Board of Trustees of the University of Arkansas Athletic Facilities Revenue Bonds (Fayetteville Campus) Series 2019A

NEW ISSUE RATING: Moody’s: “Aa2” (Stable Outlook)* (Book-Entry Only)

In the opinion of bond counsel, under existing law, assuming compliance with certain covenants described herein, interest on the Bonds is excludable from gross income for federal income tax purposes, and interest on the Bonds is not an item of tax preference for purposes of the federal alternative minimum tax. The Bonds and interest thereon are exempt from all present State, county and municipal taxation in the State of Arkansas (See TAX MATTERS herein).

$24,900,000 BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS ATHLETIC FACILITIES REVENUE BONDS (FAYETTEVILLE CAMPUS) SERIES 2019A

Dated: Date of Delivery Due: September 15, as shown on the inside front cover

The Bonds are general obligations only of the Board of Trustees of the University of Arkansas (the “Board”). The Bonds will be secured by a specific pledge of, and payable first from, Pledged Revenues (as hereinafter defined), subject to existing pledges thereof as described herein. Neither the faith and credit nor the taxing power of the State of Arkansas are pledged to the payment of the principal of or the interest on the Bonds, and the Bonds are not secured by a mortgage or lien on any lands or buildings of the State of Arkansas or the Board. The Board has no taxing power. The Bonds are being issued for the purpose of (i) financing costs of certain athletic facilities on or for the Fayetteville campus of the University of Arkansas and (ii) paying the costs of issuance of the Bonds (see PURPOSES FOR THE BONDS herein).

The Bonds are issuable as fully registered bonds and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”), New York, New York, to which principal and interest payments on the Bonds will be made so long as Cede & Co. is the registered owner of the Bonds. Individual purchases of the Bonds will be made only in book-entry form, in the denominations of $5,000 or any integral multiple thereof. Individual purchasers of the Bonds (“Beneficial Owners”) will not receive physical delivery of bond certificates. SeeBOOK-ENTRY ONLY SYSTEM herein.

Interest on the Bonds is payable semiannually on March 15 and September 15, commencing March 15, 2020. All such interest payments shall be payable to the person in whose name such Bonds are registered on the bond registration books maintained by Regions Bank, with offices in Little Rock, Arkansas, as Trustee (the “Trustee”). Disbursement of such payments to DTC participants is the responsibility of DTC, and disbursement of such payments to Beneficial Owners is the responsibility of DTC participants or indirect participants, as more fully described herein.

The Bonds mature, bear interest and are priced to yield as set forth on the inside cover of this Official Statement. The Bonds are subject to redemption prior to maturity as is more fully described in REDEMPTION herein.

The Bonds are offered when, as and if issued, subject to the approval of Friday, Eldredge & Clark, LLP, Little Rock, Arkansas, bond counsel. Certain legal matters will be passed upon for the underwriters by Kutak Rock LLP, Little Rock, Arkansas, counsel to the underwriters. It is expected that the Bonds will be available for delivery at the facilities of DTC in New York, New York on or about August 22, 2019.

Official Statement dated August 7, 2019

* See DESCRIPTION OF RATING herein.

$24,900,000 BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS ATHLETIC FACILITIES REVENUE BONDS (FAYETTEVILLE CAMPUS) SERIES 2019A

MATURITY SCHEDULE

$24,900,000 Serial Bonds

Year Principal Interest (September 15) Amount Rate Yield CUSIP† 2021 $1,255,000 5.000% 0.950% 914072 3H4 2022 1,325,000 5.000% 0.960% 914072 3J0 2023 1,390,000 5.000% 0.980% 914072 3K7 2024 1,465,000 5.000% 1.000% 914072 3L5 2025 1,540,000 5.000% 1.060% 914072 3M3 2026 1,615,000 5.000% 1.150% 914072 3N1 2027 1,700,000 5.000% 1.260% 914072 3P6 2028 1,785,000 5.000% 1.390% 914072 3Q4 2029 1,880,000 5.000% 1.480% (1) 914072 3R2 2030 1,975,000 5.000% 1.590% (1) 914072 3S0 2031 2,075,000 5.000% 1.650% (1) 914072 3T8 2032 2,185,000 5.000% 1.710% (1) 914072 3U5 2033 2,295,000 5.000% 1.750% (1) 914072 3V3 2034 2,415,000 5.000% 1.790% (1) 914072 3W1

______(1) Priced to the first optional redemption date (March 15, 2029). † 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.

THE UNDERWRITERS HAVE PROVIDED THE FOLLOWING SENTENCE FOR INCLUSION IN THIS OFFICIAL STATEMENT. THE UNDERWRITERS HAVE REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND AS PART OF, THEIR RESPECTIVE RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS TRANSACTION, BUT THE UNDERWRITERS DO NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION.

IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVERALLOT 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.

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.

THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR HAS THE TRUST INDENTURE BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939. THESE BONDS ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION.

IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY, OR DETERMINED THE ADEQUACY, OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

TABLE OF CONTENTS Page SUMMARY STATEMENT...... i INTRODUCTION ...... 1 PURPOSES FOR THE BONDS ...... 2 SOURCES AND USES ...... 2 DESCRIPTION OF THE BONDS ...... 3 REDEMPTION ...... 3 SECURITY FOR THE BONDS ...... 3 BOOK-ENTRY ONLY SYSTEM ...... 4 CONCERNING THE TRUSTEE ...... 6 SUMMARY OF THE INDENTURE ...... 6 THE UNIVERSITY OF ARKANSAS ...... 10 THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY ...... 15 FINANCIAL STATEMENTS ...... 22 TAX MATTERS ...... 22 CONTINUING DISCLOSURE ...... 23 ENFORCEABILITY OF REMEDIES ...... 25 FINANCIAL ADVISOR ...... 25 LEGAL AND LEGISLATIVE MATTERS ...... 25 UNDERWRITING ...... 28 DESCRIPTION OF RATING ...... 29 MISCELLANEOUS ...... 29

Appendix A - Opinion of Bond Counsel Appendix B - Audited Financial Report for the University of Arkansas, Fayetteville for the Fiscal Year Ended June 30, 2018 Appendix C - Audited Consolidated Financial Statements of the University of Arkansas System for the Fiscal Year Ended June 30, 2018 Appendix D - Form of Continuing Disclosure Agreement

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 Bonds (Fayetteville Campus), Series 2019A, in the aggregate principal amount of $24,900,000 (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 Title 6, Chapter 62, Subchapter 3 of the Arkansas Code of 1987 Annotated, as amended (the “Act”), and pursuant to a resolution duly adopted by the Board on June 17, 2019. The Bonds will be issued under and secured by a Trust Indenture, dated as of the dated date of the Bonds (the “Indenture”), between the Board and Regions Bank, with offices in Little Rock, Arkansas (the “Trustee”). See SUMMARY OF THE INDENTURE herein. The Bonds will be dated the date of delivery thereof, and shall bear interest at the rates shown on the inside cover hereof, payable each March 15 and September 15, commencing March 15, 2020. The Bonds shall mature on the dates shown on the inside cover hereof. Redemption The Bonds are subject to optional redemption, in whole or in part at any time, at the option of the Board from funds from any source, on any date on and after March 15, 2029, at a price of 100% of the principal amount being redeemed plus accrued interest to the date of redemption, as described herein. See REDEMPTION herein. Use of Proceeds The proceeds from the sale of the Bonds will be used to (a) finance a portion of the costs of capital improvements to athletic facilities on or for the Fayetteville campus of the University of Arkansas (“UA, Fayetteville”), including particularly, without limitation, (i) acquiring, constructing, furnishing, and equipping a track and field high performance center for men’s and women’s track and field teams, (ii) acquiring, constructing, furnishing, and equipping a baseball development center at Baum-Walker Stadium, and (iii) acquiring, constructing, improving, renovating, equipping and/or furnishing other capital improvements and infrastructure for athletic purposes, and acquiring various equipment for athletic purposes for UA, Fayetteville; and (b) pay 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 (the “State”) 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 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) the Board of Trustees of the University of Arkansas Athletic Facilities Revenue Bonds (Fayetteville Campus), Series 2013A (the “Series 2013 Bonds”), (iii) the Board of Trustees of the University of Arkansas Athletic Facilities Revenue Refunding Bonds (Fayetteville Campus), Series 2015A (the “Series 2015 Bonds”), and (iv) the Board of Trustees of the University of Arkansas Athletic Facilities Revenue Bonds (Fayetteville Campus), Tax-Exempt Series 2016A and Taxable Series 2016B (collectively, the “Series 2016 Bonds”).

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 et seq., as amended, 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. 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 2013 Bonds, the Series 2015 Bonds, the Series 2016 Bonds, and any Additional Parity Bonds (as defined under SUMMARY OF THE INDENTURE, Additional Bonds herein), 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 level described in the preceding sentence, impose a Student Athletic Fee on students attending UA, Fayetteville sufficient to maintain such coverage. There is no debt service reserve securing the Bonds.

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OFFICIAL STATEMENT

$24,900,000 BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS ATHLETIC FACILITIES REVENUE BONDS (FAYETTEVILLE CAMPUS) SERIES 2019A

INTRODUCTION

This Official Statement of the Board of Trustees of the University of Arkansas (the “Board”), including the cover page, inside front cover, Summary Statement, and Appendices, is furnished with respect to the sale by the Board of its Athletic Facilities Revenue Bonds (Fayetteville Campus), Series 2019A, in the aggregate principal amount of $24,900,000 (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 and UA, Fayetteville 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 Title 6, Chapter 62, Subchapter 3 of the Arkansas Code of 1987 Annotated, as amended (the “Act”), and a Resolution adopted by the Board on June 17, 2019. 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 Regions Bank, with offices in Little Rock, Arkansas (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) the Board of Trustees of the University of Arkansas Athletic Facilities Revenue Bonds (Fayetteville Campus), Series 2013A (the “Series 2013 Bonds”), (iii) the Board of Trustees of the University of Arkansas Athletic Facilities Revenue Refunding Bonds (Fayetteville Campus), Series 2015 (the “Series 2015 Bonds”), and (iv) the Board of Trustees of the University of Arkansas Athletic Facilities Revenue Bonds (Fayetteville Campus), Tax-Exempt Series 2016A and Taxable Series 2016B (collectively, the “Series 2016 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 et seq., as amended, 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 underwriters 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.

PURPOSES FOR THE BONDS

Proceeds of the Bonds will be used to (a) finance a portion of the costs of capital improvements to athletic facilities on or for UA, Fayetteville, including particularly, without limitation, (i) acquiring, constructing, furnishing, and equipping a track and field high performance center for men’s and women’s track and field teams, (ii) acquiring, constructing, furnishing, and equipping a baseball development center at Baum-Walker Stadium, and (iii) acquiring, constructing, improving, renovating, equipping and/or furnishing other capital improvements and infrastructure for athletic purposes, and acquiring various equipment for athletic purposes for UA, Fayetteville (collectively, the “Project”); and (b) pay costs of issuance of the Bonds.

Certain components of the Project are further described below:

Track and Field High Performance Center. A portion of the proceeds of the Bonds will be utilized to acquire, construct, furnish, and equip a track and field high performance center for men’s and women’s track and field teams (the “Track Center”). It is anticipated that the Track Center will encompass approximately 25,000 square feet. The Track Center is intended as a facility to house the men’s and women’s track and field teams, and it will contain team locker rooms, training rooms, a weight room, team rooms, and equipment storage space. The Track Center will be situated at the south end of John McDonnell Field. Work on the Track Center is expected to commence in February 2020, with completion anticipated by April 30, 2021.

Baseball Development Center. A portion of the proceeds of the Bonds will be utilized to acquire, construct, furnish, and equip a baseball development center at Baum-Walker Stadium (the “Baseball Center”). It is anticipated that the Baseball Center will encompass approximately 45,000 square feet. The Baseball Center is intended as a facility to house improved and expanded locker rooms, a team room, a weight room, an equipment room, a training room, meeting rooms, nutrition space, player development spaces, in-venue batting cages and pitching development spaces, and coaches’ offices, as well as storage space. The Baseball Center will be situated at the southwest corner of Baum-Walker Stadium, fronting Fifteenth Street. Work on the Baseball Center is expected to commence in December 2019, with completion anticipated by April 30, 2021.

SOURCES AND USES

Sources of Funds Series 2019A Bond Par Amount $24,900,000 Original Issue Premium 6,345,224

Total: $31,245,224

Uses of Funds Project Fund $31,043,204 Costs of Issuance 144,750 Underwriter’s Discount 57,270

Total: $31,245,224

The payment of Underwriters' discount and the costs of issuing the Bonds relating to the payment of professional fees will be contingent on the Bonds being issued. See UNDERWRITING for a description of the Underwriters' discount.

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 March 15, 2020, 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 designated 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.

REDEMPTION

The Bonds shall be subject to redemption prior to maturity, in the principal amount of $5,000 or any integral multiple thereof, as follows: Optional Redemption The Bonds may be redeemed, in whole or in part at any time, at the option of the Board from funds from any source, on any date on and after March 15, 2029, at a price of 100% of the principal amount being redeemed plus accrued interest to the date of redemption, and if in part, from such maturities as may be selected by the Board. Redemption Within a Maturity So long as the Bonds are issued in book-entry only form (see BOOK-ENTRY ONLY SYSTEM herein), if fewer than all of a particular maturity of the Bonds are to be called for redemption, the particular Bonds to be redeemed will be selected pursuant to the procedures established by The Depository Trust Company (“DTC”). If the Bonds are no longer held pursuant to the book-entry only system, and if fewer than all of a particular maturity of the Bonds then outstanding shall be called for redemption, the Bonds or portions of Bonds to be redeemed within such maturity of the Bonds shall be selected by the Trustee by lot in such manner as the Trustee shall determine appropriate. Notice of Redemption The Trustee shall mail a copy of a notice of redemption by first-class mail, postage prepaid, or shall send a copy of such notice via other standard means, including electronic or facsimile communications, not less than thirty (30) days before such redemption date, to the owner of any Bond, all or a portion of which is to be redeemed, at the last address appearing on the registration books maintained by the Trustee. Failure to give such notice to any owner, or any defect therein, shall not affect the validity of any proceeding for the redemption of other Bonds. Notwithstanding anything to the contrary in the preceding paragraph, while any Bonds are in book-entry form, notice of redemption shall be given in accordance with the procedures of DTC or any successor or replacement securities depository. After the date specified in such call, the Bonds so called will cease to bear interest, provided that funds for their payment have been deposited with the Trustee, and, except for the purpose of payment, shall no longer be protected by the Indenture and shall not be deemed to be outstanding under the provisions of the Indenture. While the Bonds are being held by DTC under the book-entry system, notice of redemption will be sent only by DTC. See BOOK-ENTRY ONLY SYSTEM herein.

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. See LEGAL AND LEGISLATIVE MATTERS, Factors Affecting the Board’s Funding and Factors Related to UAMS, the Health Reform Law and the Arkansas Private Option Program herein.

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 2013 Bonds, the Series 2015 Bonds, and the Series 2016 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 et seq., as amended, 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 2013 Bonds, the Series 2015 Bonds, the Series 2016 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 level described in the preceding sentence, impose a Student Athletic Fee on students attending UA, 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. No debt service reserve will secure the Bonds.

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. 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: Project. A portion of the proceeds of the Bonds shall be deposited to the credit of the Construction Account within the Construction Fund (described below). 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 Account within the Construction 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 2013 Bonds, the Series 2015 Bonds, and the Series 2016 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 2019A 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; (ii) to pay the fees and expenses of the Trustee; and (iii) to make required payments to the Rebate Fund. The Vice Chancellor (as hereinafter defined) of UA, Fayetteville 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 sentence 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 2013 Bonds (the “2013 Bond Fund”) required by the trust indenture authorizing the issuance of the Series 2013 Bonds (the “2013 Indenture”), the obligation to make payments into the bond fund for the Series 2015 Bonds (the “2015 Bond Fund”) required by the trust indenture authorizing the issuance of the Series 2015 Bonds (the “2015 Indenture”), the obligation to make payments into the bond fund for the Series 2016 Bonds (the “2016 Bond Fund”) required by the trust indenture authorizing the issuance of the Series 2016 Bonds (the “2016 Indenture”), and the obligation to make payments into the bond fund for any Additional Parity Bonds (as defined below under the subcaption Additional Bonds), shall be ranked on a parity basis. If Pledged Revenues and such other monies as are lawfully available are insufficient to make the payments into the Bond Fund, the 2010 Bond Fund, the 2013 Bond Fund, the 2015 Bond Fund, the 2016 Bond Fund, and the bond fund for any Additional Parity Bonds, the available monies shall be distributed among the Bond Fund, the 2010 Bond Fund, the 2013 Bond Fund, the 2015 Bond Fund, the 2016 Bond Fund, and the bond fund for any Additional Parity Bonds in proportion to the required payments. Construction Fund. The Board has established with the Trustee a special fund in the name of the Board designated “Series 2019A Construction Fund” (the “Construction Fund”), within which is a Construction Account and a Cost of Issuance Account. Moneys in the Construction Account shall be used for costs of the Project, except as provided in the Indenture. Moneys in the Cost of Issuance Account shall be used for the purpose of paying costs of issuing the Bonds. Moneys in the Construction Account will be disbursed by the Trustee on the basis of requisitions prepared by the Board and meeting the requirements of the Indenture. Moneys remaining in the Cost of Issuance Account on October 1, 2019 shall be transferred to the Construction Account and used to pay Project costs. Moneys remaining in the Construction Fund when the Project is completed will be transferred into the Bond Fund and used as follows: first, to make the payment on the next succeeding interest payment date for the Bonds, and second, to redeem the Bonds on the first optional redemption date. Rebate Fund. The Board has established with the Trustee a special fund in the name of the Board designated the “Series 2019A 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 Construction 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, at the option of the owner thereof, 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 by the Trustee 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 date or dates when the money held for the credit of the Bond Fund will be required for the purposes intended. “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) or (c) below or other securities authorized by State law to secure public funds); (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 (“Government Obligations”); (c) Direct obligations of an agency, instrumentality or government-sponsored enterprise created by an act of the United States Congress and authorized to issue securities or evidences of indebtedness, regardless of whether the securities or evidences of indebtedness are guaranteed for repayment by the United States Government; (d) (i) Federal funds, or banker's acceptances, maturing in not more than 360 days, issued or accepted by commercial banks which have a rating on their short-term certificates of deposit on the date of purchase of not lower than “A-1” by S&P or “P-1” by Moody's, (ii) U.S. dollar denominated certificates of deposit issued by commercial banks or savings and loans and fully insured by the Federal Deposit Insurance Corporation, or (iii) U.S. dollar denominated certificates of deposit issued by commercial banks or savings and loans, provided the payment of principal of and interest on the certificate is fully secured by a pledge of Government Obligations or other securities authorized by State law to secure public funds or the issuer of the certificate of deposit has a rating described in (i), above; (e) Investments in a money market fund, including funds of the Trustee or its affiliates, (i) rated (at the time of purchase) in the highest rating category for this type of investment by S&P or Moody's or (ii) comprised exclusively of Government Obligations and the obligations described in clause (c) above; (f) Pre-refunded Municipal Obligations (as defined in the Indenture); (g) U.S. dollar denominated corporate notes, bonds or other debt obligations issued or guaranteed by a financial institution, non-profit or other entity which have a rating of at least “A-” by S&P or “A3” by Moody’s on the date of purchase; (h) U.S. dollar denominated commercial paper issued or guaranteed by a corporation, company, financial institution, trust or other entity which have a rating of at least “A-1” by S&P or “P-1” by Moody’s on the date of purchase; (i) 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 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 UA, 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 2013 Bonds, the outstanding Series 2015 Bonds, the outstanding Series 2016 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 2013 Bonds, Series 2015 Bonds, Series 2016 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 2013 Bonds, Series 2015 Bonds, Series 2016 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 2013 Indenture, the 2015 Indenture, the 2016 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 then outstanding shall proceed, subject to the provisions of the Indenture giving the Trustee the right to indemnity (see CONCERNING THE TRUSTEE, herein), to protect and enforce its rights and the rights of the owners of the

Bonds 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 in the Indenture or in aid or execution of a power therein 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, and to the redemption of the Bonds, all 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) above. Whenever moneys are to be applied by the Trustee as aforesaid, 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”). Since then, either through mergers or other authority of the Board, the University has established multiple campuses, divisions, or units, which collectively are referred to as the University of Arkansas System (the “System”). The System's campuses, divisions, and units (other than UA, Fayetteville, which is described under THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY) 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 Regional Health Education Centers, the Ambulatory Care Center and Level 1 Trauma Center, the Winthrop P. Rockefeller Cancer Institute, the Harvey and Bernice Jones Eye Institute, the Jackson T. Stephens Spine and Neuroscience Institute, the Psychiatric Research Institute, the Translational Research Institute, and the Donald W. Reynolds Institute on Aging. Students attend classes in Little Rock and at the Northwest Regional Campus in Fayetteville.

University of Arkansas at Little Rock (“UA Little Rock”). UA Little Rock 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 UA Little Rock School of Law offers the professional degree of Juris Doctor, and UA Little Rock now offers over 50 other graduate and professional programs and ten 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 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 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 approximately thirty Bachelor Degree programs, two Associate Degree programs, eight Master's Degree programs, and one doctoral program among the following academic schools: Agriculture, Fisheries, and Human Sciences, Business and Management, Education, Arts and Sciences, and University College. 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 a part of the System and was designated “University of Arkansas at Fort Smith.” 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 System and was designated “The Phillips County Community College of the University of Arkansas.” PCCUA is now known as “Phillips Community College of the University of Arkansas.” University of Arkansas Community College at Hope - Texarkana (“UAHT”). 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.” Effective July 1, 1996, Red River Technical College became a part of the System and was designated “University of Arkansas Community College at Hope.” In 2012, a satellite campus of 22 acres was established in Texarkana, Arkansas. In January 2019, the Board approved modifying the official name of the campus to “University of Arkansas Community College at Hope - Texarkana.” University of Arkansas Community College at Batesville (“UACCB”). UACCB, formerly Gateway Technical College, became an affiliated campus of the 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 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 teaching centers in Nashville and Ashdown. Pursuant to a merger agreement effective July 1, 2001, the institution became a part of the System and was designated “Cossatot Community College of the University of Arkansas.” University of Arkansas Community College at Rich Mountain (“UACCRM”). UACCRM was first established in 1983 as Rich Mountain Community College, a public two-year college with a mission to provide post- secondary educational opportunities to the citizens of Polk County, Arkansas and surrounding areas. Effective February 1, 2017, the institution became part of the System and was designated “University of Arkansas Community College at Rich Mountain.” UACCRM’s main campus is located in Mena, Arkansas. In addition, UACCRM maintains satellite campuses in Waldron and Mount Ida. University of Arkansas – Pulaski Technical College (“UA – Pulaski Tech”). The Little Rock Vocational Technical School was established in October 1945 under the supervision of the Little Rock public school system. In October 1969, administration of the institution was transferred to the Arkansas State Board of Vocational Education, and the school was renamed Pulaski Vocational Technical School. The institution moved to its current location in North Little Rock, Arkansas in January 1976. In 1991, Pulaski Vocational Technical School was renamed Pulaski Technical College. Effective February 1, 2017, the institution became part of the System and was designated “University of Arkansas – Pulaski Technical College.” UA – Pulaski Tech is a two-year college that serves the education needs of central Arkansas through more than 90 occupational/technical degree and certificate programs, a university-transfer curriculum, and specialized programs for business and industry. Other Programs, Locations and Entities. Other System-affiliated programs, locations and entities are as follows: 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 has been restored and is being used to house the University of Arkansas System eVersity. University of Arkansas Clinton School of Public Service (“CSPS”). CSPS was established by the Board in 2004. CSPS is located in downtown Little Rock on the grounds of the William J. Clinton Presidential Center and Park. CSPS is the first graduate school in the nation to offer a Master of Public Service degree, helping students further their careers in the areas of government, non-profit, volunteer and private sector service. University of Arkansas System eVersity (“eVersity”). In 2014, the Board established eVersity, the University’s only 100% online institution. eVersity offers affordable and accessible programs of study designed to focus on enrolling traditionally unserved and underserved Arkansans. The first eVersity degree programs were made available in fall of 2015. University of Arkansas System Division of Agriculture. The University of Arkansas Division of Agriculture is the statewide research and extension agency serving Arkansas agriculture, communities, families and youth. The mission of the division is to discover new knowledge, incorporate it into practical applications and assist Arkansans in its application. With a presence in all 75 Arkansas counties, the division is comprised of two principal units: the Agriculture Experiment Station and the Cooperative Extension Service. Division faculty and facilities are located on five university campuses, at five regional research and extension centers, eight branch stations and other locations. An extension office is located in each county in cooperation with county governments. Arkansas Archeological Survey. The mission of the Arkansas Archeological Survey is to study and protect the 13,000-year archeological heritage of Arkansas, to preserve and manage information and collections from archeological sites and to communicate what is learned to the people of the State. The survey has 10 research stations across the state, each with a full-time Ph.D. archeologist associated with regional higher education institutions and state parks. The archeologists conduct research, assist other state and federal agencies and are available to local officials, amateur archeologists, landowners, educators and students in need of information about archeology or archeological sites. Criminal Justice Institute (“CJI”). CJI is a unit of the System that serves a unique population of non- traditional students - certified law enforcement professionals who are actively employed within the State’s police departments and sheriff’s offices. The institute is committed to making communities safer by supporting law enforcement professionals through training, education, resources and collaborative partnerships. Utilizing both classroom-based instruction and practical, hands-on application, CJI provides an educational experience designed to enhance the performance and professionalism of law enforcement in progressive areas of criminal justice, including

law enforcement leadership and management, forensic sciences, computer applications, traffic safety, illicit drug investigations and school safety. Arkansas School for Mathematics, Sciences and the Arts (“ASMSA”). ASMSA is the state’s premier high school focusing on excellence in math, science and the arts. Located in Hot Springs, ASMSA is one of 15 residential high schools in the country specializing in the education of gifted and talented students who have an interest and aptitude for mathematics and science. All classes are taught at the college level, and the school offers nearly 60 concurrent courses. Through ASMSA’s Concurrent Core program, ASMSA students graduate high school with an average of 50 hours of college credit.

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 John Goodson, Chairman Attorney 2021 Mark Waldrip, Vice Chairman Business Executive 2020 Morril Harriman, Secretary Attorney 2024 Kelly Eichler, Assistant Secretary* Attorney 2026 Stephen Broughton, M.D. Physician 2022 Cliff Gibson Attorney 2023 Sheffield Nelson Attorney 2025 Tommy Boyer Retired Business Executive 2027 Steve Cox Business Executive 2028 Ed Fryar, Ph.D. Business Executive 2029 ______* Ms. Eichler is the spouse of an officer of Stephens Inc., one of the Underwriters.

System Administration

The current officers of the System are:

Name Office Donald R. Bobbitt President Gina Terry Vice President for Finance and CFO Michael Moore Vice President for Academic Affairs Mark Cochran Vice President for Agriculture Melissa K. Rust Vice President for University Relations Steven Fulkerson Vice President for Administration and CIO JoAnn Maxey General Counsel

The central administrative offices of the System are located on the Cammack Campus at 2404 North University Avenue, Little Rock, Arkansas 72207; telephone: (501) 686-2500.

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Student Enrollment-All Campuses

Enrollment for the fall semester of the 2018/19 school year for each campus of the University (expressed as full-time equivalents) was as follows:

University of Arkansas, Fayetteville 24,407 University of Arkansas at Little Rock(1) 7,003 University of Arkansas for Medical Sciences 2,466 University of Arkansas at Monticello(2) 2,589 University of Arkansas at Pine Bluff 2,456 Phillips Community College of the University of Arkansas 891 University of Arkansas Community College at Hope - 936 Texarkana University of Arkansas Community College at Batesville 903 University of Arkansas Community College at Morrilton 1,366 Cossatot Community College of the University of Arkansas 882 University of Arkansas at Fort Smith 5,176 University of Arkansas Community College at Rich Mountain 495 University of Arkansas-Pulaski Technical College 3,621

Total, All Campuses 53,191 ______(1) Includes full-time equivalent numbers for the University of Arkansas Clinton School of Public Service. (2) Includes full-time equivalent numbers for the University of Arkansas System eVersity.

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THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY Administrative Officers The current administrative officers of UA, Fayetteville are: Name Office Joseph Steinmetz Chancellor Chris A. McCoy Vice Chancellor for Finance and Administration James S. Coleman Provost and Executive Vice Chancellor for Academic Affairs Laura Jacobs Associate Vice Chancellor and Chief of Staff Stacy Leeds Vice Chancellor for Economic Development Randy Massanelli Vice Chancellor for Governmental Relations Yvette Murphy-Erby Vice Chancellor for Diversity and Inclusion Mark Power Vice Chancellor for Advancement Charles Robinson Vice Chancellor for Student Affairs Daniel Sui Vice Chancellor for Research and Innovation Hunter Yurachek Vice Chancellor for Intercollegiate Athletics and Director of Athletics General Information The Fayetteville campus was the original site of the University. Fayetteville is the county seat of Washington County and had a 2010 population of 73,580 with an estimated 2018 population of 85,257. The 2010 population of Washington County was 203,065 with an estimated 2018 population of 236,961. 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 742 acres with some 227 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 and International Education, the Departments of Army and Air Force ROTC, the Agricultural Experiment Station and the Global Campus. In addition to academic departments, campus facilities house nationally recognized units such as the National Center for Reliable Electric Power Transmission; Terrorism Research Center; Institute for Advanced Data Analysis; 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 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 and Photonics Program; High Density Electronic Component Center; Plant Breeding Program; Reducing Family Violence Through Workplace Intervention Program; Rural Water Quality Program; Social Work Research Center; David and Barbara Pryor Center for Arkansas Oral and Visual History; Arkansas Water Resources Center; Arkansas Membrane Research Center, Center for Excellence in Logistics and Distribution; Center for Grid- Connected Power Electronics; Center for Power Optimization of Electro-Thermal Systems; High Performance Computing Center; Brewer Family Entrepreneurship Hub; and University of Arkansas Community Design Center. Library The UA, Fayetteville library houses 2,535,594 volumes. There are 328 on-line bibliographic services, 5,594,835 units of microfilm, and 142,199 periodical titles. Accreditations UA, Fayetteville is accredited by the Higher Learning Commission. It was most recently reaffirmed for accreditation in June 2017. Degree Programs UA, Fayetteville offers 86 bachelor's degrees, 83 master's and specialist degrees, 17 graduate certificates, 7 post-master certificates, 3 undergraduate certificates, and 35 doctoral degrees. 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, and the College of Education and Health Professions offers the professional degrees of Doctor of Nursing Practice and Doctor of Occupational Therapy. 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: 2014 2015 2016 2017 2018 Number of Faculty 1,108 1,137 1,177 1,185 1,192 Percent Tenured 50.0% 48.1% 45.7% 46.0% 46.3% 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 1020 and have completed 16 units of high school courses in English, mathematics, social studies, and natural sciences plus two units of elective courses in communications, physical education, health and safety or fine arts. The following is a five-year history of undergraduate admissions: New Freshmen New Transfers Year Admitted Applied Enrolled ACT HSGPA Applied Admitted Enrolled 2014-2015 11,773 19,015 4,571 25.9 3.63 3,728 1,732 1,312 2015-2016 12,337 20,542 4,915 25.9 3.64 3,755 2,368 1,385 2016-2017 13,613 21,539 4,967 26.0 3.68 3,364 2,218 1,361 2017-2018 14,324 21,715 5,065 26.2 3.69 3,266 2,121 1,412 2018-2019 14,512 18,732 5,005 26.4 3.72 3,577 2,360 1,351 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 2014-2015 20,110 2,758 22,868 2015-2016 20,422 2,860 23,282 2016-2017 20,700 2,885 23,585 2017-2018 21,222 2,782 24,004 2018-2019 21,719 2,688 24,407 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: 2014 2015 2016 2017 2018

In State 15,329 15,237 15,282 15,181 15,061 Out of State 9,383 9,972 10,446 10,916 11,284 International 1,525 1,545 1,466 1,461 1,433

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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):

2014-2015 2015-2016 2016-2017 2017-2018 2018-2019 Out of Out of Out of Out of Out of In State In State In State In State In State State State State State State Tuition $6,824 $18,914 $7,028 $20,332 $7,204 $21,552 $7,384 $22,630 $7,384 $23,422 Fees 1,026 1,026 1,111 1,111 1,224 1,224 1,276 1,276 1,334 1,334 College Fees 360 360 383 383 392 392 402 402 412 412 Total $8,210 $20,300 $8,522 $21,826 $8,820 $23,168 $9,062 $24,308 $9,130 $25,168

Tuition/Hour $227.44 $630.45 $234.27 $677.73 $240.12 $718.39 $246.12 $754.31 $246.12 $780.71

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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 fiscal years ended June 30, 2015 through 2018: Fiscal Year 2015 2016 2017 2018(1) OPERATING REVENUES Student tuition and fees, net $189,315,846 $209,808,704 $227,456,739 $240,489,120 Federal appropriations 12,116,593 11,138,807 11,924,289 10,522,785 County appropriations 3,054,500 3,449,528 4,144,630 4,460,212 Federal grants and contracts 31,709,977 33,598,011 43,241,546 55,333,386 State and local grants and contracts 23,668,832 25,347,076 32,460,684 32,129,524 Nongovernmental grants and contracts 32,831,792 32,821,266 39,224,018 33,718,319 Sales and services of educational departments 22,070,764 23,093,648 22,454,703 24,051,001 Auxiliary enterprises Residence Life, net 32,673,491 50,297,859 51,932,574 54,020,198 Athletics 86,417,607 98,143,466 103,488,566 104,833,597 Bookstore 13,516,538 12,635,880 12,278,306 11,302,662 Student Health Services 2,881,754 2,310,530 2,406,462 2,728,603 Transit and Parking 7,892,613 8,874,690 9,438,067 8,785,539 Student Organizations/Activities 104,576 92,917 52,295 345,462 Other Auxiliary Enterprises 487,258 289,940 234,664 186,815 Other operating revenues 9,134,758 10,810,896 13,271,938 12,513,954

Total operating revenues $467,876,899 $522,713,218 $574,009,481 $595,421,177

OPERATING EXPENSES Salaries, wages, and benefits $449,757,461 $468,599,991 $487,572,321 $511,934,706 Scholarships and fellowships 21,247,744 20,923,680 20,764,570 22,755,152 Supplies and other services 202,439,536 244,098,964 248,768,835 256,530,026 Depreciation 68,688,526 73,379,367 75,527,340 75,620,509 Total operating expenses $742,133,267 $807,002,002 $832,633,066 $866,840,393 Operating loss ($274,256,368) ($284,288,784) (258,623,585) (271,419,216)

NONOPERATING REVENUES (EXPENSES) State appropriations $205,745,146 $210,455,158 $206,764,617 $207,202,611 Gifts 66,653,990 70,317,049 72,257,662 77,059,113 Investment income, net 4,338,885 3,078,937 11,951,939 10,163,270 Interest on capital asset – related debt (24,003,224) (24,013,039) (24,585,099) (23,799,689) Federal grants (nonexchange) 23,140,414 22,309,930 21,631,421 22,972,561 State & local grants (nonexchange) 28,644,847 28,055,324 27,016,602 30,016,898 Nongovernmental grants (nonexchange) -0- -0- -0- -0- Gain (loss) on disposal of assets (1,047,765) (188,529) (3,171,268) 1,915,937 Other nonoperating revenues 3,077,806 3,134,598 2,733,202 4,844,582 Other nonoperating expenses (722,671) (955,818) (564,980) (475,280) Net nonoperating revenues $305,827,428 $312,193,610 $314,034,096 $329,900,003

Gain or loss before other revenues $ 31,571,060 $ 27,904,826 $ 55,410,511 $ 58,480,787 and changes in net assets

OTHER REVENUES AND CHANGES IN NET ASSETS Capital appropriations $ 2,143,171 $ 1,000,000 $ 350,000 $ 510,000 Capital grants and gifts 31,954,904 6,036,286 20,437,460 85,782,493 Other changes 911,058 (1,016,001) 161,097 115,882 Extraordinary item – pollution remediation -0- -0- (9,648,242) (13,224,210) Total other revenues and changes in net $35,009,133 $ 6,020,285 $ 11,300,315 $ 73,184,165 assets Increase in net assets $ 66,580,193 $ 33,925,111 $ 66,710,826 $ 131,664,952

NET ASSETS - beginning of year $812,390,583 $878,970,776 $912,895,887 $ 973,218,370 NET ASSETS – end of year $878,970,776 $912,895,887 $979,606,713 $1,104,883,322 ______(1) Beginning net position, as reported on the Statement of Revenues, Expenses and Changes to Net Position, was reduced by $6,388,343 as a result of a restatement due to the implementation of GASB Statement 75. See Note 1 in the audited financial statements for the fiscal year ending June 30, 2018, which are included in Appendix B of this Official Statement.

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 et seq., as amended, 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 fiscal years ended June 30, 2014 through 2018, have been as follows: Source 2014 2015 2016 2017 2018 Football $22,596,833 $26,548,819 $28,671,559 $32,095,772 $29,445,682 Basketball 5,713,660 5,397,302 6,227,169 6,155,934 6,756,043 Spring Sports 1,531,818 1,689,769 2,204,505 2,196,970 2,358,157 (Less Game Guaranties) (3,111,403) (3,186,843) (3,474,792) (3,410,450) (3,743,500) SEC, NCAA Distributions 21,404,352 33,467,486 42,881,937 45,188,294 46,187,312 Concessions and Novelty Sales 628,817 955,887 1,064,149 1,457,687 1,176,489 Gifts, Donations & Other Income* 4,275,028 4,979,464 4,930,877 5,682,186 3,206,187 Multimedia Rights Sponsorship 6,969,056 5,010,226 7,672,661 5,679,395 6,958,409 Totals $60,008,161 $74,862,110 $90,178,065 $95,045,788 $92,344,779

* Gifts, Donations & Other Income has been restated for the fiscal year ended June 30, 2014. Unrestricted amounts transferred from the Razorback Foundation, Inc. representing priority seating requirement proceeds were not reported as allowed per the definition of the Pledged Revenues above.

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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 2013 Bonds, the Series 2015 Bonds, and the Series 2016 Bonds. 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 Year Series 2010 Series 2013 Series 2015 Series 2016 (Ending June 30) Bonds Bonds Bonds Bonds Bonds Total 2020 $2,739,115 $ 2,883,125 $2,858,625 $ 5,996,756 $ 702,042 $ 15,179,663 2021 2,739,468 2,886,375 2,850,875 5,996,144 1,245,000 15,717,862 2022 -- 2,884,625 2,856,625 5,999,562 2,468,625 14,209,437 2023 -- 2,882,750 671,375 9,183,880 2,474,125 15,212,130 2024 -- 2,885,375 -- 9,183,329 2,471,250 14,539,954 2025 -- 2,882,250 -- 9,183,899 2,474,875 14,541,024 2026 -- 2,883,125 -- 9,184,299 2,474,750 14,542,174 2027 -- 2,882,625 -- 9,184,654 2,470,875 14,538,154 2028 -- 2,885,375 -- 9,184,387 2,473,000 14,542,762 2029 ------9,184,494 2,470,875 11,655,369 2030 ------9,184,091 2,474,250 11,658,341 2031 ------9,180,645 2,472,875 11,653,520 2032 ------9,180,172 2,471,625 11,651,797 2033 ------9,180,978 2,475,125 11,656,103 2034 ------9,182,253 2,473,125 11,655,378 2035 ------9,180,536 2,475,375 11,655,911 2036 ------9,180,750 -- 9,180,750 2037 ------9,178,875 -- 9,178,875 Total $5,478,583 $25,955,625 $9,237,500 $155,729,704 $36,567,792 $232,969,204 Coverage

Pledged Revenues for the Fiscal Year ended June 30, 2018 were $92,344,779. Combined maximum annual debt service for the Series 2010 Bonds, the Series 2013 Bonds, the Series 2015 Bonds, the Series 2016 Bonds, and the Bonds is $15,717,862 (in the Fiscal Year ending June 30, 2021). Accordingly, the Pledged Revenues in the Fiscal Year ended June 30, 2018 equaled or exceeded 5.88 times the combined maximum annual debt service on the outstanding Series 2010 Bonds, Series 2013 Bonds, Series 2015 Bonds, Series 2016 Bonds, and the Bonds. (1) 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 dated August 20, 1992, in the outstanding principal of $560,767(1). 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 30, 2022. A note payable by UA, Fayetteville to UAMS in the outstanding principal amount of $649,424(1). 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. Principal of and interest on this note are paid by UA, Fayetteville from revenues generated from the operation of the Sigma Chi fraternity house. The note finally matures in the Fiscal Year ending June 30, 2035. Installment Contracts. UA, Fayetteville has entered into three installment purchase agreements for the acquisition and installation of energy equipment pursuant to energy savings contracts with Energy Systems Group, LLC. These agreements have been refinanced with JPMorgan Chase Bank, N.A., and there is $15,863,209(1) in principal amount outstanding under these agreements. The leases are secured only by the purchased equipment. Interest rates on the contracts range from 1.95% to 1.99%. The latest of the contracts expire in the Fiscal Year ending June 30, 2024.

______(1) As of June 30, 2019.

ERP Loans. On October 26, 2018, the Board closed on a 10-year loan with Regions Capital Advantage, Inc. for $27,000,000 (the "ERP Loan"). The proceeds of the ERP Loan are being used for the purpose of paying the costs of configuring and installing an enterprise resource planning system. The interest rate on the ERP loan is 3% per annum. The ERP Loan is a closed-end line of credit, with interest paid quarterly, through the conversion date of November 1, 2020 when it will convert to a permanent loan with quarterly principal and interest payments. The ERP Loan is unsecured. The Board anticipates that it will incur additional indebtedness of up to approximately $40,000,000 in the next three years for implementation of the enterprise resource planning system for students (the "Additional ERP Loan"). At this time, the Board is unable to predict the interest rate or terms of the Additional ERP Loan. Certain campuses of the University, as participants in the enterprise resource planning system, are obligated to make payments to the University for the life of the ERP Loan and will be obligated to make payments to the University for the life of the Additional ERP Loan. UA, Fayetteville is not participating in the ERP Loan financing, but at this time it is unknown as to whether UA, Fayetteville will participate in the Additional ERP Loan financing.

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 2020 $50,429,323 2036 $39,773,507 2021 $52,005,976 2037 $39,907,628 2022 $51,975,778 2038 $34,590,949 2023 $51,084,223 2039 $30,550,682 2024 $46,579,448 2040 $27,716,438 2025 $46,686,041 2041 $24,980,219 2026 $45,817,442 2042 $18,670,703 2027 $44,398,406 2043 $18,686,681 2028 $44,498,472 2044 $12,884,600 2029 $44,582,002 2045 $11,041,235 2030 $43,332,192 2046 $11,046,850 2031 $43,447,068 2047 $10,613,125 2032 $43,544,539 2048 $9,044,625 2033 $43,428,003 2049 $2,890,625 2034 $39,497,469 2050 $1,578,500 2035 $39,634,160 Total: $1,024,916,909 * Includes debt service on the Board’s Various Facility Revenue Bonds (Fayetteville Campus), Series 2011A and Refunding Series 2011B, Various Facility Revenue Bonds (Fayetteville Campus), Refunding Series 2012A, Various Facility Revenue Bonds (Fayetteville Campus), Series 2012B, Various Facility Revenue Bonds (Fayetteville Campus), Series 2013A, Various Facility Revenue Bonds (Fayetteville Campus), Series 2014A and Series 2014B (Taxable), Various Facility Revenue Bonds (Fayetteville Campus), Refunding Series 2015A, Various Facility Revenue Bonds (Fayetteville Campus), Series 2015B (Taxable) and Refunding Series 2015C, Various Facility Revenue Bonds (Fayetteville Campus), Refunding and Improvement Series 2016A and Refunding Series 2016B, Various Facility Revenue Bonds (Fayetteville Campus), Series 2017, Various Facility Revenue Bonds (Fayetteville Campus), Tax-Exempt Series 2018A and Taxable Series 2018B, and proposed Various Facility Revenue Bonds (Fayetteville Campus), Refunding and Improvement Series 2019A (the "2019 Various Facility Bonds"), which are anticipated to be issued concurrently with the issuance of the Bonds. Does not include debt service on the Board’s Various Facility Revenue Bonds (Fayetteville Campus), Series 2009A, which are anticipated to be refunded with proceeds of the 2019 Various Facility Bonds. For additional information concerning the outstanding debt of UA, Fayetteville, see Note 8 to the Audited Financial Statements for UA, Fayetteville for the Fiscal Year ended June 30, 2018, attached hereto as Appendix B. For additional information concerning the outstanding debt of the Board, see Note 10 to the Audited Financial Statements for the University of Arkansas System for the Fiscal Year ended June 30, 2018, attached hereto as Appendix C.

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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, 2018, which financial statements have been audited by the Arkansas Legislative Audit, as indicated in its report dated November 13, 2018, 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 two 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 post-employment 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 two foundations as component units subject to inclusion in the financial report: the University of Arkansas Fayetteville Campus Foundation, Inc., and the Razorback 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 Management's Discussion and Analysis which is included in full in Appendix B. University of Arkansas System Set forth in Appendix C to this Official Statement are the consolidated financial statements of the University of Arkansas System for the fiscal year ended June 30, 2018, which consolidated financial statements have been audited by the Arkansas Legislative Audit of the State of Arkansas, as indicated in its report dated November 19, 2018, 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 Legislative Audit’s website (currently http://www.arklegaudit.gov/ 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. 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 financed 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. On December 20, 2017, Congress passed The Tax Cuts and Jobs Act (the "Tax Legislation"), which, for tax years beginning after December 31, 2017, among other things, significantly changes the income tax rates for individuals and corporations, modifies the current provisions relative to the federal alternative minimum tax on individuals and eliminates the federal alternative minimum tax for corporations. The President signed the Tax Legislation on December 22, 2017. The Tax Legislation or 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. 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

General The Board has entered into a Continuing Disclosure Agreement (the “Disclosure Agreement”) with Regions Bank, as dissemination agent (the "Dissemination Agent"), 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 on the EMMA website on the Board’s customized issuer page entitled "Board of Trustees of the University of Arkansas Financial Information." Though the method to access the Board’s EMMA issuer page may change in the future due to changes in the website, the Board’s EMMA issuer page can currently be accessed through the "Browse Issuers" tab by selecting Arkansas as the state and scrolling down or using the "Search within list" function to locate the "Board of Trustees of the University of Arkansas Financial Information" page. If an interested party is unable to access the Board’s EMMA issuer page, assistance can be obtained by contacting the Chief Financial Officer of the University. A form of the Disclosure Agreement is attached as Appendix D hereto. Past Compliance 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.

In certain of the fiscal years ended June 30, 2014 and 2015, in the case of certain 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. In addition, in the case of two campuses, for the fiscal year ended June 30, 2014, annual report filings were made later than the dates that such annual reports were due (26 and 27 days late). With respect to some of the Board’s continuing disclosure filings, there were a few instances in which, due to an inputting error by the trustee for a bond issue, the required disclosure information was not associated with all of the CUSIPs for a bond issue at the time the financial information and operating data were initially filed. Also, the Board is an obligated person under a continuing disclosure undertaking executed in connection with the Arkansas Development Finance Authority Tobacco Settlement Revenue Bonds, Series 2006 (Arkansas Cancer Research Center Project) (the “Tobacco Bonds”) (see Note 22 of the audited financial statements of the University of Arkansas System contained in Appendix C hereto). Pursuant to the Tobacco Bonds continuing disclosure undertaking, the Board is required to make annual filings of audited financial statements of UAMS and the Board, along with certain financial information and operating data with respect to UAMS in the same format and content as that contained in the official statement for the Tobacco Bonds. In certain fiscal years, including the fiscal years ended June 30, 2014 through 2018, the Board prepared reports containing certain financial information and operating data for UAMS and the Board and provided such reports to the Arkansas Development Finance Authority (“ADFA”), as dissemination agent. ADFA timely filed such reports, but such filings did not contain all statistical information referenced by the Tobacco Bonds continuing disclosure undertaking, or in some cases, such information was not in the same format as that contained in the official statement for the Tobacco Bonds. On July 8, 2019, a supplemental filing containing all missing information and reflecting all information in the correct format was uploaded to the EMMA system. ADFA, in its role as dissemination agent, did not file any notices of non- compliance with the Tobacco Bonds continuing disclosure undertaking. Further, in the past the Board did not file certain notices of late filings or notices of certain listed events as required. These instances include (1) in the fiscal year ended June 30, 2015, the failure to make a timely filing of notice that a trustee had changed its name (though such trustee did not notify the Board in a timely manner as required), and (2) the failure to file notice of non-compliance with its continuing disclosure undertakings. The Board has undertaken steps to ensure continued future compliance with its continuing disclosure undertakings. Compliance Related to Merged Institutions Effective February 1, 2017, Rich Mountain Community College ("RMCC") was merged into the System. RMCC is an obligated person with respect to continuing disclosure agreements entered into by RMCC in relation to the Board of Trustees of Rich Mountain Community College Student Tuition and Fee Revenue Bonds, Series 2012 and the Rich Mountain Community College District General Obligation Refunding and Improvement Bonds (Rich Mountain Community College), Series 2012 (collectively, the "RMCC Obligated Bonds"). The Board was not initially an obligated person with respect to the continuing disclosure agreements entered into in relation to the RMCC Obligated Bonds, and, as such, the Board had no obligation to make filings with respect to the RMCC Obligated Bonds prior to the fiscal year ended June 30, 2017. By virtue of the merger, the Board became the obligated person for post-merger disclosure with respect to the RMCC Obligated Bonds beginning with the fiscal year ended June 30, 2017. In each year prior to the fiscal year ended June 30, 2017, RMCC had instances of failure to comply with its obligations under the RMCC Obligated Bonds continuing disclosure agreements, including, but not limited to, failure to make timely filings of annual reports and audited financial statements and failure to file certain notices of listed events and notices of non-compliance. The information regarding RMCC contained in this paragraph is for informational purposes only, and no determination has been made as to the materiality of the events described herein. Effective February 1, 2017, Pulaski Technical College ("PTC") was merged into the System. PTC is an obligated person with respect to continuing disclosure agreements entered into by PTC in relation to the Board of Trustees of Pulaski Technical College Student Tuition and Fee Refunding Revenue Bonds, Series 2015, and the Board of Trustees of Pulaski Technical College Student Tuition and Fee Revenue Capital Improvement and Refunding Bonds, Series 2011 (collectively, the "PTC Bonds"). In addition, in the past five years, PTC has been an obligated person with respect to continuing disclosure agreements entered into by PTC in relation to certain bonds refunded by the PTC Bonds. The Board was not initially an obligated person with respect to the continuing disclosure agreements entered into in relation to the PTC Bonds (or the bonds refunded thereby), and, as such, the Board had no obligation to make filings with respect to the PTC Bonds (or the bonds refunded thereby) prior to the fiscal year ended June 30, 2017. By virtue of the merger, the Board became the obligated person for post-merger 24

disclosure with respect to the PTC Bonds beginning with the fiscal year ended June 30, 2017. Prior to the fiscal year ended June 30, 2017, PTC had multiple instances of failure to comply with its obligations under the PTC Bonds continuing disclosure agreements (and the continuing disclosure agreements with respect to bonds refunded by the PTC Bonds), including, but not limited to, failure to make timely filings of annual reports and audited financial statements and failure to file certain notices of listed events and notices of non-compliance. The information regarding PTC contained in this paragraph is for informational purposes only, and no determination has been made as to the materiality of the events described herein.

ENFORCEABILITY OF REMEDIES

Under the United States and Arkansas Constitutions, the Board has sovereign immunity from certain lawsuits, but agents and employees of the Board may, by mandamus, be compelled to perform the duties of the Board under the Indenture, including the application of the Pledged Revenues to the payment of the Bonds in accordance with the terms of the Indenture. 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

PFM Financial Advisers LLC ("PFM") is employed by UA, Fayetteville to perform professional services in the capacity of financial advisor. In its role as financial advisor to UA, Fayetteville, 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 UA, Fayetteville, the System, and other sources and the Board’s certification as to the Official Statement. PFM Asset Management LLC, an affiliate of the financial advisor, has been retained by UA, Fayetteville and the System to provide investment management services.

LEGAL AND LEGISLATIVE MATTERS

Legal Opinions 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 underwriters by Kutak Rock LLP, Little Rock, Arkansas, counsel to the underwriters. Litigation 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. The Arkansas Supreme Court has ruled that the State's public school (primary and secondary) funding system is a priority for appropriation of State funds.

In February 2017, the Arkansas General Assembly passed, and Governor Hutchinson signed, Act 148 of the Regular Session of 2017 ("Act 148"), which adopts a productivity-based funding model for State-supported institutions of higher education, including campuses of the University. Act 148 provides that the Arkansas Department of Higher Education Coordinating Board shall adopt policies developed by the Arkansas Department of Higher Education necessary to implement a productivity-based funding model for State-supported higher education institutions. The policies are required to contain measures for effectiveness, affordability, and efficiency that acknowledge the following priorities: (i) differences in institutional missions; (ii) completion of students’ educational goals; (iii) progression toward students’ completion of programs of study; (iv) affordability through (A) on-time completion of programs of study, (B) limiting the number of excess credits earned by students, and (C) efficient allocation of resources; (v) institutional collaboration that encourages the successful transfer of students; (vi) success in serving underrepresented students; and (vii) production of students graduating with credentials in science, technology, engineering, mathematics, and high-demand fields. Act 148 repealed the prior Arkansas higher education funding formula, which was based largely on student enrollment. The Arkansas Department of Higher Education implemented Act 148 for the 2018-2019 fiscal year. A productivity-based funding formula was developed, and funding for fiscal year 2019-2020 is based on the new productivity-based funding formula. Additional changes to the productivity-based funding formula are currently being reviewed by the Arkansas Department of Higher Education Coordinating Board. At this time, the Board is unable to determine the effect of any such changes to the productivity-based funding formula. Factors Related to UAMS, the Health Reform Law and the Arkansas Private Option Program The Board has previously issued bonds secured by revenues attributable to in-patient services and other ancillary, therapeutic and diagnostic services (the "UAMS Hospital Revenue Bonds") provided at hospital facilities of the University of Arkansas for Medical Sciences ("UAMS"). As of June 30, 2019, approximately $207,330,000 in aggregate principal amount of UAMS Hospital Revenue Bonds was outstanding (this amount does not include the $36,775,000 outstanding principal amount of Arkansas Development Finance Authority Tobacco Settlement Revenue Bonds, Series 2006 (Arkansas Cancer Research Center Project), which are secured in part by UAMS revenues (see Note 22 to Appendix C hereto)). The UAMS Hospital Revenue Bonds, like the Bonds, are general obligations of the Board, and to the extent the revenues pledged to such obligations are insufficient to pay debt service thereon, the Board is obligated to pay debt service from any other monies available in accordance with the Constitution and laws of the State. It should be noted that approximately 39% of the Board’s fiscal year 2018 operating and non-operating revenues (based on audited financial information) were derived from patient care services provided through UAMS and the UAMS Medical Center (the "Medical Center"). While this exposes the Board to the healthcare sector’s challenges, the Board believes that the Medical Center's substantial scale, specialty services not provided elsewhere in the State, strong inpatient and outpatient utilization levels and generally favorable patient care reimbursement mitigate the overall healthcare risk to the Board’s revenues. The Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010 (collectively referred to as the "Health Reform Law" and commonly referred to as "Obamacare") was designed to overhaul the United States health care system and regulate many aspects of the health care industry, impacting individuals, employers and health insurers. The Health Reform Law addresses almost all aspects of hospital and provider operations and health care delivery and changes how health care services are covered, delivered and reimbursed. These changes have resulted in lower reimbursement from Medicare, utilization changes, increased government enforcement, and the necessity for health care providers to assess and potentially alter their business strategy and practices. The reimbursement reductions associated with the Health Reform Law are intended to be offset in part by the expansion of access to Medicaid to millions of previously uninsured Americans. On June 28, 2012, the U.S. Supreme Court upheld most provisions of the Health Reform Law, including the requirement that individuals purchase and maintain health insurance coverage. The content and implementation of the Health Reform Law has been, and remains, highly controversial. Accordingly, the Health Reform Law has continually faced legal and legislative challenges, including repeated repeal efforts, since its enactment. The financial impact of any major modification or repeal of the Health Reform Law, or of any replacement health care reform legislation, cannot be predicted, although the effect could be material. In particular, any legal, legislative or executive action that reduces federal health care program spending, increases the number of individuals without health insurance, reduces the number of people seeking health care, or otherwise significantly alters the health care delivery system or insurance markets could have a material adverse effect on UAMS revenues.

Several attempts to repeal and/or replace the Health Reform Law have been made since its passage. While past attempts have not been successful in gaining the approval of both chambers of Congress to repeal the Health Reform Law in its entirety, the President and Republican leaders of Congress have repeatedly cited health care reform, and particularly, repeal and replacement of the Health Reform Law, as a key goal, and certain portions of the Health Reform Law have been repealed or their implementation delayed. Beginning in 2019, the Health Reform Law requirement that individuals obtain health insurance or pay a penalty is eliminated by the Tax Cuts and Jobs Act of 2017. In addition to the potential legislative changes discussed above, the implementation of the Health Reform Law and its insurance exchange markets can be significantly impacted by executive branch actions. On January 20, 2017, President Trump issued an Executive Order requiring all federal agencies with authorities and responsibilities under the Health Reform Law to "exercise all authority and discretion available to them to waive, defer, grant exemptions from or delay" parts of the Health Reform Law that place "unwarranted economic and regulatory burdens" on states, individuals or health care providers. It is impossible to predict the effect of this broad executive order. In addition, as a result of a ruling in an ongoing lawsuit (House v. Price) challenging the legality of cost- sharing subsidies paid by the federal government to insurance companies that offer coverage under the Health Reform Law insurance exchanges, President Trump announced in October 2017 that the payment of such subsidies would terminate immediately. Such action has the potential to significantly impact the insurance exchange market by reducing the number of plans available on the Health Reform Law health insurance exchanges and/or significantly increasing insurance premiums. In response to such termination, health insurers offering qualified plans instituted rate increases for 2018. In Arkansas, the four insurers offering qualified plans announced 2018 rate increases ranging from 14.2% to 24.78%. Rate increases for 2019 showed more stability, with increases averaging from 1% to 4.4%. A Kaiser Family Foundation study concluded that 2018 premium increases were a reaction to the termination of cost-sharing subsidy payments, and the 2019 rate increases suggest the market is much more stable and sustainable. Recent executive action presents further questions, the effects of which are impossible to predict. The Office of Management and Budget issued a proposal on May 6, 2019 to change how inflation is used to calculate the official definition of poverty used by the Census Bureau. A lower estimate of inflation would likely mean the poverty level would rise at a slower rate, potentially resulting in the loss of healthcare coverage. The effect of such executive actions on the business and financial condition of UAMS cannot be predicted. Though legislative attempts to overturn the Healthcare Reform Law in its entirety have not been successful, the Department of Justice has declined to defend the Healthcare Reform Law in a judicial challenge led by several Republican states (Texas v. United States). These states claim that as a result of Congress’s repeal of the Health Reform Law requirement that individuals obtain health insurance or pay a penalty, Congress’s authority can no longer be found in its taxing power and thus the Healthcare Reform Law in its entirety must be abandoned. A U.S. District Court judge agreed, and an appeal is being considered by the United States Court of Appeals for the Fifth Circuit. The Trump administration has filed a brief in support of overturning the Healthcare Reform Law in its entirety. Oral arguments are set for July 2019. The Healthcare Reform Law remains in effect while the appeal is being considered. It is not known which additional actions may be proposed or adopted or, if adopted, what effect such actions would have on UAMS operations or revenue. However, the recent increase in focus and interest on federal and state health care reform may increase the likelihood of further significant changes affecting the health care industry. There can be no assurance that recently enacted, currently proposed or future health care legislation, regulation or other changes in the administration or interpretation of governmental health care programs will not have an adverse effect on UAMS. Reductions in funding levels of the Medicare or Medicaid programs, changes in payment methods under the Medicare and Medicaid programs, reductions in State funding, or other legislative or regulatory changes could materially reduce UAMS patient service revenues. In the U.S. Supreme Court decision referred to above (House v. Price), the Supreme Court also ruled that the federal government could not compel states to comply with the Health Reform Law’s requirement to expand Medicaid by eliminating all federal funds a state receives for its existing Medicaid program. Under the relevant provisions of the Health Reform Law, Medicaid was expected to cover all individuals with incomes of less than 133% of the federal poverty level, expanding eligibility to approximately 16 million people. Beginning in 2014, states were also permitted to expand Medicaid eligibility to non-elderly, non-pregnant individuals who were not otherwise eligible for Medicare, if such individuals have incomes of less than 133% of the federal poverty level. To assist states with the cost of covering such newly eligible individuals, the federal government will pay 100% of the additional cost to the states for a limited number of years. Thereafter, the cost share is expected to decrease to 90%. 27

However, as stated above, the Supreme Court’s decision made the decision to expand Medicaid optional to the states. Instead of fully expanding the Arkansas Medicaid program as envisioned by the Health Reform Law, the State of Arkansas sought and obtained a waiver from the federal government to instead institute a hybrid approach commonly referred to as the "private option." Under the current version of the private option, individuals in Arkansas earning less than 138% of the federal poverty level income amount are eligible to receive a government subsidy to purchase private insurance through an insurance exchange. The adoption of the State’s private option program by the Arkansas General Assembly, effective January 1, 2014, has resulted in insurance coverage to an estimated 285,000 previously uninsured persons and a corresponding decrease in the costs of uncompensated care to Arkansas hospitals. Under Arkansas law, the private option program requires annual reauthorization and appropriation by a vote of at least 75% of the senators and representatives in each chamber of the Arkansas General Assembly. Approval in 2018 was accomplished with 27 votes (27 required) in the Senate and 79 votes (75 required) in the House. Reauthorization was obtained in 2016, 2017, and 2018 only after a number of amendments to the program such as (i) requiring the payment of small premiums by persons earning between 100% and 138% of the federal poverty level income amount, (ii) the requirement for able-bodied recipients to work, be engaged in work or education training, or volunteer with a charitable organization (the "Work Requirement"), (iii) reducing the retroactive eligibility standard for Medicaid coverage from 90 days before enrollment to 30 days prior to enrollment, and (iv) a rebranding of the program as "Arkansas Works." The amendments have been approved through a waiver process with the Centers for Medicare and Medicaid Services ("CMS"). The Work Requirement, the first of its kind in the nation, became effective in June of 2018, and requires non-exempt beneficiaries to report 80 hours each month of work, work training, education, or community service. The reporting process, which requires the submission of hours through an online portal, has proven controversial. In August 2018, Arkansas Works had 265,223 total enrollees. By December 2018, 18,000 beneficiaries had been removed from the program. In March of 2019, the Work Requirement was struck down by a federal judge in the United States District Court for the District of Columbia. The decision has been appealed by the Trump Administration and is expected to reach the United States Supreme Court. Because the decision did not grant a stay, the Work Requirement is not currently in effect and individuals who lost eligibility for Arkansas Works coverage are now eligible to reapply. Reauthorization and appropriation of the program for 2019 was impacted as a result; although the bill to fund Arkansas Works passed the Senate, it failed in the House of Representatives, achieving only 58 votes (75 required). Brought before the chamber again, the bill received the 75 votes needed to pass to fund the program for 2019. Given the annual appropriation requirement for Arkansas Works (which is also subject to a lengthy review and approval process by CMS with respect to any changes to the program), as well as the political environment, the long-term status of Arkansas Works cannot be assured. The expansion of coverage afforded to uninsured individuals through the health insurance exchange created by the Health Reform Law and the expansion of Medicaid eligibility in Arkansas resulted in an increase in UAMS net patient services revenue of approximately 10% for the fiscal year ended June 30, 2015. If the Health Reform Law is repealed or replaced, if repeal or revision of the Health Reform Law invalidates the Arkansas Works program, if the Arkansas Works program is invalidated by CMS, if the Arkansas Works program is revised resulting in an increase of uninsured individuals, or if the Arkansas General Assembly fails to reauthorize, continue or approve funding for the Arkansas Works program, UAMS estimates that approximately $80-$90 million in revenue could be lost from patients no longer covered by insurance who would return to self-pay status. UAMS management anticipates that the net effect on UAMS’s finances would be approximately half that amount since there would be some corresponding reduction in expenditures associated with this change. Additionally, UAMS could take action to reduce its care of indigent patients for elective medical treatments, as permitted by Board policy, to help offset the potential loss of funds. Although there are mitigation measures available to UAMS, the invalidation of or change to the Arkansas Works program or the failure by the Arkansas General Assembly to reauthorize, continue or approve funding for the Arkansas Works program could have an adverse impact on the results of UAMS’s operations.

