MINUTES OF THE REGULAR MEETING OF THE BOARD OF DIRECTORS OF ULH, INC. In Open Session

Transcription

1 MINUTES OF THE REGULAR MEETING OF THE BOARD OF DIRECTORS OF ULH, INC. In Open Session Members of the ULH, Inc., Board of Directors met at 2:00 p.m. on January 30, 2015, in the Board Room of the University Club, with members present and absent as follows: Present: Absent: From Legal Counsel: From the Foundation: From the University: Mr. Frank Weisberg, Chair Pro Tem Mr. Jonathan Blue Dr. Larry Benz Mr. Chuck Denny Dr. Salem George Dr. Robert Curtis Hughes Dr. Mark Lynn Dr. James R. Ramsey Mr. Junior Bridgeman Ms. Margaret Handmaker Judge Rebecca Jackson Dr. Mark Lynn Mr. Frank Minnifield Dr. Jody Prather Mr. William Selvidge Mr. David Saffer, Stites & Harbison Dr. Shirley Willihnganz, Vice President Dr. William Pierce, Vice President Dr. David Dunn, Vice President Mrs. Kathleen Smith, Assistant Secretary Mr. Burt Deutsch, Consultant Mr. Mike Kramer, Director, Investments and Financial Management Mr. Justin Ruhl, Director, Foundation Accounting Operations Mr. Harlan Sands, Sr. VP for Finance and Administration Mr. Keith Inman, Vice President for University Advancement Dr. Neville Pinto, Dean of Speed School for Engineering Ms. Becky Simpson, Sr. Assoc. VP for Communications and Marketing Mr. Mark Hebert, Director of Media Relations Ms. Trisha W. Smith, Deputy Chief of Staff Mr. Jake Beamer, Boards Liaison I. Call to Order

2 Having determined a quorum present, Chair Pro Tem Weisberg called the meeting to order at 2:00 p.m. Consent Agenda Mr. Weisberg read the Consent Agenda, as follows: Consent Agenda Approval of Minutes, From the Audit Committee Approval of Audited Financial Statements for Year Ending June 30, 2014 and Independent Auditor s Report Dr. Lynn made a motion, which Mr. Denny seconded, to approve the Consent Agenda. The motion passed. II. Report of the Nominating Committee President Ramsey recommended the following slate of officers for : CHAIR VICE CHAIR TREASURER SECRETARY PRESIDENT COUNSEL ASSISTANT SECRETARY ASSISTANT TREASURER Robert Curtis Hughes Joyce Hagen Junior Bridgeman Frank Weisberg James R. Ramsey Stites & Harbison Kathleen Smith Jason Tomlinson Executive Committee: CHAIR EX. OFFICIO Robert Curtis Hughes Joyce Hagen Junior Bridgeman Frank Weisberg James R. Ramsey Hearing no other nominations, President Ramsey made a motion, which Dr. George seconded, to approve the recommendation of the Nominating Committee. The motion passed. Dr. Hughes thanked the Board for the opportunity to serve as Chairman. III. Approval of Signature Authority Reorganization

3 Chairman Hughes explained the Signature Authority resolution was routine and reflected changes to the ULH, Inc. Board. Dr. George made a motion, which Mr. Weisberg seconded, to approve the following resolution: A. CORPORATE SIGNATURE AUTHORITY: BE IT RESOLVED, that the following named individuals in their capacity as officers or employees of ULH, Inc. or employees of the University acting as agents for ULH, Inc. be and hereby are the only officers and agents of ULH, Inc. empowered to execute contracts on behalf of ULH, Inc.: NAME Robert Curtis Hughes Joyce Hagen Junior Bridgeman Frank Weisberg James R. Ramsey Shirley Willihnganz Jason Tomlinson Kathleen M. Smith TITLE Chair Vice Chair Treasurer Secretary President Executive Vice President Assistant Treasurer Chief of Staff/Assistant Secretary B. FINANCE/INVESTMENT SIGNATURE AUTHORITY: BE IT FURTHER RESOLVED that the following named individuals in their capacity as officers or employees of ULH, Inc. or employees of the University acting as agents for ULH, Inc. be and hereby are the only officers and agents of ULH, Inc. empowered to endorse securities for sale or subscription, purchase or sell securities, and execute any documents incident to the management and administration of investments, such documents to include but not be limited to purchase or sale authorizations or agreements, participation agreements, stock or bond powers and proxies, on behalf of ULH, Inc.; NAME Robert Curtis Hughes Joyce Hagen James R. Ramsey Shirley Willihnganz Junior Bridgeman Jason Tomlinson Susan Magness Michael D. Kramer TITLE Chair Vice Chair President Executive Vice President Treasurer Assistant Treasurer Associate Controller, ULH Director, Investments

