$55,940,000 NORTH CAROLINA CENTRAL UNIVERSITY GENERAL REVENUE AND REVENUE REFUNDING BONDS, SERIES 2016

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1 NEW ISSUE BOOK ENTRY ONLY Ratings: Moody s: A3 (See RATINGS herein) In the opinion of Parker Poe Adams & Bernstein LLP, Bond Counsel, under existing law (1) assuming compliance by the Board and the University with certain requirements of the Internal Revenue Code of 1986, as amended (the Code ), interest on the 2016 Bonds (a) is excludable from gross income for federal income tax purposes, and (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and (2) interest on the 2016 Bonds is exempt from State of North Carolina income taxation. See TAX TREATMENT herein. $55,940,000 NORTH CAROLINA CENTRAL UNIVERSITY GENERAL REVENUE AND REVENUE REFUNDING BONDS, SERIES 2016 of THE BOARD OF GOVERNORS OF THE UNIVERSITY OF NORTH CAROLINA Dated: Date of Delivery Due: October 1, as shown on the inside cover North Carolina Central University (the University ) General Revenue and Revenue Refunding Bonds, Series 2016 (the 2016 Bonds ) are limited obligations of the Board of Governors of The University of North Carolina (the Board ), payable solely from the Available Funds (as defined herein) of the University. The 2016 Bonds shall not be deemed to constitute a debt or liability of the State of North Carolina or of any political subdivision thereof, and neither the faith and credit nor the taxing power of the State of North Carolina or of any political subdivision or instrumentality thereof is pledged for the payment of the principal of or interest on the 2016 Bonds. Interest on the 2016 Bonds is payable on each April 1 and October 1, commencing October 1, Principal and redemption price of, and interest on, the 2016 Bonds will be paid by The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee ), to Cede & Co. as nominee for DTC. The 2016 Bonds are subject to optional redemption prior to maturity as described in this Official Statement. The 2016 Bonds are being issued to finance deferred maintenance on the University facilities, refund prior obligations of the University and pay the costs incurred in connection with the issuance of the 2016 Bonds. See the caption THE PLAN OF FINANCE herein. The 2016 Bonds are issued pursuant to the General Trust Indenture dated as of June 1, 2016 (the General Indenture ), between the Board and the Trustee, and Series Indenture, Number 1 dated as of June 1, 2016 (the First Series Indenture, and together with the General Indenture, the Indentures ), each between the Board and the Trustee. The 2016 Bonds are offered when, as and if issued and accepted by the Underwriters, subject to prior sale, modification or withdrawal of the offer without sale, and subject to the approval of validity and certain other matters by Parker Poe Adams & Bernstein LLP, Charlotte, North Carolina, Bond Counsel. Certain legal matters were passed on for the Board and for the University by Hon. Roy A. Cooper, III, Attorney General of the State of North Carolina and for the Underwriters by their counsel, The Banks Law Firm P.A., Research Triangle Park, North Carolina. First Tryon Advisors, Charlotte, North Carolina, is serving as financial advisor to the University in connection with the issuance and sale of the 2016 Bonds. It is expected that delivery of the 2016 Bonds will be made on or about June 1, 2016, through the facilities of DTC in New York, New York against payment therefor. See Appendix E, INFORMATION CONCERNING THE BOOK ENTRY ONLY SYSTEM. PNC Capital Markets LLC May 3, 2016 Wells Fargo Securities

2 MATURITY SCHEDULE (Base CUSIP Number 65819P) 1 Due Oct. 1 $55,940,000 Serial 2016 Bonds Principal Amount Interest Rate Yield CUSIP No. 1 Due Oct. 1 Principal Amount Interest Rate Yield CUSIP No $1,790, % 1.01% BU $3,565, % 2.37%* CD ,430, BV ,555, * CE ,525, BW ,700, * CF ,645, BX ,835, CG ,780, BY ,945, CH ,915, BZ ,065, CJ ,070, CA ,190, CK ,220, CB ,320, CL ,390, * CC0 1 CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright 2014 CUSIP Global Services. All rights reserved. CUSIP data herein is provided by S&P Capital IQ, a division of McGraw-Hill Financial, Inc. CUSIP data herein is provided for convenience of reference only. Neither the Board, the University nor the Underwriter is responsible for selection or uses of these CUSIP numbers, and no representation is made as to their correctness on the 2016 Bonds or as indicated above. The CUSIP number for a specific maturity is subject to being changed after the issuance of the 2016 Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of the 2016 Bonds. * Yield to call date of April 1, 2026 at 100%.

3 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS OF THE 2016 BONDS (AS DEFINED HEREIN) SET FORTH ON THE COVER PAGE HEREOF (THE UNDERWRITERS ) MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2016 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET, AND SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. No dealer, broker, salesman or other person has been authorized to give any information or to make any representation other than those contained in this Official Statement in connection with the offering described herein, and, if given or made, such other information or representation must not be relied upon as having been authorized. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy any securities other than the 2016 Bonds offered hereby, nor shall there be any offer or solicitation of such offer or sale of the 2016 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. Neither the delivery of this Official Statement nor the sale of any of the 2016 Bonds implies that the information herein is correct as of any date subsequent to the date hereof. The information contained herein has been obtained from the Board and the University and other sources believed to be reliable. The information contained herein is subject to change after the date of this Official Statement, and this Official Statement speaks only as of its date. Neither the 2016 Bonds nor the Indentures (as hereinafter defined) have been registered or qualified with the Securities and Exchange Commission. The registration or qualification of the 2016 Bonds and the Indentures in accordance with applicable provisions of securities laws of the states in which the 2016 Bonds have been registered or qualified, and the exemption from registration or qualification in other states, shall not be regarded as a recommendation thereof. In making an investment decision, investors must rely on their own examination of the terms of the offering, including the merits and risks involved. These securities have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offense. All quotations from and summaries and explanations of laws and documents herein do not purport to be complete, and reference is made to such laws and documents for full and complete statements of their provisions. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not expressly so stated, are intended merely as estimates or opinions and not as representations of fact. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale of the 2016 Bonds shall under any circumstances create any implication that there has been no change in the affairs of the Board since the date hereof. The Underwriters have provided the following sentence for inclusion in this Official Statement: the Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

4 TABLE OF CONTENTS Page INTRODUCTION... 1 Limited Obligations... 1 Additional Information... 2 Professionals... 2 SECURITY FOR THE 2016 BONDS... 2 General... 2 Available Funds... 3 Additional Indebtedness... 3 DESCRIPTION OF THE 2016 BONDS... 4 General... 4 Book-Entry-Only System... 4 Redemption... 4 PRINCIPAL AND INTEREST REQUIREMENTS... 6 THE PLAN OF FINANCE... 6 The Project... 6 The Refunding... 7 Verification... 7 ESTIMATED SOURCES AND USES OF FUNDS... 7 THE BOARD OF GOVERNORS OF THE UNIVERSITY OF NORTH CAROLINA... 7 NORTH CAROLINA CENTRAL UNIVERSITY... 8 TAX TREATMENT... 8 General... 8 Original Issue Discount Original Issue Premium CONTINUING DISCLOSURE OBLIGATION RATINGS LITIGATION APPROVAL OF LEGAL PROCEEDINGS RELATED PARTIES UNDERWRITING UNIVERSITY FINANCIAL ADVISOR MISCELLANEOUS APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E NORTH CAROLINA CENTRAL UNIVERSITY FINANCIAL STATEMENTS DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURES FORM OF OPINION OF BOND COUNSEL INFORMATION CONCERNING THE BOOK-ENTRY ONLY SYSTEM (i)

5 THE UNIVERSITY OF NORTH CAROLINA General Administration Chapel Hill, North Carolina OFFICIAL STATEMENT Relating to $55,940,000 North Carolina Central University General Revenue and Revenue Refunding Bonds, Series 2016 The purpose of this Official Statement, which includes the appendices hereto, is to furnish information in connection with the sale by The Board of Governors (the Board ) of The University of North Carolina of $55,940,000 aggregate principal amount of North Carolina Central University General Revenue and Revenue Refunding Bonds, Series 2016 (the 2016 Bonds ). INTRODUCTION The 2016 Bonds will be issued under and secured by a General Trust Indenture dated as of June 1, 2016 (the General Indenture ), between the Board and The Bank of New York, the successor to which is The Bank of New York Mellon Trust Company, N.A., as trustee (the Trustee ); Series Indenture, Number 1 dated as of June 1, 2016 between the Board and the Trustee (the First Series Indenture, and collectively with the General Indenture, the Indentures ); resolutions adopted by the Board on March 4, 2016 and April 15, 2016, and the Constitution and laws of the State of North Carolina (the State ), including Section 116D-21 et. seq. of the General Statutes of North Carolina (the Act ). The 2016 Bonds are being issued to (1) finance deferred maintenance on University facilities, (2) refund The University of North Carolina System Pool Revenue Bonds, Series 2009C issued for the benefit of the University (the Refunded Bonds ), and (3) pay certain costs incurred in connection with the issuance of the 2016 Bonds. See the caption THE PLAN OF FINANCE herein. LIMITED OBLIGATIONS The 2016 Bonds are limited obligations of the Board, payable solely from the Available Funds of the University, as defined under the caption SECURITY FOR THE 2016 BONDS herein. Debt payable from the University s Available Funds (the Existing Bonds ) has previously been issued. See the caption PRINCIPAL AND INTEREST REQUIREMENTS herein. Additional Bonds may be issued under the General Indenture, and the University or the Board may issue other parity obligations under the conditions and limitations set forth in the General Indenture and described under the caption SECURITY FOR THE 2016 BONDS ADDITIONAL INDEBTEDNESS herein.

6 THE 2016 BONDS DO NOT CONSTITUTE A DEBT OR LIABILITY OF THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR OF ANY POLITICAL SUBDIVISION OR INSTRUMENTALITY THEREOF IS PLEDGED FOR THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE 2016 BONDS. THE 2016 BONDS DO NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY TAXES WHATSOEVER THEREFOR. ADDITIONAL INFORMATION This Official Statement includes financial and other information about the Board and also contains descriptions of the 2016 Bonds and the Indentures. Capitalized terms used herein are defined in Appendix C hereto or in the Indentures. All references herein to the General Indenture, the First Series Indenture, the 2016 Bonds and other documents and agreements are qualified in their entirety by reference to such documents and agreements. The General Indenture provides for the Board to deliver to any interested party any reasonably available information otherwise compiled by the University concerning the 2016 Bonds or the University s condition or operations on (1) written request to the University s Vice Chancellor of Administration and Finance, North Carolina Central University, 1801 Fayetteville Street, Durham, North Carolina and (2) payment of duplicating costs. The Board has agreed to provide, or cause the University to provide, continuing disclosure of annual financial information and operating data and material events regarding the 2016 Bonds. See the caption CONTINUING DISCLOSURE OBLIGATION herein. PROFESSIONALS PNC Capital Markets LLC, Charlotte, North Carolina and Wells Fargo Bank, National Association, Charlotte, North Carolina (collectively, the Underwriters ) are underwriting the 2016 Bonds. Parker Poe Adams & Bernstein LLP, Charlotte, North Carolina, is Bond Counsel and will submit its approving opinion with regard to the legality of the 2016 Bonds. The Banks Law Firm P.A., Research Triangle Park, North Carolina, is serving as counsel to the Underwriter. First Tryon Advisors, Charlotte North Carolina, is serving as financial advisor to the University in connection with the issuance and sale of the 2016 Bonds. The Bank of New York Mellon Trust Company, N.A. (the Trustee and Registrar ), through its corporate trust office in Jacksonville, Florida, will serve as trustee, paying agent and registrar for the 2016 Bonds and as escrow agent for the Refunded Bonds. GENERAL SECURITY FOR THE 2016 BONDS The 2016 Bonds are payable from Available Funds of the University or the Board. Available Funds means any legally available funds of the University, or the Board held for the University, in each Fiscal Year but excluding (1) appropriations by the General Assembly of the State from the State General Fund, (2) tuition payments by University students, (3) funds whose purpose has been restricted by the gift, grant or payee thereof, (4) revenues generated by Special Facilities, (5) funds restricted by law and (6) funds derived from a source of revenues that have been (a) authorized by the Board, (b) first assessed and collected by the University after the issuance of the most recent Series of Bonds under the Indenture and (c) identified in a Certificate from the Vice Chancellor to the Board and the Trustee as being excluded from Available Funds. The Available Funds are not pledged to the Trustee, but rather are the source from which principal and interest on the Bonds will be paid. See --AVAILABLE FUNDS below. 2

7 AVAILABLE FUNDS The Available Funds of the University for the fiscal years ended June 30, are as follows: AVAILABLE FUNDS (AS DEFINED IN THE GENERAL INDENTURE) FOR THE YEAR ENDED JUNE Beginning Fund Balance: $(3,293,579) $2,166,828 $3,348,473 $(17,260,182) Plus: Total Operating Revenue 71,798,775 72,638,675 71,713,872 70,876,350 Add: Scholarship Allowance 12,014,449 14,019,861 14,519,402 14,149,739 Less: Restricted Revenues (8,875,848) (8,418,350) (7,381,594) (8,324,800) Unrestricted Operating Revenues 74,937,376 78,240,186 78,851,680 76,701,289 Unrestricted and Auxiliary Gifts 181,523 14,931 82, ,685 Unrestricted and Auxiliary Investment Income 622,709 2,756,662 4,242,889 2,934,811 Unrestricted Endowment Income Surplus Sales Subtotal $72,448,029 $83,178,607 $86,525,759 $62,809,603 Less: Tuition (39,324,084) (39,813,206) (40,109,895) (38,001,106) Total Available Funds 1 $33,123,945 $43,365,401 $46,415,864 $24,808,497 1 Totals may not foot due to rounding. 2 GASB 68 required the University to recognize its proportionate share of the State s overall net pension liability. Accordingly, fiscal year 2014 was restated to reflect a reduction of $18,956,827 in the net change in unrestricted net portion, which is reflected in the fiscal year 2015 beginning figure. ADDITIONAL INDEBTEDNESS Under the terms of the General Indenture, neither the Board nor the University will issue: (1) any other obligations under any existing bond resolution, trust indenture or other financing document which authorizes the issuance of debt obligations secured by revenues or net revenues from any University enterprise; (2) any Bonds, except on the conditions and in the manner provided in the General Indenture; (3) any other obligations payable from Available Funds, unless (A) such obligations constitute Subordinate Indebtedness or Other Indebtedness, or (B) (i) such obligations are payable on a parity basis with the Bonds and (ii) the largest of the sums obtained for any Fiscal Year after totaling for each Fiscal Year the Principal and Interest Requirements on Other Indebtedness, the Principal and Interest Requirements on Subordinate Indebtedness and the Principal and Interest Requirements on parity obligations other than the Bonds (including the additional obligations to be issued), calculated in the manner that the Principal and Interest Requirements on the Bonds is calculated, does not exceed 10% of Available Funds in the most recent Fiscal Year for which audited financial statements of the University are available; or (4) any obligation other than those described in clauses (1), (2) or (3), unless they are payable from a source other than Available Funds. 3

8 See Appendix C - DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURES GENERAL INDENTURE AND FIRST SERIES INDENTURE --No Additional Bonds Under Existing Bond Documentation; Additional Obligations for a further description of the limitations on the Board s ability to issue additional bonds or other debt on a parity with the 2016 Bonds. GENERAL DESCRIPTION OF THE 2016 BONDS The 2016 Bonds will be issuable in denominations of $5,000 or integral multiples thereof, and will be dated and bear interest from their dated date. The 2016 Bonds will bear interest (payable on each April 1 and October 1, commencing October 1, 2016) at the interest rates and will mature on the dates set forth on the inside cover page of this Official Statement. The 2016 Bonds are payable at the corporate trust office of the Trustee on presentation and surrender thereof. Interest on 2016 Bonds will be paid, except as otherwise provided in the First Series Indenture, by check or draft mailed to each Owner on each Interest Payment Date at their addresses as they appear on the register kept by the Trustee, at the close of business on the 15 th day of the month preceding each Interest Payment Date (each, a Record Date ). At the written request of any Owner of at least $1,000,000 in principal amount of the 2016 Bonds, and while a book-entry system is in place with respect to the 2016 Bonds as provided in the First Series Indenture, principal and interest may be payable by wire transfer at the address specified in writing by such Owner by the Record Date. BOOK-ENTRY-ONLY SYSTEM For information concerning the book-entry only system, see Appendix E, INFORMATION CONCERNING THE BOOK-ENTRY ONLY SYSTEM. REDEMPTION Optional Redemption. The 2016 Bonds maturing on or before October 1, 2025 are not subject to redemption before their stated maturities. The 2016 Bonds maturing on or after October 1, 2026 may be redeemed before their maturities, at the written direction of the Vice Chancellor to the Trustee, from any funds that may be available for such purpose, in whole or in part on or after April 1, The 2016 Bonds called for redemption will be redeemed at 100% of the principal amount of the 2016 Bonds to be so redeemed plus accrued interest to the redemption date. Notice of Redemption. The Trustee is required to give notice of redemption by Mail, not less than 30 nor more than 60 days (or as long as the Securities Depository is the owner of the 2016 Bonds, such shorter time as may be permitted by such Securities Depository s rules and procedures) before the date of redemption, (a) to each Bondowner at the address shown on the registration books of the Registrar (including electronic mail if so permitted by the Securities Depository s rules and procedures), and (b) to the Municipal Securities Rulemaking Board in accordance with its rules and procedures. The notice of redemption shall state: (v) the redemption date; (w) the Redemption Price; (x) the numbers of the 2016 Bonds to be redeemed unless all of the outstanding 2016 Bonds are redeemed; (y) as to any 2016 Bonds redeemed in part only, the numbers of the 2016 Bonds and the principal portion thereof to be redeemed; and (z) that interest on the principal portion of the 2016 Bonds designated for redemption shall cease to accrue from and after the redemption date and that on the redemption date there shall become due and payable on each of such 2016 Bonds the Redemption Price for each 2016 Bond. 4

9 If at the time of mailing of the notice of redemption there is not on deposit with the Trustee money sufficient to redeem the 2016 Bonds called for redemption, such notice may state that it is conditional on the deposit of the redemption money with the Trustee on the date of redemption as set forth in the notice. Any notice, once given, may be withdrawn by notice delivered in the same manner as the notice of redemption was given, on receipt by the Trustee of written instructions from the Board with respect to such withdrawal. Selection of Bonds for Redemption. In the case of any partial redemption of the 2016 Bonds under the First Series Indenture, the Board will select the maturity or maturities of the 2016 Bonds to be redeemed and in the case of any partial redemption of 2016 Bonds within the same maturity, DTC will select the 2016 Bonds within the same maturity pursuant to its rules and procedures or, if the book-entry system with DTC or any other securities depository has been discontinued, the Trustee will select the 2016 Bonds to be redeemed by lot in such manner as the Trustee in its discretion may deem proper. Effect of Call for Redemption Bonds called for redemption are due and payable on the redemption date at the Redemption Price, which includes accrued interest to the redemption date. If money sufficient to pay the Redemption Price of the 2016 Bonds to be redeemed are held by the Trustee, 2016 Bonds or portions thereof thus called and provided for will not bear interest after such redemption date and will not be considered to be Outstanding or to have any other rights under the First Series Indenture other than the right to receive payment. No payment of principal will be made by the Trustee on any 2016 Bonds or portions thereof called for redemption until such 2016 Bonds or portions thereof have been delivered for payment or cancellation or the Trustee has received the items required by the General Indenture with respect to any mutilated, lost, stolen or destroyed 2016 Bonds. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 5

