UNIVERSITY OF SOUTH ALABAMA
BOARD OF TRUSTEES MEETING
September 20, 2007
10:00 a.m.
A meeting of the University of South Alabama Board of Trustees was duly convened by
Dr. Steven H. Stokes, Chair Pro Tempore, on Thursday, September 20, 2007, at 10:00 a.m. in the
University Library, Multi-Purpose Room.
Members Present:
Trustees Scott Charlton, J. L. Chestnut, Steven Furr, Samuel Jones,
Donald Langham, Bettye Maye, Christie Miree, Bryant Mixon,
James Nix, John Peek, Steven Stokes, Larry Striplin, and James Yance.
Members Absent:
Trustees Cecil Gardner, Mayer Mitchell, Joseph Morton, and Bob Riley.
Administration
and Others:
President Gordon Moulton; Drs. Dale Adams, Michael Boyd,
Joseph Busta, Pat Covey, Becky Devillier, Lamar Duffy (COM Alumni
Assn.), Ron Franks, William Gerthoffer, Russ Lea, Jonathan Scammel,
John Sachs (Faculty Senate), Robert Shearer, David Stearns, Sam Strada,
and Richard Wood; Messrs. Terry Albano, Ken Davis, Wayne Davis,
Andy Denny (USA National Alumni Assn.), Stan Hammack, and
Abe Mitchell; and Mss. Kristy Britt (Faculty Senate), Judy Burnham,
Vicky Nix Cook, Jennifer Edwards (SGA), Suzanne Hudson, Diana Laier
(USA National Alumni Assn.), Kaila Mattson, and Jean Tucker.
Press:
Mr. Jason Shepard (Vanguard) and Mr. George Altman (Press-Register).
Upon the call to order, Chairman Stokes called for adoption of the revised agenda. On motion by
Mr. Langham, seconded by Mayor Nix, the revised agenda was unanimously approved.
Chairman Stokes called for consideration of ITEM 1, the minutes of the June 14, 2007, meeting of
the Board of Trustees, as well as the minutes of the June 13, 2007, meeting of the Committee of the
Whole and the August 23, 2007, meeting of the Endowment and Investments Committee. On
motion by Sheriff Mixon, seconded by Mr. Peek, the minutes were unanimously adopted.
President Moulton called upon Ms. Diana Laier and Mr. Andy Denny, President and President-Elect
of the USA National Alumni Association, to present ITEM 2. Ms. Laier read aloud a resolution of
the Alumni Association recognizing Chairman Stokes as the Board of Trustees’ first alumni Chair
Pro Tempore. A framed resolution was presented to Dr. Stokes, who expressed appreciation for the
honor.
President Moulton presented ITEM 3, the President’s Report. He welcomed Mr. J. L. Chestnut.
Introduced were Mr. Andy Denny - President-Elect of the USA National Alumni Association;
Dr. Richard Wood - Dean of the University Library; Ms. Judith Burnham - Director, Charles M.
Baugh Biomedical Library; Dr. Jonathan Scammel - Chair, Department of Comparative Medicine;
Dr. William Gerthoffer - Chair, Department of Biochemistry and Molecular Biology; and
USA Board of Trustees
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September 20, 2007
Ms. Kaila Mattson - Wisconsin’s Junior Miss and new freshman on campus majoring in Biomedical
Sciences.
Chairman Stokes presented ITEM 4 as follows. On motion by Mr. Striplin, seconded by Mayor Nix,
the resolution was unanimously approved.
RESOLUTION
APPOINTMENT OF BOARD OF TRUSTEES EXECUTIVE COMMITTEE
WHEREAS, the Bylaws of the University of South Alabama Board of Trustees provide for the appointment by the
Chair Pro Tempore of an Executive Committee, subject to the approval of the Board, for terms concurrent with the term
of the Chair Pro Tempore, who shall serve as Chair of the Executive Committee,
NOW, THEREFORE, BE IT RESOLVED that the Board approves the appointment of the following named Trustees
to serve on the Executive Committee for terms concurrent with the term of the current Chair Pro Tempore:
Dr. Steven H. Stokes
Mr. James A. Yance
Ms. Bettye R. Maye
Mr. J. Cecil Gardner
The Honorable Samuel L. Jones
The Honorable James P. Nix
Mr. Donald L. Langham
Mr. Mayer Mitchell
Chairman Stokes appointed Dr. Furr as Chairman of the Health Affairs Committee and called for
consideration of health affairs items. Mr. Langham moved approval ITEM 5 resolution as follows.
Ms. Miree seconded and the resolution was unanimously approved.
RESOLUTION
USA HOSPITALS MEDICAL STAFF APPOINTMENTS AND REAPPOINTMENTS FOR MAY, JUNE, JULY, AND AUGUST 7, 2007
WHEREAS, the Medical Staff appointments and reappointments for May, June, July, and August 7, 2007, for the
University of South Alabama Hospitals are recommended for approval by the Medical Executive Committees of the University
of South Alabama Hospitals,
THEREFORE, BE IT RESOLVED, that the appointments and reappointments be approved as submitted.
Mayor Nix moved approval of a second resolution as follows as part of ITEM 5. Ms. Maye
seconded and the resolution was unanimously approved.
RESOLUTION
USA HOSPITALS MEDICAL STAFF RULES AND REGULATIONS REVISIONS OF AUGUST 7, 2007
WHEREAS, revisions of the USA Hospitals Medical Staff Rules and Regulations were approved by the Medical
Staffs of the University of South Alabama Hospitals at their August 7, 2007, Medical Staff meeting and recommended to
the Board of Trustees for approval,
THEREFORE, BE IT RESOLVED, that the revisions be approved as presented.
USA Board of Trustees
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September 20, 2007
Concerning ITEM 6, a report on the USA Mitchell Cancer Institute, Dr. Boyd was applauded for his
recently-announced $2 million bequest to Campaign USA to benefit the USA Mitchell Cancer
Institute. This bequest constitutes the largest contribution from a University employee. On behalf
of the Board of Trustees, Chairman Stokes expressed appreciation for the generous gift. Dr. Boyd
provided an update on current recruiting activities of the Mitchell Cancer Institute.
Regarding ITEM 7, a report on the USA / IHS Strategic Health Alliance, President Moulton reported
that USA continues to work with the Infirmary Health System to further opportunities for sharing
programs to benefit the community. He said the Mitchell Cancer Institute is a prime example of the
mission of the alliance between IHS and USA.
Chairman Stokes called for a report of academic and student affairs items. Ms. Miree, Academic
and Student Affairs Committee Chair, called for consideration of ITEM 8 as follows. Drs. Shearer
and Covey addressed the Board and discussed the five goals outlined in the report relative to access
of education, cooperative partnerships, program quality, funding resources, and workforce
development (refer to APPENDIX A for copies of policies and other authorized documentation). On
motion by Ms. Miree, seconded by Mrs. Maye, the resolution was unanimously approved.
RESOLUTION
REPORT TO ACHE ON STATE PLAN FOR ALABAMA HIGHER EDUCATION
WHEREAS, the Alabama Commission on Higher Education (ACHE) has developed a State Plan for Alabama Higher
Education, 2003-2004 to 2008-2009 (Plan), and
WHEREAS, the ACHE Plan sets out five overarching goals with objectives - Access, Cooperation, Quality,
Resources, and Workforce Development, and
WHEREAS, to demonstrate the accountability of the state’s higher education institutions, ACHE has proposed
that the boards of trustees of each institution annually submit a report on the institution’s accomplishments toward
achievement of the goals and objectives in the state Plan, and
WHEREAS, the fourth annual report to ACHE is due to be submitted by October 12, 2007,
NOW, THEREFORE, BE IT RESOLVED that the University of South Alabama Board of Trustees approves the
attached report entitled University of South Alabama Board of Trustees Fourth Annual Report to the Alabama Commission
on Higher Education State Plan for Alabama Higher Education 2003-04 – 2008-09, and authorizes the President of the
University to submit said report on its behalf to the Alabama Commission on Higher Education.
Concerning ITEM 9, a report of Student Affairs, President Moulton reported a record enrollment of
14,003 students, an increase of 700 students from the 2006 fall semester. The Board viewed a slide
presentation of enrollment statistics, as President Moulton provided highlights. He said that
graduate student enrollment is at 2,810 and that 1,671 new freshmen had enrolled. He said the
reason for the increases boils down to the quality of University programs and teaching. Drawings
of the new student recreation center were shown. The facility will be approximately 115,000 square
feet with the main entrance to the building will face Stadium Drive. Dr. Adams provided an
overview of the layout, saying that large oak trees will be preserved in the center courtyard.
Students will have access to interior and exterior pools. Ms. Jennifer Edwards, SGA President,
commented that the students are excited about the facility; she thanked the Board for supporting the
USA Board of Trustees
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September 20, 2007
project. Completion is estimated for the 2009 fall semester. Construction is slated to begin in
March or April of 2007.
Chairman Stokes called for consideration of budget and finance items. Mayor Nix, Budget and
Finance Committee Chair, noted receipt of the Monthly Fund Accounting Reports for April, May,
and June 2007, and the Quarterly GASB Financial Statement for the nine months ended June 2007,
ITEM 10. There were no questions.
Mrs. Jean Tucker presented ITEM 11 as follows. She recommended amendment of the USA
Research and Technology Corporation bylaws as outlined. She said the changes would provide for
two signatories to approve checks and other demands to pay money, as well as the inclusion of
Mr. Ken Davis and Mr. Scott Weldon as additional authorized RTC signatories. She said that the
RTC Board of Directors had approved these revisions at a prior meeting. On motion by
Mr. Langham, seconded by Dr. Charlton, the resolution was unanimously approved.