4 C. REAL ESTATE TRANSACTIONAL SIGNATURE AUTHORITY: BE IT FURTHER RESOLVED that the following named individuals in their capacity as officers or employees of ULH, Inc. are the only officers and agents of ULH, Inc. empowered to execute documents pertaining to the receipt, transfer, purchase, sale, lease or other acquisition, disposition or financing transaction related to real property, on behalf of ULH, Inc.: NAME Robert Curtis Hughes Joyce Hagen James R. Ramsey Shirley Willihnganz Junior Bridgeman Jason Tomlinson Susan Magness Kathleen M. Smith TITLE Chair Vice Chair President Executive Vice President Treasurer Assistant Treasurer Associate Controller, ULH Chief of Staff/Assistant Secretary D. CERTIFICATION AUTHORITY: BE IT FURTHER RESOLVED that the following named individuals in their capacity as officers or employees of ULH, Inc. or employees of the University acting as agents for ULH, Inc. be and hereby are the only officers and agents of ULH, Inc. empowered to certify or authenticate the signatures of a corporate officer and the minutes, resolutions and other records of ULH, Inc., when such action is required of ULH, Inc.: NAME Frank Weisberg Kathleen Smith TITLE Secretary Assistant Secretary BE IT FURTHER RESOLVED that this resolution shall and does supersede any and all previous resolutions authorizing such signatures for ULH, Inc. The motion passed. V. Adjournment Approved by: Mr. Weisberg made a motion, which Dr. Lynn seconded, to adjourn the meeting at 2:01 p.m. Asst. Secretary

5 RECOMMENDATION TO THE BOARD OF DIRECTORS ULH, INC. CONCERNING THE AUDITED FINANCIAL STATEMENTS FOR YEAR ENDING JUNE 30, 2014 AND INDEPENDENT AUDITOR S REPORT Board of Directors January 30, 2015 RECOMMENDATION: The Chair recommends that the Board of Directors approve the attached audited financial statements for the period ending June 30, 2014 and Independent Auditor s Report as presented by BKD. Board Action: Passed: X Did Not Pass: Other: Date: Assistant Secretary

6 ULH, Inc. Auditor s Report and Financial Statements June 30, 2014 and 2013

7 ULH, Inc. Table of Contents: Independent Auditor s Report.. 1 Statements of Financial Position.. 3 Statements of Activities 4 Statements of Cash Flows... 5 Notes to Financial Statements.. 6 Page

8 Independent Auditor s Report Board of Directors ULH, Inc. Louisville, Kentucky We have audited the accompanying financial statements of ULH, Inc. (ULH), which comprise the statements of financial position as of June 30, 2014 and 2013, and the related statements of activities and cash flows for the years then ended and the related notes to the financial statements. 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 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 ULH s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the ULH 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 the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

9 Board of Directors ULH, Inc. Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ULH as of June 30, 2014 and 2013, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Louisville, Kentucky September 29, 2014

10 ULH, Inc. Statements of Financial Position June 30, 2014 and 2013 (In Thousands) ASSETS Cash $ 1,677 $ 1,358 Accounts receivable Restricted investments 5,784 5,473 Prepaid expenses and other 950 1,009 Capital assets, net 37,190 38,230 Total assets $ 45,870 $ 46,438 LIABILITIES AND DEFICIENCY IN NET ASSETS Liabilities: Accounts payable $ 2,722 $ 2,092 Other liabilities Bonds payable 45,812 47,394 Total liabilities 48,787 49,700 Deficiency in net assets (2,917) (3,262) Total liabilities and deficiency in net assets $ 45,870 $ 46,438 See notes to the financial statements - 3 -