10 PRINCIPAL AND INTEREST REQUIREMENTS The following schedule sets forth for each respective fiscal year the estimated amounts required in such year for the payment of principal of and interest on (1) Existing Bonds, excluding the Refunded Bonds, and (2) the 2016 Bonds. The Existing Bonds, the 2016 Bonds and any Bonds hereafter issued under the General Indenture are, or will be, parity obligations payable from the University s Available Funds. FISCAL YEAR ENDED JUNE 30 DEBT SERVICE ON EXISTING BONDS BONDS PRINCIPAL & INTEREST TOTAL DEBT SERVICE ON PARITY OBLIGATIONS 2016 $4,998,545 $4,998, ,761 $1,860,000 2,468, ,905 2,232,000 2,846, ,699 3,995,150 4,612, ,204 4,559,700 5,175, ,503 4,555,600 5,168, ,638 4,558,975 5,172, ,504 4,558,350 5,177, ,550,975 4,550, ,556,350 4,556, ,549,100 4,549, ,553,850 4,553, ,554,975 4,554, ,384,750 4,384, ,384,650 4,384, ,388,125 4,388, ,381,425 4,381, ,381,275 4,381, ,382,450 4,382, ,384,800 4,384,800 1 Excludes the debt service on the Refunded Bonds. Excludes bonds issued in 2003 for the benefit of the NCCU Real Estate Foundation, Inc. outstanding in the aggregate principal amount of $17,785,000 with a final maturity of October 1, 2034 which constitutes Subordinate Indebtedness payable from University housing revenues. THE PLAN OF FINANCE Proceeds of the 2016 Bonds will be used to: (1) finance deferred maintenance on University facilities, including the Albert L. Turner Building that houses the University s School of Law, (2) refund the Refunded Bonds and (3) pay certain costs incurred in connection with the issuance of the 2016 Bonds. THE PROJECT The University will repair the brick façade of the Albert L. Turner Building, including the replacement of brick, provision for overhead fall protection and repairs to the roof coping and subsurface supporting steel. If any proceeds of the 2016 Bonds remain after completion of the repair of the Turner Building, the University may use such funds for other deferred maintenance projects. 6

11 THE REFUNDING The portion of the proceeds of the 2016 Bonds to be used to refund the Refunded Bonds will be applied to the purchase of certain federal securities to be held in trust by The Bank of New York Mellon Trust Company, N.A., as escrow agent (the Escrow Agent ) under an Escrow Agreement dated as of June 1, 2016 (the Escrow Agreement ) between the Board and the Escrow Agent. The Federal Securities (as specified in the Escrow Agreement) will mature at such times and in such amounts, and will bear interest payable at such times and in such amounts, so that sufficient money will be available to pay when due principal of and interest on the Refunded Bonds to October 1, 2019 and a redemption price equal to 100% of the principal amount of the Refunded Bonds on October 1, In the Escrow Agreement, the Board will irrevocably direct the trustee for the Refunded Bonds to call the Refunded Bonds for redemption on October 1, Amounts on deposit under the Escrow Agreement will not secure the 2016 Bonds. VERIFICATION The accuracy of (1) the mathematical computations of the adequacy of the maturing principal and interest with respect to the Federal Securities deposited in the Escrow Fund to pay, together with any uninvested cash held in the Escrow Fund, when due, principal and interest with respect to the Refunded Bonds and (2) the mathematical computations supporting the conclusion that the 2016 Bonds are not arbitrage bonds under the Code will be verified by Bingham Arbitrage Rebate Services Incorporated. Such verification will be based, among other things, on mathematical computations supplied by the Underwriters. Bond Counsel will rely on such verification in rendering its opinion as to the exclusion of interest with respect to the 2016 Bonds from gross income of the recipients thereof for purposes of federal income taxation. ESTIMATED SOURCES AND USES OF FUNDS The sources and uses of funds are estimated to be as follows: SOURCES: Par Amount of 2016 Bond $55,940,000 Net Original Issue Premium 5,945,624 TOTAL SOURCES $61,885,624 USES: Escrow Deposit $59,864,443 Project Fund Deposit 1,600,000 Costs of Issuance 1 421,181 TOTAL USES $61,885,624 1 Includes legal fees, financial advisor fees, rating agency fees, Underwriters discount and other miscellaneous costs of issuance for the 2016 Bonds. THE BOARD OF GOVERNORS OF THE UNIVERSITY OF NORTH CAROLINA The Board is classified and constituted pursuant to Chapter 116 of the General Statutes of North Carolina, as amended, as a body politic and corporate of the State. Chapter 116 also provides that 7

12 members of the Board are to be elected by the North Carolina Senate and House of Representatives. The State Senate and House presently elect 16 members every two years to serve four-year terms. Pursuant to the Act, the Board is authorized to issue, subject to the approval of the Director of Budget, at one time or from time to time, special obligation bonds of the Board, for the purpose of paying all or any part of the cost of acquiring, constructing or providing one or more capital facilities at the University or refunding any bonds issued under the Act or under any provision of any Article of Chapter 116 for the benefit of the University. The University of North Carolina System (the System ) is composed of the following institutions: The University of North Carolina at Asheville, The University of North Carolina at Chapel Hill, The University of North Carolina at Charlotte, The University of North Carolina at Greensboro, The University of North Carolina at Pembroke, The University of North Carolina at Wilmington, Appalachian State University, East Carolina University, Elizabeth City State University, Fayetteville State University, North Carolina Agricultural and Technical State University, North Carolina Central University, The University of North Carolina School of Arts, North Carolina State University, Western Carolina University, Winston-Salem State University and the North Carolina School of Science and Mathematics. NORTH CAROLINA CENTRAL UNIVERSITY North Carolina Central University (the University ) was founded in 1909 as the National Religious Training School and Chautauqua by Dr. James Edward Shepard. It became the first public liberal arts institution for African Americans in the nation. The University is now a master s comprehensive institution that offers bachelors and master s degrees, a Juris Doctor, and a Ph.D. in Integrated Biosciences. The University s campus encompasses 135 acres and includes 64 buildings in Durham, North Carolina. See Appendix A, NORTH CAROLINA CENTRAL UNIVERSITY. GENERAL TAX TREATMENT On the date of issuance of the 2016 Bonds, Parker Poe Adams & Bernstein LLP, Charlotte, North Carolina ( Bond Counsel ), will render an opinion that, under existing law (1) assuming compliance by the Board and the University with certain provisions of the Internal Revenue Code of 1986, as amended (the Code ), interest on the 2016 Bonds (a) is excludable from gross income for federal income tax purposes, and (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, nor is it included in adjusted current earnings when calculating corporate alternative minimum taxable income, and (2) interest on the 2016 Bonds is exempt from State of North Carolina income taxation. The Code imposes various restrictions, conditions and requirements relating to the exclusion of interest on obligations, such as the 2016 Bonds, from gross income for federal income tax purposes, including, but not limited to, the requirement that the Board and the University rebate certain excess earnings on proceeds and amounts treated as proceeds of the 2016 Bonds to the United States Treasury, restrictions on the investment of such proceeds and other amounts, and restrictions on the ownership and use of the facilities financed or refinanced with proceeds of the 2016 Bonds. The foregoing is not intended to be an exhaustive listing of the post-issuance tax compliance requirements of the Code, but is illustrative of the requirements that must be satisfied by the Board and the University subsequent to issuance of the 2016 Bonds to maintain the excludability of the interest on the 2016 Bonds from gross income for federal income tax purposes. Bond Counsel s opinion is given in reliance on certifications by 8

13 representatives of the Board and the University as to certain facts material to the opinion and the requirements of the Code. The Board and the University have covenanted to comply with all requirements of the Code that must be satisfied subsequent to the issuance of the 2016 Bonds in order that the interest on the 2016 Bonds be, or continue to be, excludable from gross income for federal income tax purposes. The opinion of Bond Counsel assumes compliance by the Board and the University with such covenants, and Bond Counsel has not been retained to monitor compliance by the Board and the University with such covenants subsequent to the date of issuance of the 2016 Bonds. Failure to comply with certain of such requirements may cause the interest on the 2016 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2016 Bonds. No other opinion is expressed by Bond Counsel regarding the federal tax consequences of the ownership of or the receipt or accrual of interest with respect to the 2016 Bonds. If the interest on the 2016 Bonds subsequently becomes included in gross income for federal income tax purposes due to a failure by the Board and the University to comply with any requirements described above, the Board and the University are not required to redeem the 2016 Bonds or to pay any additional interest or penalty. The Internal Revenue Service has established an ongoing program to audit tax-exempt obligations to determine whether interest on such obligations is includible in gross income for federal income tax purposes. Bond Counsel cannot predict whether the Internal Revenue Service will commence an audit of the 2016 Bonds. Prospective purchasers of the 2016 Bonds are advised that, if the Internal Revenue Service does audit the 2016 Bonds, under current Internal Revenue Service procedures, at least during the early stages of an audit, the Internal Revenue Service will treat the Board as the taxpayer, and the owners of the 2016 Bonds may have limited rights, if any, to participate in such audit. The commencement of an audit could adversely affect the market value and liquidity of the 2016 Bonds until the audit is concluded, regardless of the ultimate outcome. Prospective purchasers of the 2016 Bonds should be aware that ownership of the 2016 Bonds and the accrual or receipt of interest on the 2016 Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property or casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain Subchapter S Corporations with excess net passive income, foreign corporations subject to the branch profits tax, life insurance companies and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the 2016 Bonds. Bond Counsel does not express any opinion as to any such collateral tax consequences. Prospective purchasers of the 2016 Bonds should consult their own tax advisors as to the collateral tax consequences. Proposed legislation is considered from time to time by the United States Congress that, if enacted, would affect the tax consequences of owning the 2016 Bonds. No assurance can be given that any future legislation, or clarifications or amendments to the Code, if enacted into law, will not contain provisions which could cause the interest on the 2016 Bonds to be subject directly or indirectly to federal or State of North Carolina income taxation, adversely affect the market price or marketability of the 2016 Bonds or otherwise prevent the owners of the 2016 Bonds from realizing the full current benefit of the status of the interest on the 2016 Bonds. Bond Counsel s opinion is based on existing law, which is subject to change. Such opinion is further based on factual representations made to Bond Counsel as of the date thereof. Bond Counsel assumes no duty to update or supplement its opinion to reflect any facts or circumstances that may thereafter come to Bond Counsel s attention, or to reflect any changes in law that may thereafter occur or become effective. Moreover, Bond Counsel s opinion is not a guarantee of a particular result, and is not 9

14 binding on the Internal Revenue Service or the courts; rather, such opinion represents Bond Counsel s professional judgment based on its review of existing law, and in reliance on the representations and covenants that Bond Counsel deems relevant to such opinion. Bond Counsel s opinion expresses the professional judgment of the attorneys rendering the opinion regarding the legal issues expressly addressed therein. By rendering its opinion, Bond Counsel does not become an insurer or guarantor of the result indicated by that expression of professional judgment, of the transaction on which the opinion is rendered, or of the future performance of the Board and the University, nor does the rendering of such opinion guarantee the outcome of any legal dispute that may arise out of the transaction. ORIGINAL ISSUE DISCOUNT As indicated on the inside cover page, the 2016 Bonds maturing on October 1, 2030 through October 1, 2034, inclusive (the OID Bonds ), are being sold at initial offering prices which are less than the principal amount payable at maturity. Under the Code, the difference between (a) the initial offering prices to the public (excluding bond houses and brokers) at which a substantial amount of each maturity of the OID Bonds is sold and (b) the principal amount payable at maturity of such OID Bonds, constitutes original issue discount treated as interest which will be excluded from the gross income of the owners of such OID Bonds for federal income tax purposes. In the case of an owner of an OID Bond, the amount of original issue discount on such OID Bond is treated as having accrued daily over the term of such OID Bond on the basis of a constant yield compounded at the end of each accrual period and is added to the owner s cost basis of such OID Bond in determining, for federal income tax purposes, the gain or loss upon the sale, redemption or other disposition of such OID Bond (including its sale, redemption or payment at maturity). Amounts received upon the sale, redemption or other disposition of an OID Bond which are attributable to accrued original issue discount on such OID Bonds will be treated as interest exempt from gross income, rather than as a taxable gain, for federal income tax purposes, and will not be a specific item of tax preference for purposes of the federal alternative minimum tax imposed on corporations and individuals. Corporate owners of an OID Bond should be aware that the accrual of original issue discount on any OID Bond in each year may result in a federal alternative minimum tax liability or other collateral federal income tax consequences, even though such corporate owners may not have received any cash payments attributable to such original issue discount in such year. Original issue discount is treated as compounding semiannually at a rate determined by reference to the yield to maturity of each individual OID Bond. The amount treated as original issue discount on an OID Bond for a particular semiannual accrual period is equal to (a) the product of (i) the yield to maturity for such OID Bond (determined by compounding at the close of each accrual period) and (ii) the amount which would have been the tax basis of such OID Bond at the beginning of the particular accrual period if held by the original purchaser, less (b) the amount of interest payable on such OID Bond during the particular accrual period. The tax basis is determined by adding to the initial public offering price on such OID Bond the sum of the amounts which have been treated as original issue discount for such purposes during all prior accrual periods. If an OID Bond is sold between semiannual compounding dates, original issue discount which would have accrued for that semiannual compounding period for federal income tax purposes is to be appointed in equal amounts among the days in such compounding period. The Code contains additional provisions relating to the accrual of original issue discount in the case of owners of the OID Bonds who subsequently purchase any OID Bonds after the initial offering or at a price different from the initial offering price during the initial offering of the 2016 Bonds. Owners of OID Bonds should consult their own tax advisors with respect to the precise determination for federal and state income tax purposes of the amount of original issue discount accrued upon the sale, redemption or 10

15 other disposition of an OID Bond as of any date and with respect to other federal, state and local tax consequences of owning and disposing of an OID Bond. It is possible that under the applicable provisions governing the determination of state or local taxes, accrued original issue discount on an OID Bond may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment attributable to such original issue discount until a later year. ORIGINAL ISSUE PREMIUM As indicated on the inside cover page, the 2016 Bonds maturing on October 1, 2018 through October 1, 2029, inclusive (the Premium Bonds ), are being sold at initial offering prices which are in excess of the principal amount payable at maturity. The difference between (a) the initial offering prices to the public (excluding Bond houses and brokers) at which a substantial amount of the Premium Bonds is sold and (b) the principal amount payable at maturity of such Premium Bonds constitutes original issue premium, which original issue premium is not deductible for federal income tax purposes. In the case of an owner of a Premium Bond, however, the amount of the original issue premium which is treated as having accrued over the term of such Premium Bond is reduced from the owner s cost basis of such Premium Bond in determining, for federal income tax purposes, the taxable gain or loss upon the sale, redemption or other disposition of such Premium Bond (whether upon its sale, redemption or payment at maturity). Owners of Premium Bonds should consult their tax advisors with respect to the determination, for federal income tax purposes, of the adjusted basis of such Premium Bonds upon any sale or disposition and with respect to any state or local tax consequences of owning a Premium Bond. CONTINUING DISCLOSURE OBLIGATION The Board has agreed in the First Series Indenture authorizing the 2016 Bonds, in accordance with Rule 15c2-12 (the Rule ) promulgated by the Securities and Exchange Commission (the SEC ) and for the benefit of the registered owners and beneficial owners of the 2016 Bonds to provide, or cause the University to provide to the Municipal Securities Rulemaking Board (the MSRB ): (a) by not later than seven months from the end of each Fiscal Year of the University, beginning with the Fiscal Year ending June 30, 2016, the audited financial statements of the University for such Fiscal Year, if available, prepared in accordance with the laws of the State applicable to the Board and its constituent institutions, or if such audited financial statements of the University are not available by seven months from the end of such Fiscal Year, unaudited financial statements of the University for such Fiscal Year to be replaced subsequently by audited financial statements of the University to be delivered within 15 days after such audited financial statements become available for distribution; (b) by not later than seven months from the end of each Fiscal Year of the University, beginning with the Fiscal Year ending June 30, 2016, the financial and statistical data as of a date not earlier than the end of the preceding Fiscal Year (which data shall be prepared at least annually, shall specify the date as to which such information was prepared and shall be delivered together with any subsequent material events notices specified below) for the type of information included (i) in the table of Available Funds set forth under the caption SECURITY FOR THE 2016 BONDS- AVAILABLE FUNDS, and (ii) under the heading Enrollment in APPENDIX A hereto, in each case, to the extent such information is not included in the financial statements referred to in (a) above; 11

16 (c) in a timely manner not in excess of 10 Business Days after the occurrence of an event, notice of any of the following events with respect to the 2016 Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on any credit enhancement reflecting financial difficulties; (5) substitution of any credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the IRS of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the 2016 Bonds, or other material events affecting the tax status of the 2016 Bonds; (7) modification to the rights of the beneficial owners of the 2016 Bonds, if material; (8) call of any of the 2016 Bonds, if material, and tender offers; (9) defeasance of any of the 2016 Bonds; (10) release, substitution or sale of any property securing repayment of the 2016 Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar proceeding by the University; (13) the consummation of a merger, consolidation, or acquisition involving the University or the sale of all or substantially all of the assets of the University, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) the appointment of a successor or additional trustee or a change in the name of the trustee, if material; and (d) within 10 Business Days following the occurrence of a failure, notice of a failure of the Board to provide required annual financial information described in (a) or (b) above on or before the date specified. All information provided to the MSRB as described above shall be provided in an electronic format as prescribed by the MSRB and accompanied by identifying information as prescribed by the 12

17 MSRB. Currently such information is provided through the Electronic Municipal Market Access System ( EMMA ) maintained by the MSRB. The Board may meet the continuing disclosure filing requirements described above by complying with any other procedure that may be required or authorized by the United States Securities and Exchange Commission. The Board has agreed that its undertaking set forth above is intended to be for the benefit of the registered owners and the beneficial owners of the 2016 Bonds and is enforceable by the Trustee or by any of them, including an action for specific performance of the Board s obligations described above, but a failure to comply will not be an event of default under the General Indenture and will not result in acceleration of the payment of the 2016 Bonds. An action must be instituted, had and maintained in the manner provided in this paragraph for the benefit of all of the registered owners and beneficial owners of the 2016 Bonds. Pursuant to the First Series Indenture, the Board may modify from time to time, consistent with the Rule, the information to be provided or the format of the presentation of such information, to the extent necessary or appropriate in the judgment of the University, provided that: (1) any such modification may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of the Board; (2) the information to be provided, as modified, would have complied with the requirements of the Rule as of the date of this Official Statement, after taking into account any amendments or interpretations of the Rule, as well as any changes in circumstances; and (3) any such modification does not materially impair the interests of the registered owners or the beneficial owners of the 2016 Bonds, as determined by Bond Counsel or by the approving vote of the registered owners of a majority in principal amount of the 2016 Bonds pursuant to the terms of the First Series Indenture, as it may be amended from time to time, at the time of the amendment. Any annual financial information containing modified operating data or financial information is required to explain, in narrative form, the reasons for the modification and the impact of the change in the type of operating data or financial information being provided. The undertaking described above will terminate upon payment, or provision having been made for payment in a manner consistent with the Rule, in full of the principal of and interest on all of the 2016 Bonds. The University failed to file its annual audited financial statements for the fiscal years ended June 30, 2011 and June 30, 2013 in a timely manner. A ratings downgrade was not linked to a CUSIP number for an issue that was outstanding at the time, but is no longer outstanding. Certain insurer rating downgrades may not have been posted in a timely manner for an issue that was outstanding at the time, but is no longer outstanding. The University s annual audited financial statements for the fiscal years ended June 30, 2011 and June 30, 2013 have now been filed, along with a notice of late filing regarding all such information. The University has implemented procedures to ensure timely filing of all future financial information. The Board has delegated to each constituent institution responsibility for complying with the continuing disclosure undertakings relating to bonds issued for its benefit. The University is not 13