RESOLUTION
AMENDMENT USA RESEARCH AND TECHNOLOGY CORPORATION BYLAWS OF JUNE 7, 2006
WHEREAS, pursuant to the Amended Bylaws of the USA Research and Technology Corporation (“Corporation”)
adopted June 7, 2006, said Bylaws may be amended pursuant to ARTICLE X Amendment of Bylaws with the joint approval
of the Board of Directors of the USA Research and Technology Corporation and the Board of Trustees of the University
of South Alabama (“University”), provided that no amendment is made so as to avoid any limitation imposed by the Articles
of Incorporation of the Corporation as they exist at this time, and
WHEREAS, the Board of Directors of the Corporation has determined that due to the unavailability from time
to time of individuals authorized to sign checks or otherwise draw funds on accounts maintained by the Corporation,
Section 9.2 of the Amended Bylaws of the Corporation should be amended as follows:
“Section 9.2. Checks. All checks or demands for money and notes of the Corporation shall be
signed by any two of the following individuals: Chair of the Board, President of the Corporation,
Treasurer of the Corporation, and such other individuals as shall be authorized by the Board of
Directors from time to time.”
WHEREAS, the amendment to Section 9.2 of the Bylaws set forth above seeks to amend the Amended Bylaws
such that the amendment will not avoid any limitations imposed by the Articles of Incorporation of the Corporation as they
exist at this time, and
WHEREAS, the Board of Directors of the Corporation approved this amendment to the Amended Bylaws on
June 27, 2007, as evidenced by the pertinent parts of the Resolution approved by the Board on that date, a copy of which
is attached hereto,
NOW, THEREFORE, BE IT RESOLVED, that the above recited amendment of Section 9.2 of the Amended Bylaws
of the USA Research and Technology Corporation is approved by the University of South Alabama Board of Trustees.
President Moulton presented ITEM 11.A as follows. He said that, in conjunction with the ground
lease to the USA Research and Technology Corporation and the subsequent construction of student
apartments, the firm of Campus Crest will build, to the University’s specifications, a “University
Club” on a site adjacent to the new student recreation center. Once constructed, Campus Crest will
donate the structure to the University. The facility will be approximately 5,000 square feet and will
USA Board of Trustees
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September 20, 2007
be utilized by the University for faculty club activities and other events. President Moulton
acknowledged this long-standing need by the faculty. Dr. John Sachs, Vice Chair of the Faculty
Senate, spoke in support of the new facility. Anticipated completion of the building is fall 2008.
On motion by Ms. Maye, seconded by Ms. Miree, the resolution was unanimously approved.
RESOLUTION
GROUND LEASE TO THE USA RESEARCH AND TECHNOLOGY CORPORATION FOR STUDENT APARTMENTS
WHEREAS, the University of South Alabama (“University”) owns certain real property which it utilizes to further
its educational mission, and
WHEREAS, the USA Research and Technology Corporation (“Corporation”), a not-for-profit, supporting
organization of the University, was incorporated to further the educational and scientific mission of the University, to
promote the University and its schools and departments, to promote the development of and to facilitate funding for the
infrastructure and services in Mobile, Alabama, and to attract high technology and scientific enterprises, and
WHEREAS, at the June 14, 2007, meeting of the University’s Board of Trustees, the Trustees agreed to lease
approximately twelve acres of land at the northwest corner of the intersection of Old Shell Road and Cleverdon Parkway
to the Corporation, and
WHEREAS, in order for said Corporation to fulfill its above-stated mission, it is recommended that the University
lease approximately two additional acres of land located at 6500 Old Shell Road to the Corporation for development,
support and operation of the corporation for the sum of ONE AND NO/100 DOLLAR ($1.00) per annum, and a term of
approximately fifty years with extension terms available for a maximum of twenty-five years, provided, however, that any
sub-lease by the Corporation shall be subject to prior approval of the Executive Committee of the University’s Board of
Trustees, and
WHEREAS, should said Corporation cease to exist for any reason, land and improvements thereon will revert
to the University consistent with the terms of the lease, and
WHEREAS, the University has determined that leasing the real property described above is in the best interest
of the University in that it will allow the University to continue and enhance its valued missions of education, research, and
service,
THEREFORE, BE IT RESOLVED, that the Board of Trustees of the University of South Alabama authorizes the
President of the University to proceed with negotiation and execution of a land lease agreement with the USA Research
and Technology Corporation for the lease of approximately two acres of land located at 6500 Old Shell Road to the
Corporation for development, support, and operation of the Corporation, with the understanding that any sub-lease by the
Corporation shall be subject to prior approval of the Executive Committee of the Board of Trustees of the University of
South Alabama.
It was recommended that ITEM 11.B be discussed as the last item on the Board agenda.
Mayor Nix called upon President Moulton to address ITEM 12, the University Budget for
2008-2009. He summarized a slide presentation detailing the budget proposal. He said the
University’s Budget Council routinely meets to review division budget requests, and noted that a
strong focus on maintaining faculty and staff salaries and benefits, facilities, and equipment is
adhered to in order to offer quality programs which are competitive with other institutions. He
reviewed trends in revenue and state appropriations in recent years and detailed how new funds
USA Board of Trustees
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September 20, 2007
would be applied. He said that divisions have discretionary funds to address faculty salary inequities
and noted an increase of 123 additional faculty since 2002 due to the steady increase in enrollment.
On motion by Mr. Yance, seconded by Mr. Chestnut, the budget was unanimously approved.
RESOLUTION
UNIVERSITY BUDGET FOR 2007-2008
BE IT RESOLVED, that the University of South Alabama Board of Trustees approves the 2007–2008 University
of South Alabama Budget, and
BE IT RESOLVED, that the University of South Alabama Board of Trustees approves an average salary increase
of five percent for fiscal year 2007–2008 subject to University personnel guidelines and procedures. Also, the Board
approves funding for the third year of a three-year program to advance median University O. & M. faculty salaries for
eligible faculty members by discipline and rank as compared to regional peer institutions of higher education. Eligible
faculty members are those who have received full merit increases for the last five years or, if employed for less than five
years, for the number of years employed, and
BE IT FURTHER RESOLVED, that the University of South Alabama Board of Trustees approves the 2007–2008
Budget as a continuation budget for 2008–2009 in order to be in compliance with bond trust indenture requirements if
the budget process cannot be completed prior to beginning the 2008–2009 fiscal year.
President Moulton remarked on plans to expand the facilities at USA Children’s and Women’s
Hospital because growth is exceeding the patient capacity. He said the facility is aging and added
that a formal plan, at roughly a $50 million cost, would be brought before the Board at the
December 6, 2007, meeting. Dr. Becky DeVillier was welcomed; she stated that parking and
landscaping would be improved, and aggressive recruitment for pediatric surgery is being addressed.
Business at Children’s and Women’s Hospital is up 15 percent, and up 10 percent at the Medical
Center. President Moulton said that improvement of the economy is reflected in hospital business.
He said we need to act quickly as a growth spurt is in progress.
Chairman Stokes called for a report of audit items. Mr. Wayne Davis presented ITEM 13, a report
of the audit process being conducted by the firm of KPMG. He said Mr. Mark Peach, KPMG
partner, had met with the Audit Committee at its meeting held September 19 to discuss the standard
required communications, and that a formal report would be delivered to the Audit Committee at
its December meeting.
Mr. Ken Davis presented ITEM 14, a report on the independent audit of the USA Foundation
Disproportionate Share Hospital (DSH) Funds for the year ended June 2007. He said that the
Medicaid DSH funds are for the benefit of USA hospitals and health programs. He reminded the
Board of the prior fiscal year’s investment by the DSH fund in a new investment pool and reported
key financial indicators from the audit report. He said that an unqualified opinion had been rendered
by an independent audit firm.
Chairman Stokes called for a report of endowment and investments items. In the absence of
Mr. Mitchell, Chair of the Endowment and Investments Committee, Mr. Terry Albano presented
ITEM 15, a report of performance for the total endowment for FY 2007 and each money manager:
CommonFund, Arlington Partners, Gerber/Taylor, Oakmark Select, and Private Advisors.
Mr. Albano stated that the endowment outperformed its relative index thus far in fiscal year 2007
USA Board of Trustees
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September 20, 2007
(15.54 percent vs. 8.19 percent) and since inception (6.69 percent vs. 3.15 percent). He said
additional money had been invested in international funds for a total University endowment of
$50 million, and that managers had been added to oversee the additional investments.
Mr. Wayne Davis presented ITEM 16 as follows. He said that the University would conservatively
incorporate derivatives into its management of overall debt and noted that the purpose of the policy
is to guide the use of derivatives. The policy will provide the University the process that should be
followed when analyzing a derivative instrument. Mr. Davis noted that the University had consulted
with Mr. Jim White of the firm of Porter, White and Company. The firm will assist the University
in all aspects of derivatives, from creation of the policy to analysis of specific derivative
transactions. On motion by Mr. Langham, seconded by Mr. Yance, the resolution was unanimously
approved.
RESOLUTION
DERIVATIVES POLICY
WHEREAS, the University of South Alabama from time to time enters into financial instruments that are subject
to various types of risk, such as interest rate risk, and
WHEREAS, the purpose of entering into a derivatives instrument is to mitigate said financial risks, and
WHEREAS, the proposed policy prescribes a process to properly evaluate derivatives prior to their execution,
and it will also ensure that a transaction under consideration constitutes a lawful, fairly priced and effective hedge,
THEREFORE BE IT RESOLVED, that the Board of Trustees approves the University of South Alabama Derivatives
Policy.