11 ULH, Inc. Statements of Activities Years Ended June 30, 2014 and 2013 (In Thousands) REVENUES Residence hall income $ 7,394 $ 7,216 Other 892 1,006 Total revenues 8,286 8,222 OPERATING EXPENSES Residence hall operations (including depreciation) 5,059 4,881 Ground lease expense Management fees Total operating expenses 6,018 6,024 Operating income 2,268 2,198 NONOPERATING EXPENSES Interest expense (1,923) (1,966) Total nonoperating expenses (1,923) (1,966) Increase in net assets Deficiency in net assets at beginning of year (3,262) (3,494) Deficiency in net assets at end of year $ (2,917) $ (3,262) See notes to the financial statements - 4 -

12 ULH, Inc. Statements of Cash Flows Years Ended June 30, 2014 and 2013 (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Increase in net assets $ 345 $ 232 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization expense 1,597 1,624 Loss on disposals of capital assets 6 12 Change in assets and liabilities: Accounts receivable 99 (51) Prepaid expenses and other 1 (11) Accounts payable and accrued liabilities Other liabilities Net cash provided by operating activities 2,719 2,558 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investments (38,275) (38,789) Sales of investments 37,964 38,241 Purchase of capital assets (529) (309) Net cash used in investing activities (840) (857) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of bonds payable (1,560) (1,445) Net cash used in financing activities (1,560) (1,445) Net increase in cash and cash equivalents Cash at beginning of year 1,358 1,102 Cash at end of year $ 1,677 $ 1,358 Supplemental Cash Flow Information: Cash paid for interest (net of amount capitalized) $ 1,954 $ 1,972 See notes to the financial statements - 5 -

13 ULH, Inc. Notes to Financial Statements June 30, 2014 and Organization and Summary of Significant Accounting Policies a. Organization ULH, Inc. (ULH) (a Kentucky not-for-profit corporation) is affiliated with the University of Louisville Foundation, Inc. (Foundation) through a common board of directors and certain common management. ULH s purpose is to (a) lease and/or acquire and operate university housing projects and issue revenue bonds for university housing, and (b) receive and dispose of or retain gifts of real estate independent of the Foundation. ULH operates four halls: Billy Minardi Hall, Bettie Johnson Hall, Kurz Hall, and Community Park. b. Cash At June 30, 2014, the ULH s cash accounts exceeded federally insured limits by approximately $1.2 million. c. Accounts Receivable Accounts receivable consist of rental charges to tenants and other organizations that have functions hosted at a ULH property. As of June 30, 2014 and 2013, amounts estimated as uncollectible are $0 and $561, respectively. d. Investments Investments consist of money market mutual funds and U.S. agency obligations. The investments are stated at fair market value. These investments are restricted by bond indenture for payment of debt service and repairs and replacement. e. Capital Assets Capital assets are stated at cost or estimated market value at date of receipt from donors. The provision for depreciation is calculated using the straight-line method based on the estimated useful lives of the assets. ULH capitalizes interest costs as a component of construction in progress, based on interest costs of borrowing specifically for the project, net of interest earned on investments acquired with the proceeds of the borrowing. During the years ended June 30, 2014 and 2013, ULH did not capitalize any interest

14 f. Tax Status ULH has received a favorable determination letter from the Internal Revenue Service exempting it from federal income taxes under 501(c)(3) of the Internal Revenue Code and a similar provision of state law. However, ULH is subject to federal income tax on any unrelated business taxable income. ULH files tax returns in the U.S. federal jurisdiction. With a few exceptions, ULH is no longer subject to U.S. federal examination by tax authorities prior to fiscal year g. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. h. Functional Allocation of Expenses The costs of supporting the residence hall operations have been summarized on a functional basis in the statements of activities. Certain costs have been allocated among the residence hall operations and general and administrative categories based on actual expenses and other methods. i. Management Fees ULH s student halls operate under management agreements with a third-party property management company. Under the terms of these agreements, ULH agrees to pay compensation based on gross revenues for the respective halls. The management fee is calculated as 4% of each hall s gross revenues, with a maximum of $92,000 and a minimum of $46,000, except for Billy Minardi Hall, which has no minimum or maximum requirements. For the years ended June 30, 2014 and 2013, ULH recorded management fee expense of approximately $273,000 and $270,000, respectively. j. Subsequent Events Subsequent events have been evaluated through the date of the Independent Auditor s Report, which is the date the financial statements were available to be issued. k. Reclassifications Certain 2013 amounts have been reclassified to conform to the 2014 presentation. These reclassifications had no effect on the increase in net assets

