NEW ISSUE RATINGS: Moody’s: Aa2 Book-Entry … Receipts...NEW ISSUE RATINGS: Moody’s: Aa2 ... So...
Transcript of NEW ISSUE RATINGS: Moody’s: Aa2 Book-Entry … Receipts...NEW ISSUE RATINGS: Moody’s: Aa2 ... So...
NEW ISSUE RATINGS: Moody’s: Aa2Book-Entry-Only S&P: AA
(See “Ratings” herein)
In the opinion of Bond Counsel for the Series 2017 Bonds (defined below), based upon an analysis of laws,regulations, rulings and court decisions, and assuming continuing compliance with certain covenants made by theUniversity, and subject to the conditions and limitations set forth herein under the caption “TAX EXEMPTION,”interest on the Series 2017 Bonds is excludable from gross income for Federal income tax purposes and is not aspecific item of tax preference for purposes of the Federal individual or corporate alternative minimum taxes.Interest on the Series 2017 Bonds is exempt from Kentucky income tax and the Series 2017 Bonds are exempt fromad valorem taxation by the Commonwealth of Kentucky and any of its political subdivisions. See “TAXEXEMPTION” herein.
UNIVERSITY OF KENTUCKY
$29,265,000GENERAL RECEIPTS REFUNDING
BONDS,2017 SERIES A
and
$7,540,000GENERAL RECEIPTS REFUNDING
BONDS,2017 SERIES B
Dated: Date of Delivery Due: as shown on the inside cover
The University of Kentucky General Receipts Refunding Bonds, 2017 Series A (the “2017 SeriesA Bonds”) and General Receipts Refunding Bonds, 2017 Series B (the “2017 Series B Bonds,” andtogether with the 2017 Series A Bonds, the “Series 2017 Bonds”) will be issued only as fully registeredbonds, and when issued, will be registered in the name of Cede & Co., as nominee of The DepositoryTrust Company, New York, New York (“DTC”), which will act as securities depository for the Series2017 Bonds. Purchasers will not receive certificates representing their ownership interest in the Series2017 Bonds purchased. So long as DTC or its nominee is the registered owner of the Series 2017 Bonds,payments of the principal of and interest due on the Series 2017 Bonds will be made directly to DTC.
The Series 2017 Bonds are in the denomination of $5,000 or integral multiples thereof and bearinterest from their dated date, payable semiannually, in amounts, having maturities, interest rates, yields,and CUSIPs as set forth on inside cover hereof. Principal of, premium, if any, and interest on the Series2017 Bonds will be paid directly to DTC by U.S. Bank National Association, having offices in Louisville,Kentucky, as Trustee and Paying Agent. The Series 2017 Bonds shall be issued only as fully registeredbonds.
The Series 2017 Bonds are subject to optional and mandatory sinking fund redemption prior totheir stated maturities as described herein.
The Series 2017 Bonds constitute special obligations of the University of Kentucky and do notconstitute a debt, liability or obligation of the Commonwealth of Kentucky nor a pledge of the full faithand credit of the Commonwealth. The Series 2017 Bonds constitute Obligations under the TrustAgreement dated as of November 1, 2005 between the University and the Trustee, and the payment of theprincipal of, premium, if any, and interest on Series 2017 Bonds is secured by a pledge of the University’sGeneral Receipts, as defined in the Trust Agreement. See “SECURITY FOR THE BONDS.”
The Series 2017 Bonds are issued subject to the approval of legality by Dinsmore & Shohl LLP,Covington, Kentucky, Bond Counsel. Delivery of the Series 2017 Bonds is expected on February 21,2017 in New York, New York, through the facilities of DTC.
Dated: January 18, 2017
$29,265,000GENERAL RECEIPTS REFUNDING BONDS,
2017 SERIES A
Interest on the 2017 Series A Bonds will be payable from their date of delivery on each April 1and October 1, commencing April 1, 2017, and the 2017 Series A Bonds will bear interest at the ratesand mature on the dates and in the amounts shown below:
Date AmountInterest
Rate YieldCUSIP914378
April 1, 2017 $165,000 1.000% 0.700% LF9October 1, 2017 4,675,000 1.000 0.900 LG7October 1, 2018 4,770,000 3.000 1.050 LH5October 1, 2019 4,935,000 4.000 1.260 LJ1October 1, 2020 5,170,000 5.000 1.460 LK8October 1, 2021 4,655,000 5.000 1.600 LL6October 1, 2022 4,895,000 5.000 1.670 LM4
$7,540,000GENERAL RECEIPTS REFUNDING BONDS,
2017 SERIES B
Interest on the 2017 Series B Bonds will be payable from their date of delivery on each April 1and October 1, commencing April 1, 2017, and the 2017 Series B Bonds will bear interest at the rates andmature on the dates and in the amounts shown below:
Date AmountInterest
Rate YieldCUSIP914378
April 1, 2017 $55,000 1.000% 0.700% LN2October 1, 2017 855,000 1.000 0.900 LP7October 1, 2018 870,000 2.000 1.050 LQ5October 1, 2019 900,000 4.000 1.250 LR3October 1, 2020 925,000 2.000 1.450 LS1October 1, 2021 945,000 3.000 1.600 LT9October 1, 2022 970,000 2.000 1.750 LU6October 1, 2023 995,000 3.000 1.900 LV4October 1, 2024 1,025,000 4.000 2.050 LW2
1 Copyright, American Bankers Association. CUSIP data herein are provided by Standard & Poor’s CUSIP Service Bureau, a division of TheMcGraw-Hill Companies, Inc. The CUSIP numbers listed above are being provided solely for the convenience of holders only at the time ofissuance of the Series 2017 Bonds and the University and the Underwriters do not make any representation with respect to such numbers orundertake any responsibility for their accuracy now or at any time in the future. The CUSIP number for a specific maturity is subject to beingchanged after the issuance of the Series 2017 Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole orin part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors thatis applicable to all or a portion of certain maturities of the Series 2017 Bonds
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THE UNIVERSITY OF KENTUCKY
BOARD OF TRUSTEES
Edward Britt Brockman, Chair Angela L. Edwards, MemberC.B. Akins, Sr., Vice Chair Cammie DeShields Grant, MemberKelly Sullivan Holland, Secretary Robert Grossman, Faculty MemberJennifer Yue Barber, Member David V. Hawpe, MemberClaude A. “Skip” Berry, III, Member Dave Melanson, Staff MemberLee X. Blonder, Member Rowan Reid, MemberJames H. Booth, Member C. Frank Shoop, MemberWilliam C. Britton, Member Robert D. Vance, MemberMark P. Bryant, Member Barbara Young, MemberMichael A. Christian, MemberKelly Knight Kraft, Member
Carol Martin “Bill” Gatton, Ex officio,Honorary Member
EXECUTIVE OFFICERS
Eli Capilouto, PresidentTimothy Tracy, Provost
Michael Karpf, Executive Vice President for Health AffairsEric Monday, Executive Vice President for Finance and Administration
BOND COUNSEL
Dinsmore & Shohl LLPCovington, Kentucky
FINANCIAL ADVISOR
J.J.B. Hilliard, W.L. Lyons, LLCLouisville, Kentucky
TRUSTEE AND PAYING AGENT
U.S. Bank National AssociationLouisville, Kentucky
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REGARDING USE OF THIS OFFICIAL STATEMENT
This Official Statement does not constitute an offering of any security other than the originaloffering of the Series 2017 Bonds of the University of Kentucky identified on the cover page hereof. Noperson has been authorized by the University of Kentucky to give any information or to make anyrepresentation other than that contained in this Official Statement, and if given or made such otherinformation or representation must not be relied upon as having been given or authorized by theUniversity of Kentucky or the Financial Advisor. This Official Statement does not constitute an offer tosell or the solicitation of an offer to buy, and there shall not be any sale of the Series 2017 Bonds by anyperson in any jurisdiction in which it is unlawful to make such offer, solicitation or sale.
The information and expressions of opinion herein are subject to change without notice, andneither the delivery of this Official Statement nor any sale made hereunder shall, under anycircumstances, create any implication that there has been no change in the affairs of the University ofKentucky since the date hereof.
Neither the Securities and Exchange Commission nor any other federal, state or othergovernmental entity or agency, except the University of Kentucky, will pass upon the accuracy oradequacy of this Official Statement or approve the Series 2017 Bonds for sale (see “APPROVAL OFISSUANCE OF BONDS”).
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TABLE OF CONTENTS
INTRODUCTORY STATEMENT.......................................................................................................... 1THE BONDS............................................................................................................................................ 1
General ............................................................................................................................................... 1Book-Entry-Only System ................................................................................................................... 1Redemption Provisions....................................................................................................................... 2
SECURITY FOR THE BONDS .............................................................................................................. 2Pledge of General Receipts................................................................................................................. 2State Intercept..................................................................................................................................... 3Budgetary Process in the Commonwealth.......................................................................................... 3Additional Obligations ....................................................................................................................... 3
PLAN OF FINANCE ............................................................................................................................... 32017 Series A Bonds .......................................................................................................................... 32017 Series B Bonds .......................................................................................................................... 4
SOURCES AND USES OF FUNDS ....................................................................................................... 4THE TRUST AGREEMENT................................................................................................................... 5THE UNIVERSITY ................................................................................................................................. 5
General ............................................................................................................................................... 5Governing Board ................................................................................................................................ 8Administrative Officers ...................................................................................................................... 8Future Debt......................................................................................................................................... 8Privatized Housing Program............................................................................................................... 8Privatized Dining Program................................................................................................................. 9
TAX EXEMPTION.................................................................................................................................. 9General ............................................................................................................................................... 9Tax Treatment of Original Issue Premium....................................................................................... 10
CONTINUING DISCLOSURE ............................................................................................................. 11PENDING LITIGATION....................................................................................................................... 12APPROVAL OF LEGALITY ................................................................................................................ 12FINANCIAL ADVISOR........................................................................................................................ 13APPROVAL OF ISSUANCE OF BONDS............................................................................................ 13FINANCIAL STATEMENTS................................................................................................................ 13CERTIFICATE CONCERNING OFFICIAL STATEMENT................................................................ 13COMPLETENESS OF OFFICIAL STATEMENT ............................................................................... 13RATINGS............................................................................................................................................... 13UNDERWRITING................................................................................................................................. 14MISCELLANEOUS............................................................................................................................... 14
APPENDIX A: Information Pertaining to the University of KentuckyAPPENDIX B: Financial Statements of the University of Kentucky as of and for the year ended
June 30, 2016APPENDIX C: Summary of the Trust AgreementAPPENDIX D: Form of Bond Counsel OpinionAPPENDIX E: Book-Entry-Only SystemAPPENDIX F: Form of Continuing Disclosure Agreement
OFFICIAL STATEMENT RELATING TO
$29,265,000UNIVERSITY OF KENTUCKY
GENERAL RECEIPTS REFUNDING BONDS,2017 SERIES A
and
$7,540,000UNIVERSITY OF KENTUCKY
GENERAL RECEIPTS REFUNDING BONDS,2017 SERIES B
INTRODUCTORY STATEMENT
This Official Statement, which includes the cover page and the Appendices appended hereto, isbeing distributed by the University of Kentucky (the “University”) to furnish pertinent information to allwho may become owners of its General Receipts Refunding Bonds, 2017 Series A (the “2017 Series ABonds”), and General Receipts Refunding Bonds, 2017 Series B (the “2017 Series B Bonds,” andtogether with the 2017 Series A Bonds, the “Series 2017 Bonds”) being offered hereby pursuant to theprovisions of Sections 162.340 to 162.380 of the Kentucky Revised Statutes and Sections 58.010 to58.140 of the Kentucky Revised Statutes, and pursuant to the terms of a Trust Agreement dated as ofNovember 1, 2005 as supplemented by a Eleventh Supplemental Trust Agreement dated as of February 1,2017 Series Between the University and U.S. Bank National Association (together, the “TrustAgreement”).
The summaries and references to Sections of the Kentucky Revised Statutes and the TrustAgreement, as included in this Official Statement, do not purport to be comprehensive or definitive andare qualified in their entirety by reference to each such document. Unless otherwise defined herein,capitalized terms will have the meanings set forth in APPENDIX C.
THE BONDS
General
The Series 2017 Bonds will be dated their date of delivery, will be issued in fully registered formand in denominations of $5,000 or any integral multiples thereof and will mature as to principal and willbear interest as set forth on the inside cover page. Interest accruing on the Series 2017 Bonds will bepayable semiannually on April 1 and October 1 of each year, commencing April 1, 2017 to Holders ofrecord on the preceding March 15 and September 15, respectively.
Book-Entry-Only System
The Series 2017 Bonds initially will be issued solely in book-entry form to be held in the book-entry-only system maintained by The Depository Trust Company (“DTC”), New York, New York. Solong as such book-entry system is used, only DTC will receive or have the right to receive physicaldelivery of Series 2017 Bonds and, except as otherwise provided herein with respect to tenders byBeneficial Owners of Beneficial Ownership Interests, each as hereinafter defined, Beneficial Owners willnot be or be considered to be, and will not have any rights as, owners or Holders of the Series 2017 Bondsunder the Resolution and Series Resolution. For additional information about DTC and the book-entry-only system see “APPENDIX E – Book-Entry-Only System.”
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Redemption Provisions
The Series 2017 Bonds are not subject to redemption prior to their maturity.
SECURITY FOR THE BONDS
Pledge of General Receipts
Each Series 2017 Bond is an “Obligation” under the Trust Agreement and the University haspledged its General Receipts as security for its payment obligations thereunder.
“General Receipts” means, as reported in the Financial Statements (having the designations, tothe extent not otherwise defined in the Trust Agreement, set forth in the Financial Statements or suchsuccessor designations that may hereafter be used in Financial Statements):
(a) certain operating and non-operating revenues of the University, being (i) StudentRegistration Fees, (ii) nongovernmental grants and contracts, (iii) recoveries of facilities andadministrative costs, (iv) sales and services, (v) Hospital Revenues, (vi) Housing and DiningRevenues, (vii) auxiliary enterprises – other auxiliaries, (viii) auxiliary enterprises – athletics, (ix)other operating revenues, (x) state appropriations (for general operations), (xi) gifts and grants,(xii) investment income, (xiii) other nonoperating revenues, and (xiv) other;
(b) but excluding (i) any receipts described in clause (a) which are contracts, grants,gifts, donations or pledges and receipts therefrom which, under restrictions imposed in suchcontracts, grants, gifts, donations or pledges, or, which as a condition of the receipt thereof or ofamounts payable thereunder are not available for payment of Debt Service Charges, (ii) federalgrants and contracts, (iii) state and local grants and contracts, (iv) federal appropriations, (v)county appropriations, (vi) professional clinical service fees, (vii) capital appropriations, (xiii)capital grants and gifts, and (ix) additions to permanent endowments, including researchchallenge trust funds;
provided, however, that General Receipts may
(c) include any other receipts that may be designated as General Receipts from timeto time by a resolution of the Board of Trustees of the University (the “Board”) delivered to theTrustee; and
(d) exclude any receipts not heretofore pledged, which may be designated from timeto time by a resolution of the Board delivered to the Trustee;
(e) exclude any receipts heretofore pledged, which may be designated from time totime by a resolution of the Board delivered to the Trustee and each Rating Service then rating anyObligations, but only if each such Rating Service confirms in writing to the University that theexclusion of any such receipt would not cause a reduction or withdrawal of the then current ratingon any Outstanding Obligations.
See “APPENDIX A” for information regarding Obligations outstanding under the TrustAgreement.
As described under “THE UNIVERSITY - Privatized Housing Program,” the University intendsto privatize the majority of its housing facilities for University students by the year 2019. As describedunder “THE UNIVERSITY” – Privatized Dining Program,” the University entered into a contract withAramark Enterprise Services, LLC to provide dining services for the Lexington campus beginning July 1,
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2014. Housing and Dining Revenues are pledged as security for Outstanding Obligations as a part of theUniversity’s pledge of General Receipts. Housing revenues were approximately $22.1 million in fiscalyear 2016 compared to $25 million in fiscal year 2013, prior to any privatization of the University’shousing facilities. Dining revenues were approximately $17 million in fiscal year 2016 compared to$18.8 million in fiscal year 2014, prior to any privatization of the University’s dining services.Reference is made to APPENDIX B for information regarding the University’s revenues and expensesrelated to owning and operating the housing facilities that will be replaced by the privatization of housingfacilities for students.
State Intercept
If the University fails to make timely payment of any Series 2017 Bond, the Secretary of theFinance and Administration Cabinet of the Commonwealth of Kentucky (the “Cabinet”) is obligated,pursuant to KRS 164A.608, to apply to such payment, any funds that have been appropriated to theUniversity that have not yet been disbursed. Payments due on the Series 2017 Bonds are required to bedeposited with the Trustee on the earlier of the date that is ten days prior to (i) the payment due date and(ii) the last day of any Fiscal Year that the remaining payments due on all outstanding Series 2017 Bondsfor that Fiscal Year would exceed appropriated funds yet to be disbursed to the University for that FiscalYear. If the amount required to pay debt service is not on deposit by that date, the Trustee is obligatedunder the Trust Agreement to immediately notify the Secretary of the Cabinet of the default in payment.Under KRS 164A.608, the Secretary of the Cabinet is required, within five days of the default, to remitthe amount required to pay the amount due on any Series 2017 Bond to the Trustee from thoseundisbursed funds.
Budgetary Process in the Commonwealth
The General Assembly is required by the Kentucky Constitution to adopt measures providing forthe Commonwealth’s revenues and appropriations for each fiscal year. The Governor is required by lawto submit a biennial State Budget (the “State Budget”) to the General Assembly during the legislativesession held in each even numbered year. State Budgets have generally been adopted by the GeneralAssembly during those legislative sessions, which end in mid-April, to be effective upon the Governor’ssignature for appropriations commencing for a two-year period beginning the following July 1.
The University is required to submit its budget to the General Assembly for approval as a part ofthe State Budget. If a State Budget has not been enacted by the date principal of or interest on the Series2017 Bonds is due, the University would not have the budgetary authority to make that principal orinterest payment. The pledge of General Receipts by the University described herein is independent ofthe State Budget process.
Additional Obligations
The University has reserved the right to issue additional Obligations secured by a pledge ofGeneral Receipts. See “THE UNIVERSITY – Future Debt” and “APPENDIX C” – SUMMARY OFTHE TRUST AGREEMENT.”
PLAN OF FINANCE
2017 Series A Bonds
Proceeds of the 2017 Series A Bonds will be used by the University to (i) make a payment undera Financing Agreement with the Kentucky Asset/Liability Commission and the Finance andAdministration Cabinet of the Commonwealth of Kentucky to currently refund and retire all theoutstanding Kentucky Asset/Liability Commission University of Kentucky General Receipts Project
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Notes, 2006 Series A (the “2006A ALCo Notes”); and (ii) pay the costs of issuing the 2017 Series ABonds.
The portion of proceeds of the 2017 Series A Bonds required to refund and retire the 2006AALCo Notes will be deposited in the Bond Fund established for the payment of the 2006A ALCo Notesand used to redeem and retire the 2006A ALCo Notes on February 22, 2017. Upon the making of theforegoing deposit and providing instructions to the trustee for the 2006A ALCo Notes to apply amountson deposit in the debt service fund and the debt service reserve fund related to the 2006A ALCo Notes tosuch redemption, the 2006A ALCo Notes will no longer be deemed to be outstanding.
2017 Series B Bonds
Proceeds of the 2017 Series B Bonds will be used by the University to (i) currently refund andretire all the outstanding University of Kentucky General Receipts Taxable Build America Bonds, 2010Series A (the “Prior Bonds”); and (ii) pay the costs of issuing the 2017 Series B Bonds.
The portion of proceeds of the 2017 Series B Bonds required to refund and retire the Prior Bondswill be deposited in the 2010A General Receipts Bond Fund established for payment of the Prior Bondsand used to redeem and retire the Prior Bonds on February 22, 2017. Upon the making of the foregoingdeposit and providing instructions to the trustee for the Prior Bonds to apply amounts on deposit in thedebt service fund to such redemption, the Prior Bonds will no longer be deemed to be outstanding.
SOURCES AND USES OF FUNDS
The sources and uses of funds in connection with the issuance of the 2017 Series A Bonds are asfollows:
Sources of FundsPrincipal Amount of 2017 Series A Bonds $29,265,000.00Plus Original Issue Premium 2,708,812.10
Total Sources of Funds $31,973,812.10
Uses of FundsDeposit to 2006A ALCo Notes Bond Fund $31,815,066.97Deposit to 2017 Series A Cost of Issuance Account 125,936.08Underwriter’s Discount 32,809.05
Total Uses of Funds $31,973,812.10
The sources and uses of funds in connection with the issuance of the 2017 Series B Bonds are asfollows:
Sources of FundsPrincipal Amount of 2017 Series B Bonds $7,540,000.00Plus Original Issue Premium 374,199.05
Total Sources of Funds $7,914,199.05
Uses of FundsDeposit to 2010A General Receipts Bond Fund $7,857,063.29Deposit to 2017 Series B Cost of Issuance Account 37,529.74Underwriter’s Discount 19,606.02
Total Uses of Funds $7,914,199.05
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THE TRUST AGREEMENT
The terms and provisions of the Trust Agreement control both outstanding Obligations and allObligations that may be issued pursuant to the Trust Agreement, including the Series 2017 Bonds. Pleasesee APPENDIX C – “SUMMARY OF THE TRUST AGREEMENT.”
THE UNIVERSITY
General
Mission. The University of Kentucky is a public, land grant university dedicated to improvingpeople’s lives through excellence in education, research and creative work, service and health care. AsKentucky’s flagship institution, the University plays a critical leadership role by promoting diversity,inclusion, economic development and human well-being.
Vision. As Kentucky’s indispensable educational institution, we transform the lives of ourstudents and advance the Commonwealth we serve and beyond through our teaching and learning,diversity and inclusion, discovery, research and creativity, promotion of health, and deep communityengagement.
Values. The University of Kentucky is guided by its core values:
Integrity Excellence Mutual respect and human dignity Diversity and inclusion Academic freedom Personal and institutional responsibility and accountability Shared governance A sense of community Work-life sensitivity Civic engagement Social responsibility
Background. Under provisions of the federal Morrill Land-Grant Colleges Act (1862), KentuckyState Agricultural and Mechanical College was established in 1865 as part of Kentucky University (nowTransylvania University). The College separated from Kentucky University in 1878 and was establishedon a 52 acre site (the University’s current location) donated by the city of Lexington. In 1908, the Collegewas re-named the State University, Lexington, Kentucky. In 1916 it became the University of Kentucky.
According to the Kentucky Revised Statutes (KRS) 164.125(2):
In carrying out its statewide mission, the University of Kentucky shall conduct statewideresearch and provide statewide services, including, but not limited to, agriculturalresearch and extension services, industrial and scientific research, industrial technologyextension services to Kentucky employers and research related to the doctoral,professional and postdoctoral programs offered within the University. The Universitymay establish and operate centers and utilize state appropriations and other resources tocarry out the necessary research and service activities throughout the state. TheUniversity may enter into joint research and service activities with other universities inorder to accomplish its statewide mission.
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In 1997, the Kentucky General Assembly reformed the state’s public system of colleges anduniversities. According to the Kentucky Postsecondary Education Improvement Act of 1997:
The University of Kentucky is mandated to become a major comprehensive researchinstitution ranked nationally in the top twenty public universities by 2020.
The University’s Strategic Plan for 2015-2020 was adopted by the UK Board of Trustees at itsOctober 2015 retreat. The Strategic Plan is designed to measure the University’s progress by establishingspecific goals for teaching, research and service at the department, college and university level. The Planestablished five strategic objectives:
• Undergraduate Student Success• Graduate Education• Diversity and Inclusivity• Research and Scholarship• Outreach and Community Engagement
A Steering Committee has been appointed to implement action steps in each focus area. TheCommittee will develop metrics to measure progress against the Strategic Plan objectives.
The University is identified as a “Research University (very high research activity)” by theCarnegie Commission on Higher Education. There are 108 such institutions in the United States (out ofapproximately 3,600 colleges and universities).
The University is accredited by the Commission on Colleges (CoC) of the Southern Associationof Colleges and Schools (SACS). This has been re-affirmed at approximately 10-year intervals since1915, with the next accreditation review scheduled to begin in 2022. In addition, several degree programsand individual units are accredited by agencies appropriate to specific professions or fields.
Students. In Fall 2015, the University had 30,720 undergraduate, graduate, and professionalstudents. They represent all 120 Kentucky counties, every state in the U.S. and over 100 countries.Enrollment has increased 4,281 students (16%) since Fall 2005.
Programs. The University offers more than 200 majors and degree programs in 17 academic andprofessional colleges that are supported by a comprehensive research library system. UK is one of onlyeight public universities nationally to house colleges of Agriculture, Engineering, Medicine and Pharmacyon a single contiguous campus.
Research. Total research expenditures, as reported to the National Science Foundation, totaled$331.7 million for fiscal year 2014-15, compared to $328.2 million in 2013-14. Research awardsreceived during fiscal year 2015-16 total $316.5 million, an 11% increase from the prior year amount of$285.1 million.
Outreach. As Kentucky’s flagship, land-grant university, UK engages citizens and communitiesacross the state in a myriad of ways, including extension offices in all 120 Kentucky counties; continuingeducation opportunities for teachers, lawyers and health care providers; clinics providing legal,pharmaceutical and health care assistance; and a multitude of research efforts aimed at Kentucky’s mostdifficult problems in economic development, health care, infrastructure and education.
Medical Centers. UK HealthCare, a trademarked brand used by the University of Kentucky forits health care services, is uniquely equipped to provide advanced subspecialty care to the people ofKentucky. The academic medical center and health system provides patient care on par – in terms of bothvolume and complexity – with the nation’s top 25% of academic medical centers. In August 2016, UK
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HealthCare was named number one in Kentucky in the latest U.S. News Best Hospital ranking. To berecognized as a Best Hospital, UK HealthCare had to rank high nationally on a stringent data-drivenratings system that gauges performance. The analysis includes multiple clinical specialties, proceduresand conditions. Scores are based on a variety of patient outcome and care-related factors such asmortality and patient safety, as well as reputation. This and other notable achievements are listed athttp://ukhealthcare.uky.edu/quality/awards/.
UK HealthCare Hospital System operates two hospital units under one Joint CommissionAccreditation and two licenses in addition to ambulatory services. The major service units include AlbertB. Chandler Hospital, Good Samaritan Hospital and the Kentucky Clinic. The hospitals have a combinedtotal of 825 licensed beds with an average daily census of 709 patients. On a monthly basis, the systemprovides over 1,222 inpatient surgeries, 1,388 outpatient surgeries, 32,638 radiology procedures, 9,035emergency department visits and 125,428 hospital based outpatient clinic visits.
Under a management contract entered into with the Kentucky Cabinet for Health and FamilyServices (CHFS), UK HealthCare Hospital System also operates and manages Eastern State Hospital, a300,000 square-foot facility located on the University’s Coldstream Research Campus. Eastern StateHospital provides a modern setting for both acute and long-term inpatient psychiatric treatment for adultsliving within Fayette County and the 50 surrounding counties.
UK HealthCare’s Markey Cancer Center remains the state’s only cancer center designated by theNational Cancer Institute (NCI), which reflects UK’s position as a frontrunner in cancer treatment andresearch. UK HealthCare is one of an elite group of only 22 medical centers in the United States that haveNCI designation, a federally funded Center on Aging, and a highly prized Clinical and TranslationalScience Award grant (CTSA).
UK HealthCare’s dramatic growth within the last decade has been a direct result of the successfulexecution of its Strategic Plan. The Plan is focused on achieving the benefits of scale through affiliationsand partnerships throughout the Commonwealth focusing on a commitment to support the state ofKentucky’s overall healthcare system that works hand-in-hand with local community providers to bringspecialty care closer to the patient. These relations take on different dimensions in each locality(management agreements, affiliate networks, outreach, etc.) and support keeping less acute care in thelocal communities and smoothing the process to transfer complex, serious cases to be treated in UKHealthCare’s Lexington facilities. Many community hospitals and academic medical center peers havechosen to participate in industry consolidation. While that has not been a major component of UKHealthCare’s strategy historically, the University will pursue opportunities, be it merger or otherwise, thatalign with its mission, strategy and values. The University has submitted a preliminary proposal to aKentucky healthcare provider regarding a strategic partnership. Due to the current status of the proposalprocess it is not possible to project whether any strategic partnership will result, the nature of thatpartnership or what impact any such partnership might have on the operations of UK HealthCare or itsrevenues that are a part of General Receipts. The University’s goal is to provide better care at all pointsof the continuum for the people of the Commonwealth.
Libraries. UK operates a nationally recognized research library system, with the capstone beingthe world-class William T. Young Library. UK’s book endowment is the largest among publicuniversities. Its library network and technology provide extraordinary service to students in the collegesof Medicine, Law, Engineering, Fine Arts and other programs. Meanwhile, students, faculty andKentucky residents can use UK Libraries’ advanced technology to access the most up-to-date informationfrom online journals, government publications and private studies.
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Governing Board
The governing body of the University is the Board consisting of twenty members, sixteenappointed by the Governor of the Commonwealth of Kentucky; two faculty members elected by thefaculty; one student member, who is the President of the student body, or if he or she is not a full-timestudent who maintains permanent residence in the Commonwealth, a full-time student who does maintainpermanent residency in the Commonwealth elected by the student body; and one member of theUniversity staff. Pursuant to Section 164.160 of the Kentucky Revised Statutes, the Board is a bodycorporate with the powers usually vested in corporations and, as such, subject to the statutes of theCommonwealth, has control and management of the University, together with the properties and fundsthereof. The University also has one ex officio board member who has been appointed as an honorarylifetime Trustee.
Administrative Officers
The President of the University is Dr. Eli Capilouto; the Provost is Dr. Timothy Tracy; theExecutive Vice President for Health Affairs is Dr. Michael Karpf; and the Executive Vice President forFinance and Administration is Dr. Eric Monday.
Future Debt
During the 2014 regular session of the Kentucky General Assembly, the University receivedauthorization to issue Bonds in the amount of $30 million to pay the costs of a building for the College ofLaw. The Bonds are expected to be issued during calendar year 2018.
During the 2016 regular session of the Kentucky General Assembly, the University receivedauthorization to issue Bonds in the amount of $210 million to finance multiple capital projects acrosscampus. This will allow the University to make significant improvement in facilities, including certainhealthcare facilities and various academic buildings on campus.
State Budgets may authorize other projects at the University to be directly funded from proceedsof Obligations, including Agency Fund Revenue Bonds issued by the State Property and BuildingsCommission or the Kentucky Asset/Liability Commission. In addition to the Series 2017 Bonds,Obligations may be issued to achieve debt service savings.
Privatized Housing Program
The University entered an agreement in April 2012 with a third party developer, Education RealtyTrust (EdR), to construct two four-story buildings, which comprise a 601 bed living-learning communitywith three classrooms, 16 active-learning spaces, Honor’s Program offices, and nine multipurposemeeting spaces on the former site of Haggin Field. The project, with a cost of $25.2 million, is on landowned by the University and leased to EdR for a 50 year term with options for additional 10 year and 15year terms thereafter. At the conclusion of the initial 50 year term or the first renewal option, theUniversity will be required to purchase the buildings from EdR for an appraised value, unless the groundlease is renewed for the first or second optional extension. At the conclusion of the second optionalextension, the University is required to purchase the buildings for the greater of current net book value or$10. Ground rent is a percentage of gross revenues. The University accounts for the ground lease as anoperating lease. These facilities are subject to ad valorem tax. These two residence halls opened onAugust 16, 2013 for the Fall 2013 semester.
Phases II-A, II-B and II-C of the long-term housing plan agreements have also been signed withEdR. These phases include ten residence halls constructed between October 2012 and August 2016. The
9
University received authorization from the Kentucky legislature for the projects, which theCommonwealth must approve statutorily even though EdR, not the University, is funding the projects.
Phase II-A, which came on line in August 2014, included the development of five residence hallsat an approximate cost of $138.0 million and provided 2,381 beds. Phase II-B, which came on line inAugust 2015, included the construction of three residence halls at an approximate cost of $101.2 millionand provided 1,610 beds. Phase II-C, which came on line in August 2016, included thedevelopment of two residence halls at an approximate cost of $83.9 million and provided 1,141beds.
The 75 year term lease with EdR includes maintenance standards for the facilities and parametersfor the room rental rates for the duration. The University will receive a percentage of the total revenuesand a share of the net income, after EdR achieves a minimum internal rate of return. These ten facilitiesare exempt from ad valorem tax. The University will account for the lease as a service concessionarrangement in accordance with GASB Statement No. 60, Accounting and Financial Reporting forService Concession Arrangements.
Phase III-A, expected to come online August 2017, will be a $74 million, 771 bed facility whichwill provide apartment style units for upper class, graduate and professional students. Phase III-B,expected to also open in August 2017, will be a total cost of $37.1 million, $26.9 million of which will beprovided by EdR, providing a 346 bed facility to house undergraduate students and will include spacededicated to the future Lewis Honors College. Overall, a total of 6,850 new beds, totaling $449.3 millionwith 100% equity funding from EdR is expected to be operational by August 2017.
Privatized Dining Program
In July 2014, the University entered into an approximately $245 million contract with AramarkEnterprise Services, LLC (Aramark), forming a 15 year public/private partnership. This partnership willtransform dining services offered to students, faculty, staff and the community served. Under thepartnership, numerous new food brands were available on campus starting in the Fall of 2014 andcontinuing in subsequent years. Aramark provides meals covered under the University’s student boardplans and declining balance flex accounts. The 15-year contract allows for dining commissions to be paidto the University with guaranteed minimum amounts for each contract year. Aramark will provideapproximately $70 million in facilities investments, including $40 million in new facilities, subject toboard approval, to be completed by fiscal year 2017-2018. As part of these facilities investments,Aramark constructed a new K Lair Grill at Haggin Hall, constructed a new 80,000 square foot 1,000-seatresidential dining facility “The 90”, and made substantial upgrades to incorporate dining venues intoacademic facilities.
TAX EXEMPTION
General
In the opinion of Bond Counsel for the Series 2017 Bonds, based upon an analysis of existinglaws, regulations, rulings and court decisions, interest on the Series 2017 Bonds is excludible from grossincome for federal income tax purposes and interest on the Series 2017 Bonds is not a specific item of taxpreference under Section 57 of the Internal Revenue Code of 1986 (the “Code”) for purposes of thefederal individual or corporate alternative minimum taxes. Furthermore, Bond Counsel for the Series2017 Bonds is of the opinion that interest on the Series 2017 Bonds is exempt from income taxation bythe Commonwealth and the Series 2017 Bonds are exempt from ad valorem taxation by theCommonwealth and any of its political subdivisions.
10
A copy of the form of opinion of Bond Counsel for the Series 2017 Bonds is set forth inAPPENDIX D.
The Code imposes various restrictions, conditions, and requirements relating to the exclusionfrom gross income for Federal income tax purposes of interest on obligations such as the Series 2017Bonds. The University has covenanted to comply with certain restrictions designed to ensure that intereston the Series 2017 Bonds will not be includable in gross income for Federal income tax purposes. Failureto comply with these covenants could result in interest on the Series 2017 Bonds being includable in grossincome for Federal income tax purposes and such inclusion could be required retroactively to the date ofissuance of the Series 2017 Bonds. The opinion of Bond Counsel assumes compliance with thesecovenants. However, Bond Counsel has not undertaken to determine (or to inform any person) whetherany actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of theSeries 2017 Bonds may adversely affect the Federal tax status of the interest on the Series 2017 Bonds.
Certain requirements and procedures contained or referred to in the Indenture and other relevantdocuments may be changed and certain actions (including, without limitation, defeasance of the Series2017 Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions setforth in such documents. Bond Counsel expresses no opinion as to Series 2017 Bonds or the interestthereon if any such change occurs or action is taken or omitted upon the advice or approval of bondcounsel other than Dinsmore & Shohl LLP.
Although on the date the Series 2017 Bonds are issued, Bond Counsel will render an opinion thatinterest on the Series 2017 Bonds is excludible from gross income for Federal income tax purposes andthat interest on the Series 2017 Bonds is exempt from Kentucky income tax, the ownership or dispositionof, or the accrual or receipt of interest on, the Series 2017 Bonds may otherwise affect a Holder’s Federal,state or local tax liabilities. The nature and extent of these other tax consequences may depend upon theparticular tax status of the Holder or the Holder’s other items of income or deduction. For example, sucheffects may include, without limitation, increasing the federal tax liability of certain foreign corporationssubject to the branch profits tax imposed by Section 884 of the Code, increasing the federal tax liability ofcertain insurance companies, under Section 832 of the Code, increasing the federal tax liability andaffecting the status of certain S Corporations subject to Sections 1362 and 1375 of the Code, increasingthe federal tax liability of certain individual recipients of Social Security or the Railroad Retirementbenefits under Section 86 of the Code and limiting the amount of the Earned Income Credit under Section32 of the Code that might otherwise be available. Ownership of any of the Series 2017 Bonds may alsoresult in the limitation of interest and certain other deductions for financial institutions and certain othertaxpayers, pursuant to Section 265 of the Code. Finally, residence of the holder of the Series 2017 Bondsin a state other than Kentucky or being subject to tax in a state other than Kentucky may result in incomeor other tax liabilities being imposed by such states or their political subdivisions based on the interest orother income from the Series 2017 Bonds. Bond Counsel expresses no opinions regarding any taxconsequences other than what is set forth in its opinion and each Holder or potential Holder is urged toconsult with tax counsel with respect to the effects of purchasing, holding or disposing of the Series 2017Bonds on the tax liabilities of the individual or entity.
The University has not designated the Series 2017 Bonds as “qualified tax-exempt obligations”pursuant to Section 265 of the Code.
Tax Treatment of Original Issue Premium
“Acquisition Premium” is the excess of the cost of a bond over the stated redemption price ofsuch bond at maturity or, for bonds that have one or more earlier call dates, the amount payable at thenext earliest call date. The Series 2017 Bonds that have an interest rate that is greater than the yield, asshown on the inside cover page hereto (the “Premium Bonds”), are being initially offered and sold to thepublic at an Acquisition Premium. For federal income tax purposes, the amount of Acquisition Premium
11
on the Series 2017 Bonds must be amortized and will reduce the Holder’s adjusted basis in those Series2017 Bonds. However, no amount of amortized Acquisition Premium on Series 2017 Bonds may bededucted in determining Holder’s taxable income for federal income tax purposes. The amount of anyAcquisition Premium paid on the Premium Bonds, or on any of the Series 2017 Bonds, that must beamortized during any period will be based on the “constant yield” method, using the original Holder’sbasis in such bonds and compounding semiannually. This amount is amortized ratably over thatsemiannual period on a daily basis.
Holders of any Series 2017 Bonds, including any Premium Bonds, purchased at an AcquisitionPremium should consult their own tax advisors as to the actual effect of such Acquisition Premium withrespect to their own tax situation and as to the treatment of Acquisition Premium for state tax purposes.
CONTINUING DISCLOSURE
In accordance with Securities and Exchange Commission Rule 15c2-12 (the “Rule”), theUniversity (the “Obligated Person”) will agree, pursuant to a Continuing Disclosure Agreement to bedated the first day of the month in which the Series 2017 Bonds are sold (the “Disclosure Agreement”), tobe delivered on the date of delivery of the Series 2017 Bonds, to cause the following information to beprovided:
(a) to the Municipal Securities Rulemaking Board (the “MSRB”), certain annual financialinformation and operating data, including audited financial statements prepared in accordance withgenerally accepted accounting principles, generally consistent with the information contained inAppendices A and B; such information shall be provided on or before 180 days following the fiscal yearending on the preceding June 30, commencing with the fiscal year ending June 30, 2017;
(b) to the MSRB, in a timely manner, not in excess of ten business days after the occurrenceof the event, notice of the occurrence of the following events with respect to the Series 2017 Bonds; and
(i) Principal and interest payment delinquencies;(ii) Non-payment related defaults, if material;(iii) Unscheduled draws on debt service reserves reflecting financial difficulties;(iv) Unscheduled draws on credit enhancements reflecting financial difficulties;(v) Substitution of credit or liquidity providers, or their failure to perform;(vi) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final
determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or othermaterial notices or determinations with respect to the tax status of the security, or othermaterial events affecting the tax-exempt status of the security;
(vii) Modifications to rights of security holders, if material;(viii) Bond calls, if material, and tender offers (except for mandatory scheduled redemptions
not otherwise contingent upon the occurrence of an event);(ix) Defeasances;(x) Release, substitution or sale of property securing repayment of the securities, if material;(xi) Rating changes;(xii) Bankruptcy, insolvency, receivership or similar event of the obligated person (Note: For
the purposes of this event, the event is considered to occur when any of the followingoccur: The appointment of a receiver, fiscal agent or similar officer for an obligatedperson in a proceeding under the U.S. Bankruptcy Code or in any other proceeding understate or federal law in which a court or governmental authority has assumed jurisdictionover substantially all of the assets or business of the obligated person, or if suchjurisdiction has been assumed by leaving the existing governing body and officials orofficers in possession but subject to the supervision and orders of a court or governmentalauthority, or the entry of an order confirming a plan of reorganization, arrangement or
12
liquidation by a court or governmental authority having supervision or jurisdiction oversubstantially all of the assets or business of the obligated person);
(xiii) The consummation of a merger, consolidation, or acquisition involving an obligatedperson or the sale of all or substantially all of the assets of the obligated person, otherthan in the ordinary course of business, the entry into a definitive agreement to undertakesuch an action or the termination of a definitive agreement relating to any such actions,other than pursuant to its terms, if material; and
(xiv) Appointment of a successor or additional trustee or the change of name of a trustee, ifmaterial; and
(c) to the MSRB, notice of a failure (of which the Obligated Persons have knowledge) of anObligated Person to provide the required Annual Financial Information on or before the date specified inthe Disclosure Agreement.
The Disclosure Agreement provides a Holder of the Series 2017 Bonds, including BeneficialOwners of the Series 2017 Bonds, with certain enforcement rights in the event of a failure by theUniversity to comply with the terms thereof; however, default under the Disclosure Agreement does notconstitute an event of default under the Resolutions. The Disclosure Agreement may also be amended orterminated under certain circumstances in accordance with the Rule as more fully described therein.Holders of the Series 2017 Bonds are advised that the Disclosure Agreement, the form of which isobtainable from the Financial Advisor, should be read in its entirety for more complete informationregarding its contents.
The University has complied with its continuing disclosure requirements as of the date of thisOfficial Statement.
Financial information regarding the University may be obtained from the Treasurer, University ofKentucky, 301 Peterson Service Building, South Limestone Street, Lexington, Kentucky 40506-0005.
PENDING LITIGATION
There is no controversy or litigation of any nature now pending or threatened restraining orenjoining the issuance, sale, execution or delivery of the Series 2017 Bonds, or in any way contesting oraffecting the validity of the Series 2017 Bonds or any proceedings of the University taken with respect tothe issuance of sale thereof, or the pledge or application of any moneys or security provided for thepayment of the Series 2017 Bonds or the due existence or powers of the University.
APPROVAL OF LEGALITY
Legal matters incident to the authorization, issuance, sale and delivery of the Series 2017 Bondsare subject to the approval of Dinsmore & Shohl LLP, Covington, Kentucky, Bond Counsel to theUniversity. The approving legal opinion of Bond Counsel will be printed on the Series 2017 Bonds andwill contain a statement of tax exemption as represented herein. Bond Counsel has reviewed theinformation herein pertaining to the Series 2017 Bonds under the headings “THE BONDS,” “SECURITYFOR THE BONDS,” “THE TRUST AGREEMENT,” “TAX EXEMPTION,” APPENDIX C,APPENDIX D and APPENDIX F, and is of the opinion that such information is a fair summary of theprincipal provisions of the instruments and information therein described. Said firm has not otherwiseparticipated in the preparation of the Official Statement or the Appendices attached hereto and has notverified the accuracy or completeness of the information contained under any heading other than thosestated above, nor of any financial information, enrollment numbers, projections, or computations relatingthereto, and therefore, can make no representation with respect to such information. A certification as tothe matters set forth under “PENDING LITIGATION” will be delivered by the University with the Series2017 Bonds.
