FY 2014 to FY 2013 Capital grants and gifts decreased with the decreased expenditures and revenues related to the Agriculture Biotech Building ($5.3 million in FY13 and $1.5 million in FY14).

9 Capital Assets and Debt Administration Capital Assets Tennessee State University had $164,246, invested in capital assets, net of accumulated depreciation of $172,397, at June 30, 2014; and $164,281, invested in capital assets, net of accumulated depreciation of $164,345, at June 30, Depreciation charges totaled $8,783, and $9,036, for the years ended June 30, 2014, and June 30, 2013, respectively. Schedule of Capital Assets, Net of Depreciation (in thousands of dollars) Land 9,600 9,525 Land Improvements & Infrastructure 11,553 12,605 Buildings 121, ,698 Equipment 7,490 6,624 Library Holdings 1,450 1,573 Intangible Assets Projects in Progress 12,012 9,302 Total 164, ,281 Significant additions to capital assets occurred in fiscal year At year end, the agriculture Biotech Building construction was still in progress with additional expenditures for FY14 of over $2.3 million and the upgrade of the Electrical Distribution system of $1.1 million. At June 30, 2014, outstanding commitments under construction contracts totaled $3,263, for various renovations and repairs of buildings and infrastructure. Future state capital outlay appropriations will fund $3,093, of these costs. More detailed information about the University's capital assets is presented in Note 6 to the financial statements. Debt The University had $32,651, and $35,444, in debt outstanding at June 30, 2014, and June 30, 2013, respectively. The table below summarizes these amounts by type of debt instrument.

10 Outstanding Debt (in thousands of dollars) TSSBA bonds payable 31,167 33,793 Unamortized bond premium/discou 1,485 1,651 Total 32,652 35,444 The TSSBA issued bonds with interest rates ranging from 2.5% to 5.67% due May 1, 2032 on behalf of Tennessee State University. The University is responsible for the debt service of these bonds. The current portion of the $31,166, outstanding at June 30, 2014, is $2,670, The ratings on debt issued by the Tennessee State School Bond Authority at June 30, 2014, were as follows: Fitch Moody s Investor Service Standard & Poor s AA+ Aa1 AA More information about the University long-term liabilities is presented in Note 8 to the financial statements. Economic Factors That Will Affect the Future The university is not aware of any factors that will have a significant effect on the financial position or results of operations.

11 Institution Component Unit ASSETS Current assets: Cash and cash equivalents (Notes 2, 3 and 18 ) $ 21,507, $ 4,066, Short-term investments (Notes 4 and 18 ) 240, ,985, Accounts, notes, and grants receivable (net) 12,292, Due from primary government 137, Due from component unit 145, Inventories (at lower of cost or market) 89, Accrued interest receivable 1,797, Total current assets 36,209, ,052, Noncurrent assets: Cash and cash equivalents (Notes 2, 3, and 18 ) 46,438, ,342, Short-term investments (Notes 4 and 18 ) 15,351, ,149, Accounts, notes, and grants receivable (net) (Note 5 ) 1,869, Capital assets (net) (Note 6 and 18 ) 164,246, ,000, Total noncurrent assets 227,905, ,491, Total assets $ 264,115, $ 63,543, DEFERRED OUTFLOWS OF RESOURCES Deferred loss on debt refunding 86, Total deferred outflows of resources $ 86, $ - LIABILITIES Current liabilities: Accounts payable (Note 7 ) $ 4,524, $ 48, Accrued liabilities 8,153, Due to grantors (Note 8 ) 314, Due to primary government - 145, Unearned revenue 4,740, Compensated absences (Note 8 ) 1,074, Accrued interest payable 262, Long-term liabilities, current portion (Note 8 ) 2,670, Deposits held in custody for others 383, Other liabilities 75, Total current liabilities 22,199, , Noncurrent liabilities: Net OPEB obligation (Note 11 ) 7,385, Compensated absences (Note 8 ) 4,913, Long-term liabilities (Note 8 ) 29,981, Due to grantors (Note 8 ) 3,075, Total noncurrent liabilities 45,355, Total liabilities $ 67,555, $ 193, NET POSITION Net investment in capital assets $ 131,681, $ 6,000, Restricted for: Nonexpendable: Scholarships and fellowships 334, ,656, Research - 668, Instructional department uses - 780, Other - 35,661, Expendable: Scholarships and fellowships 872, ,929, Research 452, , Instructional department uses 1,856, , Loans 820, Other 1,717, ,060, Unrestricted 58,910, , Total net position $ 196,645, $ 63,350, The notes to the financial statements are integral part of this statement. Tennessee State University Unaudited Statement of Net Position June 30, 2014