15 2. Investments and Investment Return Investments at June 30, 2014 and 2013 consisted of the following (in thousands): Money market mutual funds $ 3,209 $ 2,914 U.S. agency obligations 2,575 2,559 $ 5,784 $ 5,473 Total investment return is comprised of the following, and is included in other revenue in the statements of activities for the years ended June 30, 2014 and 2013 (in thousands): Interest and dividend income $ 122 $ Disclosures about Fair Value of Assets 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 the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value: Level 1 Level 2 Level 3 Quoted prices in active markets for identical assets or liabilities 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 Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities Following is a description of the inputs and valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying statements of financial position, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the year ended June 30, Investments Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include money market mutual funds. If quoted market prices are not available, then fair values are estimated by a third party pricing service using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include U.S. agency obligations. The Level 2 securities are based on quoted market prices of similar securities within an active market. ULH does not have any Level 3 securities

16 Recurring Measurements The following table presents the fair value measurements of assets recognized in the accompanying statements of financial position measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2014 and 2013 (in thousands): 2014 Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Fair Value (Level 1) (Level 2) Investments Money market mutual funds $ 3,209 $ 3,209 - U.S. agency obligations 2,575 - $ 2, Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Fair Value (Level 1) (Level 2) Investments Money market mutual funds $ 2,914 $ 2,914 - U.S. agency obligations 2,559 - $ 2, Capital Assets Capital assets as of June 30, 2014 and 2013 are as follows (in thousands): Residence halls: Buildings $ 51,392 $ 51,228 Furniture and fixtures 4,148 3,900 Construction in process Accumulated depreciation (18,499) (16,957) Total - net $ 37,190 $ 38,230 Pursuant to a lease agreement, ULH agreed to pay the University of Louisville annual ground rental equal to available excess cash flow, as defined in the agreement. For the years ended June 30, 2014 and 2013, ULH recognized ground rental expense of approximately $686,000 and $873,000, respectively. At June 30, 2014 and 2013, the amount outstanding to the University of Louisville - 9 -

17 related to the ground leases was approximately $1.8 million and $1.4 million, respectively, and is included in accounts payable in the statements of financial position. 5. Bonds Payable Bonds payable consist of the following at June 30, 2014 and 2013 (in thousands): Series 2005A (non taxable) Series 2005B (taxable) Description Principal payments of $270 to $1,010 are due annually beginning 6/1/16 through maturity, and interest is due monthly at fixed rates from 4% to 5%. Principal payments of $170 to $390 are due annually through maturity, and interest is due monthly at a fixed rate of 4.91%. Year of Maturity $ 13,815 $ 13, Series 2009A (non taxable) Principal payments of $445 to $900 are due annually through maturity, and interest is due semi-annually at fixed rates from 3% to 4.5% ,235 12,645 Series 2010A (non taxable) Principal payments of $830 to $2,815 are due annually through maturity, and interest is due semi-annually at fixed rates from 3% to 4.4% ,880 19,690 Total bonds payable 45,490 47,050 Plus unamortized premium Bonds payable, net $ 45,812 $ 47,394 The outstanding debt of ULH is secured by mortgages on the respective properties and is guaranteed by the Foundation. Amounts payable under the guaranty are limited as follows (in thousands): Residence Hall Aggregate Limit Annual Limit Bettie Johnson Hall $ 18,880 $ 2,877 Kurz Hall $ 12,235 $ 938 Community Park $ 14,375 $ 1,

18 Principal payments on the above obligations will be due in the next five years and thereafter as follows (in thousands): Principal For the Year Ending June 30, Due 2015 $ 1, , , , ,955 Thereafter 36,425 Total $ 45, Risks and Uncertainties a. Market Risks and Uncertainties ULH invests in various corporate debt, equity and mutual fund securities, among other investments. Investment securities, in general, are exposed to various risks, such as interest rates, credit and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that those changes could materially affect the amounts reported in the financial statements