18 responsible for the compliance of other constituent institutions with their continuing disclosure undertakings. Certain of the constituent institutions have failed to comply in all material respects with their continuing disclosure obligations undertaken with existing bonds issued by the Board for their benefit. In addition, certain bonds issued by the Board on behalf of constituent institutions are insured by bond insurers whose ratings have been downgraded at various times over the last five years. Information about those downgrades was publicly available, but certain constituent institutions did not file material event notices of those downgrades in a timely manner as required by the Rule. In some years, certain constituent institutions failed to timely file required statistical information and audited financial statements. RATINGS Moody s Investors Service ( Moody s ) has assigned the 2016 Bonds a rating of A3 (stable). Explanations of the significance of the respective ratings may be obtained from Moody s at 7 World Trade Center, 250 Greenwich Street, New York, New York 10007, (212) The ratings reflect only the view of the rating agency and neither the Board nor the University makes any representation as to the appropriateness of the rating. There is no assurance that such rating will continue for any given period of time or that the ratings will not be revised or withdrawn entirely by the rating agencies, if in their judgment, circumstances so warrant. Any downward revision or withdrawal of such rating may have an adverse effect on the market price of the 2016 Bonds. A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time. LITIGATION There is no litigation pending against the Board or the University, or, to the knowledge of the officers or attorneys for either, threatened, in any court or other tribunal of competent jurisdiction, State or federal, in any way (1) restraining or enjoining the issuance, sale or delivery of any of the 2016 Bonds; (2) questioning or affecting the validity of the 2016 Bonds, the General Indenture, or the First Series Indenture; (3) questioning or affecting the validity of any of the proceedings for the authorization, sale, execution or delivery of the 2016 Bonds; or (4) questioning or affecting the organization of the Board or the power of the Board to pay principal and interest on the 2016 Bonds from Available Funds. APPROVAL OF LEGAL PROCEEDINGS All legal matters incident to the issuance and authorization of the 2016 Bonds are subject to the unqualified approving opinion of Parker Poe Adams & Bernstein LLP, Charlotte, North Carolina, Bond Counsel. A proposed draft of its opinion is set forth in Appendix D of this Official Statement. Certain legal matters will be passed on for the Board by the Hon. Roy A. Cooper, III, Attorney General of the State of North Carolina. RELATED PARTIES Bond Counsel and counsel to the Underwriters, have represented the Underwriters from time to time as counsel in other financing transactions. Neither the Board nor the Underwriters have conditioned the future employment of any of these firms in connection with any proposed financing issues for the Board or for the Underwriters on the successful issuance of the 2016 Bonds. 14

19 Steven B. Long, a partner in the Raleigh office of Bond Counsel, has been elected to serve on the Board for a term commencing July 1, Mr. Long did not participate in the Board s consideration of the resolution authorizing the issuance of the 2016 Bonds. Roger Aiken, a member of the Board, is an employee of Wells Fargo Advisors, LLC ( WFA ). Wells Fargo Bank, National Association conducts its municipal securities sales, trading and underwriting operations through the Wells Fargo Bank, National Association Municipal Products Group and is the comanaging underwriter of the 2016 Bonds. Mr. Aiken participated in the Board s general discussion and vote to issue the 2016 Bonds. Mr. Aiken was not involved in the selection or approval of the underwriters of the 2016 Bonds, will recuse himself from any future discussion or vote regarding the 2016 Bonds or the selection or approval of the underwriters of the 2016 Bonds, and has no financial interest in any compensation that may be received by WFA in connection with this bond transaction. UNDERWRITING The 2016 Bonds are being purchased by the Underwriters at a purchase price of $61,698, (equal to the principal amount of the 2016 Bonds, plus net original issue premium of $5,945,623.75, less an Underwriters discount of $186,738.40). The Purchase Agreement between the Underwriters and the Board provides that the Underwriters will purchase all of the 2016 Bonds, if any are purchased, and requires the Board, to the extent permitted by law, to indemnify the Underwriters against losses, claims, damages and liabilities to third parties arising out of any untrue or misleading statement of material fact contained in this Official Statement pertaining to the Board and the description of all agreements to which the Board is a party. Wells Fargo Securities is the trade name for certain securities-related capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Bank, National Association, acting through its Municipal Products Group ( WFBNA MPG ). WFBNA MPG, as one of the Underwriters, has entered into an agreement (the Distribution Agreement ) with its affiliate, Wells Fargo Advisors, LLC ( WFA ), for the distribution of certain municipal securities offerings, including the 2016 Bonds. Pursuant to the Distribution Agreement, WFBNA MPG will share a portion of its underwriting compensation, with respect to the 2016 Bonds with WFA. WFBNA MPG also utilizes the distribution capabilities of its affiliate Wells Fargo Securities, LLC ( WFSLLC ), for the distribution of municipal securities offerings, including the 2016 Bonds. In connection with utilizing the distribution capabilities of WFSLLC, WFBNA MPG pays a portion of WFSLLC s expenses based on its municipal securities transactions. WFBNA MPG, WFSLLC, and WFA are each wholly-owned subsidiaries of Wells Fargo & Company. The Underwriters may offer and sell the 2016 Bonds to certain dealers (including dealers depositing the 2016 Bonds into investment trusts) and others at prices lower than the initial public offering prices stated on the inside cover hereof. The public offering prices may be changed from time to time by the Underwriters. The Underwriters and their affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Under certain circumstances, the Underwriters and their affiliates may have certain creditor and/or other rights against the Board and the University in connection with such activities. In the course of its various business activities, the Underwriters and their affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and 15

20 actively traded securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for its own account and for the accounts of its customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the Board and the University (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the Board and the University. The Underwriters and their affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments. UNIVERSITY FINANCIAL ADVISOR First Tryon Advisors, a business of First Tryon Securities, LLC, has acted as Financial Advisor to the University in connection with the issuance of the 2016 Bonds. The Financial Advisor does not assume any responsibility for the information, covenants, and representations contained in any of the legal documents with respect to the federal income tax status of the 2016 Bonds, or the possible impact of any present, pending, or future actions taken by any legislative or judicial bodies. The Financial Advisor has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to the University and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. The Financial Advisor s fee for services rendered with respect to the sale of the 2016 Bonds is contingent on the issuance and delivery of the 2016 Bonds. MISCELLANEOUS The summaries of the provisions of the 2016 Bonds and the Indentures contained in this Official Statement, including Appendix C, do not purport to be complete and are made subject to the detailed provisions thereof to which reference is hereby made. Copies of the Act and the Indentures are available for inspection at the offices of the University s Vice Chancellor of Administration and Finance, North Carolina Central University, 1801 Fayetteville Street, Durham, North Carolina The delivery of this Official Statement has been duly authorized and approved by the Board. 16

21 APPENDIX A NORTH CAROLINA CENTRAL UNIVERSITY

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23 APPENDIX A NORTH CAROLINA CENTRAL UNIVERSITY GENERAL North Carolina Central University (the University ) was founded in 1909 as the National Religious Training School and Chautauqua by Dr. James Edward Shepard. It became the first public liberal arts institution for African Americans in the nation. The University is now a master s comprehensive institution that offers bachelors and master s degrees, a Juris Doctor, and a Ph.D. in Integrated Biosciences to a diverse student population and is one of the 17 state-supported senior institutions comprising The University of North Carolina (the System ). It consists of six separate Schools or Colleges: (1) the College of Arts and Sciences, (2) the School of Business, (3) the School of Education, (4) the School of Law, (5) the School of Library Information Sciences and (6) the University College. The University s campus encompasses 135 acres and includes 64 buildings in Durham, North Carolina. The University received its initial accreditation in 1937 and is accredited by the Commission on Colleges of the Southern Association of Colleges and Schools to award bachelor s, master s and doctoral degrees. The University s teacher education programs have been approved by the North Carolina Department of Public Instruction and by the National Council of Accreditation in Teacher Education (NCATE). The School of Business is accredited with the Association to Advance Collegiate Schools of Business (AACSB), and the School of Library Science is accredited with the American Library Association (ALA). The University s School of Law, which is one of the most diverse law schools in the country, is accredited by both the American Bar Association (ABA) and the Association of American Law Schools (AALS). Further, more than half of the University s 60 degree program offerings have obtained national accreditation through their perspective professional bodies. The University was the third highest rated public university in U.S. News and World Report s 2016 ranking of the nation s best historically black colleges and universities. U.S. News also recognized the University s Curriculum and Instruction degree program as one of the top 20 online graduate programs in the nation. ACADEMIC PROGRAMS The University is organized into various Colleges, Schools and Departments that offer licensures and undergraduate and graduate degrees. The University offers a University College that holds students first two years as its central focus. The University College s mission is to assure a successful transition of first and second year students, equipping them with the tools they need to accomplish their educational goals during their college matriculation. College of Arts and Sciences. The College of Arts and Sciences has majors in the sciences, humanities and the arts. The College offers 13 undergraduate programs, eight master s programs and a Ph.D. in Integrated Biosciences. From producing documentary films to drug discovery and health disparities research, the College helps students learn to explore ideas, think critically and communicate in a clear and concise manner. The research possibilities at the University are facilitated by two multi-million dollar research facilities headed by STEM scholar-researchers who lead the way in health disparities research, improving the health of underrepresented communities across the globe. Science majors at the University have the opportunity to study on six continents in fields as varied as tropical pathology and infectious diseases to A-1

24 seismic activity. Music faculty include legendary jazz artists, Metropolitan Opera principal performers and award-winning vocal and jazz ensembles. Visual artists have the opportunity to showcase their work among some of North Carolina s leading collections of works by African-American artists and by others dealing with the black experience through the University s Art Museum. College of Behavioral and Social Science. As the largest college on the University campus, the College of Behavioral and Social Science offers degrees in Social Work, Psychology, Political Science, Human Sciences, Criminal Justice, Public Health Education, Physical Education & Recreation and Public Administration. The College is home to three institutes that bridge science and service: The Institute for Civic Engagement and Social Change, the Juvenile Justice Institute and the Institute for Homeland Security and Workforce Development. In the Department of Public Administration and other programs of study, theory merges with practice through study-abroad opportunities. With an emphasis on health and wellness, the Department of Public Health Education uses an interdisciplinary approach to help students learn to predict, prevent and manage behavioral health issues, such as abuse of alcohol and other drugs, nutrition and obesity, fitness habits, and health disparities. The Dietetic Internship Program in the Department of Human Sciences prepares graduate students to become Registered Dieticians who promote healthy living. Department of Nursing. The Department of Nursing is accredited with the Accreditation Commission for Education in Nursing. The Department offers the following Degree Program Tracks, including a BSN which is a traditional nursing curriculum and is offered for qualified high school graduates, transfer and second degree students and licensed practical nurses, a RN to BSN curriculum which is web-enhanced for registered nurses licensed to practice nursing and a Second Degree Accelerated BSN which is an accelerated BSN in a 16-month intensive curriculum. The Department offers clinical opportunities in a variety of health care facilities throughout the state including hospitals, clinics, long-term care facilities, and health departments in Durham, Wake, Orange, Chatham, Person, Vance-Granville and Franklin counties. School of Business. The School of Business trains students to become specialists in major fields of business administration and management. The School has accreditation by the Association for Collegiate Business Schools and Programs and The Association to Advance Collegiate Schools of Business International. The Master of Business Administration program is designed to prepare students for positions of leadership in business, industry and government, as well as, provide them with a comprehensive understanding of the total operation and functioning of contemporary organizations. School of Education. The School of Education offers Bachelor of Arts in elementary or middle grades education and a broad array of licensure and master's degree offerings. The University provides graduate curricula in elementary or middle grades education but also educational technology; school administration; community, career or school counseling; communication disorders; and five concentrations in special education. All programs are fully accredited by their respective bodies. School of Law. The School of Law offers two programs leading to the Juris Doctor degree: a full-time day program and a part-time evening program. Founded in 1939 to provide an opportunity for a legal education to African-Americans, the School of Law now provides this opportunity to a more diverse student body, as it pertains to race and gender. The School of Law has a long-standing commitment to public service and educates a significant number of lawyers who are dedicated to providing legal representation to underserved persons and communities. School of Library and Information Sciences. The School of Library and Information Sciences offers a Bachelor of Arts degree, Master of Library Science ( MLS ) degree, a joint JD/MLS degree in A-2

25 law and librarianship with the School of Law and a joint MBA/MLS degree in conjunction with the School of Business. The School library consists of professional literature and other print and non-print materials needed to support the various courses. There are also two special collections: (1) papers of African-American librarians and (2) works by African American authors and illustrators of children's materials. School of Graduate Studies. The School of Graduate aims to develop independent study, originality, and competence in research and/or in the application of critical thinking to professional problems. Graduate and professional degrees are offered and conferred through the College of Arts and Sciences, College of Behavioral and Social Sciences, and the Schools of Business, Education, Law, and Library and Information Sciences. The School of Business and the School of Library and Information Sciences offer joint degree programs with the School of Law: Juris Doctor/Master of Business Administration and Juris Doctor/Master of Library Science. The School of Business and the School of Library and Information Sciences also offer a joint degree with each other. Several teacher licensure programs are offered through the School of Education. The PhD degree in Integrated Biosciences is offered through the School of Graduate Studies and the College of Arts and Sciences. GOVERNANCE The 13-member Board of Trustees is the governing body for the University. Eight of its members are elected to four-year terms by the Board of Governors (the Board ). Four are appointed by the Governor of the State of North Carolina (the State ). The president of the Student Government Association serves as an ex officio member. NAME CITY METHOD OF APPOINTMENT OR ELECTION/TERM George R. Hamilton, Chairman Midland, NC Board of Governors, John Barbee, Vice Chairman Greensboro, NC Board of Governors, Paul R. Pope, Jr. Secretary Durham, NC Board of Governors, Darrell Allison Cary, NC Board of Governors, Oita C. Coleman Apex, NC Governor, Harold T. Epps Philadelphia, PA Board of Governors, Joan Higginbotham Charlotte, NC Governor, Michael Johnson Tulsa, OK Board of Governors, Dr. John T. McCubbins Collegeville, PA Governor, Olivia Robinson Durham, NC Student Government Association, Allyson Siegel Conover, NC Board of Governors, Dr. Kenneth R. Tindall Research Triangle Park, NC Board of Governors, Karyn S. Wilkerson Durham, NC Governor, UNIVERSITY ADMINISTRATION The following table sets forth the names and positions of the principal executive officers of the University as well as the dates their service began. A statement of the background of each follows. NAME POSITION SINCE Dr. Debra Saunders-White Chancellor 2013 Dr. Johnson O. Akinleye Provost and Vice Chancellor for Academic Affairs 2014 Benjamin Durant Vice Chancellor for Administration and Finance 2014 Harriet F. Davis Vice Chancellor for Institutional Advancement 2014 Miron P. Billingsley Vice Chancellor of Student Affairs 2014 Undi N. Hoffler Interim Vice Chancellor for Research and Economic Development 2015 A-3

26 Dr. Debra Saunders-White, Chancellor. Dr. Saunders-White began as the 11 th Chancellor of the University on June 1, Dr. Saunders-White previously served as acting assistant secretary for the Office of Postsecondary Education at the U.S. Department of Education. She joined the U. S. Department of Education in May of 2011 as the deputy assistant secretary for higher education programs. She also has been Vice Chancellor for Information Technology Systems at The University of North Carolina at Wilmington and Vice President for Technology and Chief Information Officer at Hampton University. Before entering higher education administration, Dr. Saunders-White spent 15 years at IBM. Dr. Saunders-White also is a member of the American Association of State Colleges and Universities Policy Committee and serves its state representative for North Carolina. She is chair of the Made in Durham partnership s governance sub-committee and is on the Board of Directors for United Way of the Greater Triangle. A native of Hampton, Virginia, Chancellor Saunders-White earned her bachelor s degree in history from the University of Virginia, a Master of Business Administration from the College of William & Mary and a Ph.D. in higher education administration from The George Washington University. Dr. Johnson O. Akinleye, Provost and Vice Chancellor for Academic Affairs. Dr. Akinleye has served as the University s Provost and Vice Chancellor for Academic Affairs since February, Before joining the University, Dr. Akinleye served in the academy for more than 25 years in various positions. Dr. Akinleye joined the University after having served as Associate Vice Chancellor for Academic Programs at The University of North Carolina at Wilmington since During his tenure at The University of North Carolina at Wilmington, Dr. Akinleye was instrumental in leading the online and distance education programs, increasing academic offerings, both at The University of North Carolina at Wilmington and its extension site, as well as leading the development and formation of a new College of Allied Health. Dr. Akinleye has previously served as Vice President for Administration and Chief Operating Officer and Interim Vice President for Academic Affairs at Edward Waters College; and in several positions at Bethune-Cookman University, including dean, department chair, and associate provost/vice president for Academic Affairs. He began his academic career at Bowie State University as an assistant professor. Dr. Akinleye earned his bachelor's degree in telecommunications and master's degree in media techno logy from Alabama Agricultural and Mechanical University. He received his Ph.D. in Human Communications Studies from Howard University. Benjamin Durant, Vice Chancellor for Administration and Finance. Mr. Durant has served as the Vice Chancellor for Administration and Finance for the University since December, Mr. Durant has more than 16 years of experience leading diverse teams in local government, as well as at an institution of higher learning. Mr. Durant previously served as Vice-Chancellor for Business and Finance at Elizabeth City State University from 2010 until he joined the University. Before joining Elizabeth City State University, Mr. Durant worked for the City of Asheville for 12 years, the first seven years as the City's Budget & Research Director and the final five as chief financial officer. Mr. Durant began his career as a budget analyst for the City of Greensboro. Mr. Durant holds a Bachelor of Science degree in political science from Elizabeth City State University and Master of Public Administration degree from The University of North Carolina at Chapel Hill. Harriet F. Davis, Vice Chancellor for Institutional Advancement. Dr. Davis has served as Vice Chancellor for Institutional Advancement at the University since February, Dr. Davis has more than 25 years of experience as a higher education administrator. She formerly served as Associate Vice Chancellor for Development and Director of the Campaign at Fayetteville State University. Dr. Davis earlier worked at Hampton University in the role of Assistant Vice President for Corporate Relations. Over a span of 19 years, Dr. Davis held a variety of leadership positions in the Division of Institutional Advancement and University Relations at North Carolina Agricultural & Technical State University, including Director of Alumni Affairs, Director of Development, Interim Director of Community Relations and Special Events Director. Dr. Davis serves as a board member of the Council for Advancement and A-4

27 Support of Education District Ill ( CASE DIII ) and as co-chair of CASE DIIIs HBCU Initiative. Dr. Davis is a graduate of the Management Development Program at Harvard University and earned bachelors, masters and Ph.D. degrees from North Carolina Agricultural & Technical State University. Miron P. Billingsley, Vice Chancellor of Student Affairs. Dr. Billingsley has served as Vice Chancellor of Student Affairs since September, He has more than 15 years of experience in higher education as a professor, dean, director and vice president. He previously served as Associate Vice President for Student Affairs at Prairie View A&M University between 2008 and Before joining Prairie View A&M University, Dr. Billingsley served as vice president for Student Affairs at Arkansas Baptist College, where he served as the chief advocate on student life at the College and worked as a senior advisor to the Student Government Association. He also worked as the dean of First-Year Programs for one year while at Arkansas Baptist College. Dr. Billingsley has also worked as an adjunct professor at Texas Southern University and Director of Public Relations and Marketing at Langston University. He earned his bachelor s degree from the University of Arkansas at Pine Bluff, master s in telecommunications from Texas Southern University, and Doctor of Education degree from Oklahoma State University. Undi N. Hoffler, Interim Vice Chancellor for Research and Economic Development. Dr. Hoffler has served as Interim Vice Chancellor for Research and Economic Development since April, She has 19 years of experience in metabolism and pharmacology studies and toxicology research. Dr. Hoffler previously served as the University s director of research and compliance in the Office of Technology Transfer and as a guest researcher for the National Environmental Health Sciences Institute, which is part of the National Institutes of Health. Dr. Hoffler holds a Bachelor of Science in biology from Xavier University of Louisiana and a Ph.D. in pharmacology from Meharry Medical College. FACULTY For the academic year, there were 451 budgeted full time equivalent faculty positions. Of the full-time faculty, 40% were tenured and 70% held a doctorate or terminal professional degree in their respective fields. The budgeted student-to-faculty ratio is 16.0 to 1. EMPLOYEES In the fall of 2016, the University s staff (including faculty) numbered 1,813, including 1,341 full-time and 472 part-time employees. Faculty and staff are not represented by any collective bargaining units. ENROLLMENT APPLICATION, ACCEPTANCE AND ENROLLMENT INFORMATION ACADEMIC YEAR APPLICATIONS ACCEPTANCES ACCEPTANCE RATE ENROLLED ENROLLMENT RATE ,240 4, % 1, % ,886 4, % 1, % ,989 3, % % ,246 4, % % ,334 5, % 1, % As of March 1, 2016, the University had received for the academic year: A-5

