Board of Trustees of the University of Arkansas Athletic Facilities Revenue Refunding Bonds (Fayetteville Campus) Series 2015A

This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. State ofArkansas(SeeTAXMATTERSherein.). tax. TheBondsandinterestthereonareexemptfromallpresentState,countymunicipaltaxationinthe account indeterminingadjustedcurrent earnings for thepurposeofcomputingfederal alternative minimum individuals and corporations, provided that with respect to corporations, interest on the Bonds will be taken into the Bondsisnotanitemoftaxpreferenceforpurposesfederalalternativeminimumimposedon herein, interestontheBondsisexcludablefromgrossincome for federalincometaxpurposes, and intereston (Book-Entry Only) NEW ISSUE at thefacilitiesofDTCinNewYork,Yorkonor aboutFebruary12,2015. LLP, LittleRock,Arkansas,counseltotheunderwriters. ItisexpectedthattheBondswillbeavailablefordelivery Little Rock,Arkansas,bondcounsel.Certainlegalmatters willbepasseduponfortheunderwritersbyKutakRock Statement. TheBondsarenotsubjecttoredemptionprior tomaturity. Owners istheresponsibilityofDTCparticipantsorindirect participants,asmorefullydescribedherein. such paymentstoDTCparticipantsistheresponsibility ofDTC,anddisbursementsuchpaymentstoBeneficial registration booksmaintainedbyRegionsBank,LittleRock,Arkansas,asTrustee(the“Trustee”).Disbursement of All suchinterestpaymentsshallbepayabletothepersoninwhosenameBondsareregisteredon the bond BOOK-ENTRY ONLYSYSTEMherein. Individual purchasersoftheBonds(“BeneficialOwners”)willnotreceivephysicaldeliverybondcertificates. See of theBondswillbemadeonlyinbook-entryform,denominations$5,000oranyintegralmultiple thereof. payments ontheBondswillbemadesolongasCede&Co.isregisteredownerofBonds.Individualpurchases Co., asnomineeofTheDepositoryTrustCompany(“DTC”),NewYork,towhichprincipaland interest the costsofissuanceBonds. issued tofinancevariousathleticfacilitiesontheFayettevillecampusofUniversityArkansasand(ii) paying The Bondsarebeingissuedforthepurposeof(i)refundingcertainoutstandingindebtednessBoardpreviously by amortgageorlienonanylandsbuildingsoftheStateArkansasBoard.TheBoardhasnotaxing power. Arkansas arepledgedtothepaymentofprincipalorinterestonBonds,andBondsnot secured subject topriorpledgesthereofasdescribedherein.Neitherthefaithandcreditnortaxingpowerof Stateof The Bondswillbesecuredbyaspecificpledgeof,andpayablefirstfrom,PledgedRevenues(ashereinafter defined), ** Preliminary; subject tochange. * SeeDESCRIPTION OFRATINGherein. Dated: DateofDelivery In theopinionofbondcounsel,underexistinglaw,assumingcompliancewithcertaincovenantsdescribed The Bondsareofferedwhen,asandifissued,subject totheapprovalofFriday,Eldredge&Clark,LLP, The Bondsmature,bearinterestandarepricedto yield assetforthontheinsidecoverofthisOfficial Interest ontheBondsispayablesemiannuallyMarch15andSeptember15,commencing2015. The Bondsareissuableasfullyregisteredbondsand,whenissued,willbeinthenameofCede & The BondsaregeneralobligationsonlyoftheBoardTrusteesUniversityArkansas(the“Board”).

PRELIMINARY OFFICIAL STATEMENT DATED JANUARY 22, 2015

BOARD OF TRUSTEES OF THE ATHLETIC FACILITIESREVENUE UNIVERSITY OF ARKANSAS Official StatementdatedJanuary __,2015. (FAYETTEVILLE CAMPUS) REFUNDING BONDS $14,470,000** SERIES 2015A Due: September15,asshownontheinsidecover RATING: Moody’s:“Aa2”(stableoutlook)*

$14,470,000* BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS ATHLETIC FACILITIES REVENUE REFUNDING BONDS (FAYETTEVILLE CAMPUS) SERIES 2015A

Year Principal Interest (September 15) Amount Rate Yield CUSIP** 2015 $ 490,000 2016 515,000 2017 2,340,000 2018 2,445,000 2019 2,550,000 2020 2,675,000 2021 2,795,000 2022 660,000

______* Preliminary; subject to change. ** CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein is provided by the CUSIP Service Bureau, operated by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services Bureau. CUSIP numbers have been assigned by an independent company not affiliated with the Board and are included solely for the convenience of the registered owners of the Bonds. The Board and the Underwriters are not responsible for the selection or uses of these CUSIP numbers, and no representation is made as to their correctness by the Board on the Bonds and by the Underwriters on the Bonds or as included herein. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds.

NO DEALER, BROKER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED BY THE BOARD TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION WITH RESPECT TO THE BONDS OTHER THAN THOSE CONTAINED IN THIS OFFICIAL STATEMENT AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS OFFICIAL STATEMENT, NOR ANY SALES HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE BOARD SINCE THE DATE HEREOF. CERTAIN OF THE INFORMATION CONTAINED HEREIN HAS BEEN OBTAINED FROM SOURCES WHICH ARE BELIEVED TO BE RELIABLE, BUT IT IS NOT GUARANTEED AS TO ACCURACY OR COMPLETENESS. THE INFORMATION AND EXPRESSIONS OF OPINION HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE BONDS BY ANY PERSON IN ANY STATE IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER, SOLICITATION OR SALE.

TABLE OF CONTENTS Page SUMMARY STATEMENT ...... i INTRODUCTION ...... 1 PURPOSES FOR THE BONDS ...... 2 ESTIMATED SOURCES AND USES ...... 2 DESCRIPTION OF THE BONDS ...... 3 SECURITY FOR THE BONDS ...... 3 BOOK-ENTRY ONLY SYSTEM ...... 4 CONCERNING THE TRUSTEE ...... 5 SUMMARY OF THE INDENTURE ...... 6 THE UNIVERSITY OF ARKANSAS ...... 9 THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY ...... 12 FINANCIAL STATEMENTS ...... 18 TAX MATTERS ...... 19 CONTINUING DISCLOSURE ...... 20 ENFORCEABILITY OF REMEDIES ...... 21 FINANCIAL ADVISOR ...... 21 LEGAL MATTERS ...... 21 UNDERWRITING ...... 21 DESCRIPTION OF RATING ...... 22 MISCELLANEOUS ...... 22

Appendix A - Opinion of Bond Counsel Appendix B - Audited Financial Statements for the University of Arkansas, Fayetteville for the Fiscal Year Ended June 30, 2014 Appendix C - Audited Consolidated Financial Report of the University of Arkansas System for the Fiscal Year Ended June 30, 2014 Appendix D - Summary of Continuing Disclosure Agreement

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SUMMARY STATEMENT

The following summary statement is subject in all respects to the more complete information contained in this Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement, including the cover page hereof and the appendices hereto. The Bonds Board of Trustees of the University of Arkansas Athletic Facilities Revenue Refunding Bonds (Fayetteville Campus), Series 2015A, in the aggregate principal amount of $14,470,000∗ (the “Bonds”), to be dated as of the date of their delivery, will be issued under the authority of the Constitution and laws of the State of Arkansas, including particularly Arkansas Code Annotated Title 6, Chapter 62, Subchapter 3, as amended (the “Act”), and pursuant to a resolution duly adopted by the Board on November 14, 2014. The Board's resolution authorizes, among other things, the execution of a Trust Indenture (the “Indenture”), to be dated as of the date of delivery of the Bonds, between the Board and the Trustee. The Bonds will be issued under and secured by the Indenture. See SUMMARY OF THE INDENTURE, herein. Use of Proceeds The proceeds from the sale of the Bonds will be used for the purpose of (i) accomplishing the advance refunding of certain outstanding indebtedness of the Board previously issued to finance various athletic facilities on the Fayetteville campus of the University of Arkansas (“UA, Fayetteville”), and (ii) paying the costs of issuance of the Bonds. See PURPOSES FOR THE BONDS herein. Security The Bonds will be general obligations only of the Board and will not constitute an indebtedness for which the full faith and credit of the State of Arkansas or any of its revenues are pledged and are not secured by a mortgage or lien on any land or building belonging to the State of Arkansas or to the Board. The Bonds will be secured by a specific pledge of, and payable primarily from, Pledged Revenues, as hereinafter defined. To the extent Pledged Revenues are insufficient to pay obligations under the Indenture, the Board shall pay such obligations from such other moneys as are available to the Board under the Constitution and laws of the State. The Bonds are issued on a parity basis with respect to the Pledged Revenues to (i) the Board of Trustees of the University of Arkansas Athletic Facilities Revenue Refunding Bonds (Fayetteville Campus), Series 2010 (the “Series 2010 Bonds”), (ii) that portion of the Board of Trustees of the University of Arkansas Athletic Facilities Revenue Bonds (Fayetteville Campus), Series 2011, that will remain outstanding after the issuance of the Bonds (the “Series 2011 Bonds”), and (iii) the Board of Trustees of the University of Arkansas Athletic Facilities Revenue Bonds (Fayetteville Campus), Series 2013A (the “Series 2013 Bonds”). The term “Pledged Revenues” is defined as (i) Athletic Gate Receipts (defined in the Indenture as those revenues of the University of Arkansas, Fayetteville derived from men’s intercollegiate athletic events, including settlements, guarantees, the sale of tickets, television and radio revenues, concession revenues, and all amounts transferred from the Razorback Foundation, Inc., or the successor thereto, representing priority seating requirement proceeds, which are received by the Men’s Athletic Department of the University of Arkansas, Fayetteville, less amounts paid to state and local taxing authorities and amounts paid by the University of Arkansas, Fayetteville, for settlements and guarantees for scheduled men’s intercollegiate athletic events), together with (ii) revenues of the University of Arkansas, Fayetteville, derived from any Student Athletic Fee (defined in the Indenture as any fee charged to students attending the University of Arkansas, Fayetteville to support intercollegiate athletics, whether such fee is imposed pursuant to Arkansas Code Annotated Sections 6-62-801 through 6-62-806 or

∗ Preliminary; subject to change.

pursuant to Section 711 of the Indenture). The Pledged Revenues do not include (A) tuition or fee revenues collected by the University of Arkansas, Fayetteville, sales and services revenues, or auxiliary enterprises revenues, or (B) any fees authorized or imposed by the University of Arkansas, Fayetteville and dedicated to a specific purpose unrelated to obligations issued pursuant to the Act or to facilities funded with such obligations. The Board has also reserved the right to pledge Pledged Revenues to additional bonds issued under the Act, subject to certain limitations and conditions set forth in the Indenture. The pledge may be on a parity with or subordinate to the pledge in favor of these Bonds. (See SUMMARY OF THE INDENTURE, Additional Bonds, herein). The Board has covenanted that it shall use due diligence to ensure collection of the Pledged Revenues until all Bonds have been retired in full. The Board has further covenanted that it will maintain Pledged Revenues at a level equal to or exceeding 115% of current annual debt service on the Bonds, the Series 2010 Bonds, the Series 2011 Bonds, the Series 2013 Bonds and any Additional Parity Bonds and trustee’s and paying agent’s fees on such bonds. The Board has further covenanted that it will, to the extent necessary to maintain Pledged Revenues at the 115% coverage described in the preceding sentence, impose a Student Athletic Fee on students attending the University of Arkansas, Fayetteville.

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OFFICIAL STATEMENT

$14,470,000∗ BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS ATHLETIC FACILITIES REVENUE REFUNDING BONDS (FAYETTEVILLE CAMPUS) SERIES 2015A

INTRODUCTION

This Official Statement of the Board of Trustees of the University of Arkansas (the "Board"), including the cover page, Summary Statement, and Appendices, is furnished with respect to the sale by the Board of its Athletic Facilities Revenue Refunding Bonds (Fayetteville Campus), Series 2015A, in the aggregate principal amount of $14,470,000* (the “Bonds”), such Bonds to be dated their date of delivery. There follows in this Official Statement a description of the Bonds, the revenues providing the security for the Bonds, and certain other information concerning this financing and other matters of interest related to the Board and the Fayetteville campus of the University of Arkansas ("UA, Fayetteville"). The financial data with regard to the Board has been provided from the records of the Board and UA, Fayetteville. The Bonds are being issued pursuant to and in full compliance with the Constitution and laws of the State of Arkansas, particularly Arkansas Code Annotated Title 6, Chapter 62, Subchapter 3, as amended (the "Act"), and a Resolution adopted by the Board on November 14, 2014. The Bonds are general obligations only of the Board. The Bonds are equally and ratably secured by a Trust Indenture to be dated as of the date of delivery of the Bonds (the “Indenture”), between the Board and the Trustee. The Indenture establishes the terms and conditions upon which the Bonds are issued. The Bonds will be payable from Pledged Revenues (defined below), and, to the extent Pledged Revenues are insufficient, from such other moneys as are available to the Board under the Constitution and laws of the State. The Bonds are issued on a parity basis with respect to the Pledged Revenues to (i) the Board of Trustees of the University of Arkansas Athletic Facilities Revenue Refunding Bonds (Fayetteville Campus), Series 2010 (the “Series 2010 Bonds”), (ii) that portion of the Board of Trustees of the University of Arkansas Athletic Facilities Revenue Bonds (Fayetteville Campus), Series 2011, that will remain outstanding after the issuance of the Bonds (the “Series 2011 Bonds”), and (iii) the Board of Trustees of the University of Arkansas Athletic Facilities Revenue Bonds (Fayetteville Campus), Series 2013A (the “Series 2013 Bonds”). The Board has reserved the right to issue additional bonds payable from Pledged Revenues. Specific covenants concerning revenues are described under SECURITY FOR THE BONDS herein. The term “Pledged Revenues” is defined as (i) Athletic Gate Receipts (defined in the Indenture as those revenues of UA, Fayetteville derived from men’s intercollegiate athletic events, including settlements, guarantees, the sale of tickets, television and radio revenues, concession revenues, and all amounts transferred from the Razorback Foundation, Inc. or the successor thereto, representing priority seating requirement proceeds, which are received by the Men’s Athletic Department of UA, Fayetteville, less amounts paid to state and local taxing authorities and amounts paid by UA, Fayetteville, for settlements and guarantees for scheduled men’s intercollegiate athletic events), together with (ii) revenues of UA, Fayetteville, derived from any Student Athletic Fee (defined in the Indenture as any fee charged to students attending UA, Fayetteville to support intercollegiate athletics, whether such fee is imposed pursuant to Arkansas Code Annotated Sections 6-62-801 through 6-62-806 or pursuant to Section 711 of the Indenture). The Pledged Revenues do not include (A) tuition or fee revenues collected by UA, Fayetteville, sales and services revenues, or auxiliary enterprises revenues, or (B) any fees authorized or imposed by UA, Fayetteville and dedicated to a specific purpose unrelated to obligations issued pursuant to the Act or to facilities funded with such obligations. Descriptions of the Board, the Bonds, the University of Arkansas, UA, Fayetteville, the Indenture, and other documents are included in this Official Statement. Such descriptions do not purport to be comprehensive or definitive; all references herein to the Indenture or other documents are qualified in their entirety by reference to such documents, copies of which are available from the Board and the underwriter listed on the cover; and all references to the Bonds are qualified in their entirety by reference to the definitive form thereof and the information with respect thereto included in the Indenture. Terms not defined herein shall be given the meaning set forth in the specific instruments or documents.

∗ Preliminary; subject to change.

PURPOSES FOR THE BONDS Series 2006 Refunding A portion of the proceeds of the Bonds will be utilized, along with other available moneys, to redeem all of the Board’s outstanding Athletic Facilities Revenue Bonds (Fayetteville Campus), Series 2006 (the “Series 2006 Bonds”). The Series 2006 Bonds will be defeased with United States Treasury Obligations - State and Local Government Series that will provide a cash flow sufficient to pay interest on the Series 2006 Bonds until September 15, 2016, to pay principal of the Series 2006 Bonds due September 15, 2015 and September 15, 2016, and to redeem the Series 2006 Bonds maturing after September 15, 2016 on September 15, 2016. The Series 2006 Bonds were issued to finance the costs of constructing, renovating, expanding and equipping John McDonnell Field, the varsity outdoor track and field facility on the Fayetteville campus.

Series 2011 Refunding A portion of the proceeds of the Bonds will be utilized, along with other available moneys, to redeem certain maturities of the Board’s outstanding Athletic Facilities Revenue Bonds (Fayetteville Campus), Series 2011 (the “Series 2011 Bonds to be Refunded”). The Series 2011 Bonds to be Refunded will be defeased with United States Treasury Obligations - State and Local Government Series that will provide a cash flow sufficient to pay interest on the Series 2011 Bonds to be Refunded until September 15, 2016, and to redeem the Series 2011 Bonds to be Refunded maturing after September 15, 2016 on September 15, 2016. The Series 2011 Bonds were issued to finance a portion of the costs of the following athletic facility improvements on the Fayetteville campus: a football center which includes meeting rooms, office space, an equipment room, a training room, football practice fields and parking facilities. ESTIMATED SOURCES AND USES

Sources* Par Amount of Series 2015A Bonds $14,470,000 Net [Premium][Discount] Series 2006 and Series 2011 Bond Funds 275,805 Total Sources: $

Uses* Deposit to Series 2006 and Series 2011 Escrow Fund $16,500,477 Costs of Issuance** 179,897 Contingency Total Uses: $ ______* Preliminary; subject to change. ** Estimated, including underwriting fees and expenses.

DESCRIPTION OF THE BONDS The Bonds will be dated their date of delivery, and will bear interest from that date, payable semiannually on March 15 and September 15 of each year commencing September 15, 2015, at the rates as set forth on the inside cover page of this Official Statement, and will mature on September 15 in the years and amounts as set forth on the inside cover page of this Official Statement. The Bonds are issuable as fully registered bonds in the denomination of $5,000 or any integral multiple thereof. Principal of the Bonds is payable at the principal office of the Trustee. Interest will be payable to the person in whose name such Bonds are registered on the registration books maintained by the Trustee (the "Registered Owner") at the close of business on the first day of the month in which any interest payment date on the Bonds occurs, or, if such a day is not a Business Day, the immediately preceding Business Day (the "Record Date"). Interest will be payable by check drawn upon the Trustee or by wire transfer if requested by a Registered Owner of Bonds in the principal amount of $1,000,000 or more. The Bonds are not subject to redemption prior to maturity.

SECURITY FOR THE BONDS The Bonds will be general obligations only of the Board and will not constitute an indebtedness for which the full faith and credit of the State of Arkansas or any of its revenues are pledged, and the Bonds are not secured by a mortgage or a lien on any land or building belonging to the State of Arkansas or to the Board. To the extent Pledged Revenues are insufficient to pay obligations under the Indenture, the Board shall pay such obligations from such other moneys as are available to the Board under the Constitution and laws of the State. The Bonds will be secured by Pledged Revenues on a parity of security with respect to each other. The Bonds are issued and secured on a parity basis with respect to the Pledged Revenues to the Series 2010 Bonds, the Series 2011 Bonds and the Series 2013 Bonds, to the extent outstanding. The term “Pledged Revenues” is defined as (i) Athletic Gate Receipts (defined in the Indenture as those revenues of UA, Fayetteville derived from men’s intercollegiate athletic events, including settlements, guarantees, the sale of tickets, television and radio revenues, concession revenues, and all amounts transferred from the Razorback Foundation, Inc., or the successor thereto, representing priority seating requirement proceeds, which are received by the Men’s Athletic Department of UA, Fayetteville, less amounts paid to state and local taxing authorities and amounts paid by UA, Fayetteville, for settlements and guarantees for scheduled men’s intercollegiate athletic events, together with (ii) revenues of UA, Fayetteville, derived from any Student Athletic Fee (defined in the Indenture as any fee charged to students attending UA, Fayetteville to support intercollegiate athletics, whether such fee is imposed pursuant to Arkansas Code Annotated Sections 6-62-801 through 6-62-806 or pursuant to Section 711 of the Indenture). The Pledged Revenues do not include (A) tuition or fee revenues collected by UA, Fayetteville, sales and services revenues, or auxiliary enterprises revenues, or (B) any fees authorized or imposed by UA, Fayetteville and dedicated to a specific purpose unrelated to obligations issued pursuant to the Act or to facilities funded with such obligations. Pledged Revenues for each of the last five fiscal years are set out below under THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY, Pledged Revenues. The existing obligations payable from Pledged Revenues are shown under THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY, Existing Obligations. The Board has reserved the right to pledge Pledged Revenues to additional bonds to be issued under the Act, subject to the limitations and conditions set forth in the Indenture (see SUMMARY OF THE INDENTURE, Additional Bonds). The issuance of additional bonds is subject to compliance with the requirements of the Indenture, and the pledge in favor of the additional bonds may either be on a parity with, or subordinate to the pledge in favor of the Bonds. The Board has covenanted (i) to promptly pay the principal of and interest on the Bonds, (ii) that it shall use due diligence to ensure collection of the Pledged Revenues until all Bonds have been retired in full, (iii) that it will maintain Pledged Revenues at a level equal to or exceeding 115% of current annual debt service on the Bonds, the Series 2010 Bonds, the Series 2011 Bonds, the Series 2013 Bonds and any Additional Parity Bonds and trustee’s and paying agent’s fees on such bonds, (iv) that it will, to the extent necessary to maintain Pledged Revenues at the 115% coverage described in the preceding sentence, impose a Student Athletic Fee on students attending the University of Arkansas, Fayetteville, (v) not to pledge the Pledged Revenues as security for any other indebtedness or borrowing and not to create any charges upon or liens against the Pledged Revenues, except as permitted to secure additional bonds as permitted pursuant to the Act (see SUMMARY OF THE INDENTURE, Additional Bonds), and (vi) to promptly discharge all claims and judgments which will become liens against the Pledged Revenues. The Board has never defaulted on debt service payments on any bonded indebtedness. 3

BOOK-ENTRY ONLY SYSTEM

The information in this caption concerning DTC and DTC’s book-entry system has been obtained from DTC, and neither the Board, the Trustee nor the Underwriters take any responsibility for the accuracy thereof. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered bonds registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book- entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Security (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Board as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Board or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with Bonds held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the Board, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Board or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Board or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, security certificates are required to be printed and delivered. The Board may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC.

CONCERNING THE TRUSTEE

Regions Bank (“Trustee”) will be the Trustee under the Indenture. The Trustee has experience serving as trustee, paying agent, and registrar for municipalities, school districts, universities, state and county agencies, hospitals, retirement centers, and various non-profit entities, as well as to issuers of corporate debt. The Trustee may resign at any time. The Trustee may be removed at any time (i) by the Board; provided, however, that the Board may not remove the Trustee so long as an Event of Default (as defined under SUMMARY OF THE INDENTURE, herein) shall have occurred which has not been cured, or any event shall have occurred which with the passage of time would lead to an Event of Default, or (ii) by an instrument or concurrent instruments in writing, signed by the registered owners of not less than a majority in principal amount of each series of bonds issued under the Indenture and then outstanding. No such resignation or removal will be effective until a successor Trustee is appointed and has accepted the appointment. Each successor Trustee must be a trust company or bank organized and doing business under the laws of the United States or of a state, duly authorized to exercise trust powers and which has a reported capital surplus of at least $75,000,000. The preceding criteria may be met by a parent corporation if the parent corporation has guaranteed the obligations of the successor Trustee. The Trustee is also the bond registrar and paying agent for the Bonds. Except during the continuance of an Event of Default of which the Trustee is deemed to have notice, the Trustee shall perform only the duties specifically set forth in the Indenture. The Trustee is deemed to have notice only of Events of Default described under paragraphs (a) or (b) under SUMMARY OF THE INDENTURE, Events of Default, and of other Events of Default of which it has received written notice from the owners of not less than 20% in outstanding principal amount of the Bonds. During the continuance of an Event of Default of which the Trustee is deemed to have notice, the Trustee is required to use the degree of care and skill in the exercise of its duties as would be exercised by a prudent man in the conduct of his own affairs. The Trustee shall not be required to take any action in discharging its trust until it shall be indemnified to its satisfaction against any and all costs and expenses, outlays and counsel fees, and other reasonable disbursements, and against all liability.

The Trustee is entitled to reasonable compensation from the Board. The Trustee's compensation will be paid from Pledged Revenues. If an Event of Default has occurred and is continuing, the Trustee's right to compensation from Pledged Revenues shall be entitled to a preference therefore over the claim of owners for payment of principal of and interest on Bonds from such Pledged Revenues.

SUMMARY OF THE INDENTURE

The following is a summary of certain provisions of the Indenture. Application of Bond Proceeds Proceeds of the Bonds will be applied as follows: 2006 Escrow. A portion of the proceeds of the Bonds, together with available moneys on deposit in the Bond Fund for the Series 2006 Bonds, shall be deposited to the credit of a fund (the “Escrow Fund”) established with Regions Bank, as escrow trustee. Such moneys shall be invested in United States Treasury Obligations – State and Local Government Series and shall be utilized, together with interest earnings thereon, to pay the principal of the Series 2006 Bonds due on September 15, 2015 and 2016, and to redeem all of the outstanding Series 2006 Bonds maturing thereafter at par on September 15, 2016, together with interest accrued thereon to such maturity and redemption dates. 2011 Escrow. A portion of the proceeds of the Bonds, together with available moneys on deposit in the Bond Fund for the Series 2011 Bonds to be Refunded, shall be deposited to the credit of the Escrow Fund. Such moneys shall be invested in United States Treasury Obligations – State and Local Government Series and shall be utilized, together with interest earnings thereon, to redeem all of the outstanding Series 2011 Bonds to be Refunded maturing on September 15, 2017 and thereafter at par on September 15, 2016, together with interest accrued thereon to such redemption date. Cost of Issuance. The amount necessary to pay the costs of issuing the Bonds shall be deposited to the credit of the Cost of Issuance Fund. Use of Pledged Revenues and Flow of Funds Disposition of Pledged Revenues. The Bonds are secured by a pledge of, and are payable from, the Pledged Revenues, and by moneys in the various funds and accounts created pursuant to the Indenture. The pledge of Pledged Revenues to the Bonds is on a parity of security with respect to the pledge in favor of the Series 2010 Bonds, the Series 2011 Bonds and the Series 2013 Bonds, to the extent outstanding. The Board has pledged the Pledged Revenues to the payment of the principal of, premium if any, and interest on the Bonds. To the extent the Pledged Revenues and the Trust Estate established pursuant to the Indenture are insufficient to pay the obligations of the Board pursuant to the Indenture, the Board has covenanted to pay such obligations from such other moneys as are available to the Board under the Constitution and laws of the State. Bond Fund. The Board has established with the Trustee a special fund in the name of the Board designated “Series 2015A Bond Fund” (the “Bond Fund”). Amounts credited to the Bond Fund shall be expended solely (i) to pay the principal of, premium, if any, and interest on the Bonds; and (ii) to pay the fees and expenses of the Trustee. The Board shall, no later than three Business Days prior to March 15 and September 15 of each year, or, if such day is not a Business Day, then on the immediately preceding Business Day, deposit with the Trustee for the credit of the Bond Fund an amount of Pledged Revenues, or such other moneys as are available to the Board under the Constitution and laws of the State, equal to (i) the amount necessary to pay the principal of and interest on the Bonds due on the next succeeding Interest Payment Date; (ii) the fees and expenses of the Trustee and Paying Agent due on the next succeeding Interest Payment Date; and (iii) any amount required to be deposited into the Rebate Fund. The deposits described in the preceding sentences shall be reduced by any amounts already held in the Bond Fund at the time the deposit is made which are available for meeting the purpose for which a deposit is to be made, including amounts of accrued interest. The obligation to make payments into the Bond Fund pursuant to the Indenture, the obligation to make payments into the bond fund for the Series 2010 Bonds (the “2010 Bond Fund”) required by the trust indenture authorizing the issuance of the Series 2010 Bonds (the “2010 Indenture”), the obligation to make payments into the bond fund for the Series 2011 Bonds (the “2011 Bond Fund”) required by the trust indenture authorizing the issuance of the Series 2011 Bonds (the “2011 Indenture”), the obligation to make payments into the bond fund for the Series 2013 Bonds (the “2013 Bond Fund”) required by the trust indenture authorizing the issuance of the Series 2013 Bonds (the “2013 Indenture”), and the obligation to make payments into the bond fund for any Additional Parity Bonds, shall be ranked on a parity basis. If Pledged Revenues and such other monies as are lawfully available 6 are insufficient to make the payments into the Bond Fund, the Series 2010 Bond Fund, the Series 2011 Bond Fund, the Series 2013 Bond Fund and the bond fund for any Additional Parity Bonds, the available monies shall be distributed between the Bond Fund, the Series 2010 Bond Fund, the Series 2011 Bond Fund, the Series 2013 Bond Fund and the bond fund for any Additional Parity Bonds in proportion to the required payments. Rebate Fund. The Board has established with the Trustee a special fund in the name of the Board designated the “Series 2015A Rebate Fund” (the “Rebate Fund”). The Board shall, pursuant to the Indenture, at the end of each five-Bond Year period and upon payment of all principal of the Bonds, calculate the amount of money to be rebated to the United States Treasury (the “Rebate Amount”) pursuant to §148(f) of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations established thereunder. The Board shall direct the Trustee to deposit an amount equal to the Rebate Amount into the Rebate Fund within 60 days after the end of each five-Bond Year period and upon payment of all principal of the Bonds. Such deposit may be made from any Pledged Revenues. The Rebate Fund shall be held in trust for the benefit of the United States of America, and not for the benefit of the owners of the Bonds or of the Trustee. The Board shall pay from the amounts held in the Rebate Fund to the United States Treasury the Rebate Amount at times and in amounts necessary to comply with the Code. Investments. Amounts in the Cost of Issuance Fund shall, pursuant to the direction of the Vice Chancellor for Finance and Administration for UA, Fayetteville (the "Vice Chancellor") be invested and reinvested by the Trustee in Permitted Investments (defined below), which mature or provide for withdrawal, in whole or in part, at the option of the owner, on or prior to the date on which the funds invested will be needed for authorized expenditures. Moneys held for the credit of the Rebate Account shall, pursuant to the direction of the Vice Chancellor, be invested and reinvested by the Trustee in Permitted Investments which shall mature, or shall be subject to redemption, in whole or in part, by the owner thereof at the option of the owner, not later than the date or dates on which payments of a Rebate Amount must be made. Moneys held for the credit of the Bond Fund shall, pursuant to the direction of the Vice Chancellor, be invested and reinvested in Permitted Investments which shall mature, or shall be subject to redemption by the owner thereof, at the option of the owner, not later than the next succeeding interest payment date on the Bonds. “Permitted Investments” shall mean any of the following: (a) Cash (insured at all times by the Federal Deposit Insurance Corporation or otherwise collateralized with obligations described in paragraph (b) below);

(b) Direct obligations of (including obligations issued or held in book entry form on the books of) the Department of the Treasury of the United States of America;

(c) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: (i) senior debt obligations rated “Aaa” by Moody’s or “AAA” by S&P issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC); (ii) obligations of the Resolution Funding Corporation (REFCORP); (iii) senior debt obligations of the Federal Home Loan Bank System; and (iv) senior debt obligations of other government sponsored agencies;

(d) U.S. dollar dominated deposit accounts, federal funds and bankers’ acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of ”A-l” or “A-1+” by S&P or “P-l” by Moody’s and maturing no more than 360 days after the date of purchase (ratings on holding companies are not considered as the rating of the bank);

(e) Investments in a money market fund, including funds of the Trustee or its affiliates, rated (at the time of purchase) in the highest rating category for this type of investment by S&P or Moody’s;

(f) Pre-refunded Municipal Obligations; and

(g) General obligations of the State of Arkansas with a rating of at least “A2/A” or higher by Moody’s or S&P. Obligations so purchased as an investment of moneys in any fund or account shall be deemed at all times to be a part of such fund or account, and the interest accruing thereon and any profit realized from such investment

7 shall be credited to such fund or account, and any loss resulting from such investment shall be charged to such fund or account. Additional Bonds No additional bonds may be issued with a prior pledge of the Pledged Revenues. The Board reserves the right to issue additional bonds ranking on a parity of pledge of the Pledged Revenues (“Additional Parity Bonds”) for the purposes of accomplishing any duly authorized project of the University of Arkansas, Fayetteville Athletic Department or refunding outstanding bonds or notes issued for such purposes, provided the Vice Chancellor certifies that the Pledged Revenues in the immediately preceding Fiscal Year equaled or exceeded 115% of the combined maximum annual debt service on the outstanding Bonds, the outstanding Series 2010 Bonds, the outstanding Series 2011 Bonds, the outstanding Series 2013 Bonds and any other outstanding Additional Parity Bonds. Additional bonds may also be issued on a subordinate basis to the Bonds with respect to the Pledged Revenues (the “Subordinate Bonds”); provided, however, that before any such Subordinate Bonds are issued, the Board will deliver to the Trustee a certificate signed by the Vice Chancellor to the effect that the amount of Pledged Revenues received during the immediately preceding Fiscal Year was in an amount at least equal to 100% of the aggregate amount of (l) the amount of principal and interest due on the outstanding Bonds, the outstanding Series 2010 Bonds, Series 2011 Bonds, Series 2013 Bonds and any Additional Parity Bonds then outstanding on the next two ensuing Interest Payment Dates; and (2) maximum annual debt service on all other Subordinate Bonds during the term of the Bonds, computed with regard to all outstanding Bonds, Series 2010 Bonds, Series 2011 Bonds, Series 2013 Bonds other outstanding Additional Parity Bonds and other Subordinate Bonds as of the time immediately following the issuance of the Subordinate Bonds proposed to be issued. Events of Default The Indenture defines “Events of Default” as: (a) Payment of the principal and premium, if any, on any of the Bonds shall not be made when the same shall become due and payable, either at maturity or by proceedings for redemption or otherwise; or (b) Payment of any installment of interest on any of the Bonds shall not be made when the same shall become due and payable; or (c) The Board shall for any reason be rendered incapable of fulfilling its obligations under the Indenture; or (d) Any proceeding shall be instituted, with the consent or acquiescence of the Board, for the purpose of adjusting the claims of creditors pursuant to any federal or state statute now or hereafter enacted, if the claims of such creditors are under any circumstances payable out of Pledged Revenues; or (e) The Board shall default in the due and punctual performance of any other of the covenants, conditions, agreements and provisions contained in the Bonds or the Indenture, and such default shall continue for thirty (30) days after written notice specifying such default and requiring the same to be remedied shall have been given to the Board by the Trustee, which may give such notice in its discretion and shall give such notice upon the written request of the registered owners of not less than twenty percent (20%) in principal amount of the Bonds then outstanding; provided, however, that if the default is such that it cannot be corrected within the applicable period, it shall not constitute an Event of Default if corrective action is instituted by or on behalf of the Board within the applicable period and diligently pursued until the default is corrected; or (f) An event of default shall occur under the 2010 Indenture, the 2011 Indenture, the 2013 Indenture or any subsequent Indenture securing any Additional Parity Bonds. Upon the happening and continuance of any Event of Default, then and in such case the Trustee may, and upon written request of the registered owners of not less than twenty percent (20%) in principal amount of the Bonds then outstanding shall, by a notice in writing to the Board, declare the principal of all of the Bonds then outstanding (if not then due and payable) to be due and immediately payable, and upon such declaration the same shall become and be immediately due and payable. Upon the happening and continuance of any Event of Default the Trustee may proceed, and upon the written request of the owners of not less than twenty percent (20%) in principal amount of the Bonds which are affected by such Event of Default shall proceed, subject to the provisions of the Indenture giving the Trustee the 8 right to indemnity (see CONCERNING THE TRUSTEE, herein), to protect and enforce its rights and the rights of the registered owners of the bonds of such affected series under the applicable laws of the State of Arkansas or under the Indenture by such suits, actions or special proceedings in equity or at law, either for the specific performance of any covenant or agreement contained herein or in aid or execution of a power herein granted or for the enforcement of any proper legal or equitable remedy, including mandamus, as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce such rights. If at any time the moneys in the Bond Fund shall not be sufficient to pay the principal of or the interest on the Bonds as the same become due and payable (either by their terms or by acceleration of maturities as provided above), such moneys then available or thereafter becoming available for such purposes after payment of the fees and expenses of the Trustee, whether through the exercise of the remedies provided above or otherwise, shall be applied as follows: (a) Unless the principal of all the Bonds shall have become or shall have been declared due and payable, all such moneys shall be applied: FIRST: To the payment of the persons entitled thereto of all installments of interest then due, in the order of maturity of the installments of such interest, and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installments, to the persons entitled thereto, without any discrimination or privilege; SECOND: To the payment to the persons entitled thereto of the unpaid principal of any Bonds which shall have become due, in the order of their due dates, with interest on such Bonds from the respective dates upon which they became due, and, if the amount available shall not be sufficient to pay in full the Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal due on such date, to the persons entitled thereto, without any discrimination or privilege; and THIRD: To the payment of the interest on and the principal of the Bonds in accordance with the provisions of the Indenture. (b) If the principal of all Bonds shall have been declared due and payable and if such declaration shall thereafter have been rescinded and annulled, then, subject to the provisions of paragraph (b) in the event that the principal shall later become due or be declared due and payable, the moneys then remaining in and thereafter accruing to the Bond Fund shall be applied in accordance with the provision of paragraph (a). Whenever moneys are to be applied by the Trustee, such moneys shall be applied by it at such times, and from time to time, as it shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future.

THE UNIVERSITY OF ARKANSAS

Generally The University of Arkansas was established in Fayetteville as a land grant institution, originally named “Arkansas Industrial University,” by legislative act of the General Assembly in 1871. Classes at the University of Arkansas commenced January 22, 1872 and, in 1899, the institution's name was changed to the University of Arkansas (the “University”). The University is now comprised of twelve (12) campuses, including UA, Fayetteville (see THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY herein). The other 11 existing campuses are briefly described below: University of Arkansas for Medical Sciences (“UAMS”) Founded in 1879 as the University of Arkansas Department of Medicine, the University of Arkansas Medical Center was established by the Board as a campus of the University in 1975. In 1981, the name was changed to the University of Arkansas for Medical Sciences. UAMS is comprised of the College of Medicine, the College of Pharmacy, the College of Nursing, the College of Health Professions, the College of Public Health, the Graduate School, the Area Health Education Centers, the UAMS Library, the Ambulatory Care Center, the Winthrop P. Rockefeller Cancer Institute, the Diagnostic Support Center, the Harvey and Bernice Jones Eye Institute, the Jackson T. Stephens Spine and Neuroscience Institute and the Donald W. Reynolds Center on Aging.

University of Arkansas at Little Rock (“UALR”) UALR was founded in 1927 as Little Rock Junior College and, in 1957, became a four-year institution called Little Rock University. In 1969, Little Rock University merged with the University of Arkansas and the school adopted the name University of Arkansas at Little Rock. The William H. Bowen UALR School of Law offers the professional degree of Juris Doctor, and UALR now offers 48 other graduate and professional programs and eight doctoral programs. Little Rock, in Pulaski County, is the capital of Arkansas. University of Arkansas at Monticello (“UAM”) UAM was established in 1909 by Legislative Act of the General Assembly. Originally called the Fourth District Agricultural School, UAM by merger joined the University of Arkansas on July 1, 1971. Monticello, the county seat of Drew County, is located approximately 100 miles southeast of Little Rock. UAM offers Bachelor and Associate Degrees in various fields including Agriculture, Business Administration, Communication Arts, Education, Fine Arts, Forest Resources and Nursing. UAM has satellite campuses in Crossett and McGehee. University of Arkansas at Pine Bluff (“UAPB”) UAPB was founded in 1873 as Branch Normal College and became a land-grant institution in 1891. It joined the University of Arkansas and changed its name in 1972 to the University of Arkansas at Pine Bluff. Pine Bluff is located approximately 42 miles southeast of Little Rock. UAPB offers 43 Bachelor Degree programs and two Associate Degree programs among the following academic schools: Agriculture and Home Economics, Business Management, Education, Liberal and Fine Arts, and Science and Technology. Phillips Community College of the University of Arkansas (“PCCUA”) This campus was established in 1965 as Phillips County Community College under applicable state law and county ordinance. The principal campus is located in Helena, Arkansas, and satellite campuses are located in Stuttgart and DeWitt. The College provides comprehensive community college higher education offerings in its area and offers associate degrees and certificate programs. Pursuant to a merger agreement effective July 1, 1996, Phillips County Community College became a part of the University of Arkansas System and was designated “The Phillips County Community College of the University of Arkansas.” University of Arkansas Community College at Hope (“UACCH”) On July 1, 1965, Hope, Arkansas, was named as a site for Red River Vocational Technical School pursuant to applicable law. Classes began in August, 1966 at a sixty-acre campus donated by the City of Hope. In 1991, under applicable law, the school was changed to technical college status and was named “Red River Technical College.” UACCH provides higher educational opportunities, both occupational and academic, in its service area and currently offers associate degrees and certificate programs. Effective July 1, 1996, Red River Technical College was merged with the University of Arkansas and was designated “University of Arkansas Community College at Hope.” University of Arkansas Community College at Batesville (“UACCB”) UACCB, formerly Gateway Technical College, became an affiliated campus of the University of Arkansas System by resolution of the Board on October 13, 1997. Originally established as “Gateway Vocational-Technical College” in 1975, the institution became Gateway Technical College under Act 1244 of 1991. After passage of a local sales tax referendum by the citizens of Independence County, Gateway Technical College was renamed the “University of Arkansas Community College at Batesville” by the Board on March 31, 1998. The University of Arkansas Community College at Morrilton (“UACCM”) The 1961 Arkansas General Assembly established Petit Jean as the State's second adult vocational- technical school, and classes began in September 1963. In 1991, the General Assembly converted Petit Jean to a degree-granting two-year college. The conversion permitted expansion of the curriculum to include technical, academic and workforce education, community education, and adult education. Initially named “Petit Jean Technical College,” the name was changed to “Petit Jean College” on July 1, 1997. Pursuant to a merger agreement effective July 1, 2001, the institution became a part of the University of Arkansas System and was designated “The University of Arkansas Community College at Morrilton.” Cossatot Community College of the University of Arkansas (“CCCUA”) Cossatot Vocational Technical School was created by the Arkansas General Assembly in 1975 and was constructed on 40 acres of land donated by the DeQueen Chamber of Commerce. In 1991, the General Assembly converted the school into a two-year degree granting institution. With the main campus in DeQueen, the college has 10 teaching centers in Nashville and Ashdown. Pursuant to a merger agreement effective July 1, 2001, the institution became a part of the University of Arkansas System and was designated “Cossatot Community College of the University of Arkansas.” University of Arkansas at Fort Smith (“UAFS”) UAFS was first established as Fort Smith Junior College in 1928 as an extension of the local public school system. Until 1950, it operated within the public school system and offered primarily college-parallel courses. In 1950, it was separated from the public school system and incorporated as a private, nonprofit educational institution. At a special election in November, 1966, the electorate approved the creation of the Sebastian County Community Junior College District and a tax levy on the real and personal property within the District. UAFS has experienced several name changes since the creation of the District. In 1966, the College was renamed Westark Junior College, in 1972 it became Westark Community College, and in 1998 it became Westark College. On January 1, 2002, Westark College became the University of Arkansas at Fort Smith. Cammack Campus In 1957, the late Kate Cammack donated to the Board a 40-acre tract of land on North University Avenue in Little Rock to be used for educational and cultural programs of the University. Presently located on the Cammack Campus are the President's residence and the University System Administration offices with a conference room for the Board and other University functions. The Cammack Campus also includes Mrs. Cammack's home, “Pine Border,” which is being restored. Board of Trustees The University is governed by a Board of Trustees which was created as a corporate body by statute. There are ten members of the Board of Trustees, appointed for ten-year staggered terms. By statute, eight members of the Board must represent the areas of Congressional Districts of the State, and the balance of the members are selected at large. Members of the Board are appointed by the Governor and confirmed by the state Senate, except that interim appointments are made by the Governor and confirmed by the remaining members of the Board. The current members of the Board of Trustees of the University are: Name and Office Business or Profession Term Expires Jim von Gremp, Chairman Business Executive 2015 Ben Hyneman, Vice Chairman Business Executive 2018 Jane Rogers, Secretary Civic Worker 2016 Stephen Broughton, Asst. Secretary Physician 2022 Reynie Rutledge* Banker 2017 David Pryor Former U.S. Senator 2019 Mark Waldrip Business Executive 2020 John Goodson Attorney 2021 Cliff Gibson Attorney 2023 Morril Harriman Attorney 2024

* Mr. Rutledge is Chairman of First Security Bancorp and of Crews & Associates, Inc. Crews & Associates, Inc. is one of the Underwriters, and is a wholly owned subsidiary of First Security Bancorp.

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University Administration The current officers of the University are: Name Office Donald R. Bobbitt President Barbara Goswick Vice President for Finance and CFO Daniel E. Ferritor Vice President for Learning Technologies Michael Moore Vice President for Academic Affairs Ann Kemp Vice President for Administration Mark Cochran Vice President for Agriculture Melissa K. Rust Vice President for University Relations Fred H. Harrison General Counsel The central administrative offices of the University system are located on the Cammack Campus at 2404 North University Avenue, Little Rock, Arkansas 72201; telephone: (501) 686-2500.

Student Enrollment-All Campuses Enrollment* for the fall semester of the 2014/15 school year for each campus of the University (expressed as full-time equivalent) was as follows: University of Arkansas, Fayetteville 22,868 University of Arkansas at Little Rock 8,105 University of Arkansas for Medical Sciences 2,540 University of Arkansas at Monticello 2,865 University of Arkansas at Pine Bluff 2,327 Phillips Community College of the University of Arkansas 978 University of Arkansas Community College at Hope 900 University of Arkansas Community College at Batesville 915 University of Arkansas Community College at Morrilton 1,501 Cossatot Community College of the University of Arkansas 900 University of Arkansas at Fort Smith 5,410 Total, All Campuses 49,309

* Preliminary numbers.

THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY Administrative Officers The current administrative officers of UA, Fayetteville are: Name Office G. David Gearhart(1) Chancellor Tim O’Donnell Interim Vice Chancellor for Finance and Administration Sharon Gaber Provost and Vice Chancellor for Academic Affairs Randy Massanelli Vice Chancellor for Government and Community Relations Jeff Long Vice Chancellor and Director of Athletics (1) Dr. Gearhart has announced his plans to retire as Chancellor of UA, Fayetteville, effective July 31, 2015. A national search is underway for a successor. General Information The Fayetteville campus was the original site of the University. Fayetteville is the county seat of Washington County and had a 2006 population of 67,158, and a 2010 population of 73,580. The 2000 population of Washington County was 157,715 and the 2010 population was 203,065. UA, Fayetteville, a land-grant institution, provides technical and professional services to individuals and groups throughout the State of Arkansas. The campus is the State's major source of theoretical and applied research. UA, Fayetteville seeks to have all of its programs regionally competitive.

The Campus and Facilities The campus encompasses approximately 725 acres with some 212 buildings. On the campus are the Dale Bumpers College of Agricultural, Food and Life Sciences, the Fay Jones School of Architecture, the J. William Fulbright College of Arts and Sciences, the Sam M. Walton College of Business, the College of Education and Health Professions, and the College of Engineering. Also located there are the Honors College, the School of Law, the Graduate School, the Departments of Army and Air Force ROTC, the Agricultural Experiment Station and the School of Continuing Education and Academic Outreach. In addition to academic departments, campus facilities house nationally recognized units such as the Fulbright Institute of International Relations; Mack-Blackwell Rural Transportation Center; Center of Excellence for Poultry Science; Center for Advanced Spatial Technology; Arkansas Center for Space and Planetary Sciences; Center for Ferroelectric Electronic-Photonic Nanodevices; Center for Protein Structure, Function and Dynamics; Center for Semiconductor Physics in Nanostructures; Diane Blair Center for the Study of Southern Politics and Society; Garvan Woodland Gardens; King Fahd Center for Middle East and Islamic Studies; Lake Wedington Research Center; Microelectronics Photonics Program; National Center for Agricultural Law Research and Information; Packaging of Electronic Components-High Density Electronic Component Center; Plant Breeding Program; Reducing Family Violence Through Workplace Intervention Program; Rural Water Quality Program; Southwest Radiation Calibration Center; Social Work Research Center; David and Barbara Pryor Center for Arkansas Oral and Visual History; and University of Arkansas Community Design Center. Library The UA, Fayetteville library houses 2,100,885 volumes. There are 305 on-line bibliographic services, 5,583,650 units of microfilm, and 50,620 periodical titles. Accreditations UA, Fayetteville, is a member of the North Central Association of Colleges and Secondary Schools and is fully accredited by that organization on both the undergraduate and graduate levels. Degree Programs UA, Fayetteville offers 85 bachelor’s degrees, 82 master’s and specialist degrees, 13 graduate certificates, 7 post-master certificates, and 39 doctoral degrees. The UA, Fayetteville offers pre-professional programs in several health related professions such as pharmacy and dentistry. The School of Law offers a Juris Doctor degree and an LL.M. program in Agricultural and Food Law. Faculty Summary The number of full time faculty at UA, Fayetteville and the percentage of tenured faculty for the past five years was as follows: 2010 2011 2012 2013 2014 Number of Faculty 940 989 1,035 1,083 1,108 Percent Tenured 59.7% 56.7% 54.1% 50.9% 50.0% Admissions The current admission standards for undergraduates were phased into effect beginning with the fall 1997 semester and were fully in effect by the fall 2000 semester. Entering freshmen must have a minimum high school grade point average (“HSGPA”) of 3.0, an ACT score of 20 or SAT score of 930 and have completed 16 units of high school courses in English, mathematics, social studies, and natural sciences plus three units of electives chosen from the above subjects, communication or foreign languages. The following is a five-year history of undergraduate admissions: New Freshmen New Transfers Year Admitted Applied Enrolled ACT HSGPA Applied Admitted Enrolled 2010 8,468 14,019 3,810 25.8 3.55 3,091 2,268 1,481 2011 10,129 16,633 4,447 25.7 3.56 3,005 2,464 1,504 2012 10,630 16,749 4,574 25.8 3.60 3,848 2,461 1,363 2013 11,076 18,908 4,339 25.8 3.62 3,711 2,065 1,282 2014 11,773 19,015 4,571 25.9 3.63 3,728 1,732 1,312

Student Enrollment Total student enrollment (expressed as full-time equivalent) at UA, Fayetteville for the fall semester listed below has been as follows: Year Undergraduate Graduate and Law Total 2010 15,553 2,595 18,148 2011 17,526 2,317 19,843 2012 18,611 2,632 21,243 2013 19,465 2,760 22,225 2014 20,110 2,758 22,868 The number of students from within the State of Arkansas, from out of State, and of international students for the last five years has been as follows: 2010 2011 2012 2013 2014

In State 14,536 15,093 15,418 15,307 15,329 Out of State 5,706 6,915 7,882 8,647 9,383 International 1,163 1,191 1,237 1,387 1,525 Undergraduate Student Fees Tuition and fees at UA, Fayetteville for the school years indicated below, on a per student basis, have been as follows (based on a student taking 15 credit hours per semester): 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 In Out of In Out of In Out of In Out of In Out of State State State State State State State State State State Tuition $ 5,010 $13,888 $ 5,010 $13,888 $ 6,141 $17,022 $ 6,353 $17,610 $ 6,824 $18,914 Tuition/Hour 167.00 462.93 167.00 462.93 204.70 567.41 211.77 587.01 227.44 630.45 Fees 1,049 1,049 1,109 1,109 1,052 1,052 1,105 1,105 1,026 1,026 College Fees 340 340 340 340 360 360 360 360 360 360 Total $ 6,399 $15,277 $ 6,459 $15,337 $ 7,553 $18,434 $ 7,818 $19,075 $ 8,210 $20,300

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Summary of Revenues, Expenses and Changes in Net Assets The following table contains a summary of the revenues, expenses and changes in net assets for UA, Fayetteville for the past four fiscal years: Fiscal Year 2011 2012 2013 2014 OPERATING REVENUES Student tuition and fees, net $109,167,102 $130,571,742 $149,979,017 $166,512,378 Federal appropriations 11,062,386 11,615,106 14,035,901 13,464,969 County appropriations 2,912,870 3,383,149 2,992,672 3,028,154 Federal grants and contracts 40,940,355 38,448,980 33,897,047 28,988,196 State and local grants and contracts 17,261,150 17,502,653 17,631,073 17,857,206 Nongovernmental grants and contracts 17,606,040 18,256,503 24,715,454 32,358,570 Sales and services of educational departments 25,275,263 22,394,961 21,486,061 23,501,926 Auxiliary enterprises Residence Life, net 23,267,801 24,915,952 26,936,578 29,115,616 Athletics 65,940,135 69,793,575 71,739,926 66,772,739 Bookstore 16,593,862 13,265,776 13,369,754 13,063,465 Arkansas Union 757,904 -0- -0- -0- Student Health Services 874,019 569,714 753,775 970,252 Transit and Parking 7,333,833 6,591,747 6,684,527 7,374,258 Student Organizations/Activities 209,754 203,093 180,157 122,812 Other Auxiliary Enterprises 2,941,038 3,782,555 3,769,719 3,628,849 Other operating revenues 8,667,851 8,364,263 12,890,424 11,196,123 Total operating revenues $350,811,363 $369,659,769 $401,062,085 $417,955,513

OPERATING EXPENSES Salaries, wages, and benefits $373,790,938 $392,496,355 $414,557,521 $431,440,254 Scholarships and fellowships 29,557,381 27,071,128 27,368,387 24,340,455 Supplies and other services 192,618,354 177,430,399 179,198,304 190,833,287 Depreciation 57,645,916 62,757,646 64,325,083 67,219,710 Total operating expenses $653,612,589 $659,755,528 $685,449,295 $713,833,706 Operating loss ($302,801,226) ($290,095,759) ($284,387,210) ($295,878,193)

NONOPERATING REVENUES (EXPENSES) State appropriations $200,188,523 $201,724,363 $200,939,410 $206,144,734 Gifts 51,239,306 66,051,112 68,337,167 65,739,713 Investment income, net 14,260,067 5,997,430 8,362,479 14,621,623 Interest on capital asset - related debt (19,524,953) (18,888,991) (19,291,196) (24,063,674) Federal grants (nonexchange) 33,451,892 24,822,337 24,409,373 23,806,815 State & local grants (nonexchange) 29,764,358 33,249,890 34,615,555 30,609,388 Nongovernmental grants (nonexchange) 631,809 831,557 802,351 814,885 Loss on disposal of assets (637,817) (572,447) (205,515) (219,121) Other nonoperating revenues 2,449,266 2,980,378 3,348,125 2,641,870 Other nonoperating expenses -0- -0- -0- (264,133) Net nonoperating revenues $311,822,451 $316,195,629 $321,317,749 $319,832,100 Gain or loss before other revenues and $ 9,021,225 $ 26,099,870 $ 36,930,539 $ 23,953,907 changes in net assets

OTHER REVENUES AND CHANGES IN NET ASSETS Capital appropriations $ 3,240,686 $ 500,000 $ 800,000 $ 6,125,000 Capital grants and gifts 4,481,709 33,158,761 26,868,665 19,516,817 Other changes 226,019 731,244 (961,359) 214,570 Total other revenues and changes in net assets $7,948,414 $34,390,005 $26,707,306 $ 25,856,387 Increase in net assets $16,969,639 $60,489,875 $63,637,845 $ 49,810,294

NET ASSETS - beginning of year $635,232,999 $652,202,638 $710,241,153(1) $770,500,504(2) NET ASSETS - end of year $652,202,638 $712,692,513 $773,878,998 $820,310,798 ______(1) The beginning net assets balance was restated by $2,451,360 for fiscal year 2013. (2) The beginning net assets balance was restated by $3,378,494 for fiscal year 2014.