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FINANCIAL ADVISOR
J.J.B. Hilliard, W.L. Lyons, LLC, Louisville, Kentucky, has acted as Financial Advisor to theUniversity in connection with the issuance of the Series 2017 Bonds and will receive a fee, payable fromSeries 2017 Bond proceeds, for its services as Financial Advisor.
APPROVAL OF ISSUANCE OF BONDS
Pursuant to Chapter 42 of the Kentucky Revised Statutes, issuance of the Series 2017 Bonds mustbe approved by the Office of Financial Management of the Finance and Administration Cabinet of theCommonwealth of Kentucky.
FINANCIAL STATEMENTS
The financial statements of the University as of and for the year ended June 30, 2016, included inthis Official Statement in APPENDIX B, have been audited by BKD LLP, independent auditors, as statedin their report appearing herein. The University did not request BKD, LLP to perform any updatingprocedures subsequent to the date of its audit report on the financial statements in APPENDIX B.
CERTIFICATE CONCERNING OFFICIAL STATEMENT
Concurrently with the delivery of the Series 2017 Bonds, the Treasurer will certify that, to thebest of his knowledge, the Official Statement did not as of the date of delivery of the Series 2017 Bonds,contain any untrue statements of a material fact or omit to state a material fact which should be includedtherein for the purpose for which the Official Statement is to be used, or which is necessary in order tomake the statements contained therein, in light of the circumstances under which they were made, notmisleading in any material respect.
COMPLETENESS OF OFFICIAL STATEMENT
The Board has approved and caused this Official Statement to be executed and delivered by itsChair. This Official Statement is deemed final by the Board for purposes of Securities and ExchangeCommission Rule 15c2-12(b)(1) as of the date hereof.
The financial information supplied by the Board and reported in APPENDIX A and APPENDIXB herein is represented by the Board to be correct. With respect to APPENDIX A, accounts required byFederal and State laws, rules and regulations to be audited annually by independent certified publicaccountants have been so audited and the financial information extracted from the annual audits andpresented herein is incomplete to the degree that accounts not required to be so audited have not beenincluded in the annual audits contained in APPENDIX B.
RATINGS
Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Services, a Divisionof The McGraw-Hill Companies, Inc. (“S&P”) have assigned the Series 2017 Bonds the respectiveratings of “Aa2” and “AA,” respectively. Each rating reflects only the views of the respective RatingAgency. Explanations of the significance of the ratings may be obtained from each Rating Agency asfollows: Moody’s Investors Service, Inc., 7 World Trade Center, 250 Greenwich Street, New York, NewYork 10007, (212) 553-0300; and Standard & Poor’s Ratings Services, a Division of the McGraw-HillCompanies, Inc., 55 Water Street, New York, New York 10041 (212) 438 2124.
A rating is a not recommendation to buy, sell or hold the Series 2017 Bonds. There is noassurance that such ratings will continue for any given period of time or that they may not be lowered or
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withdrawn entirely. Any such downward change in or withdrawal of such ratings could have an adverseeffect on the market price of the Series 2017 Bonds.
UNDERWRITING
The 2017 Series A Bonds are to be purchased by PNC Capital Markets LLC (the “2017 Series AUnderwriter”). The 2017 Series A Underwriter has agreed, subject to certain conditions, to purchase the2017 Series A Bonds at an aggregate purchase price of $31,941,003.05 (which is equal to the principalamount of the 2017 Series A Bonds plus net original issue premium of $2,708,812.10 and lessunderwriting discount of $32,809.05). The 2017 Series A Underwriter will be obligated to purchase allof the 2017 Series A Bonds if any are purchased. The 2017 Series A Underwriter has advised theUniversity that it intends to make a public offering of the 2017 Series A Bonds at the initial publicoffering yields set forth on the inside cover page hereof, provided, however, that the 2017 Series AUnderwriter has reserved the right to make concessions to dealers and to change such initial publicoffering prices as the 2017 Series A Underwriter shall deem necessary in connection with the marketingof the 2017 Series A Bonds.
The 2017 Series B Bonds are to be purchased by PNC Capital Markets LLC (the “2017 Series BUnderwriter”). The 2017 Series B Underwriter has agreed, subject to certain conditions, to purchase the2017 Series B Bonds at an aggregate purchase price of $7,894,593.03 (which is equal to the principalamount of the 2017 Series B Bonds plus net original issue premium of $374,199.05 and less underwritingdiscount of $19,606.02). The 2017 Series B Underwriter will be obligated to purchase all of the 2017Series B Bonds if any are purchased. The 2017 Series B Underwriter has advised the University that itintends to make a public offering of the 2017 Series B Bonds at the initial public offering yields set forthon the inside cover page hereof, provided, however, that the 2017 Series B Underwriter has reserved theright to make concessions to dealers and to change such initial public offering prices as the 2017 Series BUnderwriter shall deem necessary in connection with the marketing of the 2017 Series B Bonds.
MISCELLANEOUS
All quotations from, and summaries and explanations of, the Kentucky Revised Statutes, theResolution and the Series Resolution, contained herein do not purport to be complete, and reference ismade to such laws and documents for full and complete statements of their provisions. The Appendicesattached hereto are a part of this Official Statement. Copies, in reasonable quantity, of the OfficialStatement, Resolution or the Series Resolution may be obtained from J.J.B. Hilliard, W.L. Lyons, LLC,500 West Jefferson Street, Suite 700, Louisville, Kentucky 40202, Attention Ms. Tammey Bibb (502)588-1124.
Any statements in this Official Statement involving matters of opinion, whether or not expresslyso stated, are intended as such and not as representations of fact. Except when otherwise indicated, theinformation set forth herein has been obtained from the University and has not been verified as toaccuracy or completeness by, and is not to be construed as a representation of, the Financial Advisor orBond Counsel. This Official Statement is not to be construed as a contract or agreement between theUniversity and the purchasers or owners of any of the Series 2017 Bonds.
UNIVERSITY OF KENTUCKY
By: /s/ Edward Britt BrockmanChair, Board of Trustees
Attest:
UNIVERSITY OF KENTUCKY
By: /s/ Kelly Sullivan HollandSecretary Board of Trustees
APPENDIX A
A-1
GENERAL
The University of Kentucky (the University) is a public, land-grant university dedicated to improving people's lives through excellence in education, research and creative work, service and health care. As Kentucky's flagship institution, the University plays a critical leadership role by promoting diversity, inclusion, economic development and human well-being. The University of Kentucky: Facilitates learning, informed by scholarship and research; Expands knowledge through research, scholarship and creative activity; and Serves a global community by disseminating, sharing and applying knowledge.
The University, as the flagship institution, plays a critical leadership role for the Commonwealth of Kentucky by contributing to the economic development and quality of life within Kentucky borders and beyond. The University nurtures a diverse community characterized by fairness and equal opportunity. The members of the University’s Board of Trustees as of June 30, 2016 and the year in which their respective terms expire are as follows: Edward Britt Brockman, Chair (2020) C.B. Akins, Sr., Vice Chair (2017) Kelly Sullivan Holland, Secretary (2018) William E. Thro, Assistant Secretary (2016) Claude A. “Skip” Berry, III (2021) Lee X. Blonder (2019) James H. Booth (2019) William C. Britton (2017) Mark P. Bryant (2018) Angela L. Edwards (2019) William Stamps Farish, Jr. (2016)
Oliver Keith Gannon (2016) Cammie DeShields Grant (2020) Robert Grossman (2017) David V. Hawpe (2019) David Melanson (2019) Terry Mobley (2016) Rowan Reid (2017) C. Frank Shoop (2021) Robert D. Vance (2020) Barbara Young (2021) Carol Martin “Bill” Gatton (Honorary)
APPENDIX A
A-2
OUTSTANDING BONDS
The University has the following obligations outstanding under the General Receipts Trust Agreement as of June 30, 2016 (in thousands):
Year
of IssueAmount of Issue
Amount Outstanding
Year of FinalMaturity
Kentucky Asset/Liability Commission
2006 Series A Notes 1
2006 66,305$ 35,985$ 2022
2007 Series A Notes 2007 77,905 7,580 2017
2007 Series B Notes 2007 80,245 9,190 2018
Total ALCo General Receipts 224,455$ 52,755$
University of Kentucky
2006 Series A Bonds 2006 24,325$ 1,150$ 2016
2009 Series A Bonds 2009 33,350 21,130 2024
2009 Series B Bonds 2009 100,605 100,605 2039
2010 Series A Bonds 2
2010 12,370 8,615 2024
2010 Series B Bonds 3
2010 12,955 12,955 2024
2012 Series A Bonds 2012 25,370 17,955 2024
2014 Series A Bonds 2014 190,255 188,075 2044
2014 Series B Bonds 2014 38,665 37,295 2034
2014 Series C Bonds 2014 10,055 7,890 2020
2014 Series D Bonds 2014 88,145 82,745 2025
2015 Series A Bonds 2015 141,905 141,855 2045
2015 Series B Bonds 2015 97,440 97,440 2027
2015 Series C Bonds 2015 19,695 19,180 2026
2016 Series A Bonds 2016 107,470 107,470 2046
2016 Series B Bonds 2016 48,310 48,310 2032
Total University General Receipts 950,915$ 892,670$
Kentucky Assocation of Counties Lease 2009 35,000$ 25,695$ 2028
Total Under Trust Agreement 1,210,370$ 971,120$ ____________________________________ (1) Maturities 2017 through 2022 will be refunded by the 2017 Series A bonds, see “PLAN OF FINANCE” (2) Maturities 2017 through 2024 will be refunded by the 2017 Series B bonds, see “PLAN OF FINANCE” (3) The 2010 Series B are Taxable Qualified Energy Conservation Bonds that require the University to make
annual sinking fund payments to an account held with the Trustee
APPENDIX A
A-3
PLEDGED REVENUES
Total operating and nonoperating revenues and pledged revenues as defined by the General Receipts Trust Indenture for the most recent five fiscal years are as follows (in thousands):
2016 2015 2014 2013 2012Actual Revenue TypeStudent tuition and fees 319,627$ 302,936$ 287,517$ 265,293$ 243,364$ Federal grants and contracts 169,291 168,125 160,384 165,214 180,198 State and local grants and contracts 91,216 92,269 67,755 87,143 108,494 Nongovernmental grants and contracts 34,979 29,805 28,040 31,021 29,030 Recoveries of facilities and administrative costs 51,088 48,154 47,159 47,862 51,818 Sales and services 48,823 54,112 54,765 50,473 56,064 Federal appropriations 19,266 17,535 17,921 16,890 16,529 County appropriations 23,717 21,975 20,338 19,312 17,457 Professional clinical service fees 229,075 223,291 203,721 196,974 220,633 Hospital services 1,417,243 1,323,652 1,101,662 945,885 906,607 Auxiliary enterprises: Housing and dining 39,103 39,265 44,154 50,426 47,730 Athletics 102,995 88,928 73,957 72,033 69,307 Other auxiliaries 49,434 47,039 37,282 30,547 32,179 Other operating revenues 7,931 5,059 4,516 3,772 2,631 State appropriations 279,611 279,611 283,869 283,869 297,580 Gifts and non-exchange grants 127,796 105,506 96,771 98,418 86,735 Investment income (loss) (2,665) 45,188 155,547 104,748 (232) Other nonoperating revenues and expenses, net 16,653 8,988 7,449 9,856 7,654 Capital grants and gifts 165,896 45,341 54,068 30,672 40,022 Additions to permanent endowments 13,052 7,758 7,578 10,225 11,581
Total operating and nonoperating revenues 3,204,131$ 2,954,537$ 2,754,453$ 2,520,633$ 2,425,381$
Pledged Revenue TypeStudent tuition and fees 319,627$ 302,936$ 287,517$ 265,293$ 243,364$ Nongovernmental grants and contracts 1,145 849 716 701 985 Recoveries of facilities and administrative costs 51,088 48,154 47,159 47,755 51,818 Sales and services 48,710 40,004 41,637 41,139 40,741 Hospital services 1,417,243 1,323,652 1,101,662 945,885 906,607 Auxiliary enterprises: Housing and dining 39,103 39,265 44,154 50,426 47,730 Athletics 102,995 88,928 73,957 - - Other auxiliaries 49,434 47,039 37,282 30,547 32,179 Other operating revenues 838 852 967 989 976 State appropriations 279,611 279,611 283,869 283,869 297,580 Gifts and non-exchange grants 4,583 4,955 4,809 5,015 5,012 Investment income 10,761 21,774 6,208 2,704 2,441
Total pledged revenues 2,325,138$ 2,198,019$ 1,929,937$ 1,674,323$ 1,629,433$
DEBT SERVICE REQUIREMENTS AS OF JUNE 30, 2016
Year Ending June 30
Principal (2) InterestFederal
Subsidy (3)Existing Debt
Service Principal Interest Debt Service Principal Interest Debt Service Principal Interest
Federal
Subsidy (3)Total Debt
Service
2017 $35,305,000 $41,035,617 ($2,301,341) $74,039,276 $165,000 $124,989 $289,989 $55,000 $22,178 $77,178 $35,525,000 $41,182,784 ($2,301,341) $74,406,4432018 36,350,000 38,032,498 (2,358,421) 72,024,077 4,675,000 1,099,875 5,774,875 855,000 194,775 1,049,775 41,880,000 39,327,148 (2,358,421) 78,848,7272019 37,680,000 36,561,488 (2,314,212) 71,927,276 4,770,000 1,004,950 5,774,950 870,000 181,800 1,051,800 43,320,000 37,748,238 (2,314,212) 78,754,0262020 38,890,000 34,981,095 (2,265,537) 71,605,558 4,935,000 834,700 5,769,700 900,000 155,100 1,055,100 44,725,000 35,970,895 (2,265,537) 78,430,3582021 40,855,000 33,326,266 (2,214,008) 71,967,258 5,170,000 606,750 5,776,750 925,000 127,850 1,052,850 46,950,000 34,060,866 (2,214,008) 78,796,8582022 41,107,433 31,535,181 (2,159,135) 70,483,479 4,655,000 361,125 5,016,125 945,000 104,425 1,049,425 46,707,433 32,000,731 (2,159,135) 76,549,0292023 42,225,000 29,651,412 (2,101,030) 69,775,382 4,895,000 122,375 5,017,375 970,000 80,550 1,050,550 48,090,000 29,854,337 (2,101,030) 75,843,3072024 43,160,000 27,683,478 (2,040,125) 68,803,353 - - - 995,000 55,925 1,050,925 44,155,000 27,739,403 (2,040,125) 69,854,2782025 43,270,000 25,398,761 (1,732,409) 66,936,352 - - - 1,025,000 20,500 1,045,500 44,295,000 25,419,261 (1,732,409) 67,981,8522026 41,520,000 23,271,786 (1,420,221) 63,371,565 - - - - - - 41,520,000 23,271,786 (1,420,221) 63,371,5652027 41,050,000 21,490,419 (1,347,802) 61,192,617 - - - - - - 41,050,000 21,490,419 (1,347,802) 61,192,6172028 41,005,000 19,746,547 (1,272,809) 59,478,738 - - - - - - 41,005,000 19,746,547 (1,272,809) 59,478,7382029 25,350,000 18,404,105 (1,195,147) 42,558,958 - - - - - - 25,350,000 18,404,105 (1,195,147) 42,558,9582030 24,440,000 17,357,383 (1,114,723) 40,682,660 - - - - - - 24,440,000 17,357,383 (1,114,723) 40,682,6602031 25,400,000 16,238,670 (1,028,622) 40,610,048 - - - - - - 25,400,000 16,238,670 (1,028,622) 40,610,0482032 26,245,000 15,290,340 (936,553) 40,598,787 - - - - - - 26,245,000 15,290,340 (936,553) 40,598,7872033 27,250,000 14,189,298 (840,992) 40,598,306 - - - - - - 27,250,000 14,189,298 (840,992) 40,598,3062034 28,255,000 13,074,395 (741,841) 40,587,554 - - - - - - 28,255,000 13,074,395 (741,841) 40,587,5542035 24,050,000 11,865,780 (638,949) 35,276,831 - - - - - - 24,050,000 11,865,780 (638,949) 35,276,8312036 24,940,000 10,865,788 (532,166) 35,273,622 - - - - - - 24,940,000 10,865,788 (532,166) 35,273,6222037 25,950,000 9,751,928 (421,344) 35,280,584 - - - - - - 25,950,000 9,751,928 (421,344) 35,280,5842038 27,045,000 8,539,373 (306,332) 35,278,041 - - - - - - 27,045,000 8,539,373 (306,332) 35,278,0412039 28,140,000 7,322,558 (186,981) 35,275,577 - - - - - - 28,140,000 7,322,558 (186,981) 35,275,5772040 29,210,000 6,135,463 (63,092) 35,282,371 - - - - - - 29,210,000 6,135,463 (63,092) 35,282,3712041 23,565,000 5,039,800 - 28,604,800 - - - - - - 23,565,000 5,039,800 - 28,604,800
2042 24,510,000 4,097,200 - 28,607,200 - - - - - - 24,510,000 4,097,200 - 28,607,200
2043 25,485,000 3,116,800 - 28,601,800 - - - - - - 25,485,000 3,116,800 - 28,601,800
2044 26,490,000 2,097,400 - 28,587,400 - - - - - - 26,490,000 2,097,400 - 28,587,400
2045 17,465,000 1,037,800 - 18,502,800 - - - - - - 17,465,000 1,037,800 - 18,502,800
2046 8,480,000 339,200 - 8,819,200 - - - - - - 8,480,000 339,200 - 8,819,200
$924,687,433 $527,477,829 ($31,533,792) $1,420,631,470 $29,265,000 $4,154,764 $33,419,764 $7,540,000 $943,103 $8,483,103 $961,492,433 $532,575,696 ($31,533,792) $1,462,534,337
(1) Existing debt service excludes excludes debt service on Series 2006A ALCo Notes and Series 2010A Build America Bonds.
(2) Only includes amounts to be deposited in the sinking fund for the 2010 Series B Bonds which are Taxable Qualified Energy Conservation Bonds (investment earnings on sinking fund deposits under an investment agreement are required for debt service paymen
(3) Due to sequestration, the federal direct payments on the Series 2009B Build America Bonds (“BABs”) and the Series 2010B Qualified Energy Conservation Bonds (“QECBs”) were reduced by amounts of approximately 6% to 9% in prior years. It is not currently known whether federal direct payments will be restored to their original amounts. Federal direct payments received between October 1, 2016 through June 30, 2017 are reduced by the current sequestration rate of 6.9%. For fiscal years 2018 through 2040, the federal direct payments are assumed at their original rates payable on the outstanding Series 2009B BABs and 2010B QECBs. Includes the last subsidy to be received on the 2010A BABs from October 1, 2016 through February 21, 2016. Since bond proceeds will be used to pay the gross bond payment from December 1 through February 21, the last subsidy will increase savings resulting from the refunding transaction.
Debt Service Less Refunded Bonds(1) Debt Service Requirements on the2017 Series A Bonds (Ref. of 2006 ALCo Notes)
Debt Service Requirements on the2017 Series B Bonds (Ref. of 2010A BABs)
Total
APPENDIX A
A-5
ACADEMIC
ENROLLMENT
The following schedule summarizes the University’s headcount and full-time equivalent enrollment for the most recent five fall semesters.
2016 2015 2014 2013 2012
Undergraduate Kentucky resident 15,704 15,967 16,113 16,315 16,093Undergraduate out-of-state student 7,108 6,738 6,110 5,126 4,734Graduate Kentucky resident 4,123 4,137 4,143 4,215 4,430Graduate out-of-state student 2,975 2,885 2,837 2,779 2,777
Total headcount (IPEDS) 29,910 29,727 29,203 28,435 28,034
Full-time equivalent (IPEDS) 1
28,187 28,085 27,559 26,800 26,284Out-of-state enrollment (IPEDS) 33.7% 32.4% 30.6% 27.8% 26.8%
Undergraduate auditor Kentucky resident 52 56 51 52 49Undergraduate auditor out-of-state student 1 0 0 2 2Professional Kentucky resident 723 727 670 686 654Professional out-of-state student 198 210 207 210 189
Total headcount (CPE) 30,884 30,720 30,131 29,385 28,928
Full-time equivalent (CPE) 2
29,363 29,318 28,550 27,634 27,037Out-of-state enrollment (CPE) 33.3% 32.0% 30.4% 27.6% 26.6%
1 The IPEDS full-time enrollment calculation is made in accordance with the method used by the United States Department of Education 2 The CPE full-time enrollment calculation is made in accordance with the methods used by the Council on Postsecondary Education
ADMISSIONS INFORMATION The following is a summary of first-time freshman admissions information for the most recent five fall semesters:
2016 2015 2014 2013 2012
Number of applications 24,300 22,521 20,677 19,810 18,802Number admitted (%) 18,593 (76.5%) 16,685 (74.1%) 14,930 (72.2%) 13,592 (68.6%) 12,655 (67.3%)Number enrolled (%) 5,155 (27.7%) 5,211 (31.2%) 5,185 (34.7%) 4,684 (34.5%) 4,647 (36.7%)Average ACT score 25.6 25.5 25.5 25.3 25.5Retention rate N/A 82.0% 82.7% 82.2% 82.5%
APPENDIX A
A-6
ACADEMIC CONTINUED
TUITION AND FEES
The University’s annual tuition and fees for the most recent five academic years are as follows:
2016-17 2015-16 2014-15 2013-14 2012-13
Resident tuition and fees
Undergraduate lower division 11,320$ 10,780$ 10,464$ 9,966$ 9,676$
Undergraduate upper division 11,646$ 11,092$ 10,768$ 10,254$ 9,956$
Graduate 1
12,236$ 11,652$ 11,312$ 10,772$ 10,458$
Non-resident tuition and fees
Undergraduate lower division 26,156$ 24,104$ 22,734$ 21,052$ 19,864$
Undergraduate upper division 26,512$ 24,432$ 23,042$ 21,354$ 20,130$
Graduate 1
28,380$ 26,154$ 24,664$ 22,838$ 21,546$ 1 Several graduate programs (e.g., MBA) have differential tuition rates
FACULTY INFORMATION The following is a summary of full-time faculty for the most recent five academic years:
2016-17 2015-16 2014-15 2013-14 2012-13
Instructional faculty 1,401 1,397 1,352 1,351 1,365Other faculty 1,176 1,021 952 936 919
Total 2,577 2,418 2,304 2,287 2,284
Tenured/tenure track 1,639 1,599 1,571 1,579 1,609Non-tenured track 938 819 733 708 675
Total 2,577 2,418 2,304 2,287 2,284
Note: Instructional faculty in preclinical and clinical medicine are not included
APPENDIX A
A-7
ACADEMIC CONTINUED
COMPARATIVE REPORT OF STUDENT FINANCIAL AID
The following summarizes the University's student financial aid for the most recent five fiscal years (in thousands):
2016 2015 2014 2013 2012
Scholarships and grants 148,055$ 128,449$ 115,426$ 107,815$ 96,331$
Federal grants:Pell 23,274 23,500 22,424 21,331 20,447 Supplemental Eduational Opportunity Grant (SEOG) 513 487 438 793 441 Academic Competiveness Grant (ACG) - - - - 2 Science and Mathematics Access to Retain Talent (SMART) - - - (1) 12 Teacher Education Assistance for College and Higher Education Grant Program (TEACH) 4 50 62 25 44 Federal Work Study 965 1,015 1,030 610 1,021
Financial aid from outside agencies:State grants 27,926 26,775 26,739 24,464 22,899
Loans:National direct student loans (Perkins) 1,404 3,057 4,680 3,022 3,542 Federal direct loans 187,669 183,022 191,362 170,100 192,959 Health professions loans 393 440 418 667 426 Federal primary care loans - - - - 1,358 Loans from outside agencies 27,687 22,336 19,004 16,764 13,268 Other loans (institutional) 887 958 1,203 1,086 869
Total 418,777$ 390,089$ 382,786$ 346,676$ 353,619$
APPENDIX A
A-8
FINANCIAL
BUDGET
The following is a summary of the University’s budget for the most recent five fiscal years (in thousands):
2017 2016 2015 2014 2013
University budget 1
3,524,640$ 3,380,187$ 3,016,665$ 2,728,069$ 2,638,232$ Change from prior year 144,453$ 363,522$ 288,596$ 89,837$ (60,525)$ 1 Prior year budgets have been revised to reflect the finalized University budget
STATE APPROPRIATIONS The University's General Fund state appropriations for the five most recent fiscal years are as follows (in thousands):
Fiscal Year Appropriation
2017 267,029$ 2016 279,611$ 2015 279,611$ 2014 283,869$ 2013 283,869$
The Board of Trustees presently intends, but is not obligated, to continue to seek to have funds appropriated by the General Assembly to partially support the operations of the University. The General Assembly is not now obligated, nor will there be an obligation in the future, to make appropriations to the University. In addition, there can be no assurance that in the performance of his or her obligation to balance the state budget annually, the governor will not reduce or eliminate any appropriations which are made.
APPENDIX A
A-9
FINANCIAL CONTINUED
SUMMARY OF NET POSITION
The following is a summary of the University’s net position for the most recent five fiscal years (in thousands):
2016 2015 2014 2013 2012
Net investment in capital assets 1,527,034$ 1,422,560$ 1,347,778$ 1,304,887$ 1,307,738$ Restricted
Nonexpendable 601,703 585,074 576,265 569,589 557,712 Expendable 494,154 451,990 425,775 312,324 241,602
Unrestricted 1,103,636 997,634 794,034 675,706 565,660
Total net position 3,726,527$ 3,457,258$ 3,143,852$ 2,862,506$ 2,672,712$
SUMMARY OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
The following is a summary of the University’s revenues, expenses and changes in net position for the most recent five fiscal years (in thousands):
2016 2015 2014 2013 2012
Operating revenues 2,603,788$ 2,462,145$ 2,149,171$ 1,982,845$ 1,949,887$ Operating expenses 2,888,039 2,609,253 2,441,583 2,299,918 2,312,872 Net loss from operations (284,251) (147,108) (292,412) (317,073) (362,985) Nonoperating revenues (expenses), including state appropriations 553,520 460,514 573,758 506,867 407,161
Total increase in net position 269,269$ 313,406$ 281,346$ 189,794$ 44,176$
SUMMARY OF CASH FLOWS
The following summarizes the University’s statement of cash flows for the most recent five fiscal years (in thousands):
2016 2015 2014 2013 2012
CASH PROVIDED (USED) BY:Operating activities (90,450)$ 11,738$ (150,202)$ (152,097)$ (271,163)$ Noncapital financing activities 434,004 416,732 409,650 402,433 416,254 Capital and related financing activities (176,131) (178,778) 81,163 (127,067) (253,701) Investing activities (12,594) 6,900 (111,587) (19,582) 77,004
Net increase (decrease) in cash andcash equivalents 154,829 256,592 229,024 103,687 (31,606)
Cash and cash equivalents, beginning of year 937,483 680,891 451,867 348,180 379,786
Cash and cash equivalents, end of year 1,092,312$ 937,483$ 680,891$ 451,867$ 348,180$
APPENDIX A
A-10
FINANCIAL CONTINUED
ENDOWMENTS
Endowment investments, classified as noncurrent assets, for the most recent five fiscal years are summarized as follows (in thousands):
Fiscal Year Market Value
2016 1,221,579$ 2015 1,231,557$ 2014 1,215,226$ 2013 1,054,448$ 2012 947,383$
The long-term returns for the period ending June 30, 2016 are summarized below:
Period Return Value1 year -1.5%3 year 5.4%5 year 5.4%10 year 4.0%
GIFTS AND NON-EXCHANGE GRANTS
The following schedule summarizes the University’s gifts and non-exchange grants, classified as nonoperating revenues, for the most recent five fiscal years (in thousands):
2016 2015 2014 2013 2012
Gifts and non-exchange grants 127,796$ 105,506$ 96,771$ 98,418$ 86,735$ Additions to permanent endowments 13,052 7,758 7,578 10,225 11,581 Capital grants and gifts 165,896 45,341 54,068 30,672 40,022
Total 306,744$ 158,605$ 158,417$ 139,315$ 138,338$
GRANTS AND CONTRACTS
The following is a summary of grant and contract awards for the five most recent fiscal years (in thousands):
2016 2015 2014 2013 2012
Federal awards 163,477$ 153,071$ 152,492$ 137,442$ 152,261$ State awards 81,824 73,672 53,260 62,829 65,571 Other awards 71,223 58,350 53,517 65,662 56,311
Total 316,524$ 285,093$ 259,269$ 265,933$ 274,143$
APPENDIX A
A-11
UK HEALTHCARE HOSPITAL SYSTEM
UK HealthCare, a trademarked brand used by the University for its health care services, is uniquely equipped to provide advanced subspecialty care to the people of Kentucky. UK HealthCare Hospital System operates two hospital units under one Joint Commission Accreditation and two licenses in addition to ambulatory services. The major service units include Albert B. Chandler Hospital, Good Samaritan Hospital and the Kentucky Clinic.
OPERATIONS
UK HealthCare Hospital System’s operating information for the five most recent fiscal years is summarized as follows: Certain Operating Information
2016 2015 2014 2013 2012
Average licensed beds 825 826 825 825 791
Available beds 816 816 757 718 701
Patient days 259,662 251,334 228,783 210,576 205,113
Patient days equivalents 1
443,630 407,767 347,113 334,456 328,330
Admissions 37,792 37,073 35,303 35,565 34,470
Discharges 37,789 37,043 35,180 35,511 34,453
Average lenth of stay (days) 6.87 6.78 6.50 5.93 5.95
Occupancy 82.50% 84.39% 82.80% 80.35% 79.95%
Emergency visits 108,417 101,395 91,146 88,752 89,662
Outpatient visits with hospital charge 501,943 479,782 428,582 368,223 359,011 1 Total patient activity computed by converting outpatient activity to an inpatient equivalent Payer Mix
2016 2015 2014 2013 2012
Medicaid 39.05% 38.57% 31.37% 27.91% 28.07%Medicare 33.61% 33.98% 33.79% 31.89% 31.51%Commercial/other 25.55% 25.70% 27.17% 28.94% 28.21%Patient/charity 1.79% 1.75% 7.67% 11.26% 12.21%
Total 100.00% 100.00% 100.00% 100.00% 100.00%
APPENDIX A
A-12
UK HEALTHCARE HOSPITAL SYSTEM CONTINUED
FINANCIAL
Summary of Net Position The following is a summary of UK HealthCare Hospital System’s net position for the most recent five fiscal years (in thousands):
2016 2015 2014 2013 2012
Net investment in capital assets 455,374$ 437,489$ 410,348$ 373,346$ 387,039$ Restricted
Nonexpendable 195 119 118 117 118 Expendable 11,902 10,538 10,331 14,965 14,529
Unrestricted 630,294 565,604 400,920 311,568 234,416
Total net position 1,097,765$ 1,013,750$ 821,717$ 699,996$ 636,102$
Summary of Revenues, Expenses and Changes in Net Position The following is a summary of UK HealthCare Hospital System’s revenues, expenses and changes in net position for the most recent five fiscal years (in thousands):
2016 2015 2014 2013 2012
Operating revenues 1,423,695$ 1,329,133$ 1,115,007$ 951,450$ 912,826$ Operating expenses 1,298,607 1,129,905 1,013,572 886,208 870,438
Net income from operations 125,088 199,228 101,435 65,242 42,388 Net nonoperating revenues (expenses) (24,209) (5,863) 29,524 14,350 (11,637) Transfers to the University (16,864) (1,332) (9,238) (15,698) (17,490) Net loss from discontinued operations - - - - (16)
Total increase in net position 84,015$ 192,033$ 121,721$ 63,894$ 13,245$
APPENDIX A
A-13
UK HEALTHCARE HOSPITAL SYSTEM CONTINUED
Summary of Cash Flows The following summarizes UK HealthCare Hospital System’s cash flows for the most recent five fiscal years (in thousands):
2016 2015 2014 2013 2012
CASH PROVIDED (USED) BY:Operating activities 184,810$ 263,731$ 161,210$ 144,657$ 54,570$ Noncapital financing activities (6,459) 14,979 (2,264) (55,791) 38,902 Capital and related financing activities (165,993) 38,487 (102,791) (54,696) (109,193) Investing activities 876 2,774 367 3,666 1,882
Net increase (decrease) in cash andcash equivalents 13,234 319,971 56,522 37,836 (13,839)
Cash and cash equivalents, beginning of year 431,639 111,668 55,146 17,310 31,149
Cash and cash equivalents, end of year 444,873$ 431,639$ 111,668$ 55,146$ 17,310$
APPENDIX B
FINANCIAL STATEMENTS OF THE UNIVERSITY OF KENTUCKYAS OF AND FOR THE YEAR ENDED JUNE 30, 2016
University of Kentucky A Component Unit of the Commonwealth of Kentucky
Financial Statements
Years Ended June 30, 2016 and 2015
TABLE OF CONTENTS
Message from the President i
Independent Auditor’s Report 1
Management’s Discussion and Analysis 3
Financial Statements
Statements of Net Position 18
Statements of Revenues, Expenses and Changes in Net Position 19
Statements of Cash Flows 20
Notes to Financial Statements 21
Required Supplementary Information 60
Governing Board 62
i
MESSAGE FROM THE PRESIDENT
This institution, and the members of the UK family, have boldly confronted challenges, risen to meet new opportunities, and redefined what it means to be the university for Kentucky over the last 150 years. The university was guided through substantial financial challenges by President James Patterson. Presidents Frank McVey and Herman Donovan helped navigate two world wars, meeting the calls to support our collective national effort. Though not soon enough, we opened our doors to all people, fulfilling the lofty intention of our establishing land grant legislation. Throughout history, our mission has been to teach, discover, heal, and serve. We have faced difficult times - seemingly insurmountable odds that called into question our ability to carry out the noble purpose of this institution cast more than 150 years ago. Indeed, what the UK family was able to overcome in its earliest days illustrates the extent to which our people define this place and its purpose. Today, faced with a new array of complex questions and issues, we find the university again climbing an increasingly steep mountain. How have we responded? How have we continued to dream and to climb? In the last five years, we initiated or approved some $2.1 billion in capital investments to improve student success, instruction,
research and discovery, quality of life, and health care. Approximately 91 percent of that investment is the result of public-private partnerships, philanthropy, strategic use of university resources, or other collaborations such as unprecedented support from UK Athletics for the Academic Science Building. We welcomed successive record-setting, first-year classes that have joined the UK family and moved total enrollment past 30,700 – the largest in our history. We recruited nearly 400 National Merit, National Achievement, and National Hispanic Scholars in the last five years, placing UK among the top 10 public universities in the nation. Our campus is home to more students from diverse backgrounds than ever before, further adding to the richness of our campus family. And these students are succeeding at higher levels. UK’s retention rates have increased more than six percentage points in the last decade to record levels, which are projected to continue climbing. Our first-to-second year retention rate was among the highest in UK’s history, and, with more than 4,250 students, the returning cohort was the largest in UK’s history. This trajectory translates to record degree attainment, including more than 6,600 over the last academic year.
Since 2011, we’ve invested more in UK-funded student financial aid and scholarships that did not have to be repaid by our students. Over the last five years, we’ve increased UK’s investment in student financial aid and scholarships by $60 million—now up to $117 million – doubling the investment in the last decade.
Faculty and staff researchers added to a growing portfolio of transformative research, discovery, and creative scholarship. In fiscal year 2015-16, UK received $316.5 million in external research grants and contracts – signifying that we are a major player among research institutions in the country. In October 2015, we broke ground on a $265 million, multi-disciplinary research facility to advance discovery and address critical Kentucky needs. UK HealthCare continued to meet the needs of patients and families who require complex, quality health care through our network of providers and state-of-the-art academic medical center. Annual patient discharges have grown by more than 98 percent since 2003, and UK HealthCare is now a $1.5 billion enterprise that cares for patients throughout Kentucky and, increasingly, the region. New partners joined in our progress as the university reached unprecedented levels of success in private philanthropy. Last year, UK received more than 95,000 gifts from more than 50,400 donors. As a result, our total work product exceeds $208 million doubling UK’s philanthropic outcomes in the last five years.
Our priorities and success have gained for us the confidence of external partners and expert analysts in our industry. At a time
ii
when other major research universities are experiencing stagnant enrollment and finances, often accompanied by negative ratings outlooks, a recent upgrade from Standard & Poor’s is a strong endorsement of our direction. In their report, S&P cited our increasing enrollment, revenue diversity aided by UK HealthCare, strong financial performance, and a low debt burden as strengths for our future. In total, our work fueled Kentucky’s economy by providing a 12-fold return on the Commonwealth’s $280 million investment in its flagship university. UK employees pay more than $90 million annually in state/local taxes, and UK’s research enterprise has a more than $580 million impact on Kentucky’s economy. Two-thirds of graduates are employed in Kentucky after graduation. UK’s capital improvements create tens of thousands of direct and indirect construction, contracting, and supplier jobs. Over the last five years, the university has made extraordinary progress and developed considerable momentum. The new 2015-2020 Strategic Plan is a pivot point in the transformation of the university in which we build upon the foundation created in the past four years with bold strategic thinking about the future. Endorsed by the Board of Trustees in October 2015, the Strategic Plan embraces the institution’s historic mission as a public flagship and land grant research university, and calls us to:
Be the university of choice for aspiring undergraduate students within the Commonwealth and beyond, seeking a transformational education that promotes self-discovery, experiential learning, and life-long achievement.
Strengthen the quality and distinctiveness of our graduate programs to transform our students into accomplished scholars and professionals who contribute to the Commonwealth, the nation and the world through their research and discovery, creative endeavors, teaching, and service.
Enhance the diversity and inclusivity of our university community through recruitment, promotion, and retention of an increasingly diverse population of faculty, administrators, staff, and students, and by implementing initiatives that provide rich diversity-related experiences for all to help ensure their success in an interconnected world.
Expand our scholarship, creative endeavors, and research across the full range of disciplines to focus on the most important challenges of the Commonwealth, our nation, and the world.
Leverage leading-edge technology, scholarship, and research in innovative ways to advance the public good and to foster the development of citizen-scholars.
A university – by its design and the opportunities we have to teach, to share, to explore, to serve, to challenge, to question, and to comfort – is the place where we can, must, and will make progress on the complex questions of our day. Our Strategic Plan supports and informs this work. But our work today – and our focus on the future – reminds us in compelling ways of our legacy, our history of confronting and overcoming challenge to meet the needs of those we serve. In the wake of the First World War, amid a tumultuous period in our history, President Frank McVey believed that the university needed to be viewed, “as more than an economic asset. It served, in fact, as an essential component of the well-being of the state, and in that position it needs to be free to seek truth.” In his words, he concluded that, “what will save this nation after the war are the universities.” Each day we are, together, grappling with how we continue to fulfill this vision. We are working with a sense of common purpose at an uncommon and distinctive place to find those answers. I look forward to sharing that future with you. Eli Capilouto President
1
Independent Auditor’s Report
Board of Trustees University of Kentucky Lexington, Kentucky Report on the Financial Statements
We have audited the accompanying basic financial statements of the University of Kentucky (University), a component unit of the Commonwealth of Kentucky, as of and for the years ended June 30, 2016 and 2015, and the related notes to the financial statements, which collectively comprise the University’s basic financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Kentucky Medical Services Foundation, Inc. (KMSF), a blended component unit of the University, which statements reflect total assets of $196,673 and $195,126 as of June 30, 2016 and 2015, respectively, and total revenues of $318,003 and $304,167, respectively, for the years then ended (dollars in thousands). Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for KMSF, is based solely on the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the 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
Board of Trustees University of Kentucky Page 2
2
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 opinion.
Opinion
In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the University as of June 30, 2016 and 2015, and the changes in its financial position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and post-employment and long-term disability benefit plan information listed in the table of contents be presented to supplement the basic financial statements. Such information, although not 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.
Other Information
Our audits were conducted for the purpose of forming an opinion on the basic financial statements that collectively comprise the University’s basic financial statements. The governing board listing and the message from the president as listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audits of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it.
Louisville, Kentucky October 3, 2016
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Management’s Discussion and Analysis The following Management’s Discussion and Analysis (MD&A) provides an overview of the financial position and activities of the University of Kentucky (the University or UK) and its affiliated corporations for the years ended June 30, 2016 and 2015. Management has prepared this discussion, and suggests that it be read in conjunction with the financial statements and the notes appearing in this report. About the University of Kentucky Mission. The University of Kentucky is a public, land-grant university dedicated to improving people's lives through excellence in education, research and creative work, service and health care. As Kentucky's flagship institution, the University plays a critical leadership role by promoting diversity, inclusion, economic development and human well-being. The University of Kentucky:
Facilitates learning, informed by scholarship and research; Expands knowledge through research, scholarship and creative activity; and Serves a global community by disseminating, sharing and applying knowledge.
The University, as the flagship institution, plays a critical leadership role for the Commonwealth of Kentucky (the Commonwealth) by contributing to the economic development and quality of life within Kentucky borders and beyond. The University nurtures a diverse community characterized by fairness and equal opportunity. Vision. As Kentucky’s indispensable educational institution, we transform the lives of our students and advance the Commonwealth we serve and beyond through our teaching and learning, diversity and inclusion, discovery, research and creativity, promotion of health, and deep community engagement. Background. Under provisions of the federal Morrill Land-Grant Colleges Act (1862), Kentucky State Agricultural and Mechanical College was established in 1865 as part of Kentucky University (now Transylvania University). The College separated from Kentucky University in 1878 and was established on a 52 acre site (the University’s current location) donated by the city of Lexington. In 1908, the College was re-named the State University, Lexington, Kentucky. In 1916 it became the University of Kentucky. According to the Kentucky Revised Statutes (KRS) 164.125(2):
In carrying out its statewide mission, the University of Kentucky shall conduct statewide research and provide statewide services, including, but not limited to, agricultural research and extension services, industrial and scientific research, industrial technology extension services to Kentucky employers and research related to the doctoral, professional and postdoctoral programs offered within the University. The University may establish and operate centers and utilize state appropriations and other resources to carry out the necessary research and service activities throughout the state. The University may enter into joint research and service activities with other universities in order to accomplish its statewide mission.
In 1997, the Kentucky General Assembly reformed the state’s public system of colleges and universities. According to the Kentucky Postsecondary Education Improvement Act of 1997: The University of Kentucky is mandated to become a major comprehensive research institution ranked nationally in the top twenty public universities by 2020. At its December 2005 meeting, the UK Board of Trustees approved the Top 20 Business Plan. The University’s Strategic Plan for 2009-2014 was adopted by the UK Board of Trustees at its June 2009 meeting. The Strategic Plan was designed to measure the University’s progress by establishing specific goals for teaching, research and service at the department, college and university level.
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Today, the University continues to focus on the core academic mission of the institution and the original tenets of the Morrill Land-Grant Colleges Act (1862). UK remains steadfast in its covenant with the Commonwealth – to produce graduates prepared for a 21st century economy; to conduct research that extends the boundaries of scientific discovery; and to render service and patient care that uplifts our community and region. The UK Board of Trustees adopted the Strategic Plan for 2015-2020 at its October 2015 retreat. The plan builds on extraordinary progress from previous planning documents, a dramatic investment in the institution’s physical spaces, and the insight garnered from considerable campus conversation and constituent input. The plan considers the current operating context for higher education and focuses on five strategic objectives that support our role as Kentucky’s indispensable institution:
Undergraduate Student Success – To be the University of choice for aspiring undergraduate students within the Commonwealth and beyond, seeking a transformational education that promotes self-discovery, experiential learning, and life-long achievement.