Mr. Wayne Davis presented ITEM 11.B as follows. He reviewed the University’s current debt
structure and said that a 10-year redemption is provided under USA’s current bond issues. He
discussed the advantages of refinancing at that 10-year date at an interest rate lower than the original
bond issue rate. He explained that the University has the ability to enter into an option to sell that
future redemption today and receive significant proceeds based on the sale of that option. He said
that this transaction is complex and would require in-depth analysis to assure the best interest of the
University is met. The resolution presently under consideration would authorize the President and
Administration to analyze the proposal and make a recommendation to the Board of Trustees
Executive Committee for final approval. He said prompt attention is warranted to secure the most
favorable interest rate. On motion by Mr. Yance, seconded by Ms. Miree, the resolution was
unanimously approved.
RESOLUTION
OPTION TO ENTER FINANCIAL TRANSACTION RESPECTING CERTAIN OUTSTANDING BONDS OF THE UNIVERSITY
WHEREAS, the University of South Alabama has heretofore issued its
$100,000,000
UNIVERSITY OF SOUTH ALABAMA
University Tuition Revenue Refunding and Capital Improvement Bonds
Series 2006
Dated December 1, 2006
USA Board of Trustees
Page 8
September 20, 2007
and its
$51,080,000
UNIVERSITY OF SOUTH ALABAMA
University Tuition Revenue Refunding and Capital Improvement Bonds
Series 2004
Dated March 15, 2004
together, the “Outstanding Bonds,” and
WHEREAS Those of the Series 2006 Bonds having a stated maturity on December 1, 2017, and thereafter will
be subject to redemption prior to their respective maturities, at the option of the University, as a whole or in part, on
December 1, 2016, and on any date thereafter (and if in part, in such maturities as the University shall select, and if less
than all of a single maturity is to be redeemed those to be redeemed to be selected by the Trustee by lot) at and for a
redemption price with respect to each Series 2006 Bond (or principal portion thereof redeemed) equal to the par or face
amount of each Series 2006 Bond redeemed plus accrued interest to the date fixed for redemption, and
WHEREAS Those of the Series 2004 Bonds having a stated maturity on March 15, 2015, and thereafter will be
subject to redemption prior to their respective maturities, at the option of the University, as a whole or in part, on
March 15, 2014, and on any date thereafter (and if in part, in such maturities as the University shall select, and if less than
all of a single maturity is to be redeemed those to be redeemed to be selected by the Trustee by lot) at and for a
redemption price with respect to each Series 2004 Bond (or principal portion thereof redeemed) equal to the face or par
amount thereof plus accrued interest to the date fixed for redemption, and
WHEREAS, Wachovia Bank, National Association has proposed a transaction, sometimes referred to as a
Swaption for a Forward Synthetic Refunding, to allow the University to achieve a present realization of certain amounts in
connection with the future redemption of the outstanding Bonds and the optional redemption dates set forth above, and
WHEREAS, the University has determined that entering into a transaction with Wachovia Bank, National
Association or another counterparty of the type described in the attached Exhibit A will permit the University to achieve
present benefit from the future redemption of the Outstanding Bonds, and
WHEREAS, the University understands that any such transaction will obligate the University to either issue its
refunding bonds with respect to either or both of the Outstanding Bonds or terminate the transaction in the event the
options granted to a counterparty are exercised as required by the final documentation, and
WHEREAS, any transaction entered into pursuant to authority granted by this resolution will be governed by the
University of South Alabama Derivatives Policy,
THEREFORE, BE IT RESOLVED, that the Board of Trustees authorizes the President of the University of South
Alabama to proceed with negotiations with Wachovia Bank National Association or other qualified counterparties to finalize
the details of the transaction represented by the attached Exhibit A and to execute and deliver appropriate documents in
substantially the form set forth on Exhibit A, including without limitation the Schedule to the Master Agreement, subject
however to the approval of the Executive Committee as to the specific terms and conditions of any such transaction, and
THEREFORE, BE IT FURTHER RESOLVED, The President of the University, the Vice-President for Financial Affairs
and the Secretary of the Board are hereby authorized to execute such further certifications or other documents and to
take such other action as any of them may deem appropriate or necessary for the consummation of the matters covered
by this resolution.
President Moulton introduced Ms. Vicky Nix Cook, daughter of Mayor and Mrs. James Nix, and
illustrator of the book Fairhope Watercolor Sketches, on which she collaborated with author
Ms. Suzanne Hudson. President Moulton invited Trustees and guests to visit an artistic and literary
exhibit by Mss. Cook and Hudson currently on display in the University Library. Ms. Cook briefly
credited her father, USA Trustee and longtime Mayor of the City of Fairhope, as her inspiration for
UNIVERSITY OF SOUTH ALABAMA BOARD OF TRUSTEES
FOURTH ANNUAL REPORT
TO THE ALABAMA COMMISSION ON HIGHER EDUCATION
STATE PLAN FOR ALABAMA HIGHER EDUCATION, 2003-04 through 2008-09
Goal 1 - Access: Elevate the educational attainment levels of all citizens.
The University of South Alabama is committed to elevating the educational attainment
levels of all citizens. With more than 59,500 degrees awarded - including more than 1,900
Doctor of Medicine degrees - USA is the primary provider of baccalaureate, graduate, and
professional education in southern Alabama and the upper Gulf Coast. The University awards
more than 2,200 degrees a year, with most of these graduates remaining in the Mobile area,
serving in the fields of education, health care, engineering, science, computer technology,
business, visual and performing arts, humanities, and other disciplines. For the academic
year 2006-2007, USA awarded the following degrees: Bachelor’s – 1,445; Master’s – 746;
Ph.D. – 19; Doctor of Physical Therapy – 25; Doctor of Audiology – 5; M.D. – 64; Total –
2,304.
USA, with a fall 2006 enrollment of 13,303 students, has grown by 17.0 percent over
the past seven years, compared to the statewide average university growth of 12.5 percent.
African-American student enrollment has increased from 14.2 percent of the student body in
fall 1999 to 17.4 percent in fall 2006. These gains are the result of aggressive recruitment
efforts, significant growth in scholarship programs, and greater community awareness of the
quality and scope of USA’s academic programs.
USA serves a large number of adult and non-traditional students, particularly through
the academic programs of its School of Continuing Education and Special Programs.
Opportunities for access are also facilitated through articulation agreements with 22 two-year
institutions, ensuring transferability of educational achievements. Additional opportunities
for access are provided through distance learning. More than 100 courses are offered in an
online distance learning format. The following academic programs can be completed entirely
online: M.Ed. and Class A Certification in Educational Administration; M.S. in Instructional
Design and Development; M.Ed. and Class A Certification in Educational Media; and several
undergraduate and graduate programs in Nursing.
Although the University of South Alabama has maintained an active presence in
Baldwin County for more than 20 years, recent program enhancements are creating even
greater access to higher education for the citizens of one of the fastest growing counties in
the country. Responding to the critical need for additional health care professionals, the
College of Nursing’s degree programs have been extremely successful and continue to
experience significant enrollment increases. In addition to nursing programs, the University
is expanding program offerings at the USABC Campus in downtown Fairhope in fields such
as education, business, criminal justice, communication, and psychology.
A major objective of the University is to remain vigilant to the ever-changing
academic needs of the community it serves. New academic programs recently implemented
at USA will greatly enhance public health and safety in the region, in addition to providing
more opportunities for industry partnerships and economic development.
Beginning in the 2007 Fall Semester, USA is partnering with Auburn University’s
Harrison School of Pharmacy to address an acute shortage of pharmacists in the Gulf Coast
area, at the same time taking advantage of USA’s health care resources including its medical
education program, hospitals, and the Mitchell Cancer Institute.
In another effort to match academic programs with needs of the community, USA’s
College of Nursing is working not only to increase the number of nurses in the region, but
also to raise the skill level and professionalism among practitioners in this crucial field.
In September 2006, USA’s College of Nursing established the state’s first Doctor of
Nursing Practice degree program. New technology, scientific advances, and an escalating
demand for health care services have helped drive the need for nurses to pursue the highest
level of nursing practice, which will now be available through USA’s new doctoral program.
Also, the University of South Alabama has the region’s only graduate program with a
focus on civil engineering in the coastal environment. Beginning in the Fall Semester 2007,
the new program will offer a unique opportunity for civil engineers seeking an advanced
degree with emphasis on design in coastal areas. Providing graduate education in civil
engineering is a critical step in expanding the University’s partnership with local industry. In
addition, the program’s coastal focus will help ensure better, safer design of infrastructures in
the vulnerable coastal environment.
In summary, over the first four years of this ACHE reporting initiative, the University
of South Alabama has continued to provide high quality and relevant programs for a wide
range of individual needs over the educational lifespan, further enhancing its contributions in
harmony with the changing needs of its stakeholders.
2
Goal 2 - Cooperation: Offer relevant educational programs that address economic,
intellectual, and social problems by partnering with business, government, K-12,
and private sector entities.
The University of South Alabama is actively engaged in business, government, K-12,
and private sector partnerships to ensure that its educational programs address economic,
intellectual, and social problems.
Approximately 85 percent of the educators in Mobile County have earned degrees or
certificates from USA. Enhanced partnerships, cooperative research projects and other
interactions with the public school systems in Mobile and Baldwin counties are ongoing.
Programs and centers such as the youth violence prevention initiative, service learning,
business and economic research, small business development, recreation and the arts, lifelong
learning, college head start for talented high school students, science education on wheels,
Upward Bound, Special Services, and in-service training for teachers are only a few
examples of USA’s partnering with the public and private sectors to serve community needs.