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 $31,187,953.60 (being the principal amount thereof plus original issue premium of $6,345,223.60 and less underwriters’ discount of $57,270.00). 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 28

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. Kelly Eichler, Assistant Secretary of the University of Arkansas Board of Trustees, is the spouse of an officer of Stephens Inc., one of the Underwriters. 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. 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: /s/ Donald R. Bobbitt President of the University of Arkansas

[THIS PAGE INTENTIONALLY LEFT BLANK]

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:

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

Regions Bank, as Trustee Little Rock, Arkansas

Re: $24,900,000 Board of Trustees of the University of Arkansas Athletic Facilities Revenue Bonds (Fayetteville Campus), Series 2019A

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 $24,900,000 Athletic Facilities Revenue Bonds (Fayetteville Campus), Series 2019A, dated August 22, 2019 (the "Bonds"), pursuant to Arkansas Code of 1987 Annotated, Title 6, Chapter 62, Subchapter 3 (the "Act") and a Trust Indenture dated as of August 22, 2019 (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 2013A (the "Series 2013 Bonds"), the Board's Athletic Facilities Revenue Refunding Bonds (Fayetteville Campus), Series 2015A (the "Series 2015 Bonds"), and the Board’s Athletic Facilities Revenue Bonds (Fayetteville Campus), Tax-Exempt Series 2016A and Taxable Series 2016B (collectively, the "Series 2016 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 2013 Bonds, the Series 2015 Bonds, and the Series 2016 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 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. 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

A-2

APPENDIX B

Audited Financial Report for the University of Arkansas, Fayetteville for the Fiscal Year Ended June 30, 2018 [THIS PAGE INTENTIONALLY LEFT BLANK] 2017-2018 University of Arkansas Annual Financial Report UNIVERSITY OF ARKANSAS

3 2017-2018 ANNUAL FINANCIAL REPORT

TABLE OF CONTENTS

The University of Arkansas

Message from the Chancellor ...... 3

Progress and Major Initiatives ...... 5

Letter of Transmittal ...... 11

Independent Auditor’s Report ...... 12

Management’s Discussion and Analysis (unaudited) ...... 15

Statement of Net Position ...... 30

Statement of Revenues, Expenses, and Changes in Net Position ...... 32

Statement of Cash Flows – Direct Method ...... 34

Discretely Presented Component Units ...... 37

Notes to the Financial Statements ...... 44

Required Supplementary Information (unaudited) ...... 90

Board of Trustees, University Officials ...... 94

1 UNIVERSITY OF ARKANSAS

2 2017-2018 ANNUAL FINANCIAL REPORT

MESSAGE FROM THE CHANCELLOR

Thank you for your interest in the annual financial report for the University of Arkansas. As the state’s flagship university, we know how important it is to be good stewards of state resources. State resources, however, are just one component of university finances. Tuition dollars, research grants, private gift support, and various auxiliaries like housing and athletics are also critical parts of the budgetary mix. Whatever its source, it’s important that we can account for how every dollar is acquired and spent.

This financial report reflects our desire to be completely open in our financial accounting. Nevertheless, it must represent the diversity and complexity of financing a major public research university. While we tried to make this report as clear and straightforward as possible, it will never be mistaken as light reading.

As detailed in these pages, it should be clear that university finances are in great shape. Private giving has been exceptionally strong. Last year, the University recorded its second best fundraising year ever: $292.7 million. These fund are critical to establishing new endowments for faculty and students as well as support for academic programs and capital projects.

The university has also made a commitment to advancing student success - an important part of which is increasing our retention and graduation rates. This isn’t just good for our students, who are better positioned to pay off their loans and earn higher paying jobs, and our state, which benefits from a more educated workforce, it’s also more cost effective. Last year, our freshmen retention rate increased 1.6% – lifting us to a record 83.8%. This translates into about 80 students, who will pay around $950,000 in tuition – tuition that would have been lost if they went elsewhere or dropped out altogether. So increasing retention rates isn’t just good for students, it also reflects good stewardship of state resources.

This is all to say your university is in good hands. We take pride in the sound fiscal management of university resources and welcome the opportunity to share that information with our stakeholders across the state.

Thank you so much for your support.

Joe Steinmetz Chancellor

3 UNIVERSITY OF ARKANSAS

4 2017-2018 ANNUAL FINANCIAL REPORT

PROGRESS AND MAJOR INITIATIVES

Private Gift Support Impacts the Institution The University of Arkansas continues to rely on private gift Fundraising totals reached $108.1 million in 2012, $108.4 support from alumni, friends, corporations and foundations million in 2013, $113.3 million in 2014, $116.5 million in 2015, to support students, faculty, staff, programs and facilities $131.6 million in 2016 and $134.2 million in 2017. on campus. Fiscal year 2018 was the second highest fundraising year in the history of the University of Arkansas and the The following gifts of $500,000 or more were announced best year for the university’s capital campaign, Campaign publicly during fiscal year 2018. Arkansas. The university recorded $292.7 million in private gift support, surpassing its production goal of $245 million, • School of Art - An unprecedented $120 million gift from the and included gifts of cash, gifts-in-kind, planned gifts and Walton Family Charitable Support Foundation established new pledges to the U of A received from July 1, 2017, through the School of Art at the University of Arkansas. The gift was June 30, 2018. the largest ever given to a U.S. university to support or establish a school of art and created the first and only accredited, Every aspect of the University of Arkansas campus benefits from collegiate school of art in the state of Arkansas. philanthropy. Students are supported through academic and need-based scholarships and fellowships, as well as innovative • Windgate Art and Design District - A $40 million gift from programs funded through private gift support. Faculty are the Windgate Charitable Foundation will create the Windgate recruited and retained with endowed positions and research Art and Design District in south Fayetteville and expand on funding and thereby increase the quality of education offered the School of Art’s Hill Avenue sculpture complex that opened to the students. And facilities are built and improved upon to in 2016. The district will feature several new buildings for art keep up with the demands of a growing campus population and and design classrooms, labs, studios and potentially a public collaborative educational needs. gallery space. It will bring together art, design and education, while serving as the central hub for the student and faculty Approximately $130.6 million of the total amount raised was artists and designers at the University of Arkansas and beyond. allocated for endowed funds and added to the university’s overall endowment total. Cash receipts, which include pledge payments, • Anthony Timberlands Center for Design and Materials outright gifts and estate and planned gift distributions, reached - John Ed and Isabel Anthony contributed $7.5 million to $243.5 million in fiscal year 2018. The campus set new records support the construction of a new $15 million materials with its 99,943 outright gifts and new pledges from 53,122 innovation center in the Fay Jones School of Architecture benefactors. and Design, with a primary focus on design innovation in timber and wood. The Anthony Timberlands Center for Gifts from individuals such as alumni, friends, parents, faculty Design and Materials Innovation will be a center of excellence and staff made up 12 percent of the $292.7 million raised for innovation in wood design and product development to during the 2018 fiscal year. Another 14 percent came from expand the use of wood in architectural design, construction corporations, while 70 percent came from foundations and 4 techniques and product design. percent came from other organizations, including trusts and estates. All private gifts to the university are designated and • Ted and Leslie Belden - A $2 million planned gift to allocated for specific purposes set forth by each donor and used support faculty, students and an endowment in athletics was solely for those purposes. The university makes every effort to made by Ted and Leslie Belden. Their gift creates the Cyrus align donors’ giving interests with campus priorities. A. and Martha Sutherland Endowed Chair in Preservation Design, the Sam Smith Endowed CARE Scholarship for first- Support for students and programs accounted for 49 percent of generation freshmen and the Roland Sales Endowment in the money raised, 32 percent provided for capital improvements, Student Athlete Development. 14 percent supported faculty and staff and 5 percent supported other key initiatives.

5 UNIVERSITY OF ARKANSAS

• Advance Arkansas - The scholarship initiative received $2 • Don Tyson Center for Agricultural Sciences - A pledge million from the Massey Family Charitable Foundation to $1 million was made by John Tyson toward new laboratories support the university’s efforts to advance student success and in the Don Tyson Center for Agricultural Sciences on Garland make the U of A more accessible to Arkansans. Avenue. The two-story building’s two wings provide modern laboratories and workspace for Division of Agriculture • The David and Barbara Pryor Center for Arkansas scientists and graduate students, ample meeting space for Oral and Visual History - A $1.5 million contribution extension and education programs and administrative offices from Barbara A. Tyson and the Tyson Foods Foundation Inc for the Arkansas Agricultural Experiment Station. in support of the KATV Preservation Project will be used to catalog, index, digitize and archive the extensive collection • A.L. Chilton Foundation EMPOWER Arkansas - A of KATV footage donated to the Pryor Center in 2009. The $500,000 gift from the A.L. Chilton Foundation to the College Pryor Center is in the J. William Fulbright College of Arts and of Education and Health Professions at the university created Sciences. the A.L. Chilton Foundation EMPOWER Arkansas Endowed Scholarship, the A.L. Chilton Foundation EMPOWER • College of Education and Health Professions - The Arkansas Operational Endowment and the A.L. Chilton Windgate Foundation awarded a five-year grant of more Foundation Advance Arkansas Endowed Scholarship in than $1.3 million to support the Arkansas A+ Schools Special Education. EMPOWER, which stands for “Educate, program based in North Little Rock. The funding will assist Motivate, Prepare, Opportunity, Workplace Readiness, the program in expanding its work to bring art education Employment, Responsibility,” offers a four-year non-degree to students across Arkansas. Arkansas A+ Schools provides college experience program for students who have cognitive professional development, networking and research data to disabilities. its member schools, and its focus is arts integration in which some type of art, including music, visual art, drama and dance, is incorporated into subjects such as literacy, math, science and history.

Campaign Arkansas Campaign Arkansas launched to the public in fiscal year 2017 Gifts by Purpose with a working goal of $1 billion, which was increased to $1.25 billion after a vote from the Campaign Arkansas Steering Student Support 14% Committee in spring 2018. The campaign, which began July 1, Faculty Support 14% 2012, and will run through June 30, 2020, is a comprehensive Capital 38% fundraising campaign focused on advancing academic Programs 29% opportunity at the University of Arkansas. Other 5%

Gifts to the campaign will help students from across Arkansas Gifts by Source access higher education at the U of A and foster their success. The campaign will also build meaningful resources for teaching Individuals 27% and research, grow innovative and collaborative programs and Corporations 27% enhance the university’s facilities and technology. Campaign Foundations 40% Arkansas is poised to make a difference for the university and Other Organizations 6% the state today and for generations to come.

At the end of fiscal year 2018, $947.4 million was raised toward the goal, and $241.5 million had been allocated to the university’s endowment.

6 2017-2018 ANNUAL FINANCIAL REPORT

Advance Arkansas The Advance Arkansas scholarship initiative was launched in • Resilient Razorback, which is awarded to U of A students who the spring of 2017 to catalyze the potential of the state’s rising have persisted in maintaining a compelling academic record, leaders by giving them resources to succeed academically and at a nationally competitive institution. Advance Arkansas scholarships emphasize the following student support areas: • Talented Transfer, which is awarded to incoming transfer students with a strong academic record and commitment to • First Generation, which is awarded to new freshmen who aspire degree completion at the U of A. to be first in their families to earn a four-year college degree The University of Arkansas has raised $4.6 million toward • Community Leader, which is awarded to new freshmen the Advance Arkansas scholarship initiative through fiscal who demonstrate significant acts of service within their year 2018. Sixteen scholarships were awarded in the fall 2018 communities semester.

All In for Arkansas The university hosted its third annual giving day, All In for period and set a new record for the number of gifts received – Arkansas, on April 4-5 to commemorate the 147th birthday of 1,292. More than $130,000 was raised for the Advance Arkansas the U of A. The effort raised $433,744 during a 1,871-minute scholarship initiative during the virtual birthday celebration.

7 UNIVERSITY OF ARKANSAS

Awards Enable Cutting-Edge Research Federal agencies, research foundations and top industries alike The Office of Research and Sponsored Programs was awarded turn to the University of Arkansas to solve problems, advance $110.5 million in research funding in fiscal year 2018, including technology and better our world. awards made to the Division of Agriculture. That marks a 7.2 percent increase over the $103.2 million in research funding University of Arkansas research expenditures totaled over received in fiscal year 2017. $175 million in fiscal year 2018, the highest in the university’s history. This total, which includes research expenditures from “Research activity at the U of A has more than doubled in the University of Arkansas System’s Division of Agriculture, was the last decade,” said Daniel Sui, vice chancellor for research an 11 percent increase over last year’s total expenditures. Over and innovation. “This is a reflection of the dynamic growth the past decade, research expenditures have increased by 51.7 of collaborative research being done to improve the lives percent. of Arkansans and build a better world through lifesaving discoveries, innovative technology, creative endeavors and The University of Arkansas also continued its growth in economic development. I look forward to future developments, research funding, receiving more funding in fiscal year 2018 as our university community builds on this momentum, than previous years, supporting research in key areas such as continuing to implement our strategic plan and strengthen our cybersecurity, nanotechnology, health and agriculture, and key research areas.” advancing the university’s mission.

Arkansas Research on the Rise

ARKANSAS RESEARCH ON THE RISE

rounded to closest thousand 200,000,000

150,000,000 Expenditures

100,000,000 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY2017 FY2018

As reported in National Science Foundation Higher Education Research and Development survey.

8 2017-2018 ANNUAL FINANCIAL REPORT

Among the Sponsored-Research Highlights of FY18: Awards from the National Science Foundation totaled $17. 9 change on produce supply chains, investigating water-saving million, including awards for research into wastewater treatment, irrigation practices, reducing foodborne pathogens in poultry, civil engineering, surface engineering, rice production, power improving agroecosystem efficiency and developing molecular electronics, STEM education and anthropological imaging. tools for spinach breeding. This includes a total of nine awards through the Faculty Early Career Development, or CAREER, Program. The U.S. Department of Energy awarded $9 million for a range of projects including research on cybersecurity, The U.S. Department of Education awarded a total of $12.2 two-dimensional materials, surface engineering and battery million for various programs, including grants to support an technology. effort to increase the number of educators prepared to teach English language learners in Arkansas schools. The National Institutes of Health awarded $3.1 million for research focusing on topics including wound healing, The U.S. Department of Agriculture awarded $12 million metabolism, drug design and delivery, DNA sequencing and to support research efforts such as studying the effect of climate obesity.

9 UNIVERSITY OF ARKANSAS

10 2017-20182017-2018 ANNUALANNUAL FINANCIAL REPREPORTORT

LETTER OF TRANSMITTAL

November 13, 2018

Chancellor Steinmetz, President Bobbitt, and Members of the Board of Trustees

I am pleased to present the annual Financial Report of the University of Arkansas for the year ended June 30, 2018. The report includes the annual financial statements, Management’s Discussion and Analysis and supplemental information to assist the reader in clearly understanding the University’s financial activities and outcomes.

University management is responsible for the accuracy and completeness of the information presented, including all disclosures. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and, as such, include amounts based on judgments and estimates by management.

State law, federal guidelines and certain bond covenants require the University’s accounting and financial records be audited each year. The University’s annual audit is performed by Arkansas Legislative Audit. The reports resulting from the audit are shared with University management and the Board of Trustees. For the year ended June 30, 2018, Arkansas Legislative Audit issued an unmodified opinion, the most favorable outcome of the audit process. The independent auditor’s report follows this letter of transmittal.

The University maintains a system of internal controls over financial reporting. Such controls are designed to identify internal control weaknesses in order to permit management to take appropriate corrective action on a timely basis. Because the cost of internal controls should not exceed the anticipated benefits, the objective is to provide management with reasonable, although not absolute, assurance that the financial statements are free of material misstatements.

Based on the above, I certify that the information contained in the accompanying financial statements fairly presents, in all material respects, the financial condition, changes in net position and cash flows of the University.

Sincerely,

Chris McCoy Vice Chancellor for Finance and Administration

11 UNIVERSITYUNIVERSITY OFOF ARKANSAARKANSASS

INDEPENDENT AUDITOR’S REPORT

Sen. Jimmy Hickey, Jr. Rep. Richard Womack Senate Chair House Chair Sen. Lance Eads Rep. Mary Bentley Senate Vice Chair House Vice Chair

Roger A. Norman, JD, CPA, CFE, CFF Legislative Auditor

LEGISLATIVE JOINT AUDITING COMMITTEE ARKANSAS LEGISLATIVE AUDIT

INDEPENDENT AUDITOR’S REPORT

University of Arkansas, Fayetteville Legislative Joint Auditing Committee

Report on the Financial Statements

We have audited the accompanying financial statements of the business-type activities and the aggregate discretely presented component units of the University of Arkansas, Fayetteville (University), an institution of higher education of the State of Arkansas, as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the University’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the University of Arkansas Fayetteville Campus Foundation, Inc. and the Razorback Foundation, Inc., which represents 100% of the assets and revenues of the aggregate discretely presented component units. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the University of Arkansas Fayetteville Campus Foundation, Inc. and the Razorback Foundation, Inc., is based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The financial statements of the University of Arkansas Fayetteville Campus Foundation, Inc. and the Razorback Foundation, Inc. were not audited in accordance with Government Auditing Standards.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinions

In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the aggregate discretely presented component units of the University as of June 30, 2018, and the respective changes in financial position, and where applicable, cash flows thereof for the year ended in accordance with accounting principles generally accepted in the United States of America.

500 WOODLANE STREET, SUITE 172 • LITTLE ROCK, ARKANSAS 72201-1099 • PHONE: (501) 683-8600 • FAX: (501) 683-8605 www.arklegaudit.gov

12 2017-20182017-2018 ANNUALANNUAL FINANCIAL REPREPORTORT

Emphasis of Matter

As discussed in the Notes 1 and 13 to the financial statements, the University implemented Governmental Accounting Standards Board (GASB) Statement no. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, during the year ended June 30, 2018. A restatement of the University’s beginning net position was required due to the adoption of this Statement. Our opinion is not modified with respect to this matter.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis, certain information pertaining to postemployment benefits other than pensions, and certain information pertaining to pensions be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

ARKANSAS LEGISLATIVE AUDIT

Roger A. Norman, JD, CPA, CFE, CFF Legislative Auditor

Little Rock, Arkansas November 13, 2018 EDHE13518

13 UNIVERSITY OF ARKANSAS

14 2017-2018 ANNUAL FINANCIAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED)

Introduction The University of Arkansas (the University) is pleased to present of discussions about these statements will be on the current year its financial statements for fiscal year 2018. While audited data. The University’s financial statements, notes to the financial financial statements for fiscal year 2017 are not presented statements and discussion and analysis are the responsibility of, with this report because of implementation of new GASB and have been prepared by management. The discussion and pronouncements, condensed operations and financial position analysis should be read in conjunction with financial statements data will be presented in this discussion and analysis in order to and notes. All references to “2018”, “2017” or another year refer illustrate certain increases and decreases. However, the emphasis to the fiscal year ended June 30, unless otherwise noted.

Overview of the Financial Report and Financial Analysis The University’s financial report includes three basic financial benefits of $591 thousand, total other postemployment benefits statements: the Statement of Net Position, which presents the liabilities of $20.6 million and deferred inflows of resources assets, deferred outflows of resources, liabilities, deferred inflows attributable to other postemployment benefits of $3.1 million of resources and net position of the University as of the fiscal in the Statement of Net Position. Sufficient information was year end; the Statement of Revenues, Expenses, and Changes in not available to restate the 2017 statements, and accordingly no Net Position, which reflects revenues and expenses recognized comparative amounts for 2017 are presented. The beginning during the fiscal year; and the Statement of Cash Flows, which net position balance for 2018 was restated on the Statement of provides information on the major sources and uses of cash Revenues, Expenses and Changes in Net Position to recognize during the fiscal year. These financial statements and related the effects of implementation of the GASB statements. note disclosures are prepared in accordance with standards issued by the Governmental Accounting Standards Board The University has identified two legally separate foundations: (GASB) and present a comprehensive, entity-wide perspective. the University of Arkansas Fayetteville Campus Foundation, Financial statements are prepared under the accrual basis Inc. and the Razorback Foundation, Inc. that meet the criteria of accounting, whereby revenues and assets are recognized set forth for component units under GASB Statement No. 39, when services are provided, and expenses and liabilities are Determining Whether Certain Organizations are Component recognized when others provide the services, regardless of Units. These Foundations provide financial support for the when cash is exchanged. The report also includes other required objectives, purposes and programs of the university. Although supplementary information for other post-employment benefits the university does not control the timing, purpose or amount and pension liabilities. received by these Foundations; the resources (and income thereon) they hold and invest are dedicated to benefit the Effective for the year ended June 30, 2018, the University adopted University. Because these resources held by the Foundations GASB Statement No. 75, Accounting and Financial Reporting can only be used by, or for the benefit of, the University, they for Postemployment Benefits Other Than Pensions. This are considered component units and are discretely presented in statement established standards for recognizing and measuring the financial report. Additional information about component liabilities, deferred outflows of resources, deferred inflows of units is provided at Notes to the Financial Statements (Note) resources, and expense/expenditures for postemployment No. 1 “Summary of Significant Accounting Policies”, under the benefits other than pensions (other postemployment benefits or “Discretely Presented Component Units” heading. OPEB). For defined benefit OPEB, this Statement identifies the methods and assumptions that are required to be used to project Note 17, “Other Entities” refers to the University of Arkansas benefit payments, discount projected benefit payments to their Foundation, Inc., (the Foundation). The University is the actuarial present value, and attribute that present value to periods beneficiary of only 56.1% of the net assets of the Foundation; of employee service. As a result, the University reported deferred therefore, the Foundation does not meet the requirements of a outflows of resources attributable to other postemployment component unit.

15 UNIVERSITY OF ARKANSAS

Statement of Net Position The Statement of Net Position provides a fiscal snapshot of the are reported in this statement. Assets and liabilities are presented University as of the end of the fiscal year. All assets (property in the order of their relative liquidity and are identified as that we own and what we are owed by others), deferred outflows current or noncurrent. Current assets are those assets that of resources (consumption of net position by the University can be realized in the coming year, and current liabilities are that is applicable to a future reporting period), liabilities (what expected to be paid within the next year. Noncurrent assets and we owe to others and have collected from others before we have liabilities are not expected to be realized as cash or paid in the provided the service), deferred inflows of resources (acquisition subsequent year. Assets, deferred outflows of resources, liabilities of net position by the University that is applicable to a future and deferred inflows of resources are generally measured using reporting period) and net position (assets and deferred outflows current values. One exception is capital assets, which are stated of resources minus liabilities and deferred inflows of resources) at historical cost less accumulated depreciation.

Net Position is presented in four categories: Net invested in capital assets – capital assets, net of accumulated can be fulfilled by actions of the University pursuant to those depreciation and outstanding principal balances of debt stipulations or that expire by the passage of time. attributable to the acquisition, construction or improvement of those assets. Unrestricted - net position that is not subject to externally- imposed stipulations but can be used at the discretion of the Restricted nonexpendable - net position subject to externally- governing board to meet current expenses for any purpose if not imposed stipulations that it be maintained permanently by the limited by contractual agreements with outside parties. University. The following summarizes the University’s assets, deferred Restricted expendable - net position whose use by the outflows of resources, liabilities, deferred inflows of resources University is subject to externally-imposed stipulations that and net position as of June 30, 2018, and 2017:

Condensed Summary of Net Position

2018 2017* ASSETS Current Assets $ 558,376,658 $ 472,170,731 Capital Assets, Net of Depreciation 1,352,861,276 1,228,555,428 Other Noncurrent Assets 215,524,414 198,946,650 Total Assets $ 2,126,762,348 $ 1,899,672,809

Total Deferred Outflows of Resources $ 21,575,374 $ 23,093,566

LIABILITIES Current Liabilities $ 146,769,799 $ 128,407,232 Noncurrent Liabilities 892,685,448 813,822,658 Total Liabilities $ 1,039,455,247 $ 942,229,890

Total Deferred Inflows of Resources $ 3,999,153 $ 929,772

NET POSITION Net Invested in Capital Assets $ 584,452,193 $ 550,573,383 Restricted – Nonexpendable 25,525,393 26,542,019 Restricted – Expendable 175,457,601 111,448,473 Unrestricted 319,448,135 291,042,838 Total Net Position $ 1,104,883,322 $ 979,606,713 *Figures presented to illustrate increases and decreases and are not comparative

16 2017-2018 ANNUAL FINANCIAL REPORT

Overall, the University’s total assets increased $227.1 million. outflows related to OPEB of $0.6 million were also reported A review of the Statement of Net Position reveals that most as a result of implementation of new GASB statements. significant changes were increases in Cash and cash equivalents Deferred outflows related to pensions decreased $0.7 million of $7.7 million, investments of $56.3 million, Pledges receivable primarily due to actuarially determined deductions. Additional of $37.4 million, Accounts receivable of $13.3 and capital assets, information about these computations can be found at Note 12 net of depreciation of $124.3 million offset by a decrease of “Employee Benefits”. deposits with trustees of $13.6 million. Overall, liabilities increased $97.2 million. The majority of the The net change in cash and cash equivalents when compared increase was attributable to an $79.6 million net increase in to 2017 balances was an increase of $7.7 million. Cash and bonds, notes, capital leases and installment contracts (long- cash equivalents actually increased $57.7 million as result of term debt). Accounts payable increased nearly $14.5 million. continued growth, which was offset by shifting a net of $50 Major construction projects including the Donald W. Reynolds million of cash to short term investments. This shift of cash to Razorback Stadium expansion, Health Center addition, short term investments represents a continuation of the change Stadium Drive Residence Halls and the Library Annex, along in philosophy that began in 2017 in how excess operating funds with a pollution remediation project were well underway at year are managed. end and were the primary drivers of the increase in payables. Pensions experienced an actuarially determined increase in Investments in total increased $56.3 million. Nearly all this obligations of nearly $0.9 million, whereas the liability for OPEB increase is due to an increased investment of operating funds. increased $4.3 million as a result of new GASB statements. During 2017, the University implemented an investment strategy for operating funds. The objectives of the operating investments The University continued its investment in facilities renewal in order of priority is safety of principal, maintenance of liquidity and replacement along with the addition of new facilities and and return on investment. During 2018 $50 million of cash and improvements in 2018. Additional information about University cash equivalents were used to purchase short term investments. debt, and the projects financed with debt proceeds, is provided This new investment, coupled with improved returns across the in the “Significant Changes in Capital Assets and Long-Term entire investment portfolio, resulted in the overall increase. Debt Activity” discussion below and at Note 8 “Long-Term Debt”. Deposits with bond trustees represent unspent bond proceeds and bond reserve funds. The decrease in 2018 is the net of bond Deferred inflows of resources related to pensions decreased proceeds totaling $13.6 million associated with one new bond slightly more than $53 thousand because of actuarially issue and continued spending of bond proceeds for ongoing determined reductions. Additional information about these construction projects. computations can be found at Note 12 “Employee Benefits”. Deferred inflows of resources related to other postemployment The increase in Capital Assets, net of depreciation, is primarily benefits were actuarially determined to be $3,122,698 in 2018. a reflection of the University acquiring capital assets at a rate There were no actuarially determined Deferred inflows of greater than these assets are disposed of or depreciated. The resources related to other postemployment benefits in 2017. section “Significant Changes in Capital Assets and Long-Term Additional information about these computations can be found Debt Activity” below and Note 4 “Capital Assets” provide at Note 13 “Other Postemployment Benefits (OPEB)”. additional information about capital assets. The increase in assets and decrease of deferred outflows of Deferred outflows of resources consist of deferred amounts on resources of $227.1 million and $1.5 million, respectively refinancing of debt and deferred outflows related to pensions. combined with the increase in deferred inflows of resources of Overall deferred outflows decreased $1.5 million. Deferred $3.1 million and the increase in liabilities of $97.2 million results amounts on refinancing of debt decreased $1.4 million because in a net increase of $125.3 million in net position. of scheduled amortization. As discussed previously, deferred

17 UNIVERSITY OF ARKANSAS

The following summarizes the composition of unrestricted net position owned by the units of the University of Arkansas Fund as fo June 30, 2018 and 2017:

Unrestricted Net Position

Unit 2018 2017* Fayetteville Campus $ 250,863,538 $ 225,231,536 Agricultural Experiment Station 37,636,636 33,639,638 Cooperative Extension Service 20,508,100 21,835,442 Arkansas Archeological Survey 976,373 980,228 Criminal Justice Institute 3,968,125 3,688,617 Clinton School of Public Service 917,657 1,029,520 AREON 4,577,706 4,637,857 Total Unrestricted Net Position $ 319,448,135 $ 291,042,838

*Figures presented to illustrate increases and decreases and are not comparative

Unrestricted net position for the Fayetteville Campus as of June 30, 2018 and 2017 is allocated as follows:

Unrestricted Net Position – Fayetteville Campus

Allocation 2018 2017* Working Capital $ 750,000 $ 750,000 E & G Department Uses 137,285,704 112,373,391 Service Operations 1,793,872 2,552,744 Auxiliaries 23,321,100 27,228,833 Plant Funds 72,839,511 68,434,510 Quasi-Endowment Funds 14,873,351 13,892,058 Total Fayetteville Campus Unrestricted Net Position $ 250,863,538 $ 225,231,536

*Figures presented to illustrate increases and decreases and are not comparative

Although unrestricted net position is not subject to externally- recognition of OPEB and pension obligations; and unrestricted imposed restrictions, the majority of the University’s quasi endowments. For 2018, the increase in reserves was unrestricted net position is subject to internal designations primarily due to additional amounts reserved for scholarships, to meet various specific commitments. These commitments and other academic or research priorities or for building and include reserves established for capital projects, scholarships, maintenance reserves as denoted by the increase in E&G and other academic or research priorities; working capital for Department Uses and Plant Funds in the table above. self-supporting auxiliary enterprises; reserves for the continued

Statement of Revenues, Expenses, and Changes in Net Position The Statement of Revenues, Expenses, and Changes in Net mission of the University. Non-operating revenues are revenues Position present the revenues earned and expenses incurred received for which goods and services are not provided. during the year. Activities are reported as either operating or nonoperating. Generally speaking, operating revenues are received In accordance with GASB standards, significant recurring for providing goods and services to the various customers and sources of University revenue such as state appropriations, constituencies of the University. Operating expenses are those gifts, investment income and certain grants and contracts are expenses paid to acquire or produce the goods and services reported as non-operating revenues. As a result, the operating provided in return for operating revenues, and to carry out the loss of $271.4 million is of little significance, but does highlight

18 2017-2018 ANNUAL FINANCIAL REPORT

the University’s dependency on non-operating revenues to meet Net Position, is based on the activity presented in the Statement the costs of operations and provide funds for the acquisition of of Revenues, Expenses, and Changes in Net Position. The capital assets. The utilization of capital assets is reflected in the statement presents the revenues earned by the University, statement as depreciation, which amortizes the cost of an asset both operating and non-operating, and the expenses incurred over its expected useful life. by the University, both operating and non-operating, and any other revenues, expenses, gains and losses received or spent by Changes in total net position, as presented on the Statement of the University.

The following summarizes the University’s revenues, expenses and changes in net position for the years ended June 30, 2018 and 2017:

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

2018 2017* Operating Revenues $ 595,421,177 $ 574,009,481 Operating Expenses 866,840,393 832,633,066 Operating loss (271,419,216) (258,623,585) Net nonoperating revenues 329,900,003 314,034,096 Gain before other revenues and changes in net position 58,480,787 55,410,511 Other revenues and changes in net position 73,184,165 11,300,315 Increase in Net Position $ 131,664,952 $ 66,710,826

*Figures presented to illustrate increases and decreases and are not comparative

Operating revenue increased 3.7% or $21.4 million in 2018. Net State Teacher Education Program which provides assistance for student tuition and fees increased $13.0 million, a reflection eligible teachers in the State of Arkansas. Supplies and other of continued record enrollment growth and tuition rate services grew $7.8 million or 3.12%. The University continues to increases for the Fayetteville campus. Grants and contracts focus on cost containment initiatives to control expenses. collectively increased $6.3 million, with an increase in federal sources totaling $12.1 million offset by a decrease in state and Overall, net non-operating revenues increased $15.9 million. nongovernmental sources of $5.8 million. Revenue from Investment income decreased $1.8 million dollars due to a lower The U.S. Department of Energy increased $3.6 million to return year-over-year for the total return portfolio in 2018. The fund voluntary pollution remediation work at an abandoned 2017 return was an exceptional return rate of 15.4% compared to university research site. Revenue from the National Science a return rate of approximately 10% in 2018. State appropriations Foundation increased by $1.53 million to fund basic research. increased a modest $0.4 million. There was a net Gain on Nongovernmental awards decreased $5.5 million as a result disposal of assets (revenue) in 2018 of $1.9 million due mainly of decreased sponsor activity funded by private foundations to the sale of long-held real estate by the Division of Agriculture, and businesses. Auxiliary enterprises revenue attributable to in contrast to the Loss on disposal of assets (expense) in 2017 Athletics increased $1.3 million, primarily due to increases increased nearly $3 million because of demolition of a structure in SEC conference distributions, and multimedia rights as part of the stadium expansion project. Gift revenue increased sponsorships. The remaining auxiliary enterprises realized a $4.8 million, evidencing continued growth in private support, net increase totaling $1.0 million collectively, demonstrating the and Grants (nonexchange) increased $4.3 million. impact of enrollment growth. Gifts reported on the Statement of Revenues, Expenses, and Operating expenses increased $34.2 million or 4.11% over Changes in Net Position only reflect a portion of the gifts 2017. Compensation and benefits costs increased nearly $24.4 available to the University. Most gifts for the benefit of the million, or 5.0% over 2017, due in part to necessary increases University are made to the University of Arkansas Foundation, in faculty to support enrollment growth, along with modest Inc. whose financial information is presented in summary form increases in salaries for faculty and staff. The implementation of at Note 17 “Other Entities”. GASB statements related to OPEB also impacted compensation and benefits with increased OPEB expense. Scholarships and Other Revenues and Changes in Net Position reflect changes in fellowships increased nearly $2.0 million or 9.59% which is a capital appropriations and capital gifts. The overall increase of reflection of continued record enrollment and the effects of the $61.9 million is primarily due to a $65.3 million increase in Capital

19 UNIVERSITY OF ARKANSAS

grants and gifts offset by additional extraordinary expenses Arts and Design District and various other capital building totaling $3.6 million for voluntary pollution remediation. The and renovation projects. Additional information regarding the increase in capital gifts is primarily funds received to support voluntary pollution remediation project is found at Note 14 capital building projects for athletic facilities, facilities for the “Pollution Remediation”.

Fiscal Year Operating and Nonoperating Revenues

Sales and services of Other operating Federal County educational departments revenues appropriations appropriations 3% 1% 1% <1%

State and local grants and contracts 3%

Non-governmental 36% grants and contracts 4% NONOPERATING FINANCIAL REVENUES Federal grants HIGHLIGHTS and contracts 7%

Auxiliary State appropriations enterprises 22% 19% =ƅȔbXɠəɧɐɝ?

Student tuition and fees 25%

Gifts 8%

State & local grants (non-exchange) 3%

Federal grants (non-exchange) 2% Investment income 1% Other nonoperating revenues <1% Gain (loss) on disposal of asset <1% Financial Highlights

Operating Revenues FY2018 Nonoperating Revenues FY2018 Student tuition and fees $ 240,489,120 State appropriations $ 207,202,611 Auxiliary enterprises 182,202,876 Gifts 77,059,113 Federal grants and contracts 55,333,386 State & local grants (non-exchange) 30,016,898 Non-governmental grants and contracts 33,718,319 Federal grants (non-exchange) 22,972,561 State and local grants and contracts 32,129,524 Investment income 10,163,270 Sales and services of educational departments 24,051,001 Other nonoperating revenues 4,844,582 Other operating revenues 12,513,954 Gain on disposal of assets 1,915,937 Federal appropriations 10,522,785 Total $ 354,174,972 County appropriations 4,460,212 Total $ 595,421,177

20 2017-2018 ANNUAL FINANCIAL REPORT

Fiscal Year 2018 Fiscal Year 2018 Operating Expenses by Natural Classification Operating Expenses by Function

Scholarships and Student Academic Scholarships fellowships Services Support and Fellowships 3% 4% 5% 3% Depreciation Salaries, wages, 9% and benefits Operation and 59% Maintenance of Instruction Plant 24% 6%

Institutional Support 6%

Auxiliary Depreciation Enterprises 9% 18% Supplies* and =ņ?ɑ =ι=Ƃ=µ=ȶ=]="==ɱ=ɩ=? other services 29% Public Service Research 9% 16%

Operating Expenses by Natural Classification FY2018 Operating Expenses by Function FY2018 Salaries, wages, and benefits $ 511,934,706 Instruction $ 213,565,171 Supplies and other services 256,530,026 Auxiliary Enterprises 156,940,581 Depreciation 75,620,509 Research 136,877,246 Scholarships and fellowships 22,755,152 Public Service 81,457,296 Total operating expenses $ 866,840,393 Depreciation 75,620,509 Academic Support 51,839,037 Operations and Maintenance of Plant 49,528,064 Institutional Support 41,690,573 Student Services 36,319,703 Scholarships and Fellowships 23,002,213 Total operating expenses $ 866,840,393

21 UNIVERSITY OF ARKANSAS

Statement of Cash Flows The Statement of Cash Flows provides information about the proceeds, and interest received from investing activities. The cash activity of the University during the year. The statement is fifth section reconciles the net cash used to the operating income divided into five parts. The first part deals with operating cash or loss reflected on the Statement of Revenues, Expenses and flows and shows the net cash used by the operating activities Changes in Net Position. of the institution. The second section reflects cash flows from noncapital financing activities. This section reflects the cash The statement aids in the assessment of the University’s ability received and spent for non-operating, non-investing, and non- to meet obligations as they become due, the need for external capital financing purposes. The third section deals with cash financing, and the ability to generate future cash flow. flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction The following summarizes the University’s cash flows for the of capital and related items. The fourth section reflects the years ended June 30, 2018 and 2017: cash flows from investing activities and shows the purchases,

Condensed Summary of Cash Flows

2018 2017* Net cash used by operating activities $ (209,638,582) $ (186,860,611) Net cash provided by noncapital financing activities 333,610,778 324,378,866 Net cash provided by operating and noncapital financing activities 123,972,196 137,518,255 Net cash used by capital and related financing activities (70,434,315) (100,428,300) Net cash provided(used) by investing activities (45,856,506) (184,491,706) Net increase (decrease) in cash $ 7,681,375 $ (147,401,751)

*Figures presented to illustrate increases and decreases and are not comparative

The University used $209.6 million of cash for operating amount of $124 million for 2018 indicates that these activities activities in 2018 offset by cash provided by noncapital financing contributed to cash and liquidity for the year. activities of $333.6 million. Similar to the operating loss on the Statement of Revenues, Expenses and Changes in Net Position, Cash used by capital financing activities reflects the University’s net cash provided by operating activities is of little significance continued use of bonded debt to finance the acquisition of to the University. The net cash provided by the combination capital assets. Net cash used by investing activities illustrates the of operating activities and noncapital financing activities is a continuation of the operating investments policy. much more meaningful number for the University. The positive

Significant Changes in Capital Assets and Long-Term Debt Activity The University continued work on the multi-year Facilities University’s overall financial health. Providing and maintaining Renewal and Stewardship Plan. This large-scale, long-range plan facilities that create an attractive environment in which to learn is intended to upgrade and add facilities to expand capacity and and live is vital to attracting new students, as well as recruiting modernize the campus. A dedicated facilities fee, phased in over excellent faculty and staff. The University maintains a Facility the time beginning in 2009, provides a revenue stream that is Condition Index (FCI) to assist in assessment of the overall used to leverage bonded debt to fund a portion of this aggressive management of capital assets. The index trend is positive, plan. University gifts, central reserves, various grants, stimulus demonstrating the positive effect of additions, renovations funds, Athletics support and other miscellaneous sources of and the elimination of deferred maintenance to campus funds also contribute to this overall program. The condition infrastructure and educational and general buildings as the of the University’s capital assets is an important measure of the Facilities Renewal and Stewardship Plan is implemented.

22 2017-2018 ANNUAL FINANCIAL REPORT

A summary of the change in Net invested in capital assets is as follows:

Changes in Net Invested in Capital Assets

Amount Net Invested in Capital Assets as of July 1, 2017 $ 550,573,383 Land Additions and Disposals (net) 6,427,461 Buildings Additions and Disposals, net of depreciation (24,608,360) Improvements/Infrastructure Additions, net of depreciation (515,982) Equipment Additions and Disposals, net of depreciation 838,721 Construction in Progress Additions net of transfers to buildings, improvements/infrastructure, and intangible assets 141,731,515 Livestock Additions/deductions (185,503) Library Holdings Additions and Disposals, net of depreciation (1,424,572) Intangible Assets, net of amortization 1,252,312 Bond debt moved to Net invested in capital assets (104,898,884) Bond Principal Paid in 2018 25,705,000 Deferred loss on refinanced bond issues, amortized (1,410,137) Net unamortized bond issue premium (12,412,890) Capital Leases Assumed in 2018 (1,336,435) Note, Capital Lease and Installment Contract Principal Paid in 2018 4,207,428 Prepaid maintenance contract on equipment and other 509,136 Net Invested in Capital Assets as of June 30, 2018 $ 584,452,193

Note 4, “Capital Assets” provides additional information related • The Division of Agriculture Don Tyson Center for to the University’s depreciable and non-depreciable capital assets. Agricultural Sciences located at Fayetteville, Arkansas – project to construct a multipurpose laboratory, with Capital projects continued at an impressive pace in 2018, with two greenhouses and office complex. Total cost was $16.7 several construction projects begun in previous years completed million, funded by a mix of private support, Agricultural or substantially completed, continued progress on multi-year sales and reserves. projects and new projects initiated. Construction continuing, and new projects begun in 2018 The list of projects begun in previous years completed in 2018 include: include: • Donald W. Reynolds Razorback Stadium North End Zone • Entrance Monument Signs – Project to construct – Project continues to expand the north end zone of the monument signs to mark the three major vehicular stadium, construct updates to existing areas, and rebuild entrances to the University of Arkansas Campus. The the Broyles Athletic Center around the new north end zone design of each location includes a native stone wall with seating. Total project cost is estimated at $160 million, capstone featuring the University of Arkansas name, new funded by $120 million in bonds, $30 million of gifts and sidewalks and curbs, trees, and other landscaping. Total $10 million from athletic reserves. Project completion is estimated project cost is $2.5 million, funded by bonds. estimated for occupancy for the 2018 football season. Phase 1, totaling $1.6 million was completed in 2018. Additional work continues in phases. • Entrance Monument Signs – Project continues to construct monument signs to mark the three major vehicular • Student Housing – renovation and expansion of student entrances to the University of Arkansas Campus. The Greek housing operated by the University. Total project design of each location includes a native stone wall with cost was $8.1 million funded by $5.3 million in bond capstone featuring the University of Arkansas name, new proceeds and gifts. sidewalks and curbs, trees, and other landscaping. The remaining estimated project cost is $0.9 million, funded by bonds. Completion of Phase 2 will be coordinated with other construction projects in the work area.

23 UNIVERSITY OF ARKANSAS

• Kimpel Hall Renovation – Project continues for a total • Civil Engineering Research & Education Center – Project renovation of the classroom block and exterior building continues to construct a research and education facility envelope, along with a 3,500 to 7,000 square foot addition for the civil engineering department. Project design, for the Student Media department to include an open which included planning and programming, site options/ newsroom, on-air studio, control room, master control, selections at the Arkansas Research and Technology Park, student radio and offices. Total estimated project cost $15.1 early schematic design and fundraising support images, million and will be managed in phases. Initial funding in was completed in 2017. Total estimated project cost is $10.7 2016, considered Phase 1, was comprised of $3 million in million and will be managed in phases. Initial funding bonds and $1 million in gifts. An additional $6.4 million, of $2.7 million in 2016 was comprised of $2 million funded by $6 million in bonds and the remainder from in bonds and the balance with gifts. An additional $2 university reserves was added in 2017. Estimated project million in bonds was added to project funding in 2017 completion is November 2018. and 2018. Remaining funding will be raised through gifts. Construction phases will continue when all funding is in • Library Annex – Project continues to construct a 20,000 place. Estimated project completion in April 2019. square foot structure to house a high-density storage system and processing area, along with a modest public • Stadium Drive Residence Halls – Project continues to space for accessing the collection. Total estimated project construct a 700-bed residence hall to include multi-use cost is $14.6 million and will be managed in phases. Initial meeting rooms, advising and administrative offices, funding in 2016, considered Phase 1, was $3 million in laundry, vending, kitchen and front desk communal areas. bonds. An additional $9 million in bonds was added in This project is envisioned as part of a larger residential 2017, with the remainder of the project funded by university district to be developed in the Athletic Valley area of reserves. Estimated project completion in August 2018. campus. Estimated project cost is $78.1 million, funded by $74 million in bonds and the remainder from housing • Pat Walker Health Center Addition – Project continues reserves. Estimated project completion in August 2019. to construct a 20,000 square foot addition to the Pat Walker Health Center. The addition will provide space for • Global Campus Renovation – Project continues to expanded counseling and psychological services, wellness renovate approximately 19,000 square feet on two floors and health promotion classrooms and consultation rooms, of the Global Campus building to create workspaces for technology support and administrative space. Total faculty to develop online course content and staff who estimated project cost is $15.4 million, funded by $12.7 manage and facilitate online courses; to provide studio million in bonds and the remainder from student health and support space for the global campus media services reserves. Estimated project completion in October 2018. team; to renovate the auditorium into a black box theatre with required equipment; and other interior renovations. • University Recreation Intramural Fields – Project Estimated project cost is $7.4 million, funded by $2 million continues to construct new University playing fields that in bonds, $4.7 million from global campus reserves and will supplement the Mitchel Fields multi-purpose fields the remainder from university reserves. Estimated project located on campus. Land located near the campus has been completion in September 2018. designed for two projects, the Cato Springs Softball/Soccer Fields Complex and the Indian Trails Tennis Complex/ • National Center for Reliable Electric Power Transmission Mountain Biking Trails. The Cato Springs project will (NCREPT) Addition – Project continues to construct a provide space for an additional six flag football/soccer 4,000 square foot addition to increase the capacity of the fields, four softball fields, three basketball courts, and test facility. The addition will include high bay research four volleyball courts; along with parking lots, lighting, a space, graduate student offices, and approximately 50 maintenance barn and restrooms. The Indian Trails project additional parking spaces. Estimated project cost is $3.1 will provide tennis courts, biking trails and parking. million, funded by university reserves. Estimated project During 2017, renovation began at Mitchel Fields to improve completion in September 2018. drainage, install LED lighting and install sports turf. Total estimated project cost for the Mitchel Fields project is $4.9 • South Campus Steam Improvements – Project continues million. Only the design phase has been completed for the to replace and upgrade a portion of the steam and other projects, with construction beginning when funding condensation infrastructure that provided building heat is in place. The overall project will be funded in phases with and domestic hot water to the campus. The upgraded system initial funding in 2016 of $4 million in bonds. An additional will provide additional capacity for future development of $3 million, in bonds was added in 2017. Estimated project the Athletic Valley district on campus. Estimated project completion for Mitchel Fields in October 2017. cost is $3 million, funded by $2.7 million in bonds and

24 2017-2018 ANNUAL FINANCIAL REPORT

the remainder from utility reserves. Estimated project venue, as well as providing additional seating created completion in August 2018. by an expansion of the dining pavilion to the west to accommodate around 385-400 seats. The west addition • Mullins Library Renovation – Project continues to will also house a small, 75 seat a la carte dining venue and fully reorganize and renovate the interior to create a will address the ADA access to the building entrance, to the collaborative and interdisciplinary learning space focused various levels of the dining pavilion. The estimated project on student and faculty engagement. The project design cost is $17.6 million funded by $5.5 million in bonds, $10 phase is complete, and the construction phase is moving million in contract revenue from the campus food service forward. The design phase is funded by $1 million in bonds. provider and $2.1 million from dining reserves. The The estimated construction costs are $16.5 million funded estimated project completion date is July 2019. by $7.3 million in bonds and $9.2 million in university reserves and gift funds. Estimated completion is May 2020. • Beechwood Remote Parking Lot – New project to construct a new parking choice for students, faculty and staff at a remote • Student Success Center – Project continues to construct location, south of the main campus, with easy access to a 70,000 to 75,000 square foot, ranging from three to major city streets and Interstate I-49 and along a major route five stories. The student success center will create a home with quick access to the center of campus. The work will for a new program which has a mission to maximize the include parking facility, a street connection to Hollywood success of students, especially first-generation Arkansas Avenue, Beechwood Avenue. Also, frontage improvements students starting with pre-enrollment and transition to and necessary drainage improvements. The remote parking the university, through semester to semester retention lot added an additional 1,105 spaces. The estimated project on time graduation and ending the with their transitions cost is $5 million funded by $2.8 million in bonds and $2.2 with careers. The student success center will be in the core million in parking and university reserves. The estimated campus, just north of Old Main and adjacent to Memorial project completion is September 2018. Hall. The design phase was funded by $1 million in bonds. The estimated construction cost is $45 million funded by • Arkansas Union Food Court Renovation – The renovation $4 million in bond proceeds with the remaining funds will address all areas within the Arkansas Union Food from university reserves, gifts and future bond proceeds. Court, including the central core, food preparation and serving stations, open seating areas and private dining • Greek Housing Projects – Four separate Greek organizations rooms. The new plan will open up the entire space to create have been granted the ability to either construct new better visibility of the food options and more intuitive flow residence facilities or renovate existing residence facilities on for patrons’ circulation amount the various stations, along university-owned property under a long-term lease. These with a new point of sale system to improve speed of service. projects are the responsibility of the Greek organizations and The project also includes ongoing capital renewal effort the will be funded by arrangements made by the organizations. entire building including air handling units. The estimated See Note 19, Commitments and Contingencies for additional project cost is $6.8 million funded by $1 million in bonds information about these projects. and $5 million in contract revenue from the campus food service provider and $0.8 million from dining reserves. • Pomfret Dining Renovation & Expansion – New project Estimated completion is December 2018. for renovation and expansion of Pomfret Dining Hall will include new food preparation areas, serving stations, and A summary of long-term debt (including the current portion) general kitchen work flow improvements to the existing activity is as follows: 12,000 square feet buffet-style controlled access food Summary of Changes in Long-Term Debt

Installment Contracts Bonds Notes and Leases Balance as of July 1, 2017 $ 757,960,593 $ 1,584,045 $ 23,202,540 Additions 112,684,358 1,336,435 Retirement of principal (25,705,000) (179,811) (4,027,617) Amortization of net bond premium (4,466,468) Balance as of June 30, 2018 $ 840,473,483 $ 1,404,234 $ 20,511,358

25 UNIVERSITY OF ARKANSAS

Note 8, “Long-Term Debt” provides additional information Residence Halls, an addition to the Pat Walker Health Center, related to the University’s long-term debt. the construction of the Library Annex and the continuing renovation and addition to Kimpel Hall. Several other smaller The University issued bonds during 2018 to provide funds to construction projects and design studies were included in the finance various construction and renovation projects. Notable overall scope of the bond issue. Proceeds of over $112 million, among these are construction of the new Stadium Drive were generated to fund these projects.

Conditions and other factors having a significant effect Financial and political support from state government remains Campaign Arkansas is an eight-year comprehensive fundraising a critical element to the continued financial health of the effort focused on advancing academic opportunity at the University. In 2018, the total general revenue distribution from university. The goal of the campaign is to raise $1.25 billion by the State, which is a portion of the state appropriation revenue 2020. All colleges and schools on campus, as well as many other on the Statement of Revenues, Expenses and Changes in Net units, will benefit from the fundraising effort. The campaign Position, remained virtually flat at $202.9 million. Estimates is critical to the university’s future and efforts to keep tuition for 2019 indicate general revenue distributions from the State affordable while enhancing academic opportunities for faculty will remain flat, with no significant increase or decrease. and students. Funds raised will support scholarships and Management will continue to institute both internal and fellowships, endowed chairs, capital projects, interdisciplinary external efforts to maximize the state resources available, while academic programs and other priority areas that will advance seeking ways to minimize the effect of state funding levels not the university’s goals and objectives. Campaign Arkansas had keeping pace with growth. raised $947.4 million at the close of 2018.

In 2017, The Arkansas Legislature enacted Act 148 which Positive news continues with the University fundraising adopted a productivity-based funding model for most state- production totals for private gift support for 2018 being the supported higher education institutions. As provided in the second-best year in university history. Production amounts Act, the Arkansas Department of Higher Education developed include gifts of cash, gifts-in-kind, planned gifts and new a productivity-based funding model with measures for pledges. In 2018, the University recognized $292.7 million of effectiveness, affordability, and efficiency. That model was first private gift support, surpassing its goal of $245 million. This used to determine funding recommendations for the 2018-19 support is critical to ensure success for students and faculty academic year and resulted in a small increase in university and is a fundamental component in meeting budgetary funding based on those measures. The university does not needs. Support received from alumni, friends, organizations anticipate material changes in its funding level over the short and faculty and staff of the University enhances all aspects of term based on the new funding policy. the student experience, including academic and need-based scholarships; technology enhancements; new and renovated We continue to seek ways to manage the cost of attendance facilities; undergraduate, graduate and faculty research; study so that it remains affordable while achieving revenue support abroad opportunities and innovative programs. necessary to offer a high-quality university experience. Diverse revenue resources, including state appropriations, tuition Preliminary figures indicate that the university enrolled 27,778 and fees (net of scholarship allowance), private support and students for the fall 2018 semester, another record enrollment. As sponsored grants and contracts all contribute to support the charts below indicate, university enrollment has increased the mission of teaching, research and service. Tuition and 39.9%, or 7,929 students over the past ten years. This marks the mandatory fee increases totaling 2.74% for resident and 4.92% twentieth consecutive year for enrollment growth. Although for nonresident students, respectively, were necessary in 2018 the growth trend continues, the rate of growth is becoming to maintain the facilities, faculty and other support needed to more controlled, with a 1.3% rate in fall 2017 and 0.8% rate in fulfill our mission. As record growth in enrollment continues, fall 2018. This more sustainable rate of growth is welcomed as together with state funding levels not able to keep pace with the university assesses future goals and the optimum number formula calculations, it is expected that the University must of students. continue to look to increases in tuition rates for revenue support as well as grow other revenue streams.

26 2017-2018 ANNUAL FINANCIAL REPORT

Enrollment Trend Over the Last 10 Years

2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 0 5,000 10,000 15,000 20,000 25,000 30,000

Fall Semester Enrollment 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total 19,849 21,405 23,199 24,537 25,341 26,237 26,754 27,194 27,558 27,778 Undergraduate 15,835 17,247 19,027 20,350 21,009 21,836 22,158 22,548 23,044 23,386 Law 408 407 413 410 390 379 375 371 353 368 Graduate 3,606 3,751 3,759 3,777 3,942 4,022 4,221 4,275 4,161 4,024 New Freshmen 3,046 3,873 4,462 4,591 4,357 4,590 4,927 4,998 5,092 5,019

Per the Office of Institutional Research and Assessment

27 UNIVERSITY OF ARKANSAS

In-State Enrollment by County of Origin

Benton Carroll Boone Baxter Fulton Randolph Clay 3,017 138 116 140 15 21 14 Marion 41 Izard Sharp Greene 17 Lawrence 44 Washington Madison Newton 19 16 3806 114 17 Searcy Mississippi 7 Stone Craighead 31 Independence 281 68 86 Crawford Johnson Van Buren Jackson Poinsett 246 Franklin 42 Cleburne 68 Pope 22 34 24 29 152 Cross Conway White Sebastian Logan Woodruff 41 Crittenden 620 56 41 Faulkner 149 6 169 443 St. Francis Yell Perry 41 Scott 22 6 Prairie Pulaski Lonoke Lee 14 17 Monroe Saline 2,015 271 29 19 384 Polk Montgomery Garland Phillips 46 20 291 77 Jefferson Hot Spring Arkansas Grant 119 Pike 27 26 116 Howard 16 Sevier 32 Clark 48 32 Dallas Cleveland 9 Lincoln 8 Desha Hempstead 10 1,500 - 3,999 Little River 30 Nevada 30 27 Ouachita 9 Calhoun Drew 300 - 1,499 41 35 7 Bradley 100 - 299 Miller 14 Chicot 76 Columbia 50 - 99 Lafayette 44 Union Ashley 17 7 121 37 < 50

28 2017-2018 ANNUAL FINANCIAL REPORT

Enrollment by State

NH VT 8 WA 3 ME 27 7 MA MT ND 22 4 7 RI OR MN NY 2 12 ID SD 27 WI 45 7 23 MI CT WY 2 40 PA 12 IA 7 NE 44 NJ 28 IN OH NV 22 IL 40 UT 55 14 CO 171 30 WV VA DE CA 23 62 KS MO KY 5 66 1 216 875 1,628 33 NC MD TN AZ 49 34 OK 415 SC 33 NM AR D.C. 1,097 14,323 GA 32 24 MS AL 2 81 51 96 TX LA 5,868 181 FL > 1,000 AK 169 500 -999 9 100 - 499

50 - 99

10 - 49 HI 9 1 - 9

Foreign Countries 1,514

29 UNIVERSITYUNIVERSITY OFOF ARKANSAARKANSASS STATEMENT OF NET POSITION For the Year Ended June 30, 2018

June 30, 2018 ASSETS Current Assets Cash and cash equivalents $ 147,582,098 Short-term investments 321,814,198 Accounts receivable, net 55,424,687 Accrued interest receivable 1,889,856 Pledges receivable 11,984,893 Inventories, net 4,776,712 Deposits with bond trustees 3,524,529 Notes receivable, net 4,165,979 Other assets 7,213,706 Total current assets 558,376,658

Noncurrent Assets Cash and cash equivalents 17,649 Endowment investments 83,255,935 Other long-term investments 3,001 Notes receivable, net 12,561,633 Pledges receivable 27,861,513 Deposits with bond trustees 90,952,626 Other assets 872,057 Capital assets, net 1,352,861,276 Total noncurrent assets 1,568,385,690

Total assets $ 2,126,762,348

DEFERRED OUTFLOWS OF RESOURCES Deferred amount on refunding $ 14,327,274 Deferred outflows related to other post employment benefits 590,970 Deferred outflows related to pensions 6,657,130 Total deferred outflows of resources $ 21,575,374

LIABILITIES Current Liabilities Accounts payable and accrued liabilities $ 48,053,372 Accrued payroll liabilities 14,671,747 Accrued interest expense 6,478,310 Student overpayments 88,414 Funds held in trust for others 1,539,166 Advance receipts 34,487,884 Compensated absences payable - current portion 1,602,373 Liability for other post employment benefits - current portion 590,970 Bonds, notes, capital leases and installment contracts payable - current portion 39,257,563 Total current liabilities 146,769,799

30 2017-20182017-2018 ANNUALANNUAL FINANFINANCIALCIAL REPREPORTORT

Noncurrent Liabilities Refundable federal advance - Perkins loans 14,380,834 Compensated absences payable 20,000,007 Liability for other post employment benefits 19,996,167 Pension liability 15,144,874 Bonds, notes capital leases and installment contracts payable 823,131,512 Other noncurrent liabilities 32,054 Total noncurrent liabilities 892,685,448

Total liabilities $ 1,039,455,247

DEFERRED INFLOWS OF RESOURCES Deferred inflows related to other post employment benefits $ 3,122,698 Deferred inflows related to pensions 876,455 Total deferred inflows of resources $ 3,999,153

NET POSITION Net invested in capital assets $ 584,452,193 Restricted for Nonexpendable Scholarships and fellowships 8,653,550 Research 5,739,659 Instructional department uses 10,544,889 Loans 314,579 Other 272,716 Expendable Scholarships and fellowships 16,455,616 Research 36,195,322 Public service 8,525,109 Instructional department uses 13,189,655 Loans 4,367,975 Capital projects 89,811,179 Debt service 209,418 Other 6,703,327 Unrestricted 319,448,135 Total net position $ 1,104,883,322

See Accompanying Notes To Financial Statements.