Graduate Education – Strengthen the quality and distinctiveness of our graduate programs to transform our students into accomplished scholars and professionals who contribute to the Commonwealth, the nation, and the world through their research and discovery, creative endeavors, teaching, and service.
Diversity and Inclusivity – Enhance the diversity and inclusivity of our University community through recruitment, promotion, and retention of an increasingly diverse population of faculty, administrators, staff, and students, and by implementing initiatives that provide rich diversity-related experiences for all, to help ensure their success in an interconnected world.
Research and Scholarly Work – Expand our scholarship, creative endeavors, and research across the full range of disciplines to focus on the most important challenges of the Commonwealth, our nation, and the world.
Outreach and Community Engagement – Leverage leading-edge technology, scholarship, and research in innovative ways to advance the public good and to foster the development of citizen-scholars.
Under the leadership of Provost Timothy Tracy, progress on these objectives will be reported on an annual basis and presented to the UK Board of Trustees. The University is identified as a “Research University (highest research activity)” by the Carnegie Commission on Higher Education. There are 115 such institutions in the United States (out of approximately 3,600 colleges and universities). The University is accredited by the Commission on Colleges (CoC) of the Southern Association of Colleges and Schools (SACS). This has been re-affirmed at approximately 10-year intervals since 1915, with the next accreditation review scheduled for 2022. In addition, several degree programs and individual units are accredited by agencies appropriate to specific professions or fields. Students. In Fall 2015, the University had 30,720 undergraduate, graduate, and professional students. They represent all 120 Kentucky counties, every state in the U.S. and over 100 countries. Enrollment has increased by 4,281 students (16%) since Fall 2006.
5
22,521
20,677 19,810
18,802
15,153
16,685
14,930 13,592
12,655
10,362
5,211 5,185 4,684 4,647 4,139
‐
5,000
10,000
15,000
20,000
25,000
FY 15‐16 FY 14‐15 FY 13‐14 FY 12‐13 FY 11‐12
First Year Students Applied, Admitted and Enrolled(Fall Term)
Applied Admitted Enrolled
Programs. The University offers more than 200 majors and degree programs in 17 academic and professional colleges that are supported by a comprehensive research library system. UK is one of only eight public universities nationally with colleges of Agriculture, Engineering, Medicine and Pharmacy on a single contiguous campus. Research. Total research expenditures, as reported to the National Science Foundation, totaled $331.7 million for fiscal year 2014-15, compared to $328.2 million in 2013-14. Research awards received during fiscal year 2015-16 total $316.5 million, an 11% increase from the prior year amount of $285.1 million.
$163.5
$153.1 $152.5
$137.4
$152.3
$81.8 $73.6
$53.3
$62.9 $65.6 $71.2
$58.4 $53.5
$65.6
$56.2
$‐
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
$180.0
FY 15‐16 FY 14‐15 FY 13‐14 FY 12‐13 FY 11‐12
Grant and Contract Awards(in millions)
Federal State Other
Outreach. As Kentucky’s flagship, land-grant university, UK engages citizens and communities across the state in a myriad of ways, including extension offices in all 120 Kentucky counties; continuing education opportunities for teachers, lawyers and health care providers; clinics providing legal, pharmaceutical and health care assistance; and a multitude of research efforts aimed at Kentucky’s most difficult problems in economic development, health care, infrastructure and education.
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Medical Centers. UK HealthCare, a trademarked brand used by the University for its healthcare services, is uniquely equipped to provide advanced subspecialty care to the people of Kentucky. The academic medical center and health system provides patient care on par – in terms of both volume and complexity – with the nation’s top 25% of academic medical centers. In August 2016, UK HealthCare was named number one in Kentucky in the latest U.S. News Best Hospital ranking. To be recognized as a Best Hospital, UK HealthCare had to rank high nationally on a stringent data-driven ratings system that gauges performance. The analysis includes multiple clinical specialties, procedures and conditions. Scores are based on a variety of patient outcome and care-related factors such as mortality and patient safety, as well as reputation. This and other notable achievements are listed at http://ukhealthcare.uky.edu/quality/awards/. UK HealthCare Hospital System (the System) operates two hospital units under one Joint Commission Accreditation and two licenses in addition to ambulatory services. The major service units include Albert B. Chandler Hospital, Good Samaritan Hospital and the Kentucky Clinic. The System has a combined total of 825 licensed beds with an average daily census of 709 patients. On a monthly basis, the system provides over 1,222 inpatient surgeries, 1,388 outpatient surgeries, 32,638 radiology procedures, 9,035 emergency department visits and 125,428 hospital based outpatient clinic visits. Under a management contract entered into with the Kentucky Cabinet for Health and Family Services, the System also operates and manages Eastern State Hospital, a 300,000 square-foot facility located on the University’s Coldstream Research Campus. Eastern State Hospital provides a modern setting for both acute and long-term inpatient psychiatric treatment for adults living within Fayette County and the 50 surrounding counties. UK HealthCare’s Markey Cancer Center remains the state’s only cancer center designated by the National Cancer Institute (NCI), which reflects UK’s position as a frontrunner in cancer treatment and research. UK HealthCare is one of an elite group of only 22 medical centers in the United States that have NCI designation, a federally funded Center on Aging, and a highly prized Clinical and Translational Science Award grant. UK HealthCare’s dramatic growth within the last decade is in large part the result of a commitment to support the state’s overall system of care by working hand-in-hand with local community providers to bring specialty care closer to the patient. These relationships take on different dimensions in each locality (management agreements, affiliate networks, outreach, etc.) and support keeping less acute care in the local community and smoothing the process for more complex, serious cases to be treated in UK HealthCare’s Lexington facilities. The goal is better care at all points of the continuum. Libraries. UK operates a nationally recognized research library system, with the capstone being the world-class William T. Young Library. UK’s book endowment is the largest among public universities. Its library network and technology provide extraordinary service to students in the colleges of Medicine, Law, Engineering, Fine Arts and other programs. Meanwhile, students, faculty and Kentucky residents can use UK Libraries’ advanced technology to access the most up-to-date information from online journals, government publications and private studies. Financial Highlights The University’s overall financial position remains fiscally sound with assets of $6.02 billion, deferred outflows of resources of $12.2 million, liabilities of $1.93 billion and deferred inflows of resources of $366.7 million as of June 30, 2016. Net position, which represents the University’s residual interest in assets and deferred outflows of resources after liabilities and deferred inflows of resources are deducted, was $3.73 billion (62% of total assets).
Total assets increased $534.6 million (10%), primarily due to increases in cash and cash equivalents, other long-term investments and capital assets, net.
Deferred outflows of resources decreased $1.6 million (12%) due to the amortization of the difference between the reacquisition price and the net carrying amount of refunded debt.
Total liabilities increased $138.1 million (eight percent), primarily due to increases in bonds and capital lease obligations and accounts payable and accrued liabilities.
Deferred inflows of resources increased $125.6 million (52%) due to increases in the service concession arrangements with Education Realty Trust (EdR) and Aramark Educational Services, LLC (Aramark).
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Total net position increased $269.3 million (eight percent). Unrestricted net position increased $106.0 million and net investment in capital assets increased $104.5 million. Restricted net position increased $58.8 million mainly due to capital projects including the new research building, student center and academic science building.
Operating revenues were $2.60 billion and operating expenses were $2.89 billion, resulting in a loss from operations of $284.3 million. Nonoperating and other revenues, net of nonoperating expenses, were $553.5 million, including $279.6 million in state appropriations.
Using the Financial Statements The University presents its financial reports in a “business type activity” format, in accordance with Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments, and GASB Statement No. 35, Basic Financial Statements and Management’s Discussion and Analysis for Public Colleges and Universities – an amendment of GASB Statement No. 34. GASB requires that statements be presented on a comprehensive, entity-wide basis. In addition to this MD&A section, the financial report includes:
Statement of Net Position Statement of Revenues, Expenses, and Changes in Net Position Statement of Cash Flows Notes to the Financial Statements
Reporting Entity The University is a component unit of the Commonwealth. The financial statements of the University include the operations of the University and the following entities:
University of Kentucky Research Foundation, its for-profit subsidiary, Kentucky Technology, Inc. and formerly owned for-profit subsidiary, Coldstream Laboratories, Inc.
The Fund for Advancement of Education and Research in the University of Kentucky Medical Center University of Kentucky Gluck Equine Research Foundation, Inc. University of Kentucky Humanities Foundation, Inc. University of Kentucky Mining Engineering Foundation, Inc. University of Kentucky Center on Aging Foundation, Inc. Central Kentucky Management Services, Inc. Kentucky Medical Services Foundation, Inc.
Statement of Net Position The Statement of Net Position is the University’s balance sheet. It reflects the total assets, liabilities, net position (equity), and deferred outflows and inflows of resources of the University as of June 30, 2016, with comparative information as of June 30, 2015. Liabilities due within one year, and assets available to pay those liabilities, are classified as current. Other assets and liabilities are classified as noncurrent. Net position (i.e. the difference between total assets and total liabilities and deferred inflows and outflows of resources) are an important indicator of the University’s current financial condition, while the change in net position is an indicator of whether the overall financial position has improved or worsened during the year. Generally, assets and liabilities and deferred inflows and outflows of resources are reported using current values. A major exception is capital assets, which are stated at historical cost less accumulated depreciation.
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A summarized comparison of the University’s assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position as of June 30, 2016, 2015 and 2014 are as follows:
Condensed Statements of Net Position (in thousands)
2016 2015 2014
ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Current assets 1,058,800$ 983,253$ 694,839$ Capital assets, net 2,709,638 2,336,640 1,979,404 Other noncurrent assets 2,247,372 2,161,316 1,816,476 Deferred outflows of resources 12,164 13,755 -
Total assets and deferred outflows of resources 6,027,974 5,494,964 4,490,719
LIABILITIES AND DEFERRED INFLOWS OF RESOURCES Current liabilities 508,534 472,487 358,671 Noncurrent liabilities 1,426,167 1,324,095 988,196 Deferred inflows of resources 366,746 241,124 -
Total liabilities and deferred inflows of resources 2,301,447 2,037,706 1,346,867
NET POSITION Net investment in capital assets 1,527,034 1,422,560 1,347,778 Restricted
Nonexpendable 601,703 585,074 576,265 Expendable 494,154 451,990 425,775
Unrestricted 1,103,636 997,634 794,034
Total net position 3,726,527$ 3,457,258$ 3,143,852$ Assets. As of June 30, 2016, total assets amounted to $6.02 billion. The largest asset class was capital assets, net, that totaled $2.71 billion or 45% of total assets. Endowment investments were $1.22 billion, or 20% of total assets and cash and cash equivalents totaled $1.09 billion, or 18% of total assets. During the year, total assets increased by a net $534.6 million primarily due to an increase in capital assets, net of $373.0 million, cash and cash equivalents of $154.8 million and other long-term investments of $24.4 million offset by a decrease in endowment investments of $10.0 million and notes, loans and accounts receivable, net of $6.7 million. Deferred Outflows of Resources. The University’s deferred outflows of resources totaled $12.2 million, a decrease of $1.6 million, which represents the unamortized difference between the reacquisition price and the net carrying amount of refunded debt. Liabilities. As of June 30, 2016, total liabilities amounted to $1.93 billion. Bonds and notes payable, capital leases and other long-term obligations issued for educational buildings, housing, the UK HealthCare Hospital System, athletics football stadium, and equipment totaled $1.04 billion, or 54% of total liabilities. During the year, total liabilities increased by $138.1 million primarily in the issuance of new debt comprised of $155.8 million in general receipts bonds and $7.2 million in capital leases offset by principal payments of $49.8 million as well as an increase in other long-term liabilities of $22.8 million with the largest increase in the retiree health benefits trust. Accounts payable and accrued liabilities also increased $15.5 million offset by a decrease in unearned revenue of $13.4 million. Deferred Inflows of Resources. The University’s deferred inflows of resources totaled $366.7 million that represents service concession arrangements with EdR of $222.3 million, Aramark of $140.3 million and Barnes and Noble of $4.1 million. During the year, deferred inflows of resources increased $125.6 million primarily due to an increase in EdR of $92.1 million and Aramark of $34.4 million due to the completion of three new residence halls, a new dining facility and six dining facility renovations.
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Net Position. The University’s equity of $3.73 billion as of June 30, 2016 is reported on the Statement of Net Position in three net position categories: net investment in capital assets, $1.53 billion (41%); restricted nonexpendable, $601.7 million (16%) and restricted expendable, $494.2 million (13%); and unrestricted, $1.10 billion (30%). Restricted net position is subject to externally imposed restrictions governing its use. Although unrestricted net position is not subject to externally imposed stipulations, most of the unrestricted net position has been internally designated for support of academic and research programs and initiatives, capital projects and working capital requirements. Total net position increased $269.3 million during the year ended June 30, 2016. Net investment in capital assets increased $104.5 million due to excess of additions of capital assets and principal payments of capital debt offset by depreciation expense. Restricted net position increased $58.8 million principally due to state funding for the new research building construction project. Unrestricted net position increased $106.0 million, primarily due to an increase in the net increase in operating revenues in excess of operating expenses for the UK HealthCare Hospital System. 2015 Versus 2014. During the year ended June 30, 2015:
Total assets increased by a net $990.5 million primarily due to an increase in cash and cash equivalents of $256.6 million, endowment investments of $16.3 million, other long-term investments of $26.9 million, capital assets, net of $357.2 million and notes, loans and accounts receivable, net of $332.2 million.
Deferred outflows of resources increased $13.8 million due to the unamortized difference between the reacquisition price and the net carrying amount of refunded debt.
Liabilities increased $449.7 million primarily as the result of an increase in unearned revenue of $212.8 million due to the new multimedia rights contract with JMI sports for Athletics, issuance of new debt of $142.7 million offset by principal payments and an increase in accounts payable and accrued liabilities of $83.7 million.
Deferred inflows of resources increased $241.1 million due to the service concession arrangements with EdR, Aramark and Barnes and Noble.
Total net position increased $313.4 million. Net investment in capital assets increased $74.8 million due to excess of additions of capital assets and principal payments of capital debt offset by depreciation expense. Restricted net position increased $35.0 million principally due to gifts for construction projects including the Gatton College of Business and Economics renovation/expansion and Athletics’ new football training facility. Unrestricted net position increased $203.6 million primarily due to an increase in operating revenues of $313.0 million offset by an increase in operating expenses of $167.7 million.
Statement of Revenues, Expenses and Changes in Net Position The Statement of Revenues, Expenses and Changes in Net Position is the University’s income statement. It details how net position has changed during the year ended June 30, 2016, with comparative information for the year ended June 30, 2015. This statement is prepared on the accrual basis of accounting whereby revenues and assets are recognized when the service is provided and expenses and liabilities are recognized when others provide the service, regardless of when cash is exchanged. Items that increase or decrease net position appear on the Statement of Revenues, Expenses and Changes in Net Position as revenues, expenses, gains or losses. Financial activities are reported as either operating or nonoperating. GASB Statement No. 35 requires state appropriations, gifts and investment income to be classified as nonoperating revenues. Accordingly, the University reports a net operating loss prior to the addition of nonoperating revenues. The utilization of long-lived capital assets is reflected in the financial statements as depreciation, which amortizes the cost of an asset over its expected useful life. Tuition revenue is reduced by external scholarships and institutional aid and is reported net of the scholarship allowance.
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A summarized comparison of the University’s revenues, expenses and changes in net position for the years ended June 30, 2016, 2015 and 2014 are as follows:
Condensed Statements of Revenues, Expenses and Changes in Net Position (in thousands)
2016 2015 2014
OPERATING REVENUESStudent tuition and fees, net of scholarship allowances 319,627$ 302,936$ 287,517$ Grants and contracts 295,486 290,199 256,179 Recoveries of facilities and administrative costs 51,088 48,154 47,159 Sales and services 48,823 54,112 54,765 Federal and county appropriations 42,983 39,510 38,259 Professional clinical service fees 229,075 223,291 203,721 Hospital services 1,417,243 1,323,652 1,101,662 Auxiliary enterprises, net of scholarship allowances 191,532 175,232 155,393 Other operating revenues 7,931 5,059 4,516
Total operating revenues 2,603,788 2,462,145 2,149,171
OPERATING EXPENSESEducational and general, excluding depreciation 1,061,924 1,003,856 1,026,280 Clinical operations, excluding depreciation 274,984 243,688 168,934 Hospital and clinics, excluding depreciation 1,246,994 1,080,956 963,272 Auxiliary enterprises, excluding depreciation 155,458 145,739 150,451 Depreciation 148,109 134,374 131,262 Other operating expenses 570 640 1,384
Total operating expenses 2,888,039 2,609,253 2,441,583
NET LOSS FROM OPERATIONS (284,251) (147,108) (292,412)
NONOPERATING REVENUES (EXPENSES)State appropriations 279,611 279,611 283,869 Gifts and non-exchange grants 127,796 105,506 96,771 Investment income (loss) (2,665) 45,188 155,547 Interest on capital asset-related debt (28,444) (27,691) (30,288) Capital grants and gifts 165,896 45,341 54,068 Additions to permanent endowments 13,052 7,758 7,578 Other, net (1,726) 4,801 6,213
Total nonoperating revenues (expenses) 553,520 460,514 573,758
Total increase in net position 269,269 313,406 281,346
Net position, beginning of year 3,457,258 3,143,852 2,862,506
Net position, end of year 3,726,527$ 3,457,258$ 3,143,852$
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$320 $347
$229
$1,417
$192 $99
$303 $338
$223
$1,324
$175 $99
$288 $303
$204
$1,102
$155 $98
$‐
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
$1,100
$1,200
$1,300
$1,400
$1,500
Student tuition andfees, net of
scholarship allowances
Grants, contracts andrecoveries of facilitiesand administrative
costs
Professional clinicalservice fees
Hospital services Auxiliary enterprises,net of scholarship
allowances
All other operatingrevenue
Operating Revenues(in millions)
2016 2015 2014
Total operating revenues were $2.60 billion for the year ended June 30, 2016, an increase of $141.6 million (six percent). The primary components of operating revenues were student tuition and fees of $319.6 million; grants, contracts and recoveries of facilities and administrative costs of $346.6 million; professional clinical service fees of $229.1 million; and hospital services of $1.42 billion. The major increase was in hospital service revenue of $93.6 million attributable to an increase in rates, partially driven by patient acuity, and improved payer mix as a result of the Medicaid expansion program. Other significant increases in operating revenues related to net student tuition and fees of $16.7 million due to tuition and fee rate increases as well as increased enrollment; grants, contracts and recoveries of facilities and administrative costs of $8.2 million due to increases in federal and nongovernmental grants and contracts; professional clinical service fees of $5.8 million; and auxiliary enterprises of $16.3 million.
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$1,062
$275
$1,247
$156 $148
$1,004
$244
$1,081
$146 $134
$1,026
$169
$963
$150 $131
$‐
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
$1,100
$1,200
$1,300
$1,400
Educational and general,excluding depreciation
Clinical operations,excluding depreciation
Hospital and clinics,excluding depreciation
Auxiliary enterprises,excluding depreciation
Depreciation
Operating Expenses(in millions)
2016 2015 2014
Operating expenses totaled $2.89 billion, an increase of $278.8 million (11%). Of this amount, $1.06 billion, excluding depreciation, was expended for educational and general programs, including instruction, research and public service. Clinical operations expenses, excluding depreciation, were $275.0 million; hospital and clinics expenses, excluding depreciation, amounted to $1.25 billion; and auxiliary enterprise expenses, excluding depreciation, were $155.5 million. Depreciation expense for the year amounted to $148.1 million. Education and general programs expenses, excluding depreciation, increased $58.1 million due primarily to increases in instruction of $15.1 million, research of $12.5 million, student services of $5.9 million, operations and maintenance of plant of $12.3 million and student financial aid of $3.9 million. Clinical operations expenses, excluding depreciation, increased $31.3 million primarily due to increased staffing and market adjustments for clinical faculty and staff. Hospital and clinics expenses, excluding depreciation, increased $166.0 million primarily due to additional staffing and supplies required for increased patient volume and market adjustments for clinical staff. Auxiliary enterprise expenses, excluding depreciation, increased $9.7 million primarily in Athletics due to contractual increases in coaches’ salaries and minor renovation and maintenance costs at Commonwealth Stadium. Depreciation expense increased $13.7 million due to new buildings, renovations and equipment depreciation. The net loss from operations for the year was $284.3 million. Nonoperating and other revenues, net of expenses, totaled $553.5 million and included state appropriations of $279.6 million. Capital grants and gifts totaled $165.9 million, an increase of $120.6 million; gifts and non-exchange grants totaled $127.8 million, an increase of $22.3 million; additions to permanent endowments totaled $13.1 million, an increase of $5.3 million and investment loss totaled $2.7 million, a decrease of $47.9 million. 2015 Versus 2014. Total operating revenues were $2.46 billion for the year ended June 30, 2015, including: student tuition and fees of $302.9 million (12%); grants, contracts, and recoveries of facilities and administrative costs of $338.4 million (14%); professional clinical service fees of $223.3 million (nine percent); and hospital services of $1.32 billion (54%). Operating revenues for fiscal year 2015 increased $313.0 million (15%) over fiscal year 2014, primarily due to increases in hospital services revenue of $222.0 million resulting from an increase in rates and overall case mix as well as an increase in retail and contract pharmacy sales; student tuition and fees of $15.4 million due to tuition and fees rate increases as well as increased enrollment; grants and contracts of $34.0 million due to increases in professional supplemental payments from state and federal grants and contracts; professional clinical service fees of $19.6 million due to increased patient activity and improved reimbursements
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associated with the decline in the uninsured self-pay population due to Medicaid expansion; and auxiliary enterprises net of scholarship allowances of $19.8 million. Operating expenses totaled $2.61 billion in fiscal year 2015. Of this amount, $1.00 billion (38%), excluding depreciation, was expended for educational and general programs, including instruction, research and public service. Hospital and clinics expenses, excluding depreciation, totaled $1.08 billion (41%) of the total expenses, and clinical operations expenses, excluding depreciation, were $243.7 million (nine percent). Depreciation amounted to $134.4 million (five percent). Operating expenses for fiscal year 2015 increased $167.7 million (seven percent) compared to fiscal year 2014 primarily due to an increase in hospital and clinics expenses, excluding depreciation, of $117.7 million (12%); clinical operations expenses, excluding depreciation, of $74.8 million (44%) and depreciation expense of $3.1 million (two percent). Offsetting decreases were in education and general programs expenses, excluding depreciation, of $22.4 million (two percent) and auxiliary enterprises expenses, excluding depreciation, of $4.7 million (three percent). The net loss from operations for the 2015 fiscal year totaled $147.1 million. Nonoperating and other revenues, net of expenses, totaled $460.5 million, resulting in an increase in net position of $313.4 million for the year. Nonoperating revenue included state appropriations of $279.6 million and $283.9 million for June 30, 2015 and June 30, 2014, respectively. Statement of Cash Flows The Statement of Cash Flows details how cash has increased or decreased during the fiscal year ended June 30, 2016, with comparative financial information for the fiscal year ended June 30, 2015. The sources and uses of cash are arranged in the following categories:
Operating activities Noncapital financing activities Capital and related financing activities Investing activities
Cash flows associated with the University’s expendable net position appear in the operating and noncapital financing categories. Capital financing activities include payments for capital assets, proceeds from long-term debt, and debt repayments. Purchases and sales of investments are reflected in investing activities. The primary purpose of the Statement of Cash Flows is to provide information about the cash receipts and cash payments made by the University during the year that will allow financial statement readers to assess the University’s ability to generate future net cash flows and to meet obligations as they become due, and to assess the possible need for external financing.
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A comparative summary of the University’s statement of cash flows for the years ended June 30, 2016, 2015 and 2014 are as follows:
Condensed Statements of Cash Flows (in thousands)
2016 2015 2014 CASH PROVIDED (USED) BY:
Operating activities (90,450)$ 11,738$ (150,202)$ Noncapital financing activities 434,004 416,732 409,650 Capital and related financing activities (176,131) (178,778) 81,163 Investing activities (12,594) 6,900 (111,587)
Net increase (decrease) in cash and cash equivalents 154,829 256,592 229,024
Cash and cash equivalents, beginning of year 937,483 680,891 451,867
Cash and cash equivalents, end of year 1,092,312$ 937,483$ 680,891$
The University’s cash and cash equivalents increased $154.8 million in fiscal year 2016. Total cash provided by noncapital financing activities was $434.0 million, an increase of $17.3 million compared to fiscal year 2015. Total cash used by operating activities was $90.5 million, an increase of $102.2 million; cash used by capital and related financing activities was $176.1 million, reflecting both capital funding sources (debt proceeds) and uses (purchases of capital assets and debt service). Total cash used by investing activities was $12.6 million, an increase of $19.5 million. Major sources of cash received from operating activities were hospital services of $1.42 billion; student tuition and fees of $320.1 million; grants, contracts, and recoveries of facilities and administrative costs of $351.5 million; and professional clinical service fees of $223.7 million. Major uses of cash for operating activities were payments to employees for salaries and benefits of $1.76 billion and to vendors and contractors of $924.0 million. Noncapital financing activities include state appropriations from the Commonwealth of $274.0 million, gifts of $127.0 million and other noncapital financing receipts of $33.0 million. Capital and related financing activities include proceeds of capital debt of $159.5 million and capital grants and gifts of $164.2 million. Cash of $416.8 million was expended for construction and acquisition of capital assets and $88.5 million was expended for principal and interest payments on debt. Investing activities include proceeds from sales and maturities of investments of $649.7 million and interest and dividends on investments of $26.0 million. Cash of $688.3 million was used to purchase investments. 2015 Versus 2014. Cash balances were higher when comparing fiscal year 2015 to fiscal year 2014. The $256.6 million net increase in cash was created from more cash provided by operating activities, noncapital financing activities and investing activities offset by more cash used for capital and related financing activities.
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Capital Asset and Debt Administration
Capital Assets Capital assets, net of accumulated depreciation, totaled $2.71 billion at June 30, 2016, an increase of $373.0 million. Capital assets as of June 30, 2016, 2015 and 2014, and significant changes in capital assets during the years ended June 30, 2015 and 2016 are as follows (in millions):
Net NetAdditions Additions
Balance (Deletions) Balance (Deletions) BalanceJune 30, 2014 FY 14-15 June 30, 2015 FY 15-16 June 30, 2016
Land and land improvements 185$ 9$ 194$ 27$ 221$ Buildings, fixed equipment
and infrastructure 2,401 231 2,632 436 3,068 Equipment, vehicles and
capitalized software 735 22 757 (40) 717 Library materials and art 162 2 164 3 167 Certificate of need license 12 - 12 - 12 Construction in progress 92 175 267 (8) 259 Accumulated depreciation (1,608) (81) (1,689) (45) (1,734)
Total 1,979$ 358$ 2,337$ 373$ 2,710$
At June 30, 2016, the University had capital construction projects in progress totaling approximately $957.9 million in scope. Major projects include the construction of the new research building, student center and academic science building. The estimated cost to complete the projects in progress was approximately $699.5 million. Net additions also include EdR Phase II construction totaling $97.0 million and Aramark capital construction and renovation projects of $44.7 million. Debt At June 30, 2016, capital debt amounted to $1.04 billion, summarized by trust indenture and type, is as follows (in millions):
2016 2015 2014
General Receipts bonds and notes 946$ 821$ 698$ Consolidated Educational Buildings Revenue Bonds - - 33 Capital lease obligations 79 90 86 Notes payable 19 19 21
Total 1,044$ 930$ 838$
Debt increased $113.2 million during the year primarily due to the issuance of General Receipts Bonds 2016 Series A and B for $155.8 million and additional capital leases of $7.2 million, offset by a net decrease from principal payments of the University’s debt obligations of $49.8 million.
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Economic and Other Factors That Will Affect the Future Senior leadership continues to believe that the University is well-positioned to maintain its strong financial condition and to continue providing excellent service to students, patients, the community, and the citizens of the Commonwealth. This position, along with ongoing efforts toward revenue diversification and cost containment, will enable the University to obtain the necessary resources to sustain improving excellence. The following are known facts and circumstances that will affect future financial results:
The national and state economies are finally recovering from the most devastating recession of the post-war era. After depositing $26.4 million of the Commonwealth’s General Fund surplus for fiscal year 2015-16, the Commonwealth’s Budget Reserve Trust Fund is estimated to total $235.8 million, the largest balance since the fiscal year ended June 30, 2001. State economists predict Kentucky will experience modest growth in tax collections in 2016-18.
Matt Bevin was elected Governor in November 2015 and has frequently expressed his commitment to addressing the state’s pension programs, which in 2015 ranked second highest in the nation, on an adjusted net pension liability basis, with the Commonwealth’s two largest plans funded just 55% (KTRS) and 19% (KERS non-hazardous). While the University does not participate in the state’s pension programs, the amount of available state funds for public postsecondary education is expected to be negatively impacted by the programs’ financial condition.
The enacted 2016-18 state budget includes a 4.5% reduction in state appropriations for fiscal year 2016-17 and reallocates five percent of the remaining state funds for a performance funding model for fiscal year 2017-18. The funds will be distributed to the institutions based on achievement of performance goals and metrics enacted by the General Assembly as recommended by the Postsecondary Education Working Group.
Student demand is expected to remain high in the coming years. Applications for the Fall 2016 incoming class have exceeded 24,300 for the first time in the University’s history. Preliminary numbers indicate that the Fall 2016 entering freshmen class will reach over 5,150 students, meeting the University’s strategic enrollment budget.
The number of patients served by UK HealthCare has grown more than 95% since fiscal year 2003 with 37,333 patients in our hospitals and 1.4 million visits to our clinics last year alone. Part of this growth is related to the Affordable Care Act (ACA) which initiated significant changes to the United States healthcare system including material changes to the delivery of healthcare services and the reimbursement paid for such services by governments or other third-party payers. As a result of the ACA, Kentucky has experienced one of the largest increases in Medicaid enrollment in the country. The average increase in enrollment for the United States is 23% compared to Kentucky’s 90%. (Source: Kaiser Family Foundation, UK CEBR Annual Report). While the long-term impact of the ACA and its status in Kentucky is unknown, UK HealthCare will develop and execute strategies in an effort to mitigate negative impacts and leverage opportunities.
As of June 30, 2016, grants and contracts of approximately $201.4 million, an increase of approximately $12.2 million from the previous year, have been awarded to the University but not expended. The growth in available governmental awards will result in increased grant revenue in future periods.
The University is undergoing a momentous physical transformation including the following academic, research, healthcare and athletic projects:
o A $65.0 million renovation and expansion of the Gatton College of Business and Economics, financed by the University which opened in August 2016.
o A new $112.0 million academic science building financed by the University with Athletics funding $65.0 million of the project cost. The building opened in August 2016.
o A $45.0 million football training facility and practice field construction project, financed completely by Athletics which opened in August 2016.
o A $201.3 million renovation and expansion of the student center financed by the University that is expected to open in January 2018.
o A new $265.0 million research building financed by the University and state bonds ($132.5 million each). The new facility is expected to open in June 2018.
o A $65.0 million renovation and expansion of the College of Law building financed by $35.0 million of state bonds and up to $30.0 million by the University. The renovated and expanded facility is expected to be completed in April 2019.
o A $412.6 million multiphase renovation and upgrade of UK HealthCare facilities, including the Kentucky’s Children Hospital, will increase the licensed bed capacity to 945 beds. The
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renovation and upgrade will be financed by UK HealthCare and is expected to be fully completed by November 2019.
A major component of the University’s physical transformation involves revitalization of on-campus housing and dining using comprehensive public/private partnerships (P3) with EdR and Aramark. The multiphase housing P3 with EdR is the first of its kind in the nation, entailing a substantial increase in the quantity and quality of student housing while allowing the University to reserve its debt capacity for other capital needs. From August 2013 to August 2016, 12 new residence halls have opened with 5,733 total beds. Construction is underway for two more halls with 1,117 beds that are slated to open in August 2017 bringing the total new beds to 6,850. Discussions are ongoing regarding future projects. In July 2014, the University entered into a P3 with Aramark for transformation of dining services for students, faculty, staff, and the community. The 15 year partnership provides for $70.0 million in facilities investments by Aramark. Through June 30, 2016, over $60.0 million has been used to build a new 1,000 seat residential dining facility and to develop dining spaces in our new residence halls, academic buildings, and to renovate existing dining venues. A 750 seat residential dining unit is slated to open in the new student center in January 2018.
Economic challenges will continue to have an impact on the future. However, senior leadership believes the University will be able to sustain its sound financial position and continue its progress toward enhancing student success and becoming a nationally recognized public research institution.
UNIVERSITY OF KENTUCKY A COMPONENT UNIT OF THE COMMONWEALTH OF KENTUCKYSTATEMENTS OF NET POSITION (in thousands)JUNE 30, 2016 AND 2015
2016 2015ASSETS AND DEFERRED OUTFLOWS OF RESOURCESCurrent Assets Cash and cash equivalents 693,743$ 621,961$ Notes, loans and accounts receivable, net 297,620 292,776 Investments 16,977 21,702 Inventories and other assets 50,460 46,814 Total current assets 1,058,800 983,253 Noncurrent Assets Restricted cash and cash equivalents 398,569 315,522 Endowment investments 1,221,579 1,231,557 Other long-term investments 299,417 275,001 Notes, loans and accounts receivable, net 327,366 338,953 Other noncurrent assets 441 283 Capital assets, net 2,709,638 2,336,640 Total noncurrent assets 4,957,010 4,497,956 Total assets 6,015,810 5,481,209 Deferred Outflows of Resources 12,164 13,755 Total assets and deferred outflows of resources 6,027,974 5,494,964
LIABILITIES AND DEFERRED INFLOWS OF RESOURCESCurrent Liabilities Accounts payable and accrued liabilities 326,817 311,308 Unearned revenue 79,648 79,776 Long-term liabilities - current portion 102,069 81,403 Total current liabilities 508,534 472,487 Noncurrent Liabilities Unearned revenue 179,853 193,094 Long-term liabilities 1,246,314 1,131,001 Total noncurrent liabilities 1,426,167 1,324,095 Total liabilities 1,934,701 1,796,582 Deferred Inflows of Resources 366,746 241,124 Total liabilities and deferred inflows of resources 2,301,447 2,037,706
NET POSITIONNet investment in capital assets 1,527,034 1,422,560 Restricted Nonexpendable Scholarships and fellowships 150,458 140,739 Research 273,161 271,579 Instruction 82,455 80,062 Academic support 85,183 84,083 Other 10,446 8,611 Total restricted nonexpendable 601,703 585,074 Expendable Scholarships and fellowships 65,097 75,608 Research 77,082 92,833 Instruction 49,620 54,951 Academic support 59,790 59,860 Loans 11,455 10,908 Capital projects 186,168 128,734 Debt service 17 724 Auxiliary 14,631 15,523 Other 30,294 12,849 Total restricted expendable 494,154 451,990 Total restricted 1,095,857 1,037,064 Unrestricted 1,103,636 997,634
Total net position 3,726,527$ 3,457,258$
See notes to financial statements. 18
UNIVERSITY OF KENTUCKY A COMPONENT UNIT OF THE COMMONWEALTH OF KENTUCKYSTATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION (in thousands)FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
2016 2015OPERATING REVENUESStudent tuition and fees 457,893$ 425,805$ Less: Scholarship allowances (138,266) (122,869) Net tuition and fees 319,627 302,936 Federal grants and contracts 169,291 168,125 State and local grants and contracts 91,216 92,269 Nongovernmental grants and contracts 34,979 29,805 Recoveries of facilities and administrative costs 51,088 48,154 Sales and services 48,823 54,112 Federal appropriations 19,266 17,535 County appropriations 23,717 21,975 Professional clinical service fees 229,075 223,291 Hospital services 1,417,243 1,323,652 Auxiliary enterprises: Housing and dining 41,041 41,960 Less: Scholarship allowances (1,938) (2,695) Net housing and dining 39,103 39,265 Athletics 102,995 88,928 Other auxiliaries 49,434 47,039 Other operating revenues 7,931 5,059 Total operating revenues 2,603,788 2,462,145 OPERATING EXPENSESEducational and general: Instruction 301,463 286,377 Research 256,021 243,511 Public service 184,214 181,537 Libraries 22,198 21,084 Academic support 74,600 73,078 Student services 44,570 38,648 Institutional support 58,643 55,623 Operations and maintenance of plant 83,420 71,104 Student financial aid 36,795 32,894 Depreciation 65,188 65,548 Total educational and general 1,127,112 1,069,404 Clinical operations (including depreciation of $8,390 in 2016 and $2,743 in 2015) 283,374 246,431 Hospital and clinics (including depreciation of $53,603 in 2016 and $53,167 in 2015) 1,300,597 1,134,123 Auxiliary enterprises: Housing and dining (including depreciation of $6,259 in 2016 and $5,279 in 2015) 27,227 30,961 Athletics (including depreciation of $13,071 in 2016 and $6,031 in 2015) 121,859 101,696 Other auxiliaries (including depreciation of $1,598 in 2016 and $1,606 in 2015) 27,300 25,998 Other operating expenses 570 640 Total operating expenses 2,888,039 2,609,253 Net loss from operations (284,251) (147,108) NONOPERATING REVENUES (EXPENSES) State appropriations 279,611 279,611 Gifts and non-exchange grants 127,796 105,506 Investment income (loss) (2,665) 45,188 Interest on capital asset-related debt (28,444) (27,691) Other nonoperating revenues and expenses, net 16,653 8,988 Net nonoperating revenues (expenses) 392,951 411,602 Net income (loss) before other revenues, expenses, gains or losses 108,700 264,494 Capital grants and gifts 165,896 45,341 Additions to permanent endowments 13,052 7,758 Other, net (18,379) (4,187) Total other revenues (expenses) 160,569 48,912 INCREASE IN NET POSITION 269,269 313,406
NET POSITION, beginning of year 3,457,258 3,143,852
NET POSITION, end of year 3,726,527$ 3,457,258$
See notes to financial statements.19
UNIVERSITY OF KENTUCKY A COMPONENT UNIT OF THE COMMONWEALTH OF KENTUCKYSTATEMENTS OF CASH FLOWS (in thousands)FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
2016 2015CASH FLOWS FROM OPERATING ACTIVITIESStudent tuition and fees 320,092$ 301,454$ Grants and contracts 299,217 284,664 Recoveries of facilities and administrative costs 52,313 48,457 Sales and services 51,168 53,465 Federal appropriations 18,630 18,749 County appropriations 22,869 22,640 Payments to vendors and contractors (923,966) (827,529) Student financial aid (36,794) (32,896) Salaries, wages and benefits (1,755,876) (1,598,279) Professional clinic service fees 223,744 221,728 Hospital services 1,417,430 1,338,659 Auxiliary enterprise receipts 208,425 171,385 Loans issued to students (5,915) (18,231) Collection of loans to students 7,529 18,425 Self insurance receipts 67,275 61,352 Self insurance payments (64,860) (56,750) Other operating receipts (payments), net 8,269 4,445 Net cash provided (used) by operating activities (90,450) 11,738 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIESState appropriations 274,019 279,611 Gifts and grants received for other than capital purposes: Gifts received for endowment purposes 13,052 7,782 Gifts received for other purposes 113,956 113,225 Agency and loan program receipts 232,673 227,347 Agency and loan program payments (229,244) (229,398) Other noncapital financing receipts (payments), net 29,548 18,165 Net cash provided (used) by noncapital financing activities 434,004 416,732 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIESCapital grants and gifts 164,154 30,974 Purchases of capital assets (416,832) (284,031) Proceeds from capital debt 159,541 392,077 Payments to refunding bond agents - (248,642) Proceeds from sales of capital assets - 10,180 Principal paid on capital debt and leases (49,753) (49,872) Interest paid on capital debt and leases (38,782) (34,849) Other capital and related financing receipts (payments), net 5,541 5,385 Net cash provided (used) by capital and related financing activities (176,131) (178,778) CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sales and maturities of investments 649,728 312,958 Interest and dividends on investments 26,017 19,850 Purchase of investments (688,339) (342,511) Net proceeds from sale of CLI stock, net of cash acquired - 19,877 Repayment of debt and other related to sale of CLI stock - (3,274) Net cash provided (used) by investing activities (12,594) 6,900 NET INCREASE IN CASH AND CASH EQUIVALENTS 154,829 256,592
CASH AND CASH EQUIVALENTS, beginning of year 937,483 680,891
CASH AND CASH EQUIVALENTS, end of year 1,092,312$ 937,483$
Reconciliation of net loss from operations to net cash provided (used) by operating activities: Net loss from operations (284,251)$ (147,108)$ Adjustments to reconcile net loss from operations to net cash provided (used) by operating activities: Depreciation expense 148,109 134,374 Change in assets and liabilities: Notes, loans and accounts receivable, net 16,775 (327,943) Inventories and other assets (3,229) (5,800) Accounts payable and accrued liabilities 36,070 22,358 Unearned revenue (13,337) 230,882 Long-term liabilities 8,018 13,959 Deferred inflows of resources 1,395 91,016
Net cash provided (used) by operating activities (90,450)$ 11,738$
See notes to financial statements.20
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UNIVERSITY OF KENTUCKY A COMPONENT UNIT OF THE COMMONWEALTH OF KENTUCKY
NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity The University of Kentucky (the University) is a component unit of the Commonwealth of Kentucky (the Commonwealth) and is included in the basic financial statements of the Commonwealth. The financial statements of the University include the operations of the University and its affiliated non-profit corporations (entities for which the University is financially accountable as defined by Statement No. 14 and amended by Statements No. 39 and No. 61 of the Governmental Accounting Standards Board (GASB), and which meet the definition of an affiliated corporation under Kentucky Revised Statutes (KRS) section 164A.550) as follows: the University of Kentucky Research Foundation and its for-profit subsidiary, Kentucky Technology, Inc. (KTI); The Fund for Advancement of Education and Research in the University of Kentucky Medical Center (The Fund); University of Kentucky Gluck Equine Research Foundation, Inc.; University of Kentucky Humanities Foundation, Inc.; University of Kentucky Mining Engineering Foundation, Inc.; University of Kentucky Center on Aging Foundation, Inc.; and Central Kentucky Management Services, Inc. The affiliates are presented as blended component units since University management has operational responsibility for each affiliated corporation. The financial statements also include the operations of Kentucky Medical Services Foundation, Inc. (KMSF) a non-profit entity for which the University is financially accountable as defined by GASB, but which is not an affiliated corporation under KRS. KMSF is included within the University reporting entity as a blended component unit as KMSF provides its services entirely to the University. The financial statements also include the operations of organizational units of the University: the UK HealthCare Hospital System (the System), the Department of Intercollegiate Athletics (Athletics), the Kentucky Tobacco Research and Development Center (KTRDC), and WUKY Radio. The separate financial statements for the above entities can be found at: www.uky.edu/evpfa/controller/finst. Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America as prescribed by the GASB. GASB establishes standards for external financial reporting for public colleges and universities and requires that resources be classified for accounting and financial reporting purposes into the following net position categories:
Net investment in capital assets: Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets.
Restricted: Nonexpendable – Net position subject to externally imposed stipulations that they be maintained permanently by the University. Such assets include the principal of the University’s permanent endowment funds. Expendable – Net position whose use by the University is subject to externally imposed stipulations that can be fulfilled by actions of the University pursuant to those stipulations or that expire by the passage of time.
Unrestricted: Net position whose use by the University is not subject to externally imposed stipulations.