Highlights of this past year include USA’s sponsorship of a community-wide
educational issues summit with the public school system, a large-scale summer skills
enhancement program for math and science teachers in the region, and creation of a new
mentoring program designed to recruit and retain special education teachers for local schools.
USA’s Technology and Research Park, recipient of the Mobile Area Chamber of
Commerce’s 2003 Innovation Award, offers new opportunities for collaboration between
leading technology firms and university faculty and students to develop new products and
processes, as well as contributing significantly to economic and employment growth in the
area.
Other successful partnerships with business have resulted in joint research and product
development in areas including nutritional supplements, tire recycling technology, and new
drug treatments for Alzheimer’s disease and cancer.
Active involvement by faculty with community and professional organizations
extends their knowledge and skill resources beyond the campus. The University’s colleges
and schools build and reinforce cooperative relationships with industry, education, and
government through advisory councils made up of leading practitioners who lend their
insights and expertise to ensuring that academic programs are responsive to current and
future needs of the state and local area.
In support of the state’s objective to strengthen health care training and develop
incentives to meet the shortage of health care workers in Alabama, USA graduates
3
USA’s Technology and Research Park represents a partnership between higher
education and high-tech industry that will produce significant employment opportunities for
Alabama citizens in technology fields. The Mitchell Cancer Institute is expected to generate
some 700 jobs associated with research, patient treatment, and biotechnology.
In addition, University faculty, staff, and administrators are active in workforce
development initiatives of area chambers of commerce and economic/community
development organizations and are participating in the 2006 Workforce Development
Summit.
Throughout the past four years of USA’s committed support of ACHE’s “State Plan
for Higher Education, 2003-04 Through 2008-09,” the University of South Alabama has
continued to serve in its traditional role as a major and visible player in the economic
enhancement of the Gulf Coast region and beyond. USA has directly contributed to a highly
educated workforce and has been central to regional economic development efforts that have
led to creation of the high quality and sustainable jobs needed to secure the region’s
economic health and overall quality of life.
September, 2007
8
INDEX
PAGE
TOTAL CURRENT FUNDS BUDGET SUMMARY
1
UNRESTRICTED CURRENT FUNDS BUDGET SUMMARY
2
RESTRICTED CURRENT FUNDS BUDGET SUMMARY
3
UNRESTRICTED CURRENT FUNDS BY OPERATING DIVISION:
OPERATIONS AND MAINTENANCE
4
COLLEGE OF MEDICINE
5
HOSPITALS
6
MITCHELL CANCER INSTITUTE
7
AUXILIARY ENTERPRISES
8
SCHEDULE OF STATE APPROPRIATIONS
9
UNIVERSITY OF SOUTH ALABAMA
2007-2008 PROPOSED BUDGET SUMMARY
CURRENT FUNDS
2007-2008
PROPOSED BUDGET
UNRESTRICTED
REVENUES:
TUITION AND FEES
STATE APPROPRIATION
FEDERAL GRANTS AND CONTRACTS
STATE AND LOCAL GRANTS AND CONTRACTS
PRIVATE GIFTS, GRANTS AND CONTRACTS
MOBILE RACING COMMISSION
ENDOWMENT INCOME
SALES AND SERVICES OF EDUCATIONAL ACTIVITIES
HOSPITALS - SALES AND SERVICES
- STATE APPROPRIATION
MITCHELL CANCER INSTITUTE - SALES AND SERVICES
- STATE APPROPRIATION
AUXILIARY ENTERPRISES - SALES AND SERVICES
OTHER SOURCES
TOTAL REVENUES
$
$
AUXILIARY ENTERPRISES:
EXPENDITURES
MANDATORY TRANSFERS FOR:
PRINCIPAL AND INTEREST
TOTAL AUXILIARY ENTERPRISES
TOTAL EXPENDITURES AND MANDATORY TRANSFERS
61,329,227
107,679,868
38,908,278
5,387,759
50,213,100
450,000
175,000
1,404,650
246,574,241
11,708,395
13,831,759
1,000,000
12,500,000
42,750,000
100,633,769
20,640,145
41,858,954
19,748,134
18,679,440
20,780,022
20,872,987
18,185,867
261,399,318
42,750,000
8,498,441
171,239
292,096,135
6,346,179
171,239
267,916,736
289,652,279
289,652,279
252,572,080
16,026,406
16,026,406
17,534,259
15,840,325
15,840,325
15,563,809
1,197,880
17,038,205
1,197,880
17,038,205
1,189,480
16,753,289
614,813,025
554,776,364
(11,668,062)
3,030,468
(450,000)
(10,125,095)
2,702,500
(450,000)
10,000,000
15,000,000
3,750,000
1,500,000
42,750,000
(11,668,062)
3,030,468
(450,000)
$
$
118,499,564
17,954,829
41,514,276
20,709,157
19,766,139
23,795,873
22,720,750
18,465,867
283,426,455
42,750,000
572,063,025
OTHER TRANSFERS AND ADDITIONS/(DEDUCTIONS):
DEPRECIATION - RENEWALS AND REPLACEMENTS
OTHER TRANSFERS
MOBILE RACING COMMISSION
67,246,401
124,570,525
34,408,278
6,903,651
55,313,100
450,000
175,000
1,404,650
282,789,398
13,166,404
10,995,938
2,000,000
16,753,289
7,233,393
562,648,959
8,498,441
171,239
249,346,135
MITCHELL CANCER INSTITUTE (INCLUDING DEBT
SERVICE OF $2,000,000)
$
17,038,205
7,439,069
623,900,619
108,499,564
2,954,829
37,764,276
20,709,157
18,266,139
23,795,873
22,720,750
5,965,867
240,676,455
HOSPITALS (INCLUDING DEBT SERVICE OF $2,025,696)
TOTAL
29,500,000
6,500,000
6,750,000
17,038,205
7,439,069
581,150,619
EXPENDITURES AND MANDATORY TRANSFERS:
EDUCATIONAL AND GENERAL:
INSTRUCTION
RESEARCH
PUBLIC SERVICE
ACADEMIC SUPPORT
STUDENT SERVICES
INSTITUTIONAL SUPPORT
OPERATION AND MAINTENANCE OF PLANT
SCHOLARSHIPS
EDUCATIONAL AND GENERAL EXPENDITURES
MANDATORY TRANSFERS FOR:
PRINCIPAL AND INTEREST
LOAN FUND MATCHING GRANTS
TOTAL EDUCATIONAL AND GENERAL
NET INCREASE (DECREASE) IN FUND BALANCES
67,246,401
124,570,525
4,908,278
403,651
48,563,100
450,000
175,000
1,404,650
282,789,398
13,166,404
10,995,938
2,000,000
RESTRICTED
2006-2007
ORIGINAL
BUDGET
$
$
$
PAGE 1
UNIVERSITY OF SOUTH ALABAMA
2007-2008 PROPOSED BUDGET SUMMARY
UNRESTRICTED CURRENT FUNDS
OPERATIONS
AND
MAINTENANCE
REVENUES:
TUITION AND FEES
STATE APPROPRIATION
FEDERAL GRANTS AND CONTRACTS
STATE AND LOCAL GRANTS AND CONTRACTS
PRIVATE GIFTS, GRANTS AND CONTRACTS
MOBILE RACING COMMISSION
ENDOWMENT INCOME
SALES AND SERVICES OF EDUCATIONAL ACTIVITIES
HOSPITALS - SALES AND SERVICES
MITCHELL CANCER INSTITUTE - SALES AND SERVICES
AUXILIARY ENTERPRISES - SALES AND SERVICES
OTHER SOURCES
TOTAL REVENUES
$
61,734,901
85,639,310
1,052,832
166,349
2,383,100
COLLEGE OF
MEDICINE
$
25,000
1,404,650
5,511,500
38,931,215
3,855,446
237,302
46,180,000
450,000
150,000
MITCHELL
CANCER
INSTITUTE
HOSPITALS
$
$
13,166,404
$
$
2,000,000
282,789,398
10,995,938
17,038,205
108,499,564
2,954,829
37,764,276
20,709,157
18,266,139
23,795,873
22,720,750
5,965,867
240,676,455
96,633,769
2,640,145
33,108,954
19,748,134
17,179,440
20,780,022
20,872,987
5,685,867
216,649,318
400,443
8,498,441
171,239
249,346,135
6,346,179
171,239
223,166,736
289,652,279
252,572,080
16,026,406
17,534,259
15,840,325
1,197,880
17,038,205
15,840,325
1,197,880
17,038,205
15,563,809
1,189,480
16,753,289
17,038,205
572,063,025
510,026,364
(11,668,062)
3,030,468
(450,000)
(10,125,095)
2,702,500
(450,000)
69,094,459
1,433,394
3,651,412
14,938,682
16,791,224
20,389,339
15,277,624
4,822,267
146,398,401
MANDATORY TRANSFERS FOR:
PRINCIPAL AND INTEREST
LOAN FUND MATCHING GRANTS
TOTAL EDUCATIONAL AND GENERAL
8,097,998
171,239
154,667,638
295,955,802
12,995,938
17,038,205
94,678,497
HOSPITALS:
EXPENDITURES AND MANDATORY TRANSFERS
289,652,279
MITCHELL CANCER INSTITUTE:
EXPENDITURES AND MANDATORY TRANSFERS
16,026,406
AUXILIARY ENTERPRISES:
EXPENDITURES