31 UNIVERSITYUNIVERSITY OFOF ARKANSAARKANSASS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION For the Year Ended June 30, 2018

Fiscal 2018 Total REVENUES Operating Revenues Student tuition and fees (net of scholarship allowances of $77,030,077 in fiscal year 2018) $ 240,489,120 Federal appropriations 10,522,785 County appropriations 4,460,212 Federal grants and contracts 55,333,386 State and local grants and contracts 32,129,524 Nongovernmental grants and contracts 33,718,319 Sales and services of educational departments 24,051,001 Auxiliary enterprises Residence Life (net of scholarship allowances of $14,962,398 in fiscal year 2018) 54,020,198 Athletics 104,833,597 Bookstore (net of scholarship allowances of $127,800 in fiscal year 2018) 11,302,662 Student Health Services 2,728,603 Transit and Parking 8,785,539 Student Organizations/Activities 345,462 Other Auxiliary Enterprises 186,815 Other operating revenue 12,513,954 Total operating revenues 595,421,177

EXPENSES Operating Expenses Salaries, wages, and benefits 511,934,706 Scholarships and fellowships 22,755,152 Supplies and other services 256,530,026 Depreciation 75,620,509 Total operating expenses 866,840,393

Operating loss (271,419,216)

NONOPERATING REVENUES (EXPENSES) State appropriations 207,202,611 Gifts 77,059,113 Investment income (net of investment expense of $322,623 in fiscal year 2018) 10,163,270 Interest on capital asset - related debt (23,799,689) Federal grants (nonexchange) 22,972,561 State and local grants (nonexchange) 30,016,898 Gain (loss) on disposal of assets 1,915,937 Other nonoperating revenues 4,844,582 Other nonoperating expenses (475,280) Net nonoperating revenues 329,900,003

Gain before other revenues and changes in net position 58,480,787

32 2017-20182017-2018 ANNUALANNUAL FINANFINANCIALCIAL REPREPORTORT

OTHER REVENUES AND CHANGES IN NET POSITION Capital appropriations 510,000 Capital grants and gifts 85,782,493 Other changes 115,882 Extraordinary item - pollution remediation (13,224,210) Total other revenues and changes in net position 73,184,165

Increase in net position 131,664,952

NET POSITION Net position, beginning of year - as originally reported 979,606,713 Adjustment due to GASB 75 (6,388,343) Net position, beginning of year - restated 973,218,370

Net position, end of year $ 1,104,883,322

See Accompanying Notes To Financial Statements.

33 UNIVERSITYUNIVERSITY OFOF ARKANSAARKANSASS STATEMENT OF CASH FLOWS – DIRECT METHOD For the Year Ended June 30, 2018

Fiscal 2018 Total CASH FLOWS FROM OPERATING ACTIVITIES Student tuition and fees $ 241,486,311 Federal appropriations 10,476,250 County appropriations 4,460,212 Grants and contracts 113,461,308 Payments to suppliers (263,458,805) Payments to employees (399,689,622) Payments for benefits (115,352,720) Payments for scholarships and fellowships (22,188,305) Loans issued to students and employees (1,742,636) Collections of loans to students 2,326,414 Collections of interest on loans to students 502,418 Auxiliary enterprise charges Residence Life 54,748,044 Athletics 103,380,997 Bookstore 14,824,038 Student Health Services 2,686,847 Transit and Parking 8,696,112 Student Organizations/Activities 347,487 Other Auxiliary Enterprises 338,535 Sales and services of educational departments 23,555,283 Other receipts 19,533,255 Extraordinary item - pollution remediation (8,030,005) Net cash used by operating activities (209,638,582)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State appropriations 207,202,611 Gifts and grants for other than capital purposes 75,608,379 Federal grants (nonexchange) 22,977,946 State and local grants (nonexchange) 29,911,401 Direct Lending, and private loan receipts 125,974,482 Direct Lending, and private loan payments (124,887,805) Net agency fund transactions (3,176,236) Net cash provided by noncapital financing activities 333,610,778

Net cash provided by operating activities and noncapital financing activities 123,972,196

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Realized proceeds related to capital debt transactions 127,663,389 Capital appropriations 510,000 Capital grants and gifts received 44,456,312 Purchases of capital assets (179,335,765) Principal paid on capital debt and leases (29,722,598) Interest paid on capital debt and leases (34,005,653) Net cash used by capital and related financing activities (70,434,315)

34 2017-20182017-2018 ANNUALANNUAL FINANFINANCIALCIAL REPREPORTORT

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments 22,751,345 Investment income 1,392,174 Purchase of investments (70,000,025) Net cash provided (used) by investing activities (45,856,506)

NET INCREASE (DECREASE) IN CASH 7,681,375 Cash - beginning of year 139,918,372 Cash - end of year $ 147,599,747

RECONCILIATION OF NET OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating loss $ (271,419,216) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation expense 75,620,509 Other miscellaneous operating receipts 7,593,444 Extraordinary item - pollution remediation (8,030,005) Changes in assets and liabilities Receivables (net) (8,526,781) Inventories 606,560 Prepaid expenses (2,203,287) Accounts payable and accrued liabilities (1,430,446) Accrued payroll liabilities (Employees) (464,878) Accrued payroll liabilities (Benefits) (5,518,518) Student overpayments (33,628) Advance receipts 1,204,107 Refundable federal advance 103,443 Deposits (143) Compensated absences 365,766 OPEB related 403,028 Pension related 1,529,408 Loans to students and employees 562,055 Net cash used by operating activities $ (209,638,582)

NONCASH TRANSACTIONS Donations of land, buildings, improvements, infrastructure and library holdings $ 2,661,311 Equipment donations 996,382 Payment of bond proceeds directly into deposits with trustees 112,501,540 Payment of underwriter’s discounts paid directly from bond proceeds 182,817 Bond issuance costs paid directly from bond proceeds 290,823 Interest on long-term debt paid directly from deposits with trustees 6,403 Investment income paid on and deposited directly into deposits with trustees 1,858,646 Capital outlay and other related expenses paid directly from proceeds of University of Arkansas long-term debt instruments 1,336,435 Net loss on disposal of assets 817,047 Value of goods received from sponsorship agreements with vendors 3,507,595 Gift of real property recorded as an investment 380,000

See Accompanying Notes To Financial Statements.

35 UNIVERSITY OF ARKANSAS

36 2017-20182017-2018 ANNUALANNUAL FINANCIAL REPREPORTORT

DISCRETELY PRESENTED COMPONENT UNITS UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC.

THE UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC.

STATEMENTS OF FINANCIAL POSITION

June 30, 2018 and 2017

2018 2017

Assets Contribution receivable, net $-7,862,099 $ Investments 565,080,692 534,656,411

Total assets $ 572,942,791 $ 534,656,411

Liabilities and Net Assets Accounts payable $ 943,608 $ 931,047

Net assets: Temporarily restricted 46,640,068 36,403,141 Permanently restricted 525,359,115 497,322,223

Total net assets 571,999,183 533,725,364

Total liabilities and net assets $ 572,942,791 $ 534,656,411

3737 UNIVERSITYUNIVERSITY OFOF ARKANSAARKANSASS

THE UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC.

STATEMENT OF ACTIVITIES

Year ended June 30, 2018

Temporarily Permanently Unrestricted Restricted Restricted Total

Revenue, gains and other support: Contribution $ - $- 9,891,099 $ $ 9,891,099 Interest and dividends (see Note 6) - 3,490,572 - 3,490,572 Net realized and unrealized gains on investments (see Note 6) - 16,169,912 28,036,892 44,206,804 Net assets released from restrictions 19,314,656 (19,314,656) - -

Total revenue, gains and other support 19,314,656 10,236,927 28,036,892 57,588,475

Program services: Research 1,052,010 - - 1,052,010 Faculty/staff support 3,071,105 - - 3,071,105 Scholarships and awards 13,467,454 - - 13,467,454 Equipment and technology 1,276,912 - - 1,276,912 Other 447,175 - - 447,175

Total program services 19,314,656 - - 19,314,656

Changes in net assets - 10,236,927 28,036,892 38,273,819

Net assets, beginning of year - 36,403,141 497,322,223 533,725,364

Net assets, end of year $ - $ 46,640,068 $ 525,359,115 $ 571,999,183

3838 2017-20182017-2018 ANNUALANNUAL FINANCIAL REPREPORTORT

THE UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC.

STATEMENT OF ACTIVITIES

Year ended June 30, 2017

Temporarily Permanently Unrestricted Restricted Restricted Total

Revenue, gains and other support: Interest and dividends (see Note 6) $ - $ 3,597,973 $ 2,245 $ 3,600,218 Net realized and unrealized gains on investments (see Note 6) - 15,846,520 44,705,391 60,551,911 Net assets released from restrictions 16,916,811 (16,916,811) - -

Total revenue, gains and other support 16,916,811 2,527,682 44,707,636 64,152,129

Program services: Research 912,263 - - 912,263 Faculty/staff support 3,100,700 - - 3,100,700 Scholarships and awards 11,397,251 - - 11,397,251 Equipment and technology 1,107,626 - - 1,107,626 Other 398,971 - - 398,971

Total program services 16,916,811 - - 16,916,811

Changes in net assets - 2,527,682 44,707,636 47,235,318

Net assets, beginning of year - 33,875,459 452,614,587 486,490,046

Net assets, end of year $ - $ 36,403,141 $ 497,322,223 $ 533,725,364

3939 UNIVERSITYUNIVERSITY OFOF ARKANSAARKANSASS

DISCRETELY PRESENTED COMPONENT UNITS THE RAZORBACK FOUNDATION, INC.

THE RAZORBACK FOUNDATION, INC.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

June 30, 2018

Assets Cash and cash equivalents $ 8,786,040 Contributions receivable, net 21,506,466 Investments, at fair value 19,486,348 Prepaid rent 729,304 Other 1,745,744 Property and equipment, net 14,436,709

Total assets $ 66,690,611

Liabilities and Net Assets Liabilities: Accounts payable and accrued liabilities $ 1,150,485 Guaranty payment, subject to mitigation 9,318,604

Total liabilities 10,469,089

Net assets: Unrestricted net assets: Stockholder's equity in for-profit subsidiary 100 Unrestricted net assets of nonprofit parent 25,179,776

Total unrestricted net assets 25,179,876

Temporarily restricted net assets 27,431,100

Permanently restricted net assets 3,610,546

Total net assets 56,221,522

Total liabilities and net assets $ 66,690,611

4040 2017-20182017-2018 ANNUALANNUAL FINANCIAL REPREPORTORT

THE RAZORBACK FOUNDATION, INC.

CONSOLIDATED STATEMENT OF ACTIVITIES

Year ended June 30, 2018

Temporarily Permanently Unrestricted Restricted Restricted Total

Revenues, gains and other support: Contributions $ 17,691,292 $ 11,140,817 235,336$ $ 29,067,445 Interest and dividends 217,299 62,148 - 279,447 Net realized and unrealized gains on investments 836,812 310,511 - 1,147,323 Other 113,255 - - 113,255 Net assets released from restrictions 17,251,293 (17,251,293) - -

Total revenues, gains and other support 36,109,951 (5,737,817) 235,336 30,607,470

Expenses and losses: Program services: Athletic department expenses 16,441,618 - - 16,441,618 Construction and capital projects 18,849,243 - - 18,849,243

Total program services 35,290,861 - - 35,290,861

Supporting services: Management and general 15,272,246 - - 15,272,246 Fundraising 2,837,531 - - 2,837,531 Change in cash surrender value of life insurance policies (55,734) - - (55,734) Provision for loss on uncollectible contributions 30,736 - - 30,736

Total supporting services 18,084,779 - - 18,084,779

Total expenses and losses 53,375,640 - - 53,375,640

Change in net assets (17,265,689) (5,737,817) 235,336 (22,768,170)

Net assets, beginning of year 42,445,565 33,168,917 3,375,210 78,989,692

Net assets, end of year $ 25,179,876 $ 27,431,100 3,610,546$ $ 56,221,522

41 UNIVERSITYUNIVERSITY OFOF ARKANSAARKANSASS

THE RAZORBACK FOUNDATION, INC.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

June 30, 2017

Assets Cash and cash equivalents $ 11,104,482 Contributions receivable, net 32,475,120 Investments, at fair value 18,117,224 Prepaid rent 1,350,234 Other 1,641,035 Property and equipment, net 14,973,848

Total assets $ 79,661,943

Liabilities and Net Assets Liabilities: Accounts payable and accrued liabilities $ 655,251 Deferred compensation 17,000

Total liabilities 672,251

Net assets: Stockholder's equity in for-profit subsidiary 100 Unrestricted net assets of nonprofit parent 42,445,465

Total unrestricted net assets 42,445,565

Temporarily restricted net assets 33,168,917

Permanently restricted net assets 3,375,210

Total net assets 78,989,692

Total liabilities and net assets $ 79,661,943

4242 2017-20182017-2018 ANNUALANNUAL FINANCIAL REPREPORTORT

THE RAZORBACK FOUNDATION, INC.

CONSOLIDATED STATEMENT OF ACTIVITIES

Year ended June 30, 2017

Temporarily Permanently Unrestricted Restricted Restricted Total

Revenues, gains and other support: Contributions $ 17,342,964 $ 19,998,979 112,664$ $ 37,454,607 Interest and dividends 224,934 58,551 - 283,485 Net realized and unrealized gains on investments 1,493,631 501,746 - 1,995,377 Other 102,074 - - 102,074 Net assets released from restrictions 34,454,737 (34,454,737) - -

Total revenues, gains and other support 53,618,340 (13,895,461) 112,664 39,835,543

Expenses and losses: Program services: Athletic department expenses 14,329,310 - - 14,329,310 Construction and capital projects 14,963,679 - - 14,963,679

Total program services 29,292,989 - - 29,292,989

Supporting services: Management and general 2,381,028 - - 2,381,028 Fundraising 3,153,856 - - 3,153,856 Change in cash surrender value of life insurance policies (52,792) - - (52,792) Provision for loss on uncollectible contributions 429,946 - - 429,946

Total supporting services 5,912,038 - - 5,912,038

Total expenses and losses 35,205,027 - - 35,205,027

Change in net assets 18,413,313 (13,895,461) 112,664 4,630,516

Net assets, beginning of year 24,032,252 47,064,378 3,262,546 74,359,176

Net assets, end of year $ 42,445,565 $ 33,168,917 3,375,210$ $ 78,989,692

4343 UNIVERSITY OF ARKANSAS

TABLE OF CONTENTS: NOTES TO THE FINANCIAL STATEMENTS

Page Page 45 NOTE 1 SUMMARY OF SIGNIFICANT 61 NOTE 8 LONG-TERM DEBT ACCOUNTING POLICIES A Schedule of Long-Term Debt A Nature of the Organization B Schedule of Changes in Long-Term Debt B Financial Reporting Entity C Future Principal and Interest Payments C Discretely Presented Component Units D Capital Leases D Basis of Presentation E Nonmonetary Capital Lease E Basis of Accounting F Pledged Revenues F Use of Estimates G Fiscal Year 2018 Long-Term Debt G Cash and Cash Equivalents Transactions H Investments H Refunding Long-Term Debt Transactions I Accounts Receivable J Inventories 66 NOTE 9 FAIR VALUE MEASUREMENTS K Capital Assets 68 NOTE 10 NATURAL AND FUNCTIONAL L Capitalization of Interest CLASSIFICATIONS OF OPERATING M Deferred Outflows of Resources EXPENSES N Advance Receipts O Noncurrent Liabilities 69 NOTE 11 OPERATING LEASES P Deferred Inflows of Resources Q Pensions 69 NOTE 12 EMPLOYEE BENEFITS R Net Position A Retirement Plans S Classification of Revenues B Self-Insurance Plans T Scholarship Discounts and Allowances C Life Insurance Plan U Encumbrances V New Accounting Pronouncements 79 NOTE 13 OTHER POSTEMPLOYMENT W Restatement of Prior Year BENEFITS (OPEB) A General Information about the OPEB Plan 49 NOTE 2 CASH, CASH EQUIVALENTS, B OPEB Liability AND INVESTMENTS C Changes in the Proportionate Share of the A Cash and Cash Equivalents Net OPEB Liability B Investments D OPEB Expense and Deferred Outflows C External Investment Pool-University of of Resources and Deferred Inflows of Arkansas System Resources Related to OPEB D Donor-restricted Endowments 82 NOTE 14 POLLUTION REMEDIATION 56 NOTE 3 RECEIVABLES A Accounts Receivable 83 NOTE 15 RISK MANAGEMENT B Notes Receivable 84 NOTE 16 WALTON ARTS CENTER C Pledges Receivable 85 NOTE 17 OTHER ENTITIES 58 NOTE 4 CAPITAL ASSETS 88 NOTE 18 RELATED PARTIES 59 NOTE 5 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 88 NOTE 19 COMMITMENTS AND CONTINGENCIES 59 NOTE 6 SHORT-TERM BORROWING 89 NOTE 20 SUBSEQUENT EVENTS 60 NOTE 7 COMPENSATED ABSENCES

44 2017-2018 ANNUAL FINANCIAL REPORT

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1A Nature of the Organization reporting entity as the primary government, organizations for The University of Arkansas, Fayetteville (“the University”) is a which the primary government is financially accountable and State-supported institution of higher education and the flagship other organizations for which the nature and significance of of the University of Arkansas System. The University was their relationship with the primary government are such that established at Fayetteville in 1871 under the provisions of the exclusion could cause the financial statements to be misleading Morrill Act as both a state university and the land-grant college or incomplete. Under the provisions of these Statements, the of Arkansas and is one of thirteen campuses of the University of University is a component unit of the State of Arkansas (primary Arkansas System. government). Although the guidance is written from the perspective of the primary government, its requirements apply The University is granted an annual appropriation for operating to the separately issued financial statements of a component unit, purposes as authorized by the Arkansas General Assembly. and therefore, the component unit should apply the provisions The Appropriation Act authorizes expenditures from funds as if it was a primary government. appropriated from the General Fund of the State and authorizes expenditures of total operating funds. An appropriation is For purposes of financial reporting, the primary government of construed to be available for the one-year period following the the University includes the academic units in Fayetteville, the legislative session in which it was approved. All appropriations Agricultural Experiment Station, the Cooperative Extension lapse at the end of the year unless otherwise provided. The laws Service, the Arkansas Archeological Survey, the Criminal of the State and the policies and procedures specified by the State Justice Institute, the Clinton School of Public Service, and the for state agencies and institutions are applicable to the activities Arkansas Research Education Optical Network. The academic of the University. units in Fayetteville include ten colleges, schools and divisions: the Dale Bumpers College of Agricultural, Food, and Life The University is tax exempt under Internal Revenue Service Sciences, the Fay Jones School of Architecture and Design, the J. code except for tax on unrelated business income. The University William Fulbright College of Arts and Sciences, the Sam M. had no significant unrelated business income for the year ended Walton College of Business, the College of Education and June 30, 2018. It is also exempt from state income taxes under Health Professions, the College of Engineering, the School of Arkansas law. Accordingly, no provision for income taxes is Law, the Honors College, the Graduate School and International made in the financial statements. Education, and the Global Campus.

The University is governed by a ten-member Board of Trustees 1C Discretely Presented Component Units which has been accorded constitutional status for the exercise of Under the provisions of the GASB Statements discussed above, its powers and authority by Amendment 33 to the Arkansas the University has identified two organizations that should Constitution. The Board of Trustees has delegated to the be reported as component units based on the nature and President the administrative authority for all aspects of the significance of their relationship with the primary government. University’s operations. Administrative authority is further The qualifying organizations are the University of Arkansas delegated to the Chancellors, the Vice President for Agriculture, Fayetteville Campus Foundation, Inc., and the Razorback the Dean of the Clinton School, the Director of the Criminal Foundation, Inc. Although the University does not control the Justice Institute, the Director of the Archeological Survey and timing or amount of receipts from any of these foundations, the Executive Director of the Arkansas Research and Education the majority of resources or income thereon, which the Optical Network who have responsibility for the programs and foundations hold and invest, is restricted to the activities of the activities of the respective campus or state-wide operating University by donors. Because these restricted resources held division. by the foundations can be used only by, or for the benefit of, the University, and their individual net assets are considered 1B Financial Reporting Entity as having met the financial accountability criteria of Statement GASB Statement No. 14, The Financial Reporting Entity, No. 39 by management, these foundations are considered as amended by GASB Statements No. 39, Determining component units of the University and are discretely presented Whether Certain Organizations are Component Units - in the University’s financial statements. an amendment of GASB Statement No. 14 and No. 61, The Financial Reporting Entity: Omnibus - an amendment The University of Arkansas Fayetteville Campus Foundation, of GASB Statements No. 14 and 34, defines the financial Inc. (“the Foundation”) is a charitable organization described

45 UNIVERSITY OF ARKANSAS

in Section 501 (c) (3) of the Internal Revenue Code of 1986, as absences between current and non-current and depreciation amended, and was established by the Walton Family Charitable expense. Actual results could differ from those estimates. Support Foundation, Inc., for the exclusive benefit of the University of Arkansas, Fayetteville campus. The Foundation 1G Cash and Cash Equivalents was established on March 11, 2003, and exists primarily to support the Honors College, the Graduate School and Cash and cash equivalents on the Statement of Net Position International Education and the University’s library. The Board includes all readily available sources of cash such as petty cash, of Trustees of the Foundation is made up of seven (7) members, demand deposits, and cash on deposit with the State Treasurer. including three (3) members who are also employees of the University. 1H Investments Investments are stated at fair value. Changes in unrealized gain The Foundation distributed $19,311,123 to the University (loss) on the carrying value are reported as a component of during the fiscal year ended June 30, 2018 for both restricted investment income on the Statement of Revenues, Expenses and and unrestricted purposes. Complete financial statements for Changes in Net Position. the Foundation can be obtained from the administrative office at 535 Research Center Blvd Suite 120, Fayetteville, AR 72701. 1I Accounts Receivable The Razorback Foundation, Inc. (“the Razorback Foundation”) Accounts receivable are stated at estimated net realizable values; was incorporated on October 17, 1980. It is a not-for-profit that is, the gross amount of the receivable is reduced by organization whose sole purpose is to support intercollegiate allowances for estimated uncollectible accounts. athletics at the University.

The Razorback Foundation distributed $27,188,482 to the 1J Inventories University, and provided equipment, facilities, improvements Inventories are valued at cost with costs generally using retail, and supplies in the amount of $2,394,244 during the fiscal year and first in first out valuation methods, depending on the best ended June 30, 2018. Complete financial statements for the practices of the University department to which the inventory Razorback Foundation can be obtained from the administrative belongs. office at 1295 S. Razorback Road, Fayetteville, AR 72701. An allowance of $263,354 was computed based on estimated 1D Basis of Presentation obsolete inventory values as of June 30, 2018. The financial statements for the University have been prepared in accordance with generally accepted accounting principles 1K Capital Assets accepted in the United States of America, as prescribed by the Capital assets consisting of land, buildings, furniture, fixtures, Governmental Accounting Standards Board (GASB). equipment, improvements, infrastructure, construction in progress, and intangible assets are stated at cost or fair market 1E Basis of Accounting value at date of gift. For financial reporting purposes, the University is considered a Buildings, improvements, and infrastructure additions are special-purpose government engaged in business-type activities. capitalized when the cost is $50,000 or more. Renovations Accordingly, the financial statements of the University have to buildings, infrastructure and land improvements are also been prepared using the economic resources measurement capitalized when they significantly increase the value or extend focus and the accrual basis of accounting. Revenues are the useful life of the structure and the cost exceeds $50,000. recognized in the accounting period in which they are earned and become measurable. Expenses are recognized in the period In accordance with the University’s capitalization policy, in which they are incurred, if measurable, including depreciation. equipment includes all furniture, fixtures and equipment with a unit cost of $5,000 or more and an estimated useful life of one 1F Use of Estimates year or more. The preparation of financial statements in conformity with Intangible assets are capitalized when the cost is $500,000 or generally accepted accounting principles requires management more for purchased software, $1,000,000 or more for internally to make estimates and assumptions that affect the reported developed software, or $250,000 or more for easements, land use amounts of assets, liabilities, deferred inflows, deferred outflows, rights, trademarks and copyrights, and patents. revenues and expenses at the date of the financial statements. Significant estimates include separation of accrued compensated

46 2017-2018 ANNUAL FINANCIAL REPORT

Library holdings are generally defined as collections of books 1O Noncurrent Liabilities and reference materials, and are valued using average prices for Noncurrent liabilities include principal amounts of revenue library acquisitions. A library book is a literary composition bonds payable, notes payable, capital lease obligations and bound into a separate volume and identifiable as a separate installment contracts payable with contractual maturities copyrighted unit. Library reference materials are information greater than one year, as well as estimated amounts for accrued sources other than books which include journals, periodicals, compensated absences, net pension obligations, refundable microforms, audio/visual media, computer-based information, advances on student loans, net other postemployment benefits manuscripts, maps, documents, and similar items. obligation, and other liabilities that will not be paid within the next fiscal year. 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 1P Deferred Inflows of Resources as incidental to the primary mission of the Department. Deferred inflows of resources represent an increase of net The inventory value placed on the animals is determined by position that applies to future periods. These items will not be department heads utilizing current market prices and breeding recognized as an inflow of resources (revenue) until a future and research intangibles. period.

Depreciation is computed using the straight-line method over 1Q Pensions the estimated useful lives of the assets, generally 15 to 30 years for buildings, 15 to 20 years for infrastructure and land For purposes of measuring the net pension liability, deferred improvements, 3 to 10 years for equipment and 10 years for outflows of resources and deferred inflows of resources related library holdings. Amortization of intangible assets, except for to pensions, and pension expense, information about the those determined to have indefinite useful lives, is computed fiduciary net position of the Arkansas Public Employees using the straight-line method over the estimated useful lives of Retirement System and the Arkansas Teacher Retirement the assets, generally 5 years for purchased software; 10 years for System (the respective Systems) and additions to/deductions internally developed software; 15 years for easements, land use from the respective System’s fiduciary net position have been rights, trademarks, and copyrights; and 20 years for patents. determined on the same basis as they are reported by the respective Systems. For this purpose, benefit payments 1L Capitalization of Interest (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. The University capitalizes interest involving qualifying assets. Investments are reported at fair value. The amount of interest cost to be capitalized is interest cost on borrowings netted against any interest earned on temporary 1R Net Position investments of the proceeds of those borrowings from the date of borrowing until the specified qualifying assets acquired with The University’s net position is classified as follows: those borrowings are ready for their intended use. The total amount of interest cost incurred and the amount thereof that • Net invested in capital assets: Capital assets, net of accumulated has been capitalized was $34,542,620 and $5,355,064, depreciation and outstanding principal balances of debt respectively, for the fiscal year ended June 30, 2018. attributable to the acquisition, construction or improvement of those assets. 1M Deferred Outflows of Resources • Restricted: Deferred outflows of resources represent a decrease of net position that applies to future periods. Thus, these items will not Nonexpendable: Portion subject to externally-imposed be recognized as an outflow of resources (an expense or stipulations that they be maintained permanently by the expenditure) until a future period. University. Such assets include the University’s permanent endowment funds. 1N Advance Receipts Expendable: Portion whose use by the University is subject Advance receipts consist primarily of athletic ticket sales and to externally-imposed stipulations that can be fulfilled by related fees and unearned student revenues for summer session actions of the University pursuant to those stipulations or and fall semester. These monies were collected in advance and that expire by the passage of time. There is no formal policy were not earned as of the end of each fiscal year. requiring restricted net position to be used either before or after unrestricted net position that may be used for the same

47 UNIVERSITY OF ARKANSAS

purpose. Responsible officials determine at the time funds are 1V New Accounting Pronouncements expended whether to use any unrestricted net position that The GASB issued four Statements with requirements that became may be available. effective for the fiscal year ended June 30, 2018. Statement No. 75, Accounting and Financial Reporting for Postemployment • Unrestricted: Portion that is not subject to externally imposed Benefits Other Than Pensions, establishes accounting and stipulations. Unrestricted net position may be designated for financial reporting standards for recognizing and measuring specific purposes by action of management or the Board of liabilities, deferred outflows of resources, deferred inflows Trustees or may otherwise be limited by contractual of resources, and expense/expenditures. For defined benefit agreements with outside parties. Substantially all unrestricted OPEB, this Statement identifies the methods and assumptions net position is designated for academic and research programs that are required to be used to project benefit payments, and initiatives as well as capital programs. discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee 1S Classification of Revenues service. The effect of implementing this Statement is discussed The University has classified its revenues as either operating or in detail within Note 13. Statement No. 81, Irrevocable Split- nonoperating revenues according to the following criteria: Interest Agreements, establishes accounting and financial reporting for irrevocable split-interest agreements by providing Operating revenues: Operating revenues include activities recognition and measurement guidance for situations in which that have the characteristics of exchange transactions, such as a government is a beneficiary of the agreement. The University (1) student tuition and fees, net of scholarship discounts and became the beneficiary of a life-interest in real estate during the allowances, (2) sales and services of auxiliary enterprises, net of fiscal year ended June 30, 2018. The asset has been recognized as scholarship discounts and allowances, and (3) most federal, state an investment and was valued using an independent appraisal and local grants and contracts. dated June 24, 2018. No agreements were identified which met the criteria for this Statement. Statement No. 82, Pension Nonoperating revenues: Nonoperating revenues include Issues – an amendment of GASB Statements No. 67, No.68, activities that have the characteristics of nonexchange and No. 73, specifies that the requirements of paragraph 7 transactions, such as gifts and contributions, and other revenue in a circumstance in which an employer’s pension liability is sources that are defined as nonoperating revenues by GASB measured as of a date other than the employer’s most recent Statement No. 34, Basic Financial Statements—and ﬁscal year-end are effective for the year ending June 30, 2018. Management’s Discussion and Analysis—for State and The other requirements of GASB Statement 82 related to Local Governments, such as state appropriations and selection of assumptions are applicable to the year ended June investment income. 30, 2017. Management has determined that the requirements of paragraph 7 do not affect current reporting or disclosures. Statement No. 85, Omnibus, 2017, addresses a variety of topics 1T Scholarship Discounts and Allowances including issues related to blending component units, goodwill, Student tuition and fee revenues, and certain other revenues fair value measurement and application, and postemployment from students, are reported net of scholarship discounts and benefits. Management has determined that the requirements allowances in the Statement of Revenues, Expenses and Changes do not affect current reporting or disclosures. Statement No. 86, in Net Position. Scholarship discounts and allowances are the Certain Debt Extinguishment Issues, establishes essentially difference between the stated charge for goods and services the same requirements for when a government places cash and provided by the University and the amount that is paid by other monetary assets acquired with only existing resources in students and/or third parties making payments on the students’ an irrevocable trust to extinguish the debt as Statement No. 7, behalf. Certain governmental grants and nongovernmental Advanced Refunding in Defeasance of Debt, requires that programs are recorded as either operating or nonoperating debt be considered defeased in substance when the debtor revenues in the University’s financial statements. To the extent irrevocably places cash or other monetary assets acquired with that revenues from such programs are used to satisfy tuition and refunding debt proceeds in a trust to be used solely for satisfying fees and other student charges, the University has recorded a scheduled payments of the defeased debt. Management scholarship discount and allowance. has determined that the requirements do not affect current reporting or disclosures. 1U Encumbrances The GASB issued the following Statements with requirements Encumbrances representing commitments and outstanding that become effective for the fiscal year ending June 30, purchase orders for goods and services not received as of the last 2019: Statement No. 83, Certain Asset Retirement Obligations day of the fiscal year are not reported as expenses or included in and Statement No. 88, Certain Disclosures Related to Debt, liabilities in the accompanying financial statements.

48 2017-2018 ANNUAL FINANCIAL REPORT

including Direct Borrowings and Direct Placements. The 1W Restatement of Prior Year GASB also issued Statement No. 84, Fiduciary Activities which Beginning net position, as reported on the Statement of Revenues, will become effective for the fiscal year ending June 30, 2020. Expenses, and Changes in Net Position, was restated due to the Statement No. 87, Leases and Statement No. 89, Accounting for implementation of GASB Statement 75. As a result, Net Position Interest Cost Incurred before the End of a Construction – beginning of the year was reduced $6,388,343 to reflect the net Period will become effective for the fiscal year ending June 20, effect of recognizing the University’s proportionate share of the 2021. Management has not yet determined the effects of these net postemployment benefit liability and deferred outflows of Statements on the University’s financial statements. resources attributable to the year ended June 30, 2017.

2. CASH, CASH EQUIVALENTS, AND INVESTMENTS

A.C.A. §19-4-805 authorizes institutions of higher learning to Administration (System Administration) does not maintain determine the depositories and nature of investments of any of the separate bank accounts. System Administration deposits are cash funds which are not currently needed for operating purposes. commingled in University of Arkansas, Fayetteville bank accounts. The carrying value of the System Administration 2A Cash and Cash Equivalents funds was $4,306,362 at June 30, 2018. The University uses commercial banks for its cash deposits. Cash The following schedule reconciles the amount of deposits to the deposits are carried at cost. The University of Arkansas System Statement of Net Position at June 30, 2018: Cash and Cash Equivalents Cash and Cash Equivalents June 30, 2018 Cash on deposit, carrying value $ 150,456,025 Cash held at State Treasury 1,393,861 Imprest Funds, non-Bank 56,223 Less: System Administration Cash (4,306,362) Total $ 147,599,747

Custodial Credit Risk – Deposits. Custodial credit risk is the risk held by the pledging institution’s agent but not in the University’s that in the event of a bank failure, the University’s deposits may name. Board of Trustees policy requires that all cash deposits be not be returned to it. Deposits are exposed to custodial risk if either insured by the FDIC or collateralized by securities held at a they are not insured by Federal Deposit Insurance Corporation third-party financial institution (preferably the Federal Reserve (FDIC) and are uncollateralized, collateralized with securities Bank) in the University’s name. At June 30, 2018, none of the held by the pledging institution or collateralized with securities University’s bank balances were exposed to custodial credit risk.

49 UNIVERSITY OF ARKANSAS

2B Investments The following is a summary of the University’s investments held at June 30, 2018:

Investments Fair Value at Investment Type June 30, 2018 Mutual Treasury MM Funds $ 6,154,106 U.S. Treasuries 164,430,295 Federal Agencies 46,147,794 Commercial Paper 63,068,644 Mutual Bond Funds 153,903 Corporate Notes/Bonds 35,319,115 Negotiable CDs 21,104,987 External Investment Pool 162,132,892 Other Investments 984,553 Total $ 499,496,289

At June 30, 2018, total investments of $499,496,289 includes which are considered deposits for GASB Statement No. 40, $94,477,155 reported as deposits with bond trustees on the Deposit and Investment Risk Disclosures—an amendment Statement of Net Position. The above schedule does not include of GASB Statement No. 3. nonnegotiable certificates of deposit of $54,000 at June 30, 2018

Investment Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The University The University is required under GASB Statement No. 40 to does not have a formal investment policy addressing interest provide investment risk disclosures for all invested funds. rate risk for non-operating investments. In accordance with Disclosures related to the External Investment Pool are shown its Operating Funds Investment Policy, the University limits its separately. No disclosures are made for Other Investments. exposure to fair value losses arising from rising interest rates by limiting investment maturities as follows:

Investment Maturities Investment Type (Sector) Maximum Maturity U.S. Treasury 10 Years Federal Agency/Government Sponsored Enterprise 10 Years Corporate Notes 10 Years Commercial Paper 270 Days Negotiable Certificates of Deposit 5 Years

50 2017-2018 ANNUAL FINANCIAL REPORT

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

Interest Rate Risk

June 30, 2018 Investment Maturities (in years) Investment Type Value Less than 1 1 to 5 6 to 10 More than 10 U.S Treasury $ 164,430,295 $ 112,923,551 $ 48,286,021 $ 3,220,723 $ 0 Federal Agencies 46,147,794 24,528,266 21,619,528 Commercial Paper 63,068,644 63,068,644 Corporate Notes/Bonds 35,319,115 5,708,045 28,571,201 1,039,869 Negotiable CDs 21,104,987 9,190,508 11,914,479 Totals $ 330,070,835 $ 215,419,014 $ 110,391,229 $ 4,260,592 $ 0

Credit risk is the risk that an issuer or other counterparty to an circumstances then prevailing, which an institutional investor investment will not fulfill its obligations. The University does of ordinary prudence, discretion, and intelligence exercises not have a formal investment policy addressing credit risk for in the management of large investments entrusted to it, not in non-operating investments. In accordance with its Operating regard to speculation, considering probable safety of capital as Funds Investment Policy, the University applies the “prudent well as probable income.” The University manages its exposure investor” standard which states that, “In making investments, to fair value losses arising from credit risks as follows: the fiduciaries shall exercise the judgement and care, under the

Investment Ratings

Investment Type (Sector) Minimum Ratings Requirement U.S. Treasury N/A Federal Agency/Government Sponsored Enterprise Highest short-term or one of the two highest long-term rating categories (A-1/P-1, AA-/Aa3 or equivalent) Corporate Notes Highest short-term or one of the three highest long-term rating categories (A-1/P-1, A-/A3 or equivalent) Commercial Paper Highest short-term rating category (A-1/P-1, or equivalent) Negotiable Certificates of Deposit Highest short-term or one of the three highest long-term rating categories (A-1/P-1, A-/A3 or equivalent) Money Market Funds AAAm Fixed-Income Mutual Funds & ETFs N/A

51 UNIVERSITY OF ARKANSAS

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

June 30, 2018

Investment Type Value Aaa-Aa3 A1-A3 Not Rated Mutual Treasury MM Funds $ 6,154,106 $ 2,974,034 $ 3,180,072 U.S. Treasury 164,430,295 164,430,295 Federal Agencies 46,147,794 46,147,794 Commercial Paper 63,068,644 63,068,644 Mutual Bond Funds 153,903 1,611 152,292 Corporate Notes/Bonds 35,319,115 3,520,628 $ 31,798,487 Negotiable CDs 21,104,987 9,190,508 11,914,479 Totals $ 336,378,844 $ 289,333,514 $ 43,712,966 $ 3,332,364

The ratings are assigned by the Moody’s investment ratings service.

2C External Investment Pool-University of Arkansas In January 2010, the University of Arkansas Investment System Committee approved an agreement which delegated authority In 1997, the University of Arkansas and the University of to the UA Foundation to manage University funds held in the Arkansas Foundation established an external investment pool. Pool. The agreement included delegation of all responsibility This arrangement commingles (pools) the moneys of more for all investment guidelines and performance objectives for than one legally separate entity and invests, on the participants’ accounts within the Pool. The agreement also delegated to the behalf, in an investment portfolio. Subsequent to its UA Foundation authority for further delegation of portfolio establishment, other entities have joined including the Walton implementation decisions to one or more investment managers. Arts Foundation in 1998, the Fayetteville Campus Foundation In January 2010, the UA Foundation entered into such an in 2003, the University of Arkansas Community College at agreement with Cambridge Associates, LLC. Hope Foundation in 2007, the Razorback Foundation in 2012, and the University of Arkansas Technology Development The implementation of GASB Statement No.72,Fair Value Foundation in 2016. Measurement and Application, during the fiscal year ended June 30, 2016, caused management to reassess the University The external investment pool is exempt from registration with of Arkansas Board of Trustees’ sponsorship role. Based on the Securities and Exchange Commission. The University of the UA Foundation’s fiduciary responsibilities outlined in the Arkansas Board of Trustees and the University of Arkansas January 2010 agreement, management concluded that the UA Foundation Board of Trustees were the sponsors of this Foundation acts as sole sponsor of this investment pool. investment pool and were responsible for operation and oversight for the pool. All participation in this investment pool The Pool consists of the Total Return Pool and the Intermediate is voluntary. Pool. UAF’s ownership of each of these individual pools and of the total external pool was as follows:

External Investment Pool

UAF UAF CES Fiscal Year Total Return Pool Intermediate Pool Intermediate Pool Total Pool June 30, 2018 5.01% 14.88% 2.64% 7.74%

52 2017-2018 ANNUAL FINANCIAL REPORT

University of Arkansas External Investment Pool Statement of Invested Assets Fair Value* Investment Type June 30, 2018 Equities $ 493,662,841 Common Stock 217,897,695 Funds - Common Stock 274,652,577 Rights/Warrants Funds - Equities ETF 1,112,569

Fixed Income $ 463,526,876 Government Bonds 127,441,525 Corporate Bonds 9,036,931 Government Mortgage Backed Securities 16,169,866 Commercial Mortgage-Backed 2,309,016 Asset Backed Securities 11,806,602 Non-Government Backed C.M.O.s Funds - Fixed Income ETF 296,762,936

Venture Capital and Partnerships $ 703,142,468 Partnerships 703,142,468

Hedge Fund $ 267,736,560 Hedge Equity 236,628,726 Hedge Event Driven 31,107,834

All Other $ 492,602 Recoverable Taxes 492,602

Cash/Cash Equivalents $ 165,570,901 Short Term Bill and Notes 10,350,281 Funds - Short Term Investment 146,924,214 Cash 2,254,069 Invested Cash 6,042,337

Total $ 2,094,132,248

*Includes accrued income

53 UNIVERSITY OF ARKANSAS

Credit Risk – S&P Quality Ratings

June 30, 2018

Credit Risk US GOVN. Investment Type & Fair Value* AAA AA A BBB BB NR GUAR Asset Backed Securities $ 8,400,440 $ 3,392,353 Commercial Mortgage-Backed 979,431 1,323,753 Corporate Bonds $ 574,606 $ 4,160,962 $ 4,150,101 82,805 Funds - Fixed Income ETF 296,762,936 Funds - Short Term Investment 146,706,283 Government Bonds $ 127,144,500 Govn Mortgage Backed Securities 16,119,847 Hedge Event Driven 31,107,834 Short Term Bills and Notes 10,350,281 Totals $ 9,379,871 $ 574,606 $ 4,160,962 $ 4,150,101 $ 0 $ 479,375,964 $ 153,614,628 *Does not include accrued income

Years to Maturity June 30, 2018

Investment Maturities (in years) Maturity Not Investment Type Fair Value* Less than 1 1+ to 6 6+ to 10 10+ Determined Asset Backed Securities $ 11,792,793 $ 11,792,793 Commercial Mortgage-Backed 2,303,184 $ 2,303,184 Corporate Bonds 8,968,474 $ 1,221,509 7,444,242 $ 219,918 82,805 Funds - Fixed Income ETF 296,762,936 $ 296,762,936 Funds - Short Term Investment 146,706,283 146,706,283 Government Bonds 127,144,500 4,212,139 122,932,361 Govn Mortgage Backed Securities 16,119,847 16,119,847 Hedge Event Driven 31,107,834 31,107,834 Short Term Bills and Notes 10,350,281 10,350,281 Totals $ 651,256,132 $ 15,783,929 $ 142,169,396 $ 219,918 $ 18,505,836 $ 474,577,053 *Does not include accrued income

54 2017-2018 ANNUAL FINANCIAL REPORT

Interest Rate Sensitivity - Effective Duration

June 30, 2018

Effective Investment Type Fair Value* Duration Asset Backed Securities $ 11,792,793 0.93 Commercial Mortgage-Backed 2,303,184 0.69 Corporate Bonds 8,885,669 2.19 Corporate Bonds 82,805 N/A Funds - Fixed Income ETF 296,762,936 N/A Funds - Short Term Investment 146,706,283 N/A Government Bonds 127,144,500 3.63 Govn Mortgage Backed Securities 16,119,847 4.80 Hedge Event Driven 31,107,834 N/A Short Term Bills and Notes 10,350,281 0.66 Total $ 651,256,132 *Does not include accrued income

Foreign Currency Risk By Investment Type

June 30, 2018 Currency By Investment and Fair Value* Cash Equity Other Assets AUSTRALIAN DOLLAR $ 5,789,200 $ 1,683,880 CANADIAN DOLLAR (1,136,374) 1,827,566 $ 10,533 SWISS FRANC 10,523 8,110,306 146,702 CHINESE YUAN RENMINBI (6,129,167) DANISH KRONE (46) 9,015 EURO (2,105,037) 33,399,368 271,666 BRITISH POUND STERLING 7,249,878 10,589,282 HONG KONG DOLLAR 86,930 6,100,331 JAPANESE YEN 5,705,398 17,223,428 52,814 SOUTH KOREAN WON 1,499,924 NORWEGIAN KRONE 577,290 869,700 POLISH ZLOTY 1,770 SWEDISH KRONA 2,235,281 165,794 SINGAPORE DOLLAR 938,100 647,304 Totals $ 13,223,746 $ 82,116,883 $ 490,730 *Includes accrued income

55 UNIVERSITY OF ARKANSAS

2D Donor-restricted Endowments Arkansas Code Annotated §28-69-804 states “Subject to the restricted assets until appropriated for expenditure by the intent of a donor expressed in the gift instrument, an institution institution.” may appropriate for expenditure or accumulate so much of an endowment fund as the institution determines is prudent The computation of net appreciation on investments of donor- for the uses, benefits, purposes, and duration for which the restricted endowments that are available for authorization for endowment fund is established. Unless stated otherwise in the expenditure is as follows: gift instrument, the assets in an endowment fund are donor-

Endowment Available for Expenditure

June 30, 2018 Endowment Investments $ 83,255,935 Operating Investment Sweep 229,722 Amounts Receivable 27,477 Funds treated as Endowment (14,873,352) Non-expendable portion of Endowment (25,593,406) Total $ 43,046,376

Note: The amounts shown as available for expenditure and the The University uses a total return policy for investing endowed funds treated as endowments are reported as expendable net funds. The University’s spending policy is to expend 4.4% of the position on the Statement of Net Position. balance of the endowment averaged over the previous twelve quarters. For FY2018, the total takedown percentage of 5.237% includes 0.60% for administrative costs plus other external fees.

3. RECEIVABLES

3A Accounts Receivable Accounts receivable represent charges due the University from A summary of accounts receivable balances at June 30, 2018, are various student fees, room and board, student fines, and other as follows: charges. Accounts receivable also consist of unreimbursed expenses relating to research contracts with federal, state, and private agencies.

Accounts Receivable

June 30, 2018

Type Gross Allowance Net Student Accounts Receivable $ 16,146,365 $ (6,018,175) $ 10,128,190 Non-student Accounts Receivable 24,503,079 (328,446) 24,174,633 Unreimbursed Research Contract Expenses 21,121,864 21,121,864 Totals $ 61,771,308 $ (6,346,621) $ 55,424,687

56 2017-2018 ANNUAL FINANCIAL REPORT

3B Notes Receivable Notes receivable consist of resources made available for provided by the federal government. The federal government financial loans to students of the University, and financing halted the issuance of Perkins loans after June 30, 2018 due agreements between the University and certain organizations to the sunset of the program. The University will continue for the purpose of facilities construction, and an interfund loan collecting on the outstanding loans until management decides between the University and the University of Arkansas System to liquidate the program. The federal student loan default rate eVersity to help fund its initial startup. based on the U.S. Department of Education Cohort default rate was 16.63% for the year ended June 30, 2018. Notes receivable The resources for loans to students include federal funds, funds totaling $43,441 were written off during the fiscal year ended from other external sources, and University funds. New student June 30, 2018. loans totaling $1,645,494 were issued under the Student Loan Programs for the year ended June 30, 2018. Of total campus- A summary of notes receivable balances at June 30, 2018, are as based loans processed, the majority were from Perkins funds follows:

Notes Receivable

June 30, 2018

Type Gross Balance Allowance Net Balance Current Portion Student loans $ 15,131,300 $ (818,478) $ 14,312,822 $ 4,085,451 Loans to Greek organizations 80,528 80,528 80,528 Lease termination 36,552 (36,552) Interfund loan 2,334,262 2,334,262 Totals $ 17,582,642 $ (855,030) $ 16,727,612 $ 4,165,979

Pledges Receivable 3C Pledges receivable consists of gifts pledged for capital A summary of pledges receivable balances at June 30, 2018, are projects, endowments and other purposes. as follows:

Pledges Receivable

June 30, 2018

Category Total Gift Received as of Pledge Outstanding Current Pledge June 30, 2018 as of June 30, 2018 Portion Capital projects $ 51,793,729 $ 12,091,893 $ 39,701,836 $ 11,939,373 Endowments 30,240 2,770 27,470 6,220 Other 176,200 59,100 117,100 39,300 Totals $ 52,000,169 $ 12,153,763 $ 39,846,406 $ 11,984,893

57 UNIVERSITY OF ARKANSAS

4. CAPITAL ASSETS

The following presents a summary of changes in capital assets for the year ended June 30, 2018:

Capital Assets

June 30, 2018

Beginning Ending Balance Additions Retirements Adjustments Balance Nondepreciable Capital Assets Land $ 59,952,817 $ 6,577,461 $ (150,000) $ 66,380,278 Construction in progress 83,517,981 173,975,377 $ (31,453,606) 226,039,752 Other assets 2,208,320 (185,503) 2,022,817 Total Nondepreciable Capital Assets 145,679,118 180,552,838 (335,503) (31,453,606) 294,442,847

Depreciable Capital Assets Buildings 1,592,760,259 1,732,186 (782,581) 24,861,627 1,618,571,491 Equipment 249,281,708 16,357,441 (10,048,858) 255,590,291 Improvements 45,377,081 620,535 5,185,077 51,182,693 Infrastructure 115,582,129 401,454 115,983,583 Intangible assets 77,423,614 1,406,902 78,830,516 Library holdings 90,521,260 1,310,980 (95,495) 91,736,745 Total depreciable capital assets 2,170,946,051 20,422,596 (10,926,934) 31,453,606 2,211,895,319

Less accumulated depreciation Buildings (656,266,729) (50,599,377) 179,785 (706,686,321) Equipment (204,276,522) (15,417,101) 9,947,239 (209,746,384) Improvements (20,968,871) (2,150,302) (6,208) (23,125,381) Infrastructure (53,194,347) (4,566,538) (57,760,885) Intangible assets (76,866,304) (154,590) (77,020,894) Library holdings (76,496,968) (2,732,601) 92,544 (79,137,025) Total accumulated depreciation (1,088,069,741) (75,620,509) 10,213,360 0 (1,153,476,890)

Total Depreciable Capital Assets 1,082,876,310 (55,197,913) (713,574) 31,453,606 1,058,418,429 Total Capital Assets, Net of Accumulated Depreciation $ 1,228,555,428 $ 125,354,925 $ (1,049,077) $ 0 $ 1,352,861,276

Note: Land of $415,652 and building 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.

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

58 2017-2018 ANNUAL FINANCIAL REPORT

5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable balances are summarized as follows:

Accounts Payable Type June 30, 2018 Payable to Outside Vendors $ 38,602,820 Retainage on Construction Contracts 9,446,664 Property Taxes Payable 3,888 Total $ 48,053,372

Accrued payroll liabilities are summarized as follows:

Accrued Payroll Liabilities Type June 30, 2018 Net Salaries and Wages Payable $ 2,316,105 Employee Withholdings Payable 5,453,119 Employer Payroll Taxes and Benefits Matching Payable 6,902,523 Total $ 14,671,747

6. SHORT-TERM BORROWING

GASB Statement No. 38, Certain Financial Statement Note term debt is outstanding at year-end. The University had no Disclosures, states that governments should provide details short-term debt activity during the fiscal year, nor is there any about short-term debt activity during the year, even if no short- outstanding balance of short-term debt as of June 30, 2018.

59 UNIVERSITY OF ARKANSAS

7. COMPENSATED ABSENCES

Employees accrue and accumulate annual and sick leave in sick leave upon retirement shall receive an amount equal to fifty accordance with policies established by the Board of Trustees. percent (50%) of the number of accrued sick leave days (rounded Full time, non-classified, University employees accrue annual to the nearest day) times fifty percent (50%) of the employee’s leave at the rate of fifteen hours per month, classified employees daily salary. A classified employee who has accumulated at least at a variable rate (from 8 to 15 hours per month) dependent upon sixty (60) days, but less than seventy (70) days of sick leave upon number of years of employment in state government. Under retirement shall receive an amount equal to sixty percent (60%) the University’s policy, an employee may carry accrued leave of the number of accrued sick leave days (rounded to the nearest forward from one calendar year to another, up to a maximum day) times 60 percent (60%) of the employee’s daily salary. A of 240 hours (30 working days). Employees who terminate their classified employee who has accumulated at least seventy (70) employment are entitled to payment for all accumulated annual days, but less than eighty (80) days of sick leave upon retirement leave, up to the maximum allowed. shall receive an amount equal to seventy percent (70%) of the number of accrued sick leave days (rounded to the nearest day) Classified employees who meet the conditions to be considered times seventy percent (70%) of the employee’s daily salary. A retirees at the time of termination of employment are entitled classified employee that has accumulated at least eighty (80) or to a partial payment of accumulated, unused sick leave in more days of sick leave upon retirement shall receive an amount accordance with the provisions of Arkansas Code Annotated equal to eighty percent (80%) of the number of accrued sick leave (ACA) §21-4-501. days (rounded to the nearest day) times eighty percent (80%) of the employee’s daily salary. In no event shall an employee receive The University recognizes a liability for compensated absences. a sick leave incentive amount that exceeds $7,500. The liability is based on the value of unused employee vacation and compensatory time as of year-end, including the associated The University recognizes the estimated amount of the liability benefits: contributions to Retirement, Social Security, Medicare, that will be incurred within the next year as a current liability Workers’ Compensation, and Unemployment Insurance. and the balance as noncurrent. The liability also includes amounts paid to eligible classified employees for unused sick leave. A classified employee who has Changes in compensated absences for the year ended June 30, accumulated at least fifty (50) days, but less than sixty (60) days of 2018 are as follows:

Compensated Absences

June 30, 2018

Beginning Ending Current Balance Additions Reductions Balance Portion Compensated Absences $ 21,236,614 $ 835,051 $ 469,285 $ 21,602,380 $ 1,602,373

60 2017-2018 ANNUAL FINANCIAL REPORT

8. LONG-TERM DEBT

The retirement of some bond issues is secured by a specific under the provisions of the debt instruments; accordingly, pledge of certain gross revenues, surplus revenues and specific segment reporting is not required for financial reporting fees. Separate accounting is not required for these facilities purposes.

8A Schedule of Long-Term Debt A summary of long-term debt at June 30, 2018, is as follows:

Long-Term Debt

June 30, 2018

Amount Debt Maturities & Date of Date of Rate of Authorized Outstanding at Refinanced Amounts Issue Maturity Interest & Issued June 30, 2018 June 30, 2018 12/15/2009 11/1/2039 3.00% to 5.00% $ 52,430,000 $ 44,790,000 $ 7,640,000 6/30/2010 9/15/2020 1.00% to 4.82% 23,965,000 7,655,000 16,310,000 6/29/2011 11/1/2040 2.00% to 5.00% 101,225,000 88,370,000 12,855,000 6/29/2011 11/1/2022 3.00% to 5.00% 8,895,000 7,790,000 1,105,000 4/17/2012 11/1/2032 1.00% to 5.00% 56,965,000 47,305,000 9,660,000 9/13/2012 11/1/2042 2.00% to 5.00% 60,540,000 55,745,000 4,795,000 5/16/2013 11/1/2042 1.00% to 5.00% 54,450,000 48,765,000 5,685,000 5/16/2013 9/15/2027 1.00% to 5.00% 30,355,000 22,705,000 7,650,000 6/30/2014 11/1/2043 2.00% to 5.00% 24,730,000 23,155,000 1,575,000 6/30/2014 11/1/2043 0.85% to 4.50% 5,020,000 4,655,000 365,000 2/12/2015 11/1/2036 2.00% to 5.00% 70,360,000 61,675,000 8,685,000 2/12/2015 9/15/2022 2.00% to 5.00% 14,180,000 10,910,000 3,270,000 8/27/2015 11/1/2045 1.02% to 4.40% 7,510,000 7,215,000 295,000 8/27/2015 11/1/2021 2.00% to 5.00% 36,675,000 20,430,000 16,245,000 4/5/2016 11/1/2046 3.00% to 5.00% 93,590,000 89,850,000 3,740,000 4/5/2016 11/1/2028 0.87% to 3.25% 15,280,000 13,195,000 2,085,000 10/19/2016 9/15/2036 5.00% 24,845,000 24,845,000 10/19/2016 9/15/2034 1.192% to 3.388% 90,000,000 90,000,000 8/1/2017 11/1/2047 2.00 to 5.00% 95,805,000 95,805,000 11/30/1991 5/1/2022 5.50% 3,000,000 728,303 2,271,697 11/29/1995 11/1/2034 2.00% to 5.00% 2,071,140 675,931 1,395,209 7/31/2015 7/1/2023 1.97% 4,935,766 3,691,460 1,244,306 7/31/2015 11/19/2023 1.99% 16,969,012 11,259,863 5,709,149 7/31/2015 1/8/2023 1.95% 6,844,590 4,444,778 2,399,812 Various Various Various 2,200,229 1,115,257 1,084,972 Net unamortized premium 91,957,282 75,613,483 16,343,799 Totals $ 994,798,019 $ 862,389,075 $ 132,408,944

61 UNIVERSITY OF ARKANSAS

8B Schedule of Changes in Long-Term Debt Changes in long-term debt for the year ended June 30, 2018, are as follows:

Changes in Long-Term Debt

June 30, 2018 Beginning Ending Current Balance Additions Reductions Balance Portion Bonds $ 694,760,000 $ 95,805,000 $ 25,705,000 $ 764,860,000 $ 30,655,000 Net unamortized premium 63,200,593 16,879,358 4,466,468 75,613,483 4,517,387 Notes 1,584,045 179,811 1,404,234 194,042 Leases 342,502 1,336,435 563,680 1,115,257 358,242 Installment contracts 22,860,038 3,463,937 19,396,101 3,532,892 Totals $ 782,747,178 $ 114,020,793 $ 34,378,896 $ 862,389,075 $ 39,257,563 Note: Amounts shown in “Ending Balance” include both current and long-term portions

8C Future Principal and Interest Payments Total long-term principal and interest payments are as follows: Future Long-Term Payments

Year(s) Principal Interest Total 2019 $ 34,740,176 $ 34,030,119 $ 68,770,295 2020 36,139,703 32,730,664 68,870,367 2021 36,747,299 31,264,041 68,011,340 2022 35,368,634 29,758,514 65,127,148 2023 36,378,963 28,274,748 64,653,711 2024-2028 153,924,760 12 1,602,159 275,526,919 2029-2033 162,701,637 87,494,184 250,195,821 2034-2038 166,409,420 49,472,390 215,881,810 2039-2043 88,440,000 18,229,717 106,669,717 2044-2048 35,925,000 4,244,185 40,169,185 Total Future Payments $ 786,775,592 $ 437,100,721 $ 1,223,876,313 Plus Net Unamortized Premiums 75,613,483 Total Outstanding Debt $ 862,389,075

8D Capital Leases The University has acquired certain equipment under various expense resulting from depreciation of assets recorded under lease-purchase contracts. The cost of equipment and other assets capital leases is included with depreciation expense as reflected held under capital leases totaled $1,397,998 at June 30, 2018. The in the summary of changes in capital assets. See Note 4.

62 2017-2018 ANNUAL FINANCIAL REPORT

Equipment Leases

Accumulated Asset Balance Type of Equipment Cost Depreciation June 30, 2018 Information Technology Equipment $ 108,652 $ 21,730 $ 86,922 Information Technology Equipment 108,652 21,730 86,922 Information Technology Equipment 90,544 18,109 72,435 Information Technology Equipment 90,544 18,109 72,435 Information Technology Equipment 44,048 8,810 35,238 Information Technology Equipment 44,048 8,810 35,238 Information Technology Equipment 44,048 8,810 35,238 Information Technology Equipment 44,048 8,810 35,238 CES Farm Equipment 120,447 12,045 108,402 Research Equipment 61,562 17,588 43,974 Farm Equipment Mainframe Computer Research Equipment Totals $ 756,593 $ 144,551 $ 612,042

Prepaid maintenance and software $ 641,405 $ 132,2671 $ 509,138 Total assets $ 1,397,998 $ 276,818 $ 1,121,180

Total Minimum Lease Payment $ 1,156,567 Less: Amount Representing Interest 41,310 Total Present Value of Net Minimum Lease Payment $ 1,115,257 1Amount equals recognized maintenance and software subscriptions expenses.

8E Nonmonetary Capital Lease On June 7, 2017, the Arkansas Research and Education Optical parties agreed that neither party shall pay a fee and that the Network (AREON) entered into an agreement with E. Ritter initial term of this agreement shall be 20 years. As a result, this Communications Holdings, Inc. (Ritter), for a cooperative is a nonmonetary transaction. The fair market value of the dark exchange of facilities consisting of unused surplus dark fiber fiber received from Ritter was determined to be $785,000. The rather than the separate and distinct construction, ownership, book value of the dark fiber given by AREON was $268,418 and operating of two fiber optic systems. This agreement thereby resulting in a noncash gain on disposal of assets of supersedes a previous capitalized long-term lease agreement $516,582. As of June 30, 2018, the book value of the dark fiber between AREON and Ritter. This exchange is considered an received from Ritter was $706,500. equitable trade of similarly valued surplus dark fiber and both

63 UNIVERSITY OF ARKANSAS

8F Pledged Revenues For purposes of extinguishing the University’s long-term debt The following is a summary of the gross revenues collected issues, certain revenues have been pledged as security. during the fiscal year ended June 30, 2018 that are pledged: Pledged Revenues

Bond Series Revenue Source 2018 Series 2009A Various Facilities Student Tuition and Fees $ 316,569,768 Series 2011A&B Various Facilities Sales and Services 9,324,536 Series 2012A Various Facilities Residential Life 68,982,596 Series 2012B Various Facilities Bookstore1 14,268,240 Series 2013 Various Facilities Student Health Services 2,728,603 Series 2014A&B Various Facilities Transit and Parking 8,785,539 Series 2015A Various Facilities Other Auxiliaries 532,277 Series 2015B Various Facilities Series 2015C Various Facilities Series 2016A Various Facilities Series 2016B Various Facilities Series 2017 Various Facilities Total Various Fac. Pledge $ 421,191,559

Series 2010 Athletic Refunding Men’s Athletic Revenue $ 96,088,279 Series 2013 Athletic Facilities (less game guarantees) (3,743,500) Series 2015 Athletic Facilities Series 2016A Athletic Facilities Series 2016B Athletic Facilities

Total Athletics Pledge $ 92,344,779

1For the purposes of calculating pledged revenues, Bookstore revenues shown include internally generated revenues from sales to the University campus of $2,837,778 for the year ending June 30, 2018.