Pledged Revenues The term “Pledged Revenues” is defined as (i) Athletic Gate Receipts (defined in the Indenture as those revenues of UA, Fayetteville derived from men’s intercollegiate athletic events, including settlements, guarantees, the sale of tickets, television and radio revenues, concession revenues, and all amounts transferred from the Razorback Foundation, Inc., or the successor thereto, representing priority seating requirement proceeds, which are received by the Athletic Department of the University of Arkansas, Fayetteville, less amounts paid to state and local taxing authorities and amounts paid by the University of Arkansas, Fayetteville, for settlements and guarantees for scheduled men’s intercollegiate athletic events, together with (ii) revenues of the University of Arkansas, Fayetteville, derived from any Student Athletic Fee (defined in the Indenture as any fee charged to students attending the University of Arkansas, Fayetteville to support intercollegiate athletics, whether such fee is imposed pursuant to Arkansas Code Annotated Sections 6-62-801 through 6-62-806 or pursuant to Section 711 of the Indenture). Pledged Revenues does not include (A) tuition or fee revenues collected by UA, Fayetteville, sales and services revenues, or auxiliary enterprises revenues, or (B) any fees authorized or imposed by UA, Fayetteville and dedicated to a specific purpose unrelated to obligations issued pursuant to the Act or to facilities funded with such obligations. Gross Pledged Revenues for the past five fiscal years have been as follows:

Source 2010 2011 2012 2013 2014 Football $21,808,927 $25,646,115 $27,239,825 $27,604,571 $22,596,833 Basketball 5,520,611 4,594,714 5,510,967 5,532,489 5,713,660 Spring Sports 1,170,396 1,058,095 1,287,064 1,726,377 1,531,818 (Less Game Guaranties) (2,596,200) (2,429,200) (3,368,027) (3,368,109) (3,111,403) SEC, NCAA Distributions 19,851,994 21,749,121 20,465,751 21,121,140 21,404,352 Radio and Television Revenues -0- -0- -0- -0- -0- Advertising, Sponsorships and Game Programs Sales 10,746 -0- -0- -0- -0- Concessions and Novelty Sales 771,341 754,174 990,347 1,120,984 628,817 Gifts, Donations & Other Income -0- -0- -0- -0- -0- Multimedia Rights Sponsorship 4,662,852 7,170,149 5,945,574 3,747,024 6,969,056 Totals $51,200,667 $58,543,168 $58,071,501 $57,484,476 $55,733,133

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Existing Obligations The Bonds are issued on a parity basis with respect to the Pledged Revenues to the Series 2010 Bonds, the Series 2011 Bonds and the Series 2013 Bonds. The Series 2008 Note ranks on subordinate basis to the Bonds with respect to the Pledged Revenues. There are no other obligations of UA-Fayetteville secured by or payable from the Pledged Revenues. Debt service requirements for all bonds secured by the Pledged Revenues for the fiscal years ending June 30, are as follows: Fiscal Series 2010 Series 2011 Series 2013 Year Bonds Bonds Bonds The Bonds Total

2015 $2,737,531 $ 114,025 $2,884,200 $ - $5,735,756 2016 2,734,723 2,869,150 2,884,500 1,159,259 9,647,632 2017 2,734,891 2,865,125 2,886,050 1,117,600 9,603,666 2018 2,736,316 - 2,883,200 2,890,650 8,510,166 2019 2,735,428 - 2,886,250 2,899,950 8,521,628 2020 2,739,115 - 2,883,125 2,892,300 8,514,540 2021 2,739,468 - 2,886,375 2,886,675 8,512,518 2022 - - 2,884,625 2,883,900 5,768,525 2023 - - 2,882,750 676,500 3,559,250 2024 - - 2,885,375 - 2,885,375 2025 - - 2,882,250 - 2,882,250 2026 - - 2,883,125 - 2,883,125 2027 - - 2,882,625 - 2,882,625 2028 - - 2,885,375 - 2,885,375 Total $19,157,472 $5,848,300 $40,379,825 $17,406,834 $82,792,431

Coverage

Pledged Revenues for the Fiscal Year ended June 30, 2014 were $55,733,133. Combined maximum annual debt service for the Series 2010 Bonds, the Series 2011 Bonds, the Series 2013 Bonds and the Bonds is $9,647,632 (in the Fiscal Year ending June 30, 2016). Accordingly, the Pledged Revenues in the Fiscal Year ended June 30, 2014 equaled or exceeded 5.78 times the combined maximum annual debt service on the outstanding Series 2010 Bonds, Series 2011 Bonds, Series 2013 Bonds and the Bonds. Other Debt of UA, Fayetteville UA-Fayetteville has other outstanding debt obligations which are not secured by or paid from the Pledged Revenues. These obligations are either unsecured, or secured by revenues other than Pledged Revenues or financed equipment. These obligations consist of the following: Notes Payable. A note payable by UA, Fayetteville to the United States Department of Education. The revenues generated by the operation of two dormitories are pledged to the repayment of this Note. The annual combined principal and interest payments on the note are in the amount of $205,320. The note finally matures in the Fiscal Year ending June 20, 2022. A note payable by the UA Fayetteville to UAMS in the outstanding principal amount of $757,165*. This note evidences the obligation of UA, Fayetteville to reimburse UAMS for the principal of and interest on debt incurred by the Board for the benefit of UA, Fayetteville, but payable from revenues belonging to UAMS. The Note finally matures in Fiscal Year 2019. Installment Contracts. UA-Fayetteville has entered into three installment purchase agreements with Banc of America Public Capital Corp. for the acquisition and installation of energy equipment pursuant to energy savings contracts with Energy Systems Group, LLC. There is currently $31,351,371* in principal amount outstanding under these agreements. The leases are secured only by the purchased equipment, and are paid from savings pursuant to the energy savings contracts. Interest rates on the contracts range from 4.58% to 4.80%. The latest of the contracts expire in Fiscal Year 2024.

* As of June 30, 2014 17

Various Facilities Bonds. UA-Fayetteville has issued bonds for various academic facilities, secured by and payable from tuition and fee revenues collected by UA, Fayetteville, sales and services revenues and auxiliary enterprises revenues (as such terms are used in the context of generally accepted accounting principles), other than the Pledged Revenues. Annual debt service on these bonds* is as follows: Fiscal Year Debt Service Fiscal Year Debt Service 2015 $42,805,639 2030 $32,790,623 2016 43,540,188 2031 32,908,488 2017 44,245,744 2032 33,004,954 2018 44,359,327 2033 32,892,891 2019 44,414,355 2034 28,968,366 2020 44,541,935 2035 29,098,921 2021 44,464,756 2036 29,228,216 2022 44,605,533 2037 29,364,666 2023 41,583,235 2038 24,054,631 2024 37,019,343 2039 19,745,372 2025 37,175,684 2040 17,157,000 2026 35,575,483 2041 13,932,569 2027 34,203,680 2042 7,617,713 2028 34,376,239 2043 7,633,375 2029 34,528,176 2044 1,831,625 * Includes debt service on the Board’s outstanding (i) Various Facility Revenue Bonds (Fayetteville Campus), Refunding Series 2004B, (ii) Various Facility Revenue Bonds (Fayetteville Campus), Series 2005A, and (iii) Various Facility Revenue Bonds (Fayetteville Campus), Series 2006, to be refunded by the $70,360,000 Board of Trustees of the University of Arkansas Various Facility Revenue Bonds (Fayetteville Campus), Series 2015A, proposed to be issued concurrently with the issuance of the Bonds. Debt service on the proposed refunding bonds is not included. For additional information concerning the outstanding debt of UA-Fayetteville, see Note 9 to the Audited Financial Statements for UA, Fayetteville for the Fiscal Year ended June 30, 2014, attached hereto as Appendix B.

FINANCIAL STATEMENTS UA, Fayetteville Set forth in Appendix B to this Official Statement are the financial statements of UA, Fayetteville for the fiscal year ended June 30, 2014, which financial statements have been audited by the Division of Legislative Audit of the State of Arkansas, as indicated in its report dated November 4, 2014, which report is also included in Appendix B. The notes set forth in Appendix B are an integral part of the financial statements, and the statements and notes should be read in their entirety. The financial report of UA, Fayetteville includes three primary financial statements: the Statement of Net Position, the Statement of Revenues, Expenses, and Changes in Net Position and the Statement of Cash Flows. The financial statements of three component units are presented discretely from the University. The notes to the financial statements provide additional information that is essential to understanding the primary financial statements. Other required supplementary information provides additional information related to other postemployment benefits. The financial statements of UA, Fayetteville are presented in accordance with Governmental Accounting Standards Board (GASB) Statement No. 35, Basic Financial Statements-and Management’s Discussion and Analysis-for Public Colleges and Universities. The statement establishes standards for financial reporting of public colleges and universities and requires that financial statements be presented on an entity-wide basis to focus on the University as a whole. Statements are prepared using the accrual basis of accounting, which is consistent with the accounting method used by private-sector entities. All of the current year’s revenues and expenses are recognized when earned or incurred, regardless of when cash is received or paid. The University has identified three foundations as component units subject to inclusion in the financial report: the University of Arkansas Fayetteville Campus Foundation, Inc., the Razorback Foundation, Inc., and the Arkansas 4-H Foundation, Inc. As component units, their financial information is included in the UA, Fayetteville financial report in accordance with GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units. This statement provides criteria for determining which related organizations should be reported as component units based on the nature and significance of their relationship to the primary government, which is the University. Additional information regarding this reporting requirement is provided at Notes to the Financial Statements (Note) No. 1 “Summary of Significant Accounting Policies”, under the “Component Units” heading. Reference is made to The Management Discussion and Analysis which is included in full in Appendix B. 18

University of Arkansas System Set forth in Appendix C to this Official Statement is the consolidated financial report of the University of Arkansas System for the fiscal year ended June 30, 2014, which consolidated financial report has been audited by the Division of Legislative Audit of the State of Arkansas, as indicated in its report dated November 5, 2014, which report is also included in Appendix C. The notes set forth in Appendix C are an integral part of the consolidated financial report, and the report’s financial statements and notes should be read in their entirety. Audited financial statements of the University of Arkansas System for prior fiscal years may be obtained at the University of Arkansas System’s website (currently http://www.uasys.edu/system-administration/finance-and-administration/financial- statements/) or at the Arkansas Division of Legislative Audit’s website (currently http://www.legaudit.state.ar.us/ using the search term “University of Arkansas”).

TAX MATTERS In the opinion of Friday, Eldredge & Clark, LLP, bond counsel, under existing law, interest on the Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, it should be noted that with respect to corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on such corporations. The opinion of bond counsel is subject to the condition that the Board comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excludable from gross income for federal tax purposes. These requirements generally relate to arbitrage, the use of proceeds of the Bonds and the capital improvements refinanced with proceeds of the Bonds. The Board has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal tax purposes to be retroactive to the date of issuance of the Bonds. The proposed opinion of bond counsel is attached as Appendix A hereto. Bond counsel expresses no opinion regarding other federal tax consequences arising with respect to the Bonds. Purchasers of the Bonds, particularly purchasers that are corporations (including S corporations and foreign corporations operating branches in the United States); property and casualty insurance companies; banks, thrifts or other financial institutions; certain recipients of Social Security or Railroad Retirement benefits; taxpayers otherwise entitled to claim the earned income tax credit; and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax-exempt obligations, should consult their tax advisors concerning their tax consequences of purchasing and holding the Bonds. Current or future legislative proposals, if enacted into law, may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation or otherwise prevent holders of the Bonds from realizing the full current benefit of the tax status of such interest. Recent legislative proposals include provisions that would limit the amount of exclusions (including tax-exempt interest) and deductions available to certain high income taxpayers. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. The introduction or enactment of any such legislative proposals may also affect the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. It is not an event of default on the Bonds if legislation is enacted reducing or eliminating the exclusion of interest on state and local government bonds from gross income for federal or state income tax purposes. As shown on the inside cover page of this Official Statement, certain of the Bonds are being sold at a premium (collectively, the "Premium Bonds"). An amount equal to the excess of the issue price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. An initial purchaser of a Premium Bond must amortize any premium over such Premium Bond’s term using constant yield principles, based on the purchaser’s yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, by amortizing the premium to the call date, based on the purchaser’s yield to the call date and giving effect to the call premium). As premium is amortized, the amount of the amortization offsets a corresponding amount of interest for the period and the purchaser’s basis in such Premium Bond is reduced by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser’s basis may be reduced, no federal income tax deduction is allowed. Purchasers of the Premium Bonds should consult with their tax advisors with respect to the determination and treatment of amortizable premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Premium Bond. As shown on the inside cover page of this Official Statement, certain of the Bonds are being sold at an original issue discount (collectively, the "Discount Bonds"). The difference between the initial public offering prices, as set forth 19 inside the front cover page, of such Discount Bonds and their stated amounts to be paid at maturity constitutes original issue discount treated as interest which is excluded from gross income for federal income tax purposes, as described above. The amount of original issue discount which is treated as having accrued with respect to such Discount Bond is added to the cost basis of the owner in determining, for federal income tax purposes, gain or loss upon disposition of such Discount Bond (including its sale, redemption, or payment at maturity). Amounts received upon disposition of such Discount Bond which are attributable to accrued original issue discount will be treated as tax-exempt interest, rather than as taxable gain, for federal income tax purposes. Original issue discount is treated as compounding semiannually, at a rate determined by reference to the yield to maturity of each individual Discount Bond, on days which are determined by reference to the maturity date of such Discount Bond. The amount treated as original issue discount on such Discount Bond for a particular semiannual accrual period is equal to the product of (i) the yield of maturity for such Discount Bond (determined by compounding at the close of each accrual period) and (ii) the amount which would have been the tax basis of such Discount Bond at the beginning of the particular accrual period if held by the original purchaser, less the amount of any interest payable for such Discount Bond during the accrual period. The tax basis is determined by adding to the initial public offering price on such Discount Bond the sum of the amounts which have been treated as original issue discount for such purposes during all prior periods. If such Discount Bond is sold between semiannual compounding dates, original issue discount which would have been accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in such compounding period. Owners of the Discount Bonds should consult their tax advisors with respect to the determination and treatment of original issue discount accrued as of any date and with respect to the state and local tax consequences of owning a Discount Bond. State Law Further, in the opinion of Bond Counsel, under existing laws, the Bonds and interest thereon are exempt from all Arkansas state, county and municipal taxation.

CONTINUING DISCLOSURE

The Board has entered into a Continuing Disclosure Agreement with the Trustee (the “Disclosure Agreement”) pursuant to which the Board has agreed that the Board will provide, annually and as otherwise required, information specified in Rule 15c2-12(b) of the Securities Exchange Act of 1934, as amended. Such information may be posted on the Municipal Securities Rulemaking Board's internet website, www.emma.msrb.org, and may be obtained using the muni search function and entering the term "Board of Trustees of the University of Arkansas Financial Information." For a summary of certain provisions of the Disclosure Agreement, see Appendix D attached hereto. The Board is a party to multiple continuing disclosure agreements for its various bond issues that benefit its campuses. While the Board has not made any determinations as to materiality, the following paragraphs, while not exhaustive, summarize the results of the Board's review of compliance with prior continuing disclosure obligations over the past five years. Certain of the annual financial information that was required to be filed by the Board pursuant to applicable continuing disclosure agreements for the fiscal years ended June 30, 2009, 2010, 2011, 2012 and 2013 either did not contain all of the information required by the applicable continuing disclosure agreements or was not filed. Also, filings made prior to the year ended June 30, 2012 for one campus did not contain separate audited financial statements of such campus and did not contain required supplemental financial information as required by the applicable continuing disclosure agreements. However, supplemental filings have been made containing the remainder of the required information. In addition, in the case of four campuses, the Board made a timely filing of financial information and financial statements with the trustees, but the financial information and financial statements were not uploaded by the trustees to the EMMA system. This has been cured. Also, in the case of one campus, since the fiscal year ended June 30, 2010, annual report filings were made later than the date that such annual reports were due (ranging from 20 days late to 33 days late). Further, in the past the Board did not file notices of certain listed events, including notices of ratings recalibrations (a rating recalibration from Moody's Aa3 to Aa2). The Board is undertaking steps to ensure future compliance with its continuing disclosure undertakings. 20

ENFORCEABILITY OF REMEDIES

Rights of the registered owners of the Bonds and the enforceability of the remedies available under the Indenture may depend on judicial action and may be subject to the valid exercise of the constitutional powers of the United States of America and of the sovereign police powers of the State or other governmental units having jurisdiction, and to the application of federal bankruptcy laws or other debtor relief or moratorium laws in general. Therefore, enforcement of those remedies may be delayed or limited, or the remedies may be modified or unavailable, subject to the exercise of judicial discretion in accordance with general principles of equity. Bond counsel expresses no opinion as to any effect upon any right, title, interest or relationship created by or arising under the Indenture resulting from the application of state or federal bankruptcy, insolvency, reorganization, moratorium or similar debtor relief laws affecting creditors' rights which are presently or may from time to time be in effect.

FINANCIAL ADVISOR

Public Financial Management, Inc. (“PFM”) is employed by the Board to perform professional services in the capacity of financial advisor. In its role as financial advisor to the Board, PFM has provided advice on the plan of financing and structure of the Bonds, and reviewed certain legal and disclosure documents, including this Official Statement, for financial matters. PFM has not independently verified the factual information contained in this Official Statement, but relied on the information supplied by the Board and other sources and the Board’s certification as to the Official Statement.

LEGAL MATTERS

Legal matters incident to the authorization and issuance of the Bonds are subject to the approving opinion of Friday, Eldredge & Clark, LLP, Little Rock, Arkansas, bond counsel. The proposed opinion of bond counsel is attached as Appendix A hereto. Copies of such opinion will be available at the time of the delivery of the Bonds. Certain legal matters will be passed upon for the underwriter by Kutak Rock LLP, Little Rock, Arkansas, counsel to the underwriter. There is no controversy or litigation of any nature now pending or threatened restraining or enjoining the issuance, sale, execution or delivery of the Bonds, or in any way contesting or affecting the validity of the Bonds, any proceedings of the Board taken with respect to the issuance or sale thereof, the pledge or application of the Pledged Revenues or other moneys that may be provided for the payment of the Bonds, the existence or powers of the Board or the title of any officers of the Board to their respective positions, or the ability of the Board to make payment on the Bonds. Factors Affecting the Board’s Funding The State portion of the Board’s budget is subject to appropriation by the General Assembly of the State every year, and the Board has no control over the amounts so appropriated. There can be no assurance that the levels of future appropriations to the Board will not impair its ability to make payments on the Bonds.

UNDERWRITING

Under a Bond Purchase Agreement (the “Agreement”) entered into by and between the Board and the underwriters listed on the cover page (collectively, the “Underwriters”), the Bonds are being purchased at a purchase price of $______(being the principal amount thereof, less underwriters’ discount of $______). The Agreement provides that the Underwriters will purchase all of the Bonds if any are purchased. The obligation of the Underwriters to accept delivery of the Bonds is subject to various conditions contained in the Agreement, including the absence of pending or threatened litigation questioning the validity of the Bonds or any proceedings in connection with the issuance thereof and the absence of material adverse changes in the financial or operating condition of the Board. The Underwriters intend to offer the Bonds to the public initially at the offering prices set forth on the inside cover page of this Official Statement, which prices may subsequently change without any requirement of prior notice. The Underwriters reserve the right to join with dealers and other underwriters in offering the Bonds to the public. The Underwriters may offer and sell Bonds to certain dealers (including dealers depositing Bonds into investment trusts) at prices lower than the public offering price. In connection with this offering, the Underwriters may over-allot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. 21

DESCRIPTION OF RATING

Moody's Investors Service Inc. has assigned the municipal bond rating of “Aa2” (stable outlook) to the Bonds. The rating reflects only the view of the rating agency. Any explanation as to the significance of the above rating may be obtained only from the rating agency furnishing the same.

The Board has furnished to the above rating agency certain information and materials, some of which have not been included in this Official Statement. Generally, rating agencies base their ratings on such information and materials and investigations, studies and assumptions furnished to and obtained and made by the rating agencies. There is no assurance that a rating will remain for any given period of time or that it may not be lowered or withdrawn entirely by the rating agency if, in its judgment, circumstances so warrant. Neither the Board nor the Underwriters have undertaken any responsibility to bring to the attention of the holders of the Bonds any proposed revision or withdrawal of a rating or to oppose any such revision or withdrawal. Any downward change in or withdrawal of a rating may have an adverse effect on the market price of the Bonds.

MISCELLANEOUS

Appendices B and C contain the audited financial statements for UA, Fayetteville and for the University of Arkansas as a whole for the most recent fiscal years available. Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. This Official Statement is not to be construed as a contract or agreement between the Board and the purchasers or owners of any of the Bonds. The information contained in this Official Statement has been taken from sources considered to be reliable, but it is not guaranteed. To the best of the knowledge of the undersigned, the Official Statement does not include any untrue statement of a material fact, nor does it omit the statement of any material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The execution of this Official Statement has been authorized by the Board. DATED: As shown on the Cover Page hereof. BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS

By: President of the University of Arkansas

APPENDIX A

Opinion of Bond Counsel

Friday Eldredge & Clark, LLP, Bond Counsel, expects to render an opinion with respect to the Bonds, dated the date of delivery of the Bonds, in substantially the following form:

______, 2015

Board of Trustees of the University of Arkansas Little Rock, Arkansas

Regions Bank, as Trustee Little Rock, Arkansas

Re: $______Board of Trustees of the University of Arkansas Athletic Facilities Revenue Refunding Bonds (Fayetteville Campus), Series 2015A

Ladies and Gentlemen:

We have acted as bond counsel in connection with the issuance by the Board of Trustees of the University of Arkansas (the "Issuer") of its $______Athletic Facilities Revenue Refunding Bonds (Fayetteville Campus), Series 2015A, dated ______, 2015 (the "Bonds"), pursuant to Ark. Code Ann. §§ 6-62-301, et seq. (the "Act") and a Trust Indenture dated as of ______, 2015 (the "Indenture"), between the Issuer and Regions Bank, as trustee thereunder (the "Trustee").

The Bonds are secured by a pledge of, and payable primarily from, Pledged Revenues as described in the Indenture. The pledge of Pledged Revenues in favor of the Bonds is on a parity with the pledge of Pledged Revenues in favor of the Board's Athletic Facilities Revenue Refunding Bonds (Fayetteville Campus), Series 2010 (the "Series 2010 Bonds"), the Board's Athletic Facilities Revenue Bonds (Fayetteville Campus), Series 2011 (the "Series 2011 Bonds") and the Board's Athletic Facilities Revenue Bonds (Fayetteville Campus), Series 2013A (the "Series 2013 Bonds"), in each case to the extent outstanding. The Bonds are general obligations only of the Issuer and do not constitute an indebtedness for which the full faith and credit of the State of Arkansas (the "State") or any of its revenues are pledged and the Bonds are not secured by a mortgage or lien on any land or building belonging to the State or the Issuer.

We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon the representations of the Issuer contained in the Indenture and in the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation.

Based on the foregoing, we are of the opinion, as of the date hereof and under existing law, as follows:

1. The Issuer is duly created and validly existing as a body politic and corporate and is a state- supported educational institution under and by virtue of the laws of the State with the corporate power to enter into the Indenture and perform the agreements on its part contained therein and to issue the Bonds.

A-1

2. The Indenture has been duly authorized, executed and delivered by the Issuer and, assuming the authorization, execution and delivery thereof by the Trustee, constitutes a valid and binding obligation of the Issuer enforceable upon the Issuer.

3. Pursuant to the Act, the Indenture creates a valid lien on the funds pledged by the Indenture for the security of the Bonds on a parity with the lien in favor of the Series 2010 Bonds, the Series 2011 Bonds and the Series 2013 Bonds, in each case to the extent outstanding.

4. The Bonds have been duly authorized, executed and delivered by the Issuer, and are valid and binding obligations of the Issuer, payable from the sources provided therefor in the Indenture.

5. The interest on the Bonds (including any original issue discount properly allocable thereto) is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the alternative minimum tax imposed on individuals and corporations; it should be noted, however, that, with respect to corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings in computing the alternative minimum tax imposed on such corporations. The opinions set forth in the preceding sentence are subject to the condition that the Issuer comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excludable from gross income for federal income tax purposes. The Issuer has covenanted to comply with each such requirement. Failure to comply with certain of such requirements could cause the interest on the Bonds to be so included in gross income retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds.

6. The Bonds and interest thereon are exempt from all present Arkansas state, county and municipal taxes.

7. The Bonds are exempt from registration under the Securities Act of 1933, as amended, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended.

It is to be understood that the rights of the owners of the Bonds and the enforceability of the Bonds and the Indenture may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases.

Yours very truly,

FRIDAY, ELDREDGE & CLARK, LLP

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APPENDIX B

Audited Financial Statements for the University of Arkansas, Fayetteville for the Fiscal Year Ended June 30, 2014

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University of Arkansas Annual Financial Report

2013-2014

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Table of Contents

Presentation Letter 3 Financial Highlights 4 Enrollment Data 8 Independent Auditor's Report 12 Management Discussion and Analysis 14 Statement of Net Position 28 Statement of Revenue, Expenses, and Changes in Net Position 30 Statement of Cash Flows 32 Component Unit Schedules 35 Notes to Financial Statements 45 Required Supplemental Information-OPEB 92

On the cover: Old Main, South Tower

! B-2

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" B-3 # B-4

FISCAL YEAR 2014 OPERATING REVENUES

Student tuition and fees 166,512,378 Federal appropriations 13,464,969 County appropriations 3,028,154 Federal grants and contracts 28,988,196 State and local grants and contracts 17,857,206 Non-governmental grants and contracts 32,358,570 Sales and services of educational departments 23,501,926 Auxiliary enterprises 121,047,991 Other operating revenues 11,196,123 Total operating revenues 417,955,513

FISCAL YEAR 2014 NONOPERATING REVENUES

State appropriations 206,144,734 Gifts 65,739,713 Investment income 14,621,623 Federal grants (non-exchange) 23,806,815 State & local grants (non-exchange) 30,609,388 Non-governmental grants (non-exchange) 814,885 Other nonoperating revenues 2,641,870 Total nonoperating revenues 344,379,028

$ B-5 Fiscal Year 2014 Operating Revenues

Student tuition and fees

Federal appropriations Other operating County appropriations revenues Student tuition Auxiliary 3% and fees enterprises Federal grants and 40% 29% contracts Sales and State and local grants and Federal contracts services of appropriations educational Non-governmental grants 3% and contracts departments County 5% Sales and services of appropriations educational departments Non- 1% governmental Auxiliary enterprises Federal grants grants and and contracts contracts Other operating revenues State and local 7% 8% grants and contracts 4%

Fiscal Year 2014 Nonoperating Revenues

State & local Non- State appropriations grants (nongovernmental Gifts exchange) grants (non- 9% exchange) Investment income Federal grants 0% (non-exchange) Other Federal grants (non- 7% nonoperating exchange) revenues State & local grants Investment 1% (non-exchange) income Non-governmental 4% grants (non-exchange) Other nonoperating State revenues Gifts appropriations 19% 60%

% B-6

FISCAL YEAR 2014 OPERATING EXPENSES BY NATURAL CLASSIFICATION

Salaries, wages, and benefits 431,440,254 Scholarships and fellowships 24,340,455 Supplies and other services 190,833,287 Depreciation 67,219,710 Total operating expenses 713,833,706

FISCAL YEAR 2014 OPERATING EXPENSES BY FUNCTION

Instruction 167,466,549 Research 107,134,612 Public Service 79,671,188 Academic Support 40,987,898 Student Services 24,583,657 Institutional Support 52,039,556 Scholarships and Fellowships 24,648,565 Operations and Maintenance of Plant 39,873,935 Auxiliary Enterprises 110,208,036 Depreciation 67,219,710 Total operating expenses 713,833,706

& B-7 Fiscal Year 2014 Operating Expenses by Natural Classification Depreciation Salaries, wages, 9% and benefits

Scholarships and Supplies and fellowships other services 27% Supplies and other services Scholarships Salaries, and fellowships wages, and Depreciation 3% benefits 61%

Fiscal Year 2014 Operating Expenses by Function Instruction Operations and Auxiliary Maintenance of Enterprises Depreciation Research Plant 15% 9% 6% Public Service Scholarships and Instruction Fellowships 24% Academic Support 4% Student Services

Institutional Support

Institutional Scholarships and Fellowships Support 7% Operations and Student Services Maintenance of Plant Public Service Research 3% Auxiliary Enterprises Academic 11% 15% Support Depreciation 6%

' B-8

ENROLLMENT TREND OVER LAST FIVE YEARS (FALL SEMESTER)

25,000 20,350 21,009 20,000 19,027 17,247 Undergraduate 15,835

15,000 Graduate

10,000 Law

3,942 5,000 3,616 3,770 3,759 3,777

398 388 413 410 390 0 2009 2010 2011 2012 2013

( B-9

IN-STATE ENROLLMENT BY COUNTY OF ORIGIN

B-10

ENROLLMENT BY STATE

B-11

UNIVERSITY OF ARKANSAS, FAYETTEVILLE LOCATION AND LOCATIONS OF OTHER DIVISION SITES

! B-12 " B-13 # B-14 MANAGEMENT’S DISCUSSION AND ANALYSIS

Introduction

The following discussion and analysis provides an overview of the financial position of the University of Arkansas, Fayetteville (the University) for the year ended June 30, 2014, with fiscal year ended June 30, 2013 data presented for comparative purposes. The emphasis of the discussion concerning the financial statements will be for the current year. The University’s financial statements, notes to the financial statements and discussion and analysis are the responsibility of, and have been prepared by management. The discussion and analysis should be read in conjunction with financial statements and notes. All references to “2014”, “2013” or another year refer to the fiscal year ended June 30, unless otherwise noted.

The University is the largest and oldest state institution of higher education in Arkansas. Established in 1871 under the provisions of the Morrill Act, it is the state’s first land-grant institution and the flagship of the University of Arkansas System. The Carnegie Foundation for the Advancement of Teaching places the university among only 2 percent of universities in America that have the highest level of research. As the state’s only comprehensive research university, together with the distinction of a very high level of research, the University is positioned to be a partner, resource and catalyst for advancing higher learning and stimulating economic opportunity for Arkansas, our nation and our many public and private sector partners.

All programs and activities of the University are governed by the University of Arkansas Board of Trustees, which has delegated to the System President the administrative authority for all aspects of operations. The System President has further delegated administrative authority to the Chancellor and Vice President for Agriculture, who have responsibility for the programs and activities of the colleges, schools and divisions presented in this financial report.

Overview of the Financial Report and Financial Analysis

The University’s financial report includes three basic financial statements: the Statement of Net Position, which presents the assets, liabilities and net position of the university, and when applicable, deferred outflows of resources and deferred inflows of resources as of the fiscal year end; the Statement of Revenues, Expenses, and Changes in Net Position, which reflects revenues and expenses recognized during the fiscal year; and the Statement of Cash Flows, which provides information on the major sources and uses of cash during the fiscal year. These financial statements and related note disclosures are prepared in accordance with standards issued by the Governmental Accounting Standards Board (GASB) and present a comprehensive, entity-wide perspective. Financial statements are prepared under the accrual basis of accounting, whereby revenues and assets are recognized when services are provided and expenses and liabilities are recognized when others provide the services, regardless of when cash is exchanged. The report also includes other required supplementary information for other post-employment benefits.

Effective for the year ended June 30, 2013, the University adopted GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net

$ B-15 Position, and effective for the year ended June 30, 2014, the University adopted GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. These standards introduce and define deferred outflows of resources and deferred inflows of resources as elements of the annual financial report and incorporate these elements into the computation of the University’s net position (previously referred to as net assets). These elements represent consumption (deferred outflow) or acquisition (deferred inflow) of resources by the University that are applicable to a future reporting period, but do not require any further exchange of goods or services. For 2013, the University did not have any items to report as deferred outflows or deferred inflows of resources, thus the effect of the adoption of Statement 63 was to report net position rather than net assets. The adoption of Statement 65 in 2014 did result in the university reporting deferred outflows of resources. As prescribed by the statement, certain prior period amounts have been reclassified to conform with the current year’s presentation.

The University has identified three legally separate foundations: the University of Arkansas Fayetteville Campus Foundation, Inc., the Razorback Foundation, Inc., and the Arkansas 4-H Foundation, Inc. (Foundations) that meet the criteria set forth for component units under GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units. These Foundations provide financial support for the objectives, purposes and programs of the university. Although the university does not control the timing, purpose or amount received by these Foundations; the resources (and income thereon) they hold and invest are dedicated to benefit the University. Because these resources held by the Foundations can only be used by, or for the benefit of, the University, they are considered component units and are discretely presented in the financial report. Additional information about component units is provided at Notes to the Financial Statements (Note) No. 1 “Summary of Significant Accounting Policies”, under the “Component Units” heading.

Note 17, “Other Entities” refers to the University of Arkansas Foundation, Inc., (the Foundation). The University is the beneficiary of only 52.1% of the net assets of the Foundation; therefore the Foundation does not meet the requirements of a component unit.

Statement of Net Position

The Statement of Net Position provides a fiscal snapshot of the University as of the end of the fiscal year. All assets, deferred outflows of resources, liabilities, deferred inflows of resources and net position are reported. Assets and liabilities are presented in the order of their relative liquidity, and are identified as current or noncurrent. Current assets are those assets that can be realized in the coming year, and current liabilities are expected to be paid within the next year. Noncurrent assets and liabilities are not expected to be realized as cash or paid in the subsequent year. Deferred outflows of resources and deferred inflows of resources are recognized through the consumption or acquisition of resources by the University that is applicable to a future reporting period. Assets, deferred outflows of resources, liabilities and deferred inflows of resources are generally measured using current values. One exception is capital assets, which are stated at historical cost less accumulated depreciation.

% B-16 Net Position is presented in four categories: Net invested in capital assets – capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets.

Restricted nonexpendable - net position subject to externally-imposed stipulations that it be maintained permanently by the University.

Restricted expendable - net position whose use by the University is subject to externally-imposed stipulations that can be fulfilled by actions of the University pursuant to those stipulations or that expire by the passage of time.

Unrestricted - net position that is not subject to externally-imposed stipulations, but can be used at the discretion of the governing board to meet current expenses for any purpose if not limited by contractual agreements with outside parties.

The following summarizes the University’s assets, deferred outflows of resources, liabilities, and net position as of June 30, 2014, and 2013:

Assets 2014 2013 Current Assets $ 344,180,136 $ 328,820,080 Capital Assets, Net of Depreciation 1,135,648,519 1,072,790,009 Other Noncurrent Assets 169,442,303 204,654,754 Total Assets $ 1,649,270,958 $ 1,606,264,843

Deferred Outflows of Resources Deferred Amount on Refunding $ 5,605,180 $ 6,200,312

Liabilities Current Liabilities $ 107,410,960 $ 119,998,896 Noncurrent Liabilities 727,154,380 721,965,755 Total Liabilities $ 834,565,340 $ 841,964,651

Net Position Net Invested in Capital Assets $ 506,674,608 $ 477,365,165 Restricted – Nonexpendable 23,606,266 23,742,448 Restricted – Expendable 76,777,319 77,565,067 Unrestricted 213,252,605 191,827,824 Total Net Position $ 820,310,798 $ 770,500,504

Overall, the University’s total assets increased $43 million. A review of the statement of net position reveals that there were several offsetting variances, but the increase was largely attributable to increases in cash and cash equivalents of $23.5 million, and capital assets of $62.9 million offset by reductions in deposits with trustees of $47.9 million.

& B-17 The University continues to strengthen its liquidity position, with 62% of current assets comprised of cash and cash equivalents. For several years, the University’s year-over-year cash balances have shown a steady increase. The rate and risk environment in the financial markets has not provided a significant premium over cash returns and cannot match the liquidity and low-risk benefits of cash and cash equivalents. Thus, the University has been intentional in maintaining a strong cash position to provide needed flexibility in deploying resources during a multi-year period of unprecedented growth in enrollment coupled with an aggressive reinvestment in campus facilities.

Deposits with bond trustees represent unspent bond proceeds and bond reserve funds. The decrease in 2014 is the net result of new bond proceeds totaling $29.8 million being added in 2014 and continued spending of 2013 and earlier bond proceeds for ongoing construction projects.

The increase in Capital Assets, net of depreciation, is primarily a reflection of the University acquiring capital assets at a rate greater than these assets are disposed of or depreciated. The section “Significant Changes in Capital Assets and Long Term Debt Activity” below and Note 13 “Property, Plant and Equipment” provide additional information about capital assets.

Deferred outflows of resources consist of deferred amounts on refinancing of debt. Adoption of Statement 65 required that these deferred amounts be reported as a deferred outflow of resources. Prior to adoption of Statement 65, these amounts were included with the long-term debt liability.

Overall, liabilities decreased $7.4 million. The overall decrease was largely attributable to a $12.2 million reduction in accounts payable and accrued liabilities offset by a $2.5 million net increase in bonds, notes, capital leases and installment contracts (long-term debt). Accounts payable and accrued liabilities decreased in 2014 because several construction projects that were underway at the end of 2013 were completed in 2014, resulting in fewer trade account payables and contract retainage accruals.

The University continued its investment in facilities renewal and replacement along with the addition of new facilities and improvements in 2014. Using bonds to finance a portion of the costs also continued as evidenced by the issuance of $24.7 million Various Facilities Revenue Bonds, Series 2014A and $5 million Various Facilities Revenue Bonds, Series 2014B. The two issues totaled $29.7 million and also realized a net unamortized premium of $2.3 million, which when netted against scheduled retirements of $29.5 million resulted in a net increase in long term debt of $2.5 million. Additional information about University debt, and the projects financed with debt proceeds, is provided in the “Significant Changes in Capital Assets and Long Term Debt Activity” discussion below and at Note 9 “Compensated Absences, Bonds, Notes, Capital Leases Payable, and Installment Contracts”.

The increase in assets of $43 million, combined with the decrease in deferred outflows of resources of $.6 million and a decrease in liabilities of $7.4 million resulted in an increase of $49.8 million in net position.

' B-18 The following summarizes the composition of unrestricted net position owned by the units of the University of Arkansas Fund as of June 30, 2014 and 2013:

2014 2013 Fayetteville Campus $ 142,786,608 $ 127,984,749 Agricultural Experiment Station 42,495,318 43,198,540 Cooperative Extension Service 19,360,536 12,631,932 Arkansas Archeological Survey 542,413 339,026 Criminal Justice Institute 3,133,939 2,974,092 Clinton School of Public Service 1,271,004 1,603,837 AREON 3,662,787 3,095,648 Total Unrestricted Net Position $ 213,252,605 $ 191,827,824

Unrestricted net position for the Fayetteville Campus as of June 30, 2014 and 2013 is allocated as follows:

2014 2013 Working Capital $ 750,000 $ 750,000 E & G Department Uses 77,900,431 70,001,246 Service Operations 2,126,727 25,423 Auxiliaries 24,187,624 22,423,288 Plant Funds 24,376,617 22,633,140 Quasi-Endowment Funds 13,445,209 12,151,652 Total Fayetteville Campus Unrestricted Net Position $ 142,786,608 $ 127,984,749

Although unrestricted net position is not subject to externally-imposed restrictions, the majority of the University’s unrestricted net position is subject to internal designations to meet various specific commitments. These commitments include reserves established for capital projects, scholarships, and other academic or research priorities; working capital for self-supporting auxiliary enterprises; reserves for the continued recognition of the OPEB obligation; reserves for student information system technologies and unrestricted quasi endowments.

Statement of Revenues, Expenses, and Changes in Net Position

The Statement of Revenues, Expenses, and Changes in Net Position present the University’s results of activities for the year. The statement presents the revenues earned by the University, both operating and non-operating, and the expenses incurred by the University, both operating and non-operating, and any other revenues, expenses, gains and losses, and changes in net position. In accordance with GASB standards, significant recurring sources of University revenue such as state appropriations, gifts, investment income and certain grants and contracts are reported as nonoperating revenues. As a result, the operating loss of $295.9 million is of little significance, but

( B-19 does highlight the University’s dependency on non-operating revenues to meet the costs of operations and provide funds for the acquisition of capital assets.

The following summarizes the University’s revenues, expenses and changes in net position for the years ended June 30, 2014 and 2013:

2014 2013 Operating Revenues $ 417,955,513 $ 401,062,085 Operating Expenses 713,833,706 685,449,295 Operating loss (295,878,193) (284,387,210) Net nonoperating revenues 319,832,100 320,237,559 Gain before other revenues and changes in net position 23,953,907 35,850,349 Other revenues and changes in net position 25,856,387 26,707,306 Increase in Net Position $ 49,810,294 $ 62,557,655

Operating revenue increased 4.2% or $16.9 million in 2014. Net Student tuition and fees increased $16.5 million, a reflection of continued record enrollment growth and a 3.5% rate increase for the Fayetteville campus. Auxiliary enterprises revenue attributable to Athletics decreased nearly $5 million, largely due to one less home football game that resulted in lower ticket sales revenue. All other auxiliary enterprises realized a net increase totaling $2.5 million collectively, demonstrating the impact of enrollment growth. Grants and contracts collectively increased $2.9 million, primarily as a result of timing of certain awards and other cyclical changes.

Operating expenses increased $28.3 million or 4.1% over 2013. Compensation and benefits costs grew $16.8 million, due in part to necessary increases in faculty to support enrollment growth, along with modest increases in salaries for faculty and staff. The University continues to focus on cost containment initiatives to control expenses.

Overall, net nonoperating revenues remained virtually flat. The University saw an increase in state support in 2014, with a $5.2 million increase in state appropriations and other state funds. Investment income increased $6.3 million due to market performance and increased cash balances. These increases were offset by reductions in gift revenue of $2.6 million, state grants (nonexchange) of $4 million and increased interest on capital asset-related debt of $4.9 million.

Gifts reported on the Statement of Revenues, Expenses and Changes in Net Position only reflect a portion of the gifts available to the University. Most gifts for the benefit of the University are made to the University of Arkansas Foundation, Inc. whose financial information is presented in summary form at Note 17 “Other Entities”.

Other Revenues and Changes in Net Position reflect changes in capital appropriations and capital gifts. Capital appropriations increased $5.3 million, largely due to an increase in State General Improvement Funds. Capital grants and gifts decreased $7.4 million due to the award of a BTOP capital grant in 2013.

! B-20 Statement of Cash Flows

The Statement of Cash Flows provides information about the cash receipts and disbursements of the University for the year. The statement aids in the assessment of the University’s ability to meet obligations as they become due, the need for external financing, and the ability to generate future cash flow. It is prepared using the “direct method” as required by GASB principles. The direct method reports all major gross cash inflows and outflows, differentiating these activities into operating activities, noncapital financing, such as state appropriations and nonexchange grants; capital and related financing, including bond proceeds from debt issued to construct or purchase capital assets; and investing activities.

The following summarizes the University’s cash flows for the years ended June 30, 2014 and 2013:

2014 2013 Net cash used by operating activities $ (220,243,075) $ (218,342,080) Net cash provided by noncapital financing activities 324,100,302 330,306,533 Net cash provided by operating and noncapital financing activities 103,857,227 111,964,453 Net cash used by capital and related financing activities (85,709,879) (69,801,648)

Net cash provided by investing activities 5,378,806 5,663,654 Net increase in cash $ 23,526,154 $ 47,826,459

The University used $220.2 million of cash for operating activities in 2014 offset by cash provided by noncapital financing activities of $324.1 million. Similar to the operating loss on the Statement of Revenues, Expenses and Changes in Net Position, net cash provided by operating activities is of little significance to the University. The net cash provided by the combination of operating activities and noncapital financing activities is a much more meaningful number for the University. The positive amount of almost $103.8 million for 2014 indicates that these activities contributed to cash and liquidity for the year.

Cash used by capital financing activities reflects the University’s continued use of bonded debt to finance the acquisition of capital assets. Net cash provided by investing activities illustrates the positioning of the cash component of matured investments to other university accounts.

Significant Changes in Capital Assets and Long-Term Debt Activity

The University continued work on the multi-year Facilities Renewal and Stewardship Plan. This large-scale, long-range plan is intended to upgrade and add facilities in order to expand capacity and modernize the campus. A dedicated facilities fee, phased in over the time period 2009 to 2013, provides a revenue stream that is used to leverage bonded debt in order to fund a portion of this

! B-21 aggressive plan. The condition of the University’s capital assets is an important measure of the University’s overall financial health. Providing and maintaining facilities that create an attractive environment in which to learn and live is vital to attracting new students, as well as recruiting excellent faculty and staff. The University maintains a Facility Condition Index (FCI) to assist in assessment of the overall management of capital assets. The index trend is positive, demonstrating the positive effect of additions, renovations and the elimination of deferred maintenance to campus infrastructure and educational and general buildings as the Facilities Renewal and Stewardship Plan is implemented.

The pace of construction in 2014 was down slightly from 2013 with several projects begun in previous years completed; continued progress on ongoing projects; and new projects initiated.

The list of projects begun in previous years that were completed in 2014 is impressive. A total of seven projects, five of which were major projects brought online in time for occupancy for the fall 2013 semester, were completed in 2014. They include:

Vol Walker Hall – whole building renovation of 56,635 gsf plus a 34,320 gsf addition to house the Steven L. Anderson Design Center. Total project cost was $39 million, funded with bond proceeds of $25.7 million, Donald W. Reynolds Foundation gift of $10 million and the remainder with private funds.

Ozark Hall – whole building renovation of 67,208 gsf plus an 18,310 gsf addition to house the Honor’s College, Graduate School & International Education and the J. William Fulbright College of Arts and Sciences Geosciences Department. Total project cost was $27.6 million, funded with bond proceeds of $18.5 million and the remainder with private funds.

Founders Hall and extension of the Brough Commons dining facility – new space of 78,500 gsf for residence and dining purposes. Total project cost was $26.6 million, funded with a mix of bond proceeds, dining and housing reserves and other available resources.

Hotz Hall – whole building conversion from administrative space back to its original purpose as a residence hall. Total project cost of $17.2 million was funded with a mix of bond proceeds and reserves.

Fred W. Smith Football Center – was the final phase of a project to construct an operations center, football practice fields and additional parking. The football center added new space of 82,000 gsf for coaching staff and other administrative space; team meeting rooms and locker room; equipment room, athletic training area and other operations space as well as public space with museum quality displays and lighting. Total project cost was $42 million, funded with bond proceeds of $25.2 million, a $10 million grant from the Donald W. Reynolds Foundation, and private funds.

Housing Administration Building – new space of 20,000 gsf for Housing administrative offices and to serve as a welcome and resource center for parents and students. Total project cost was $5.9 million, funded with bond proceeds.

!! B-22 John A. White Jr. Engineering Hall – Phase I renovation of 9,200 gsf first floor to renew and replace mechanical, electrical and plumbing systems, as well as upgrades to life safety systems. Phase 1 also includes full design for whole building renovation and a planned addition. Total project costs for phase I were $4.4 million, funded by bond proceeds and university reserves.

Utility infrastructure capacity expansions are associated with many of the projects described above. The projects primarily address heating and cooling service extensions as well as a major improvement in core campus domestic water capacity for additional fire protection capability. Additional phases will begin as projects under construction described below move forward.

A total of ten projects begun in previous years continued in 2014. They include:

Champions Hall classroom and laboratory building – new construction of 65,050 gsf for general use classrooms and teaching laboratories to meet the capacity demands of a growing enrollment. The building will house nine 75 person classrooms, twelve 28 seat wet/dry teaching labs, Mathematics Resource and Teaching Center (MRTC) and a small number of faculty offices. Total project cost is estimated at $26.5 million, funded with a mix of bonds and university reserves. Project completion is expected in summer, 2015.

Jim & Joyce Faulkner Performing Arts Center – whole building conversion of the 40,882 gsf Fieldhouse building to a state-of-the-art venue for exhibiting the musical and theatrical talents of students and faculty. The interior space will be completely renovated to provide a concert hall with seating for approximately 600, while the exterior of the building will be preserved. Total project cost is estimated at $20 million, funded with a mix of bond proceeds, university reserves and private support. Project completion is expected in summer, 2015.

Nanoscale Science and Engineering Building – phase II continues work on the third floor, with interior fit-out and equipment. Project funded with capital appropriations totaling $4.3 million received in 2011 and 2014. Project completion is expected in 2015.

Classroom and teaching lab upgrades – a multi-phase, multi-year program to modernize up to 160 classrooms and 35 general teaching labs. The phase II project included infrastructure and life safety upgrades for the Science Building general teaching labs, and classroom renovations at Kimpel Hall. The $7.6 million Phase II funded by bond proceeds.

Student Athlete Success Center – new construction of a 58,500 gsf building to house tutorial rooms, group study rooms, quiet study areas, computer lab and learning laboratories that will serve 460 student-athletes. A dining hall and full-service kitchen is also an integral part of the building, designed to support the health of student-athletes. An auditorium with seating for at least 250 people will also be included in the facility. Total project cost is estimated at $23 million, funded with a mix of bond proceeds, athletic reserves and private support. Completion is expected in summer, 2015.

Fowler Family Baseball and Track Indoor Training Facility – new construction of a 53,630 gsf climate-controlled multi-use space for over 150 student-athletes in the baseball, men’s track and women’s track programs. The space includes a practice in-field, throwing areas, batting areas, and

!" B-23 ancillary team spaces as well as shared strength and conditioning space and training room. Total project cost is estimated at $9.0 million, funded by a mix of bond proceeds, athletic reserves and private support. Substantial completion was achieved in summer, 2014.

Basketball Performance Center – new construction of a 66,270 gsf facility that provides separate gymnasiums for men’s and women’s teams, along with locker rooms, weight rooms, training rooms and coaches suites and administrative space. The Center also provides public space with museum quality displays and lighting. Total project cost is estimated at $25 million, funded with a mix of bond proceeds, athletic reserves and private support. Completion is expected in summer, 2015.

LeRoy Pond Utility Plant – an integrated new chilled water production plant and utility distribution infrastructure to support planned growth in the Athletic Valley district of the campus. Current master plans for Athletic Valley indicate proposed housing and dining facility expansions, as well as the new Student Athlete Success Center and the Basketball Performance Center. The project is being executed in two distinct phases. The first phase was the installation of distribution infrastructure. This included chilled water and heating hot water distribution piping, new primary power duct bank and wiring, communications raceway for telecommunications and fiber optic infrastructure, and related water and sewer improvements. Phase I was completed in the spring of 2014 at a cost of $11.4 million, and was funded by a mix of utility reserves and bond funds.

Utility Combined Heat and Power (CHP) Project – upgrade existing Heating Plant production infrastructure that provides steam and hot water to the campus. The new system replaces old, inefficient and outdated equipment that has reached the end of its useful life. The new system provides capacity for future growth and the opportunity to use electrical power from CHP to provide uninterruptible power for the campus, especially to critical research buildings. Total project cost is estimated at $21 million, funded with a mix of bonds and university reserves. Project completion is expected in summer, 2015.

The Division of Agriculture continued renovation of an existing laboratory and office facility, along with construction of a new Soil Testing Laboratory. The Eastern Arkansas Soil Testing and Research Laboratory located at the Lon Mann Cotton Research Station in Marianna, Arkansas, is undergoing renovation and a new Soil Testing Laboratory is being constructed. Total project cost is estimated at $2.3 million with completion expected in summer 2014. The project is funded by Agriculture sales and reserves.

The University also engaged in several new projects in 2014 primarily to address demands resulting from continued enrollment growth. New projects initiated in 2014 and significant capital acquisitions include:

Cato Springs Research Center – the University purchased the BioBased Building in November 2013 and renamed the facility the Cato Springs Research Center. The building provides laboratory, support and office space for the Department of Biomedical Engineering and other Engineering departments for research activities. This facility has been utilized by the University for several years, having been leased space which was assigned to the College of Engineering. Total cost was $7.8 million funded by bond proceeds.

!# B-24 Agricultural, Food and Life Science – renovation and repurposing of an abandoned two-story creamery into general purpose classrooms, laboratories and office space. Total estimated cost is $2.8 million funded by bond proceeds with expected completion by June, 2015.

Art and Design District – renovation, improving, equipping and furnishing of previously purchased warehouse and small office building to relocate the Department of Art sculpture labs, foundations studio course programs and research studios. Estimated project cost is $4.1 million funded by bond proceeds with expected completion in 2015.

Student Housing – renovation and expansion of student Greek housing operated by the University. Estimated project cost is $6.3 million, funded by $5 million bond proceeds with the remainder from private support. Completion is expected in 2015.

Athletics Communication Center – a state-of-the-art facility for video productions and broadcast support including three video control rooms, a production studio and broadcast equipment. The estimated project cost is $7 million, funded by Athletic department reserves with expected completion in 2015.

The Division of Agriculture is constructing a new Seed Plant Facility at the Rice Research and Extension Center Station located at Stuttgart, Arkansas. This facility will replace the current aging facility and will accommodate the future needs of the Rice Research and Extension Center. Estimated project cost is $1.3 million, funded with state general improvement funds and Agricultural sales and reserves. Estimated completion is June 2017.