28 14,850 undergraduate applications, representing an increase of 22.4% over the applications received as of the same date in 2015; 165 graduate applications, representing a decrease of 19.5% over the 197 applications received as of the same date in 2015; and Through February, 2016, the University had accepted 29.5% of the total number of undergraduate applications. Although the University s acceptance rate through February of 2016 is in line with its undergraduate acceptance rates for similar timeframes in prior years, the increase in the number of applications has resulted in a 16.2% increase in the number of undergraduates admitted as of the same date in The University will continue to accept applications until August 1, Since 2012, the average high school GPA of enrolled freshmen has increased from 2.99 to 3.21, which reflects the University s commitment to student success as evidenced by the purchase and use of a predictive analytics package to assist with class yields and more realistic and intentional enrollment projections. In addition, the Office of Admissions is employing several strategies to help inform admissions decisions and recruit and yield well prepared students. Those efforts include geographic territory management and elevation of the University s brand through marketing and communications. FULL-TIME EQUIVALENT ENROLLMENT, FALL SEMESTER Undergraduate 5,906 6,159 5,814 5,508 5,750 Graduate 1,681 1,710 1,644 1,579 1,654 Distance Learning Total 7,587 7,869 7,458 7,087 7,404 HEADCOUNT, FALL SEMESTER Undergraduate 6,416 6,658 6,220 5,917 6,168 Graduate 1,943 1,946 1,873 1,770 1,843 Total 8,359 8,604 8,093 7,687 8,011 AVERAGE ENROLLED FRESHMEN SAT SCORES ACADEMIC YEAR VERBAL MATH TOTAL * * Results from the SAT writing component are not considered as part of the University s admission decision criteria. A-6

29 ONE-YEAR RETENTION RATES (FRESHMAN TO SOPHOMORE) % 71.5% 73.2% 76.6% 79.8% TUITION AND FEES The table below reflects tuition and fees for the most recent five academic years: Undergraduate In State $4,695 $5,119 $5,444 $5,444 $5,674 Out of State $15,268 $15,692 $16,017 $16,859 $17,712 Graduate In State $5,403 $5,873 $6,329 $6,329 $6,545 Out of State $17,052 $17,522 $17,978 $17,978 $18,801 INTERCOLLEGIATE ATHLETICS The University s 15 men s and women s sports teams participate in National Collegiate Athletic Association ( NCAA ) competition at the Division I level (Football Championship Subdivision) as members of the Mid-Eastern Athletic Conference ( MEAC ). Since joining the MEAC in 2010, University teams have won 3 MEAC championships, including the 2014 and 2015 football conference cochampionship and the 2014 MEAC men s basketball tournament championship, which earned the University its first trip to the NCAA men s basketball tournament and a trip to the National Invitational Tournament in The 2015 MEAC Commissioner s All-Academic Team included 84 studentathletes from the University. STUDENT HOUSING The University offers affordable, comfortable living arrangements across 12 coeducational residence halls, each within easy walking distance of academic buildings, campus activities, sporting events, and student services. All of the facilities offer common areas for socializing and studying. Two residence facilities Eagle Landing and the Martha Street Apartments offer apartment-style accommodations, and nine of the residence halls include an on-site, 24-hour computer lab. Many of the facilities house specific Living Learning Communities, such as the Centennial Scholars Living Learning Community housed at New Residence II. The Living Learning Communities provide residents with smaller communities organized around common academic or co-curricular interests. Residential Life offers students a number of amenities such as microwaves and refrigerators in every room and a robust cable package that includes over 120 channels. A-7

30 RESIDENCE FACILITIES (FALL 2015) BUILDING STYLE YEAR BUILT LAST MAJOR RENOVATION TOTAL BEDS PERCENT OCCUPANCY Eagle Landing * Apartment % Ruffin Suites Rush Traditional Annie Day Suites Richmond Traditional/Suites New Residence II Traditional/Suites Chidley North Suites Martha Street Apartment George Street Suites Baynes Traditional McLean Traditional Eagleson Traditional * Eagle Landing is located adjacent to the University s campus and is owned by NCCU Real Estate Foundation, Inc., a separate 501(c)(3) organization and component unit of the University organized for the purpose of supporting the University. RESEARCH AND INNOVATION The University has established its Research System Approach to Innovation and Sustainability, which provides a systematic approach to basic research focused on solving problems that affect the citizens of the State. The research activities are supported by the Office of Research and Sponsored Programs, the Office of Contracts and Grants and the Office of Research Compliance, whose purpose is to assist faculty and staff with proposals, ensure the integrity of all University research activities and ensure compliance with applicable University, State and federal guidelines and restrictions. Conducted through two major research institutes, the Julius L. Chambers Biomedical/Biotechnology Research Institute ( BBRI ) and The Golden Leaf Foundation Biomanufacturing Research Institute and Technology Enterprise ( BRITE ), the research ranges from biomedical, biotechnology and pharmaceutical sciences to social and behavioral sciences, and includes research regarding public health, nanotechnology/carbon nanotubes, robotics, polymers and green energy. Curl Bio, LLC, the University s first start-up company developed out of BRITE, was formed in 2012 and has earned Phase I SBIR funding and matching funds from the State to discover novel therapeutics for type-ii diabetes, metabolic syndrome and obesity. BRITE has also entered into an International Drug Discovery Partnership with the Andrew Young Foundation and PROMETRA International to conduct research on traditional African medicines and the drug discovery process. SAS Institute, Inc., one of the world s leading data management and analytics companies, has funded a new Intellectual Property Law Institute at the University s School of Law. Among its objectives, the Institute will work to recruit STEM students with diverse backgrounds and experiences to intellectual property careers and provide advanced training for law graduates in the form of continuing legal education seminars, symposiums and publication. The University participates in NASA s Technology Infusion Road Tour, an initiative that links historically black colleges and universities and other minority-serving institutions to education and business opportunities at the national space agency. In March of 2016, the University announced its participation in the Triangle Venture Alliance, a partnership among Duke University, The University of North Carolina at Chapel Hill, North Carolina State University and the University to build a network of A-8

31 venture capital funding sources to invest in startup companies founded by alumni, parents, staff, faculty and students affiliated with the universities. AUDITED FINANCIAL STATEMENTS The University adheres to financial reporting as prescribed by the American Council of Education, the National Association of College and University Business Officers, the American Institute of Certified Public Accountants, the Governmental Accounting Standards Board, the North Carolina Office of the State Controller and the North Carolina Office of the State Auditor. Funds held by the University are subject to audit by the North Carolina State Auditor and federal agency auditors. The audited financial statements of the University for the fiscal year ended June 30, 2015, are included as Appendix B hereto and are also available on the State Auditor s website at [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] A-9

32 STATEMENT OF NET POSITION CONDENSED STATEMENT OF NET POSITION AS OF JUNE 30, (IN 000 S) ASSETS Current Assets $36,157 $33,454 $35,771 $34,940 $35,321 Noncurrent Assets 321, , , , ,141 TOTAL ASSETS 357, , , , ,462 Deferred Outflows 1,652 1,106 6,558 5,723 LIABILITIES Current Liabilities 27,150 17,214 13,174 15,114 13,164 Noncurrent Liabilities 102, ,085 96, ,619 96,186 TOTAL LIABILITIES 129, , , , ,351 Deferred Inflows 16,578 NET POSITION Invested in Capital Assets, 203, , , , ,303 Net of Related Debt Restricted Nonexpendable 12,889 14,567 15,085 15,528 16,012 Expendable 14,606 10,420 13,276 17,727 18,988 Unrestricted (3,294) 2,167 3,827 (17,260) (17,046) TOTAL NET POSITION (1) $227,394 $237,323 $242,597 $222,516 $225,257 For more detailed information, see Appendix B, FINANCIAL STATEMENTS. (1) Totals may not foot due to rounding. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] A-10

33 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE FISCAL YEARS ENDED JUNE 30, (IN 000 S) REVENUES Operating Revenues Student tuition and fees, net $37,607 $39,324 $39,813 $40,110 $38,001 Federal grants and contracts 9,815 8,876 8,141 7,267 8,166 State and local grants and contracts Nongovernmental grants and contracts Sales and services, net 18,292 21,988 23,387 22,896 22,910 Interest earnings on loans Other operating revenues 1, ,246 1,598 Total operating revenues 67,578 71,799 72,639 71,714 70,876 EXPENSES Operating Expenses Salaries and benefits 117, , , , ,284 Supplies and materials 15,607 11,391 11,143 12,173 10,979 Services 38,778 28,873 29,300 29,001 27,217 Scholarships and fellowships 16,543 12,895 13,069 13,230 12,807 Utilities 5,033 4,657 5,178 5,626 5,508 Depreciation 7,409 8,277 8,639 8,788 8,841 Total operating expenses 201, , , , ,636 Operating loss (113,872) (113,248) (114,493) (109,760) NONOPERATING REVENUES (EXPENSES) State appropriations 83,148 83,576 84,715 79,622 82,406 State Aid - Federal Recovery Funds 5,341 Noncapital grants 38,649 35,587 32,123 32,071 31,008 Noncapital gifts Investment income (loss) (net of investment expense) 3, ,757 4,243 2,935 Interest and fees on capital asset-related debt (3,475) (4,001) (4,175) (4,094) (4,381) Federal Interest Subsidy on Debt Other nonoperating revenues (expenses) Net nonoperating revenues 127, , , , ,500 Income (Loss) before other revenues, expenses, gains, or losses (6,034) 2,488 2,257 (2,519) 2,741 Capital Appropriations 306 1,808 1 Capital grants 13,391 6,688 2, Capital gifts 4 Additions to endowments Increase in net position 7,356 9,930 5,274 (646) 2,741 NET POSITION Net position Beginning 220, , , , ,516 Net position Ending $227,394 $237,323 $242,597 $241,473 $225,257 Net Pension Liability and Pension Related Deferred (479) (18,957) Outflows (Adjustment to prior year Net Position) Adjusted Net Position $242,119 $222,516 A-11

34 STATE AID The University receives a major portion of its revenues from the State s general fund in the form of annual appropriations for current operating expenditures. The State also makes annual appropriations for capital improvements such as academic buildings, libraries and laboratories. The general fund appropriations for the past five fiscal years are set forth below: FISCAL YEAR ENDED JUNE 30 OPERATING APPROPRIATIONS (in 000 s) CAPITAL GRANT AND APPROPRIATIONS TOTAL STATE AID 2011 $83,418 $13,391 $96, ,576 6,688 90, ,715 2,517 87, ,622 1,808 81, , ,485 Because of the national economic recession s adverse effect on State revenues, State appropriations to the UNC System have declined in each fiscal year since 2009, except in fiscal year The University has responded to these reductions through a number of strategic cost saving and efficiency seeking initiatives, which have reduced the University s total operating expenses by more than 10% over the last five years. For example, the University established the Position Review Committee to review all vacant positions to identify opportunities to improve efficiency and eliminate duplication of effort, allowing the University to reduce cost while protecting academic and programmatic quality. The University has also sought strategies to strengthen other revenue sources. Beginning in the academic year, freshman and sophomores will be required to live on campus, which is expected to increase housing and dining system revenues and, over time, improve student retention and graduation rates. The University has also recommended and approved rate increases to support new or expanded services across campus, including a 7.5% increase in meal plan rates to ensure the attractiveness and stability of the University s dining services program. Through February of 2016, State appropriations for fiscal year 2016 totaled $79,687,717. Due in part to projected enrollment growth in the near term, the result of strong freshman enrollment projections, improving retention rates and an increase in transfer enrollments, the University expects State aid to remain relatively flat over the next two years. No State general funds have been appropriated for the payment of the principal or interest on the Bonds. Appropriated funds from the State to the University are excluded from the definition of Available Funds. UNIVERSITY INVESTMENTS The University s investments provide funds to support University academic programs and student-related activities. Long-term investments consist of endowment and similar funds. Investments available for current programs consist of current unrestricted and current restricted funds. Income from endowments is distributed to current unrestricted and current restricted fund groups according to University policy or the designation of the donor. Income from investments held in current funds is distributed at the University s discretion. The market value of the University s cash and investments at the end of each of the past five fiscal years is summarized as follows: A-12

35 (in 000 s) Current Unrestricted Cash and Investments - $5,839 $12,476 $14,299 $15,027 Current Restricted Cash and Investments $20,274 14,129 12,981 11,542 11,770 Non-current Restricted Cash and Investments 12, ,027 1,026 Endowment Investments (1) 18,242 19,226 22,040 25,997 28,165 Total Cash and Investments 50,668 40,117 47,724 52,865 55,988 (1) See --CERTAIN AFFILIATES OF THE UNIVERSITY below. PENSION PLANS; OTHER POST-EMPLOYMENT BENEFITS The University makes annual required contribution payments for the Teachers' and State Employees' Retirement System ( TSERS ), the Optional Retirement Program, and other post-employment benefit plans administered by the State or the Board. The University, per GASB Statement No. 68, is required to recognize its proportionate share of the TSERS pension liability on its financial statements. For the Optional Retirement Program the University assumes no liability other than its contribution. See Notes 11 and 12 in the audited financial statements contained in Appendix B for a full disclosure of the pension plans and other post-employment benefit plans in which the University employees participate. CERTAIN AFFILIATES OF THE UNIVERSITY The University and its programs are supported by the NCCU Foundation, Inc. (the NCCU Foundation ) and the NCCU Real Estate Foundation, Inc. (the Real Estate Foundation ). The NCCU Foundation is a legally separate corporation and is reported as a discretely presented component unit of the University, while the Real Estate Foundation is a component unit of the University and is reported as if it were part of the University. Each is incorporated and has 501(c)(3) status. For fiscal year 2015, the University s affiliates had: CAPITAL INVESTMENT PLANS Combined Assets $39,100,637 Combined Fund Balances $16,779,236 Combined Revenues $6,243,963 Combined Total Support $1,446,129 In 2015, the University received authorization to finance $10.5 million in deferred maintenance and infrastructure improvements across the campus. The projects will be funded by a designated student debt service fee of $100 per student per year, which the University began charging during the academic year. The University is currently planning a new Student Center project that, if approved, will require long-term financing. The proposed Student Center is expected to cost approximately $36 million and would feature a number of amenities for students and alumni, including a food court with multiple dining options, meeting spaces and ballrooms for gatherings and conferences, retail space, a commuter lounge and dedicated areas for student groups. The Student Center would be financed primarily through the issuance of debt, which would be supported by increases in the designated student debt service fee, as well as charitable contributions and other available funds. The new student debt service fee will be an increase from $100 per student per year to $250 per student per year before increasing the following year to $350 per student per year for the life of the financing. A-13

36 In March of 2016, North Carolina voters approved a $2 billion bond package to enable statewide investments in higher education, safety, parks, recreation, and water and sewer infrastructure improvements. Approximately half of the bond proceeds are expected to fund improvement and expansion projects across the 17-campus University of North Carolina, including a $30 million, LEEDcertified building to house the University s School of Business. The new facility will increase the School of Business s enrollment capacity, consolidate programs currently located in three campus buildings and expand the School of Business s interdisciplinary offerings. The building will also include a state-of-the-art financial trading room and entrepreneurship center, focusing on high-touch and interactive learning environments designed to attract students and faculty and improve retention and graduation rates. A-14

37 APPENDIX B FINANCIAL STATEMENTS

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39 STATE OF NORTH CAROLINA OFFICE OF THE STATE AUDITOR BETH A. WOOD, CPA NORTH CAROLINA CENTRAL UNIVERSITY DURHAM, NORTH CAROLINA FINANCIAL STATEMENT AUDIT REPORT FOR THE YEAR ENDED JUNE 30, 2015 ACONSTITUENT INSTITUTION OF THE UNIVERSITY OF NORTH CAROLINA SYSTEM AND A COMPONENT UNIT OF THE STATE OF NORTH CAROLINA

40 STATE OF NORTH CAROLINA Office of the State Auditor Beth A. Wood, CPA State Auditor 2 S. Salisbury Street Mail Service Center Raleigh, NC Telephone: (919) Fax: (919) AUDITOR S TRANSMITTAL The Honorable Pat McCrory, Governor The General Assembly of North Carolina Board of Trustees, North Carolina Central University We have completed a financial statement audit of North Carolina Central University for the year ended June 30, 2015, and our audit results are included in this report. You will note from the independent auditor s report that we determined that the financial statements are presented fairly in all material respects. The results of our tests disclosed no deficiencies in internal control over financial reporting that we consider to be material weaknesses in relation to our audit scope or any instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. North Carolina General Statutes require the State Auditor to make audit reports available to the public. Copies of audit reports issued by the Office of the State Auditor may be obtained through one of the options listed in the back of this report. Beth A. Wood, CPA State Auditor

41 TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR S REPORT... 1 MANAGEMENT S DISCUSSION AND ANALYSIS... 4 BASIC FINANCIAL STATEMENTS UNIVERSITY EXHIBITS A-1 Statement of Net Position...10 Beth A. Wood, CPA State Auditor A-2 Statement of Revenues, Expenses, and Changes in Net Position...12 A-3 Statement of Cash Flows...13 COMPONENT UNIT EXHIBITS B-1 Statement of Financial Position...15 B-2 Statement of Activities and Changes in Net Assets...16 NOTES TO THE FINANCIAL STATEMENTS...17 REQUIRED SUPPLEMENTARY INFORMATION C-1 Schedule of the Proportionate Net Pension Liability (Teachers and State Employees Retirement System)...48 C-2 Schedule of University Contributions (Teachers and State Employees Retirement System)...49 NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION (TEACHERS AND STATE EMPLOYEES RETIREMENT SYSTEM)...50 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS...51 ORDERING INFORMATION...53 Article V, Chapter 147 of the North Carolina General Statutes, gives the Auditor broad powers to examine all books, records, files, papers, documents, and financial affairs of every state agency. The Auditor also has the power to summon people to produce records and to answer questions under oath.