The Various Facility revenue pledge is used to repay twelve The Athletics revenue pledge is used to repay five athletic various facilities revenue bond issues as detailed in the schedule facilities revenue bond issues as detailed in the schedule above. Proceeds from the bonds provided financing for the above. Proceeds from the bonds provided financing for the construction and renovation of various campus buildings; construction and renovation of various athletic facilities as utility and other infrastructure; land purchases; and refunding well as the refunding of existing debt issues. The maturity date of existing debt issues. The maturity date on the issues range on the issues range from September 2020 to September 2036. from November 2021 through November 2048. Annual Annual principal and interest payments on the bonds are principal and interest payments on the bonds are expected expected to require approximately 13.14% of net revenues to require approximately 11.16% of gross revenues. The total pledged. The total principal and interest remaining to be paid principal and interest remaining to be paid on the bonds is on the bonds is $210,883,881. Principal and interest paid for $989,575,703. Principal and interest paid for the current year and the current year and net revenues were $12,137,916 and gross revenues were $47,006,330 and $421,191,559, respectively. $92,344,779, respectively.

64 2017-2018 ANNUAL FINANCIAL REPORT

8G Fiscal Year 2018 Long-Term Debt Transactions On August 1, 2017, the University issued $95,805,000 in Various acquire capital equipment totaling $120,447. The agreement is Facility Revenue Bonds (Fayetteville Campus), Series 2017, for a total of 5 years and has an interest rate of 3.56%. with an interest rate ranging from 2.0% to 5.0%. The bonds were issued to provide funds to finance various construction On November 7, 2017, the University entered into a capital lease and renovation projects on the University campus and were purchase financing agreement to acquire capital equipment, issued on a tax-exempt basis. Projects include construction related software subscriptions and support totaling $730,624. of an addition to the Pat Walker Student Health Center, an The agreement is for a total of 36 months and has interest rates off-site library storage facility, new student housing facilities, a ranging from 2.48% to 2.61% new black box theater, upgrades to the campus utility system, renovation of Kimpel Hall, and preliminary design of various On January 26, 2018, the University entered into a capital lease other facilities planned for the campus. purchase financing agreement to acquire capital equipment and support totaling $485,364. The agreement is for a total of 5 years On November 21, 2017, the Cooperative Extension Service at an interest rate of 1.23%. entered into a capital lease purchase financing agreement to

8H Refunding Long-Term Debt Transactions On April 5, 2016, the University issued $93,590,000 in Various University was deposited into an escrow account to retire the Facility Revenue Bonds, (Fayetteville Campus), Refunding and bonds. The refunding of the bonds dated October 2, 2007 and Improvement Series 2016A and $15,280,000 in Various Facility all of the bonds dated August 1, 2008 was an advance refunding. Revenue Bonds, (Fayetteville Campus), Refunding Series 2016B. The combined refunding resulted in a difference between the The Series 2016A bonds, with interest rates of 3.0% to 5.0% were reacquisition price and the net carrying amount of the old issued to provide funds to finance various construction and debt of $5,764,322 for the Series 2016A bonds and $1,679,827 renovation projects on the University campus, and to refund for the Series 2016B bonds. These differences, reported in the $38,200,000 of outstanding bonds dated October 2, 2007 (Series accompanying financial statements as Deferred outflows of 2007) with interest rates of 4.0% to 5.0%; and $35,545,000 of resources, will be amortized through the fiscal year 2039 for outstanding bonds dated August 1, 2008 (Series 2008A) with Series 2016A and fiscal year 2029 for Series 2016B. The University interest rates of 4.0% to 5.0%. Net bonds proceeds and premiums completed the refunding to reduce its total debt service payments of $28,504,688 was available to finance construction of a civil over the next twenty-three years by $13,450,092 and to obtain an engineering research and education center, a library storage economic gain of $10,092,618. The escrow balance as of June 30, building, campus entrance signs, intramural sports playing 2018 was $47,179,270. The bonds will have regularly scheduled fields, and an addition to the Pat Walker Student Health Center; principal and interest payments made from the escrow account to finance renovations of student housing; and to continue until the bond call dates of November 1, 2017 for Series 2007 and renovations of Kimpel Hall, and Discovery Hall. The Series November 1, 2018 for Series 2008A and Series 2008B, at which 2016B bonds with interest rates of 0.87% to 3.35% were issued on times the remaining balances of each defeased bond issue will a taxable basis to refund $13,500,000 of outstanding bonds dated be refunded. On November 1, 2017, the remaining outstanding August 1, 2008 (Series 2008B) with interest rates of 5.1% to 6.375%. Series 2007 bonds were called in full. The remaining balance of the defeased bonds as of June 30, 2018, $33,745,000 for Series Net bond proceeds and premiums from Series 2016A and Series 2008A, and $12,460,000 for Series 2008B. 2016B of $94,689,148 along with $1,873,821 of cash from the

65 UNIVERSITY OF ARKANSAS

9. FAIR VALUE MEASUREMENTS

In February 2015, GASB issued Statement No. 72, Fair Value market participants would use in pricing the asset developed Measurement and Application. The Statement established based on market data obtained from independent sources. a fair value hierarchy that prioritizes the inputs to valuation These types of sources would include quoted prices for techniques used to measure fair value. The hierarchy gives the similar assets in active markets, quoted prices for identical or highest priority to unadjusted quoted prices in active markets similar assets in inactive markets, models or other valuation for identical assets or liabilities (Level 1 measurements) and the methodologies. Level 2 investments include U.S. and lowest priority to unobservable inputs (Level 3 measurements). international government debt securities valued at market corroborated prices and certain equity and fixed income An individual investment’s level within the fair value hierarchy investments in commingled investment vehicles reported is based on the lowest level of any input that is significant to at net asset value derived from the market prices of security the fair value measurement. However, the determination of holdings. what constitutes “observable” requires significant judgment by the University. The University considers observable data to be • Level 3: Inputs that are unobservable. Unobserved inputs are market data which is readily available, regularly distributed or those that reflect the University’s own assumptions about the updated, reliable and verifiable, not proprietary, and provided assumptions that market participants would use in pricing by multiple, independent sources that are actively involved the asset developed based on the best information available. in the relevant market. The categorization of an investment These types of sources would include investment manager within the hierarchy is based upon the pricing transparency pricing for private equities, hedge funds and certain limited of that investment and does not necessarily correspond to the partnerships. Limited partner interests in private equity and University’s perceived risk of that investment. other partnerships and hedge fund investments are included in Level 3 and are valued using the individual investment The three levels of the fair value hierarchy are as follows: manager’s reported estimates of fair value developed in accordance with reasonable valuation policies. • Level 1: Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the University The preceding methods may produce a fair value calculation has the ability to access at the measurement date. Publicly that may not be indicative of net realizable value or reflective of traded equity securities and mutual funds are the primary future fair values. Furthermore, although the University believes investments included in Level 1 and are valued at the its valuation methods are appropriate and consistent with individual security’s closing market price other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial • Level 2: Inputs other than quoted prices that are observable instruments could result in a different fair value measurement for the asset or liability, either directly or indirectly. at the reporting date. Observable inputs are those that reflect the assumptions

66 2017-2018 ANNUAL FINANCIAL REPORT

The following table sets forth, by level within the valuation reported as deposits with bond trustees on the Statement of Net hierarchy, University invested funds, including amounts Position, at June 30, 2018:

Investment Instruments Measured at Fair Value

June 30, 2018

Fair Value Measurements Using Quoted Prices in Significant Other Significant Active Markets for Observable Unobservable Identical Assets Inputs Inputs Investments by fair value level June 30, 2018 (Level 1) (Level 2) (Level 3) Equity Securities: US $ 216,403 $ 216,403 Fixed Income Securities: US Government Debt 209,680,707 66,738,950 $ 142,941,757 Other Debt Securities 121,045,690 54,000 120,991,690 Commingled Funds: US Equity 149,178 89,927 59,251 International Equity 51,815 25,828 25,987 US Government Bonds 5,597,335 5,312,989 284,346 Corporate Bonds 269,417 255,453 13,964 Non-marketable alternatives 3,016 $ 3,016 Marketable alternatives 400,149 20,149 380,000 Money markets and short-term investments 3,687 3,687 Total investments by fair value level $ 337,417,397 $ 72,717,386 $ 264,316,995 $ 383,016

Investments measured at the net asset value (NAV) External Investment Pools: Total Return Pool $ 82,073,185 Intermediate Pool 80,059,707 Total investments measured at the NAV 162,132,892 Total investments measured at fair value $ 499,550,289

Debt and equity securities classified in Level 1 of the fair value classified in Level 3 are valued using par value on the face of the hierarchy are valued using prices quoted in active markets for investments or provided by the security custodian. Life-interest those securities. Debt and equity securities classified in Level 2 in real estate classified in Level 3 is valued using an independent of the fair value hierarchy are valued using a funds accounting appraisal dated June 24, 2018. technique or are provided by the security custodian. Securities

67 UNIVERSITY OF ARKANSAS

Investments Measured at the NAV

Fair Unfunded Redemption Redemption Value Commitments Frequency Notice Period External Investment Pools: Total Return Pool1 $ 82,073,185 - Daily 0 – 30 days Intermediate Pool2 80,059,707 - Daily 0 – 30 days Total investments measured at the NAV $ 162,132,892

1 This type includes investments in a broadly diversified external investment pool. Pooled investments include allocations to global equities, hedge funds, bonds, natural resources and real estate. The assets in the pool are accounted for at fair value determined according to the principles of the Financial Accounting Standards Board. A one-week notice is required for redemptions over $1 million. There is also a requirement for 30-days written notice if total withdrawals will exceed $25 million in any 30-day period.

2 This type includes investments in an external investment pool comprised of fixed income investments. The pooled investments are allocated primarily to intermediate and short- term government bonds and investment-grade corporate bonds. The pool also includes allocations to mortgage-backed securities and money market funds. The assets in the pool are accounted for at fair value determined according to the principles of the Financial Accounting Standards Board. A one-week notice is required for redemptions over $1 million. There is also a requirement for 30-days written notice if total withdrawals will exceed $25 million in any 30-day period.

10. NATURAL AND FUNCTIONAL CLASSIFICATIONS OF OPERATING EXPENSES

The following is a reconciliation of the natural classifications as in Net Position to the functional classifications for the year presented in the Statement of Revenues, Expenses, and Changes ended June 30, 2018:

Operating Expenses

June 30, 2018 Natural Classifications Salaries, Wages Scholarships Supplies and Functional Classifications and Benefits and Fellowships Other Services Depreciation Total Instruction $ 182,475,238 $ 31,089,933 $ 213,565,171 Research 95,671,574 41,205,672 136,877,246 Public Service 57,432,704 24,024,592 81,457,296 Academic Support 36,221,154 15,617,883 51,839,037 Student Services 25,564,175 10,755,528 36,319,703 Institutional Support 32,042,624 9,647,949 41,690,573 Scholarships and Fellowships 151,688 $ 22,755,152 95,373 23,002,213 Operation and Maintenance of Plant 17,225,865 32,302,199 49,528,064 Auxiliary Enterprises 65,149,684 91,790,897 156,940,581 Depreciation $ 75,620,509 75,620,509 Totals $ 511,934,706 $ 22,755,152 $ 256,530,026 $ 75,620,509 $ 866,840,393

68 2017-2018 ANNUAL FINANCIAL REPORT

11. OPERATING LEASES

The University has entered into various operating leases for lease rental payments for the fiscal year ended June 30, 2018, buildings and equipment. It is expected that in the normal were $6,918,459. Below are the scheduled payments for the five course of business such leases will continue to be required. succeeding fiscal years and thereafter. The total expenditures for all rental lease payments and non- Future Operating Lease Payments

Year ended June 30 Amount 2019 $ 1,496,740 2020 1,300,222 2021 1,148,601 2022 654,079 2023 329,695 2024-2027 356,435 Total $ 5,285,772

12. EMPLOYEE BENEFITS

12 A Retirement Plans The University assists employees in planning for life beyond their previous record with APERS or ATRS. University of Arkansas working years with generous and flexible retirement benefits. System employees who transfer from one campus to another University employees hired July 1, 2016, and after are required and who were participating in APERS or ARTRS at their prior to participate in the University of Arkansas (UA) Retirement campus can elect to participate in APERS at their new campus. Plan, which includes Teachers Insurance Annuity Association A transfer is defined as a 30-day or fewer break in service. New (TIAA) and/or Fidelity Investments. Participation in the employees of the University will be required to participate in the Arkansas Public Employees Retirement System (APERS) and UA Retirement Plan. the Arkansas Teachers Retirement System (ATRS) is available only to employees employed by the University that have a

University of Arkansas Retirement Plan

Plan Description The University of Arkansas Retirement Plan is a defined shall be applied either to annuities and/or to various mutual contribution plan, offering both a 403(b) program and a 457(b) funds available through Fidelity Investments. Contributions to program, as defined by the Internal Revenue Service Code of TIAA shall be applied to the annuities or various funds available 1986, as amended. The authority under which the Plan’s benefit through TIAA. Arkansas law authorizes participation in the provisions are established or amended is the President of the plan. University or his designee. Contributions to Fidelity Investments

69 UNIVERSITY OF ARKANSAS

Contributions Effective July 1, 2016, all benefits-eligible employees of the the University does not match these additional contributions. University of Arkansas are required to contribute 1% of their All benefits attributable to plan contributions made by the regular salary to the TIAA and/or Fidelity Investments. The participant are vested immediately. All benefits attributable required contribution will increase by 1% each July 1 until July to contributions made by the University for faculty and staff 1, 2020, when the required contribution reaches the maximum hired July 1, 2016, and after, will be vested at the end of 24 required employee contribution of 5%. The University consecutive months of employment, upon death or attainment automatically contributes 5% of an employee’s regular salary to of age 65 while actively employed, or should they become TIAA and/or Fidelity Investments retirement account, allocated disabled while actively employed as determined by the Social between the two companies according to the employee’s choice. Security Administration or the university’s long-term disability For any contributions an employee makes in excess of 5% regular insurance provider. The University’s and participant’s TIAA salary, the University makes an equal contribution, up to the contributions for the year ending June 30, 2018, were $17,166,598 Internal Revenue Service (IRS) limit. Under IRS regulations as and $18,950,981, respectively. The University’s and participants’ of June 30, 2018, the employer contributions can only be made Fidelity Investment contributions for the year ending June 30, on $275,000 of salary. Employee contributions in excess of 10% 2018, were $9,518,929 and $10,532,902, respectively. are allowed by the plans in accordance with IRS regulations but

Arkansas Public Employees Retirement System (APERS)

Plan Description APERS is a cost-sharing, multiple-employer, defined benefit the Arkansas Public Employees Retirement System (the Board). plan administered by the State of Arkansas. The plan was Membership includes three state and three non-state employees, established by the authority of the Arkansas General Assembly all appointed by the Governor, and three ex officio trustees, with the passage of Act 177 of 1957. The costs of administering including the Auditor of the State, the Treasurer of the State and the plan are paid out of investment earnings. The general the Director of the Department of Finance and Administration. administration and responsibility for the proper operation of the APERS issues a publicly available financial report that can be System is vested in the nine members of the Board of Trustees of obtained at http://www.apers.org/publications.

Benefits Provided Benefit provisions are set forth in Arkansas Code Annotated, Members may retire with a reduced benefit at age 55 with at least Title 24, Chapter 4 and may only be amended by the Arkansas 5 years of actual service at age 55, or at any age with 25 years of General Assembly. APERS provides retirement, disability service. and death benefits. Retirement benefits are determined as a percentage of the member’s highest 3-year average compensation Members are eligible for disability benefits with 5 years of times the member’s years of service. The percentage used is based service. Disability benefits are computed as an age and service upon whether a member is contributory or noncontributory as benefit, based on service and pay at disability. Death benefits follows: are paid to a surviving spouse as if the member had 5 years of service and the monthly benefit is computed as if the member Contributory, prior to 7/1/2001 2.11% had retired and elected the Joint & 75% Survivor option. A cost- Contributory, prior to 7/1/2005 2.07% of-living adjustment of 3% of the current benefit is added each Contributory, 7/1/2005 – 6/30/2007 2.03% year. Contributory, on or after 7/1/2007 2.00% Non-Contributory, prior to 7/1/2007 1.75% Effective July 1, 2016, new employees of the University are no Non-Contributory 1.72% longer eligible to participate in the Arkansas Public Employees Retirement System (APERS). Existing APERS participants are Members are eligible to retire with a full benefit under the allowed to continue APERS participation. following conditions:

• at age 65 with 5 years of service, • at any age with 28 years actual service.

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Contributions Contribution requirements are set forth in Arkansas Code began service on or after July 1, 2005, are required to participate Annotated, Title 24, Chapter 4. The contributions are expected in the contributory plan and contribute 5% of their salaries. to be sufficient to finance the costs of benefits earned by Employers are required to contribute at a rate established by the members during the year and make a level payment that, if Board of Trustees of APERS based on an actuary’s determination paid annually over a reasonable period of future years, will fully of a rate required to fund the plan. The University contributed cover the unfunded costs of benefit commitments for services 14.75% of applicable compensation for the fiscal year ended previously rendered. Members who began service prior to July June 30, 2018. The University’s and members’ contributions for 1, 2005, who elected to remain in the non-contributory plan, are the year ending June 30, 2018, were $1,381,943 and $397,642, not required to make contributions to APERS. Members who respectively.

Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2018, the University reported a liability of $13,671,584 There were no significant changes in assumptions for the fiscal for its proportionate share of the net pension liability. The net year ended June 30, 2017. pension liability was measured as of June 30, 2017, and the total pension liability used to calculate the net pension liability Changes of benefit terms that affected measurement of the total was determined by an actuarial valuation as of that date. The pension liability since the prior measurement date included the university’s proportion of the net pension liability was based following: on the university’s share of contributions to the pension plan relative to the total contributions of all participating employers. There were no significant changes in benefit terms for the fiscal At June 30, 2018, the university’s proportion was 0.4000% for year ended June 30, 2017. Fayetteville and 0.1396% for Cooperative Extension Service, for a total proportion of 0.5396%; which was an increase of 0.0039 For the year ended June 30, 2018, the University recognized from its total proportion measured as of June 30, 2017. pension expense of $3,133,429. At June 30, 2018, the University reported deferred outflows of resources and deferred inflows of Changes in assumptions or other inputs that affected pension resources related to pensions from the following sources: liability measurement since the prior measurement date included the following: Net Pension Deferred Inflows and Outflows

Deferred Outflows Deferred Inflows of Resources of Resources Differences between expected and actual experience $ 265,030 $ 268,890 Changes of assumptions or other inputs 2,199,737 0 Net difference between projected and actual earnings on pension plan investments 572,881 0 Changes in the proportion and differences between the employer contributions and share of contributions 1,703,521 89,952 University contributions subsequent to the measurement date 1,381,943 0 Totals $ 6,123,112 $ 358,842

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Deferred outflows of resources of $1,381,943 is related to amounts reported as deferred outflows of resources and deferred pensions resulting from University contributions subsequent inflows of resources related to pensions will be recognized in the to the measurement date will be recognized as a reduction of pension expense in the financial statements as follows: the net pension liability in the year ended June 30, 2019. Other

Amortization of Other Deferred Inflows and Outflows

Year ended June 30: Amount 2018 $ 1,158,909 2019 2,078,486 2020 1,331,187 2021 (186,255) 2022 0 Thereafter 0

Actuarial Assumptions The total pension liability in the June 30, 2017 actuarial valuation was determined using the following actuarial assumptions, pplieda to all periods included in the measurement:

Actuarial Assumptions

Actuarial Cost Method Entry Age Normal Amortization Method Level of Percent of Payroll, Closed Remaining Amortization Period 25 years Asset Valuation Method 4-year smoothed market; 25% corridor Investment Rate of Return 7.50% Salary Increases 3.25% – 9.85% including inflation Wage Inflation 3.25% Post-Retirement Cost-of-Living Increases 3.00% Annual Compounded Increase Retirement Age Experience-based table of rates that are specific to the type of eligibility condition. Last updated for the 2013 valuation pursuant to an experience study for the period 2007-2012. Mortality Table Based on RP-2000 Combined Health mortality table, projected to 2020 using Projection Scale BB, set-forward 2 years for males and 1 year for females Average Service Life of All Members 4.3774

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The long-term expected rate of return on pension plan price inflation. Best estimates of arithmetic real rates of return investments was determined using a building-block method for the 10-year period from 2017 to 2026 were based upon in which best-estimate ranges of expected future real rates of capital market assumptions provided by plan’s investment return are developed for each major asset class. These ranges consultant(s). For each major asset class that is included in the are combined to produce the long-term expected rate of return pension plan’s current asset allocation as of June 30, 2017, these by weighting the expected future real rates of return by the best estimates are summarized in the following table: current asset allocation percentage and by adding expected Expected Rate of Return

Long-Term Expected Asset Class Target Allocation Real Rate of Return Broad Domestic Equity 37% 5.97% International Equity 24 6.54 Real Assets 16 4.59 Absolute Return 5 3.15 Domestic Fixed 18 0.83 Total 100%

Total Real Rate of Return 4.82% Plus: Price Inflation - Actuary’s Assumption 2.5 Less: Investment Expense (Passive) 0 Net Expected Rate of Return 7.32%

Discount Rate A single discount rate of 7.15% was used to measure the total was projected to be available to make all projected future pension liability. This single discount rate was based on the benefit payments of current plan members. Therefore, the expected rate of return on pension plan investments of 7.15%. The long-term expected rate of return on pension plan investments projection of cash flows used to determine this single discount was applied to all periods of projected benefit payments to rate assumed that plan member contributions will be made at determine the total pension liability. The current discount rate the current contribution rate and that employer contributions reflects a 0.35% decrease compared to the 7.5% single discount will be made at rates equal to the difference between actuarially rate used to measure the total pension liability as of the prior determined contribution rates and the member rate. Based on measurement date. these assumptions, the pension plan’s fiduciary net position

Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following presents the University’s proportionate share of using a discount rate that is 1-percentage-point lower (6.15%) or the net pension liability using the discount rate of 7.15%, as well 1-percentage-point higher (8.15%) than the current rate: as what the net pension liability would be if it were calculated

Sensitivity of Discount Rate

1% Discount 1% Decrease Rate Increase (6.15%) (7.15%) (8.15%) $ 20,821,250 $ 13,671,584 $ 7,736,319

73 UNIVERSITY OF ARKANSAS

Pension Plan Fiduciary Net Position Detailed information about the pension plan’s net position is available in the separately issued APERS financial report.

Payables to the Pension Plan The University reported payables to APERS of $121,022 at June 30, 2018.

Arkansas Teacher Retirement System (ATRS) Plan Description ATRS is a cost-sharing, multiple-employer, defined benefit elected and consist of seven active members of ATRS with at pension plan administered by the State of Arkansas. The least five years of actual service, three retired members receiving plan was established by the authority of the Arkansas General an annuity from ATRS, and one active or retired member from Assembly with the passage of Act 266 of 1937. The costs of a minority racial ethnic group. There are also four ex officio administering the plan are paid out of investment earnings. members, including the State Bank Commissioner, the Treasurer The general administration and responsibility for the proper of the State, the Auditor of the State and the Commissioner of operation of the System is vested in the fifteen members of the Education. ATRS issues a publicly available financial report that Board of Trustees of the Arkansas Teacher Retirement System can be obtained at https://www.artrs.gov/publications. (the Board). Membership includes eleven members who are

Benefits Provided Benefit provisions are set forth in Arkansas Code Annotated, Members are eligible for disability benefits with 5 years of Title 24, Chapter 7 and may only be amended by the Arkansas service. Disability benefits are computed as an age and service General Assembly. ATRS provides retirement, disability benefit, based on service and pay at disability. Survivor benefits and death benefits. Retirement benefits are determined as a are payable to qualified survivors upon the death of an active percentage of the member’s highest 3-year average compensation member with 5 years of service. The monthly benefit paid to times the member’s years of service. The percentage used is based eligible spouse survivors is computed as if the member had upon whether a member is contributory or noncontributory as retired and elected the Joint & 100% Survivor option. Minor follows: child survivors receive a percentage of the member’s highest salary earned. ATRS also provides a lump sum death benefit for Contributory 2.15% active and retired members with 10 years of actual service. The Non-Contributory 1.39% amount for contributory members will be up to $10,000 and up to $6,667 for noncontributory members. A cost-of-living Members are eligible to retire with a full benefit under the adjustment of 3% of the current benefit is added each year. following conditions: Effective July 1, 2011, new employees of the University are no • at age 60 with 5 years of credited service, longer eligible to participate in the Arkansas Teacher Retirement • at any age with 28 years credited service. System (ATRS). Existing ATRS participants are allowed to continue ATRS participation. Members with 25 years of credited service who have not attained age 60 may retire with a reduced benefit.

Contributions Contribution requirements are set forth in Arkansas Code 1986. Act 81 of 1999, effective July 1, 1999, requires all new Annotated, Title 24, Chapter 7. The contributions are expected to members to be contributory and allowed active members as of be sufficient to finance the costs of benefits earned by members July 1, 1999, until July 1, 2000, to make an irrevocable choice during the year and make a level payment that, if paid annually to be contributory or noncontributory. Act 93 of 2007 allows over a reasonable period of future years, will fully cover the any noncontributory member to make an irrevocable election unfunded costs of benefit commitments for services previously to become contributory on July 1 of each fiscal year. Employers rendered. ATRS has contributory and noncontributory plans. are required to contribute at a rate established by the Board of The contributory plan has been in effect since the beginning Trustees of ATRS based on an actuary’s determination of a rate of ATRS. The noncontributory plan became available July 1, required to fund the plan. The University contributed 14.00% of

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applicable compensation for the fiscal year ended June 30, 2018. June 30, 2018, were $119,927 and $38,680, respectively. The University’s and member’s contributions for the year ending

Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2018, the University reported a liability of $1,473,290 • The noncontributory multiplier was decreased from 1.39% for its proportionate share of the net pension liability. The net to 1.25% beginning in fiscal year 2020. pension liability was measured as of June 30, 2017, and the • For fiscal year 2018, the three-year final average salary was total pension liability used to calculate the net pension liability calculated for all members. The final average salary for was determined by an actuarial valuation as of that date. The benefit calculation purposes will be the greater of the five- university’s proportion of the net pension liability was based year final average salary at retirement and the three-year on the university’s share of contributions to the pension plan final average salary for fiscal year 2018. relative to the total contributions of all participating employers. • The retiree benefit stipend was removed from the base for At June 30, 2018, the university’s proportion was 0.0325% for COLA calculations and was lowered from $75 to $50 per Fayetteville and 0.0080% for Cooperative Extension Service, for month. a total proportion of 0.0405%, which was a decrease of 0.0021 • The T-DROP interest rate was lowered to a fixed 3% for from its total proportion measured as of June 30, 2017. future crediting. • The T-DROP annuity factors were updated to use a static Changes in assumptions or other inputs that affected pension version of the updated mortality tables and interest rate liability measurement since the prior measurement date changes of 7.5% for fiscal year 2018, 7% for fiscal year 2019, included the following: 6% for fiscal year 2020, 5% for fiscal year 2021, 4% for fiscal year 2022, and 3% for fiscal year 2023 and thereafter. • The assumed rate of interest was lowered from 8% to 7.5%. • The beneficiary annuity factors were updated to use a static • The assumed rate of price inflation was decreased to 2.5%. version of the updated mortality tables and an assumed • The assumed rate of payroll growth was decreased to 2.75%. interest rate of 5%. • The mortality tables changed to RP 2014 Healthy • The Cash Balance Account (CBA) interest rates were Annuitant, Disability Annuitant, and Employee Mortality increased by year of participation. Interest rates are 2.50% Tables adjusted using projection scale MP 2017 based on for Year 1, 2.75% for Year 2, 3.00% for Year 3, 3.25% for Year the ATRS Experience Study. 4, 3.50% for Year 5, and 4.00% for Year 6 and thereafter. • The actuarial assumption used in the June 30, 2017 were • The reduction for early retirement was increased from 5/12 based on the results of an actuarial experience study for the to 10/12 of 1% per month. period of July 1, 2010 – June 30, 2015. For the year ended June 30, 2018, the University recognized Changes of benefit terms that affected measurement of the total pension expense of $79,745. At June 30, 2018, the University pension liability since the prior measurement date included the reported deferred outflows of resources and deferred inflows of following: resources related to pensions from the following sources:

Net Pension Deferred Inflows and Outflows

Deferred Outflows Deferred Inflows of Resources of Resources Differences between expected and actual experience $ 20,417 $ 36,116 Changes of assumptions or other inputs 393,673 0 Net difference between projected and actual earnings on pension plan investments 0 104,063 Changes in the proportion and differences between the employer contributions and share of contributions 0 377,434 University contributions subsequent to the measurement date 119,928 0 Totals $ 534,018 $ 517,613

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Deferred outflows of resources of $119,928 is related to pensions reported as deferred outflows of resources and deferred inflows resulting from University contributions subsequent to the of resources related to pensions will be recognized in the pension measurement date will be recognized as a reduction of the net expense in the financial statements as follows: pension liability in the year ended June 30, 2019. Other amounts Amortization of Other Deferred Inflows and Outflows

Year ended June 30: 2018 $ (8,448) 2019 (46,591) 2020 (33,036) 2021 (854) 2022 (14,594) Thereafter 0

Actuarial Cost Method Entry Age Normal Amortization Method Level of Percent of Payroll, closed Amortization Period 29 years Asset Valuation Method 4-year closed period; 20% corridor Wage Inflation 2.75% Salary Increases 2.75 – 7.75% Investment Rate of Return 7.50% compounded annually Post-Retirement Cost-of-Living Increases 3.00% Simple Mortality Table RP-2014 Healthy Annuitant, Disabled Annuitant, and Employee Mortality Tables were used for males and females. Mortality rates were adjusted using projection scale MP- 2017 from 2006 (94% for men & 84% for women) Retirement Age Experience-based table of rates that are specific to the type of eligibility condition. Last updated for the 2017 valuation pursuant to an experience study for the period July 1, 2010 – June 30, 2015

The long-term expected rate of return on pension plan the target asset allocation percentage and by adding expected investments was determined using a building-block method in inflation. Best estimates of geometric real rates of return were which best-estimate ranges of expected future real rates of return adopted by the plan’s trustees after considering input from the (expected returns, net of pension plan investment expense plan’s investment consultant and actuary. and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by

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For each major asset class included in the System’s target asset allocation as of June 30, 2017, these best estimates are summarized below:

Expected Rate of Return

Long-Term Expected Asset Class Target Allocation Real Rate of Return Total Equity 50% 5.0% Fixed Income 20 1.2 Alternatives 5 4.8 Real Assets 15 3.7 Private Equity 10 6.5 Cash Equivalents 0 0.3 Total 100%

Discount Rate A single discount rate of 7.50% was used to measure the total make all projected future benefit payments of current plan pension liability. This single discount rate was based on the members. Therefore, the long-term expected rate of return on expected rate of return on pension plan investments of 7.50%. The pension plan investments was applied to all periods of projected projection of cash flows used to determine this single discount benefit payments to determine the total pension liability. The rate assumed that plan member contributions will be made at current discount rate reflects a 0.5% decrease compared to the the current contribution rate and that employer contributions 8.0% single discount rate used to measure the total pension will be 14% of payroll. Based on these assumptions, the pension liability as of the prior measurement date. plan’s fiduciary net position was projected to be available to

Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following presents the University’s proportionate share of using a discount rate that is 1-percentage-point lower (6.50%) or the net pension liability using the discount rate of 7.50%, as well 1-percentage-point higher (8.50%) than the current rate: as what the net pension liability would be if it were calculated

Sensitivity of Discount Rate

1% Discount 1% Decrease Rate Increase (6.50%) (7.50%) (8.50%) $ 2,360,231 $ 1,473,290 $ 738,445

Pension Plan Fiduciary Net Position Detailed information about the pension plan’s net position is available in the separately issued ATRS financial report.

Payables to the Pension Plan The University reported payables to ATRS of $9,409 at June 30, 2018.

Other Plans Cooperative Extension Service employees who previously held established retirement benefits for certain federal employees. appointments with the U.S. Department of Agriculture are Congress created the FERS plan in 1986, becoming effective on covered by either the Civil Service Retirement System (CSRS) or January 1, 1987. Since that time new federal civilian employees the Federal Employees Retirement System (FERS), depending who have retirement coverage are covered under the FERS plan. on date of appointment. Both plans are single-employer defined FERS provides benefits from three different sources: a Basic benefit plans. The CSRS plan became effective in 1920, and Benefit Plan, Social Security and the Thrift Savings Plan. As of

77 UNIVERSITY OF ARKANSAS

June 30, 2018, ten active employees were covered under the CSRS amount equal to 1% of salaries to a TSP account established plan and thirteen active employees were covered under the FERS for the participant. Employees may also contribute to their TSP plan. Participants in the CSRS plan contribute 7% of salaries account, with employer matching on the first 5% of employee and employers are required to contribute 7%. Participants in contributions up to 4%. There is no employer matching for CSRS the FERS plan are required to contribute 0.80% of salaries and participants. All contributions are exempt from taxation. The employers are required to contribute 13.7% for the Basic Benefit University’s and participants’ TSP contributions were $50,442 and Social Security portions of the plan benefits. The University’s and $95,928 respectively for the fiscal year ended June 30, 2018. and participants’ CSR and FERS contributions were $208,799 and $69,911 respectively for the fiscal year ended June 30, 2018. Additionally, employees covered by these plans may also participate in the University of Arkansas Retirement Plan which The Thrift Savings Plan (TSP) is the third component of the includes Teachers Insurance Annuity Association (TIAA) FERS plan and is a supplement to the CSRS plan. It is a defined and Fidelity Investments but are not eligible for any additional contribution plan designed to provide retirement income University contribution. for Federal employees similar to a 401(k) plan. The TSP is administered by the Federal Retirement Thrift Investment Board. The University’s participation in the Federal retirement system For FERS participants, employers are required to contribute an plans is not considered material by University management.

12 B Self-Insurance Plans The Board of Trustees of the University of Arkansas System As of January 1, 2014, post age 65, Medicare eligible retirees sponsors self-funded health (including prescription coverage) no longer participate in the University of Arkansas’ self- and dental plans for University of Arkansas System employees funded health and dental benefit plan. Those individuals are and their eligible dependents. All campuses in the University now covered by the UnitedHealthcare Medicare Advantage of Arkansas System participate in the health plan which is PPO plan. administered by the System Administration. The plans are also offered to employees of the University of Arkansas Winthrop For the year ending June 30, 2018, a total of 4,893 active employees, Rockefeller Institute, the University of Arkansas Foundation, former employees, and retirees were participants in the health Inc., the Razorback Foundation, Inc., the Walton Arts Center, plan. The University’s contributions to health coverage are based and the University of Arkansas Technology Development on the employee’s salary and percent of appointment. Six salary Foundation. Operations of the plans are recorded in the separate bands are used to determine the employer contribution with the University of Arkansas consolidated financial report. average contribution for 75%-100% appointed employees being:

Salary Bands

Employer Contribution Salary Range Classic Plan Health Savings Plan Premier Plan Under $28,000 84.18% 90.61% 66.87% Between $28,000 to $38,999 83.42 89.79 65.37 Between $39,000 to $54,999 82.31 88.60 63.63 Between $55,000 to $99,999 81.18 87.38 61.70 Between $100,000 to $149,999 80.05 86.17 60.24 $150,000 and above 79.14 85.18 58.35

The University pays 70% for the health plan for federal employees.

12 C Life Insurance Plan The University of Arkansas System’s life insurance carrier is The University has, from time to time, negotiated early the Standard Life Insurance Company. The University’s life retirement agreements with faculty and staff which may include insurance is a fully-insured arrangement with the premiums the provision of healthcare or other benefits for future periods. being sent directly to the life insurance carrier. There was no liability for these type of agreements at June 30, Expenditures for all employee benefits are included as 2018. expenditures within the appropriate functional area.

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13. OTHER POSTEMPLOYMENT BENEFITS (OPEB)

13 A General Information about the OPEB Plan Plan description. The University of Arkansas System Benefits provided. The University offers postemployment Health Plan (Plan) is a non-ERISA, self-funded medical health (including prescription drugs) and dental benefits benefit plan that provides other postemployment benefits along with life insurance ($10,000 available coverage) to (OPEB) to eligible retirees. The Plan is a single-employer, eligible retirees. Health and dental benefits are provided in the defined benefit plan authorized by the Board of Trustees of the University’s self-funded plan sponsored by the Board of Trustees University of Arkansas and administered by the University of the University of Arkansas System for current and pre-65 President. Within the scope of applicable federal and state retired employees. Although benefits are also provided under regulation, the University President in conjunction with the the University’s plan for the University of Arkansas Foundation, University of Arkansas System Office establishes and amends Inc., the Razorback Foundation, Inc., the University of Arkansas the benefit terms and financing requirements. No assets are Technology Development Foundation, the Walton Arts Center, accumulated in a trust that meets the criteria in paragraph 4 of and the University of Arkansas Winthrop Rockefeller Institute, GASB Statement 75. no postemployment benefit is accrued by the University for these private entities. Financial activities of the plan are reported in In June 2015, GASB issued Statement No. 75, Accounting the University of Arkansas consolidated financial report. and Financial Reporting for Postemployment Benefits Other Than Pensions, which became effective for the fiscal Retirees qualify for postretirement benefits as follows: year ending June 30, 2018. This Statement requires governmental entities to recognize net OPEB liability (asset), payables to • Participation: Employees who retire with a combination of age OPEB plans, and deferred outflows and inflows of resources and years of service of at least 70 and if, immediately prior to related to certain changes in the net OPEB liability (asset) not retirement they have completed ten (10) or more consecutive yet recognized in the OPEB expense on the Statement of years of continuous coverage under the plan. Retirees may Net Position and that most changes in the net OPEB liability cover spouses and eligible dependent children. Surviving be included in OPEB expense in the period of the change. For spouses can continue coverage after retiree’s death. defined benefit OPEB, this Statement also requires that Actuarial Standards of Practice be applied in developing assumptions • Benefit Provided: Retirees participate in the plan at the same and establishes additional requirements for the measurement premium rate as an active employee. of the total OPEB liability and the disclosure of significant assumptions and other inputs used to calculate the OPEB • Required Contribution Ratio: Retirees pay 100% of premium. liability. As a result of the implementation of this Statement, the Employer costs are funded on a pay-as-you-go basis. University accrued $20,587,137 in retiree healthcare liability as of June 30, 2018. Employees covered by benefit terms. At June 30, 2018, the following employees were covered by the benefit terms:

Employees Covered by Benefit Terms

June 30, 2018

Medical Life Inactive employees currently receiving benefit payments (Retirees, Spouses, and Survivors) 84 931 Inactive employees entitled to but not yet receiving benefit payments 0 0 Active employees 4,948 5,267 Totals 5,032 6,198

79 UNIVERSITY OF ARKANSAS

Covered employee data was provided as of February 2018. Since have a hire date as of July 1, 2017. This adjustment was done to the data represents school employees who usually retire/ capture the true census of the systems during the academic year. terminate in June, all the new hires after July 1, 2017 were set to

13 B OPEB Liability At June 30, 2018, the University reported a liability of Actuarial assumptions and other inputs. The total OPEB $20,587,137 for its proportionate share of the net OPEB liability. liability in the June 30, 2017 actuarial valuation was determined The net OPEB liability was measured as of June 30, 2017 and was using the following actuarial assumptions and other inputs, determined by an actuarial valuation as of that date. applied to all periods included in the measurement, unless otherwise specified:

Actuarial Assumptions and Other Inputs

Valuation Date July 1, 2017 Actuarial Cost Method Entry Age Normal Amortization Method 30 years rolling, level % of payroll Asset Valuation Method N/A

Actuarial Assumptions: Rate of Medical Inflation 6.75% grading to 4.00% over 16 years Rate of Pharmacy Inflation 9.00% grading to 4.00% over 16 years Discount Rate 3.58% per annum Rate of Salary Increase for Amortization 4.00% Healthy Mortality Rate RP-2014 Fully Generational Mortality Table for employees and healthy annuitants using projection scale MP-2014. Disabled Mortality Rate RP-2014 Fully Generational Mortality Table for disabled retirees using projection scale MP-2014.

The discount rate was based on the 20-year tax exempt general obligation bond rates published in the Bond Buyer index as of the valuation date

Effective January 1, 2014, the plan for Medicare eligible retirees The dental rates are set to match projected costs. Retirees pay was changed to a fully insured Medicare Advantage program. 100% of the budget rate for coverage. Therefore, the cost for Retirees pay 100% of the premium directly to the insurance dental coverage was excluded from this valuation. carrier. As a result, no liabilities for Medicare eligible retiree medical benefits are included in this valuation.

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13 C Changes in the Proportionate Share of the Net OPEB Liability

Changes in the Proportionate Share of the Net OPEB Liability

Balances at 6/30/2016 (Reporting Date 6/30/2017) $ 23,383,959 Changes for the year: Service cost 1,064,107 Interest 687,316 Changes of benefits 0 Differences between expected and actual experience 0 Changes of assumptions (3,880,123) Contributions - employer 0 Contributions - member 0 Net investment income 0 Benefit payments (668,122) Administrative expense 0 Net changes (2,796,822) Balances at 6/30/2017 (Reporting Date 6/30/2018) $ 20,587,137

Changes of assumptions and other inputs reflect a change in the Sensitivity of the University’s proportionate share of the discount rate from 2.85% in 2016 to 3.58% in 2017. net OPEB liability to changes in the discount rate. The following represents the proportionate share of the net OPEB Changes in the funding method changed from Project Unit liability of the University, as well as what the net OPEB liability Credit (PUC) to Entry Age Normal (EAN) in 2017. would be if it were calculated using a discount rate that is 1-percentage-point lower (2.58 percent) or 1-percentage-point The plan changed to only offering Classic plan to retirees. higher (4.58 percent) than the current discount rate:

There were no investment gains or losses during the measurement year.

Sensitivity of Discount Rate

1% Discount 1% decrease Rate increase (2.58%) (3.58 %) (4.58%) $ 23,353,249 $ 20,587,137 $ 18,310,864

Sensitivity of the University’s proportionate share of the net liability would be if it were calculated using healthcare cost trend OPEB liability to changes in the healthcare cost trend rates. rates that are 1-percentage-point lower (8.0% decreasing to 3.0%) The following represents the proportionate share of the net or 1-percentage-point higher (10.0% decreasing to 5.0%) than OPEB liability of the University, as well as what the net OPEB the current healthcare cost trend rates:

Sensitivity of Healthcare Cost Trend Rates

1% decrease Healthcare Cost Trend Rates 1% increase (8.0% decreasing to 3.0%) (9.0% decreasing to 4.0%) (10.0% decreasing to 5.0%) $ 19,319,717 $ 20,587,137 $ 22,056,048

81 UNIVERSITY OF ARKANSAS

13 D OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB For the year ended June 30, 2018, the University recognized deferred outflows of resources and deferred inflows of resources OPEB expense of $993,998. At June 30, 2018, University reported related to OPEB from the following sources:

Net OPEB Deferred Inflows and Outflows

Deferred Outflows Deferred Inflows of Resources of Resources Differences between expected and actual experience $ 0 $ 0 Changes of assumptions 0 3,122,698 Contributions subsequent to the measurement date 590,970 0 Totals $ 590,970 $ 3,122,698

Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows:

Amortization of Other Deferred Inflows

Year ending June 30: 2019 $ (757,425) 2020 (757,425) 2021 (757,425) 2022 (757,428) 2023 (92,995) Thereafter 0

14. POLLUTION REMEDIATION

GASB Statement 49, Accounting and Financial Reporting for remediation work at that time, the study was considered Phase Pollution Remediation Obligations, establishes standards for 1 of the voluntary remediation of the SEFOR site. During 2014, the accounting and financial reporting of pollution (including DOE appropriated an additional $1 million to review estimated contamination) remediation obligations. The university remediation costs. Of that award, $968,500 was made available completed a study in 2012, funded by a $1,889,647 award from to the university in the 2017 funding obligation. the United States Department of Energy (DOE), to develop a plan for remediation of the Southwest Experimental Fast Oxide During fiscal year 2018, the university received an additional Reactor (SEFOR) site. This study developed an estimate for DOE award totaling $7,904,718. In August 2018 the university future remediation costs and assessed the university’s obligation received an additional DOE award totaling $5,595,282 for remediation at the site. The cost estimate was $26.1 million These awards, combined with the residual left from the 2014 to complete remediation of the site. Although the study appropriation, brought total funds available for remediation concluded that the University was under no obligation to begin costs to $23,968,500. The university began Phase 3B of

82 2017-2018 ANNUAL FINANCIAL REPORT

the voluntary remediation by entering into a contract with Position. All project costs were funded by the DOE award on EnergySolutions, LLC on May 18, 2018 to provide technical a cost reimbursement basis. Drawdowns during fiscal year services for deconstruction and green fielding of the site. 2018 totaled $7,852,519. A receivable of $8,743,334, reflecting Total estimated cost of the Phase 3B voluntary remediation amounts that have not yet been invoiced to the DOE award, project was $9,457,585. Expenses paid during fiscal year 2018 was also established, and is included in the accounts receivable totaled $8,030,005. The remaining project costs to complete reported on the Statement of Net Position. Phase 3B, totaling $7,566,068, were accrued and are included in the accounts payable reported on the Statement of Net The project will be completed once phase 3 has been finished.

15. RISK MANAGEMENT

The University of Arkansas Risk Management Program provides The University of Arkansas does not purchase general liability, insurance coverage for all campuses within the University of errors or omissions, or tort immunity for claims arising from Arkansas System. The role of the System Administration is to third-party losses on University property as the University of analyze and recommend insurance coverage, but it is ultimately Arkansas has sovereign immunity against such claims. Claims up to each campus to inform the System Administration against the University of Arkansas for such losses are heard regarding their specific coverage requirements. before the State Claims Commission. In such cases where the University of Arkansas enters into a lease agreement to hold a All campuses are currently covered under the property and function at a location not owned by the University of Arkansas, auto coverage provided through the System Administration. general liability coverage may be purchased for such functions. The property coverage is insured through FM Global with a $100,000 deductible at the Fayetteville, Medical Sciences, and The University of Arkansas maintains workers’ compensation Little Rock Campuses. All other campuses have a $50,000 coverage through the State of Arkansas program. Premiums are deductible. It is the responsibility of each campus to confirm paid through payroll and are based on a formula calculated by the all building and content values to be covered. The FM Global Department of Finance and Administration which is provided policy also contains earthquake and flood insurance coverage. to the campuses around April 1 of each year to be used for the The System Administration has also secured domestic and upcoming fiscal year. The types of benefits and expenditures foreign terrorism coverage. that are paid include the following: medical expenses, hospital expenses, death benefits, disability, and claimant’s attorney fees. Likewise, with the auto coverage, each campus is responsible for providing a list of vehicles to be covered under the auto coverage Additionally, the University of Arkansas participates in the through Cypress Insurance. The auto coverage has a physical State of Arkansas Fidelity Bond Program for claims of employee damage deductible of $1,000 and provides coverage against dishonesty. This program has a limit of $300,000 recovery liability losses up to $1,000,000 per occurrence. per occurrence with a $2,500 deductible. Premiums are paid annually via a fund transfer from state appropriations to the The University of Arkansas does have an insurance policy Department of Finance and Administration. covering the Razorback Foundation, Inc. and Board of Trustees of the University of Arkansas for the owned aircraft, There have been no reductions in insurance coverage from the which provides coverage liability losses up to $50,000,000 per prior fiscal year. Settled claims resulting from these risks have occurrence and medical coverage of $25,000 per person. not exceeded commercial insurance coverage in any of the past three fiscal years.

83 UNIVERSITY OF ARKANSAS

16. WALTON ARTS CENTER

In 1987, the University of Arkansas and the City of Fayetteville appoint nine additional directors to the Board of Directors engaged in a joint endeavor to operate the Walton Arts of the Arts Center Council while ensuring that the City and Center. Funds were pooled from each entity to provide for University maintain their proportionate number of directors the construction and operation of the center. The University on the Board; to return the City of Fayetteville’s initial payment of Arkansas/City of Fayetteville Arts Foundation, Inc., now of $1.5 million to the Foundation back to the City for the called the Walton Arts Center Foundation, Inc., was established City’s use in the construction of a parking facility adjacent to to administer this project and its funds. Activities of the the Walton Arts Center or as otherwise determined by the foundation were managed by nine directors - three appointed Fayetteville City Council; and with consent by the University by the University, three by the City of Fayetteville, and three to expend the institution’s initial payment of $1.5 million to the recommended by the Foundation that were approved by the Foundation to help defray the construction costs of the proposed mayor and chancellor. enlargement and enhancement of the Walton Arts Center located in Fayetteville, Arkansas. To date, the University’s funds The Walton Arts Center Council, Inc. was formed to construct, placed in the endowment have not been spent. Accordingly, operate, manage, and maintain the Arts Center in Fayetteville, the relationship of the University and Walton Arts Center Arkansas, in accordance with the Interlocal Cooperation Foundation, Inc, remains unchanged. In the event the funds Agreement between the City of Fayetteville and the University of are expended, as provided in the revised agreement, the Walton Arkansas. The ownership of the Arts Center facilities, including Arts Center Foundation, Inc. would no longer be an agent land, is held equally by the City and the University. The Arts for the University nor would the University have the right of Center Council was required to submit an annual budget to appointment of Walton Arts Center Foundation, Inc. directors. both the City and the University for approval. The Board of Trustees of The Arts Center Council was comprised of five An Amended and Restated Interlocal Cooperation Agreement members appointed by the University, five members appointed was also executed that permits the Walton Arts Center to conduct by the City, and ten members appointed at large, all of whom business as a separate, free-standing non-profit corporation; served as volunteers. that budget and operational oversight rests exclusively with the Walton Arts Center Council and confirms the Walton Arts On August 14, 2014, the governing documents establishing and Center is no longer an agent of the University or the City, nor defining the joint endeavor between the City of Fayetteville and restricted to the terms of the original agreement; and affirms the the University of Arkansas to operate the Walton Arts Center Walton Arts Center must comply with the terms of a new lease were revised to ensure clarity and flexibility to allow the Walton agreement executed by the University, City of Fayetteville and Arts Center to meet the arts and entertainment needs of all the Walton Arts Center Council. residents of Northwest Arkansas with a multi-venue system, while at the same time confirming support of the original The lease agreement extends the term to twenty-five years partnership. Revisions were made to the respective Articles of and recognizes the changed scope of the Walton Arts Center. Incorporation of the Walton Arts Center Foundation, Inc. and The lease also provides assurances regarding the on-going the Walton Arts Center Council, Inc. to clarify the purpose quality and type of performances at the Walton Arts Center in of each entity to encompass multiple venues in the Northwest Fayetteville. Arkansas region; to allow the Walton Family Foundation to

84 2017-2018 ANNUAL FINANCIAL REPORT

17. OTHER ENTITIES

University of Arkansas Foundation, Inc. - The Foundation presented below in summary form. The University of Arkansas, operates as a nonprofit benevolent corporation for charitable Fayetteville is the beneficiary of 56.1% of the net assets of the educational purposes. The Board of Trustees of the Foundation Foundation for the year ended June 30, 2018. The remaining includes one (1) member who is also a member of the University’s 43.9% benefits other University of Arkansas campuses for the Board of Trustees. The audited financial statements of the year ended June 30, 2018. Complete financial statements for the Foundation, as of and for the year ended June 30, 2018, which have Foundation can be obtained from the administrative office at been audited by an independent certified public accountant, are 700 Research Center Boulevard, Fayetteville, AR 72701.

Condensed Statement of Financial Position University of Arkansas Foundation, Inc.

2018 Assets Investments, at fair value $ 1,164,638,882 Contributions Receivable, net 27,274,658 Other Receivables 2,983,595 Fixed Assets, Net of Depreciation 257,025 Other Assets 1,492,384 Total Assets $ 1,196,646,544

Liabilities and Net Assets Liabilities $ 17,863,032 Net Assets Unrestricted 106,304,205 Restricted 1,072,479,307 Net Assets 1,178,783,512 Total Liabilities and Net Assets $ 1,196,646,544

Condensed Statement of Activities University of Arkansas Foundation, Inc.

2018 Contributions $ 188,361,346 Other Revenues, Additions and Gains/(Losses) 87,381,574 Total Income and Other Additions/(Losses) $ 275,742,920 Total Expenditures and Other Deductions $ 70,260,449 Increase/(Decrease) in Net Assets $ 205,482,471

85 UNIVERSITY OF ARKANSAS

Arkansas Alumni Association, Inc. – The Arkansas Alumni June 30, 2018 are presented below in summary form. Complete Association, Inc., was incorporated in 1960 for the purposes of financial statements for the Arkansas Alumni Association, promoting the welfare of the University and its graduates and Inc. can be obtained from the administrative office at 491 N. former students. Audited financial statements for the year ended Razorback Road, Fayetteville AR 72701.

Condensed Statement of Financial Position Arkansas Alumni Association, Inc.

2018 Assets Cash and investments $ 3,156,024 Other Assets 10,252,872 Total Assets $ 13,408,896

Liabilities and Net Assets Liabilities $ 1,498,291 Net Assets 11,910,605 Total Liabilities and Net Assets $ 13,408,896

Condensed Statement of Activities Arkansas Alumni Association, Inc.

2018 Income and Other Additions $ 5,860,818 Expenditures and Other Deductions 4,109,104 Increase/(Decrease) in Net Assets $ 1,751,714

University of Arkansas Technology Development development of new technologies that enrich the economic base Foundation – The Foundation was incorporated in May of Arkansas. Audited financial statements for the year ended 2003 and is considered a supporting organization of the June 30, 2018 are presented below in summary form. Complete Fayetteville campus. The Foundation’s mission is to stimulate financial statements for the Foundation can be obtained from a knowledge-based economy through partnerships that lead the administrative office at 535 W. Research Center Boulevard, to new opportunities for learning and discovery, that build Fayetteville, AR 72701. and retain a knowledge-based workforce and that spawn the

Condensed Statement of Financial Position University of Arkansas Technology Development Foundation

2018 Assets Cash and investments $ 1,811,163 Other Assets 13,347 Total Assets $ 1,824,510

Liabilities and Net Assets Liabilities $ 137,262 Net Assets 1,687,248 Total Liabilities and Net Assets $ 1,824,510

86 2017-2018 ANNUAL FINANCIAL REPORT

Condensed Statement of Activities University of Arkansas Technology Development Foundation

2018 Income and Other Additions $ 1,755,067 Expenditures and Other Deductions 1,593,617 Increase/(Decrease) in Net Assets $ 161,450

Arkansas 4-H Foundation, Inc. – The 4-H Foundation was ended June 30, 2018 are presented below in summary form. incorporated in 1951 and was formed to encourage and support Complete financial statements for the 4-H Foundation can be such education purposes that will best meet the needs and obtained from the administrative office at 2301 S. University advance the interest of 4-H youth programs throughout the Avenue, Little Rock, AR 72204. State of Arkansas. Audited financial statements for the year

Condensed Statement of Financial Position Arkansas 4-H Foundation, Inc.

2018 Assets Cash and cash equivalents $ 402,013 Certificates of deposits 207,291 Investments, at fair value 4,228,408 Property and equipment, net 4,899,593 Other assets 79,625 Total Assets $ 9,816,930

Liabilities and Net Assets Liabilities $ 246,638 Net Assets Unrestricted 5,825,599 Restricted 3,744,693 Net Assets 9,570,292 Total Liabilities and Net Assets $ 9,816,930

Condensed Statement of Activities Arkansas 4-H Foundation, Inc.

2018 Income and Other Additions $ 2,313,035 Expenditures and Other Deductions 2,500,726 Increase/(Decrease) in Net Assets $ (187,691)

87 UNIVERSITY OF ARKANSAS

18. RELATED PARTIES

There were significant related party transactions other than The Vice Chancellor for Economic Development is also is a those with component units discussed in Note 1. member of the following Boards of Directors of: Fayetteville Chamber of Commerce, The Sustainability Consortium, The Vice Chancellor for Economic Development is a member Theatre Squared, and Arkansas Children’s. During the fiscal of the Board of Directors of Arvest Bank Fayetteville, one year ended June 30, 2018, the University made payments of sixteen autonomous community-oriented banks which of $13,113, $297,000, $14,021, and $53,958, respectively, comprise Arvest Bank Group, Inc., based in Bentonville, to these related parties. The Dean of the Clinton School of Arkansas. During the fiscal year ended June 30, 2018, the former Public Service is also a member of the Board of Directors of Vice Chancellor and Director of Athletics also served on this Arkansas Children’s. Board. At June 30, 2018, bank balances held at Arvest Bank Group, Inc. banks total $68,029,912 (book balances included on the Statement of Net Position were $67,476,975).

19. COMMITMENTS AND CONTINGENCIES

Construction The University has contracted for the construction and these facilities is $146,792,942, which is expected to be financed renovation of several facilities. At June 30, 2018, the estimated from bond proceeds, private gifts and other university funds. remaining cost to complete the construction and renovation of

Other Commitments The University has agreed to supplement the base rent received the financing arrangements are being repaid is known as the from existing tenants of the Enterprise Center at the Arkansas Chapter House Amortization Period. As of June 30, 2018, four Research and Technology Park to the degree necessary to ensure organizations have entered into financing agreements for the the related debt obligations are met. For the fiscal year ended construction or renovation of their residence facilities. June 30, 2018, the amount of this obligation was $386,524. In the lease agreements, it is stipulated that if the University The University has entered into lease agreements with four exercises its right to terminate the agreement for cause and different Greek organizations (Lessees) that may create future extinguish the Lessee’s leasehold estate for cause at any time commitments to the University. The lease agreements allow the during the Chapter House Amortization Period, the University Greek organizations to either construct new residence facilities shall pay the Lessee an amount equal to the sum of the value of or renovate existing residence facilities on University owned the remaining unamortized value of the bank financing plus the property. The construction and/or renovation of these facilities value of the financing coming from the national organizations is the responsibility of the organizations and shall be financed if any. through a combination of gifts as well as financing from banks and/or national house corporations to be repaid through each As of June 30, 2018, the University’s total potential commitment chapter’s generated revenue. The period of time in which resulting from these lease agreements totaled $45,365,221.

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

88 2017-2018 ANNUAL FINANCIAL REPORT

20. SUBSEQUENT EVENTS

Long-term Debt On July 26, 2018, the University closed the Board of Trustees construction of improvements to the south campus steam and of the University of Arkansas Various Facility Revenue Bonds utility systems; construction and improvement of a remote (Fayetteville Campus), Tax-Exempt Series 2018A and Taxable parking facility; and the acquisition, construction, improvement, Series 2018B with a par amounts of $20,385,000 and $6,560,000, renovation, equipping and/or furnishings of other qualifying respectively. The bonds provide resources for the purpose the capital projects. renovation and reorganization of the interior of Mullin Library; construction, equipping and furnishing of the Student Success Center, an offsite library storage buildings, the Civil Engineering Research and Education Center, and intramural sports facilities;

89 UNIVERSITY OF ARKANSAS

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Employee Benefits

Schedule of University’s Proportional Share of the Net Pension Liability Arkansas Public Employees Retirement System

Last Four Fiscal Years* 2018 2017 2016 2015 University’s proportion of net pension liability 0.5396% 0.5357% 0.4263% 0.3455% University’s proportionate share of net pension liability $ 13,671,584 $ 12,570,257 $ 7,728,708 4,833,430 University’s covered payroll $ 9,695,224 $ 9,013,808 $ 7,329,295 $ 5,914,094 University’s proportionate share of the net pension liability as a percentage of its covered-employee payroll 141.01% 139.46% 105.45% 81.73% Plan fiduciary net position as a percentage of the total pension liability 75.65% 75.50% 80.39% 84.15%

* Information is presented for those years for which it is available until a full 10-year trend is compiled. The amounts presented for each fiscal year were determined as of June 30 of the previous year

Schedule of University Contributions Arkansas Public Employees Retirement System

Last Four Fiscal Years* 2018 2017 2016 2015 Contractually required contribution $ 1,381,943 $ 1,435,567 $ 1,364,539 $ 1,081,804 Contributions in relation to the contractually required contribution (1,381,943) (1,435,567) (1,364,539) (1,081,804) Contribution deficiency (excess) $ 0 $ 0 $ 0 $ 0

University’s covered-employee payroll $ 8,989,803 $ 9,695,224 $ 9,013,808 $ 7,329,295 Contributions as a percentage of covered-employee payroll 15.37% 14.81% 15.14% 14.76%

*Information is presented for those years for which it is available until a full 10-year trend is compiled.