In order to provide permanent financing for certain projects already underway and to finance new projects, the University issued $24,730,000 in Various Facility Revenue Bonds, Series 2014A and $5,020,000 in Various Facility Revenue Bonds, Series 2014B (Taxable) on June 30, 2014. The bonds were issued to provide funds to finance the purchase of real property, various construction and renovation projects on the University campus. A summary of long-term debt (including the current portion) activity is as follows:

Installment Contracts and Bonds Notes Leases Balance as of July 1, 2013 $ 667,921,972 $ 6,173,363 $ 33,917,648 Additions 32,095,740 Payments of principal (21,565,000) (3,676,273) (2,556,672) Amortization of net bond premium (1,721,984) Balance as of June 30, 2014 $ 676,730,728 $ 2,497,090 $ 31,360,976

!$ B-25 Note 9, “Compensated Absences, Bonds, Notes, Capital Leases Payable, and Installment Contracts” provides additional information related to the University’s long-term debt. A summary of the change in Net invested in capital assets is as follows:

Net Invested in Capital Assets as of July 1, 2013 $ 477,365,165 Land Additions and Disposals (net) 7,127,456 Buildings Additions and Disposals, net of depreciation 132,372,889 Improvements/Infrastructure Additions, net of depreciation 2,081,717 Equipment Additions and Disposals, net of depreciation (5,276,831) Construction In Progress Additions net of transfers to buildings, improvements/infrastructure, and intangible assets (60,518,305) Livestock Additions/deductions 540,251 Library Holdings Additions and Disposals, net of depreciation 4,055,470 Intangible Assets, net of amortization (443,037) Bond debt moved to Net invested in capital assets (79,554,966) Bond Principal Paid in 2014 21,565,000 Deferred loss on refinanced bond issues, amortized (595,130) Net unamortized bond issue premium 1,721,984 Note, Capital Lease and Installment Contract Principal Paid in 2014 6,232,945 Net Invested in Capital Assets as of June 30, 2014 $ 506,674,608

Conditions and other factors having a significant effect

Financial and political support from state government remains a critical element to the continued financial health of the University. In 2014, the total general revenue distribution from the State increased $3.2 million to slightly over $200 million, which marked the first substantial increase in state funding since the 2008 economic recession. Estimates for 2015 indicate another $1.5 million increase is expected, bringing the estimated total general revenue distribution from the State to $201.8 million. While these increases in state support are very helpful, the amounts are still well below needs-based formula calculations. Management will continue to institute both internal and external efforts to maximize the state resources available, while seeking ways to minimize the effect of state funding levels not keeping pace with growth.

The University continues to seek ways to manage the cost of attendance so that it remains affordable while achieving revenue support necessary to offer a high quality university experience. Tuition and mandatory fee increases totaling 3.5% were necessary in 2014 in order to maintain the facilities, faculty and other support needed to fulfill our mission. As record growth in enrollment continues, together with state funding levels not able to keep pace with formula calculations, it is expected that the University must continue to look to increases in tuition rates for revenue support as well as grow private giving support, as discussed below.

Enrollment records continue to be broken, with preliminary figures for fall 2014 enrollment of 26,237. This marks the first time the flagship campus has exceeded 26,000 students. The preliminary numbers show an increase of 896 students. Total undergraduate enrollment is up 3.9% to 21,836 students, graduate enrollment increased 2% to 4,022 students, while enrollment at the School of Law decreased 11 students, or 2.8%, to 379 students. Since 2008, university enrollment

!% B-26 has increased 37%, or more than 7,100 students. This growth trend led the Chronicle of Higher Education to rank the University as the 7th fastest growing public research university in the country. Not only has the university grown in number of students enrolled, but has also experienced a steady improvement in both academic quality and diversity. With an intentional effort to recruit students who will succeed, it is expected that continued growth through retention will be experienced for the next several years. While it is encouraging to see record enrollment, further increases in undergraduate enrollment must occur to ensure continued increases in the revenue generated by tuition and to ensure continued support from state government.

The University continues to build momentum for its next comprehensive fundraising campaign. Positive news continues with the University fundraising production totals for private gift support exceeding $100 million for four consecutive years. Production amounts include gifts of cash, gifts- in-kind, planned gifts and new pledges. In 2014, the University recognized $113.3 million of private gift support, surpassing its goal of $108 million. This support is critical to ensure success for students and faculty, and is a fundamental component in meeting budgetary needs. Support received from alumni, friends, organizations and faculty and staff of the University enhances all aspects of the student experience, including academic and need-based scholarships; technology enhancements; new and renovated facilities; undergraduate, graduate and faculty research; study abroad opportunities and innovative programs.

!& B-27

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!' B-28 UNIVERSITY OF ARKANSAS Statement of Net Position June 30, 2014 With Comparative Figures at June 30, 2013

June 30, 2014 2013 ASSETS Current Assets Cash and cash equivalents $ 214,573,643 $ 194,021,026 Short-term investments 76,107,868 72,282,259 Accounts receivable, net 33,806,801 39,054,689 Accrued interest receivable 745,544 718,010 Inventories 6,441,580 5,808,597 Deposits with bond trustees 6,245,593 10,680,257 Notes receivable, net 3,417,166 3,142,501 Other assets 2,841,941 3,112,741 Total current assets 344,180,136 328,820,080

Noncurrent Assets Cash and cash equivalents 3,816,631 843,094 Endowment investments 72,673,505 65,324,862 Notes receivable, net 12,039,328 12,418,278 Deposits with bond trustees 78,600,239 122,086,829 Other long-term investments 1,456,615 3,390,269 Other assets 855,985 591,422 Capital assets, net 1,135,648,519 1,072,790,009 Total noncurrent assets 1,305,090,822 1,277,444,763 Total assets $ 1,649,270,958 $ 1,606,264,843

DEFERRED OUTFLOWS OF RESOURCES Deferred amount on refunding $ 5,605,180 $ 6,200,312

LIABILITIES Current Liabilities Accounts payable and accrued liabilities $ 22,738,513 $ 34,930,526 Accrued payroll liabilities 17,410,227 17,601,008 Accrued interest expense 5,479,372 5,337,076 Student overpayments 84,556 84,590 Funds held in trust for others 1,144,141 1,383,526 Advance receipts 30,816,288 29,976,451 Compensated absences payable - current portion 1,123,196 1,161,585 Bonds, notes, capital leases and installment contracts payable - current portion 28,614,667 29,524,134 Total current liabilities 107,410,960 119,998,896

!( B-29 UNIVERSITY OF ARKANSAS Statement of Net Position June 30, 2014 With Comparative Figures at June 30, 2013

June 30, 2014 2013 Noncurrent Liabilities Refundable federal advance - Perkins loans 14,325,434 14,066,490 Compensated absences payable 18,517,058 17,974,453 Liability for other post employment benefits 12,314,432 11,430,713 Bonds, notes capital leases and installment contracts payable 681,974,127 678,488,849 Other noncurrent liabilities 23,329 5,250 Total noncurrent liabilities 727,154,380 721,965,755 Total liabilities $ 834,565,340 $ 841,964,651

NET POSITION Net invested in capital assets $ 506,674,608 $ 477,365,165 Restricted for Nonexpendable Scholarships and fellowships 8,082,313 7,980,968 Research 5,739,659 5,739,659 Instructional department uses 8,644,889 8,644,889 Loans 866,689 1,104,216 Other 272,716 272,716 Expendable Scholarships and fellowships 12,202,035 10,197,156 Research 28,730,428 24,378,042 Public service 7,397,627 10,822,533 Instructional department uses 11,958,892 10,185,165 Loans 2,941,747 2,455,356 Capital projects 8,500,339 15,781,459 Debt service 330,209 205,455 Other 4,716,042 3,539,901 Unrestricted 213,252,605 191,827,824 Total net position $ 820,310,798 $ 770,500,504

See accompanying notes to financial statements.

" B-30 UNIVERSITY OF ARKANSAS Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended June 30, 2014 With Comparative Figures for 2013

Fiscal 2014 Fiscal 2013 Total Total REVENUES Operating Revenues Student tuition and fees (net of scholarship allowances of $64,516,794 in fiscal year 2014, and $62,547,155 in fiscal year 2013) $ 166,512,378 $ 149,979,017 Federal appropriations 13,464,969 14,035,901 County appropriations 3,028,154 2,992,672 Federal grants and contracts 28,988,196 33,897,047 State and local grants and contracts 17,857,206 17,631,073 Nongovernmental grants and contracts 32,358,570 24,715,454 Sales and services of educational departments 23,501,926 21,486,061 Auxiliary enterprises Residence Life (net of scholarship allowances of $8,241,091 in fiscal year 2014, and $8,167,784 in fiscal year 2013) 29,115,616 26,936,578 Athletics 66,772,739 71,739,926 Bookstore (net of scholarship allowances of $540,315 in fiscal year 2014, and $154,961 in fiscal year 2013) 13,063,465 13,369,754 Student Health Services 970,252 753,775 Transit and Parking 7,374,258 6,684,527 Student Organizations/Activities 122,812 180,157 Other Auxiliary Enterprises 3,628,849 3,769,719 Other operating revenues 11,196,123 12,890,424 Total operating revenues 417,955,513 401,062,085

EXPENSES Operating Expenses Salaries, wages, and benefits 431,440,254 414,557,521 Scholarships and fellowships 24,340,455 27,368,387 Supplies and other services 190,833,287 179,198,304 Depreciation 67,219,710 64,325,083 Total operating expenses 713,833,706 685,449,295 Operating loss (295,878,193) (284,387,210)

" B-31 UNIVERSITY OF ARKANSAS Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended June 30, 2014 With Comparative Figures for 2013

Fiscal 2014 Fiscal 2013 Total Total NONOPERATING REVENUES (EXPENSES) State appropriations 206,144,734 200,939,410 Gifts 65,739,713 68,383,421 Investment income (net of investment expense of $401,564 in fiscal year 2014, and $423,138 in fiscal year 2013) 14,621,623 8,362,479 Interest on capital asset - related debt (24,063,674) (19,157,415) Federal grants (nonexchange) 23,806,815 24,409,373 State and local grants (nonexchange) 30,609,388 34,615,555 Nongovernmental grants (nonexchange) 814,885 802,351 Loss on disposal of assets (219,121) (205,515) Other nonoperating revenues 2,641,870 3,348,125 Other nonoperating expenses (264,133) (1,260,225) Net nonoperating revenues 319,832,100 320,237,559 Gain before other revenues and changes in net position 23,953,907 35,850,349

OTHER REVENUES AND CHANGES IN NET POSITION Capital appropriations 6,125,000 800,000 Capital grants and gifts 19,516,817 26,868,665 Other changes 214,570 (961,359) Total other revenues and changes in net position 25,856,387 26,707,306 Increase in net position 49,810,294 62,557,655

NET POSITION Net position - beginning of year 770,500,504 710,241,153 Adjustment due to GASB 65 (2,298,304) Adjusted net position - beginning of year 770,500,504 707,942,849

Net position - end of year $ 820,310,798 $ 770,500,504

See accompanying notes to financial statements.

"! B-32 UNIVERSITY OF ARKANSAS Statement of Cash Flows - Direct Method For the Year Ended June 30, 2014 With Comparative Figures for 2013

Fiscal 2014 Fiscal 2013 Total Total CASH FLOWS FROM OPERATING ACTIVITIES Student tuition and fees $ 165,128,420 $ 150,602,931 Federal appropriations 14,803,293 11,964,827 County appropriations 3,028,154 2,992,672 Grants and contracts 81,958,752 77,607,756 Payments to suppliers (191,181,606) (176,268,091) Payments to employees (340,290,693) (326,932,572) Payments for benefits (90,039,192) (85,050,553) Payments for scholarships and fellowships (24,240,238) (27,166,373) Loans issued to students and employees (2,274,604) (2,437,359) Collections of loans to students 2,218,711 2,214,381 Collections of interest on loans to students 454,410 509,245 Auxiliary enterprise charges Residence Life 28,733,885 26,584,902 Athletics 68,622,169 66,438,653 Bookstore 12,645,429 13,254,086 Student Health Services 968,638 768,386 Transit and Parking 7,413,251 6,586,723 Student Organizations/Activities 144,381 156,067 Other Auxiliary Enterprises 3,754,525 3,889,774 Sales and services of educational departments 24,104,853 20,814,306 Other receipts 13,804,387 15,128,159 Net cash used by operating activities (220,243,075) (218,342,080)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State appropriations 206,144,734 200,939,410 Gifts and grants for other than capital purposes 62,859,998 68,716,847 Federal grants (nonexchange) 23,806,815 24,409,373 State and local grants (nonexchange) 30,626,080 34,594,821 Nongovernmental grants (nonexchange) 809,149 799,455 Direct Lending, and private loan receipts 106,828,329 102,519,130 Direct Lending, and private loan payments (106,827,562) (101,794,225) Net agency fund transactions (147,241) 121,722 Net cash provided by noncapital financing activities 324,100,302 330,306,533 Net cash provided by operating activities and noncapital financing activities 103,857,227 111,964,453

"" B-33 UNIVERSITY OF ARKANSAS Statement of Cash Flows - Direct Method For the Year Ended June 30, 2014 With Comparative Figures for 2013

Fiscal 2014 Fiscal 2013 Total Total CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Realized proceeds related to capital debt transactions 79,696,835 98,134,222 Capital appropriations 6,125,000 800,000 Capital grants and gifts received 14,442,489 29,362,550 Purchases of capital assets (131,660,711) (150,882,255) Principal paid on capital debt and leases (24,604,241) (23,610,170) Interest paid on capital debt and leases (29,709,251) (23,605,995) Net cash used by capital and related financing activities (85,709,879) (69,801,648)

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments $ 5,022,721 $ 5,471,319 Investment income 410,056 195,415 Purchase of investments (53,971) (3,080) Net cash provided by investing activities 5,378,806 5,663,654

NET INCREASE IN CASH 23,526,154 47,826,459 Cash - beginning of year 194,864,120 147,037,661 Cash - end of year $ 218,390,274 $ 194,864,120

RECONCILIATION OF NET OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating loss $ (295,878,193) $ (284,387,210) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation expense 67,219,710 64,325,083 Other miscellaneous operating receipts 2,794,482 3,293,974 Changes in assets and liabilities Receivables (net) 3,987,691 (6,500,050) Inventories (632,983) (464,243) Prepaid expenses 106,416 904,681 Accounts payable and accrued liabilities 17,167 2,643,228 Accrued payroll liabilities (Employees) (383,501) 40,850

"# B-34 UNIVERSITY OF ARKANSAS Statement of Cash Flows - Direct Method For the Year Ended June 30, 2014 With Comparative Figures for 2013

Fiscal 2014 Fiscal 2013 Total Total Accrued payroll liabilities (Benefits) 105,937 885,309 Student overpayments (34) 15,713 Advance receipts 839,837 (531,685) Refundable federal advance 258,943 44,057 Deposits 450 Compensated absences 504,216 757,134 Retiree benefits 883,719 891,109 Loans to students and employees (66,482) (260,480) Net cash used by operating activities $ (220,243,075) $ (218,342,080)

NONCASH TRANSACTIONS Donations of land, buildings, improvements, infrastructure and library holdings $ 5,931,211 $ 1,703,584 Equipment donations 125,050 282,524 Payment of bond proceeds directly into deposits with trustees 29,602,419 144,502,988 Payment of premium on bonds directly into deposits with trustees 2,345,740 19,826,997 Bond issuance costs and underwriter's discounts paid directly from bond proceeds 320,104 1,260,226 Interest on long-term debt paid directly from deposits with trustees 1,234,084 Payment of long-term debt directly from University of Arkansas Foundation, Inc., and Razorback Foundation, Inc. 3,165,167 11,000 Capital outlay paid directly from proceeds of University of Arkansas long-term debt instruments 9,751 Loss on disposal of assets 237,601 190,626

See accompanying notes to financial statements.

"$ B-35 UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC. Statements of Financial Position June 30, 2014 and 2013

2014 2013 Assets Investments $ 513,809,543 $ 466,010,660

Liabilities and Net Assets Accounts payable $ 181,629 $ 99,193

Net Assets: Temporarily restricted $ 29,161,667 $ 31,050,931 Permanently restricted 484,466,247 434,860,536

Total net assets 513,627,914 465,911,467

Total liabilities and net assets $ 513,809,543 $ 466,010,660

"% B-36 THE UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC. Statement of Activities Year ended June 30, 2014

Temporarily Permanently Unrestricted Restricted Restricted Total Revenue, gains and other support: Interest and dividends $ $ 3,524,875 $ 16,527 $ 3,541,402 Net realized and unrealized gains on investments 14,277,677 49,589,184 63,866,861 Net asset reclassifications, including release from restrictions; and satisfaction of restrictions 19,691,816 (19,691,816)

Total revenue, gains and other support 19,691,816 (1,889,264) 49,605,711 67,408,263

Program services- Construction 4,446,335 4,446,335 Research 1,341,235 1,341,235 Faculty/staff support 2,537,570 2,537,570 Scholarships and awards 9,457,971 9,457,971 Equipment and technology 1,400,591 1,400,591 Other 508,114 508,114

Total program services 19,691,816 19,691,816

Change in net assets (1,889,264) 49,605,711 47,716,447

Net assets, beginning of year 31,050,931 434,860,536 465,911,467

Net assets, end of year $ $ 29,161,667 $ 484,466,247 $ 513,627,914

"& B-37

THE UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC. Statement of Activities Year ended June 30, 2013

Temporarily Permanently Unrestricted Restricted Restricted Total Revenue, gains and other support: Interest and dividends $ $ 2,649,640 $ 88,036 $ 2,737,676 Net realized and unrealized gains on investments 13,265,762 32,721,998 45,987,760 Net asset reclassifications, including release from restrictions; satisfaction of restrictions and change in donor restriction 18,618,422 (9,518,422) (9,100,000)

Total revenue, gains and other support 18,618,422 6,396,980 23,710,034 48,725,436

Program services- Construction 4,685,367 4,685,367 Research 1,169,505 1,169,505 Faculty/staff support 2,391,441 2,391,441 Scholarships and awards 9,266,519 9,266,519 Equipment and technology 952,736 952,736 Other 152,854 152,854

Total program services 18,618,422 18,618,422

Change in net assets 6,396,980 23,710,034 30,107,014

Net assets, beginning of year 24,653,951 411,150,502 435,804,453

Net assets, end of year $ $ 31,050,931 $ 434,860,536 $ 465,911,467

"' B-38

THE RAZORBACK FOUNDATION, INC. Consolidated Statement of Financial Position June 30, 2014

Assets Cash and cash equivalents $ 12,800,976 Contributions receivable, net 9,124,927 Investments, at fair value 20,405,204 Prepaid rent 1,409,288 Other 1,002,321 Property and equipment, net 4,745,526

Total assets $ 49,488,242

Liabilities and Net Assets Liabilities: Accounts payable and accrued liabilities $ 190,929 Deferred compensation 4,049,149

Total liabilities 4,240,078

Net assets: Stockholder’s equity of for-profit subsidiary 14,489 Unrestricted net assets of nonprofit parent 25,215,672

Total unrestricted net assets 25,230,161

Temporarily restricted net assets 17,297,407

Permanently restricted net assets 2,720,596

Total net assets 45,248,164

Total liabilities and net assets $ 49,488,242

"( B-39 THE RAZORBACK FOUNDATION, INC. Consolidated Statement of Financial Position June 30, 2013

Assets Cash and cash equivalents $ 13,529,676 Contributions receivable, net 10,969,773 Investments, at fair value 17,026,719 Prepaid rent 1,427,451 Other 893,727 Property and equipment, net of accumulated depreciation of $2,385,782 169,923

Total assets $ 44,017,269

Liabilities and Net Assets Liabilities: Accounts payable and accrued liabilities $ 870,224 Deferred compensation 3,886,591

Total liabilities 4,756,815

Net assets: Stockholder’s equity of for-profit subsidiary 39,883 Unrestricted net assets of nonprofit parent 23,875,088

Total unrestricted net assets 23,914,971

Temporarily restricted net assets 12,840,663

Permanently restricted net assets 2,504,820

Total net assets 39,260,454

Total liabilities and net assets $ 44,017,269

# B-40 THE RAZORBACK FOUNDATION, INC. Consolidated Statement of Activities Year ended June 30, 2014

Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, gains and other support: Contributions $ 17,757,966 $ 10,612,072 $ 215,776 $ 28,585,814 Sports Shows, Inc. revenues 250,261 250,261 Interest and dividends 146,553 18,997 165,550 Net realized and unrealized gains on investments 1,894,739 357,582 2,252,321 Gain on sale of airplane 208,000 208,000 Other 42,630 42,630 Net assets released from restrictions 6,531,907 (6,531,907)

Total revenues, gains and other support 26,832,056 4,456,744 215,776 31,504,576

Expenses and losses: Program services: Athletic department expenses 16,481,454 16,481,454 Construction and capital projects 3,207,491 3,207,491

Total program services 19,688,945 19,688,945

Supporting services: Management and general 2,313,471 2,313,471 Fundraising 3,076,024 3,076,024 Sports Shows, Inc. operating expenses 275,755 275,755 Change in cash surrender value of life insurance policies 73,391 73,391 Provision for loss on uncollectible contributions 89,280 89,280

Total supporting services 5,827,921 5,827,921

Total expenses and losses 25,516,866 25,516,866

Change in net assets 1,315,190 4,456,744 215,776 5,987,710

Net assets, beginning of year 23,914,971 12,840,663 2,504,820 39,260,454

Net assets, end of year $ 25,230,161 $ 17,297,407 $ 2,720,596 $ 45,248,164

# B-41 THE RAZORBACK FOUNDATION, INC. Consolidated Statement of Activities Year ended June 30, 2013

Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, gains and other support: Contributions $ 18,439,493 $ 7,975,139 $ 237,384 $ 26,652,016 Sports Shows, Inc. revenues 1,098,585 1,098,585 Interest and dividends 185,225 34,262 219,487 Net realized and unrealized gains on investments 1,228,458 368,127 1,596,585 Other 996,554 996,554 Net assets released from restrictions 18,520,994 (18,520,994)

Total revenues, gains and other support 40,469,309 (10,143,466) 237,384 30,563,227

Expenses and losses: Program services: Athletic department expenses 12,897,541 12,897,541 Construction and capital projects 18,521,237 18,521,237

Total program services 31,418,778 31,418,778

Supporting services: Management and general 1,742,119 1,742,119 Fundraising 3,709,021 3,709,021 Sports Shows, Inc. operating expenses 1,048,862 1,048,862 Change in cash surrender value of life insurance 100,211 100,211 Provision for loss on uncollectible contributions 371,627 371,627

Total supporting services 6,971,840 6,971,840

Total expenses and losses 38,390,618 38,390,618

Change in net assets 2,078,691 (10,143,466) 237,384 (7,827,391)

Net assets, beginning of year 21,836,280 22,984,129 2,267,436 47,087,845

Net assets, end of year $ 23,914,971 $ 12,840,663 $ 2,504,820 $ 39,260,454

#! B-42 ARKANSAS 4-H FOUNDATION, INC. Statements of Financial Position June 30, 2014 and 2013

ASSETS 2014 2013

UNRESTRICTED ASSETS: Cash and cash equivalents $ 524,270 $ 749,773 Investments, at fair value 1,877,914 1,610,581 Certificates of deposit 36,133 Due from affiliate 66,912 40,107 Other assets 22,261 47,646 Total unrestricted assets 2,491,357 2,484,240

RESTRICTED ASSETS: Investments, at fair value 2,483,206 2,111,293 Certificates of deposit 29,132 Total restricted assets 2,483,206 2,140,425

PROPERTY AND EQUIPMENT, NET 5,344,828 5,661,444

TOTAL ASSETS $ 10,319,391 $ 10,286,109

LIABILITIES AND NET ASSETS

CURRENT LIABILITIES: Accounts payable $ 82,334 $ 73,793 Other current liabilities 43,969 108,827

TOTAL LIABILITIES 126,303 182,620

NET ASSETS: Unrestricted 5,969,946 6,222,473 Temporarily restricted 3,485,281 3,144,276 Permanently restricted 737,861 736,740 Total net assets 10,193,088 10,103,489

TOTAL LIABILITIES AND NET ASSETS $ 10,319,391 $ 10,286,109

#" B-43

ARKANSAS 4-H FOUNDATION, INC. Statement of Activities For the Years Ended June 30, 2014

Temporarily Permanently Unrestricted Restricted Restricted Total SUPPORT AND REVENUES: Program service revenue $ 1,233,739 $ $ $ 1,233,739 Grants and contributions 22,798 8,070 30,868 Interest and dividends 16,044 160,126 279 176,449 Net unrealized and realized appreciation on investments 48,391 482,977 842 532,210 Other revenues, net 9,070 9,070 Net assets released from restrictions 310,168 (310,168) Total support and revenues 1,640,210 341,005 1,121 1,982,336

EXPENSES: Program 1,824,733 1,824,733 Management and general 65,922 65,922 Fundraising 2,082 2,082 Total expenses 1,892,737 1,892,737

CHANGE IN NET ASSETS (252,527) 341,005 1,121 89,599

NET ASSETS, BEGINNING OF YEAR 6,222,473 3,144,276 736,740 10,103,489

NET ASSETS, END OF YEAR $ 5,969,946 $ 3,485,281 $ 737,861 $ 10,193,088

## B-44

ARKANSAS 4-H FOUNDATION, INC. Statement of Activities For the Years Ended June 30, 2013

Temporarily Permanently Unrestricted Restricted Restricted Total SUPPORT AND REVENUES: Program service revenue $ 1,389,071 $ 20 $ $ 1,389,091 Grants and contributions 14,091 41,100 55,191 Interest and dividends 14,746 127,346 278 142,370 Net unrealized and realized appreciation on investments 31,213 269,560 589 301,362 Other revenues (expenses), net (22,441) 714 (21,727) Net assets released from restrictions 512,285 (371,991) (140,294) Total support and revenues 1,938,965 66,749 (139,427) 1,866,287

EXPENSES: Program 2,091,013 2,091,013 Management and general 108,059 108,059 Fundraising 2,400 2,400 Total expenses 2,201,472 2,201,472

CHANGE IN NET ASSETS (262,507) 66,749 (139,427) (335,185)

NET ASSETS, BEGINNING OF YEAR 6,484,980 3,077,527 876,167 10,438,674

NET ASSETS, END OF YEAR $ 6,222,473 $ 3,144,276 $ 736,740 $ 10,103,489

#$ B-45 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

(1). Summary of Significant Accounting Policies

The financial statements for the University of Arkansas, Fayetteville (“the University”) for the fiscal year ended June 30, 2014, have been prepared in accordance with generally accepted accounting principles accepted in the United States of America, as prescribed by the Governmental Accounting Standards Board (GASB).

Basis of Presentation and Measurement Focus For financial reporting purposes, the University is considered a special-purpose government engaged in business-type activities. Accordingly, the financial statements of the University have been prepared using the economic resources measurement focus and the accrual basis of accounting. Revenues are recognized in the accounting period in which they are earned and become measurable. Expenses are recognized in the period in which they are incurred, if measurable, including depreciation.

Net Position The University’s net position is classified as follows:

Net invested in capital assets: Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets.

Restricted: Nonexpendable – portion subject to externally-imposed stipulations that they be maintained permanently by the University. Such assets include the University’s permanent endowment funds.

Expendable – portion whose use by the University is subject to externally-imposed stipulations that can be fulfilled by actions of the University pursuant to those stipulations or that expire by the passage of time. There is no formal policy requiring restricted net position to be used either before or after unrestricted net position that may be used for the same purpose. Responsible officials determine at the time funds are expended to use any unrestricted net position that may be available.

Unrestricted: – portion that is not subject to externally imposed stipulations. Unrestricted net position may be designated for specific purposes by action of management or the Board of Trustees or may otherwise be limited by contractual agreements with outside parties. Substantially all unrestricted net position is designated for academic and research programs and initiatives as well as capital programs.

#% B-46 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

Component Units In May 2002, GASB issued Statement No. 39, Determining Whether Certain Organizations Are Component Units, which amends GASB Statement No. 14 to provide additional guidance to determine whether certain organizations for which the primary government is not financially accountable should be reported as component units based on the nature and significance of their relationship with a primary government. Under the statement, which became effective with the fiscal year ending June 30, 2004, the financial activities of qualifying foundations are to be included in the financial statements of the primary government, through discrete presentations. There were three qualifying foundations for the University of Arkansas, Fayetteville: the University of Arkansas Fayetteville Campus Foundation, Inc., the Razorback Foundation, Inc., and the Arkansas 4-H Foundation, Inc.

The University of Arkansas Fayetteville Campus Foundation, Inc. (“the Foundation”) is a charitable organization described in Section 501 (c) (3) of the Internal Revenue Code of 1986, as amended, and was established by the Walton Family Charitable Support Foundation, Inc., for the exclusive benefit of the University of Arkansas, Fayetteville campus. The Foundation was established on March 11, 2003, and exists primarily to support the Honors College, the Graduate School and the University’s library. The Board of Trustees of the Foundation is made up of seven (7) members, including three (3) members who are also employees of the University. Although the University does not control the timing or amount of receipts from the Foundation, the majority of resources or income thereon that the Foundation holds and invests are restricted to the activities of the University by the donors. Because these restricted resources held by the Foundation can only be used by, or for the benefit of, the University, the Foundation is considered a component unit of the University and is discretely presented in the University’s financial statements.

The Foundation distributed $14,840,502 and $15,863,204 to the University during the fiscal years ended June 30, 2014, and June 30, 2013, respectively, for both restricted and unrestricted purposes. Complete financial statements for the Foundation can be obtained from the administrative office at 700 Research Center Boulevard, Fayetteville, AR 72701.

The Razorback Foundation, Inc. (“the Razorback Foundation”) was incorporated on October 17, 1980. It is a non-for-profit organization whose sole purpose is to support intercollegiate athletics at the University. Although the University does not control the timing or amount of receipts from the Razorback Foundation, the majority of resources, or income thereon that the Razorback Foundation holds and invests are restricted to the activities of the University by the donors. Because these restricted resources held by the Razorback Foundation can only be used by, or for the benefit of, the University, the Razorback Foundation is considered a component unit of the University and is discretely presented in the University’s financial statements.

The Razorback Foundation distributed $14,922,435 to the University, and provided equipment, facilities, improvements and supplies in the amount of $422,032 during the fiscal year ended June 30, 2014. During the fiscal year ended June 30, 2013, the Razorback Foundation distributed $28,655,372 to the University, and provided equipment, facilities, improvements and supplies in the amount of $386,786. Complete financial statements for the Razorback Foundation can be obtained from the administrative office at 1295 S. Razorback Road, Fayetteville, AR 72701.

#& B-47 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

The Arkansas 4-H Foundation, Inc. (“the 4-H Foundation”) was incorporated under the laws of the State of Arkansas in 1951. The purposes and objectives of the 4-H Foundation are exclusively educational. The 4-H Foundation was formed to encourage and support such educational purposes, as in the judgment of the 4-H Foundation, will best meet the needs and advance the interests of 4- H youth programs throughout the State of Arkansas. The 4-H Foundation is organized into approximately 116 distinct funds that are used to account for various educational or administrative activities.

The majority of the distributions made by the 4-H Foundation directly to the University during the fiscal years ended June 30, 2014 and June 30, 2013 were for reimbursement to the University for expenses incurred on their behalf. Other distributions made by 4-H Foundation directly to the University during the fiscal years ended June 30, 2014 and June 30, 2013 included transfers of program balances of $7,971 and $149,550 respectively. Distributions made by the 4-H Foundation directly to the University for program support equaled $76,106 for the fiscal year ended June 30, 2014, and $3,489 for the fiscal year ended June 30, 2013. Complete financial statements for the 4-H Foundation can be obtained from the administrative office at 2301 S. University Avenue, P.O. Box 391, Little Rock, AR 72203.

New Accounting Pronouncements The GASB issued Statement No. 65, Items Previously Reported as Assets and Liabilities, which became effective with the fiscal year ending June 30, 2014. The Statement provides guidance to (1) properly classify certain assets and liabilities as deferred outflows or deferred inflows of resources or (2) recognize certain items that were previously reported as assets and liabilities as outflows of resources (expenses or expenditures) or inflows of resources (revenues). In accordance with Statement 65, the University reported the cumulative effect of debt refundings, totaling $5,605,180, as Deferred Outflows of Resources on the Statement of Net Position. Transactions for scholarship funding and awards used for a future term totaling $107,392 were identified as Deferred Inflows of Resources (funding) and Deferred Outflows of Resources (awards). Because the Deferred Inflows and Deferred Outflows were for the same type of transaction (scholarships) and were the same amount, they were netted against one another for reporting purposes and are not reported on the face of the Statement of Net Position. Additionally, gift revenue reported on the Statement of Revenues, Expenses and Changes in Net Position recognized the change in Deferred Inflows of Resources for scholarship funding for scholarships awarded for a future period.

The GASB also issued three other statements which become effective with the fiscal year ending June 30, 2014: Statement No. 66, Technical Corrections—2012—an amendment of GASB Statements No. 10 and No. 62, which resolves conflicting guidance contained in previously issued GASB pronouncements; Statement No. 67, Financial Reporting for Pension Plans—an amendment of GASB Statement No. 25, that addresses financial reporting by state and local governmental pension plans; and Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees, that specifies reporting requirements for governments that either extend or receive nonexchange financial guarantees. Management has determined that Statements 66 and 67 have no effect on current reporting or disclosures. Management has also determined that the University was not a party to any nonexchange financial guarantees and the requirements of Statement 70 are not applicable.

#' B-48 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

The GASB issued the following three statements which become effective with the fiscal year ending June 30, 2015: Statement No. 68, Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27, Statement No. 71, Pension Transition For Contributions Made Subsequent to the Measurement Date – An Amendment of GASB Statement No. 68, and Statement No. 69, Government Combinations and Disposals of Government Operations. Management has not determined the effects of the implementation of these statements on the University’s financial statements.

Cash and Cash Equivalents The University considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Funds held in the custody of the Treasurer of the State of Arkansas and other state agencies are considered cash equivalents.

Inventories Inventories are valued at cost with costs being determined using several generally accepted inventory valuation methods depending on the best practices of the University department to which the inventory belongs.

The following summarized the cost of inventories with the method of valuation:

Inventories Valuation Method June 30, 2014 June 30, 2013 Athletics Inventory Retail $ 583,758 $ 560,837 Bookstore Retail 4,074,331 3,366,236 CES Warehouse FIFO 67,505 74,678 Garvan Woodland Gardens Shop Weighted Average 84,450 85,064 Facilities Management FIFO 600,441 532,668 Printing Services FIFO 172,491 185,528 Research Services1 Weighted Average 52,055 Residence Life Weighted Average 331,680 389,287 University Press LCM 526,924 562,244 Total Inventories $ 6,441,580 $ 5,808,597 1The Research Services inventory was liquidated in the fiscal year ended June 30, 2014.

Accounts Receivable Accounts receivable are stated at estimated net realizable values; that is, the gross amount of the receivable is reduced by allowances for estimated uncollectible accounts. Accounts receivable represent charges due the University from various student fees, room and board, student fines, and other charges. Accounts receivable also consist of unreimbursed expenses relating to research contracts with federal, state, and private agencies. Accounts receivable totaling $1,493,341 and $522,914 were written off during the fiscal years ended June 30, 2014, and June 30, 2013, respectively.

#( B-49 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

Accounts receivable at June 30, 2014, totaled $39,652,531. The allowance for doubtful accounts was computed to be $5,845,730, resulting in net accounts receivable totaling $33,806,801. Accounts receivable at June 30, 2013, totaled $45,190,743. The allowance for doubtful accounts was computed to be $6,136,054, resulting in net accounts receivable totaling $39,054,689.

A summary of accounts receivable balances at June 30, 2014, are as follows:

Gross Allowance Net Student Accounts Receivable $ 12,639,308 $ (5,700,070) $ 6,939,238 Non-student Accounts Receivable 16,348,677 (145,660) 16,203,017 Unreimbursed Research Contract Expenses 10,664,546 10,664,546 Totals $ 39,652,531 $ (5,845,730) $ 33,806,801

A summary of accounts receivable balances at June 30, 2013, are as follows:

Gross Allowance Net Student Accounts Receivable $ 11,638,886 $ (5,870,859) $ 5,768,027 Non-student Accounts Receivable 18,024,749 (265,195) 17,759,554 Unreimbursed Research Contract Expenses 15,527,108 15,527,108 Totals $ 45,190,743 $ (6,136,054) $ 39,054,689

Annual Appropriated Budgets Annual appropriated budgets are adopted for the state general fund. The annual period commences on July 1 of each year following the adjournment of the regular sessions of the General Assembly, and ends on June 30 the year after. An appropriation is construed to be available for the one year period following the legislative session in which it was approved. All appropriations lapse at the end of the year unless otherwise provided.

Capital Assets Capital assets consisting of land, buildings, furniture, fixtures, equipment, improvements, infrastructure, construction in progress, and intangible assets are stated at cost or fair market value at date of gift.

Buildings, improvements, and infrastructure additions are capitalized when the cost is $50,000 or more. Renovations to buildings, infrastructure and land improvements are also capitalized when they significantly increase the value or extend the useful life of the structure and the cost exceeds $50,000.

In accordance with the University’s capitalization policy, equipment includes all furniture, fixtures and equipment with a unit cost of $5,000 or more and an estimated useful life of one year or more.

Intangible assets are capitalized when the cost is $500,000 or more for purchased software, $1,000,000 or more for internally developed software, or $250,000 or more for easements, land use rights, trademarks and copyrights, and patents.

$ B-50 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

Library holdings are generally defined as collections of books and reference materials, and are valued using average prices for library acquisitions. A library book is a literary composition bound into a separate volume and identifiable as a separate copyrighted unit. Library reference materials are information sources other than books which include journals, periodicals, microforms, audio/visual media, computer-based information, manuscripts, maps, documents, and similar items.

Livestock is under the control of the Department of Animal Sciences and is maintained primarily for research purposes with any other benefits derived from the operations considered as incidental to the primary mission of the Department. The inventory value placed on the animals is determined by department heads utilizing current market prices and breeding and research intangibles.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 15 to 30 years for buildings, 15 to 20 years for infrastructure and land improvements, 3 to 10 years for equipment and 10 years for library holdings. Amortization of intangible assets, except for those determined to have indefinite useful lives, is computed using the straight-line method over the estimated useful lives of the assets, generally 5 years for purchased software; 10 years for internally developed software; 15 years for easements, land use rights, trademarks, and copyrights; and 20 years for patents.

Capitalization of Interest The University capitalizes interest involving qualifying assets, if material. The amount of interest cost to be capitalized is interest cost on borrowings netted against any interest earned on temporary investments of the proceeds of those borrowings from the date of borrowing until the specified qualifying assets acquired with those borrowings are ready for their intended use. The total amount of interest cost incurred and the net amount thereof that has been capitalized was $29,790,749 and $4,663,932, respectively, for the fiscal year ended June 30, 2014.

Classification of Revenues The University has classified its revenues as either operating or nonoperating revenues according to the following criteria:

Operating revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship discounts and allowances, (2) sales and services of auxiliary enterprises, net of scholarship discounts and allowances, and (3) most federal, state and local grants and contracts.

Nonoperating revenues: Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues by GASB Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, such as state appropriations and investment income.

$ B-51 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

Scholarship Discounts and Allowances Scholarship discounts and allowances are the difference between the stated charge for goods and services provided by the University and the amount that is paid by students and/or third parties making payments on the students’ behalf. Certain governmental grants and nongovernmental programs are recorded as either operating or nonoperating revenues in the University’s financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the University has recorded a scholarship discount and allowance.

(2). Reporting Entity

The University of Arkansas, Fayetteville (“the University”) was established at Fayetteville in 1871 under the provisions of the Morrill Act as both a state university and the land-grant college of Arkansas. The University of Arkansas, Fayetteville includes the Agricultural Experiment Station, the Cooperative Extension Service, the Arkansas Archeological Survey, the Criminal Justice Institute, the Clinton School of Public Service and the Arkansas Research Education Optical Network, as well as the academic units. The academic units in Fayetteville include ten colleges, schools and divisions: the Dale Bumpers College of Agricultural, Food, and Life Sciences, the Fay Jones School of Architecture, the J. William Fulbright College of Arts and Sciences, the Sam M. Walton College of Business, the College of Education and Health Professions, the College of Engineering, the School of Law, the Honors College, the Graduate School, and the Global Campus. The University is one of eleven campuses of the University of Arkansas System. The governing body is the Board of Trustees which is comprised of ten members.

GASB No. 14 addresses the issue of the financial reporting entity. According to GASB No. 14, the financial reporting entity consists of (a) the primary government; (b) organizations for which the primary government is financially accountable, and (c) other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete. Under the provisions of this statement, the University is a component unit of the State of Arkansas (primary government). GASB No. 14 defines a component unit as a legally separate organization for which the elected officials of the primary government are financially accountable. Although this statement is written from the perspective of the primary government, its requirements apply to the separately issued financial statements of a component unit, and therefore, the component unit should apply the provisions of GASB No. 14 as if it was a primary government.

(3). Compensated Absences

In June 2005, GASB issued Statement No. 47, Accounting for Termination Benefits, which became effective with the fiscal year ending June 30, 2006. The Statement established guidance for accounting and reporting of the costs and liabilities associated with termination benefits, such as those associated with early retirement incentives. The University has not extended a large-scale or age-related early retirement offering during the fiscal year ended June 30, 2014. The University has, from time to time, negotiated early retirement agreements with faculty which may include the provision of healthcare or other benefits for future periods. The number of early retirement agreements is small and the obligation for future benefits is considered immaterial. Arkansas Code Annotated §21-4-501 authorized the compensation for accumulated unused sick leave for certain

$! B-52 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014 employees upon retirement. The University has accrued a liability for these amounts in Compensated Absences Payable.

Employees accrue and accumulate annual and sick leave in accordance with policies established by the Board of Trustees. Full time, non-classified, University employees accrue annual leave at the rate of fifteen hours per month, classified employees at a variable rate (from 8 to 15 hours per month) dependent upon number of years of employment in state government. Under the University’s policy, an employee may carry accrued leave forward from one calendar year to another, up to a maximum of 240 hours (30 working days). Employees who terminate their employment are entitled to payment for all accumulated annual leave, up to the maximum allowed.

Classified employees who meet the conditions to be considered retirees at the time of termination of employment are entitled to a partial payment of accumulated, unused sick leave in accordance with the provisions of Arkansas Code Annotated §21-4-501.

The University recognizes a liability for compensated absences. The liability is based on the value of unused employee vacation and compensatory time as of year-end, including the associated benefits: contributions to Retirement, Social Security, Medicare, Workers’ Compensation, and Unemployment Insurance. The liability also includes amounts paid to eligible classified employees for unused sick leave. A classified employee who has accumulated at least fifty (50) days, but less than sixty (60) days of sick leave upon retirement shall receive an amount equal to fifty percent (50%) of the number of accrued sick leave days (rounded to the nearest day) times fifty percent (50%) of the employee’s daily salary. A classified employee who has accumulated at least sixty (60) days, but less than seventy (70) days of sick leave upon retirement shall receive an amount equal to sixty percent (60%) of the number of accrued sick leave days (rounded to the nearest day) times 60 percent (60%) of the employee’s daily salary. A classified employee who has accumulated at least seventy (70) days, but less than eighty (80) days of sick leave upon retirement shall receive an amount equal to seventy percent (70%) of the number of accrued sick leave days (rounded to the nearest day) times seventy percent (70%) of the employee’s daily salary. A classified employee that has accumulated at least eighty (80) or more days of sick leave upon retirement shall receive an amount equal to eighty percent (80%) of the number of accrued sick leave days (rounded to the nearest day) times eighty percent (80%) of the employee’s daily salary. In no event shall an employee receive a sick leave incentive amount that exceeds $7,500.

The University recognizes the estimated amount of the liability that will be incurred within the next year as a current liability and the balance as noncurrent.

(4). Cash, Cash Equivalents, and Investments

Cash and cash equivalents – The University uses commercial banks for its cash deposits. Board of Trustees policy requires that all cash deposits be either insured by the Federal Deposit Insurance Corporation (FDIC) or collateralized by securities held at a third party financial institution (preferably the Federal Reserve Bank) in the University’s name. Cash deposits are carried at cost. Cash balances in excess of current requirements are pooled and invested in highly liquid, short- term investments with the funds available on a daily basis.

$" B-53 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

The following summarizes the University’s cash position:

June 30, 2014 June 30, 2013 Bank Balance Bank Balance Insured (FDIC) $ 2,160,480 $ 1,929,033 Uninsured, Collateralized 218,875,279 201,228,288 Uninsured, Uncollateralized Total Deposits $ 221,035,759 $ 203,157,321

Deposits are exposed to custodial risk if they are not covered by depository insurance (FDIC) and are uncollateralized, collateralized with securities held by the pledging institution or collateralized with securities held by the pledging institution’s agent but not in the University’s name. At June 30, 2014, none of the University’s bank balance of $221,035,759 was exposed to custodial credit risk.

The University of Arkansas System Administration (System Administration) does not maintain separate bank accounts. System Administration deposits are commingled in University of Arkansas, Fayetteville bank accounts. The carrying value of the System Administration funds was $5,241,322 at June 30, 2014, and $1,772,378 at June 30, 2013. The above deposit schedule does not include cash on hand in various imprest funds maintained by the University of $66,755 or short-term investments (cash equivalents) of $5,001 at June 30, 2014. At June 30, 2013, these amounts were $88,555 and $5,001, respectively.

Adjustments necessary to convert from Bank Balance to Total Cash and Cash Equivalents are:

June 30, 2014 June 30, 2013 Bank Balance $ 221,035,759 $ 203,157,321 Less: Items in Transit (6,378,381) (7,824,304)ab Less: Nonnegotiable Certificates of Deposit (34,000) (34,000) Cash on Books $ 214,623,378 $ 195,299,017 State Treasury Cash $ 8,936,462 $ 1,243,925 Cash Equivalents 5,001 5,001a Imprest Funds non-Bank 66,755 88,555b Less: System Cash (5,241,322) (1,772,378) Cash and Equivalents 3,766,896 (434,897) Total Cash and Equivalents $ 218,390,274 $ 194,864,120

a Balance reported at June 30, 2013 was reduced $21,787,880 to properly reflect cash deposits. bImprest Funds of $88,555 no longer reported as Items in Transit.

$# B-54 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

Investments Investments, other than deposits held with trustees, are recorded at fair value. Fair value for reporting purposes is market value if a market price or quote is readily available. Investments that are not recorded at fair value are reported at cost or amortized cost.

The following is a summary of the University’s investments held at June 30, 2014:

Value at Investment Type June 30, 2014 Mutual Treasury Funds $ 84,852,998 Mutual Bond Funds 73,285 Corporate Bonds 76,472 External Investment Pool-University of Arkansas System 147,625,861 Other 2,396,073 Total Investments $ 235,024,689

The Mutual Treasury Funds of $84,852,998 includes $84,845,832 reported as deposits with bond trustees on the Statement of Net Position. The above schedule does not include nonnegotiable certificates of deposit of $59,131 which are considered deposits for GASB Statement No. 40, Deposit and Investment Risk Disclosures—an amendment of GASB Statement No. 3.

Effective June 30, 2005, the University is required under GASB Statement No. 40 to provide investment risk disclosures for all invested funds. Disclosures related to the External Investment Pool are shown separately. No disclosures were made for Other Investments. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The University does not have a formal investment policy addressing interest rate risk. The University of Arkansas’ investments subject to GASB Statement No. 40 interest rate risk disclosure are summarized below:

Interest Rate Risk Investment Maturities (in years) Investment Type Value Less than 1 1 to 5 6 to 10 Corporate Bonds $ 76,472 $ $ 76,472 $

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 investment policy addressing credit risk.

$$ B-55 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

The University of Arkansas’ investments subject to GASB Statement No. 40 credit risk disclosure are summarized below:

Credit Risk Investment Type Fair Value Aaa-Aa3 A1-A3 Baa1-Baa3 Not Rated Mutual Treasury Funds $ 84,852,998 $ 84,845,832 $ 7,166 Mutual Bond Funds 73,285 $ 2,377 70,908 Corporate Bonds 76,472 $ 76,472 Totals $ 85,002,755 $ 84,845,832 $ 76,472 $ 2,377 $ 78,074 The ratings are assigned by the Moody’s investment ratings service.

Concentration of Credit Risk The University places no limit on the amount that may be invested with any one issuer. There were no investments with any one issuer that represented 5% or more of the total funds invested on June 30, 2014.

External Investment Pool-University of Arkansas System Effective June 30, 1997, the University of Arkansas adopted Governmental Accounting Standards Board Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Pools. GASB No. 31 requires that investments be carried at fair value and all changes in fair value be reported in revenue as a component of investment income. In 1997, the University of Arkansas and the University of Arkansas Foundation established an external investment pool. This arrangement commingles (pools) the moneys of more than one legally separate entity and invests, on the participants’ behalf, in an investment portfolio. During 1998, the Walton Arts Foundation joined the pool and during 2003, the Fayetteville Campus Foundation joined the pool. During 2007, the University of Arkansas Community College at Hope Foundation joined the pool. The Razorback Foundation, Inc. joined the pool during 2012.

The governmental external investment pool is exempt from registration with the Securities and Exchange Commission. The University of Arkansas Board of Trustees and the University of Arkansas Foundation Board of Trustees are the sponsors of this investment pool and are responsible for operation and oversight for the pool. All participation in this investment pool is voluntary.

In January 2010, the University of Arkansas Investment Committee approved an agreement which delegated authority to the UA Foundation to manage University funds held in the Pool. The agreement included delegation of all responsibility for all investment guidelines and performance objectives for accounts within the Pool. The agreement also delegated to the UA Foundation authority for further delegation of portfolio implementation decisions to one or more investment managers. In January 2010, the UA Foundation entered into such an agreement with Cambridge Associates, LLC.

The following tables contain information on the risk disclosure of the Pool, which includes the Total Return Pool and the Intermediate Pool. The University of Arkansas, Fayetteville owns 8.79% of the Pool’s net assets.

$% B-56 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Statement of Invested Assets June 30, 2014

Investment Type Fair Value* Equity $ 376,981,645 Common Stock 99,526,405 Funds – Common Stock 256,505,183 Preferred Stock 32,081 Rights/Warrants 14 Funds – Equities ETF 20,917,962 Fixed Income 436,954,787 Government Bonds 48,209,398 Funds – Government Bonds 145,858 Corporate Bonds 98,887 Funds – Corporate Bond 37,124,641 Government Mortgage Back Securities 102 Non-Government Backed C.M.O.s 1 Funds – Other Fixed Income 319,171,645 Funds – Fixed Income ETF 32,204,255 Venture Capital and Partnerships 641,732,785 Partnerships 641,732,785 Commodities 30,237,364 Funds – Commodity Linked 30,237,364 Hedge Fund 178,907,247 Hedge Equity 143,921,343 Hedge Event Driven 34,985,904 All Other 68,221 Recoverable Taxes 68,221 Cash/Cash Equivalents 13,638,740 Short Term Investment Funds 11,416,590 Cash (334,636) Invested Cash 2,556,786 TOTAL $ 1,678,520,789

*Includes accrued income

$& B-57 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Credit Risk - S&P Quality Ratings June 30, 2014

US GOVN. Investment Type and Fair Value* TOTAL BBB NR GUAR Corporate Bonds $ 98,887 $ 98,887 Funds – Corporate Bond 36,958,941 36,958,941 Funds – Fixed Income ETF 32,204,255 32,204,255 Funds – Government Bond 141,789 141,789 Funds – Other Fixed Income 318,940,257 318,940,257 Funds – Short Term Investment 11,416,413 11,416,413 Government Bonds 48,207,152 $ 7,152 $ 48,200,000 Govn Mortgage Backed Securities 102 102 Hedge Event Driven 34,985,904 34,985,904 Non-Govn Backed C.M.O.s 1 1 Total $ 482,953,701 $ 7,152 $ 434,746,447 $ 48,200,102

*Does not include accrued income

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Years to Maturity June 30, 2014

Investment Maturities (in years) Investment Type(1) Fair Value* Less than 1 1 to 5 6 to 10 More than 10 Corporate Bonds $ 98,887 $ 4,300 $ 94,587 Funds – Corporate Bond 36,958,941 Funds – Fixed Income ETF 32,204,255 Funds – Government Bond 141,789 Funds – Other Fixed Income 318,940,257 Funds – Short Term Investment 11,416,413 Government Bonds 48,207,152 48,200,000 7,152 Govn Mortgage Backed Securities 102 102 Hedge Event Driven 34,985,904 Non-Govn Backed C.M.O.s 1 Total $ 482,953,701 $ $ 48,204,300 $ $ 101,841

*Does not include accrued income (1)Pooled and Mutual Fund/Commingled Fund values displayed for Fair Value Totals only.

$' B-58 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Interest Rate Sensitivity - Effective Duration June 30, 2014 Effective Investment Type(1) Fair Value* Duration Corporate Bonds $ 98,887 Funds – Corporate Bond 36,958,941 Funds – Fixed Income ETF 32,204,255 Funds – Government Bond 141,789 Funds – Other Fixed Income 318,940,257 Funds – Short Term Investment 11,416,413 Government Bonds 48,207,152 4.78 Govn Mortgage Backed Securities 102 3.17 Hedge Event Driven 34,985,904 Non-Govn Backed C.M.O.s 1 Total $ 482,953,701

*Does not include accrued income (1)Pooled and Mutual Fund/Commingled Fund values displayed for Fair Value Totals only

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Foreign Currency Risk By Investment Type June 30, 2014

Other Currency By Investment and Fair Value* Cash Equity Assets Australian Dollar $ 1,791,291 Canadian Dollar 1,883,190 $ 420,894 $ 307 Swiss Franc (2,133,231) 5,102,137 18,742 Euro (2,115,358) 8,860,415 31,945 British Pound Sterling (811,272) 2,678,165 Hong Kong Dollar 11 2,774,312 Japanese Yen (537,460) 5,577,135 2,887 Mexican Peso 197,898 Norwegian Krone 162,553 Polish Zloty 7,229 Swedish Krona 682,886 34 Singapore Dollar 171,966 108,386 Total $ (707,526) $ 25,521,478 $ 61,110 *Includes accrued income

$( B-59 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

The activities during fiscal year 2014 affecting the University’s investments in the external pool are summarized below:

Intermediate Pool Total Return Pool Intermediate Pool CES Total June 30, 2013, Balances $ 64,246,835 $ 61,385,550 $ 10,896,709 $ 136,529,094

Income 736,469 1,794,165 318,487 2,849,121 Realized Gains/(Losses) 2,478,925 932,658 165,558 3,577,141 Unrealized Gains/(Losses) 6,908,978 579,190 102,814 7,590,982 Expenses Paid from Pool (253,215) (57,123) (10,140) (320,478) Transfers In/(Out) of Pool (2,600,000) (2,600,000)

June 30, 2014, Balances $ 71,517,992 $ 64,634,440 $ 11,473,428 $ 147,625,860

The activities during fiscal year 2013 affecting the University’s investments in the external pool are summarized below:

Intermediate Pool Total Return Pool Intermediate Pool CES Total June 30, 2012, Balances $ 61,362,292 $ 60,806,482 $ 10,793,917 $ 132,962,691

Income 714,244 1,591,259 282,469 2,587,972 Realized Gains/(Losses) 1,552,198 2,007,107 356,287 3,915,592 Unrealized Gains/(Losses) 5,171,258 (2,949,089) (523,501) 1,698,668 Expenses Paid from Pool (253,157) (70,209) (12,463) (335,829) Transfers In/(Out) of Pool (4,300,000) (4,300,000)

June 30, 2013, Balances $ 64,246,835 $ 61,385,550 $ 10,896,709 $ 136,529,094

Endowment Funds

Assets of endowed funds, except where donor restrictions prohibit commingling of investments, are pooled on a fair value basis, with each fund subscribing or disposing of units on the basis of the unit fair value. The unit fair value is recalculated each month.