Unrestricted net position may be designated for specific purposes by action of management or the Board of Trustees (the Board) or may otherwise be limited by contractual agreements with outside parties.
The financial statement presentation is intended to provide a comprehensive, entity-wide perspective of the University’s assets, deferred outflows of resources, liabilities, deferred inflows of resources, net position, revenues, expenses, changes in net position and cash flows.
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Summary of Significant Accounting Policies Accrual Basis. The financial statements have been prepared on the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when an obligation has been incurred. The University reports as a Business Type Activity (BTA) as defined by GASB Statement No. 35. BTAs are those activities that are financed in whole or part by fees charged to external parties for goods and services. Cash and Investments. The University considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Noncurrent cash and cash equivalents include plant funds allocated for capital projects, debt service reserves and endowment fund cash pending transfer to the custodian for investment. Cash and cash equivalents held by bond trustees and the University’s endowment fund managers are included in investments. Investments in marketable debt and equity securities are carried at fair value, as determined by the major securities markets. See footnote 2 for more information on the fair value determination. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the Statement of Revenues, Expenses and Changes in Net Position. Notes, Loans and Accounts Receivable. This classification consists of tuition and fee charges to students; charges for auxiliary enterprise services provided to students, faculty and staff; and loans to students. Also included are patient accounts receivable, amounts due from sponsors for reimbursement of expenses made pursuant to contracts and grants, amounts due under multimedia rights contract and service concession arrangements, and pledges that are verifiable, measurable and expected to be collected. Accounts receivable are recorded net of estimated uncollectible amounts based upon a review of outstanding receivables, historical collection information, and existing economic conditions. Inventories. Inventories are stated principally at the lower of average cost or market value. Pooled Endowment Funds. All endowments are managed in a consolidated investment pool, which consists of more than 2,100 named funds. All contributing endowments participate in the income and appreciation of the pool on a per unit basis commensurate with their contribution to the pool. New endowments purchase units in the pool at the current unit value, which is calculated each month based on the fair value of the pool investments divided by the number of pool units outstanding. The market value method of accounting for pooled endowment funds is employed to ensure proper distribution of market price changes, realized gains (losses) on sales, accrued income earned, and distribution of investment earnings for expenditure by participating funds. In accordance with the Kentucky Uniform Prudent Management of Institutional Funds Act (UPMIFA), as adopted by the Commonwealth in July 2010, the University employs a total return method for establishing investment objectives and spending policies designed to achieve financial equilibrium for endowment funds over the long-term. The University makes expenditure decisions in accordance with UPMIFA and donor gift agreements. UPMIFA prescribes guidelines for expenditure of a donor-restricted endowment fund (in the absence of overriding, explicit donor stipulations) and focuses on the entirety of a donor-restricted endowment fund, that is, both the original gift amount(s) and net appreciation. In accordance with the standard of prudence prescribed by UPMIFA and consistent with industry standards, the University has adopted a spending policy with the long-term objective to maintain the purchasing power of each endowment and provide a predictable and sustainable level of income to support current operations. The adopted spending policy is a “hybrid” policy, which includes both the market value of the endowment and the current level of inflation in determining spending each year. Annual spending is calculated by taking a weighted average comprising 60% of the prior year’s spending, adjusted for inflation, and 40% of the amount that results when the target annual spending rate of four percent is applied to the average market value of the endowment over the preceding 36 months. The spending amount determined by the formula is constrained so that the calculated rate is at least three percent, and not more than six percent, of the current endowment market value.
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The University also utilizes an endowment management fee to support internal management and fundraising costs related to the endowment. For the years ended June 30, 2016 and 2015, the University’s annual endowment management fee was 0.50% and 0.25%, respectively. To protect endowment funds from permanent impairment of value, spending and management fee withdrawals are suspended on endowments with a market value less than the contributed value by more than 20%. Additionally, endowments with a market value less than the contributed value by more than 10% undergo a formal review to determine the appropriate level of spending in accordance with various factors set forth in UPMIFA. All donor restrictions and stipulations prevail in decisions regarding preservation and spending of endowment funds. The components of the University’s spending policy distribution and management fee for the years ended June 30, 2016 and 2015 are as follows (in thousands):
2016 2015
Gross spending policy distribution 40,791$ 38,340$ Reinvested spending policy distribution (18,661) (17,903)
Net spending policy distribution 22,130$ 20,437$
Management fee 5,375$ 2,718$
Capital Assets. Capital assets are stated at cost at date of acquisition or, in the case of gifts, at fair market value at date of gift. The University capitalizes interest costs as a component of construction in progress based on the interest cost of borrowing specifically for a currently active project, net of interest earned on investments acquired with the proceeds of the borrowing. The University also capitalizes interest costs as a component of construction in progress on projects funded by unrestricted funds based on the interest costs of borrowings no longer associated with a specific project. The calculation is based on a project’s average expenditures times the weighted average interest rate on borrowings. Effective July 1, 2015, equipment with a unit cost of $5,000 or more ($2,000 or more for KMSF, $2,500 or more for KTI) and having an estimated useful life of greater than one year is capitalized. Institutional software costing more than $400,000 is capitalized. Renovations to buildings, infrastructure and land improvements that significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense is incurred. Depreciation of capital assets is computed on a straight-line basis over the estimated useful lives of the respective assets, generally 75 years for new student housing buildings, 40 years for other buildings, 10 – 25 years for land improvements, building improvements and infrastructure, 10 years for library books and capitalized software (capitalized software is depreciated over 3 years by KMSF), and 5 – 20 years for equipment and vehicles. The University capitalizes, but does not depreciate, works of art, historical treasures and certain library materials that are held for exhibition, education, research and public service. Deferred Outflows of Resources. A deferred outflow of resources is a loss in net position by the University that is applicable to a future reporting period. Deferred outflows of resources are reported in the Statement of Net Position, but are not recognized in the financial statements as expense until in the related period. Deferred outflows of resources of $12.2 million and $13.8 million as of June 30, 2016 and 2015, respectively, consisted of the unamortized difference between the reacquisition price and net carrying amount of refunded debt. Unearned Revenue. Unearned revenue consists primarily of amounts received from grant and contract sponsors that have not yet been earned under the terms of the agreement. Unearned revenue also includes amounts received from multimedia rights pursuant to contract agreement and amounts received in advance of an event, such as athletic ticket sales relating to future fiscal years and unearned summer school revenue. Unearned revenue is recognized in the period to which the grant, event or semester relates.
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Compensated Absences. The amount of vacation leave earned but not taken by employees at June 30, 2016 is recorded as a liability by the University. Temporary disability leave payable upon termination under the University’s payout policy is also recorded as a liability. Compensated absence liabilities are computed using the pay rates in effect at the Statement of Net Position date plus an additional amount for compensation-related payments such as Social Security and Medicare taxes computed using rates in effect at that date. Deferred Inflows of Resources. A deferred inflow of resources is a gain in net position by the University that is applicable to a future reporting period. Deferred inflows of resources are reported in the Statement of Net Position but are not recognized in the financial statements as revenue until in the related period. Scholarship Allowances. Student tuition and fees are presented net of scholarship allowances applied to student accounts. Stipends and other payments made directly to students are presented as student financial aid expenses. Scholarship allowances are the difference between the stated charge for goods and services provided by the University and the amount that is paid by students and/or third parties making payments on the students’ behalves. Certain governmental grants, such as Pell grants and other federal and state programs similar to Pell, are recorded as nonoperating revenues; other governmental and nongovernmental grants are recorded as 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 allowance. Hospital and Clinical Services Revenues. Hospital and clinical services revenues are reported at the estimated net realizable amounts from patients, third-party payers and others for services rendered, including contractual allowances and estimated retroactive adjustments under reimbursement programs with third-party payers, less a provision for doubtful accounts. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined. Inpatient acute care services and substantially all outpatient services rendered to Medicare program beneficiaries are paid at prospectively determined rates per discharge. These rates vary according to a patient classification system that is based on clinical, diagnostic and other factors. Inpatient skilled nursing services are paid at prospectively determined per diem rates that are based on the patients’ acuity. Certain inpatient nonacute services and defined medical education costs are paid based on a cost reimbursement methodology. The System is reimbursed for certain services at tentative rates with final settlement determined after submission of annual cost reports by the System and audits thereof by the Medicare fiscal intermediary. Inpatient and outpatient services rendered to Medicaid program beneficiaries are reimbursed under a cost reimbursement methodology for certain services and at prospectively determined rates for all other services. The System is reimbursed for cost reimbursable services at tentative rates with final settlement determined after submission of annual cost reports by the System and audits thereof by the Medicaid fiscal intermediary. Revenue from the Medicare and Medicaid programs accounted for approximately 24% and 31%, respectively, of the System’s net patient services revenues before the provision for doubtful accounts for the year ended June 30, 2016 and approximately 28% and 27%, respectively for the year ended June 30, 2015. Laws and regulations governing the Medicare and Medicaid programs are extremely 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 System also entered into payment agreements with certain commercial insurance carriers, health maintenance organizations and preferred provider organizations. The basis for payment to the System under these agreements includes prospectively determined rates per discharge, discounts from established charges and prospectively determined daily rates. The System provides care to patients who meet certain criteria under its charity care policy without charge or at amounts less than its established rates. Since the System does not pursue collection of amounts determined to qualify as charity care, they are not reported as revenue.
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Electronic Health Records Incentive Program. The Electronic Health Records Incentive Program, enacted as part of the American Recovery and Reinvestment Act of 2009, provides for incentive payments under both the Medicare and Medicaid programs to eligible physicians, dentists and hospitals that demonstrate meaningful use of certified electronic health records technology. Payments under the Medicare program are generally made for up to four years based on a statutory formula. Payments under the Medicaid program are generally made for up to four years based upon a statutory formula, as determined by the state, which is approved by the Centers for Medicare and Medicaid Services. Payment under both programs is contingent on the System, The Fund and KMSF continuing to meet escalating meaningful use criteria and any other specific requirements that are applicable for the reporting period. The final amount for any payment year is determined based upon an audit by the fiscal intermediary. Events could occur that would cause the final amounts to differ materially from the initial payments under the program. The System recognizes revenue when management is reasonably assured it will meet all of the meaningful use objectives and any other specific grant requirements applicable for the reporting period. In fiscal year 2016, the System was in the fifth year under the Medicare programs and recorded $550,000, which is included in hospital services revenue within operating revenues in the Statement of Revenues, Expenses, and Changes in Net Position. In fiscal year 2015, the System was in the fourth year of the programs and recorded $1.1 million.
In addition, during the years ended June 30, 2016 and 2015, KMSF applied for and received $587,000 and $366,000, respectively, in Medicaid Health Information Technology (HIT) funds and $923,000 and $1.3 million, respectively, in Medicare HIT funds, which is included in professional clinical service fees in the Statement of Revenues, Expenses and Changes in Net Position. The Fund completed the second-year requirements under the Medicaid program and recorded $128,000 and $298,000 for the years ended June 30, 2016 and 2015, respectively, in state and local grants and contracts within operating revenues in the Statement of Revenues, Expenses and Changes in Net Position. Income Taxes. The University is an agency and instrumentality of the Commonwealth, pursuant to Kentucky Revised Statutes sections 164.100 through 164.280. Accordingly, the University is excluded from federal income taxes as an organization described in section 115 of the Internal Revenue Code of 1986, as amended. Each of the University’s affiliated non-profit organizations has received a determination from the Internal Revenue Service granting exemption from federal income taxation pursuant to the provisions of Internal Revenue Code section 501(c)(3). KMSF is a not-for-profit corporation as described in section 501(c)(3) of the Internal Revenue Code. Restricted Asset Spending Policy. The University’s policy is that restrictions on assets cannot be fulfilled by the expenditure of unrestricted funds for similar purposes. The determination on whether restricted or unrestricted funds are expended for a particular purpose is made on a case-by-case basis. Restricted funds remain restricted until spent for the intended purpose.
Operating Activities. The University defines operating activities, as reported on the Statement of Revenues, Expenses and Changes in Net Position, as those that generally result from exchange transactions, such as payments received for providing goods and services and payments made for goods and services received. Nearly all of the University’s expenses are from exchange transactions. Certain significant revenues relied upon for operations, such as state appropriations, gifts and investment income, are recorded as nonoperating revenues in accordance with GASB Statement No. 35. The University has classified operating expenses based upon their functional classifications. Operating expenses by natural classification are presented in Note 23. During fiscal years 2016 and 2015, departmental research in nonsponsored accounts of approximately $67.9 million and $61.6 million, respectively, was recorded as research expense in the Statements of Revenues, Expenses and Changes in Net Position. Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to use estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The accompanying financial statements include estimates for items such as bad debt and
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contractual allowances, estimated third-party payer settlements, self-insurance reserves, accrued expenses and other liability accounts. Recent Accounting Pronouncements. As of June 30, 2016, the GASB has issued the following applicable statements to the University but are not yet implemented.
GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement No. 68, and Amendments to Certain Provisions of GASB Statements No. 67 and 68, issued June 2015. The provisions of this Statement are effective for fiscal years beginning after June 15, 2016 (fiscal year 2017). This statement establishes requirements for defined contribution pension plans not administered through trusts that meet certain criteria. The University has certain employees who were age 40 or older prior to the establishment of each group retirement plan that qualify for minimum annual retirement benefits (see Note 16). The University is currently evaluating the effect statement No. 73 will have on its financial statements.
GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, issued June 2015. The provisions of this Statement are effective for fiscal years beginning after June 15, 2017 (fiscal year 2018). This statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expenses. This statement addresses employers whose employees are provided defined contribution other post-employment benefits. The University is working with an actuary to determine the impact of the pronouncement. Although specific amounts are not yet known, this is expected to result in a significant liability for the unfunded portion being recorded on the University’s financial statements.
GASB Statement No. 81, Irrevocable Split-Interest Agreements, issued March 2016. The provisions of this Statement are effective for fiscal years beginning after December 15, 2016 (fiscal year 2018). This statement requires that a government that receives resources pursuant to an irrevocable split-interest agreement recognizes assets, liabilities, and deferred inflows of resources at the inception of the agreement. Furthermore, this Statement requires that a government recognize assets representing its beneficial interests in irrevocable split-interest agreements that are administered by a third party, if the government controls the present service capacity of the beneficial interests. This Statement requires that a government recognize revenue when the resources become applicable to the reporting period. The University is currently assessing the impact statement No. 81 will have on its financial statements.
Reclassifications. Certain reclassifications have been made to the fiscal year 2015 financial statements to conform to the fiscal year 2016 financial statement presentation. These reclassifications had no effect on change in net position.
2. DEPOSITS AND INVESTMENTS
The University’s deposits and investments can be grouped into five significant categories, as follows:
Overnight investments include deposits, money market funds and repurchase agreements with local banks, the Commonwealth and other financial institutions.
Bond revenue fund investments held by the Treasurer of the Commonwealth as required by the University’s bond trust indentures and invested in pooled fixed income funds managed by the Commonwealth.
Short-term and intermediate-term investments: o managed by the University, including individual securities purchased and held by the
University, o managed by the Commonwealth in pooled fixed income funds, and o managed by an external manager in a low duration strategy.
Debt service sinking fund investments required by the University’s bond trust indentures and held by the bond trustees.
Endowment investments administered by the University and managed using external investment managers.
Deposit and Investment Policies. The Board is responsible for establishing deposit and investment policies. Once established, the Board has delegated day-to-day management to the Treasurer of the University. Deposit and investment policies are developed to ensure compliance with state laws and regulations as well as to establish and maintain sound financial management practices.
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The University follows KRS 42.500 for the investment of public funds, which lists allowable investment instruments including: obligations backed by the United States or a United States government agency; obligations of any corporation of the United States government or government-sponsored enterprise; various highly rated fixed income securities including collateralized and uncollateralized certificates of deposit, bankers acceptances, commercial paper, state or local government securities, United States denominated corporate, Yankee and Eurodollar securities; asset-backed securities; highly rated mutual funds comprised of any of the above allowable investments; and state and local property tax certificates of delinquency secured by interests in real property. The Treasurer of the University manages overnight, short-term and intermediate-term investments based on the Operating Fund Investment Policy. The University’s policy for the investment of bond revenue and debt service reserve funds is governed by each respective bond’s trust indenture. The Investment Committee of the Board establishes and maintains the University’s Endowment Investment Policy. The fair value of deposits and investments, by Statement of Net Position classification, at June 30, 2016 and 2015 are as follows (in thousands):
2016 2015Statement of Net Position classification
Current cash and cash equivalents 693,743$ 621,961$ Current investments 16,977 21,702 Restricted cash and cash equivalents 398,569 315,522 Endowment investments 1,221,579 1,231,557 Other long-term investments 299,417 275,001
Total 2,630,285$ 2,465,743$ Fair Value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a measurement date. The framework for measuring fair value established by GAAP provides a fair value hierarchy as follows: Level 1 Quoted prices in active markets for identical assets or liabilities. Level 2 Observable inputs other than level 1 prices, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities.
The University categorizes its fair value measurements within the fair value hierarchy. Certain investments are measured at fair value using net asset value per share (or its equivalent) practical expedient, amortized costs, or historical costs and therefore have not been classified in the fair value hierarchy. These investments have been included in the table below to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Net Position.
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The University has the following valuation measurements, by type, at June 30, 2016 (in thousands):
2016
Fair Value Measurement Using
Total Value
Quoted Prices in
Active Markets for
Identical Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Unobservable
Inputs (Level 3)
Total Measured at Fair Value
Net Asset Value (NAV)
Amortized or Historical cost
Non-endowed deposits and investments
Cash and cash equivalents 223,067$ -$ -$ -$ -$ -$ 223,067$
Certificates of deposit 30,394 - - - - - 30,394
Common and preferred stock 7,011 6,564 - - 6,564 - 447
Corporate fixed income securities 64,396 - 64,396 - 64,396 - -
Deposits with banks and the
Commonwealth of Kentucky 225,144 - - - - - 225,144
Government agency fixed
income securities 128,165 - 128,165 - 128,165 - -
Guaranteed investment contracts 4,722 - - - - - 4,722
Other 3,387 - - - - - 3,387
Pooled equity funds 3,323 3,323 - - 3,323 - -
Pooled fixed income funds (1) 673,067 1,899 287,927 - 289,826 - 383,241
Pooled private equity funds 222 - - - - - 222
Pooled real estate funds 1,085 1,085 - - 1,085 - -
State and municipal fixed income
securities 11,845 - 11,845 - 11,845 - -
U.S. Treasury fixed income securities 32,878 - 32,878 - 32,878 - -
Total non-endowed deposits and
investments 1,408,706 12,871 525,211 - 538,082 - 870,624
Endowed deposits and investments
Cash and cash equivalents 9,292 - - - - - 9,292
Common and preferred stock 37,228 36,420 - 808 37,228 - -
Corporate fixed income securities 5,673 - 5,651 22 5,673 - -
Government agency fixed income
securities 2,993 - 2,993 - 2,993 - -
Other 28 - 28 - 28 - -
Pooled absolute return funds 138,864 - - - - 138,864 -
Pooled equity funds 301,536 5,120 2,124 - 7,244 294,292 -
Pooled fixed income funds 73,795 - 4,189 - 4,189 69,606 -
Pooled global tactical allocation funds 82,653 - - - - 82,653 -
Pooled long/short equity funds 165,032 - - - - 165,032 -
Pooled private equity funds 173,991 - - - - 173,991 -
Pooled real estate funds 128,858 - - - - 128,858 -
Pooled diversified inflation strategy funds 90,450 - - - - 90,450 -
U.S. Treasury fixed income securities 11,186 - 11,186 - 11,186 - -
Total endowed deposits and
investments 1,221,579 41,540 26,171 830 68,541 1,143,746 9,292
Total deposits and investments 2,630,285$ 54,411$ 551,382$ 830$ 606,623$ 1,143,746$ 879,916$
1) Non-endowed pooled fixed income funds include deposits and investments in the Commonwealth’s
limited pool and intermediate pool funds. As of June 30, 2016, $383.2 million was held in the Commonwealth’s limited-term investment pool and $287.9 million was held in the intermediate-term pool. The limited-term pool fund’s fair value is measured at amortized cost and the intermediate-term pool fund’s fair value is measured using level 2 observable inputs. Both investment pools provide same day liquidity with no limitations, fees or restrictions on withdrawals.
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The University had the following valuation measurements, by type, at June 30, 2015 (in thousands):
2015
Fair Value Measurement Using
Total Value
Quoted Prices in
Active Markets for
Identical Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Unobservable
Inputs (Level 3)
Total Measured at Fair Value
Net Asset Value (NAV)
Amortized or Historical cost
Non-endowed deposits and investments
Cash and cash equivalents 222,720$ -$ -$ -$ -$ -$ 222,720$
Certificates of deposit 36,729 - - - - - 36,729
Common and preferred stock 8,764 8,209 - - 8,209 - 555
Corporate fixed income securities 52,745 - 52,745 - 52,745 - -
Deposits with banks and the
Commonwealth of Kentucky 68,030 - - - - - 68,030
Government agency fixed income
securities 89,368 - 89,368 - 89,368 - -
Guaranteed investment contracts 3,786 - - - - - 3,786
Other 3 - - - - - 3
Pooled equity funds 6,459 6,459 - - 6,459 - -
Pooled fixed income funds (1) 730,798 1,833 110,495 - 112,328 - 618,470
Pooled private equity funds 235 - - - - - 235
Pooled real estate funds 1,095 1,095 - - 1,095 - -
Repurchase agreements 487 - 487 - 487 - -
State and municipal fixed income
securities 12,967 - 12,967 - 12,967 - -
Total non-endowed deposits and
investments 1,234,186 17,596 266,062 - 283,658 - 950,528
Endowed deposits and investments
Cash and cash equivalents 4,896 - 7 - 7 - 4,889
Common and preferred stock 42,977 42,145 24 808 42,977 - -
Corporate fixed income securities 8,072 - 8,050 22 8,072 - -
Government agency fixed income
securities 2,558 - 2,558 - 2,558 - -
Other 145 - - - - - 145
Pooled absolute return funds 122,347 - - - - 122,347 -
Pooled equity funds 325,799 2,670 2,028 - 4,698 321,101 -
Pooled fixed income funds 91,151 234 1,915 - 2,149 89,002 -
Pooled global tactical allocation funds 88,047 - - - - 88,047 -
Pooled long/short equity funds 173,669 - - - - 173,669 -
Pooled private equity funds 157,027 - - - - 157,027 -
Pooled real estate funds 104,613 292 66 - 358 104,255 -
Pooled diversified inflation strategy funds 101,210 - - - - 101,210 -
U.S. Treasury fixed income securities 9,046 - 9,046 - 9,046 - -
Total endowed deposits and
investments 1,231,557 45,341 23,694 830 69,865 1,156,658 5,034
Total deposits and investments 2,465,743$ 62,937$ 289,756$ 830$ 353,523$ 1,156,658$ 955,562$
1) Non-endowed pooled fixed income funds include deposits and investments in the Commonwealth’s
limited pool and intermediate pool funds. As of June 30, 2015, $618.5 million was held in the Commonwealth’s limited-term investment pool and $110.5 million was held in the intermediate-term pool. The limited-term pool fund’s fair value is measured at amortized cost and the intermediate-term pool fund’s fair value is measured using level 2 observable inputs. Both investment pools provide same day liquidity with no limitations, fees or restrictions on withdrawals.
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Where quoted market prices are available in an active market, securities are classified within level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in level 2 of the valuation hierarchy. In certain cases, where level 1 or level 2 inputs are not available, securities are classified within level 3 of the hierarchy. The following describes how the valuation was measured for each category of investment with a level 3 valuation:
Common and preferred stock investments are valued using either discounted cash flow or market comparable companies technique.
Corporate fixed income securities are valued using discounted cash flow. Investments valued using the net asset value (NAV) per share (or its equivalent) as of June 30, 2016 and 2015 are as follows (in thousands):
2016
Pooled absolute return funds (1) 138,864$ 5,144$ Quarterly 45 - 90 days Pooled equity funds (5) 294,292 -$ Daily, Monthly 1 - 30 days Pooled fixed income funds (5) 69,606 -$ Daily, Weekly 1 - 3 days Pooled global tactical allocation funds (5) 82,653 -$ Daily 1 day Pooled long/short equity funds (3) 165,032 -$ Monthly, Quarterly 45 - 90 days Pooled private equity funds (2) 173,991 118,230$ End of term 7 to 10 years Pooled real estate funds (4) 128,858 39,393$ End of term 7 to 10 years
90,450 36,691$ Daily 1 day
Total measured at net asset value 1,143,746$
Net asset value (NAV)
Unfunded commitments
Redemption frequency
Redemption notice period
2015
Pooled absolute return funds (1) 122,347$ -$ Quarterly 45 - 90 days Pooled equity funds (5) 321,101 -$ Daily, Monthly 1 - 30 days Pooled fixed income funds (5) 89,002 -$ Daily, Weekly 1 - 3 days Pooled global tactical allocation funds (5) 88,047 -$ Daily 1 day Pooled long/short equity funds (3) 173,669 -$ Monthly, Quarterly 45 - 90 days Pooled private equity funds (2) 157,027 138,303$ End of term 7 to 10 years Pooled real estate funds (4) 104,255 57,093$ End of term 7 to 10 years
101,210 -$ Daily, Monthly 1-30 days
Total measured at net asset value 1,156,658$
Net asset value (NAV)
Unfunded commitments
Redemption frequency
Redemption notice period
1) Pooled absolute return funds include several investments in hedge funds that pursue multiple
strategies across asset classes globally. As of June 30, 2016, one investment which made up 17% of this investment group is less liquid and has a structure more similar to a private equity fund. That investment does not allow redemptions during its seven-year term.
2) Pooled private equity and pooled diversified inflation strategy funds include illiquid investments in private equity and diversified inflation strategies funds that pursue multiple strategies. As of June 30, 2016, total illiquid investments represents one percent of the total and these investments do not offer redemptions prior to the end of the fund’s term.
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3) Pooled long/short equity funds include investments in hedge funds that take both long and short positions in global stocks. The pool includes one investment which made up 25% of the investment group as of June 30, 2016 and 26% as of June 30, 2015, which is less liquid. That investment offers annual redemption beginning January 1, 2017, with 90 day notice.
4) Pooled real estate funds include funds that invest in real estate assets globally. These are illiquid investments that do not offer redemptions prior to the end of the fund’s term, which can range from seven to 10 years or longer. The pool includes one investment which made up 42% of the investment group as of June 30, 2016 and 48% as of June 30, 2015, which offers more frequent (quarterly) redemptions, with 60 day notice subject to cash availability.
5) Pooled equity, pooled fixed income, and pooled global tactical allocation funds include investments in diversified portfolios of stocks and bonds.
The University also holds an alternative investment in a limited partnership whose fair market value is measured using its cost basis of $222,000 and $235,000 as of December 31, 2015 and 2014, respectively. Deposit and Investment Risks. The University’s deposits and investments are exposed to various risks, including credit, interest rate and foreign currency risk. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such change could affect the investment amounts in the Statements of Net Position. Credit Risk. Credit risk is the risk that the issuer or other counterparty to an investment will not fulfill its obligation, causing the University to experience a loss of principal. As a means of limiting its exposure to losses arising from credit risk, the University’s investment policies limit the exposure of its various investment types as follows:
Overnight investment (deposits, money market funds and repurchase agreements) policies minimize credit risk in several ways. Deposits are governed by state law which requires full collateralization for balances exceeding amounts covered by the Federal Deposit Insurance Corporation (FDIC). The University’s deposits are insured up to $250,000 at each FDIC insured institution. Credit risk on deposits in excess of FDIC coverage and on repurchase agreements with local banks is mitigated by the issuing financial institution’s pledge of specific U.S. Treasury or agency securities, held in the name of the University by the Federal Reserve Bank. Credit risk on repurchase agreements with the Commonwealth is mitigated by the Commonwealth’s requirement that providers of overnight repurchase agreements collateralize these investments at 102% of face value with U.S. Treasury or agency securities, pledged in the name of the Commonwealth. Money market fund portfolios consist of securities eligible for short-term investments.
Bond revenue fund investments held in the Commonwealth’s investment pools can invest in U.S. Treasury and agency securities; commercial paper, asset-backed securities or qualified mutual funds rated in the highest category by a nationally recognized statistical rating organization; certificates of deposit, bankers acceptances, state or local government securities and corporate, Yankee and Eurodollar securities rated in one of the three highest categories by a nationally recognized statistical rating organization; and state and local property tax certificates of delinquency secured by interests in real property.
Short-term and intermediate-term investments managed by the University and those held in the Commonwealth’s investment pools are subject to the same credit quality restrictions as denoted above for bond revenue fund investments. The investment guidelines for the low duration strategy managed by an external manager require that a minimum of 85% of the portfolio holdings are investment grade and a minimum A- portfolio average quality is maintained, with no single credit industry exceeding 15% of the portfolio.
Investment securities held in bond debt service reserve funds may be invested and reinvested solely in bonds or interest bearing notes of the United States government.
Endowment managers are permitted to use derivative instruments to limit credit risk.
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At June 30, 2016 and 2015, respectively, the credit quality of the University’s fixed income investments is summarized below (in thousands):
Below Rating not AAA/Aaa AA/Aa A BBB/Baa BBB/Baa Not rated applicable Total
Non-endowed deposits and investments
Cash and cash equivalents 196,057$ -$ -$ -$ -$ 27,010$ -$ 223,067$
Certificates of deposit - - - - - 30,394 - 30,394
Corporate fixed income securities 3,890 4,749 16,777 24,994 13,697 289 - 64,396
Government agency fixed income securities 119,762 8,403 - - - - - 128,165
Guaranteed investment contracts - 34 - - - 4,688 - 4,722
Pooled fixed income funds - - - - - 673,067 - 673,067
State and municipal fixed income securities 7,442 259 4,144 - - - - 11,845
U.S. Treasury fixed income securities - - - - - - 32,878 32,878
Total non-endowed fixed income investments 327,151 13,445 20,921 24,994 13,697 735,448 32,878 1,168,534
Endowed deposits and investments
Cash and cash equivalents - - - - - 9,292 - 9,292
Corporate fixed income securities 937 154 1,797 2,006 757 22 - 5,673
Government agency fixed income securities - 2,993 - - - - - 2,993
Other - - - - - 28 - 28
Pooled fixed income funds 428 69 204 422 827 71,845 - 73,795
U.S. Treasury fixed income securities - - - - - - 11,186 11,186
Total endowed fixed income investments 1,365 3,216 2,001 2,428 1,584 81,187 11,186 102,967
Total fixed income investments 328,516$ 16,661$ 22,922$ 27,422$ 15,281$ 816,635$ 44,064$ 1,271,501$
2016
S&P/Moody's Credit Ratings
Below Rating not AAA/Aaa AA/Aa A BBB/Baa BBB/Baa Not rated applicable Total
Non-endowed deposits and investments
Cash and cash equivalents 213,921$ -$ -$ -$ -$ 8,799$ -$ 222,720$
Certificates of deposit - - - - - 36,729 - 36,729
Corporate fixed income securities 7,565 2,809 15,842 18,578 7,761 190 - 52,745
Government agency fixed income securities - 88,671 - - 697 - - 89,368
Guaranteed investment contracts - 159 - - - 3,627 - 3,786
Pooled fixed income funds - - - - - 730,798 - 730,798
Repurchase agreements - - - - - 487 - 487 State and municipal fixed income securities 1,834 11,133 - - - - - 12,967
Total non-endowed fixed income investments 223,320 102,772 15,842 18,578 8,458 780,630 - 1,149,600
Endowed deposits and investments
Cash and cash equivalents - - - - - 4,896 - 4,896
Corporate fixed income securities 523 338 3,435 3,281 294 201 - 8,072
Government agency fixed income securities 10 2,188 - 195 165 - 2,558
Pooled fixed income funds - 1,175 - - - 89,976 - 91,151
U.S. Treasury fixed income securities - - - - - - 9,046 9,046
Total endowed fixed income investments 533 3,701 3,435 3,476 459 95,073 9,046 115,723
Total fixed income investments 223,853$ 106,473$ 19,277$ 22,054$ 8,917$ 875,703$ 9,046$ 1,265,323$
S&P/Moody's Credit Ratings
2015
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Custodial Credit Risk. Custodial credit risk is the risk that, in the event of the failure of the counterparty, the University will not be able to recover the value of its investment or collateral securities that are in possession of an outside party. As a means of limiting its exposure to losses arising from custodial credit risk, the University’s investment policies limit the exposure of its various investment types as follows:
Overnight investments (deposits, money market funds and repurchase agreements) are not exposed to custodial credit risk other than repurchase agreements, during the fiscal year ended June 30, 2015, with the Commonwealth, which are held in the Commonwealth’s name. Deposits and money market investments are held in the University’s name by various financial institutions.
Bond revenue fund investments held in the Commonwealth’s investment pools are held in the Commonwealth’s name by the Commonwealth’s custodian.
Short-term and intermediate-term investments held by the Commonwealth for the benefit of the University are invested in the Commonwealth’s investment pools and are held in the name of the Commonwealth by the Commonwealth’s custodian. Short-term and intermediate-term investments managed by the University are held in the University’s name in a safekeeping account. The low duration strategy investments managed by an external manager are held in the University’s name by the University’s custodian.
Investment securities held in bond debt service sinking funds are held by the respective bond trustee in a specific trust account for the benefit of the University and bondholders.
Endowment investments are held in the University’s name by the University’s custodian.
The University’s deposit and investment balances held in the name of the Commonwealth, included in the pooled fixed income funds above, were exposed to custodial credit risk of $671.2 million as of June 30, 2016, all of which was held in bond revenue investment accounts. As of June 30, 2015, the amount exposed to custodial credit risk with the Commonwealth was $729.0 million, with $643.4 million being held in bond revenue investment accounts, $60.0 million in short-term investments and $25.6 million in overnight investments. For both 2016 and 2015, these balances were uninsured, not registered in the name of the University and held by the Commonwealth but not in the University’s name. Concentrations of Credit Risk. University investments can be exposed to a concentration of credit risk if significant amounts are invested in any one issuer. As a means of limiting its exposure to concentrations of credit risk, the University’s investment policies limit concentrations in various investment types as follows:
Overnight investments (deposits, money market funds and repurchase agreements) are not limited to a maximum amount that may be invested in one issuer. However, all such deposits in excess of federal deposit insurance are required to be fully collateralized by U.S. Treasury and/or U.S. agency securities or other similar investments as provided by KRS 41.240.
Bond revenue fund investments held in the Commonwealth’s investment pools are limited as follows: U.S. dollar denominated corporate and Yankee securities issued by foreign and domestic issuers shall not exceed 35% of an individual pool and $25.0 million per issuer, inclusive of commercial paper, bankers acceptances and certificates of deposit per individual pool; and U.S. dollar denominated sovereign debt shall not exceed five percent of any individual portfolio and $25.0 million per issuer.
Short-term and intermediate-term investments managed by the University and those held in the Commonwealth’s investment pools are subject to the same credit concentration restrictions as denoted above for the bond revenue fund investments. Investments in the low duration strategy managed by an external manager are limited such that no single credit industry shall exceed 15% of the portfolio at purchase.
There is no specific limit on the maximum amount of investment securities held in bond debt service sinking funds that may be invested in one issuer. However, such investments are limited to bonds or interest bearing notes of the U.S. government.
Endowment fixed income managers are limited to a maximum investment in any one issuer of no more than five percent of total investments excluding sovereign debt of governments belonging in the Organization for Economic Co-operation and Development and U.S. agencies.
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At June 30, 2016 and 2015, the University had no investments in any one issuer, other than U.S. Treasury and/or U.S. agency securities, that represented five percent or more of total investments. Interest Rate Risk. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. As a means of limiting its exposure to fair value losses arising from increasing interest rates, the University’s investment policies limit the maturity of its various investment types as follows:
Overnight investments (deposits, money market funds and repurchase agreements) have limited exposure to interest rate risk due to the short-term nature of the investment. The University requires that all deposits and repurchase agreements be available for use on the next business day.
Bond revenue fund investments and short-term investments held in the Commonwealth’s short-term investment pool are limited to an average maturity that does not exceed 90 days. Such investments in the Commonwealth’s intermediate-term investment pool must maintain an effective duration of less than three years.
Short-term and intermediate-term investments managed by the University are generally limited to a maximum maturity of 24 months and those held in the Commonwealth’s investment pools are subject to the same maturity and duration limits as denoted above for bond revenue fund investments. The portfolio duration of the low duration strategy investment managed by an external manager must be within a range of +/- 0.5 years of the Barclays Capital U.S. Government/Credit 1-5 Year Index.
Investment securities held in bond debt service sinking funds are required to have a maturity no later than two years from the date of the investment.
Endowment managers are permitted to use derivative instruments to limit interest rate risk. Additionally, endowment investments held by core-plus fixed income managers are limited to a duration that is within two years of the duration of the Barclays Capital U.S. Aggregate Bond Index and unconstrained fixed income strategies have been implemented to further protect against interest rate risk.
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For June 30, 2016 and 2015, the maturity distribution of the University’s fixed income investments is summarized below (in thousands):
Investment TypeLess
than 1 1-5 5-10Greater than 10
Managedbased onduration Total
Non-endowed deposits and investmentsCash and cash equivalents 217,555$ -$ -$ -$ 5,512$ 223,067$ Certificates of deposit 30,394 - - - - 30,394 Corporate fixed income securities 201 228 221 - 63,746 64,396 Government agency fixed income securities - 119,316 225 - 8,624 128,165 Guaranteed investment contracts 8 - 34 4,680 - 4,722 Pooled fixed income funds - - - - 673,067 673,067 State and municipal fixed income securities 3,976 7,869 - - - 11,845 U.S. Treasury fixed income securities - - - - 32,878 32,878
Total non-endowed fixed income investments 252,134 127,413 480 4,680 783,827 1,168,534
Endowed deposits and investmentsCash and cash equivalents 7,085 - - - 2,207 9,292 Corporate fixed income securities 1 - - 21 5,651 5,673 Government agency fixed income securities - - - - 2,993 2,993 Other - - - - 28 28 Pooled fixed income funds - - - - 73,795 73,795 U.S. Treasury fixed income securities 30 74 - - 11,082 11,186
Total endowed fixed income investments 7,116 74 - 21 95,756 102,967
Total fixed income investments 259,250$ 127,487$ 480$ 4,701$ 879,583$ 1,271,501$
2016Maturities in Years
Investment TypeLess
than 1 1-5 5-10Greater than 10
Managedbased onduration Total
Non-endowed deposits and investmentsCash and cash equivalents 221,906$ -$ -$ -$ 814$ 222,720$ Certificates of deposit 36,729 - - - - 36,729 Corporate fixed income securities 323 452 224 - 51,746 52,745 Government agency fixed income securities - 82,043 335 - 6,990 89,368 Guaranteed investment contracts - 56 159 3,571 - 3,786 Pooled fixed income funds - - - - 730,798 730,798 Repurchase agreements 487 - - - - 487 State and municipal fixed income securities 5,116 7,851 - - - 12,967
Total non-endowed fixed income investments 264,561 90,402 718 3,571 790,348 1,149,600
Endowed deposits and investmentsCash and cash equivalents 2,718 - - - 2,178 4,896 Corporate fixed income securities 1 - - 22 8,049 8,072 Government agency fixed income securities - - - - 2,558 2,558 Pooled fixed income funds - - - - 91,151 91,151 U.S. Treasury fixed income securities - 101 - - 8,945 9,046
Total endowed fixed income investments 2,719 101 - 22 112,881 115,723
Total fixed income investments 267,280$ 90,503$ 718$ 3,593$ 903,229$ 1,265,323$
2015Maturities in Years
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At June 30, 2016 and 2015, the University had the following investments managed based on duration (in thousands):
Modified ModifiedDuration Duration
Investment Type Fair Value (Years) Fair Value (Years)
Non-endowed deposits and investmentsCash and cash equivalents 5,512$ 2.4 814$ 2.3Corporate fixed income securities 63,746 2.4 51,746 2.3Government agency fixed income securities 8,624 2.4 6,990 2.3U.S. Treasury fixed income securities 32,878 2.4 - -Pooled fixed incomeCommonwealth of Kentucky intermediate pool 287,927 1.1 60,000 1.1Commonwealth of Kentucky limited pool 383,241 0.1 668,965 0.1KTI 95 1.1 57 2.3KMSF 1,804 3.8 1,776 2.9 Total non-endowment investment 783,827 790,348
Endowed deposits and investmentsCash and cash equivalents 2,207 4.4 2,178 4.5Corporate fixed income 5,651 4.7 8,049 4.6Government agency fixed income 2,993 4.7 2,558 4.6Other 28 4.7 - -Pooled fixed incomePooled endowment fund 70,835 2.6 89,002 1.6Other endowment investments 2,960 5.9 2,149 5.8U.S. Treasury fixed income 11,082 4.7 8,945 3.2 Total endowment investment 95,756 112,881
Total managed based on duration 879,583$ 903,229$
2016 2015
Foreign Currency Risk. Foreign currency risk is the risk that fluctuations in exchange rates will adversely affect the fair value of an investment or deposit. The University’s exposure to foreign currency risk derives from certain endowment investments. The University’s endowment investment policy allows fixed income managers to invest a portion of their portfolios in non-U.S. securities. Additionally, the investment policy allows various pooled fund managers to invest in accordance with the guidelines established in each individual fund’s prospectus, which allows for investment in non-U.S. securities. Endowment managers are permitted to use derivative instruments to limit foreign currency risk. As of June 30, 2016 and 2015, the following endowment investments were subject to foreign currency risk (in thousands):
2016 2015
Common stock 33,459$ 38,289$ Pooled private equity funds 5,929 6,971 Pooled real estate funds 7,404 5,174 Cash equivalents 288 720
Total 47,080$ 51,154$
Fair Value
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3. NOTES, LOANS AND ACCOUNTS RECEIVABLE, NET
Notes, loans and accounts receivable as of June 30, 2016 and 2015 are as follows (in thousands):
2016Gross Net
Receivable Allowance Receivable
Accrued interest receivable 1,554$ -$ 1,554$ Dentistry patient accounts 3,085 (846) 2,239 Hospital patient accounts 199,788 (61,182) 138,606 KMSF patient accounts 42,014 (6,884) 35,130 Multimedia rights receivable 191,644 - 191,644 Pledges receivable (less discounts of $8,303) 95,488 (29,930) 65,558 Reimbursement receivable - federal appropriations 2,153 - 2,153 Reimbursement receivable - grants and contracts 30,911 (325) 30,586 Service concession arrangements 90,646 - 90,646 Student loans 28,297 (3,261) 25,036 Student receivables 28,098 (16,233) 11,865 Other 29,969 - 29,969
Total 743,647$ (118,661)$ 624,986$
Current portion 297,620$ Noncurrent portion 327,366
Total 624,986$
2015Gross Net
Receivable Allowance Receivable
Accrued interest receivable 1,885$ -$ 1,885$ Dentistry patient accounts 2,766 (696) 2,070 Hospital patient accounts 176,436 (40,923) 135,513 KMSF patient accounts 32,421 (4,003) 28,418 Multimedia rights receivable 210,000 - 210,000 Pledges receivable (less discounts of $7,376) 78,537 (26,650) 51,887 Reimbursement receivable - federal appropriations 1,604 - 1,604 Reimbursement receivable - grants and contracts 32,793 (400) 32,393 Service concession arrangements 98,832 - 98,832 Student loans 29,747 (3,103) 26,644 Student receivables 28,189 (16,328) 11,861 Other 30,622 - 30,622
Total 723,832$ (92,103)$ 631,729$
Current portion 292,776$ Noncurrent portion 338,953
Total 631,729$
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In accordance with GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, the University is required to record operating and capital pledges as revenue when all eligibility requirements have been met. Endowment pledges are not recognized as revenue until the gifts are actually received. For the years ended June 30, 2016 and 2015, the University recorded the discounted value of operating and capital pledges using a rate of two percent. Deferred gifts through insurance, known bequests and irrevocable trusts in which the University has a remainder interest are estimated to be approximately $144.1 million and $115.7 million at June 30, 2016 and 2015, respectively. The University records these amounts as revenue when the cash is received.