12 Tennessee State University Unaudited Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended June 30, 2014 Institution Component Unit REVENUES Operating revenues: Student tuition and fees ( net of scholarship allowances of $ 24,840, $ 52,489, $ - Gifts and contributions - 2,648, Governmental grants and contracts 36,609, Non-governmental grants and contracts 1,038, Sales and services of educational activities 191, Sales and services of other activities 4,752, , Auxiliary enterprises: Residential life ( net of scholarship allowances of $ 4,564, all residential life revenues are used as security for revenue bonds, see Note 9 ) 5,887, Bookstore 214, Food service 6,063, Other auxiliaries 833, Interest earned on loans to students 165, Other operating revenues 16, Total operating revenues 108,262, ,034, EXPENSES Operating Expenses (Note 15 ) Salaries and wages 81,796, Benefits 27,753, Utilities, supplies, and other services 52,854, , Scholarships and fellowships 11,741, ,694, Depreciation expense 8,783, Payments to or on behalf of TSU (Note 18) - 151, Total operating expenses 182,929, ,578, Operating income (loss) (74,667,004.95) 456, NONOPERATING REVENUES (EXPENSES) State appropriations 39,729, Gifts, including $ 151, from component unit(s) to institution 185, Grants and contracts 28,836, , Investment income (net of investment expense of $ 102, for the institution and $ 233, for the component unit(s)) 538, ,251, Interest on capital asset-related debt (1,507,935.15) - Other non-operating revenues/(expenses) (34,352.44) - Net nonoperating revenues 67,746, ,295, Income before other revenues, expenses gains, or losses (6,920,034.83) 6,751, Capital appropriations 1,953, Capital grants and gifts, including $ - from component unit(s) 4,155, Additions to permanent endowments - 594, Total other revenues 6,108, , Increase (decrease) in net position (811,252.89) 7,346, NET POSITION Net position -beginning of year, as originally reported 196,504, ,003, Prior period adjustment (Note 16 ) 952, Net position - end of year $ 196,645, $ 63,350, The notes to the financial statements are integral part of this statement.

13 CASH FLOWS FROM OPERATING ACTIVITIES Tennessee State University Unaudited Statement of Cash Flows for the Year Ended June 30, 2014 Tuition and fees $ 51,186, Grants and contracts 39,762, Sales and services of educational activities 191, Sales and services of other activities 4,431, Payments to suppliers and vendors (53,162,397.54) Payments to employees (81,222,582.85) Payments for benefits (27,520,691.51) Payments for scholarships and fellowships (11,741,541.98) Loans issued to students (603,905.57) Collection of loans from students 619, Interest earned on loans to students 11, Auxiliary enterprise charges: Residence halls 5,888, Bookstore 203, Food services 6,073, Other auxiliaries 829, Other receipts (payments) (71,965.49) Net cash provided (used) by operating activities $ (65,123,515.69) CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES State appropriations $ 39,521, Gifts and grants received for other than capital or endowment purposes, including $ 151, from the TSU Foundation to the institution. 29,021, Federal/state student loan receipts 69,073, Federal/state student loan disbursements (69,073,361.25) Changes in deposits held for others 35, Net cash provided (used) by non-capital financing activities $ 68,577, CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital - state appropriation 1,953, Capital grants and gifts received 4,805, Purchase of capital assets and construction (8,063,463.95) Principal paid on capital debt and lease (2,626,415.54) Interest paid on capital debt and lease (1,683,861.24) Net cash provided (used) by capital and related financing activities $ (5,614,900.19)