% B-60 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

The following summarizes the relationship between the pooled assets and their earnings:

2014 2013 Fair Value @ June 30 $ 71,587,878 $ 64,275,946 Number of Units in Pool @ June 30 1,509,490 1,560,459 Fair Value per Unit @ June 30 $ 47.425 $ 41.190

Gains/(Losses) for the Year $ 9,387,904 $ 6,723,456 Net Income Earned for the Year $ 100,105 $ 107,885

Gain/(Loss) per Unit $ 6.22 $ 4.31 Income Earned per Unit 0.07 0.07 Total per Unit $ 6.29 $ 4.38

Donor-restricted Endowments

The computation of net appreciation on investments of donor-restricted endowments that are available for authorization for expenditure is as follows:

2014 2013 Total Endowment at June 30 $ 72,743,239 $ 65,353,961 Less: Funds treated as Endowment (13,445,209) (12,151,652) Non-expendable portion of Endowment (23,122,169) (23,020,824) Available for Expenditure $ 36,175,861 $ 30,181,485 Note: The amounts shown as available for expenditure and the funds treated as endowments are reported as expendable net position on the Statement of Net Position.

Arkansas Code Annotated §28-69-804 states “Subject to the intent of a donor expressed in the gift instrument, an institution may appropriate for expenditure or accumulate so much of an endowment fund as the institution determines is prudent for the uses, benefits, purposes, and duration for which the endowment fund is established. Unless stated otherwise in the gift instrument, the assets in an endowment fund are donor-restricted assets until appropriated for expenditure by the institution.”

The University uses a total return policy for investing endowed funds. The University’s spending policy is to expend 4.4% of the balance of the endowment averaged over the previous twelve quarters. For FY2014, the total takedown percentage of 5.322% includes .6% for administrative costs plus other external fees.

(5). Notes Receivable

Notes receivable consist of resources made available for financial loans to students of the University and of financing agreements between the University and certain organizations for the purpose of facilities construction.

% B-61 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

The resources for loans to students include federal funds, funds from other external sources, and University funds. New student loans totaling $2,179,921 and $2,373,813 were issued under the Student Loan Programs for the years ended June 30, 2014, and June 30, 2013, respectively. Of total campus-based loans processed, the majority were from Perkins funds provided by the federal government. The federal student loan default rate based on the U.S. Department of Education Cohort default rate was 11.99% for the year ended June 30, 2014, and 12.37% for the year ended June 30, 2013. Notes receivable totaling $11,030 and $20,344 were written off during the fiscal year ended June 30, 2014, and June 30, 2013, respectively.

The following summarizes the balance of notes receivable at June 30, 2014:

Type of Note Gross Balance Allowance Net Balance Current Portion Student loans $ 15,644,784 $ (835,252) $ 14,809,532 $ 3,285,405 Loans to Greek organizations 646,962 646,962 131,761 Totals $ 16,291,746 $ (835,252) $ 15,456,494 $ 3,417,166

The following summarizes the balance of notes receivable at June 30, 2013:

Type of Note Gross Balance Allowance Net Balance Current Portion Student loans $ 15,635,012 $ (846,897) $ 14,788,115 $ 3,127,002 Loans to Greek organizations 772,664 772,664 15,499 Totals $ 16,407,676 $ (846,897) $ 15,560,779 $ 3,142,501

(6). Pledges Receivable

The University did not have any material amounts pledged that were receivable at June 30, 2014 or 2013.

(7). Income Taxes

The University is tax exempt from federal income taxes except for tax on unrelated business income. The University had no significant unrelated business income for the year ended June 30, 2014. It is also exempt from state income taxes under Arkansas law. Accordingly, no provision for income taxes is made in the financial statements.

%! B-62 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

(8). Accounts Payable and Accrued Liabilities

Accounts payable balances are summarized as follows:

June 30, 2014 June 30, 2013 Payable to Outside Vendors $ 19,470,423 $ 26,965,698 Retainage on Construction Contracts 3,017,925 7,719,030 Property Taxes Payable 250,165 245,798 Total $ 22,738,513 $ 34,930,526

Accrued payroll liabilities are summarized as follows:

June 30, 2014 June 30, 2013 Net Salaries and Wages Payable $ 2,890,598 $ 3,506,123 Employee Withholdings Payable 8,253,907 8,102,692 Employer Payroll Taxes and Benefits Matching Payable 6,265,722 5,992,193 Total $ 17,410,227 $ 17,601,008

(9). Compensated Absences, Bonds, Notes, Capital Leases Payable, and Installment Contracts

Debt service payments on existing bonds amounted to $49,507,909 for the fiscal year ended June 30, 2014. The amount of $7,938,489 was expended for principal and interest on notes payable, installment contracts and capital leases for the same period.

On September 13, 2012, the University issued $60,540,000 in Various Facility Revenue Bonds, Series 2012B. The bonds were issued to provide funds to finance various construction and renovation projects on the University campus. Projects include renovation and construction of and additions to Vol Walker; construction of a new University Housing Administration Building, Founders Hall, and the Jean Tyson Child Development Study Center; a major renovation of Hotz Hall; purchase of the Uptown Campus facilities and other real property; and renovation and improvements to various housing and academic buildings as well as various other campus improvements and infrastructure.

On May 16, 2013, the University issued $54,450,000 in Various Facility Revenue Bonds, Series 2013A. The bonds were issued to provide funds to finance various construction projects on the University campus. Projects include construction of Champion’s Hall classroom and laboratory building, the Leroy Pond Utility Plant, the Jim & Joyce Faulkner Performing Arts Center and the Utility Combined Heat and Power Project.

On May 16, 2013, the University issued $30,355,000 in Athletic Facility Revenue Bonds, Series 2013. The bonds were issued to provide funds to finance construction of various athletic facilities. Projects include the construction of the Athletic Academic and Dining Facility, the Baseball and Track Indoor Training Facility, and the Basketball Practice Facility.

%" B-63 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

On June 30, 2014, the University issued $24,730,000 in Various Facility Revenue Bonds, Series 2014A and $5,020,000 in Various Facility Revenue Bonds, Series 2014B (Taxable). The bonds were issued to provide funds to finance the purchase of real property, various construction and renovation projects on the University campus. Projects included in the Series 2014A bond issue include the purchase of the Cato Springs Research Center, the renovation and upgrading of the central heating plant, renovating the Field House and converting it into the Jim and Joyce Faulkner Performing Arts Center, the renovation and repurposing underutilized space in the Agricultural, Food and Life Science Building into general purpose classrooms, and the renovation, improving, equipping and furnishing of previously purchased buildings to be used as an Art and Design District. The Series 2014B (Taxable) bonds were issued to renovate and expand student housing operated by the University.

On April 17, 2012, the University issued $56,965,000 in Various Facility Revenue Refunding Bonds, Series 2012A. The bonds, with interest rates of 1.0% to 5.0% were issued to refund $44,555,000 of outstanding bonds dated December 1, 2002 with an interest rate of 4.75% to 5.50%, and $17,080,000 of outstanding bonds dated October 1, 2004 with interest rates of 3.25% to 4.75%. Net bond proceeds and premiums of $65,717,794 were deposited into the advance refunding fund to retire the bonds. The combined refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $4,082,794. This difference, reported in the accompanying financial statements as Deferred Outflows of Resources, will be amortized through the fiscal year 2033 using the straight-line method. The University completed the refunding to reduce its total debt service payments over the next twenty-one years by $9,331,777 and to obtain an economic gain (difference between the present values of the old and new debt service payments) of $7,016,631. The escrow balance as of June 30, 2014 was $15,293,371. The bonds dated December 1, 2002 were refunded on December 1, 2012. The bonds dated October 1, 2004 will continue to have regularly scheduled principal and interest payments made from the escrow account until the bond call date of November 1, 2014, at which time the remaining balance will be refunded.

On March 1, 2005, the University issued $21,020,000 in Various Facility Revenue Bonds, Series 2005A, and $60,000,000 in Various Facility Revenue Refunding Bonds, Series 2005B. Series 2005A bonds were issued to provide funds to finance the construction of the Willard Walker Graduate School of Business building, the Center for Academic Excellence building, and the Chemistry building. Series 2005B bonds were issued with an average coupon rate of 4.408% in order to advance refund $44,195,000 of Series 2002 Various Facility Revenue Bonds and $12,135,000 of Series 2001 Various Facility Revenue Bonds. The refunded bonds had an average interest rate of 5.472%. Proceeds in the amount of $62,255,099, plus an additional $779,632, were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments of the refunded 2002 and 2001 Series bonds. Regularly scheduled interest and principal payments on the 2002 Series and 2001 Series issues were made on June 1, 2005, and continued through December 1, 2012, for Series 2002 and through December 1, 2011, for Series 2001, from the escrow fund. All outstanding refunded Series 2002 bonds were redeemed on December 1, 2012, at a price equal to 100% of the principal amount plus interest accrued thereon. All outstanding refunded Series 2001 bonds were redeemed on December 1, 2011, at a price equal to 100% of the principal amount plus interest accrued thereon. As a result, those portions of the 2002 Series and 2001 Series bonds are considered defeased. The liability for those bonds has been

%# B-64 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014 removed from the Statement of Net Position. The University advance refunded portions of the 2002 and 2001 Series bonds to reduce its total debt service payments over the next 18 years by $4,116,788 and to obtain economic gain (difference between the present value of the debt service payments on the old and new debt) of $2,263,717. The escrow account has been closed as of June 30, 2013.

Remaining balances of defeased bond issues as of June 30, 2014:

Title Principal Balance at June 30, 2014 Various Facilities Revenue Bonds, Series 2004A $ 14,995,000

On April 16, 2012, the University signed an agreement to enter into a lease purchase arrangement with AG-PRO Companies. The purpose of the agreement is to provide the University with the financing to purchase a tractor. The lease purchase agreement commenced with up-front payment made upon receiving the equipment in July, 2012. The total of the lease agreement is $14,627 and bears no interest. The agreement has a final maturity date of July 5, 2014.

%$ B-65 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

A summary of long term debt at June 30, 2014, is as follows:

Maturities and Date of Date of Amount Debt Refinanced Amounts Issue Final Rate of Interest Authorized & Outstanding at to Maturity Issued June 30, 2014 June 30, 2014 10/15/1997 11/01/2022 3.95% to 5.25% $ 21,445,000 $ 1,185,000 $ 20,260,000 10/01/2004 11/01/2024 2.00% to 4.75% 7,050,000 3,595,000 3,455,000 03/01/2005 11/01/2025 3.00% to 4.50% 81,020,000 66,275,000 14,745,000 06/01/2006 11/01/2036 4.00% to 5.00% 67,420,000 61,670,000 5,750,000 06/01/2006 09/15/2022 4.00% to 4.375% 8,205,000 5,260,000 2,945,000 10/01/2007 11/01/2037 4.00% to 5.00% 45,010,000 40,155,000 4,855,000 08/01/2008 11/01/2038 4.00% to 5.00% 36,750,000 36,100,000 650,000 08/01/2008 11/01/2028 4.10% to 6.375% 15,210,000 14,265,000 945,000 12/15/2009 11/01/2039 3.00% to 5.00% 52,430,000 49,350,000 3,080,000 06/30/2010 09/15/2020 1.00% to 4.82% 23,965,000 16,445,000 7,520,000 06/29/2011 11/01/2040 2.00% to 5.00% 101,225,000 96,675,000 4,550,000 06/29/2011 11/01/2022 3.00% to 5.00% 8,895,000 7,790,000 1,105,000 06/29/2011 09/15/2021 2.00% to 4.895% 23,575,000 18,620,000 4,955,000 04/17/2012 11/01/2032 1.00% to 5.00% 56,965,000 51,455,000 5,510,000 09/13/2012 11/01/2042 2.00% to 5.00% 60,540,000 60,215,000 325,000 05/16/2013 11/01/2042 1.00% to 5.00% 54,450,000 53,270,000 1,180,000 05/16/2013 09/15/2027 1.00% to 5.00% 30,355,000 29,410,000 945,000 06/30/2014 11/01/2043 2.00% to 5.00% 24,730,000 24,730,000 06/30/2014 11/01/2043 0.85% to 4.50% 5,020,000 5,020,000 11/30/1991 05/01/2022 5.50% 3,000,000 1,314,518 1,685,482 11/29/1995 11/01/2034 2.00% to 5.00% 2,071,140 757,165 1,313,975 12/20/1999 12/31/2017 Variable 1,161,952 425,407 736,545 05/11/2007 09/30/2013 Variable 6,000,000 6,000,000 11/30/2007 07/01/2023 4.69% 6,950,000 5,488,498 1,461,502 10/15/2008 09/13/2013 5.00% 5,000,000 5,000,000 12/19/2008 08/19/2023 4.581% 23,842,000 18,273,057 5,568,943 04/08/2010 01/08/2023 4.80% 9,694,713 7,589,816 2,104,897 Various Various Various 27,670 9,605 18,065 Net unamortized premium 38,656,209 35,245,728 3,410,481 Totals $ 820,663,684 $ 710,588,794 $ 110,074,890

%% B-66 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

A summary of long term debt at June 30, 2013, is as follows:

Maturities and Date of Date of Amount Debt Refinanced Amounts Issue Final Rate of Interest Authorized & Outstanding at to Maturity Issued June 30, 2013 June 30, 2013 10/15/1997 11/01/2022 3.95% to 5.25% $ 21,445,000 $ 1,315,000 $ 20,130,000 10/01/2004 11/01/2024 2.00% to 4.75% 7,050,000 4,415,000 2,635,000 03/01/2005 11/01/2025 3.00% to 4.50% 81,020,000 72,785,000 8,235,000 06/01/2006 11/01/2036 4.00% to 5.00% 67,420,000 62,740,000 4,680,000 06/01/2006 09/15/2022 4.00% to 4.375% 8,205,000 5,735,000 2,470,000 10/01/2007 11/01/2037 4.00% to 5.00% 45,010,000 41,075,000 3,935,000 08/01/2008 11/01/2038 4.00% to 5.00% 36,750,000 36,360,000 390,000 08/01/2008 11/01/2028 4.10% to 6.375% 15,210,000 14,565,000 645,000 12/15/2009 11/01/2039 3.00% to 5.00% 52,430,000 50,410,000 2,020,000 06/30/2010 09/15/2020 1.00% to 4.82% 23,965,000 18,475,000 5,490,000 06/29/2011 11/01/2040 2.00% to 5.00% 101,225,000 98,640,000 2,585,000 06/29/2011 11/01/2022 3.00% to 5.00% 8,895,000 7,790,000 1,105,000 06/29/2011 09/15/2021 2.00% to 4.895% 23,575,000 21,210,000 2,365,000 04/17/2012 11/01/2032 1.00% to 5.00% 56,965,000 52,440,000 4,525,000 09/13/2012 11/01/2042 2.00% to 5.00% 60,540,000 60,540,000 05/16/2013 11/01/2042 1.00% to 5.00% 54,450,000 54,450,000 05/16/2013 09/15/2027 1.00% to 5.00% 30,355,000 30,355,000 11/30/1991 05/01/2022 5.50% 3,000,000 1,442,248 1,557,752 11/29/1995 11/01/2034 2.00% to 5.00% 2,071,140 772,664 1,298,476 12/20/1999 12/31/2017 Variable 1,161,952 538,002 623,950 05/11/2007 09/30/2013 Variable 6,000,000 3,126,238 2,873,762 11/30/2007 07/01/2023 4.69% 6,950,000 5,802,366 1,147,634 10/15/2008 09/13/2013 5.00% 5,000,000 294,211 4,705,789 12/19/2008 08/19/2023 4.581% 23,842,000 19,825,862 4,016,138 04/08/2010 01/08/2023 4.80% 9,694,713 8,272,304 1,422,409 Various Various Various 27,670 17,116 10,554 Net unamortized premium 36,310,469 34,621,972 1,688,497 Totals $ 788,567,944 $ 708,012,983 $ 80,554,961 Due to the implementation of GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, the deferred amount on refunding is now classified as a Deferred Outflow of Resources on the Statement of Net Position.

%& B-67 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

Equipment Leases The University has acquired certain equipment under various lease-purchase contracts. The cost of equipment held under capital leases totaled $29,046 at June 30, 2014. The expense resulting from depreciation of assets recorded under capital leases is included with depreciation expense as reflected in the summary of property, plant and equipment. See Note 13.

Asset Balance Type of Equipment June 30, 2014

Color Digital Copier $ 14,419 Farm Equipment 14,627

Total $ 29,046

Total Minimum Lease Payments $ 9,836 Less: Amount Representing Interest 231

Total Present Value of Net Minimum Lease Payments $ 9,605

The accumulated depreciation for the above items was $14,461 as of June 30, 2014.

Changes in long-term liabilities for the year ended June 30, 2014, are as follows:

Fiscal Year Ended June 30, 2014

Beginning Additions Reductions Ending Current Balance Balance Portion Bonds $ 633,300,000 $ 29,750,000 $ 21,565,000 $ 641,485,000 $ 23,865,000 Net unamortized premium 34,621,972 2,345,740 1,721,984 35,245,728 1,801,952 Notes 6,173,363 3,676,273 2,497,090 270,453 Leases 17,116 7,511 9,605 7,661 Installment contracts 33,900,532 2,549,161 31,351,371 2,669,601 Compensated absences 19,136,038 677,556 173,340 19,640,254 1,123,196 Liability for retiree insurance benefits 11,430,713 883,719 12,314,432 Totals $ 738,579,734 $ 33,657,015 $ 29,693,269 $ 742,543,480 $ 29,737,863 Note: Amounts shown in “Ending Balance” include both current and long-term portions.

%' B-68 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

Changes in long-term liabilities for the year ended June 30, 2013, are as follows:

Fiscal Year Ended June 30, 2013

Beginning Additions Reductions Ending Current Balance Balance Portion Bonds $ 505,850,000 $ 145,345,000 $ 17,895,000 $ 633,300,000 $ 21,565,000 Net unamortized premium 15,946,218 19,826,997 1,151,243 34,621,972 1,721,984 Notes 8,239,281 2,065,918 6,173,363 3,680,478 Leases 1,200,806 14,627 1,198,317 17,116 7,511 Installment contracts 36,334,689 2,434,157 33,900,532 2,549,161 Compensated absences 18,378,906 921,058 163,926 19,136,038 1,161,585 Liability for retiree insurance benefits 10,539,604 891,109 11,430,713 Totals $ 596,489,504 $ 166,998,791 $ 24,908,561 $ 738,579,734 $ 30,685,719 Note: Amounts shown in “Ending Balance” include both current and long-term portions.

Due to the implementation of GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, the deferred amount on refunding is now classified as a Deferred Outflow of Resources on the Statement of Net Position.

Total long-term principal and interest payments are as follows:

Principal Interest* Total 2015 $ 26,812,715 $ 30,201,315 $ 57,014,030 2016 28,244,023 29,470,779 57,714,802 2017 30,025,593 28,389,447 58,415,040 2018 30,254,458 27,225,963 57,480,421 2019 31,495,086 25,981,270 57,476,356 2020-2024 153,718,535 107,806,404 261,524,939 2025-2029 110,989,495 76,686,310 187,675,805 2030-2034 110,732,336 50,117,068 160,849,404 2035-2039 108,505,825 23,042,922 131,548,747 2040-2044 44,565,000 3,607,281 48,172,281 Totals $ 675,343,066 $ 402,528,759 $ 1,077,871,825 Plus Net unamortized premiums 35,245,728 Totals $ 710,588,794 *Interest payments made on one note payable is calculated using floating interest rates. The interest on the note will be calculated using a floating rate equal to the amount earned on non-endowed investments known as the short- term intermediate pool each quarter from the fiscal years ended June 30, 2014, until maturity. The estimated future interest for these notes was calculated using the rate of 2.50%.

%( B-69 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

Pledged Revenues For purposes of extinguishing the University’s long-term debt issues, certain revenues have been pledged as security. The following is a summary of the gross revenues collected during the fiscal year ended June 30, 2014, and June 30, 2013, that are pledged:

BOND SERIES REVENUE SOURCE 2014 2013 Series 1997 Various Facilities Student Tuition and Fees $ 230,413,972 $ 211,930,572 Series 2004 Various Facilities Sales and Services 8,861,545 7,638,343 Series 2005 Various Facilities Residential Life 37,356,707 35,104,362 Series 2006 Various Facilities Bookstore1 18,076,631 18,775,473 Series 2007 Various Facilities Student Health Services 970,252 753,775 Series 2008 Various Facilities Transit and Parking 7,374,258 6,684,527 Series 2009 Various Facilities Other Auxiliaries 3,751,661 3,949,876 Series 2011 Various Facilities Series 2012 Various Facilities Series 2013 Various Facilities Series 2014 Various Facilities Total Various Fac. Pledge $ 306,805,026 $ 284,836,928 Series 2006 Athletic Facilities Men’s Athletic Revenue $ 58,844,536 $ 60,852,585 Series 2010 Athletic Refunding (less game guarantees) (3,111,403) (3,368,109) Series 2011 Athletic Facilities Series 2013 Athletic Facilities

Total Athletics Pledge $ 55,733,133 $ 57,484,476

1For the purposes of calculating pledged revenues, Bookstore revenues shown include internally generated revenues from sales to the University campus of $4,472,851 for the year ending June 30, 2014 and $5,250,758 for the year ending June 30, 2013.

The following is a comparison of pledged revenues earned to the amount of debt service per bond issue for the year ended June 30, 2014:

& B-70 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

% OF BOND MATURITY REMAINING FY2014 REVENUE FY2014 PLEDGED SERIES DATE PURPOSE OF DEBT PRINCIPAL & PRINCIPAL & SOURCE REVENUE REVENUES INTEREST INTEREST IN FY2014 VARIOUS FACILITIES BONDS: Series 1997 Construction of Parking Facility, Alumni Center, Union Various Fac. Various 11/01/2022 $ 1,442,713 $ 194,098 $ 306,805,026 .06% Renovation and other Capital Assets Pledge Facilities Series 2004B Various Fac. 11/01/2024 Refund portion of Series 1998 Var. Facilities Bonds 3,900,995 975,768 306,805,026 .32% Various Pledge Facilities Construction of Center for Academic Excellence, Series 2005 Walker Graduate School of Business, Law School Various Fac. Various 11/01/2025 79,497,321 9,547,554 306,805,026 3.11% Addition, and Refund Portion of Series 2001 Var. Pledge Facilities Facilities Bonds and Series 2002 Var. Facilities Bonds. Series 2006 Construction of Student Housing, Law School Addition, Various Fac. Various 11/01/2036 Steam Plant Performance Contract, and Poultry Science 104,761,398 4,086,585 306,805,026 1.33% Pledge Facilities Energy Management Series 2007 Various Fac. Various 11/01/2037 Construction of Student Housing 67,960,969 2,850,763 306,805,026 .93% Pledge Facilities Series 2008 Construction of Parking Garage, Bookstore, KUAF Various Fac. Various 11/01/2038 Radio, and other facilities, also purchase of parcels of 86,252,722 3,178,948 306,805,026 1.04% Pledge Facilities land. Construction of Nano Scale Building and Phi Delta Series 2009 Theta. Renovation of Davis Hall, Darby Hall, Wilson Various Fac. Various 11/01/2039 84,061,084 3,236,483 306,805,026 1.05% Sharp Hall, Old Health Center, and Peabody Hall. Pledge Facilities Classroom and Lab Improvements and Utility Renewal Renovation of and additions to Vol Walker and Ozark Halls, Hillside Auditorium, renovation to various classrooms and labs and Science Building, construction Series 2011 of Child Development Study Center, improvements to Various Fac. Various 11/01/2040 180,375,167 6,664,081 306,805,026 2.17% Arkansas Union, construction of hazardous waste Pledge Facilities facility, improvements to various student housing and dining facilities and various infrastructure improvements. Series 2012A Refunded $44,555,000 of Series 2002 Various Facility Various Fac. Various 11/01/2032 Revenue Bonds and $17,080,000 of Series 2004A 80,430,625 3,395,100 306,805,026 1.11% Pledge Facilities Various Facility Revenue Bonds Refunding Renovations and addition to Vol Walker Hall, Series renovation of Hotz Hall, John A. White Engineering 2012B Hall, Science Building, construction of Founders Hall Various Fac. 11/01/2042 112,336,050 3,141,150 306,805,026 1.02% Various and Brough Addition, purchase of Uptown Campus, and Pledge Facilities various other renovations and infrastructure improvements. Series Construction of new Classroom & Lab Building, Leroy 2013A Various Fac. 11/01/2042 Pond Utility Plant, Jim & Joyce Faulkner Performing 91,870,819 3,425,524 306,805,026 1.12% Various Pledge Arts Center, and the Combined Heat & Power facility Facilities Purchase of Cato Springs Research Center, construction of Combined Heat & Power facility and Jim & Joyce Series 2014 Faulkner Performing Arts Center, renovation and Various Fac. Various 11/01/2043 54,778,862 306,805,026 repurposing space in the Agricultural, Food and Life Pledge Facilities Science Building and developing the Art and Design District Total Percentage of Pledged Revenues 13.26% ATHLETIC FACILITIES BONDS AND NOTE: Series 2006 Construction of John McDonnell Outdoor Track Athletics Athletic 09/15/2022 6,337,679 705,691 55,733,133 1.27% Stadium Pledge Facilities Series 2010 Refunded Series 1999 and 2001 Athletic Facilities Athletics Athletic 09/15/2020 19,157,471 2,738,891 55,733,133 4.91% Bonds for Football Stadium Pledge Facilities Series 2011 Athletics Athletic 09/15/2021 Construction of Football Center 21,789,900 3,370,700 55,733,133 6.05% Pledge Facilities Series 2013 Construction of the Basketball Practice Facility, the Athletics Athletic 09/15/2027 Track and Baseball Indoor Practice Facility, and the 40,379,825 1,996,576 55,733,133 3.58% Pledge Facilities Athletic & Academic Dining Facility Series 2008 Athletic Athletics Facilities 09/13/2013 Improvements to various athletic facilities 297,970 55,733,133 .53% Pledge Revenue Prom. Note Total Percentage of Pledged Revenues 16.34%

& B-71 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

The following is a comparison of pledged revenues earned to the amount of debt service per bond issue for the year ended June 30, 2013:

% OF BOND MATURITY REMAINING FY2013 REVENUE FY2013 PLEDGED SERIES DATE PURPOSE OF DEBT PRINCIPAL & PRINCIPAL & SOURCE REVENUE REVENUES INTEREST INTEREST IN FY2013 VARIOUS FACILITIES BONDS: Series 1997 Construction of Parking Facility, Alumni Center, Union Various Fac. Various 11/01/2022 $ 1,636,810 $ 195,664 $ 284,836,928 .07% Renovation and other Capital Assets Pledge Facilities Series 2004B Various Fac. 11/01/2024 Refund portion of Series 1998 Var. Facilities Bonds 4,876,764 972,443 284,836,928 .34% Various Pledge Facilities Construction of Center for Academic Excellence, Series 2005 Walker Graduate School of Business, Law School Various Fac. Various 11/01/2025 89,044,875 4,445,829 284,836,928 1.56% Addition, and Refund Portion of Series 2001 Var. Pledge Facilities Facilities Bonds and Series 2002 Var. Facilities Bonds. Series 2006 Construction of Student Housing, Law School Addition, Various Fac. Various 11/01/2036 Steam Plant Performance Contract, and Poultry Science 108,847,983 4,027,385 284,836,928 1.41% Pledge Facilities Energy Management Series 2007 Various Fac. Various 11/01/2037 Construction of Student Housing 70,811,731 2,851,863 284,836,928 1.00% Pledge Facilities Series 2008 Construction of Parking Garage, Bookstore, KUAF Various Fac. Various 11/01/2038 Radio, and other facilities, also purchase of parcels of 89,431,669 3,147,288 284,836,928 1.10% Pledge Facilities land. Construction of Nano Scale Building and Phi Delta Series 2009 Theta. Renovation of Davis Hall, Darby Hall, Wilson Various Fac. Various 11/01/2039 87,297,566 3,232,758 284,836,928 1.13% Sharp Hall, Old Health Center, and Peabody Hall. Pledge Facilities Classroom and Lab Improvements and Utility Renewal Renovation of and additions to Vol Walker and Ozark Halls, Hillside Auditorium, renovation to various classrooms and labs and Science Building, construction Series 2011 of Child Development Study Center, improvements to Various Fac. Various 11/01/2040 187,039,248 7,784,031 284,836,928 2.73% Arkansas Union, construction of hazardous waste Pledge Facilities facility, improvements to various student housing and dining facilities and various infrastructure improvements. Series 2012A Refunded $44,555,000 of Series 2002 Various Facility Various Fac. Various 11/01/2032 Revenue Bonds and $17,080,000 of Series 2004A 83,825,725 7,063,444 284,836,928 2.48% Pledge Facilities Various Facility Revenue Bonds Refunding Renovations and addition to Vol Walker Hall, Series renovation of Hotz Hall, John A. White Engineering 2012B Hall, Science Building, construction of Founders Hall Various Fac. 11/01/2042 115,477,200 1,785,620 284,836,928 .63% Various and Brough Addition, purchase of Uptown Campus, and Pledge Facilities various other renovations and infrastructure improvements. Series Construction of new Classroom & Lab Building, Leroy 2013A Various Fac. 11/01/2042 Pond Utility Plant, Jim & Joyce Faulkner Performing 95,296,343 284,836,928 Various Pledge Arts Center, and the Combined Heat & Power facility Facilities Total Percentage of Pledged Revenues 12.45% ATHLETIC FACILITIES BONDS AND NOTE: Series 2006 Construction of John McDonnell Outdoor Track Athletics Athletic 09/15/2022 7,043,371 704,291 57,484,476 1.23% Stadium Pledge Facilities Series 2010 Refunded Series 1999 and 2001 Athletic Facilities Athletics Athletic 09/15/2020 21,896,361 2,736,616 57,484,476 4.76% Bonds for Football Stadium Pledge Facilities Series 2011 Athletics Athletic 09/15/2021 Construction of Football Center 25,160,600 3,195,250 57,484,476 5.56% Pledge Facilities Series 2013 Construction of the Basketball Practice Facility, the Athletics Athletic 09/15/2027 Track and Baseball Indoor Practice Facility, and the 42,376,401 57,484,476 Pledge Facilities Athletic & Academic Dining Facility Series 2008 Athletic Athletics Facilities 09/13/2013 Improvements to various athletic facilities 297,970 1,191,881 57,484,476 2.07% Pledge Revenue Prom. Note Total Percentage of Pledged Revenues 13.62%

&! B-72 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

(10). Commitments

The University was contractually obligated for the following at June 30, 2014:

Construction and Architect Contracts

Beginning Year-End Completion Amount Project Name Contract Balance Contract Date Paid Plus Amendments Balance AFLS Basement Renovation August, 2015 $ 248,468 $ 69,093 $ 179,375 Arts & Design District October, 2016 418,253 21,895 396,358 Athletic Academic & Dining Facility January, 2015 17,916,911 1,429,266 16,487,645 Basketball Practice Facility December, 2014 20,258,519 3,616,688 16,641,831 Baseball & Track Indoor Practice Substantially Complete 8,118,949 7,627,787 491,162 Facility Campus District Energy Systems Substantially Complete 1,562,859 917,833 645,026 Chi Omega Greek Theatre June, 2017 233,573 100,320 133,253 Classroom & Teaching Lab Building January, 2015 21,184,512 6,004,863 15,179,649 Cleveland & Hall L.I.D. Parking Lot March, 2015 227,266 227,266 Combined Heat & Power Plant June, 2015 13,513,555 3,680,068 9,833,487 Football Center Substantially Complete 5,739,675 5,276,327 463,348 Founders Hall Substantially Complete 9,291,267 9,010,801 280,466 Hillside Auditorium Substantially Complete 672,654 640,352 32,302 Hotz Hall Renovation Substantially Complete 5,331,610 5,287,054 44,556 Housing Administration Building Substantially Complete 4,310,856 4,041,403 269,453 Jim & Joyce Faulkner Performing Arts April, 2015 1,587,487 1,102,260 485,227 John A. White Engineering Hall Phase I Substantially Complete 3,004,344 2,803,341 201,003 Lambda Chi Alpha Fraternity House June, 2016 532,848 111,266 421,582 Leroy Pond Utility Plant December, 2014 10,247,782 9,757,595 490,187 Mechanical Eng. Building Substantially Complete 1,022,118 918,931 103,187 Modifications Memorial Hall Restoration September, 2014 680,971 184,233 496,738 Nano 3rd Floor – Dickson St. Utility December, 2014 228,799 40,447 188,352 Ozark Hall Renovation and Addition Substantially Complete 5,759,779 5,339,234 420,545 Pi Kappa House Renovations December, 2014 6,575,715 3,536,870 3,038,845 Pomfret Honors Quarters Substantially Complete 1,524,601 1,365,086 159,515 Rice Research Seed Processing Plant June, 2016 515,781 515,781 Science D Building Lab Upgrades December, 2014 2,919,236 2,828,293 90,943 Soil Testing Lab Office Renovation March, 2015 1,978,675 886,799 1,091,876 Yocum Hall Renovation December, 2014 4,828,133 2,590,532 2,237,601 Other Various 10,415,637 7,528,813 2,886,824 Totals $ 160,850,833 $ 86,717,450 $ 74,133,383

The beginning year contract balance/amendments column represents the balance remaining on contracts at the beginning of the fiscal year plus new contracts for the current fiscal year and any amendments made to existing contracts in the current fiscal year. The year-end contract balances listed above do not reflect the effects of accrued expenses as of June 30, 2014.

Operating Leases The University has entered into various operating leases for buildings and equipment. It is expected that in the normal course of business such leases will continue to be required. The total expenditures for all rental lease payments and non-lease rental payments for the fiscal year ended June 30, 2014, were $7,037,912. Minimum future annual rental payments for leases having an

&" B-73 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014 initial term in excess of one year totaled $7,159,033. Below are the scheduled payments for the five succeeding fiscal years and thereafter.

Year ended June 30 Amount 2015 $ 1,588,610 2016 1,494,041 2017 1,190,801 2018 644,568 2019 582,252 2020-2024 1,650,961 2025-2029 7,800 Total $ 7,159,033

(11). Employee Benefits

Retirement Benefits The University offers employees the option of participating in either the University of Arkansas Retirement Plan (UARP) which includes Teachers Insurance Annuity Association—College Retirement Equities Fund (TIAA-CREF) and Fidelity Investments or the Arkansas Public Employees Retirement System (APERS). Effective July 1, 2011, new employees of the University are no longer eligible to participate in the Arkansas Teacher Retirement System (ATRS). Existing ATRS participants are allowed to continue ATRS participation. APERS and ATRS are both defined benefit plans.

The UARP is a defined contribution plan. The plan is a 403(b) program as defined by the Internal Revenue Service Code of 1986, as amended, and is administered by the President of the University or his delegate. Employees who reach their tax-deferred 403(b) maximums can then participate in a 457(b) plan. Contributions to Fidelity Investments shall be applied either to individual annuities issued under a Metropolitan Life Guaranteed Account and/or one or more mutual fund custodian accounts managed by Fidelity Investments. Contributions to TIAA-CREF can be allocated among their various annuity accounts. Arkansas law authorizes participation in the plan.

&# B-74 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014 earlier of completion of three years of service, or attainment of age 65, or the participant’s having made plan contributions of at least five percent of regular salary for six consecutive months. The University’s and participants’ TIAA-CREF contributions for the year ending June 30, 2014, were $15,779,040 and $16,224,893, respectively. The University’s and participants’ Fidelity Investments contributions for the year ending June 30, 2014, were $6,734,948 and $7,050,302, respectively. The University’s and participants’ TIAA-CREF contributions for the year ending June 30, 2013, were $15,501,108 and $15,830,669, respectively. The University’s and participants’ Fidelity Investments contributions for the year ending June 30, 2013, were $6,181,711 and $6,338,988, respectively.

APERS is a cost-sharing multiple employer defined benefit plan administered by the State of Arkansas. The University contributes 14.88% of applicable wages to the plan. Under certain conditions covered employees may voluntarily contribute 5% of his/her salary. The University’s and participants’ contributions for the year ending June 30, 2014, were $889,798 and $225,126, respectively. The University’s and participants’ contribution for the year ending June 30, 2013, were $636,330 and $144,164, respectively. The University’s and participants’ contribution for the year ending June 30, 2012, were $420,627 and $83,389, respectively.

ATRS is a cost-sharing multiple employer defined benefit pension plan. The University contributes 14% of all covered employees’ salaries. Under certain conditions covered employees may voluntarily contribute 6% of his/her salary. The University’s and participants’ contributions for the year ending June 30, 2014, were $249,997 and $67,728, respectively. The University’s and participants’ contributions for the year ending June 30, 2013, were $289,557 and $81,700, respectively. The University’s and participants’ contributions for the year ending June 30, 2012, were $303,552 and $82,177, respectively.

The University’s and participants’ contributions to all other pension plans for the year ended June 30, 2014, were $389,536 and $286,785, respectively. The University’s and participants’ contributions to all other pension plans for the year ended June 30, 2013, were $412,107 and $311,116, respectively.

Self-Insurance Plans The University of Arkansas System sponsors self-funded health and dental benefit plans for University employees and their eligible dependents. The Fayetteville, Medical Sciences, Little Rock, Pine Bluff, Monticello, and Batesville campuses, state-wide operating units of the Arkansas Archeological Survey and Division of Agriculture, System Administration, Criminal Justice Institute, the Clinton School of Public Service, the Arkansas School for Mathematics, Sciences and the Arts, and the University of Arkansas Foundation, Inc., participate in the health insurance program which is administered by the System Administration. Operations of the plans are recorded in the separate University of Arkansas consolidated financial report.

As of January 1, 2014, post age 65, Medicare eligible retiree no longer participate in the University of Arkansas’ self-funded health and dental benefit plan. Those individuals are now covered by the UnitedHealthcare Medicare Advantage PPO plan.

&$ B-75 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

For the year ending June 30, 2014, a total of 4,504 active employees, former employees, and retirees were participants in the health plan. For the year ending June 30, 2013, the total of active employees, former employees, and retirees participating in the health plan was 5,030. The University pays 73.519% for the Point of Service Plan and 81.178% for the Classic Plan for Fayetteville, the Criminal Justice Institute and the Arkansas Archeological Survey. The University pays 74.295% for the Point of Service Plan and 79.905% for the Classic Plan for the Division of Agriculture. The University pays 75% of the health plan for federal employees.

Life Insurance Plan The University of Arkansas System’s life insurance carrier is Unum Life Insurance Company of America. The University’s life insurance is a fully-insured arrangement with the premiums being sent directly to the life insurance carrier.

Expenditures for all employee benefits are included as expenditures within the appropriate functional area.

12): Other Postemployment Benefits

Other Postemployment Benefits (OPEB) The University offers postemployment health (including prescription drugs) and dental benefits along with life insurance ($10,000 available coverage) to eligible retirees. Health and dental benefits are provided in the University’s self-funded plan sponsored by the Board of Trustees of the University of Arkansas System for current and retired employees of the Fayetteville (UAF), Little Rock (UALR), Medical Sciences (UAMS), Monticello (UAM), Pine Bluff (UAPB), Phillips (PCCUA) and Batesville (UACCB) campuses, the Cooperative Extension Service of the Division of Agriculture (CES), the Arkansas School for Mathematics, Sciences and the Arts (ASMSA), and the University of Arkansas System Administration (SYSTEM). The plan is considered a single- employer, defined benefit plan. The System Administration manages and administers the plan. Although benefits are also provided under the University’s plan for the University of Arkansas Foundation, Inc. and the University of Arkansas Winthrop Rockefeller Institute, no postemployment benefit is accrued by the University for these private entities. Financial activities of the plan are reported in the University of Arkansas consolidated financial report.

In June 2004, GASB issued Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, which became effective for the fiscal year ending June 30, 2008. This statement requires governmental entities to recognize and match other postretirement benefit costs with related services received and also to provide information regarding the actuarially calculated liability and funding level of the benefits associated with past services. The calculation reflects expected future medical costs. It includes an accrual for all active employees valuing the benefits they are anticipated to receive in retirement based on the likelihood that they will stay employed until eligible for postretirement benefits. As a result of the implementation of this statement, the University accrued $12,314,432 in retiree healthcare liability as of June 30, 2014.

&% B-76 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

For those campuses in the University’s self-funded plan, retirees qualify for postretirement benefits as follows: Participation: Employees who retire with a combination of age and years of service of at least 70 with at least 10 years of coverage under the plan are eligible to participate. Retirees may cover spouses and eligible dependent children. Surviving spouses can continue coverage after retiree’s death. Retirees can continue coverage past Medicare eligibility age (age 65 or disabled) with the University plan paying secondary to Medicare. Benefit Provided: Retirees participate in the plan at the same premium rate as an active employee. Required Contribution Ratio: Retirees pay 100% of premium. Employer costs are funded on a pay-as-you-go basis.

Summary of Key Actuarial Methods and Assumptions

Actuarial Assumptions University Self-Funded Plan

Valuation date July 1, 2013 Valuation year Census data was collected as of November 1, 2012 Actuarial cost method Projected unit credit Amortization method 30 years open, level % of payroll Asset valuation method N/A Discount rate 4.50% Projected payroll growth rate 4.00% Medical inflation rate Immediate rate of 7.5%, with a 0.25% decrease each year starting in year 3 to an ultimate rate of 4.75%

General Overview of the Valuation Methodology The process of determining the liability for retiree medical benefits is based on many assumptions about future events. Future increases in health care costs are affected by many factors, including: medical inflation; change in utilization patterns; technological advances; cost shifting; cost leveraging; and changes to government medical programs, such as Medicare.

Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future, and actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. Actuarial calculations reflect a long-term perspective. Actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. Calculations are based on the types of benefits provided under the terms of each plan at the time of each valuation and on the pattern of sharing of costs between the employer and plan members to that point.

&& B-77 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014 estimated based on the United Healthcare book-of-business discount information contained in the Aon Hewitt Discount Analysis Database compared to the specific claims and discount data reported by QualChoice. In the aggregate, this change is estimated to reduce health care costs by 11.4%. Also, the healthcare trend rate assumption was changed to better reflect anticipated future experience. This change increased the Actuarial Accrued Liability by $2,059,046 as of July 1, 2013.

Medical Coverage – Retirees not Eligible for Medicare Claim experience for the period February 1, 2012 through January 31, 2014 was used to develop the claims cost for non-Medicare-eligible retirees. The paid claims data was converted to an incurred basis using a completion factor approach. This experience includes 987 life years of exposure and was deemed to be 70% credible. The experience was combined with the active claims experience adjusted for demographic differences to produce the per capita claims costs used in the valuation. Adjustment factors were then applied to develop expected claims by age to be used in the valuation. Expected retiree premiums were developed to represent the expected cost sharing level anticipated by the University. Retiree premiums were also age-adjusted for use in the valuation.

Medical Coverage – Retirees Eligible for Medicare Effective January 1, 2014, the plan for Medicare eligible retirees was changed to a fully insured Medicare Advantage program. Retirees pay 100% of the fully insured premium directly to United Healthcare. As a result, no liabilities for Medicare eligible retiree medical benefits are included in this valuation.

Dental Coverage Dental claims coverage for the period February 1, 2013 through January 31, 2014 was used to develop per capita claims cost for dental coverage. The claims experience includes over 35,000 life years of exposure and was deemed to be fully credible. Based on this analysis, it was concluded that the retiree contributions are sufficient to fully cover the expected dental claims costs as intended. As such, the cost for dental coverage is excluded from this valuation.

Actuarial Assumptions University Self-Funded Plan

Healthy Mortality RP-2000 Generational Combined Healthy Mortality Table projected by scale AA

&' B-78 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

Actuarial Assumptions University Self-Funded Plan

Disability Rates Various rates based on age. Selected rates are:

Rate per 1,000 Age Male Female 25 .0003 .0003 30 .0003 .0004 40 .0008 .0013 50 .0033 .0040 55 .0069 .0064 60 .0115 .0090

Actuarial Assumptions University Self-Funded Plan

Withdrawal Select and ultimate rates by location are based on length of Rates service for the first five years and age thereafter:

Service Select Rates UAF UAMS OTHER 0 25% 30% 20% 1 25% 20% 20% 2 20% 18% 20% 3 16% 18% 15% 4 16% 15% 15%

Ultimate rates are from Sarason turnover table T-6 for UAF, table T-7 for UAMS, and table T-4 for all other locations.

&( B-79 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

Actuarial Assumptions University Self-Funded Plan

Retirement Rates Age Rate 50-59 5% 60-61 10% 62 15% 63-66 10% 67-69 50% 70+ 100%

Actuarial Assumptions University Self-Funded Plan

Future Retiree Coverage For medical insurance, retiring employees are assumed to elect medical and Rx coverage as follows:

UAF UALR UAMS OTHER Pre-Medicare 55% 55% 55% 55% Medicare Eligible 60% 60% 50% 45%

Retirees were assumed to remain in their current plan indefinitely.

75% of retiring employees are assumed to continue life insurance at retirement.

Actuarial Assumptions University Self-Funded Plan

Future Dependent Coverage 50% of employees electing medical and Rx coverage at retirement are assumed to be married and elect spouse coverage.

Spouse Age Differential Males are assumed to be 4 years older than females.

' B-80 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

Determination of End of Year Accrual

Unfunded actuarial accrued liability at 7/1/13 $ 17,588,820

Annual Required Contribution (ARC) Normal cost $ 770,441 Amortization of the unfunded actuarial accrued liability over 30 years 627,977 Interest 62,928 Annual Required Contribution for FY14 1,461,346 Interest on Net OPEB Obligation 514,053 ARC Amortization Adjustment (426,205) Annual OPEB Cost for FY14 $ 1,549,194

Net OPEB Obligation, 7/1/13 $ 11,430,713 Annual OPEB Cost for FY14 1,549,194 Less: Expected Employer Contributions (665,475)

Net OPEB Obligation, 6/30/14 $ 12,314,432

Schedule of Employer Contributions

Fiscal Year Annual OPEB Expected Percentage Net Obligation Ending Cost Contribution Contributed at Year End 6/30/12 $ 2,029,394 $ 802,704 39.55% $ 10,539,604 6/30/13 $ 1,782,714 $ 891,605 50.01% $ 11,430,713 6/30/14 $ 1,549,194 $ 665,475 42.96% $ 12,314,432

Since there is no funding, the expected contributions are any retiree premiums actually paid by the University plus expected implicit subsidy payments. The implicit rate subsidy is the difference between the true cost of medical benefits and the cost sharing premiums paid by the retiree.

Schedule of Funding Progress

Actuarial UAAL as Fiscal Actuarial Accrued Percentage Year Value of Liability Unfunded Funded Covered Of Covered Ending Assets (AAL) AAL (UAAL) Ratio Payroll Payroll 6/30/14 $ 0 $ 17,588,820 $ 17,588,820 0% $ 269,869,374 6.52%

' B-81 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

(13). Property, Plant and Equipment

In November 2003, GASB issued Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, which became effective with the fiscal year ending June 30, 2006. The Statement established guidance for accounting and reporting for the impairment of capital assets and for insurance recoveries. For the purposes of this Statement, asset impairment is a significant, unexpected decline in the service utility of a capital asset. The events or changes in circumstances affecting a capital asset that may indicate impairment are prominent – that is, conspicuous or known to University management.

During the fiscal year ended June 30, 2014, there have been no prominent or conspicuous events that would indicate impairment of any material capital assets, nor have there been any material insurance recoveries during the fiscal year.

The following schedule presents a summary of property, plant and equipment for the fiscal year 2014:

Beginning Ending Additions Retirements Adjustments Balance Balance NONDEPRECIABLE CAPITAL ASSETS Land $ 43,087,135 $ 7,536,414 $ 417,458 $ 8,500 $ 50,214,591 Construction in progress 167,332,469 97,091,848 555,389 (174,135,864) 89,733,064 Other assets 1,675,650 540,251 2,215,901 TOTAL NONDEPRECIABLE 212,095,254 105,168,513 972,847 (174,127,364) 142,163,556 CAPITAL ASSETS

DEPRECIABLE CAPITAL ASSETS Buildings 1,209,216,835 9,180,975 687,560 167,496,886 1,385,207,136 Equipment 220,617,733 9,732,691 10,045,999 (121,465) 220,182,960 Improvements 30,257,479 190,750 68,606 30,516,835 Infrastructure 91,596,937 424,414 6,898,077 98,919,428 Intangible assets 79,476,189 79,476,189 Library holdings 75,279,844 6,528,288 39,307 81,768,825 Total depreciable capital assets 1,706,445,017 26,057,118 10,772,866 174,342,104 1,896,071,373 Less accumulated depreciation Buildings (476,055,335) (44,103,588) 486,176 (519,672,747) Equipment (174,694,680) (14,701,351) 9,859,293 (179,536,738) Improvements (15,123,270) (1,211,553) (16,334,823) Infrastructure (35,561,602) (4,288,577) (39,850,179) Intangible assets (77,697,668) (443,037) (78,140,705) Library holdings (66,617,707) (2,471,604) 38,093 (69,051,218) Total accumulated depreciation (845,750,262) (67,219,710) 10,383,562 (902,586,410) TOTAL DEPRECIABLE CAPITAL

ASSETS 860,694,755 (41,162,592) 389,304 174,342,104 993,484,963 TOTAL CAPITAL ASSETS, NET OF ACCUMULATED DEPRECIATION $ 1,072,790,009 $ 64,005,921 $ 1,362,151 $ 214,740 $ 1,135,648,519

Note 1: Land of $415,652 and buildings of $4,824,755 related to the joint endeavor between the University of Arkansas and the City of Fayetteville are included in the above amounts. See Note 16.

'! B-82 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

The following schedule presents a summary of property, plant and equipment for the fiscal year 2013:

Beginning Ending Additions Retirements Adjustments Balance Balance NONDEPRECIABLE CAPITAL ASSETS Land $ 37,662,224 $ 5,400,776 $ 24,135 $ 43,087,135 Construction in progress 136,851,038 132,300,761 $ 1,494,273 (100,325,057) 167,332,469 Other assets 1,654,449 35,201 14,000 1,675,650 TOTAL NONDEPRECIABLE 176,167,711 137,736,738 1,508,273 (100,300,922) 212,095,254 CAPITAL ASSETS

DEPRECIABLE CAPITAL

ASSETS Buildings 1,144,992,857 5,059,693 1,828,235 60,992,520 1,209,216,835 Equipment 209,836,903 15,535,091 9,419,420 4,665,159 220,617,733 Improvements 26,744,361 102,913 3,410,205 30,257,479 Infrastructure 60,363,899 31,233,038 91,596,937 Intangible assets 81,620,339 2,144,150 79,476,189 Library holdings 73,430,299 1,909,344 59,799 75,279,844 Total depreciable capital assets 1,596,988,658 22,607,041 13,451,604 100,300,922 1,706,445,017 Less accumulated depreciation Buildings (439,396,141) (38,323,671) (1,670,060) (5,583) (476,055,335) Equipment (167,740,328) (16,211,969) (9,267,971) (10,354) (174,694,680) Improvements (13,894,666) (1,228,604) (15,123,270) Infrastructure (31,680,821) (3,880,781) (35,561,602) Intangible assets (77,938,811) (1,903,007) (2,144,150) (77,697,668) Library holdings (63,898,607) (2,777,051) (57,951) (66,617,707) Total accumulated depreciation (794,549,374) (64,325,083) (13,140,132) (15,937) (845,750,262) TOTAL DEPRECIABLE CAPITAL

ASSETS 802,439,284 (41,718,042) 311,472 100,284,985 860,694,755 TOTAL CAPITAL ASSETS, NET OF ACCUMULATED DEPRECIATION $ 978,606,995 $ 96,018,696 $ 1,819,745 $ (15,937) $ 1,072,790,009

The University estimates holdings of $13.1 million in timber resources as of June 30, 2014. The estimated value of these holdings was $12.3 million as of June 30, 2013. These resources, which total 13,140 acres, are located on various tracts of land in Arkansas. These resources are currently being inventoried.

(14). Museum Collection

The financial statements do not include the University’s museum collection which consists of numerous historical relics, artifacts, displays, and memorabilia. Major collections are in archeology, physical anthropology, ethnography, geology, zoology, and history. The value of this collection has not been established by professionals in this field.

