Finance and Administration - Board of Trustees - The University of ...

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Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationLevel 3: Significant unobservable inputs that reflectmanagement’s assumptions that market participants would usein pricing an asset or liability.Table 23.5 below presents the recorded amount of assets andliabilities measured at fair value:Table 23.5Level 1 Level 2 Level 3 TotalInvestments $16,388,062.12 $2,714,163.64 $18,237,658.18 $37,339,883.94Table 23.6 below presents additional information about assetsand liabilities measured at fair value on a recurring basis by relianceon Level 3 inputs to determine fair value.Table 23.6Beginning balance $ 11,745,148.64Total realized and unrealized gains and losses included inearnings 2,890,083.90Purchases, issuances, and settlements 3,602,425.63Ending balance $ 18,237,658.17MORTGAGE NOTE PAYABLEThe foundation was gifted property in Weakley and Obioncounties in Tennessee. The property and its contents wereappraised at $376,000.00 with an attached mortgage note of$259,330.41. The property will be used and overseen by theUniversity of Tennessee at Martin. Payment on the note, whichbegan in January 2006, is $2,000.00 per month. The note hasa 4.68% interest rate. The balance of the note payable at June30, 2011, was $183,776.75. Future maturities of this note areas follows:Table 23.7 Year ended June 30 2011:2012 $ 15,733.892013 16,486.242014 17,274.562015 18,100.582016 18,966.102017–2021 97,215.40Total $ 183,776.75CONCENTRATION OF CREDIT RISKThe foundation had concentrated its credit risk for cash bymaintaining deposits at a bank, which may at times exceedamounts covered by insurance provided by the U. S. FederalDeposit Insurance Corporation (FDIC). The foundation hasnot experienced any losses in this account and believes it is notexposed to any significant credit risk to cash.REMAINDER INTERESTThe amounts described below are reported as investments onthe statement of net assets.In December 2002, a donor conveyed to the foundation aremainder interest in a limited liability company. The assetof the limited liability company is a fee simple interest in awarehouse in South Carolina. The remainder interest wasappraised at $7,740,000.00 with the interest vesting on January1, 2021. The value on the foundation’s statement of financialposition will be the present value calculation until the vestingdate. The IRS discount rate for December 2002 used indetermining the present value was 4%. The present value of theremainder interest at June 30, 2011, was $5,332,418.63.In September 2003, a donor conveyed to the foundationanother remainder interest in a limited liability company. Theasset of this limited liability company is an office buildingin Connecticut. The remainder interest was appraised at$22,440,000.00 with the interest vesting on January 1, 2025.The value on the foundation’s statement of financial positionwill be the present value calculation until the vesting date.The IRS discount rate for September 2003 was 4.20%. Thepresent value at June 30, 2011, was $12,741,125.90.NATURAL CLASSIFICATIONS WITHFUNCTIONAL CLASSIFICATIONSThe foundation’s operating expenses by functional classificationfor the year ended June 30, 2011, are as follows:Table 23.8Functional ClassificationUtilities,Supplies, andOther ServicesPayments toor on Behalfof UTTotalProgram expenses $ 799,047.16 $13,634,607.59 $14,433,654.75General and administrative 230,303.06 134,164.50 364,467.56Total expenses $1,029,350.22 $ 13,768,772.09 $ 14,798,122.31Note 24: Component Unit –University of Tennessee ResearchFoundationThe University of Tennessee Research Foundation, Inc., isa private nonprofit organization that reports under FinancialAccounting Standards Board (FASB) standards. As such, certainrevenue recognition criteria and presentation features are differentfrom revenue recognition criteria and presentation features asprescribed by the Governmental Accounting Standards Board(GASB). The financial statements of this foundation have beenreformatted into a GASB format and are reported in a separatecolumn to the right of the university’s statements.The University of Tennessee Research Foundation is a legallyseparate, tax-exempt organization supporting the University ofTennessee. The foundation was created as The UT ResearchCorporation (UTRC) in 1934 and incorporated in January,1935. The foundation’s stated purpose is, in conjunctionwith the university, to grow the University of Tennesseeresearch enterprise; harvest, manage, and market University33365
Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - Informationof Tennessee intellectual property; encourage and supportentrepreneurial education and ventures by faculty, staff,students, and commercial partners/affiliates of the Universityof Tennessee; and to contribute to the well being of the Stateof Tennessee through economic development. In April 2003,UTRC was renamed and reorganized to the University ofTennessee Research Foundation (UTRF). Roles were redefinedand the scope was expanded to include a new emphasis onentrepreneurship and economic development for technologytransfer activities. A new set of bylaws and board of directorswere established. The foundation has 7 voting directors and 3nonvoting directors. Because the university’s board of trusteesapproves the foundation’s administrative budget, the foundationis considered fiscally dependent on the university. Therefore,the research foundation is considered a component unit ofthe university and is discretely presented in the university’sfinancial statements.Complete financial statements for the research foundationcan be obtained from the University of Tennessee ResearchFoundation, Suite 211, UT Conference Center Building, 600Henley Street, Knoxville, TN 37996-4122.ORGANIZATION AND NATURE OFACTIVITIESThe University of Tennessee Research Foundation, Inc., is anot-for-profit organization exempt from federal income taxunder Section 501(c)(3) of the Internal Revenue Code. Thefoundation was formed to promote research and hold andmanage the university’s intellectual property. The foundationwas established to protect, manage, and commercializeuniversity inventions and intellectual property; grow theuniversity research enterprise; develop and support anentrepreneurial culture; and contribute to state and regionaleconomic development.Genera Energy LLC, (the subsidiary), a wholly-ownedsubsidiary of the University of Tennessee ResearchFoundation, was formed on February 28, 2008. The subsidiaryincludes, in turn, four wholly-owned subsidiaries and onesubsidiary in which Genera owns 51%. The subsidiary is inthe business of developing a pilot-scale biorefinery and stateof the art research and development facility, in collaborationwith DuPont Danisco Cellulosic Ethanol, LLC (DDCE),for cellulosic ethanol using non-food biomass feedstocks toprove the technology and commercial viability of producingcellulosic ethanol, primarily in the State of Tennessee. Theproject utilizes the University of Tennessee’s expertise incellulosic feedstock production and research, as well as itswork with Tennessee farmers, to develop the first dedicatedcellulosic energy crop supply chain utilizing switchgrass.The subsidiary also promotes, supports, and carries out thecommercialization of research outcomes and the transferof research-generated products, ideas, processes, and othertechnology related to renewable energies to agricultural,commercial, and industrial enterprises. The State of Tennesseehas provided $40.7 million towards the construction of thepilot-scale biorefinery and related switchgrass utilization anddemonstration facilities.During the fiscal year ended June 30, 2010, the subsidiary(Genera Energy, LLC) changed its name to Genera Biofuels,LLC and elected to be treated as a member-managed LLC. Themember (UTRF) established a new director-managed LLC,Genera Energy, LLC, and contributed its equity of GeneraBiofuels, LLC to Genera Energy, LLC. As a result, GeneraBiofuels, LLC became a wholly owned subsidiary of GeneraEnergy, LLC. Genera Energy, LLC formed three additionalwholly-owned subsidiaries, which are member-managed LLC’s,Genera Solar Solutions, LLC, Genera Biomass, LLC andGenera Capital, LLC.PRINCIPLES OF CONSOLIDATIONThe foundation has entered into related agreements with theuniversity and Genera whereby the foundation has undertakento provide the subsidiary with working capital advances for itsoperational needs. The extent of the foundation’s commitmentis contingent upon its own ability to obtain additional fundingfrom existing sources from which to make these advances.According to terms of the agreements, repayment of theoperational funding by the subsidiary to the foundation isrequired only upon the occurrence of, and in preference to,other capital distributions. No interest accrues on the advances.Because the parties contemplate capital distributions only asthe consequence of a general liquidation of the subsidiary, theseadvances have been treated as investments in the subsidiary onthe books of the foundation and as equity capital on the booksof the subsidiary. These amounts eliminate upon consolidation.The consolidated financial statements include the accounts ofthe foundation, Genera, and its consolidated subsidiaries namedabove. All significant intercompany balances and transactionshave been eliminated in consolidation.PROPERTY AND EQUIPMENTProperty and equipment at June 30, 2011 consist of the followingmajor classifications in Table 25.1 on the opposite page.Depreciation expense for the foundation and its subsidiarytotaled $3,000,448 for the year ended June 30, 2011. Intangibleassets totaling $6,596 are also reported as capital assets on thestatement of net assets.NOTES PAYABLEThe foundation had an outstanding note payable to theuniversity of $ 654,922 at June 30, 2011.DEFERRED REVENUEDuring the years ended June 30, 2011, and June 30, 2010, thefoundation capitalized $584,629 and $19,309,711 of costsrelated to the construction of a pilot-scale biorefinery whichwere incurred by DDCE. Based on an agreement with DDCE,these and future unreimbursed costs incurred by DDCE on thisproject were capitalized in exchange for DDCE’s future use of aportion of the biorefinery facility. An amount equal to DDCE’stotal construction cost was recorded as deferred revenue throughcompletion of the biorefinery. The total amount of deferredrevenue is expected to be recognized over the life of a proposedlease between the subsidiary and DDCE. As of June 30, 2011,the proposed lease was to be for ten years with three possiblefive-year extensions. Accordingly, deferred revenue is amortized34366
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