Notes to Required Supplementary Information for the Year Ended June 30, 2018 Changes in benefit terms that significantly affect trends in the Amounts reported in 2016 reflect changes in economic amounts reported in the schedules (APERS): assumptions used in the June 30, 2015 valuation. The investment return (7.50%), price inflation (2.50%) and wage inflation (3.25%) There were no significant changes in benefit terms for the fiscal assumptions were changed and an adjustment of expected year ended June 30, 2017. salary increases (3.25 – 9.85% including inflation) to more closely reflect actual experiences was also reflected in 2016. Changes in the use of different assumptions that significantly affect trends in the amounts reported in the schedules (APERS):

90 2017-2018 ANNUAL FINANCIAL REPORT

Schedule of University’s Proportional Share of the Net Pension Liability Arkansas Teacher Retirement System

Last Four Fiscal Years* 2018 2017 2016 2015 University’s proportion of net pension liability 0.0405% 0.0426% 0.0481% 0.0616% University’s proportionate share of net pension liability $ 1,473,290 $ 1,690,917 $ 1,567,419 $ 1,617,272 University’s covered payroll $ 1,054,878 $ 1,302,421 $ 1,401,043 $ 1,703,007 University’s proportionate share of the net pension liability as a percentage of its covered-employee payroll 139.66% 129.83% 111.88% 94.97% Plan fiduciary net position as a percentage of the total pension liability 79.48% 76.75% 82.20% 84.98%

*Information is presented for those years for which it is available until a full 10-year trend is compiled. The amounts presented for each fiscal year were determined as of June 30 of the previous year.

Schedule of University Contributions Arkansas Teacher Retirement System

Last Four Fiscal Years* 2018 2017 2016 2015 Contractually required contribution $ 119,928 $ 151,184 $ 175,617 $ 196,146 Contributions in relation to the contractually required contribution (119,928) (151,184) (175,617) (196,146) Contribution deficiency (excess) $ 0 $ 0 $ 0 $ 0

University’s covered-employee payroll $ 833,812 $ 1,054,878 $ 1,302,421 $ 1,401,043 Contributions as a percentage of covered-employee payroll 14.38% 14.33% 13.48% 14.00%

*Information is presented for those years for which it is available until a full 10-year trend is compiled.

Notes to Required Supplementary Information for the Year Ended June 30, 2018 Changes of benefit terms that significantly affect trends in the • The Cash Balance Account (CBA) interest rates were increased amounts reported in the schedules (ATRS): by year of participation. Interest rates are 2.50% for Year 1, • The noncontributory multiplier was decreased from 1.39% to 2.75% for Year 2, 3.00% for Year 3, 3.25% for Year 4, 3.50% for 1.25% beginning in fiscal year 2020. Year 5, and 4.00% for Year 6 and thereafter. • For fiscal year 2018, the three-year final average salary was • The reduction for early retirement was increased from 5/12 to calculated for all members. The final average salary for benefit 10/12 of 1% per month. calculation purposes will be the greater of the five-year final average salary at retirement and the three-year final average Changes in the use of different assumptions that significantly salary for fiscal year 2018. affect trends in the amounts reported in the schedules (ATRS): • The retiree benefit stipend was removed from the base for COLA • The assumed rate of interest was lowered from 8% to 7.5%. calculations and was lowered from $75 to $50 per month. • The assumed rate of price inflation was decreased to 2.5%. • The T-DROP interest rate was lowered to a fixed 3% for future • The assumed rate of payroll growth was decreased to 2.75%. crediting. • The mortality tables changed to RP 2014 Healthy Annuitant, • The T-DROP annuity factors were updated to use a static Disability Annuitant, and Employee Mortality Tables adjusted version of the updated mortality tables and interest rate using projection scale MP 2017 based on the ATRS Experience changes of 7.5% for fiscal year 2018, 7% for fiscal year 2019, 6% Study. for fiscal year 2020, 5% for fiscal year 2021, 4% for fiscal year • The actuarial assumption used in the June 30, 2017 were based 2022, and 3% for fiscal year 2023 and thereafter. on the results of an actuarial experience study for the period of • The beneficiary annuity factors were updated to use a static July 1, 2010 – June 30, 2015. version of the updated mortality tables and an assumed interest rate of 5%.

91 UNIVERSITY OF ARKANSAS

Other Postemployment Benefits

Changes in the Proportionate Share of the Net OPEB Liability and Related Ratios

Last Fiscal Year*

2018 Service cost (MOY) $ 1,064,107 Interest (includes interest on service cost) 687,316 Change of benefit terms 0 Difference between expected and actual experience 0 Change of assumptions (3,880,123) Benefit payments, including refunds of member contributions (668,122) Net change in OPEB liability (2,796,822) Total OPEB liability, beginning of the year $ 23,383,959 Total OPEB liability, end of the year $ 20,587,137 Covered-employee payroll $ 300,599,948 Total OPEB liability as a percentage of covered-employee payroll 6.85%

*Information is presented for those years for which it is available until a full 10-year trend is compiled. The amounts presented for each fiscal year were determined as of June 30 of the previous year.

Notes to Schedule: No assets are accumulated in a trust that meets the criteria in paragraph 4 of GABS 75.

Changes in benefit terms that significantly affect trends in the amounts reported in the schedules:

There were no significant changes in benefit terms for the fiscal year ended June 30, 2017.

Changes in the use of different assumptions that significantly affect trends in the amounts reported in the schedules:

The funding method changed from Project Unit Credit (PUC) to Entry Age Normal (EAN) for the June 30, 2017 valuation.

Changes of assumptions and other inputs reflect the changes in the discount rate each period. The following are the discount rates used in each period:

2017: 3.58% 2016: 2.85%

92 2017-2018 ANNUAL FINANCIAL REPORT

93 UNIVERSITY OF ARKANSAS

BOARD OF TRUSTEES, UNIVERSITY OFFICIALS

Mark Waldrip, Chairman C.C. “Cliff” Gibson III Mark Waldrip, of Moro, is founder and Chairman of the Board of Armor C.C. “Cliff” Gibson III of Monticello is founder of Gibson and Keith Law Bank, Chairman of Big Creek Bancshares, LLC and owner and president Firm and serves as county attorney for Drew County, Arkansas. The former of East Arkansas Seeds, Inc. Waldrip is a 1977 graduate of the University of president of the Monticello Economic Development Commission, Gibson Arkansas and was recognized with a Distinguished Alumni Award at his attended the University of Arkansas at Monticello and earned his Juris alma mater in 2017. His term expires in 2020. Doctor at the UALR Bowen School of Law. His term expires in 2023.

John Goodson, Vice Chairman Sheffield Nelson John Goodson of Texarkana is a law partner at Keil & Goodson, P.A. He Sheffield Nelson of Little Rock is a senior partner at Jack Nelson and Jones. earned his bachelor’s degree in 1987 and law degree in 1989 from the He earned his Juris Doctorate from the University of Arkansas School of Law University of Arkansas. His term expires in 2021. and is a graduate of the Arkansas State Teachers College. Nelson is the former chairman, president and CEO of Arkla, and won the Republican nomination Morril Harriman, Secretary for Arkansas Governor in 1990 and 1994. His term expires in 2025. Morril Harriman of Little Rock is an attorney with the Mitchell Williams law firm. He served as Governor Mike Beebe’s chief of staff from 2007 to Tommy Boyer 2015. Prior to that, Harriman served 16 years in the Arkansas Senate. He Tommy Boyer, of Fayetteville, graduated from the University of Arkansas, earned both his bachelor and law degrees from the University of Arkansas, Fayetteville in 1964, where he was also an All-American basketball player. Fayetteville. His term expires in 2024. He retired from the Eastman Kodak Company in 1989, and founded Micro Images in Amarillo, Texas. Within two years, Micro Images had become the Kelly Eichler, Assistant Secretary largest Kodak document imaging systems broker and reseller in the United Kelly Eichler of Little Rock is a graduate of the University of Arkansas, States. Boyer was inducted into the Arkansas Business Hall of Fame in 2013 Fayetteville. A former policy director for Gov. Asa Hutchinson, she earned and the Arkansas Sports Hall of Fame in 2000. His term expires in 2027. a Juris Doctorate from the UALR Bowen School of Law and formerly served as a Pulaski County Deputy Prosecutor, private practice partner and Special Steve Cox Judge in Circuit and Juvenile Courts. Her term expires in 2026. Steve Cox of Jonesboro graduated from the University of Arkansas in 1982 after having earned All Southwest Conference and All America honors David Pryor during his football career as a punter and kicker, later playing in the NFL for David H. Pryor of Fayetteville is a former U.S. senator (1979-1997), Arkansas the Cleveland Browns and Washington Redskins. He rose through the ranks governor (1975-1979) and U.S. congressman (1967-1973). He is founding of banking before becoming a managing partner at Rainwater and Cox LLC, dean of the University of Arkansas Clinton School of Public Service and which oversees ownership and management of an array of commercial, hotel serves on the board of the Corporation for Public Broadcasting. His term and agricultural properties. His term expires in 2018. expires in 2019.

Stephen Broughton Dr. Stephen Broughton of Pine Bluff is a staff psychiatrist for the Southeast Arkansas Behavioral Health System. Broughton earned his bachelor’s degree from the University of Arkansas at Pine Bluff and completed his medical education at the University of Arkansas for Medical Sciences. His term expires in 2022.

Senior Management University of Arkansas Financial Officers

President, University of Arkansas – Donald Bobbitt Vice Chancellor for Finance and Administrations – Chancellor, University of Arkansas – Joseph E. Steinmetz Chris McCoy Vice President for Agriculture – Mark J. Cochran Associate Vice Chancellor for Finance and Administration – Dean of the Clinton School – James L. Rutherford Michael White Director of the Criminal Justice Institute – Cheryl P. May Controller – Larrie Stolfi and Mark E. Hubbell Director of the Archeological Survey – George Sabo III Associate Controller/Senior Director of Financial Management Analysis – Charles D. Ramseyer Executive Director of the Arkansas Research and Education Optical Network – David Merrifield Director of Research Accounting – Nick Freyaldenhoven Director of Student Accounts – Jason Rankin Director of Budget – Christopher E. Frala Director of Information Technology – Kyle Smith Director of Cash Management – Susan V. Slinkard Director of Financial Affairs Compliance– Sandra K. Sturgeon Director of Property Accounting – Janice Harrison

94 2017-2018 ANNUAL FINANCIAL REPORT

Larrie Stolfi Thank You for 50 Years of Dedicated Service to the University of Arkansas

4 Published by Office of Financial Affairs 316 Administration Building Fayetteville, AR 72701

18-284

APPENDIX C

Audited Consolidated Financial Statements of the University of Arkansas System for the Fiscal Year Ended June 30, 2018

[THIS PAGE INTENTIONALLY LEFT BLANK] University of Arkansas System Consolidated Financial Statements 2018 BOARD OF TRUSTEES Mark Waldrip, Chairman

John Goodson, Vice-Chairman

Morril Harriman, Secretary

Kelly Eichler, Assistant Secretary

airman David H. Pryor

Dr. Stephen A. Broughton

Charles “Cliff” Gibson, III

Sheffield Nelson

Mark Waldrip, Board Chairman Tommy Boyer

Steve Cox

ADMINISTRATIVE OFFICERS

Donald R. Bobbitt President

Michael K. Moore Vice President for Academic Affairs

Gina T. Terry Chief Financial Officer

Melissa K. Rust Vice President for University Relations

JoAnn Maxey General Counsel Dr. Donald R. Bobbitt, President

Table of Contents

Board of Trustees & Administrative Officers Inside Front Cover Letter of Transmittal 2 Independent Auditor’s Report 3 Management’s Discussion & Analysis 5

Consolidated Financial Statements Statement of Net Position 17 Statement of Revenues, Expenses, and Changes in Net Position 18 Statement of Cash Flows 19

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

Campus Financial Statements Statement of Net Position 24 Statement of Revenues, Expenses, and Changes in Net Position 26 Statement of Cash Flows 28

Notes to Financial Statements 32

Required Supplementary Information 97

Supplemental Information - Campuses & Affiliates 100

Campus Administrators Inside Back Cover UfA U lVERSITY OF ARKA SAS SYSTEM

December 14, 2018

Board of Trustees and President Donald R. Bobbitt:

It is my pleasure to transmit to you the Audited Financial Statements of the University of Arkansas System for the fiscal year ended June 30, 2018. The data presented, including the Management’s Discussion and Analysis, Statement of Net Position, Statement of Revenues, Expenses, and Changes in Net Position, and Statement of Cash Flows, are presented on a consolidated basis and include all components of the System: UAF (University of Arkansas, Fayetteville, including the Division of Agriculture, 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), UAPTC (University of Arkansas Pulaski Technical College), UACCRM (University of Arkansas Community College at Rich Mountain), 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 Arkansas Legislative Audit. The financial statements from the Medical Sciences campus were audited by KPMG LLP. The consolidated financial statements received an unmodified audit opinion

Gina T. Terry, CPA, CGMA Chief Financial Officer

- 2 Ai-kansas

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Roger A. orman, JD, PA . C "~ B! CJiF Leg islative Auditor

LEG ISLI\TIVE .101 T AUDITI G CO 1MITTEE IIllK,\NSAS L~;GI S I , II1W E A ()(T INDEPENDENT AUDITOR'S REPORT

University of Arkansas SySlom Legislative Joint Auditing Committee

Report on Ihe Financial Statements

Wo have audited the accompanytng financial statements. of (he busincsS·t)IPe activities and the 8ggregale discretely presented componenl units ollho University at Arkansas Syslcm (Univcrsily). on institulion 01higher education of the SIOIC 01 Arkansas. as 0' and for tho VOQ( ondod Juno 30, 2018, and tho relatod oolos to tho finallCial sialomonts, which collectively comprise the U nlvers IIV's basic linancml s[alemanls as ~s'ed in the table 01contents .

Management's Responsjbllify (Of' the Finllncilfl StatemenfS

Management is responsible for the preparation and fair presentation 0llOO30 financial stAtements in accordance with accounting princljJlos genorally accepted in tho United Stalos 01 America; this includos tho design, implemontation, and maintonance 01 internal control relevant to the preparation and fai r presentation of trnanclal st atements lhat ate free from material mlsstalement, whether due 10 fraud or error.

Auditors Respons;bUi,y

Our responsibilily is to expressopinioos on these financial statements based on oo r audit. We did not audit the financial stalements 01 tho University of Arkansas lor Modical Sciences, a unit 01 the Systom, whose statemenlS roUect toUt I assats and rovenues constituting 28% and 500(., respeclively. of the related combined tOlals. Addi 'ona lly, we did not audit the flnarlClal statements of the university 01 Arka sas Foundation, Inc" Md the University 01Ar1

An audit involves performing procedures to obtain audit ovidence about the amounts and disclosures in the linancial statements. Tho procedures selected depend on the audilor's judgement, including tho asscSSlTlBnl 01 the risks of materi<:ll misstatement of the financial slatemonts, whother due to Iraud or arror. In making lhoso risk assessments, tho auditor considers intarnal control relevanl 10 the entity's preparation and fair presentation of the financial slalements in order 10 dBSign audil procel1ures that are appropri ate in the cil'""Cumstances. but not for the pu rpose of expressing an opinion on the etfectiveness of the entity's intemaJ control. Accordngly, we express no such opirion. An audil also indudes evaluating the appropriateness of accounting policies used and Ihe reasonableness of sign i'icant accounting estimates made by management. as "'"'ell as evatua -n9 the overall presentation 0' the filancial statements.

Wo believe thill the audit evidence we have obtained is suffici(lnt and approprialc 10 provide a basis lor our audit opinions. Opinion.

In our opinioo , based on our audit aod the repor1s 01 other auditors, the linancial statements referred to above present fairly. in all material respects. the re.spec1ive linane;iaJ position of the business.fype aclivilies and the aggregate d iscret~y presented componenl units of the University as of June 30, 2016, and the respective changes in linancial position. and vlhe re applicable. cash Hows thereof 'or lI1e year ended in occordance with accounting principlos generally accepted in the United Stales of America.

500 WOODLANE STREET, SUITE t72 ' LlTILE ROCK, AR KANSAS 72201 · ' 099 ' PHONE: 1501) 683-8600 ' FAX: 1501) 683,8605 www.arklegaudi1.gov -3 Empha.ls of "'''rter

As discussed In Notes " 16, and 23 to the flnandaJ statements, 'he beginnir.g net posillon, as reported on the Statemenl 01 Rever.ues, expel)ses, and Changes il) Net Position, was restated due 10 (he impletnentation 01 Govemmental Accounting Standards Boord (GASB) Slate-meni no. 75, Accounting and Financial Repomn!) for PosfsmploymBnl BBneiils Other Than Pensions. Also. a,s discussed in N o ~ o 1 to the final'lcial statement.s. the Univer$ity implemented GA$8 Statomenl no. 81. lff6vocabfo Sp!il-lntorosl Agroomonls. during the year fJ ndcd June 30. 2018. No restatement of the Univcrsily's bC9inning net position was required duo 10 100 adoption of lhis Statement Additionally, as dis<:ussod in Noto 23 to tho finnncial statements. the UnNe 's~'s beginning net position was restated for the correction 01ce nain Iransactions occurring in the previous year. Our opinion Is not modilled with respect 10 theso matters.

Other Maltsrs

Required Supplementary Information

Accounting principles g900ralty aC<:&ptod In 100 Unltod Slatos of Amorica {oquiro that Iho Managomanrs Discussion and Analvsis, cenaln intormatton pertaining to pensions, and certain intormatlon per1ainlng to postemployment benelils other Ihan pensions be presented to supplement Ihe basic financiat statements. Such inlormatton , although not a part of the basic financial staternents. is required by the Governmenlat Aocounting Standards Board who considers it 10 be an essentl part 01 financial reportlno for placing the basic liMncial statements in an appropriate operational, economic, or historical context, We and other auditors have applied certain limited procedures to the required supplementary informalion in acco rdance with auditing slandards generally occopled in Ihe United SIOIOS 01 America, which conslsled 01 inquiries 01 managemenl aboUI tho mothods 01 propanng tho Information and comparing the Information for consistency wllh managemonl's responses (0 our Inquilles, the basic financial stalemenlS, and other knowledge we obtained during our audil of the basic Unanclal SlatemenlS. We do not express an opinion 01 provide any assurance on the Information because the limited procedures do nal provide us with sufficient evidence to express an opinion or plOvicio any assurance.

Othor In'ormofio n

OU r audit was conducted lor the purpose 01 forming opinions on the financial statements that collectively comprise the UnivelsllY'$ basic financial statements, The Statement of Net Posl(k)n by Campus, the Statement of Revenues, Expenses, and Changes in Nel Position by Campus, af1d the Sialemeni oj Cash Flows - Direct t.Aelhod - bV Campus are presented for purposes of addilional anatysis and are not a required par1 of the basic:: flnancial slalements,

The Sialoment 01 Not Pos~ ' on by Campus, Iho Stolemonl 01 Rovonues, Expenses, and Changes in Nel Posil,on by Compus, and tho Sta.amont of Cash Flows - Dlloct MOlhod - by Campus aro tho rosponsiblilly of managomanl and was derivod from and relates dlractty 10 Ihe underlying accounling and Olher records used to prepare Ihe basic financial statements. Such Informatton has been subjecled to lhe auditing p,ocedures applied in the audit of the basic linancial slalomenls and cenain addilional procedures, inclooing c~ r ing and reconciling such inrormation direclty 10 the undellying accounting and other lecords used to prepale the basic lirlBncial statements or to the basic financial statements themselves, and other addltronal procedures to accoldance with auditing slandards generally accepted in the United States of Ame rica. In our opinion, the Slatement of Net Position by Campus. the Slatement 01 Revenues. Expenses. and Changes n Net Position by Campus. and the Stateroont ot CaSh FIo""s - Direct Melhod - by Cilmpus am fairly statod. in .0.11 malerial respe<:ts, in relation 10 the basic finarx:ial &lalamonts as a whole.

Olher Reporting Required by Govemme,,' Audifing Sftfndards

In accordance with Government Auditing Standards, we have also issued our repo~ daled November 19, 2016 on our consideration of the University's Internal control over finanCial reporting and on Our test!! of Its compliance with certain provlsioos at (.a v-'S , regulattons, contracis. M d gran' agreements and other mailers, ThO purpose of thot report Is solOly (0 dos.cribe the scopo of ou r testing 0/ IntelOol control over Ilnan",ol (epo~lng _no compliance and Ihe re",,"s 01 thai testing, and nOllo provide an opinion on the eltectlveness of the University'S Internal conlrol over Iinancial repo~lng or on compliance. Thai ropon Is an Imegral p .~ of an audit per10rmed in ac(ordance with Govemmefll Auditing Standards i1 considering the Universit y's Intemel conllol over financial reporting arld compliance.

Little Rock. Arkansas Novembo r 19, 2018 EOHEI 4 118 ,2,

- 4 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

Introduction University becoming the University of Arkansas-Pulaski Technical College and The University of Arkansas System (“the the University of Arkansas at Rich University”) is pleased to present its Mountain Community College. In financial statements for the fiscal year addition to these campuses, the ended June 30, 2018, with comparative University includes the System statements for the fiscal years ended June Administration, whose financial 30, 2017 and 2016, as originally reported. statements include eVersity, and the The financial information for 2016 does following units that are included in the not include the two campuses who financial statements of the Fayetteville merged into the System, University of campus: Clinton School of Public Arkansas Community College at Rich Service, Division of Agriculture Mountain and University of Arkansas- (Agricultural Experiment Station and the Pulaski Technical College. Cooperative Extension Service), Arkansas Archeological Survey, and The University of Arkansas System (“the Criminal Justice Institute. University”), which prior to 1969 consisted of the Fayetteville and the All programs and activities of the Medical Sciences campuses, was University of Arkansas are governed by expanded in 1969 to include the Little its ten member Board of Trustees who are Rock campus (formerly Little Rock appointed by the Governor for ten-year University), in 1971 to include the terms, which has delegated to the Monticello campus (formerly Arkansas President the administrative authority for A&M College), in 1972 to include the all aspects of the University’s operations. Pine Bluff campus (formerly Arkansas Administrative authority is further AM&N College), in 1996 to include the delegated to the Chancellors, the Vice Phillips campus (formerly Phillips President for Agriculture, the Dean of the County Community College) and the Clinton School, the Director of the Hope campus (formerly Red River Criminal Justice Institute, the Director of Technical College), and in 1998 to the Arkansas Archeological Survey, and include the Batesville campus (formerly the Director of the Arkansas School for Gateway Technical College). On July 1, Mathematics, Sciences and the Arts, who 2001, the University was expanded to have responsibility for the programs and include campuses in Morrilton (formerly activities of their respective campuses or Petit Jean College) and DeQueen state-wide operating division. (formerly Cossatot Community College). The Fort Smith campus (formerly Overview of the Financial Statements Westark College) joined the University and Financial Analysis on January 1, 2002. Forest Echoes Technical Institute and Great Rivers The University’s financial statements are Technical Institute merged with the prepared in accordance with standards Monticello campus on July 1, 2003. The issued by the Governmental Accounting Arkansas School for Mathematics, Standards Board (GASB). The financial Sciences and the Arts, a residential high statement presentation provides a school, joined the University on January comprehensive, entity-wide perspective 1, 2004 On February 1, 2017, Pulaski of the University’s assets, deferred Technical College and Rich Mountain outflows, liabilities, deferred inflows, net Community College joined the position, revenues, expenses, changes in 1 -5 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

net position, and cash flows. The service), deferred inflows of resources financial statements included are the (acquisition of net position by the Statement of Net Position, the Statement University that is applicable to a future of Revenues, Expenses and Changes in reporting period), and net position (assets Net Position, and the Statement of Cash and deferred outflows of resources minus Flows. This discussion has been prepared liabilities and deferred inflows of by management and should be read in resources) are reported in this statement. conjunction with the financial statements Assets and liabilities are presented in the and notes following this section. order of their relative liquidity, and are identified as current or noncurrent. The University has identified two legally Current assets are those assets that can be separate foundations, the University of realized in the coming year, and current Arkansas Foundation, Inc. and the liabilities are expected to be paid within University of Arkansas Fayetteville the next year. Noncurrent assets and Campus Foundation, Inc., that meet the liabilities are not expected to be realized criteria set forth for component units as cash or paid in the subsequent year. These foundations provide financial Assets, deferred outflows of resources, support for the objectives, purposes, and liabilities and deferred inflows of programs of the University. Although the resources are generally measured using University does not control the timing, current values. One exception is capital purpose or amount received by these assets, which are stated at historical cost Foundations, the resources (and income less accumulated depreciation. thereon) they hold and invest are dedicated to the benefit of the University. Net position is divided into three major Because these resources held by the categories. The first category, invested in foundations can only be used by, or for capital assets, net of related debt, reflects the benefit of, the University, and are the equity in property, plant and deemed material, they are considered equipment owned by the University. The component units and are discretely next category is restricted net position presented in the financial statement which is divided into two subcategories, report. Additional information about expendable and nonexpendable. The component units is provided in Note 1. expendable category is available for expenditure by the University, but must Statements of Net Position be spent for purposes as determined by donors and/or external entities that have The Statement of Net Position provides a placed time or purpose restrictions on the fiscal snapshot of the University as of the use of the assets. The corpus of end of the fiscal year. All assets (property nonexpendable restricted resources is that we own and what we are owed by only available for investment purposes. others), deferred outflows of resources The final category is unrestricted net (consumption of net position by the position which is available for any lawful University that is applicable to a future purpose of the University. reporting period), liabilities (what we owe to others and have collected from others before we have provided the

2 - 6 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

Condensed Statements of Net Position

June 30, 2018 June 30, 2017 June 30, 2016 ASSETS Current assets $ 1,259,135,577 $ 1,069,894,334 $ 939,734,038 Capital assets, net 2,855,583,557 2,724,223,833 2,597,819,427 Other assets 387,896,241 486,050,598 364,904,664 Total Assets 4,502,615,375 4,280,168,765 3,902,458,129

DEFERRED OUTFLOWS OF RESOURCES 62,887,011 64,063,832 47,107,697

LIABILITIES Current liabilities 372,590,089 352,818,138 314,934,530 Noncurrent liabilities 1,703,724,196 1,651,150,138 1,426,606,316 Total Liabilities 2,076,314,285 2,003,968,276 1,741,540,846

DEFERRED INFLOWS OF RESOURCES 23,156,359 5,953,926 8,700,386

NET POSITION Net Investment in Capital Assets 1,440,744,532 1,408,755,133 1,370,245,568 Restricted Non-Expendable 76,561,144 74,648,862 68,562,622 Expendable 358,582,144 310,847,885 248,978,971 Unrestricted 590,143,922 540,058,515 511,537,433 Total Net Position $ 2,466,031,742 $ 2,334,310,395 $ 2,199,324,594

The University’s total assets increased dorms and the football stadium $222 5 million, or 5 2% Cash and cash construction in Fayetteville. equivalents increased $13 7 million and investments increased by $63 9 million Deferred outflows of resources consist of Cash and cash equivalents increased $7.7 deferred amounts on refinancing of debt million at UAF and $6 million at UAMS. and deferred amounts related to pensions UAF increased investments $56 3 and other post-employment benefits million, UAFS increased $10 million and (OPEB) Overall, eferredd outflows UAMS decreased $5 5 million Deposits decreased $1 2 million, or (1.8%) held in trust decreased by $17 9 million Deferred outflows related to OPEBs were of which UAF comprised $13 6 million recorded due to the implementation of of the decrease and UACCM $6 5 million GASB 75 and totaled $2 million as a which were related to spending of bond result of actuarially determined amounts. proceeds on capital projects completed The amortization of the debt refunding during 2018 Capital assets increased decreased the deferred outflows balance $131 4 million net of accumulated by $2.7 million. depreciation. Fayetteville had an increase in capital asset additions of over $200 Total liabilities increased $72 4 million, million with depreciation of $75 million. or 3 6%. Estimated third party payor Included in capital assets is construction settlements related to the Medicare and in progress which increased by $171 5 Medicaid programs at UAMS increased million during 2018, including the new $4 9 million from the prior year The

3 -7 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

liability for bonds, notes, capital leases $6 4 million. These increases were offset and installment contracts increased $64 3 by increases and decreases at the million Of that amount, UAF issued new remaining campuses Although bonds that totaled $95 8 million and unrestricted net position is not subject to UALR’s bonds totaled $6 5 million externally-imposed restrictions, the Most of the remainder of the increase is majority of the University’s unrestricted due to new debt for capital leases and net position is subject to internal notes payable at UAMS of $21 6 million designations to meet various specific as well as the premiums on the new commitments. These commitments bonds The additional debt is offset by a include reserves established for future total of $80 9 in repayments during fiscal capital projects, other academic or 2018 The liability for future insurance research priorities; working capital for claims increased by $2 2 million and is self-supporting auxiliary enterprises; and due to the UA Health Plan experiencing reserves for the continued recognition of an overall plan loss ratio of 95% OPEB and pension obligations. compared to a loss ratio of 90% in the previous fiscal year (Note 14). Statements of Revenues, Expenses and Changes in Net Position Deferred inflows of resources related to pension plans increased $2 8 million, or Changes in total net position, as presented 47 5%, as a result of actuarially on the Statement of Net Position, is based determined amounts In addition, the on the activity presented in the Statement implementation of GASB 75 resulted in of Revenues, Expenses and Changes in deferred inflows related to OPEBs of Net Position. The statement presents the $11.5 million and the implementation of revenues earned by the University, both GASB 81 of $2.9 million related to split operating and non-operating, and the interest agreements expenses incurred by the University, both operating and non-operating, and any The increase in net position was $131 7 other revenues, expenses, gains and million, or 5 6% The increase is the losses received or spent by the result of 2018 revenues, expenses and University. Operating revenues are changes in net position, offset by the received for providing goods and services cumulative effect on beginning net to the various customers and position of implementation of GASB 75 constituencies of the University. of a decrease of $7.1 million Net Operating expenses are those expenses investments in capital assets increased paid to acquire or produce the goods and $32 million with UAF comprising $33 9 services provided in return for operating million of the increase offset by changes revenues and to carry out the mission of at the other campuses Restricted net the University. Non-operating revenues position, expendable and non- are revenues received for which goods expendable, increased $49 6 million with and services are not provided. In UAF increasing $63 million offset by accordance with GASB standards, UALR’s decrease of $12 3 million significant recurring sources of Unrestricted net position increased $50 University revenue such as state million with UAF adding $28 4 million, appropriations, gifts, investment income System adding $9 6 million, UAFS and certain grants and contracts are adding $7 4 million, and UALR adding reported as non-operating revenues

4 - 8 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

Condensed Statements of Revenues, Expenses, and Changes in Net Position Year Ended June 30, 2018 June 30, 2017 June 30, 2016 Operating revenues Student tuition and fees $ 397,569,567 $ 379,908,656 $ 339,492,237 Net patient services 1,231,064,000 1,186,364,000 1,176,856,000 Grants and contracts 321,694,307 305,234,008 268,429,502 Auxiliary enterprises 223,709,121 221,654,753 214,263,905 Other 228,138,290 204,772,534 192,410,829 Total operating revenues 2,402,175,285 2,297,933,951 2,191,452,473 Operating expenses Compensation and benefits 1,740,124,575 1,668,589,914 1,555,156,358 Supplies and services 881,853,703 851,807,551 793,383,878 Other 432,839,698 416,088,162 403,526,825 Total operating expenses 3,054,817,976 2,936,485,627 2,752,067,061 Operating Loss (652,642,691) (638,551,676) (560,614,588) Non-operating revenues and expenses State appropriations 445,771,370 443,698,581 402,577,620 Gran t s 151,453,040 148,624,103 133,921,012 Gift s 103,867,343 98,609,383 103,423,775 Other revenue 46,412,860 53,366,271 14,546,338 Non-operating expenses (47,742,113) (50,842,024) (43,334,902) Non-operating income 699,762,500 693,456,314 611,133,843 Income (Loss) before other revenues and expenses 47,119,809 54,904,638 50,519,255 Other revenues and expenses Capital grants and gifts 104,375,914 40,864,347 13,369,683 Other, net (12,267,688) (7,104,726) 1,083,484 Other revenues and expenses 92,108,226 33,759,621 14,453,167 Increase in Net Position 139,228,035 88,664,259 64,972,422 Net Position, beginning of year 2,334,310,395 2,199,324,594 2,134,352,172 GASB 75 OPEB and Other (7,506,688) - - Mergers with UAPTC and UACCRM/(Pension effect) - 46,321,542 - Net Position, beginning of year, as restated 2,326,803,707 2,245,646,136 2,134,352,172 Net Position, end of year $ 2,466,031,742 $ 2,334,310,395 $ 2,199,324,594

The 2018 operating loss of $652 6 million increased $23 4 million, including $4 8 highlights the University’s dependence million in insurance plan revenues due to on non-operating revenues, including increased premiums. UAMS had an state appropriations, to meet the costs of increase of $16 3 million from increased operations and provide funds for the contractual pharmacy activity. acquisition of capital assets. Total operating expenses increased Operating revenues increased $104 2 $118 3 million, or 4% Compensation and million, or 4 5% Net student tuition and benefits increased $71 5 million, or 4 3% fees increased $17 7 million, reflecting increase, over the previous year. The increases for UAF of $13 million and the largest portion of this was at UAMS with remainder spread through the rest of the $56 3 million, or 5 7%, due to increased campuses Net patient services increased staffing for patient volume UAF $44.7 million or 3.8% at UAMS due to increased $24 4 million due in part to increases in inpatient and outpatient support enrollment growth along with volumes Grants and contracts increased increases in salaries for faculty and staff $16 5 million, of which UAF increased The cost of supplies and services $6 3 million and UAMS increased $10 4 increased $30 million, of which $12 8 million Other operating revenue million is attributable to UAMS, UAF

5 -9 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

increased $7 8 million, UALR increased gifts for the benefit of the University are $4 8 million, UAPB increased $2.1 made to the University of Arkansas million and the remainder spread among Foundation, whose financial information the other campuses. The increase at is presented in Note 1. UAMS was due to increases in medical supplies, primarily for a higher surgery Statements of Cash Flows volume, and drugs and medicines for patient care. Scholarships and The Statement of Cash Flows provides fellowships decreased $3 8 million, and information about the cash activity of the depreciation decreased $ 6 million The University during the year. The statement changes were spread throughout the is divided into five parts. The first part campuses. The insurance plan expenses shows the net cash used by the operating increased $21.2 million due to higher activities of the institution. The second costs as previously noted. section reflects cash flows from noncapital financing activities. The third Net non-operating revenues increased by section deals with cash flows from capital $6 3 million, or 9%. State appropriations and related activities, such as the increased $2 1 million, state and local acquisition and construction of capital grants increased $2.2 million, however, assets and proceeds from, and payment investment income decreased $9 8 due to of, debt. The fourth section reflects the the market performance being off from cash flows from investing activities and the previous year. Gain/loss on disposal shows the purchases, proceeds, and of assets increased $3 4 million from a interest received from these activities. loss last year on demolition of UAF The fifth section, not shown in the athletic facilities to a gain due to UAF’s condensed statement below, reconciles selling of long-held real estate by the the net cash used by operating activities Division of Agriculture to the net operating income or loss reflected on the Statement of Revenues, Other changes in net position increased Expenses and Changes in Net Position. $58 3 million, or 172 8% Capital grants This statement aids in the assessment of and gifts increased $63 5 million due to the University’s ability to meet the UAF increase in capital gifts of $65.3 obligations as they become due, the need million for athletic facilities, and the Arts for external financing, and the ability to and Design District. The pollution generate future cash flow. remediation costs increased $3 6 million at UAF during 2018 Similar to the operating loss on the Statement of Revenues, Expenses, and The cumulative effect of the Changes in Net Position, net cash used in implementation of GASB 75 related to operating activities does not reflect all OPEBs decreased beginning net position resources available to the University by $7.1 million. There were two other because generally accepted accounting restatements that totaled $.4 million for principles require state appropriations, corrections of recording grants and gifts and grants to be reported as contracts revenue and capitalization of nonoperating financing activities. The interest expenses. net cash provided by the combination of operating and noncapital financing Gifts reported reflect only a portion of the activities is a better depiction of the gifts available to the University. Most results achieved for the year The net cash 6 - 10 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis for 2018 is $240 4 million, a decrease of relation to the Statements of Revenues, ($39.1) million from the prior year. The Expenses and Changes in Net Position. changes are explained in the discussion in

Condensed Statements of Cash Flows Year Ended June 30, 2018 June 30, 2017 June 30, 2016 Cash provided (used) by: Operating activities $ (471,338,658) $ (422,406,834) $ (420,035,775) Noncapital financing activities 711,770,020 701,949,112 684,549,963 Net cash 240,431,362 279,542,278 264,514,188

Capital and related financing activities (180,191,658) (213,630,820) (217,420,081) Investing activities (46,507,195) (214,558,873) 48,395,650

Net change in cash 13,732,509 (148,647,415) 95,489,757

Cash, beginning of year 434,621,244 556,103,255 460,613,498 Mergers with UAPTC and UACCRM - 27,165,404 - Cash, beginning of the year, restated 434,621,244 583,268,659 460,613,498

Cash, end of year $ 448,353,753 $ 434,621,244 $ 556,103,255

Purchases of capital assets and New debt issued for bonds, notes, and repayments of long-term debt exceeded capital leases offset by payments of debt proceeds and capital grants and gifts principal was a net increase of $64 3 during 2018 which was consistent with million for 2018. The University issued a the previous year. Purchases of total of $102 3 million in bonds, with investments exceeds the proceeds from 94% of that amount representing new sales and maturities of investments in the issues for the Fayetteville campus More current year which was also consistent detailed information about debt activity with last year. The University shifted was discussed previously and is presented cash to investments during the year but in Note 10 not to the extent done in the prior year so the increase in cash was $13 7 million Economic Outlook

Capital Assets and Long-Term Debt The University’s net position increased Activity $139 2 million for 2018. Moody’s last reaffirmed the University’s rating of Aa2 At June 30, 2018, the University had $2.9 with a stable outlook on July 3, 2018 billion of capitalized assets, net of One of the University’s greatest strengths accumulated depreciation of $2 6 billion. is the diverse stream of revenue which Capital additions in 2018 totaled $321 funds its operations, including tuition, million which was offset by depreciation patient services revenue, state of $186 6 million, net of transfers and appropriations, investment income, deletions, resulted in a net increase in grants and contracts, and support from capital assets of $130 9 million individuals, foundations, and corporations. Because the Fayetteville 7 -11 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

campus and the Medical Sciences campus Despite extraordinary efforts this past account for 73 9% of total net position year to reduce and control spending and and 88 1% of operating revenues, increase revenues, UAMS expects discussion below is centered on these two continuing financial challenges in the campuses. near term. State appropriations will remain flat at best over the next several UAMS years. No significant downturn in state

UAMS closed fiscal year 2018 down funding is anticipated. $15.6 million in net position, a much There is continuing uncertainty as to how better outcome than the $39.2 million the changes in the Arkansas Works deficit projected in the budget. UAMS (Medicaid expansion program) will was able to achieve this positive result ultimately affect UAMS. The federal through decreased spending in many of Department of Health and Human UAMS colleges and departments, a $5 Services (DHHS) rejected the plan to million state appropriation from the lower the income limit. However, this is Governor’s Rainy Day fund, reduced still in negotiation. DHHS did endorse Medicaid match requirements, increases the new work requirement and replacing in investment income above budget and a Medicaid’s 90-day retroactive eligibility workforce reduction initiated in January program with a 30-day eligibility 2018, which produced a 600 FTE position provision under the Arkansas program. reduction and annualized cost savings in The new work requirement went into excess of $60 million. UAMS also effect June 2018, but is facing a legal completed a review and modification of challenge at the federal level, a lawsuit revenue cycle procedures and practices the state has joined. Although the over the course of the last year that have changes are expected to have some led to permanent revenue enhancements. negative effect on UAMS patient UAMS is continuing to make revenues, it is too early to measure the improvements in revenue cycle extent of any potential impact. Finally, operations in fiscal year 2019. UAMS anticipates continuing downward The fiscal year 2019 budget reflects a pressure on cost reimbursements. balance of projected revenues and Arkansas Blue Cross and Blue Shield, for expenditures based on conservative example, has announced plans to ratchet estimates of revenue gains in patient down payments closer to Medicare levels services, and includes new budget control over time measures related to position management In summary, the economic outlook for and hiring practices for key clinical UAMS is stable. However, it will require support staff With modest budgetary a continuing commitment to improve the goals to sustain continued support for performance and cost efficiency of UAMS’ mission and maintenance of operations, to manage within budget quality service to patients and students, to limits, and to carefully evaluate the build back university reserves and to financial opportunities and risks ahead. increase funding for capital improvements, deferred maintenance and UAF infrastructure, UAMS expects to finish fiscal year 2019 with a slight increase in Financial and political support from state net position government remains a critical element to the continued financial health of the 8 - 12 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

Fayetteville campus. In 2018, the total 2 74% for resident and 4 92% for general revenue distribution from the nonresident students, respectively, were State, which is a portion of the state necessary in 2018 to maintain the appropriation revenue on the Statement facilities, faculty and other support of Revenues, Expenses and Changes in needed to fulfill the mission. As record Net Position, remained virtually flat at growth in enrollment continues, together $202.9 million. Estimates for 2019 with state funding levels not able to keep indicate general revenue distributions pace with formula calculations, it is from the State will remain flat, with no expected that UAF must continue to look significant increase or decrease. to increases in tuition rates for revenue Management will continue to institute support as well as grow other revenue both internal and external efforts to streams maximize the state resources available, while seeking ways to minimize the Campaign Arkansas is an eight-year effect of state funding levels not keeping comprehensive fundraising effort pace with growth focused on advancing academic opportunity at the Fayetteville campus In 2017, the Arkansas Legislature The goal of the campaign is to raise $1.25 enacted Act 148 which adopted a billion by 2020. All colleges and schools productivity-based funding model for on the UAF campus, as well as many most state-supported higher education other units, will benefit from the institutions. As provided in the Act, the fundraising effort. The campaign is Arkansas Department of Higher critical to the UAF’s future and efforts to Education developed a productivity- keep tuition affordable while enhancing based funding model with measures for academic opportunities for faculty and effectiveness, affordability, and students. Funds raised will support efficiency. That model was first used to scholarships and fellowships, endowed determine funding recommendations for chairs, capital projects, interdisciplinary the 2018-19 academic year and resulted academic programs and other priority in a small increase in funding for the areas that will advance UAF’s goals and Fayetteville campus based on those objectives. Campaign Arkansas had measures UAF does not anticipate raised $947 4 million at the close of 2018. material changes in its funding level over the short term based on the new funding Positive news continues with the UAF policy. fundraising production totals for private gift support for 2018 being the second- We continue to seek ways to manage the best year in the Fayetteville campus’s cost of attendance so that it remains history. Production amounts include gifts affordable while achieving revenue of cash, gifts-in-kind, planned gifts and support necessary to offer a high-quality new pledges. In 2018, UAF recognized university experience. Diverse revenue $292 7 million of private gift support, resources, including state appropriations, surpassing its goal of $245 million. This tuition and fees (net of scholarship support is critical to ensure success for allowances), private support and students and faculty and is a fundamental sponsored grants and contracts all component in meeting budgetary needs. contribute to support the mission of Support received from alumni, friends, teaching, research and service. Tuition organizations and faculty and staff of the and mandatory fee increases totaling Fayetteville campus enhances all aspects

9 -13 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

of the student experience, including All Campuses academic and need-based scholarships; Financial support from state government technology enhancements; new and for all campuses remains a critical renovated facilities; undergraduate, element to the continued financial health graduate and faculty research; study of the University. Arkansas appears to abroad opportunities and innovative have a healthy, growing economy as programs general revenue forecasts are positive and Preliminary figures indicate that UAF the state budget remains balanced. As the enrolled 27,778 students for the fall 2018 unemployment rate remains at record semester, another record enrollment. lows, enrollment in higher education may UAF student enrollment has increased remain flat or decrease at most campuses, 39 9%, or 7,929 students over the past ten so management will continue to budget years. This marks the twentieth conservatively and to emphasize cost consecutive year for enrollment growth. containment. Although the growth trend continues, the rate of growth is becoming more Preliminary data shows that the number controlled, with a 1.3% rate in fall 2017 of enrolled students (headcount) has and 0.8% rate in fall 2018. This more decreased from the fall semester of 2017 sustainable rate of growth is welcomed as to the fall semester of 2018, to 67,524 the Fayetteville campus assesses future The number of full-time equivalent goals and the optimum number of students has also decreased from 54,032 students to 53,191

10 - 14 2018 Revenues $3.255 Billion

Oth".,. I~ %

Reslricled granls & contracts 15%

Patient services, net 38%

2018 Expenses $2.997 Billion

Insurance plan Other 6% 4% Depreciation 6%

Supplies and services Compensation and 28% benefits 56%

-15 UNIVERSITY OF ARKANSAS SYSTEM: Five Year Summary of Key Data

FIVE YEAR SUMMARY OF KEY STUDENT DATA

Enrollment Fall Semester 2018* 2017 2016 2015 2014 Undergraduate Students (Headcount) 58,307 60,283 53,797 53,295 52,990 Graduate Students (Headcount) 9,217 9,385 9,503 9,469 9,119 Total 67,524 69,668 63,300 62,764 62,109

Undergraduate Students (FTE) 46,898 47,700 43,358 43,085 42,949 Graduate Students (FTE) 6,293 6,332 7,340 6,554 6,361 Total 53,191 54,032 50,698 49,639 49,310

Degrees Awarded Fiscal Year Ended June 30, 2018 2017 2016 2015 2014 Certificates 3,333 4,007 2,331 2,369 2,034 Associate 2,425 2,965 2,016 2,226 2,144 Baccalaureate 7,837 7,654 7,774 7,399 7,046 Post-Baccalaureate 292 168 85 144 128 Master's 2,029 2,097 2,074 2,023 1,912 Doctoral 282 249 273 263 246 First Professional 535 548 535 525 544 Total 16,733 17,688 15,088 14,949 14,054 *Preliminary Data Reported by Institutions

- 16 UNIVERSITY OF ARKANSAS SYSTEM: Consolidated Financial Statements FY2018

UNIVERSITY OF ARKANSAS SYSTEM UNIVERSITY OF ARKANSAS SYSTEM UNIVERSITY OF ARKANSAS SYSTEM Statement of Net Position Statement of Net Position Statement of Net Position June 30, 2018 June 30, 2018 June 30, 2018

June 30, 2018 June 30, 2018 June 30, 2018 ASSETS ASSETS ASSETS Current Current Current Cash and cash equivalents Cash and cash equivalents $ 426,739,043 $ 426,739,043 Cash and cash equivalents $ 426,739,043 Investments Investments 498,540,405 498,540,405 Investments 498,540,405 Accounts receivable, net of allowances of $24,509,008 Accounts receivable, net of allowances 124,776,537 of $24,509,008 124,776,537 Accounts receivable, net of allowances of $24,509,008 124,776,537 Patient accounts receivable, net of allowances of $319,668,000Patient accounts receivable, net of allowances 130,932,000 of $319,668,000 130,932,000 Patient accounts receivable, net of allowances of $319,668,000 130,932,000 Inventories Inventories 31,352,556 31,352,556 Inventories 31,352,556 Deposits and funds held in trust by others Deposits and funds held in trust by others 5,902,405 5,902,405 Deposits and funds held in trust by others 5,902,405 Notes receivable, net of allowances of $391,541 Notes receivable, net of allowances of 6,522,941 $391,541 6,522,941 Notes receivable, net of allowances of $391,541 6,522,941 Other assets Other assets 34,369,690 34,369,690 Other assets 34,369,690 Total current assets Total current assets 1,259,135,577 1,259,135,577 Total current assets 1,259,135,577 Non-Current Non-Current Non-Current Cash and cash equivalents Cash and cash equivalents 21,614,710 21,614,710 Cash and cash equivalents 21,614,710 Investments Investments 189,068,980 189,068,980 Investments 189,068,980 Notes receivable, net of allowance of $3,605,489 Notes receivable, net of allowance of 21,097,350 $3,605,489 21,097,350 Notes receivable, net of allowance of $3,605,489 21,097,350 Deposits and funds held in trust by others Deposits and funds held in trust by 127,381,631others 127,381,631 Deposits and funds held in trust by others 127,381,631 Other non-current assets Other non-current assets 28,733,570 28,733,570 Other non-current assets 28,733,570 Capital assets, net of depreciation of $2,617,043,609 Capital assets, net of depreciation 2,855,583,557 of $2,617,043,609 2,855,583,557 Capital assets, net of depreciation of $2,617,043,609 2,855,583,557 Total non-current assets Total non-current assets 3,243,479,798 3,243,479,798 Total non-current assets 3,243,479,798 TOTAL ASSETS TOTAL ASSETS $ 4,502,615,375 $ 4,502,615,375 TOTAL ASSETS $ 4,502,615,375 DEFERRED OUTFLOWS OF RESOURCES DEFERRED OUTFLOWS OF RESOURCES DEFERRED OUTFLOWS OF RESOURCES Debt refunding Debt refunding $ 28,715,694 $ 28,715,694 Debt refunding $ 28,715,694 Other postemployment benefits Other postemployment benefits 2,018,574 2,018,574 Other postemployment benefits 2,018,574 Pensions Pensions 32,152,743 32,152,743 Pensions 32,152,743 TOTAL DEFERRED OUTFLOWS OF RESOURCES TOTAL DEFERRED OUTFLOWS$ 62,887,011 OF RESOURCES $ 62,887,011 TOTAL DEFERRED OUTFLOWS OF RESOURCES $ 62,887,011 LIABILITIES LIABILITIES LIABILITIES Current Current Current Accounts payable and other accrued liabilities Accounts payable and other accrued$ 168,033,495 liabilities $ 168,033,495 Accounts payable and other accrued liabilities $ 168,033,495 Unearned revenue Unearned revenue 49,954,598 49,954,598 Unearned revenue 49,954,598 Funds held in trust for others Funds held in trust for others 6,216,125 6,216,125 Funds held in trust for others 6,216,125 Liability for future insurance claims (Note 14) Liability for future insurance claims 17,401,400(Note 14) 17,401,400 Liability for future insurance claims (Note 13) 17,401,400 Estimated third party payor settlements Estimated third party payor settlements 34,404,000 34,404,000 Estimated third party payor settlements 34,404,000 Compensated absences payable - current portion (Note 9) Compensated absences payable - current 6,522,298 portion (Note 9) 6,522,298 Compensated absences payable - current portion (Note 9) 6,522,298 Liability for other postemployment benefits - current portion (NoteLiability 16) for other postemployment benefits 2,018,574 - current portion (Note 16) 2,018,574 Liability for other postemployment benefits - current portion 2,018,574 Bonds, notes, capital leases and installment contracts payable -Bonds, current notes, portion capital (Note leases 10) and installment 88,039,599 contracts payable - current portion (Note 10) 88,039,599 Bonds, notes, capital leases and installment contracts payable - current portion (Note 10) 88,039,599 Total current liabilities Total current liabilities 372,590,089 372,590,089 Total current liabilities 372,590,089

Non-Current Non-Current Non-Current Unearned revenues, deposits and other Unearned revenues, deposits and other 805,925 805,925 Unearned revenues, deposits and other 805,925 Refundable federal advance - Perkins loans Refundable federal advance - Perkins 16,687,013 loans 16,687,013 Refundable federal advance - Perkins loans 16,687,013 Compensated absences payable (Note 9) Compensated absences payable (Note 86,496,442 9) 86,496,442 Compensated absences payable (Note 9) 86,496,442 Liability for other postemployment benefits (Note 16) Liability for other postemployment benefits 66,786,365 (Note 16) 66,786,365 Liability for other postemployment benefits (Note 16) 66,786,365 Liability for pensions (Note 15) Liability for pensions (Note 15) 79,495,883 79,495,883 Liability for pensions (Note 15) 79,495,883 Bonds, notes, capital leases and installment contracts payable (NoteBonds, 10) notes, capital leases and installment 1,453,452,568 contracts payable (Note 10) 1,453,452,568 Bonds, notes, capital leases and installment contracts payable (Note 10) 1,453,452,568 Total non-current liabilities Total non-current liabilities 1,703,724,196 1,703,724,196 Total non-current liabilities 1,703,724,196 TOTAL LIABILITIES TOTAL LIABILITIES $ 2,076,314,285 $ 2,076,314,285 TOTAL LIABILITIES $ 2,076,314,285 DEFERRED INFLOWS OF RESOURCES DEFERRED INFLOWS OF RESOURCES DEFERRED INFLOWS OF RESOURCES Other postemployment benefits Other postemployment benefits$ 11,459,571 $ 11,459,571 Other postemployment benefits $ 11,459,571 Pensions Pensions 8,779,788 8,779,788 Pensions 8,779,788 Other Other 2,917,000 2,917,000 Other 2,917,000 TOTAL DEFERRED INFLOWS OF RESOURCES TOTAL DEFERRED INFLOWS$ 23,156,359 OF RESOURCES $ 23,156,359 TOTAL DEFERRED INFLOWS OF RESOURCES $ 23,156,359 NET POSITION NET POSITION NET POSITION Net Investment in Capital Assets Net Investment in Capital Assets$ 1,440,744,532 $ 1,440,744,532 Net Investment in Capital Assets $ 1,440,744,532 Restricted Restricted Restricted Non-Expendable Non-Expendable Non-Expendable Scholarships and fellowships Scholarships and fellowships 13,970,721 13,970,721 Scholarships and fellowships 13,970,721 Research Research 6,209,524 6,209,524 Research 6,209,524 Other Other 56,380,899 56,380,899 Other 56,380,899 Expendable Expendable Expendable Scholarships and fellowships Scholarships and fellowships 46,032,609 46,032,609 Scholarships and fellowships 46,032,609 Research Research 67,652,828 67,652,828 Research 67,652,828 Public service Public service 15,499,916 15,499,916 Public service 15,499,916 Capital projects Capital projects 186,361,485 186,361,485 Capital projects 186,361,485 Other Other 43,035,306 43,035,306 Other 43,035,306 Unrestricted Unrestricted 590,143,922 590,143,922 Unrestricted 590,143,922 TOTAL NET POSITION TOTAL NET POSITION$ 2,466,031,742 $ 2,466,031,742 TOTAL NET POSITION $ 2,466,031,742

See accompanying notes. See accompanying notes. See accompanying notes. -17 UNIVERSITY OF ARKANSAS SYSTEM: Consolidated Financial Statements FY2018

UNIVERSITY OF ARKANSAS SYSTEM Statement of Revenues, Expenses, and Changes in Net Position For The Year Ended June 30, 2018

Year Ended Operating Revenues June 30, 2018 Student tuition & fees, net of scholarship allowances of $175,276,652 $ 397,569,567 Patient services, net of contractual allowances of $1,870,735,000 1,231,064,000 Federal and county appropriations 15,175,997 Federal grants and contracts 177,305,664 State and local grants and contracts 88,505,683 Non-governmental grants and contracts 55,882,960 Sales and services of educational departments 62,706,446 Insurance plan 56,487,149 Auxiliary enterprises Athletics, net of scholarship allowances of $2,740,053 112,806,383 Housing/food service, net of scholarship allowances of $28,386,706 79,203,008 Bookstore, net of scholarship allowances of $756,455 13,501,969 Other auxiliary enterprises, net of scholarship allowances of $652,978 18,197,761 Other operating revenues 93,768,698 Total operating revenues 2,402,175,285

Operating Expenses Compensation and benefits 1,740,124,575 Supplies and services 881,853,703 Scholarships and fellowships 64,040,207 Insurance plan 182,157,005 Depreciation 186,642,486 Total operating expenses 3,054,817,976

Operating loss (652,642,691)

Non-Operating Revenues (Expenses) State appropriations, net of Medicaid match payments of $79,747,000 445,771,370 Property and sales tax 13,558,511 Federal grants 101,605,401 State and local grants 48,570,883 Non-governmental grants 1,276,756 Gifts 103,867,343 Investment income (net) 28,443,092 Interest and fees on capital asset-related debt (47,995,602) Gain/loss on disposal of assets 253,489 Other 4,411,257 Net non-operating revenues 699,762,500 Income before other revenues and expenses 47,119,809

Other Changes in Net Position Capital appropriations 979,056 Capital grants and gifts 104,375,914 Adjustments to prior year revenues and expenses (100,241) Extraordinary item-pollution remediation (13,224,210) Other 77,707 Total other revenues and expenses 92,108,226

Increase in net position 139,228,035

Net Position, beginning of year, as originally reported 2,334,310,395 Cumulative effect of GASB No. 75 adoption (7,118,973) Restatements (387,715) Net Position, beginning of year, restated 2,326,803,707

Net Position, end of year $ 2,466,031,742

See accompanying notes. - 18 UNIVERSITY OF ARKANSAS SYSTEM: Consolidated Financial Statements FY2018

UNIVERSITY OF ARKANSAS SYSTEM Statement of Cash Flows - Direct Method For The Year Ended June 30, 2018

Year Ended Cash Flows from Operating Activities June 30, 2018 Student tuition and fees (net of scholarships) $ 400,426,484 Patient and insurance payments 1,194,921,000 Federal and county appropriations 14,936,462 Grants and contracts 313,588,207 Collection of loans and interest 5,333,064 Insurance plan receipts 56,836,253 Auxiliary enterprise revenues: Athletics 111,250,830 Housing and food service 79,013,627 Bookstore 17,016,560 Other auxiliary enterprises 18,442,788 Payments to employees (1,507,473,440) Payments of employee benefits (231,009,124) Payments to suppliers (886,634,643) Loans issued to students (4,711,636) Scholarships and fellowships (63,475,880) Payments of insurance plan expenses (179,892,581) Other 190,093,371 Net cash used by operating activities (471,338,658)

Cash Flows from Noncapital Financing Activities State appropriations 445,654,371 Property and sales tax 13,510,343 Gifts and grants for other than capital purposes 253,492,560 Repayment of loans 762,000 Direct Lending, Plus and FFEL loan receipts 304,189,961 Direct Lending, Plus and FFEL loan payments (302,595,682) PaymentOther agency of principal funds - onnet debt (3,243,533) - Net cash provided by noncapital financing activities 711,770,020

Cash Flows from Capital and Related Financing Activities Distributions from debt proceeds 154,522,954 Capital appropriations 1,008,736 Capital grants and gifts ` 53,250,872 Proceeds from sale of capital assets 128,677 Purchases of capital assets (255,926,874) Payment of capital related principal on debt (75,388,448) Payment of capital related interest and fees (58,013,362) InsurancePayments forproceeds bond refunding and related costs 225,787 - Net cash used by capital and related financing activities (180,191,658)

Cash Flows from Investing Activities Proceeds from sales and maturities of investments 212,472,712 Investment income (net of fees) 3,623,512 Purchases of investments (262,603,419) Net cash used by investing activities (46,507,195)

Net increase in cash 13,732,509 Cash, beginning of the year 434,621,244 Cash, end of year $ 448,353,753

10 -19 UNIVERSITY OF ARKANSAS SYSTEM: Consolidated Financial Statements FY2018

UNIVERSITY OF ARKANSAS SYSTEM Statement of Cash Flows - Direct Method - Continued For The Year Ended June 30, 2018

Year Ended June 30, 2018 Reconciliation of net operating loss to net cash used by operating activities:

Operating loss $ (652,642,691)

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

Depreciation expense 186,642,486 Other miscellaneous operating receipts (219,070) Adjustment to cash for amounts in transit within the system (4,692) Change in assets and liabilities: Receivables, net (627,221) Inventories 1,557,533 Prepaid expenses and other assets (3,864,654) Accounts payable and other accrued liabilities (17,593,796) Unearned revenue 177,711 Liability for future insurance claims 2,221,200 Loans to students and employees 562,055 Refundable federal advance 76,337 Compensated absences 777,467 OPEB liability 3,229,533 Pension related 2,470,997 Other 5,898,147

NET CASH USED BY OPERATING ACTIVITIES $ (471,338,658)

Non-Cash Transactions Capital Gifts $ 18,682,308 Fixed assets acquired by incurring capital lease obligations 13,187,351 Capital outlay & maintenance paid directly from proceeds of debt 1,336,435 Payment of bond proceeds/premium/accrued interest/debt service reserve directly into deposits with trustees/escrow 120,112,792 Payment of bond issuance costs and underwriter's discounts directly from bond proceeds and/or debt service reserve 577,816 Payment of principal & interest on long-term debt from deposits with trustees 206,265 Interest earned on deposits with trustees 2,022,112 Loss on disposal of assets 2,477,829 Valuation adjustment to capital assets 1,363,690 Value of goods received from sponsorship agreements with vendors 3,507,595

See accompanying notes.