'" B-83 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

(15). Operating Expenses by Function

For the year ended June 30, 2014:

Salaries, Scholarships Supplies and Wages and and Depreciation Total Other Services Benefits Fellowships Instruction $ 145,740,304 $ 21,726,245 $ 167,466,549 Research 74,610,956 32,523,656 107,134,612 Public Service 57,927,917 21,743,271 79,671,188 Academic Support 26,652,887 14,335,011 40,987,898 Student Services 17,246,790 7,336,867 24,583,657 Institutional Support 40,785,259 11,254,297 52,039,556 Scholarships and Fellowships 138,724 $ 24,340,455 169,386 24,648,565 Operation and Maintenance of Plant 17,741,452 22,132,483 39,873,935 Auxiliary Enterprises 50,595,965 59,612,071 110,208,036 Depreciation $ 67,219,710 67,219,710 Totals $ 431,440,254 $ 24,340,455 $ 190,833,287 $ 67,219,710 $ 713,833,706

For the year ended June 30, 2013:

Salaries, Scholarships Supplies and Wages and and Depreciation Total Other Services Benefits Fellowships Instruction $ 131,159,851 $ 18,893,474 $ 150,053,325 Research 74,801,961 30,747,698 105,549,659 Public Service 57,475,424 19,003,500 76,478,924 Academic Support 27,366,963 13,542,097 40,909,060 Student Services 16,868,810 7,667,281 24,536,091 Institutional Support 39,936,433 10,400,297 50,336,730 Scholarships and Fellowships 190,636 $ 27,368,387 154,506 27,713,529 Operation and Maintenance of Plant 17,996,447 18,145,972 36,142,419 Auxiliary Enterprises 48,760,996 60,643,479 109,404,475 Depreciation $ 64,325,083 64,325,083 Totals $ 414,557,521 $ 27,368,387 $ 179,198,304 $ 64,325,083 $ 685,449,295

(16). Walton Arts Center

The University of Arkansas and the City of Fayetteville engaged in a joint endeavor to operate the Walton Arts Center. Funds were pooled from each entity to provide for the construction and operation of the center. To administer this project and its funds, the University and the City of Fayetteville established a nonprofit organization called the University of Arkansas/City of Fayetteville Arts Foundation, Inc., now called the Walton Arts Center Foundation, Inc., which was incorporated on January 19, 1987. There are nine directors, three are appointed by the University,

'# B-84 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014 three by the City of Fayetteville, and three are recommended by the Foundation that must be approved by the mayor and chancellor.

The Walton Arts Center Council, Inc. was formed to construct, operate, manage, and maintain the Arts Center in Fayetteville, Arkansas, in accordance with the Interlocal Cooperation Agreement between the City of Fayetteville and the University of Arkansas. The ownership of the Arts Center facilities, including land, is held equally by the City and the University. The Arts Center Council must submit an annual budget to both the City and the University for approval. The Board of Trustees of The Arts Center Council is comprised of five members appointed by the University, five members appointed by the City, and ten members appointed at large, all of whom serve as volunteers.

On July 16, 2010, the Arts Center Council filed articles of incorporation for NWA Entertainment, LLC (“NWA”) for the purpose of acquiring certain assets of the Arkansas Music Pavilion, Inc. and for the purpose of operating, managing and maintaining assets related to the promotion and presentation of the arts in Northwest Arkansas. NWA is a 100% wholly-owned subsidiary of the Council and has a fiscal year end of March 31. The results of the operations of NWA have been included in the combined financial statements of the Walton Arts Center.

The combined audited financial statements of the Walton Arts Center Council, Inc., the Walton Arts Center Foundation, Inc., and NWA Entertainment, LLC as of and for the year ended June 30, 2014, which have been audited by an independent certified public accountant, are presented below in summary form. Complete financial statements for the Walton Arts Center can be obtained from the administrative office at 229 N. School Avenue, Fayetteville, AR 72701.

Condensed Statement of Financial Position Assets Cash and Cash Equivalents $ 2,813,202 Investments 14,595,327 Other Assets 8,069,583 Fixed Assets, Net of Depreciation 22,553,449 Total Assets $ 48,031,561

Liabilities and Net Assets Liabilities $ 20,542,631 Net Assets 27,488,930 Total Liabilities and Net Assets $ 48,031,561

'$ B-85 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

Condensed Statement of Activities

Ticket Sales $ 4,771,265 Contributions and Sponsorships 8,763,426 Other Income 3,687,762 Total Income and Other Additions $ 17,222,453

Total Expenditures and Other Deductions $ 14,088,191

Increase/(Decrease) in Net Assets $ 3,134,262

(17). Other Entities

University of Arkansas Foundation, Inc. - The Foundation operates as a nonprofit benevolent corporation for charitable educational purposes. The Board of Trustees of the Foundation includes one (1) member who is also a member of the University’s Board of Trustees. The audited financial statements of the Foundation, as of and for the year ended June 30, 2014, which have been audited by an independent certified public accountant, are presented below in summary form. The University of Arkansas, Fayetteville is the beneficiary of 52.1% of the net assets of the Foundation. The remaining 47.9% benefits other University of Arkansas campuses. Complete financial statements for the Foundation can be obtained from the administrative office at 700 Research Center Boulevard, Fayetteville, AR 72701.

Condensed Statement of Financial Position Assets Investments $ 840,292,509 Contributions Receivable, less Allowance 38,520,860 Other Receivables 2,362,912 Fixed Assets, Net of Depreciation 1,106,752 Other Assets 1,087,458 Total Assets $ 883,370,491

Liabilities and Net Assets Liabilities $ 21,707,553 Net Assets Unrestricted 99,506,691 Restricted 762,156,247 Net Assets 861,662,938 Total Liabilities and Net Assets $ 883,370,491

'% B-86 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

Condensed Statement of Activities

Contributions $ 58,150,827 Other Revenues, Additions and Gains/(Losses) 101,240,619 Total Income and Other Additions/(Losses) $ 159,391,446

Total Expenditures and Other Deductions $ 62,555,269

Increase/(Decrease) in Net Assets $ 96,836,177

Arkansas Alumni Association, Inc. – The Arkansas Alumni Association, Inc., was incorporated in 1960 for the purposes of promoting the welfare of the University and its graduates and former students. Audited financial statements for the year ended June 30, 2014 are presented below in summary form. Complete financial statements for the Arkansas Alumni Association, Inc. can be obtained from the administrative office at 491 N. Razorback Road, Fayetteville AR 72701.

Condensed Statement of Financial Position Assets Cash and investments $ 1,859,983 Other Assets 7,057,345 Total Assets $ 8,917,328

Liabilities and Net Assets Liabilities $ 1,238,918 Net Assets 7,678,410 Total Liabilities and Net Assets $ 8,917,328

Condensed Statement of Activities

Income and Other Additions $ 3,627,399 Expenditures and Other Deductions 2,882,189

Increase/(Decrease) in Net Assets $ 745,210

University of Arkansas Technology Development Foundation – The Foundation was incorporated in May, 2003, and is considered a supporting organization of the Fayetteville campus. The Foundation’s mission is to stimulate a knowledge-based economy through partnerships that lead to new opportunities for learning and discovery, that build and retain a knowledge-based workforce and that spawn the development of new technologies that enrich the economic base of Arkansas. Audited financial statements for the year ended June 30, 2014 are presented below in

'& B-87 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014 summary form. Complete financial statements for the Foundation can be obtained from the administrative office at 535 W. Research Center Boulevard, Fayetteville, AR 72701

Condensed Statement of Financial Position Assets Cash and investments $ 1,197,372 Other Assets 34,245 Total Assets $ 1,231,617

Liabilities and Net Assets Liabilities $ 110,260 Net Assets 1,121,357 Total Liabilities and Net Assets $ 1,231,617

Condensed Statement of Activities

Income and Other Additions $ 1,610,152 Expenditures and Other Deductions 1,512,315

Increase/(Decrease) in Net Assets $ 97,837

(18). Short-Term Debt

GASB Statement No. 38 issued June 1, 2001, states that governments should provide details about short-term debt activity during the year, even if no short-term debt is outstanding at year-end. The University had no short-term debt activity during the fiscal year, nor is there any outstanding balance of short-term debt as of June 30, 2014.

(19). Risk Management

The University of Arkansas Risk Management Program provides insurance coverage for all campuses within the University of Arkansas System. The role of the System Office is to analyze and recommend insurance coverage but it is ultimately up to each campus to inform the System Office regarding their specific coverage requirements.

All campuses are currently covered under the property and auto coverage provided through the System Office. The property coverage is insured through FM Global with a $100,000 deductible at the Fayetteville, Medical Sciences, and Little Rock Campuses. All other campuses have a $50,000 deductible. It is the responsibility of each campus to confirm all building and content values to be covered. The FM Global policy also contains earthquake and flood insurance coverage. The System Office has also secured domestic and foreign terrorism coverage.

'' B-88 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

Likewise with the auto coverage, each campus is responsible for providing a list of vehicles to be covered under the auto coverage through Cypress Insurance. The auto coverage has a physical damage deductible of $1,000 and provides coverage against liability losses up to $1,000,000 per occurrence.

The University of Arkansas does not purchase general liability, errors or omissions, or tort immunity for claims arising from third-party losses on University property as the University of Arkansas has sovereign immunity against such claims. Claims against the University of Arkansas for such losses are heard before the State Claims Commission. In such cases where the University of Arkansas enters into a lease agreement to hold a function at a location not owned by the University of Arkansas, general liability coverage may be purchased for such functions.

The University of Arkansas maintains workers' compensation coverage through the State of Arkansas program. Premiums are paid through payroll and are based on a formula calculated by the Department of Finance and Administration which is provided to the campuses around April 1 of each year to be used for the upcoming fiscal year. The types of benefits and expenditures that are paid include the following: medical expenses, hospital expenses, death benefits, disability, and claimant’s attorney fees.

Additionally, the University of Arkansas participates in the State of Arkansas Fidelity Bond Program for claims of employee dishonesty. This program has a limit of $250,000 recovery per occurrence with a $2,500 deductible. Premiums are paid annually via a fund transfer from state appropriations to the Department of Finance and Administration.

There have been no reductions in insurance coverage from the prior fiscal year. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years.

20). Related Party Transactions

There were four significant related party transactions other than those with component units discussed in Note 1.

A member of the Board of Trustees is the Bank Chairman of the privately-held First Security Bancorp based in Searcy, Arkansas. At June 30, 2014, bank balances held at First Security Bank total $23,954,504 (book balances shown on the Statement of Net Position were $23,965,688). The University has conducted business with the bank for several years. In addition, Crews and Associates, Inc. (Crews) is a wholly owned, non-bank affiliate of First Security Bancorp and has served as one of the University’s bond underwriters for several years. After a Request for Proposal was issued in February, 2011, the Board selected two firms as underwriters, one of which was Crews, who, in FY14, was co-underwriter for two bond issues for the Fayetteville campus in the amount of $29,750,000.

The Provost and Vice Chancellor for Academic Affairs is a member of the Board of Directors of Simmons First National Corporation (NASDAQ – SFNC) based in Pine Bluff, Arkansas. At June 30, 2014, bank balances held at Simmons First National Bank total $61,709,956 (book balances

'( B-89 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014 shown on the Statement of Net Position were $61,709,956). Simmons First National Bank has served as trustee for bond proceeds for several years, and amounts on deposit represent funds held in that capacity, primarily for three bond issues.

The Vice Chancellor and Director of Athletics is a member of the Board of Directors of Arvest Bank Fayetteville, one of 16 autonomous community-oriented banks which comprise Arvest Bank Group, Inc., based in Bentonville, Arkansas. At June 30, 2014, bank balances held at Arvest Bank Group, Inc. banks total $196,095 (book balances shown on the Statement of Net Position were $185,929).

The Associate Vice Chancellor for Business Affairs is a member of the Board of Directors of the Educational and Institutional Cooperative Service, Inc., a not-for-profit corporation chartered in the State of New York in 1934. The principle role of the Cooperative is to secure group discounts and favorable terms of sale for member institutions by aggregating buying power through large volume contracts. The University has been a member institution of the E&I Cooperative since 1952. All contracts negotiated by E&I are competitively bid and approved for the university’s use by the Office of State Procurement. Purchases totaling $6,851,347 were made during the fiscal year ended June 30, 2014 utilizing twenty-nine E&I contracts.

(21). Restatement of Prior Year

Statement of Net Position The Statement of Net Position contained the following restatements for the year ended June 30, 2013 to reflect implementation of GASB Statement No. 65: Unamortized debt issuance costs totaling $3,153,503 are no longer recognized as an asset. Other assets, both current and noncurrent, were reduced by $167,797 and 2,985,706, respectively, and Net invested in capital assets was reduced $3,153,503 as a result of this change.

Scholarships awarded in the amount of $224,991 that apply to a future term were reclassified as a deferred outflow of resources. Funding for these scholarships previously recognized as revenue was reclassified as a Deferred inflow of resources. Accordingly, Net position restricted for scholarships and fellowships was reduced $224,991. Because the deferred outflow and inflow were for the same type of transaction and were the same amount, they were netted and do not appear on the face of the statement.

The deferral on debt defeasance in the amount of $6,200,312, previously reported as a component of Bonds, notes, capital leases and installment contracts payable, was reclassified as a deferred outflow of resources. As a result, Bonds, notes, capital leases and installment contracts payable, both current and noncurrent, increased by $595,131 and $5,605,181 respectively.

Statement of Revenues, Expenses and Changes in Net Position The Statement of Revenues, Expenses and Changes in Net Position contained the following restatements for the year ended June 30, 2013 to reflect implementation of GASB Statement No. 65:

( B-90 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014

Gift revenue increased $46,254, reflecting the change in deferred inflows of resources for scholarships awarded for a future period.

Interest on capital asset-related debt decreased $133,781 to reflect the fiscal year 2013 bond costs amortization.

Other nonoperating expenses increased $1,260,225 to recognize bond issuance costs for fiscal year 2013 new issues.

Net position – beginning of year was reduced a total of $2,298,304 to reflect the fiscal year 2012 deferred inflow of $271,245 for scholarship funding and $2,027,059 for unamortized bond issuance costs.

The restatements discussed above had no effect on the Statement of Cash Flows.

(22). Pollution Remediation

In November 2006, GASB issued Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations, which became effective with the fiscal year ending June 30, 2009. The Statement establishes standards for the accounting and financial reporting of pollution (including contamination) remediation obligations. On July 21, 2009, the University was awarded a grant in the amount of $1,900,000 from the United States Department of Energy to conduct a study to determine what obligation, if any, the University may have for potential remediation of the Southwest Experimental Fast Oxide Reactor site (SEFOR); including estimated remediation cost and development of a plan for necessary remediation. As of June 30, 2013, the study has been completed and the grant closed. The University remains under no obligation to begin pollution remediation of the site.

(23). Contingencies

The University has been named as defendant in several lawsuits. It is the opinion of management and its legal counsel that the ultimate outcome of litigation will not have a material effect on the future operations or financial position of the University.

(24). Subsequent Event

On August 14, 2014, the governing documents establishing and defining the joint endeavor between the City of Fayetteville and the University of Arkansas to operate the Walton Arts Center were revised to ensure clarity and flexibility to allow the Walton Arts Center to meet the arts and entertainment needs of all residents of Northwest Arkansas with a multi-venue system, while at the same time confirming support of the original partnership. Revisions were made to the respective Articles of Incorporation of the Walton Arts Center Foundation, Inc. and the Walton Arts Center Council, Inc. to clarify the purpose of each entity to encompass multiple venues in the Northwest Arkansas region; to allow the Walton Family Foundation to appoint

( B-91 UNIVERSITY OF ARKANSAS, FAYETTEVILLE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014 nine additional directors to the Board of Directors of the Arts Center Council while ensuring that the City and University maintain their proportionate number of Directors on the Board; to return the City of Fayetteville’s initial payment of $1.5 million dollars to the Foundation back to the City for the City’s use in the construction of a parking facility adjacent to the Walton Arts Center or as otherwise determined by the Fayetteville City Council; and with consent by the University to expend the institution’s initial payment of $1.5 million dollars to the Foundation to help defray the construction costs of the proposed enlargement and enhancement of the Walton Arts Center located in Fayetteville, Arkansas. Upon return of the funds to the City and the use of University provided funds for construction, the Walton Arts Center Foundation, Inc. will no longer be an agent for the City of Fayetteville or the University of Arkansas. The City and the University will no longer have the right of appointment of Walton Arts Center Foundation, Inc. directors.

An Amended and Restated Interlocal Cooperation Agreement was also executed that permits the Walton Arts Center to conduct business as a separate, free-standing non-profit corporation; that budget and operational oversight rests exclusively with the Walton Arts Center Council and confirms the Walton Arts Center is no longer and agent of the University or the City, nor restricted to the terms of the original agreement; and affirms the Walton Arts Center must comply with the terms of a new lease agreement executed by the University, City of Fayetteville and the Walton Arts Center Council.

The lease agreement extends the term to twenty-five years and recognizes the changed scope of the Walton Arts Center. The lease also provides assurances regarding the on-going quality and type of performances at the Walton Arts Center in Fayetteville.

(! B-92

UNIVERSITY OF ARKANSAS, FAYETTEVILLE

2014 ANNUAL FINANCIAL REPORT

REQUIRED SUPPLEMENTAL INFORMATION

(" B-93

Other Postemployment Benefits

Determination of End of Year Accrual

Unfunded actuarial accrued liability at 7/1/13 $ 17,588,820

Net OPEB Obligation, 7/1/13 $ 11,430,713 Annual OPEB Cost for FY14 1,549,194 Less: Expected Employer Contributions (665,475)

Net OPEB Obligation, 6/30/14 $ 12,314,432

Schedule of Employer Contributions

(# B-94

An explanation of the differences in the annual required contribution is provided in the section, General Overview of the Valuation Methodology.

Schedule of Funding Progress

Actuarial UAAL as Fiscal Actuarial Accrued Percentage Year Value of Liability Unfunded Funded Covered Of Covered Ending Assets (AAL) AAL (UAAL) Ratio Payroll Payroll 6/30/12 $ 0 $ 22,239,601 $ 22,239,601 0% $ 247,779,672 8.98% 6/30/13 $ 0 $ 19,691,029 $ 19,691,029 0% $ 257,844,616 7.64% 6/30/14 $ 0 $ 17,588,820 $ 17,588,820 0% $ 269,869,374 6.52%

Changes in Actuarial Assumptions and Methods Effective January 1, 2013, UMR, a subsidiary of United Healthcare, replaced QualChoice as the University’s medical plan administrator. The effect of this change on network discounts was estimated based on the United Healthcare book-of-business discount information contained in the Aon Hewitt Discount Analysis Database compared to the specific claims and discount data reported by QualChoice. In the aggregate, this change is estimated to reduce health care costs by 11.4%. Also, the healthcare trend rate assumption was changed to better reflect anticipated future experience. This change increased the Actuarial Accrued Liability by $2,059,046 as of July 1, 2013.

($ B-95

claims by age to be used in the valuation. Expected retiree premiums were developed to represent the expected cost sharing level anticipated by the University. Retiree premiums were also age-adjusted for use in the valuation.

(% B-96

BOARD OF TRUSTEES

Jim von Gremp, Chairman Ben Hyneman, Vice Chairman Rogers, AR Jonesboro, AR Term Ends 03/01/15 Term Ends 03/01/18

Jane Rogers, Secretary Stephen Broughton, M.D., Assistant Secretary Little Rock, AR Pine Bluff, AR Term Ends 03/01/16 Term Ends 03/01/22

Reynie Rutledge David H. Pryor Searcy, AR Fayetteville, AR Term Ends 03/01/17 Term Ends 03/01/19

Mark Waldrip John C. Goodson Moro, AR Texarkana, AR Term Ends 03/01/20 Term Ends 03/01/21

C.C. “Cliff” Gibson III Morril Harriman Monticello, AR Little Rock, AR Term Ends 03/01/23 Term Ends 03/01/24

UNIVERSITY OF ARKANSAS FINANCIAL OFFICERS

Donald O. Pederson Jean E. Schook Vice Chancellor for Associate Vice Chancellor for Finance & Administration Finance & Administration (retired June 30, 2014)

Larrie Stolfi Stephen Turner Controller Director of Research Accounting

Michael White Jo Ann Pepper Associate Controller Director of Student Accounts

Eric Robinson Peter Campbell Budget Officer Information Technology Director

Susan Slinkard Charles D. Ramseyer Investment Manager Director of Financial & Management Analysis

Printed by University of Arkansas P∙M∙C Solutions (& B-97 [PAGE INTENTIONALLY BLANK]

APPENDIX C

Audited Consolidated Financial Report of the University of Arkansas System for the Fiscal Year Ended June 30, 2014

[PAGE INTENTIONALLY BLANK]

UA M TThehe UniversityUniversity ofof Arkansas at MonticelloMonticello MonticelloMonticellossee GGeheeehee

UNIVERSITY OF ARKANSAS SYSTEM Consolidated Financial Statements FY2013-14 BOARD OF TRUSTEES Jim von Gremp, Chairman

Ben Hyneman, Vice Chairman

airman Jane Rogers, Secretary

Dr. Stephen A. Broughton, Asst. Secretary

Reynie Rutledge

David Pryor

Mark Waldrip

John C. Goodson

Mrs. Jane Rogers, Board Chairman O P

Jim von Gremp, Chairman Morril Harriman

ADMINISTRATIVE OFFICERS Donald R. Bobbitt President

Michael K. Moore Vice President for Academic Affairs

Daniel E. Ferritor Vice President for Learning Technologies

Barbara A. Goswick Vice President for Finance & CFO

Ann Kemp Vice President for Administration

Melissa K. Rust Vice President for University Relations

Fred H. Harrison \ General Counsel Dr. Donald R. Bobbitt, President

C-2 Table of Contents

Board of Trustees & Administrative Officers ...... Inside Front Cover Letter of Transmittal ...... 3 Independent Auditor’s Report ...... 4 Management Discussion & Analysis ...... 6 Five Year Summary of Key Financial Data ...... 14 Five Year Summary of Key Student Data ...... 15

Consolidated Financial Statements Statement of Net Position ...... 16 Statement of Revenues, Expenses, and Changes in Net Position ...... 17 Statement of Cash Flows ...... 18

Discreetly Presented Component Units University of Arkansas Foundation, Inc...... 20 University of Arkansas Fayetteville Campus Foundation, Inc...... 21

Campus Financial Statements Statement of Net Position ...... 22 Statement of Revenues, Expenses, and Changes in Net Position ...... 23 Statement of Cash Flows ...... 24

Notes to Financial Statements Note 1: Summary of Significant Accounting Policies...... 26 Note 2: Reporting Entity...... 29 Note 3: Hospital Revenue ...... 30 Note 4: Compensated Absences...... 31 Note 5: Cash, Cash Equivalents and Investments ...... 33 Note 6: Income Taxes ...... 38 Note 7: Bonds, Notes, Capital Leases and Installment Contracts ...... 38 Note 8: Commitments ...... 50 Note 9: Short-Term Borrowing ...... 51 Note 10: Capital Assets ...... 52 Note 11: Risk Management ...... 52 Note 12: Employee Benefits ...... 53 Note 13: Other Postemployment Benefits (OPEB)...... 56 Note 14: Other Organizations ...... 62 Note 15: Natural & Functional Classification of Operating Expenses ...... 71 Note 16: Contingencies...... 71 Note 17: Elimination of Inter-Company Transactions ...... 72 Note 18: Disaggregation of Accounts Receivable and Accounts Payable ...... 73 Note 19: Joint Endeavor ...... 73 Note 20: Related Parties ...... 74 Note 21: Prior Year Restatements ...... 75 Note 22: Subsequent Events ...... 76

Required Supplementary Information ...... 78

Supplemental Information – Points of Pride ...... 80

Campus Administrators ...... Inside back cover

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December 15, 2014

Board of Trustees President Donald R. Bobbitt

It is my pleasure to transmit to you the Consolidated Financial Report of the University of Arkansas System for the fiscal year ended June 30, 2014, with comparative data as restated for the fiscal year ended June 30, 2013. The data presented, including the Management Discussion and Analysis, Statement of Net Position, Statement of Revenues, Expenses, and Changes in Net Position, and Statement of Cash Flows, are exhibited on a consolidated basis and include all components of the UA System: UAF (University of Arkansas Fayetteville, including Agricultural Experiment Station, Cooperative Extension Service, Arkansas Archeological Survey, Criminal Justice Institute, and Clinton School of Public Service), UAFS (University of Arkansas at Fort Smith), UALR (University of Arkansas at Little Rock), UAMS (University of Arkansas for Medical Sciences), UAM (University of Arkansas at Monticello), UAPB (University of Arkansas at Pine Bluff), CCCUA (Cossatot Community College of the University of Arkansas), PCCUA (Phillips Community College of the University of Arkansas), UACCB (University of Arkansas Community College at Batesville), UACCH (University of Arkansas Community College at Hope), UACCM (University of Arkansas Community College at Morrilton), ASMSA (Arkansas School for Mathematics, Sciences and the Arts), and SYSTEM (University of Arkansas System Administration, including University of Arkansas System eVersity).

These statements were prepared in accordance with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB). The financial statements used to prepare the consolidated report, except for the Medical Sciences campus and the discretely presented component units, were audited by the Arkansas Division of Legislative Audit. The financial statements from the Medical Sciences campus were audited by PricewaterhouseCoopers LLP. All received unqualified audit opinions.

Barbara A. Goswick, CPA Vice President for Finance & CFO

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UNIVERSITY OF ARKANSAS SYSTEM: Management Discussion and Analysis

Overview of the Financial Statements and Financial Analysis

The University of Arkansas System (“the University”) is pleased to present its financial statements for the fiscal year ended June 30, 2014, with the fiscal year 2013 prior year data presented for comparative purposes. The data presented include the Statement of Net Position, the Statement of Revenues, Expenses, and Changes in Net Position, and the Statement of Cash Flows.

The University, which prior to 1969 consisted of the Fayetteville and Medical Sciences campuses, was expanded in 1969 to include the Little Rock campus (formerly Little Rock University), in 1971 to include the Monticello campus (formerly Arkansas A&M College), in 1972 to include the Pine Bluff campus (formerly Arkansas AM&N College), in 1996 to include the Phillips campus (formerly Phillips County Community College), and the Hope campus (formerly Red River Technical College), and in 1998 to include the Batesville campus (formerly Gateway Technical College). On July 1, 2001, the University was expanded to include campuses in Morrilton (formerly Petit Jean College) and DeQueen (formerly Cossatot Community College). The Fort Smith campus (formerly Westark College) joined the University on January 1, 2002. Forest Echoes Technical Institute and Great Rivers Technical Institute merged with the Monticello campus on July 1, 2003. The Arkansas School for Mathematics, Sciences and the Arts joined the University on January 1, 2004. In addition to these campuses, the University of Arkansas System includes the following units: Clinton School of Public Service, Division of Agriculture, Archeological Survey, Criminal Justice Institute, eVersity, and the System Administration.

All programs and activities of the University of Arkansas are governed by its Board of Trustees, which has delegated to the President the administrative authority for all aspects of the University’s operations. Administrative authority is further delegated to the Chancellors, the Vice President for Agriculture, the Dean of the Clinton School, the Director of the Criminal Justice Institute, the Director of Archeological Survey, and the Director of Arkansas School for Mathematics, Sciences and the Arts, who have responsibility for the programs and activities of their respective campuses or state-wide operating division.

The University’s financial statements were prepared in accordance with standards issued by the Governmental Accounting Standards Board (GASB). The financial statement presentation required by GASB Statement No. 35, Basic Financial Statements-and Management’s Discussion and Analysis-for Public Colleges and Universities, provides a comprehensive, entity-wide perspective of the University’s assets, deferred outflows, liabilities, deferred inflows, net position, revenues, expenses, changes in net position, and cash flows. This discussion has been prepared by management and should be read in conjunction with the financial statements and notes following this section.

The University has identified two foundations as component units subject to inclusion in the financial report: the University of Arkansas Foundation, Inc. and the University of Arkansas Fayetteville Campus Foundation, Inc. As component units, their financial information is included in this financial report in accordance with GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units. Additional information regarding these foundations is provided in Note 1 of the financial statements.

Statement of Net Position

The statement of net position presents the financial position of the University and includes all assets, deferred outflows of resources, liabilities, and deferred inflows of resources. The sum of total assets and deferred outflows of resources less total liabilities and deferred inflows of resources is net position, which is an indicator of the current financial condition of the University. When revenues and other support exceed expenses, the result is an increase in net position. When the reverse occurs, there is a decrease in net position. Over time, increases or decreases in an institution’s net position are one, but not the only, indicator of whether its financial health is improving or diminishing.

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UNIVERSITY OF ARKANSAS SYSTEM: Management Discussion and Analysis

Assets and liabilities are identified as current or noncurrent. Current assets are those assets that can be realized in the next fiscal year, and current liabilities are expected to be paid within the next year. Noncurrent assets and liabilities are not expected to be realized as cash or paid in the next fiscal year. Assets, deferred outflows of resources, liabilities, and deferred inflows of resources are generally measured using current values, with the exception of capital assets, which are stated at historical cost less accumulated depreciation.

Net position is divided into four major categories: Net investment in capital assets: capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets. Restricted – non-expendable: net position subject to externally-imposed stipulations that it be maintained permanently by the University. Restricted – expendable: net position whose use by the University is subject to externally-imposed stipulations that can be fulfilled by actions of the University pursuant to those stipulations or that expire by the passage of time. Unrestricted: net position that is not subject to externally imposed stipulations but can be used at the discretion of the governing board to meet current expenses for any purpose if not limited by contractual agreements with outside parties.

Condensed Statement of Net Position

June 30, 2014 June 30, 2013 ASSETS Current assets $ 815,366,316 $ 828,536,348 Capital assets, net 2,588,971,402 2,511,847,964 Other assets 436,958,448 450,987,464 Total Assets $ 3,841,296,166 $ 3,791,371,776

DEFERRED OUTFLOWS OF RESOURCES $ 15,057,640 $ 15,849,994

LIABILITIES Current liabilities $ 267,910,051 $ 282,055,791 Noncurrent liabilities 1,444,471,269 1,435,931,889 Total Liabilities $ 1,712,381,320 $ 1,717,987,680

NET POSITION Net Investment in Capital Assets $ 1,361,813,338 $ 1,322,883,554 Restricted Non-Expendable $ 67,095,362 $ 62,673,845 Expendable 232,118,779 206,205,496 Unrestricted 482,945,007 497,471,195 Total Net Position $ 2,143,972,486 $ 2,089,234,090

The University’s total assets increased $49.9 million, resulting from several offsetting variances, including an increase of $41.7 million in cash and investments. An increase of $4.7 million in patient accounts receivable resulted from additional net patient service revenue experienced by UAMS. Accounts receivable decreased $13.0 million, half of which is directly related to the increase that UAMS experienced in fiscal year 2013. Deposits with bond trustees, representing unspent debt proceeds and bond reserve funds, decreased $60.4 million, and are directly related to the increase of $77.1 million in capital assets.

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UNIVERSITY OF ARKANSAS SYSTEM: Management Discussion and Analysis

Deferred outflows of resources consist of deferred amounts on refinancing of debt. Prior to the adoption of GASB Statement No. 65, these deferred amounts were included with the debt liability. The deferred outflows decreased $0.8 million from the fiscal year’s amortization.

Total liabilities decreased $5.6 million and also resulted from several offsetting variances. Estimated third party payor settlements related to the Medicare and Medicaid programs at UAMS increased $6.1 million. Compensated absences (see Note 4) and other post-employment benefits (see Note 13) increased a total of $6.3 million. Accounts payable and other accrued liabilities decreased $14.3 million. The liability for bonds, notes, capital leases and installment contracts decreased $3.7 million.

The increase in assets of $49.9 million netted against decreases of $0.8 million in deferred outflows of resources and $5.6 million in liabilities resulted in an increase of $54.7 million in total net position for the University.

Statement of Revenues, Expenses and Changes in Net Position

Changes in total net position are the result of activity presented in the statement of revenues, expenses, and changes in net position. The statement presents operating and non-operating revenues received and expenses incurred by the University, along with any other revenues, expenses, gains and losses. The operating losses of $689.1 million and $629.4 million in fiscal years 2014 and 2013, respectively, are of little significance to the University since the GASB requires a significant portion of revenues (state appropriations, gifts, and some grants and contracts) to be reported as non-operating.

Condensed Statement of Revenues, Expenses, and Changes in Net Position

Year Ended June 30, 2014 June 30, 2013 Operating revenues $ 1,841,967,925 $ 1,818,872,452 Operating expenses 2,531,083,604 2,448,232,959 Operating Loss (689,115,679) (629,360,507)

Non-operating revenues and expenses 694,316,513 687,194,519

Income before other revenues and expenses 5,200,834 57,834,012

Other revenues and expenses 49,537,562 24,048,887

Increase in Net Position 54,738,396 81,882,899

Net Position, beginning of year restated 2,089,234,090 2,007,351,191

Net Position, end of year $ 2,143,972,486 $ 2,089,234,090

Operating revenue increased $23.1, due to several factors. An increase of $32.8 million in net patient services revenue is due primarily to an increase in third party payor rates, higher acuity cases, and an increase in professional fees. Net student tuition and fees increased $20.3 million, 81% of which was a reflection of continued record enrollment growth and rate revisions at the Fayetteville campus. Other operating revenue decreased $22.1 million due in large part to recognition and receipt in fiscal year 2013 of a nonrecurring refund of $13.6 million to UAMS from the Internal Revenue Service for Federal Insurance Contributions Act (FICA) taxes paid on wages

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UNIVERSITY OF ARKANSAS SYSTEM: Management Discussion and Analysis for medical residents for calendar years 1996 through 1999. Athletic income decreased $4.7 million, largely due to changes in football game scheduling on the Fayetteville campus that resulted in loss of ticket sales due to one less home game and added travel expense. Grants and contracts collectively decreased $7.1 million, mainly due to activity on three campuses. UAMS experienced decreases of $6.5 million, largely from decreased funding from the Department of Health and Human Services and $4.8 million in state grants due to reduced activity, offset by an increase of $7.5 million, primarily due to increased contract activity in the College of Medicine. The Fayetteville campus had an increase of $2.9 million, primarily as a result of timing of certain awards and other cyclical changes. There was a decrease of $5.6 million for the Little Rock campus due to the completion of some grants.

Total operating expenses increased $82.8 million, approximately half of which is due to increased compensation and benefit costs of $41.8 million, or 2.9%, over the previous year. Compensation and benefit expense at UAMS rose a total of $34.0 million, of which $16.6 million is related to patient care, primarily due to the staffing required to support increases in the outpatient clinics and emergency room and the clinical complexity of patients in the hospital. Also contributing significantly to the increase at UAMS was the need for additional staff for the final year of the implementation phase of the new integrated clinical software system. Compensation and benefit costs increased $16.9 million at the Fayetteville campus because of necessary increases in faculty to support enrollment growth along with modest salary increases for faculty and staff. These increases were offset by a decrease in compensation and benefit expense at the Little Rock campus in the amount of $5.9 million due to an aggressive early retirement package and stringent controls on refilling of vacancies. Expense related to the insurance plan increased $9.0 million due to a large number of catastrophic claims in the fourth quarter of the fiscal year. The cost of supplies and services increased $31.7 million, of which $12.7 million is attributable to UAMS and $11.6 million to the Fayetteville campus. The increase in depreciation of $7.0 million is offset by a decrease of $6.7 million in scholarship expense.

Net non-operating revenues increased by $7.1 million. This was in large part due to increases of $13.3 million in state appropriations, and $15.9 million in investment income, largely due to a positive investment market during the fiscal year, offset by decreases of $10.0 million in nonexchange grants, $4.7 million in non-capital gifts, and an increase of $8.0 million in interest and fees on capital asset-related debt.

Other changes in net position increased $25.5 million, of which $21.9 million is an increase in capital appropriations, largely from state General Improvement Funds.

Gifts reported reflect only a portion of the gifts available to the University. Most gifts for the benefit of the University are made to the University of Arkansas Foundation, whose financial information is presented in Note 1.

Statement of Cash Flows

The purpose of the statement of cash flows is to provide information about the cash receipts and disbursements of the University for the year. This statement may aid in the assessment of the University’s ability to meet obligations as they become due, the need for external financing, and the ability to generate future cash flow. This statement is prepared using the “direct method” as required by the GASB.

Similar to operating loss on the statement of revenues, expenses, and changes in net position, net cash provided by operating activities is of little significance to the University because the GASB requires significant sources of cash to be reported as non-operating financing. The net cash provided by the combination of operating activities and non-capital financing activities is a much more meaningful number for the University. The positive amounts of $193.1 million and $209.7 million for fiscal years 2014 and 2013, respectively, indicate that these activities contributed cash and liquidity for the year. Cash used by capital and related financing activities reflects the University’s continued use of debt to finance the acquisition of capital assets.

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UNIVERSITY OF ARKANSAS SYSTEM: Management Discussion and Analysis

Condensed Statement of Cash Flows

Year Ended June 30, 2014 June 30, 2013 Cash provided (used) by: Operating activities $ (505,210,405) $ (487,581,428) Noncapital financing activities 698,300,455 697,314,020 Sub-Total 193,090,050 209,732,592

Capital and related financing activities (232,473,613) (179,836,868) Investing activities 104,548,370 (26,473,227)

Net change in cash 65,164,807 3,422,497 Cash, beginning of year 376,519,310 373,096,813 Cash, end of year $ 441,684,117 $ 376,519,310

Capital Assets and Long-Term Debt Activity

At June 30, 2014, the University had $2.6 billion of capitalized assets, net of accumulated depreciation of $1.9 billion. Net capital additions in fiscal year 2014 totaled $200.9 million which was offset by a net adjustment to accumulated depreciation of $123.8 million, resulting in an increase over the previous year of $77.1 million.

New debt issued for bonds, notes, and capital leases offset by payments of principal caused a net decrease of $3.7 million in debt for fiscal year 2014. The University issued a total of $91.7 million in bonds, $22.3 million of which represents refunding issues. Refunding bond issues include: $5.3 million to refund Series 2006 for the Fort Smith campus and $17.0 million to refund Series 2005A for the Pine Bluff campus. The Fayetteville campus issued $24.7 million (Series 2014A) and $5.0 million (Series 2014B) to finance the purchase of the Cato Springs Research Center, the renovation and upgrading of the central heating plant, renovating the Field House and converting it into the Jim and Joyce Faulkner Performing Arts Center, the renovation and repurposing of underutilized space in the Agricultural, Food, and Life Science Building into general purpose classrooms, the renovation, improving, equipping, and furnishing of previously purchased buildings to be used as an Art and Design District, and the renovation and expansion of student housing. The Little Rock campus issued $28.7 million (Series 2013C) to fund a complete campus energy management and conservation program, including upgraded building automation systems and retrofits of pneumatic controls to digital direct controls, retro- commissioning of building HVAC systems, distributed generation, district heating and cooling systems, interior lighting retrofits, and exterior lighting retrofits. The Fort Smith campus issued $11.0 million (Series 2014B) to construct a student recreation and wellness center. More detailed information about debt activity is presented in Note 7.

Economic Outlook

The University’s financial position improved in fiscal year 2014 with an increase of $54.7 million in net position in spite of a decrease of $9.3 million, which was the net effect of restatements required by GASB Statement No. 65 (see Note 21). Moody’s Investors Service last reaffirmed the University’s rating of Aa2 with a stable outlook on June 19, 2014. One of the University’s greatest strengths is the diverse stream of revenue which funds its operations, including tuition, patient services revenue, state appropriations, investment income, grants and contracts, and support from individuals, foundations, and corporations. Because the Fayetteville campus and

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UNIVERSITY OF ARKANSAS SYSTEM: Management Discussion and Analysis the Medical Sciences campus account for 74.0% of total net position and 86.5% of operating revenues, discussion below is centered on these two campuses.

UAMS Fiscal year 2014 was a challenging year for UAMS as evidenced by its $14,534,000 decrease in net position. The transition to the new EPIC integrated clinical information system, which was completed during fiscal year 2014, accounts for some of the change, both in terms of direct project expense incurred during the year as well as the slowdown of patient revenue collection simply due to the system changeover. As UAMS gains experience with this new system, it is anticipated there will much greater efficiency in the revenue cycle in terms of charge capture, billing, and collections that could yield additional revenue benefits.

Federal support remains an unknown for the future. National Institute for Health research funding is unlikely to return to pre-sequestration levels. Graduate medical education, especially indirect medical education reimbursements, is expected to be reduced, and Medicare disproportionate share (DSH) payments are expected to decline as much as $1.1 billion nationally over the next couple of years. UAMS’ net patient service revenue included $66.7 million in Medicare DSH payments in fiscal year 2014.

On the positive side, uncompensated care continued to decline dramatically during fiscal year 2014, from about 12% to 4%, as more Arkansas residents signed up for healthcare insurance coverage under Arkansas’ private option expansion of Medicaid. This contributed positively to UAMS patient service revenue during the latter part of the fiscal year. There is an expectation that there will be a much more significant impact in fiscal year 2015, adding as much as $14 million to patient care revenue. UAMS remains highly dependent on patient service revenue, which represents 72.3% of total revenue.

Reductions in state appropriations were implemented for fiscal year 2015 totaling $14.6 million, though relief in the form of $7 million of state rainy day funds has been provided to restore part of this reduction. It is also expected that a portion of the funding match to the Arkansas Department of Human Services for Medicaid supplemental funds will be waived in fiscal year 2015. The funding match is approximately $7.5 million and is used to obtain Medicaid supplemental funding for Arkansas’ rural hospitals. This change is expected to become a permanent change to UAMS’ matching requirements. Future budget strategies will place greater emphasis on the educational components of UAMS’ mission and the importance of that educational mission to the State of Arkansas.

In the next couple of years, UAMS will seek opportunities to invest in its clinical and campus infrastructure in order to sustain growth, target opportunities for additional patient referrals by expanding its primary care footprint in the State, and take advantage of clinical opportunities in key specialties through statewide partnerships. A new primary care clinic recently opened in west Little Rock, Arkansas. Through its newly created Center for Health and Economic Development, UAMS launched provider service initiatives with Saline Memorial Hospital in Benton, Arkansas and CHI St. Vincent Hospital. Plans to refinance bonds, to take advantage of the lower interest rate environment, will help provide added revenue to support these initiatives and others.

UAMS is continuing its performance excellence program and beginning to implement its new service line strategy that was developed in fiscal year 2013. Four service lines are planned to go into operation in fiscal year 2015 that will bring together clinical components of the College of Medicine, the Hospital, and Clinics into an integrated clinical enterprise: Cancer, Behavioral Health, Women’s Health, and Primary Care. To support the many operational changes this initiative will require, efforts have begun to transform the organizational structure in finance, human resources, and a few other areas. It is expected that all of these efforts, together with the many projects underway to improve the efficiency and effectiveness of processes, will result in improved patient care and better service to students and the community, while resulting in cost reduction and increased revenue.

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UNIVERSITY OF ARKANSAS SYSTEM: Management Discussion and Analysis

UAMS recently completed the organizational consolidation of registration, student records, student accounts, and student financial assistance operations and has begun standardizing processes in these areas. These changes were necessary to accommodate the implementation of the new student information system which remains on target for a Fall 2015 implementation.

While there are many positive changes occurring that will lead to a more efficient and effective operating environment at UAMS, management understands that many challenges remain to reaching goals and objectives. At the same time, management is committed to pursuing these goals, sustaining financial viability, and serving the needs of its patients, students, and community stakeholders. Through the strategies UAMS has adopted, the institution will be well-positioned to address the impact of the changes occurring in healthcare.

Fayetteville Enrollment records continue to be broken, with a preliminary figure of 26,237, an increase of 896, for fall 2014. This marks the first time the flagship campus has exceeded 26,000 students. Undergraduate enrollment is up 3.9%. Graduate enrollment increased 2% and the enrollment at the School of Law decreased 2.8%. Since 2008, enrollment has increased 37%, or more than 7,100 students. This growth trend led the Chronicle of Higher Education to rank the Fayetteville campus as the 7th fastest growing public research university in the country. The campus has also experienced a steady improvement in both academic quality and diversity.

The campus continues to build momentum for its next comprehensive fundraising campaign. Fundraising production totals for private gift support has exceeded $100 million for four consecutive years. Production amounts include gifts of cash, gifts-in-kind, planned gifts, and new pledges. In fiscal year 2014, the campus recognized $113.3 million of private gift support, surpassing its goal of $108 million. This support is critical to ensure success for students and faculty and is a fundamental component in meeting budgetary needs. Support received from alumni, friends, organizations, faculty, and staff enhances all aspects of the student experience, including academic and need-based scholarships; technology enhancements; new and renovated facilities; undergraduate, graduate and faculty research; student abroad opportunities; and innovative programs. Virtually all private gifts are received by the University of Arkansas Foundation.

New Initiative At its meeting on March 21, 2014, the Board of Trustees adopted a resolution establishing the University of Arkansas System eVersity (UASe), a complete online university that will seek its own accreditation. Faculty will be composed of faculty from all UA System campuses who express a desire to work with UASe. Early efforts will be focused on enrolling traditionally un- served and underserved Arkansans. Hiring for full-time staff has begun, and it is anticipated that the first degree programs will be available beginning in October, 2015. UASe received $2 million in state General Improvement Funds in fiscal year 2014 that will help fund start-up costs.

All Campuses Financial support from state government for all campuses remains a critical element to the continued financial health of the University. Arkansas appears to have successfully weathered the effects of the national economic crisis, as general revenue forecasts are positive and the state budget remains balanced. Excluding the reductions for UAMS as discussed above, state funding in fiscal year 2015 remains relatively flat with some, but not all, campuses receiving increases that total $2.9 million. Management will continue to budget conservatively and to emphasize cost containment.

From the fall semester of 2009 to the fall semester of 2014, the number of full-time equivalent students has increased 8.9% from 45,284 to 49,310, and headcount has increased 4.1% from 59,661 to 62,109.

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C-15 13

UNIVERSITY OF ARKANSAS SYSTEM: Five Year Summary of Key Financial Data

FIVE YEAR SUMMARY OF KEY FINANCIAL DATA

FY 2014 FY 2013 FY 2012 FY 2011 FY 2010

Operating Revenues

Tuition and fees, net $ 295,422,375 $ 275,084,672 $ 250,856,349 $ 221,756,700 $ 214,828,525

Patient revenue, net 919,366,000 886,577,000 876,544,000 868,685,000 834,821,000

Federal and county appropriations 16,493,123 17,028,573 14,998,255 13,975,256 13,883,529

Grants and Contracts 314,008,446 321,126,655 365,262,370 319,888,263 298,494,991

Sales and services of educ depts 58,197,719 56,376,967 57,750,494 52,760,980 53,703,089

Insurance plan 43,296,032 43,802,468 41,906,125 41,061,956 41,134,170

Auxiliary enterprises 166,242,253 167,875,096 164,638,959 148,625,941 146,470,797

Other 28,941,977 51,001,021 30,332,695 22,936,597 20,599,300

Total operating revenues $ 1,841,967,925 $ 1,818,872,452 $ 1,802,289,247 $ 1,689,690,693 $ 1,623,935,401

Operating Expenses

Compensation and benefits $ 1,467,393,492 $ 1,425,598,007 $ 1,382,287,125 $ 1,312,312,613 $ 1,275,026,612

Supplies and services 660,578,459 628,874,631 652,774,990 611,242,986 597,901,714

Scholarships and fellowships 86,396,670 93,059,279 95,485,181 103,128,338 73,905,394

Insurance plan 151,517,415 142,467,947 141,182,749 133,629,624 121,438,620

Depreciation 165,197,568 158,233,095 148,160,061 142,557,108 145,899,504

Total operating expenses $ 2,531,083,604 $ 2,448,232,959 $ 2,419,890,106 $ 2,302,870,669 $ 2,214,171,844

Operating loss $ (689,115,679) $ (629,360,507) $ (617,600,859) $ (613,179,976) $ (590,236,443)

Nonoperating Revenues and Expenses

State appropriations $ 444,544,715 $ 431,252,786 $ 425,672,916 $ 426,443,808 $ 431,109,864

Property and sales tax 12,303,561 11,674,780 12,194,886 11,648,766 10,842,771

Grants and contracts 147,597,024 157,605,951 162,026,457 177,848,289 122,756,795

Gifts 96,438,382 101,145,251 88,575,906 74,473,961 81,825,145

Investment income, net 40,177,645 24,228,708 14,843,356 35,355,451 36,634,335

Interest on capital-related debt (46,516,830) (38,498,129) (41,530,288) (43,686,367) (40,602,707)

Other (227,984) (214,828) 1,205,278 229,835 670,613

Total nonoperating revenues & expenses $ 694,316,513 $ 687,194,519 $ 662,988,511 $ 682,313,743 $ 643,236,816

Other Changes in Net Position

Capital appropriations $ 23,160,667 $ 1,241,482 $ 4,315,381 $ 5,012,936 $ 6,634,818

Capital grants and gifts 26,030,024 23,653,645 55,709,101 31,590,946 22,917,521

Bond proceeds from Act 1282 of 2005 - - 25,063,768

Other 346,871 (846,240) (102,600) 1,014,487 1,449,860

Total Other Change in Net Position $ 49,537,562 $ 24,048,887 $ 59,921,882 $ 37,618,369 $ 56,065,967

Total Increase in Net Position $ 54,738,396 $ 81,882,899 $ 105,309,534 $ 106,752,136 $ 109,066,340

Net Position

Net Investment in Capital Assets $ 1,361,813,338 $ 1,322,883,554 $ 1,291,051,352 $ 1,217,021,877 $ 1,214,124,374

Restricted - Non-Expendable 67,095,362 62,673,845 60,292,554 58,052,936 52,337,549

Restricted - Expendable 232,118,779 206,205,496 206,898,934 186,430,078 178,247,610

Unrestricted 482,945,007 497,471,195 456,558,745 447,987,160 357,547,253

Total Net Position $ 2,143,972,486 $ 2,089,234,090 $ 2,014,801,585 $ 1,909,492,051 $ 1,802,256,786 Note: Net Position, End of Fiscal Year 2012, was decreased by $7,450,394 from amount shown above as a cumulative adjustment due to GASB Statement No. 65 7

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UNIVERSITY OF ARKANSAS SYSTEM: Five Year Summary of Key Student Data

Enrollment Fall Semester 2014* 2013 2012 2011 2010 Undergraduate Students (Headcount) 52,990 53,792 54,127 53,665 52,382 Graduate Students (Headcount) 9,119 9,071 8,955 9,011 9,187 Total 62,109 62,863 63,082 62,676 61,569

Undergraduate Students (FTE) 42,949 43,760 43,615 42,524 41,189 Graduate Students (FTE) 6,361 6,348 6,226 5,940 5,970 Total 49,310 50,108 49,841 48,464 47,159

Degrees Awarded Fiscal Year Ended June 30, 2014 2013 2012 2011 2010 Certificates 2,034 1,928 2,027 2,362 2,113 Associate 2,144 1,863 1,907 1,957 1,831 Baccalaureate 7,046 6,281 6,165 5,682 5,140 Post-Baccalaureate 128 118 106 147 124 Master's 1,905 1,987 1,969 1,918 1,826 Post-Master's 7 45 28 21 16 Doctoral 246 264 235 215 208 First Professional 544 549 520 518 521 Total 14,054 13,035 12,957 12,820 11,779 *Preliminary Data from Arkansas Department of Higher Education

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UNIVERSITY OF ARKANSAS SYSTEM: Consolidated Financial Statements FY14

UNIVERSITY OF ARKANSAS Statement of Net Position June 30, 2014 with comparative figures at June 30, 2013

June 30, 2014 June 30, 2013 ASSETS Current Cash and cash equivalents $ 406,381,924 $ 352,984,223 Investments 135,590,928 184,309,436 Accounts receivable, net of allowances of $18,998,506 & $23,480,970 108,292,555 121,247,557 Patient accounts receivable, net of allowances of $447,121,000 & $468,282,000 113,067,000 108,398,000 Inventories 28,945,306 26,778,253 Deposits and funds held in trust by others 8,229,610 17,930,766 Notes receivable, net of allowances of $840,542 & $879,894 5,685,920 5,585,735 Other assets 9,173,073 11,302,378 Total current assets 815,366,316 828,536,348

Non-Current Cash and cash equivalents 35,302,193 23,535,087 Investments 237,324,953 212,031,516 Notes receivable, net of allowance of $4,574,933 & $4,758,642 36,961,706 37,658,910 Deposits and funds held in trust by others 126,513,611 177,170,529 Other non-current assets 855,985 591,422 Capital assets, net of depreciation of $1,938,952,435 & $1,815,112,141 2,588,971,402 2,511,847,964 Total non-current assets 3,025,929,850 2,962,835,428

TOTAL ASSETS $ 3,841,296,166 $ 3,791,371,776

DEFERRED OUTFLOWS OF RESOURCES Deferred amount on debt refunding $ 15,057,640 $ 15,849,994

LIABILITIES Current Accounts payable and other accrued liabilities $ 124,455,375 139,160,719 Unearned revenue 39,489,195 40,460,130 Funds held in trust for others 5,884,830 5,230,432 Liability for future insurance claims (Note 12) 14,524,000 14,792,000 Estimated third party payor settlements 6,335,000 267,000 Compensated absences payable - current portion (Note 4) 5,264,931 4,990,263 Bonds, notes, capital leases and installment contracts payable - current portion (Note 7) 71,956,720 77,155,247 Total current liabilities 267,910,051 282,055,791

Non-Current Unearned revenues, deposits and other 1,937,045 1,020,566 Refundable federal advance - Perkins loans 16,744,030 16,665,969 Compensated absences payable (Note 4) 75,393,586 73,504,371 Liability for other postemployment benefits (Note 13) 49,993,475 45,808,127 Bonds, notes, capital leases and installment contracts payable (Note 7) 1,300,403,133 1,298,932,856 Total non-current liabilities 1,444,471,269 1,435,931,889

TOTAL LIABILITIES $ 1,712,381,320 $ 1,717,987,680

NET POSITION Net Investment in Capital Assets $ 1,361,813,338 $ 1,322,883,554 Restricted Non-Expendable Scholarships and fellowships 10,696,313 10,306,262 Research 6,199,736 6,186,351 Other 50,199,313 46,181,232 Expendable Scholarships and fellowships 21,285,927 23,062,427 Research 51,114,193 42,643,251 Public service 10,370,271 13,470,872 Capital projects 109,940,006 96,913,540 Other 39,408,382 30,115,406 Unrestricted 482,945,007 497,471,195 TOTAL NET POSITION $ 2,143,972,486 $ 2,089,234,090

See accompanying notes.