14 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments $ 6,305, Income on investments 620, Purchase of investments (6,452,623.18) Net cash provided (used) by investing activities $ 473, Net increase (decrease) in cash and cash equivalents (1,687,602.61) Cash and cash equivalents - beginning of year 69,633, Cash and cash equivalents - end of year (Note 2 ) $ 67,945, RECONCILIATION OF OPERATING INCOME/(LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating income/(loss) $ (74,667,004.95) Adjustments to reconcile operating loss to net cash provided (used) by operating activities: Depreciation expense 8,783, Other adjustments 71, Change in assets, liabilities, and deferrals: Receivables, net 1,041, Inventories (67,845.02) Other assets (145,252.82) Accounts payable (1,119,260.07) Accrued liabilities 421, Unearned revenues 54, Compensated absences 285, Due to grantors 241, Loans to students (79,747.09) Other 56, Net cash provided (used) by operating activities $ (65,123,515.69) Non-cash investing, capital, and financing transactions Unrealized gains/(losses) on investments 127, Gain/(loss) on disposal of capital assets (34,352.44) The notes to the financial statements are integral part of this statement.

15 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Funding Progress for Tennessee State University Actuarial UAAL as a Actuarial Accrued Unfunded Percentage of Actuarial Value of Liability (AAL) AAL Funded Covered Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (a) (b) (b-a) (a/b) (c) ((b-a)/c) July 1, ,747, ,747, ,599, % July 1, ,336, ,336, ,294, % July 1, ,054, ,054, ,201, % The amount reported here for covered payroll relates to the fiscal year in which the valuations were performed, with the exception of the July 1, 2010 actuarial valuation. The covered payroll date for the July 1, 2010 actuarial valuation is July 1, 2009.

16 Tennessee State University Supplementary Information Supplementary Schedule of Cash Flows - Component Unit for the Year Ended June 30, 2014 CASH FLOWS FROM OPERATING ACTIVITIES Component Unit Gifts and contributions 2,648, Sales and services of other activities 386, Payments to suppliers and vendors (717,475.52) Payments for scholarships and fellowships (1,694,495.07) Payments to Tennessee State University (151,400.99) Other receipts (payments) 164, Net cash provided (used) by operating activities $ 635, CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Gifts and grants received for other than capital or endowment purposes 43, Private gifts for endowment purposes 594, Net cash provided (used) by non-capital financing activities $ 638, CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments $ 8,356, Income on investments 1,208, Purchase of investments (10,714,013.78) Other investing receipts (payments) Net cash provided (used) by investing activities $ (1,148,882.39)

17 Net increase (decrease) in cash and cash equivalents 125, Cash and cash equivalents - beginning of year 6,283, Cash and cash equivalents - end of year (Note 18 ) $ 6,408, RECONCILIATION OF OPERATING INCOME/(LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating income/(loss) $ 456, Adjustments to reconcile operating loss to net cash provided (used) by operating activities: Change in assets, liabilities, and deferrals: Receivables, net 1, Other assets 19, Accounts payable 13, Other 145, Net cash provided (used) by operating activities $ 635, Non-cash investing, capital, and financing transactions Unrealized gains/(losses) on investments 4,575, The notes to the financial statements are integral part of this statement.