42 INDEPENDENT AUDITOR S REPORT

43 STATE OF NORTH CAROLINA Office of the State Auditor Beth A. Wood, CPA State Auditor 2 S. Salisbury Street Mail Service Center Raleigh, NC Telephone: (919) Fax: (919) INDEPENDENT AUDITOR S REPORT Board of Trustees North Carolina Central University Durham, North Carolina Report on the Financial Statements We have audited the accompanying financial statements of North Carolina Central University, a constituent institution of the multi-campus University of North Carolina System, which is a component unit of the State of North Carolina, and its discretely presented component unit, as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the University s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the NCCU Real Estate Foundation, Inc., which represent 6 percent and 1 percent, respectively, of the assets and revenues of the University; nor the financial statements of the North Carolina Central University Foundation, Inc. (NCCU Foundation, Inc.), the University s discretely presented component unit. Those statements were audited by other auditors, whose reports have been furnished to us, and our opinions, insofar as they relate to the amounts included for those entities, are based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The financial statements of the NCCU Real Estate Foundation, Inc. and the NCCU Foundation, Inc. were not audited in accordance with Government Auditing Standards. 1

44 INDEPENDENT AUDITOR S REPORT An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the University s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of North Carolina Central University, and its discretely presented component unit, as of June 30, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 17 to the financial statements, during the year ended June 30, 2015, North Carolina Central University adopted new accounting guidance, Governmental Accounting Standards Board Statement No. 68. Accounting and Financial Reporting for Pensions An Amendment of GASB Statement No. 27 and Statement No. 71 Pension Transition for Contributions Made Subsequent to the Measurement Date An Amendment of GASB Statement No. 68. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis and other required supplementary information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 2

45 INDEPENDENT AUDITOR S REPORT Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 17, 2015 on our consideration of the University s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the University s internal control over financial reporting and compliance. Beth A. Wood, CPA State Auditor Raleigh, North Carolina December 17,

46 MANAGEMENT S DISCUSSION AND ANALYSIS

47 MANAGEMENT S DISCUSSION AND ANALYSIS Management s Discussion and Analysis is intended to give the reader an overview of factors that have affected operations and may affect operations in the future for North Carolina Central University (the University). Management has prepared the discussion and analysis to be read in conjunction with the financial statements and accompanying notes to the financial statements. The University is required by the Governmental Accounting Standards Board (GASB) to present three basic financial statements. Those statements are the Statement of Net Position, Statement of Revenues, Expenses, and Changes in Net Position, and the Statement of Cash Flows. These statements provide both long-term and short-term financial information for the University. Brief Institutional Highlights North Carolina Central University earned a 12th place ranking on U.S. News & World Report s 2015 list of historically black colleges and universities (HBCUs). NCCU was also ranked at No. 65 among Best Regional Universities in the South by U.S. News & World Report. Alumni giving participation was a strength in the ranking with a rate of 10 percent while the national average is 8.3 percent. Additional factors contributing to the rating were the increasing freshmen retention rate and the student-faculty ratio of 15-to-1. NCCU was the ninth-highest-rated public HBCU in the country and the second highest among North Carolina HBCUs as ranked by College Choice, an independent online publication for college-bound students and their families. The North Carolina Central University Department of Nursing was ranked by the Nurse Journal as the 13 th best out of 1189 nursing programs in the eastern United States. The NCCU Department of Nursing achieved a 90 percent passage rate among students and graduates who took the 2014 qualifying exams for first time nurses which exceeds the 81 percent national average. NCCU continues to have a significant impact on the regional economies of Durham, Wake, Orange, Guilford and Alamance counties. According to an analysis commissioned by the University of North Carolina System, the North Carolina Community College System, and North Carolina Independent Colleges and Universities, the impact of higher education in North Carolina totaled $63.5 billion with NCCU having a $563.7 million regional impact in fiscal year which equates to 8,588 new jobs. NCCU continues to apply for grants and had a $0.9 million increase in grant income during the fiscal year. The U.S. Department of Education awarded NCCU a five year grant of $1.1 million to provide counseling, tutoring and support to help students earn their college degrees. The funds are part of the federal TRIO student Services Support Program. The U.S. Department of Health and Human Services awarded NCCU a $1 million three-year grant to assist veterans seeking Bachelor of Nursing degrees. Grant income is recognized upon expenditure of funds for the stated purpose. Adjusted state appropriations were $82.4 million for fiscal year 2015, which was a $2.8 million, or a 3.5%, increase from fiscal year The total fiscal year budget increased by $1.6 million from $130.6 million in 2014 to $132.2 million in During fiscal year , the University s total enrollment decreased by 406 students, a 5% decline from the previous fiscal year. This can be attributed to an increase in the minimal admissions requirements and in more stringent credit requirements for recipients of state and federal financial aid available to students. The University strategically managed the receipts shortfall through internal realignments. Although there was an enrollment decline, the retention rate increased four points to 77%. This increase is reflective of the University s wellprepared and talented enrollees, resulting from its higher enrollment standards implemented over the past several years. 4

48 MANAGEMENT S DISCUSSION AND ANALYSIS FTE and Head Count 2010 to Academic Year FTE Headcount Financial Highlights The Statement of Net Position reports all of the University s assets, deferred outflows of resources, liabilities, and deferred inflows of resources. The sum of assets and deferred outflows of resources, less the liabilities and deferred inflows of resources is reported as net position. The statement classifies those assets and liabilities as current and noncurrent depending on the availability of the assets or satisfaction of the obligation within 12 months (current) or longer. The reader may use the net position to gauge the financial position of the University as of June 30, Condensed Statement of Net Position (As Restated) Assets Current Assets $ 35,321,360 $ 34,940,341 Capital Assets, Net 276,602, ,502,168 Other Noncurrent Assets 33,538,023 30,248,778 Total Assets 345,461, ,691,287 Deferred Outflows of Resources 5,723,084 6,557,557 Liabilities Current Liabilities 13,164,446 15,113,983 Noncurrent Liabilities 96,186, ,618,937 Total Liabilities 109,350, ,732,920 Deferred Inflows of Resources 16,577,514 Net Position Net Investment in Capital Assets 207,302, ,520,864 Restricted - Nonexpendable 16,012,354 15,528,157 Restricted - Expendable 18,987,844 17,727,085 Unrestricted (17,045,957) (17,260,182) Total Net Position $ 225,256,804 $ 222,515,924 5

49 MANAGEMENT S DISCUSSION AND ANALYSIS As of June 30, 2015, the University s total assets were $345.5 million as compared to $346.7 million in the prior year, a decrease of $1.2 million. The change in assets reflects a decrease of $4.9 million in net capital assets and an increase in current assets of $0.4 million and other assets of $3.3 million. The decrease in net capital assets is due to accumulated depreciation of $8.8 million offset by current year capital asset purchases of $3.9 million. The $3.3 million change in other assets was primarily attributable to an increase in the market value of the endowment investments. The University s liabilities totaled $109.4 million at June 30, 2015 and $130.7 million at June 30, 2014, as restated, reflecting a $21.4 million, or 16.4%, decrease in total liabilities. The net decrease of $21.4 million was mainly due to the change in the actuarial valuation for the defined benefit pension plan that resulted in a reduction in the net pension liability of $19.4 million upon implementation of GASB Statement No. 68. The June 30, 2015 balance consisted primarily of the debt service on the UNC System Pool Revenue Bonds, Series 2009C ($54.2 million) and student housing bonds ($17.8 million). See Note 7 of the Notes to the Financial Statements for more information about debt administration. The total current liabilities of $13.2 million were covered 2.7 times by current assets of $35.3 million, which indicates the University s ability to pay current liabilities as they become due. Deferred inflows of resources increased $16.6 million due to the recognition of differences between actual and expected pension plan experience, including investment performance, related to the pension plan in accordance with GASB Statement No. 68. As of June 30, 2015, the University s net position was $225.3 million, which is an increase of $2.7 million from the prior year, as restated. The increase in net position was due to the implementation of GASB Statement No. 68 and having to defer recording $2.4 million in pension contribution expenses, which effectively produced an increase in current year operations of $2.7 million. 6

50 MANAGEMENT S DISCUSSION AND ANALYSIS Condensed Statement of Revenues, Expenses, and Changes in Net Position (As Restated) Operating Revenues Student Tuition and Fees, Net $ 38,001,106 $ 40,109,895 Contracts and Grants 8,324,800 7,381,594 Sales and Services, Net 22,909,909 22,896,035 Other Operating Revenues 1,640,535 1,326,348 Total Operating Revenues 70,876,350 71,713,872 Operating Expenses Salaries and Benefits 115,283, ,389,686 Supplies and Materials 10,978,788 12,173,070 Services 27,216,863 29,001,094 Scholarships and Fellowships 12,807,416 13,229,772 Utilities 5,507,658 5,625,894 Depreciation 8,841,480 8,787,645 Operating Expenses 180,635, ,207,161 Operating Loss (109,759,579) (114,493,289) Nonoperating Revenues and Expenses State Appropriations 82,405,806 79,621,943 Noncapital Grants 31,008,076 32,070,971 Noncapital Gifts 433,685 82,717 Investment Income, Net 2,934,811 4,242,889 Other Nonoperating Expenses (4,281,998) (4,043,928) Income (Loss) Before Other Revenues 2,740,801 (2,518,697) Capital Appropriations 79 1,807,823 Capital Grants 64,930 Total Other Revenues 79 1,872,753 Increase (Decrease) in Net Position 2,740,880 (645,944) Net Position - Beginning of Year 222,515, ,118,695 Restatement - GASB 68 Implementation (18,956,827) Net Position - End of Year $ 225,256,804 $ 222,515,924 The Statement of Revenues, Expenses, and Changes in Net Position reports the revenues earned and expenses incurred during the fiscal year. The increase or decrease of revenues over expenses directly affects (increases/decreases) the total net position reported on the Statement of Net Position. These transactions are classified as operating or nonoperating. Operating revenues primarily consist of student tuition and fees reported net of discounts and scholarship allowances, federal and state contracts and grants, and auxiliary sales and services revenues. Operating expenses consist of salaries, supplies, services, scholarships, utilities, and depreciation. Operating revenues were $70.9 million at June 30, 2015, a decrease of $0.8 million from Revenues from tuition and fees decreased by $2.1 million due to the five-percent decrease in full-time equivalent students. Grant revenues increased modestly by $0.9 million while sales and services revenue remained constant. Meal plan sales and residential 7

51 MANAGEMENT S DISCUSSION AND ANALYSIS housing services generate the greatest portion of sales and services revenue and are directly impacted by the number of students enrolled and living on campus; however, the meal plan rates increased 7.5% from the prior year, which contributed to the sales and services revenue remaining constant. All other operating revenues increased by $0.3 million. Total operating expenses decreased by $5.6 million, or 3%, when compared to As a result of the GASB 68 implementation, salaries and benefits decreased by $2.1 million primarily by reason of a reduction in recognized pension expense under the standard while strategic budget realignments reduced supplies and materials expenditures by $1.2 million, purchased services by $1.8 million, and scholarships and fellowships by $0.4 million. Overall, the University sustained a total operating loss of $109.8 million in the current fiscal year, which is $4.7 million less than the loss in fiscal year Operating losses are likely to continue due, in part, to the accounting requirement to categorize state appropriations (a major source of funding) as nonoperating revenues. In 2015, state appropriations were $82.4 million. Nonoperating revenues and expenses stem from transactions that occur outside of the primary scope of the University s purpose for existence and for which no goods or services are provided. State appropriations, noncapital grants and gifts, investment income/expenses, and capital-related interest primarily represent the nonoperating revenues and expenses. At June 30, 2015, investment income was $2.9 million, which was a decrease of $1.3 million from the prior fiscal year due to fluctuating market conditions. Noncapital grants decreased by $1.1 million, which was mostly the result of receiving less federal nonexchange monies for Title III programs and financial aid. Operating Revenues by Source Interest Earnings on Loans 0.06% Other Operating Revenues 2% Non-gov't Grants and Contracts 0.19% State and Local Grants and Contracts 0.03% Sales and Services, Net 32% Federal Grants and Contracts 12% Student Tuition and Fees, Net 54% 8

52 MANAGEMENT S DISCUSSION AND ANALYSIS Capital Assets and Debt Administration As of June 30, 2015, there was construction in progress of $0.8 million due to an energy management project that is expected to produce savings in future years. During the year, there was a $4 million increase in small projects, machinery, equipment, and other capital assets. For additional information concerning capital assets, see Notes 1(H), 5, and 15(A) in the Notes to the Financial Statements. As of June 30, 2015, the University had $85.4 million in outstanding bonds, notes, and leases payable of which $54.2 million was for outstanding bonds issued by the UNC System Pool Revenue Bonds, Series 2009C to complete the construction of student housing, a parking deck, and renovations to the Walker Athletic Complex. At June 30, 2015, the University s Moody s Investor Service rating was A3. The rating has the potential to affect the cost of capital for any future borrowing that the University undertakes. For additional information concerning debt administration, see Note 7 in the Notes to the Financial Statements. Economic Outlook NCCU remains at the forefront of research and economic development within North Carolina. Through the Julius L. Chambers Biomedical/Biotechnology Research Institute (BBRI) and the Biomanufacturing Research Institute and Technology Enterprise (BRITE), NCCU will continue to go beyond being just a deliverer of information, to being an institution that generates information, contributes to the general overall pool of knowledge, and attracts enhanced support from sponsors. As such, the University collaborated with the Media Lab of the Massachusetts Institute of Technology (MIT) to open a Fabrication Laboratory (Fab Lab) designed to provide STEAM (Science, Technology, Engineering, Arts, and Mathematics) education through the use of digital fabrication technology. The Fab Lab enriches our ability to continue to be a center of innovation, creativity, and collaboration. As previously stated, there was a 5% decline in full-time and part-time students in FY However, enrollment is anticipated to be higher in FY due to enhanced recruitment efforts, relaxed Parent Plus Loan requirements, and dual degree partnerships with Durham Technical Community College and North Carolina State University. All these factors, coupled with stronger student programming, will aid in upward enrollment trends, retention and graduation rates. Moreover, the University will continue to strategically manage its resources, re-engineer processes to be more efficient, and enhance fundraising strategies for private contributions. NCCU s vision is to be recognized as one of the region s leading public universities, known for academic excellence, which will open the Gateway to Opportunity for every student. 9

53 FINANCIAL STATEMENTS

54 North Carolina Central University Statement of Net Position Exhibit A-1 June 30, 2015 Page 1 of 2 ASSETS Current Assets: Cash and Cash Equivalents $ 15,026,687 Restricted Cash and Cash Equivalents 10,034,051 Restricted Short-Term Investments 1,735,968 Receivables, Net (Note 4) 7,465,186 Due from University Component Units 22,472 Inventories 855,899 Notes Receivable, Net (Note 4) 147,957 Other Assets 33,140 Total Current Assets 35,321,360 Noncurrent Assets: Restricted Cash and Cash Equivalents 1,026,421 Restricted Due from Primary Government 1,232 Endowment Investments 28,164,800 Restricted Investments 1,254,837 Notes Receivable, Net (Note 4) 3,090,733 Capital Assets - Nondepreciable (Note 5) 8,917,907 Capital Assets - Depreciable, Net (Note 5) 267,684,605 Total Noncurrent Assets 310,140,535 Total Assets 345,461,895 DEFERRED OUTFLOWS OF RESOURCES Accumulated Decrease in Fair Value of Hedging Derivatives 1,063,037 Deferred Outflows Related to Pensions 4,660,047 Total Deferred Outflows of Resources 5,723,084 LIABILITIES Current Liabilities: Accounts Payable and Accrued Liabilities (Note 6) 4,326,099 Due to Primary Government 76,468 Funds Held for Others 22,472 Unearned Revenue 3,550,505 Interest Payable 932,284 Long-Term Liabilities - Current Portion (Note 7) 4,256,618 Total Current Liabilities 13,164,446 Noncurrent Liabilities: Deposits Payable 400 Funds Held for Others 768,511 U. S. Government Grants Refundable 2,089,298 Hedging Derivative Liability 1,063,037 Long-Term Liabilities, Net (Note 7) 92,264,969 Total Noncurrent Liabilities 96,186,215 Total Liabilities 109,350,661 DEFERRED INFLOWS OF RESOURCES Deferred Inflows Related to Pensions 16,577,514 10

55 North Carolina Central University Statement of Net Position Exhibit A-1 June 30, 2015 Page 2 of 2 NET POSITION Net Investment in Capital Assets 207,302,563 Restricted for: Nonexpendable: Scholarships and Fellowships 4,636,798 Endowed Professorships 9,693,855 Loans 1,681,701 Expendable: Scholarships and Fellowships 4,013,853 Research 75,983 Endowed Professorships 10,700,701 Departmental Uses 2,319,397 Capital Projects 1,868,338 Other 9,572 Unrestricted (17,045,957) Total Net Position $ 225,256,804 The accompanying notes to the financial statements are an integral part of this statement. 11

56 North Carolina Central University Statement of Revenues, Expenses, and Changes in Net Position For the Fiscal Year Ended June 30, 2015 Exhibit A-2 REVENUES Operating Revenues: Student Tuition and Fees, Net (Note 10) $ 38,001,106 Federal Grants and Contracts 8,166,042 State and Local Grants and Contracts 22,280 Nongovernmental Grants and Contracts 136,478 Sales and Services, Net (Note 10) 22,909,909 Interest Earnings on Loans 42,976 Other Operating Revenues 1,597,559 Total Operating Revenues 70,876,350 EXPENSES Operating Expenses: Salaries and Benefits 115,283,724 Supplies and Materials 10,978,788 Services 27,216,863 Scholarships and Fellowships 12,807,416 Utilities 5,507,658 Depreciation 8,841,480 Total Operating Expenses 180,635,929 Operating Loss (109,759,579) NONOPERATING REVENUES (EXPENSES) State Appropriations 82,405,806 Noncapital Grants - Student Financial Aid 20,327,680 Noncapital Grants 10,680,396 Noncapital Gifts 433,685 Investment Income (Net of Investment Expense of $137,231) 2,934,811 Interest and Fees on Debt (4,380,881) Other Nonoperating Revenues 98,883 Net Nonoperating Revenues 112,500,380 Income Before Other Revenues 2,740,801 Capital Appropriations 79 Increase in Net Position 2,740,880 NET POSITION Net Position - July 1, 2014, as Restated (Note 17) 222,515,924 Net Position - June 30, 2015 $ 225,256,804 The accompanying notes to the financial statements are an integral part of this statement. 12

57 North Carolina Central University Statement of Cash Flows Exhibit A-3 For the Fiscal Year Ended June 30, 2015 Page 1 of 2 CASH FLOWS FROM OPERATING ACTIVITIES Received from Customers $ 70,265,962 Payments to Employees and Fringe Benefits (117,728,779) Payments to Vendors and Suppliers (44,366,483) Payments for Scholarships and Fellowships (12,807,416) Loans Issued (449,904) Collection of Loans 501,307 Interest Earned on Loans 45,904 Other Receipts 14,683 Net Cash Used by Operating Activities (104,524,726) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations 82,405,806 Noncapital Grants - Student Financial Aid 20,327,680 Noncapital Grants 11,100,093 Noncapital Gifts 433,685 William D. Ford Direct Lending Receipts 81,975,379 William D. Ford Direct Lending Disbursements (81,975,379) Related Activity Agency Disbursements (1,016) Other Receipts 98,883 Net Cash Provided by Noncapital Financing Activities 114,365,131 CASH FLOWS FROM CAPITAL FINANCING AND RELATED FINANCING ACTIVITIES Proceeds from Capital Debt 8,126,589 State Capital Appropriations 79 Acquisition and Construction of Capital Assets (3,771,600) Principal Paid on Capital Debt and Leases (9,105,583) Interest and Fees Paid on Capital Debt and Leases (3,875,190) Net Cash Used by Capital Financing and Related Financing Activities (8,625,705) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments 5,473,706 Investment Income 1,110,974 Purchase of Investments and Related Fees (7,477,934) Net Cash Used by Investing Activities (893,254) Net Increase in Cash and Cash Equivalents 321,446 Cash and Cash Equivalents - July 1, ,765,713 Cash and Cash Equivalents - June 30, 2015 $ 26,087,159 13

58 North Carolina Central University Statement of Cash Flows Exhibit A-3 For the Fiscal Year Ended June 30, 2015 Page 2 of 2 RECONCILIATION OF NET OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating Loss $ (109,759,579) Adjustments to Reconcile Operating Loss to Net Cash Used by Operating Activities: Depreciation Expense 8,841,480 Allowances, Write-Offs, and Amortizations 182,708 Pension Expense 2,016,048 Changes in Assets, Liabilities, and Deferred Outflows of Resources: Receivables, Net (1,444,925) Inventories 225,876 Notes Receivable, Net 51,403 Accounts Payable and Accrued Liabilities (926,001) Due to Federal Agencies 3,015 Due to Primary Government (57,050) US Government Grants Refundable 14,683 Unearned Revenue 696,367 Deferred Outflows for Contributions Subsequent to the Measurement Date (4,465,497) Compensated Absences 96,746 Net Cash Used by Operating Activities $ (104,524,726) RECONCILIATION OF CASH AND CASH EQUIVALENTS Current Assets: Cash and Cash Equivalents $ 15,026,687 Restricted Cash and Cash Equivalents 10,034,051 Noncurrent Assets: Restricted Cash and Cash Equivalents 1,026,421 Total Cash and Cash Equivalents - June 30, 2015 $ 26,087,159 NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES Assets Acquired through the Assumption of a Liability $ 537,919 Change in Fair Value of Investments 1,667,481 Loss on Disposal of Capital Assets (19,359) Amortization of Bond Discounts 14,497 The accompanying notes to the financial statements are an integral part of this statement. 14

59 North Carolina Central University Foundation, Inc. Statement of Financial Position June 30, 2015 Exhibit B-1 ASSETS Cash and Cash Equivalents $ 2,416,683 Investments 12,499,329 Cash Surrender Value of Life Insurance 239,283 Beneficial Interest in Perpetual Trust 1,848,926 Receivables, Net 697,095 Property and Equipment, Net 20,414 Total Assets 17,721,730 LIABILITIES Accounts Payable and Accrued Expenses 275 Funds Held for Others 36,440 Total Liabilities 36,715 NET ASSETS Unrestricted 793,288 Temporarily Restricted 4,429,655 Permanently Restricted 12,462,072 Total Net Assets $ 17,685,015 The accompanying notes to the financial statements are an integral part of this statement. 15