MANDATORY TRANSFERS FOR PRINCIPAL AND INTEREST
TOTAL AUXILIARY ENTERPRISES
OTHER TRANSFERS AND ADDITIONS/(DEDUCTIONS):
DEPRECIATION - RENEWALS AND REPLACEMENTS
OTHER TRANSFERS
MOBILE RACING COMMISSION
94,678,497
(4,414,539)
289,652,279
(950,000)
16,026,406
(6,303,523)
3,030,468
(450,000)
$
$
61,329,227
120,388,263
4,908,278
387,759
44,463,100
450,000
175,000
1,404,650
246,574,241
13,831,759
39,405,105
1,521,435
34,112,864
5,770,475
1,474,915
3,406,534
7,443,126
1,143,600
94,278,054
EDUCATIONAL AND GENERAL:
INSTRUCTION
RESEARCH
PUBLIC SERVICE
ACADEMIC SUPPORT
STUDENT SERVICES
INSTITUTIONAL SUPPORT
OPERATION AND MAINTENANCE OF PLANT
SCHOLARSHIPS
EDUCATIONAL AND GENERAL EXPENDITURES
154,667,638
$
16,753,289
7,233,393
517,898,959
763,034
96,078,497
TOTAL EXPENDITURES AND MANDATORY TRANSFERS
67,246,401
139,736,929
4,908,278
403,651
48,563,100
450,000
175,000
1,404,650
282,789,398
10,995,938
2006-2007
ORIGINAL
BUDGET
17,038,205
7,439,069
581,150,619
6,676,035
159,082,177
NET INCREASE (DECREASE) IN FUND BALANCES
2007-2008
PROPOSED
BUDGET
AUXILIARY
ENTERPRISES
$
$
$
$
$
PAGE 2
UNIVERSITY OF SOUTH ALABAMA
2007-2008 PROPOSED BUDGET SUMMARY
RESTRICTED CURRENT FUNDS
OPERATIONS
AND
MAINTENANCE
REVENUES:
FEDERAL GRANTS AND CONTRACTS
STATE AND LOCAL GRANTS AND CONTRACTS
PRIVATE GIFTS, GRANTS AND CONTRACTS
$
TOTAL REVENUE
EXPENDITURES:
EDUCATIONAL AND GENERAL:
INSTRUCTION
RESEARCH
PUBLIC SERVICE
STUDENT SERVICES
SCHOLARSHIPS
TOTAL EXPENDITURES
NET INCREASE (DECREASE) IN FUND BALANCES
$
18,250,000
5,000,000
4,000,000
MITCHELL
CANCER
INSTITUTE
COLLEGE OF
MEDICINE
$
11,250,000
1,500,000
2,250,000
$
2007-2008
PROPOSED
BUDGET
$
500,000
29,500,000
6,500,000
6,750,000
2006-2007
ORIGINAL
BUDGET
$
34,000,000
5,000,000
5,750,000
27,250,000
15,000,000
500,000
42,750,000
44,750,000
6,750,000
4,750,000
1,750,000
1,500,000
12,500,000
3,000,000
10,000,000
2,000,000
250,000
250,000
10,000,000
15,000,000
3,750,000
1,500,000
12,500,000
4,000,000
18,000,000
8,750,000
1,500,000
12,500,000
27,250,000
15,000,000
500,000
42,750,000
44,750,000
$
$
$
$
PAGE 3
UNIVERSITY OF SOUTH ALABAMA
OPERATIONS AND MAINTENANCE
2007-2008 PROPOSED BUDGET
UNRESTRICTED CURRENT FUNDS
2007-2008
2006-2007
PROPOSED
ORIGINAL
BUDGET
BUDGET
REVENUES:
TUITION AND FEES
$
ALLOCATION OF STATE APPROPRIATION
FEDERAL GRANTS AND CONTRACTS
STATE GRANTS AND CONTRACTS
PRIVATE GIFTS, GRANTS AND CONTRACTS
ENDOWMENT INCOME
61,734,901
$
56,556,901
85,639,310
73,337,886
1,052,832
1,052,832
166,349
166,349
2,383,100
2,383,100
25,000
25,000
SALES AND SERVICES OF EDUCATIONAL ACTIVITIES
1,404,650
1,404,650
OTHER SOURCES
6,676,035
6,470,359
159,082,177
141,397,077
TOTAL REVENUES
EXPENDITURES AND MANDATORY TRANSFERS:
EDUCATIONAL AND GENERAL:
INSTRUCTION
69,094,459
59,722,015
RESEARCH
1,433,394
1,376,145
PUBLIC SERVICE
3,651,412
3,551,412
14,938,682
14,093,399
ACADEMIC SUPPORT
STUDENT SERVICES
16,791,224
16,030,309
INSTITUTIONAL SUPPORT
20,389,339
17,744,963
OPERATION AND MAINTENANCE OF PLANT
15,277,624
13,725,053
4,822,267
4,622,267
146,398,401
130,865,563
8,097,998
5,945,736
171,239
171,239
154,667,638
136,982,538
SCHOLARSHIPS
EDUCATIONAL AND GENERAL EXPENDITURES
MANDATORY TRANSFERS:
PRINCIPAL AND INTEREST
LOAN FUND MATCHING GRANTS
TOTAL EXPENDITURES AND MANDATORY TRANSFERS
OTHER TRANSFERS AND ADDITIONS/(DEDUCTIONS):
DEPRECIATION - RENEWALS AND REPLACEMENTS
NET INCREASE (DECREASE) IN FUND BALANCES
(4,414,539)
$
(4,414,539)
$
PAGE 4
UNIVERSITY OF SOUTH ALABAMA
COLLEGE OF MEDICINE
2007-2008 PROPOSED BUDGET
UNRESTRICTED CURRENT FUNDS
2007-2008
PROPOSED
BUDGET
REVENUES:
TUITION AND FEES
ALLOCATION OF STATE APPROPRIATION
FEDERAL GRANTS AND CONTRACTS
STATE GRANTS AND CONTRACTS
PRIVATE GIFTS, GRANTS AND CONTRACTS
MOBILE RACING COMMISSION
ENDOWMENT INCOME
OTHER SOURCES
$
TOTAL REVENUES
EXPENDITURES AND MANDATORY TRANSFERS:
EDUCATIONAL AND GENERAL:
INSTRUCTION
RESEARCH
PUBLIC SERVICE
ACADEMIC SUPPORT
STUDENT SERVICES
INSTITUTIONAL SUPPORT
OPERATION AND MAINTENANCE OF PLANT
SCHOLARSHIPS
EDUCATIONAL AND GENERAL EXPENDITURES
MANDATORY TRANSFERS:
PRINCIPAL AND INTEREST
TOTAL EXPENDITURES AND MANDATORY TRANSFERS
OTHER TRANSFERS AND ADDITIONS/(DEDUCTIONS):
RENEWALS AND REPLACEMENTS
MOBILE RACING COMMISSION
NET INCREASE (DECREASE) IN FUND BALANCES
5,511,500
38,931,215
3,855,446
237,302
46,180,000
450,000
150,000
763,034
2006-2007
ORIGINAL
BUDGET
$
96,078,497
86,634,198
39,405,105
1,521,435
34,112,864
5,770,475
1,474,915
3,406,534
7,443,126
1,143,600
36,911,754
1,264,000
29,557,542
5,654,735
1,149,131
3,035,059
7,147,934
1,063,600
94,278,054
85,783,755
400,443
400,443
94,678,497
86,184,198
(950,000)
(450,000)
$
4,772,326
34,341,982
3,855,446
221,410
42,080,000
450,000
150,000
763,034
(450,000)
$
PAGE 5
UNIVERSITY OF SOUTH ALABAMA
HOSPITALS
2007-2008 PROPOSED BUDGET
UNRESTRICTED CURRENT FUNDS
2007-2008
PROPOSED
BUDGET
REVENUES:
GROSS PATIENT REVENUE
$
CONTRACTUAL ADJUSTMENTS
OTHER ADJUSTMENTS
TOTAL DEDUCTIONS FROM REVENUE
NET PATIENT REVENUE
ALLOCATION OF STATE APPROPRIATION
MOBILE COUNTY HOSPITAL BOARD
MOBILE COUNTY INDIGENT CARE BOARD
MEDICAID DISPROPORTIONATE SHARE
OTHER REVENUE
TOTAL REVENUE
EXPENDITURES AND MANDATORY TRANSFERS:
EXPENDITURES:
NURSING SERVICES
PROFESSIONAL SERVICES
GENERAL DIVISION
ADMINISTRATIVE DIVISION
MEDICAL EDUCATION
PROVISION FOR UNCOLLECTIBLE ACCOUNTS (NET OF RECOVERIES)
TOTAL EXPENDITURES
MANDATORY TRANSFERS FOR:
PRINCIPAL AND INTEREST
TOTAL EXPENDITURES AND MANDATORY TRANSFERS
OTHER TRANSFERS AND ADDITIONS/(DEDUCTIONS):
DEPRECIATION - DISPROPORTIONATE SHARE
DEPRECIATION - RENEWALS AND REPLACEMENTS
NET INCREASE (DECREASE) IN FUND BALANCES
389,920,895
2006-2007
ORIGINAL
BUDGET
$
130,456,718
2,863,779
133,320,497
92,045,144
2,837,337
94,882,481
256,600,398
226,179,498
13,166,404
12,356,000
3,082,000
2,185,000
8,566,000
11,708,395
11,220,004
2,939,992
295,955,802
258,282,636
81,868,716
67,805,073
15,876,749
35,259,873
14,111,539
72,704,633
68,517,287
55,416,445
14,967,704
32,989,854
10,950,582
65,047,900
287,626,583
247,889,772
2,025,696
4,682,308
289,652,279
252,572,080
6,234,747
(2,184,125)
(4,119,398)
$
321,061,979
(5,710,556)
$
PAGE 6
UNIVERSITY OF SOUTH ALABAMA
MITCHELL CANCER INSTITUTE
2007-2008 PROPOSED BUDGET
UNRESTRICTED CURRENT FUNDS
2007-2008
PROPOSED
BUDGET
REVENUES:
GROSS PATIENT REVENUE
$
CONTRACTUAL ADJUSTMENTS
10,920,000
2006-2007
ORIGINAL
BUDGET
$
14,350,000
3,709,400
4,592,000
TOTAL DEDUCTIONS FROM REVENUE
3,709,400
4,592,000
NET PATIENT REVENUE
7,210,600
9,758,000
2,000,000
3,785,338
1,000,000
4,073,759
12,995,938
14,831,759
7,050,201
6,307,805
668,400
5,157,345
10,228,914
1,148,000
TOTAL EXPENDITURES
14,026,406
16,534,259
TOTAL EXPENDITURES AND MANDATORY TRANSFERS
14,026,406
16,534,259
2,000,000
1,000,000
16,026,406
17,534,259
3,030,468
2,702,500
ALLOCATION OF STATE APPROPRIATION
OTHER REVENUE
TOTAL REVENUE
EXPENDITURES AND MANDATORY TRANSFERS:
EXPENDITURES:
PROFESSIONAL SERVICES
ADMINISTRATIVE DIVISION
PROVISION FOR UNCOLLECTIBLE ACCOUNTS (NET OF RECOVERIES)
MANDATORY TRANSFERS:
PRINCIPAL AND INTEREST
TOTAL EXPENDITURES AND MANDATORY TRANSFERS
OTHER TRANSFERS AND ADDITIONS/(DEDUCTIONS):
OTHER TRANSFERS
NET INCREASE (DECREASE) IN FUND BALANCES
$
$
PAGE 7
UNIVERSITY OF SOUTH ALABAMA
AUXILIARY ENTERPRISES
2007-2008 PROPOSED BUDGET
UNRESTRICTED CURRENT FUNDS
FOOD
SERVICES
HOUSING
REVENUES:
RENTAL INCOME
SALES
COMMISSION INCOME
FEES
OTHER INCOME
$
5,335,354
$
BOOKSTORE
$
2007-2008
PROPOSED
BUDGET
BROOKLEY
CENTER
$
$
8,880,710
1,795,009
49,800
42,000
325,363
120,151
7,130,363
8,930,510