4. CAPITAL ASSETS, NET Capital assets as of June 30, 2016 and capital asset activity for the year ended June 30, 2016 are summarized below (in thousands):
June 30, 2015 Additions Deletions June 30, 2016
Land 73,347$ 1,298$ -$ 74,645$ Land improvements - nonexhaustible 46,226 10,650 - 56,876 Land improvements - exhaustible 74,279 14,982 - 89,261 Buildings 2,431,549 432,802 17,612 2,846,739 Fixed equipment - communications 100,616 13,407 34 113,989 Infrastructure 99,956 7,833 - 107,789 Equipment 579,129 61,958 114,851 526,236 Vehicles 21,903 2,022 1,441 22,484 Library materials 145,933 1,819 529 147,223 Nondepreciable library materials 6,651 22 - 6,673 Capitalized software 155,915 12,645 - 168,560 Art 11,786 966 1 12,751 Certificate of need license 11,609 - - 11,609 Construction in progress 266,891 198,946 206,811 259,026
4,025,790 759,350 341,279 4,443,861
Accumulated Depreciation Land improvements - exhaustible 58,019 3,334 - 61,353 Buildings 865,995 71,540 13,144 924,391 Fixed equipment - communications 65,432 7,245 34 72,643 Infrastructure 36,615 3,900 - 40,515 Equipment 417,750 39,877 88,423 369,204 Vehicles 18,556 1,553 1,435 18,674 Library materials 137,183 2,307 - 139,490 Capitalized software 89,600 18,353 - 107,953
1,689,150 148,109 103,036 1,734,223
Capital assets, net 2,336,640$ 611,241$ 238,243$ 2,709,638$
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Capital assets as of June 30, 2015 and capital asset activity for the year ended June 30, 2015 are summarized below (in thousands):
June 30, 2014 Additions Deletions June 30, 2015
Land 72,394$ 953$ -$ 73,347$ Land improvements - nonexhaustible 42,643 3,583 - 46,226 Land improvements - exhaustible 70,231 4,048 - 74,279 Buildings 2,209,332 247,090 24,873 2,431,549 Fixed equipment - communications 96,579 4,253 216 100,616 Infrastructure 95,385 4,619 48 99,956 Equipment 571,221 59,158 51,250 579,129 Vehicles 21,400 1,750 1,247 21,903 Library materials 144,330 2,565 962 145,933 Nondepreciable library materials 6,651 - - 6,651 Capitalized software 142,580 13,486 151 155,915 Art 11,459 327 - 11,786 Certificate of need license 11,609 - - 11,609 Construction in progress 91,637 213,434 38,180 266,891
3,587,451 555,266 116,927 4,025,790
Accumulated Depreciation Land improvements - exhaustible 55,278 2,741 - 58,019 Buildings 822,366 59,489 15,860 865,995 Fixed equipment - communications 59,347 6,276 191 65,432 Infrastructure 33,001 3,631 17 36,615 Equipment 408,068 45,707 36,025 417,750 Vehicles 18,252 1,461 1,157 18,556 Library materials 134,477 2,706 - 137,183 Capitalized software 77,258 12,363 21 89,600
1,608,047 134,374 53,271 1,689,150
Capital assets, net 1,979,404$ 420,892$ 63,656$ 2,336,640$
At June 30, 2016, the University had construction projects in progress totaling approximately $957.9 million in scope. The estimated cost to complete these projects was approximately $699.5 million. Such construction was principally financed by cash reserves, gifts and grants, and proceeds from the University’s general receipts bonds. Interest costs incurred during construction, net of related investment income, are capitalized. Total interest capitalized was $11.9 million for 2016 and $8.0 million for 2015. During fiscal years 2016 and 2015, the University utilized capital leases to acquire various items of equipment. As of June 30, 2016 and 2015, the net book value of land, buildings, equipment and software acquired through capital leases included in the above schedules totaled $98.0 million and $115.5 million, respectively. During fiscal year 2016, 25 properties were demolished with an original cost of $17.0 million and accumulated depreciation of $13.1 million, for a total net book value written off of $3.9 million. Most notably, the student center demolition was completed in 2016, which had an original cost of $14.8 million and a net book value written off of $2.9 million.
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Non-cash capital asset and related financing activities as of June 30, 2016 and 2015 are summarized below (in thousands):
2016 2015
Capital lease additions 6,888$ 26,063$ Gifts of capital assets 1,932$ 2,750$ Capital asset change in accounts payable (14,762)$ 39,976$ Capital asset additions by service concession arrangements 146,910$ 150,107$ Capitalized interest, net of investment income 11,886$ 8,037$ Amortized bond discount and premium 6,528$ 7,719$ Amortized difference between reacquisition price and net carrying amount of refunded debt 1,592$ 828$ Capital asset trade in 734$ 1,594$
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of June 30, 2016 and 2015 are as follows (in thousands):
2016 2015
Payable to vendors and contractors 193,926$ 183,829$ Accrued expenses, including vacation and sick leave 94,258 78,311 Employee withholdings and deposits payable to third parties 38,633 49,168
Total 326,817$ 311,308$
6. UNEARNED REVENUE
Unearned revenues as of June 30, 2016 are as follows (in thousands):
June 30, June 30, Current Non-current2015 Additions Reductions 2016 Portion Portion
Unearned summer school revenue 9,102$ 10,217$ 10,037$ 9,282$ 9,282$ -$ Unearned hospital revenue 10,622 80,586 84,178 7,030 7,030 - Unearned grants and contracts revenue 25,967 71,619 67,035 30,551 30,551 - Unearned multimedia rights revenue 207,084 544 14,044 193,584 14,037 179,547 Prepaid athletic ticket sales 13,531 12,464 15,279 10,716 10,716 - Other 6,564 22,458 20,684 8,338 8,032 306
Total 272,870$ 197,888$ 211,257$ 259,501$ 79,648$ 179,853$
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Unearned revenues as of June 30, 2015 are as follows (in thousands):
June 30, June 30, Current Non-current2014 Additions Reductions 2015 Portion Portion
Unearned summer school revenue 8,934$ 9,259$ 9,091$ 9,102$ 9,102$ -$ Unearned hospital revenue 7,545 76,318 73,241 10,622 10,622 - Unearned grants and contracts revenue 23,140 59,967 57,140 25,967 25,967 - Unearned multimedia rights revenue - 210,000 2,916 207,084 14,001 193,083 Prepaid athletic ticket sales 12,636 14,557 13,662 13,531 13,531 - Other 7,762 10,151 11,349 6,564 6,553 11
Total 60,017$ 380,252$ 167,399$ 272,870$ 79,776$ 193,094$
2015
A multimedia rights partnership was formed in July 2014 between the University and JMI Sports providing athletics and campus multimedia marketing rights in a 15 year, $210.0 million agreement. Under the contract, the University will receive a guaranteed rights fee in each of the 15 years of the partnership, starting at $9.1 million in fiscal year 2015-16 and increasing to $16.0 million in fiscal year 2029-30. The agreement also included a $29.4 million signing bonus to be paid over the first two years of the contract. This agreement was modified in April 2016 to increase the signing bonus to $29.9 million, which will now be paid over the first three years of the contract. This modification increased the total amount to be received to $210.5 million.
7. LONG-TERM LIABILITIES
Long-term liabilities as of June 30, 2016 and long-term liability activity for the year ended June 30, 2016 are summarized below (in thousands):
June 30, June 30, Current Non-current
2015 Additions Reductions 2016 Portion Portion
Bonds, notes and capital leases
General receipts notes 69,195$ -$ 16,440$ 52,755$ 11,330$ 41,425$
General receipts bonds 751,735 155,780 14,845 892,670 21,425 871,245
Capital leases and other
long-term obligations 89,984 7,233 17,916 79,301 16,185 63,116
Notes payable 19,529 - 600 18,929 18,929 -
Total bonds, notes and capital leases 930,443 163,013 49,801 1,043,655 67,869 975,786
Other liabilities
Annuities payable 3,802 461 624 3,639 549 3,090
Automobile and property self insurance 462 275 259 478 478 -
Compensated absences 7,300 - 100 7,200 781 6,419
Federal loan programs 20,377 452 369 20,460 - 20,460
Health insurance 8,580 46,375 44,936 10,019 10,019 -
Insurance executory costs 6,075 5,385 155 11,305 155 11,150
Long-term disability 2 - 2 - - -
Medical malpractice 30,597 15,112 12,416 33,293 6,652 26,641
Retiree health benefits trust 108,815 13,036 1,839 120,012 - 120,012
Unamortized bond premium 60,629 5,147 6,529 59,247 6,504 52,743
Unemployment compensation 575 716 728 563 563 -
Workers compensation 25,080 4,184 6,660 22,604 5,933 16,671
Other 9,667 14,961 8,720 15,908 2,566 13,342
Total other liabilities 281,961 106,104 83,337 304,728 34,200 270,528
Total 1,212,404$ 269,117$ 133,138$ 1,348,383$ 102,069$ 1,246,314$
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Long-term liabilities as of June 30, 2015 and long-term liability activity for the year ended June 30, 2015 are summarized below (in thousands):
June 30, June 30, Current Non-current
2014 Additions Reductions 2015 Portion Portion
Bonds, notes and capital leases
General receipts notes 265,180$ -$ 195,985$ 69,195$ 16,440$ 52,755$
General receipts bonds 432,500 347,185 27,950 751,735 14,845 736,890
Educational buildings bonds 33,350 - 33,350 - - -
Capital leases and other
long-term obligations 86,485 26,693 23,194 89,984 17,298 72,686
Notes payable 20,664 - 1,135 19,529 600 18,929
Total bonds, notes and capital leases 838,179 373,878 281,614 930,443 49,183 881,260
Other liabilities
Annuities payable 5,701 653 2,552 3,802 565 3,237
Arbitrage rebate 27 - 27 - - -
Automobile and property self insurance 440 1,491 1,469 462 462 -
Compensated absences 7,634 - 334 7,300 721 6,579
Federal loan programs 20,533 375 531 20,377 - 20,377
Health insurance 7,189 40,620 39,229 8,580 8,580 -
Insurance executory costs - 6,157 82 6,075 82 5,993
Long-term disability - 2 - 2 2 -
Medical malpractice 29,297 8,959 7,659 30,597 6,006 24,591
Retiree health benefits trust 97,317 11,498 - 108,815 - 108,815
Unamortized bond premium 22,160 46,250 7,781 60,629 6,437 54,192
Unemployment compensation 622 705 752 575 575 -
Workers compensation 21,773 9,967 6,660 25,080 7,167 17,913
Other 8,402 7,812 6,547 9,667 1,623 8,044
Total other liabilities 221,095 134,489 73,623 281,961 32,220 249,741
Total 1,059,274$ 508,367$ 355,237$ 1,212,404$ 81,403$ 1,131,001$
Annuities payable consists of the present value of future payments due under charitable remainder annuity trusts, charitable remainder unitrusts, lead trusts, irrevocable trusts and charitable gift annuities, discounted at 3.6% to 10.8%. Bond discounts and premiums are amortized over the life of the bond using the effective interest method. Bonds payable consist of general receipts bonds and general receipts notes in the original amount of $1.29 billion dated October 6, 2006 through February 10, 2016, which bear interest at 1.0% to 4.7%. The bonds are payable in annual installments through April 1, 2046. The University is required to make semi-annual deposits of varying amounts to the debt service funds held by the trustees. The bonds are secured by the net revenues of the University and the assets restricted under the bond indenture agreements. Capital leases are due in periodic installments through November 20, 2028 and bear interest at 1.4% to 4.5%. All bonds, except for the General Receipts 2012 Bonds Series A and General Receipts 2014 Bonds Series C, totaling $919.6 million, are callable between October 2016 and April 2025. The indenture agreements require that certain funds be established with the trustee and with the Commonwealth. On February 10, 2016, approximately $155.8 million of University of Kentucky General Receipts 2016 Bonds Series A and B at a true interest cost of 3.6% and 2.8%, respectively, were issued for the purpose of funding the construction of the new student center.
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In prior fiscal years, certain general receipts bonds series were issued as Build America Bonds (BAB) as authorized under the American Recovery and Reinvestment Act of 2009 and as Qualified Energy Conservation Bonds (QECB) as authorized under the Recovery Act and the Hiring Incentive to Restore Employment Act of 2010. The University will receive an annual cash subsidy from the U.S. Treasury equal to 35% (BAB) and 80% (QECB) of the interest payable on the bonds. The subsidy, which was approximately $2.3 million during fiscal years 2016 and 2015, was included in gifts and non-exchange grants in the Statements of Revenues, Expenses and Changes in Net Position. The subsidy payment is contingent on federal regulations and may be subject to change. On March 1, 2013, the President signed an executive order reducing the budgetary authority in accounts subject to sequestration. As a result, the BAB subsidy was reduced to approximately 33% and 32% in 2016 and 2015, respectively. The QECB subsidy was reduced to approximately 74% in 2016 and 2015. Principal maturities and interest on bonds, notes and capital leases for the next five fiscal years and in subsequent five-year fiscal periods as of June 30, 2016, are as follows (in thousands):
Principal Interest Total
2017 67,869$ 43,493$ 111,362$ 2018 52,147 40,409 92,556 2019 48,238 38,590 86,828 2020 49,551 36,826 86,377 2021 48,658 34,701 83,359 2022-2026 252,867 146,592 399,459 2027-2031 157,245 93,237 250,482 2032-2036 130,740 65,286 196,026 2037-2041 133,910 36,789 170,699 2042-2046 102,430 10,688 113,118
Total 1,043,655$ 546,611$ 1,590,266$
At June 30, 2016, assets with a fair market value of approximately $129.9 million have been placed on deposit with trustees to totally defease bonds with a par amount of approximately $122.6 million. The liability for these fully defeased bonds is not included in the financial statements.
8. DEFERRED INFLOWS OF RESOURCES
As of June 30, 2016 and 2015, deferred inflows of resources are as follows (in thousands):
2016 2015
Aramark service concession arrangement 140,306$ 105,900$ Barnes and Noble service concession arrangement 4,084 4,924 EdR service concession arrangement 222,356 130,300
Total 366,746$ 241,124$
The University has entered into a multi-phase housing project with a third party developer, Education Realty Trust (EdR), to complete a long-term housing plan. Phase I, signed in April 2012, was for two four-story buildings (601 beds), and opened in August 2013. The project, with a cost of $25.2 million, is on land owned by the University and leased to EdR for a 50 year term with options for additional 10 year and 15 year terms thereafter. At the conclusion of the initial 50 year term or the first renewal option, the University will be required to purchase the buildings from EdR for an appraised value, unless the ground lease is renewed for the first or second optional extension. At the conclusion of the second optional extension, the University is required to purchase the buildings for the greater of current net book value or $10. Ground lease is a percentage of gross revenues. The University accounts for the ground lease as an operating lease. These facilities are subject to ad valorem tax. Phase II-A and Phase II-B, which opened in August 2014 and August 2015 respectively, included the development of eight residence halls at a cost of $238.4 million. The residence halls are reported as a capital asset with a carrying value of $233.4 million at June 30, 2016 and deferred inflows of resources in the amount
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of $222.3 million pursuant to the service concession arrangement. The 75 year term lease with EdR includes maintenance standards for the facilities and parameters for the room rental rates for the contract duration. The University will receive a percentage of the total revenues and a share of the net income, after EdR achieves a minimum internal rate of return. Phase II-A and subsequent phases are exempt from ad valorem tax. Future plans include Phase II-C for the construction of two residence halls at an approximate cost of $83.9 million opening in August 2016; Phase III-A, expected to open in August 2017, will be a $74.0 million, 771 bed facility which will provide apartment style units for upper class, graduate and professional students; Phase III-B, expected to also open in August 2017, will be a $37.1 million, 346 bed facility to house undergraduate students and will include space dedicated to the future Lewis Honors College. In July 2014, the University entered into an approximately $250.0 million contract with Aramark Enterprise Services, LLC (Aramark), forming a 15 year public/private partnership. This partnership is transforming dining services offered to students, faculty, staff, and the community served. Under the partnership, several new food brands are located on campus. Aramark provides meals covered under the University’s student boarding plans and declining balance dollars. The contract allows for dining commissions to be paid to the University with guaranteed minimum amounts for each contract year. Aramark is providing $70.0 million in facilities investments, including $40.0 million in new facilities, subject to board approval, to be completed by fiscal year 2017-18. As part of these facilities investments, Aramark constructed a new K Lair Grill at Haggin Hall, made substantial upgrades to the student center food court and constructed “The 90” dining facility for the Fall 2015 semester. The completed projects are reported as a capital asset with a carrying value of $56.0 million at June 30, 2016 and deferred inflows of resources in the amount of $52.0 million pursuant to the service concession arrangement. The present value of the guaranteed minimum payments over the remaining 13 years of the contract is reported as a receivable of $86.7 million and deferred inflows of resources in the amount of $88.3 million pursuant to the service concession arrangement.
In June 2015, the University entered into a contract with Barnes and Noble College Booksellers (Barnes and
Noble) to operate and provide services for the bookstore for ten years with an additional five year renewal option period. Barnes and Noble constructed a temporary bookstore for use until the new student center opens in January 2018. The present value of the guaranteed minimum payments over the remaining 14 years of the contract period is reported as a receivable of $4.0 million and deferred inflows of resources in the amount of $4.1 million pursuant to the service concession arrangement.
9. COMPONENTS OF RESTRICTED EXPENDABLE NET POSITION
Restricted expendable net position are subject to externally imposed stipulations or conditions that must be followed and cannot be used for support of general operations of the University. As of June 30, 2016 and 2015, restricted expendable net position is composed of the following (in thousands):
2016 2015
Appreciation on permanent endowments 123,005$ 158,121$ Term endowments 7,432 9,123 Quasi-endowments initially funded with restricted assets 50,090 50,775 Funds restricted for capital projects and debt service 186,185 129,458 Funds restricted for noncapital purposes 115,987 93,605 Loan funds (primarily University funds required for federal match) 11,455 10,908
Total 494,154$ 451,990$
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10. DESIGNATIONS OF UNRESTRICTED NET POSITION Unrestricted net position is designated for specific purposes by action of the Board or management or may otherwise be limited by contractual agreements. Commitments for the use of unrestricted net position as of June 30, 2016 and 2015 are as follows (in thousands):
2016 2015
Working capital requirements 92,944$ 109,072$ Budget appropriations for future year fiscal operations 209,665 180,535 Designated for capital projects 43,930 36,831 Designated for renewal and replacement of capital assets 52,368 31,021 UK HealthCare Hospital System 647,928 585,764 Affiliated corporations and component units 56,801 54,411
Total 1,103,636$ 997,634$
11. PLEDGED REVENUES
Pledged revenues for 2016 and 2015 as defined by the General Receipts Trust Indenture, are as follows (in thousands):
2016 2015
Student tuition and fees 319,627$ 302,936$ Nongovernmental grants and contracts 1,145 849 Recoveries of facilities and administrative costs 51,088 48,154 Sales and services 48,710 40,004 Hospital services 1,417,243 1,323,652 Auxiliary enterprises - housing and dining 39,103 39,265 Auxiliary enterprises - athletics 102,995 88,928 Auxiliary enterprises - other 49,434 47,039 Other operating revenue 838 852 State appropriations 279,611 279,611 Gifts and grants 4,583 4,955 Investment income 10,761 21,774
Total 2,325,138$ 2,198,019$
The University has substantially pledged all of the unrestricted operating and nonoperating revenues to repay the general receipts bonds and notes issued during 2005 to 2016. Proceeds from the bonds and notes provided funding for new construction, major renovations, and for the refunding of bonds and notes issued over the years. The bonds are payable from unrestricted revenues, operating and nonoperating, and are payable through 2046. Annual principal and interest payments on bonds are expected to require approximately three percent of pledged revenue. The total principal and interest remaining to be paid on the bonds is approximately $1.47 billion and $1.28 billion in 2016 and 2015, respectively. Principal and interest paid for 2016 and 2015 was $64.6 million and $53.2 million, respectively.
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12. INVESTMENT INCOME Components of investment income (loss) for the years ended June 30, 2016 and 2015 are as follows (in thousands):
2016 2015
Interest and dividends earned on endowment investments 15,073$ 12,154$ Realized and unrealized gains (losses) on endowment investments (26,808) 9,877 Interest and dividends on cash and non-endowment investments 7,463 3,242 Realized and unrealized gains (losses) on non-endowment investments (49) 18,293
Investment income from external trusts 1,656 1,622
Total (2,665)$ 45,188$
13. FUNDS HELD IN TRUST BY OTHERS
The University is the income beneficiary of various trusts that are held and controlled by external trustees. For the years ended June 30, 2016 and 2015, the University received income from these trusts of approximately $1.7 million and $1.6 million, respectively. The market value of the external trust assets as of June 30, 2016 and 2015 was approximately $37.4 million and $41.5 million, respectively. As the University does not have ownership of the trust assets held by external trustees, the trusts are recorded at a nominal value of $1 each. Effective January 1, 2016, the University became the administrator of five trusts that were previously held and controlled by external trustees. The University received income from these self-administered trusts of approximately $42,000. The market value of the self-administered trusts as of June 30, 2016 was approximately $1.8 million and included in endowment investments.
14. GRANTS AND CONTRACTS AWARDED
At June 30, 2016 and 2015, grants and contracts of approximately $201.4 million and $189.2 million, respectively, have been awarded to the University and the University of Kentucky Research Foundation, but not expended. These amounts will be recognized in future periods.
15. RETIREMENT PLANS Regular full-time employees, including faculty, are participants in the University of Kentucky Retirement Plan, a defined contribution plan. The University of Kentucky Retirement Plan consists of five groups as follows:
Group I Established July 1, 1964, for faculty and certain administrative officials.
Group II Established July 1, 1971, for staff members in the clerical, technical and service categories.
Group III Established July 1, 1972, for staff members in the managerial, professional and scientific categories.
Group IV Established January 1, 1973, for staff members having U.S. Civil Service retirement entitlement.
Group V Established July 1, 1987, for staff members covered under the Federal Employees Retirement System that replaced Civil Service (those whose employment began during the period from January 1, 1984 to March 31, 1987). Staff members whose employment began after March 31, 1987 are under one of the above University of Kentucky Retirement Plans.
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Participation in the University of Kentucky Retirement Plan is mandatory for all regular full-time employees in groups I, II and III who are age 30 or older. Participation is voluntary for regular full-time employees under the age of 30 and for those employees in groups IV and V. Participants in groups I, II, III and IV contribute five percent and the University contributes 10% of the participant’s eligible compensation to the retirement plan. Participants in group V contribute one percent and the University contributes two percent of the participant’s eligible compensation to the retirement plan.
The University has authorized two retirement plan carriers, as follows:
Teachers Insurance and Annuity Association (TIAA) Fidelity Investments Institutional Services Company
Under the fully funded University of Kentucky Retirement Plan, the University and plan participants make contributions to provide retirement benefits to employees in individually owned contracts. All payments are vested immediately for employees hired prior to January 1, 2010. For employees hired after January 1, 2010, employer contributions are vested after three years. The University's contributions and costs for 2016 and 2015 were approximately $107.1 million and $97.7 million, respectively. Employees contributed approximately $53.3 million in 2016 and $48.6 million in 2015. The University's total payroll costs were approximately $1.37 billion and $1.26 billion for the years ended June 30, 2016 and 2015, respectively. The payroll for employees covered by the retirement plan was approximately $1.07 billion and $975.0 million for the years ended 2016 and 2015, respectively. Regular full-time KMSF employees become eligible to participate in a defined contribution plan on the first of the month following the employee’s regular full time hire date and attainment of age 21. KMSF contributes 10% of the employee’s earnings and employees do not contribute to this plan. KMSF contributions for 2016 and 2015 were approximately $863,000 and $695,000, respectively. The total payroll costs for employees covered by the defined contribution plan were approximately $8.7 million and $7.1 million for the years ended June 30, 2016 and 2015, respectively. Participants become vested in the plan according to years of service, with 100% vesting at three years or more. In addition to retirement benefits provided from the group retirement plan, the University provides supplemental retirement income benefits to certain eligible employees in each of the retirement groups (see note 16).
16. MINIMUM ANNUAL RETIREMENT BENEFITS AND SUPPLEMENTAL RETIREMENT INCOME
Employees in retirement groups I, II and III (see note 15) who were age 40 or older prior to the date of establishment of each group plan, and who were employed by the University prior to that date, qualify for the minimum annual retirement benefit provisions of the retirement plan. Benefits for these eligible employees are based upon a percentage, determined through years of service, of the participant's annual salary in the last year of employment prior to retirement. Retirement benefits as determined are funded by each individual retiree's accumulation in the group retirement plan, with the balance, if necessary, provided by the University as supplemental retirement income. No active employees were eligible for this benefit for the years ended June 30, 2016 and 2015. The Legislature of the Commonwealth appropriates funds to the University which the University has used for payment of supplemental retirement income benefits since adoption of the group retirement plans, and is expected to continue this practice. However, the Constitution of the Commonwealth prohibits the commitment of future revenues beyond the end of the current biennium. The University does not recognize the liability for supplemental retirement income benefits during the service life of covered employees, but recognizes its costs when funds are appropriated by the Legislature and payments are made. The University intends to continue paying supplemental retirement income benefits. Supplemental retirement benefit payments were approximately $1.3 million and $1.4 million for the years ended June 30, 2016 and 2015, respectively. The latest actuarial valuation was prepared as of July 1, 2015 by TIAA. The actuarial present value of accumulated supplemental retirement income benefits as determined by this valuation, utilizing an assumed rate of return of 3.2%, was approximately $6.4 million.
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17. HEALTH INSURANCE BENEFITS FOR RETIREES The University administers a single-employer defined benefit healthcare plan including medical and
prescription drug benefits. The plan provides lifetime healthcare insurance benefits for eligible retirees and their surviving spouses. Employees are eligible for the University retiree health benefits upon retirement after (a) completing 15 years of continuous service and (b) age plus years of service equal at least 75 years (“rule of 75”). Employees hired on or after January 1, 2006 are eligible to participate in the retiree healthcare plan on an “access only” basis upon retirement, but they must pay 100% of the cost of the selected plan. Employees hired prior to January 1, 2006 are eligible for the University subsidy based on their hire date and surviving spouses receive one-half of the health credit their spouse was entitled to if they were covered by the health plan at the time of the retiree’s death. No health credit is provided to a spouse of a living retiree. Human Resources policies and procedures define retiree health benefits and can be amended by the President of the University as delegated by the Board. Employees who were hired before August 1, 1965 are also eligible for $5,000 of life insurance coverage upon retirement.
The retiree health plan does not issue a publicly available financial report, but it is included in this report of the
University using the economic resources measurement focus and the accrual basis of accounting under which expenses, including benefits and refunds, are recorded when the liability is incurred. Employer contributions are recorded in the accounting period in which they are earned and become measureable. Investments are reported at fair market value and based on published prices and quotations from major investment brokers at current exchange rates, as available.
The contribution requirements of plan members and the University are established and may be amended by
the President of the University. For employees hired before January 1, 2006, the University provides a pre-65 credit of up to 90% of the “true retiree” cost of the least expensive pre-65 medical plan. For post-65 benefits, the University provides a credit equal to 90% of the “true retiree” cost of the post-65 medical plan. For fiscal year 2016, the University contributed $24.8 million to the plan. Plan members receiving benefits contributed 31.5% of the premium costs, an average for combined single and family coverage. In fiscal year 2016, total member contributions were approximately $5.2 million.
The University has established a trust fund to segregate plan assets, and currently plans to contribute amounts to the trust fund sufficient to fully fund the annual required contribution (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The University plans to continue to finance retiree benefits by pre-funding benefits and contributing the ARC into a segregated, protected trust fund and will amortize the initial unfunded actuarial accrued liability (UAAL) over a 30 year closed period. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The current ARC of $23.7 million is 4.8% of annual covered payroll. There are no long-term contracts for contributions to the plan. The following table presents the other postemployment benefits (OPEB) cost for the year, the amount contributed and changes in the OPEB Plan for fiscal year 2016 (in thousands):
Annual required contribution 23,741$
Contributions made (24,373)
Change in net OPEB obligation/(asset) (632)
Net OPEB obligation/(asset) - beginning of year (387)
Net OPEB obligation/(asset) - end of year (1,019)$
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The University’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for fiscal year 2016, 2015 and 2014, are as follows (in thousands):
Fiscal Year Ended
Annual OPEB cost
Percentage of Annual OPEB
Cost Contributed Net OPEB
Obligation/(Asset)
6/30/2014 $19,801 100.0% ($239)6/30/2015 $20,395 100.7% ($387)6/30/2016 $23,741 102.7% ($1,019)
As of July 1, 2016, the actuarial accrued liability (AAL) for benefits was $349.5 million, with an actuarial value
of assets of $120.0 million, resulting in an UAAL of $229.5 million. The covered payroll (annual payroll of active employees covered by the plan) was $489.9 million and the ratio of the UAAL to the covered payroll was 46.8% at June 30, 2016. The University implemented the University of Kentucky OPEB Trust in July 2007, after the July 1, 2007 actuarial valuation date. As of June 30, 2016, net trust fund assets totaled $120.0 million.
Actuarial valuation of an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of events far into the future. Examples include assumptions about future employment, mortality and the healthcare cost trend. Actuarially determined amounts are subject to continual revisions as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, is designed to present multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.
The projection of benefits for financial reporting purposes is based on the substantive plan (the plan as
understood by the employer and the plan members) and includes the type of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects for legal or contractual funding limitations on the pattern of cost sharing between the employer and plan member in the future. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
In the July 1, 2015 actuarial valuation, the projected unit credit actuarial cost method was used. The actuarial
assumptions included a 7.5% discount rate based on the University’s ARC funding policy based on the expected long-term return on the separate trust assets that will be used to finance the payment of plan benefits. The projected annual healthcare trend rate is initially 7.1% for the pre-65 members, five percent for post-65 medical benefits and 10.0% for post-65 prescription benefits, reduced in decrements to an ultimate rate of 2.2% for pre-65 members after nine years, five percent for post-65 medical benefits immediately and five percent for post-65 prescription benefits after 13 years. The post-65 medical benefits annual healthcare trend is reduced to -2.1% in 2047 as the University will adjust their benefits each year to remain below the excise tax limit. The expected long-term payroll growth rate was assumed to be three percent per year. The initial UAAL is being amortized as a level percent of pay amount on a closed basis. The remaining amortization period at July 1, 2015 was 22 years.
18. LONG-TERM DISABILITY BENEFIT PLAN
The University is self-funded for a long-term disability income program and has established a trust for the
purpose of paying claims and establishing necessary reserves. Regular employees with a full-time equivalent of 0.75 or greater who have completed 12 months of service are automatically enrolled in the plan. To be covered, an employee must be actively at work on the first day of the month after the employee completes one full year of service. An employee approved for long-term disability receives benefits based on the employee’s basic regular monthly salary at the time of the onset of the disabling condition. Primary income benefits provide payment of 60% of the basic regular monthly salary less any disability received from government programs and/or another employer for the same condition. Basic salary for medical faculty is defined as the tenure base salary. Other sources of income used in the benefit formula include Social Security, worker’s
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compensation or other similar government programs, veterans’ or other governmental disability payments, or other employer-sponsored disability benefits.
Employees approved for long-term disability receive 100% of their basic salary for the first six months and 60% thereafter. Benefits end when plan members recover, die, terminate employment or retire. In most cases, claimants retire at age 65. The plan also includes provisions for health insurance that allow participants who were enrolled in a health plan at the time their disability benefit began to continue health coverage (University subsidy limited to 29 months for claimants approved on or after October 1, 2006), life insurance benefit ($10,000 before July 1, 2007 or one times salary on or after July 1, 2007) and retirement contributions equal to 10% of pre-disability salary per year for applications filed on or after October 1, 2006 and 15% of pre-disability salary per year for applications filed before October 1, 2006.
The long-term disability plan does not issue a publicly available financial report, but is included in this report of the University using the economic resources measurement focus and the accrual basis of accounting under which expenses, including benefits and refunds, are recorded when the liability is incurred. Employer contributions are recorded in the accounting period in which they are earned and become measureable. Investments are reported at fair market value and based on published prices and quotations from major investment brokers at current exchange rates, as available. The coverage of the long-term disability benefits is established and may be amended by the President of the University.
The University currently plans to contribute amounts to the trust fund sufficient to fully fund the ARC, an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The University plans to continue to finance long-term disabilities by pre-funding benefits and contributing to the ARC into a segregated, protected trust fund and will amortize the initial UAAL over a 30 year closed period. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The current ARC of $1.9 million is 0.2% of annual covered payroll. There are no long-term contracts for contributions to the plan. The following table presents the OPEB cost for the year, the amount contributed and changes in the OPEB plan for fiscal year 2016 (in thousands):
Annual required contribution 1,926$ Contributions made (1,929)
Change in net OPEB obligation/(asset) (3) Net OPEB obligation/(asset) - beginning of year 2 Net OPEB obligation/(asset) - end of year (1)$
The University’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for fiscal year 2016, 2015 and 2014 are as follows (in thousands):
Fiscal Year Ended
Annual OPEB cost
Percentage of Annual OPEB
Cost Contributed Net OPEB
Obligation/(Asset)
6/30/2014 $2,139 100.5% ($4)
6/30/2015 $2,203 99.7% $2
6/30/2016 $1,926 100.2% ($1) As of July 1, 2016, the AAL for benefits was $23.5 million and the actuarial value of assets was $16.6 million,
resulting in an UAAL of $6.9 million. The covered payroll (annual payroll of active employees covered by the plan) was $883.7 million and the ratio of the UAAL to the covered payroll was 0.8% at June 30, 2016.
Actuarial valuation of an ongoing plan involves estimates of the value of reported amounts and assumptions
about the probability of events far into the future. Major factors affecting all long-term disability benefits are the rate at which people become disabled and how quickly they are expected to recover from disability. These rates will improve or deteriorate over time, for example with the state of the economy, with technological
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development and health related events. Other factors that could also impact the liability include salary inflation, changes in utilization patterns, changes to government programs and technological advances, such as new drugs or equipment. Actuarially determined amounts are subject to continual revisions as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, is designed to present multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.
The projection of benefits for financial reporting purposes is based on the substantive plan (the plan as understood by the employer and the plan members) and includes the type of benefits provided at the time of each valuation. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
In the July 1, 2015 actuarial valuation, the projected unit credit actuarial cost method was used. The actuarial assumptions included a 7.5% discount rate based on the University’s funding policy (ARC funding) based on the expected long-term return on the separate trust assets that will be used to finance the payment of plan benefits. The projected elimination period is six months; termination (mortality and recovery from disability) and gender and age-related disability incidence rates are based on the 2012 SOA Group Long-Term Disability Table. Benefits end when members recover, die, terminate employment or retire. For long-term disabilities arising at age 64 or later, the duration of the long-term disability payments is limited to 12 months. Payments are assumed to be made until the later of (a) age 65 or (b) five years after date of disability. An employee approved for long-term disability benefits receives primary and supplemental payment benefits based on the employee's basic regular monthly salary at the time of onset of the disabling condition. Primary income benefits provide payment of 60% of the basic regular monthly salary less any disability received from government programs and/or other employers for the same condition. Basic salary for medical faculty is defined as the tenure base salary. Other sources of income used in the benefit formula include Social Security, workers' compensation or other similar government programs, veterans' or other governmental disability payments, or other employer-sponsored disability benefits. Claimants that file applications and who are approved for benefits on October 1, 2006 or after will have benefits based on the following schedule:
Months Percentage of Salary
1-6 100%
7-End of Benefit 60%
The projected long-term income benefit is based on actual net benefit currently being paid with social security offset. For people who have been disabled for less than 24 months and are currently not entitled to a social security offset, it was assumed that the offset will eventually be approved according to the following table:
Months Since Disability Proportion
<12 5%
12-17 40%
18-23 40%
24+ 80%
The future salary increase for active members was assumed to be three percent per year. The initial UAAL is being amortized as a level percent of pay amount on a closed basis. The remaining amortization period at July 1, 2015 was 22 years.
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19. RISK MANAGEMENT The University is exposed to various risks of loss related to torts; theft of, damage to, or destruction of assets; errors and omissions; injuries to employees; and natural disasters. These risks are covered by (1) the State Fire and Tornado Insurance Fund (the insurance fund), (2) Sovereign Immunity and the State Board of Claims, or (3) in the case of risks not covered by the insurance fund and Sovereign Immunity, commercial insurance, participation in insurance risk retention groups or self-insurance. The insurance fund covers losses to property from fire, wind, earthquake, flood and most other causes of loss between $1,000 and $1.0 million per occurrence. Losses in excess of $1.0 million are insured by commercial carriers up to $1.25 billion per occurrence with buildings and contents insured at replacement cost. As a state agency, the University is vested with Sovereign Immunity and is subject to the provisions of the Board of Claims Act, under which the University's liability for certain negligence claims is limited to $200,000 for any one person or $350,000 for all persons damaged by a single act of negligence. Claims against educators' errors and omissions and wrongful acts are insured through a reciprocal risk retention group. There have been no significant reductions in insurance coverage from 2015 to 2016. Settlements have not exceeded insurance coverage during the past three years. The University and its agents are insured against medical malpractice by a combination of Sovereign Immunity, self-insurance, commercial liability insurance and an excess coverage fund established by the Commonwealth. An actuarial valuation is performed to determine the self-insurance funding requirements and the fund liability, which has been discounted using an interest rate of 3.5%. The malpractice liability as of June 30, 2016 is based on the requirements of GASB Statement No. 10, which requires that a liability for claims be recorded if it is probable that a loss has occurred and the amount of loss can be reasonably estimated. The liability includes an estimate for claims that have been incurred but not reported as of June 30, 2016. The University also self-insures certain employee benefits, including health insurance, worker's compensation and unemployment claims to the extent not covered by insurance. The University has recorded an estimate for asserted claims at June 30, 2016.
20. CONTINGENCIES The University is a defendant in various lawsuits. The nature of the educational and health care industries is such that, from time to time, claims will be presented on account of alleged negligence, acts of discrimination, medical malpractice, breach of contract or disagreements arising from the interpretation of laws or regulations. While some of these claims may be for substantial amounts, they are not unusual in the ordinary course of providing educational and health care services at a large institution. However, University officials are of the opinion, based on advice of in-house legal counsel, that the effect of the ultimate outcome of all litigation will not be material to the future operations or financial position of the University.
21. RESEARCH CHALLENGE TRUST FUND The Research Challenge Trust Fund (RCTF) was created by the Kentucky General Assembly with the passage of the Postsecondary Education Improvement Act of 1997 (House Bill 1). The objectives of the RCTF, as stated in House Bill 1, include support of efforts by the University to attain status as a top-20 public research university. The RCTF Endowment Match Program provides state funds on a dollar-for-dollar match basis. This program, also known as “Bucks for Brains,” supports endowed chairs, professorships and graduate fellowships, and the research and graduate mission of the University. With the passage of the 2008-10 budget of the Commonwealth, the 2008 General Assembly authorized $50.0 million in General Fund supported bonds in 2008-09 for the RCTF to support the Endowment Match Program and a newly created Research Capital Match Program. In accordance with KRS 164.7917, these funds were allocated two-thirds to the University of Kentucky ($33.3 million) and one-third to the University of Louisville ($16.7 million). At its June 9, 2009 board meeting, the Board approved the allocation of the University’s RCTF appropriation as follows: $21.9 million to the Research Capital Match Program and $11.4 million to the Endowment Match Program.
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The status of the RCTF endowed funds as of June 30, 2016, is summarized below (in thousands):
Kentucky University ofGeneral Assembly Kentucky State Funds
Funding Share of Funding Received to Date
1998 Biennium 100,000$ 66,667$ 66,667$ 2000 Biennium 100,000 68,857 68,857 2002 Biennium 100,000 66,667 66,667 2008 Biennium: Capital Projects 21,927 21,927 21,927 2008 Biennium: RCTF 28,073 11,406 11,406
Total 350,000$ 235,524$ 235,524$
Interest income of approximately $2.2 million was earned on the state matching funds and included in the University’s share of the 2000 biennium funding. As of June 30, 2016, all private gifts and pledges matched by the RCTF program have been received.