60 North Carolina Central University Foundation, Inc. Statement of Activities and Changes in Net Assets For the Fiscal Year Ended June 30, 2015 Exhibit B-2 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES Revenues, Gains, and Other Support: Contributions $ 254,166 $ 2,739,646 $ 987,763 $ 3,981,575 Interest and Dividends, Net 33, ,203 5, ,197 Realized and Unrealized Gains on Investments 34,814 (15,570) (9,844) 9,400 Other Income 12,321 5,085 (85,780) (68,374) Net Assets Released from Donor Restrictions 3,213,425 (3,213,425) Total Revenues, Gains, and Other Support 3,547,876 (288,061) 897,983 4,157,798 EXPENSES Program Services: Scholarships and Grants 956, ,966 University Support 2,155,456 2,155,456 Management and General 599, ,940 Provision for Bad Debts 92,744 69, ,498 Total Expenses 3,712,362 92,744 69,754 3,874,860 Changes in Net Assets Before Net Asset Transfers (164,486) (380,805) 828, ,938 Transfers (32,849) (5,077) 37,926 Changes in Net Assets (197,335) (385,882) 866, ,938 NET ASSETS Net Assets at Beginning of Year 990,623 4,815,537 11,595,917 17,402,077 Net Assets at End of Year $ 793,288 $ 4,429,655 $ 12,462,072 $ 17,685,015 The accompanying notes to the financial statements are an integral part of this statement. 16

61 NOTES TO THE FINANCIAL STATEMENTS

62 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES A. Financial Reporting Entity - The concept underlying the definition of the financial reporting entity is that elected officials are accountable to their constituents for their actions. As required by accounting principles generally accepted in the United States of America (GAAP), the financial reporting entity includes both the primary government and all of its component units. An organization other than a primary government serves as a nucleus for a reporting entity when it issues separate financial statements. North Carolina Central 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 financial statements present all funds belonging to the University and its component units. While the Board of Governors of the University of North Carolina System has ultimate responsibility, the Chancellor, the Board of Trustees, and the Board of Trustees of the Endowment Fund have delegated responsibilities for financial accountability of the University s funds. The University s component units are either blended or discretely presented in the University s financial statements. See below for further discussion of the University s component units. Blended Component Unit - Although legally separate, the NCCU Real Estate Foundation, Inc. (Real Estate Foundation), a component unit of the University, is reported as if it were part of the University. The Real Estate Foundation is governed by a five-member board whose purpose is to acquire property and to construct and own residential facilities for students. Because the elected directors of the Real Estate Foundation are appointed by the Chancellor and the Real Estate Foundation s sole purpose is to benefit North Carolina Central University, its financial statements have been blended with those of the University. Separate financial statements for the Real Estate Foundation may be obtained from the University Comptroller s Office, 1801 Fayetteville Street, Durham, North Carolina 27707, or by calling Other related foundations and similar nonprofit corporations for which the University is not financially accountable are not part of the accompanying financial statements. Condensed combining information regarding the blended component unit is provided in Note 16. Discretely Presented Component Unit - The North Carolina Central University Foundation, Inc. (NCCU Foundation) is a legally separate nonprofit corporation and is reported as a discretely presented component unit based on the nature and significance of its relationship to the University. 17

63 NOTES TO THE FINANCIAL STATEMENTS The NCCU Foundation acts primarily as a fund-raising organization to supplement the resources that are available to the University in support of its programs. The NCCU Foundation board consists of 17 members. Although the University does not control the timing or amount of receipts from the NCCU Foundation, the majority of resources, or income thereon, that the NCCU Foundation holds and invests are restricted to the activities of the University by the donors. Because these restricted resources held by the NCCU Foundation can only be used by, or for the benefit of the University, the NCCU Foundation is considered a component unit of the University and is reported in separate financial statements because of the difference in its reporting model, as described below. The NCCU Foundation is a private nonprofit organization that reports its financial results under the Financial Accounting Standards Board (FASB) Codification. As such, certain revenue recognition criteria and presentation features are different from the Governmental Accounting Standards Board (GASB) revenue recognition criteria and presentation features. No modifications have been made to the NCCU Foundation s financial information in the University s financial reporting entity for these differences. During the year ended June 30, 2015, the NCCU Foundation distributed $1,446,129 to the University for both restricted and unrestricted purposes. The University remitted $145,362 in payroll deducted employee contributions and $25,077 in other reimbursements to the NCCU Foundation. Complete financial statements for the Foundation can be obtained from the University Comptroller s Office, 1801 Fayetteville Street, Durham, North Carolina 27707, or by calling B. Basis of Presentation - The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America as prescribed by the GASB. Pursuant to the provisions of GASB Statement No. 34, Basic Financial Statements - and 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 financial statements. C. Basis of Accounting - The financial statements of the University have been prepared using the economic resource measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred, regardless of the timing of the cash flows. Nonexchange transactions, in which the University receives (or gives) value without directly giving (or receiving) equal value in exchange, 18

64 NOTES TO THE FINANCIAL STATEMENTS include state appropriations, certain grants, and donations. Revenues are recognized, net of estimated uncollectible amounts, as soon as all eligibility requirements imposed by the provider have been met, if probable of collection. D. Cash and Cash Equivalents - This classification includes undeposited receipts, petty cash, cash on deposit with private bank accounts, money market accounts, cash on deposit with fiscal agents, and deposits held by the State Treasurer in the Short-Term Investment Fund (STIF). The STIF maintained by the State Treasurer has the general characteristics of a demand deposit account in that participants may deposit and withdraw cash at any time without prior notice or penalty. E. Investments - Investments generally are reported at fair value, as determined by quoted market prices or estimated amounts determined by management if quoted market prices are not available. The fair value for investments in the UNC Investment Fund was based on amounts reported to the University by UNC Management Company, Inc. University management reviews and evaluates the values provided by UNC Management Company, Inc. as well as the valuation methods and assumptions used in determining the fair value of such investments. 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. Money market mutual funds are reported at cost, if purchased, or at fair value or appraised value at date of gift, if donated. Endowment investments include the principal amount of gifts and bequests that, according to donor restrictions, must be held in perpetuity or for a specified period of time, along with any accumulated investment earnings on such amounts. Further, endowment investments also include amounts internally designated by the University for investment in an endowment capacity (i.e. quasi-endowments), along with accumulated investment earnings on such amounts. 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. G. Inventories - Inventories, consisting of expendable supplies, are valued at cost using first-in, first-out method. H. Capital Assets - Capital assets are stated at cost at date of acquisition or fair value at date of donation in the case of gifts. The value of assets 19

65 NOTES TO THE FINANCIAL STATEMENTS 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. Depreciation is computed using the straight-line method over the estimated useful lives of the assets in the following manner: Asset Class Buildings Machinery & Equipment General Infrastructure Estimated Useful Life years 5-25 years years Art collections are capitalized at cost or fair value at the date of donation. These collections are considered inexhaustible and are therefore not depreciated. 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. Noncurrent Long-Term Liabilities - Noncurrent long-term liabilities include principal amounts of revenue bonds payable, net pension liability, notes payable, capital lease obligations, and compensated absences that will not be paid within the next fiscal year. Revenue bonds payable are reported net of unamortized discounts. The University amortizes bond discounts over the life of the bonds using the straight-line method. Deferred charges on refundings are amortized over the life of the new debt using the straight-line method, and are included as Deferred Outflows or Deferred Inflows of Resources on the Statement of Net Position. Issuance costs are expensed. The net pension liability represents the University s proportionate share of the collective net pension liability reported in the State of North Carolina s 2014 Comprehensive Annual Financial Report. This liability represents the University s portion of the collective total pension liability less the fiduciary net position of the Teachers and State Employees Retirement System. See Note 12 for further information regarding the University s policies for recognizing liabilities, expenses, and deferred outflows and inflows related to pensions. 20

66 NOTES TO THE FINANCIAL STATEMENTS K. 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, first-out (LIFO) method. Also, any accumulated vacation leave in excess of 30 days at year-end is converted to sick leave. Under this policy, the accumulated vacation leave for each employee at June 30 equals the leave carried forward at the previous December 31 plus the leave earned, less the leave taken between January 1 and June 30. In addition to the vacation leave described above, compensated absences include the accumulated unused portion of the special annual leave bonuses awarded by the North Carolina General Assembly. The bonus leave balance on December 31 is retained by employees and transferred into the next calendar year. It is not subject to the limitation on annual leave carried forward described above and is not subject to conversion to sick leave. There is no liability for unpaid accumulated sick leave because the University has no obligation to pay sick leave upon termination or retirement. However, additional service credit for retirement pension benefits is given for accumulated sick leave upon retirement. L. Net Position - The University s net position is classified as follows: 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. Additionally, deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of capital assets or related debt are also included in this component of net position. Restricted Net Position - Nonexpendable - Nonexpendable restricted net position includes endowments and similar type assets whose use is limited by donors or other outside sources, and, as a condition of the gift, the principal is to be maintained in perpetuity. Restricted Net Position - Expendable - Expendable restricted net position includes resources for which the University is legally or contractually obligated to spend in accordance with restrictions imposed by external parties. Unrestricted Net Position - Unrestricted net position includes resources derived from student tuition and fees, sales and services, unrestricted gifts, royalties, and interest income. 21

67 NOTES TO THE FINANCIAL STATEMENTS Restricted and unrestricted resources are tracked using a fund accounting system and are spent in accordance with established fund authorities. Fund authorities provide rules for the fund activity and are separately established for restricted and unrestricted activities. When both restricted and unrestricted funds are available for expenditure, the decision for funding is transactional based within the departmental management system in place at the University. For projects funded by tax-exempt debt proceeds and other sources, the debt proceeds are always used first. Both restricted and unrestricted net position include consideration of deferred outflows and inflows of resources. M. Scholarship Discounts - Student tuition and fees revenues and certain other revenues from University charges are reported net of scholarship discounts in the accompanying Statement of Revenues, Expenses, and Changes in Net Position. The scholarship discount is the difference between the actual charge for goods and services provided by the University and the amount that is paid by students or by third parties on the students behalf. Student financial assistance grants, such as Pell grants, and other federal, state, or nongovernmental programs, are recorded as nonoperating revenues in the accompanying Statement of Revenues, Expenses, and Changes in Net Position. To the extent that revenues from these programs are used to satisfy tuition, fees, and other charges, the University has recorded a scholarship discount. N. Revenue and Expense Recognition - The University classifies its revenues and expenses as operating or nonoperating in the accompanying Statement of Revenues, Expenses, and Changes in Net Position. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the 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 financing or investing activities as defined by GASB Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting. Nonoperating revenues include activities that have the characteristics of nonexchange transactions. Revenues from nonexchange transactions that represent subsidies or gifts to the University, as well as investment income, are considered nonoperating since these are either investing, capital, or noncapital financing activities. Capital contributions are presented separately after nonoperating revenues and expenses. O. 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, copy centers, motor pool, and postal services. In 22

68 NOTES TO THE FINANCIAL STATEMENTS addition, the University has other miscellaneous sales and service units that operated either on a reimbursement or charge basis. All internal sales activities to University departments from auxiliary operations and sales and service units have been eliminated in the accompanying financial statements. These eliminations are recorded by removing the revenue and expense in the auxiliary operations and sales and service units and, if significant, allocating any residual balances to those departments receiving the goods and services during the year. NOTE 2 - DEPOSITS AND INVESTMENTS A. Deposits - Unless specifically exempt, the University is required by North Carolina General Statute 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 , may authorize the University to deposit its institutional trust funds in interest-bearing accounts and other investments authorized by the Board of Governors, without regard to any statute or rule of law relating to the investment of funds by fiduciaries. Although specifically exempted, the University may voluntarily deposit institutional trust funds, endowment funds, special funds, revenue bond proceeds, debt service funds, and funds received for services rendered by health care professionals with the State Treasurer. Special funds consist of moneys for intercollegiate athletics and agency funds held directly by the University. At June 30, 2015, the amount shown on the Statement of Net Position as cash and cash equivalents includes $24,519,958 which represents the University s equity position in the State Treasurer s 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, Assets and shares of the STIF are valued at amortized cost, which approximates fair value. Deposit and investment risks associated with the State Treasurer s Investment 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 Office of the State Controller s Internet home page and clicking on Reports or by calling the State Controller s Financial Reporting Section at (919) Cash on hand at June 30, 2015 was $1,899. The carrying amount of the University s deposits not with the State Treasurer was $1,565,302 and the bank balance was $1,577,201. 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 does not have a deposit policy for custodial credit risk. As of June 30, 2015, the University s uninsured and uncollateralized bank balance was $1,476,

69 NOTES TO THE FINANCIAL STATEMENTS B. Investments University - The University is authorized by The University of North Carolina Board of Governors pursuant to G.S and Section 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. G.S (c), applicable to the State s General Fund, and G.S , applicable to institutional trust funds, authorize the State Treasurer to invest in the following: obligations of or fully guaranteed by the United States; obligations of certain federal agencies; repurchase agreements; obligations of the State of North Carolina; certificates of deposit and other deposit accounts of specified financial institutions; prime quality commercial paper; asset-backed securities with specified ratings, specified bills of exchange or time drafts, and corporate bonds/notes with specified ratings; general obligations of other states; general obligations of North Carolina local governments; and obligations of certain entities with specified ratings. In accordance with the bond resolutions, bond proceeds and debt service funds are invested in obligations that will by their terms mature on or before the date funds are expected to be required for expenditure or withdrawal. G.S (e) provides that the trustees of the Endowment Fund shall be responsible for the prudent investment of the Fund in the exercise of their sound discretion, without regard to any statute or rule of law relating to the investment of funds by fiduciaries but in compliance with any lawful condition placed by the donor upon that part of the Endowment Fund to be invested. Investments of the University s component units, the Real Estate Foundation and the NCCU Foundation, 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. 24

70 NOTES TO THE FINANCIAL STATEMENTS Credit Risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University does not have a formal policy that addresses credit risk. Long-Term Investment Pool - This is an internal investment pool that is utilized for the investment of the endowment funds. Fund ownership is measured using the unitized method. Under this method, each participating fund s investment balance is determined on the current market value per unit multiplied by the number of units purchased. The investment strategy, including the selection of investment managers, is based on the directives of the University s Endowment Board. The following table presents the fair value of investments by type and investments subject to interest rate risk at June 30, 2015, for the Long- Term Investment Pool. Long-Term Investment Pool Fair Value Investment Type UNC Investment Fund $ 21,234,204 UNC Investment Fund, LLC - At June 30, 2015, the University s investments include $21,234,204 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. Asset and ownership interests of the UNC Investment Fund are determined on a market unit valuation basis each month. Investment risks associated with the UNC Investment Fund are included in audited financial statements of the UNC Investment Fund, LLC which may be obtained from UNC Management Company, Inc., 1400 Environ Way, Chapel Hill, NC Non-Pooled Investments - The following table presents the fair value of investments by type and investments subject to interest rate risk at June 30, 2015, for the University s non-pooled investments. Non-Pooled Investments Investment Maturities (in Years) Fair Less Value Than 1 Investment Type Debt Securities Money Market Mutual Funds $ 1,882,419 $ 1,882,419 Other Securities Domestic Stocks 8,038,982 Total Non-Pooled Investments $ 9,921,401 25

71 NOTES TO THE FINANCIAL STATEMENTS At June 30, 2015, the University s non-pooled investments had the following credit quality distribution for securities with credit exposure: Fair AAA Value Aaa Unrated Money Market Mutual Funds $ 1,882,419 $ 1,791,831 $ 90,588 Rating Agency: Moody's Total Investments - The following table presents the fair value of the total investments at June 30, 2015: Fair Value Investment Type Debt Securities Money Market Mutual Funds $ 1,882,419 Other Securities UNC Investment Fund 21,234,204 Domestic Stocks 8,038,982 Total Investments $ 31,155,605 Component Units - Investments of the University s discretely presented component unit, the NCCU Foundation, Inc. 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. Because the NCCU Foundation, Inc. reports under the FASB reporting model, disclosures of the various investment risks are not required. The following is an analysis of investments by type: Fair Value Investment Type Cash and Cash Equivalents $ 618,901 Equity Securities 7,142,207 Debt Securities 1,498,729 U. S. Government Obligations 682,954 Mutual Funds 1,664,285 Exchange Traded Funds 556,874 Asset Backed Securities 335,379 Total Investments $ 12,499,329 26

72 NOTES TO THE FINANCIAL STATEMENTS C. Reconciliation of Deposits and Investments - A reconciliation of deposits and investments for the University as of June 30, 2015, is as follows: Cash on Hand $ 1,899 Amount of Deposits with Private Financial Institutions 1,565,302 Deposits in the Short-Term Investment Fund 24,519,958 Investment in the UNC Investment Fund 21,234,204 Non-Pooled Investments 9,921,401 Total Deposits and Investments $ 57,242,764 Deposits Current: Cash and Cash Equivalents $ 15,026,687 Restricted Cash and Cash Equivalents 10,034,051 Noncurrent: Restricted Cash and Cash Equivalents 1,026,421 Total Deposits 26,087,159 Investments Current: Restricted Short-Term Investments 1,735,968 Noncurrent: Endowment Investments 28,164,800 Restricted Investments 1,254,837 Total Investments 31,155,605 Total Deposits and Investments $ 57,242,764 NOTE 3 - ENDOWMENT INVESTMENTS Investments of the University s endowment funds are pooled, unless required to be separately invested by the donor. If a donor has not provided specific instructions, state law permits the Board of Trustees to authorize for expenditure the net appreciation, realized and unrealized, of the investments of the endowment funds. Under the Uniform Prudent Management of Institutional Funds Act (UPMIFA), authorized by the North Carolina General Assembly on March 19, 2009, the Board may also appropriate expenditures from eligible nonexpendable balances if deemed prudent and necessary to meet program outcomes and for which such spending is not specifically prohibited by the donor agreements. 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. Investment return of the University s endowment funds is predicated on the total return concept (yield plus appreciation). Annual payouts from the University s endowment funds are determined by 5.5% of the 12-quarter moving average of the fund s market value. If current year earnings do not 27

73 NOTES TO THE FINANCIAL STATEMENTS meet the payout requirements, the University uses accumulated income and appreciation to make up the difference. Expenditures in excess of the payout are authorized by the University s Board of Trustees of the Endowment Fund. At June 30, 2015, net appreciation of $13,848,037 was available to be spent, of which $12,852,435 was classified in net position as Restricted Expendable: Scholarships and Fellowships and Restricted Expendable Endowed Professorships, as it is restricted for specific purposes. The remaining portion of net appreciation available to be spent is classified as unrestricted net position. NOTE 4 - RECEIVABLES Receivables at June 30, 2015, were as follows: Less Allowance Gross for Doubtful Net Receivables Accounts Receivables Current Receivables: Students $ 7,079,277 $ 3,914,098 $ 3,165,179 Accounts 861, ,644 Intergovernmental 3,351,728 3,351,728 Investment Earnings 86,635 86,635 Total Current Receivables $ 11,379,284 $ 3,914,098 $ 7,465,186 Notes Receivable: Notes Receivable - Current: Federal Loan Programs $ 319,347 $ 171,390 $ 147,957 Notes Receivable - Noncurrent: Federal Loan Programs $ 6,680,847 $ 3,590,114 $ 3,090,733 NOTE 5 - CAPITAL ASSETS A summary of changes in the capital assets for the year ended June 30, 2015, is presented as follows: Balance Balance July 1, 2014 Increases Decreases June 30, 2015 Capital Assets, Nondepreciable: Land $ 7,274,669 $ 0 $ 0 $ 7,274,669 Art, Literature, and Artifacts 860,540 4, ,840 Construction in Progress 778, ,398 Total Capital Assets, Nondepreciable 8,135, ,698 8,917,907 Capital Assets, Depreciable: Buildings 331,451,048 74, ,376,621 Machinery and Equipment 37,188,466 3,178,485 36,960 40,329,991 General Infrastructure 21,769,608 21,769,608 Total Capital Assets, Depreciable 390,409,122 3,178, , ,476,220 Less Accumulated Depreciation for: Buildings 87,826,213 5,636,443 74,427 93,388,229 Machinery and Equipment 17,321,410 2,277,093 17,601 19,580,902 General Infrastructure 11,894, ,944 12,822,484 Total Accumulated Depreciation 117,042,163 8,841,480 92, ,791,615 Total Capital Assets, Depreciable, Net 273,366,959 (5,662,995) 19, ,684,605 Capital Assets, Net $ 281,502,168 $ (4,880,297) $ 19,359 $ 276,602,512 28