159,000
325,363
492,969
8,922,710
2,290,323
17,038,205
16,753,289
6,586,424
9,775
6,596,199
6,558,585
159,000
2,336,286
2,280,548
10,442,006
10,194,704
1,016,179
326,180
866,957
3,214,789
983,430
5,045,907
3,120,645
860,129
5,024,450
2,209,316
9,244,126
9,005,224
159,000
330,818
TOTAL REVENUES
5,666,172
2006-2007
ORIGINAL
BUDGET
159,000
LESS: COST OF GOODS SOLD
$
6,932,135
8,808,421
140,000
378,488
494,245
GROSS INCOME
5,666,172
EXPENDITURES:
SALARIES AND WAGES
EMPLOYEE BENEFITS
OTHER EXPENDITURES
1,387,022
409,279
2,743,223
159,000
811,588
247,971
1,276,727
TOTAL EXPENDITURES
4,539,524
159,000
2,336,286
NET OPERATING INCOME
1,126,648
71,232
1,197,880
1,189,480
(1,126,648)
(71,232)
(1,197,880)
(1,189,480)
(1,126,648)
(71,232)
(1,197,880)
(1,189,480)
TRANSFERS AMONG FUNDS - ADDITIONS/(DEDUCTIONS):
MANDATORY:
PRINCIPAL AND INTEREST
TOTAL TRANSFERS
NET INCREASE (DECREASE) IN FUND BALANCES
$
$
$
$
$
$
PAGE 8
UNIVERSITY OF SOUTH ALABAMA
STATE APPROPRIATIONS
2007-2008
2007-2008
APPROPRIATIONS
2006-2007
APPROPRIATIONS
REGULAR APPROPRIATIONS:
OPERATIONS AND MAINTENANCE
TOTAL REGULAR APPROPRIATIONS
$
139,736,929
$
120,388,263
$
139,736,929
$
120,388,263
PAGE 9
University of South Alabama
Derivatives Policy
September 24, 2007
Porter, White & Company
Table of Contents
1.
2.
3.
4.
5.
General
1.1. Scope and Purpose
1.2. Legal Authority
Analysis of Proposed Transactions
2.1. Financial Analysis
2.1.1
Does the Proposed Transaction Constitute an Effective Hedge?
a. Overall Considerations
b. Hedge Effectiveness
2.1.2
Risks
2.1.3
Other Financial Benefits
2.1.4
Transaction Costs
2.2. Legal, Tax, and Accounting Analysis
2.2.1
Legality of Agreement
2.2.2
Integration for Tax Purposes
2.2.3
Expected Accounting Treatment
2.3. Documentation
2.3.1
Required Provisions
a. Collateral
b. Termination Events
2.4. Selection of Eligible Counterparties
Procurement.
3.1.1
Negotiated or Bid
3.1.2
Fairness Opinion
Management and Monitoring
4.1. Oversight Responsibility
4.1.1
Payment Management
4.1.2
Monitoring of Mark-to-Market, Counterparties, Collateral, and Termination
Events
4.1.3
Risk Monitoring
4.2. Disclosure
4.3. Annual Report to Board
4.4. Termination of Transaction
4.4.1
Optional termination
4.4.2
Mandatory Termination
Appendix
5.1. Definition of Terms
5.2. GFOA Derivatives Checklist
5.3. Code of Alabama, section 41-1-40 to 41-1-44, inclusive
G:\721-2\docs\derivatives policy-final.doc | 9/24/2007
Porter, White & Company
Page 1
1. General
1.1. Scope and Purpose
The purpose of this Policy is to guide the use of derivative financial instruments by the
University of South Alabama (the “University”) in terms of the University’s authority to enter
into such transactions and the process that should be followed when such transactions are
contemplated. The Code of Alabama, section 41-1-40 to 41-1-44, inclusive (attached in
Appendix), authorizes derivative transactions by governmental entities in Alabama for the
purpose of hedging financial risks associated with debt obligations or investments. This Policy
does not address transactions that do not qualify as Hedges or the issue of whether such
transactions may be separately authorized as investments.
Rating agencies and the Government Finance Officers Association (GFOA) recommend that
derivative instruments should be used only for Hedging activities and not for speculation.
GFOA’s publication Use of debt-Related Derivative Products and the Development of a
Derivatives Policy (2003 and 2005) (DEBT) states: “Governmental issuers must understand fully
the characteristics of derivative instruments, have the ability to determine a fair market price and
be aware of the legal, accounting, credit and disclosure issues involved. These instruments
should not be used for speculation, but only to manage risks associated with an issuer’s assets or
liabilities and only in conformance with financial policies that reflect the risk tolerances and
management capabilities of the issuer.”
Standard and Poor’s Public Finance Criteria: Debt Derivative Profiles, published September 29,
2004, states “Hedges are designed to offset risk. Derivatives entered into to generate revenues or
relieve rate pressures are viewed as essentially gambling on interest rates and are viewed
negatively in the overall analysis.”
The National Federation of Municipal Analysts recommends that issuers publicly disclose how
they use derivatives to manage risk and how each transaction hedges an investment or debt issue.
A Hedge has been defined as “Reducing your risks. Hedging involves deliberately taking on a
new risk that offsets an existing one, such as your exposure to an adverse change in an exchange
rate, interest rate, or commodity price.”1
The objective of this Policy is therefore to prescribe a process to properly evaluate derivative
transactions before they are executed in order to ensure that a transaction under consideration
constitutes a lawful, fairly priced and effective Hedge.
1
Bishop, Matthew, Essential Economics, The Economist in Association with Profile Books Ltd. (London, 2004).
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1.2. Legal Authority
The University is a governmental entity under the Code of Alabama and is authorized to enter
into derivative transactions for the purpose of hedging financial risks. The applicable statute
requires as a condition of entering into a derivative transaction that the University’s governing
body find and determine that the transaction will constitute a Hedge. In considering such a
finding and determination the University’s governing body should have available to it for
reliance the analysis hereinafter described. The authority of the University to enter into a
derivative transaction should be confirmed in each instance by a legal opinion which should
consider the analysis hereinafter described.
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2. Analysis of Proposed Transactions
Proposed derivative transactions should be analyzed by University staff or independent advisers.
The analysis should address, at a minimum, the issues described in this section. The interest of
the persons or firms performing the analysis should be aligned with those of the University. A
potential counterparty to a proposed transaction will not be considered independent, although the
potential counterparty may provide information and perspective useful in the analysis.
The overall purpose of the analysis should be to evaluate the relative risks, benefits, transaction
costs and legality of the proposed derivative transaction. A determination of tax and accounting
treatment will also be appropriate in most cases. Legal issues will likely involve mixed
questions of fact, law, and finance and will require a joint effort of the lawyer and staff or
independent advisers performing the financial analysis.
The scope of the analysis will depend upon the situation. Reference to authoritative guidelines
and checklists, such as the GFOA Derivatives Checklist (attached in Appendix), is appropriate.
The analysis should be completed prior to consideration of the proposed transaction by the
governing body.
2.1. Financial Analysis
The Financial Analysis should address:
a) Whether or not the proposed transaction constitutes an effective Hedge,
b) The risks attendant to the proposed transaction,
c) Verification of other benefits expected for the transaction,
d) Estimates of transaction costs, whether paid upfront or over time.