18 TENNESSEE BOARD OF REGENTS Tennessee State University Standard Notes to the Financial Statements June 30, Summary of Significant Accounting Policies REPORTING ENTITY The university is a part of the State University and Community College System of Tennessee (Tennessee Board of Regents). This system is a component unit of the State of Tennessee because the state appoints a majority of the system s governing body and provides significant financial support; the system is discretely presented in the Tennessee Comprehensive Annual Financial Report. The financial statements present only that portion of the Tennessee Board of Regents activities that is attributable to the transactions of Tennessee State University. The Tennessee State University Foundation is considered a component unit of the university. Although the university does not control the timing or amount of receipts from the foundation, the majority of resources, or income thereon, that the foundation holds and invests are restricted to the activities of the university by the donors. Because these restricted resources held by the foundation can only be used by, or for the benefit of, the university, the foundation is considered a component unit of the university and is discretely presented in the university's financial statements. See Note 18 for more detailed information about the component unit and how to obtain the report. BASIS OF PRESENTATION The university and foundation s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to governmental colleges and universities engaged in business-type activities as prescribed by the Governmental Accounting Standards Board (GASB). BASIS OF ACCOUNTING For financial statement purposes, the university is considered a special-purpose government engaged only in business-type activities. Accordingly, the financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. All significant interfund transactions have been eliminated. The university has classified its revenues and expenses as either operating or nonoperating according to the following criteria: Operating revenues and expenses are those that have the characteristics of exchange transactions. Operating revenues include 1) tuition and fees, net of scholarship discounts and allowances, 2) most federal, state, local and private grants and contracts, 3) sales and services of auxiliary enterprises, net of scholarship discounts and allowances, and 4) interest on institutional loans. Operating expenses include 1) salaries and wages, 2) employee benefits, 3) scholarships and fellowships, 4) depreciation, and 5) utilities, supplies, and other services.

19 Nonoperating revenues and expenses include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other activities that are defined as nonoperating by GASB Statement 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities that Use Proprietary Fund Accounting, and GASB Statement 34, such as state appropriations and investment income. When both restricted and unrestricted resources are available for use, it is the university's policy to determine whether to use restricted or unrestricted resources first depending upon existing facts and circumstances. CASH EQUIVALENTS This classification includes instruments that are readily convertible to known amounts of cash and have original maturities of three months or less. INVENTORIES Inventories are valued at the lower of cost or market. Textbooks included in the inventory are recorded on a first in, first out basis. All other items are maintained on an average cost or first-in, first-out basis. COMPENSATED ABSENCES The university's employees accrue annual and sick leave at varying rates, depending upon length of service or classification. Some employees also earn compensatory time. The amount of the liabilities for annual leave and compensatory time and their related benefits are reported in the Statement of Net Position. There is no liability for unpaid accumulated sick leave since the university's policy is to pay this only if the employee is sick or upon death. CAPITAL ASSETS Capital assets, which include property, plant, equipment, library holdings, works of art, historical treasures/collections, and intangible assets, are reported in the Statement of Net Position at historical cost or at fair value at date of donation, less accumulated depreciation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the assets useful lives are not capitalized. A capitalization threshold of $100,000 is used for buildings and $50,000 is used for infrastructure. Equipment is capitalized when the unit acquisition cost is $5,000 or greater. The capitalization threshold for additions and improvements to buildings and land is set at $50,000. The capitalization threshold for intangible assets is set at $100,000. The capitalization threshold for art, historical treasures/collections, and similar assets is set at $5,000. These assets, with the exception of works of art and historical treasures/collections deemed inexhaustible and land, are depreciated/amortized using the straight-line method over the estimated useful lives of the assets, which range from 5 to 40 years. NET POSITION The university's net position is classified as follows:

20 2. Cash NET INVESTMENT IN CAPITAL ASSETS: This represents the university's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of net investment in capital assets. RESTRICTED NET POSITION NONEXPENDABLE: Nonexpendable restricted net position consists of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may be expendable or added to principal. RESTRICTED NET POSITION EXPENDABLE: Restricted expendable net position includes resources in which the university is legally or contractually obligated to spend in accordance with restrictions imposed by external third parties. UNRESTRICTED NET POSITION: Unrestricted net position represents resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the university, and may be used at the discretion of the university to meet current expenses for any purpose. The auxiliary enterprises are substantially self-supporting activities that provide services for students, faculty, and staff. SCHOLARSHIP DISCOUNTS AND ALLOWANCES Student tuition and fee revenues, and certain other revenues from students, are reported net of scholarship discount and allowances in the statement of revenues, expenses, and changes in net position. Scholarship discounts and allowances are the difference between the stated charge for goods and services provided by the university, and the amount that is paid by the student and/or third parties making payments on the students behalf. Certain governmental grants, such as Pell grants, and other Federal, state or nongovernmental programs are recorded as either operating or nonoperating revenues in the university's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the university has recorded a scholarship discount and allowance. This classification includes demand deposits and petty cash on hand. At June 30, 2014, cash consists of $15,527, in bank accounts, $3,700 of petty cash on hand, $10,767, in the State of Tennessee Local Government Investment Pool administered by the State Treasurer, $1,068, in the LGIP Deposits Capital Projects account, and $40,578, in money market accounts. LGIP Deposits Capital Projects - Payments related to the university's capital projects are made by the State of Tennessee s Department of Finance and Administration. The university's estimated local share of the cost of each project is held in a separate Local Government Investment Pool (LGIP) account. As expenses are incurred, funds are withdrawn from the LGIP account by the Tennessee Board of Regents and transferred to the Department of Finance and Administration. The funds in the account are not available to the university for any other purpose until the project is completed and the Tennessee Board of Regents releases any remaining funds. The Local Government Investment Pool (LGIP) is administered by the State Treasurer. The LGIP is part of the State Pooled Investment Fund. The fund s required risks disclosures are presented in the State of Tennessee s Treasurer s Report. That report is available on the state s website at or by calling (615)

21 3. Deposits In accordance with the laws of the State of Tennessee, financial institutions have pledged securities as collateral for university funds on deposit. Financial institutions may participate in a bank collateral pool administered by the State Treasurer. For those financial institutions participating in the bank collateral pool, the required collateral accepted as security for deposits shall be collateral whose market value is equal to either one hundred fifteen percent (115%), one hundred percent (100%), or ninety percent (90%) of the uninsured deposits. The pledge level is based on financial criteria set by the Collateral Pool Board with the financially strongest institutions being eligible for the lowest pledge level. For all other financial institutions, the required collateral accepted as security for deposits shall be collateral whose market value is equal to one hundred five percent (105%) of the uninsured deposits. At June 30, 2014, $500, of the university's bank balance of $15,527, was exposed to custodial credit risk as follows: 4. Investments Uninsured and uncollateralized $ 500, Total $ 500, All investments permitted to be reported at fair value under GASB Statement 31 are reported at fair value, including those with a maturity date of one year or less at the time of purchase. As of June 30, 2014, the university had the following investments and maturities. Investment Maturities (In Years) Investment Type Fair Value Less than 1 1 to 5 6 to 10 More than 10 No Maturity Date U.S. Treasury Notes $ 1,275, $ - $ 1,275, $ - $ - $ - U.S. Agencies 8,212, ,724, ,449, , Government mortgage backed securities 6,103, , ,218, ,174, ,469, Total $ 15,591, $ 240, $ 8,219, $ 4,623, $ 2,469, $ 38, Interest Rate Risk. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of a debt investment. The university does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The university is authorized by statute to invest funds in accordance with Tennessee Board of Regents policies. Under the current policy, funds other than endowments may be invested only in obligations of the United States or its agencies which are backed by the full faith and credit of the United States, repurchase agreements for United States securities, certificates of deposit in banks and savings and loan associations, banker's acceptances, commercial paper, money market mutual funds and the State of Tennessee Local Government Investment Pool. The policy requires that investments of endowments in equity securities be limited to funds from private gifts or other sources external to the