- 20 UNIVERSITY OF ARKANSAS SYSTEM: Discretely Presented Component Units FY2018

UNIVERSITY OF ARKANSAS FOUNDATION, INC. Consolidated Statement of Financial Position June 30, 2018

2018 ASSETS Contributions receivable, net $ 27,274,658 Interest receivable 2,983,595 Investments, at fair value 1,164,638,882 Cash value of life insurance 1,492,384 Land 257,025 TOTAL ASSETS $1,196,646,544

LIABILITIES AND NET ASSETS LIABILITIES Accounts payable $ 2,405,368 Annuity obligations 15,457,664 TOTAL LIABILITIES 17,863,032

NET ASSETS Unrestricted 106,304,205 Temporarily restricted 178,339,914 Permanently restricted 894,139,393 TOTAL NET ASSETS 1,178,783,512 TOTAL LIABILITIES AND NET ASSETS $1,196,646,544

UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC. Statement of Financial Position June 30, 2018

2018 ASSETS Contribution receivable, net $ 7,862,099 Investments 565,080,692 TOTAL ASSETS $ 572,942,791

LIABILITIES AND NET ASSETS Accounts Payable $ 943,608

Net Assets: Temporarily restricted 46,640,068 Permanently restricted 525,359,115

Total Net Assets 571,999,183

TOTAL LIABILITIES & NET ASSETS $ 572,942,791

9 -21

11 UNIVERSITY OF ARKANSAS SYSTEM: Discretely Presented Component Units FY2018

UNIVERSITY OF ARKANSAS FOUNDATION, INC. Consolidated Statement of Activities Year Ended June 30, 2018

Year Ended June 30, 2018 Temporarily Permanently Unrestricted Restricted Restricted TOTAL Revenues, Gains and Other Support: Contributions $ 16,299,843 $ 41,104,309 $ 130,957,194 $ 188,361,346 Interest and dividends 4,103,381 6,162,214 462,539 10,728,134 Net realized and unrealized gains on investments 5,025,739 25,782,393 45,845,308 76,653,440 Net assets reclassifications, including released from or satisfaction of restrictions 45,394,437 (45,394,437) - - Total revenues, gains and other support 70,823,400 27,654,479 177,265,041 275,742,920

Expenses and Losses: Program services: Construction 8,000,470 - - 8,000,470 Research 12,463,183 - - 12,463,183 Faculty/staff support 17,995,917 - - 17,995,917 Scholarships and awards 13,775,331 - - 13,775,331 Public/staff relations 1,788,150 - - 1,788,150 Equipment 2,709,416 - - 2,709,416 Sponsored programs 933,788 - - 933,788 Other 8,968,000 - - 8,968,000 Total program services 66,634,255 - - 66,634,255

Supporting services: Management and general 944,028 - - 944,028 Fundraising 2,275,867 - - 2,275,867 Change in value of split-interest agreements 8,809 759 (432,572) (423,004) Provision for loss (recovery) on uncollectible contributions 330,500 423,293 75,510 829,303 Total supporting services 3,559,204 424,052 (357,062) 3,626,194 Total expenses and losses 70,193,459 424,052 (357,062) 70,260,449

Change in Net Assets 629,941 27,230,427 177,622,103 205,482,471

Net Assets, beginning of year 105,674,264 151,109,487 716,517,290 973,301,041

Net Assets, end of year $ 106,304,205 $ 178,339,914 $ 894,139,393 $ 1,178,783,512

10 - 22 UNIVERSITY OF ARKANSAS SYSTEM: Discretely Presented Component Units FY2018

UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC. Statement of Activities Year Ended June 30, 2018

Year Ended June 30, 2018 Temporarily Permanently Unrestricted Restricted Restricted TOTAL Revenues, Gains and Other Support: Contribution $ - $ 9,891,099 $ - $ 9,891,099 Interest and dividends 3,490,572 - 3,490,572 Net realized and unrealized gains on investments 16,169,912 28,036,892 44,206,804 Net assets released from restrictions 19,314,656 (19,314,656) - - Total revenues, gains and other support 19,314,656 10,236,927 28,036,892 57,588,475

Expenses and Losses: Program services: Research 1,052,010 - - 1,052,010 Faculty/staff support 3,071,105 - - 3,071,105 Scholarships and awards 13,467,454 - - 13,467,454 Equipment and technology 1,276,912 - - 1,276,912 Other 447,175 - - 447,175 Total program services 19,314,656 - - 19,314,656

Change in Net Assets - 10,236,927 28,036,892 38,273,819

Net Assets, beginning of year - 36,403,141 497,322,223 533,725,364

Net Assets, end of year $ - $ 46,640,068 $ 525,359,115 $ 571,999,183

-23 UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY2018

UNIVERSITY OF ARKANSAS SYSTEM Statement of Net Position by Campus At June 30, 2018

UNIVERSITY OF ARKANSAS SYSTEM UAMS UAM UAPB SYSTEM CCCUA PCCUA UACCBStatement of Net Position by Campus At June 30, 2018

$ 106,310,000 $ 7,660,027 $ 25,343,374 $ 57,361,598 $ 2,187,184 $ 8,635,101 $ 5,214,941 UAF UAFS UALR UAMS UAM UAPB SYSTEM 109,460,000 - 896,495 3,267,182 ASSETS Current 37,783,000 4,791,139 8,257,302 16,666,939 1,124,710 1,664,939 849,996 Cash and cash equivalents 130,932,000 $ 147,582,098 $ 10,971,079 - $ 9,617,914 $ 106,310,000 $ 7,660,027 $ 25,343,374 $ 57,361,598 Investments 24,534,000 327,801 27,075 321,814,198 4,039,440 - 172,559 48,292,133 109,460,000 59,847 244,716 - Accounts receivable 1,395,918 100,000 55,424,687 4,404,371 - 6,918,574 37,783,000 131 4,791,139 674 8,257,302 16,666,939 Patient accounts receivable 2,357,000 17,684 - 130,932,000 - Inventories 4,776,712 18,040 165,562 24,534,000 327,801 27,075 - Deposits and funds held in trust by others 8,663,000 323,888 20,326 3,524,529 346,102 156,009 759,651 33,604 85,7131,395,918 100,000 - Notes receivable 420,039,000 14,516,457 33,748,077 4,165,979 74,374,639 8,784 4,536,957 - 13,660,804 2,357,000 6,396,040 17,684 - Other assets 21,088,455 356,267 2,016,171 8,663,000 323,888 20,326 346,102 Total current assets 558,376,658 19,797,981 67,770,005 420,039,000 14,516,457 33,748,077 74,374,639 - 731,590 10,509,882 - 384,420 Non-Current 63,693,000 5,400,920 2,687,302 - 75,000 2,100,000 Cash and cash equivalents 17,649 9,766,595 7,997 - 731,590 10,509,882 - Investments 12,433,000 452,497 467,576 83,258,936 16,921,135 - 36,878 12,824,863 89,936 63,693,000 48,8465,400,920 2,687,302 - Notes receivable 21,098,000 2,689,489 12,561,633 - 140,674 386,750 12,433,000 147,936 452,497 467,576 - Deposits and funds held in trust by others 90,952,626 300,000 346,408 6,133,933 21,098,000 2,689,489 - Other non-current assets 745,618,000 52,379,893 108,530,545 28,733,570 2,576,233 13,314,512 - 18,074,494 12,112,805 300,000 Capital assets 842,842,000 61,654,389 122,195,305 1,352,861,276 2,876,233 141,749,020 13,810,810 237,433,114 18,164,430 745,618,000 14,409,587 52,379,893 108,530,545 2,576,233 Total non-current assets 1,568,385,690 168,923,832 256,786,657 842,842,000 61,654,389 122,195,305 2,876,233

TOTAL ASSETS 1,262,881,000 $ 76,170,846 $ 155,943,382$ 2,126,762,348 77,250,872$ 188,721,813$ 18,347,767$ 324,556,662$ 31,825,234 1,262,881,000$ 20,805,627$ 76,170,846 $ 155,943,382 77,250,872

DEFERRED OUTFLOWS OF RESOURCES Debt refunding 4,852,000 528,796 243,610 14,327,274 3,285,119 - $ 85,685 3,732,604 882,984 4,852,000 528,796 316 243,610 - Other postemployment benefits 590,970 46,971 178,341 702,000 66,853 59,176 12,266 Pensions 702,000 66,853 59,176 6,657,130 12,266 1,321,176 6,511 4,362,568 62,221 6,884,000 1,258,629 7,568 297,861 209,304 Other 6,884,000 1,258,629 297,861 209,304 938,754 560,044 1,151,589 - TOTAL DEFERRED OUTFLOWS OF RESOURCES $ 21,575,374 $ 4,653,266 - $ 8,273,513 $ 12,438,000 $ 1,854,278 $ 600,647 $ 221,570 $ 12,438,000 $ 1,854,278 $ 600,647 $ 221,570 $ 1,030,950 $ 1,505,249 $ 1,159,473 LIABILITIES Current Accounts payable and other accrued liabilities $ 69,291,843 $ 3,901,483 $ 4,002,528 $ 94,965,000 $ 3,464,782 $ 2,832,611 $ 1,270,410 Unearned revenue, deposits and other 34,487,884 337,207 1,957,665 11,983,000 221,063 112,094 2,196 Funds held in trust for others $ 94,965,000 $ 3,464,782 $ 2,832,611 1,539,166$ 1,270,410 186,751$ 425,729 676,473$ 923,151 500,000$ 229,951 122,406 2,718,995 - Liability for future insurance claims 11,983,000 221,063 112,094 2,196 271,027 195,224 86,919 17,401,400 Estimated third party payor settlements 500,000 122,406 2,718,995 - 50,570 17,005 34,404,000 16,859 - Refundable federal advance - Perkins loans - current portion 17,401,400 - Compensated absences payable - current portion 1,602,373 164,221 332,108 3,756,000 116,504 162,918 27,668 Liability for other postemployment benefits 34,404,000 - current portion 590,970 - 46,971 178,341 702,000 66,853 59,176 12,266 Bonds, notes, capital leases and installment contracts payable - current portion 39,257,563 5,807,843 - 7,650,331 28,269,000 1,131,192 1,162,466 49,835 Total current liabilities 3,756,000 116,504 162,918 146,769,799 27,668 10,444,476 18,233 14,797,446 174,579,000 28,447 27,5285,122,800 7,048,260 18,763,775 702,000 66,853 59,176 12,266 6,511 62,221 7,568 Non-Current 28,269,000 1,131,192 1,162,466 49,835 294,429 356,496 582,051 Unearned revenues, deposits and other 174,579,000 5,122,800 7,048,260 32,054 18,763,775 1,066,499 247,971 1,582,544 358,000 950,876 93,585 - Refundable federal advance - Perkins loans 14,380,834 - 1,911,000 395,179 - - Compensated absences payable 20,000,007 1,335,451 4,002,682 54,294,000 1,097,893 2,205,058 626,186 Liability for other post employment benefits 19,996,167 1,252,425 5,641,804 29,578,000 1,597,996 2,665,762 396,968 Liability for pensions 358,000 93,585 15,144,874 3,449,808 - 10,200,416 74,315 16,315,000 3,379,525 737,280 500,622 Bonds, notes, capital leases, installment 1,911,000 contracts payable 395,179 - 823,131,512 64,593,006 - 114,088,593 272,671,000 28,594,721 31,847,329 5,276,815 Total non-current liabilities 54,294,000 1,097,893 2,205,058 892,685,448 626,186 70,630,690 346,436 134,181,466 471,548 375,127,000 442,850 35,065,314 37,549,014 6,800,591 TOTAL LIABILITIES 29,578,000 1,597,996 2,665,762$ 1,039,455,247 $ 396,968 81,075,166 $ 483,020 148,978,912 $ 1,239,719 549,706,000 $ 377,082 40,188,114 $ 44,597,274 $ 25,564,366 16,315,000 3,379,525 737,280 500,622 2,554,492 1,295,816 2,948,854 DEFERRED INFLOWS OF RESOURCES Other postemployment benefits $ 3,122,698 $ 139,499 $ 1,095,664 $ 4,952,000 $ 273,483 $ 306,983 $ 60,291 Pensions 876,455 559,114 835,567 409,000 527,428 168,150 89,648 Other 2,917,000 - TOTAL DEFERRED INFLOWS OF RESOURCES $ 3,999,153 $ 698,613 $ 1,931,231 $ 8,278,000 $ 800,911 $ 475,133 $ 149,939

NET POSITION Net Investment in Capital Assets $ 584,452,193 $ 74,633,290 $ 119,362,726 464,948,000 $ 25,872,266 $ 75,823,144 2,403,056 Restricted Non-Expendable Scholarships and fellowships 8,653,550 295,644 3,716,771 394,000 56,017 Research 5,739,659 148,306 321,559 Other 11,132,184 8,368 5,597,604 35,659,000 44,642 3,939,101 Expendable Scholarships and fellowships 16,455,616 167,015 597,206 26,503,000 322,551 1,299,038 Research 36,195,322 529,725 28,328,000 1,893,260 706,521 Public service 8,525,109 48,344 6,639,644 286,819 Capital projects 89,811,179 496,580 308,009 88,467,000 697,870 3,205,668 Other 24,470,375 3,829,115 3,254,128 688,507 2,449,267 Unrestricted 319,448,135 32,122,944 41,765,913 73,036,000 7,139,427 23,762,064 49,355,081

TOTAL NET POSITION $ 1,104,883,322 $ 111,601,300 $ 181,920,032 $ 717,335,000 $ 37,036,099 $ 111,471,622 $ 51,758,137

See accompanying notes.

- 24 UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY2018

UNIVERSITY OF ARKANSAS SYSTEM Statement of Net Position by Campus At June 30, 2018

CCCUA PCCUA UACCB UACCH UACCM UAPTC UACCRM ASMSA Eliminations TOTAL

$ 2,187,184 $ 8,635,101 $ 5,214,941 $ 4,044,128 $ 2,725,571 $ 29,692,861 $ 3,101,176 $ 6,102,969 $ 189,022 $ 426,739,043 896,495 3,267,182 1,131,678 3,162,423 5,405,172 1,071,684 498,540,405 1,124,710 1,664,939 849,996 704,849 993,756 1,759,630 451,314 123,631 (17,142,300) 124,776,537 130,932,000 172,559 59,847 244,716 808,184 55,848 162,212 31,352,556 131 674 3,192 118,310 5,902,405 - (26,506) 6,522,941 156,009 33,604 85,713 99,546 1,192,121 40,468 98,020 (150,000) 34,369,690 4,536,957 13,660,804 6,396,040 6,688,839 7,037,144 38,052,976 4,945,164 6,324,620 (17,129,784) 1,259,135,577

384,420 - 150,439 33,638 12,500 21,614,710 75,000 2,100,000 1,090,088 1,017,736 189,068,980 36,878 89,936 48,846 33,027 42,060 - 29,396 (5,624,923) 21,097,350 147,936 147,693 104,178 5,707,384 53,984 127,381,631 (300,000) 28,733,570 13,314,512 18,074,494 12,112,805 25,186,758 25,483,826 92,485,359 9,723,706 18,054,016 2,855,583,557 13,810,810 18,164,430 14,409,587 25,367,478 25,780,503 99,316,469 10,807,926 18,083,412 (5,924,923) 3,243,479,798

$ 18,347,767 $ 31,825,234 $ 20,805,627 $ 32,056,317 $ 32,817,647 $ 137,369,445 $ 15,753,090 $ 24,408,032 $ (23,054,707) $ 4,502,615,375

85,685 882,984 316 171,009 7,778 586,533 11,986 28,715,694 6,511 62,221 7,568 29,552 24,203 158,288 66,990 6,664 2,018,574 938,754 560,044 1,151,589 1,273,035 1,292,567 4,715,273 871,478 359,335 32,152,743 - - $ 1,030,950 $ 1,505,249 $ 1,159,473 $ 1,473,596 $ 1,324,548 $ 5,460,094 $ 950,454 $ 365,999 $ - $ 62,887,011

$ 425,729 $ 923,151 $ 229,951 $ 361,396 $ 1,103,345 $ 1,794,541 $ 267,895 $ 302,108 $ (17,103,278) $ 168,033,495 271,027 195,224 86,919 36,102 165,307 25,395 73,515 49,954,598 50,570 17,005 16,859 109,324 35,560 136,394 24,203 82,419 6,216,125 17,401,400 34,404,000 - 18,233 28,447 27,528 37,725 50,240 152,269 27,000 19,064 6,522,298 6,511 62,221 7,568 29,552 24,203 158,288 66,990 6,664 2,018,574 294,429 356,496 582,051 716,205 495,361 2,128,720 164,613 (26,506) 88,039,599 1,066,499 1,582,544 950,876 1,254,202 1,744,811 4,535,519 576,096 483,770 (17,129,784) 372,590,089

74,315 - 300,000 (300,000) 805,925 - 16,687,013 346,436 471,548 442,850 317,253 405,801 611,571 206,646 133,060 86,496,442 483,020 1,239,719 377,082 609,624 768,839 1,095,833 887,001 196,125 66,786,365 2,554,492 1,295,816 2,948,854 3,164,696 3,434,991 13,200,660 2,227,076 941,773 79,495,883 3,781,851 10,169,173 1,712,802 3,001,376 11,354,090 82,761,351 6,093,872 (5,624,923) 1,453,452,568 7,165,799 13,250,571 5,481,588 7,092,949 15,963,721 97,669,415 9,414,595 1,570,958 (5,924,923) 1,703,724,196

$ 8,232,298 $ 14,833,115 $ 6,432,464 $ 8,347,151 $ 17,708,532 $ 102,204,934 $ 9,990,691 $ 2,054,728 $ (23,054,707) $ 2,076,314,285

$ 87,086 $ 644,208 $ 58,527 $ 189,818 $ 112,689 $ 249,339 $ 143,831 $ 23,455 $ 11,459,571 571,339 468,703 402,960 507,416 520,433 1,909,005 522,128 412,442 8,779,788 2,917,000 $ 658,425 $ 1,112,911 $ 461,487 $ 697,234 $ 633,122 $ 2,158,344 $ 665,959 $ 435,897 $ - $ 23,156,359

$ 9,323,917 $ 8,431,809 $ 9,965,888 $ 21,616,639 $ 14,594,576 $ 8,181,821 $ 3,531,191 $ 17,604,016 $ 1,440,744,532

79,288 775,451 13,970,721 6,209,524 56,380,899

246,610 385,679 55,894 46,032,609 67,652,828 15,499,916 472,570 1,045,810 1,844,299 12,500 186,361,485 90,740 8,116,298 61,506 75,370 43,035,306 521,479 7,660,228 3,260,962 2,868,889 820,286 21,336,797 2,441,697 4,604,020 590,143,922

$ 10,487,994 $ 17,384,457 $ 15,071,149 $ 24,485,528 $ 15,800,541 $ 38,466,261 $ 6,046,894 $ 22,283,406 $ - $ 2,466,031,742

-25 UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY2018

UNIVERSITYUNIVERSITY OFOF ARKANSASARKANSAS SYSTEMSYSTEM StatementStatement ofof Revenues,Revenues, Expenses,Expenses, andand ChangesChanges inin NetNet PositionPosition byby CampusCampus UNIVERSITY OF ARKANSAS SYSTEM ForFor thethe YearYear EndedEnded JuneJune 30,30, 20182018 Statement of Revenues, Expenses, and Changes in Net Position by Campus For the Year Ended June 30, 2018

UAMS UAM UAPB SYSTEM CCCUA PCCUA UACCB UACCH UACCM UAPTC UACCRM ASMSA UAF UAFS UALR UAMS UAM UAPB SYSTEM CCCUA PCCUA Operating Revenues $ 48,034,000 $ 12,016,302 $ 10,221,616 $ 835,421 $ 2,065,255 $ 855,375 $ 1,006,930 $ 1,693,403 $ 3,376,222 $ 13,176,172 $ 550,046 Student tuition & fees, net of scholarship 1,231,064,000 allowances $ 240,489,120 $ 17,815,463 - $ 45,434,242 $ 48,034,000 $ 12,016,302 $ 10,221,616 $ 835,421 $ 2,065,255 $ 855,375 Net patient services 193,000 - 1,231,064,000 - Federal and county appropriations 77,949,000 1,445,877 14,982,997 14,289,947 - 401,206 - 193,000 2,563,993 737,413 1,193,496 - 951,889 2,345,883 2,062,936 $ 7,300 Federal grants and contracts 30,911,000 2,160,676 55,333,386 2,733,155 1,240,740 - 16,782,598 1,260,037 77,949,000 1,085,224 1,445,877 626,373 14,289,947 1,393,191 - 1,741,589 401,206 2,563,993 1,484,737 655,128 596,629 State and local grants and contracts 14,995,000 773,751 32,129,524 335,430 3,104,198 250,000 8,624,222 152,415 30,911,000 468,886 2,160,676 152,877 2,733,155 - 1,260,037 33,755 1,085,224 162,196 119,704 Non-governmental grants and contracts 34,643,000 222,128 33,718,319 256,633 2,897,699 4,760,910 1,822,928 130,748 14,995,000 49,617 773,751 41,930 335,430 182,846 250,000 152,415130,750 468,886 302,021 32,950 42,960 Sales and services of educational departments 24,051,001 192,028,316 231,222 1,855,564 34,643,000 222,128 256,633 4,760,910 130,748 49,617 Insurance plan 192,028,316 - Auxiliary enterprises, net of scholarship allowances - - 760,282 2,190,825 - - Athletics 104,833,597 267,174 4,754,505 - 760,282 2,190,825 - - 8,545,000 2,304,810 5,341,924 - 77,613 Housing and food service 54,020,198 3,243,942 5,669,521 8,545,000 2,304,810 5,341,924 - 77,613 Bookstore - 402,300 11,302,662 150,735 363,152 - 195,792 171,260 - 52,361 402,300 197,924 150,735 452,622 - 171,260 52,361 213,161 Other auxiliary enterprises 2,890,000 670,877 12,046,419 300,480 409,406 - 1,619,054 2,890,000 77,574 670,877 106,415 300,480 30,163 - 77,574 47,373 Other operating revenues 72,279,000 529,516 12,513,954 5,338,581 567,084 - 1,831,190 67,504 72,279,000 167,214 529,516 56,106 5,338,581 11,433 - 145,786 67,504 167,214 536,215 82,969 208,547 Total operating revenues 1,521,503,000 21,286,519 595,421,177 41,159,326 30,140,080 197,874,647 88,589,616 4,326,038 1,521,503,000 5,320,244 21,286,519 2,925,968 41,159,326 4,957,154 197,874,647 4,326,0386,379,991 5,320,244 17,845,028 3,806,759 975,140

Operating Expenses Compensation and benefits 1,044,269,000 27,418,137 511,934,706 43,478,791 41,910,473 8,192,172 117,242,852 8,321,538 1,044,269,000 12,317,337 27,418,137 7,425,349 43,478,791 8,516,022 8,192,172 10,283,491 8,321,538 12,317,337 24,427,150 5,403,380 4,525,344 Supplies and services 490,499,000 11,271,703 256,530,026 25,109,012 18,613,222 2,294,539 48,130,817 2,833,103 490,499,000 5,076,354 11,271,703 2,818,971 25,109,012 3,511,159 2,294,539 3,448,0452,833,103 5,076,354 10,848,077 2,273,107 3,390,803 Scholarships and fellowships 824,000 6,726,287 22,755,152 4,951,097 3,383,655 - 9,177,823 1,124,845 824,000 1,782,156 6,726,287 1,199,260 4,951,097 3,133,191 - 2,605,7291,124,845 1,782,156 5,434,455 942,557 Insurance plan 182,157,005 182,157,005 Depreciation 65,200,000 3,521,250 75,620,509 6,155,877 7,635,266 424,883 16,783,347 950,200 65,200,000 1,396,847 3,521,250 777,154 6,155,877 895,060 424,883 950,200974,885 1,396,847 4,655,903 1,221,452 429,853 Total operating expenses 1,600,792,000 48,937,377 866,840,393 79,694,777 71,542,616 193,068,599 191,334,839 13,229,686 1,600,792,000 20,572,694 48,937,377 12,220,734 79,694,777 16,055,432 193,068,599 17,312,15013,229,686 20,572,694 45,365,585 9,840,496 8,346,000

Operating gain (loss) (79,289,000) (27,650,858) (271,419,216) (38,535,451) (41,402,536) 4,806,048 (102,745,223) (8,903,648) (79,289,000) (15,252,450) (27,650,858) (9,294,766) (38,535,451) (11,098,278) 4,806,048 (10,932,159) (8,903,648) (15,252,450) (27,520,557) (6,033,737) (7,370,860)

Non-Operating Revenues (Expenses) State appropriations, net of Medicaid 33,275,000 match payments 18,814,756 207,202,611 27,454,716 24,080,995 4,207,425 68,134,066 4,729,248 33,275,000 10,392,224 18,814,756 4,986,926 27,454,716 6,426,320 4,207,425 6,297,1114,729,248 10,392,224 17,382,628 3,425,317 8,962,027 Property and sales tax 6,089,618 - - - 1,339,492 2,036,061 - - 1,339,492 2,036,061 1,435,527 1,476,156 747,084 434,573 Federal grants 22,972,561 13,626,848 16,088,788 - 7,966,825 9,185,193 2,492,370 2,863,105 - 7,966,825 9,185,193 2,492,370 2,863,105 2,936,432 3,775,008 4,483,375 13,411,276 1,803,620 State and local grants 30,016,898 6,113,324 7,029,533 - 2,316,432 1,654,422 321,586 - 2,316,432 1,654,422 321,586 298,246 820,442 - Non-governmental grants - 45,000 1,231,756 - - Gifts - 77,059,113 - - 4,514,343 19,908,000 25,910 1,305,784 139,047 - - Investment income, net 19,908,000 25,910 10,163,270 1,305,784 74,861 1,142,844 139,047 16,120,000 296,218 96,754 105,704 106,170 18,920 15,584 768,653 3,745 36,578 Interest & fees on capital asset-related 16,120,000 debt 296,218 (23,799,689) 96,754 (2,623,627) 105,704 (4,112,814) 18,920 (10,299,000) 15,584 (1,151,673) 62,199 (576,536) 14,612 (882) (151,755) 74,496 (385,327) 315,979 22,365 5,989 Gain (Loss) on disposal of assets (10,299,000) (1,151,673) 1,915,937 (576,536) (10,664) (882) (94,037) (151,755) (145,000) (385,327) (27,869) (20,361) (120,188) (3,666) (422,664) (4,106,528) (17,101) (217,050) Other (145,000) 4,369,302 (20,361) 1,847 (3,666) (104,176) -(17,101) (86,043) 4,700 (41) 130,788 2,122 (1,378,441) - Net non-operating revenues - (86,043) 329,900,003 (41) 47,398,202 130,788 93,830,303 58,859,000 28,182,425 39,099,931 (33,776) 4,439,369 8,888,908 14,904,546 46,653 - Income (loss) before other revenues 58,859,000 and expenses 28,182,425 58,480,787 39,099,931 5,995,666 4,439,369 (8,914,920) 8,888,908 (20,430,000) 14,904,546 531,567 9,696,161 564,480 11,538,132 9,245,417 11,287,694 (14,740) (347,904)27,260,662 5,472,570 9,004,594 (20,430,000) 531,567 564,480 9,245,417 (14,740) (347,904) 401,395 439,854 355,535 (259,895) (561,167) 1,633,734 Other Changes in Net Position Capital appropriations 510,000 234,056 - 185,000 Capital grants and gifts - 85,782,493 136,995 593,122 185,000 4,669,000 42,060 2,800,000 88,150 429,111 50,000 Adjustments to prior year revenues and 4,669,000 expenses 42,060 2,800,000 88,150 429,111 (100,241) 8,762,345 165,378 30,107 25,000 852,153 Extraordinary item-pollution remediation (100,241) (13,224,210) Other 115,882 (277,987) 198,000 27,105 Total other revenues and expenses 198,000 27,105 73,184,165 93,064 593,122 4,867,000 (31,076) 14,707 2,800,000 - 273,150 429,111 Increase (decrease) in net position 4,867,000 (31,076) 131,664,952 2,800,000 6,088,730 - (8,321,798) 273,150 (15,563,000) 429,111 500,491 14,707 3,364,480 8,762,345 9,245,417 258,410165,378 81,207 30,107 75,000 852,153

Net Position, beginning of year 979,606,713 105,314,747 191,913,153 729,859,000 36,872,362 108,371,187 42,702,124 10,547,195 18,286,223 Cumulative effect of GASB No. 75 adoption (6,388,343) 197,823 (795,107) 3,039,000 (336,754) (264,045) (189,404) (317,611) (982,973) Adjustments (876,216) Net Position, beginning of year, restated 973,218,370 105,512,570 190,241,830 732,898,000 36,535,608 108,107,142 42,512,720 10,229,584 17,303,250

Net Position, end of year $ 1,104,883,322 $ 111,601,300 $ 181,920,032 $ 717,335,000 $ 37,036,099 $ 111,471,622 $ 51,758,137 $ 10,487,994 $ 17,384,457

See accompanying notes.

- 26 UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY2018

UAMS UAM UAPB SYSTEM CCCUA PCCUA UACCB UACCH UACCM UAPTC UACCRM ASMSA Eliminations TOTAL UAF & UAMS %

$ 48,034,000 $ 12,016,302 $ 10,221,616 $ 835,421 $ 2,065,255 $ 855,375 $ 1,006,930 $ 1,693,403 $ 3,376,222 $ 13,176,172 $ 550,046 $ 397,569,567 1,231,064,000 - 1,231,064,000 193,000 - 15,175,997 77,949,000 1,445,877 14,289,947 - 401,206 2,563,993 737,413 1,193,496 951,889 2,345,883 2,062,936 $ 7,300 177,305,664 30,911,000 2,160,676 2,733,155 - 1,260,037 1,085,224 626,373 1,393,191 1,741,589 1,484,737 655,128 596,629 88,505,683 14,995,000 773,751 335,430 250,000 152,415 468,886 152,877 33,755 162,196 119,704 55,882,960 34,643,000 222,128 256,633 4,760,910 130,748 49,617 41,930 182,846 130,750 302,021 32,950 42,960 $ (4,227,834) 62,706,446 192,028,316 (135,541,167) 56,487,149 - - 760,282 2,190,825 - - 112,806,383 8,545,000 2,304,810 5,341,924 - 77,613 79,203,008 - 402,300 150,735 - 171,260 52,361 197,924 452,622 213,161 13,501,969 2,890,000 670,877 300,480 - 77,574 106,415 30,163 47,373 18,197,761 72,279,000 529,516 5,338,581 - 67,504 167,214 56,106 11,433 145,786 536,215 82,969 208,547 (566,401) 93,768,698 1,521,503,000 21,286,519 41,159,326 197,874,647 4,326,038 5,320,244 2,925,968 4,957,154 6,379,991 17,845,028 3,806,759 975,140 (140,335,402) 2,402,175,285

1,044,269,000 27,418,137 43,478,791 8,192,172 8,321,538 12,317,337 7,425,349 8,516,022 10,283,491 24,427,150 5,403,380 4,525,344 (135,541,167) 1,740,124,575 490,499,000 11,271,703 25,109,012 2,294,539 2,833,103 5,076,354 2,818,971 3,511,159 3,448,045 10,848,077 2,273,107 3,390,803 (4,794,235) 881,853,703 824,000 6,726,287 4,951,097 - 1,124,845 1,782,156 1,199,260 3,133,191 2,605,729 5,434,455 942,557 64,040,207 182,157,005 182,157,005 65,200,000 3,521,250 6,155,877 424,883 950,200 1,396,847 777,154 895,060 974,885 4,655,903 1,221,452 429,853 186,642,486 1,600,792,000 48,937,377 79,694,777 193,068,599 13,229,686 20,572,694 12,220,734 16,055,432 17,312,150 45,365,585 9,840,496 8,346,000 (140,335,402) 3,054,817,976

(79,289,000) (27,650,858) (38,535,451) 4,806,048 (8,903,648) (15,252,450) (9,294,766) (11,098,278) (10,932,159) (27,520,557) (6,033,737) (7,370,860) - (652,642,691)

33,275,000 18,814,756 27,454,716 4,207,425 4,729,248 10,392,224 4,986,926 6,426,320 6,297,111 17,382,628 3,425,317 8,962,027 445,771,370 - - 1,339,492 2,036,061 1,435,527 1,476,156 747,084 434,573 13,558,511 - 7,966,825 9,185,193 2,492,370 2,863,105 2,936,432 3,775,008 4,483,375 13,411,276 1,803,620 101,605,401 - 2,316,432 1,654,422 321,586 298,246 820,442 - 48,570,883 - - - - 1,276,756 19,908,000 25,910 1,305,784 139,047 106,170 768,653 3,745 36,578 103,867,343 16,120,000 296,218 96,754 105,704 18,920 15,584 62,199 14,612 74,496 315,979 22,365 5,989 (86,703) 28,443,092 (10,299,000) (1,151,673) (576,536) (882) (151,755) (385,327) (27,869) (120,188) (422,664) (4,106,528) (217,050) (47,995,602) (145,000) (20,361) (3,666) (17,101) 4,700 2,122 (1,378,441) - 253,489 - (86,043) (41) 130,788 (33,776) 46,653 - 86,703 4,411,257 58,859,000 28,182,425 39,099,931 4,439,369 8,888,908 14,904,546 9,696,161 11,538,132 11,287,694 27,260,662 5,472,570 9,004,594 699,762,500 (20,430,000) 531,567 564,480 9,245,417 (14,740) (347,904) 401,395 439,854 355,535 (259,895) (561,167) 1,633,734 - 47,119,809

- 185,000 50,000 979,056 4,669,000 42,060 2,800,000 88,150 429,111 8,762,345 165,378 30,107 25,000 852,153 104,375,914 (100,241) (100,241) (13,224,210) 198,000 27,105 14,707 77,707 4,867,000 (31,076) 2,800,000 - 273,150 429,111 14,707 8,762,345 165,378 30,107 75,000 852,153 - 92,108,226 (15,563,000) 500,491 3,364,480 9,245,417 258,410 81,207 416,102 9,202,199 520,913 (229,788) (486,167) 2,485,887 139,228,035

729,859,000 36,872,362 108,371,187 42,702,124 10,547,195 18,286,223 14,559,132 15,820,388 15,237,816 38,711,176 6,884,076 19,625,103 2,334,310,395 3,039,000 (336,754) (264,045) (189,404) (317,611) (982,973) 95,915 (537,059) (446,568) (15,127) (351,015) 172,416 (121) (7,118,973) 488,380 121 (387,715) 732,898,000 36,535,608 108,107,142 42,512,720 10,229,584 17,303,250 14,655,047 15,283,329 15,279,628 38,696,049 6,533,061 19,797,519 2,326,803,707

$ 717,335,000 $ 37,036,099 $ 111,471,622 $ 51,758,137 $ 10,487,994 $ 17,384,457 $ 15,071,149 $ 24,485,528 $ 15,800,541 $ 38,466,261 $ 6,046,894 $ 22,283,406 $ - $ 2,466,031,742

-27 UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY2018

UNIVERSITY OF ARKANSAS SYSTEM UNIVERSITY OF ARKANSAS SYSTEM Statement of Cash Flows - Direct Method - By Campus Statement of Cash Flows - Direct Method - By Campus For the Year Ended June 30, 2018 For the Year Ended June 30, 2018

UAF UAFS UALR UAMS UAM UAPB SYSTEM CCCUA Cash Flows from OperatingUALR Activities UAMS UAM UAPB SYSTEM CCCUA PCCUA UACCB UACCH UACCM UAPTC UACCRM Student tuition and fees (net of scholarships) $ 241,486,311 $ 16,929,437 $ 47,126,143 $ 50,744,000 $ 11,781,276 $ 10,110,793 $ 723,015 $ 2,000,038 Patient and insurance$ 47,126,143 payments $ 50,744,000 $ 11,781,276 $ 10,110,793 $ 723,015 $ 2,000,038 1,194,921,000$ 819,355 $ 1,009,090 $ 1,570,375 - $ 3,427,435 $ 12,166,782 $ 532,434 Federal and county appropriations 1,194,921,000 14,936,462 - - - Grants and contracts 113,461,308 7,235,482 27,813,204 124,316,000 3,976,926 16,630,614 250,000 1,875,745 - - - Collection of loans and interest 2,828,832 - 2,442,000 62,232 - Insurance plan receipts 27,813,204 124,316,000 3,976,926 16,630,614 250,000 1,875,745 4,007,937 1,540,841 2,569,812 190,929,881 2,549,023 3,905,124 2,770,409 Auxiliary enterprise revenues: - 2,442,000 62,232 - - - - Athletics 103,380,997 267,174 190,929,881 4,668,145 803,415 2,131,099 - - Housing and food service - 54,748,044 3,163,193 - 4,612,972 8,604,000 2,465,607 5,342,198 - 77,613 Bookstore 4,668,145 803,415 14,824,038 2,131,099 362,561 - 195,793 - 406,016 150,597 - 171,260 Other auxiliary enterprises 4,612,972 8,604,000 2,465,607 12,068,981 5,342,198 393,702 - 1,622,321 77,613 3,163,000 632,779 300,480 - Payments to employees 195,793 406,016 (399,689,622) 150,597 (33,619,691) - (92,938,365) 171,260 (856,628,000) 49,284 (21,167,088) 190,903 (35,276,952) 452,622(6,124,959) (6,448,853) 213,486 Payment of employee 1,622,321benefits 3,163,000 632,779 (115,352,720) 300,480 (8,279,019) - (23,189,144) (183,112,000) 77,574 (6,198,803) 106,415 (8,290,452) (1,882,914) 30,163 (1,771,732) 47,373 Payments to suppliers (92,938,365) (856,628,000) (21,167,088) (263,458,805) (35,276,952) (18,071,779) (6,124,959) (49,952,316) (6,448,853) (488,306,000) (9,240,519) (11,172,340) (5,534,130) (23,889,453) (6,288,678) (2,363,677) (7,914,177) (2,832,937) (19,083,524) (3,933,971) Loans issued to students (1,742,636) - - (2,969,000) - (23,189,144) (183,112,000) (6,198,803) (8,290,452) (1,882,914) (1,771,732) (3,112,731) (1,835,131) (1,944,319) (2,351,993) (5,387,943) (1,425,721) Scholarships and fellowships (22,188,305) (3,383,655) (9,177,823) (824,000) (6,726,287) (4,951,097) - (1,124,845) Payments of insurance (49,952,316) plan expenses (488,306,000) (11,172,340) (23,889,453) (2,363,677) (2,832,937) (4,831,575) (2,798,202) (3,802,714) (179,892,581) (3,438,238) (10,847,478) (2,210,791) Other receipts and payments - (2,969,000) 35,058,533 769,291 - 4,295,104 141,399,000 767,465 5,615,160 4,978,400 186,381 - Net cash used by (9,177,823) operating activities (824,000) (6,726,287) (209,638,582) (4,951,097) (34,233,304) - (84,923,966) (1,124,845) (6,250,000) (1,778,217) (24,368,802) (1,198,222) (32,127,013) (3,140,297) 6,617,165 (2,606,120) (7,867,330) (5,434,455) (942,557) (179,892,581) Cash Flows from Noncapital 4,295,104 Financing Activities 141,399,000 767,465 5,615,160 4,978,400 186,381 216,831 88,607 162,187 280,494 813,623 168,715 State appropriations (84,923,966) (6,250,000) (24,368,802) 207,202,611 (32,127,013) 24,080,995 6,617,165 68,134,066 (7,867,330) 33,158,000 (13,792,061) 18,814,757 (8,429,829) 27,454,716 (10,390,849) 4,207,425 (10,053,576) 4,729,248 (23,867,871) (4,780,623) Property and sales tax 6,074,057 - - 1,305,309 Gifts and grants for other than capital purposes 128,497,726 19,635,434 28,864,420 19,908,000 10,231,654 12,145,399 - 2,935,969 Repayment of loans 68,134,066 33,158,000 18,814,757 27,454,716 4,207,425 4,729,248 762,000 10,392,224 4,986,926 6,426,320 - 6,297,111 17,382,628 3,425,317 Direct Lending, Plus and FFEL loan receipts 125,974,482 16,474,400 55,659,058 58,845,000 15,178,712 14,302,328 - - - 1,305,309 1,994,878 1,423,613 1,478,231 799,136 435,119 Direct Lending, Plus and FFEL loan payments (124,887,805) (16,390,744) (55,721,615) (58,759,000) (15,242,318) (13,838,817) - Other agency funds -28,864,420 net 19,908,000 10,231,654 (3,176,236) 12,145,399 (95,858) - 217,357 2,935,969 (30,000) 2,859,863 (27,648) 3,205,229 (130,242) 3,775,008 - 4,589,545 3,183 15,000,371 1,807,365 Payment of principal on debt 762,000 - - - Payment of interest on55,659,058 debt 58,845,000 15,178,712 14,302,328 - 1,394,008 (86,703) 2,377,506 13,984,467 - Inter-fund loan receipts (55,721,615) (58,759,000) (15,242,318) (13,838,817) - (1,393,410) 150,000 (2,377,506) (13,984,467) - Inter-fund loan payments 217,357 (30,000) (27,648) (130,242) - 3,183 (1,793) (1,507) (12,924) (406) 14,288 (7,287) Refunds to grantors - - Net cash provided (used) by noncapital financing activities 333,610,778 49,778,284 (86,703) 97,153,286 53,884,000 28,955,157 39,933,384 4,270,722 8,973,709 150,000 Cash Flows from Capital and Related Financing Activities Distributions from debt proceeds 127,663,389 330,530 2,001,073 17,793,000 Capital appropriations 510,000 263,736 185,000 Capital grants and gifts 97,153,286 53,884,000 28,955,157 44,456,312 39,933,384 27,629 4,270,722 391,065 8,973,709 4,669,000 15,245,172 9,614,859 2,800,000 11,666,635 11,685,386 - 32,397,287 5,660,514 Property taxes - capital allocation Proceeds from sale of capital assets 99,000 8,168 Purchases of capital assets 2,001,073 17,793,000 (179,335,765) (1,869,360) (15,074,212) (35,869,000) (1,404,484) (8,490,987) (38,566) 6,327,189 (333,960) 407,773 Payment of capital related principal on debt (29,722,598) (5,286,223) (5,713,238) 185,000 (28,459,000) (1,036,918) (805,000) (49,725) (276,204) 50,000 Payments of capital related 391,065 interest and fees 4,669,000 (34,005,653) 2,800,000 (2,658,539) (3,989,459) - (10,367,000) 686,381 (1,225,565) (612,208) (882) 165,378 (153,896) 30,107 25,000 Insurance proceeds 179,134 - Payments for bond refunding and related costs 99,000 8,168 21,509 - Payments to/from trustee (15,074,212) for reserve (35,869,000) (1,404,484) (8,490,987) (38,566) (333,960) (1,485,409) (338,630) (226,323) (8,099,209) (397,559) (692,975) Net cash provided (used) by capital & related financing activities (70,434,315) (9,013,093) (22,384,771) (52,134,000) (3,658,799) (7,108,195) (89,173) (579,060) (5,713,238) (28,459,000) (1,036,918) (805,000) (49,725) (276,204) (373,753) (570,076) (675,108) (255,605) (2,000,000) (165,000) Cash Flows from Investing (3,989,459) Activities (10,367,000) (1,225,565) (612,208) (882) (153,896) (354,566) (28,990) (102,980) (447,708) (3,853,003) (212,913) Proceeds from sales and maturities of investments 22,751,345 8,140,960 113,748 178,584,000 61,104 621,555 46,653 Investment income (net of fees) 1,392,174 150,569 986,698 526,000 10,121 48,725 105,704 7,395 Purchases of investments (70,000,025) (18,240,966) (593,990) (168,567,000) (113,509) (459,952) Net cash provided (used) by investing activities (45,856,506) (9,949,437) 506,456 10,543,000 (42,284) 210,328 105,704 7,395 (22,384,771) (52,134,000) (3,658,799) (7,108,195) (89,173) (579,060) (1,527,347) (937,696) (1,004,411) (2,288,446) (6,173,802) (588,115) Net increase in cash 7,681,375 (3,417,550) (9,648,995) 6,043,000 885,272 908,504 10,904,418 534,714 Cash, beginning of year 139,918,372 24,155,224 19,274,906 100,267,000 7,506,345 34,944,752 46,457,180 2,036,890 Cash, end of year $ 147,599,747 $ 20,737,674 $ 9,625,911 $ 106,310,000 $ 8,391,617 $ 35,853,256 $ 57,361,598 $ 2,571,604

See accompanying notes.

- 28 UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY2018

UNIVERSITYUNIVERSITY OFOF ARKANSASARKANSAS SYSTEMSYSTEM StatementStatement ofof CashCash FlowsFlows -- DirectDirect MethodMethod -- ByBy CampusCampus ForFor thethe YearYear EndedEnded JuneJune 30,30, 20182018

UALR UAMS UAM UAPB SYSTEM CCCUA PCCUA UACCB UACCH UACCM UAPTC UACCRM ASMSA Eliminations TOTAL

$ 47,126,143 $ 50,744,000 $ 11,781,276 $ 10,110,793 $ 723,015 $ 2,000,038 $ 819,355 $ 1,009,090 $ 1,570,375 $ 3,427,435 $ 12,166,782 $ 532,434 $ 400,426,484 1,194,921,000 - 1,194,921,000 - - - 14,936,462 27,813,204 124,316,000 3,976,926 16,630,614 250,000 1,875,745 4,007,937 1,540,841 2,569,812 2,549,023 3,905,124 2,770,409 $ 685,782 313,588,207 - 2,442,000 62,232 - - 5,333,064 190,929,881 $ (134,093,628) 56,836,253 - - 4,668,145 803,415 2,131,099 - - 111,250,830 4,612,972 8,604,000 2,465,607 5,342,198 - 77,613 79,013,627 195,793 406,016 150,597 - 171,260 49,284 190,903 452,622 213,486 17,016,560 1,622,321 3,163,000 632,779 300,480 - 77,574 106,415 30,163 47,373 18,442,788 (92,938,365) (856,628,000) (21,167,088) (35,276,952) (6,124,959) (6,448,853) (9,240,519) (5,534,130) (6,288,678) (7,914,177) (19,083,524) (3,933,971) (3,584,911) (1,507,473,440) (23,189,144) (183,112,000) (6,198,803) (8,290,452) (1,882,914) (1,771,732) (3,112,731) (1,835,131) (1,944,319) (2,351,993) (5,387,943) (1,425,721) (1,142,651) 134,268,149 (231,009,124) (49,952,316) (488,306,000) (11,172,340) (23,889,453) (2,363,677) (2,832,937) (4,831,575) (2,798,202) (3,802,714) (3,438,238) (10,847,478) (2,210,791) (3,452,574) 4,794,236 (886,634,643) - (2,969,000) - - (4,711,636) (9,177,823) (824,000) (6,726,287) (4,951,097) - (1,124,845) (1,778,217) (1,198,222) (3,140,297) (2,606,120) (5,434,455) (942,557) (63,475,880) (179,892,581) (179,892,581) 4,295,104 141,399,000 767,465 5,615,160 4,978,400 186,381 216,831 88,607 162,187 280,494 813,623 168,715 267,029 (4,973,449) 190,093,371 (84,923,966) (6,250,000) (24,368,802) (32,127,013) 6,617,165 (7,867,330) (13,792,061) (8,429,829) (10,390,849) (10,053,576) (23,867,871) (4,780,623) (7,227,325) (4,692) (471,338,658)

68,134,066 33,158,000 18,814,757 27,454,716 4,207,425 4,729,248 10,392,224 4,986,926 6,426,320 6,297,111 17,382,628 3,425,317 8,962,027 445,654,371 - - 1,305,309 1,994,878 1,423,613 1,478,231 799,136 435,119 13,510,343 28,864,420 19,908,000 10,231,654 12,145,399 - 2,935,969 2,859,863 3,205,229 3,775,008 4,589,545 15,000,371 1,807,365 36,577 253,492,560 762,000 - - 762,000 55,659,058 58,845,000 15,178,712 14,302,328 - 1,394,008 2,377,506 13,984,467 - 304,189,961 (55,721,615) (58,759,000) (15,242,318) (13,838,817) - (1,393,410) (2,377,506) (13,984,467) - (302,595,682) 217,357 (30,000) (27,648) (130,242) - 3,183 (1,793) (1,507) (12,924) (406) 14,288 (7,287) 5,540 (3,243,533) - - - (86,703) 86,703 - 150,000 (150,000) - (150,000) 150,000 - - 97,153,286 53,884,000 28,955,157 39,933,384 4,270,722 8,973,709 15,245,172 9,614,859 11,666,635 11,685,386 32,397,287 5,660,514 8,854,144 86,703 711,770,020

2,001,073 17,793,000 6,327,189 407,773 154,522,954 185,000 50,000 1,008,736 391,065 4,669,000 2,800,000 - 686,381 165,378 30,107 25,000 53,250,872 - - 99,000 8,168 21,509 - 128,677 (15,074,212) (35,869,000) (1,404,484) (8,490,987) (38,566) (333,960) (1,485,409) (338,630) (226,323) (8,099,209) (397,559) (692,975) (2,270,435) (255,926,874) (5,713,238) (28,459,000) (1,036,918) (805,000) (49,725) (276,204) (373,753) (570,076) (675,108) (255,605) (2,000,000) (165,000) (75,388,448) (3,989,459) (10,367,000) (1,225,565) (612,208) (882) (153,896) (354,566) (28,990) (102,980) (447,708) (3,853,003) (212,913) (58,013,362) 46,653 225,787 - - (22,384,771) (52,134,000) (3,658,799) (7,108,195) (89,173) (579,060) (1,527,347) (937,696) (1,004,411) (2,288,446) (6,173,802) (588,115) (2,270,435) - (180,191,658)

113,748 178,584,000 61,104 621,555 2,200,000 212,472,712 986,698 526,000 10,121 48,725 105,704 7,395 11,130 61,357 1,481 61,319 319,443 20,453 7,646 (86,703) 3,623,512 (593,990) (168,567,000) (113,509) (459,952) (2,700,000) (897,966) (1,030,011) (262,603,419) 506,456 10,543,000 (42,284) 210,328 105,704 7,395 11,130 (438,643) 1,481 61,319 (578,523) (1,009,558) 7,646 (86,703) (46,507,195)

(9,648,995) 6,043,000 885,272 908,504 10,904,418 534,714 (63,106) (191,309) 272,856 (595,317) 1,777,091 (717,782) (635,970) (4,692) 13,732,509 19,274,906 100,267,000 7,506,345 34,944,752 46,457,180 2,036,890 8,698,207 5,406,250 3,771,272 3,471,327 27,949,408 3,831,458 6,738,939 193,714 434,621,244 $ 9,625,911 $ 106,310,000 $ 8,391,617 $ 35,853,256 $ 57,361,598 $ 2,571,604 $ 8,635,101 $ 5,214,941 $ 4,044,128 $ 2,876,010 $ 29,726,499 $ 3,113,676 $ 6,102,969 $ 189,022 $ 448,353,753

-29 UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY2018

UNIVERSITY OF ARKANSAS SYSTEM UNIVERSITY OF ARKANSAS SYSTEM Statement oof CaCash Flolows -- DireDirect MMethod - CoContinued - BBy CaCampus Statement of Cash Flows - Direct Method - Continued - By Campus For the Year Ended June 30,, 22018 For the Year Ended June 30, 2018

UAF UAFS UALR UAMS UAM UAPB SYSTEM CCCUA PCCUA UACCB UACCH UACCM UAFSReconciliation of net opUALRerating revenue (loss) toUAMS net cash UAM UAPB SYSTEM CCCUA PCCUA UACCB UACCH UACCM provided (used) by operating activities:

Operating revenue (loss) $ (271,419,216) $ (41,402,536) $ ( 102,745,223) $ (79,289,000) $ (27,650,858) $ ( 38,535,451) $ 4,806,048 $ (8,903,648) $ (15,252,450) $ (9,294,766) $ (11,098,278) $ ( 10,932,159)

$ (41,402,536) A$ d j u s tm(102,745,223) ents to reconcile $n et r ev en(79,289,000)ue (loss) to net$ ca s h p r o(27,650,858) vided $ (38,535,451) $ 4,806,048 $ (8,903,648) $ (15,252,450) $ (9,294,766) $ (11,098,278) $ (10,932,159) (used) by operating activities:

Depreciation expense 75,620,509 7,635,266 16,783,347 65,200,000 3,521,250 6,155,877 424,883 950,200 1,396,847 777,154 895,060 974,885 Other miscellaneous operating receipts (436,561) - 217,491 Adjustment to cash for amounts in transit within the system 7,635,266 16,783,347 65,200,000 3,521,250 6,155,877 424,883 950,200 1,396,847 777,154 895,060 -974,885 Change in assets and liabilities: R ec eiv - ables, net (8,526, 781) 217,491 (728,700) 931,908 11,483,000 ( 455,774) ( 807,807) ( 1,210,652) (27,353) (116,288) (37,942) (171,996) ( 90,869) Inventories 606, 560 - 1,498 6,561 1,064,000 71,489 12,953 - (26,080) 5,560 15,361 (161,304) ( 4,373) Prepaid expenses and other assets (2,203,287) 64,191 ( 1,332,110) (96,000) ( 65,209) ( 11,583) ( 171,986) (19,833) (24,843) 12,344 ( 39,837) (728,700) 931,908Accounts pay ab le an 11,483,000d other accrued liab ilit ies (455,774) (807,807) (7,447, 470) (1,210,652) 220,844 (27,353) ( 839,423) ( (116,288)11,868,000) (37,942) ( 31,637) 1, 072, (171,996)628 146, 071 (90,869) 212,833 343,390 1,989 27,931 272,306 1,498 Un 6,561earned rev en u e 1,064,000 71,489 12,953 1,204, 107 - (75,498) (26,080) 984,943 ( 1, 738, 5,560000) 15,361 94,872 ( 102, (161,304)000) ( 189) (4,373) 12,765 (32,975) 36,650 ( 18,763) 64,191 (1,332,110) Liability for f u tu r e in s u r an (96,000)ce claims (65,209) (11,583) (171,986) - (19,833) - (24,843) 12,344 2, 221, 200 (39,837) Loans to students and employees 562,055 - - - 220,844 (839,423) (11,868,000) (31,637) 1,072,628 146,071 212,833 343,390 1,989 27,931 272,306 Refundable federal advance 103,443 - ( 27,106) - (75,498) 984,943Compensated ab s en ce (1,738,000)s 94,872 (102,000) 365, 766 (189) (189,637) 12,765 25,509 (32,975) 351,000 124, 36,650656 ( 33,547) 86, 332 (18,763) (4,765) (13,862) (12,301) (25,717) 84,294 - OP E B - liability 403, 028 2,221,200 117,364 174,577 2,338,000 37,491 98,551 7,098 47,112 (94,085) 20,630 43,004 16,815 - P en s io - n related 1,529, 408 - 123,904 1,085,945 231,000 12,024 2,561 90,869 (108,561) (3,355) 51,052 100,451 ( 118,470) - Other (27,106) ( 143) - 6,074,000 20,805 - ( 197,405) (189,637) 25,509 351,000 124,656 (33,547) 86,332 (4,765) (13,862) (12,301) (25,717) 84,294 117,364 NE T C 174,577ASH PROVI DE D ( USED 2,338,000) BY OPE R A T I NG A C T 37,491IVITIES $ 98,551 (209,638, 582) $ 7,098(34,233,304) $ (47,11284,923,966) $ ( 6,(94,085)250,000) $ ( 24, 368, 20,630802) $ ( 32, 127, 43,004013) $ 6, 617, 165 16,815$ (7,867,330) $ (13,792,061) $ (8,429,829) $ (10,390,849) $ ( 10,053,576) 123,904 1,085,945 231,000 12,024 2,561 90,869 (108,561) (3,355) 51,052 100,451 (118,470) Non-Cash Transactions 6,074,000 20,805 - (197,405) Capital Gifts $ 4,037,693 $ 117,000 $ 202,057 $ 4,669,000 $ 42,060 $ 8,762,345 Fixed assets acquired by incurring capital lease obligations 4,606,000 $ 8,581,351 $ (34,233,304) C$ ap ital o(84,923,966) utlay & mainten$an ce p aid (6,250,000) directly from p$r o ce ed s(24,368,802) of debt $ (32,127,013) 1,336,$ 435 6,617,165 $ (7,867,330) $ (13,792,061) $ (8,429,829) $ (10,390,849) $ (10,053,576) - P ay m en t o f b o n d p -roceed s /p r em iu m /acc r u ed - inter est/ d eb t sv c ------reserve directly into deposits with trustees/escrow 112,501,540 7,611,252 $ 117,000 P$ay m en t o f b 202,057ond issuance$ co s ts an d4,669,000 underwriter's$ d is co u n ts 42,060 8,762,345 directly from bond proceeds and/or debt service reserve 473,640 104,176 4,606,000 8,581,351 Payment of principal & interest on long-term debt from deposits with trustees 6,403 933 $ 29 $ 198,900 Interest earned on deposits with trustees 1,858,646 8,470 62,945 4,000 62,794 $ 1,374 966 22,917 Payment on long-term debt directly from University of Arkansas Fo u n d atio 7,611,252n, Inc. and Razorback Foundation, Inc. Loss on disposal of assets 817,047 2,176 94,037 145,000 20,361 $ 3,666 17,101 Valu atio n ad 104,176justment to capital assets (316,017) 1,665,000 14,707 Valu e o f g o o d s r ec 933eived from sponsorship agreements with vendors 3,507,595 $ 29 198,900 Fixed assets transferred to another state agency 8,470 62,945 4,000 62,794 $ 1,374 $ 966 22,917 See accompanying notes.

2,176 94,037 145,000 20,361 3,666 17,101 (316,017) 1,665,000 14,707

- 30 UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY2018

UNIVERSITY OF ARKANSAS SYSTEM Statement oof CaCash Flows -- DireDirect MMethod - CoContinued - BBy CaCampus For the Year Ended June 30,, 22018

SYSTEM CCCUA PCCUA UACCB UACCH UACCM UAPTC UACCRM ASMSA Eliminations TOTAL

$ 4,806,048 $ (8,903,648) $ (15,252,450) $ (9,294,766) $ (11,098,278) $ (10,932,159) $ (27,520,557) $ ( 6,033,737) $ (7,370,860) - $ (652,642,691)

424,883 950,200 1,396,847 777,154 895,060 974,885 4,655,903 1,221,452 429,853 186, 642,486 217,491 (219,070) - (4,692) (4,692)

( 1,210,652) (27,353) (116,288) (37,942) (171,996) ( 90,869) ( 892,302) 57,327 (32,992) (627,221) - (26,080) 5,560 15,361 (161,304) ( 4,373) ( 34,692) 1, 557,533 ( 171,986) (19,833) (24,843) 12,344 ( 39,837) 599 41,558 (18,658) (3,864,654) 146,071 212,833 343,390 1,989 27,931 272,306 318,231 75,550 (99,039) (17,593,796) ( 189) 12,765 (32,975) 36,650 ( 18,763) ( 67,197) ( 131,669) 10,665 177, 711 2,221,200 - 2, 221,200 - - 562, 055 - - 76, 337 86,332 (4,765) (13,862) (12,301) (25,717) 84,294 ( 3,350) 13,949 9,140 777, 467 7,098 47,112 (94,085) 20,630 43,004 16,815 ( 45,105) 49,692 15,361 3, 229,533 90,869 (108,561) (3,355) 51,052 100,451 ( 118,470) ( 314,093) ( 40,943) (170,795) 2, 470,997 - ( 197,405) 890 5, 898,147

$ 6,617,165 $ (7,867,330) $ (13,792,061) $ (8,429,829) $ (10,390,849) $ ( 10,053,576) $ ( 23,867,871) $ ( 4,780,623) $ (7,227,325) $ (4,692) $ (471,338,658)

$ 8,762,345 $ 852,153 $ 18, 682,308 13, 187,351 1, 336,435

120, 112,792

577, 816 $ 29 $ 198,900 206, 265 $ 1,374 966 22,917 2, 022,112

- $ 3,666 17,101 $ 1,378,441 2, 477,829 14,707 1, 363,690 3, 507,595 -

-31

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

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 (AAS), Criminal Justice Institute (CJI), 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), University of Arkansas-Pulaski Technical College (UAPTC), University of Arkansas Community College at Rich Mountain (UACCRM), 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.

Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, deferred inflows, deferred outflows, revenues and expenses at the date of the financial statements. Significant estimates affecting the financial statements include the determination of allowances for uncollectible accounts, patient services related contractual adjustments and third-party payor settlements, and various investment risks and fair market valuations. Actual results could differ from those estimates.

Cash and Cash Equivalents Cash and cash equivalents include short-term, highly liquid investments that are readily convertible to cash and have a maturity at acquisition of three months or less.

Investments Investments and funds held in trust by others of marketable securities are reported at fair value as established by major securities markets The fair value of venture capital and other investments is

- 32

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018 based on the most current information reported to the University by the respective investment managers 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

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 Accounts Receivable Patient accounts receivable are shown net of contractual allowances and an allowance for doubtful accounts. Credit balances representing refunds due are reported as accounts payable. The amount of the allowance for doubtful accounts is based upon management's assessment of historical and expected net collections, business and economic conditions, trends in federal and state governmental care coverage and other collection indicators.

Inventories Inventories are valued at the lower of cost or market, with cost generally being determined on a first-in, first-out (FIFO) or average-cost basis.

Capital Assets Capital assets consisting of land, buildings, improvements, furniture, equipment, intangible assets, and construction in progress, are stated at cost or acquisition value at date of gift Library holdings are generally valued using average prices for library acquisitions If material, interest on borrowings to finance facilities is capitalized during construction, net of any investment income earned through the temporary investment of project borrowings. 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.

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.

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

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

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

Capitalization of Interest The University capitalizes interest involving qualifying assets. The amount of interest cost to be capitalized is netted against any interest earned on temporary investments of the proceeds of those borrowings from the initial date of borrowing until the specified qualifying assets acquired with that debt are ready for their intended use. The total amount of interest cost incurred (gross of amortizations of premiums and discounts) and the net amount that has been capitalized was $60,383,441 and $7,903,996, respectively, for the fiscal year ended June 30, 2018

Deferred Outflows of Resources Deferred outflows of resources represent a decrease of net position that applies to future periods. Therefore, these items will not be recognized as an expense or expenditure until a future period

Compensated Absences Vested or accumulated vacation and sick leave of University employees are recorded as an expense and liability as the benefits are earned. Amounts recorded include salary expense as well as salary- related payments (e.g., FICA taxes, retirement, etc.). No liability is recorded for nonvested accumulated rights to receive sick leave benefits. The current portion of compensated absences is determined using the average balance paid annually in the prior two-year period.

Unearned Revenue Unearned revenue consists primarily of student tuition and fees and athletic ticket sales related to future fiscal years, and amounts received from grant and contract sponsors that have not yet been earned under the terms of the agreements.

Deferred Inflows of Resources Deferred inflows of resources represent an increase of net position that applies to future periods. Therefore, these items will not be recognized as revenue until a future period.

Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Arkansas Public Employees Retirement System and the Arkansas Teacher Retirement System (the respective Systems) and additions to/deductions from the respective System’s fiduciary net position have been determined on the same basis as they are reported by the respective Systems. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value

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

 Net investment in capital assets - Capital assets, net of accumulated depreciation and outstanding principal balances of debt obligations related to those capital assets. However, unexpended debt proceeds at year-end are reported as net position restricted for capital projects.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

 Restricted: Non-expendable – 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 is 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. This portion may be designated for specific purposes by management or the Board of Trustees or may be otherwise limited by contractual agreements with outside parties.

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 non-exchange transactions, such as gifts and contributions, state appropriations, interest on debt, and investment income.

Scholarship Discounts and Allowances Student tuition and fee revenues, and certain other revenues from students, are reported net of scholarship discounts and allowances. 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.

Net Patient Services 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

-35

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

amounts 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.

Grants and Contracts The University has been awarded grants and contracts for operations for which the moneys have not been received or expended. These awards have not been reflected in the financial statements but represent commitments of sponsors to provide funds for specific research and training projects.