16 C-18

UNIVERSITY OF ARKANSAS SYSTEM: Consolidated Financial Statements FY14

UNIVERSITY OF ARKANSAS Statement of Revenues, Expenses, and Changes in Net Position For The Year Ended June 30, 2014 with comparative figures for 2013

Year Ended Operating Revenues June 30, 2014 June 30, 2013 Student tuition & fees, net of scholarship allowances of $133,103,566 & $132,345,027$ 295,422,375 $ 275,084,672 Patient services, net of contractual allowances of $1,280,815,000 & $1,029,435,000 919,366,000 886,577,000 Federal and county appropriations 16,493,123 17,028,573 Federal grants and contracts 160,251,684 174,761,749 State and local grants and contracts 50,934,645 58,385,141 Non-governmental grants and contracts 102,822,117 87,979,765 Sales and services of educational departments 58,197,719 56,376,967 Insurance plan 43,296,032 43,802,468 Auxiliary enterprises Athletics, net of scholarship allowances of $2,295,542 & $2,317,594 73,757,731 78,501,270 Housing/food service, net of scholarship allowances of $14,218,567 & $13,979,018 58,419,313 55,316,209 Bookstore, net of scholarship allowances of $2,089,649 & $1,807,319 16,124,978 16,657,307 Other auxiliary enterprises, net of scholarship allowances of $268,676 & $287,512 17,940,231 17,400,310 Other operating revenues 28,941,977 51,001,021 Total operating revenues 1,841,967,925 1,818,872,452

Operating Expenses Compensation and benefits 1,467,393,492 1,425,598,007 Supplies and services 660,578,459 628,874,631 Scholarships and fellowships 86,396,670 93,059,279 Insurance plan 151,517,415 142,467,947 Depreciation 165,197,568 158,233,095 Total operating expenses 2,531,083,604 2,448,232,959

Operating loss (689,115,679) (629,360,507)

Non-Operating Revenues (Expenses) State appropriations, net of Medicaid match payments of $68,620,000 & $64,638,000 444,544,715 431,252,786 Property and sales tax 12,303,561 11,674,780 Federal grants 93,584,013 97,067,548 State and local grants 52,301,342 58,783,666 Non-governmental grants 1,711,669 1,754,737 Gifts 96,438,382 101,145,251 Investment income (net) 40,177,645 24,228,708 Interest and fees on capital asset-related debt (46,516,830) (38,498,129) Loss on disposal of assets (1,939,250) (908,865) Other 1,711,266 694,037 Net non-operating revenues 694,316,513 687,194,519 Income before other revenues and expenses 5,200,834 57,834,012

Other Changes in Net Position Capital appropriations 23,160,667 1,241,482 Capital grants and gifts 26,030,024 23,653,645 Adjustments to prior year revenues and expenses (16,485) (864,046) Other 363,356 17,806 Total other revenues and expenses 49,537,562 24,048,887

Increase in net position 54,738,396 81,882,899

Net Position, beginning of year 2,089,234,090 2,014,801,585 Adjustment due to GASB 65 (Note 21) - (7,450,394) Net Position, beginning of year, restated 2,089,234,090 2,007,351,191

Net Position, end of year $ 2,143,972,486 $ 2,089,234,090

See accompanying notes.

C-19 17

UNIVERSITY OF ARKANSAS SYSTEM: Consolidated Financial Statements FY14

UNIVERSITY OF ARKANSAS Statement of Cash Flows - Direct Method For The Year Ended June 30, 2014 with comparative figures for 2013

Year Ended Cash Flows from Operating Activities June 30, 2014 June 30, 2013 Student tuition and fees (net of scholarships) $ 293,642,112 $ 269,203,706 Patient and insurance payments 917,156,000 873,740,000 Federal and county appropriations 17,831,447 14,957,499 Grants and contracts 328,688,617 318,733,025 Collection of loans and interest 5,456,944 5,012,571 Insurance plan receipts 42,789,250 43,841,976 Auxiliary enterprise revenues: Athletics 75,927,577 73,111,546 Housing and food service 58,053,349 54,957,794 Bookstore 15,754,850 16,446,080 Other auxiliary enterprises 17,884,697 17,117,448 Payments to employees (1,249,407,526) (1,221,913,826) Payment of employee benefits (211,898,278) (198,655,498) Payments to suppliers (651,883,036) (609,322,608) Loans issued to students (6,498,604) (5,514,359) Scholarships and fellowships (86,292,115) (92,888,840) Payments of insurance plan expenses (151,616,863) (142,738,349) Other 79,201,174 96,330,407 Net cash used by operating activities (505,210,405) (487,581,428)

Cash Flows from Noncapital Financing Activities State appropriations 446,069,715 424,894,786 Property and sales tax 12,227,657 11,654,557 Gifts and grants for other than capital purposes 241,619,142 259,171,934 Repayment of loans (7,000) 141,000 Direct Lending, Plus and FFEL loan receipts 260,160,140 264,125,896 Direct Lending, Plus and FFEL loan payments (263,141,523) (262,582,482) Other agency funds - net 1,426,906 71,315 Refunds to grantors (54,582) (162,986) Net cash provided by noncapital financing activities 698,300,455 697,314,020

Cash Flows from Capital and Related Financing Activities Distributions from debt proceeds 83,038,189 307,487,701 Capital appropriations 23,160,667 1,185,482 Capital grants and gifts ` 18,135,286 25,061,575 Property taxes - capital allocation 89 42 Proceeds from sale of capital assets 118,684 129,291 Purchases of capital assets (235,548,014) (269,690,155) Payment of capital related principal on debt (69,418,333) (197,842,132) Payment of capital related interest and fees (52,418,252) (46,142,255) Insurance proceeds 112,887 908 Payments to/from trustee for reserve 345,184 (27,325) Net cash used by capital and related financing activities (232,473,613) (179,836,868)

Cash Flows from Investing Activities Proceeds from sales and maturities of investments 170,281,564 105,156,094 Investment income (net of fees) 4,276,468 2,934,943 Purchases of investments (70,009,662) (134,564,264) Net cash provided (used) by investing activities 104,548,370 (26,473,227)

Net increase in cash 65,164,807 3,422,497 Cash, beginning of year 376,519,310 373,096,813 Cash, end of year $ 441,684,117 $ 376,519,310

18 C-20

UNIVERSITY OF ARKANSAS SYSTEM: Consolidated Financial Statements FY14

UNIVERSITY OF ARKANSAS Statement of Cash Flows - Direct Method - Continued For The Year Ended June 30, 2014 with comparative figures for 2013

Year Ended June 30, 2014 June 30, 2013 Reconciliation of net operating loss to net cash used by operating activities:

Operating loss $ (689,115,679) $ (629,360,507)

Adjustments to reconcile net operating loss to net cash used by operating activities:

Depreciation expense 165,197,568 158,233,095 Other miscellaneous operating receipts 2,980,135 2,874,733 Adjustment to cash for amounts in transit within the system (1,081,871) 1,217,980 Change in assets and liabilities: Receivables, net 8,618,206 (22,671,883) Inventories (2,167,052) (855,744) Prepaid expenses and other assets 1,428,023 (1,194,101) Accounts payable (3,634,922) 10,947,560 Unearned revenue (915,357) (4,380,636) Liability for future insurance claims (268,000) (127,000) Loans to students and employees (45,334) (58,121) Refundable federal advance 78,061 (276,771) Compensated absences 2,163,883 (4,309,259) OPEB liability 4,185,348 4,565,860 Other liabilities 7,366,586 (2,186,634)

NET CASH USED BY OPERATING ACTIVITIES $ (505,210,405) $ (487,581,428)

Non-Cash Transactions Capital Gifts 10,485,291 5,844,897 Fixed assets acquired by incurring capital lease obligations - 15,614,412 Fixed asset acquisition paid for by State of Arkansas - 101,000 Payment of bond proceeds/premium/accrued interest directly into deposits with trustees/escrow 97,235,711 213,994,919 Payment of bond issuance costs and underwriter's discounts directly from bond proceeds and/or debt service reserve 1,120,928 1,928,094 Payment of principal & interest on long-term debt from deposits with trustees 875,948 1,308,759 Interest earned on deposits with trustees 49,700 32,997 Payment on long-term debt directly from University of Arkansas Foundation, Inc. and Razorback Foundation, Inc. 3,165,167 11,000 Capital outlay paid directly from proceeds of long-term debt instruments - 9,751 Loss on disposal of assets 891,409 563,691 Valuation adjustment to capital assets 65,175 1,362,190

See accompanying notes.

C-21 19

UNIVERSITY OF ARKANSAS SYSTEM: Discreetly Presented Component Units

UNIVERSITY OF ARKANSAS FOUNDATION, INC. Consolidated Statement of Financial Position June 30, 2014 and 2013

2014 2013 ASSETS Contributions receivable, net $ 38,520,860 $ 38,470,190 Interest receivable 2,362,912 2,375,241 Investments, at fair value 840,292,509 745,144,731 Cash value of life insurance 1,087,458 985,888 Land, buildings and equipment, net of accumulated depreciation of $255,834 at 2014 and 2013 1,106,752 1,106,752 TOTAL ASSETS $ 883,370,491 $ 788,082,802

LIABILITIES AND NET ASSETS LIABILITIES Accounts payable $ 5,448,456 $ 8,052,081 Annuity obligations 16,259,097 15,203,960 TOTAL LIABILITIES 21,707,553 23,256,041

NET ASSETS Unrestricted 99,506,691 81,420,607 Temporarily restricted 133,237,061 135,972,796 Permanently restricted 628,919,186 547,433,358 TOTAL NET ASSETS 861,662,938 764,826,761 TOTAL LIABILITIES AND NET ASSETS $ 883,370,491 $ 788,082,802

UNIVERSITY OF ARKANSAS FOUNDATION, INC. Consolidated Statement of Activities Years Ended June 30, 2014 and 2013

Year Ended June 30, 2014 Year Ended June 30, 2013 Temporarily Permanently Temporarily Permanently Unrestricted Restricted Restricted TOTAL Unrestricted Restricted Restricted TOTAL Revenues, Gains and Other Support Contributions $ 17,142,424 $ 20,833,716 $ 20,174,687 $ 58,150,827 $ 13,833,957 $ 34,533,501 $ 13,537,888 $ 61,905,346 Interest and dividends 4,049,309 4,742,684 230,660 9,022,653 3,101,469 5,235,204 292,510 8,629,183 Net realized and unrealized gains on investments 12,452,076 18,327,054 61,343,144 92,122,274 5,156,968 17,226,689 38,352,838 60,736,495 Other 95,692 95,692 99,896 99,896 Net assets released from restrictions 47,020,021 (47,020,021) - 51,747,615 (51,747,615) - Total revenues, gains and other support $ 80,759,522 $ (3,116,567) $ 81,748,491 $ 159,391,446 $ 73,939,905 $ 5,247,779 $ 52,183,236 $ 131,370,920

Expenses and Losses: Program services: Construction 3,849,767 3,849,767 9,849,918 9,849,918 Research 15,501,885 15,501,885 16,466,276 16,466,276 Faculty/staff support 12,849,910 12,849,910 14,209,298 14,209,298 Scholarships and awards 10,008,729 10,008,729 8,979,379 8,979,379 Public/staff relations 1,970,719 1,970,719 2,141,738 2,141,738 Equipment 3,266,928 3,266,928 4,382,484 4,382,484 Sponsored programs 1,019,543 1,019,543 1,087,359 1,087,359 Other 12,440,080 12,440,080 11,386,078 11,386,078 Total program services 60,907,561 - - 60,907,561 68,502,530 - - 68,502,530

Supporting services: Management and general 406,980 406,980 433,739 433,739 Fundraising 1,350,842 1,350,842 1,592,953 1,592,953 Change in value of split-interest agreements 330 177 193,323 193,830 (44,758) (44,758) Provision for loss (recovery) on uncollectible contributions 7,725 (381,009) 69,340 (303,944) 199,613 11,409,493 61,538 11,670,644 Total supporting services 1,765,877 (380,832) 262,663 1,647,708 2,226,305 11,409,493 16,780 13,652,578 Total expenses and losses 62,673,438 (380,832) 262,663 62,555,269 70,728,835 11,409,493 16,780 82,155,108

Change in Net Assets 18,086,084 (2,735,735) 81,485,828 96,836,177 3,211,070 (6,161,714) 52,166,456 49,215,812

Net Assets, beginning of year 81,420,607 135,972,796 547,433,358 764,826,761 78,209,537 142,134,510 495,266,902 715,610,949

Net Assets, end of year $ 99,506,691 $ 133,237,061 $ 628,919,186 $ 861,662,938 $ 81,420,607 $ 135,972,796 $ 547,433,358 $ 764,826,761

20 C-22

UNIVERSITY OF ARKANSAS SYSTEM: Discreetly Presented Component Units

UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC. Statement of Financial Position June 30, 2014 and 2013

2014 2013 ASSETS Investments $ 513,809,543 $ 466,010,660

LIABILITIES AND NET ASSETS Accounts Payable 181,629 99,193

Net Assets: Temporarily restricted 29,161,667 31,050,931 Permanently restricted 484,466,247 434,860,536

Total Net Assets 513,627,914 465,911,467

TOTAL LIABILITIES & NET ASSETS 513,809,543 466,010,660

UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC. Statement of Activities Years Ended June 30, 2014 and 2013

Year Ended June 30, 2014 Year Ended June 30, 2013 Temporarily Permanently Temporarily Permanently Unrestricted Restricted Restricted TOTAL Unrestricted Restricted Restricted TOTAL Revenues, Gains and Other Support Interest and dividends $ - $ 3,524,875 $ 16,527 $ 3,541,402 $ - $ 2,649,640 $ 88,036 $ 2,737,676 Net realized and unrealized gains on investments 14,277,677 49,589,184 63,866,861 13,265,762 32,721,998 45,987,760 Net assets released from restrictions 19,691,816 (19,691,816) - 18,618,422 (9,518,422) (9,100,000) - Total revenues, gains and other support 19,691,816 (1,889,264) 49,605,711 67,408,263 18,618,422 6,396,980 23,710,034 48,725,436 - - Expenses and Losses: - - Program services: Construction 4,446,335 4,446,335 4,685,367 4,685,367 Research 1,341,235 1,341,235 1,169,505 1,169,505 Faculty/staff support 2,537,570 2,537,570 2,391,441 2,391,441 Scholarships and awards 9,457,971 9,457,971 9,266,519 9,266,519 Equipment and technology 1,400,591 1,400,591 952,736 952,736 Other 508,114 508,114 152,854 152,854 Total program services 19,691,816 - - 19,691,816 18,618,422 - - 18,618,422

Change in Net Assets - (1,889,264) 49,605,711 47,716,447 - 6,396,980 23,710,034 30,107,014

Net Assets, beginning of year - 31,050,931 434,860,536 465,911,467 24,653,951 411,150,502 435,804,453

Net Assets, end of year $ - $ 29,161,667 $ 484,466,247 $ 513,627,914 $ - $ 31,050,931 $ 434,860,536 $ 465,911,467

C-23 21

UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY14

UNIVERSITY OF ARKANSAS Statement of Net Position by Campus At June 30, 2014

Elimination UAF UAFS UALR UAM UAMS UAPB SYSTEM CCCUA PCCUA UACCB UACCH UACCM ASMSA (See Note 17) TOTAL ASSETS Current Cash and cash equivalents 214,573,643 8,795,398 29,255,053 3,794,677 65,720,000 27,349,900 34,826,059 1,729,550 8,786,927 3,446,054 2,339,027 2,089,116 3,540,411 136,109 406,381,924 Investments 76,107,868 1,495,345 17,335,358 35,022,000 23 758,753 436,631 500,000 1,106,581 2,828,369 135,590,928 Accounts receivable 34,552,345 3,542,323 10,785,674 2,860,043 45,344,000 6,418,068 12,521,520 717,781 1,279,382 781,983 680,225 1,154,875 32,469 (12,378,133) 108,292,555 Patient accounts receivable 113,067,000 113,067,000 Inventories 6,441,580 50,037 154,633 462,599 21,097,000 44,914 58,488 316,950 14,188 304,917 28,945,306 Deposits and funds held in trust by others 6,245,593 7,111 1,929,443 8 46,780 675 8,229,610 Notes receivable 3,417,166 43,334 2,245,000 (19,580) 5,685,920 Unamortized debt insurance costs - Other assets 2,841,941 538,984 642,497 338,337 4,432,000 46,652 171,589 80,304 44,214 80,225 2,990 6,477 96,863 (150,000) 9,173,073 Total current assets 344,180,136 14,429,198 60,102,658 7,498,998 286,927,000 33,906,314 47,519,191 3,286,388 10,605,642 5,125,887 4,143,011 6,383,754 3,669,743 (12,411,604) 815,366,316

Non-Current Cash and cash equivalents 3,816,631 2,418,263 479,535 1,333,925 21,568,114 2,196,297 3,399,347 90,081 35,302,193 Investments 74,130,120 9,249,987 10,068,841 4,790,891 136,242,000 2,268,114 75,000 500,000 237,324,953 Notes receivable 12,039,328 515,698 14,172,000 10,972,265 (737,585) 36,961,706 Deposits and funds held in trust by others 78,600,239 12,653,459 27,183,003 7,072,000 398,570 147,936 144,038 314,366 126,513,611 Unamortized debt insurance costs - Other non-current assets 855,985 900,000 (900,000) 855,985 Capital assets 1,135,648,519 139,438,817 238,332,369 49,630,214 848,886,000 91,130,386 2,812,251 15,369,729 19,624,962 14,039,230 16,128,450 13,462,288 4,468,187 2,588,971,402 Total non-current assets 1,305,090,822 163,760,526 276,063,748 56,270,728 1,006,372,000 114,966,614 3,712,251 17,641,026 20,023,532 14,687,166 19,671,835 13,866,735 15,440,452 (1,637,585) 3,025,929,850

TOTAL ASSETS 1,649,270,958 178,189,724 336,166,406 63,769,726 1,293,299,000 148,872,928 51,231,442 20,927,414 30,629,174 19,813,053 23,814,846 20,250,489 19,110,195 (14,049,189) 3,841,296,166

DEFERRED OUTFLOWS OF RESOURCES Deferred amount on debt refunding 5,605,180 2,128,743 1,566,604 649,090 4,431,000 297,746 106,045 3,340 229,136 40,756 15,057,640

LIABILITIES Current Accounts payable and other accrued liabilities 45,712,668 3,219,886 6,872,635 1,234,888 73,956,000 1,573,800 1,148,173 414,432 700,917 215,316 385,108 1,026,397 387,179 (12,392,024) 124,455,375 C-24 Unearned revenue 30,816,288 635,585 50,592 294,328 7,156,000 126,697 48,600 155,740 50,709 45,547 83,379 25,730 39,489,195 Funds held in trust for others 1,144,141 228,221 1,155,726 466,781 357,000 2,279,052 35,943 19,609 14,134 66,352 68,585 49,286 5,884,830 Liability for future insurance claims 14,524,000 14,524,000 Estimated third party payor settlements 6,335,000 6,335,000 Compensated absences payable - current portion 1,123,196 215,007 506,078 73,386 2,994,000 247,433 8,930 18,080 26,307 16,791 8,105 10,367 17,251 5,264,931 Bonds, notes, capital leases, installment contracts payable 28,614,667 5,267,893 7,442,843 997,588 26,228,000 1,246,071 275,662 293,451 550,106 640,327 419,692 (19,580) 71,956,720 Total current liabilities 107,410,960 9,566,592 16,027,874 3,066,971 117,026,000 5,473,053 15,729,703 899,857 1,090,993 841,894 1,099,892 1,608,420 479,446 (12,411,604) 267,910,051

Non-Current Unearned revenues, deposits and other 23,329 128,882 1,483,000 78,889 222,945 900,000 (900,000) 1,937,045 Refundable federal advance - Perkins loans 14,325,434 3,071 504,525 1,911,000 16,744,030 Compensated absences payable 18,517,058 1,600,378 4,070,927 1,115,411 45,426,000 1,948,933 522,096 343,517 450,347 569,247 356,812 390,403 82,457 75,393,586 Liability for other post employment benefits 12,314,432 829,853 4,545,792 1,172,251 27,146,000 1,971,189 185,723 73,563 793,175 366,337 99,057 190,559 305,544 49,993,475 Bonds, notes, capital leases, installment contracts payable 681,974,127 85,681,848 131,093,624 18,242,233 339,461,000 18,968,407 5,159,524 10,873,824 1,667,496 5,744,879 2,273,756 (737,585) 1,300,403,133 Total non-current liabilities 727,154,380 88,115,150 139,839,225 21,034,420 415,427,000 22,967,418 707,819 5,576,604 12,340,291 2,603,080 6,200,748 2,854,718 1,288,001 (1,637,585) 1,444,471,269

TOTAL LIABILITIES 834,565,340 97,681,742 155,867,099 24,101,391 532,453,000 28,440,471 16,437,522 6,476,461 13,431,284 3,444,974 7,300,640 4,463,138 1,767,447 (14,049,189) 1,712,381,320

NET POSITION Net Investment in Capital Assets 506,674,608 61,894,819 128,393,048 31,039,483 494,033,000 70,525,976 2,812,251 10,040,589 8,457,687 11,972,904 10,110,305 11,468,216 14,390,452 1,361,813,338 Restricted Non-Expendable Scholarships and fellowships 8,082,313 313,063 1,773,431 56,017 394,000 77,489 10,696,313 Research 5,739,659 138,518 321,559 6,199,736 Other 9,784,294 7,744 5,618,546 56,994 31,353,000 3,378,735 50,199,313 Expendable Scholarships and fellowships 12,202,035 107,317 392,345 237,869 6,696,000 828,505 247,394 574,462 21,285,927 Research 28,730,428 1,966,367 1,397,825 18,607,000 412,573 51,114,193 Public service 7,397,627 56,478 2,440,763 475,403 10,370,271 Capital projects 8,500,339 2,021,071 2,170,874 1,614,017 89,802,000 818,857 932,231 398,570 3,682,047 109,940,006 Other 19,946,890 4,785,079 4,164,566 663,144 6,839,000 2,512,916 187,725 2,417 306,645 39,408,382 Unrestricted 213,252,605 13,451,154 34,807,453 4,930,517 117,553,000 41,777,238 31,981,669 3,318,964 8,094,239 4,396,098 2,950,990 3,785,429 2,645,651 482,945,007 TOTAL NET POSITION 820,310,798 82,636,725 181,865,911 40,317,425 765,277,000 120,730,203 34,793,920 14,556,998 17,197,890 16,371,419 16,743,342 15,828,107 17,342,748 - 2,143,972,486

UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY14

UNIVERSITY OF ARKANSAS Statement of Revenues, Expenses, and Changes in Net Position by Campus For the Year Ended June 30, 2014

Elimination UAF UAFS UALR UAM UAMS UAPB SYSTEM CCCUA PCCUA UACCB UACCH UACCM ASMSA (Note 17) TOTAL Operating Revenues Student tuition & fees (net of scholarship allowances) 166,512,378 13,917,989 61,510,837 8,960,246 32,273,000 5,181,269 1,196,186 490,792 1,073,532 1,185,292 3,120,854 295,422,375 Net patient services 919,366,000 919,366,000 Federal and county appropriations 16,493,123 16,493,123 Federal grants and contracts 28,988,196 1,219,415 13,774,651 1,550,710 89,555,000 19,023,420 614,704 2,555,370 1,346,317 865,058 599,345 250,000 (90,502) 160,251,684 State and local grants and contracts 17,857,206 2,131,076 3,299,029 1,385,371 17,542,000 3,534,373 464,860 1,741,732 201,501 731,199 1,053,720 992,578 50,934,645 Non-governmental grants and contracts 32,358,570 3,022,507 2,018,864 947,345 62,681,000 234,055 436,442 445,186 191,267 486,881 102,822,117 Sales and services of educational departments 23,501,926 183,027 2,497,181 181,008 30,420,000 96,939 3,683,233 38,808 22,012 10,293 120,971 (2,557,679) 58,197,719 Insurance plan 148,951,085 (105,655,053) 43,296,032 Auxiliary enterprises Athletics 66,772,739 95,715 5,183,164 452,348 1,231,343 22,422 73,757,731 Housing and food service 29,115,616 2,994,051 7,132,776 1,908,395 9,037,000 7,942,415 96,654 192,406 58,419,313 Bookstore 13,063,465 436,870 388,435 568,088 588,000 140,819 90,276 170,932 45,372 632,721 16,124,978 Other auxiliary enterprises 12,096,171 155,230 1,904,551 402,866 2,887,000 284,517 87,719 85,468 36,709 17,940,231 Other operating revenues 11,196,123 480,144 2,089,375 977,322 10,391,000 3,681,748 66,573 158,441 240,381 225,451 51,699 65,002 (681,282) 28,941,977 Total operating revenues 417,955,513 24,636,024 99,798,863 17,333,699 1,174,740,000 41,350,898 152,634,318 2,839,995 5,688,182 3,118,131 3,062,665 5,999,692 1,794,461 (108,984,516) 1,841,967,925

Operating Expenses Compensation and benefits 431,440,254 47,181,079 117,647,569 25,888,565 852,919,000 39,738,259 6,052,580 7,639,405 13,128,474 7,754,655 8,040,419 10,267,950 5,350,336 (105,655,053) 1,467,393,492 Supplies and services 190,833,287 16,021,191 38,938,836 10,052,468 366,504,000 21,615,154 1,136,912 3,153,613 4,798,084 2,910,416 2,320,823 4,050,500 3,510,813 (5,267,638) 660,578,459 Scholarships and fellowships 24,340,455 6,690,366 30,604,511 8,607,845 369,000 4,760,117 - 1,644,414 1,743,010 1,683,146 3,262,510 2,691,296 86,396,670 Insurance plan 151,517,415 151,517,415 Depreciation 67,219,710 7,078,569 16,299,626 3,952,981 59,230,000 5,824,144 227,866 745,464 1,400,722 947,138 971,329 867,788 432,231 165,197,568 Total operating expenses 713,833,706 76,971,205 203,490,542 48,501,859 1,279,022,000 71,937,674 158,934,773 13,182,896 21,070,290 13,295,355 14,595,081 17,877,534 9,293,380 (110,922,691) 2,531,083,604

Operating gain (loss) (295,878,193) (52,335,181) (103,691,679) (31,168,160) (104,282,000) (30,586,776) (6,300,455) (10,342,901) (15,382,108) (10,177,224) (11,532,416) (11,877,842) (7,498,919) 1,938,175 (689,115,679)

Non-Operating Revenues (Expenses) C-25 State appropriations 206,144,734 23,606,939 68,500,266 20,199,114 51,492,000 27,075,920 5,740,459 4,747,375 10,444,948 5,247,821 6,450,944 6,663,341 8,230,854 444,544,715 Property and sales tax 5,654,988 1,153,584 2,153,019 1,240,673 1,290,371 810,926 12,303,561 Federal grants 23,806,815 15,680,615 17,704,637 8,791,574 8,834,126 3,087,313 3,302,043 3,486,733 3,596,773 5,293,384 93,584,013 State and local grants 30,609,388 8,294,085 8,187,945 2,772,742 1,457,388 478,222 501,572 52,301,342 Non-governmental grants 814,885 896,784 1,711,669 Gifts 65,739,713 4,912,231 4,509 25,062,000 609,732 72,796 8,624 28,777 96,438,382 Investment income (net) 14,621,623 154,496 2,290,853 423,355 22,203,000 157,910 13,629 14,370 50,349 27,853 9,583 162,041 48,583 40,177,645 Interest on capital asset-related debt (24,063,674) (3,110,503) (4,031,167) (594,771) (12,759,000) (896,824) (193,008) (540,704) (56,972) (179,755) (90,452) (46,516,830) Gain (Loss) on disposal of assets (219,121) (585,713) (82,094) (813,000) (185,066) (16,056) (19,225) (16,837) (2,138) (1,939,250) Other 2,377,737 (233,913) (298,505) (38,864) (221,994) 128,773 (1,968) 1,711,266 Net non-operating revenues 319,832,100 49,460,994 98,080,950 31,557,659 85,185,000 36,831,192 5,866,805 9,341,427 15,409,655 10,430,843 11,165,778 12,845,896 8,308,214 - 694,316,513 Income (loss) before other revenues and expen 23,953,907 (2,874,187) (5,610,729) 389,499 (19,097,000) 6,244,416 (433,650) (1,001,474) 27,547 253,619 (366,638) 968,054 809,295 1,938,175 5,200,834

Other Changes in Net Position Capital appropriations 6,125,000 1,950,000 3,400,000 249,000 3,105,000 4,040,834 250,000 4,040,833 23,160,667 Capital grants and gifts 19,516,817 2,236,003 896,198 437,177 4,395,000 46,662 11,959 410,753 17,630 (1,938,175) 26,030,024 Adjustments to prior year revenues and expenses (58,272) 41,787 (16,485) Other 214,570 126,151 49,529 (81,000) 2,105 52,001 363,356 Total other revenues and expenses 25,856,387 4,312,154 4,237,926 528,493 4,563,000 3,153,767 - 4,040,834 261,959 52,001 4,451,586 17,630 - (1,938,175) 49,537,562

Increase (decrease) in net position 49,810,294 1,437,967 (1,372,803) 917,992 (14,534,000) 9,398,183 (433,650) 3,039,360 289,506 305,620 4,084,948 985,684 809,295 - 54,738,396

Net Position, beginning of year 770,500,504 81,198,758 183,238,714 39,399,433 779,811,000 111,332,020 35,227,570 11,517,638 16,908,384 16,065,799 12,658,394 14,842,423 16,533,453 - 2,089,234,090 Adjustment due to GASB 65 (Note 21) Net Position, beginning of year, restated 770,500,504 81,198,758 183,238,714 39,399,433 779,811,000 111,332,020 35,227,570 11,517,638 16,908,384 16,065,799 12,658,394 14,842,423 16,533,453 - 2,089,234,090

Net Position, end of year 820,310,798 82,636,725 181,865,911 40,317,425 765,277,000 120,730,203 34,793,920 14,556,998 17,197,890 16,371,419 16,743,342 15,828,107 17,342,748 - 2,143,972,486

UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY14

UNIVERSITY OF ARKANSAS Statement of Cash Flows - Direct Method - By Campus For the Year Ended June 30, 2014

Elimination UAF UAFS UALR UAM UAMS UAPB SYSTEM CCCUA PCCUA UACCB UACCH UACCM ASMSA (Note 17) TOTAL Cash Flows from Operating Activities Student tuition and fees (net of scholarships) 165,128,420 14,315,641 60,527,433 8,348,740 32,597,000 5,651,114 1,152,613 459,303 1,104,007 1,202,997 3,154,844 293,642,112 Patient and insurance payments 917,156,000 917,156,000 Federal and county appropriations 17,831,447 17,831,447 Grants and contracts 81,958,752 5,759,314 18,875,859 4,046,845 180,360,000 23,935,743 1,516,930 5,403,268 1,537,733 1,725,306 1,890,610 1,768,759 (90,502) 328,688,617 Collection of loans and interest 2,673,121 51,823 2,732,000 5,456,944 Insurance plan receipts 148,653,940 (105,864,690) 42,789,250 Auxiliary enterprise revenues: Athletics 68,622,169 95,715 5,338,022 458,784 1,390,465 22,422 75,927,577 Housing and food service 28,733,885 3,015,753 7,132,332 1,895,348 9,045,000 7,941,971 96,654 192,406 58,053,349 Bookstore 12,645,429 446,800 388,436 592,136 588,000 140,621 90,276 168,655 49,424 645,073 15,754,850 Other auxiliary enterprises 12,280,795 161,963 1,506,571 406,004 3,035,000 284,517 87,719 85,419 36,709 17,884,697 Payments to employees (340,290,693) (35,837,457) (93,257,713) (20,196,523) (685,385,000) (31,222,690) (4,707,127) (5,623,541) (9,926,390) (5,745,669) (5,764,208) (7,343,144) (4,107,371) (1,249,407,526) Payment of employee benefits (90,039,192) (11,011,701) (24,157,381) (5,806,323) (163,876,000) (8,531,610) (1,280,017) (1,895,338) (3,277,372) (1,874,100) (2,251,727) (2,306,708) (1,274,137) 105,683,328 (211,898,278) Payments to suppliers (191,181,606) (16,234,961) (37,233,586) (9,641,528) (359,208,000) (21,858,253) (1,041,819) (3,153,667) (4,830,684) (2,910,823) (2,229,851) (4,106,989) (3,574,716) 5,323,447 (651,883,036) Loans issued to students (2,274,604) (4,224,000) (6,498,604) Scholarships and fellowships (24,240,238) (6,690,366) (30,604,511) (8,607,845) (369,000) (4,760,117) (1,644,414) (1,743,010) (1,683,146) (3,266,379) (2,683,089) (86,292,115) Payments of insurance plan expenses (151,616,863) (151,616,863) Other receipts 37,909,240 716,039 6,584,503 822,830 28,136,000 3,589,505 4,667,431 109,074 175,280 196,442 215,285 187,598 87,226 (4,195,279) 79,201,174 Net cash used by operating activities (220,243,075) (45,263,260) (84,900,035) (27,629,709) (39,413,000) (23,438,734) (5,324,455) (9,515,921) (13,464,956) (9,121,482) (10,319,153) (10,332,690) (7,100,239) 856,304 (505,210,405)

Cash Flows from Noncapital Financing Activities State appropriations 206,144,734 23,606,939 68,500,266 20,199,114 53,017,000 27,075,920 5,740,459 4,747,375 10,444,948 5,247,821 6,450,944 6,663,341 8,230,854 446,069,715 Property and sales tax 5,579,102 1,149,485 2,123,514 1,237,581 1,323,436 814,539 12,227,657 Gifts and grants for other than capital purposes 118,102,042 24,252,626 31,701,597 11,568,751 25,062,000 10,901,246 3,650,431 3,471,357 3,981,534 3,596,773 5,302,008 28,777 241,619,142 Repayment of loans (7,000) (7,000) Direct Lending, Plus and FFEL loan receipts 106,828,329 14,022,120 59,973,393 13,284,177 46,546,000 13,841,884 146,243 1,748,059 3,769,935 260,160,140 Direct Lending, Plus and FFEL loan payments (106,827,562) (14,313,418) (62,021,919) (13,278,103) (46,518,000) (14,510,900) (146,243) (1,755,443) (3,769,935) (263,141,523) Other agency funds - net (147,241) 51,784 812,208 17,561 (169,000) 840,620 (4,926) 12,291 2,609 7,387 (4,387) 8,000 1,426,906 Refunds to grantors (56,000) 1,418 (54,582)

C-26 Net cash provided (used) by noncapital financing activitie 324,100,302 53,199,153 98,965,545 31,735,500 77,931,000 38,148,770 5,740,459 9,542,365 16,052,110 10,462,161 11,378,540 12,776,919 8,267,631 - 698,300,455

Cash Flows from Capital and Related Financing Activities Distributions from debt proceeds 79,696,835 313,040 2,948,314 80,000 - 83,038,189 Capital appropriations 6,125,000 1,950,000 3,400,000 249,000 3,105,000 4,040,834 250,000 4,040,833 23,160,667 Capital grants and gifts 14,442,489 1,071,668 106,772 4,395,000 40,000 11,959 5,573 (1,938,175) 18,135,286 Property taxes - capital allocation 89 89 Proceeds from sale of capital assets 4,949 4,735 109,000 118,684 Purchases of capital assets (131,660,711) (4,074,920) (8,548,506) (1,802,564) (74,310,000) (10,098,882) (2,651,271) (101,578) (364,953) (787,433) (1,087,888) (59,308) (235,548,014) Payment of capital related principal on debt (24,604,241) (4,685,383) (5,620,143) (964,724) (29,201,000) (2,243,023) 150,000 (256,506) (293,549) (536,142) (609,232) (404,390) (150,000) (69,418,333) Payments of capital related interest and fees (29,709,251) (3,051,051) (4,285,402) (585,053) (12,819,000) (939,790) (188,174) (538,698) (57,918) (159,208) (84,707) (52,418,252) Insurance proceeds 112,887 112,887 Payments to/from trustee for reserve (27,325) 372,509 345,184 Net cash provided (used) by capital & related financing ac (85,709,879) (8,386,046) (12,105,737) (3,240,834) (111,497,000) (9,764,186) 150,000 944,883 (671,866) (959,013) 2,490,533 (1,576,985) (209,308) (1,938,175) (232,473,613)

Cash Flows from Investing Activities Proceeds from sales and maturities of investments 5,022,721 5,203,702 49,837 103,205,000 1,490,072 51,057,893 552,339 1,000,000 2,700,000 170,281,564 Investment income (net of fees) 410,056 84,695 1,849,343 7,752 1,645,000 10,814 143,861 6,250 15,198 28,366 7,982 18,568 48,583 4,276,468 Purchases of investments (53,971) (2,000,000) (1,775,369) (29,181,000) (2,315,056) (30,759,266) (325,000) (1,000,000) (2,600,000) (70,009,662) Net cash provided (used) by investing activities 5,378,806 3,288,397 123,811 7,752 75,669,000 (814,170) 20,442,488 233,589 15,198 28,366 7,982 118,568 48,583 - 104,548,370

Net increase in cash 23,526,154 2,838,244 2,083,584 872,709 2,690,000 4,131,680 21,008,492 1,204,916 1,930,486 410,032 3,557,902 985,812 1,006,667 (1,081,871) 65,164,807 Cash, beginning of year 194,864,120 8,375,417 27,651,004 4,255,893 63,030,000 44,786,334 13,817,567 2,720,931 6,856,441 3,036,022 2,180,472 1,193,385 2,533,744 1,217,980 376,519,310 Cash, end of year 218,390,274 11,213,661 29,734,588 5,128,602 65,720,000 48,918,014 34,826,059 3,925,847 8,786,927 3,446,054 5,738,374 2,179,197 3,540,411 136,109 441,684,117

UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY14

UNIVERSITY OF ARKANSAS Statement of Cash Flows - Direct Method - Continued - By Campus For the Year Ended June 30, 2014

Elimination UAF UAFS UALR UAM UAMS UAPB SYSTEM CCCUA PCCUA UACCB UACCH UACCM ASMSA (Note 17) TOTAL Reconciliation of net operating revenue (loss) to net cash provided (used) by operating activities:

Operating revenue (loss) (295,878,193) (52,335,181) (103,691,679) (31,168,160) (104,282,000) (30,586,776) (6,300,455) (10,342,901) (15,382,108) (10,177,224) (11,532,416) (11,877,842) (7,498,919) 1,938,175 (689,115,679)

Adjustments to reconcile net revenue (loss) to net cash provided (used) by operating activities:

Depreciation expense 67,219,710 7,078,569 16,299,626 3,952,981 59,230,000 5,824,144 227,866 745,464 1,400,722 947,138 971,329 867,788 432,231 165,197,568 Other miscellaneous operating receipts 2,794,482 56,880 128,773 2,980,135 Adjustment to cash for amounts in transit within the system (1,081,871) (1,081,871) Change in assets and liabilities: Receivables, net 3,987,691 (137,247) 1,099,463 (345,534) 696,000 1,773,210 594,333 (26,302) 802,950 (47,729) 95,224 82,148 43,999 8,618,206 Inventories (632,983) 11,339 84,561 (71,431) (1,495,000) (4,500) 668 (670) (733) (58,303) (2,167,052) Prepaid expenses and other assets 106,416 (271,399) (342,740) (25,593) 2,096,000 (41,116) (2,396) (28,428) (33,596) 15,925 100,980 (120,341) (25,689) 1,428,023 Accounts payable and other accrued liabilities (260,432) (17,326) 1,055,532 136,140 (5,021,000) (361,683) 231,387 94,798 (154,547) 26,253 19,773 702,526 (86,343) (3,634,922) Unearned revenue 839,837 245,907 (20,267) (50,451) (1,730,000) (53,128) (1,400) (11,074) (178,632) 925 25,401 17,525 (915,357) Liability for future insurance claims (268,000) (268,000) Loans to students and employees (66,482) 21,148 (45,334) Refundable federal advance 258,944 (49,530) (131,353) 78,061 Compensated absences 504,216 39,504 219,480 (150,984) 1,389,000 (38,335) 52,138 43,893 9,470 78,815 18,833 9,687 (11,834) 2,163,883 OPEB Liability 883,719 122,574 395,989 85,973 2,337,000 159,655 13,299 8,629 70,117 35,085 8,271 36,246 28,791 4,185,348 Other liabilities 7,367,000 (414) 7,366,586

NET CASH PROVIDED (USED) BY OPERATING ACTIVIT (220,243,075) (45,263,260) (84,900,035) (27,629,709) (39,413,000) (23,438,734) (5,324,455) (9,515,921) (13,464,956) (9,121,482) (10,319,153) (10,332,690) (7,100,239) 856,304 (505,210,405)

Non-Cash Transactions Capital Gifts 6,056,261 1,085,169 896,198 352,191 1,666,000 6,662 405,180 17,630 10,485,291 Fixed assets acquired by incurring capital lease obligations -

C-27 Fixed asset acquisition paid for by State of Arkansas - Payment of bond proceeds/premium/accrued interest/debt svc reserve directly into deposits with trustees/escrow 31,948,159 17,106,814 30,284,538 17,896,200 97,235,711 Payment of bond issuance costs and underwriter's discounts directly from bond proceeds and/or debt service reserve 320,104 276,317 298,505 226,002 1,120,928 Payment of principal & interest on long-term debt from deposits with trustees 871,710 4,238 875,948 Interest earned on deposits with trustees 127 2,743 8 35,151 388 948 10,335 49,700 Payment on long-term debt directly from University of Arkansas Foundation, Inc. and Razorback Foundation, Inc. 3,165,167 3,165,167 Capital outlay paid directly from proceeds of long-term debt instruments - Loss on disposal of assets 237,601 332,392 82,094 185,066 16,056 19,225 16,837 2,138 891,409 Valuation adjustment to capital assets 13,174 52,001 65,175

UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Note 1: Summary of Significant Accounting Policies

The financial statements for the University of Arkansas (“the University”) have been prepared in accordance with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB). The accompanying notes to the financial statements are an integral part of the financial statements.

The following acronyms are used for the various campuses and divisions of the University as reported in the financial statements: UAF (University of Arkansas Fayetteville, including Agricultural Experiment Station, Cooperative Extension Service, Arkansas Archeological Survey, Criminal Justice Institute, and Clinton School of Public Service), UAFS (University of Arkansas at Fort Smith), UALR (University of Arkansas at Little Rock), UAMS (University of Arkansas for Medical Sciences), UAM (University of Arkansas at Monticello), UAPB (University of Arkansas at Pine Bluff), CCCUA (Cossatot Community College of the University of Arkansas), PCCUA (Phillips Community College of the University of Arkansas), UACCB (University of Arkansas Community College at Batesville), UACCH (University of Arkansas Community College at Hope), UACCM (University of Arkansas Community College at Morrilton), ASMSA (Arkansas School for Mathematics, Sciences and the Arts), and SYSTEM (University of Arkansas System Administration, including University of Arkansas System eVersity).

Basis of Presentation and Measurement Focus For financial reporting purposes, the University is considered a special-purpose government engaged in business-type activities. Accordingly, the University’s financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Revenues are recognized in the accounting period in which they are earned and become measurable. Expenses are recognized in the period in which they are incurred, if measurable, including depreciation.

Cash and Cash Equivalents The classification of “cash and cash equivalents” on the statement of net position includes all readily available sources of cash such as petty cash, demand deposits, cash on deposit with the State Treasurer, and highly liquid short-term investments.

Investments Investments are stated at fair value. Changes in unrealized gain (loss) on the carrying value are reported as a component of investment income on the statement of revenues, expenses and changes in net position.

Inventories Inventories are valued at cost with cost generally being determined on a first-in, first-out basis.

Accounts Receivable Receivables that represent charges due the University from various student fees, room and board, student fines, patient care services, and other charges are stated at estimated net realizable values; that is, the gross amount of the receivable is reduced by allowances for estimated uncollectible accounts and contractual allowances (related to patient care revenue). Receivables can also include unreimbursed expenses relating to research contracts with federal, state, and private agencies.

Patient Care Revenue Patient care revenue is reported at the estimated net realizable amounts from patients, third-party payors, and others for services rendered. Retroactive adjustments arising under reimbursement agreements with third-party payors are accrued on an estimated basis in the period in which the related services are rendered and adjusted as final settlements are determined.

Charity Care UAMS provides care to patients who meet certain criteria under its charity care policy without charge or at amounts less than its established rates. Because UAMS does not pursue collection of amounts

26 C-28

UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14 determined to qualify as charity care, these amounts are accounted for as a reduction of patient services revenue at the time the services are rendered.

Encumbrances Encumbrances representing commitments and outstanding purchase orders for goods and services not received as of the last day of the fiscal year are not reported as expenses or included in liabilities in the accompanying financial statements.

Capital Assets Capital assets consisting of land, buildings, improvements, furniture, equipment, intangible assets, and construction in progress are stated at cost or fair market value at date of gift. Library holdings are generally valued using average prices for library acquisitions. Depreciation is computed using the straight-line method over the estimated useful lives of the assets -- generally 15-30 years for buildings, 15-20 years for infrastructure and land improvements, 3-10 years for equipment, 10 years for library holdings, and the applicable term for capital leases. The capitalization threshold for depreciation increased from $2,500 to $5,000 beginning July 1, 2011, with the exception of the Fayetteville campus that increased its capitalization threshold to $5,000 beginning July 1, 2012. Estimated useful lives for purposes of amortization and capitalization thresholds for intangible assets are as follows: purchased software (5-10 years; $500,000); internally developed software (10 years; $1,000,000); easements, land use rights, trademarks, and copyrights (15 years; $250,000); and patents (20 years; $250,000). Livestock is maintained primarily for research purposes with any other benefits derived from the operations considered as incidental to the primary mission of the University. The inventory value placed on the animals is determined by utilizing current market prices and breeding and research intangibles. UAMS bases its estimated useful lives on guidelines established by the American Hospital Association (AHA) which may differ slightly from those shown above for the other campuses.

Capitalization of Interest The University capitalizes interest involving qualifying assets. The amount of interest cost to be capitalized is interest cost on borrowings netted against any interest earned on temporary investments of the proceeds of those borrowings from the date of borrowing until the specified qualifying assets acquired with those borrowings are ready for their intended use. The total amount of interest cost incurred (gross of amortizations of premiums and discounts) and the net amount thereof that has been capitalized was $55,158,656 and $6,403,139, respectively, for the fiscal year ended June 30, 2014.

Net Position The University’s net position is classified as follows:

Net investment in capital assets -- total investment in capital assets, net of outstanding debt obligations related to those capital assets. However, unexpended debt proceeds at year-end are reported as net position restricted for capital projects. Restricted/non-expendable -- endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained in perpetuity, and invested for the purpose of producing present and future income, which either may be expended or added to principal. Restricted/expendable -- resources whose use by the University is subject to externally- imposed stipulations that can be fulfilled by actions of the University pursuant to those stipulations or that expire by the passage of time. There is no formal policy requiring restricted resources to be used either before or after unrestricted resources are used for the same purpose. Responsible officials determine at the time funds are expended to use any unrestricted resources that may be available. Unrestricted -- resources not subject to externally imposed stipulations. These resources may be designated for specific purposes by management or the Board of Trustees or may be otherwise limited by contractual agreements with outside parties.

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Classification of Revenues The University has classified its revenues as either operating or non-operating according to the following criteria:

Operating Revenue -- includes activities that have the characteristics of exchange transactions, such as student tuition and fees (net of scholarship discounts and allowances), patient services (net of contractual agreements), most federal, state, and local grants and contracts, revenues associated with auxiliary enterprises (net of scholarship discounts and allowances), interest on institutional student loans, and the University’s self-funded insurance plans. Non-Operating Revenue -- includes activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as non-operating revenues by the GASB Statement No. 34, such as state appropriations and investment income.

State Appropriations State appropriations are reported in the statement of revenues, expenses, and changes in net position as non-operating revenue, net of the Medicaid match payments required under various contracts between UAMS and the Arkansas Department of Human Services. The match payments were $68,620,000 and $64,638,000 for the fiscal years 2014 and 2013, respectively.

Scholarship Discounts and Allowances Student tuition and fee revenues, and certain other revenues from students, are reported net of scholarship discounts and allowances in the statement of revenues, expenses, and changes in net position. Scholarship discounts and allowances are the differences between the stated charge for goods and services provided by the University, and the amount that is paid by students and/or third parties making payments on the students’ behalf. Certain governmental grants, such as Pell grants, and other federal, state, or nongovernmental programs, are recorded as either operating or non-operating revenues in the University’s financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the University has recorded a scholarship discount and allowance.

Component Units In May 2002, the GASB issued Statement No. 39, Determining Whether Certain Organizations are Component Units, which amends Statement No. 14 to provide additional guidance to determine whether certain organizations for which the primary government is not financially accountable should be reported as component units based on the nature and significance of their relationship with a primary government. Under the standard, which became effective with the fiscal year ending June 30, 2004, the financial activities of qualifying foundations are to be included in the financial statements of the primary government, through discrete presentations. In fiscal year 2014, there were two qualifying foundations for the University of Arkansas: the University of Arkansas Foundation, Inc. and the University of Arkansas Fayetteville Campus Foundation, Inc. Although the University does not control the timing or amount of receipts from either of these foundations, the majority of resources or income thereon, which the foundations hold and invest, is restricted to the activities of the University by the donors. Because these restricted resources held by the foundations can be used only by, or for the benefit of, the University, and their individual net assets are considered as having met the financial accountability criteria of Statement No. 39 by management, these two foundations are considered component units of the University and are discretely presented in the University’s financial statements.

The University of Arkansas Foundation, Inc. is a separate nonprofit organization, which operates for charitable educational purposes, including the administration and investment of gifts and other amounts received directly or indirectly for the benefit of the University of Arkansas. The Board of Directors has twenty-two members, four of which are current or previous members of the University of Arkansas Board of Trustees. During the years ended June 30, 2014, and June 30, 2013, the Foundation distributed $60,731,076 and $68,695,019, respectively, to or on behalf of the University. Complete financial

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14 statements for the Foundation can be obtained from the administrative office at 535 Research Center Boulevard, Suite 120, Fayetteville, AR 72701.

The University of Arkansas Fayetteville Campus Foundation, Inc. is a nonprofit charitable organization which was established by the Walton Family Charitable Support Foundation, Inc., for the exclusive benefit of the University of Arkansas, Fayetteville campus. The Foundation was established on March 11, 2003, and exists primarily to support the Honors College, the Graduate School, and the University’s library. The Board of Trustees of the Foundation is made up of seven members, including three members who are also employees of the University. During the years ended June 30, 2014, and June 30, 2013, the Foundation distributed $19,691,816 and $18,618,422, respectively, to or on behalf of the University. Complete financial statements for the Foundation can be obtained from the administrative office at 535 Research Center Boulevard, Suite 120, Fayetteville, AR 72701.

The GASB also issued three other statements which became effective for the fiscal year ending June 30, 2014: Statement No. 66, Technical Corrections – 2012, an amendment of GASB Statements No. 10 and No. 62, which resolves conflicting guidance contained in previously issued GASB pronouncements; Statement No. 67, Financial Reporting for Pension Plans--an amendment of GASB Statement No. 27, that addresses financial reporting by state and local governmental pension plans; and Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees, that specifies reporting requirements for governments that either extend or receive nonexchange financial guarantees. Management has determined that Statements 66 and 67 have no effect on current reporting or disclosures, and that the requirements of Statement No. 70 are being met in Footnote 16, Contingencies.

The GASB issued the following three statements which become effective for the fiscal year ending June 30, 2015: Statement No. 68, Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27, Statement No. 69, Government Combinations and Disposals of Government Operations, and Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – An Amendment of GASB Statement No. 68. Management has not yet determined the effects of these statements on the University’s financial statements.

Note 2: Reporting Entity

The University of Arkansas System (“the University”), which prior to 1969 consisted of the Fayetteville and Medical Sciences campuses, was expanded in 1969 to include the Little Rock campus (formerly Little Rock University), in 1971 to include the Monticello campus (formerly Arkansas A&M College), in 1972 to include the Pine Bluff campus (formerly Arkansas AM&N College), in 1996 to include the Phillips campus (formerly Phillips County Community College), and the Hope campus (formerly Red River Technical College), and in 1998 to include the Batesville campus (formerly Gateway Technical College). On July 1, 2001, the University was expanded to include campuses in Morrilton (formerly Petit Jean College) and DeQueen (formerly Cossatot Community College). The Fort Smith campus (formerly Westark College) joined the University on January 1, 2002. Forest Echoes Technical Institute and Great Rivers Technical Institute merged with the Monticello campus on July 1, 2003. The Arkansas School for Mathematics, Sciences and the Arts joined the University on January 1, 2004. In addition to these campuses, the University includes the System Administration, and the following units that are included in the financial statements of the Fayetteville campus: Clinton School of Public Service, Division of Agriculture

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

(Agricultural Experiment Station and the Cooperative Extension Service), Archeological Survey, and Criminal Justice Institute.

All programs and activities of the University of Arkansas System are governed by its Board of Trustees, which has been accorded constitutional status for the exercise of its powers and authority by Amendment 33 to the Arkansas Constitution. The Board of Trustees has delegated to the President the administrative authority for all aspects of the University’s operations. Administrative authority is further delegated to the Chancellors, the Vice President for Agriculture, the Dean of the Clinton School, the Director of the Criminal Justice Institute, the Director of Archeological Survey, and the Director of Arkansas School for Mathematics, Sciences and the Arts, who have responsibility for the programs and activities of their respective campuses or state-wide operating division.

According to the GASB Statement No. 14, the financial reporting entity consists of (a) the primary government; (b) organizations for which the primary government is financially accountable, and (c) other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete. Under the provisions of this statement, the University is a component unit of the State of Arkansas (primary government). The GASB Statement No. 14 defines a component unit as a legally separate organization for which the elected officials of the primary government are financially accountable. Although this statement is written from the perspective of the primary government, its requirements apply to the separately issued financial statements of a component unit, and therefore, the component unit should apply its provisions as if it was a primary government.

Note 3: Hospital Revenue

The Hospital is a division of UAMS, and the Faculty Group Practice (FGP) is the collective body of the College of Medicine faculty involved in professional practice at UAMS. FGP is an integral component of UAMS, functioning as an unincorporated division of the College of Medicine. As such, it is subject to the policies and regulations of the College of Medicine, UAMS, and the Board of Trustees of the University. Patient care operations are included in the accompanying financial statements under accounting principles generally followed by governmental colleges and universities. Patient accounts receivable at June 30, 2014, and 2013, are recorded net of an allowance for doubtful accounts of $447,121,000 and $468,282,000, respectively.

Net patient services revenue for the years ended June 30, 2014, and 2013, is as follows:

NET PATIENT SERVICES REVENUE FY2014 FY2013 Gross patient revenue $ 2,275,786,000 $ 2,006,148,000 Less patient services contractual allowances 1,280,815,000 1,029,435,000 Less provision for bad debt 75,605,000 90,136,000 TOTAL $ 919,366,000 $ 886,577,000

UAMS provided approximately $132,590,000 and $141,296,000 in charity care, based on established rates, during the years ended June 30, 2014, and 2013, respectively. Because UAMS does not pursue collection of amounts determined to qualify as charity care, they are not included in gross patient revenue above. Net patient services revenue for the years ended June 30, 2014 and 2013, includes approximately $80,328,000 and $71,722,000, respectively, from the Medicaid program representing payments relating to Upper Payment Limit and Disproportionate Share reimbursements. These payments are available to state-operated teaching hospitals under Medicaid regulations. Net patient services revenue for the years ended June 30, 2014, and 2013, includes approximately $33,487,000 and $28,906,000, respectively, of net revenue from the Supplemental Medicaid program.