22 university and that endowment investments be prudently diversified. Securities are rated using Standard and Poor s, Moody s, and/or Fitch s and are presented below using the Standard and Poor s rating scale. TBR policy restricts investments in banker s acceptances and commercial paper. The policy requires that prime banker s acceptances must be issued by domestic banks with a minimum AA rating or foreign banks with a AAA long-term debt rating by a majority of the rating services that have rated the issuer. Prime banker s acceptances are required to be eligible for purchase by the Federal Reserve System. To be eligible, the original maturity must not be more than 270 days, and it must 1) arise out of the current shipment of goods between countries or with the United States, or 2) arise out of storage within the United States of goods under contract of sale or expected to move into the channel or trade within a reasonable time and that are secured throughout their life by a warehouse receipt or similar document conveying title to the underlying goods. The policy requires that prime commercial paper shall be limited to that of corporations that meet the following criteria: 1) Senior long-term debt, if any, should have a minimum rating of A1 or equivalent, and short-term debt should have a minimum rating of A1 or equivalent, as provided by a majority of the rating services that rate the issuer. If there is no long-term debt rating, the short-term debt rating must be A1 by all rating services (minimum of two). 2) The rating should be based on the merits of the issuer or guarantee by a nonbank. 3) A financial review should be made to ascertain the issuer s financial strength to cover the debt. 4) Commercial paper of a banking institution should not be purchased. Prime commercial paper shall not have a maturity that exceeds 270 days. As of June 30, 2014, the university's investments were rated as follows: Credit Qualty Rating Investment Type Fair Value AAA AA Unrated LGIP $ 11,836, $ - $ - $ 11,836, U.S. Agencies 6,474, ,474, Government mortgage backed securities 6,103, , ,965, Total $ 24,414, $ 138, $ 12,439, $ 11,836, Concentration of Credit Risk. Concentration of credit risk is the risk of loss attributed to the magnitude of the university's investment in a single issuer. TBR policy restricts investments in banker s acceptances, commercial paper, and money market mutual funds. The policy limits banker s acceptances to not exceed twenty percent of total investments on the date of acquisition and limits the combined amount of banker s acceptances and commercial paper to not exceed thirty-five percent of total investments at the date of acquisition. The amount invested in any one bank shall not exceed five percent of total investments on the date of acquisition. Additionally, no more than five percent of total investments at the date of acquisition may be invested in the commercial paper of a single issuer. The policy further limits the total holdings of an issuer s commercial paper to not more than two percent of the issuing corporation s total outstanding commercial paper. TBR policy limits investments in money market mutual funds to not exceed ten percent of total investments on the date of acquisition.

23 More than 5 percent of the university's investments were invested in the following single issuers: Issuer Percentage of Total Investments June 30, 2014 Federal National M ortgage Association 36.79% Federal Home Loan Bank 18.20% Federal Home Loan Mortgage Corporations 25.68% 5. Accounts, Notes, and Grants Receivable Accounts receivable included the following: June 30, 2014 Student accounts receivable $ 7,950, Grants receivable 7,447, Notes receivable 13, Other receivables 642, Subtotal 16,053, Less allowance for doubtful accounts (3,750,970.16) Total receivables $ 12,302, Federal Perkins Loan Program funds include the following: June 30, 2014 Perkins loans receivable $ 5,710, Less allowance for doubtful accounts (3,851,389.64) Total $ 1,858,791.27

24 6. Capital Assets Capital asset activity for the year ended June 30, 2014, was as follows: Beg Balance Additions Transfers Reductions End Balance Land $ 9,525, $ 74, $ - $ - $ 9,599, Land improve & infra 48,986, , ,134, Buildings 225,467, ,118, ,586, Equipment 28,579, ,474, , ,833, Library holdings 4,087, , , ,798, Intangible assets 2,679, ,679, Art & hist collections Projects in progress 9,302, ,977, (3,267,209.18) - 12,012, Total 328,627, ,782, , ,644, Less accumulated depreciation/amortization: Land improve & infra 36,380, ,201, ,581, Buildings 101,768, ,389, ,158, Equipment 21,955, ,574, , ,344, Library holdings 2,514, , , ,348, Intangible assets 1,726, , ,964, Art & hist collections Total 164,345, ,783, , ,397, Capital assets, net $ 164,281, $ (612.46) $ - $ 34, $ 164,246, Accounts Payable Accounts payable included the following: 8. Long-term Liabilities June 30, 2014 Vendors payable $ 3,625, Other payables 899, Total $ 4,524,600.06