Federal research grants and contracts normally provide for the recovery of direct and indirect costs, subject to adjustment based upon review by the granting agencies. The University recognizes revenue associated with direct costs as the related costs are incurred. The recovery of indirect costs is recorded at predetermined rates negotiated with the federal government.

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 $79,747,000 for the fiscal year ended June 30, 2018

Component Units In fiscal year 2018, there were two qualifying foundations determined to be component units under GASB Statement No. 39 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 by management, these two foundations are considered component units and are discretely presented in the University’s financial statements.

The University of Arkansas Foundation, Inc. is a separate not-for-profit 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 Board of Trustees of the University of Arkansas. During the year ended June 30, 2018, the Foundation distributed $67,569,344 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 University of Arkansas Fayetteville Campus Foundation, Inc. is a not-for-profit 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 year ended June 30, 2018, the Foundation distributed $19,314,656 to or on behalf of the University.

- 36

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

Complete financial statements for the Foundation can be obtained from the administrative office at 535 Research Center Boulevard, Suite 120, Fayetteville, AR 72701.

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.

New Accounting Pronouncements The GASB issued the following statements, which became effective for the fiscal year ended June 30, 2018:

• Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, • Statement No. 81, Irrevocable Split-Interest Agreements, • Statement No. 85, Omnibus 2017, • Statement No. 86, Certain Debt Extinguishment Issues

Management has determined that Statements No. 85 and 86 did not materially impact the University

The primary objective of Statement No. 75 is to improve accounting and financial reporting by state and local governments for other post-employment benefits. The effect of implementing Statement No. 75 is discussed in detail at Note 16

The objective of Statement No. 81 is to improve accounting and financial reporting for split- interest agreements by providing recognition and measurement guidance for situations in which a government is a beneficiary of such agreements. The effect of implementing Statement No. 81 was an increase in investments and deferred inflows of resources by $2,885,000, and, therefore, had no effect on net position

Additionally, the GASB issued the following statements, which become effective for the future fiscal years noted below:

For the year ending June 30, 2019 • Statement No. 83, Certain Asset Retirement Obligations • Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements For the year ending June 30, 2020 • Statement No. 84, Fiduciary Activities • Statement No. 90, Majority Equity Interests – an amendment of GASB Statements No. 14 and No. 61 For the year ending June 30, 2021 • Statement No. 87, Leases • Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period

-37

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

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, 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 in Crossett and Great Rivers Technical Institute in McGehee merged with the Monticello campus on July 1, 2003. The Arkansas School for Mathematics, Sciences and the Arts, a residential high school, joined the University on January 1, 2004. On February 1, 2017, Pulaski Technical College and Rich Mountain Community College became the sixth and seventh two-year colleges to join the UA System. In addition to these campuses, the University includes the System Administration, whose financial statements include eVersity, and the following units that are included in the financial statements of the Fayetteville campus: Clinton School of Public Service, Division of Agriculture (Agricultural Experiment Station and the Cooperative Extension Service), Arkansas Archeological Survey, and the 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 CJI, the Director of AAS, and the Director of ASMSA, who have responsibility for the programs and activities of their respective campuses or state-wide operating division

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 an institution of higher education of the State of Arkansas (primary government).

Note 3: Net Patient Services Revenue and Charity Care

- 38

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

Management has not yet determined the effects of these statements on the University’s financial statements

Note 2: Reporting Entity

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 provisionsUNIVERSITY of this OF statement, ARKANSAS the SYSTEMUniversity – Notesis an institutionto Consolidated of higher Financial education Statements of the FY State201 8of Arkansas (primary government).

Patient care operations are included in the accompanying financial statements under accounting UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018 pNoterinciples 3: Net generally Patient Services followed Revenue by governmental and Charity colleges Care and universities. Patient accounts receivable at June 30, 2018 is recorded net of an allowance for doubtful accounts of $319,668,000 Patient care operations are included in the accompanying financial statements under accounting Netprinciples patient generallyservices revenue followed for the by year governmental ended June colleges 30, 201 8, and is as universities. follows: Patient accounts receivable at June 30, 2018 is recorded net of an allowance for doubtful accounts of $319,668,000 GROSS PATIENT REVENUE7 2018 Net patient services Grossrevenue patient for revenue the year ended June 30, 2018, is $as follows: 3,152,259,000 Less: patient services contractual allowances (1,870,735,000) Less: provisionGROSS for badPATIENT debt REVENUE 2018 (50,460,000) Gross patient revenueTOTAL $ 1,231,064,0003,152,259,000 Less: patient services contractual allowances (1,870,735,000) UAMS provided approximatelyLess: provision $59,210,000 for bad debt in charity care, based on established (50,460,000) rates, during the year ended June 30, 2018 Because UAMSTOTAL does not pursue collection$ 1,231,064,000 of amounts determined to qualify as charity care, they are not included in gross patient revenue above. Net patient services revenueUAMS provided for the year approximately ended June 30,$59,210,000 2018, include in charitys approximately care, based $62,274,000, on established from rates, the during Medicaid the programyear ended representing June 30, 201 payments8 Because relating UAMS to does Upper not Payment pursue collection Limit and of Disproportionateamounts determined Share to reimbursements.qualify as charity These care, paymentsthey are not are included available in to gross state-operated patient revenue teaching above. hospitals Net underpatient Medicaid services regulations.revenue for theNet year patient ended services June 30,revenue 2018, for include the years approximately ended June 30, $62,274,000, 2018, includes from approximately the Medicaid $38,286,000,program representing of net revenue payments from relatingthe Supplemental to Upper Medicaid Payment program. Limit and Disproportionate Share reimbursements. These payments are available to state-operated teaching hospitals under Medicaid Theregulations. Hospital, Net Faculty patient G servicesroup Practice revenue (FGP) for the, and year Area ended Health June Education 30, 2018, Centersincludes (AHECs)approximately have agreements$38,286,000, with of net governmental revenue from and the otherSupplemental third-party Medicaid payors program.that provide for reimbursement at amounts different from their established rates. Contractual adjustments under third-party reimbursementThe Hospital, F aculty programs Group represent Practice the (FGP) difference, and Area between Health the Education billings atCenters established (AHECs) rates have for servicesagreements and withamounts governmental reimbursed and by th otherird-party third-party payors. payors A summary that provide of the basis for reimbursementof reimbursement at withamounts significant different third-party from theirpayors established is as follows: rates. Contractual adjustments under third-party reimbursement programs represent the difference between the billings at established rates for Hospital:services and amounts reimbursed by third-party payors. A summary of the basis of reimbursement Medicarewith significant – Inpatient third-party acute payors care is servicesas follows: rendered to program beneficiaries are paid at prospectively determined rates per discharge. These rates vary according to a patient classification systemHospital: that is based on clinical, diagnostic, and other factors. Some transplantation services are paidMedicare based – upon Inpatient a cost acute reimbursement care services methodology. rendered Outpatient to program services beneficiaries are paid are based paid on at a prospectiveprospectively payment determined system rates where per discharge. services are These classified rates varyinto groupsaccording called to a Ambulatory patient classification Payment Classificationssystem that is based(APC). on Services clinical, indiagnostic, each APC and are other similar factors. clinically Some and transplantation in terms of the services resources are theypaid basedrequire. upon The a Hospital cost reimbursement is paid for methodology. cost-reimbursable Outpatient items at services a tentative are paid rate based with onfinal a settlementprospective determined payment system after submission where services of an are annual classified cost intoreport groups by the called Hospital Ambulatory and audit Payment by the MedicareClassifications fiscal (APC).intermediary. Services As in of eachJune APC30, 201 are8 ,similar the Hospital’s clinically Medicare and in termscost reports of the haveresources been auditedthey require. by the TheMedicare Hospital fiscal is intermediary paid for cost-reimbursable through June 30, items 2016 at a tentative rate with final settlement determined after submission of an annual cost report by the Hospital and audit by the MedicaidMedicare fiscal– Inpatient intermediary. and outpatient As of June services 30, 201 rendered8, the Hospital’s to Medicaid Medicare program cost reports beneficiaries have been are reimbursedaudited by the based Medicare upon a fiscalcost reimbursement intermediary through methodology. June 30, The 20 16Hospital is paid at a tentative rate with final settlement determined after submission of an annual cost report by the Hospital and auditsMedicaid by the– InpatientMedicaid andaudit outpatient contractor. services The Hospital rendered is required to Medicaid to pay program the federal beneficiaries match for the are differencereimbursed in based reimbursement upon a cost between reimbursement the Tax methodology. Equity and Fiscal The HospitalResponsibility is paid Actat a inpatienttentative rate andwith fullfinal cost. settlement For outpatient determined services, after thesubmission Hospital of is anrequired annual to cost pay report the federal by the match Hospital for andthe 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 Hospital8 is required to pay the federal match for the

39 8 -

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

difference reimbursed between the outpatient prospective rates and full cost. As of June 30, 2018, the Hospital’s Medicaid cost reports have been audited by the Medicaid audit contractor through June 30, 2013

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 no change to net patient services revenue for the year ended June 30, 2018 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.

Additionally, UAMS has agreements to provide healthcare professionals to independent healthcare providers at contractually determined rates. These providers are responsible for billing and collecting from patients and third party payors, as applicable, for the services provided by UAMS staff supplied by these contracts.

Note 4: 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, 2018: Cash and Cash Equivalents Cash deposits at year end $ 446,697,160 cash held on deposit in state treasury 4,276,108 cash equivalents 11,679,117 cash on hand 188,400 Less: cash/cash equiv shown as deposits held in trust on SNP (14,676,054) adjustment for deposits in transit within the system 189,022 other - TOTAL $ 448,353,753

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

DepositsUNIVERSITY are exposed OF ARKANSAS to custodial SYSTEMrisk if they – Notesare not to covered Consolidated by depository Financial insurance Statements (FDIC) FY201 and8 are uncollateralized. At June 30, 2018, none of the University’s bank balances were exposed to custodialDeposits arecredit exposed risk. to custodial risk if they are not covered by depository insurance (FDIC) and are uncollateralized. At June 30, 2018, none of the University’s bank balances were exposed to Investmentscustodial credit risk. Investments are reported at fair value, which, for reporting purposes, is market value. The followingInvestments is a summary of the University’s investments held at June 30, 2018: Investments are reported at fair value, which, for reporting purposes, is market value. The following is a summary of the University’sInvestment investmentsType held at June 30,Fair 201 Value8: Mutual & Money Market Funds $ 34,730,463 Corporate & MunicipalInvestment Bonds Type Fair 36,479,265 Value ExternalMutual &Investment Money Market Pool Funds $ 389,257,077 34,730,463 CertificateCorporate &of MunicipalDeposits Bonds 47,501,533 36,479,265 U.S.External Treasury Investment & Government Pool Sponsored Agencies 234,484,323 389,257,077 CommercialCertificate of Paper Deposits 63,068,644 47,501,533 OtherU.S. Treasury & Government Sponsored Agencies 234,484,323 5,384,292 Commercial Paper Sub-Total 810,905,597 63,068,644 -shownOther as cash/cash equiv on Stmt of Net Position (4,688,230) 5,384,292 -shown as deposits held inSub-Total trust on Stmt of Net Position (118,607,982) 810,905,597 -shown as cash/cash equiv on Stmt of Net Position (4,688,230) Investments-shown as deposits as reported held onin trustStmt onof NetStmt Position of Net Position $ (118,607,982) 687,609,385

The University isInvestments required underas reported GASB on Stmt Statement of Net Position No. 40 to provide$ investment 687,609,385 risk disclosures for all invested funds. Interest rate risk is the risk that changes in interest rates will adversely affectThe University the fair value is required of an investment. under GASB Credit Statement risk is No. the 40risk to that provide an issuer investment or other risk counterparty disclosures tofor an all investment invested funds. will not Interest fulfill rateits obligations. risk is the risk The that following changes tables in interest show rates these will risks adversely for the Univaffectersity’s the fair funds value outsid of ane investment. the external Creditinvestment risk is pool. the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The following Interesttables Rate show Risk these risks for the University’s funds outside the external investment pool. Investment Maturies (in years) Investment Type Fair Value Less than 1 1 toInterest 5 Rate Riskover 5 More than 10 Commercial Paper $ 63,068,644 $ 63,068,644 $ Investment Maturies - $ (in years) - $ - BondsInvestment Type Fair 36,325,362 Value Less 6,247,438 than 1 28,900,1641 to 5 over 1,177,760 5 More than 10 - Commercial Paper $ 63,068,644 $ 63,068,644 $ - $ -- $ -- U.S.Bonds Treasury & Gov't Agencies 234,830,731 36,325,362 143,992,401 6,247,438 83,256,003 28,900,164 7,567,4371,177,760 14,890 - UNIVERSITYTotals OF ARKANSAS$ 334,224,737 SYSTEM$ 213,308,483– Notes to Consolidated$ 112,156,167 Financial$ 8,745,197 Statements - $ FY 14,890 201 -8 U.S. Treasury & Gov't Agencies 234,830,731 143,992,401 83,256,003 7,567,437 14,890

InvestmentTotals $ 334,224,737 $ 213,308,483 $ 112,156,167 Credit Risk $ 8,745,197 $ 14,890 Investment Credit Risk Type Fair Value AAA AA A B & below Not Rated Type Fair Value AAA AA A B & below Not Rated MutualInvestment Funds $ 8,105,705 $ 6,587,886 $ 37,235 Credit$ 670,441 Risk $ 27,789 $ 782,354 Mutual Funds $ 8,105,705 $ 6,587,886 $ 37,235 $ 670,441 $ 27,789 $ 782,354 CommercialType Paper Fair 63,068,644 Value 63,068,644AAA AA - A - B & below - Not Rated Commercial Paper 63,068,644 63,068,644 - - - BondsMutual Funds $ 35,835,624 8,105,705 $ 6,587,886 - $ 7,473,870 37,235 $ 24,716,002 670,441 $ 125,124 27,789 $ 3,520,628 782,354 Bonds 35,835,624 - 7,473,870 24,716,002 125,124 3,520,628 Commercial Paper 63,068,644 63,068,644 - - - Bonds Totals 107,009,973 35,835,624 69,656,530 - 7,511,105 7,473,870 25,386,443 24,716,002 152,913 125,124 4,302,982 3,520,628 Totals $ 107,009,973 $ 69,656,530 $ 7,511,105 $ 25,386,443 $ 152,913 $ 4,302,982

External TotalsInvestment Pool 107,009,973 69,656,530 7,511,105 25,386,443 152,913 4,302,982 External Investment Pool In 1997, the University of Arkansas and the University of Arkansas Foundation established an In 1997, the University of Arkansas and the University of Arkansas Foundation established an externalExternal investment Investment pool. Pool This arrangement commingles (pools) the moneys of more than one external investment pool. This arrangement commingles (pools) the moneys of more than one legallyIn 1997, separate the University entity andof Arkansas invests, andon the Universityparticipants’ of behalf,Arkansas in Foundationan investment established portfolio. an externallegally investment separate entity pool. and This invests, arrangement on th ecommingles participants’ (pools) behalf, the in moneys an investment of more thanportfolio. one legallySubsequent separate to its entity establishment, and invests, other on entities the participants’ have joined includingbehalf, in the an Walton investment Arts Foundationportfolio. in 1998, the Fayetteville Campus Foundation10 in 2003, the University of Arkansas Community

College at Hope Foundation in 2007, the Razorback Foundation in 2012, and the University of 10 41 Arkansas Technology Development Foundation in 2016. - The 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 were the sponsors of this investment pool and were 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 implementation of GASB 72 during the fiscal year ended June 30, 2016, caused management to reassess the University of Arkansas Board of Trustees’ sponsorship role. Based on the UA Foundation’s fiduciary responsibilities outlined in the January 2010 agreement, management concluded that the UA Foundation acts as sole sponsor of this investment pool.

At June 30, 2018, seven campuses (UAF, UALR, UAMS, UAM, UAPB, PCCUA and UACCM) and six foundations participated in the Pool, whose net assets totaled $2,094,132,248. The Pool was combined with 18 58% of the net assets owned by the University of Arkansas and external portions as follows: 53 38% by the University of Arkansas Foundation, 26 27% by the Fayetteville Campus Foundation, 0 71% by the Walton Arts Foundation, 0.12% by the University of Arkansas Community College at Hope Foundation, 0.03% by the University of Arkansas Technical Development Foundation, and 0 92% by the Razorback Foundation. The following tables contain information on the risk disclosure of the Pool.

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

Subsequent to its establishment, other entities have joined including the Walton Arts Foundation in 1998, the Fayetteville Campus Foundation in 2003, the University of Arkansas Community College at Hope Foundation in 2007, the Razorback Foundation in 2012, and the University of Arkansas Technology Development Foundation in 2016.

The 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 were the sponsors of this investment pool and were responsible for operation and oversight for the pool. All participation in this investment pool is voluntary.

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Statement of Invested Assets June 30, 2018

Investment Type Fair Value* Equities $ 493,662,841 Common Stock 217,897,695 Funds - Common Stock 274,652,577 Funds - Equities ETF 1,112,569 Fixed Income 463,526,876 Government Bonds 127,441,525 Corporate Bonds 9,036,931 Government Mortgage Backed Securities 16,169,866 Commercial Mortgage-Backed 2,309,016 Asset Backed Securities 11,806,602 Funds - Fixed Income ETF 296,762,936 Venture Capital and Partnerships 703,142,468 Partnerships 703,142,468 Hedge Fund 267,736,560 Hedge Equity 236,628,726 Hedge Event Driven 31,107,834 All Other 492,602 Recoverable Taxes 492,602 Cash/Cash Equivalents 165,570,901 Short Term Bills and Notes 10,350,281 Funds - Short Term Investment 146,924,214 Cash 2,254,069 Invested Cash 6,042,337 TOTAL $ 2,094,132,248

*Includes accrued income

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Credit Risk - S&P Quality Ratings June 30, 2018

US GOVN. Investment Type & Fair Value* AAA AA A BBB NR GUAR Asset Backed Securities $ 8,400,440 $ 3,392,353 Commerical Mortgage-Backed 979,431 1,323,753 Corporate Bonds $ 574,606 $ 4,160,962 $ 4,150,101 82,805 Funds - Fixed Income ETF 296,762,936 Funds - Short Term Investment 146,706,283 Government Bonds $ 127,144,500 Govn Mortgage Backed Securities 16,119,847 Hedge Event Driven 31,107,834 Short Term Bills and Notes 10,350,281 Total $ 9,379,871 $ 574,606 $ 4,160,962 $ 4,150,101 $ 479,375,964 $ 153,614,628

*Does not include accrued income

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Years to Maturity June 30, 2018 Maturity not Investment Type Fair Value* Less than 1 1+ to 6 6+ to 10 10+ Determined Asset Backed Securities $ 11,792,793 $ - $ 11,792,793 $ - $ - $ - Commercial Mortgage-Backed 2,303,184 2,303,184 Corporate Bonds 8,968,474 1,221,509 7,444,242 219,918 82,805 Funds - Fixed Income ETF 296,762,936 296,762,936 Funds - Short Term Investment 146,706,283 146,706,283 Government Bonds 127,144,500 4,212,139 122,932,361 Govn Mortgage Backed Securities 16,119,847 16,119,847 Hedge Event Driven 31,107,834 31,107,834 Short Term Bills and Notes 10,350,281 10,350,281 Total $ 651,256,132 $ 15,783,929 $ 142,169,396 $ 219,918 $ 18,505,836 $ 474,577,053 *Does not include accrued income

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Interest Rate Sensitivity - Effective Duration June 30, 2018 Effective Investment Type Fair Value* Duration Asset Backed Securities $ 11,792,793 0 93 Commercial Mortgage-Backed 2,303,184 0 69 Corporate Bonds 8,885,669 2 19 Corporate Bonds 82,805 N/A Funds - Fixed Income ETF 296,762,936 N/A Funds - Short Term Investment 146,706,283 N/A Government Bonds 127,144,500 3 63 Govn Mortgage Backed Securities 16,119,847 4 80 Hedge Event Driven 31,107,834 N/A Short Term Bills and Notes 10,350,281 0 66 Total $ 651,256,132 *Does not include accrued income

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Foreign Currency Risk By Investment Type June 30, 2018 Other Currency By Investment and Fair Value* Cash Equi ty Assets AUSTRALIAN DOLLAR $ 5,789,200 $ 1,683,880 $ - CANADIAN DOLLAR (1,136,374) 1,827,566 10,533 SWISS FRANC 10,523 8,110,306 146,702 CHINESE YUAN RENMINBI (6,129,167) - - DANISH KRONE (46) - 9,015 EURO (2,105,037) 33,399,368 271,666 BRITISH POUND STERLING 7,249,878 10,589,282 - HONG KONG DOLLAR 86,930 6,100,331 - JAPANESE YEN 5,705,398 17,223,428 52,814 SOUTH KOREAN WON - 1,499,924 - NORWEGIAN KRONE 577,290 869,700 - POLISH ZLOTY 1,770 - - SWEDISH KRONA 2,235,281 165,794 - SINGAPORE DOLLAR 938,100 647,304 - Total $ 13,223,746 $ 82,116,883 $ 490,730 *Includes accrued income

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

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 were available for expenditure at June 30, 2018, is as follows:

Total Endowment $ 173,123,979 Less: Funds treated as endowment (51,612,966) Less: Non-expendable portion of endowment (75,283,028) Available for Expenditure $ 46,227,985

Note 5: Fair Value Measurement

GASB Statement No. 72, Fair Value Measurement and Application established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

An individual investment’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the University. The University considers observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by multiple, independent sources that are actively involved in the relevant market. The categorization of an investment within the hierarchy is based upon the pricing transparency of that investment and does not necessarily correspond to the University’s perceived risk of that investment.

The three levels of the fair value hierarchy are as follows:

Level 1: Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the University has the ability to access at the measurement date. Publicly traded equity securities and mutual funds are the primary investments included in Level 1 and are valued at the individual security’s closing market price.

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Observable inputs are those that reflect the assumptions market participants would use in pricing the asset developed based on market data obtained

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

from independent sources. These types of sources would include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in inactive markets, models or other valuation methodologies. Level 2 investments include U.S. and international government debt securities valued at market corroborated prices and certain equity and fixed income investments in commingled investment vehicles reported at net asset value derived from the market prices of security holdings.

Level 3: Inputs that are unobservable. Unobserved inputs are those that reflect the University’s own assumptions about what market participants would use in pricing the asset developed based on the best information available. These types of sources would include investment manager pricing for private equities, hedge funds and certain limited partnerships. Limited partner interests in private equity and other partnerships and hedge fund investments are included in Level 3 and are valued using the individual investment manager’s reported estimates of fair value developed in accordance with reasonable valuation policies.

The preceding methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the University believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date

The following table sets forth, by level within the valuation hierarchy, University invested funds, including amounts reported as deposits with bond trustees on the Statement of Net Position, at June 30, 2018:

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

Summary of Investments by Fair Value Level

Investment by fair value level Level 1 Level 2 Level 3 Total

Equity Securities: US $ 6,478,792 $ 345,677 $ - $ 6,824,469 International 47,377 193,580 - 240,957

Fixed Income Securities: US Government Debt 72,437,601 150,943,986 - 223,381,587 Other Debt Securities 10,167,283 121,067,923 - 131,235,206

Commingled Funds: US Equity 89,927 59,251 - 149,178 International Equity 25,828 25,987 - 51,815 US Government Bonds 5,689,222 289,277 - 5,978,499 Non-US Government Bonds - - - - Corporate Bonds 255,453 639,047 - 894,500

Exchange Traded Funds: Equity 620,000 - - 620,000 Fixed Income 173,000 - - 173,000

Other Partnerships: US (j) 379 379 International (k)

Certificates of Deposit 23,658,913 1,712,399 - 25,371,312

Non-marketable alternatives - - 4,056,016 4,056,016

Marketable alternatives 20,149 - 380,000 400,149

Money markets and short-term investments 17,549,701 33,522 - 17,583,223 Total investments by fair value level •$ 137,213,246 $ 275,310,649 $ 4,436,395 416,960,290 Investments measured at NAV (net asset value) External Investment Pool - Total Return Pool - UA Foundation 157,404,400 External Investment Pool - Intermediate Pool - UA Foundation 231,619,231 External Investment Pool - UAFS Foundation 233,446 Total investments by NAV I 389,257,077

TOTAL INVESTMENTS I $ 806,217,367

Debt and equity securities classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Debt and equity securities classified in Level 2 of the fair value hierarchy are valued using a funds accounting technique or are provided by time deposit custodians. Securities classified in Level 3 are valued using par value on the face of the investments

Investments Measured at the NAV at June 30, 2018:

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

Unfunded Redemption Redemption Fair Value Commitments Frequency Notice Period External Investment Pool - UA Foundation Total Return Pool (1) $ 157,404,400 $ - Daily 0 - 30 days Intermediate Pool (2) 231,619,231 - Daily 0 - 30 days External Investment Pool - UAFS Foundation 233,446 - Daily 0 days Total Investments measured at the NAV $ 389,257,077 $ -

(1) This type includes investments in a broadly diversified external investment pool. Pooled investments include allocations to global equities, hedge funds, bonds, natural resources and real estate. The assets in the pool are accounted for at fair value determined according to the principles of the Financial Accounting Standards Board A one-week notice is required for redemptions over $1 million. There is also a requirement for 30 days written notice if total withdrawals will exceed $25 million in any 30 day period.

(2) This type includes investments in an external investment pool comprised of fixed income investments. The pooled investments are allocated primarily to intermediate term government bonds and investment-grade intermediate term corporate bonds. The pool also includes allocations to mortgage-backed securities, high-yield bonds, emerging market debt and money market funds. The assets in the pool are accounted for at fair value determined according to the principles of the Financial Accounting Standards Board. A one-week notice is required for redemptions over $1 million. There is also a requirement for 30-days written notice if total withdrawals will exceed $25 million in any 30-day period

Note 6: Disaggregation of Accounts Receivable and Accounts Payable

Current accounts receivable balances, net of allowances, at June 30, 2018, as shown on the Statement of Net Position, consist of the following:

ACCOUNTS RECEIVABLE June 30, 2018 Student accounts $ 15,008,544 Non-student accounts 70,275,493 Health care related services - Grants and contracts 35,979,006 Property and sales taxes 2,562,436 Insurance plan 381,861 Other 569,197 Total $ 124,776,537

Current accounts payable balances at June 30, 2018, as shown on the Statement of Net Position, consist of the following:

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

ACCOUNTS PAYABLE June 30, 2018 Trade related $ 68,933,261 Payroll related 70,128,503 Interest 9,053,825 Insurance plan 975,424 Other 18,942,482 Total $ 168,033,495

Note 7: Capital Assets

The following table are changes in capital assets for the year ended June 30, 2018:

June 30, 2017 June 30, 2018 C AP ITAL AS S ETS Balance Additions Transfers Deletions Balance Land $ 110,201,422 $ 6,768,379 $ - $ 1,257,513 $ 115,712,288 Library Holdings 145,942,593 2,999,380 - 936,219 148,005,754 Construction in progress 128,719,239 227,281,154 (55,766,449) 127,754 300,106,190 Improvements and infrastructure 332,494,636 1,537,383 6,055,522 1,056 340,086,485 Buildings 3,584,057,194 37,005,334 48,309,235 1,885,684 3,667,486,079 Equipment 660,537,994 42,186,917 12,000 24,135,663 678,601,248 Intangibles - Software 167,497,711 35,276 1,406,902 - 168,939,889 Intangibles - Software in development 155,000 1,200,115 (17,210) - 1,337,905 Intangibles - Leasehold improvements 37,620,819 1,965,000 - - 39,585,819 Intagibles - Radio License 67,809 - - - 67,809 Other 13,531,053 31,150 - 864,503 12,697,700 Total Capital Assets 5,180,825,470 321,010,088 - 29,208,392 5,472,627,166

Less accumulated depreciation: Library Holdings 121,348,781 4,669,747 - 933,268 125,085,260 Improvements and infrastructure 154,243,842 14,732,092 - (5,152) 168,981,086 Buildings 1,516,604,236 114,198,772 - 601,737 1,630,201,271 Equipment 534,450,156 39,264,993 - 23,504,280 550,210,869 Intangibles - Software 107,172,543 8,876,704 - - 116,049,247 Intangibles - Leasehold improvements 19,321,509 4,478,797 - 1,000 23,799,306 Intangibles - Radio License - - - - - Other 2,972,189 421,381 - 677,000 2,716,570 Total Accum Depreciation 2,456,113,256 186,642,486 - 25,712,133 2,617,043,609

Capital Assets, Net $ 2,724,712,214 $ 134,367,602 $ - $ 3,496,259 $ 2,855,583,557

The balance at June 30, 2017 was restated in the amount of $488,381. See Note 23.

Library holdings, including old and rare books, valued at $1,109,000, held by the Medical Sciences Campus, are not included in the above chart or in the accompanying Statement of Net Position

During the year ended June 30, 2018, UACCH recorded a capital gift of $8,762,345 from Hempstead County. Hempstead County residents voted to approve the issuance of bonds by Hempstead County in a special election on March 11, 2008 to finance the cost of the construction of an auditorium and conference center to be located on the campus of UACCH. The bond proceeds were used to construct Hempstead Hall, a 64,000 square foot facility featuring a

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

conference center, a state-of-the-art theatrical stage, and outdoor amphitheater. Hempstead Hall cost $10,478,721.31 to construct. Hempstead County and UACCH entered into a long-term ground lease in July 2008 for the land on which Hempstead Hall was constructed. The County and UACCH also entered into an operating agreement in July 2008 for UACCH to operate Hempstead Hall. On May 24, 2018, the Hempstead County Quorum Court terminated the ground lease and operating agreement effective June 30, 2018, thereby, returning exclusive control and operation of the property to UACCH. The bonds issued to fund construction of Hempstead Hall have been paid in full and retired. The carrying value of Hempstead Hall was determined to be $8,762,345 at the time of transfer

During the year ended June 30, 2018, ASMSA recorded a capital gift of $852,153 from Delta Student Housing. This transaction is described in greater detail in Note 18. Delta Student Housing gifted the Student Center Building to ASMSA with net depreciated values for the building of $11,787,195 and equipment of $37,223 which were recorded as capital assets. A note receivable from Delta Student Housing totaling $10,972,265 was reduced to zero noting satisfaction of the note

Note 8: 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, 2018

Note 9: 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.

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, 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 also allows 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 three campuses can be paid

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018 upon termination in accordance with guidelines outlined in the law. In no event shall an employee receive a sick leave amount upon separation that exceeds $7,500.

Changes in compensated absences are shown below: COMPENSATED ABSENCES Balance Balance Current Campus 6/30/17 Additions Reductions 6/30/18 Portion UAF $ 21,236,614 $ 835,051 $ 469,285 $ 21,602,380 $ 1,602,373 UAFS 1,689,309 18,464 208,101 1,499,672 164,221 UALR 4,309,281 297,815 272,306 4,334,790 332,108 UAMS 57,699,000 4,573,000 4,222,000 58,050,000 3,756,000 UAM 1,089,741 974,567 849,911 1,214,397 116,504 UAPB 2,401,523 2,256,900 2,290,447 2,367,976 162,918 SYSTEM 567,522 590,684 504,352 653,854 27,668 CCCUA 369,434 354,844 359,609 364,669 18,233 PCCUA 513,857 416,829 430,691 499,995 28,447 UACCB 482,679 398,094 410,395 470,378 27,528 UACCH 380,695 380,408 406,125 354,978 37,725 UACCM 371,747 447,592 363,298 456,041 50,240 UAPTC 767,189 715,041 718,390 763,840 152,269 UACCRM 219,697 225,255 211,306 233,646 27,000 ASMSA 142,984 33,231 24,091 152,124 19,064 TOTAL $ 92,241,272 $ 12,517,775 $ 11,740,307 $ 93,018,740 $ 6,522,298

Note 10: 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 $1,547,143,596 shown in these schedules, which is related to bonds, notes, capital leases and installment contracts, differs from the amount of $1,541,492,167 shown on the Statement of Net Position. This is due to an elimination entry of $5,651,429 to account for two loans between UA campuses (see Note 19).

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

Schedule of Debt by Campus

UNIVERSITY OF ARKANSAS FAYETTEVILLE Issue Maturity Interest Amount Maturities to Out st anding Date Date Rate Issued Year-End Year-End 12/15/2009 11/1/2039 3 00% to 5 00% $ 52,430,000 $ 7,640,000 $ 44,790,000 6/30/2010 9/15/2020 1 00% to 4 82% 23,965,000 16,310,000 7,655,000 6/29/2011 11/1/2040 2 00% to 5 00% 101,225,000 12,855,000 88,370,000 6/29/2011 11/1/2022 3 00% to 5 00% 8,895,000 1,105,000 7,790,000 4/17/2012 11/1/2032 1 00% to 5 00% 56,965,000 9,660,000 47,305,000 9/13/2012 11/1/2042 2 00% to 5 00% 60,540,000 4,795,000 55,745,000 5/16/2013 11/1/2042 1 00% to 5 00% 54,450,000 5,685,000 48,765,000 5/16/2013 9/15/2027 1 00% to 5 00% 30,355,000 7,650,000 22,705,000 6/30/2014 11/1/2043 2 00% to 5 00% 24,730,000 1,575,000 23,155,000 6/30/2014 11/1/2043 0 85% to 4 50% 5,020,000 365,000 4,655,000 2/12/2015 11/1/2036 2 00% to 5 00% 70,360,000 8,685,000 61,675,000 2/12/2015 9/15/2022 2 00% to 5 00% 14,180,000 3,270,000 10,910,000 8/27/2015 11/1/2045 1 02% to 4 40% 7,510,000 295,000 7,215,000 8/27/2015 11/1/2021 2 00% to 5 00% 36,675,000 16,245,000 20,430,000 4/5/2016 11/1/2046 3 00% to 5 00% 93,590,000 3,740,000 89,850,000 4/5/2016 11/1/2028 0 87% to 3 25% 15,280,000 2,085,000 13,195,000 10/19/2016 9/15/2036 5 00% 24,845,000 - 24,845,000 10/19/2016 9/15/2034 1 192% to 3 388% 90,000,000 - 90,000,000 8/1/2017 11/1/2047 2 00 to 5 00% 95,805,000 - 95,805,000 11/30/1991 5/1/2022 5 50% 3,000,000 2,271,697 728,303 11/29/1995 11/1/2034 2 00% to 5 00% 2,071,140 1,395,209 675,931 7/31/2015 7/1/2023 1 97% 4,935,766 1,244,306 3,691,460 7/31/2015 11/19/2023 1 99% 16,969,012 5,709,149 11,259,863 7/31/2015 1/8/2023 1 95% 6,844,590 2,399,812 4,444,778 Vario us Vario us Vario us 2,200,229 1,084,972 1,115,257 Net unamortized premium/discount 91,957,282 16,343,799 75,613,483 TOTALS $ 994,798,019 $ 132,408,944 $ 862,389,075

UNIVERSITY OF ARKANSAS AT FORT SMITH Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 6/1/2010 12/1/2021 2%-4% $ 29,895,000 $ 18,080,000 $ 11,815,000 12/1/2010 12/1/2035 2%-4.75% 9,300,000 1,780,000 7,520,000 1/1/2012 12/1/2030 2%-4.25% 17,540,000 5,280,000 12,260,000 6/1/2014 12/1/2031 2%-3.5% 5,295,000 945,000 4,350,000 6/1/2014 6/1/2039 2%-5% 10,930,000 1,115,000 9,815,000 10/20/2016 12/1/2034 2%-5% 19,500,000 465,000 19,035,000 2/29/2012 1/1/2022 0% 2,166,500 1,299,900 866,600 5/12/2012 5/4/2027 4% 650,000 217,930 432,070 Net unamort ized premium/discount 5,882,032 1,574,853 4,307,179 TOTALS $ 101,158,532 $ 30,757,683 $ 70,400,849

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

UNIVERSITY OF ARKANSAS AT LITTLE ROCK Issue Maturity Interest Amount Maturities to Out st anding Date Date Rate Issued Year-End Year-End 4/1/2012 5/1/2037 2%-5% $ 14,880,000 $ 2,320,000 $ 12,560,000 9/19/2012 12/1/2029 1%-5% 13,850,000 3,705,000 10,145,000 4/24/2013 12/1/2024 1%-5% 10,770,000 3,915,000 6,855,000 4/24/2013 12/1/2024 .530%-2.884% 6,530,000 2,560,000 3,970,000 8/1/2013 10/1/2030 2%-5% 28,740,000 4,900,000 23,840,000 2/24/2016 10/1/2029 2%-5% 22,475,000 460,000 22,015,000 4/6/2016 10/1/2034 2%-5% 24,490,000 1,745,000 22,745,000 8/23/2011 12/1/2020 0 00% 1,732,620 1,333,333 399,287 1/11/2017 1/1/2027 0 00% 2,000,000 200,000 1,800,000 9/19/2017 10/1/2037 2%-5% 6,510,000 - 6,510,000 Vario us Vario us .0198-1.26% 3,936,193 3,889,600 46,593 Net unamortized premium/discount 14,167,687 3,314,643 10,853,044 TOTALS $ 150,081,500 $ 28,342,576 $ 121,738,924

UNIVERSITY OF ARKANSAS FOR MEDICAL SCIENCES Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 6/1/2010 7/1/2019 2.0% - 4.5% $ 7,605,000 $ 5,665,000 $ 1,940,000 12/21/2010 12/1/2030 2.00% - 5.00% 42,680,000 8,280,000 34,400,000 11/15/2011 7/1/2034 2.0% - 4.25% 8,985,000 2,000,000 6,985,000 5/14/2013 11/1/2034 1.0% - 5.0% 112,665,000 14,105,000 98,560,000 12/17/2014 3/1/2036 2.00% - 5.00% 86,035,000 4,780,000 81,255,000 Vario us Vario us Vario us 61,556,000 29,159,000 32,397,000 Vario us Vario us Vario us 35,288,000 14,974,000 20,314,000 Net unamort ized premium/discount 32,760,000 7,671,000 25,089,000 TOTALS $ 387,574,000 $ 86,634,000 $ 300,940,000

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 $ 2,485,000 $ 385,000 2/1/2012 12/1/2035 2.0% - 4.0% 8,745,000 1,710,000 7,035,000 12/1/2012 10/1/2037 1% - 4.0% 8,650,000 1,280,000 7,370,000 3/30/2017 12/1/2041 5 00% 11,270,000 11,270,000 3/30/2017 12/1/2023 1.94%-2.99% 1,765,000 1,765,000 1/27/2009 2/1/2019 0 53% 1,000,000 909,015 90,985 Net unamort ized premium/discount 1,999,713 189,785 1,809,928 TOTALS $ 36,299,713 $ 6,573,800 $ 29,725,913

UNIVERSITY OF ARKANSAS AT PINE BLUFF Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 10/12/2005 12/1/2017 2.8% - 3.8% $ 3,330,000 $ 3,330,000 $ - 6/1/2014 6/30/2036 2% - 5.0% 15,160,000 675,000 14,485,000 6/1/2014 12/1/2018 1 875% 1,810,000 1,435,000 375,000 12/15/2016 1/1/2035 2 51% 17,245,359 - 17,245,359 Net unamort ized premium/discount 1,095,017 190,581 904,436 TOTALS $ 38,640,376 $ 5,630,581 $ 33,009,795

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

UNIVERSITY OF ARKANSAS SYSTEM ADMINISTRATION Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 11/17/2014 11/17/2024 0 22% $ 500,000 $ 148,848 $ 351,152 4/1/2016 4/1/2026 1 75% 2,487,749 2,487,749 12/1/2016 12/1/2026 1 75% 2,487,749 2,487,749 $ 5,475,498 $ 148,848 $ 5,326,650

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 $ 605,000 $ 3,325,000 1/25/2008 3/30/2023 2 91% 2,000,000 1,357,475 642,525 Vario us Vario us Vario us 13,451 13,451 - Net unamort ized premium/discount 141,059 32,304 108,755 TOTALS $ 6,084,510 $ 2,008,230 $ 4,076,280

PHILLIPS COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 4/22/2015 12/1/2038 2.0% - 4.0% $ 11,270,000 $ 980,000 $ 10,290,000 6/1/2013 6/1/2018 4 30% 219,026 219,026 - Net unamort ized premium/discount 272,074 36,405 235,669 TOTALS $ 11,761,100 $ 1,235,431 $ 10,525,669

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 $ 2,010,000 $ 285,000 2/2/2010 2/1/2020 0 45% 1,000,000 796,391 203,609 10/1/2016 10/1/2026 0 68% 2,000,000 193,956 1,806,044 Net unamort ized premium/discount 4,032 3,832 200 TOTALS $ 5,299,032 $ 3,004,179 $ 2,294,853

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 $ 3,605,000 $ 1,020,000 6/1/2013 10/1/2038 1.00% - 3.625% 2,590,000 360,000 2,230,000 3/27/2012 4/1/2022 0 20% 1,100,000 657,361 442,639 Net unamort ized premium/discount 111,731 86,789 24,942 TOTALS $ 8,426,731 $ 4,709,150 $ 3,717,581

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT MORRILTON Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 5/18/2005 11/1/2017 3.0% - 4.0% $ 2,095,000 $ 2,095,000 $ - 6/16/2010 5/1/2022 2.0% - 3.5% 2,030,000 1,280,000 750,000 2/23/2016 5/1/2046 3.5% - 5.0% 10,000,000 10,000,000 7/30/2010 8/1/2020 0 38% 800,000 597,144 202,856 Net unamort ized premium/discount 975,148 78,553 896,595 TOTALS $ 15,900,148 $ 4,050,697 $ 11,849,451

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

UNIVERSITY OF ARKANSAS PULASKI TECHNCIAL COLLEGE Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 9/29/2011 4/1/2041 2.0-5.0% $ 69,485,000 $ 8,700,000 $ 60,785,000 7/1/2015 6/30/2037 2.0-5.0% 25,875,000 2,535,000 23,340,000 Net unamort ized premium/discount 907,167 142,096 765,071 TOTALS $ 96,267,167 $ 11,377,096 $ 84,890,071

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT RICH MOUNTAIN Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 8/15/2012 4/1/2042 1.0 - 4.15% $ 4,830,000 $ 595,000 $ 4,235,000 8/15/2012 4/1/2042 1.2 - 4.15% 1,870,000 245,000 1,625,000 12/6/2017 9/25/2022 2 00% 407,773 - 407,773 Net unamort ized premium/discount (11,610) (2,322) (9,288) TOTALS $ 7,096,163 $ 837,678 $ 6,258,485

Schedule of Changes in Debt

BONDS Balance Balance Current Campus 6-30-17 Additions Reductions 6-30-18 Portion UAF $ 694,760,000 $ 95,805,000 $ 25,705,000 $ 764,860,000 $ 30,655,000 Net unamortized prem/disc 63,200,593 16,879,358 4,466,468 75,613,483 4,517,387 UAFS 69,825,000 5,030,000 64,795,000 5,205,000 Net unamortized prem/disc 4,652,187 345,008 4,307,179 345,008 UALR 107,000,000 6,510,000 4,870,000 108,640,000 6,395,000 Net unamortized prem/disc 10,565,100 1,101,252 813,308 10,853,044 813,308 UAMS 230,345,000 - 7,205,000 223,140,000 8,175,000 Net unamortized prem/disc 26,669,000 1,580,000 25,089,000 - UAM 28,760,000 935,000 27,825,000 960,000 Net unamortized prem/disc 1,892,544 82,616 1,809,928 80,207 UAPB 15,665,000 805,000 14,860,000 580,000 Net unamortized prem/disc 953,642 49,206 904,436 49,206 CCCUA 3,455,000 130,000 3,325,000 140,000 Net unamortized prem/disc 115,216 6,461 108,755 6,461 PCCUA 10,620,000 330,000 10,290,000 345,000 Net unamortized prem/disc 247,166 11,497 235,669 11,496 UACCB 560,000 275,000 285,000 285,000 Net unamortized prem/disc 679 479 200 200 UACCH 3,815,000 565,000 3,250,000 595,000 Net unamortized prem/disc 35,819 10,877 24,942 10,877 UACCM 11,120,000 370,000 10,750,000 381,944 Net unamortized prem/disc 929,100 32,505 896,595 32,505 UAPTC 86,125,000 2,000,000 84,125,000 2,090,000 Net unamortized prem/disc 803,791 38,720 765,071 38,720 UACCRM 6,025,000 165,000 5,860,000 165,000 Net unamortized prem/disc (9,675) (387) (9,288) (387) TOTAL $ 1,378,130,162 $ 120,295,610 $ 55,821,758 $ 1,442,604,014 $ 61,876,932

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

NOTES Balance Balance Current Campus 6-30-17 Additions Reductions 6-30-18 Portion UAF $ 1,584,045 $ 179,811 $ 1,404,234 $ 194,042 UAFS 1,083,250 216,650 866,600 216,650 UALR 1,126,620 1,494,889 422,222 2,199,287 422,222 UAMS 27,259,000 17,786,000 12,648,000 32,397,000 13,325,000 UAM 192,903 101,918 90,985 90,985 SYSTEM 5,376,375 49,725 5,326,650 49,835 CCCUA 786,255 143,730 642,525 147,968 UACCB 2,304,729 295,076 2,009,653 296,851 UACCH 552,747 110,108 442,639 110,328 UACCM 283,461 80,605 202,856 80,912 UACCRM 407,773 - 407,773 - TOTAL $ 40,549,385 $ 19,688,662 $ 14,247,845 $ 45,990,202 $ 14,934,793

CAPITAL LEASES Balance Balance Current Campus 6-30-17 Additions Reductions 6-30-18 Portion UAF $ 342,502 $ 1,336,435 $ 563,680 $ 1,115,257 $ 358,242 UAFS 471,643 39,573 432,070 41,185 UALR 467,609 - 421,016 46,593 19,801 UAMS 22,727,000 3,848,000 6,261,000 20,314,000 6,769,000 UAPB 17,245,359 - - 17,245,359 533,260 CCCUA 2,474 2,474 - - PCCUA 43,753 43,753 - - TOTAL $ 41,300,340 $ 5,184,435 $ 7,331,496 $ 39,153,279 $ 7,721,488

INSTALLMENT CONTRACTS Balance Balance Current Campus 6-30-17 Additions Reductions 6-30-18 Portion UAF $ 22,860,038 $ 3,463,937 $ 19,396,101 $ 3,532,892

The current portion shown above for bonds, notes, capital leases, and installment contracts differs from the statement of net position by $26,506, which is the current portion of an elimination entry (see Note 19).

Future Principal and Interest Payments Total long-term debt principal and interest payments are shown below. Interest payments for variable rate debt have been calculated using the rate in effect at the financial statement date, though actual rates will vary. Total debt of $1,547,143,596 shown in these schedules, which is related to bonds, notes, capital leases and installment contracts, differs from the amount of $1,541,492,167 shown on the Statement of Net Position. This is due to an elimination entry of $5,651,429 to account for two loans between UA campuses (see Note 19).

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

FUTUREFUTURE PRINCIPAL PRINCIPAL AND AND INTEREST INTEREST PAYMENTS PAYMENTS YearYear Ended Ended June June 30, 30, PrincipalPrincipal InterestInterest TotalTotal 20192019 $$ 82,159,173 82,159,173 $$ 60,168,346 60,168,346 $$ 142,327,519 142,327,519 20202020 76,010,258 76,010,258 57,094,401 57,094,401 133,104,659 133,104,659 20212021 74,030,707 74,030,707 54,316,132 54,316,132 128,346,839 128,346,839 20222022 72,435,025 72,435,025 51,435,051 51,435,051 123,870,076 123,870,076 20232023 68,570,994 68,570,994 48,576,870 48,576,870 117,147,864 117,147,864 2024-20282024-2028 316,027,930 316,027,930 202,289,708 202,289,708 518,317,638 518,317,638 2029-20332029-2033 321,895,018 321,895,018 131,828,502 131,828,502 453,723,520 453,723,520 2034-20382034-2038 263,940,477 263,940,477 64,645,763 64,645,763 328,586,240 328,586,240 2039-20432039-2043 113,880,000 113,880,000 21,108,813 21,108,813 134,988,813 134,988,813 2044-20482044-2048 37,595,000 37,595,000 4,405,410 4,405,410 42,000,410 42,000,410 Subtotal2049-2053 1,426,544,582 - 695,868,995 - 2,122,413,577 - + Net unamortizedSubtotal premiums/discounts 1,426,544,582 120,599,014 695,868,995 2,122,413,577 120,599,014 + Net unamortizedGRAND TOTALSpremiums/discounts $ 1,547,143,596 120,599,014 $ 695,868,995 $ 2,243,012,591 120,599,014 GRAND TOTALS $ 1,547,143,596 $ 695,868,995 $ 2,243,012,591

Capitalization of Assets held under Capital Leases TheCapitalization capitalized of value Assets of capitalheld under assets Capital held under Leases capital leases totaled $59,650,350 at June 30, 2018The capitalized. The present value value of capitalof the netassets minimum held under lease capital payments leases is totaledas follows: $59,650,350 at June 30, 2018. The present value of the net minimum lease paymentsAccumulated is as follows: Cost AccumulatedDepreciation Net CIP $ 17,145,359Cost $ Depreciation - $ 17,145,359Net Improvements/InfrastructureCIP $ 17,145,359 4,600,660 $ 4,120,975 - $ 17,145,359 479,685 BuildingsImprovements/Infrastructure 16,737,000 4,600,660 7,957,1864,120,975 8,779,814 479,685 EquipmentBuildings 46,590,25916,737,000 30,316,051 7,957,186 16,274,208 8,779,814 OtherEquipment 10,025,00046,590,259 30,316,051 4,167,180 16,274,208 5,857,820 Other 10,025,000 TOTAL 4,167,180 $ 48,536,886 5,857,820 TOTAL $ 48,536,886 Total Minimum Lease Payments $ 45,457,506 Less:Total MinimumAmount representing Lease Payments interest $ 45,457,506 6,304,227 TotalLess: Present Amount Value representing of Net Minimum interest Lease Payments $ 39,153,279 6,304,227 Total Present Value of Net Minimum Lease Payments $ 39,153,279

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, 2018, that are pledged:

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

FUTURE PRINCIPAL AND INTEREST PAYMENTS Year Ended June 30, Principal Interest Total 2019 $ 82,159,173 $ 60,168,346 $ 142,327,519 2020 76,010,258 57,094,401 133,104,659 2021 74,030,707 54,316,132 128,346,839 2022 72,435,025 51,435,051 123,870,076 2023 68,570,994 48,576,870 117,147,864 2024-2028 316,027,930 202,289,708 518,317,638 2029-2033 321,895,018 131,828,502 453,723,520 2034-2038 263,940,477 64,645,763 328,586,240 2039-2043 113,880,000 21,108,813 134,988,813 2044-2048 37,595,000 4,405,410 42,000,410 2049-2053 - - - Subtotal 1,426,544,582 695,868,995 2,122,413,577 + Net unamortized premiums/discounts 120,599,014 120,599,014 GRAND TOTALS $ 1,547,143,596 $ 695,868,995 $ 2,243,012,591

Capitalization of Assets held under Capital Leases The capitalized value of capital assets held under capital leases totaled $59,650,350 at June 30, 2018. The present value of the net minimum lease payments is as follows: Accumulated Cost Depreciation Net CIP $ 17,145,359 $ - $ 17,145,359 Improvements/Infrastructure 4,600,660 4,120,975 479,685 Buildings 16,737,000 7,957,186 8,779,814 Equipment 46,590,259 30,316,051 16,274,208 Other 10,025,000 4,167,180 5,857,820 TOTAL $ 48,536,886

Total Minimum Lease Payments $ 45,457,506

Less: Amount representing interest 6,304,227 UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018 Total Present Value of Net Minimum Lease Payments $ 39,153,279

Pledged Revenues For purposes of extinguishing BOND SERIES the University’s longREVENUE-term debt SOURCE issues, certainFY18 revenues REVENUE have been

pledged as security. The followingUNIVERSITY is a summary OF ARKANSAS of the FAYETTEVILLEgross revenues collected during the fiscal yearUNIVERSITY endedSeries June 2009A 30,OF 201 ARKANSASVarious8, that Facilities are SYSTEM pledged: – NotesStudent to TuitionConsolidated and Fees Financial$ Statements 316,569,768 FY2018 Series 2011A Various Facilities Sales and Services 9,324,536 Series 2011B Various Facilities Residential Life 68,982,596 Series 2012A Various Facilities Bookstore 14,268,240 Series 2012B Various BOND Facilities SERIES Other REVENUEAuxiliaries SOURCE FY18 REVENUE12,046,419 Series 2013 Various Facilities Series 2014A Various FacilitiesUNIVERSITY OF ARKANSAS FAYETTEVILLE SeriesSeries 2014B2009A Various Various Facilities Facilities Student Tuition and Fees $ 316,569,768 SeriesSeries 2015A2011A VariousVarious FacilitiesFacilities Sales and Services 9,324,536 SeriesSeries 2015B2011B VariousVarious FacilitiesFacilities Residential Life 68,982,596 SeriesSeries 2015C2012A Various Various Facilities Facilities Bookstore 14,268,240 SeriesSeries 2016A2012B Various Facilities Other Auxiliaries 12,046,419 SeriesSeries 2016B2013 Various Various Facilities Facilities SeriesSeries 20172014A Various Various Facilities Facilities Series 2014B Various Facilities Series 2015A Various Facilities $ 421,191,559 Series 2015B Various Facilities MaturitySeries 2015C dates Various range fromFacilities November, 2021 through26 November, 2047 Series 2016A Various Facilities FY18 Principal and Interest $ 47,006,330 Series 2016B Various Facilities % of Revenues Pledged 11 16% Series 2017 Various Facilities Remaining Principal & Interest $ 989,575,704 Series 2010 Athletic Refunding Men's Athletics $ 421,191,559 92,344,779 SeriesMaturity 2013 dates Athletic range Facilities from November, 2021 through November, 2047 Series 2015 Athletic Facilities FY18 Principal and Interest $ 47,006,330 Series 2016A Athletic Facilities % of Revenues Pledged 11 16% Series 2016B Athletic Facilities Remaining Principal & Interest $ 989,575,704 Series 2010 Athletic Refunding Men's Athletics $ 92,344,77992,344,779 MaturitySeries 2013 dates Athletic range Facilities from September, 2020 through September, 2036 Series 2015 Athletic Facilities FY18 Principal and Interest $ 12,137,916 Series 2016A Athletic Facilities % of Revenues Pledged 13 14% Series 2016B Athletic Facilities Remaining Principal & Interest $ 210,883,881 $ 92,344,779 Maturity dates range fromUNIVERSITY September, OF 2020 ARKANSAS through September, AT FORT 2036 SMITH Series 2010 Student Fee Revenue StudentFY18 Principal Fees and Interest $$ 39,480,756 12,137,916 Series 2010B Student Fee Revenue % of Revenues Pledged 13 14% Series 2012 Refunding Remaining Principal & Interest $ 210,883,881 Series 2014A Student Fee Revenue Series 2014B Student Fee Revenue Series 2016 Refunding UNIVERSITY OF ARKANSAS AT FORT SMITH Series 2010 Student Fee Revenue Student Fees $ 39,480,756 Series 2010B Student Fee Revenue $ 39,480,756 MaturitySeries 2012 dates Refunding range from December, 2021 through June, 2039 Series 2014A Student Fee Revenue FY18 Principal and Interest $ 7,670,393 Series 2014B Student Fee Revenue % of Revenue Pledge 19 43% Series 2016 Refunding Remaining Principal & Interest $ 86,214,554

$ 39,480,756 Maturity dates range from December, 2021 through June, 2039 FY18 Principal and Interest $ 7,670,393 % of Revenue Pledge 19 43% Remaining Principal & Interest $ 86,214,554 27

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

UNIVERSITY OF ARKANSAS AT LITTLE ROCK Series 2013A Revenue Refunding Student Fees $ 74,680,770 Series 2013 Student Fee Revenue Capital Improvements Series 2013B Taxable Revenue Refunding Series 2016, Student Fee Revenue Series 2017, Student Fee Revenue $ 74,680,770 Maturity dates range from December, 2024 through October, 2037 FY18 Principal and Interest $ 5,571,082 % of Revenue Pledge 7 46% Remaining Principal & Interest $ 82,134,498 Series 2012A Student Housing Revenue Auxiliaries $ 17,550,444 Series 2012B Student Housing Refunding Series 2016 Auxiliary Enterprises Revenue Refunding $ 17,550,444 Maturity dates range from December, 2029 through May, 2037 FY18 Principal and Interest $ 3,983,706 % of Revenue Pledge 22 70% Remaining Principal & Interest $ 64,153,772

UNIVERSITY OF ARKANSAS FOR MEDICAL SCIENCES Series 2010 Various Facilities Refunding Clinical Programs $ 868,208,980 Series 2013 Various Facilities Series 2014 Various Facilities $ 868,208,980 Maturity dates range from December, 2030 through March, 2036 FY18 Principal and Interest $ 16,180,000 % of Revenue Pledge 1 86% Remaining Principal & Interest $ 310,468,000 Series 2010 Refunding Parking System Parking Fees $ 4,740,838 Series 2011 Refunding Parking System $ 4,740,838 Maturity dates range from July, 2019 through July, 2034 FY18 Principal and Interest $ 1,601,000 % of Revenue Pledge 33 77% Remaining Principal & Interest $ 11,406,000

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

UNIVERSITY OF ARKANSAS AT MONTICELLO Series 2012 Various Facilities Refunding Student Fees $ 28,025,804 Series 2017B (Taxable) Various Facilities Sales and Services Series 2017A (Tax-Exempt) Various Facilities $ 28,025,804 Maturity dates range from December, 2023 through December, 2041 FY18 Principal and Interest $ 1,244,826 % of Revenue Pledge 4 44% Remaining Principal & Interest $ 31,956,220 Series 2010 Auxiliary Facilities Refunding Auxiliary Enterprises $ 6,895,192 Series 2012 Auxiliary Facilities $ 6,895,192 Maturity dates range from October, 2018 through December, 2041 FY18 Principal and Interest $ 902,951 % of Revenue Pledge 13 10% Remaining Principal & Interest $ 10,637,923

UNIVERSITY OF ARKANSAS AT PINE BLUFF Series 2005B Various Facilities Revenue Unrestricted Funds $ 33,169,405 Series 2014A Various Facilities Series 2014B Various Facilities Refunding $ 33,169,405 Maturity dates range from December, 2017 through December, 2035 FY18 Principal and Interest $ 1,415,404 % of Revenue Pledge 4 27% Remaining Principal & Interest $ 20,927,294

COSSATOT COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS Series 2013 Student Fees $ 3,908,017 Maturity date is May, 2035 FY18 Principal and Interest $ 266,488 % of Revenue Pledge 6 82% Remaining Principal & Interest $ 4,503,706

PHILLIPS COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS Series 2015 Refunding Student Fees $ 2,834,467 Maturity date is December, 2038 FY18 Principal and Interest $ 677,206 % of Revenue Pledge 23 89% Remaining Principal & Interest $ 14,307,459

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT BATESVILLE Series 2010 Student Fee Refunding Student Fees $ 3,277,192 Maturity date is December, 2018 FY18 Principal and Interest $ 288,019 % of Revenue Pledge 8 79% Remaining Principal & Interest $ 289,275

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT HOPE Series 2010 Student Fee Revenue Student Fees $ 3,320,272 Series 2013 Student Fee Refunding $ 3,320,272 Maturity dates are September, 2020 through October, 2038 FY18 Principal and Interest $ 684,113 % of Revenue Pledge 20 60% Remaining Principal & Interest $ 4,191,144

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT MORRILTON Series 2005 Student Fee Refunding Student Fees $ 6,573,957 Series 2010 Student Fee Refunding Series 2016 Student Fee $ 6,573,957 Maturity dates are November, 2017 through May, 2046 FY18 Principal and Interest $ 1,015,143 % of Revenue Pledge 15 44% Remaining Principal & Interest $ 17,885,848

UNIVERSITY OF ARKANSAS PULASKI TECHNICAL COLLEGE Series 2011 Student Tuition and Fee Student Fees $ 24,017,644 Series 2015 Student Tuition and Fee Refunding $ 24,017,644 Maturity dates are June, 2037 through April, 2041 FY18 Principal and Interest $ 5,808,640 % of Revenue Pledge 24 18% Remaining Principal & Interest $ 138,903,818

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT RICH MOUNTAIN Series 2012 Student Fee & Tuition Revenue Student Fees $ 2,275,516 Maturity date is April, 2042

FY18 Principal and Interest $ 104,372

% of Revenue Pledge 4 59% Remaining Principal & Interest $ 2,523,917 Series 2012 Refunding and Capital Improvement Property Taxes $ 434,573 Maturity date is April, 2042 FY18 Principal and Interest $ 271,313 % of Revenue Pledge 62 43% Remaining Principal & Interest $ 6,550,818

New Bonds Payable and Refundings

Fayetteville Campus: On August 1, 2017, the University issued $95,805,000 in Various Facility Revenue Bonds (Fayetteville Campus), Series 2017, with an interest rate ranging from 2.0% to 5.0%. The bonds were issued to provide funds to finance various construction and renovation projects on the University campus and were issued on a tax-exempt basis. Projects include construction of an addition to the Pat Walker Student Health Center, an off-site library storage facility, new student housing facilities, a new black box theater, upgrades to the campus utility system, renovation of Kimpel Hall, and preliminary design of various other facilities planned for the campus.

On April 5, 2016, the University issued $93,590,000 in Various Facility Revenue Bonds, (Fayetteville Campus), Refunding and Improvement Series 2016A and $15,280,000 in Various Facility Revenue Bonds, (Fayetteville Campus), Refunding Series 2016B. The Series 2016A bonds, with interest rates of 3.0% to 5.0% were issued to provide funds to finance various construction and renovation projects on the University campus, and to refund $38,200,000 of outstanding bonds dated October 2, 2007, (Series 2007) with interest rates of 4.0% to 5.0%; and $35,545,000 of outstanding bonds dated August 1, 2008, (Series 2008A) with interest rates of 4.0% to 5.0%. Net bonds proceeds and premiums of $28,504,688 was available to finance construction of a civil engineering research and education center, a library storage building, campus entrance signs, intramural sports playing fields, and an addition to the Pat Walker Student Health Center; to finance renovations of student housing; and to continue renovations of Kimpel Hall, and Discovery Hall. The Series 2016B bonds with interest rates of 0.87% to 3.35% were issued on a taxable basis to refund $13,500,000 of outstanding bonds dated August 1, 2008, (Series 2008B) with interest rates of 5.1% to 6.375%.