22. CANCER RESEARCH MATCHING FUND The Kentucky General Assembly created the Cancer Research Institutions Matching Fund, which is funded by a one-cent surtax levied on every 20 cigarettes sold in Kentucky. Tax revenues are made available equally to the University of Kentucky and the University of Louisville when matched dollar-for-dollar by private sources. A summary of the receipts and expenses related to the fund as of June 30, 2016 and 2015 are as follows (in thousands):
2016 2015
Funds from private sources approved for match 7,761$ 7,749$ Cigarette excise tax funds distributed 1,925 1,953
Total cancer research matching fund revenues 9,686$ 9,702$
Cancer research matching fund expenses 7,524$ 7,763$
23. NATURAL CLASSIFICATION
The University’s operating expenses by natural classification for the years ended June 30, 2016 and 2015 are as follows (in thousands):
2016 2015
Salaries and wages 1,382,346$ 1,265,729$ Employee benefits 365,932 343,916 Supplies and services 740,199 621,350 Depreciation 148,109 134,374 Student scholarships and financial aid 60,477 54,676 Purchased utilities 49,421 50,970 Other, various 141,555 138,238
Total 2,888,039$ 2,609,253$
24. COMBINED CONDENSED STATEMENTS
The University of Kentucky and its blended component units’ condensed statements for the years ended June 30, 2016 and 2015 were summarized as follows (in thousands):
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CE
SC
urr
ent
Ass
ets
Cas
h an
d ca
sh e
qui
vale
nts
627,
555
$
54
,566
$
9,
260
$
338
$
86$
26
$
167
$
1,
493
$
252
$
-$
693,
743
$
N
otes
, lo
ans
and
acco
unts
rec
eiva
ble,
net
265,
830
30
,796
3,58
0
-
-
-
-
428
48,1
77
(5
1,19
1)
29
7,62
0
Inve
stm
ents
-
-
-
-
-
-
-
-
16
,977
-
16
,977
Inve
ntor
ies
and
othe
r as
sets
46,2
67
3,
889
90
-
-
-
-
18
370
(174
)
50,4
60
T
otal
cur
rent
ass
ets
939,
652
89
,251
12,9
30
33
8
86
26
16
7
1,
939
65,7
76
(5
1,36
5)
1,
058,
800
No
ncu
rren
t A
sset
sR
estr
icte
d ca
sh a
nd c
ash
equi
vale
nts
398,
569
-
-
-
-
-
-
-
-
-
398,
569
E
ndow
men
t in
vest
men
ts1,
197,
209
12,8
17
15
3
8,
286
1,
282
1,83
2
-
-
-
-
1,
221,
579
Oth
er lo
ng-t
erm
inve
stm
ents
250,
753
88
6
-
-
-
-
-
-
48,0
29
(2
51)
29
9,41
7
Not
es,
loan
s an
d ac
coun
ts r
ecei
vabl
e, n
et32
6,51
8
35
-
-
-
-
-
-
81
3
-
327,
366
O
ther
non
curr
ent
asse
ts44
1
-
45
1
-
-
-
-
-
-
(451
)
441
Cap
ital a
sset
s, n
et
2,61
8,46
1
9,
035
-
-
-
-
-
87
82
,055
-
2,
709,
638
Tot
al n
oncu
rren
t as
sets
4,79
1,95
1
22
,773
604
8,28
6
1,28
2
1,
832
-
87
13
0,89
7
(702
)
4,95
7,01
0
T
otal
ass
ets
5,73
1,60
3
11
2,02
4
13,5
34
8,
624
1,
368
1,85
8
16
7
2,
026
196,
673
(5
2,06
7)
6,
015,
810
Def
erre
d O
utf
low
s o
f R
eso
urc
es12
,164
-
-
-
-
-
-
-
-
-
12
,164
Tot
al a
sset
s an
d de
ferr
ed o
utflo
ws
of r
esou
rces
5,74
3,76
7
11
2,02
4
13,5
34
8,
624
1,
368
1,85
8
16
7
2,
026
196,
673
(5
2,06
7)
6,
027,
974
LIA
BIL
ITIE
S A
ND
DE
FE
RR
ED
IN
FL
OW
S O
F R
ES
OU
RC
ES
Cu
rren
t L
iab
ilit
ies
Acc
ount
s pa
yabl
e an
d ac
crue
d lia
bilit
ies
313,
361
10
,436
1,87
9
-
-
8
-
1,93
9
11
1,76
3
(112
,569
)
326,
817
U
near
ned
reve
nue
44,5
31
32
,784
111
-
-
-
-
-
2,84
7
(625
)
79,6
48
Lo
ng-t
erm
liab
ilitie
s -
curr
ent
port
ion
80,1
47
-
-
-
-
-
-
-
21,9
22
-
102,
069
T
otal
cur
rent
liab
ilitie
s43
8,03
9
43,2
20
1,
990
-
-
8
-
1,
939
136,
532
(1
13,1
94)
50
8,53
4
No
ncu
rren
t L
iab
ilit
ies
Une
arne
d re
venu
e17
9,85
3
-
-
-
-
-
-
-
-
-
17
9,85
3
Long
-ter
m li
abili
ties
1,22
1,86
5
40
4
-
-
-
-
-
-
24,0
45
-
1,24
6,31
4
T
otal
non
curr
ent
liabi
litie
s1,
401,
718
404
-
-
-
-
-
-
24
,045
-
1,
426,
167
Tot
al li
abili
ties
1,83
9,75
7
43
,624
1,99
0
-
-
8
-
1,93
9
16
0,57
7
(113
,194
)
1,93
4,70
1
D
efer
red
In
flo
ws
of
Res
ou
rces
366,
746
-
-
-
-
-
-
-
-
-
366,
746
T
otal
liab
ilitie
s an
d de
ferr
ed in
flow
s of
res
ourc
es2,
206,
503
43
,624
1,
990
-
-
8
-
1,93
9
160,
577
(113
,194
)
2,
301,
447
NE
T P
OS
ITIO
N
Net
in
vest
men
t in
cap
ital
ass
ets
1,48
1,81
6
9,
035
-
-
-
-
-
87
36
,096
-
1,
527,
034
Res
tric
ted
Non
expe
ndab
le59
4,95
4
832
31
4,60
7
618
66
1
-
-
-
-
601,
703
E
xpen
dabl
e48
3,59
6
3,98
3
452
4,01
7
750
1,
189
167
-
-
-
49
4,15
4
Tot
al r
estr
icte
d1,
078,
550
4,81
5
483
8,62
4
1,36
8
1,
850
167
-
-
-
1,
095,
857
Un
rest
rict
ed97
6,89
8
54,5
50
11
,061
-
-
-
-
-
-
61
,127
1,
103,
636
Tot
al n
et p
ositi
on3,
537,
264
$
68
,400
$
11
,544
$
8,
624
$
1,36
8$
1,85
0$
167
$
87
$
36,0
96$
61,1
27$
3,
726,
527
$
54
UN
IVE
RS
ITY
OF
KE
NT
UC
KY
A C
OM
PO
NE
NT
UN
IT O
F T
HE
CO
MM
ON
WE
AL
TH
OF
KE
NT
UC
KY
CO
MB
INE
D C
ON
DE
NS
ED
ST
AT
EM
EN
T O
F N
ET
PO
SIT
ION
AS
OF
JU
NE
30,
201
5(i
n t
ho
usa
nd
s)
UK
R
esea
rch
Fou
ndat
ion
The
F
und
Glu
ck
Equ
ine
Res
earc
hF
ound
atio
n H
uman
ities
F
ound
atio
n
Min
ing
Eng
inee
ring
Fou
ndat
ion
Cen
ter
onA
ging
Cen
tral
K
entu
cky
Man
agem
ent
Ser
vice
s
Ken
tuck
y M
edic
al
Ser
vice
s F
ound
atio
n E
limin
atio
ns
Tot
alA
SS
ET
S A
ND
DE
FE
RR
ED
OU
TF
LO
WS
OF
RE
SO
UR
CE
SC
urr
ent
Ass
ets
Cas
h an
d ca
sh e
quiv
alen
ts56
0,45
0$
49,5
92$
10,3
08$
247
$
63$
21
$
170
$
549
$
56
1$
-
$
62
1,96
1$
Not
es, l
oans
and
acc
ount
s re
ceiv
able
, net
265,
519
32
,559
2,
597
-
-
-
-
1,
035
41,3
33
(50,
267)
29
2,77
6
Inve
stm
ents
-
-
-
-
-
-
-
-
21,7
02
-
21,7
02
In
vent
orie
s an
d ot
her
asse
ts44
,609
2,12
9
1
-
-
-
-
18
57
-
46,8
14
T
otal
cur
rent
ass
ets
870,
578
84
,280
12
,906
24
7
63
21
17
0
1,
602
63,6
53
(50,
267)
98
3,25
3
No
ncu
rren
t A
sset
sR
estr
icte
d ca
sh a
nd c
ash
equi
vale
nts
315,
522
-
-
-
-
-
-
-
-
-
315,
522
E
ndow
men
t inv
estm
ents
1,21
4,84
8
4,
296
16
5
8,
941
1,
383
1,92
4
-
-
-
-
1,
231,
557
Oth
er lo
ng-t
erm
inve
stm
ents
219,
257
1,
080
-
-
-
-
-
-
54,9
27
(263
)
275,
001
N
otes
, loa
ns a
nd a
ccou
nts
rece
ivab
le, n
et33
8,14
9
2
-
-
-
-
-
-
802
-
338,
953
O
ther
non
curr
ent a
sset
s28
3
-
-
-
-
-
-
-
-
-
28
3
Cap
ital a
sset
s, n
et
2,25
1,25
4
9,
504
-
-
-
-
-
137
75
,745
-
2,
336,
640
Tot
al n
oncu
rren
t ass
ets
4,33
9,31
3
14
,882
16
5
8,
941
1,
383
1,92
4
-
137
13
1,47
4
(2
63)
4,
497,
956
Tot
al a
sset
s5,
209,
891
99,1
62
13,0
71
9,18
8
1,44
6
1,
945
170
1,73
9
19
5,12
7
(5
0,53
0)
5,48
1,20
9
D
efer
red
Ou
tflo
ws
of
Res
ou
rces
13,7
55
-
-
-
-
-
-
-
-
-
13,7
55
T
otal
ass
ets
and
defe
rred
out
flow
s of
res
ourc
es5,
223,
646
99,1
62
13,0
71
9,18
8
1,44
6
1,
945
170
1,73
9
19
5,12
7
(5
0,53
0)
5,49
4,96
4
LIA
BIL
ITIE
S A
ND
DE
FE
RR
ED
INF
LO
WS
OF
RE
SO
UR
CE
SC
urr
ent
Lia
bili
ties
Acc
ount
s pa
yabl
e an
d ac
crue
d lia
bilit
ies
299,
974
10
,489
66
1
1
-
11
5
1,
602
119,
325
(120
,760
)
31
1,30
8
Une
arne
d re
venu
e49
,905
29,7
83
88
-
-
-
-
-
-
-
79
,776
Long
-ter
m li
abili
ties
- cu
rren
t por
tion
78,3
37
-
-
-
-
-
-
-
3,
066
-
81
,403
Tot
al c
urre
nt li
abili
ties
428,
216
40
,272
74
9
1
-
11
5
1,
602
122,
391
(120
,760
)
47
2,48
7
No
ncu
rren
t L
iab
iliti
esU
near
ned
reve
nue
193,
094
-
-
-
-
-
-
-
-
-
193,
094
Lo
ng-t
erm
liab
ilitie
s1,
091,
295
480
-
-
-
-
-
-
39
,226
-
1,
131,
001
Tot
al n
oncu
rren
t lia
bilit
ies
1,28
4,38
9
48
0
-
-
-
-
-
-
39,2
26
-
1,32
4,09
5
T
otal
liab
ilitie
s1,
712,
605
40,7
52
749
1
-
11
5
1,60
2
16
1,61
7
(1
20,7
60)
1,79
6,58
2
D
efer
red
Infl
ow
s o
f R
eso
urc
es24
1,12
4
-
-
-
-
-
-
-
-
-
24
1,12
4
Tot
al li
abili
ties
and
defe
rred
inflo
ws
of r
esou
rces
1,95
3,72
9
40,7
52
74
9
1
-
11
5
1,60
2
16
1,61
7
(120
,760
)
2,
037,
706
INT
ER
FU
ND
BA
LA
NC
ES
(934
)
-
93
4
-
-
-
-
-
-
-
-
NE
T P
OS
ITIO
N
Net
inve
stm
ent
in c
apit
al a
sset
s1,
379,
409
9,50
4
-
-
-
-
-
13
7
33,5
10
-
1,42
2,56
0
R
estr
icte
dN
onex
pend
able
578,
336
82
3
31
4,
607
61
8
659
-
-
-
-
58
5,07
4
Exp
enda
ble
440,
113
4,
395
63
4
4,
580
82
8
1,27
5
16
5
-
-
-
451,
990
T
otal
res
tric
ted
1,01
8,44
9
5,
218
66
5
9,
187
1,
446
1,93
4
16
5
-
-
-
1,03
7,06
4
U
nre
stri
cted
872,
993
43
,688
10
,723
-
-
-
-
-
-
70,2
30
99
7,63
4
Tot
al n
et p
ositi
on3,
270,
851
$
58,4
10$
11,3
88$
9,18
7$
1,44
6$
1,
934
$
165
$
137
$
33
,510
$
70
,230
$
3,45
7,25
8$
55
UN
IVE
RS
ITY
OF
KE
NT
UC
KY
A C
OM
PO
NE
NT
UN
IT O
F T
HE
CO
MM
ON
WE
AL
TH
OF
KE
NT
UC
KY
CO
MB
INE
D C
ON
DE
NS
ED
ST
AT
EM
EN
T O
F R
EV
EN
UE
S,
EX
PE
NS
ES
AN
D C
HA
NG
ES
IN
NE
T P
OS
ITIO
N F
OR
TH
E Y
EA
R E
ND
ED
JU
NE
30,
201
6(i
n t
ho
usa
nd
s)
UK
R
esea
rch
Fou
ndat
ion
The
F
und
Glu
ck
Eq
uine
R
esea
rch
Fou
ndat
ion
Hum
aniti
es
Fou
ndat
ion
Min
ing
Eng
inee
ring
Fou
ndat
ion
Cen
ter
onA
gin
g
Cen
tral
K
entu
cky
Man
agem
ent
Ser
vice
s
Ken
tuck
y M
edic
al
Ser
vice
s F
ound
atio
n E
limin
atio
ns
Tot
alO
PE
RA
TIN
G R
EV
EN
UE
SS
tude
nt t
uitio
n an
d fe
es,
net
319,
627
$
-
$
-$
-
$
-$
-$
-$
-$
-$
-$
319,
627
$
F
eder
al g
rant
s an
d co
ntra
cts
1,45
9
16
7,83
2
-
-
-
-
-
-
-
-
16
9,29
1
S
tate
and
loca
l gra
nts
and
cont
ract
s72
,868
16
,459
1,88
9
-
-
-
-
-
-
-
91
,216
N
ong
over
nmen
tal g
rant
s an
d co
ntra
cts
236,
266
33,8
03
10
,603
-
-
-
-
-
-
(245
,693
)
34,9
79
Rec
over
ies
of f
acili
ties
and
adm
inis
trat
ive
cost
s20
0
50,8
88
-
-
-
-
-
-
-
-
51,0
88
Sal
es a
nd s
ervi
ces
30,3
74
3,16
0
16,0
92
-
-
-
31
31,4
04
-
(32,
238)
48,8
23
Fed
eral
app
ropr
iatio
ns19
,266
-
-
-
-
-
-
-
-
-
19,2
66
Cou
nty
appr
opria
tions
23,7
17
-
-
-
-
-
-
-
-
-
23
,717
P
rofe
ssio
nal c
linic
al s
ervi
ce f
ees
-
-
-
-
-
-
-
-
23
3,59
0
(4
,515
)
229,
075
Hos
pita
l ser
vice
s1,
423,
292
-
-
-
-
-
-
-
-
(6,0
49)
1,
417,
243
Aux
iliar
y en
terp
rises
:
Hou
sing
and
din
ing
, ne
t39
,403
-
-
-
-
-
-
-
-
(3
00)
39
,103
A
thle
tics
102,
995
-
-
-
-
-
-
-
-
-
10
2,99
5
O
ther
aux
iliar
ies
49,4
34
-
-
-
-
-
-
-
-
-
49
,434
O
ther
ope
ratin
g r
even
ues
838
-
-
-
-
-
-
-
84
,250
(7
7,15
7)
7,
931
Tot
al o
pera
ting
rev
enue
s2,
319,
739
272,
142
28
,584
-
-
-
31
31
,404
31
7,84
0
(3
65,9
52)
2,
603,
788
OP
ER
AT
ING
EX
PE
NS
ES
Edu
catio
nal a
nd g
ener
al:
Inst
ruct
ion
290,
890
9,48
2
1,16
1
-
5
53
-
-
-
(1
28)
30
1,46
3
R
esea
rch
90,3
76
166,
756
1,
415
38
-
-
-
-
-
(2
,564
)
256,
021
Pub
lic s
ervi
ce16
7,13
7
72
,314
14,7
29
-
-
-
-
-
-
(6
9,96
6)
18
4,21
4
Li
brar
ies
21,8
07
-
393
-
-
-
-
-
-
(2)
22
,198
A
cade
mic
sup
port
66,5
71
1,80
3
6,22
9
-
-
-
-
-
-
(3)
74
,600
S
tude
nt s
ervi
ces
43,4
63
5
1,
168
-
3
-
-
-
-
(6
9)
44
,570
In
stitu
tiona
l sup
port
57,7
04
857
144
-
-
-
134
31
,399
-
(3
1,59
5)
58
,643
O
pera
tions
and
mai
nten
ance
of
plan
t 90
,730
11
43
8
-
-
-
-
-
-
(7
,759
)
83,4
20
Stu
dent
fin
anci
al a
id34
,055
1,
494
1,
201
-
47
-
-
-
-
(2)
36
,795
D
epre
ciat
ion
64,6
75
486
-
-
-
-
-
27
-
-
65
,188
T
otal
edu
catio
nal a
nd g
ener
al92
7,40
8
25
3,20
8
26,8
78
38
55
53
13
4
31,4
26
-
(112
,088
)
1,12
7,11
2
C
linic
al o
pera
tions
(in
clud
ing
dep
reci
atio
n of
$8,
390)
209,
028
-
-
-
-
-
-
-
314,
412
(240
,066
)
283,
374
Hos
pita
l and
clin
ics
(incl
udin
g d
epre
ciat
ion
of $
53,6
03)
1,30
3,62
3
-
60
-
-
-
-
-
-
(3
,086
)
1,30
0,59
7
A
uxili
ary
ente
rpris
es:
H
ousi
ng a
nd d
inin
g (
incl
udin
g d
epre
ciat
ion
of $
6,25
9)27
,026
-
-
-
-
-
-
-
-
20
1
27,2
27
Ath
letic
s (in
clud
ing
dep
reci
atio
n of
$13
,071
)12
1,35
2
-
-
-
-
-
-
-
-
50
7
121,
859
Oth
er a
uxili
arie
s (in
clud
ing
dep
reci
atio
n of
$1,
598)
27,9
45
-
-
-
-
-
-
-
-
(645
)
27,3
00
Oth
er o
pera
ting
exp
ense
s57
0
-
-
-
-
-
-
-
-
-
57
0
Tot
al o
pera
ting
exp
ense
s2,
616,
952
253,
208
26
,938
38
55
53
134
31
,426
31
4,41
2
(3
55,1
77)
2,
888,
039
Net
inco
me
(loss
) fr
om o
pera
tions
(297
,213
)
18,9
34
1,
646
(3
8)
(55)
(5
3)
(103
)
(22)
3,42
8
(1
0,77
5)
(2
84,2
51)
N
ON
OP
ER
AT
ING
RE
VE
NU
ES
(E
XP
EN
SE
S)
Sta
te a
ppro
pria
tions
279,
611
-
-
-
-
-
-
-
-
-
27
9,61
1
G
ifts
and
non-
exch
ang
e g
rant
s12
8,40
1
24
5
20
7
12
2
-
12
5
-
-
(1
,196
)
127,
796
Inve
stm
ent
inco
me
(loss
)(2
,228
)
135
23
(119
)
(1
8)
(25)
1
-
162
(5
96)
(2
,665
)
Inte
rest
on
capi
tal a
sset
-rel
ated
deb
t(2
7,44
2)
-
-
-
-
-
-
-
(1
,002
)
-
(2
8,44
4)
G
rant
to/
(fro
m)
the
Uni
vers
ity f
or n
on-c
apita
l pur
pose
s14
,330
(13,
245)
(651
)
(418
)
(7)
(9)
-
-
-
-
-
O
ther
non
oper
atin
g r
even
ues
and
expe
nses
, ne
t4,
185
8,36
6
-
-
-
-
-
-
-
4,10
2
16
,653
N
et n
onop
erat
ing
rev
enue
s (e
xpen
ses)
396,
857
(4,4
99)
(421
)
(5
25)
(23)
(3
4)
126
-
(840
)
2,
310
392,
951
Net
inco
me
(loss
) be
fore
oth
er r
even
ues,
exp
ense
s, g
ains
, or
loss
es99
,644
14
,435
1,22
5
(563
)
(7
8)
(87)
23
(22)
2,58
8
(8
,465
)
108,
700
Cap
ital g
rant
s an
d g
ifts
161,
859
4,67
5
-
-
-
-
-
-
-
(638
)
165,
896
Add
ition
s to
per
man
ent
endo
wm
ents
13,0
41
8
-
-
-
3
-
-
-
-
13,0
52
Gra
nt t
o/(f
rom
) th
e U
nive
rsity
for
cap
ital p
urpo
ses
10,1
97
(9,1
07)
(1,0
69)
-
-
-
(21)
-
-
-
-
O
ther
, ne
t(1
8,32
8)
(2
1)
-
-
-
-
-
(2
8)
(2
)
-
(18,
379)
Tot
al o
ther
rev
enue
s (e
xpen
ses)
166,
769
(4,4
45)
(1,0
69)
-
-
3
(21)
(28)
(2)
(638
)
160,
569
INC
RE
AS
E (
DE
CR
EA
SE
) IN
NE
T P
OS
ITIO
N26
6,41
3
9,
990
15
6
(5
63)
(78)
(8
4)
2
(50)
2,58
6
(9
,103
)
269,
269
NE
T P
OS
ITIO
N,
beg
inn
ing
of
year
3,27
0,85
1
58
,410
11,3
88
9,
187
1,
446
1,
934
165
13
7
33,5
10
70,2
30
3,45
7,25
8
N
ET
PO
SIT
ION
, en
d o
f ye
ar3,
537,
264
$
68,4
00$
11,5
44$
8,62
4$
1,
368
$
1,
850
$
16
7$
87$
36
,096
$
61,1
27$
3,
726,
527
$
56
UN
IVE
RS
ITY
OF
KE
NT
UC
KY
A C
OM
PO
NE
NT
UN
IT O
F T
HE
CO
MM
ON
WE
AL
TH
OF
KE
NT
UC
KY
CO
MB
INE
D C
ON
DE
NS
ED
ST
AT
EM
EN
T O
F R
EV
EN
UE
S, E
XP
EN
SE
S A
ND
CH
AN
GE
S IN
NE
T P
OS
ITIO
N F
OR
TH
E Y
EA
R E
ND
ED
JU
NE
30,
201
5(i
n t
ho
usa
nd
s)
UK
R
esea
rch
Fou
ndat
ion
The
F
und
Glu
ck
Equ
ine
Res
earc
hF
ound
atio
n H
uman
ities
F
ound
atio
n
Min
ing
Eng
inee
ring
Fou
ndat
ion
Cen
ter
onA
ging
Cen
tral
K
entu
cky
Man
agem
ent
Ser
vice
s
Ken
tuck
y M
edic
al
Ser
vice
s F
ound
atio
n E
limin
atio
ns
Tot
alO
PE
RA
TIN
G R
EV
EN
UE
SS
tude
nt tu
ition
and
fees
, net
302,
936
$
-
$
-$
-
$
-$
-
$
-
$
-$
-$
-$
302,
936
$
F
eder
al g
rant
s an
d co
ntra
cts
1,55
2
16
6,57
3
-
-
-
-
-
-
-
-
16
8,12
5
Sta
te a
nd lo
cal g
rant
s an
d co
ntra
cts
73,4
25
16
,890
1,
954
-
-
-
-
-
-
-
92,2
69
N
ongo
vern
men
tal g
rant
s an
d co
ntra
cts
201,
138
28
,851
6,
311
-
-
-
-
-
-
(206
,495
)
29
,805
Rec
over
ies
of fa
cilit
ies
and
adm
inis
trat
ive
cost
s27
1
47,8
83
-
-
-
-
-
-
-
-
48,1
54
S
ales
and
ser
vice
s25
,479
15,2
73
14,2
10
1
-
-
29
26,7
08
-
(2
7,58
8)
54,1
12
F
eder
al a
ppro
pria
tions
17,5
35
-
-
-
-
-
-
-
-
-
17,5
35
C
ount
y ap
prop
riat
ions
21,9
75
-
-
-
-
-
-
-
-
-
21,9
75
P
rofe
ssio
nal c
linic
al s
ervi
ce fe
es-
-
-
-
-
-
-
-
227,
197
(3
,906
)
22
3,29
1
Hos
pita
l ser
vice
s1,
328,
630
-
-
-
-
-
-
-
-
(4
,978
)
1,
323,
652
Aux
iliar
y en
terp
rise
s:
Hou
sing
and
din
ing,
net
39,9
21
-
-
-
-
-
-
-
-
(656
)
39,2
65
A
thle
tics
88,9
28
-
-
-
-
-
-
-
-
-
88,9
28
O
ther
aux
iliar
ies
47,0
40
-
-
-
-
-
-
-
-
(1)
47,0
39
O
ther
ope
ratin
g re
venu
es
853
-
-
-
-
-
-
-
79,1
85
(74,
979)
5,
059
Tot
al o
pera
ting
reve
nues
2,14
9,68
3
27
5,47
0
22
,475
1
-
-
29
26
,708
306,
382
(3
18,6
03)
2,46
2,14
5
O
PE
RA
TIN
G E
XP
EN
SE
SE
duca
tiona
l and
gen
eral
:In
stru
ctio
n27
4,97
0
10,5
55
1,02
8
-
1
59
-
-
-
(236
)
286,
377
R
esea
rch
84,8
83
16
0,75
5
18
0
42
-
-
-
-
-
(2
,349
)
24
3,51
1
Pub
lic s
ervi
ce17
4,90
8
75,6
75
3,55
0
-
-
-
-
-
-
(7
2,59
6)
181,
537
Li
brar
ies
21,0
85
-
-
-
-
-
-
-
-
(1)
21,0
84
A
cade
mic
sup
port
67,4
72
1,
825
3,
812
-
-
-
-
-
-
(31)
73
,078
Stu
dent
ser
vice
s37
,748
-
1,
038
-
1
-
-
-
-
(139
)
38,6
48
In
stitu
tiona
l sup
port
55,0
13
56
9
12
5
6
-
-
10
2
26
,695
-
(26,
887)
55
,623
Ope
ratio
ns a
nd m
aint
enan
ce o
f pla
nt
70,9
04
1
391
-
-
-
-
-
-
(1
92)
71
,104
Stu
dent
fina
ncia
l aid
30,2
61
1,
328
1,
266
-
40
-
-
-
-
(1)
32,8
94
D
epre
ciat
ion
64,1
25
1,
380
-
-
-
-
-
43
-
-
65,5
48
T
otal
edu
catio
nal a
nd g
ener
al88
1,36
9
252,
088
11,3
90
48
42
59
102
26,7
38
-
(1
02,4
32)
1,06
9,40
4
C
linic
al o
pera
tions
(in
clud
ing
depr
ecia
tion
of $
2,74
3)17
9,67
5
-
-
-
-
-
-
-
28
9,62
7
(222
,871
)
24
6,43
1
Hos
pita
l and
clin
ics
(inc
ludi
ng d
epre
ciat
ion
of $
53,1
67)
1,14
1,83
5
-
60
-
-
-
-
-
-
(7
,772
)
1,
134,
123
Aux
iliar
y en
terp
rise
s:
Hou
sing
and
din
ing
(inc
ludi
ng d
epre
ciat
ion
of $
5,27
9)30
,970
-
-
-
-
-
-
-
-
(9
)
30
,961
Ath
letic
s (i
nclu
ding
dep
reci
atio
n of
$6,
031)
102,
156
-
-
-
-
-
-
-
-
(460
)
101,
696
O
ther
aux
iliar
ies
(inc
ludi
ng d
epre
ciat
ion
of $
1,60
6)26
,500
-
-
-
-
-
-
-
-
(5
02)
25
,998
Oth
er o
pera
ting
expe
nses
640
-
-
-
-
-
-
-
-
-
640
T
otal
ope
ratin
g ex
pens
es2,
363,
145
252,
088
11,4
50
48
42
59
102
26,7
38
28
9,62
7
(334
,046
)
2,
609,
253
Net
inco
me
(los
s) fr
om o
pera
tions
(213
,462
)
23,3
82
11,0
25
(47)
(4
2)
(59)
(7
3)
(30)
16,7
55
15,4
43
(1
47,1
08)
N
ON
OP
ER
AT
ING
RE
VE
NU
ES
(E
XP
EN
SE
S)
Sta
te a
ppro
pria
tions
279,
611
-
-
-
-
-
-
-
-
-
279,
611
G
ifts
and
non-
exch
ange
gra
nts
105,
557
46
1
19
0
11
8
1
-
129
-
-
(950
)
105,
506
In
vest
men
t inc
ome
(los
s)27
,338
18,0
47
9
17
5
27
39
-
1
102
(5
50)
45
,188
Inte
rest
on
capi
tal a
sset
-rel
ated
deb
t(2
6,71
0)
(49)
-
-
-
-
-
-
(9
32)
-
(2
7,69
1)
Gra
nt to
/(fr
om)
the
Uni
vers
ity fo
r no
n-ca
pita
l pur
pose
s36
,167
(2
6,43
1)
(9
,433
)
(2
95)
(3
)
(5)
-
-
-
-
-
Oth
er n
onop
erat
ing
reve
nues
and
exp
ense
s, n
et7,
145
1,84
3
-
-
-
-
-
-
-
-
8,98
8
N
et n
onop
erat
ing
reve
nues
(ex
pens
es)
429,
108
(6
,129
)
(9,2
34)
(2
)
25
34
129
1
(830
)
(1,5
00)
411,
602
N
et in
com
e (l
oss)
bef
ore
othe
r re
venu
es, e
xpen
ses,
gai
ns, o
r lo
sses
215,
646
17
,253
1,
791
(4
9)
(17)
(2
5)
56
(29)
15,9
25
13,9
43
26
4,49
4
Cap
ital g
rant
s an
d gi
fts38
,999
6,42
4
-
-
-
-
-
-
-
(82)
45
,341
Add
ition
s to
per
man
ent e
ndow
men
ts7,
752
1
-
-
-
5
-
-
-
-
7,75
8
G
rant
to/(
from
) th
e U
nive
rsity
for
capi
tal p
urpo
ses
11,0
88
(1
1,17
6)
88
-
-
-
-
-
-
-
-
Oth
er, n
et(2
,516
)
(1
,524
)
-
-
-
-
-
(36)
(111
)
-
(4,1
87)
Tot
al o
ther
rev
enue
s (e
xpen
ses)
55,3
23
(6
,275
)
88
-
-
5
-
(36)
(111
)
(82)
48
,912
INC
RE
AS
E (
DE
CR
EA
SE
) IN
NE
T P
OS
ITIO
N27
0,96
9
10,9
78
1,87
9
(49)
(1
7)
(20)
56
(6
5)
15
,814
13
,861
313,
406
N
ET
PO
SIT
ION
, beg
inn
ing
of
year
2,99
9,88
2
47
,432
9,
509
9,
236
1,
463
1,95
4
10
9
20
2
17,6
96
56,3
69
3,
143,
852
NE
T P
OS
ITIO
N, e
nd
of
year
3,27
0,85
1$
58
,410
$
11
,388
$
9,
187
$
1,
446
$
1,93
4$
16
5$
13
7$
33,5
10$
70,2
30$
3,
457,
258
$
57
UN
IVE
RS
ITY
OF
KE
NT
UC
KY
A C
OM
PO
NE
NT
UN
IT O
F T
HE
CO
MM
ON
WE
AL
TH
OF
KE
NT
UC
KY
CO
MB
INE
D C
ON
DE
NS
ED
ST
AT
EM
EN
T O
F C
AS
H F
LO
WS
FO
R T
HE
YE
AR
EN
DE
D J
UN
E 3
0, 2
016
(in
th
ou
san
ds)
UK
R
esea
rch
Fou
ndat
ion
The
F
und
Glu
ck
Equ
ine
Res
earc
hF
ound
atio
n H
uman
ities
F
ound
atio
n
Min
ing
Eng
inee
ring
Fou
ndat
ion
Cen
ter
onA
ging
Cen
tral
K
entu
cky
Man
agem
ent
Ser
vice
s
Ken
tuck
y M
edic
al
Ser
vice
s F
ound
atio
n E
limin
atio
ns
Tot
alC
AS
H F
LO
WS
FR
OM
OP
ER
AT
ING
AC
TIV
ITIE
S
Stu
de
nt t
uiti
on
an
d fe
es
32
0,0
92
$
-$
-$
-$
-$
-
$
-$
-$
-$
-$
3
20
,09
2$
Gra
nts
an
d c
on
tra
cts
31
1,6
89
22
1,5
84
1
1,6
37
-
-
-
-
-
-
(2
45
,69
3)
29
9,2
17
Re
cove
ries
of f
aci
litie
s a
nd
ad
min
istr
ativ
e c
ost
s2
15
52
,09
8
-
-
-
-
-
-
-
-
5
2,3
13
Sa
les
an
d s
erv
ice
s2
9,6
13
3
,18
5
1
6,9
64
-
-
-
31
31
,39
1
2,8
47
(32
,86
3)
51
,16
8
Fe
de
ral a
pp
rop
riatio
ns
18
,63
0
-
-
-
-
-
-
-
-
-
18
,63
0
Co
un
ty a
pp
rop
riatio
ns
22
,86
9
-
-
-
-
-
-
-
-
-
22
,86
9
Pa
yme
nts
to v
en
do
rs a
nd
co
ntr
act
ors
(87
9,9
67
)
(9
1,8
28
)
(12
,74
6)
(1
0)
(55
)
(1
7)
(13
8)
(1,4
82
)
(30
1,7
16
)
36
3,9
93
(92
3,9
66
)
Stu
de
nt f
ina
nci
al a
id(3
5,5
93
)
-
(1
,20
1)
-
-
-
-
-
-
-
(36
,79
4)
Sa
larie
s, w
ag
es
an
d b
en
efit
s(1
,54
0,7
53
)
(16
1,1
38
)
(13
,29
0)
(3
0)
-
(3
9)
-
(28
,95
9)
(11
,66
7)
-
(1,7
55
,87
6)
Pro
fess
ion
al c
linic
se
rvic
e fe
es
-
-
-
-
-
-
-
-
22
6,7
34
(2
,99
0)
2
23
,74
4
Ho
spita
l se
rvic
es
1,4
24
,07
8
-
-
-
-
-
-
-
-
(6
,64
8)
1
,41
7,4
30
Au
xilia
ry e
nte
rpris
e r
ece
ipts
20
8,7
25
-
-
-
-
-
-
-
-
(3
00
)
2
08
,42
5
Lo
an
s is
sue
d to
stu
de
nts
(5,9
15
)
-
-
-
-
-
-
-
-
-
(5,9
15
)
Co
llect
ion
of l
oa
ns
to s
tud
en
ts7
,52
9
-
-
-
-
-
-
-
-
-
7,5
29
Se
lf in
sura
nce
re
ceip
ts6
7,7
91
-
-
-
-
-
-
-
(51
6)
-
67
,27
5
Se
lf in
sura
nce
pa
yme
nts
(64
,86
0)
-
-
-
-
-
-
-
-
-
(64
,86
0)
Oth
er
op
era
ting
re
ceip
ts (
pa
yme
nts
), n
et
1,2
25
-
-
-
-
-
-
-
84
,20
3
(7
7,1
59
)
8
,26
9
Ne
t ca
sh p
rovi
de
d (
use
d)
by
op
era
ting
act
iviti
es
(11
4,6
32
)
2
3,9
01
1,3
64
(40
)
(5
5)
(56
)
(1
07
)
9
50
(1
15
)
(1,6
60
)
(90
,45
0)
CA
SH
FL
OW
S F
RO
M N
ON
CA
PIT
AL
FIN
AN
CIN
G A
CT
IVIT
IES
Sta
te a
pp
rop
riatio
ns
27
4,0
19
-
-
-
-
-
-
-
-
-
27
4,0
19
Gift
s a
nd
gra
nts
re
ceiv
ed
for
oth
er
tha
n c
ap
ital p
urp
ose
s:
G
ifts
rece
ive
d fo
r e
nd
ow
me
nt p
urp
ose
s1
3,0
41
8
-
-
-
3
-
-
-
-
13
,05
2
G
ifts
rece
ive
d fo
r o
the
r p
urp
ose
s1
14
,54
2
2
63
2
07
1
3
2
-
12
5
-
-
(1
,19
6)
1
13
,95
6
Ag
en
cy a
nd
loa
n p
rog
ram
re
ceip
ts2
32
,67
3
-
-
-
-
-
-
-
-
-
2
32
,67
3
Ag
en
cy a
nd
loa
n p
rog
ram
pa
yme
nts
(22
9,2
44
)
-
-
-
-
-
-
-
-
-
(2
29
,24
4)
Gra
nts
(to
) fr
om
the
Un
ive
rsity
for
no
n-c
ap
ital p
urp
ose
s1
5,2
63
(1
3,2
45
)
(1,5
85
)
(4
18
)
(6)
(9
)
-
-
-
-
-
Oth
er
no
nca
pita
l fin
an
cin
g r
ece
ipts
(p
aym
en
ts),
ne
t1
8,6
22
6
,82
4
-
-
-
-
-
-
-
4
,10
2
29
,54
8
Ne
t ca
sh p
rovi
de
d (
use
d)
by
no
nca
pita
l fin
an
cin
g a
ctiv
itie
s4
38
,91
6
(6
,15
0)
(1,3
78
)
(4
05
)
(4)
(6
)
12
5
-
-
2
,90
6
43
4,0
04
CA
SH
FL
OW
S F
RO
M C
AP
ITA
L A
ND
RE
LA
TE
D F
INA
NC
ING
AC
TIV
ITIE
S
Ca
pita
l gra
nts
an
d g
ifts
16
0,1
17
4,6
75
-
-
-
-
-
-
-
(6
38
)
1
64
,15
4
Pu
rch
ase
s o
f ca
pita
l ass
ets
(40
8,7
88
)
(8
1)
-
-
-
-
-
(6)
(7,9
57
)
-
(41
6,8
32
)
Pro
cee
ds
fro
m c
ap
ital d
eb
t1
59
,54
1
-
-
-
-
-
-
-
-
-
1
59
,54
1
Prin
cip
al p
aid
on
ca
pita
l de
bt a
nd
lea
ses
(46
,73
2)
-
-
-
-
-
-
-
(3
,02
1)
-
(4
9,7
53
)
Inte
rest
pa
id o
n c
ap
ital d
eb
t an
d le
ase
s(3
7,7
80
)
-
-
-
-
-
-
-
(1,0
02
)
-
(38
,78
2)
Gra
nts
(to
) fr
om
the
Un
ive
rsity
for
cap
ital p
urp
ose
s1
0,1
97
(9
,10
7)
(1,0
69
)
-
-
-
(2
1)
-
-
-
-
Oth
er
cap
ital a
nd
re
late
d fi
na
nci
ng
re
ceip
ts (
pa
yme
nts
), n
et
5,5
62
(2
1)
-
-
-
-
-
-
-
-
5,5
41
Ne
t ca
sh p
rovi
de
d (
use
d)
by
cap
ital a
nd
re
late
d fi
na
nci
ng
act
iviti
es
(15
7,8
83
)
(4
,53
4)
(1,0
69
)
-
-
-
(2
1)
(6
)
(1
1,9
80
)
(63
8)
(17
6,1
31
)
CA
SH
FL
OW
S F
RO
M IN
VE
ST
ING
AC
TIV
ITIE
S
Pro
cee
ds
fro
m s
ale
s a
nd
ma
turit
ies
of i
nve
stm
en
ts6
27
,05
1
4
,31
1
5
3
2
,84
7
4
40
57
8
-
-
14
,44
8
-
64
9,7
28
Inte
rest
an
d d
ivid
en
ds
on
inve
stm
en
ts2
4,8
73
5
8
2
7
9
9
1
5
22
-
-
1,5
31
(60
8)
26
,01
7
Pu
rch
ase
of i
nve
stm
en
ts(6
68
,17
3)
(12
,61
2)
(4
5)
(2,4
10
)
(3
73
)
(5
33
)
-
-
(4,1
93
)
-
(68
8,3
39
)
Ne
t ca
sh p
rovi
de
d (
use
d)
by
inve
stin
g a
ctiv
itie
s(1
6,2
49
)
(8
,24
3)
35
53
6
82
6
7
-
-
1
1,7
86
(60
8)
(12
,59
4)
NE
T IN
CR
EA
SE
(D
EC
RE
AS
E)
IN C
AS
H A
ND
CA
SH
EQ
UIV
AL
EN
TS
15
0,1
52
4,9
74
(1,0
48
)
9
1
2
3
5
(3)
94
4
(30
9)
-
15
4,8
29
CA
SH
AN
D C
AS
H E
QU
IVA
LE
NT
S, b
eg
inn
ing
of
ye
ar
87
5,9
72
49
,59
2
1
0,3
08
24
7
63
2
1
17
0
54
9
56
1
-
9
37
,48
3
CA
SH
AN
D C
AS
H E
QU
IVA
LE
NT
S, e
nd
of
ye
ar
1,0
26
,12
4$
54
,56
6$
9
,26
0$
33
8$
8
6$
26
$
1
67
$
1
,49
3$
2
52
$
-$
1
,09
2,3
12
$
58
UN
IVE
RS
ITY
OF
KE
NT
UC
KY
A C
OM
PO
NE
NT
UN
IT O
F T
HE
CO
MM
ON
WE
AL
TH
OF
KE
NT
UC
KY
CO
MB
INE
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ON
DE
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ED
ST
AT
EM
EN
T O
F C
AS
H F
LO
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FO
R T
HE
YE
AR
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DE
D J
UN
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0, 2
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(in
th
ou
san
ds)
UK
R
esea
rch
Fou
ndat
ion
The
F
und
Glu
ck
Equ
ine
Res
earc
hF
ound
atio
n H
uman
ities
F
ound
atio
n
Min
ing
Eng
inee
ring
Fou
ndat
ion
Cen
ter
onA
ging
Cen
tral
K
entu
cky
Man
agem
ent
Ser
vice
s
Ken
tuck
y M
edic
al
Ser
vice
s F
ound
atio
n E
limin
atio
ns
Tot
alC
AS
H F
LO
WS
FR
OM
OP
ER
AT
ING
AC
TIV
ITIE
S
Stu
de
nt t
uiti
on
an
d fe
es
30
1,4
54
$
-$
-$
-$
-$
-
$
-$
-$
-$
-$
3
01
,45
4$
Gra
nts
an
d c
on
tra
cts
26
7,3
04
21
3,6
31
1
0,2
24
-
-
-
-
-
-
(2
06
,49
5)
28
4,6
64
Re
cove
ries
of f
aci
litie
s a
nd
ad
min
istr
ativ
e c
ost
s2
75
48
,18
2
-
-
-
-
-
-
-
-
4
8,4
57
Sa
les
an
d s
erv
ice
s2
8,9
33
1
6,1
66
14
,06
1
1
-
-
2
9
2
4,7
71
-
(3
0,4
96
)
5
3,4
65
Fe
de
ral a
pp
rop
riatio
ns
18
,74
9
-
-
-
-
-
-
-
-
-
18
,74
9
Co
un
ty a
pp
rop
riatio
ns
22
,64
0
-
-
-
-
-
-
-
-
-
22
,64
0
Pa
yme
nts
to v
en
do
rs a
nd
co
ntr
act
ors
(78
3,9
64
)
(8
6,5
51
)
(7,7
30
)
(1
8)
(42
)
(2
2)
(95
)
(1,3
47
)
(25
4,6
57
)
30
6,8
97
(82
7,5
29
)
Stu
de
nt f
ina
nci
al a
id(3
1,6
30
)
-
(1
,26
6)
-
-
-
-
-
-
-
(32
,89
6)
Sa
larie
s, w
ag
es
an
d b
en
efit
s(1
,40
1,7
83
)
(16
2,2
43
)
(2,2
48
)
(2
9)
-
(2
4)
(2)
(23
,44
9)
(8,5
01
)
-
(1,5
98
,27
9)
Pro
fess
ion
al c
linic
se
rvic
e fe
es
-
-
-
-
-
-
-
-
21
0,5
97
1
1,1
31
2
21
,72
8
Ho
spita
l se
rvic
es
1,3
42
,86
4
-
-
-
-
-
-
-
-
(4
,20
5)
1
,33
8,6
59
Au
xilia
ry e
nte
rpris
e r
ece
ipts
17
2,0
42
-
-
-
-
-
-
-
-
(6
57
)
1
71
,38
5
Lo
an
s is
sue
d to
stu
de
nts
(18
,23
1)
-
-
-
-
-
-
-
-
-
(18
,23
1)
Co
llect
ion
of l
oa
ns
to s
tud
en
ts1
8,4
25
-
-
-
-
-
-
-
-
-
1
8,4
25
Se
lf in
sura
nce
re
ceip
ts6
0,8
82
-
-
-
-
-
-
-
47
0
-
6
1,3
52
Se
lf in
sura
nce
pa
yme
nts
(56
,75
0)
-
-
-
-
-
-
-
-
-
(56
,75
0)
Oth
er
op
era
ting
re
ceip
ts (
pa
yme
nts
), n
et
37
5
-
-
-
-
-
-
-
78
,64
8
(7
4,5
78
)
4
,44
5
Ne
t ca
sh p
rovi
de
d (
use
d)
by
op
era
ting
act
iviti
es
(58
,41
5)
29
,18
5
1
3,0
41
(46
)
(4
2)
(46
)
(6
8)
(2
5)
2
6,5
57
1,5
97
1
1,7
38
CA
SH
FL
OW
S F
RO
M N
ON
CA
PIT
AL
FIN
AN
CIN
G A
CT
IVIT
IES
Sta
te a
pp
rop
riatio
ns
27
9,6
11
-
-
-
-
-
-
-
-
-
27
9,6
11
Gift
s a
nd
gra
nts
re
ceiv
ed
for
oth
er
tha
n c
ap
ital p
urp
ose
s:
G
ifts
rece
ive
d fo
r e
nd
ow
me
nt p
urp
ose
s7
,77
6
1
-
-
-
5
-
-
-
-
7
,78
2
G
ifts
rece
ive
d fo
r o
the
r p
urp
ose
s1
13
,29
6
4
42
1
90
1
18
-
-
1
29
-
-
(95
0)
11
3,2
25
Ag
en
cy a
nd
loa
n p
rog
ram
re
ceip
ts2
27
,34
7
-
-
-
-
-
-
-
-
-
2
27
,34
7
Ag
en
cy a
nd
loa
n p
rog
ram
pa
yme
nts
(22
9,3
98
)
-
-
-
-
-
-
-
-
-
(2
29
,39
8)
Gra
nts
(to
) fr
om
the
Un
ive
rsity
for
no
n-c
ap
ital p
urp
ose
s3
7,6
02
(2
7,9
94
)
(9,3
05
)
(2
95
)
(3)
(5
)
-
-
-
-
-
Oth
er
no
nca
pita
l fin
an
cin
g r
ece
ipts
(p
aym
en
ts),
ne
t1
4,4
38
3
,72
7
-
-
-
-
-
-
-
-
18
,16
5
Ne
t ca
sh p
rovi
de
d (
use
d)
by
no
nca
pita
l fin
an
cin
g a
ctiv
itie
s4
50
,67
2
(2
3,8
24
)
(9,1
15
)
(1
77
)
(3)
-
12
9
-
-
(9
50
)
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60
UNIVERSITY OF KENTUCKY A COMPONENT UNIT OF THE COMMONWEALTH OF KENTUCKY
REQUIRED SUPPLEMENTARY INFORMATION
1. HEALTH INSURANCE BENEFITS FOR RETIREES
The University of Kentucky's (the University) Other Postemployment Benefit (OPEB) plan is administered through the University's OPEB trust fund as an irrevocable trust. Assets of the trust fund are dedicated to providing post-retirement health insurance coverage to current and eligible future university retirees. Only employees hired prior to January 1, 2006 are eligible to receive post-retirement health insurance benefits. The following schedules present the University’s actuarially determined funding progress and required contributions for the University’s OPEB trust using the projected unit credit actuarial cost method:
Valuation Date
Actuarial Value of Assets
Actuarial Accrued
Liability (AAL)
UnfundedActuarial Accrued
Liability (UAAL)Funded Ratio
AnnualCoveredPayroll
UAAL as a Percentage of
Covered Payroll
July 1, 2014 $97,317 $268,335 $171,018 36.3% $513,748 33.3%
July 1, 2015 $108,815 $337,665 $228,850 32.2% $509,627 44.9%
July 1, 2016 $120,012 $349,503 $229,491 34.3% $489,855 46.8%
Schedule of Funding Progress by Valuation Date(in thousands)
Year Ended
Annual RequiredContributions
PercentageContributed
June 30, 2014 $19,801 100.0%June 30, 2015 $20,395 100.7%June 30, 2016 $23,741 102.7%
Schedule of Employer Contributions (in thousands)
2. LONG-TERM DISABILITY BENEFIT PLAN
The University is self-funded for a long-term disability income program and has established a trust for the
purpose of paying claims and establishing necessary reserves. Regular employees with a full-time equivalent of .75 or greater who have completed 12 months of service are automatically enrolled in the plan.