25 Long term liability activity for the year ended June 30, 2014, was as follows: Beg Balance Additions Reductions End Balance Curr Portion T SSBA debt : Bonds $ 33,793, $ - $ 2,626, $ 31,166, $ 2,670, Unamortized bond premium/discount 1,651, , ,484, Subtotal 35,444, ,792, ,651, ,670, Other liabilities Compensated absences 5,702, ,147, ,861, ,987, ,074, Due to grantors 3,974, , ,126, ,389, , Subtotal 9,677, ,688, ,988, ,377, ,388, T otal long-term liabilities $ 45,121, $ 3,688, $ 6,781, $ 42,028, $ 4,058, TSSBA Debt - Bonds Payable Bonds, with interest rates ranging from 2.5% to 5.666%, were issued by the Tennessee State School Bond Authority. The bonds are due serially until May 1, 2032 and are secured by pledges of the facilities revenues to which they relate and certain other revenues and fees of the university, including state appropriations, see Note 9 for further details. The bonded indebtedness with the Tennessee State School Bond Authority included in long-term liabilities on the Statement of Net Position is shown net of assets held by the authority in the debt service reserve and net of unexpended debt proceeds. The reserve amount was $530, at June 30, Debt service requirements to maturity for the university's portion of TSSBA bonds at June 30, 2014, are as follows: For the Year(s) Ending June 30 Principal Interest Total 2015 $ 2,670, $ 1,570, $ 4,240, ,505, ,448, ,954, ,626, ,327, ,953, ,343, ,202, ,546, ,452, ,084, ,536, ,438, ,637, ,076, ,717, ,176, ,893, ,412, , ,556, Total $ 31,166, $ 11,591, $ 42,758, Pledged Revenues The university has pledged certain revenues and fees, including state appropriations, to repay $31,166, in revenue bonds issued from December 1989 to August Proceeds from the bonds provided financing for Avon Williams Campus improvements; chiller replacement; dormitory renovations; energy savings and performance contracts; student housing/apartments; research and sponsored programs; and student housing fire suppression.. The bonds are payable through 2032.

26 Annual principal and interest payments on the bonds are expected to require 3.06% of available revenues. The total principal and interest remaining to be paid on the bonds is $42,758, Principal and interest paid for the current year and total available revenues were $4,309, and $140,750,061.93, respectively. 10. Pension Plans Defined Benefit Plan Plan Description - The university contributes to the State Employees, Teachers, and Higher Education Employees Pension Plan (SETHEEPP), a cost-sharing multiple-employer defined benefit pension plan administered by the Tennessee Consolidated Retirement System (TCRS). TCRS provides retirement, death, and disability benefits as well as annual cost-of-living adjustments to plan members and their beneficiaries. Title 8, Chapters 34-37, Tennessee Code Annotated, establishes benefit provisions. State statutes are amended by the Tennessee General Assembly. The TCRS issues a publicly available financial report that includes financial statements and required supplementary information for SETHEEPP. That report is available on the state s website at Funding Policy - Plan members are noncontributory. The university is required to contribute at an actuarially determined rate. The current rate is 15.03% of annual covered payroll. The contribution requirements of the university are established and may be amended by the TCRS Board of Trustees. The university's contributions to TCRS for the years ending June 30, 2014, 2013, and 2012 were $4,757,263.98, $4,284,542.47, and $4,191,277.07, respectively, equal to the required contributions for each year. Federal Retirement Program Plan Description The University contributes to the Federal Retirement Program, a cost-sharing multiple-employer defined benefit pension plan administered by the Civil Service Retirement System (CSRS) for participants employed prior to January 1, 1984, and the Federal Employees Retirement System (FERS) for participants employed after December 31, Both systems provide retirement, death, and disability benefits as well as annual cost-of-living adjustments to plan members and beneficiaries. All regular full-time employees of the Tennessee State University Agricultural Extension Service who hold federal appointments for 51% or more of their time are required to participate in either one of the two Federal Retirement Programs. For both systems, benefit provisions are established in federal statutes. Federal statutes are amended by the U.S. Congress. All the university s extension employees currently participate in CSRS. The CSRS issues a publicly available financial report that includes financial statements and required supplementary information. The report may be obtained by writing to the Office of Personnel Management, Retirement Information Office, P.O. Box 45, Boyers, Pennsylvania, , or by calling (202) Funding Policy Participating employees and the university are required to contribute to the CSRS plan. Contribution requirements are established and may be amended by federal statutes. The university was required to contribute 7% of covered payroll to the CSRS plan. Employees were required to contribute 7% of the covered payroll. Contributions to CSRS for the year ended June 30, 2014, were $38,813.54, which consisted of $19, from the university and $19, from the employees; contributions for the year ended June 30, 2013, were $38,792.20, which consisted of $19, from the university and $19, from the employees; contributions for the year ended June 30, 2012, were $45,370.20, which consisted of $22, from the university and $22, from the employees. Contributions met the requirements for each year.