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

The Hospital, FGP, and Area Health Education Centers (AHECs) have agreements with governmental and other third-party payors that provide for reimbursement at amounts different from their established rates. Contractual adjustments under third-party reimbursement programs represent the difference between the billings at established rates for services and amounts reimbursed by third-party payors. A summary of the basis of reimbursement with significant third-party payors follows:

Hospital: Medicare – Inpatient acute care services rendered to program beneficiaries are paid at prospectively determined rates per discharge. These rates vary according to a patient classification system that is based on clinical, diagnostic, and other factors. Some transplantation services are paid based upon a cost reimbursement methodology. Outpatient services are paid based on a prospective payment system where services are classified into groups called Ambulatory Payment Classifications (APC). Services in each APC are similar clinically and in terms of the resources they require. The Hospital is paid for cost- reimbursable items at a tentative rate with final settlement determined after submission of an annual cost report by the Hospital and audit by the Medicare fiscal intermediary. As of June 30, 2014, the Hospital’s Medicare cost reports have been audited by the Medicare fiscal intermediary through June 30, 2010.

Medicaid – Inpatient and outpatient services rendered to Medicaid program beneficiaries are reimbursed based upon a cost reimbursement methodology. The Hospital is paid at a tentative rate with final settlement determined after submission of an annual cost report by the Hospital and audits by the Medicaid audit contractor. The Hospital is required to pay the federal match for the difference in reimbursement between the Tax Equity and Fiscal Responsibility Act inpatient rate and full cost. For outpatient services, the Hospital is required to pay the federal match for the difference reimbursed between the outpatient prospective rates and full cost. As of June 30, 2014, the Hospital’s Medicaid cost reports have been audited by the Medicaid audit contractor through June 30, 2010.

FGP and AHECs: Services rendered to both Medicare and Medicaid program beneficiaries are reimbursed on prospectively determined rates per unit of service.

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term. The net adjustments to estimated settlements resulted in decreases of $1,264,000 and $589,500 to net patient services revenue for the years ended June 30, 2014, and 2013, respectively. Management believes that UAMS is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from the Medicare and Medicaid programs.

The Hospital, FGP, and AHECs have agreements with certain commercial insurance carriers and preferred provider organizations, which include prospectively determined rates per discharge, discounts from established charges, and prospectively determined per diem rates.

Note 4: Compensated Absences

Employees accrue and accumulate annual and sick leave in accordance with policies established by the Board of Trustees. The University accrues the dollar value of leave benefits in accordance with generally accepted accounting principles which require accrual of salary-related payments directly and incrementally associated with compensated absences, such as employer’s share of social security taxes, as well as applicable salary expenses. These leave benefits are payable upon retirement, termination, or death of employees, up to the maximum allowed.

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Full-time, non-classified employees accrue annual leave at the rate of fifteen hours per month and full- time classified employees accrue at a variable rate (from eight to fifteen hours per month) depending upon the number of years of employment in state government. Employees who are less than full-time, but are at least 50% time, accrue annual leave at prorated amounts. Under the University’s policy, an employee may carry accrued annual leave forward from one calendar year to another, up to a maximum of 240 hours (30 working days).

Classified employees who meet the conditions to be considered retirees at the time of termination of employment, are entitled to a partial payment of accumulated, unused sick leave in accordance with the provisions of Arkansas Code Annotated (A.C.A.) § 21-4-501. In accordance with A.C.A. § 21-4-505, which became effective in FY09, two-year institutions may, at their discretion, provide to non-classified employees the same compensation for accumulated unused sick leave provided to classified employees. The Code was amended in 2011 to allow the four-year institutions the same option. Three campuses have chosen to follow the policy for non-classified employees: CCCUA, UACCB and UACCM.

Sick leave for those identified in the previous paragraph can be paid as follows: An employee who has accumulated at least fifty (50) days, but less than sixty (60) days of sick leave upon retirement shall receive an amount equal to fifty percent (50%) of the number of accrued sick leave days (rounded to the nearest day) times fifty percent (50%) of the employee’s daily salary. An employee who has accumulated at least sixty (60) days, but less than seventy (70) days of sick leave upon retirement shall receive an amount equal to sixty percent (60%) of the number of accrued sick leave days (rounded to the nearest day) times 60 percent (60%) of the employee’s daily salary. An employee who has accumulated at least seventy (70) days, but less than eighty (80) days of sick leave upon retirement shall receive an amount equal to seventy percent (70%) of the number of accrued sick leave days (rounded to the nearest day) times seventy percent (70%) of the employee’s daily salary. An employee that has accumulated at least eighty (80) or more days of sick leave upon retirement shall receive an amount equal to eighty percent (80%) of the number of accrued sick leave days (rounded to the nearest day) times eighty percent (80%) of the employee’s daily salary. In no event shall an employee receive a sick leave incentive amount that exceeds $7,500.

Changes in compensated absences are shown below:

COMPENSATED ABSENCES Balance Balance Current Campus 6/30/13 Additions Reductions 6/30/14 Portion UAF $ 19,136,038 $ 677,556 $ 173,340 $ 19,640,254 $ 1,123,196 UAFS 1,775,881 317,307 277,803 1,815,385 215,007 UALR 4,357,525 344,877 125,397 4,577,005 506,078 UAM 1,339,781 914,745 1,065,729 1,188,797 73,386 UAMS 47,031,000 4,064,000 2,675,000 48,420,000 2,994,000 UAPB 2,234,701 2,093,361 2,131,696 2,196,366 247,433 CCCUA 317,704 257,638 213,745 361,597 18,080 PCCUA 467,184 396,852 387,382 476,654 26,307 UACCB 507,223 354,341 275,526 586,038 16,791 UACCH 346,084 323,957 305,124 364,917 8,105 UACCM 391,083 428,537 418,850 400,770 10,367 ASMSA 111,542 11,102 22,936 99,708 17,251 SYSTEM 478,888 457,503 405,365 531,026 8,930 TOTAL$ 78,494,634 $ 10,641,776 $ 8,477,893 $ 80,658,517 $ 5,264,931

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Note 5: Cash, Cash Equivalents and Investments

A.C.A. §19-4-805 authorizes institutions of higher learning to determine the depositories and nature of investments of any of their cash funds which are not currently needed for operating purposes.

Cash and Cash Equivalents Cash deposits are carried at cost. The following schedule reconciles the amount of deposits to the statement of net position at June 30, 2014:

Cash and Cash Equivalents +Cash deposits at year end $ 404,754,702 +cash held on deposit in state treasury 21,022,886 +cash equivalents 15,889,629 +cash on hand 76,190 + adjustment for deposits in transit within the system 136,109 -cash/cash equiv shown as deposits held in trust on Smts (195,399) TOTAL $ 441,684,117

Deposits are exposed to custodial risk if they are not covered by depository insurance (FDIC) and are uncollateralized. At June 30, 2014, none of the University’s bank balances were exposed to custodial credit risk.

Investments Investments are reported at fair value, which, for reporting purposes, is market value. The following is a summary of the University’s investments held at June 30, 2014:

Investment Type Fair Value Mutual & Money Market Funds $ 134,735,949 Corporate & Municipal Bonds 908,008 External Investment Pool 354,086,797 Certificate of Deposits 6,237,025 U.S. Treasury & Government Sponsored Agencies 10,051,263 Other 2,635,347 Sub-Total 508,654,389 -shown as cash/cash equiv on Stmt of Net Position (1,190,686) -shown as deposits held in trust on Stmt of Net Position (134,547,822) Investments as reported on Stmt of Net Position $ 372,915,881

The University is required under GASB Statement No. 40 to provide investment risk disclosures for all invested funds. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The following tables show these risks for the University’s funds outside the external investment pool.

Interest Rate Risk Investment Maturies (in years) Investment Type Fair Value Less than 1 1 to 5 over 5 Bonds $ 908,008 $ - $ 512,954 $ 395,054 U.S. Treasury & Gov't Agencies 10,051,263 844,267 9,159,857 47,139 Totals $ 10,959,271 $ 844,267 $ 9,672,811 $ 442,193

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Investment Credit Risk Type Fair Value AAA AA A B & below Not Rated Mutual Funds $ 134,735,949 $ 126,618,848 $ 371,692 $ - $ 2,377 $ 7,743,032 Bonds 908,008 - 99,753 421,791 - 386,464 Totals 135,643,957 126,618,848 471,445 421,791 2,377 8,129,496

External Investment Pool Effective June 30, 1997, the University of Arkansas adopted GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, which requires investments be carried at fair value and all changes in fair value be reported in revenue as a component of investment income. In 1997, the University of Arkansas and the University of Arkansas Foundation established an external investment pool. This arrangement commingles (pools) the moneys of more than one legally separate entity and invests, on the participants’ behalf, in an investment portfolio. During 1998, the Walton Arts Foundation joined the pool, and, during 2003, the Fayetteville Campus Foundation joined the pool. During 2007, the University of Arkansas Community College at Hope Foundation joined the pool. The Razorback Foundation joined the pool during 2012.

The governmental external investment pool is exempt from registration with the SEC. The University of Arkansas Board of Trustees and the University of Arkansas Foundation Board of Trustees are the sponsors of this investment pool and are responsible for operation and oversight for the pool. All participation in this investment pool is voluntary.

At June 30, 2014, five campuses and five foundations participated in the Pool, whose net assets totaled $1,678,520,789. The Pool was combined with 21.02% of the net assets owned by the University of Arkansas and external portions as follows: 47.26% by the University of Arkansas Foundation, 29.72% by the Fayetteville Campus Foundation, 0.74% by the Walton Arts Foundation, 0.11% by the University of Arkansas Community College at Hope Foundation, and 1.15% by the Razorback Foundation. The following tables contain information on the risk disclosure of the Pool.

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Statement of Invested Assets June 30, 2014

Investment Type Fair Value* Equity $ 376,981,645 Common Stock 99,526,405 Funds - Common Stock 256,505,183 Preferred Stock 32,081 Rights/Warrants 14 Funds - Equities ETF 20, 917,962 Fixed Income 436,954,787 Government Bonds 48,209,398 Funds - Government Bonds 145,858 Corporate Bonds 98,887 Funds - Corporate Bond 37, 124,641 Government Mortgage Backed Securities 102 Non-Government Backed C.M.O.s 1 Funds - Other Fixed Income 319,171,645 Funds - Fixed Income ETF 32, 204,255 Venture Capital and Partnerships 641,732,785 Partnerships 641,732,785 Commodities 30,237,364 Funds - Commodity Linked 30, 237,364 Hedge Fund 178,907,247 Hedge Equity 143,921,343 Hedge Event Driven 34,985,904 All Other 68,221 Recoverable Taxes 68,221 Cash/Cash Equivalents 13,638,740 Funds - Short Term Investment 11,416,590 Cash (334,636) Invested Cash 2,556,786 TOTAL $ 1,678,520,789

*Includes accrued income

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Credit Risk - S&P Quality Ratings June 30, 2014

US GOVN. Investment Type & Fair Value* BBB NR GUAR Corporate Bonds $ - $ 98,887 $ - Funds - Corporate Bond 36,958,941 Funds - Fixed Income ETF 32,204,255 Funds - Government Bond 141,789 Funds - Other Fixed Income 318,940,257 Funds - Short Term Investment 11,416,413 Government Bonds 7,152 48,200,000 Govn Mortgage Backed Securities 102 Hedge Event Driven 34,985,904 Non-Govn Backed C.M.O.s 1 Total $ 7,152 $ 434,746,447 $ 48,200,102

*Does not include accrued income

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Years to Maturity June 30, 2014

Maturity not Investment Type Fair Value* 1+ to 6 10+ Determined Corporate Bonds $ 98,887 $ 4,300 $ 94,587 $ - Funds - Corporate Bond 36,958,941 36,958,941 Funds - Fixed Income ETF 32,204,255 32,204,255 Funds - Government Bond 141,789 141,789 Funds - Other Fixed Income 318,940,257 318,940,257 Funds - Short Term Investment 11,416,413 11,416,413 Government Bonds 48,207,152 48,200,000 7,152 Govn Mortgage Backed Securities 102 102 Hedge Event Driven 34,985,904 34,985,904 Non-Government Backed C.M.O.'s 1 1 Total $ 482,953,701 $ 48,204,300 $ 101,841 $ 434,647,560

*Does not include accrued income

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Interest Rate Sensitivity - Effective Duration June 30, 2014

Effective Investment Type Fair Value* Duration Corporate Bonds $ 98,887 N/A Funds - Corporate Bond 36,958,941 N/A Funds - Fixed Income ETF 32,204,255 N/A Funds - Government Bond 141,789 N/A Funds - Other Fixed Income 318,940,257 N/A Funds - Short Term Investment 11,416,413 N/A Government Bonds 48,207,152 4.78 Govn Mortgage Backed Securities 102 3.17 Hedge Event Driven 34,985,904 N/A Non-Govn Backed C.M.O.s 1 N/A Total $ 482,953,701

*Does not include accrued income

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Foreign Currency Risk By Investment Type June 30, 2014

Other Currency By Investment and Fair Value* Cash Equity Assets AUSTRALIAN DOLLAR $ 1,791,291 $ - -$ CANADIAN DOLLAR 1,883,190 420,894 307 SWISS FRANC (2,133,231) 5,102,137 18,742 EURO (2,115,358) 8,860,415 31,945 BRITISH POUND STERLING (811,272) 2,678,165 HONG KONG DOLLAR 11 2,774,312 JAPANESE YEN (537,460) 5,577,135 2,887 MEXICAN PESO 197,898 NORWEGIAN KRONE 162,553 POLISH ZLOTY 7,229 SWEDISH KRONA 682,886 34 SINGAPORE DOLLAR 171,966 108,386 Total $ (707,526) $ 25,521,478 $ 61,110

*Includes accrued income

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Endowment Funds A.C.A. § 28-69-804 states, “Subject to the intent of a donor expressed in the gift instrument, an institution may appropriate for expenditure or accumulate so much of an endowment fund as the institution determines is prudent for the uses, benefits, purposes, and duration for which the endowment fund is established. Unless stated otherwise in the gift instrument, the assets in an endowment fund are donor- restricted assets until appropriated for expenditure by the institution.

The University does not have a uniform policy addressing the authorization and spending of investment income. Such policies have been established at the applicable campuses and include spending rates averaged over a specified period and compliance with donor restrictions. The computation of net appreciation on investments of donor-restricted endowments that are available for expenditure at June 30, 2014, is as follows:

Total Endowment $ 152,120,923 Less: Funds treated as endowment (44,289,823) Non-expendable portion of endowment (65,775,604) Available for Expenditure $ 42,055,496

Note 6: Income Taxes

The University is tax exempt under the Internal Revenue Code except for tax on unrelated business income. The University had no significant unrelated business income for the year ended June 30, 2014. It is also exempt from state income taxes under Arkansas law. Accordingly, no provision for income taxes is made in the financial statements.

Note 7: Bonds, Notes, Capital Leases and Installment Contracts Payable

The retirement of some bond issues is secured by a specific pledge of certain gross revenues, surplus revenues and specific fees. Separate accounting is not required for these facilities under the provisions of the debt instruments; accordingly, segment reporting is not required for financial reporting purposes. A summary of long-term debt by campus is shown below. Total debt of $1,373,117,018 shown in these schedules, which is related to bonds, notes, capital leases and installment contracts, differs from the amount of $1,372,359,853 shown on the statement of net position. This is due to an elimination entry of $757,165 to account for a loan between UAMS and UAF (see Note 17).

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Schedule of Debt by Campus

UNIVERSITY OF ARKANSAS FAYETTEVILLE Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 10/15/1997 11/1/2022 3.95%-5.25%$ 21,445,000 $ 20,260,000 $ 1,185,000 10/1/2004 11/1/2024 2.00%-4.75% 7,050,000 3,455,000 3,595,000 3/1/2005 11/1/2025 3.00%-4.50% 81,020,000 14,745,000 66,275,000 6/1/2006 11/1/2036 4.00%-5.00% 67,420,000 5,750,000 61,670,000 6/1/2006 9/15/2022 4.00%-4.375% 8,205,000 2,945,000 5,260,000 10/1/2007 11/1/2037 4.00%-5.00% 45,010,000 4,855,000 40,155,000 8/1/2008 11/1/2038 4.00%-5.00% 36,750,000 650,000 36,100,000 8/1/2008 11/1/2028 4.10%-6.375% 15,210,000 945,000 14,265,000 12/15/2009 11/1/2039 3.00%-5.00% 52,430,000 3,080,000 49,350,000 6/30/2010 9/15/2020 1.00%-4.82% 23,965,000 7,520,000 16,445,000 6/29/2011 11/1/2040 2.00%-5.00% 101,225,000 4,550,000 96,675,000 6/29/2011 11/1/2022 3.00%-5.00% 8,895,000 1,105,000 7,790,000 6/29/2011 9/15/2021 2.00%-4.895% 23,575,000 4,955,000 18,620,000 4/17/2012 11/1/2032 1.00%-5.00% 56,965,000 5,510,000 51,455,000 9/13/2012 11/1/2042 2%-5.00% 60,540,000 325,000 60,215,000 5/16/2013 11/1/2042 1.00%-5.00% 54,450,000 1,180,000 53,270,000 5/16/2013 9/15/2027 1.00%-5.00% 30,355,000 945,000 29,410,000 6/30/2014 11/1/2043 2.00%-5.00% 24,730,000 - 24,730,000 6/30/2014 11/1/2043 0.85% - 4,50% 5,020,000 - 5,020,000 11/30/1991 5/1/2022 5.50% 3,000,000 1,685,482 1,314,518 11/29/1995 11/1/2034 2.00%-5.00% 2,071,140 1,313,975 757,165 12/20/1999 12/31/2017 Variable 1,161,952 736,545 425,407 5/11/2007 9/30/2013 Variable 6,000,000 6,000,000 - 11/30/2007 7/1/2023 4.69% 6,950,000 1,461,502 5,488,498 10/15/2008 9/13/2013 5.00% 5,000,000 5,000,000 - 12/19/2008 8/19/2023 4.58% 23,842,000 5,568,943 18,273,057 4/8/2010 1/8/2023 4.80% 9,694,713 2,104,897 7,589,816 Various Various Various 27,670 18,065 9,605 Net unamortized premium/discount 38,656,209 3,410,481 35,245,728 TOTALS $ 820,663,684 $ 110,074,890 $ 710,588,794

UNIVERSITY OF ARKANSAS AT FORT SMITH Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 5/1/2009 12/1/2034 2.0% - 5.0%$ 25,000,000 $ 2,085,000 $ 22,915,000 6/1/2010 12/1/2021 2.0% - 4.0% 29,895,000 7,910,000 21,985,000 12/1/2010 12/1/2035 2.0% - 4.75% 9,300,000 725,000 8,575,000 1/1/2012 12/1/2030 2.0% - 4.25% 17,540,000 1,245,000 16,295,000 6/1/2014 12/1/2031 2.0% - 3.5% 5,295,000 - 5,295,000 6/1/2014 6/1/2039 2.0% - 5.0% 10,930,000 - 10,930,000 2/29/2012 1/1/2022 0% 2,159,045 433,300 1,725,745 5/22/2012 5/4/2027 4.00% 650,000 68,747 581,253 Net unamortized premium/discount 3,189,932 542,189 2,647,743 TOTALS $ 103,958,977 $ 13,009,236 $ 90,949,741

C-41 39

UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

UNIVERSITY OF ARKANSAS AT LITTLE ROCK Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 10/1/2009 10/1/2029 2.0% - 5.0%$ 32,245,000 $ 4,515,000 $ 27,730,000 11/1/2009 10/1/2034 3% - 5% 29,510,000 2,275,000 27,235,000 4/1/2012 5/1/2037 2.0% - 5.0% 14,880,000 705,000 14,175,000 9/1/2012 12/1/2029 1.0% - 5.0% 13,850,000 1,240,000 12,610,000 4/1/2013 12/1/2024 1.0% - 5.0% 10,770,000 710,000 10,060,000 4/1/2013 12/1/2024 0.53% - 2.884% 6,530,000 490,000 6,040,000 8/1/2013 10/1/2030 2.0% - 5.0% 28,740,000 - 28,740,000 5/7/2008 10/1/2015 4.22% 2,541,873 2,018,003 523,870 8/23/2011 12/1/2020 0.00% 1,732,620 444,444 1,288,176 Various Various 1.98% - 3.15% 4,921,269 2,038,899 2,882,370 Net unamortized premium/discount 8,990,261 1,738,210 7,252,051 TOTALS $ 154,711,023 $ 16,174,556 $ 138,536,467

UNIVERSITY OF ARKANSAS AT MONTICELLO Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 10/1/2010 10/1/2018 2.0% - 2.35% $ 2,870,000 $ 1,020,000 $ 1,850,000 2/1/2012 12/1/2035 2.0% - 4.0% 8,745,000 580,000 8,165,000 12/1/2012 10/1/2037 1% - 4.0% 8,650,000 250,000 8,400,000 1/27/2009 2/1/2019 0.53% 1,000,000 504,325 495,675 Net unamortized premium/discount 367,677 38,531 329,146 TOTALS $ 21,632,677 $ 2,392,856 $ 19,239,821

UNIVERSITY OF ARKANSAS FOR MEDICAL SCIENCES Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 3/8/2006 3/1/2036 3.4% - 5.0%$ 107,500,000 $ 15,950,000 $ 91,550,000 6/1/2010 7/1/2019 2.0% - 4.5% 7,605,000 2,250,000 5,355,000 12/21/2010 12/1/2030 2.00% - 5.00% 42,680,000 1,170,000 41,510,000 12/21/2010 12/1/2013 1.20%-1.93% 3,680,000 3,680,000 - 11/15/2011 7/1/2034 2.0% - 4.25% 8,985,000 710,000 8,275,000 5/14/2013 11/1/2034 1.0% - 5.0% 112,665,000 2,260,000 110,405,000 Misc Notes 87,787,000 32,167,000 55,620,000 Leases 78,802,000 47,906,000 30,896,000 Net unamortized premium/discount 33,368,000 11,290,000 22,078,000 TOTALS $ 483,072,000 $ 117,383,000 $ 365,689,000

UNIVERSITY OF ARKANSAS AT PINE BLUFF Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 10/1/1963 10/1/2013 3.63% $ 1,822,000 $ 1,822,000 $ - 10/12/2005 12/1/2035 3.0% - 5.0% 19,565,000 19,565,000 - 10/12/2005 12/1/2017 2.8% - 3.8% 3,330,000 2,420,000 910,000 6/1/2014 6/30/2036 2% - 5.0% 15,160,000 - 15,160,000 6/1/2014 12/1/2018 1.875% 1,810,000 - 1,810,000 9/1/1999 12/1/2015 Variable 880,000 842,500 37,500 10/12/1999 11/19/2020 4.04% 3,300,000 3,300,000 - 10/15/2012 9/15/2016 2.01% 2,169,106 973,388 1,195,718 Net unamortized premium/discount 2,308,855 1,207,595 1,101,260 TOTALS $ 50,344,961 $ 30,130,483 $ 20,214,478

40 C-42

UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

COSSATOT COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 6/13/2013 5/1/2035 1.0% - 3.625%$ 3,930,000 $ 105,000 $ 3,825,000 5/17/2005 5/1/2035 5.18% 4,500,000 4,500,000 - 1/25/2008 3/30/2023 2.91% 2,000,000 806,792 1,193,208 11/16/2010 11/16/2030 5.25% 300,060 33,204 266,856 Various Various Various 70,351 54,827 15,524 Net unamortized premium/discount 141,059 6,461 134,598 TOTALS $ 10,941,470 $ 5,506,284 $ 5,435,186

PHILLIPS COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 2/1/2009 12/1/2038 3.0% - 5.2%$ 12,030,000 $ 950,000 $ 11,080,000 6/1/2013 6/1/2018 4.30% 219,026 43,549 175,477 Net unamortized premium/discount (107,624) (19,422) (88,202) TOTALS $ 12,141,402 $ 974,127 $ 11,167,275

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT BATESVILLE Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 6/15/2010 12/1/2018 1.0% - 3.25% $ 2,295,000 $ 945,000 $ 1,350,000 5/7/2008 11/1/2015 4.22% 816,432 639,674 176,758 5/7/2008 11/1/2015 4.22% 451,616 368,268 83,348 2/2/2010 2/1/2020 0.45% 1,000,000 394,620 605,380 Net unamortized premium/discount 4,032 1,916 2,116 TOTALS $ 4,567,080 $ 2,349,478 $ 2,217,602

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT HOPE Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 6/1/2010 9/1/2020 1.00% - 4.00%$ 4,625,000 $ 1,715,000 $ 2,910,000 6/1/2013 10/1/2038 1.00% - 3.625% 2,590,000 65,000 2,525,000 3/27/2012 4/1/2022 0.20% 1,100,000 218,245 881,755 Net unamortized premium/discount 111,731 43,280 68,451 TOTALS $ 8,426,731 $ 2,041,525 $ 6,385,206

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT MORRILTON Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 05/18/2005 11/1/2017 3.0% - 4.0% $ 2,095,000 $ 1,340,000 $ 755,000 6/16/2010 5/1/2022 2.0% - 3.5% 2,030,000 615,000 1,415,000 7/30/2010 8/1/2020 0.38% 800,000 276,552 523,448 TOTALS $ 4,925,000 $ 2,231,552 $ 2,693,448

C-43 41

UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Schedule of Changes in Debt BONDS Balance Balance Current Campus 6-30-13 Additions Reductions 6-30-14 Portion UAF $ 633,300,000 $ 29,750,000 $ 21,565,000 $ 641,485,000 $ 23,865,000 Net unamortized prem/disc 34,621,972 2,345,740 1,721,984 35,245,728 1,801,952 UAFS 79,355,000 16,225,000 9,585,000 85,995,000 4,820,000 Net unamortized prem/disc 1,965,809 842,929 160,995 2,647,743 196,136 UALR 101,965,000 28,740,000 4,115,000 126,590,000 5,460,000 Net unamortized prem/disc 5,873,531 1,834,043 455,523 7,252,051 455,523 UAM 19,280,000 865,000 18,415,000 880,000 Net unamortized prem/disc 346,481 17,335 329,146 17,335 UAMS 264,350,000 7,255,000 257,095,000 8,046,000 Net unamortized prem/disc 23,226,000 1,148,000 22,078,000 1,148,000 UAPB 18,381,000 16,970,000 17,471,000 17,880,000 660,000 Net unamortized prem/disc 927,002 1,105,422 931,164 1,101,260 49,048 CCCUA 3,930,000 105,000 3,825,000 120,000 Net unamortized prem/disc 141,059 6,461 134,598 6,461 PCCUA 11,330,000 250,000 11,080,000 255,000 Net unamortized prem/disc (91,788) (3,586) (88,202) (3,586) UACCB 1,600,000 250,000 1,350,000 255,000 Net unamortized prem/disc 2,595 479 2,116 479 UACCH 5,935,000 500,000 5,435,000 520,000 Net unamortized prem/disc 79,328 10,877 68,451 10,877 UACCM 2,495,000 325,000 2,170,000 340,000 TOTAL $ 1,209,012,989 $ 97,813,134 $ 66,735,232 $ 1,240,090,891 $ 48,903,225 Beginning of year balances were restated by the amount moved to deferred inflows/outflows along with a correction by PCCUA to net unamortized premium/discount (see Note 21)

NOTES Balance Balance Current Campus 6-30-13 Additions Reductions 6-30-14 Portion UAF $ 6,173,363 $ 3,676,273 $ 2,497,090 $ 270,453 UAFS 1,773,675 168,720 216,650 1,725,745 216,650 UALR 2,408,307 596,261 1,812,046 612,353 UAM 595,399 99,724 495,675 100,253 UAMS 68,447,000 80,000 12,907,000 55,620,000 9,953,000 UAPB 935,000 897,500 37,500 37,500 CCCUA 1,597,992 137,928 1,460,064 142,237 UACCB 1,151,628 286,142 865,486 294,627 UACCH 990,987 109,232 881,755 109,450 UACCM 602,838 79,390 523,448 79,692 TOTAL $ 84,676,189 $ 248,720 $ 19,006,100 $ 65,918,809 $ 11,816,215

CAPITAL LEASES Balance Balance Current Campus 6-30-13 Additions Reductions 6-30-14 Portion UAF $ 17,116 $ 7,511 $ 9,605 $ 7,661 UAFS 614,986 33,733 581,253 35,107 UALR 3,791,252 908,882 2,882,370 914,967 UAMS 39,004,000 8,108,000 30,896,000 7,081,000 UAPB 1,730,241 534,523 1,195,718 499,523 CCCUA 3,897,715 3,882,191 15,524 6,964 PCCUA 215,747 40,270 175,477 42,037 TOTAL $ 49,271,057 $ - $ 13,515,110 $ 35,755,947 $ 8,587,259

42 C-44

UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

INSTALLMENT CONTRACTS Balance Balance Current Campus 6-30-13 Additions Reductions 6-30-14 Portion UAF $ 33,900,532 $ 2,549,161 $ 31,351,371 $ 2,669,601 TOTAL $ 33,900,532 $ - $ 2,549,161 $ 31,351,371 $ 2,669,601

The current portion shown above for bonds, notes, capital leases, and installment contracts differs from the statement of net position by $19,580, which is the current portion of an elimination entry (see Note 17).

Future Principal and Interest Payments Total long-term debt principal and interest payments are shown below. As required by GASB Statement No. 38, interest payments for variable rate debt have been calculated using the rate in effect at the financial statement date. Actual rates will vary. The total principal amount of $1,304,346,127 differs from the amount of $1,372,359,853 shown on the statement of net position. This is due to $68,770,891 of amortization due to bond premiums/discounts offset by an elimination entry of $757,165 (see Note 17).

BONDS & NOTES FUTURE PRINCIPAL AND INTEREST PAYMENTS Year Ended June 30, Principal Interest Total 2015 $ 57,037,215 $ 52,091,928 $ 109,129,143 2016 58,641,558 50,675,125 109,316,683 2017 65,898,095 48,824,597 114,722,692 2018 61,013,883 46,704,679 107,718,562 2019 63,393,115 44,533,827 107,926,942 2020-2024 264,111,973 187,014,120 451,126,093 2025-2029 240,113,292 129,402,068 369,515,360 2030-2034 232,155,853 72,862,565 305,018,418 2035-2039 150,308,825 25,758,570 176,067,395 2040-2044 44,565,000 3,607,281 48,172,281 TOTALS $ 1,237,238,809 $ 661,474,760 $ 1,898,713,569

CAPITAL LEASES FUTURE PRINCIPAL AND INTEREST PAYMENTS Year Ended June 30, Principal Interest Total 2015 $ 8,587,259 $ 1,277,290 $ 9,864,549 2016 8,182,333 964,421 9,146,754 2017 6,052,023 673,358 6,725,381 2018 3,939,262 507,525 4,446,787 2019 3,047,185 396,535 3,443,720 2020-2024 5,789,437 624,163 6,413,600 2025-2029 158,448 9,679 168,127 TOTALS $ 35,755,947 $ 4,452,971 $ 40,208,918

C-45 43

UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

INSTALLMENT CONTRACTS FUTURE PRINCIPAL AND INTEREST PAYMENTS Year Ended June 30, Principal Interest Total 2015 $ 2,669,601 $ 1,451,159 $ 4,120,760 2016 2,795,733 1,325,027 4,120,760 2017 2,927,828 1,192,932 4,120,760 2018 3,066,166 1,054,594 4,120,760 2019 3,211,044 909,716 4,120,760 2020-2024 16,680,999 1,981,206 18,662,205 TOTALS $ 31,351,371 $ 7,914,634 $ 39,266,005

Capitalization of Assets held under Capital Leases The capitalized value of capital assets held under capital leases totaled $48,151,186 at June 30, 2014. The present value of the net minimum lease payments is as follows:

Accumulated Cost Depreciation Net Improvements/Infrastructure $ 281,686 $ 35,926 $ 245,760 Buildings 650,000 65,000 585,000 Equipment 67,738,556 20,418,130 47,320,426 TOTAL $ 48,151,186

Total Minimum Lease Payments $ 40,208,918 Less: Amount representing interest 4,452,971 Total Present Value of Net Minimum Lease Payments $ 35,755,947

44 C-46

UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

FY14 % of Maturity Remaining Principal & Revenue Bond Issue Date Purpose of Debt Principal & Interest Interest Revenue Source FY14 Revenue Pledged

UNIVERSITY OF ARKANSAS FAYETTEVILLE -- VARIOUS FACILITIES Series 1997 Various Various Facility 11/1/2022 Construction and Renovations $ 1,442,713 $ 194,098 $ 306,805,026 0.06% Facilities Pledge Series 2004B Various Refund portion of Series 1998 Various Various Facility 11/1/2024 3,900,995 975,768 $ 306,805,026 0.32% Facilities Refunding Facilities Pledge Series 2005 Various Various Facility 11/1/2025 Construction and Renovations 79,497,321 9,547,554 $ 306,805,026 3.11% Facilities Pledge Series 2006 Various Various Facility 11/1/2036 Construction and Renovations 104,761,398 4,086,585 $ 306,805,026 1.33% Facilities Pledge Series 2007 Various Various Facility 11/1/2037 Construction of Student Housing 67,960,969 2,850,763 $ 306,805,026 0.93% Facilities Pledge Construction of Parking Garage, Series 2008 Various Various Facility 11/1/2038 Bookstore, KUAF Radio, and other 86,252,722 3,178,948 $ 306,805,026 1.04% Facilities Pledge facilities, and purchase of parcels of land

Series 2009 Various Various Facility 11/1/2039 Construction and Renovations 84,061,084 3,236,483 $ 306,805,026 1.05% Facilities Pledge Series 2011 Various Various Facility 11/1/2040 Construction and Renovations 180,375,167 6,664,081 $ 306,805,026 2.17% Facilities Pledge Refunded $44,555,000 of Series 2002 Series 2012A Various Various Facility Bonds and $17,080,000 Various Facility 11/1/2032 80,430,625 3,395,100 $ 306,805,026 1.11% Facilities of Series 2004A Various Facility Revenue Pledge Bonds Series 2012B Various Various Facility 11/1/2042 Construction and Renovations 112,336,050 3,141,150 $ 306,805,026 1.02% Facilities Pledge Series 2013A Various Various Facility 11/1/2042 Construction and Renovations 91,870,819 3,425,524 $ 306,805,026 1.12% Facilities Pledge Series 2014 Various Various Facility 11/1/2043 Construction and Renovations 54,778,862 0 $ 306,805,026 0.00% Facilities Pledge Total Percentage of Pledged Revenues 13.26%

UNIVERSITY OF ARKANSAS FAYETTEVILLE -- ATHLETIC FACILITIES Series 2006 Athletic Construction of John McDonnell Outdoor 9/15/2022 6,337,679 705,691 Athletics Pledge 55,733,133 1.27% Facilities Track Stadium Series 2010 Athletic Refund Series 1999 and 2001 Athletic 9/15/2020 19,157,471 2,738,891 Athletics Pledge 55,733,133 4.91% Refunding Facilities Bonds for football stadium Series 2011 Athletic 9/15/2021 Construction of Football Center 21,789,900 3,370,700 Athletics Pledge 55,733,133 6.05% Facilities Construction of Basketball Practice Series 2013 Athletic Facility, Track and Baseball Indoor 9/15/2027 40,379,825 1,996,576 Athletics Pledge 55,733,133 3.58% Facilities Practice Facility, and Athletic & Academic Dining Facility Series 2008 Athletic Facilities Revenue Prom 9/13/2013 Improvements to various athletic facilities 297,970 Athletics Pledge 55,733,133 0.53% Note Total Percentage of Pledged Revenues 16.34%

UNIVERSITY OF ARKANSAS AT FORT SMITH Series 2006 Student Fee Student Fee 12/1/2031 Sebastian Commons Phase II 0 420,955 35,895,100 1.17% Revenue Revenue Series 2009 Student Fee Student Fee 12/1/2034 Housing construction 35,434,272 1,702,886 35,895,100 4.74% Revenue Revenue Series 2010 Student Fee Refund Series 2001 Student Fee Student Fee 12/1/2021 25,194,627 3,170,970 35,895,100 8.83% Revenue Revenue Bonds Revenue Series 2010B Student Student Fee 12/1/2035 Library Construction 13,431,276 615,548 35,895,100 1.71% Fee Revenue Revenue

Student Fee Series 2012 Refunding 12/1/2030 Refund Series 2003 & 2005 21,306,768 1,551,705 35,895,100 4.32% Revenue

Student Fee Series 2014A 12/1/2031 Refund Series 2006 6,944,653 0 35,895,100 0.00% Revenue Student Fee Series 2014B 6/1/2039 Recreation/Wellness Center 18,214,500 0 35,895,100 0.00% Revenue Total Percentage of Pledged Revenues 20.77%

C-47 45

UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

UNIVERSITY OF ARKANSAS AT LITTLE ROCK Series 2009 Capital Student Fee 10/1/2029 Capital improvements 38,742,500 2,423,725 74,344,588 3.26% Improvement Revenue Revenue Series 2013A Revenue Refund Series 2004B Capital Student Fee 12/1/2024 12,585,075 1,145,875 74,344,588 1.54% Refunding Improvements Revenue Revenue Series 2013 Student Fee Student Fee Revenue Capital 10/1/2030 Energy Conservation Project 40,868,021 830,915 74,344,588 1.12% Revenue Improvements Series 2013B Taxable Refund Series 2004B Capital Student Fee 12/1/2024 6,824,759 622,660 74,344,588 0.84% Revenue Refunding Improvements Revenue Revenue Total Percentage of Pledged Revenues 6.76%

Series 2012B Student Refund Series 2004A Revenue Housing Revenue 12/1/2029 17,753,700 1,110,350 Auxiliary Revenue 16,867,543 6.58% Refunding Bonds Refunding Series 2009 Auxiliary Housing & Athletic 10/1/2034 Housing and Athletics 42,528,341 2,022,856 14,492,197 13.96% Enterprises Revenue Revenue Series 2012A Auxiliary Housing & Athletic Enterprises Capital 5/1/2037 Purchase of Coleman Place Apartments 22,865,000 993,250 14,492,197 6.85% Revenue Improvements Total Percentage of Pledged Revenues 20.81%

UNIVERSITY OF ARKANSAS AT MONTICELLO Student Fee Series 2012 Various Refund Series 2005 Various Facilities 12/1/2035 11,713,638 537,433 Revenue & 22,314,542 2.41% Facilities Refunding Refunding and Construction Auxiliary Revenues

Series 2010 Various Refund Series 2005 Auxiliary Facilities 10/1/2018 1,951,825 387,273 Auxiliary Revenues 5,753,712 6.73% Facilities Refunding Refunding Series 2012 Auxiliary Renovation and Equipping of Bankston 10/1/2037 12,288,963 514,066 Auxiliary Revenues 5,753,712 8.93% Facilities Revenue Hall and Horsfall Hall Total Percentage of Pledged Revenues 15.66%

UNIVERSITY OF ARKANSAS FOR MEDICAL SCIENCES Series 2006 Various Hospital Patient Bed Tower, Psychiatry Clinical Programs 3/1/2036 153,001,900 6,953,755 587,545,711 1.18% Facilities Building, Residence Hall & Power Plant Revenue

Series 2010 Various Hospital Patient Bed Tower, Psychiatry Clinical Programs 12/1/2030 61,099,500 3,593,188 587,545,711 0.61% Facilities Building, Residence Hall & Power Plant Revenue

Refund Series 2004 Various Facilities Series 2013 Various Clinical Programs 11/1/2034 (Patient Bed Tower, Psychiatry Building, 171,172,094 7,087,063 587,545,711 1.21% Facilities Revenue Residence Hall & Power Plant) Total Percentage of Pledged Revenues 3.00%

Series 2010 Refunding Refund Series 1998 Parking System 7/1/2019 6,099,925 1,019,425 Parking Fees 4,119,282 24.75% Parking System Revenue Bonds Series 2011 Refunding Refund Series 2004 Parking System 7/1/2034 11,719,510 583,951 Parking Fees 4,119,282 14.18% Parking System Revenue Bonds Total Percentage of Pledged Revenues 38.93%

UNIVERSITY OF ARKANSAS AT PINE BLUFF Series 2005B Various Facilities Revenue, Unrestricted 12/1/2017 Refund and capital improvements 979,868 344,277 28,006,222 1.23% Refunding and Funds Construction

Series 2014A Various Unrestricted Facilities Revenue 6/30/2036 Refund Series 2005A 23,630,128 0 28,006,222 0.00% Funds Refunding Bonds

Series 2014B Various Unrestricted Facilities Revenue 12/1/2018 Refund Series 2005A 1,896,250 0 28,006,222 0.00% Funds Refunding Bonds Total Percentage of Pledged Revenues 1.23%

COSSATOT COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS Pay off lease that acquired Howard Student Fee Series 2013 5/1/2035 5,561,769 264,138 3,265,171 8.09% County campus Revenue

PHILLIPS COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS Series 2009 Student Fee Refund Series 1997 Bonds and Student Fee Refunding and 12/1/2038 19,289,501 771,395 3,209,837 24.03% Construction of Grand Prairie Center Revenue Construction

46 C-48

UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT BATESVILLE Series 2010 Student Fee Student Fee 12/1/2018 Refund Series 1998 1,449,674 288,473 3,168,356 9.10% Revenue Refunding Revenue

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT HOPE Series 2010 Student Fee Student Fee 9/1/2020 Refund Series 1998 & 2004 3,219,175 531,788 2,402,801 22.13% Revenue Revenue Series 2013 Student Fee Student Fee 10/1/2038 Refund Series 2008 3,769,256 138,131 2,402,801 5.75% Refunding Revenue Revenue Total Percentage of Pledged Revenues 27.88%

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT MORRILTON Series 2005 Student Fee Student Fee 11/1/2017 Refund Series 1999 815,581 202,263 6,204,034 3.26% Revenue Refunding Revenue

Series 2010 Student Fee Student Fee 5/1/2022 Refund Series 2002 1,629,138 201,843 6,204,034 3.25% Revenue Refunding Revenue Total Percentage of Pledged Revenues 6.51%

Refundings Fayetteville Campus: On April 17, 2012, the University issued $56,965,000 in Various Facility Revenue Refunding Bonds, Series 2012A. The bonds, with interest rates of 1.0% to 5.0% were issued to refund $44,555,000 of outstanding bonds dated December 1, 2002, with an interest rate of 4.75% to 5.50%, and $17,080,000 of outstanding bonds dated October 1, 2004, with interest rates of 3.25% to 4.75%. Net bond proceeds and premium of $65,717,794 were deposited into the advance refunding fund to retire the bonds. The combined refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $4,082,794. This difference, reported in the accompanying financial statements as deferred outflows of resources, will be amortized through the fiscal year 2033 using the straight-line method. The University completed the refunding to reduce its total debt service payments over the next twenty-one years by $9,331,777 and to obtain an economic gain (difference between the present values of the old and new debt service payments) of $7,016,631. The escrow balance as of June 30, 2014, was $15,293,371. The bonds dated December 1, 2002, were refunded on December 1, 2012. The bonds dated October 1, 2004, will continue to have regularly scheduled principal and interest payments made from the escrow account until the bond call date of November 1, 2014, at which time the remaining balance will be refunded. The remaining balance of the defeased bonds at June 30, 2014, was $14,995,000.

Ft. Smith Campus: On June 1, 2014, the University issued refunding bonds of $5,295,000, with interest rates of 2% to 3.5% to advance refund $5,150,000 of outstanding bonds dated December 1, 2006, with interest rates of 3.6% to 5%. Bond proceeds of $5,265,638 were deposited in the advance refunding fund to retire the 2006 bonds. Remaining bond proceeds of $29,362 and premium proceeds of $75,820 were utilized for the payment of issuance costs. Remaining premium proceeds of $5,393 and accrued interest of $1,718 were deposited in the debt service fund to be applied to subsequent interest payments. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $115,638. The difference, reported in the accompanying financial statements as deferred outflows of resources, will be amortized through the fiscal year 2032 using the straight-line method. The University completed the refunding to reduce its total debt service payments over the next eighteen years by $549,425 and to obtain an economic gain (difference between the present values of the old debt and new debt service payments) of $421,934. The escrow balance at June 30, 2014 was $5,265,638. The bonds will be refunded on December 1, 2014. The remaining balance of the defeased bonds at June 30, 2014, was $5,150,000.

Little Rock Campus: On April 1, 2013, the University issued $10,770,000 in Series 2013A Student Fee Revenue Refunding Bond (UALR Project) and $6,530,000 Taxable, with interest rates of 1% to 5% to advance refund $16,970,000 of the Series 2004B bond, with interest rates of 3.483% to 5%. Bond proceeds and premium of $18,417,129 were deposited into an escrow account with the trustee for defeasance of the prior bond. The combined refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $1,250,792. This difference, reported in the accompanying financial statements as deferred outflows of resources, will be amortized through the fiscal

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14 year 2025 using the straight-line method. The University completed the refunding to reduce its total debt service payment by $1,181,006 over the next twelve years and to maintain bond compliance for property purchased with the Series 2004B Bonds and to obtain an economic gain (difference between the present value of the debt service payments on the old and new debt) of $1,108,967. The balance in the escrow account at June 30, 2014, was $16,230,755. The bonds will be fully paid by December 1, 2014. The remaining balance of the defeased bonds at June 30, 2014, was $15,885,000.

Medical Sciences Campus: On May 14, 2013, the University issued $112,665,000 in Various Facilities Revenue Refunding Bonds, Series 2013 with interest rates of 1% to 5% to advance refund Various Facility Revenue Refunding Bonds Series 2004A and Series 2004B. The 2004A bonds mature on November 1, 2018, and the 2004B bonds mature on November 1, 2034, and are callable on November 1, 2014. The revenue refunding bonds were issued at a premium of $16,667,015 and, after paying issuance costs of $210,039 and underwriter’s discount of $653,457, the net proceeds were $128,468,519, net of accrued interest of $174,719. The net proceeds from the issuance of the bonds were used to purchase U.S. government securities and provide debt service payments until the term bonds are called on November 1, 2014. The advance refunding met the requirements of an in-substance debt defeasance, and the liability for the 2004A and 2004B Series bonds was removed from the statement of net position. As a result of the advance refunding, the University reduced its total debt service requirements by $14,429,197, which resulted in an economic gain (difference between the present value of the debt service payments on the old and new debt) of $13,599,985. The balance in the escrow account at June 30, 2014, was $118,203,602. The remaining balance of the defeased bonds at June 30, 2014, was $115,415,000.

Monticello Campus: On February 1, 2012, the University issued $8,745,000 in Various Facilities Revenue Refunding Bonds, Series 2012, with interest rates of 2% to 4% to refund $7,980,000 of outstanding Various Facilities Revenue Refunding and Construction Bonds, Series 2005, with interest rates of 3.1% to 5%. Bond proceeds of $8,701,769 were deposited in the current escrow deposit fund to retire the 2005 bonds. Remaining bond proceeds of $43,231 and premium proceeds of $102,419 were earmarked for the payment of issuance costs. After the payment of actual issuance costs, the balance of $1,313 was utilized for an interest payment on the new Series 2012 bonds that was paid June 1, 2012. The University completed the refunding to reduce its total debt service payments over a period of twenty- four years by $814,388 and to obtain an economic gain (difference between the present values of the old and new debt service payments) of $556,541. The Series 2005 bonds were refunded on December 1, 2013, and the escrow account was closed.

Pine Bluff Campus: On June 1, 2014, the University issued $16,970,000 in Various Facilities Revenue Refunding Bonds, Series 2014, with interest rates of 2% to 5% to advance refund Various Facility Revenue Refunding and Construction Bonds, Series 2005A. The Series 2005A bonds mature on December 1, 2036, and are callable on December 1, 2015. The revenue refunding bonds were issued at a premium of $1,105,422 and after paying issuance costs of $86,000 and underwriter’s discount of $140,002, the net proceeds were $17,849,420. Accrued interest of $46,780 will be utilized for an interest payment on the new Series 2014 bonds in December, 2014. The net proceeds from the issuance of the bonds were deposited into a special trust fund and will be used to provide debt service payments until the term bonds are called on December 1, 2015. As a result of the advance refunding, the University reduced its total debt service requirements by $1,900,872, which resulted in an economic gain (difference between the present value of the debt service payments on the old and new debt) of $1,397,584. The balance in the escrow account at June 30, 2014, was $17,849,420. The remaining balance of the defeased bonds at June 30, 2014, was $16,660,000.

Cossatot Campus: On June 13, 2013, the University issued revenue refunding bonds of $3,930,000 with interest rates of 1% to 3.625% to refund $3,863,373 of outstanding debt from May 2005 with an interest rate of 5.18%. Bond proceeds and premium (after payment of bond issuance costs of $96,551) of $3,974,508 were deposited into a project fund account to make payment on a prepayment option price for the Howard County Project under the Arkansas State Lease and Option Agreement dated May 17, 2005. Remaining bond proceeds of $5,021 and accrued interest of $4,840 were applied to subsequent interest payments. The current refunding resulted in a difference between the reacquisition price and the

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14 net carrying amount of the old debt of $111,135. This difference is reported in the accompanying financial statements as deferred outflows of resources and will be amortized through fiscal year 2035 using the straight-line method. The University completed the refunding to reduce its total debt service payments over the next twenty-two years by $680,182. Because the escrow account remained in the control of the campus, the debt of the original lease and option agreement was not yet considered defeased as of June 30, 2013, and therefore both debts remained in the financial statements. On July 1, 2013, the prepayment option on the capital lease was paid in full, and the lease was considered fully defeased.

Hope Campus: On June 1, 2013, the University issued refunding bonds of $2,590,000 with interest rates of 1% to 3.625% to advance refund $2,485,000 of outstanding bonds dated October 1, 2008, with interest rates of 2.25% to 5%. Bond proceeds and premium (after payment of debt issuance costs of $77,612) and debt service reserve funds of $2,600,042 were deposited in the advance refunding fund to retire the 2008 bonds. Remaining debt service reserve funds of $7,224 and accrued interest of $2,652 were deposited in the debt service fund to be applied to subsequent interest payments. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $194,820. This difference, reported in the accompanying financial statements as deferred outflows of resources, will be amortized through fiscal year 2038 using the straight-line method. The University completed the refunding to reduce its total debt service payments over the next twenty-five years by $494,962 and to obtain an economic gain (difference between the present values of the old and new debt service payments) of $244,080. The bonds were refunded on April 1, 2014, and the escrow balance at June 30, 2014, was $3,256.

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Note 8: Commitments

The University was contractually obligated under construction related contracts at June 30, 2014, for the amounts shown below. Estimated Contract Campus Project Name Completion Date Balance UAF AFLS Basement Renovation August 2015 $ 179,375 Arts & Design District October 2016 396,358 Athletic Academic & Dining Facility January 2015 16,487,645 Basketball Practice Facility December 2014 16,641,831 Baseball & Track Indoor Practice Facility Substantially Complete 491,162 Campus District Energy Systems Substantially Complete 645,026 Chi Omega Greek Theatre June 2017 133,253 Classroom & Teaching Lab Building January 2015 15,179,649 Cleveland & Hall L.I.D. Parking Lot March 2015 227,266 Combined Heat & Power Plant June 2015 9,833,487 Football Center Substantially Complete 463,348 Founders Hall Substantially Complete 280,466 Hillside Auditorium Substantially Complete 32,302 Hotz Hall Renovation Substantially Complete 44,556 Housing Administration Building Substantially Complete 269,453 Jim & Joyce Faulkner Performing Arts April 2015 485,227 John A White Engineering Hall Phase I Substantially Complete 201,003 Lambda Chi Alpha Fraternity House June 2016 421,582 Leroy Pond Utility Plant December 2014 490,187 Mechanical Eng Building Modifications Substantially Complete 103,187 Memorial Hall Restoration September 2014 496,738 Nano 3rd Floor - Dickson St. Utility December 2014 188,352 Ozark Hall Renovation and Addition Substantially Complete 420,545 Pi Kappa House Renovations December 2014 3,038,845 Pomfret Honors Quarters Substantially Complete 159,515 Rice Research Seed Processing Plant June 2016 515,781 Science D Building Lab Upgrades December 2014 90,943 Soil Testing Lab Office Renovation March 2015 1,091,876 Yocum Hall Renovation December 2014 2,237,601 Other Various 2,886,824 UAFS Library Expansion & Central Energy Plant October 2015 22,359 RLF Projects - Strategic Energy Plan June 2015 17,078 Visual Arts Building & Central Energy Plant June 2015 13,998,480 Amphitheater December 2014 12,259 Sebastian Commons Paint & Repair September 2014 121,384 UALR DSC Restroom Renovations & Roof Leaks July 2014 183,106 Energy Conservation Project, Phase II July 2015 7,881,861 Center for Performing Arts & Stabler Hall Roofs September 2014 265,135 Other Various 223,727 UAM Crossett Campus Parking Lot August 2014 94,000 UAMS AHEC: Texarkana SW Facility/Fayetteville NW E Tower Various 5,469,000 UAPB Stem Academy Center December 2014 2,248,124 Agri Technology Training Center, Phase II September 2014 63,050 CCCUA DeQueen Paving Project July 2014 32,511 Multi-purpose Classroom/Recreation December 2015 489,179 PCCUA Arts & Sciences Building Improvements August 2014 106,327 UACCB Independence Hall Carpeting July 2014 9,463 Cosmetology Building February 2015 953,276 UACCH Texarkana Professions Building January 2015 3,021,185 UACCM Workforce Training Center September 2017 678,597 TOTAL $ 110,023,484

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

The University has entered into various operating leases for buildings and equipment. It is expected that in the normal course of business such leases will continue to be required. Total operating leases paid in the fiscal year ended June 30, 2014, were $17,441,444. Below are the scheduled payments for each of the five succeeding fiscal years and thereafter.

Operating Leases Year Ended June 30, Amount 2015 $ 8,527,264 2016 4,840,754 2017 3,059,950 2018 1,252,016 2019 866,139 2020-2024 1,802,683 2025-2029 7,800

Note 9: Short-Term Borrowing

The GASB Statement No. 38, Certain Financial Statement Note Disclosures, states that governments should provide details about short-term debt activity during the year, even if no short-term debt is outstanding at year-end. The University had no short-term debt activity during the fiscal year, nor is there any outstanding balance of short-term debt as of June 30, 2014.