2.1.1
Does the Proposed Transaction Constitute an Effective Hedge?
a. Overall Considerations
A proposed derivatives transaction should be analyzed in the context of the entire balance sheet
of the University. Once the University has identified an item and specific risk(s) relating to that
item that it wishes to hedge, the extent to which existing assets or liabilities do not “naturally”
offset those risks should be determined. For example, the variability of interest rates on shortterm debt may be naturally hedged or partially offset by the existence of short-term fixed assets.
The “unhedged” portion of a proposed or existing asset or liability can then be compared to the
proposed transaction. Further, the University should not have derivatives in effect with Notional
Amounts exceeding existing and proposed debt.
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b. Hedge Effectiveness
To ensure that a proposed transaction will constitute an effective hedge, the analysis should
address the expected relationship between the item the University wishes to hedge and the
proposed transaction. This should be done by comparing the critical terms, such as those
normally found in a trade confirmation, of the proposed transaction to those of the item to be
hedged. In accounting rules and literature this is sometimes referred to as the “short-cut method”
or “consistent critical terms method.” If the terms of the proposed transaction and the item the
University wishes to hedge are different, the characteristics of the target asset or liability should
be explored and data relating to the historical performance of the target asset or liability should
be reviewed and analyzed. The proposed Hedge should be "back tested" by determining whether
and to what extent the proposed Hedge would have reduced the risk of the targeted asset or
liability if it had been in effect during historical periods. Relevant statistical methods, such as
regression and correlation analysis, may also be employed. Acknowledging that "past
performance is not necessarily indicative of future performance," consideration should be given
to factors that might cause future performance to deviate from past performance.
2.1.2
Risks
The risks arising from using derivatives are not entirely attributable to the derivative agreement,
but may also arise from obligations, such as variable rate debt, that are used in conjunction with
a derivative agreement. The analysis should comment on the following risks:
Interest Rate Risk
Interest rate risk is the risk of changes in current, or
expectations about future, interest rates such that it negatively
impacts an entity’s financial position. It may or may not have
current cash flow implications.
Mark-to-Market Risk
The potential adverse effect on the organization as a result of
changes in the mark-to-market valuation of positions, such as
non-cash charges due to accounting treatment.
Basis Risk
The risk of a deviation from the expected relationship between
two payment streams, whose changes are intended to offset
each other.
Counterparty Risk
The risk of failure, by Counterparty, to fulfill obligations under
an Agreement.
Termination Risk
The risk of a payment being due to terminate an Agreement at
market value, when that market value is negative.
Rollover Risk
The risk of higher interest rate cost, than expected, as a result of
shorter maturity on an Agreement than on associated liabilities.
Tax Risk
The risk of future tax law changes, which would affect the
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expected relationship between two payment streams. This is a
form of basis risk.
Liquidity /Remarketing Risk
The risk of an increase in the cost of or inability to renew a
liquidity facility and/or remarketing agreement for variable rate
notes or the risk of a failed auction in the case of auction rate
securities.
Credit Risk
The risk of an event that would negatively impact an entity’s
credit quality.
Market Access Risk
The risk of not being able to access capital markets as intended.
Contract Liquidity
As the University's circumstances change, it may want to
unwind the transaction or enter into an offsetting transaction
with another counterparty. It is important, therefore, that the
proposed transaction be liquid in the sense that it can be
terminated with the Counterparty or offset with another
counterparty on financial terms that can be readily determined.
2.1.3 Other Financial Benefits
Benefits of the proposed transaction that are represented or expected should be evaluated and
quantified. In this connection, all aspects of the proposed transaction should be considered.
Optionality foregone or acquired should be separately valued in light of alternative transactions
containing optionality. For example, if variable rate bonds are issued in conjunction with a fixed
for floating rate swap, creating synthetic fixed rate debt, instead of issuing fixed rate bonds, the
analysis should show how much of the advertised interest savings is attributable to omitting the
cost of the call option included in traditional fixed rate bonds.
2.1.4
Transaction Costs
The analysis should show the gross economic cost to the University expected to result from a
transaction. Gross economic cost refers to the difference between (i) the estimated market value
of a transaction and (ii) the value of the transaction as executed. This difference is sometimes
referred to as the “spread from mid-market,” and the analysis should reveal this amount in
relevant industry terms as well as in dollar amounts. In the case of a negotiated transaction (see
Procurement) the gross economic cost to the University is the gross income booked by a
Counterparty in a transaction.
If an Agreement, such as a swap, is entered into in conjunction with an insured bond issue, the
additional cost of insuring the payment obligation of the University under the Agreement should
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be evaluated. If the University agrees to collateralize its payment obligation in a transaction, an
estimate of the cost of collateralization should be made.
In addition, all legal and other expenses anticipated in connection with a transaction should be
estimated and included in the analysis.
2.2. Legal, Tax, and Accounting Analysis
2.2.1
Legality of Agreement
Prior to considering a derivative transaction, the University should receive a legal opinion that
the proposed transaction is a valid and legally binding contract. The legal opinion should
comment on the sources of funds available to make payments, potential termination payments,
and collateral postings, if applicable.
2.2.2
Integration for Tax Purposes
The University should request an opinion from bond counsel, or other qualified party, stating
whether or not the proposed transaction can be expected to be treated as a qualified hedge under
IRS regulations, and thereby taken into consideration for the purpose of calculating bond yield in
applying applicable arbitrage rules.
2.2.3
Expected Accounting Treatment
The University should request an opinion from its auditor, or other qualified party, on the
expected disclosure and accounting treatment for the proposed transaction and whether or not it
will qualify for Hedge Accounting. Consideration will be give to proposed accounting standards
as well as those currently in effect.
2.3. Documentation
Generally, documentation will be based on the industry standard documents developed by the
International Swap and Dealers Association (ISDA) that are used in derivative transactions. This
documentation is comprised of:
a) Master Agreement,
b) Schedule,
c) Credit Support Annex, and
d) Trade Confirmation.
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As a general rule, the terms of the Master Agreement as modified in the Schedule and Credit
Support Annex should be reviewed by legal counsel, understood by the University, and agreed
upon with any potential Counterparty prior to negotiation or bidding of a derivative transaction.
The terms of the Trade Confirmation, leaving out only final price or rate, should be agreed upon
prior to any execution through negotiation or bidding. The specific financial terms of a proposed
transaction, such as day count conventions and other terms found in a trade confirmation, should
be analyzed. These terms should generally conform to those that are used for the asset or
liability hedged unless there are industry conventions otherwise used and the effect of such
differences can be analyzed. The financial analysis should comment on the terms of the Hedge
and those of the hedged asset or liability and, if they are different, provide justification for why
the terms differ.
The University may elect to use documentation that it considers to be more advantageous than
ISDA documents when considering derivative transactions and these alternative documents may
reference ISDA definitions. However, the principle of agreeing on terms, with the exception of
price, with potential Counterparties prior to any execution should be followed.
The sources of funds available to make payments resulting from a proposed transaction should
be identified and analyzed and confirmed by counsel as being lawfully available for the purpose.
2.3.1
Required Provisions
The Code of Alabama, section 41-1-40 to 41-1-44, inclusive (attached in Appendix), requires
Counterparties to post collateral at least quarterly in an amount equal to what would be payable
at that valuation date to the governmental entity if the Counterparty defaulted. The University is
allowed, but not required, to post collateral under the statute as well.
a. Collateral
Eligible collateral is defined as cash in United States dollars or obligations eligible for
investments in Alabama of municipal and county funds, and postings should be based on
monthly valuations or other periodic valuation as requested by either party.
Collateral should be held by an independent third party.
b. Termination Events
The University should have the right of optional termination of an Agreement at any time “at
market” with the termination value determined by Market Quotation and Second Method, or any
other method the University deems appropriate.
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2.4. Selection of Eligible Counterparties
An Eligible Counterparty will have unsecured long-term debt rated no lower than A+ or
equivalent by Standard and Poor’s, Moody’s Investor Service, or Fitch Ratings. Under the
statute, a Counterparty must have a net worth of at least $100,000,000 or its obligations must be
guaranteed by a person or an entity with a net worth of at least $100,000,000.
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3. Procurement.
3.1.1
Negotiated or Bid
It is the objective of the University to attempt to have at least three Eligible Counterparties
compete, through bidding, when considering derivative transactions, unless the University
determines that it is inefficient to arrange bidding. The University will attempt to simplify the
terms of a proposed transaction such that it is transparent in pricing and amenable to valuation,
attractive for Eligible Counterparties to bid, and does not favor one Eligible Counterparty over
another.
The University may elect to privately negotiate an Agreement with an Eligible Counterparty if it
deems that a proposed transaction contains too many unique provisions for bidding or if it wants
to reward an Eligible Counterparty for proposing innovative ideas. In such cases a written
justification for a negotiated as opposed to a bid transaction will be prepared explaining in detail
the justification for the negotiated transaction.
In a negotiated transaction it is important to determine that the Counterparty's compensation is
reasonable, as unreasonable compensation can lead to excess costs and potential violations of
arbitrage regulations relating to tax exempt bonds (and the potential taxability of the interest on
such bonds). Since the Counterparty's compensation in most derivative transactions is hidden
from view, if an Agreement is to be negotiated, the following steps should be followed:
a) The University and the Eligible Counterparty will agree on the level of compensation, in
dollar amounts, that the Eligible Counterparty will earn on the Agreement,
b) The level of compensation must be verifiable at the time of execution, and
c) The Eligible Counterparty will agree that the level of compensation agreed upon is the
amount that it will record on its books as a result of executing the Agreement.