Net bond proceeds and premiums from Series 2016A and Series 2016B of $94,689,148 along with $1,873,821 of cash from the University was deposited into an escrow account to retire the bonds. The refunding of the bonds dated October 2, 2007, and all of the bonds dated August 1, 2008, was an advance refunding. The combined refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $5,764,322 for the Series 2016A bonds and $1,679,827 for the Series 2016B bonds. These differences, reported in the accompanying financial

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018 statements as deferred outflows of resources, will be amortized through the fiscal year 2039 for Series 2016A and fiscal year 2029 for Series 2016B. The University completed the refunding to reduce its total debt service payments over the next twenty-three years by $13,450,092 and to obtain an economic gain of $10,092,618. The escrow balance as of June 30, 2018, was $47,179,270. The bonds will have regularly scheduled principal and interest payments made from the escrow account until the bond call dates of November 1, 2017, for Series 2007 and November 1, 2018, for Series 2008A and Series 2008B, at which times the remaining balances of each defeased bond issue will be refunded. On November 1, 2017, the remaining outstanding Series 2007 bonds were called in full. The remaining balance of the defeased bonds as of June 30, 2018, were $33,745,000 for Series 2008A and $12,460,000 for Series 2008B.

Little Rock Campus: On September 19, 2017, the University issued the Board of Trustees of the University of Arkansas Student Fee Revenue Bonds (Little Rock Campus), Series 2017 with a par amount of $6,510,000, with an interest rate ranging from 2.0% to 5.0%. The bonds provide resources for the purpose of constructing, renovating, equipping and furnishing the Physics Building, infrastructure upgrades, roof repairs to the Donaghey Student Center, and other critical maintenance needs.

On April 6, 2016, the University issued $24,490,000 in Series 2016 Auxiliary Revenue Refunding Bonds, with interest rates of 2% to 5% to advance refund $25,600,000 of the Series 2009 Auxiliary Revenue Bonds, with interest rates of 4% to 5%. Bond proceeds and premium of $28,581,504 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 $2,543,643. This difference, reported in the accompanying financial statements as deferred outflows of resources, will be amortized through the fiscal year 2035 using the straight- line method. The University completed the refunding to reduce its total debt service requirements by $1,736,111 over the next nineteen years and to obtain an economic gain (difference between the present value of the debt service payments on the old and new debt) of $1,152,088. The bonds will be fully paid by October 1, 2019. The balance in the escrow account at June 30, 2018, was $25,086,385, and the remaining balance of the defeased bonds was $22,745,000

Fort Smith Campus: On October 20, 2016, the University issued refunding bonds of $19,500,000.00 with interest rates of 2% to 5% to advance refund $21,435,000.00 of outstanding bonds dated May 1, 2009 with interest rates of 2% to 5%. Bond proceeds of $22,002,809 and debt service reserve funds of $857,507 and deposit with trustee funds of $781,102 were deposited in the advance refunding fund to retire the 2009 bonds. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $2,206,417. The difference, reported in the accompanying financial statements as a deferred outflow, will be amortized through the fiscal year 2035 using the straight-line method. The University completed the refunding to reduce its total debt service payments over the next eighteen years by $1,874,533 and to obtain an economic gain (difference between the present values of the old and new debt) of $1,709,148. The bonds will be fully paid by June 1, 2019 The escrow balance at June 30, 2018 was $20,557,944, and the remaining balance of the defeased bonds was $19,865,000

Note 11: Commitments

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

statements as deferred outflows of resources, will be amortized through the fiscal year 2039 for Series 2016A and fiscal year 2029 for Series 2016B. The University completed the refunding to reduce its total debt service payments over the next twenty-three years by $13,450,092 and to obtain an economic gain of $10,092,618. The escrow balance as of June 30, 2018, was $47,179,270. The bonds will have regularly scheduled principal and interest payments made from the escrow account until the bond call dates of November 1, 2017, for Series 2007 and November 1, 2018, for Series 2008A and Series 2008B, at which times the remaining balances of each defeased bond issue will be refunded. On November 1, 2017, the remaining outstanding Series 2007 bonds were called in full. The remaining balance of the defeased bonds as of June 30, 2018, were $33,745,000 for Series 2008A and $12,460,000 for Series 2008B.

The University has contracted for the construction and renovations of several facilities. At June NoteUNIVERSITY 11: Commitments OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018 30, 2018, the estimated remaining costs to complete these facilities are shown below.

The University has contracted for the construction32 and renovations of several facilities. At June Contract 30, 2018, the estimated remaining costs to complete these facilities are shown below. Campus Balance UAF $ 192,544,687 UAFS Contract 1,017,084 UALRCampus Balance1,261,692 UAFUAMS $ 192,544,6871,268,617 UAFSUAM 1,017,0841,622,583 UALRUAPB 1,261,692488,408 UAMSUACCB 1,268,617157,318 UAMUACCM 1,622,58316,690 UAPBUACCRM 488,408428,446 UACCBASMSA 1,686,654157,318 UACCM $ 200,492,17916,690 UACCRM 428,446

The University has entered intoASMSA various operating leases1,686,654 for buildings and equipment. It is $ 200,492,179 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, 2018, were $16,839,095. Below are the Thescheduled University payments has enteredfor each intoof the various five succeeding operating fiscal leases years for and buildings thereafter. 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 endedOperating June Leases 30, 2018, were $16,839,095. Below are the scheduled payments for each of theYear five Ended succeeding June 30, fiscalAmount years and thereafter. 2019 $ 7,954,649 2020Operating Leases 4,822,458 Year Ended2021 June 30, Amount 3,302,379 20192022 $ 7,954,649 2,065,011 20202023 4,822,458 1,656,037 2024-20282021 3,302,379 4,934,435 2022 2,065,011 Note 12: Income Taxes 2023 1,656,037 2024-2028 4,934,435 The University is tax exempt under the Internal Revenue Code except for tax on unrelated business Noteincome. 12: TheIncome University Taxes had no significant unrelated business income for the year ended June 30, 2018. It is also exempt from state income taxes under Arkansas law. Accordingly, no provision Thefor incomeUniversity taxes is taxis made exempt in theunder financial the Internal statements. Revenue Code except for tax on unrelated business income. The University had no significant unrelated business income for the year ended June 30, 2018Note. 1 It3: is Risk also Managementexempt from state income taxes under Arkansas law. Accordingly, no provision for income taxes is made in the financial statements. The University of Arkansas Risk Management Program provides insurance coverage for all Notcampusese 13: Riskwithin Management 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 Theup to University each campus of to Arkansas inform the Risk System Management Office regarding Program their provides specific insurance coverage coverage requirements. for all campuses within the University of Arkansas System with the exception of the Fort Smith campus. TheProperty role of coverage the System was Office insured is tothrough analyze FM and Global recommend through insurance August coverage 31, 2018,, but with it is a ultimately $100,000 updeductible to each campusat the Fayetteville, to inform the Medical System Sciences,Office regarding and Little their Rock specific campuses. coverage The requirements. other covered

Property coverage was insured through FM Global through August 31, 2018, with a $100,000 deductible at the Fayetteville, Medical Sciences,33 and Little Rock campuses. The other covered

64 33 -

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018 campuses have a $50,000 deductible. The FM Global policy also contained earthquake/flood and domestic/foreign terrorism coverage. Additionally, the Fayetteville, Medical Sciences, Phillips, and Morrilton campuses had business interruption coverage with FM Global. On September 1, 2018, property insurance was switched to Travelers’ Insurance Company.

Auto coverage, through Cypress Insurance Company, 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 carries its own property insurance through Lexington Insurance Company ($25,000 deductible) and auto insurance through Cypress Insurance Company ($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 conducted 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 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 $300,000 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.

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.

Note 14: 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 employees and their eligible dependents. All campuses participate in the health plan. All campuses, except CCCUA, PCCUA, UACCH, and UACCRM, participate in the dental plan. The plans are also offered to employees of the University of Arkansas Winthrop Rockefeller Institute, the University of Arkansas Foundation, Inc., the Razorback Foundation, Inc., the Walton Arts Center, and the University of Arkansas Technology Development Foundation.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

At June 30, 2018, a total of 17,582 active employees, former employees, and pre-65 retirees were participants in the health plan. As of June 30, 2018, three different health plans: the Classic Plan, the Premier Plan and the Health Savings Plan. Campuses pay anywhere from 39% to 90% of the Classic Plan premium, 41% to 76% of the Premier Plan premium, and 42% to 95% of the Health Savings 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 18,413 active employees, former employees, and retirees were participants in the dental plan as of June 30, 2018. The University pays 0% to 100% 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. The System administration estimates the medical, pharmacy and dental claims liability to be $17,401,400 at June 30, 2018. 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 settlement of the claim. The claims and claims adjustment accrual for health, pharmacy and dental is based on the calculation prepared by Sibson Consulting

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 $1,125,000 for any one covered individual, the University pays an aggregating specific deductible of $200,000, whether from one or more covered individuals also exceeding $1,125,000 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, 2018, the loss ratio for the health plan was 94% and the loss ratio for the dental plan was 95%

The System administration retains and accounts for all of the risk financing associated with the self-insurance plan’s activities in accordance with GAAP.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

Reconciliation of Changes in the Liability for Future Insurance Claims FY1 8 Unpaid claims and claim adjustment expenses at beginning of year $ 15,180,200

Incurred claims and claim adjustment expenses: Provision for insured events of the current year 163,194,359 Adjustment in provision for insured events of prior years (330,773) Total incurred claims and claim adjustment expenses 162,863,586

Payments : Claims and claim adjustment expenses attributable to insured events of the current year 145,792,959 Claims and claim adjustment expenses attributable to insured events of prior years 14,849,427 Total Payments 160,642,386

Total unpaid claims and claim adjustment expenses at end of year $ 17,401,400

The liability for future insurance claims includes health, pharmacy and dental incurred but not paid (IBNP) claims/claim adjustment expenses only.

Retirement Plans Approximately ninety-seven percent of all employees of the University participate in the University of Arkansas Retirement Program (URP). The URP is a defined contribution 403(b) and 457(b) program as defined by the Internal Revenue Service Code. The authority under which the URP’s benefits provisions are established or amended is through the President of the University through the Board of Trustees. Arkansas Code Annotated authorizes participation in the plan. Active vendors to the URP include Teachers Insurance Annuity Association (TIAA) and Fidelity Investments

The URP is a contributory plan with the required employee contribution and the University matching contribution, within IRS match limits, varying by campus. All four-year campuses are transitioning to a uniform contribution formula by July 2020. That contribution formula requires an employer base contribution of 5% of an employee’s eligible salary to their TIAA and/or Fidelity Investments retirement account, allocated between the two companies according to the employee’s choice, with a required employee contribution of 5% The University makes an equal contribution for employee contributions in excess of 5%, with a maximum total University contribution of 10% of eligible salary up to the IRS match limit, which at June 30, 2018, was $27,500 The transition period began in July 2016 and provides for an annual increase of 1% in the employee required contribution percentage to reach 5% by July 2020. The most common formula in place at the community college campuses is a required employee contribution of 6% of eligible salary with a University contribution of 10% of eligible salary. 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 the participant are immediately vested in the participant, and contributions made by the University are cliff vested upon completion of two consecutive years of URP participation The

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

University’s TIAA and Fidelity contributions for the fiscal year 2018 were $101,485,764. The participants’ contributions for the fiscal year 2018 were $116,965,688

The majority of the remaining benefits eligible employees of the University participate in one of the two State-sponsored defined benefit retirement plans which are closed to new University participant enrollment. Current University employees who are participants in the Arkansas Public Employees Retirement System (APERS) or the Arkansas Teachers Retirement System (ATRS) continue in that participation. Current University employees who are current APERS or ATRS participants and who transfer without a break in service between University campuses may continue in APERS participation.

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 75% in fiscal year 2018. 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 year 2018 were $5,446,489 Participants’ contributions for the fiscal year 2018 were $1,513,576 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 year 2018 were $1,899,208. Participants’ contributions for the fiscal year 2018 were $638,640. 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 previously held appointments with the U.S. Department of Agriculture are covered by either the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS), depending on date of appointment. Both plans are single-employer defined benefit plans. The CSRS plan became effective in 1920, and established retirement benefits for certain federal employees. Congress created the FERS plan in 1986, becoming effective on January 1, 1987. Since that time new federal civilian employees who have retirement coverage are covered under the FERS plan. FERS provides benefits from three different sources: a Basic Benefit Plan, Social Security and the Thrift Savings Plan. As of June 30, 2018, ten active employees were covered under the CSRS plan and thirteen active employees were covered under the FERS plan. Participants in the CSRS plan contribute 7% of salaries and employers are required to contribute 7%. Participants in the FERS plan are required to contribute 0 80% of salaries and employers are required to contribute 13.7% for the Basic Benefit and Social Security portions of the plan benefits. The University’s and participants’ CSRS and FERS contributions were $208,799 and $69,911, respectively for the fiscal year ended June 30, 2018

The Thrift Savings Plan (TSP) is the third component of the FERS plan and is a supplement to the CSRS plan. It is a defined contribution plan designed to provide retirement income for Federal

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018 employees similar to a 401(k) plan. The TSP is administered by the Federal Retirement Thrift Investment Board. For FERS participants, employers are required to contribute an amount equal to 1% of salaries to a TSP account established for the participant. Employees may also contribute to their TSP account, with employer matching on the first 5% of employee contributions up to 4%. There is no employer matching for CSRS participants. All contributions are exempt from taxation. The University’s and participants’ TSP contributions were $50,442 and $95,928, respectively for the fiscal year ended June 30, 2018

Additionally, employees covered by these plans may also participate in the University of Arkansas Retirement Plan which includes Teachers Insurance Annuity Association (TIAA) and Fidelity Investments, but are not eligible for any additional University contribution.

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 $1,637,016 at June 30, 2018

NOTE 15: Defined Benefit Pension Plans

Arkansas Public Employees Retirement System (APERS)

Plan Description APERS is a cost-sharing, multiple-employer, defined benefit plan administered by the State of Arkansas. The plan was established by the authority of the Arkansas General Assembly with the passage of Act 177 of 1957. The costs of administering the plan are paid out of investment earnings. The general administration and responsibility for the proper operation of the System is vested in the nine members of the Board of Trustees of the Arkansas Public Employees Retirement System (the Board). Membership includes three state and three non-state employees, all appointed by the Governor, and three ex-officio trustees, including the Auditor of the State, the Treasurer of the State and the Director of the Department of Finance and Administration. APERS issues a publicly available financial report that can be obtained at http://www.apers.org/annualreports

Benefits Provided Benefit provisions are set forth in Arkansas Code Annotated, Title 24, Chapter 4 and may only be amended by the Arkansas General Assembly. APERS provides retirement, disability and death benefits. Retirement benefits are determined as a percentage of the member’s highest 3-year average compensation times the member’s years of service. The percentage used is based upon whether a member is contributory or noncontributory as follows:

Contributory, prior to 7/1/2005 2 07% Contributory, 7/1/2005 – 6/30/2007 2 03% Contributory, on or after 7/1/2007 2 00% Non-Contributory 1 72%

Members are eligible to retire with a full benefit under the following conditions:  at age 65 with 5 years of service,

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

 at any age with 28 years actual service.

Members may retire with a reduced benefit at age 55 with at least 5 years of actual service at age 55, or at any age with 25 years of service.

Members are eligible for disability benefits with 5 years of service. Disability benefits are computed as an age and service benefit, based on service and pay at disability. Death benefits are paid to a surviving spouse as if the member had 5 years of service and the monthly benefit is computed as if the member had retired and elected the Joint & 75% Survivor option. A cost-of- living adjustment of 3% of the current benefit is added each year.

Effective July 1, 2016, new employees of the University are no longer eligible to participate in the Arkansas Public Employees Retirement System (APERS). Existing APERS participants are allowed to continue APERS participation.

Contributions Contribution requirements are set forth in Arkansas Code Annotated, Title 24, Chapter 4. The contributions are expected to be sufficient to finance the costs of benefits earned by members during the year and make a level payment that, if paid annually over a reasonable period of future years, will fully cover the unfunded costs of benefit commitments for services previously rendered. Members who began service prior to July 1, 2005, who elected to remain in the non-contributory plan, are not required to make contributions to APERS. Members who began service on or after July 1, 2005, are required to participate in the contributory plan and contribute 5% of their salaries. Employers are required to contribute at a rate established by the Board of Trustees of APERS based on an actuary’s determination of a rate required to fund the plan. The University contributed 14 75% of applicable compensation for the fiscal year ended June 30, 2018. The University’s and members’ contributions for the year ending June 30, 2018, were $5,446,489 and $1,513,576, respectively.

Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources to Pensions At June 30, 2018, the University reported a liability of $56,807,517 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2017, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The university’s proportion of the net pension liability was based on the university’s share of contributions to the pension plan relative to the total contributions of all participating employers. At June 30, 2018, the university’s proportion was 2 198%, which was a decrease of 0 004% from its proportion measured as of June 30, 2017

For the year ended June 30, 2018, the University recognized pension expense of $11,812,312 At June 30, 2018, the University reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

Deferred Outflows of Deferred Inflows of Resources Resources Differences between expected and actual experience $ 1,101,231 $ (1,117,269) Changes of assumptions or other inputs 9,140,165 Net difference between projected and actual earnings on pension plan investments 2,380,385 Changes in the proportion and differences between the employer contributions and share of contributions 5,690,990 (1,673,668) University contributions subsequent to the measurement date 5,446,489 Total $ 23,759,260 $(2,790,937)

Deferred outflows of resources of $5,446,489, related to pensions resulting from University contributions subsequent to the measurement date, will be recognized as a reduction of the net pension liability in the year ended June 30, 2019. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in the pension expense in the financial statements as follows:

Year ended June 30: 2019 $ 5,005,721 2020 7,053,289 2021 3,958,292 2022 (495,468) 2023 - Thereafter -

Actuarial Assumptions The total pension liability in the June 30, 2017 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement:

Actuarial Cost Method Entry Age Normal Amortization Method Level Percentage of Payroll, Closed Remaining Amortization Period 25 years Asset Valuation Method 4-year smoothed market; 25% corridor Investment Rate of Return 7 15%

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

Salary Increases 3 25% – 9.85% including inflation Wage Inflation 3 25% Post-Employment Cost-of-Living Increases 3.00% Annual Compounded Increase Retirement Age Experience-based table of rates that are specific to the type of eligibility condition. Last updated for the 2013 valuation pursuant to an experience study for the period 2007- 2012 Mortality Table Based on RP-2000 Combined Health mortality table, projected to 2020 using Projection Scale BB, set-forward 2 years for males and 1 year for females Average Service Life of All Members 4 3774

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the current asset allocation percentage and by adding expected price inflation. Best estimates of arithmetic real rates of return for the 10-year period from 2017 to 2026 were based upon capital market assumptions provided by plan’s investment consultant(s). For each major asset class that is included in the pension plan’s current asset allocation as of June 30, 2017, these best estimates are summarized in the following table:

Asset Class Current Allocation Long-Term Expected Real Rate of Return Broad Domestic Equity 37% 5 97% International Equity 24 6 54 Real Assets 16 4 59 Absolute Return 5 3 15 Domestic Fixed 18 0 83 Total 100%

Assumption Changes: Economic assumptions were updated in the June 30, 2017 valuation to a 7 15% investment return assumption, a 3 25% price inflation assumption, and a 3.25% wage inflation assumption These assumptions changed from the June 30, 2016 valuation.

Discount Rate A single discount rate of 7.15% was used to measure the total pension liability. This single discount rate was based on the expected rate of return on pension plan investments of 7.15% It incorporates a municipal bond rate of 3.56% based on the “Fidelity 20-Year Municipal GO AA Index” from the Bond Buyer Index of general obligation municipal bonds (based on the weekly rate closest to but not later than the measurement date)

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

The projection of cash flows used to determine this single discount rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on these assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following presents the University’s proportionate share of the net pension liability using the discount rate of 7.15%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.15%) or 1-percentage-point higher (8.15%) than the current rate:

Sensitivity of Discount Rate 1% Discount 1% Decrease Rate Increase (6.15%) (7.15%) (8.15%) $86,509,796 $56,807,517 $32,143,477

Pension Plan Fiduciary Net Position Detailed information about the pension plan’s net position is available in the separately issued APERS financial report.

Arkansas Teacher Retirement System (ATRS)

Plan Description ATRS is a cost-sharing, multiple-employer, defined benefit pension plan administered by the State of Arkansas. The plan was established by the authority of the Arkansas General Assembly with the passage of Act 266 of 1937. The costs of administering the plan are paid out of investment earnings. The general administration and responsibility for the proper operation of the System is vested in the fifteen members of the Board of Trustees of the Arkansas Teacher Retirement System (the Board). Membership includes eleven members who are elected and consist of seven active members of ATRS with at least five years of actual service, three retired members receiving an annuity from ATRS, and one active or retired member from a minority racial ethnic group. There are also four ex officio members, including the State Bank Commissioner, the Treasurer of the State, the Auditor of the State and the Commissioner of Education. ATRS issues a publicly available financial report that can be obtained at https://www.artrs.gov/publications

Benefits Provided Benefit provisions are set forth in Arkansas Code Annotated, Title 24, Chapter 7 and may only be amended by the Arkansas General Assembly. ATRS provides retirement, disability and death benefits. Retirement benefits are determined as a percentage of the member’s highest 3-year average compensation times the member’s years of service. The percentage used is based upon whether a member is contributory or noncontributory as follows:

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

 Contributory 2 15%  Non-Contributory 1 39%

Members are eligible to retire with a full benefit under the following conditions:

 at age 60 with 5 years of credited service,  at any age with 28 years credited service.

Members with 25 years of credited service who have not attained age 60 may retire with a reduced benefit.

Members are eligible for disability benefits with five years of service. Disability benefits are computed as an age and service benefit, based on service and pay at disability. Survivor benefits are payable to qualified survivors upon the death of an active member with 5 years of service. The monthly benefit paid to eligible spouse survivors is computed as if the member had retired and elected the Joint & 100% Survivor option. Minor child survivors receive a percentage of the member’s highest salary earned. ATRS also provides a lump sum death benefit for active and retired members with 10 years of actual service. The amount for contributory members will be up to $10,000 and up to $6,667 for noncontributory members. A cost-of-living adjustment of 3% of the current benefit is added each year.

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.

Contributions Contribution requirements are set forth in Arkansas Code Annotated, Title 24, Chapter 7. The contributions are expected to be sufficient to finance the costs of benefits earned by members during the year and make a level payment that, if paid annually over a reasonable period of future years, will fully cover the unfunded costs of benefit commitments for services previously rendered. ATRS has contributory and noncontributory plans. The contributory plan has been in effect since the beginning of ATRS. The noncontributory plan became available July 1, 1986. Act 81 of 1999, effective July 1, 1999, requires all new members to be contributory and allowed active members as of July 1, 1999, until July 1, 2000, to make an irrevocable choice to be contributory or noncontributory. Act 93 of 2007 allows any noncontributory member to make an irrevocable election to become contributory on July 1 of each fiscal year. Employers are required to contribute at a rate established by the Board of ATRS based on an actuary’s determination of a rate required to fund the plan. The University contributed 14.00% of applicable compensation for the fiscal year ended June 30, 2018. The University’s and member’s contributions for the year ending June 30, 2018, were $1,899,208 and $638,640, respectively.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources to Pensions At June 30, 2018, the University reported a liability of $22,688,366 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2017, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The University’s proportion of the net pension liability was based on the University’s share of contributions to the pension plan relative to the total contributions of all participating employers. At June 30, 2018, the University’s proportion was 0 540 percent, which was a decrease of 0 049 from its proportion measured as of June 30, 2017

For the year ended June 30, 2018, the University recognized pension expense credit of $390,403 At June 30, 2018, the University reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows of Deferred Inflows of Resources Resources Differences between expected and actual experience $ 314,428 $ (556,160) Changes of assumptions or other inputs 6,062,474 - Net difference between projected and actual earnings on pension plan investments - (1,602,557) Changes in the proportion and differences between the employer contributions and share of contributions 117,373 (3,830,135) University contributions subsequent to the measurement date 1,899,208 - Total $ 8,393,483 $(5,988,851)

Deferred outflows of resources related to pensions of $1,899,208, resulting from University contributions subsequent to the measurement date, will be recognized as a reduction of the net pension liability in the year ended June 30, 2019. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in the pension expense in the financial statements as follows:

Year ended June 30: 2019 $(697,569) 2020 856,678 2021 417,609 2022 (509,184) 2023 437,890

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

Actuarial Assumptions The total pension liability in the June 30, 2017, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement:

Actuarial Cost Method Entry Age Normal Amortization Method Level Percentage of Payroll, closed Amortization Period 29 years Asset Valuation Method 4-year closed period; 20% corridor Wage Inflation 2 75% Salary Increases 2 75 – 7 75% including inflation Investment Rate of Return 7 50% Post-Retirement Cost-of-Living Increases 3.00% Simple Retirement Age Experience-based table of rates that are specific to the type of eligibility condition. Last updated for the 2011 valuation pursuant to an experience study for the period July 1, 2010 – June 30, 2015 Mortality Table RP-2014 Healthy Annuitant, Disabled Annuitant, and Employee Mortality Tables. Mortality rates were adjusted using projection scale MP-2017 from 2006 (94% for men & 84% for women)

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the System’s target asset allocation as of June 30, 2017, are summarized below:

Asset Class Target Allocation Long-Term Expected Real Rate of Return Global Equity 50% 5 0% Fixed Income 20 1 2 Alternatives 5 4 8 Real Assets 15 3 7 Private Equity 10 6 5 Cash Equivalents - 0 3 Total 100%

Discount Rate A single discount rate of 7 50% was used to measure the total pension liability. This single discount rate was based on the expected rate of return on pension plan investments of 7 50% It incorporates

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018 a municipal bond rate of 3.56% taken from the “20-Year Municipal GO AA Index” as of June 30, 2017 The projection of cash flows used to determine this single discount rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be 14% of payroll. Based on these assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following presents the University’s proportionate share of the net pension liability using the discount rate of 7 50%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6 50%) or 1-percentage-point higher (8 50%) than the current rate:

Sensitivity of Discount Rate 1% Discount 1% Decrease Rate Increase (6 50%) (7 50%) (8 50%) $36,341,255 $22,688,366 $11,370,079

Pension Plan Fiduciary Net Position Detailed information about the pension plan’s net position is available in the separately issued ATRS financial report.

NOTE 16: Other Postemployment Benefits (OPEB)

As referenced in Note 1, GASB Statement No. 75 was implemented during the year ended June 30, 2018 The Statement required restatement of the Net Position at June 30, 2017 of a decrease of $7,118,973 This is reflected on the Statement of Revenues, Expenses, and Changes in Net Position as a cumulative effect of the implementation. For the recognition of deferred outflows of resources and a related current liability for postemployment benefits other than pensions, $2,018,574 was recorded on the Statement of Net Position. The long-term liability for other postemployment benefits other than pensions is also reflected on the Statement of Net Position and totaled $66,786,365 as of June 30, 2018

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. 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 employees of the University of Arkansas Foundation, Inc., the University of Arkansas Winthrop Rockefeller Institute, the Walton Arts Center Foundation, Inc., the Razorback Foundation, Inc., and the University of Arkansas Technology Development Foundation, no postemployment benefit

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

is accrued by the University for these private entities. Financial activities of the plan are reported in the accompanying consolidated financial report. No assets are accumulated in a trust. Retirees pay 100% of premiums for all campuses with the following exceptions:

UACCM, who will pay the premium for those employees retiring on or after age 62 with at least 20 years of service.

UACCRM, who will pay 83% of the active premium for single coverage, but none of the premium for a spouse or unmarried dependent

UAPTC, who will pay the premium for single coverage, but none of the premium for a spouse or unmarried dependent Employees who retire after December 31, 2017, will pay 100% of premiums for single and spouse coverage.

Employer costs are funded on a pay-as-you-go basis for all campuses. Retirees qualify for postemployment benefits as follows:

CCCUA: Employees must be at least age 60 and have at least 5 years of service.

UACCM: Employees must be at least age 60 and have at least 10 years of service.

UACCRM: Employees are eligible for retirement benefits if they are at least age 60 and if they have 12 years of service under the Plan or if they are at least age 55 and their age plus service equals 72 points (“Rule of 72”)

UAPTC: Employees are eligible for retirement benefits if they are at least age 55 and if they have 15 years of service under the Plan.

ALL OTHERS: 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.

Retirees pay 100% of the fully insured premium directly to United Healthcare. As a result, no liabilities for Medicare eligible retiree benefits are included in this valuation.

Employees Covered by Benefit Terms

At June 30, 2018, the following employees were covered by the benefit terms:

Employees covered by Benefit Terms Medical Life Inactive employees or beneficiaries currently receiving benefit payments 337 2,206 Active employees 19,171 20,102 Total Employees covered by Benefit Terms 19,508 22,308

Total OPEB Liability

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018 is accrued by the University for these private entities. Financial activities of the plan are reported in the accompanying consolidated financial report. No assets are accumulated in a trust. Retirees pay 100% of premiums for all campuses with the following exceptions:

UACCM, who will pay the premium for those employees retiring on or after age 62 with at least 20 years of service.

UACCRM, who will pay 83% of the active premium for single coverage, but none of the premium for a spouse or unmarried dependent

Employer costs are funded on a pay-as-you-go basis for all campuses. Retirees qualify for postemployment benefits as follows:

CCCUA: Employees must be at least age 60 and have at least 5 years of service.

UACCM: Employees must be at least age 60 and have at least 10 years of service.

UAPTC: Employees are eligible for retirement benefits if they are at least age 55 and if they have 15 years of service under the Plan.

Retirees pay 100% of the fully insured premium directly to United Healthcare. As a result, no liabilities for Medicare eligible retiree benefits are included in this valuation.

Employees Covered by Benefit Terms

At June 30, 2018, the following employees were covered by the benefit terms:

Employees covered by Benefit Terms Medical Life Inactive employees or beneficiaries currently receiving benefit payments 337 2,206 ActiveUNIVERSITY employees OF ARKANSAS SYSTEM – Notes to Consolidated Financial 19,171 Statements FY 20,102 2018 Total Employees covered by Benefit Terms 19,508 22,308

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018 Total OPEB Liability Total OPEB liability as of June 30, 2018 was $68,804,939, determined by actuarial valuations as of July 1, 2017, rolled forward. Total OPEB liability as of June 30, 2018 was $68,8047 4,939, determined by actuarial valuations as of Summary July 1, 2017, of Key rolled Actuarial forward. Methods and Assumptions

SummaryValuation of Key date Actuarial Methods andJuly Assumptions1, 2017 valuation for the year ended June 30, 2018 Valuation year Census data collected as of February 2018 ValuationActuarial costdate method JulyEntry 1, Age 201 7Normal valuation for the year ended June 30, 2018 ValuationAmortization year method Census Level percent data collected of payroll as of February 2018 ActuarialRemaining cost amortization method period Entry30 years Age rolling Normal AmorAssettization valuation method method LN/Aevel percent of payroll RemainingActuarial assumptions: amortization period 30 years rolling AssetInvestment valuation ratemethod of return N/A 3 58% ActuarialRate of assumptions: salary increase Investment for amortization rate of return 3 4 58%0% RateMedical of salary inflation increase rate 6 75% grading to 4% over 16 years Pharmacy for amortization inflation rate 49% 0% grading to 4% over 16 years MedicalRetiree contribution inflation rate inflation 6 75% grading to 4% over 16 years Pharmacy rate inflation rate 9%4.9% grading then 7.8% to 4% grading over 16 to years 4% over 15 years Retiree contribution inflation The discount rate rate used to measure the4.9% Total then OPEB 7.8% Liability grading (TOL) to 4% as over of July15 years 1, 2017 was 3.58%, the unfunded rate determined as of June 29, 2017 was based on the Bond Buyer 20-Bond GO TheIndex. discount rate used to measure the Total OPEB Liability (TOL) as of July 1, 2017 was 3.58%, the unfunded rate determined as of June 29, 2017 was based on the Bond Buyer 20-Bond GO Index.Mortality Rates:

Healthy RP-2014 Fully Generational Mortality Table for employees and Mortality Rates: healthy annuitants using projection scale MP-2014 Healthy RP-2014 Fully Generational Mortality Table for employees and Disabled healthyRP-2014 annuitants Fully Generational using projection Mortality scale Table MP- for2014 disabled retirees using projection scale MP-2014 Disabled RP-2014 Fully Generational Mortality Table for disabled retirees General Overview of the Valuationusing projection Methodology scale MP-2014

GeneralThe Entry Overview Age Actuarial of the ValuationCost Method Methodology was used to value the Plan’s actuarial liabilities and to set the normal cost. Under this method, the normal cost rate is the percentage of pay contribution Thewhich Entry would Age be Actuarial sufficient Cost to fund Method the Plan was benefitsused to valueif it were the Plan’spaid from actuarial each member’sliabilities andentry to into set thethe normalPlan until cost. termination Under this or retirement.method, the The normal unfunded cost rateliability is the is amortizedpercentage over of paya rolling contribution 30-year whichperiod. would The amortization be sufficient method to fund is the a levelPlan benefitspercentage if it of were pay. paid from each member’s entry into the Plan until termination or retirement. The unfunded liability is amortized over a rolling 30-year period.The claims The costsamortization were developed method isfrom a level the activepercentage premium of pay. rates for the period July 1, 2017 to June 30, 2018 loaded for 8.4% to reflect assumed premiums from prior year valuation. 70% of the Thepremium claims was costs assumed were developed to be for medical, from the 22%active for premium pharmacy, rates and for 8% the for period expenses. July 1, The 2017 claim to June and 30,expense 2018 costs loaded were for trended 8.4% toback reflect to the assumed period Julypremiums 1, 2017 from to June prior 30, year 2018 valuation. using an annual70% of trend the premiumassumption was of assumed 6 75% for to medical,be for medical, 8.5% for 22% pharmacy, for pharmacy, and 3% and for 8% expenses. for expenses. The claim and expense costs were trended back to the period July 1, 2017 to June 30, 2018 using an annual trend assumption of 6 75% for medical, 8.5% for pharmacy, and 3% for expenses. 48

79 48 -

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018 expenseUNIVERSITY costs were OF trended ARKANSAS back to SYSTEM the period – NotesJuly 1, to 2017 Consolidated to June 30, Financial 2018 using Statements an annual FY 201trend8 assumptio n of 6.75% for medical, 8.5% for pharmacy, and 3% for expenses.

TheThe dentaldental ratesrates areare setset toto matchmatch projectedprojected costs.costs. BasedBased onon aa comparisoncomparison ofof thethe recentrecent dentaldental claimsclaims plusplus fees,fees, thethe dentaldental ratesrates areare setset atat aa levellevel sufficientsufficient toto covercover projectedprojected costs.costs. RetireesRetirees paypay 100%100% ofof thethe budgetbudget raterate forfor coverage.coverage. Therefore,Therefore, thethe costcost forfor dentaldental coveragecoverage waswas excludedexcluded fromfrom thisthis valuationvaluation

ChangesChanges inin ActuarialActuarial AssumptionsAssumptions andand MethodsMethods sincesince thethe PriorPrior ValuationValuation

TheThe claimclaim costscosts andand trendstrends werewere updatedupdated toto reflectreflect changeschanges inin benefitsbenefits andand experienceexperience andand ourour expectationexpectation forfor thethe futurefuture costs.costs. TheThe planplan changedchanged toto onlyonly offeringoffering ClassicClassic planplan toto retirees.retirees. ClaimsClaims werewere adjusted adjusted to to utilize utilize only only the the Classic Classic premium premium rates. rates. TheThe initial initial retiree retiree contribution contribution was was adjustedadjusted toto reflectreflect currentcurrent contributioncontribution rates.rates

TheThe fundingfunding methodmethod waswas changedchanged fromfrom ProjectProject UnitUnit CreditCredit (PUC)(PUC) toto EntryEntry AgeAge NormalNormal (EAN)(EAN) andand thethe discountdiscount raterate waswas loweredlowered fromfrom 4.0%4.0% toto 3.58%3.58% toto bebe inin compliancecompliance withwith GASBGASB 75.75. TheThe PlanPlan addedadded twotwo newnew campuses,campuses, UAPTCUAPTC andand UACCRMUACCRM.. TheseThese twotwo campusescampuses werewere addedadded toto thethe valuationvaluation withwith theirtheir appropriateappropriate assumptions,assumptions, withwith thethe exceptionexception ofof discountdiscount rate,rate, claimclaim curvescurves andand spousespouse ageage difference.difference.

ThThee reportreport doesdoes notnot reflectreflect futurefuture changeschanges inin benefits,benefits, penalties,penalties, taxestaxes (including(including futurefuture exciseexcise taxes),taxes), or or administrative administrative costs costs that that may may be be required required as as a a result result of of the the Patient Patient Protection Protection and and AffordableAffordable CareCare ActAct ofof 2010,2010, relatedrelated legislation,legislation, oror regulations.regulations. ItIt doesdoes reflectreflect allall ACAACA costscosts toto datedate suchsuch asas Patient-CenterPatient-Center OutcomesOutcomes ResearchResearch InstituteInstitute (PCORI)(PCORI) feesfees.

ChangesChanges inin thethe TotalTotal OPEBOPEB LiabilityLiability

TheThe tabletable belowbelow showsshows thethe changeschanges inin thethe totaltotal OPEBOPEB liabilityliability (TOL)(TOL) duringduring thethe measurementmeasurement periodperiod endingending onon JuneJune 30,30, 20120188

BalancesBalances atat 6/30/20166/30/2016 (Reporting(Reporting DateDate 6/30/2017)6/30/2017) $$ 77,908,60277,908,602 ChangesChanges forfor thethe year:year: ServiceService costcost 4,589,0554,589,055 InterestInterest (includes(includes interestinterest onon serviceservice cost)cost) 2,320,7872,320,787 ChangesChanges ofof benefitbenefit termsterms DifferencesDifferences betweenbetween expectedexpected andand actualactual experienceexperience ChangesChanges ofof assumptionsassumptions (13,904,426) (13,904,426) BenefitBenefit payments,payments, includingincluding refundsrefunds ofof membermember contributionscontributions (2,109,079) (2,109,079) NetNet changeschanges inin totaltotal OPEBOPEB liabilityliability (9,103,663) (9,103,663) BalancesBalances atat 6/30/20176/30/2017 (Reporting(Reporting DateDate 6/30/2018)6/30/2018) $$ 68,804,93968,804,939

DuringDuring thethe measurementmeasurement year,year, thethe TNOLOL decreaseddecreased byby approximatelyapproximately $9.1$9.1 million.million. ThisThis waswas duedue toto thethe increaseincrease inin thethe discountdiscount raterate fromfrom 2.85%2.85% toto 3.58%.3.58%. TheThe serviceservice costcost andand interestinterest costcost increasedincreased thethe TNOLOL by by approximately approximately $6.9$6.9 millionmillion whilewhile contributionscontributions decreaseddecreased thethe TNOLOL byby approximatelyapproximately $2$2 11 millionmillion

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

There were no changes in benefits during the year. There was a discount rate change between June 30, 2016 and June 30, 2017. This created an assumption gain of $13.9 million, which will be amortized over the average expected remaining service life of all active and inactive members of the Plan.

Sensitivity of the Total OPEB Liability

Changes in the discount rate affect the measurement of the TOL. Lower discount rates produce a higher TOL and higher discount rates produce a lower TOL. The table below shows the sensitivity of the TOL to the discount rate.

Sensitivity of Net OPEB Liability to Changes in Discount Rate 1% Discount 1% Decrease Rate Increase 2 58% 3 58% 4 58% $77,960,081 $68,804,939 $61,269,436

A one percent decrease in the discount rate increases the TOL by approximately 13%. A one percent increase in the discount rate decreases the TOL by approximately 11%.

Changes in the healthcare trends affect the measurement of the TOL. Lower healthcare trends produce a lower TOL and higher healthcare trends produce a higher TOL. The table below shows the sensitivity of the TOL to the healthcare trends.

Sensitivity of Net OPEB Liability to Changes in Healthcare Cost Trend Rates 1% Healthcare 1% Decrease Trend Increase $63,959,695 $68,804,939 $74,445,398

A one percent decrease in the healthcare trends decreases the TOL by approximately 7%. A one percent increase in the healthcare trends increases the TOL by approximately 8%.

OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB

For the year ended June 30, 2018, the University recognized OPEB expense of $4,465,488 At June 30, 2018, the University reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources. Deferred Deferred Outflows of Inflows of Resources Resources Differences between expected and actual experience $ - $ - Changes in assumptions - 11,459,571 Contributions subsequent to the measurement date 2,018,574 - Total $ 2,018,574 $ 11,459,571

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

The $2,018,574 reported as deferred outflows of resources resulting from the University’s contributions subsequent to the measurement date will be recognized as a reduction of the total OPEB liability in the year ending June 30, 2019. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense in the financial statements as follows: Year ending June 30: 2019 $ (2,444,908) 2020 (2,444,908) 2021 (2,444,907) 2022 (2,398,410) 2023 (1,557,852) Thereafter (168,586)

Note 17: Functional Classifications of Operating Expenses

The 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 for fiscal year 2018 Natural Classifications Functional Compensation S upplies Scholarships & Classifications & Benefits & Services Fellowships Insurance Depreciation TOTAL Instruction $ 394,405,858 $ 58,751,305 $ - $ - $ - $ 453,157,163 Research 176,482,146 89,671,342 - - - 266,153,488 Public Service 86,248,379 48,905,103 - - - 135,153,482 Academic Support 91,104,699 36,434,472 - - - 127,539,171 Student Services 54,152,903 22,268,881 - - - 76,421,784 Institutional Support 181,442,554 43,181,666 1,782,156 - - 226,406,376 Scholarships/Fellowships 120,475 95,373 59,321,479 - - 59,537,327 Plant Operations 69,023,763 80,789,686 - - - 149,813,449 Auxiliary Enterprises 76,083,366 119,221,875 2,936,572 - - 198,241,813 Depreciation - - - - 186,642,486 186,642,486 Patient Care 606,900,432 367,657,000 - - - 974,557,432 Other 4,160,000 14,877,000 - - - 19,037,000 Insurance expenses - - - 182,157,005 - 182,157,005 TOTAL $ 1,740,124,575 $ 881,853,703 $ 64,040,207 $ 182,157,005 $ 186,642,486 $ 3,054,817,976

Note 18: Other Organizations

There are 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, 2018, are presented below in summary form and include the accounts of its wholly owned subsidiaries, Sports Shows, Inc., Cato Springs Road LLC, TSSD LLC, and Hog Wild Productions, LLC.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

THE RAZORBACK FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2018

Assets Cash and investments $ 28,272,388 Other assets 38,418,223 Total Assets $ 66,690,611

Liabilities and Net Assets Liabilities $ 10,469,089 Net Assets 56,221,522 Total Liabilities and Net Assets $ 66,690,611

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2018

Income and Other Additions $ 30,607,470 Expenditures and Other Deductions (53,375,640) Total Decrease in Net Assets $ (22,768,170)

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, 2018, are presented below in summary form.

ARKANSAS ALUMNI ASSOCIATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2018

Assets Cash and investments $ 3,156,024 Other assets 10,252,872 Total Assets $ 13,408,896

Liabilities and Net Assets Liabilities $ 1,498,291 Net Assets 11,910,605 Total Liabilities and Net Assets $ 13,408,896

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2018

Income and Other Additions $ 5,860,818 Expenditures and Other Deductions (4,109,104) Total Increase in Net Assets $ 1,751,714

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

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, 2018, are presented below in summary form.

ARKANSAS 4-H FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2018

Assets Cash and investments $ 4,837,712 Other assets 4,979,218 Total Assets $ 9,816,930

Liabilities and Net Assets Liabilities $ 246,638 Net Assets 9,570,292 Total Liabilities and Net Assets $ 9,816,930

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2018

Income and Other Additions $ 2,313,035 Expenditures and Other Deductions (2,500,726) Total Decrease in Net Assets $ (187,691)

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, 2018, are presented below in summary form.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

UNIVERSITY OF ARKANSAS TECHNOLOGY DEVELOPMENT FOUNDATION CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2018

Assets Cash and investments $ 1,811,163 Other assets 13,347 Total Assets $ 1,824,510

Liabilities and Net Assets Liabilities $ 137,262 Net Assets 1,687,248 Total Liabilities and Net Assets $ 1,824,510

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2018

Income and Other Additions $ 1,755,067 Expenditures and Other Deductions (1,593,617) Total Increase in Net Assets $ 161,450

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, 2018, are presented below in summary form. UNIVERSITY OF ARKANSAS FORT SMITH CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2018

Assets Cash and investments $ 97,883,443 Other assets 349,196 Total Assets $ 98,232,639

Liabilities and Net Assets Liabilities $ 817,035 Net Assets 97,415,604 Total Liabilities and Net Assets $ 98,232,639

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2018

Income and Other Additions $ 15,585,567 Expenditures and Other Deductions (4,420,798) Total Increase in Net Assets $ 11,164,769

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

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

operates as a nonprofit benevolent corporation for charitable educational purposes. The assets of the Association are held by The University of Arkansas Foundation, Inc.

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, 2018, are presented below in summary form. TROJAN ATHLETIC FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2018

Assets Cash $ 268,981 Other Assets 89,117 Total Assets $ 358,098

Liabilities and Net Assets Liabilities $ 1,936 Net Assets 356,162 Total Liabilities and Net Assets $ 358,098

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2018

Income and Other Additions $ 377,416 Expenditures and Other Deductions (395,093) Total Decrease in Net Assets $ (17,677)

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. Audited financial statements for the year ended December 31, 2017, are presented below in summary form.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

UAPB/AM&N ALUMNI ASSOCIATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of December 31, 2017

Assets Cash & investments $ 314,087 Other assets 60,015 Total Assets $ 374,102

Liabilities and Net Assets Liabilities $ 39,670 Net Assets 334,432 Total Liabilities and Net Assets $ 374,102

CONDENSED STATEMENT OF ACTIVITIES FY Ended December 31, 2017

Income and Other Additions $ 210,767 Expenditures and Other Deductions (116,234) Total Increase in Net Assets $ 94,533

University of Arkansas at Pine Bluff Scholarship Endowment Fund was created to provide scholarships to a culturally diverse student population at the University of Arkansas at Pine Bluff. Financial information include in the Form 990 for the year ended December 31, 2016, are presented below in summary form. UNIVERSITY OF ARKANSAS-PINE BLUFF SCHOLARSHIP ENDOWMENT FUND PER FORM 990 CONDENSED STATEMENT OF FINANCIAL POSITION As of December 31, 2016

Assets Cash & investments $ 4,388,855 Total Assets $ 4,388,855

Liabilities & Net Assets Liabilities $ - Net Assets 4,388,855 Total Liabilities & Net Assets $ 4,388,855

CONDENSED STATEMENT OF ACTIVITIES FY Ended December 31, 2016

Income and Other Additions $ 408,048 Expenditures and Other Deductions (220,411) Total Increase in Net Assets $ 187,637

Cossatot Community College of the University of Arkansas Foundation, Inc. assists in developing and improving the programs and facilities for their campuses. Audited financial statements for the year ended June 30, 2018, are presented below in summary form.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

COSSATOT COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2018

Assets Cash and investments $ 522,238 Other 633,700 Total Assets $ 1,155,938

Liabilities and Net Assets Liabilities $ 418 Net Assets 1,155,520 Total Liabilities and Net Assets $ 1,155,938

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2018

Income and Other Additions $ 732,573 Expenditures and Other Deductions (107,313) Total Increase in Net Assets $ 625,260

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, 2017, are presented below in summary form. PHILLIPS COMMUNITY COLLEGE FOUNDATION CONDENSED STATEMENT OF FINANCIAL POSITION As of December 31, 2017

Assets Cash and investments $ 4,230,731 Other Assets 67,505 Total Assets $ 4,298,236

Liabilities and Net Assets Liabilities $ 604,921 Net Assets 3,693,315 Total Liabilities and Net Assets $ 4,298,236

CONDENSED STATEMENT OF ACTIVITIES FY Ended December 31, 2017

Income and Other Additions $ 1,027,698 Expenditures and Other Deductions (673,956) Total Increase in Net Assets $ 353,742

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, 2017, are presented below in summary form.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT HOPE FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2017

Assets Cash and investments $ 2,596,831 Other Assets 34,782 Total Assets $ 2,631,613

Liabilities and Net Assets Liabilities $ 44,500 Net Assets 2,587,113 Total Liabilities and Net Assets $ 2,631,613

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2017

Income and Other Additions $ 1,084,413 Expenditures and Other Deductions (751,929) Total Increase in Net Assets $ 332,484

Rich Mountain Community College Foundation, Inc. operates for the sole benefit of the Rich Mountain campus. Audited financial statements for the year ended June 30, 2018, are presented below in summary form. RICH MOUNTAIN COMMUNITY COLLEGE FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2018

Assets Cash and investments $ 3,724,887 Other assets 934,845 Total Assets $ 4,659,732

Liabilities and Net Assets Liabilities $ 6,100 Net Assets 4,653,632 Total Liabilities and Net Assets $ 4,659,732

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2018

Income and Other Additions $ 304,567 Expenditures and Other Deductions (280,090) Total Increase in Net Assets $ 24,477

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

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 and conferences focused on enriching and informing Arkansas leaders. Audited financial statements for the year ended June 30, 2018, are presented below in summary form. UNIVERSITY OF ARKANSAS WINTHROP ROCKEFELLER CENTER, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2018

Assets Cash and investments $ 4,247,730 Grant Receivable - Other 253,382 Property and Equipment, Net 14,416,928 Total Assets $ 18,918,040

Liabilities and Net Assets Liabilities $ 416,729 Net Assets 18,501,311 Total Liabilities and Net Assets $ 18,918,040

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2018

Income and Other Additions $ 1,808,882 Expenditures and Other Deductions (6,528,598) Total Decrease in Net Assets $ (4,719,716)

Delta Student Housing, Inc. (Delta) is a nonprofit corporation organized in Arkansas. 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 Arkansas 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 Markets 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 was owned and managed by Delta until the completion of the NMTC compliance period of seven years, at which time the transaction was unwound and the building transferred to ASMSA through the Board of Trustees of the University. Audited financial statements for the year ended June 30, 2018, are presented below in summary form.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

DELTA STUDENT HOUSING, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2018

Assets Cash $ 323,678 Property and equipment - Total Assets $ 323,678

Liabilities and Net Assets Liabilities $ - Net Assets 323,678 Total Liabilities and Net Assets $ 323,678

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2018

Income and Other Additions $ 289,413 Expenditures and Other Deductions (324,640) Total Decrease in Net Assets $ (35,227)

Note 19: 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.

FY18 - Statement of Net Position An elimination entry was made to reduce accounts receivable by $17,142,300, which represent amounts owed by the campuses to the System Administration for insurance premiums and campus billings for services rendered, amounts owed between campuses, and interest due from a System Administration loan for eVersity from the campuses. Accounts payable was reduced by $17,103,278, representing these billed amounts adjusted by cash in-transit within the system. Cash was increased by $189,022 to account for payments in-transit within the system.

Three loans between University entities were eliminated to reduce assets and liabilities: (1) $450,000 (current portion $150,000) to reflect a loan to ASMSA by the System Administration; and (2) $675,931 (current portion $26,506) to reflect a loan from UAMS to UAF, and (3) $4,975,498 to reflect a loan from the campuses to eVersity.

FY18 - Statement of Revenues, Expenses, and Changes in Net Position As explained in Note 14, 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

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

expenditures on the System Administration’s financial statements. The premiums expensed by the campuses are recorded as part of compensation and benefits. An elimination entry was made to reduce insurance revenue and compensation/benefits expenditures in the amount of $135,541,167

An elimination entry was made for billings by System Administration to the campuses for services rendered to reduce operating sales and services revenue and operating supplies/services expense in the amount of $3,929,091 An elimination entry for services provided among campuses in the amount of $865,145. These amounts decreased operating sales and services, other operating revenues and operating supplies/services.

An elimination entry for the System Administration’s interest expense for a loan from the campuses was made to decrease other non-operating revenues (expenses) and investment income in the amount of $86,703

FY18 - 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.

Note 20: Joint Endeavor

In 1987, 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. The University of Arkansas/City of Fayetteville Arts Foundation, Inc., now called the Walton Arts Center Foundation, Inc., was established to administer this project and its funds. Activities of the foundation were managed by nine directors - three appointed by the University, three by the City of Fayetteville, and three recommended by the Foundation that were 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 was required to submit an annual budget to both the City and the University for approval. The Board of Trustees of The Arts Center Council was comprised of five members appointed by the University, five members appointed by the City, and ten members appointed at large, all of whom served as volunteers

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 nine additional

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018 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 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 to the Foundation to help defray the construction costs of the proposed enlargement and enhancement of the Walton Arts Center located in Fayetteville, Arkansas. To date, the University’s funds placed in the endowment have not been spent. Accordingly, the relationship of the University and Walton Arts Center Foundation, Inc., remains unchanged. In the event the funds are expended, as provided in the revised agreement, the Walton Arts Center Foundation, Inc. would no longer be an agent for the University nor would the University 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 an 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.

Note 21: Related Parties

The following are significant related party transactions other than those with component units discussed in Note 1.

The Vice Chancellor for Economic Development for the Fayetteville campus 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. During the fiscal year ended June 30, 2018, the former Vice Chancellor and Director of Athletics at the Fayetteville campus also served on this Board. At June 30, 2018, bank balances held at Arvest Bank Group, Inc. banks total $68,029,912 (book balances included on the Statement of Net Position were $67,476,975).

Note 22: 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.

Immunity provisions in Arkansas law prohibit suits naming the Board of Trustees of the University of Arkansas System as a defendant in Arkansas State courts. Employees of UAMS acting in good

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

faith in the course and scope of their employment may be sued in state courts, but only to the extent of maintained insurance coverage. UAMS maintains malpractice insurance for certain employees under a claims-made policy. Premiums are accrued based on estimated claims, with the final premium amount determined based on actual claims experience. The cost of this policy is included in supplies and other expenses. UAMS incurred costs of $3,311,000 for this insurance during the year ended June 30, 2018. A party may bring an action against the University through the Arkansas State Claims Commission (the Claims Commission). The Claims Commission may award a claim of up to $15,000 without further review or appropriation. Awards that the Claims Commission approves in excess of $15,000 must be approved and appropriated by the Arkansas State Legislature Appropriations of this type, if any, reduce appropriations from the state to UAMS in the period in which the claim is appropriated.

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, now known as the Winthrop P. Rockefeller Cancer Institute, 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, 2018, the University would have incurred a liability of $66,369,000 related to the 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 – Notes to Consolidated Financial Statements FY2018

Note 23: Restatements

Statement of Revenues, Expenses, and Changes in Net Position

Beginning net position, as reported on the Statement of Revenues, Expenses and Changes in Net Position, was restated due to the implementation of GASB Statement 75, as amended As a result, Net Position – beginning of the year was reduced by $7,118,973 to reflect the net effect of recognizing the University’s total OPEB liability and deferred outflows of resources attributable to the year ended June 30, 2017

Beginning net position, as reported on the Statement of Revenues, Expenses and Changes in Net Position, has also been restated for the year ended June 30, 2017 to reflect a change in the recognition of certain grants and contracts revenue in the amount of $876,096 for UALR and the capitalization of interest expense of $488,381 for UACCM. UACCM capitalized interest totaling $488,381 on the new Workforce Building put into service in the fiscal year ended June 30, 2017

The net effect of these restatements was a decrease to total net position of $7,506,688. The Statement of Cash Flows was also restated to reflect the changes.

Statement of Net Position

A reclassification to increase Restricted Expendable Net Position-Scholarships and Fellowships by $24,040,000 and to decrease Unrestricted Net Position by the same amount was made to beginning net position for UAMS. There was no effect on total net position.

Note 24: Pollution Remediation

The Fayetteville campus completed a study in 2012, funded by a $1,889,647 award from the United States Department of Energy (DOE), to develop a plan for remediation of the Southwest Experimental Fast Oxide Reactor (SEFOR) site. This study developed an estimate for future remediation costs and assessed the university’s obligation for remediation at the site. The cost estimate was $26.1 million to complete remediation of the site. Although the study concluded that the University was under no obligation to begin remediation work at that time, the study was considered Phase 1 of the voluntary remediation of the SEFOR site. During 2014, DOE appropriated an additional $1 million to review estimated remediation costs. Of that award, $968,500 was made available to the university in the 2017 funding obligation.

During fiscal year 2018, the Fayetteville campus received another DOE award totaling $7,904,718 In August of 2018, the Fayetteville campus received an additional DOE award totaling $5,595,282 These awards, combined with the residual left from the 2014 appropriation, brought total funds available for remediation costs to $23,968,500. The Fayetteville campus began Phase 3B of the voluntary remediation by entering into a contract with EnergySolutions, LLC on May 18, 2018 to provide technical services for deconstruction and green fielding of the site. Total estimated cost of the Phase 3B voluntary remediation project was $9,457,585. Expenditures incurred during fiscal year 2018 totaled $8,030,005. The remaining project costs to complete Phase 3B, totaling $7,566,068, were accrued and are included in accounts payable reported on the Statement of Net

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2018

Position. All project costs were funded by the DOE award on a cost reimbursement basis. Drawdowns during fiscal year 2018 totaled $7,852,519. A receivable of $8,743,334, reflecting amounts that have not yet been invoiced to the DOE award, was also established, and is included in the accounts receivable reported on the Statement of Net Position. The project will be completed once Phase 3 has been finished.

Note 25: Subsequent Events

Long-Term Debt-Fayetteville Campus On July 26, 2018, the Fayetteville campus closed the Board of Trustees of the University of Arkansas Various Facility Revenue Bonds (Fayetteville Campus), Tax-Exempt Series 2018A and Taxable Series 2018B with par amounts of $20,385,000 and $6,560,000, respectively. The bonds provide resources for the purpose the renovation and reorganization of the interior of Mullins Library; construction, equipping and furnishing of the Student Success Center, an offsite library storage buildings, the Civil Engineering Research and Education Center, and intramural sports facilities; construction of improvements to the south campus steam and utility systems; construction and improvement of a remote parking facility; and the acquisition, construction, improvement, renovation, equipping and/or furnishings of other qualifying capital projects.

Long-Term Debt-System On October 26, 2018, the System closed on a 10-year loan with Regions Capital Advantage, Inc. for $27,000,000. The proceeds of the borrowing are for the purpose of the costs of configuring and installing an enterprise resource planning system The interest rate on the loan is 3% per annum. The loan is a closed-end line of credit, with interest paid quarterly, through the conversion date of November 1, 2020 when it will convert to a permanent loan with quarterly principal and interest payments.

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Employee Benefits

Schedule of University's Proportional Share of the Net Pension Liability Arkansas Public Employees Retirement System Last Four Fiscal Years*

2018 2017 2016 2015 University's proportion of net pension liability 2 198% 2 202% 1 659% 1 462%

University's proportionate share of net pension liability $ 56,807,517 $ 52,660,632 $ 30,550,726 $ 20,737,110

University's covered payroll** $ 40,658,901 $ 39,968,417 $ 29,241,762 $ 24,610,760

University's proportionate share of the net pension liability as a percentage of its covered payroll 139 72% 131 76% 104 48% 84 26%

Plan fiduciary net position as a percentage of the total pension liability 75 65% 75 50% 80 39% 84 15%

*Information is presented for those years for which it is available until a full 10-year trend is compiled. **Includes Pulaski Technical College and Rich Mountain Community College for fiscal years beginning 2017. The amounts presented for each fiscal year were determined as of June 30 of the previous year.

Schedule of University Contributions Arkansas Public Employees Retirement System Last Four Fiscal Years*

2018 2017 2016 2015 Contractually required contribution $ 5,446,489 $ 5,847,656 $ 5,122,338 $ 4,316,084

Contributions in relation to the contractually required contribution (5,446,489) (5,847,656) (5,122,338) (4,316,084)

Contribution deficiency (excess) $ - $ - $ - $ -

University's covered payroll $ 36,710,317 $ 40,658,901 $ 35,350,993 $ 29,241,762

Contributions as a percentage of covered payroll 14 84% 14 38% 14 49% 14 76%

*Information is presented for those years for which it is available until a full 10-year trend is compiled.

Schedule of University's Proportional Share of the Net Pension Liability Arkansas Teacher Retirement System Last Four Fiscal Years*

2018 2017 2016 2015 University's proportion of net pension liability 0 540% 0 589% 0 395% 0 437%

University's proportionate share of net pension liability $ 22,688,366 $ 26,000,421 $ 12,850,498 $ 11,467,444

University's covered payroll** $ 15,932,158 $ 17,474,936 $ 11,516,407 $ 11,527,065

University's proportionate share of the net pension liability as a percentage of its covered payroll 142 41% 148 79% 111 58% 99 48%

Plan fiduciary net position as a percentage of the total pension liability 79 48% 76 75% 82 20% 84 98%

-97 UNIVERSITY OF ARKANSAS SYSTEM CONSOLIDATED FINANCIAL STATEMENTS FY2018 REQUIRED SUPPLEMENTARY INFORMATION

Schedule of University Contributions Arkansas Teacher Retirement System Last Four Fiscal Years*

2018 2017 2016 2015 Contractually required contribution $ 1,899,208 $ 2,210,329 $ 1,448,084 $ 1,612,297

Contributions in relation to the contractually required contribution (1,899,208) (2,210,329) (1,448,084) (1,612,297)

Contribution deficiency (excess) $ - $ - $ - $ -

University's covered payroll 13,540,283 15,932,158 10,392,131 11,516,407

Contributions as a percentage of covered payroll 14 03% 13 87% 13 93% 14 00%

*Information is presented for those years for which it is available until a full 10-year trend is compiled.