74 NOTES TO THE FINANCIAL STATEMENTS The University has pledged the energy savings improvements installed in its buildings and other structures financed through the UNC System Guaranteed Energy Savings Installment Financing Agreement (Agreement) dated September 1, The value of the energy savings improvement assets associated with the Agreement is $2,026,645 and is subject to security provisions in the agreement to ensure timely debt service payments. The value of the energy savings improvement assets includes $778,398 which has been completed as of June 30, 2015 and $1,248,247 which is remaining to be completed by the ESCO provider. Additional information regarding the UNC System Energy Savings Installment Financing Agreement can be found in Note 7. NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities at June 30, 2015, were as follows: Amount Current Accounts Payable and Accrued Liabilities Accounts Payable $ 3,121,783 Accrued Payroll 848,820 Contract Retainage 37,605 Intergovernmental Payables 308,738 Other 9,153 Total Current Accounts Payable and Accrued Liabilities $ 4,326,099 NOTE 7 - LONG-TERM LIABILITIES A. Changes in Long-Term Liabilities - A summary of changes in the longterm liabilities for the year ended June 30, 2015, is presented as follows: July 1, 2014 Balance Current (As Restated) Additions Reductions June 30, 2015 Portion Revenue Bonds Payable $ 78,945,000 $ 0 $ 6,990,000 $ 71,955,000 $ 2,140,000 Less: Unamortized Discount (284,023) (14,497) (269,526) Total Revenue Bonds Payable, Net 78,660,977 6,975,503 71,685,474 2,140,000 Net Pension Liability 23,944,099 19,354,188 4,589,911 Notes Payable 5,965,023 7,069, ,316 12,221, ,639 Capital Leases Payable 1,430,164 1,057,000 1,302,266 1,184, ,491 Compensated Absences 6,743,262 5,375,345 5,278,599 6,840,008 1,011,488 Total Long-Term Liabilities $ 116,743,525 $ 13,501,934 $ 33,723,872 $ 96,521,587 $ 4,256,618 Additional information regarding capital lease obligations is included in Note 9. Additional information regarding the net pension liability is included in Note

75 NOTES TO THE FINANCIAL STATEMENTS B. Revenue Bonds Payable - The University was indebted for revenue bonds payable for the purposes shown in the following table: Interest Final Original Principal Principal See Rate/ Maturity Amount Paid Through Outstanding Table Purpose Series Ranges Date of Issue June 30, 2015 June 30, 2015 Below Revenue Bonds Payable The University of North Carolina System Pool Revenue Bonds Housing System Revenue Bonds 2004B 4.0 % to 5.0% 04/01/2023 $ 8,670,000 $ 8,670,000 $ 0 Housing System, Parking Facility 2009C 4.0% to 5.5% 10/01/ ,675,000 6,505,000 54,170,000 Total of The University of North Carolina System Pool Revenue Bonds 69,345,000 15,175,000 54,170,000 NCCU Real Estate Foundation, Inc. Real Estate Foundation Housing System 2003A 3.46% * 10/01/ ,475,000 3,690,000 17,785,000 (1) Total Revenue Bonds Payable (principal only) $ 90,820,000 $ 18,865,000 71,955,000 Less: Unamortized Discount (269,526) Total Revenue Bonds Payable, Net $ 71,685,474 * For variable rate debt with interest rate swaps, the synthetic fixed rates are included. The University has pledged future revenues, net of specific operating expenses, to repay revenue bonds and as shown in the table below: Current Year Total Future Revenues Estimate of % Ref Revenue Source Revenues Pledged Net of Expenses Principal Interest of Revenues Pledged (1) Housing Revenues $ 20,671,793 $ 589,176 $ 480,000 $ 8,218 25% C. Demand Bonds - Included in bonds payable is a variable rate demand bond issue. Demand bonds are securities that contain a put feature that allows bondholders to demand payment before the maturity of the debt upon proper notice to the University s remarketing or paying agents. With regards to the following demand bond, the University has not entered into legal agreements, which would convert the demand bond not successfully remarketed into another form of long-term debt. Student Housing Facilities Revenue Bonds (Series 2003): In October of 2003, the North Carolina Capital Facilities Finance Agency issued revenue bonds consisting of Series 2003A for $21,475,000 that has a final maturity date of October 1, The series was issued to provide funds to the Real Estate Foundation (Foundation) for the purpose of financing the acquisition and construction of certain student housing facilities at North Carolina Central University. The bond proceeds were used to fund a portion of construction period interest, to fund a debt service reserve fund for the 2003A bonds, and to pay certain costs of issuance of the bonds. The University entered into a loan agreement with the Foundation dated October 1, 2003, whereby the bond proceeds were 30

76 NOTES TO THE FINANCIAL STATEMENTS loaned to the Foundation. Under the terms of the loan agreement, the Foundation agrees to provide funds for the principal and interest payments due on the bonds. The loan will be repaid over a 30-year period with variable interest rates set on a weekly basis, which was 0.08% for Series 2003A bonds at June 30, The interest rate can be converted from time to time to another interest rate made at the option of the Foundation given certain established criteria. The 2003A bonds are subject to mandatory sinking fund redemption at the principal amount on the interest payment dates. The payment of principal and interest on the Series 2003A bonds is secured by an irrevocable, direct-pay letter of credit issued by a financial institution, which originally expired on October 15, The letter of credit was subsequently extended until August 31, 2016, by request from the Foundation by delivering a notice of extension to the Trustee. The Foundation is entitled to draw up to $17,986,563. A commitment fee was paid to the financial institution in the amount of $109,098 for the letter of credit on the date the bonds were issued. The Foundation is required to pay a quarterly fee for the letter of credit of 1.2% per annum based on the unused portion of the letter of credit commitment. The Foundation paid credit facility fees in the amount of $220,792 during the year ended June 30, The total amount drawn and paid on the letter of credit for the year ended June 30, 2015 was $488,218. Under the letter of credit agreement, the proceeds of each drawing under the letter of credit to pay the portion of the purchase price of Series 2003A bonds allocable to principal will constitute a tender advance and must be reimbursed as provided in the agreement. The Foundation is required to repay each tender advance to Wells Fargo Bank, N.A. plus an interest rate of prime plus 1.0%. According to the Reimbursement Agreement Amendment dated May 2008, the amount of any tender advance made is repaid based on the earliest to occur of the date the credit provider bonds purchased pursuant to such tender advances are remarketed, the close of business on the date that is 366 days after the tender was made, and/or the termination date. The Series 2003A bonds have remarketing fees, an upfront charge paid to the remarketing agent to reset the interest rates on a weekly basis. At June 30, 2015, the remarketing fee rate for the bonds was 0.125%. During the year ended June 30, 2015, the Foundation paid remarketing fees of $22,

77 NOTES TO THE FINANCIAL STATEMENTS Swap Payments and Associated Debt: As rates vary, variable-rate debt and net swap payments will vary. As of June 30, 2015, debt service requirements of the University s outstanding variable-rate debt and net swap payments, assuming current interest rates remain the same, for their terms were as follows: Interest Rate Swap Variable-Rate Bond Letter of Interest Rate Fiscal Year Principal Interest Credit Remarketing Swaps, Net Total 2016 $ 505,000 $ 13,993 $ 209,887 $ 21,863 $ 236,805 $ 987, ,000 13, ,975 21, ,291 1,002, ,000 13, ,272 20, ,822 1,015, ,000 12, ,208 19, ,873 1,029, ,000 12, ,232 18, ,603 1,048, ,710,000 52, ,765 81, ,004 5,393, ,865,000 34, ,926 54,367 5,476, ,380,000 12, ,323 18,888 6,592,299 Total Requirements $ 17,785,000 $ 164,373 $ 2,465,588 $ 256,832 $ 1,874,398 $ 22,546,191 D. Annual Requirements - The annual requirements to pay principal and interest on the long-term obligations at June 30, 2015, are as follows: Annual Requirements Revenue Bonds Payable Notes Payable Interest Rate Fiscal Year Principal Interest Swaps, Net Principal Interest 2016 $ 2,140,000 $ 2,767,105 $ 236,805 $ 917,639 $ 373, ,235,000 2,697, ,291 1,149, , ,340,000 2,623, ,822 1,198, , ,460,000 2,536, ,873 1,247, , ,590,000 2,440, ,603 1,293, , ,105,000 10,598, ,004 5,192, , ,520,000 7,314,555 1,223,190 89, ,565,000 2,765,526 Total Requirements $ 71,955,000 $ 33,744,383 $ 1,874,398 $ 12,221,296 $ 2,522,131 The effective interest rate on the variable rate Student Housing Facilities Revenue Bonds (including the effect of the swap) is calculated at 3.46% at June 30, Interest rates are reset each week by the remarketing agent based upon a combination of the University's credit rating and market conditions. This schedule also includes the debt service requirements for debt associated with interest rate swaps. More detailed information about interest rate swaps is presented in Note 8 Derivative Instruments. E. Bond Defeasance - The University has extinguished long-term debt obligations by the issuance of new long-term debt instruments as follows: On December 17, 2014, the University issued a promissory note of $4,987,000 with an interest rate of 2.06% to PNC Bank, National Association for a current refunding of $4,945,000 of outstanding UNC 32

78 NOTES TO THE FINANCIAL STATEMENTS System Pool Revenue Bonds, Series 2004B bonds with an average interest rate of 4.14%. The refunding was undertaken to reduce total debt service payments by $484,688 over the next 9 years and resulted in an economic gain of $400,234. Prior Year Defeasances - During prior years, the University defeased certain bonds by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the University s financial statements. At June 30, 2015, the outstanding balance of prior year defeased bonds was $4,265,000. F. Notes Payable - The University was indebted for notes payable for the purposes shown in the following table: Interest Final Original Principal Principal Financial Rate/ Maturity Amount Paid Through Outstanding Purpose Institution Ranges Date of Issue June 30, 2015 June 30, 2015 Energy Performance Contract FifthThird Bank 4.81% 12/09/2026 $ 6,532,959 $ 881,252 $ 5,651,707 Refund 2004B Bonds PNC Bank National Association 2.06% 04/01/2023 4,987, ,000 4,487,000 UNC ESCO Energy Project Banc of America Public Capital Corp. 1.84% 02/14/2023 2,082,589 2,082,589 Total Notes Payable $ 13,602,548 $ 1,381,252 $ 12,221,296 NOTE 8 - DERIVATIVE INSTRUMENTS Type Hedging Derivative Instruments Cash Flow Hedges Pay-Fixed Interest Rate Derivative instruments held at June 30, 2015 are as follows: Notional Amount Change in Fair Value Fair Value at June 30, 2015 Classification Increase Classification Liability Deferred Outflow of Swap 2003A Bonds $ 7,114,000 Resources $ 10,408 Hedging Derivative $ (1,063,037) Hedging derivative instruments held at June 30, 2015 are as follows: Notional Effective Maturity Type Objective Amount Date Date Terms Hedging Derivative Instruments Hedge of Changes in Cash Cash Flow Hedges Flows on the Student Housing Pay 3.515% Pay-Fixed Interest Rate Facilities Revenue Series Receive 70% Swap 2003A Bonds 2003A Bonds $ 7,114,000 4/1/ /1/ Mo. LIBOR 33

79 NOTES TO THE FINANCIAL STATEMENTS The fair value of the pay-fixed interest rate swap was developed by the financial institution. This method calculates the present value of the future net settlement payments required by the swap assuming that the current forward rates implied by the yield curve correctly anticipate future spot interest rates. The fair value is the present value of these payments. The University s interest rate swap hedging derivative has been determined to be effective as of June 30, 2015 using the regression analysis method. Hedging Derivative Risks Credit Risk: At June 30, 2015, the NCCU Real Estate Foundation, Inc. (Foundation) was not exposed to credit risk because the swap had a negative fair value. When the fair value of the swap is negative, the Foundation owes the counterparty and, therefore, it does not possess credit risk. However, should interest rates change and the fair value of the swap become positive, the Foundation would be exposed to credit risk. Wells Fargo s current long-term ratings are Aa1 by Moody s Investor s Service and AA- by Standard and Poor s Corporation (S&P). Interest Rate Risk: The Foundation is exposed to interest rate risk on its interest rate swap. The fair value of this instrument is highly sensitive to interest rate changes. Because bonds are trading at a yield above 70% of USD-LIBOR-BBA Index, the swap has a negative fair value as of June 30, Basis Risk: The swap exposes the Foundation to basis risk when the variable payment received is based on an index other than SIFMA. Should the relationship between LIBOR and SIFMA converge, the synthetic rates on the debt would change. The Foundation receives 70% of 1-month USD-LIBOR-BBA Index. If the relationship of the Foundation s bonds trade to a percentage of LIBOR greater than 70%, the Foundation will experience an increase in debt service above the fixed rate on the swap. The effect of this difference in basis is indicated by the difference between the intended synthetic rate of 3.52% and the actual rate of 3.46% at June 30, As of June 30, 2015, the rate on the Foundation s bonds was 0.08% whereas 70% of LIBOR was 0.130%. Termination Risk: The swap contract uses the International Swap Dealers Association Master Agreement, which includes standard termination events, such as failure to pay and bankruptcy. Termination could result in the Foundation being required to make an unanticipated termination payment. Rollover Risk: The Foundation is exposed to rollover risk when the swap matures on October 1, When the swap matures, the interest rate on the underlying debt will return to a variable rate until it matures on October 1,

80 NOTES TO THE FINANCIAL STATEMENTS NOTE 9 - CAPITAL LEASE OBLIGATIONS Capital lease obligations relating to general infrastructure and machinery and 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, 2015: Fiscal Year Amount 2016 $ 227, , , , ,658 Total Minimum Lease Payments 1,305,988 Amount Representing Interest (2.98% to 7.9% Rate of Interest) 121,090 Present Value of Future Lease Payments $ 1,184,898 General infrastructure acquired under capital lease amounted to $566,900 at June 30, Machinery and equipment acquired under capital lease amounted to $1,057,000 at June 30, Depreciation for the capital assets associated with capital leases is included in depreciation expense, and accumulated depreciation for assets acquired under capital lease totaled $194,986 at June 30, NOTE 10 - REVENUES A summary of eliminations and allowances by revenue classification is presented as follows: 35

81 NOTES TO THE FINANCIAL STATEMENTS Internal Less Less Gross Sales Scholarship Allowance for Net Revenues Eliminations Discounts Uncollectibles Revenues Operating Revenues: Student Tuition and Fees $ 52,363,970 $ 0 $ 14,149,739 $ 213,125 $ 38,001,106 Sales and Services: Sales and Services of Auxiliary Enterprises: Residential Life $ 13,717,439 $ 77,681 $ 3,207,669 $ 0 $ 10,432,089 Dining 9,040, ,668 2,454,356 6,296,791 Student Union Services 1,496, ,180 1,090,233 Health, Physical Education, and Recreation Services 885,502 8, , ,305 Bookstore 228, ,348 Parking 1,468,100 21,875 1,446,225 Athletic 1,703, , , ,931 Other 1,572, ,897 1,046,979 Sales and Services of Education and Related Activities 2,084,924 1,096, ,008 Total Sales and Services $ 32,197,522 $ 2,495,545 $ 6,792,068 $ 0 $ 22,909,909 NOTE 11 - OPERATING EXPENSES BY FUNCTION The University s operating expenses by functional classification are presented as follows: Salaries Supplies Scholarships and and and Benefits Materials Services Fellowships Utilities Depreciation Total Instruction $ 61,553,726 $ 3,415,618 $ 4,277,658 $ 0 $ 313,837 $ 0 $ 69,560,839 Research 4,483, ,948 1,342,552 6,625,485 Public Service 863,112 22, ,330 1,028,659 Academic Support 11,698,807 3,550,566 1,243,832 16,493,205 Student Services 3,455, ,280 1,145,063 4,740,178 Institutional Support 12,434,911 1,124,435 4,121,435 17,680,781 Operations and Maintenance of Plant 5,112, ,566 2,474,186 4,628,106 12,377,476 Student Financial Aid 1,193,875 34, ,122 12,807,416 14,137,375 Auxiliary Enterprises 12,470,807 1,730,196 12,367, ,715 27,134,403 Depreciation 8,841,480 8,841,480 Pension Expense 2,016,048 2,016,048 Total Operating Expenses $ 115,283,724 $ 10,978,788 $ 27,216,863 $ 12,807,416 $ 5,507,658 $ 8,841,480 $ 180,635,929 NOTE 12 - PENSION PLANS A. Defined Benefit Plan Plan Administration: The State of North Carolina administers the Teachers and State Employees Retirement System (TSERS) plan. This plan is a cost-sharing, multiple-employer, defined benefit pension plan established by the State to provide pension benefits for general employees and law enforcement officers (LEOs) of the State, general employees and LEOs of its component units, and employees of Local 36

82 NOTES TO THE FINANCIAL STATEMENTS Education Agencies (LEAs) and charter schools not in the reporting entity. Membership is comprised of employees of the State (state agencies and institutions), universities, community colleges, and certain proprietary component units along with the LEAs and charter schools. Benefit provisions are established by General Statute and may be amended only by the North Carolina General Assembly. Benefits Provided: TSERS provides retirement and survivor benefits. Retirement benefits are determined as 1.82% of the member s average final compensation times the member s years of creditable service. A member s average final compensation is calculated as the average of a member s four highest consecutive years of compensation. General employee plan members are eligible to retire with full retirement benefits at age 65 with five years of creditable service, at age 60 with 25 years of creditable service, or at any age with 30 years of creditable service. General employee plan members are eligible to retire with partial retirement benefits at age 50 with 20 years of creditable service or at age 60 with five years of creditable service. Survivor benefits are available to eligible beneficiaries of general members who die while in active service or within 180 days of their last day of service and who also have either completed 20 years of creditable service regardless of age, or have completed five years of service and have reached age 60. Eligible beneficiaries may elect to receive a monthly Survivor s Alternate Benefit for life or a return of the member s contributions. The plan does not provide for automatic post-retirement benefit increases. Increases are contingent upon actuarial gains of the plan. Contributions: Contribution provisions are established by General Statute and may be amended only by the North Carolina General Assembly. Employees are required to contribute 6% of their compensation. The contribution 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 contribution rate for the year ended June 30, 2015 was 9.15% of covered payroll. The University s contributions to the pension plan were $4,465,497, and employee contributions were $2,928,195 for the year ended June 30, The TSERS Plan s financial information, including all information about the plan s assets, deferred outflows of resources, liabilities, deferred inflows of resources, and fiduciary net position, is included in the State of North Carolina s fiscal year 2014 Comprehensive Annual Financial Report. An electronic version of this report is available by accessing the North Carolina Office of the State Controller s Internet home page and clicking on Reports or by calling the State Controller s Financial Reporting Section at (919) TSERS Basis of Accounting: The financial statements of the TSERS plan were prepared using the accrual basis of accounting. Plan member contributions are recognized in the period in which the contributions are due. Employer contributions are recognized when due and the employer 37