27 Defined Contribution Plans Plan Description The university contributes to three defined contribution plans: Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF), ING Life and Annuity Company, and Variable Annuity Life Insurance Company (VALIC). These plans are administered by the Tennessee Department of the Treasury. Each plan provides retirement benefits to faculty and staff who are exempt from the overtime provisions of the Fair Labor Standards Act and who waive membership in the TCRS. Benefits depend solely on amounts contributed to the plan plus investment earnings. Plan provisions are established by state statute in Title 8, Chapter 35, Part 4, Tennessee Code Annotated. State statutes are amended by the Tennessee General Assembly. Funding Policy Plan members are noncontributory. The university contributes an amount equal to 10% of the employee s base salary up to the social security wage base and 11% above the social security wage base. Contribution requirements are established and amended by state statute. The contribution made by the university to the plans for the year ended June 30, 2014, was $3,817, and for the year ended June 30, 2013, was $3,561, Contributions met the requirements for each year. 11. Other Postemployment Benefits Healthcare is the only other postemployment benefit (OPEB) provided to employees. The State of Tennessee administers a group health insurance program that provides postemployment health insurance benefits to eligible university retirees. This program includes two plans available to higher education employees the State Employee Group Plan and the Medicare Supplement Plan. Both plans are agent multiple-employer defined benefit OPEB plans. Benefits are established and amended by an insurance committee created by Tennessee Code Annotated (TCA) for the state plan and TCA for the Medicare Supplement Plan. Prior to reaching the age of 65, all members have the option of choosing between the standard or partnership preferred provider organization (PPO) plan for healthcare benefits. Subsequent to age 65, members who are also in the state s retirement system may participate in the Medicare Supplement Plan. That plan does not include pharmacy. The state makes on-behalf payments to the Medicare Supplement Plan for the university's eligible retirees, see Note 17. The plans are reported in the State of Tennessee Comprehensive Annual Financial Report (CAFR). The CAFR is available on the state s website at Funding Policy. The premium requirements of plan members are established and may be amended by the insurance committee. The plans are self-insured and financed on a pay-as-you-go basis with the risk shared equally among the participants. Claims liabilities of the plan are periodically computed using actuarial and statistical techniques to establish premium rates. Administrative costs of the plan are allocated to plan participants. Retired employees who have not reached the age of 65 pay the same base premium as active employees in the plan adjusted for years of service. Retirees with 30 years of service are subsidized 80 percent; 20 but less than 30 years, 70 percent; and less than 20 years, 60 percent. Retired employees who are 65 years of age or older have flat rate premium subsidies based on years of service. Retirees with 30 years of service receive $50 per month; 20 but less than 30 years, $37.50; and 15 but less than 20 years, $25. Contributions for the State Employee Group Plan for the year ended June 30, 2014, were $13,857,105.78, which consisted of $11,054, from the university and $2,802, from the employees.