The following schedules present the University’s actuarially determined funding progress and required contributions for the University’s long-term disability benefit trust fund using the projected unit credit actuarial cost method:
Valuation Date
Actuarial Value of Assets
Actuarial Accrued
Liability (AAL)
UnfundedActuarial Accrued
Liability (UAAL)Funded Ratio
AnnualCoveredPayroll
UAAL as a Percentage of
Covered Payroll
July 1, 2014 $15,977 $23,650 $7,673 67.6% $768,214 1.0%
July 1, 2015 $16,576 $22,730 $6,154 72.9% $813,205 0.8%
July 1, 2016 $16,629 $23,457 $6,828 70.9% $883,682 0.8%
Schedule of Funding Progress by Valuation Date(in thousands)
61
Year Ended
Annual RequiredContributions
PercentageContributed
June 30, 2014 $2,139 100.5%
June 30, 2015 $2,203 99.7%
June 30, 2016 $1,926 100.2%
Schedule of Employer Contributions (in thousands)
62
Officers of the Board Edward Britt Brockman, Chair C.B. Akins, Sr., Vice Chair Kelly Sullivan Holland, Secretary William E. Thro, Assistant Secretary Board of Trustees C.B. Akins, Sr. Claude A. “Skip” Berry, III Lee X. Blonder James H. Booth William C. Britton Edward Britt Brockman Mark P. Bryant Angela L. Edwards William Stamps Farish, Jr. Oliver Keith Gannon Carol Martin “Bill” Gatton Cammie DeShields Grant Robert Grossman David V. Hawpe Kelly Sullivan Holland David Melanson Terry Mobley Rowan Reid C. Frank Shoop Robert D. Vance Barbara Young Executive Officers Eli Capilouto, President Timothy Tracy, Provost Michael Karpf, Executive Vice President for Health Affairs Eric N. Monday, Executive Vice President for Finance and Administration Administrative Officers Mitchell S. Barnhart, Director of Athletics Lisa Cassis, Vice President for Research Thomas W. Harris, Vice President for University Relations Terry D. Allen, Interim Vice President for Institutional Diversity D. Michael Richey, Vice President for Philanthropy Bill Swinford, Chief of Staff William E. Thro, General Counsel
Academic Officers Nancy M. Cox, Dean College of Agriculture, Food and Environment Mark Kornbluh, Dean College of Arts and Sciences David Blackwell, Dean Gatton College of Business and Economics Dan O’Hair, Dean College of Communication and Information Stephanos Kyrkanides, Dean College of Dentistry Mitzi R. Vernon, Dean College of Design Mary John O’Hair, Dean College of Education John Y. Walz, Dean College of Engineering Michael S. Tick, Dean College of Fine Arts Susan Carvalho, Interim Dean Graduate School Scott Lephart, Dean College of Health Sciences David A. Brennen, Dean College of Law Phil Harling, Interim Dean Lewis Honors College Terry Birdwhistell, Dean Libraries Robert S. DiPaola, Dean College of Medicine Janie Heath, Dean College of Nursing Kelly M. Smith, Interim Dean College of Pharmacy Donna K. Arnett, Dean College of Public Health Ann Vail, Interim Dean College of Social Work
Office of the Treasurer301 Peterson Service BuildingLexington, KY 40506-0005
www.uky.edu/EVPFA/ControllerAn Equal Opportunity University
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APPENDIX C
SUMMARY OF THE TRUST AGREEMENT
The following is a summary of certain provisions of the Trust Agreement dated as of November1, 2005, between the University and U.S. Bank National Association, as Trustee, as supplemented andamended. This summary is not to be regarded as a complete statement of the Trust Agreement to whichreference is made for a complete statement of the actual terms thereof. Copies of the Trust Agreement areon file with the Trustee.
Defined Terms
The terms defined below are among those used in the Official Statement and in this summary ofthe Trust Agreement. Except where otherwise indicated or provided, words in the singular numberinclude the plural as well as the singular number and vice versa.
“Act” means Sections 162.340 to 162.380 of the Kentucky Revised Statutes, Chapter 56 of theKentucky Revised Statutes and Sections 58.010 to 58.140 of the Kentucky Revised Statutes as the samemay be amended, modified, revised, supplemented, or superseded from time to time.
“Additional Obligation Instruments” means agreements providing for the repayment of moneythat the University may, from time to time, be authorized to enter into under the laws of theCommonwealth. The definition of Additional Obligation Instruments does not include “Bond” or“Bonds,” “Note” or “Notes,” Financing Agreements or SPBC Leases.
“ALCo” means the Kentucky Asset/Liability Commission and any successor thereto.
“Authenticating Agent” means the Trustee and the Registrar for the series of Obligations and anybank, trust company or other Person designated as an Authenticating Agent for such series of Obligationsby or in accordance with the Trust Agreement.
“Beneficial Owner” means, with respect to the Obligations, a Person owning a BeneficialOwnership Interest therein, as evidenced to the satisfaction of the Trustee.
“Beneficial Ownership Interest” means the beneficial right to receive payments and notices withrespect to a series of Obligations which are held by a Depository under a Book Entry System.
“Board” means the Board of Trustees of the University, or if there shall be no such Board ofTrustees, such Person or body which, pursuant to law or the organizational documents of the University,is vested with the power to direct the management and policies of the University, and shall include anycommittee empowered to act on behalf of such board or body.
“Bond” or “Bonds” means any bond, or all of the bonds, or an issue or series of bonds, as the casemay be, as so identified in the certificate of the Fiscal Officer, of the University issued pursuant to the2005 General Bond Resolution, a Series Resolution and the Trust Agreement. The definition of Bond andBonds does not include “Note” or “Notes,” Financing Agreements, SPBC Leases or AdditionalObligation Instruments.
“Bond Counsel” means an attorney or firm of attorneys of nationally recognized standing on thesubject of municipal bonds selected by the University or its counsel and acceptable to the Trustee.
“Book Entry Form” or “Book Entry System” means, with respect to the Obligations, a form orsystem, as applicable, under which (a) the Beneficial Ownership Interests may be transferred only througha book entry and (b) physical Obligation certificates in fully registered form are registered only in the
C-2
name of a Depository or its nominee as Holder, with the physical Obligation certificates “immobilized” inthe custody of the Depository. The Book Entry System maintained by and the responsibility of theDepository and not maintained by or the responsibility of the University or the Trustee is the record thatidentifies, and records the transfer of the interests of, the owners of book entry interests in theObligations.
“Business Day” means a day of the year, other than a Saturday or Sunday, on which bankslocated in the city in which the principal corporate trust office of the Trustee is located are not required orauthorized to remain closed or a day on which The New York Stock Exchange is not closed.
“Certificate of Award” means, with respect to any series of Obligations, the Certificate of Awardfor such series, if any, authorized in the applicable Series Resolution or the contract of purchase for suchseries of Obligations.
“Commonwealth” means the Commonwealth of Kentucky.
“Costs of University Facilities” means the costs of or related to University Facilities, and thefinancing thereof, for the payment of which Obligations may be issued under the Act.
“Credit Support Instrument” means an irrevocable letter of credit, line of credit, standby bondpurchase agreement, insurance policy, guaranty or surety bond or similar instrument providing for thepayment of or guaranteeing the payment of principal or purchase price of and interest on Obligationswhen due, either to which the University is a party or which is provided at the request of the University.
“Credit Support Provider” means the provider of a Credit Support Instrument.
“Debt Service Charges” means, generally, for any applicable time period, (i) the principal(including any Mandatory Sinking Fund Requirements), interest and redemption premium, if any,required to be paid by the University on Obligations pursuant to any Series Resolution, less anycapitalized interest for such time period and accrued interest on deposit in the Debt Service PaymentAccount; (ii) any amounts due to a Credit Support Provider to the extent as set forth in a Credit SupportInstrument; and (iii) any amounts due to a Hedge Provider to the extent as set forth in an Interest RateHedge Agreement.
“Debt Service Fund” means the Debt Service Fund authorized and created pursuant to the TrustAgreement.
“Debt Service Payment Account” means the Debt Service Payment Account within the DebtService Fund authorized and created pursuant to the Trust Agreement.
“Debt Service Reserve Account” means the Debt Service Reserve Account authorized andcreated pursuant to the Trust Agreement.
“Depository” means any securities depository that is a clearing agency under federal lawoperating and maintaining, together with its participants a Book Entry System to record beneficialownership of a series of Obligations, and to effect transfers of such Obligations, in Book Entry Form, andincludes the Depository Trust Company (a limited purpose trust company), New York, New York.
“Direct Participant” means a Participant as defined in the Letter of Representations.
“Eligible Investments” means any investment authorized by Section 42.500 and 56.520(5) of theKentucky Revised Statutes, as the same may be amended, modified, revised, supplemented, or supersededfrom time to time.
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“Extraordinary Services” and “Extraordinary Expenses” means all services rendered and allreasonable expenses (including counsel fees) properly incurred by the Trustee under the Trust Agreement,other than Ordinary Services and Ordinary Expenses. Extraordinary Services and ExtraordinaryExpenses shall specifically include services rendered or expenses incurred by the Trustee in connectionwith, or in contemplation of, an Event of Default.
“Event of Default” means an Event of Default as defined in the Trust Agreement.
“Financial Statements” means the University’s Annual Consolidated Financial Statements.
“Financing Agreement” means a “Financing Agreement” as defined in Chapter 56 of theKentucky Revised Statutes between the University and ALCo or the applicable state agency as thenprovided by law. The definition of Financing Agreement does not include “Bond” or “Bonds,” “Note” or“Notes” or Additional Obligation Instruments, but may also mean an SPBC Lease.
“Fiscal Officer” means either the Treasurer of the University or such other person designated bythe Chairman of the Board to act as Fiscal Officer for purposes of the Trust Agreement.
“Fiscal Year” means a period of twelve consecutive months constituting the fiscal year ofUniversity commencing on the first day of July of any year and ending on the last day of June of the nextsucceeding calendar year, both inclusive, or such other consecutive twelve month period as hereafter maybe established from time to time for budgeting and accounting purposes of the University by the Board tobe evidenced, for purposes of the Financing Agreement, by a certificate of a Fiscal Officer filed with theTrustee.
“Fitch” means Fitch Ratings.
“General Receipts” means, as reported in the Financial Statements (having the designations, tothe extent not otherwise defined in the Financing Agreement, set forth in the Financial Statements or suchsuccessor designations that may hereafter be used in Financial Statements):
(a) certain operating and non-operating revenues of the University, being (i) StudentRegistration Fees, (ii) nongovernmental grants and contracts, (iii) recoveries of facilities andadministrative costs, (iv) sales and services, (v) Hospital Revenues, (vi) Housing and DiningRevenues, (vii) auxiliary enterprises – other auxiliaries, (viii) auxiliary enterprises – athletics, (ix)other operating revenues, (x) state appropriations (for general operations), (xi) gifts and grants,(xii) investment income, (xiii) other nonoperating revenues, and (xiv) other;
(b) but excluding (i) any receipts described in clause (a) which are contracts, grants,gifts, donations or pledges and receipts therefrom which, under restrictions imposed in suchcontracts, grants, gifts, donations or pledges, or, which as a condition of the receipt thereof or ofamounts payable thereunder are not available for payment of Debt Service Charges, (ii) federalgrants and contracts, (iii) state and local grants and contracts, (iv) federal appropriations, (v)county appropriations, (vi) professional clinical service fees, (vii) capital appropriations, (viii)capital grants and gifts, and (ix) additions to permanent endowments, including researchchallenge trust funds;
provided, however, that General Receipts may
(c) include any other receipts that may be designated as General Receipts from timeto time by a resolution of the Board delivered to the Trustee; and
(d) exclude any receipts not pledged under the Trust Agreement, which may bedesignated from time to time by a resolution of the Board delivered to the Trustee;
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(e) exclude any receipts pledged under the Trust Agreement, which may bedesignated from time to time by a resolution of the Board delivered to the Trustee and eachRating Service then rating any Obligations, but only if each such Rating Service confirms inwriting to the University that the exclusion of any such receipt would not cause a reduction orwithdrawal of the then current rating on any Outstanding Obligations.
“Government Bonds” means (a) direct obligations of the United States of America for thepayment of which the full faith and credit of the United States of America is pledged, (b) obligationsissued by a Person controlled or supervised by and acting as an instrumentality of the United States ofAmerica, the payment of the principal of, premium, if any, and interest on which is fully guaranteed as afull faith and credit obligation of the United States of America (including any securities described in (a)or (b) issued or held in book-entry form on the books of the Department of Treasury of the United Statesof America or Federal Reserve Bank), and (c) securities which represent an interest in the obligationsdescribed in (a) and (b) above.
“Hedge Provider” means the provider of an Interest Rate Hedge Agreement.
“Holder” means any Person in whose name a registered Obligation is registered; provided thatALCo, or its assignee, shall be the Holder of any Financing Agreement and SPBC, or its assignee, shallbe the Holder of any SPBC Lease.
“Hospital Revenues” means operating revenues having the designation “hospital services” in theFinancial Statements or any successor designation or designations for such receipts that may hereafter beused in Financial Statements.
“Housing and Dining Bonds” means Obligations, the proceeds of which will be used to pay Costsof University Facilities which constitute Housing and Dining Facilities.
“Housing and Dining Facilities” means Housing and Dining Facilities, as defined in the PriorHousing Indenture.
“Housing and Dining Revenues” means operating revenues (auxiliary enterprises) having thedesignation “housing and dining” in the Financial Statements or any successor designation ordesignations for such receipts that may hereafter be used in Financial Statements.
“Indirect Participant” means a Person utilizing the Book Entry System of the Depository by,directly or indirectly, clearing through or maintaining a custodial relationship with a Direct Participant.
“Interest Payment Dates” means the dates specified in the applicable Series Resolution orCertificate of Award on which interest on the Obligations or any series of Obligations is to be paid.
“Interest Rate Hedge Agreement” means an interest rate swap, an interest rate cap or other sucharrangement obtained, either directly by the University (or the Trustee on behalf of the University) orthrough ALCo, with the goal of lowering the effective interest rate to the University on Obligations orhedging the exposure of the University with respect to its obligations on the Obligations againstfluctuations in prevailing interest rates.
“Letter of Representations” means the Blanket Letter of Representations from the University tothe Depository.
“Mandatory Sinking Fund Requirements” means amounts required by any Series Resolution orthe Certificate of Award to be deposited to the Debt Service Payment Account in any fiscal year for thepurpose of retiring principal maturities of Obligations which by the terms of such Obligations are due andpayable, if not called for prior redemption, in any subsequent fiscal year.
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“Maximum Annual Debt Service” means the highest amount of (i) Debt Service Charges plus (ii)the principal of and interest on all Prior Obligations that are outstanding under the terms of the Prior BasicResolution or the Prior Housing Indenture, for the current or any future Fiscal Year.
“Moody’s” means Moody’s Investors Service, Inc., a Delaware corporation, and its successorsand assigns.
“Notes” or “Note” means any note or all of the notes, or an issue of notes, as the case may be, asso identified in the certificate of the Fiscal Officer issued by the University in anticipation of the issuanceof Obligations or receipt of grants or appropriations to pay Costs of University Facilities, or to pay costsof refunding or retirement of Notes previously issued pursuant to the Act, the 2005 General BondResolution, a Series Resolution and the Trust Agreement. The definition of Note and Notes does notinclude “Bond” or “Bonds,” Financing Agreements, SPBC Leases or Additional Obligation Instruments.
“Obligations” means Bonds, Notes, Financing Agreements, SPBC Leases and AdditionalObligation Instruments.
“Ordinary Services” and “Ordinary Expenses” means those services normally rendered and thoseexpenses (including counsel fees) normally incurred by a trustee under instruments similar to the TrustAgreement.
“Original Purchaser” means, as to any Obligations, the Person or Persons expressly named in theapplicable Series Resolution or the Certificate of Award as the original purchaser of those Obligationsfrom the University.
“Outstanding” means, as of any date, Notes and Bonds which have been authenticated, and withrespect to all Obligations, have been delivered, or are then being delivered, by the Trustee or theUniversity under the Trust Agreement except:
(a) Obligations surrendered for exchange or transfer or canceled because of paymentor redemption at or prior to such date;
(b) Obligations for the payment, redemption or purchase for cancellation of whichsufficient moneys have been deposited prior to such date with the Trustee or Paying Agents(whether upon or prior to the maturity or redemption date of any such Obligations), or which aredeemed to have been paid and discharged pursuant to the provisions of the Trust Agreement;provided that if such Obligations are to be redeemed prior to the maturity thereof, notice of suchredemption shall have been given or arrangements satisfactory to the Trustee shall have beenmade there for, or waiver of such notice satisfactory in form to the Trustee shall have been filedwith the Trustee, and provided, further, that if such Obligations are to be purchased forcancellation, a firm offer for sale stating the price has been received and accepted; and
(c) Lost, stolen, mutilated or destroyed Obligations in lieu of which others have beenauthenticated, if applicable, (or payment, when due, of which is made without replacement) underthe Trust Agreement.
“Paying Agents” means any banks or trust companies designated as the paying agencies or placesof payment for Obligations by or pursuant to the applicable Series Resolution, and their successorsdesignated pursuant to the Trust Agreement, and shall also mean the Trustee when so designated for suchpurpose.
“Person” means an individual, a corporation, a partnership, an association, a joint stock company,a joint venture, a trust, an unincorporated organization, or a government or any agency or politicalsubdivision thereof.
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“Predecessor Obligation” of any particular Obligation means every previous Obligationevidencing all or a portion of the same debt as that evidenced by the particular Obligation. For thepurposes of this definition, any Bond or Note authenticated and delivered under the Trust Agreement inlieu of a lost, stolen or destroyed Bond or Note shall, except as otherwise provided in the TrustAgreement, be deemed to evidence the same debt as the lost, stolen or destroyed Bond or Note.
“Prior Basic Resolution” means the resolution adopted by the Board on September 20, 1960, thathas provided for the issuance of Consolidated Educational Buildings Revenue Bonds of the University.
“Prior Financing Documents” means, collectively, the Prior Basic Resolution and the PriorHousing Indenture.
“Prior Funds” means all funds and accounts created by the Prior Financing Documents that arepledged as security and a source of payment of bonds and notes issued thereunder.
“Prior Housing Indenture” the Trust Indenture and Supplemental Trust Indenture dated as of June1, 1965 (and all supplemental indentures related thereto) between the University and Farmers’ Bank &Capital Trust Company that, has provided for the issuance of Housing and Dining Bonds.
“Prior Obligations” means any notes or bonds that are outstanding under the Prior FinancingDocuments.
“Prior Pledged Funds” means, collectively, all funds and accounts created under the PriorFinancing Documents.
“Prior Pledged Revenues” means amounts required to be deposited in the “Revenue Fund”created by the Prior Basic Resolution and in the “System Revenue Fund” created by the Prior HousingIndenture.
“Project Fund” means the Project Fund created pursuant to the Trust Agreement.
“Purchase Price” means, as to any series of Obligations, the amount provided for in the SeriesResolution and the Certificate of Award authorized thereby, plus accrued interest, if any, on the aggregateprincipal amount of those Obligations from their date to the date of their delivery to the OriginalPurchaser and payment therefor.
“Rating Service” means Fitch, Moody’s, S&P or any other nationally recognized rating service.
“Redemption and Purchase Account” means the Redemption and Purchase Account authorizedand created pursuant to the Trust Agreement.
“Register” means the books kept and maintained by the Registrar for the registration and transferof Obligations pursuant to the Trust Agreement.
“Registrar” means, with respect to a series of Obligations, the keeper of the Register for thoseObligations, which shall be the Trustee except as may be otherwise provided by or pursuant to the SeriesResolution for those Obligations, each of which shall be a transfer agent registered in accordance withSection 17(A)(c) of the Securities Exchange Act of 1934.
“Regular Record Date” means, with respect to any Obligation and unless otherwise provided inthe Series Resolution authorizing the particular series of Obligations, the fifteenth day of the calendarmonth next preceding an Interest Payment Date applicable to that Obligation.
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“Reimbursement Agreement” means, with respect to a series of Obligations, any agreement oragreements between one or more Credit Support Providers and the University under or pursuant to whicha Credit Support Instrument for such series of Obligations is issued or provided and which sets forth therespective obligations of the University and of the Credit Support Provider.
“Remarketing Agent” means any entity which acts as the remarketing agent with respect to aseries of Obligations.
“Revenue Fund” means the Revenue Fund authorized and created pursuant to the TrustAgreement.
“S&P” means Standard & Poor’s Rating Services, a Division of The McGraw Hill Companies,and its successors and assigns.
“Series Resolution” means a Resolution of the Board authorizing one or more series ofObligations and the execution and delivery of a Supplemental Trust Agreement, all in accordance with the2005 General Bond Resolution and the Trust Agreement.
“SPBC” means the State Property and Buildings Commission of the Commonwealth and anysuccessor thereto.
“SPBC Lease” means a lease between the University and SPBC or the applicable state agency asthen provided by law. The definition of SPBC Lease does not include “Bond” or “Bonds,” “Note” or“Notes” or Additional Obligation Instruments, but may also mean a Financing Agreement.
“Special Funds” means the Debt Service Fund and accounts therein and any other funds oraccounts permitted by, established under, or identified in the Trust Agreement or a Series Resolution anddesignated as Special Funds. The Revenue Fund shall not be a Special Fund.
“Student Registration Fees” means operating revenues having the designation “student tuition andfees” in the Financial Statements or any successor designation or designations for such receipts that mayhereafter be used in Financial Statements.
“Subordinated Indebtedness” means obligations which, with respect to any issue thereof, aresecured by a pledge of the General Receipts which is subordinate to that of the holders of Obligations andwhich are evidenced by instruments, or issued under an indenture or other document, containingprovisions for the subordination of such obligations.
“Supplemental Trust Agreement” means any one or more of Supplemental Trust Agreementsentered into by the parties pursuant to the Trust Agreement and a Series Resolution.
“Tender Agent” means any entity which acts as a tender agent for a series of Obligations.
“Trust Agreement” means the Trust Agreement, dated as of November 1, 2005, between theUniversity and the Trustee, as the same may be duly amended, modified or supplemented in accordancewith its terms.
“Trustee” means the Trustee at the time serving under the Trust Agreement, originally U.S. BankNational Association and any successor Trustee as determined or designated under or pursuant to theTrust Agreement.
“2005 General Bond Resolution” means the resolution of the Board adopted on September 20,2005, authorizing the execution and delivery of the Trust Agreement.
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“University” means the University of Kentucky, a public body corporate, and an educationalinstitution and agency of the Commonwealth of Kentucky, and every part and component thereof as fromtime to time existing, and when the context requires, includes the Board.
“University Facilities” means buildings and appurtenances to be used in connection with theUniversity for educational purposes, including, but not limited to any Authorized Project, any Building,any Building project and any Public project, as those terms are defined in the Act, and further includesany one, part of, or any combination of such facilities, and further includes site improvements, utilities,machinery, furnishings and any separate or connected buildings, structures, improvements, sites, openspace and green space areas, utilities or equipment to be used in, or in connection with the operation ormaintenance of, or supplementing or otherwise related to the services or facilities to be provided by suchfacilities.
Any reference in the Financing Agreement to the University, the Board, or to any officers or toother public boards, commissions, departments, institutions, agencies, bodies, entities or officers, shallinclude those which succeed to their functions, duties or responsibilities pursuant to or by operation oflaw or who are lawfully performing their functions. Any reference to a section or provision of theKentucky Revised Statutes or to the laws of Kentucky shall include such section or provision and suchlaws as from time to time amended, modified, revised, supplemented, or superseded, provided that nosuch amendment, modification, revision, supplementation, or super session shall alter the obligation topay the Debt Service Charges in the amount and manner, at the times, and from the sources provided inthis Resolution, the applicable Series Resolution, and the Trust Agreement, except as otherwise permittedin the Trust Agreement.
Debt Service Fund and Other Special Funds
The Trustee will hold and administer the Debt Service Fund and any other Special Fund createdunder the Trust Agreement, together with the accounts contained therein, upon the terms and conditions,including, without limitation, the terms and conditions set forth in the Trust Agreement and the applicableSeries Resolution and/or Supplemental Trust Agreement for the investment of moneys deposited in suchFunds, set forth in the applicable Series Resolution and the Trust Agreement.
There will be maintained in the Debt Service Fund the following Accounts: the Debt ServicePayment Account, the Debt Service Reserve Account and the Redemption and Purchase Account. TheTrustee will maintain a separate subaccount within the Debt Service Payment Account for each series ofObligations and each separate subaccount will secure only the particular series of Obligations to which itis related. (Section 4.01)
Use of Debt Service Payment Account; Intercept
The Debt Service Account is pledged to and will be used solely for the payment of Debt ServiceCharges as they fall due. Payments sufficient in an amount to pay the Debt Service Charges as theybecome due will be paid by the University directly to the Trustee, and deposited in the Debt ServicePayment Account to the extent moneys in the Debt Service Payment Account are not otherwise availabletherefore. Upon the occurrence and during the continuation of an Event of Default described in the TrustAgreement with respect to a specific series of Obligations, if a subaccount in the Debt Service ReserveAccount has been created to secure such series of Obligations, moneys in the applicable subaccount of theDebt Service Reserve Account may be transferred by the Trustee to the Debt Service Payment Account tobe used to pay Debt Service Charges with respect to such series of Obligations pursuant to the TrustAgreement. Except as provided in the Trust Agreement, moneys in the Debt Service Payment Accountshall be used solely for the payment of Debt Service Charges on the Obligations, for the redemption ofObligations prior to maturity, for the payment of any amounts due to a Credit Support Provider to theextent as set forth in a Credit Support Instrument, for the payment of any amounts due to a Hedge
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Provider to the extent as set forth in an Interest Rate Hedge Agreement and as otherwise provided in theTrust Agreement and the 2005 General Bond Resolution.
If, ten days prior to any date that the payment of Debt Service Charges are due, sufficient fundsare not on deposit in the Debt Service Payment Account to enable the Trustee to pay such Debt ServiceCharges, or if the Trustee shall have transferred funds from a Debt Service Reserve Account to the DebtService Payment Account to forestall a default in the payment of Debt Service Charges, then in each suchinstance the Trustee shall immediately notify the Treasurer of the University and the Secretary of theFinance and Administration Cabinet of the Commonwealth in writing of such event and request thatamounts be remitted to the Trustee pursuant to the then applicable provisions of Section 164A.608 of theKentucky Revised Statutes to cure such deficiency or to restore the amount transferred from the DebtService Reserve Account. (Section 4.02)
Debt Service Reserve Account
The Trustee will hold and administer a Debt Service Reserve Account to be used, solely for thepayment of Debt Service Charges with respect to any series of Obligations for which a reserve fund hasbeen mandated pursuant to the Series Resolution which authorized the issuance of such series ofObligations. A separate subaccount shall be created in the Supplemental Debt Service Reserve Accountfor each series of Obligations for which a reserve fund has been mandated by the Series Resolution whichauthorized such series of Obligations and each separate subaccount shall secure only the particular seriesof Obligations to which it is related.
If, on the date upon which Debt Service Charges on any Obligations which are secured by a DebtService Reserve Account or subaccount held by the Trustee fall due, the subaccount within the DebtService Payment Account related to such Obligations is insufficient to meet such Debt Service Charges tobe paid therefrom on such date, the Trustee will immediately transfer from the appropriate subaccount ofthe Debt Service Reserve Account an amount sufficient to make up such deficiency in the subaccount ofthe Debt Service Payment Account. Except as may be provided in the applicable Series Resolution orSupplemental Trust Agreement, if on the day upon which amounts are due to a Hedge Provider under anInterest Rate Hedge Agreement or are due to a Credit Support Provider in reimbursement for amountsprovided under a Credit Support Instrument, the amount in the subaccount within the Debt ServicePayment Account related to such Debt Service Charges (other than from any amounts provided under anInterest Rate Hedge Agreement or Credit Support Instrument) is insufficient to pay such amounts to suchHedge Provider or Credit Support Provider on that date, the Trustee, without necessity for any furtherorder of the University or officer thereof, will make available for such reimbursement any amounts in therelated subaccount of the Debt Service Reserve Account for the series of Obligations to which the InterestRate Hedge Agreement or Credit Support Instrument applies that are necessary to make up thatinsufficiency. The amount so transferred will be applied only to the payment of Debt Service Charges onthe Obligations to which that Debt Service Reserve Account pertains or for the payment of any amountsdue to a Hedge Provider under an Interest Rate Hedge Agreement or to a Credit Support Provider asreimbursement of draws under a Credit Support Instrument in connection with the Obligations to whichthat Debt Service Reserve Account pertains.
Subject to the foregoing, any amount in a subaccount of the Debt Service Reserve Account inexcess of the amount required to be maintained therein pursuant to the Series Resolution which createdsuch subaccount or the Certificate of Award (the “Required Amount”) will be transferred to the DebtService Payment Account or to the Redemption and Purchase Account for the purposes thereof, if and tothe extent ordered by the Fiscal Officer. Such excess will be determined by calculating the RequiredAmount with reference to Outstanding Obligations of the particular series only, excluding anyObligations for the redemption or purchase of which such excess is being transferred to the Redemptionand Purchase Account.
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Within one hundred eighty (180) days after the end of each Fiscal Year, the University shall, fromGeneral Receipts, restore to the various subaccounts within the Debt Service Reserve Account anyamounts transferred therefrom or any decrease in value determined pursuant to Section 4.14 of the TrustAgreement in such Fiscal Year so that the amounts in such subaccounts are at least equal to the variousRequired Amounts. (Section 4.03)
Redemption and Purchase Account
There will be deposited in the Redemption and Purchase Account that portion (if any) of theproceeds of refunding Obligations, as provided in the Series Resolution authorizing their issuance,allocated to the payment of the principal, interest and redemption premium, if any, or purchase price ofthe Obligations to be refunded, funded or retired through the issuance of such refunding Obligations;amounts to be transferred thereto from the Debt Service Reserve Account by order of the Fiscal Officerpursuant to Section 4.03 of the Trust Agreement; and any other amounts made available by the Universityfor the purposes of the Redemption and Purchase Account. Amounts for the redemption of Obligations tobe provided pursuant to the mandatory sinking fund requirements of the Series Resolution authorizingsuch Obligations will not be deposited to the credit of the Redemption and Purchase Account, but shall bedeposited to the credit of the Debt Service Payment Account.
Any amounts in the Redemption and Purchase Account may be committed, by Series Resolutionor other action by the Board, for the retirement of and for Debt Service Charges on specified Obligationsand, so long as so committed, will be used solely for such purposes whether directly or through transfer tothe Debt Service Fund. Subject to the foregoing provisions of the Trust Agreement, the Fiscal Officermay cause moneys in the Redemption and Purchase Account to be used to purchase any Obligations forcancellation and to redeem any Obligations in accordance with the redemption provisions of theapplicable Series Resolution. From moneys in the Redemption and Purchase Account, the Trustee willtransmit or otherwise disburse such amounts at such times as required for the redemption or purchase forcancellation of Obligations, and Debt Service Charges, in accordance with the applicable SeriesResolution, or other action by the Board or order of the Fiscal Officer not inconsistent therewith. Anyamounts in the Redemption and Purchase Account not required for the purposes thereof pursuant to acommitment theretofore made, may be transferred to the Debt Service Payment Account or the DebtService Reserve Account upon order of the Fiscal Officer. (Section 4.04)
Project Fund
Upon the issuance and delivery of Obligations, the proceeds of which will be used to pay Costs ofUniversity Facilities, the Treasury of the Commonwealth, will hold and administer a fund designated the“University of Kentucky Project Fund” with an additional series identification for each series ofObligations.
Amounts in a Project Fund will be disbursed therefrom by the Treasurer of the Commonwealthaccording to such inspection, audit, and disbursement procedures as may from time to time be providedby law, for the purpose of paying Costs of University Facilities as identified in the related SeriesResolution or Supplemental Trust Agreement and to reimburse the University for any payments whichmay have been made from other available resources in anticipation of the issuance of such Obligations.
Any balance remaining in a Project Fund after the final payment of all Costs of UniversityFacilities for which such Project Fund was created, will be deposited in the Debt Service Fund and (i)credited to the related subaccount, if any, within the Debt Service Reserve Account if and to the extentthat such subaccount of the Debt Service Reserve Account contains less than the Required Amount,and/or (ii) either applied as a credit against the next deposit required to be made into the Debt ServicePayment Fund, or used to purchase Obligations in the open market at a purchase price not exceeding parplus accrued interest, as may be directed by the Fiscal Officer; provided that, if proceedings are then
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pending or imminently contemplated for incurring additional Costs of University Facilities which are orwill be paid from the proceeds of Obligations, any such unexpended balance may be taken into account indetermining the amount of Obligations to be authorized for such purpose, or may otherwise be applied tosuch Costs of University Facilities, in which event such unexpended balance may be transferred to aProject Fund created for such purpose.
If so provided in any Series Resolution or a Supplemental Trust Agreement, to the extentpermitted by law, a Project Fund may be held and disbursed by the Trustee. Furthermore, if theObligations with respect to which a Project Fund is created are Financing Agreements, SPBC Leases orAdditional Obligation Instruments, a Project Fund may be created in accordance with the requirements ofsuch Financing Agreements, SPBC Leases or Additional Obligation Instruments. (Section 4.05)
General Covenant
So long as any Obligations are Outstanding pursuant to the Trust Agreement, the Universitycovenants and agrees: (i) to fix, make, adjust and collect such fees, rates, rentals, charges and other itemsof General Receipts so that there shall inure to the University General Receipts, in view of other revenuesand resources available to the University, sufficient: to pay Debt Service Charges then due or to becomedue in the current Fiscal Year; to pay any other costs and expenses payable under the Trust Agreement;and to pay all other costs and expenses necessary for the proper maintenance and successful andcontinuous operation of the University; and (ii) that it will include in its budget for each Fiscal Year theamount required to be paid to the Debt Service Fund established under Section 4.02 of the TrustAgreement, during such Fiscal Year. (Section 4.12)
Investment of Debt Service Fund and Project Fund
Except as provided in the Trust Agreement, moneys in the Debt Service Fund and the ProjectFund shall be invested and reinvested by the Trustee (or the Fiscal Officer, as applicable) in EligibleInvestments at the oral or written direction of the University, but if oral, confirmed promptly in writing.Investment of moneys in the Debt Service Fund shall mature or be redeemable at the times and in theamounts necessary to provide moneys to pay Debt Service Charges as they become due at stated maturity,by redemption or pursuant to any mandatory sinking fund requirements. Each investment of moneys inthe Debt Service Fund and the Project Fund will mature or be redeemable without penalty at such time asmay be necessary to make payments when necessary from such fund. In the absence of any writtendirection from the Fiscal Officer, the Trustee will invest all funds in sweep accounts, money-market fundsand similar short-term investments, provided that all such investments shall constitute EligibleInvestments. The Trustee may trade with itself or its affiliates in the purchase and sale of securities forsuch investments.
Subject to any directions from the University with respect thereto, the Trustee may sell at the bestprice reasonably obtainable Project Fund investments and reinvest the proceeds therefrom in EligibleInvestments maturing or redeemable as aforesaid. Any of those investments may be purchased from orsold to the Trustee, the Registrar, an Authenticating Agent, a Paying Agent, or any bank, trust company orsavings and loan association affiliated with any of the foregoing. The Trustee will sell or redeeminvestments credited to the Debt Service Fund to produce sufficient moneys applicable under the TrustAgreement to and at the times required for the purposes of paying Debt Service Charges when due asaforesaid, and shall do so without necessity for any order on behalf of the University and withoutrestriction by reason of any order. An investment made from moneys credited to the Debt Service Fundand the Project Fund will constitute part of that respective fund, and each respective fund will be creditedwith all proceeds of sale and income from investment of moneys credited thereto.
For purposes of qualifying any investment as an Eligible Investment, where such qualification isdependent upon the rating assigned to such investment by a Rating Service, such qualification will be
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determined as of the date of purchase of such investment or deposit thereof with the Trustee, whichever islater. (Section 4.15)
Revenue Fund
So long as any Obligations remain Outstanding, there will be maintained a Revenue Fund, which,to the extent required by law, may be a fund (and accounts) in the Commonwealth’s managementadministrative and reporting system. There will be maintained in the Revenue Fund the followingAccounts: a “Student Registration Fees Account,” a “Hospital Revenues Account” and a “Housing andDining Revenues Account.” The “Revenue Fund” created pursuant to the Prior Bond Resolution willcontinue to be maintained so long as any bonds remain outstanding under the Prior Bond Resolution, suchRevenue Fund will constitute the Student Registration Fees Account of the Revenue Fund until there areno bonds outstanding under the Prior Bond Resolution and all Student Registration Fees will be depositedtherein. The “Revenue Fund” created pursuant to a Master Resolution adopted by the Board on June 25,1986 will continue to be maintained as the Hospital Revenues Account of the Revenue Fund and allHospital Revenues shall be deposited therein. The “System Revenue Fund” created pursuant to the PriorHousing Indenture will continue to be maintained so long as any bonds remain outstanding under thePrior Housing Indenture, such System Revenue Fund will constitute the Housing and Dining RevenuesAccount of the Revenue Fund until there are no bonds outstanding under the Prior Housing Indenture andall Housing and Dining Revenues will be deposited therein. (Section 4.16)
Maintenance of Pledge
The University will not make any pledge or assignment of or create or suffer any lien orencumbrance upon the Debt Service Fund and, except for the existing pledges under the Prior BasicResolution and Prior Housing Indenture, the University will not make any pledge or assignment of orcreate or suffer any lien or encumbrance upon the General Receipts prior to or on a parity with the pledgethereof under the Trust Agreement, except as authorized or permitted under the Trust Agreement. TheUniversity will issue no additional bonds or notes under the Prior Basic Resolution. The University willissue no additional bonds or notes under the Prior Housing Indenture unless, with respect to a series ofHousing and Dining Bonds, (i) such bonds or notes could be issued as Obligations under the TrustAgreement within the limitations set forth in Section 2.01 of the Trust Agreement and (ii) it is provided inthe supplemental indenture authorizing such notes or bonds that on the date no Housing and DiningBonds are outstanding under the Prior Housing Indenture, other than notes or bonds issued in accordancewith Section 4.18 of the Trust Agreement, the lien securing such Housing and Dining Bonds created bythe Prior Housing Indenture will terminate and such Housing and Dining Bonds will continue asObligations under the Trust Agreement on a parity with all other Obligations. (Section 4.18)
Events of Default
Events of Default under the Trust Agreement include:
(a) Failure to pay any Debt Service Charges when and as the same becomes due andpayable;
(b) Failure to pay the principal of or any premium on any Prior Obligations whenand as the same becomes due and payable, whether at the stated maturity thereof or byredemption or acceleration or pursuant to any mandatory sinking fund requirements;
(c) Failure by the University to perform or observe any other covenant, agreement orcondition on the part of the University contained in the Trust Agreement or in the Obligations,which failure or Event of Default shall have continued for a period of 30 days after written notice,by registered or certified mail, given to the University by the Trustee, specifying the failure or
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Event of Default and requiring the same to be remedied, which notice shall be given by theTrustee upon the written request of the Holders of not less than twenty-five percent in aggregateprincipal amount of the Obligations then Outstanding; provided that the Person or Personsrequesting such notice may agree in writing to a 90-day extension of such period prior to theexpiration of the initial 30-day period; provided further, however, that if the University willproceed to take curative action which, if begun and prosecuted with due diligence, cannot becompleted within a period of 90 days, then such period shall be increased without such writtenextension up to 180 days as will be necessary to enable the University to diligently complete suchcurative action;
(d) The University will (i) admit in writing its inability to pay its debts generally asthey become due, (ii) have an order for relief entered in any case commenced by or against itunder federal bankruptcy laws, as now or hereafter in effect, (iii) commence a proceeding underany federal or state bankruptcy, insolvency, reorganization or similar laws, or have such aproceeding commenced against it and have either an order of insolvency or reorganizationentered against it or have the proceeding remain undismissed and unstayed for 90 days, (iv) makean assignment for the benefit of creditors, or, (v) have a receiver or trustee appointed for it or forthe whole or substantial part of its property. (Section 6.01)
Supplemental Trust Agreements Not Requiring Consent of Holders
The University and the Trustee without the consent of, or notice to, any of the Holders, may enterinto indentures supplemental to the Trust Agreement and other instruments evidencing the existence of alien as shall not, in the opinion of the Trustee, be inconsistent with the terms and provisions of the TrustAgreement for any one or more of the following purposes:
(a) To cure any ambiguity, inconsistency or formal defect or omission in the TrustAgreement or in any Supplemental Trust Agreement;
(b) To grant to or confer upon the Trustee for the benefit of the Holders anyadditional rights, remedies, powers or authority that may lawfully be granted to or conferred uponthe Holders or the Trustee;
(c) To subject additional revenues or property to the lien and pledge of the TrustAgreement;
(d) To add to the covenants and agreements of the University contained in the TrustAgreement other covenants and agreements thereafter to be observed for the protection of theHolders, or, if in the judgment of the Trustee such is not to the prejudice of the Trustee or theHolders, to surrender or limit any right, power or authority reserved to or conferred upon theUniversity in the Trust Agreement, including the limitation of rights of redemption so that incertain instances Obligations of different series will be redeemed in some prescribed relationshipto one another;
(e) To evidence any succession to the University and the assumption by suchsuccessor of the covenants and agreements of the University contained in the Trust Agreement orother instrument providing for the operation of the University or University Facilities, and theObligations;
(f) In connection with the issuance of Obligations in accordance with Sections 2.01and 2.02 of the Trust Agreement;
(g) To permit the Trustee to comply with any obligations imposed upon it by law;
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(h) To permit the exchange of Obligations, at the option of the Holder or Holdersthereof, for coupon Obligations of the same series payable to bearer, in an aggregate principalamount not exceeding the unmatured and unredeemed principal amount of the PredecessorObligations, bearing interest at the same rate or rates and maturing on the same date or dates, withcoupons attached representing all unpaid interest due or to become due thereon if, in the opinionof nationally recognized Bond Counsel selected by the University and acceptable to the Trustee,that exchange would not result in the interest on any of the Obligations Outstanding becomingsubject to federal income taxation;
(i) To specify further the duties and responsibilities of, and to define further therelationship among, the Trustee, the Registrar and any Authenticating Agents or Paying Agents;
(j) To achieve compliance of the Trust Agreement with any applicable federal orKentucky laws, including tax laws;
(k) To modify any provisions of the Trust Agreement in order to obtain a CreditSupport Instrument or Interest Rate Hedge Agreement, so long as such modifications affect onlythe Obligations to which such Credit Support Instrument or Interest Rate Hedge Agreementrelate; and
(l) In connection with any other change to the Trust Agreement which, in thejudgment of the Trustee, is not to the material prejudice of the Trustee or the Holders of theObligations.