83 NOTES TO THE FINANCIAL STATEMENTS has a legal requirement to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of each plan. The plan s fiduciary net position was determined 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 systems. The State Treasurer maintains various investment portfolios in its Investment Pool. The pension trust funds are the primary participants in the Long-term Investment portfolio and the sole participants in the External Fixed Income Investment, Equity Investment, Real Estate Investment, Alternative Investment, Credit Investment, and Inflation Protection Investment portfolios. The investment balance of each pension trust fund represents its share of the fair market value of the net position of the various portfolios within the pool. Detailed descriptions of the methods and significant assumptions regarding investments of the State Treasurer are provided in the 2014 Comprehensive Annual Financial Report. Net Pension Liability: At June 30, 2015, the University reported a liability of $4,589,911 for its proportionate share of the collective net pension liability. The net pension liability was measured as of June 30, The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of December 31, 2013, and update procedures were used to roll forward the total pension liability to June 30, The University s proportion of the net pension liability was based on the present value of future salaries for the University relative to the present value of future salaries for all participating employers, actuarially-determined. As of June 30, 2014, the University s proportion was 0.391%, which was a decrease of 0.76% from its proportion measured as of June 30, Actuarial Assumptions: The following table presents the actuarial assumptions used to determine the total pension liability for the TSERS plan at the actuarial valuation date: Valuation Date 12/31/2013 Inflation 3% Salary Increases* 4.25% % Investment Rate of Return** 7.25% * Salary increases include 3.5% inflation and productivity factor. ** Investment rate of return is net of pension plan investment expense, including inflation. TSERS currently uses mortality tables that vary by age, gender, employee group (i.e. teacher, general, law enforcement officer) and health status (i.e. disabled and healthy). The current mortality rates are based on published tables and based on studies that cover significant portions of the U.S. population. The healthy mortality rates also contain a provision to reflect future mortality improvements. 38

84 NOTES TO THE FINANCIAL STATEMENTS The actuarial assumptions used in the December 31, 2013 valuations were based on the results of an actuarial experience study for the period January 1, 2005 through December 31, Future ad hoc Cost of Living Adjustment (COLA) amounts are not considered to be substantively automatic and are therefore not included in the measurement. The projected long-term investment returns and inflation assumptions are developed through review of current and historical capital markets data, sell-side investment research, consultant whitepapers, and historical performance of investment strategies. Fixed income return projections reflect current yields across the U.S. Treasury yield curve and market expectations of forward yields projected and interpolated for multiple tenors and over multiple year horizons. Global public equity return projections are established through analysis of the equity risk premium and the fixed income return projections. Other asset categories and strategies return projections reflect the foregoing and historical data analysis. These projections are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan s target asset allocation as of June 30, 2014 (the valuation date) are summarized in the following table: Asset Class Long-Term Expected Real Rate of Return Fixed Income 2.5% Global Equity 6.1% Real Estate 5.7% Alternatives 10.5% Credit 6.8% Inflation Protection 3.7% The information above is based on 30-year expectations developed with the consulting actuary for the 2013 asset, liability and investment policy study for the North Carolina Retirement Systems. The long-term nominal rates of return underlying the real rates of return are arithmetic annualized figures. The real rates of return are calculated from nominal rates by multiplicatively subtracting a long-term inflation assumption of 3.19%. All rates of return and inflation are annualized. Discount Rate: The discount rate used to measure the total pension liability was 7.25%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current contribution rate and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of the current plan members. Therefore, the long-term 39

85 NOTES TO THE FINANCIAL STATEMENTS expected rate of return on pension plan investments was applied to all periods of projected benefit 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 discount 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-percentage point higher (8.25%) than the current rate: Net Pension Liability (Asset) 1% Decrease (6.25%) Current Discount Rate (7.25%) 1% Increase (8.25%) $32,949,564 $4,589,911 $(19,355,684) Deferred Inflows of Resources and Deferred Outflows of Resources Related to Pensions: For the year ended June 30, 2015, the University recognized pension expense of $2,016,048. At June 30, 2015, the University reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Employer Balances of Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions by Classification: Deferred Outflows Deferred Inflows of Resources of Resources Difference Between Actual and Expected Experience $ 0 $ 1,069,883 Changes of Assumptions Net Difference Between Projected and Actual Earnings on Pension Plan Investments 15,507,631 Change in Proportion and Differences Between Agency's Contributions and Proportionate Share of Contributions 194,550 Contributions Subsequent to the Measurement Date 4,465,497 Total $ 4,660,047 $ 16,577,514 40

86 NOTES TO THE FINANCIAL STATEMENTS Deferred outflows of resources related to pensions, $4,465,497, will be included as a reduction of the net pension liability in the fiscal year ended June 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Schedule of the Net Amount of the Employer's Balances of Deferred Outflows of Resources and Deferred Inflows of Resources That will be Recognized in Pension Expense: Year ended June 30: Amount 2016 $ 4,107, ,107, ,107, ,059,354 Total $ 16,382,964 B. Defined Contribution Plan - The Optional Retirement Program (Program) is a defined contribution pension plan that provides retirement benefits with options for payments to beneficiaries 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 responsible for the administration of the Program and designates the companies authorized to offer investment products or the trustee responsible for the investment of contributions under the Program and approves the form and contents of the contracts and trust agreements. Participants in the Program are immediately vested in the value of employee contributions. The value of employer contributions is vested after five years of participation in the Program. Participants become eligible to receive distributions when they terminate employment or retire. Participant eligibility and contributory requirements are established by General Statute Employer and member contribution rates are set each year by the North Carolina General Assembly. For the year ended June 30, 2015, these rates were set at 6.84% of covered payroll for employers and 6% of covered payroll for members. The University assumes no liability other than its contribution. For the current fiscal year, the University had a total payroll of $91,789,926, of which $24,689,941 was covered under the Optional Retirement Program. Total employer and employee contributions for pension benefits for the year were $1,688,792 and $1,481,396, respectively. Forfeitures reflected in pension expense, recognized during the reporting period ended June 30, 2015, were $184,

87 NOTES TO THE FINANCIAL STATEMENTS NOTE 13 - OTHER POSTEMPLOYMENT BENEFITS A. Health Benefits - The University participates in the Comprehensive Major Medical Plan (the Plan), a cost-sharing, multiple-employer defined benefit health care plan that provides postemployment health insurance to eligible former employees. Eligible former employees include long-term disability beneficiaries of the Disability Income Plan of North Carolina and retirees of the Teachers and State Employees Retirement System (TSERS) or the Optional Retirement Program (ORP). Coverage eligibility varies depending on years of contributory membership service in their retirement system prior to disability or retirement. The Plan s benefit and contribution provisions are established by Chapter 135, Article 3B, of the General Statutes, and may be amended only by the North Carolina General Assembly. The Plan does not provide for automatic post-retirement benefit increases. By General Statute, a Retiree Health Benefit Fund (the Fund) has been established as a fund in which accumulated contributions from employers and any earnings on those contributions shall be used to provide health benefits to retired and disabled employees and applicable beneficiaries. By statute, the Fund is administered by the Board of Trustees of TSERS and contributions to the Fund are irrevocable. Also by law, Fund assets are dedicated to providing benefits to retired and disabled employees and applicable beneficiaries and are not subject to the claims of creditors of the employers making contributions to the Fund. Contribution rates to the Fund, which are intended to finance benefits and administrative expenses on a pay-as-you-go basis, are established by the General Assembly. For the current fiscal year the University contributed 5.49% of the covered payroll under TSERS and ORP to the Fund. Required contribution rates for the years ended June 30, 2014, and 2013, were 5.40% and 5.30%, respectively. The University made 100% of its annual required contributions to the Plan for the years ended June 30, 2015, 2014, and 2013, which were $4,034,776, $4,212,332, and $4,163,223, respectively. The University assumes no liability for retiree health care benefits provided by the programs other than its required contribution. Additional detailed information about these programs can be located in the State of North Carolina s Comprehensive Annual Financial Report. An electronic version of this report is available by accessing the North Carolina Office of the State Controller s Internet home page and clicking on Reports or by calling the State Controller s Financial Reporting Section at (919) B. Disability Income - The University participates in the Disability Income Plan of North Carolina (DIPNC), a cost-sharing, multiple-employer defined benefit plan, to provide short-term and long-term disability benefits to eligible members of TSERS and ORP. Benefit and contribution provisions are established by Chapter 135, Article 6, of the 42

88 NOTES TO THE FINANCIAL STATEMENTS General Statutes, and may be amended only by the North Carolina General Assembly. The Plan does not provide for automatic postretirement benefit increases. Disability income benefits are funded by actuarially determined employer contributions that are established by the General Assembly. For the fiscal year ended June 30, 2015, 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, 2014, and 2013, was.44% in both years. The University made 100% of its annual required contributions to the DIPNC for the years ended June 30, 2015, 2014, and 2013, which were $301,322, $343,227, and $345,626, respectively. The University assumes no liability for long-term disability benefits under the Plan other than its contribution. Additional detailed information about the DIPNC is disclosed in the State of North Carolina s Comprehensive Annual Financial Report. NOTE 14 - RISK MANAGEMENT The University is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. These exposures to loss are handled via a combination of methods, including participation in state-administered insurance programs, purchase of commercial insurance, and self-retention of certain risks. There have been no significant reductions in insurance coverage from the previous year and settled claims have not exceeded coverage in any of the past three fiscal years. A. Employee Benefit Plans 1. State Health Plan University employees and retirees are provided comprehensive major medical care benefits. Coverage is funded by contributions to the State Health Plan (Plan), a discretely presented component unit of the State of North Carolina. The Plan has contracted with third parties to process claims. 2. Death Benefit Plan of North Carolina Term life insurance (death benefits) of $25,000 to $50,000 is provided to eligible workers. This Death Benefit Plan is administered by the State Treasurer and funded via employer contributions. The employer contribution rate was.16% for the current fiscal year. 43

89 NOTES TO THE FINANCIAL STATEMENTS B. Other Risk Management and Insurance Activities 1. Automobile, Fire, and Other Property Losses The University is required to maintain fire and lightning coverage 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. However, some agencies have chosen a higher deductible for a reduction in premium. The University has chosen to secure Broad Form Coverage on all University buildings, including those not supported by the General Fund. Broad Form covers loss from fire and lightning as well as, falling objects, weight of snow, ice or sleet, water damage, collapse, and glass breakage. All buildings have a $5,000 deductible. All state-owned vehicles are covered by liability insurance through a private insurance company and handled by the North Carolina Department of Insurance. The liability limits for losses are $1,000,000 per claim and $10,000,000 per occurrence. The University pays premiums to the North Carolina Department of Insurance for the coverage. 2. Public Officers and Employees Liability Insurance The risk of tort claims of up to $1,000,000 per claimant is retained under the authority of the State Tort Claims Act. In addition, the State provides excess public officers and employees liability insurance up to $10,000,000 via contract with a private insurance company. The University pays the premium, based on a composite rate, directly to the private insurer. 3. Employee Dishonesty and Computer Fraud The University is protected for losses from employee dishonesty 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 premium by the private insurance company. Coverage limit is $5,000,000 per occurrence. The private insurance company pays 90% of each loss less a $75,000 deductible. 4. Statewide Workers Compensation Program The North Carolina Workers Compensation Program provides benefits to workers injured on the job. All employees of the State and its component units are included in the program. When an employee is injured, the University s primary responsibility is to arrange for and 44

90 NOTES TO THE FINANCIAL STATEMENTS provide the necessary treatment for work related injury. The University is responsible for paying medical benefits and compensation in accordance with the North Carolina Workers Compensation Act. The University retains the risk for workers compensation. Additional details on the state-administered risk management programs are disclosed in the State s Comprehensive Annual Financial Report, issued by the Office of the State Controller. 5. Other Insurance Held by the University The University purchased other authorized coverage from private insurance companies through the North Carolina Department of Insurance. These types of insurance include Master Musical Insurance to cover musical instruments owned by the University; Fine Art insurance to protect items considered works of art; Boiler and Machinery insurance to cover heavy equipment; and Postal Bond insurances to cover possible losses of United States Postal Service property. The University also carries professional internship insurance on students working in health fields. Departments that secure this coverage include Nursing, Psychology, Communication Disorders, Physical Education and Recreation, Athletic Training and Social Work. Medical Liability insurance is carried on employees of the University who are accredited medical professionals and who practice in a clinical setting on campus. NOTE 15 - COMMITMENTS AND CONTINGENCIES A. Commitments - The University has established an encumbrance system to track its outstanding commitments on construction projects and other purchases. Outstanding commitments on construction contracts were $722,813 at June 30, B. Pending Litigation and Claims The University is a party to litigation and claims in the ordinary course of its operations. Since it is not possible to predict the ultimate outcome of these matters, no provision for any liability has been made in the financial statements for a liability based on probability of settlement. University management is of the opinion that the liability for any of these matters will not have a material adverse effect on the financial position of the University. 45

91 NOTES TO THE FINANCIAL STATEMENTS NOTE 16 - BLENDED COMPONENT UNIT Condensed combining information for the University s blended component unit for the year ended June 30, 2015, is presented as follows: Condensed Statement of Net Position June 30, 2015 NCCU Real Estate University Foundation, Inc. Eliminations Total ASSETS Current Assets $ 33,116,697 $ 5,755,168 $ (3,550,505) $ 35,321,360 Capital Assets 262,041,810 14,560, ,602,512 Other Noncurrent Assets 33,538,023 33,538,023 Total Assets 328,696,530 20,315,870 (3,550,505) 345,461,895 Deferred Outflows of Resources 4,660,047 1,063,037 5,723,084 LIABILITIES Current Liabilities 12,641,016 4,073,935 (3,550,505) 13,164,446 Noncurrent Liabilities 77,975,464 18,210,751 96,186,215 Total Liabilities 90,616,480 22,284,686 (3,550,505) 109,350,661 Deferred Inflows of Resources 16,577,514 16,577,514 NET POSITION Net Investment in Capital Assets 208,829,837 (1,527,274) 207,302,563 Restricted - Nonexpendable 16,012,354 16,012,354 Restricted - Expendable 18,987,844 18,987,844 Unrestricted (17,667,452) 621,495 (17,045,957) Total Net Position $ 226,162,583 $ (905,779) $ 0 $ 225,256,804 Condensed Statement of Revenues, Expenses, and Changes in Net Position For the Fiscal Year Ended June 30, 2015 NCCU Real Estate University Foundation, Inc. Eliminations Total OPERATING REVENUES Operating Revenues $ 70,876,350 $ 2,085,793 $ (2,085,793) $ 70,876,350 OPERATING EXPENSES Operating Expenses 172,784,533 1,095,709 (2,085,793) 171,794,449 Depreciation 8,440, ,908 8,841,480 Total Operating Expenses 181,225,105 1,496,617 (2,085,793) 180,635,929 Operating Income (Loss) (110,348,755) 589,176 (109,759,579) NONOPERATING REVENUES (EXPENSES) State Appropriations 82,405,806 82,405,806 Noncapital Grants and Gifts 31,441,761 31,441,761 Investment Income 2,934, ,934,811 Other Nonoperating Expenses (3,774,058) (507,940) (4,281,998) Net Nonoperating Revenues (Expenses) 113,008,218 (507,838) 112,500,380 Capital Appropriations Increase in Net Position 2,659,542 81,338 2,740,880 NET POSITION Net Position, July 1, 2014, as Restated 223,503,041 (987,117) 222,515,924 Net Position, June 30, 2015 $ 226,162,583 $ (905,779) $ 0 $ 225,256,804 46

92 NOTES TO THE FINANCIAL STATEMENTS Condensed Statement of Cash Flows June 30, 2015 University NCCU Real Estate Foundation, Inc. Total Net Cash Provided (Used) by Operating Activities $ (106,176,058) $ 1,651,332 $ (104,524,726) Net Cash Provided by Noncapital Financing Activities 114,365, ,365,131 Net Cash Used by Capital and Related Financing Activities (7,638,270) (987,435) (8,625,705) Net Cash Used by Investing Activities (893,254) (893,254) Net Increase (Decrease) in Cash and Cash Equivalents (342,451) 663, ,446 Cash and Cash Equivalents, July 1, ,757,455 5,008,258 25,765,713 Cash and Cash Equivalents, June 30, 2015 $ 20,415,004 $ 5,672,155 $ 26,087,159 NOTE 17 - NET POSITION RESTATEMENT As of July 1, 2014, net position as previously reported was restated as follows: Amount July 1, 2014 Net Position as Previously Reported $ 241,472,751 Restatement: Record the University's Net Pension Liability and Pension Related Deferred Outflows of Resources Per GASB 68 Requirements. (18,956,827) July 1, 2014 Net Position as Restated $ 222,515,924 47

93 REQUIRED SUPPLEMENTARY INFORMATION

94 North Carolina Central University Required Supplementary Information Schedule of the Proportionate Net Pension Liability Teachers' and State Employees' Retirement System Last Two Fiscal Years Exhibit C (1) Proportionate Share Percentage of Collective Net Pension Liability 0.391% 0.394% (2) Proportionate Share of TSERS Collective Net Pension Liability $ 4,589,911 $ 23,919,815 (3) Covered-Employee Payroll $ 54,290,369 $ 55,276,382 (4) Net Pension Liability as a Percentage of Covered-Employee Payroll 8.45% 43.27% (5) Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 98.24% 90.60% 48

95 North Carolina Central University Required Supplementary Information Schedule of University Contributions Teachers' and State Employees' Retirement System Last Ten Fiscal Years Exhibit C (1) Contractually Required Contribution $ 4,465,497 $ 4,717,833 $ 4,604,523 $ 4,155,823 $ 2,762,230 (2) Contributions in Relation to the Contractually Determined Contribution 4,465,497 4,717,833 4,604,523 4,155,823 2,762,230 (3) Contribution Deficiency (Excess) $ 0 $ 0 $ 0 $ 0 $ 0 (4) Covered-Employee Payroll $ 48,803,246 $ 54,290,369 $ 55,276,382 $ 55,857,838 $ 56,029,005 (5) Contributions as a Percentage of Covered-Employee Payroll 9.15% 8.69% 8.33% 7.44% 4.93% (1) Contractually Required Contribution $ 2,335,363 $ 2,075,446 $ 1,867,940 $ 1,386,335 $ 1,060,207 (2) Contributions in Relation to the Contractually Determined Contribution 2,335,363 2,075,446 1,867,940 1,386,335 1,060,207 (3) Contribution Deficiency (Excess) $ 0 $ 0 $ 0 $ 0 $ 0 (4) Covered-Employee Payroll $ 65,416,340 $ 61,769,224 $ 61,243,936 $ 52,117,847 $ 45,307,956 (5) Contributions as a Percentage of Covered-Employee Payroll 3.57% 3.36% 3.05% 2.66% 2.34% 49

96 North Carolina Central University Notes to Required Supplementary Information Schedule of University Contributions Teachers' and State Employees' Retirement System For the Fiscal Year Ended June 30, 2015 Changes of Benefit Terms: Cost of Living Increase N/A 1.00% N/A N/A N/A 2.20% 2.20% 3.00% 2.00% Changes of assumptions. In 2008, and again in 2012, the rates of withdrawal, mortality, service retirement and salary increase for active members and the rates of mortality for beneficiaries were adjusted to more closely reflect actual experience. Assumptions for leave conversions and loads were also revised in

97 INDEPENDENT AUDITOR S REPORT

98 STATE OF NORTH CAROLINA Office of the State Auditor Beth A. Wood, CPA State Auditor 2 S. Salisbury Street Mail Service Center Raleigh, NC Telephone: (919) Fax: (919) INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Trustees North Carolina Central University Durham, North Carolina We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of North Carolina Central University, a constituent institution of the multi-campus University of North Carolina System, which is a component unit of the State of North Carolina, and its discretely presented component unit, as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the University s basic financial statements, and have issued our report thereon dated December 17, Our report includes a reference to other auditors who audited the financial statements of the NCCU Real Estate Foundation, Inc. and the NCCU Foundation, Inc., as described in our report on the University s financial statements. The financial statements of the NCCU Real Estate Foundation, Inc. and the NCCU Foundation, Inc. were not audited in accordance with Government Auditing Standards, and accordingly, this report does not include reporting on internal control over financial reporting or instances of reportable noncompliance associated with those entities. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the University s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control. Accordingly, we do not express an opinion on the effectiveness of the University s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to 51

99 INDEPENDENT AUDITOR S REPORT prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the University s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the University s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the University s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the University s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Beth A. Wood, CPA State Auditor Raleigh, North Carolina December 17,

100 ORDERING INFORMATION COPIES OF THIS REPORT MAY BE OBTAINED BY CONTACTING: Office of the State Auditor State of North Carolina 2 South Salisbury Street Mail Service Center Raleigh, North Carolina Telephone: Facsimile: Internet: To report alleged incidents of fraud, waste or abuse in state government contact the Office of the State Auditor Fraud Hotline: or download our free app. For additional information contact: Bill Holmes Director of External Affairs This audit required 885 hours at an approximate cost of $87,