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Note 10: Capital Assets

Following are changes in capital assets for the year ended June 30, 2014:

June 30, 2013 June 30, 2014 CAPITAL ASSETS Balance Additions Transfers Deletions Balance Land $ 87,823,450 $ 8,913,303 $ (309,500) $ 417,458 $ 96,009,795 Library Holdings 126,403,039 8,518,254 - 657,310 134,263,983 Construction in progress 236,269,841 125,014,254 (240,269,173) 3,769,606 117,245,316 Improvements and infrastructure 245,922,366 2,829,496 13,370,893 84,301 262,038,454 Buildings 2,919,214,058 26,144,778 197,604,749 1,393,605 3,141,569,980 Equipment 559,948,559 29,432,302 7,698,031 21,457,113 575,621,779 Intangibles - Software 103,456,003 46,870,187 29,257,000 17,022,000 162,561,190 Intangibles - Leasehold Improve 1,129,819 - - - 1,129,819 Intangibles - Radio License 67,809 - - - 67,809 Other 46,725,161 857,551 (7,352,000) 2,815,000 37,415,712 Total Capital Assets $ 4,326,960,105 $ 248,580,125 $ - $ 47,616,393 $ 4,527,923,837

Less accumulated depreciation: Library Holdings $ 107,192,074 $ 4,487,101 - $ 685,865 $ 110,993,310 Improvements and infrastructure 103,264,123 11,344,763 - 2,498 114,606,388 Buildings 1,073,153,762 100,110,736 (17,000) 912,915 1,172,334,583 Equipment 415,067,393 42,276,129 6,353,000 20,340,268 443,356,254 Intangibles - Software 98,907,935 2,473,932 - 17,022,000 84,359,867 Intangibles - Leasehold Improve 243,188 60,798 - - 303,986 Other 17,283,666 4,502,381 (6,336,000) 2,452,000 12,998,047 Total Accum Depreciation $ 1,815,112,141 $ 165,255,840 $ - $ 41,415,546 $ 1,938,952,435

Capital Assets, Net $ 2,511,847,964 $ 83,324,285 $ - $ 6,200,847 $ 2,588,971,402

Library holdings, including old and rare books, valued at $1,287,000 and $1,308,000 at June 30, 2014, and June 30, 2013, respectively, held by the Medical Sciences Campus, are not included in the above chart or in the accompanying statement of net position. The difference in additions to accumulated depreciation shown above and depreciation expense shown on the statement of revenues, expenses, and changes in net position is $58,272, which is a prior year adjustment for holdings. An adjustment was made to the June 30, 2013, balances to correct for software incorrectly identified as Other by increasing Intangibles-Software by $19,721,000 and decreasing Other by the same amount. Likewise, the related accumulated depreciation of $19,316,000 was moved from Other to Intangibles-Software.

Note 11: Risk Management

The University of Arkansas Risk Management Program provides insurance coverage for all campuses within the University of Arkansas System with the exception of the Fort Smith campus. The role of the System Office is to analyze and recommend insurance coverage, but it is ultimately up to each campus to inform the System Office regarding their specific coverage requirements.

Property coverage is insured through FM Global with a $100,000 deductible at the Fayetteville, Medical Sciences, and Little Rock campuses. The other covered campuses have a $50,000 deductible. The FM Global policy also contains earthquake/flood and domestic/foreign terrorism coverage. Additionally, the Fayetteville, Medical Sciences, Phillips, and Morrilton campuses have business interruption coverage with FM Global.

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Auto coverage, through Cypress Insurance, has a physical damage deductible of $1,000 and provides coverage against liability losses up to $1,000,000 per occurrence.

The Medical Sciences campus maintains malpractice insurance for certain employees under a claims- made policy. The Fort Smith campus acquires its own property insurance through Alliant Property Insurance ($25,000 deductible) and auto insurance through Cypress Insurance ($5,000 deductible).

The University does not purchase general liability, errors or admissions, or tort immunity for claims arising from third-party losses on University property as the University of Arkansas has sovereign immunity against such claims. Claims against the University for such losses are heard before the State Claims Commission. In such cases where the University enters into a lease agreement to hold a function at a location not owned by the University or for special events both on- and off-campus, general liability coverage may be purchased for such functions.

The University maintains worker’s compensation coverage through the State of Arkansas program. Premiums are paid through payroll and are based on a formula calculated by the Arkansas Department of Finance and Administration. The types of benefits and expenditures that are paid include the following: medical expenses, hospital expenses, death benefits, disability and claimant’s attorney fees.

Additionally, the University participates in the State of Arkansas Fidelity Bond Program for claims of employee dishonesty. This program has a limit of $250,000 recovery per occurrence with a $2,500 deductible. Premiums are paid annually via a fund transfer from state appropriations to the Arkansas Department of Finance and Administration.

Note 12: Employee Benefits

Insurance Plans The Board of Trustees of the University of Arkansas System sponsors self-funded health (including prescription coverage) and dental benefit plans for University of Arkansas System (the University) employees and their eligible dependents. The System Administration manages and administers these plans. Participation in the health and dental plans includes employees of the Fayetteville, Batesville, Little Rock, Monticello, Morrilton, Pine Bluff, and Medical Sciences campuses, the Arkansas School for Mathematics, Sciences and the Arts, the University of Arkansas Foundation, Inc., the University of Arkansas Winthrop Rockefeller Institute, and the University of Arkansas System Administration. Employees at the Phillips County and Cossatot campuses participate only in the health plan.

At June 30, 2014, a total of 16,275 active employees, former employees, and pre-65 retirees were participants in the health plan. As of June 30, 2014, the University offers two different health plans: Classic (HMO) and Point of Service (POS). Participating campuses pay anywhere from 46% to 100% of the Classic Plan premium and 29% to 90% of the Point of Service Plan premium. Each campus makes its contribution determination based on budget considerations. Retirees and former employees, through COBRA, participate on a fully contributory basis. A total of 16,780 active employees, former employees, and retirees were participants in the dental plan as of June 30, 2014. The University pays 0% to 51% of the total premium for full-time active employees, while retirees and former employees, through COBRA, participate on a fully contributory basis.

Both plans are accounted for on the accrual basis. No acquisition costs were capitalized at the onset of the plan. The System Administration estimates the medical and pharmacy claims liability to be $14,030,000 at June 30, 2014. This liability is established for incurred but not paid (IBNP) claims, and includes a related accrual for claim adjustment expenses, which are expenses incurred in the ultimate

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14 settlement of the claim. The claims and claims adjustment accrual for health and pharmacy is based on the calculation prepared by Aon Hewitt.

The System Administration estimates the dental claims liability to be $494,000 at June 30, 2014. This liability is established for incurred but not paid (IBNP) claims. The IBNP claims liability includes a related accrual for claim adjustment expenses, which are expenses incurred in the ultimate settlement of the claim. The claims and claims adjustment accrual for dental is based on the calculation prepared by Aon Hewitt.

The System Administration purchases specific reinsurance from United Healthcare-BP to reduce its exposure to large claims. In a fiscal year, after paying claims of more than $1,000,000 for any one covered individual, the University pays an aggregating specific deductible of $75,000, whether from one or more covered individuals also exceeding $1,000,000 in paid claims, before being reimbursed from the reinsurance company.

The plan has not purchased any annuity contracts on behalf of claimants. If needed, the University would make arrangements through its reinsurance carrier.

The funding levels for the Plan were established based upon anticipated year-end loss ratios of 95%. As of June 30, 2014, the loss ratio for the health plan was 103% and the loss ratio for the dental plan was 92%.

The System Administration retains and accounts for all of the risk financing associated with the self- insurance plan’s activities as defined by GASB Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues.

Effective January 1, 2014, the plan for Medicare eligible retirees was changed to a fully insured Medicare Advantage program. Retirees pay 100% of the fully insured premium directly to United Healthcare.

Reconciliation of Changes in the Liability for Future Insurance Claims FY14 FY13 Unpaid claims and claim adjustment expenses at beginning of year $ 14,792,000 $ 14,919,000

Incurred claims and claim adjustment expenses: Provision for insured events of the current year 134,287,249 128,158,774 Adjustment in provision for insured events of prior years (1,497,203) (2,181,025) Total incurred claims and claim adjustment expenses 132,790,046 125,977,749

Payments: Claims and claim adjustment expenses attributable to insured events of the current year 119,763,249 113,366,774 Claims and claim adjustment expenses attributable to insured events of prior years 13,294,797 12,737,975 Total Payments 133,058,046 126,104,749

Total unpaid claims and claim adjustment expenses at end of year $ 14,524,000 $ 14,792,000

The liability for future insurance claims includes health, pharmacy and dental incurred but not paid (IBNP) claims/claim adjustment expenses only.

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

The Hope campus participates in the Arkansas Higher Education Consortium Benefits Trust (the Consortium). The Consortium provides health and dental insurance to all employees, retirees, and eligible dependents for eleven two-year colleges. The Consortium is managed by a Board of Trustees consisting of one member from each participating institution appointed by the president or chancellor from that institution. A bank trust, qualified pursuant to section 501(c)(9) of the Internal Revenue Code, was established by the Consortium to hold assets. The health plan is a self-funding arrangement that requires participating colleges to make monthly contributions per participant based on premium rates determined by underwriters. Each participating institution determines the contribution amounts paid by the individual participant and the institution. The dental plan is a fully insured plan. At June 30, 2014, there were a total of 1,589 active employees and retirees participating in the health plan, 128 of which are from the Hope campus.

The University of Arkansas Fort Smith Employee Benefit Plan provides health, dental and vision benefits covering substantially all full-time employees of the Fort Smith campus. The Plan provides health, dental and wellness benefits to eligible employees and their eligible dependents. The Plan is funded by contributions made by the campus and participants. A total of 530 active employees and retirees were participants in the plan as of June 30, 2014.

Retirement Plans Substantially all employees of the University participate in either the Optional Retirement Program (ORP), which includes Teachers Insurance Annuity Association – College Retirements Equities Fund (TIAA- CREF) and Fidelity Investments, or the Arkansas Public Employee Retirement System (APERS). The Arkansas Teacher Retirement System (ATRS) is available only to employees who come to work for the University that have a previous record with ATRS. APERS and ATRS are both defined benefit plans.

The ORP is a defined contribution plan. The plan includes both a 403(b) program and a 457(b) program as defined by the Internal Revenue Service Code of 1986 as amended. The authority under which the Plan’s benefit provisions are established or amended is the President of the University or his designee. Contributions to Fidelity Investments shall be applied either to individual annuities issued under a Metropolitan Life Guaranteed Account and/or one or more mutual fund custodian accounts managed by Fidelity Investments. Contributions to TIAA-CREF can be allocated among their various annuity accounts. Arkansas Code Annotated authorizes participation in the plan.

Participants in the University’s plan can choose to be contributory or non-contributory. The University automatically contributes 5% of an employee’s regular salary to TIAA-CREF and/or Fidelity Investments retirement account, allocated between the two companies according to the employee’s choice. For any contributions an employee makes in excess of 5% regular salary, the University makes an equal contribution, with a maximum total University contribution of 10% of regular salary up to the IRS match limit, which at June 30, 2014, was $26,000. Employee contributions in excess of 10% are allowed by the plans in accordance with Internal Revenue Service regulations, but the University does not match these additional contributions. All benefits attributable to plan contributions made by both the University and the participant are immediately vested in the participant for all faculty members and non-classified employees and all classified employees whose initial employment occurred prior to January 1, 1985, and who made any plan contributions prior to that date. For all employees other than those described previously, vesting of benefits attributable to plan contributions made by the University shall occur on the earlier of completion of three years of service, or attainment of age 65, or the participant’s having made plan contributions of at least five percent of regular salary for six consecutive months. The University’s TIAA/CREF and Fidelity contributions for the fiscal years 2014, 2013, and 2012 were $86,043,388, $83,679,635, and $81,473,876, respectively. The participants’ contributions for the fiscal years 2014, 2013, and 2012 were $83,950,302, $88,548,653, and $84,823,284, respectively.

APERS is a cost-sharing multiple employer defined benefit pension plan administered by the State of Arkansas. The University’s required contribution rate was 14.88%, 14.24%, and 13.47% in fiscal years 2014, 2013, and 2012, respectively. Those employees hired after July 1, 2005, must be contributory unless they had prior service as a state employee. Employees hired before that date may be contributory. The University’s contributions for the fiscal years 2014, 2013, and 2012, were $3,810,297,

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

$3,121,872, and $2,542,509, respectively. Participants’ contributions for the fiscal years 2014, 2013, and 2012 were $968,607, $713,717, and $550,003, respectively. The annual required contribution amounts and the percentage contributed are determined by the annual actuarial valuation as set forth in Arkansas Code. APERS issues a publicly available financial report, which may be obtained by writing: APERS, One Union National Plaza, 124 W. Capitol, 5th Floor, Little Rock, AR 72201.

ATRS is a cost-sharing multi-employer defined benefit pension plan. The University contributes 14% of all covered employees’ salaries. Under certain conditions, covered employees may voluntarily contribute 6% of their salary. The University’s contributions for the fiscal years 2014, 2013, and 2012 were $1,766,339, $1,904,468, and $2,101,611, respectively. Participants’ contributions for the fiscal years 2014, 2013, and 2012 were $562,095, $592,873, and $651,208, respectively. The annual required contribution amounts and the percentage contributed are determined by the annual actuarial valuation as set forth in Arkansas Code. ATRS issues a publicly available financial report, which may be obtained by writing: ATRS, 1400 W. 3rd Street, Little Rock, AR 72201.

Cooperative Extension Service employees who hold accepted appointments with the U.S. Department of Agriculture are covered by one of the above plans depending on when employment began. Employees employed prior to January 1, 1984, are on the Civil Service Retirement System. This system requires an employee contribution of 7% and the University contributes 8.51%. Employees hired between January 1, 1984, and July 31, 1987, are either on the Civil Service Offset or the Federal Employees Retirement System, depending on their length of prior federal service. Both systems require an employee contribution of 0.80%. The Civil Service Offset requires matching of 8.51% and the Federal Employees Retirement system requires agency matching of 10.7%. Employees on Civil Service participate in TIAA- CREF and Fidelity. The Thrift Savings Plan is another retirement savings and investment plan for Federal employees at the UA Cooperative Extension Service. It is a defined contribution plan and its purpose is to provide retirement income for Federal employees similar to that provided employees covered under the Civil Service Retirement System but without employer matching. Employees covered under the Federal Employees Retirement System receive a mandatory 1% employer contribution. The University’s contributions for the fiscal years 2014, 2013, and 2012 for both the Civil Service Retirement System and the Thrift Savings Plan were $389,536, $412,107, and $429,643, respectively. The participants’ contributions for the fiscal years 2014, 2013, and 2012 were $286,785, $311,116, and $322,556, respectively.

The University of Arkansas community colleges offer APERS, ATRS, and their own ORP which is a 403(b) plan. With the exception of PCCUA, which follows the standard 5% up to 10% match, contributions by the institutions range from 10% to 14% of earnings and employees have a mandatory contribution of 6% and, within the IRS guidelines, may elect to contribute more. Contributions can be made to TIAA-CREF, American Fidelity or VALIC. The University’s VALIC contributions for the fiscal years 2014, 2013, and 2012 were $1,557,024, $1,495,630, and $1,499,414, respectively. The participants’ contributions to VALIC for fiscal years 2014, 2013, and 2012 were $1,128,624, $1,082,240, and $1,134,115, respectively. The participants’ contributions to American Fidelity for fiscal years 2014, 2013, and 2012 were $2,655, $3,000, and $3,845, respectively.

The University has, from time to time, negotiated voluntary early retirement agreements with faculty and staff which may include the provision of a stipend and healthcare or other benefits for future periods. The amount of liability established for these type agreements was $3,675,100 and $2,874,611 at June 30, 2014, and 2013, respectively.

NOTE 13: Other Postemployment Benefits (OPEB) The University offers postemployment health (including prescription drugs) and dental benefits, along with life insurance ($10,000 available coverage), to eligible retirees. Health and dental benefits are provided in the University’s self-funded plan sponsored by the Board of Trustees of the University of Arkansas System for current and pre-65 retired employees of the Fayetteville (UAF), Little Rock (UALR), Medical

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Sciences (UAMS), Monticello (UAM), Pine Bluff (UAPB), Cossatot (CCCUA), Phillips (PCCUA), Batesville (UACCB), and Morrilton (UACCM) campuses, the Arkansas School for Mathematics, Sciences and the Arts (ASMSA), and the University of Arkansas System Administration (SYSTEM). The plan is considered a single-employer, defined benefit plan. The System Administration manages and administers the plan. Although benefits are also provided under the University’s plan for the University of Arkansas Foundation, Inc. and the University of Arkansas Winthrop Rockefeller Institute, no postemployment benefit is accrued by the University for these private entities. Financial activities of the plan are reported in the University of Arkansas consolidated financial report.

The Cossatot and Morrilton campuses joined the University’s plan in January 2014, having previously been a part of the Arkansas Higher Education Consortium Benefits Trust. The Cossatot campus continues to provide dental insurance thru Delta Dental. Because these campuses were not part of the University’s self-funded plan on the census date, the liability for these campuses was calculated on the same basis as previous years.

Health benefits continue to be provided for current and retired employees of the Hope (UACCH) campus through the Arkansas Higher Education Consortium Benefits Trust, which is considered an agent multiple-employer, defined benefit plan. Complete financial statements for the Trust can be obtained from Mr. Jerald Barber, P O Box 140, Hope, AR 71802.

The Fort Smith (UAFS) campus provides health and dental benefits for current and retired employees through the University of Arkansas at Fort Smith Benefit Plan, which is considered a single-employer, defined benefit plan. A summary of the Plan’s audited financial statements is included in Note 14, Other Organizations.

In June 2004, the GASB issued Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, which became effective for the fiscal year ending June 30, 2008. This statement requires governmental entities to recognize and match other postretirement benefit costs with related services received and also to provide information regarding the actuarially calculated liability and funding level of the benefits associated with past services. The calculation reflects expected future medical costs. It includes an accrual for all active employees by valuing the benefits they are anticipated to receive in retirement based on the likelihood that they will stay employed until eligible for postretirement benefits. As a result of the implementation of this statement, the University accrued $49,993,475 in retiree healthcare liability as of June 30, 2014.

Retirees pay 100% of premiums for all campuses with the exception that UACCM will pay the premium for those employees retiring on or after age 62 with at least 20 years of service. Employer costs are funded on a pay-as-you-go basis for all campuses. Retirees qualify for postretirement benefits as follows:

UAF, UALR, UAM, UAMS, UAPB, PCCUA, UACCB, ASMSA, and SYSTEM: Employees must have a combination of age and years of service of at least 70 with at least 10 years of coverage under the plan. Retirees may cover spouses and eligible dependent children. Surviving spouses can continue coverage after retiree’s death. Effective January 1, 2014, the plan for Medicare eligible retirees was changed to a fully insured Medicare Advantage program, and therefore, these retirees are no longer a part of the self-funded plan.

UAFS: Employees must be at least age 55 and have at least 10 years of service.

CCCUA: Employees must be at least age 60 and have at least 5 years of service.

UACCH: Employees must have at least 10 years of service.

UACCM: Employees must be at least age 60 and have at least 10 years of service.

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Summary of Key Actuarial Methods and Assumptions

University Self-Funded Plan: Valuation date July 1, 2013; Census data collected as of November 1, 2012 Actuarial cost method Projected unit credit Amortization method 30 years open, level % of payroll Asset valuation method N/A Discount rate 4.5% Projected payroll growth rate 4.0% Medical inflation rate Immediate rate of 7.5% with an ultimate rate of 4.5%

UAFS, CCCUA, UACCH, UACCM: Valuation date July 1, 2013; Census data collected as of July 1, 2013 Actuarial cost method Projected unit credit Amortization method 30 years open, level dollar amortization Asset valuation method N/A Discount rate 4.75% Medical inflation rate Immediate rate of 10.0% with an ultimate rate of 5.0%

Changes in Actuarial Assumptions and Methods since the Prior Valuation: (1) University’s self-funded plan: The healthcare trend rate assumption was changed to better reflect anticipated future experience. This change decreased the Actuarial Accrued Liability by $2,059,046 as of July 1, 2013. Effective January 1, 2014, the plan for Medicare eligible retirees was changed to a fully insured Medicare Advantage program. Retirees pay 100% of the fully insured premium directly to United Healthcare. As a result, no liabilities for Medicare eligible retiree medical benefits are included in the valuation. The Affordable Care Act (ACA) requires changes in the out-of-pocket limit to count medical copays towards satisfying the limit in 2014 and to count prescription drug out-of-pocket costs towards satisfying the limit in 2015. ACA also imposes an excise tax on high cost plans beginning in 2018. The effects of these changes in ACA have been reflected in the valuation. (2) Remaining four campuses: The assumed discount rate was lowered from 5.25% to 4.75%. This change increased the Actuarial Accrued Liability at July 1, 2013, by: $39,166 for UAFS, $3,192 for CCCUA, $5,019 for UACCH, and $16,336 for UACCM.

Medical Coverage – Retirees not Eligible for Medicare -- for the University’s self-funded plan: Claim experience for the period February 1, 2012, through January 31, 2014, was used to develop the claims cost for non-Medicare-eligible retirees. The paid claims data was converted to an incurred basis using a completion factor approach. This experience includes 987 life years of exposure and was deemed to be 70% credible. The experience was combined with the active claims experience adjusted for demographic differences to produce the per capita claims costs used in the valuation. Adjustment factors were then

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14 applied to develop expected claims by age to be used in the valuation. Expected retiree premiums were developed to represent the expected cost sharing level anticipated by the University. Retiree premiums were also age-adjusted for use in the valuation.

Dental Coverage for the University’s self-funded plan: Dental claims coverage for the period February 1, 2013, through January 31, 2014, was used to develop per capita claims cost for dental coverage. The claims experience includes over 35,000 life years of exposure and was deemed to be fully credible. Based on this analysis, it was concluded that the retiree contributions are sufficient to fully cover the expected dental claims costs as intended. As such, the cost for dental coverage is excluded from this valuation.

University Self-Funded Plan:

Healthy Mortality RP-2000 Generational Combined Healthy Mortality Table projected by scale AA

Disability Rates Various rates based on age. Selected rates are:

Rate per 1,000 Age Male Female 25 .0003 .0003 30 .0003 .0004 40 .0008 .0013 50 .0033 .0040 55 .0069 .0064 60 .0115 .0090

Withdrawal Rates: Select rates by location are based on length of service for the first five years and age thereafter:

Year UAF UAMS Other 0 25% 30% 20% 1 25% 20% 20% 2 20% 18% 20% 3 16% 18% 15% 4 16% 15% 15%

Ultimate rates are from Sarason turnover table T-6 for UAF, table T-7 for UAMS, and table T-4 for all other locations.

Retirement Rates: Age Rate 50-59 5% 60-61 10% 62 15% 63-66 10% 67-69 50% 70 + 100%

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Future Retiree Coverage: For medical insurance, retiring employees are assumed to elect medical and Rx coverage as follows:

UAF UALR UAMS Other Pre-Medicare 55% 55% 55% 55% Medicare eligible 60% 60% 50% 45%

Retirees were assumed to remain in their current plan indefinitely.

75% of retiring employees are assumed to continue life insurance at retirement.

Future Dependent Coverage 50% of employees electing medical and Rx coverage at retirement are assumed to be married and elect spouse coverage.

Spouse Age Differential: Males are assumed to be 4 years older than females.

UAFS, CCCUA, UACCH, UACCM:

Healthy Mortality 1994 Uninsured Pensioners Mortality Table

Disability Rates: Various rates based on age. Selected rates are:

Age Rate per 100 20 .10 25 .10 30 .08 35 .08 40 .14 45 .24 50 .53 55 .88 60 1.0

Voluntary terminations: Termination rates at some sample ages are:

Age Rate per 100 20 4.60 25 4.84 30 4.40 35 3.10 40 2.20 45 2.00 50 2.00 55 5.00

For those with less than five years of service, the following multiples of the above rates were used:

1st year of service 4.0 2nd year of service 2.5

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

3rd year of service 2.0 4th year of service 1.5 Retirement Rates: Age Rate per 100 55-59 5.0 60 15.0 61 14.0 62 25.0 63-64 15.0 65 35.0 66-68 30.0 69 100.0

Future Retiree Coverage The assumption is that 80% of eligible retirees at CCCUA, UACCH, and UACCM, and 100% of eligible retirees at UAFS would select the coverage when they initially retire and that 0% of them would continue it past age 65.

Determination of FY14 Accrual

Unfunded acturial accrued liability at 7-1-13$ 53,499,094

Annual Required Contribution (ARC) Normal cost $ 3,194,272 Amortization of the unfunded actuarial accrued liability over 30 years 1,939,362 Interest 231,504 Annual Required Contribution for FY14 5,365,138 Interest on Net OPEB Obligation 2,063,930 ARC Amortization Adjustment (1,735,461) Annual OPEB Cost for FY14 $ 5,693,607

Net OPEB Obligation, 7-1-13 $ 45,808,127 Annual OPEB Cost for FY14 5,693,607 Less: Expected Employer Contributions (1,508,259)

Net OPEB Obligation, 6-30-14 $ 49,993,475

Schedule of Employer Contributions

Fiscal Year Annual OPEB Expected Percentage Net Obligation Ending Cost Contribution Contributed at Year-End 6-30-09 $ 9,440,819 $ 2,075,012 21.98% $ 25,984,585 6-30-10 7,273,621 2,000,674 27.51% 31,257,532 6-30-11 6,407,408 1,715,955 26.78% 35,948,985 6-30-12 6,959,921 1,666,639 23.95% 41,242,267 6-30-13 6,604,080 2,038,220 30.86% 45,808,127 6-30-14 5,693,607 1,508,259 26.49% 49,993,475

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Schedule of Funding Progress

Actuarial UAAL as Actuarial Accrued Unfunded Percentage Fiscal Year Value of Liability AAL Funded Covered of Covered Ending Assets (AAL) (UAAL) Ratio Payroll Payroll 6-30-09 - $ 82,955,662 $ 82,955,662 -%$ 982,002,008 8.45% 6-30-10 - 67,830,737 67,830,737 -% 952,169,503 7.12% 6-30-11 - 59,649,743 59,649,743 -% 977,592,138 6.10% 6-30-12 - 64,638,969 64,638,969 -% 1,042,067,018 6.20% 6-30-13 - 60,220,957 60,220,957 -% 1,072,221,612 5.62% 6-30-14 - 53,499,094 53,499,094 -% 1,103,763,909 4.85%

Note 14: Other Organizations

There are in existence several entities, in addition to those identified as component units in Note 1, which are related to the University. The purposes of these organizations are varied, but all were established to benefit the University, or its students, faculty and staff in some manner.

The Razorback Foundation, Inc. was incorporated on October 17, 1980, for the sole purpose of supporting intercollegiate athletics at the Fayetteville campus. Audited financial statements for the year ended June 30, 2014, are presented below in summary form and include the accounts of its wholly owned for-profit subsidiary, Sports Shows, Inc.

THE RAZORBACK FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2014

Assets Cash and investments $ 33,206,180 Other assets 16,282,062 Total Assets $ 49,488,242

Liabilities and Net Assets Liabilities $ 4,240,078 Net Assets 45,248,164 Total Liabilities and Net Assets $ 49,488,242

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2014

Income and Other Additions $ 31,504,576 Expenditures and Other Deductions (25,516,866) Total Increase in Net Assets $ 5,987,710

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Arkansas Alumni Association, Inc. was incorporated in 1960 for the purpose of providing various services to the members, consisting of graduates, former students and friends, in connection with the promotion and furtherance of the Fayetteville campus. Audited financial statements for the year ended June 30, 2014, are presented below in summary form. Net assets at July 1, 2013, were restated, resulting in a decrease of $980,036.

ARKANSAS ALUMNI ASSOCIATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2014

Assets Cash and investments $ 1,859,983 Other assets 7,057,345 Total Assets $ 8,917,328

Liabilities and Net Assets Liabilities $ 1,238,918 Net Assets 7,678,410 Total Liabilities and Net Assets $ 8,917,328

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2014

Income and Other Additions $ 3,627,399 Expenditures and Other Deductions (2,882,189) Total Increase in Net Assets $ 745,210

Arkansas 4-H Foundation, Inc. was incorporated in 1951. The purposes and objectives of the Foundation are exclusively educational. The Foundation was formed to encourage and support such purposes that will meet the needs and advance the interests of 4-H youth programs throughout the State of Arkansas. Audited financial statements for the year ended June 30, 2014, are presented below in summary form.

ARKANSAS 4-H FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2014

Assets Cash and investments $ 4,885,390 Other assets 5,434,001 Total Assets $ 10,319,391

Liabilities and Net Assets Liabilities $ 126,303 Net Assets 10,193,088 Total Liabilities and Net Assets $ 10,319,391

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2014

Income and Other Additions $ 1,982,336 Expenditures and Other Deductions (1,892,737) Total Increase in Net Assets $ 89,599

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

University of Arkansas Technology Development Foundation was incorporated in May 2003, and is considered a supporting organization of the Fayetteville campus. Its mission is to stimulate a knowledge- based economy in the state of Arkansas through partnerships that lead to new opportunities for learning and discovery, build and retain a knowledge-based workforce, and spawn the development of new technologies that enrich the economic base of Arkansas. Audited financial statements for the year ended June 30, 2014, are presented below in summary form.

UNIVERSITY OF ARKANSAS TECHNOLOGY DEVELOPMENT FOUNDATION CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2014

Assets Cash $ 1,197,372 Other assets 34,245 Total Assets $ 1,231,617

Liabilities and Net Assets Liabilities $ 110,260 Net Assets 1,121,357 Total Liabilities and Net Assets $ 1,231,617

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2014

Income and Other Additions $ 1,610,152 Expenditures and Other Deductions (1,512,315) Total Increase in Net Assets $ 97,837

University of Arkansas Fort Smith Foundation, Inc. operates as a nonprofit corporation whose primary activity is providing support to the Fort Smith campus. Audited financial statements for the year ended June 30, 2014, are presented below in summary form.

UNIVERSITY OF ARKANSAS FORT SMITH FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2014

Assets Cash and investments $ 82,205,895 Other assets 12,523,752 Total Assets $ 94,729,647

Liabilities and Net Assets Liabilities $ 1,821,394 Net Assets 92,908,253 Total Liabilities and Net Assets $ 94,729,647

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2014

Income and Other Additions $ 14,788,028 Expenditures and Other Deductions (4,434,207) Total Increase in Net Assets $ 10,353,821

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

University of Arkansas Fort Smith Benefit Plan was established on January 1, 1993, as an employee welfare benefit plan which provides health, dental and vision benefits to eligible employees and eligible dependents of the Fort Smith campus. Audited financial statements for the year ended December 31, 2013, are presented below in summary form.

UNIVERSITY OF ARKANSAS FORT SMITH BENEFIT PLAN CONDENSED STATEMENT OF FINANCIAL POSITION As of December 31, 2013

Assets Cash $ 368,412 Other Assets 764,021 Total Assets $ 1,132,433

Liabilities and Net Assets Liabilities $ 808,622 Net Assets 323,811 Total Liabilities and Net Assets $ 1,132,433

CONDENSED STATEMENT OF ACTIVITIES FY Ended December 31, 2013

Income and Other Additions $ 5,563,935 Expenditures and Other Deductions (5,462,572) Total Increase in Net Assets $ 101,363

The University of Arkansas at Little Rock Alumni Association is utilized to receive and disburse funds obtained from gifts, activity fees and receipts from special projects. The Association operates as a nonprofit benevolent corporation for charitable educational purposes. The assets of the Association are held by the University of Arkansas Foundation, Inc.

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Trojan Athletic Foundation, Inc. is a non-profit entity established to support the athletic department at the Little Rock campus. Audited financial statements for the year ended June 30, 2014, are presented below in summary form.

TROJAN ATHLETIC FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2014

Assets Cash $ 104,605 Other Assets 53,951 Total Assets $ 158,556

Liabilities and Net Assets Liabilities $ 168 Net Assets 158,388 Total Liabilities and Net Assets $ 158,556

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2014

Income and Other Additions $ 449,290 Expenditures and Other Deductions (434,037) Total Increase in Net Assets $ 15,253

University of Arkansas at Pine Bluff/AM&N Alumni Association, Inc. was organized to foster and promote the general welfare and growth of the University of Arkansas at Pine Bluff. Unaudited financial statements for the year ended December 31, 2013, are presented below in summary form. Net assets at January 1, 2013, were restated, resulting in a decrease of $5,306.

UAPB/AM&N ALUMNI ASSOCIATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of December 31, 2013

Assets Cash & investments $ 132,572 Other assets 13,100 Total Assets $ 145,672

Liabilities and Net Assets Liabilities $ 2,876 Net Assets 142,796 Total Liabilities and Net Assets $ 145,672

CONDENSED STATEMENT OF ACTIVITIES FY Ended December 31, 2013

Income and Other Additions $ 217,265 Expenditures and Other Deductions (192,911) Total Increase in Net Assets $ 24,354

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Cossatot Community College of the University of Arkansas Foundation, Inc. assists in developing and increasing the programs and facilities for the Cossatot Community College campus. Audited financial statements for the year ended June 30, 2014, are presented below in summary form.

COSSATOT COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2014

Assets Cash and investments $ 538,284 Other - Total Assets $ 538,284

Liabilities and Net Assets Liabilities $ 1,040 Net Assets 537,244 Total Liabilities and Net Assets $ 538,284

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2014

Income and Other Additions $ 46,938 Expenditures and Other Deductions (28,628) Total Increase in Net Assets $ 18,310

Phillips Community College Foundation is dedicated to raising funds to support the Phillips Community College campus and to provide scholarships for its students. Audited financial statements for the year ended December 31, 2013, are presented below in summary form.

PHILLIPS COMMUNITY COLLEGE FOUNDATION CONDENSED STATEMENT OF FINANCIAL POSITION As of December 31, 2013

Assets Cash and investments $ 3,562,214 Other Assets 142,570 Total Assets $ 3,704,784

Liabilities and Net Assets Liabilities $ 339,397 Net Assets 3,365,387 Total Liabilities and Net Assets $ 3,704,784

CONDENSED STATEMENT OF ACTIVITIES FY Ended December 31, 2013

Income and Other Additions $ 877,138 Expenditures and Other Deductions (641,478) Total Increase in Net Assets $ 235,660

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

University of Arkansas Community College at Hope Foundation, Inc. operates for the sole benefit of the Hope campus. Audited financial statements for the year ended June 30, 2014, are presented below in summary form.

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT HOPE FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2014

Assets Cash and investments $ 2,163,766 Other Assets 3,600 Total Assets $ 2,167,366

Liabilities and Net Assets Liabilities $ 89,685 Net Assets 2,077,681 Total Liabilities and Net Assets $ 2,167,366

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2014

Income and Other Additions $ 658,433 Expenditures and Other Deductions (736,111) Total Decrease in Net Assets $ (77,678)

University of Arkansas Community College at Morrilton Foundation, Inc. was established to assist the students and programs of the Morrilton campus. Audited financial statements for the year ended December 31, 2013, are presented below in summary form.

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT MORRILTON FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of December 31, 2013

Assets Cash and investments $ 158,082 Other Assets 64,698 Total Assets $ 222,780

Liabilities and Net Assets Liabilities $ 9,769 Net Assets 213,011 Total Liabilities and Net Assets $ 222,780

CONDENSED STATEMENT OF ACTIVITIES FY Ended December 31, 2013

Income and Other Additions $ 286,772 Expenditures and Other Deductions (159,813) Total Increase in Net Assets $ 126,959

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

University of Arkansas Winthrop Rockefeller Institute (prior to June 11, 2012, known as the University of Arkansas Winthrop Rockefeller Center d/b/a/ Winthrop Rockefeller Institute) is an educational conference center incorporated in January 2005. The Institute’s mission is to provide extended learning for youth and adults, internship opportunities for students, professional development for faculty and staff of the University, as well as for the general public, and conferences focused on enriching and informing Arkansas leaders. Audited financial statements for the year ended June 30, 2014, are presented below in summary form.

UNIVERSITY OF ARKANSAS WINTHROP ROCKEFELLER CENTER, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2014

Assets Cash & Investments $ 1,174,950 Grant Receivable 4,286,429 Other 6,826,534 Property and Equipment, Net 16,335,609 Total Assets $ 28,623,522

Liabilities and Net Assets Liabilities $ 387,442 Net Assets 28,236,080 Total Liabilities and Net Assets $ 28,623,522

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2014

Income and Other Additions $ 8,409,193 Expenditures and Other Deductions (6,384,221) Total Increase in Net Assets $ 2,024,972

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Delta Student Housing, Inc. (Delta) is a nonprofit corporation organized and operated under the Arkansas Nonprofit Corporation Act of 1993. Delta was created for the purpose of facilitating the financing for construction of student housing facilities on the various campuses of the University. In the fiscal year ended June 30, 2010, the School for Mathematics, Sciences and the Arts (ASMSA) received $6,000,000 in American Recovery & Reinvestment Act funds through the State of Arkansas and $1,000,000 from state general improvement funds to be used toward the construction of a new residence/student life facility. In addition, ASMSA had almost $4,000,000 of reserve funds to be used for the project. By leveraging these available funds, a financing structure was developed using federal New Market Tax Credits (NMTC) which made available almost $15,000,000 to construct the facility. Construction of the facility was completed in the summer of 2012. The facility will be owned and managed by Delta until the completion of the NMTC compliance period of seven years, at which time the facility will be donated to ASMSA. A complete transcript of the NMTC transaction can be obtained in the office of the University’s Vice President of Finance. Audited financial statements for the year ended June 30, 2014, are presented below in summary form.

DELTA STUDENT HOUSING, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2014

Assets Cash $ 153,644 Other 95,709 Property and equipment 13,568,618 Total Assets $ 13,817,971

Liabilities and Net Assets Liabilities $ 14,812,514 Net Assets (994,543) Total Liabilities and Net Assets $ 13,817,971

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2014

Income and Other Additions $ 239,180 Expenditures and Other Deductions (932,551) Total Decrease in Net Assets $ (693,371)

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Note 15: Natural & Functional Classifications of Operating Expenses

Following is a reconciliation of the natural classifications as presented in the statement of revenues, expenses, and changes in net position to the functional classifications:

Natural Classifications Functional Compensation Supplies Scholarships & Classifications & Benefits & Services Fellowships Insurance Depreciation TOTAL Instruction $ 375,223,502 $ 53,142,693 $ - $ - $ - $ 428,366,195 Research 159,780,852 72,691,523 - - - 232,472,375 Public Service 82,805,573 56,096,634 - - - 138,902,207 Academic Support 72,182,571 31,100,426 - - - 103,282,997 Student Services 40,213,813 16,923,250 - - - 57,137,063 Institutional Support 167,009,308 31,598,021 - - - 198,607,329 Scholarships/Fellowships 119,371 169,386 84,427,389 - - 84,716,146 Plant Operations 60,452,755 54,749,206 - - - 115,201,961 Auxiliary Enterprises 63,713,407 85,678,997 1,969,281 - - 151,361,685 Depreciation - - - - 165,197,568 165,197,568 Patient Care 444,442,340 247,015,000 - - - 691,457,340 Other 1,450,000 11,413,323 - - - 12,863,323 Insurance expenses - - - 151,517,415 - 151,517,415 TOTAL $ 1,467,393,492 $ 660,578,459 $ 86,396,670 $ 151,517,415 $ 165,197,568 $ 2,531,083,604

Note 16: Contingencies

The University has been named as defendant in several lawsuits. It is the opinion of management and its legal counsel that these matters will be resolved without material adverse effect on the future operations or financial position of the University.

In the fiscal year ended June 30, 2006, the Arkansas Development Finance Authority (the Authority) issued $36,775,000 in Tobacco Settlement Revenue Bonds. The Authority made the proceeds of the bonds available to the University of Arkansas Board of Trustees (UA Board) to fund an expansion to the Arkansas Cancer Research Center (ACRC) on the campus of the University of Arkansas for Medical Sciences (UAMS). The bonds have an approximate yield to maturity of 4.77% to 5.10% and principal and accumulated interest are payable beginning in 2021 through 2031 for $22,158,000 of serial bonds and beginning in 2036 through 2046 for $14,617,000 of term bonds. Funds received from the Arkansas Tobacco Settlement Funds Act of 2000 are pledged for debt service and are the primary source of payment for the bonds. In accordance with a Loan Agreement dated June 1, 2006, between the UA Board and the Authority, the UA Board will be required to make debt service payments on the Series 2006 bond issue in the event of a shortfall in tobacco settlement revenues. However, no such payments will be made unless the debt service revenues are insufficient to make such payments. Management believes the debt service revenues will be sufficient to service the entire principal and interest due. The Global Insights USA, Inc. report, prepared in August 2006, on the Forecast of U.S. Cigarette Consumption (2004-2046) indicates that tobacco consumption in 2046 is expected to decline by 54% from the 2003 level. For fiscal year 2003, Arkansas received $60,067,457 from the Tobacco Settlement Fund. Using the 54% decline from above, Arkansas should receive approximately $27.6 million in 2046 with the first $5 million dedicated to pay the debt service on this bond issue. If debt service revenues had been considered insufficient at June 30, 2014, the University would have incurred a liability of $54,551,000 related to issue. This amount includes draw down of funds related to the project, issuance costs, discounts, accreted interest, and other expenses related to the issue. The revenues pledged by UAMS to secure the Loan Agreement consist of inpatient service fees and fees collected from other ancillary, therapeutic, and diagnostic services provided within the walls of the hospital but exclude physician-generated revenues, state appropriations, and revenues restricted for other purposes.

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Note 17: Elimination of Inter-Company Transactions

The consolidated financial statements were prepared from financial statements submitted by each campus and the System Administration of the University. The inclusion of inter-company transactions in the consolidated financial statements is not considered materially significant to distort the amounts presented in the consolidated financial statements with the following exceptions, which were eliminated.

Statement of Net Position An elimination entry was made to reduce accounts receivable by $12,378,133 and $14,119,417 for fiscal years ended June 30, 2014, and June 30, 2013, respectively, which represent amounts owed by the campuses to the System Administration for insurance premiums and campus billings for services rendered, as well as amounts owed between campuses. Accounts payable was reduced by $12,242,024 and $12,901,437 for fiscal years ended June 30, 2014, and June 30, 2013, respectively. Cash was increased by $136,109 and $1,217,980 in fiscal years ending June 30, 2014, and June 30, 2013, to account for payments in-transit within the system.

Two loans between University entities were eliminated to reduce assets and liabilities as follows: (1) $1,050,000 (current portion $150,000) and $1,200,000 (current portion $150,000) for the years ended June 30, 2014, and June 30, 2013, respectively, to reflect a loan to ASMSA by the System Administration; and (2) $757,165 (current portion $19,580) and $772,664 (current portion $15,499) to reflect a loan from UAMS to UAF for the years ended June 30, 2014, and June 30, 2013, respectively.

Statement of Revenues, Expenses, and Changes in Net Position As explained in Note 12, the System Administration administers the self-funded insurance programs for the University. Insurance premiums remitted to the System Administration by the campuses are shown as insurance revenues, and insurance claims paid are shown as insurance expenditures on the System Administration’s financial statements. The premiums expensed by the campuses are recorded as part of compensation benefits. An elimination entry was made to reduce insurance revenue and compensation/benefits expenditures in the amounts of $105,655,053 and $103,455,733 for fiscal years ended June 30, 2014, and June 30, 2013, respectively.

An elimination entry was made for billings by System Administration to the campuses for services rendered to reduce sales and services revenue and supplies/services expense in the amounts of $2,557,679 and $1,839,897 for the fiscal years ended June 30, 2014, and June 30, 2013, respectively.

An elimination entry was made for a federal grant received by UAMS and then sub-granted to UAF in the amount of $90,502 used for operating expenses and $1,938,175 capitalized for construction/equipment for the fiscal year ending June 30, 2014, and $196,162 used for operating expenses and $10,418,692 capitalized for construction/equipment for the fiscal year ended June 30, 2013.

An elimination entry for services provided among campuses in the amount of $681,282 and $314,800 for fiscal years ended June 30, 2014, and June 30, 2013, respectively. These amounts decreased both other operating revenues and operating supplies/services.

Statement of Cash Flows The effects of the elimination entries described above to the statement of net position and the statement of revenues, expenses and changes in net position are also reflected in the statement of cash flows.

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Note 18: Disaggregation of Accounts Receivable and Accounts Payable

Current accounts receivable balances, net of allowances, at June 30, 2014, and June 30, 2013, of $108,292,555 and $121,247,557, respectively, as shown on the statement of net position, consist of the following:

ACCOUNTS RECEIVABLE June 30, 2014 June 30, 2013 Student accounts $17,465,120 $16,532,887 Non-student accounts 17,546,224 21,373,517 Health care related services 38,763,000 43,878,000 Grants and contracts 28,392,784 35,864,628 Property and sales taxes 2,319,572 2,243,667 Other 3,805,855 1,354,858 Total $108,292,555 $121,247,557

Current accounts payable balances at June 30, 2014, and June 30, 2013, of $124,455,375 and $139,160,719, respectively, as shown on the statement of net position, consist of the following:

ACCOUNTS PAYABLE June 30, 2014 June 30, 2013 Trade related $46,103,084 $53,859,902 Payroll related 63,476,085 63,912,565 Interest 7,149,981 9,675,055 Other 7,726,225 11,713,197 Total $124,455,375 $139,160,719

Note 19: Joint Endeavor

On July 16, 2010, the Arts Center Council filed articles of incorporation for NWA Entertainment, LLC (“NWA”) for the purpose of acquiring certain assets of the Arkansas Music Pavilion, Inc. and for the purpose of operating, managing, and maintaining assets related to the promotion and presentation of the arts in Northwest Arkansas. NWA is a 100% wholly-owned subsidiary of the Council and has a fiscal year end of March 31. The results of the operations of NWA have been included in the combined financial statements of the Walton Arts Center.

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2014

Assets Cash and investments $ 9,697,172 Other assets 38,334,389 Total Assets $ 48,031,561

Liabilities and Net Assets Liabilities $ 20,542,631 Net Assets 27,488,930 Total Liabilities and Net Assets $ 48,031,561

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2014

Income and Other Additions Ticket sales $ 4,771,265 Contributions and sponsorships 8,763,426 Other revenues and additions 3,687,762 Total Income and Other Additions 17,222,453

Total Expenditures and Other Deductions (14,088,191)

Total Increase (Decrease) in Net Assets$ 3,134,262

Note 20: Related Parties

There were five significant related party transactions other than those with component units discussed in Note 1.

The spouse of a member of the Board of Trustees owns a sports apparel store in Little Rock, Arkansas that has been used for several years by various campuses. In FY14, three campuses bought merchandise from the store with a cost of $116,441. Purchases of these types are not reviewed and approved by the Board.

Another member of the Board of Trustees is the Bank Chairman of the privately-held First Security Bancorp based in Searcy, Arkansas. At June 30, 2014, bank balances held at First Security Bank for UAF and UAMS total $104,122,351 (book balances shown on the Statement of Net Position total $107,336,763). The University has conducted business with the bank for several years. In addition, Crews and Associates, Inc. (Crews) is a wholly owned, non-bank affiliate of First Security Bancorp and has served as one of the University’s bond underwriters for several years. After a Request for Proposal was issued in February, 2011, and before this Board member was appointed by the Governor in March,

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

2013, the Board selected two firms as underwriters, one of which was Crews, which, in FY14, was co- underwriter for two bond issues for the Fayetteville campus in the amount of $29,750,000.

The Provost and Vice Chancellor for Academic Affairs on the Fayetteville campus is a member of the Board of Directors of Simmons First National Corporation based in Pine Bluff, Arkansas. At June 30, 2014, bank balances held at Simmons First National Bank for the Fayetteville campus total $61,709,956 (book balances shown on the statement of net position for the campus total $61,709,956). Simmons First National Bank has served as trustee for bond proceeds for several years, and amounts on deposit represent funds held in that capacity, primarily for three bond issues.

The Vice Chancellor and Director of Athletics on the Fayetteville campus is a member of the Board of Directors of Arvest Bank Fayetteville, one of sixteen autonomous community-oriented banks which comprise Arvest Bank Group, Inc., based in Bentonville, Arkansas. At June 30, 2014, bank balances held for the Fayetteville campus at Arvest Bank Group, Inc. banks total $196,095 (book balances shown on the statement of net position for the campus total $185,929).

The Associate Vice Chancellor for Business Affairs on the Fayetteville campus is a member of the Board of Directors of the Educational and Institutional Cooperative Service, Inc., a not-for-profit corporation chartered in the State of New York in 1934. The principle role of the Cooperative is to secure group discounts and favorable terms of sale for member institutions by aggregating buying power through large volume contracts. The Fayetteville campus has been a member institution of the E&I Cooperative since 1952. All contracts negotiated by E&I are competitively bid and approved for the campus’ use by the Arkansas Office of State Procurement. Purchases totaling $6,851,347 were made during the fiscal year ended June 30, 2014, by the Fayetteville campus.

Note 21: Prior Year Restatements

Statement of Net Position The statement of net position contained the following restatements for the year ended June 30, 2013, to reflect implementation of GASB Statement No. 65 as discussed in Note 1:

Unamortized current and non-current debt issuance costs totaling $401,931 and $8,610,510, respectively, were expensed and no longer recognized as an asset. Scholarships awarded in the amount of $224,991 that apply to a future term were reclassified from current other assets to a deferred outflow of resources. Funding for these scholarships previously recognized as revenue was reclassified as a deferred inflow of resources. Because the deferred outflow and inflow were for the same type of transaction and were the same amount, they were netted and do not appear on the face of the statement. Net position restricted for scholarships was reduced $224,991. Deferral on debt refunding in the amount of $15,849,994, previously reported as a component of bonds, notes, capital leases, and installment contracts, was reclassified as deferred outflows of resources. Likewise, current and non-current bonds, notes, capital leases, and installment contracts were increased $987,739 and $14,862,255, respectively. This had no effect on net position. Current and non-current bonds, notes, capital leases, and installment contracts were increased $3,586 and $81,042, respectively, to account for debt issuance costs previously reported as a reduction of debt.

Due to rounding, current accounts payable was increased by $1.

The net effect of these restatements was a decrease to total net position of $9,322,061.

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14

Other restatements not having an effect on net position were: Current investments in the amount of $72,117 were reclassified as other current assets. Unamortized non-current debt issuance costs totaling $167,797 were reclassified as other noncurrent assets. The notation for allowances for patient accounts receivable was increased by $43,078,000 to correct prior year error. Net patient accounts receivable did not change. Current accounts payable in the amount of $244,000 was reclassified as non-current unearned revenue.

Statement of Revenues, Expenses, and Changes in Net Position Changes made on the statement of net position as discussed above were also reflected in the statement of revenues, expenses and changes in net position.

Net position – beginning of year was reduced $7,450,394 to reflect the fiscal year 2012 deferred inflow of $271,245 for scholarship funding, $7,091,211 for unamortized bond issuance costs, and a correction of $87,938.

Gift revenue increased $46,254, reflecting the change in deferred inflows of resources for scholarships awarded for a future period.

Interest on capital asset-related debt decreased $138,082 to reflect corrections.

Adjustment was made to elimination entries to correctly reflect exchanges between campuses that resulted in decreases to both other operating revenues and supplies/services in the amount of $314,800. This had no effect on net position.

Adjustment was made to increase auxiliary (bookstore) revenue $49,424 and decrease auxiliary (other) by the same amount. This had no effect on net position.

Other non-operating revenues (expenses) decreased $2,056,003, of which $1,921,230 was for bond issuance costs, previously shown as unamortized bond issuance costs, and $134,773 for corrections.

The net effect of these restatements was a decrease to total net position of $9,322,061.

Statement of Cash Flows Gifts and grants for other than capital purposes were reclassified as capital grants and gifts in the amount of $2,824,000.

Cash flows from bookstore operations increased $48,053 and cash flows from other auxiliary enterprises decreased by the same amount.

Payments to suppliers in the amount of $314,800 were reclassified to other operating cash flows.

Note 22: Subsequent Events

On August 14, 2014, the governing documents establishing and defining the joint endeavor between the City of Fayetteville and the Fayetteville campus to operate the Walton Arts Center were revised to ensure clarity and flexibility to allow the Walton Arts Center to meet the arts and entertainment needs of all residents of Northwest Arkansas with a multi-venue system, while at the same time confirming support of the original partnership. Revisions were made to the respective Articles of Incorporation of the Walton Arts Center Foundation, Inc. and the Walton Arts Center Council, Inc. to clarify the purpose of each entity to encompass multiple venues in the Northwest Arkansas region; to allow the Walton Family Foundation to appoint nine additional directors to the Board of Directors of the Arts Center Council while ensuring that

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UNIVERSITY OF ARKANSAS SYSTEM: Footnotes to Consolidated Financial Statements FY14 the City and University maintain their proportionate number of Directors on the Board; to return the City of Fayetteville’s initial payment of $1.5 million dollars to the Foundation back to the City for the City’s use in the construction of a parking facility adjacent to the Walton Arts Center or as otherwise determined by the Fayetteville City Council; and with consent by the University to expend the institution’s initial payment of $1.5 million dollars to the Foundation to help defray the construction costs of the proposed enlargement and enhancement of the Walton Arts Center located in Fayetteville, Arkansas. Upon return of the funds to the City and the use of University provided funds for construction, the Walton Arts Center Foundation, Inc. will no longer be an agent for the City of Fayetteville or the University of Arkansas. The City and the University will no longer have the right of appointment of Walton Arts Center Foundation, Inc. directors. An Amended and Restated Interlocal Cooperation Agreement was also executed that permits the Walton Arts Center to conduct business as a separate, free-standing non-profit corporation; that budget and operational oversight rests exclusively with the Walton Arts Center Council and confirms the Walton Arts Center is no longer and agent of the University or the City, nor restricted to the terms of the original agreement; and affirms the Walton Arts Center must comply with the terms of a new lease agreement executed by the University, City of Fayetteville and the Walton Arts Center Council. The lease agreement extends the term to twenty-five years and recognizes the changed scope of the Walton Arts Center. The lease also provides assurances regarding the on-going quality and type of performances at the Walton Arts Center in Fayetteville.

On October 17, 2014, the Board of Trustees authorized the issuance of up to $99,500,000 in facilities revenue refunding bonds for the Medical Sciences campus for the purpose of refunding the Series 2006 Various Facility Revenue Bonds. It is expected that the bonds will be sold in December, 2014.

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UNIVERSITY OF ARKANSAS SYSTEM: Required Supplementary Information