The provisions of (g) and (j) above will not be deemed to constitute a waiver by the Trustee, theRegistrar, the University or any Holder of any right which it may have in the absence of those provisionsto consent to the application of any change in law to the Trust Agreement or the Obligations. (Section7.01)
Supplemental Trust Agreements Requiring Consent of Holders
Exclusive of supplemental indentures referred to in Section 7.01 of the Trust Agreement andsubject to the terms and provisions and limitations contained in this paragraph, and not otherwise, theHolders of a majority in aggregate principal amount of the Obligations then Outstanding shall have theright, from time to time, anything contained in the Trust Agreement to the contrary notwithstanding, toconsent to and approve the execution by the University and the Trustee of such other indenture orindentures supplemental to the Trust Agreement as shall be deemed necessary and desirable by theUniversity for the purpose of modifying, altering, amending, adding to or rescinding, in any particular,any of the terms or provisions contained in the Trust Agreement; provided that nothing in this paragraphor in the Trust Agreement will permit, or be construed as permitting, a Supplemental Trust Agreementproviding for (a)(i) a reduction in the percentage of Obligations the consent of the Holders of which arerequired to consent to such Supplemental Trust Agreement or (ii) a preference or priority of anyObligation or Obligations over any other Obligation or Obligations, without the consent of the Holders ofall Obligations then Outstanding, (b) effect a change in the times, amount or currency of payment of theprincipal of, premium, if any, on or interest on any Obligation or a reduction in the principal amount orredemption price of any Obligation or the rate of interest thereon, without the consent of the Holder ofeach such Obligation so affected or (c) modify the right of the Holders of not less than twenty-fivepercent in aggregate principal amount of the Obligations then Outstanding and in default as to payment ofprincipal, premium or interest to compel the Trustee to declare the principal of all Obligations to be dueand payable, without the consent of the Holders of a majority in aggregate principal amount of theObligations then Outstanding.
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If at any time the University request the Trustee to enter into any such Supplemental TrustAgreement for any of the purposes of Section 7.02 of the Trust Agreement, the Trustee, upon beingsatisfactorily indemnified with respect to expenses, shall cause notice of the proposed execution of suchSupplemental Trust Agreement to be mailed by first class mail, postage prepaid, to all Holders ofObligations then Outstanding at their addresses as they appear on the Registrar at the close of business onthe Business Day immediately preceding that mailing. The Trustee will not, however, be subject to anyliability to any Holder by reason of its failure to mail, or the failure of such Holder to receive, the noticerequired by the Trust Agreement, and any such failure shall not affect the validity of such SupplementalTrust Agreement when consented to and approved as provided in Section 7.02 of Trust Agreement. Suchnotice will briefly set forth the nature of the proposed Supplemental Trust Agreement and will state thatcopies thereof are on file at the principal corporate trust office of the Trustee for inspection by allHolders.
If within such period, not exceeding one year, as prescribed by the University, following themailing of such notice, the Trustee receives an instrument or instruments purporting to be executed by theHolders of a majority in aggregate principal amount of the Obligations then Outstanding, whichinstrument or instruments shall refer to the proposed Supplemental Trust Agreement described in suchnotice and will specifically consent to and approve the execution thereof in substantially the form of thecopy thereof referred to in such notice as on file with the Trustee, thereupon, but not otherwise, theTrustee will execute such Supplemental Trust Agreement in substantially such form; without liability orresponsibility to any Holder of any Obligation, whether or not such Holder will have consented thereto.
Any such consent is binding upon the Holder of the Obligation giving such consent, upon anysubsequent Holder of such Obligation and upon the Holder of any Obligation issued in exchange therefor(whether or not such subsequent Holder thereof has notice thereof), unless such consent is revoked inwriting by the Holder of such Obligation giving such consent or by a subsequent Holder thereof by filingwith the Trustee, prior to the execution by the Trustee of such Supplemental Trust Agreement, suchrevocation and, if such Obligation or Obligations are transferable by delivery, proof that such Obligationsare held by the signer of such revocation in the manner permitted by Section 9.01 of the Trust Agreement.At any time after the Holders of the required percentage of the Obligations shall have filed their consentsto the Supplemental Trust Agreement, the Trustee shall make and file with the University a writtenstatement that the, Holders of such required percentage of the Obligations have filed such consents. Suchwritten statement shall be conclusive evidence that such consents have been so filed.
If the Holders of the required percentage in aggregate principal amount of the Obligations shallhave consented to and approved the execution thereof as provided in the Trust Agreement, no Holder ofany Obligation has any right to object to the execution of such Supplemental Trust Agreement, to objectto any of the terms and provisions contained therein or the operation thereof, or in any manner to questionthe propriety of the execution thereof or to enjoin or restrain the Trustee or the University from executingthe same or from taking any action pursuant to the provisions thereof.
Authorization to the Trustee; Effect of Supplemental Trust Agreements
The Trustee is authorized to join with the University in the execution of any such SupplementalTrust Agreement provided for in the Trust Agreement and to make the further agreements and stipulationswhich may be contained therein. Any Supplemental Trust Agreement executed in accordance with theprovisions of the Trust Agreement will thereafter form a part of the Trust Agreement, all the terms andconditions contained in any such Supplemental Trust Agreement as to any provision authorized to becontained therein will be deemed to be part of the terms and conditions of the Trust Agreement for anyand all purposes, the Trust Agreement will be and be deemed to be modified and amended in accordancetherewith, and the respective rights, duties and obligations under the Trust Agreement of the University,the Trustee, the Registrar, the Authenticating Agents, the Paying Agents and all Holders of Obligationsthen Outstanding will thereafter be determined, exercised and enforced thereunder, subject in all respects
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to such modifications and amendments. Express reference to such executed Supplemental TrustAgreement may be made in the text of any Obligations issued thereafter, if deemed necessary or desirableby the Trustee or the University. There will be no modification, change or amendment to the TrustAgreement or any other document related to the Obligations which affect the rights, duties or obligationsof the Trustee thereunder, without the Trustee’s prior written consent.
Opinion of Counsel
The Trustee is entitled to receive, and shall be fully protected in relying upon, the opinion of anycounsel approved by it, who may be counsel for the University, as conclusive evidence that any suchproposed Supplemental Trust Agreement complies with the provisions of the Trust Agreement and that itis proper for the Trustee, under the provisions of the Trust Agreement, to join in the execution of suchSupplemental Trust Agreement. (Section 7.04)
Modification by Unanimous Consent
Notwithstanding anything contained elsewhere in the Trust Agreement, the rights and obligationsof the University and of the Holders of the Obligations, and the terms and provisions of the Obligationsand the Trust Agreement or any Supplemental Trust Agreement, may be modified or altered in anyrespect with the consent of the University and the consent of the Holders of all of the Obligations thenOutstanding and the Trustee. (Section 7.05)
Release of Trust Agreement
If the University pays or cause to be paid and discharged, or there shall otherwise by paid to theHolders of the Outstanding Obligations all Debt Service Charges due or to become due thereon andprovision shall also be made for paying all other sums payable under the Trust Agreement, then and inthat event the Trust Agreement (except for Sections 4.02, 4.04, 4.05, 8.02 and 8.03 thereof) will cease,determine and become null and void, and the covenants, agreements, and other obligations of theUniversity under the Trust Agreement are discharged and satisfied, and thereupon the Trustee will releasethe Trust Agreement, including the cancellation and discharge of the lien thereof, and execute and deliverto the University such instruments in writing as required to satisfy and terminate the lien thereof and toenter on the records such satisfaction and discharge and to re-convey to the University the estate createdby the Trust Agreement and such other instruments to evidence such release and discharge as may bereasonably required by the University, and the Trustee and Paying Agents will assign and deliver to theUniversity any property at the time subject to the lien of the Trust Agreement which may then be in theirpossession, except amounts in the Debt Service Fund required to be held by the Trustee and PayingAgents under Section 4.07 of the Trust Agreement or otherwise for the payment of Debt Service Charges.(Section 8.01)
Payment and Discharge of Obligations
All the Outstanding Obligations of one or more series will be deemed to have been paid anddischarged within the meaning of the Trust Agreement, including without limitation, Section 8.01 of theTrust Agreement if either (i) the Trustee as paying agent and any Paying Agents are required to hold, inthe Debt Service Payment Account in trust for and irrevocably committed thereto, sufficient moneys or(ii) the Trustee is required to hold, in the Debt Service Fund in trust for and irrevocably committedthereto, investments qualifying as Government Bonds as of the date of the determination required inSection 8.02 of the Trust Agreement which are, in either case, certified by an independent publicaccounting firm of national reputation to be of such maturities and interest payment dates and to bear suchinterest as will, without further investment or reinvestment of either the principal amount thereof or theinterest earnings therefrom (likewise to be held in trust and committed, except as provided in the TrustAgreement), be sufficient together with moneys referred to in clause (i) above, for the payment, at their
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maturity, redemption or due date, as the case may be, of all Debt Service Charges on those Obligations totheir maturity, redemption or due date, as the case may be, or if Event of Default in such payment willhave occurred on such date then to the date of the tender of such payment; provided that if any of suchObligations are to be redeemed prior to the maturity thereof, notice of such redemption will have beenduly given or irrevocable provisions satisfactory to the Trustee have been duly made for the giving ofsuch notice; provided that if the Obligations are to be redeemed prior to the maturity thereof, notice ofsuch redemption shall have been duly given or irrevocable provision satisfactory to the Trustee shall havebeen duly made for the giving of such notice. (Section 8.02)
Survival of Certain Provisions
Notwithstanding the foregoing, those provisions of a Series Resolution and the Trust Agreementrelating to the maturity of Obligations, interest payments and dates thereof, optional and mandatoryredemption provisions, credit against Mandatory Sinking Fund Requirements, exchange, transfer andregistration of Obligations, replacement of mutilated, destroyed, lost or stolen Obligations, thesafekeeping and cancellation of Obligations, non-presentment of Obligations, the holding of moneys intrust, repayments to the University from the Special Funds and the rights, remedies and duties of theTrustee and the Registrar in connection with all of the foregoing, shall remain in effect and shall bebinding upon the Trustee, the Registrar, the Authenticating Agent, Paying Agents and the Holdersnotwithstanding the release and discharge of the lien of the Trust Agreement. The provisions of theArticle XIII of the Trust Agreement shall survive the release and discharge of the Trust Agreement.(Section 8.03)
Limitation of Rights
With the exception of rights expressly conferred in the Trust Agreement, nothing expressed ormentioned in or to be implied from the Trust Agreement or the Obligations is intended or shall beconstrued to give to any Person other than the parties to the Trust Agreement, the University, any CreditSupport Provider and the Holders of the Obligations any legal or equitable right, remedy or claim underor in respect to the Trust Agreement or any covenants, conditions and provisions in contained in the TrustAgreement; the Trust Agreement and all of the covenants, conditions and provisions of the TrustAgreement being intended to be and being for the sole and exclusive benefit of the parties hereto, theUniversity, any Credit Support Provider and the Holders of the Obligations as provided in the TrustAgreement. (Section 9.02)
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APPENDIX D
FORM OF BOND COUNSEL OPINION
[Date of Delivery]
University of KentuckyLexington, Kentucky
Re: $29,265,000 University of Kentucky General Receipts Refunding Bonds, 2017 Series Aand $7,540,000 University of Kentucky General Receipts Refunding Bonds, 2017 SeriesB
Gentlemen:
We have acted as bond counsel in connection with the issuance by the University of Kentucky, apublic body corporate and educational institution and agency of the Commonwealth of Kentucky (the“University”), of its $29,265,000 General Receipts Refunding Bonds, 2017 Series A (the “2017 Series ABonds”) and $7,540,000 General Receipts Refunding Bonds, 2017 Series B (the “2017 Series B Bonds”and together with the 2017 Series A Bonds, the “Series 2017 Bonds”) pursuant to Sections 162.340 to162.380 of the Kentucky Revised Statutes and Sections 58.010 to 58.140 of the Kentucky RevisedStatutes, as amended (the “Act”); the 2005 General Bond Resolution of the Board of Trustees of theUniversity (the “Board”) adopted on September 20, 2005 (the “2005 General Bond Resolution”)authorizing the execution and delivery of a Trust Agreement dated as of November 1, 2005 (the “TrustAgreement”) between the University and U.S. Bank National Association, as trustee (the “Trustee”); anda Series Resolution adopted by the University on June 24, 2016 (the “Series Resolution”) authorizing theexecution and delivery of an Eleventh Supplemental Trust Agreement, dated as of February 1, 2017 (the“2017 Series A and B Supplement”) between the University and the Trustee, for the purpose of financingthe cost, not otherwise provided, of the Project, as described in the Series Resolution. We have examinedthe law and the transcript of proceedings pursuant to which the Series 2017 Bonds have been authorizedand issued, and such other matters as we deem necessary to render this opinion.
As to questions of fact material to our opinion, we have relied upon the opinion of GeneralCounsel to the University, representations of the University contained in the 2005 General BondResolution, the Trust Agreement, the Series Resolution, the 2017 Series A and B Supplement and in thetranscript of proceedings and other certifications of public officials furnished to us, without undertakingto verify the same by independent investigation.
Based on our examination, we are of the opinion, as of the date hereof and under existing law, asfollows:
1. The University is a duly created and validly existing public body corporate andeducational institution and agency of the Commonwealth of Kentucky, with full power to adopt the 2005General Bond Resolution and the Series Resolution, to perform the agreements on its part containedtherein and in the Trust Agreement and the 2017 Series A and B Supplement and to issue the Series 2017Bonds.
2. The 2005 General Bond Resolution and the Series Resolution have been duly adopted bythe University and constitute valid and binding obligations of the University enforceable upon theUniversity.
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3. The Trust Agreement and the 2017 Series A and B Supplement have been dulyauthorized, executed and delivered by the University and are each valid and binding obligations of theUniversity, enforceable in accordance with their respective terms.
4. The Series 2017 Bonds have been duly authorized, executed and delivered by theUniversity and constitute valid and binding obligations of the University payable solely from the sourcesprovided therefore in the 2005 General Bond Resolution, the Series Resolution, the Trust Agreement andthe 2017 Series A and B Supplement.
5. The Series 2017 Bonds and any additional Obligations, as defined in the TrustAgreement, heretofore and hereafter issued and outstanding under the terms of the Trust Agreement areand will be payable from the General Receipts, as defined in the Trust Agreement, which have beenpledged thereunder as provided in the Trust Agreement and the 2017 Series A and B Supplement.
6. Under the laws, regulations, rulings and judicial decisions in effect as of the date hereof,interest, including original issue discount, on the Series 2017 Bonds is excludible from gross income forFederal income tax purposes, pursuant to the Internal Revenue Code of 1986, as amended (the “Code”).Furthermore, interest on the Series 2017 Bonds will not be treated as a specific item of tax preference,under Section 57(a)(5) of the Code, in computing the alternative minimum tax for individuals andcorporations. In rendering the opinions in this paragraph, we have assumed continuing compliance withcertain covenants designed to meet the requirements of Section 103 of the Code. We express no otheropinion as to the federal tax consequences of purchasing, holding or disposing of the Series 2017 Bonds.
7. The University has not designated the Series 2017 Bonds as “qualified tax-exemptobligations” pursuant to Section 265 of the Code.
8. Interest on the Series 2017 Bonds is exempt from income taxation and the Series 2017Bonds are exempt from ad valorem taxation by the Commonwealth and any of its political subdivisions.
It is to be understood that the rights of the owners of the Series 2017 Bonds and the enforceabilityof the Series 2017 Bonds, the 2005 General Bond Resolution, the Series Resolution, the Trust Agreementand the 2017 Series A and B Supplement may be subject to bankruptcy, insolvency, reorganization,moratorium and other laws in effect from time to time affecting creditors’ rights, and to the exercise ofjudicial discretion in accordance with general equitable principles.
Very truly yours,
DINSMORE & SHOHL LLP
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APPENDIX E
BOOK-ENTRY-ONLY SYSTEM
The Series 2017 Bonds initially will be issued solely in book-entry form to be held in the book-entry-only system maintained by The Depository Trust Company (“DTC”), New York, New York. Solong as such book-entry system is used, only DTC will receive or have the right to receive physicaldelivery of Series 2017 Bonds and, except as otherwise provided herein with respect to tenders byBeneficial Owners of beneficial ownership interests, each actual purchaser of each Series 2017 Bond (a“Beneficial Owner”) will not be or be considered to be, and will not have any rights as, owner or holderof the Series 2017 Bonds under the Trust Agreement.
The following information about the book-entry-only system applicable to the Series 2017 Bondshas been supplied by DTC. Neither the University nor the Trustee makes any representations, warrantiesor guarantees with respect to its accuracy or completeness.
DTC will act as securities depository for the Series 2017 Bonds. The Securities will be issued asfully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or suchother name as may be requested by an authorized representative of DTC. One fully-registered Series2017 Bond certificate will be issued for in the aggregate principal amount of the Series 2017 Bonds andwill be deposited with DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organizedunder the New York Banking Law, a “banking organization” within the meaning of the New YorkBanking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning ofthe New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisionsof Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and moneymarket instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit withDTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and othersecurities transactions in deposited securities, through electronic computerized book-entry transfers andpledges between Direct Participants’ accounts. This eliminates the need for physical movement ofsecurities 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-ownedsubsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding companyfor DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of whichare registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to theDTC 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 relationshipwith a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard &Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities andExchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Series 2017 Bonds under the DTC system must be made by or through DirectParticipants, which will receive a credit for the Series 2017 Bonds on DTC’s records. The ownershipinterest of each actual purchaser of each Series 2017 Bond (“Beneficial Owner”) is in turn to be recordedon the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmationfrom DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmationsproviding details of the transaction, as well as periodic statements of their holdings, from the Direct orIndirect Participant through which the Beneficial Owner entered into the transaction. Transfers ofownership interests in the Series 2017 Bonds are to be accomplished by entries made on the books ofDirect and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
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receive certificates representing their ownership interests in the Series 2017 Bonds, except in the eventthat use of the book-entry system for the Series 2017 Bonds is discontinued.
To facilitate subsequent transfers, all Series 2017 Bonds deposited by Direct Participants withDTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as maybe requested by an authorized representative of DTC. The deposit of Series 2017 Bonds with DTC andtheir registration in the name of Cede & Co. or such other DTC nominee do not affect any change inbeneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2017 Bonds;DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2017Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participantswill 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 DirectParticipants to Indirect Participants, and by Direct Participants and Indirect Participants to BeneficialOwners will be governed by arrangements among them, subject to any statutory or regulatoryrequirements as may be in effect from time to time. Beneficial Owners of Series 2017 Bonds may wish totake certain steps to augment the transmission to them of notices of significant events with respect to theSeries 2017 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Series 2017Bond documents. For example, Beneficial Owners of Series 2017 Bonds may wish to ascertain that thenominee holding the Series 2017 Bonds for their benefit has agreed to obtain and transmit notices toBeneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addressesto the Trustee and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Series 2017 Bonds are beingredeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant insuch issue to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect toSeries 2017 Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures.Under its usual procedures, DTC mails an Omnibus Proxy to the University as soon as possible after therecord date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those DirectParticipants to whose accounts Series 2017 Bonds are credited on the record date (identified in a listingattached to the Omnibus Proxy).
Redemption proceeds, distributions, and interest payments on the Series 2017 Bonds will bemade 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 correspondingdetail information from the University or the Trustee, on payable date in accordance with their respectiveholdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed bystanding instructions and customary practices, as is the case with Series 2017 Bonds held for the accountsof customers in bearer form or registered in “street name,” and will be the responsibility of suchParticipant and not of DTC, the Trustee, or the University, subject to any statutory or regulatoryrequirements as may be in effect from time to time. Payment of redemption proceeds, distributions, andinterest payments to Cede & Co. (or such other nominee as may be requested by an authorizedrepresentative of DTC) is the responsibility of the University or the Trustee, disbursement of suchpayments to Direct Participants will be the responsibility of DTC, and disbursement of such payments tothe Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as depository with respect to the Series 2017 Bondsat any time by giving reasonable notice to the University or the Trustee. Under such circumstances, in theevent that a successor depository is not obtained, bond certificates are required to be printed anddelivered.
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The University may decide to discontinue use of the system of book-entry transfers through DTC(or a successor securities depository). In that event, bond certificates will be printed and delivered.
NEITHER THE UNIVERSITY NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITYOR OBLIGATION TO ANY DIRECT PARTICIPANT, INDIRECT PARTICIPANT OR ANYBENEFICIAL OWNER OR ANY OTHER PERSON NOT SHOWN ON THE REGISTRATIONBOOKS OF THE TRUSTEE AS BEING A HOLDER WITH RESPECT TO: (1) THE SERIES 2017BONDS; (2) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECTPARTICIPANT OR INDIRECT PARTICIPANT; (3) THE PAYMENT BY DTC OR ANY DIRECTPARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIALOWNER IN RESPECT OF THE PURCHASE PRICE OF TENDERED SERIES 2017 BONDS OR THEPRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON THE SERIES 2017 BONDS; (4) THEDELIVERY BY ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY NOTICE TOANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OFTHE INDENTURE TO BE GIVEN TO HOLDERS; (5) THE SELECTION OF THE BENEFICIALOWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THESERIES 2017 BONDS; OR (6) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC ASHOLDER.
Each Beneficial Owner for whom a Direct Participant or Indirect Participant acquires an interestin the Series 2017 Bonds, as nominee, may desire to make arrangements with such Direct Participant orIndirect Participant to receive a credit balance in the records of such Direct Participant or IndirectParticipant, to have all notices of redemption, elections to tender Series 2017 Bonds or othercommunications to or by DTC which may affect such Beneficial Owner forwarded in writing by suchDirect Participant or Indirect Participant, and to have notification made of all debt service payments.
Beneficial Owners may be charged a sum sufficient to cover any tax, fee, or other governmentalcharge that may be imposed in relation to any transfer or exchange of their interests in the Series 2017Bonds.
The University cannot and does not give any assurances that DTC, Direct Participants, IndirectParticipants or others will distribute payments of debt service on the Series 2017 Bonds made to DTC orits nominee as the registered owner, or any redemption or other notices, to the Beneficial Owners, or thatthey will do so on a timely basis, or that DTC, Direct Participants or Indirect Participants will serve andact in the manner described in this Official Statement.
Certain duties of DTC and procedures to be followed by DTC and the Trustee are set forth inDTC’s operational arrangements (the “Operational Arrangements”). In the event of any conflict betweenthe provisions of the Indenture and the provisions of the Operational Arrangements relating to thepayment of the principal of, premium, if any, and interest on the Series 2017 Bonds and all notices withrespect to the Series 2017 Bonds, the provisions of the Operational Arrangements shall control. TheUniversity has executed a blanket letter of representations enabling the Series 2017 Bonds to be eligiblefor DTC’s book-entry only system.
The information in this APPENDIX E concerning DTC and DTC’s book-entry system has beenobtained from sources that the University believes to be reliable, but the University takes no responsibilityfor the accuracy thereof.
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APPENDIX F
FORM OF CONTINUING DISCLOSURE AGREEMENT
CONTINUING DISCLOSURE AGREEMENT
________________________________________________________________________
Relating to:
$29,265,000 UNIVERSITY OF KENTUCKYGENERAL RECEIPTS REFUNDING BONDS,
2017 SERIES A
AND
$7,540,000 UNIVERSITY OF KENTUCKYGENERAL RECEIPTS REFUNDING BONDS,
2017 SERIES B
_________________________________________________________________________
Dated as of: February 1, 2017
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TABLE OF CONTENTS
Page
RECITALS ................................................................................................................................................ 3
Section 1. Definitions; Scope of this Agreement ...................................................................................... 3
Section 2. Disclosure of Information ........................................................................................................ 5
Section 3. Amendment or Waiver............................................................................................................. 8
Section 4. Miscellaneous .......................................................................................................................... 8
Section 5. Additional Disclosure Obligations........................................................................................... 9
Section 6. Notices ..................................................................................................................................... 9
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THIS CONTINUING DISCLOSURE AGREEMENT (the “Agreement”) is made and enteredinto as of February 1, 2017, between U.S. Bank National Association, as disclosure agent (the“Disclosure Agent”) and the University of Kentucky (the “Issuer”).
RECITALS
WHEREAS, the Issuer has issued or will issue its General Receipts Refunding Bonds, 2017Series A in the original aggregate principal amount of $29,265,000, and General Receipts RefundingBonds, 2017 Series B in the original aggregate principal amount of $7,540,000 (collectively, the“Bonds”) pursuant to a Trust Agreement dated as of November 1, 2005 between the Issuer and theDisclosure Agent, as supplemented (the “Trust Agreement”), to (i) make a payment under a FinancingAgreement with the Kentucky Asset/Liability Commission and the Finance and Administration Cabinetof the Commonwealth of Kentucky to currently refund and retire all the outstanding KentuckyAsset/Liability Commission University of Kentucky General Receipts Project Notes, 2006 Series A, (ii)to currently refund and retire all the outstanding University of Kentucky General Receipts Taxable BuildAmerica Bonds, 2010 Series A and (iii) pay the costs of issuing the Bonds.
WHEREAS, the Bonds have been offered and sold pursuant to a Preliminary Official Statement,dated January 11, 2017, and a final Official Statement, dated January 18, 2017 (the “OfferingDocument”); and PNC Capital Markets LLC has agreed to purchase the 2017 Series A Bonds and PNCCapital Markets LLC has agreed to purchase the 2017 Series B Bonds based on their respectivecompetitive bids pursuant to the Issuer’s Notice of Bond Sale as to the Bonds (the “Original Purchaser”);and
WHEREAS, the Disclosure Agent and the Issuer, wish to provide for the disclosure of certaininformation concerning the Bonds, the Project and other matters on an ongoing basis as set forth hereinfor the benefit of Bondholders (as hereinafter defined) in accordance with the provisions of Securities andExchange Commission Rule 15c2-12, as amended from time to time (the “Rule”);
NOW, THEREFORE, in consideration of the mutual promises and agreements made herein andin the Trust Agreement, the receipt and sufficiency of which consideration is hereby mutuallyacknowledged, the parties hereto agree as follows:
Section 1. Definitions; Scope of this Agreement
(A) All terms capitalized but not otherwise defined herein shall have the meaningsassigned to those terms in the Trust Agreement. Notwithstanding the foregoing, the term“Disclosure Agent” shall originally mean U.S. Bank National Association, having offices inLouisville, Kentucky; any successor disclosure agent shall automatically succeed to the rights andduties of the Disclosure Agent hereunder, without any amendment hereto. The followingcapitalized terms shall have the following meanings:
“Annual Financial Information” shall mean a copy of the annual audited financial informationprepared for the Issuer which shall include, if prepared, a statement of net assets, and the relatedstatements of revenues, expenses and changes in net assets and of cash flows. All such financialinformation shall be prepared using generally accepted accounting principles, provided, however, that theIssuer may change the accounting principles used for preparation of such financial information so long asthe Issuer includes as information provided to the public, a statement to the effect that differentaccounting principles are being used, stating the reason for such change and how to compare the financialinformation provided by the differing financial accounting principles. Any or all of the items listed abovemay be set forth in other documents, including Offering Documents of debt issues of the Issuer, the Boardor related public entities, which have been transmitted to the MSRB, or may be included by specificreference to documents available to the public on the MSRB’s Internet Website or filed with the SEC.
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“Beneficial Owner” shall mean any person which has the power, directly or indirectly, to vote orconsent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bondsthrough nominees, depositories or other intermediaries).
“Bondholders” shall mean any holder of the Bonds and any Beneficial Owner thereof.
“Event” shall mean any of the following events with respect to the Bonds:
(i) Principal and interest payment delinquencies;
(ii) Non-payment related defaults, if material;
(iii) In the case of credit enhancement that is provided in connection with the issuance of theBonds, unscheduled draws on such credit enhancement reflecting financial difficultiesand substitution of credit providers, or their failure to perform;
(iv) Unscheduled draws on debt service reserves reflecting financial difficulties;
(v) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or finaldeterminations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or othermaterial notices or determinations with respect to the tax-exempt status of the security, orother material events affecting the tax-exempt status of the security;
(vi) Modifications to rights of security holders, if material;
(vii) Bond calls, if material, and tender offers (except for mandatory scheduled redemptionsnot otherwise contingent upon the occurrence of the event);
(viii) Defeasances;
(ix) Release, substitution or sale of property securing repayment of the securities, if material;
(x) Rating changes;
(xi) Bankruptcy, insolvency, receivership or similar event of the Obligated Person.
(xii) The consummation of a merger, consolidation or acquisition involving an ObligatedPerson, or the sale of all or substantially all of the assets of the Obligated Person, otherthan in the ordinary course of business, the entry into a definitive agreement to undertakesuch an action or the termination of a definitive agreement relating to any such actions,other than pursuant to its terms, if material; and
(xiii) Appointment of a successor or additional trustee or the change of name of a trustee, ifmaterial.
“MSRB” shall mean the Municipal Securities Rulemaking Board.
“Operating Data” shall mean an update of the Operating Data contained in Appendix A of theOffering Document.
“Participating Underwriter” shall mean any of the original underwriters of the Bonds required tocomply with the Rule in connection with the offering of the Bonds.
“SEC” shall mean the Securities and Exchange Commission.
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“State” shall mean the Commonwealth of Kentucky.
“Turn Around Period” shall mean (i) five (5) business days, with respect to Annual FinancialInformation and Operating Data delivered by the Issuer to the Disclosure Agent; (ii) in a timely manner,but within ten (10) business days, with respect to Event occurrences disclosed by the Issuer to theDisclosure Agent; or (iii) two (2) business days with respect to the failure, on the part of the Issuer, todeliver Annual Financial Information and Operating Data to the Disclosure Agent which periodcommences upon notification by the Issuer of such failure, or upon the Disclosure Agent’s actualknowledge of such failure.
(A) This Agreement applies to the Bonds and any Additional Bonds issued under theTrust Agreement.
(B) The Disclosure Agent shall have no obligation to make disclosure about theBonds or the Project except as expressly provided herein ; provided that nothing herein shall limitthe duties or obligations of the Disclosure Agent, as Paying Agent, under the Trust Agreement.The fact that the Disclosure Agent or any affiliate thereof may have any fiduciary or bankingrelationship with the Issuer, apart from the relationship created by the Trust Agreement, shall notbe construed to mean that the Disclosure Agent has actual knowledge of any event or conditionexcept in its capacity as Paying Agent under the Trust Agreement or except as may be providedby written notice from the Issuer.
Section 2. Disclosure of Information.
(A) General Provisions. This Agreement governs the Issuer’s direction to theDisclosure Agent, with respect to information to be made public. In its actions under thisAgreement, the Disclosure Agent is acting not as Paying Agent but as the Issuer’s agent.
(B) Information Provided to the Public. Except to the extent this Agreement ismodified or otherwise altered in accordance with Section 3 hereof, the Issuer shall makeor cause to be made public the information set forth in subsections (1), (2) and (3) below:
(1) Annual Financial Information and Operating Data. Annual FinancialInformation and Operating Data at least annually not later than 180 days following theend of each fiscal year, beginning with the fiscal year ending June 30, 2014 andcontinuing with each fiscal year thereafter, for which the information is provided, takinginto account the Turn Around Period, and, in addition, all information with respect to theBonds required to be disseminated by the Trustee pursuant to the Trust Agreement.
(2) Events Notices Notice of the occurrence of an Event, in a timely manner,within ten (10) business days of the occurrence of the Event.
(3) Failure to Provide Annual Financial Information. Notice of the failure ofIssuer to provide the Annual Financial Information and Operating Data by the daterequired herein.
(C) Information Provided by Disclosure Agent to Public.
(1) The Issuer directs the Disclosure Agent on its behalf to make public inaccordance with subsection (D) of this Section 2 and within the time frame set forth inclause (3) below, and the Disclosure Agent agrees to act as the Issuer’s agent in somaking public, the following:
(a) the Annual Financial Information and Operating Data;
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(b) Material Event occurrences;
(c) the notices of failure to provide information which the Issuer hasagreed to make public pursuant to subsection (B)(3) of this Section 2;
(d) such other information as the Issuer shall determine to makepublic through the Disclosure Agent and shall provide to the Disclosure Agent inthe form required by subsection (C)(2) of this Section 2. If the Issuer chooses toinclude any information in any Annual Financial Information report or in anynotice of occurrence of an Event, in addition to that which is specifically requiredby this Agreement, the Issuer shall have no obligation under this Agreement toupdate such information or include it in any future Annual Financial Informationreport or notice of occurrence of an Event; and
(2) The information which the Issuer has agreed to make public shall be inthe following form:
(a) as to all notices, reports and financial statements to be providedto the Disclosure Agent by the Issuer, in the form required by the TrustAgreement or other applicable document or agreement; and
(b) as to all other notices or reports, in such form as the DisclosureAgent shall deem suitable for the purpose of which such notice or report is given.
(3) The Disclosure Agent shall make public the Annual FinancialInformation, the Operating Data, the Event occurrences and the failure to provide theAnnual Financial Information and Operating Data within the applicable Turn AroundPeriod. Notwithstanding the foregoing, Annual Financial Information, Operating Data,and Events shall be made public on the same day as notice thereof is given to theBondholders of outstanding Bonds, if required in the Trust Agreement, and shall not bemade public before the date of such notice. If on any such date, information required tobe provided by the Issuer to the Disclosure Agent has not been provided on a timelybasis, the Disclosure Agent shall make such information public as soon thereafter as it isprovided to the Disclosure Agent.
(D) Means of Making Information Public.
(1) Information shall be deemed to be made public by the Issuer or theDisclosure Agent under this Section if it is transmitted to one or more of the following asprovided in subsection (D)(2) of this Section 2:
(a) to the Bondholders of outstanding Bonds, by the methodprescribed by the Trust Agreement;
(b) to the MSRB, in an electronic format as prescribed by theMSRB, accompanied by identifying information as prescribed by the MSRB;and/or
(c) to the SEC, by (i) electronic facsimile transmissions confirmedby first class mail, postage prepaid, or (ii) first class mail, postage prepaid;provided that the Issuer or the Disclosure Agent is authorized to transmitinformation to a SEC by whatever means are mutually acceptable to theDisclosure Agent or the Issuer, as applicable, and the SEC.
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(2) Information shall be transmitted to the following:
(a) all Annual Financial Information and Operating Data shall betransmitted to the MSRB;
(b) notice of all Events, and notice of a failure by the Issuer toprovide Annual Financial Information on or before the date specified in Section2(B)(1) hereof, shall be transmitted to the MSRB;
(c) all information described in clause (a) shall be made available toany Bondholder upon request, but need not be transmitted to the Bondholderswho do not so request; and
(d) to the extent the Issuer is obligated to file any Annual FinancialInformation or Operating Data with the MSRB pursuant to this Agreement, suchAnnual Financial Information or Operating Data may be set forth in thedocument or set of documents transmitted to the MSRB, or may be included byspecific reference to documents available to the public on the MSRB’s InternetWebsite or filed with the SEC.
Nothing in this subsection shall be construed to relieve the DisclosureAgent, as Trustee, of its obligation to provide notices to the holders of all Bondsif such notice is required by the Trust Agreement.
With respect to requests for periodic or occurrence information fromBondholders, the Disclosure Agent may require payment by requesting ofholders a reasonable charge for duplication and transmission of the informationand for the Disclosure Agent’s administrative expenses incurred in providing theinformation.
Nothing in this Agreement shall be construed to require the DisclosureAgent to interpret or provide an opinion concerning the information made public.If the Disclosure Agent receives a request for an interpretation or opinion, theDisclosure Agent may refer such request to the Issuer for response.
(E) Disclosure Agent Compensation. The Issuer shall pay or reimburse theDisclosure Agent for its fees and expenses for the Disclosure Agent’s services renderedin accordance with this Agreement.
(F) Indemnification of Disclosure Agent. In addition to any and all rights of theDisclosure Agent to reimbursement, indemnification and other rights pursuant to theTrust Agreement or under law or equity, the Issuer shall, to the extent permitted by law,indemnify and hold harmless the Disclosure Agent and its respective officers, directors,employees and agents from and against any and all claims, damages, losses, liabilities,reasonable costs and expenses whatsoever (including attorney fees) which suchindemnified party may incur by reason of or in connection with the Disclosure Agent’sperformance under this Agreement; provided that the Issuer shall not be required toindemnify the Disclosure Agent for any claims, damages, losses, liabilities, costs orexpenses to the extent, but only to the extent, caused by the willful misconduct or grossnegligence of the Disclosure Agent in such disclosure of information hereunder. Theobligations of the Issuer under this Section shall survive resignation or removal of theDisclosure Agent and payment of the Bonds.
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Section 3. Amendment or Waiver.
Notwithstanding any other provision of this Agreement, the Issuer and the Disclosure Agent mayamend this Agreement (and the Disclosure Agent shall agree to any reasonable amendment requested bythe Issuer) and any provision of this Agreement may be waived, if such amendment or waiver issupported by an opinion of nationally recognized bond counsel or counsel expert in federal securities lawsacceptable to both the Issuer and the Disclosure Agent to the effect that such amendment or waiver wouldnot, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver hadbeen effective on the date hereof but taking into account any subsequent change in or officialinterpretation of the Rule as well as any change in circumstance.
Section 4. Miscellaneous.
(A) Representations. Each of the parties hereto represents and warrants to each otherparty that it has (i) duly authorized the execution and delivery of this Agreement by theofficer of such party whose signature appears on the execution pages hereto, (ii) that ithas all requisite power and authority to execute, deliver and perform this Agreementunder its organizational documents and any corporate resolutions now in effect, (iii) thatthe execution and delivery of this Agreement, and performance of the terms hereof, doesnot and will not violate any law, regulation, ruling, decision, order, indenture, decree,agreement or instrument by which such party is bound, and (iv) such party is not aware ofany litigation or proceeding pending, or, to the best of such party’s knowledge,threatened, contesting or questioning its existence, or its power and authority to enter intothis Agreement, or its due authorization, execution and delivery of this Agreement, orotherwise contesting or questioning the issuance of the Bonds.
(B) Governing Law. This Agreement shall be governed by and interpreted inaccordance with the laws of the State; provided that, to the extent that the SEC, theMSRB or any other federal or state agency or regulatory body with jurisdiction over theBonds shall have promulgated any rule or regulation governing the subject matter hereof,this Agreement shall be interpreted and construed in a manner consistent therewith.
(C) Severability. If any provision hereof shall be held invalid or unenforceable by acourt of competent jurisdiction, the remaining provisions hereof shall survive andcontinue in full force and effect.
(D) Counterparts. This Agreement may be executed in one or more counterparts,each and all of which shall constitute one and the same instrument.
(E) Termination. This Agreement may be terminated by any party to this Agreementupon thirty days’ written notice of termination delivered to the other party or parties tothis Agreement; provided the termination of this Agreement is not effective until (i) theIssuer, or its successor, enters into a new continuing disclosure agreement with adisclosure agent who agrees to continue to provide, to the MSRB and the Bondholders ofthe Bonds, all information required to be communicated pursuant to the rulespromulgated by the SEC or the MSRB, (ii) nationally recognized bond counsel orcounsel expert in federal securities laws provides an opinion that the new continuingdisclosure agreement is in compliance with all State and Federal Securities laws and (iii)notice of the termination of this Agreement is provided to the MSRB.
This Agreement shall terminate when all of the Bonds are or are deemed to be no longeroutstanding by reason of redemption or legal defeasance or at maturity.
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(F) Defaults: Remedies. A party shall be in default of its obligations hereunder if itfails to carry out or perform its obligations hereunder.
If an event of default occurs and continues beyond a period of thirty (30) days followingnotice of default given in writing to such defaulting party by any other party hereto or bya beneficiary hereof as identified in Section 4(G), the non-defaulting party or any suchbeneficiary may (and, at the request of the Participating Underwriter or the holders of atleast 25% aggregate principal amount of Outstanding Bonds, the non-defaulting partyshall), enforce the obligations of the defaulting party under this Agreement; provided,however, the sole remedy available in any proceeding to enforce this Agreement shall bean action in mandamus, for specific performance or similar remedy to compelperformance.
(G) Beneficiaries. This Agreement is entered into by the parties hereof and shallinure solely to the benefit of the Issuer, the Disclosure Agent, the ParticipatingUnderwriter and Bondholders, and shall create no rights in any other person or entity.
Section 5. Additional Disclosure Obligations.
The Issuer acknowledges and understands that other state and federal laws, including but notlimited to the Securities Act of 1933, the Securities Exchange Act of 1934 and Rule 10b-5 promulgatedthereunder, may apply to the Issuer, and that under some circumstances compliance with this Agreement,without additional disclosures or other action, may not fully discharge all duties and obligations of theIssuer under such laws.
Section 6. Notices.
Any notices or communications to or among any of the parties to this Disclosure Agreement maybe given as follows:
To the Issuer: University of KentuckyOffice of the Treasurer301 Peterson Service BuildingLexington, Kentucky 40506-0005Attention: TreasurerTelephone/Fax: (859) 257-4758/4805
To the Disclosure U.S. Bank National AssociationAgent: Locator CN-KY-0850
One Financial SquareLouisville, Kentucky 40202Attention: Corporate Trust DepartmentTelephone/Fax: (502) 562-6436/(502) 562-6371
Any person may, by written notice to the other persons listed above, designate a different addressor telephone number(s) to which subsequent notices or communications should be sent.