3.1.2
Fairness Opinion
A competent independent analyst (referred to in the industry as “Swap Adviser”) should provide
the University with a fairness opinion simultaneously with execution of an Agreement describing
the terms and the fair value of the transaction. If an Agreement is negotiated, the fairness
opinion will verify that that terms agreed upon with the Counterparty were achieved at
execution. The fairness opinion should state the estimated gross cost, in dollar amounts, to the
University of executing the Agreement.
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4. Management and Monitoring
4.1. Oversight Responsibility
The University will designate a party responsible (“Swap Manager”) for oversight of any
executed Agreements. The Swap Manager may rely upon a qualified independent analyst. Such
oversight includes, but is not limited to:
4.1.1 Payment Management
The Swap Manager will ensure that procedures are in place to verify and manage scheduled
payments as required under any Agreement.
4.1.2 Monitoring of Mark-to-Market, Counterparties, Collateral, and Termination Events
The Swap Manager will ensure that procedures are in place for periodic Mark-to-Market
valuation and monitoring of terms as agreed upon in Documentation, including such terms as
collateral postings and possible termination events.
4.1.3
Risk Monitoring
The Swap Manager will on a periodic basis review the performance of any derivatives with
regards to risks commented on in the financial analysis.
4.2. Disclosure
The University will fully disclose to interested parties, such as credit rating agencies, insurance
providers, and bond investors a description of each transaction entered into, the hedged item, the
potential risks associated with each hedge, and Counterparty for each transaction. The
University will report derivative positions in its financial statements in compliance with
standards of the Government Accounting Standards Board or other applicable authority.
4.3. Annual Report to Board
The Swap Manager will report annually to the governing body the hedge’s performance,
potential termination exposure, and any material events related to any Agreements, such as credit
downgrades or payment defaults. Such a report will contain:
a) A description of each individual Agreement, the hedged asset or liability, effectiveness of
hedge, liquidity/remarketing risk, market access risk, rollover risk, and current estimated
market value,
b) Mark-to-market valuation of Agreements by Counterparty,
c) Collateral held or posted by Counterparty,
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d) Credit ratings of each Counterparty, or its guarantor,
e) Any other material events related to any transaction, Counterparty, or risk, such as tax or
mark-to-market risk, and
f) Suggested actions to be taken with regards to the above mentioned or other relevant
items.
4.4. Termination of Transaction
In the event that it is desirable to terminate a transaction, the University will consider feasible
alternatives to termination “at market” with its current Counterparty. Such alternatives may be
to arrange bidding among Eligible Counterparties to take over the University’s obligations to
ensure that the cost of terminating a transaction is fair.
4.4.1
Optional termination
The University may terminate a transaction if it determines, through appropriate financial
analysis, that it is advantageous to do so. The financial analysis shall review the original
intentions for the transaction and justify why it is more advantageous to terminate the transaction
than to leave it in place. This financial analysis is to be done by persons or entities, such as
internal staff or outside Swap Adviser, whose interest are aligned with those of the University,
and that are qualified to perform such analysis. The Counterparty in a proposed transaction
should not perform this analysis.
4.4.2
Mandatory Termination
In the event that a transaction is terminated as a result of a termination event, such as a default or
a decrease in credit rating of either the University or a Counterparty, the University will through
appropriate financial analysis determine whether or not it is appropriate and cost efficient to
enter into a replacement transaction.
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5. Appendix
5.1. Definition of Terms
Hedge A transaction that, possibly by absorbing a new risk, reduces the risk of another
transaction.
Agreement A derivatives contract such as, but not limited to, futures contract, swap, swaption,
or cap.
Counterparty A party in a derivative transaction.
Notional Amount The amount underlying an Agreement that is used to calculate payments.
Hedge Accounting Accounting rules allowing for related assets and liabilities or income and
expenses to be offset against each other in presentation of financial results.
Eligible Counterparty A financial institution making a market in derivatives.
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5.2. GFOA Derivatives Checklist
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DERIVATIVES CHECKLIST
Introduction
This checklist is a supplement to the Recommended Practice on Use of Debt-Related
Derivatives Products and the Development of a Derivatives Policy (2005) and is designed to be
an attachment to a government issuer’s derivatives policy. It is designed to be used prior to
entering into any derivatives transaction. This checklist presumes an issuer’s compliance with
the Recommended Practice—to wit, that the issuer has adopted a derivatives policy and that the
issuer’s staff has been trained in the evaluation and use of derivative products. An issuer that
cannot answer the questions in this checklist is advised to continue its training prior to
completing a derivatives transaction.
While the principles enunciated in the Recommended Practice are generally applicable
to all derivatives transactions, it is impracticable to create a “one size fits all” checklist to
address the specific issues of all derivatives transactions. First, over-the-counter derivatives
transactions are not uniform. Each is customized to fit the needs of the parties. Second, the
derivatives market and the products being used in that market change over time, sometimes quite
quickly, in response to changes in the broader financial markets. Third, the experience and
sophistication of users of derivative products varies. Many experienced users of derivatives will
already have developed their own means of assuring that all relevant issues in a derivatives
transaction have been considered and addressed. Therefore, this checklist is intended mostly to
assist issuers that meet the presumptions described above but are relatively new to the
derivatives market. The issues addressed in this checklist are broadly applicable, but the form of
the checklist is one that issuers are encouraged to adapt to their particular circumstances.
Many of the capitalized terms used in this checklist are used as defined in International
Swaps and Derivatives Association, Inc. (“ISDA”) documents, and this checklist presumes that
an issuer is familiar with such documents.
General Information
1.
Name of Governmental Issuer: ______________________________________________
2.
Date of most recent update to Issuer’s Derivatives Policy: _________________
3.
(a)
Names of Official and Backup(s) Responsible for Procurement of Derivative:
________________________________________________________________________
(b)
Names of Official and Backup(s) Responsible for Monitoring Derivative:
________________________________________________________________________
(c)
Have all of them satisfied the training standards prescribed in the Issuer’s
Derivatives Policy?
Yes ___ No ___
4.
Independent Derivatives Advisor, if any: ______________________________________
5.
Independent Derivatives Monitor, if any: ______________________________________
Authority
1.
Will the Issuer’s counsel deliver an unqualified opinion on the Issuer’s authority to enter
into the derivative?
Yes ___ No ___
General Terms
1.
Type of Derivative: _______________________________________________________
2.
Counterparty/ies: _________________________________________________________
3.
(a)
(b)
(c)
(d)
4.
Notional Amount: ________________________
5.
Identify debt, or assets, with which the derivative is associated:
________________________________________________________________________
Expected Trade Date: _________________
Effective Date: __________________
Scheduled Termination Date: ________________
If derivative is an option, Exercise Date(s): _____________________________
Financial Terms
1.
(a)
(b)
(c)
(d)
Basis for calculating Issuer’s payments: _____________________________
Frequency of calculation: __________________________
Frequency of payment: ______________________
Can the passage of time or future market conditions cause the basis for calculating
these payments to change?
Yes ___ No ___
If yes, explain: _____________________________________________________
__________________________________________________________________
__________________________________________________________________
2.
(a)
(b)
(c)
(d)
Basis for calculating Counterparty’s/ies’ payments: _______________________
Frequency of calculation: __________________________
Frequency of payment: _____________________________
Can the passage of time or future market conditions cause the basis for calculating
these payments to change?
Yes ___ No ___
If yes, explain: _____________________________________________________
2
__________________________________________________________________
__________________________________________________________________
3.
Identify any embedded options in the derivative: ________________________________
_______________________________________________________________________
_______________________________________________________________________
4.
Will either party make an upfront payment upon execution of the derivative?
Yes ___ No ___
Purpose
1.
2.
State the reason(s) for entering into the derivative.
_______________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Were other means considered for achieving such purpose(s)?
Yes ___ No ___
If yes, why was the derivative chosen? ________________________________________
________________________________________________________________________
________________________________________________________________________
Risks
1.
2.
Has the Issuer evaluated the extent
upon execution of the derivative?
(a)
Basis Risk
(b)
Tax Risk
(c)
Interest Rate Risk
(d)
Counterparty Risk
(e)
Termination Risk
(f)
Market-access Risk
(g)
Rollover Risk
(h)
Credit Risk
to which each of the following risks will be assumed
Yes ___
Yes ___
Yes ___
Yes ___
Yes ___
Yes ___
Yes ___
Yes ___
No ___
No ___
No ___
No ___
No ___
No ___
No ___
No ___
Are the risks to be assumed within the risk parameters of the Issuer’s Derivatives Policy?
Yes ___ No ___
3.
Has Issuer run, or had run for it, stress tests on how the derivative could affect Issuer’s
budget and financial position under various market conditions?
Yes ___ No ___
____________________________________________________
4.
How do the benefits of entering into the derivative outweigh the risks being assumed?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
3
5.
Upon execution of this derivative,
(a)
How many derivatives will Issuer have outstanding? _________________
(b)
What is the total notional amount of those derivatives? _______________
(c)
What percent of Issuer’s long-term debt will be associated with derivatives?
_______
Documentation
1.
Is Issuer’s counsel experienced in derivatives transactions?
Yes ___ No ___
2.
Has Issuer discussed with its counsel:
(a)
Required consents and approvals?
(b)
Relation of derivative payments to bond payments?
(c)
Default provisions?
(d)
Termination provisions?
(e)
Other remedies?
Yes ___ No ___
Yes ___ No ___
Yes ___ No ___
Yes ___ No ___
Yes ___ No ___
Counterpartv/ies
1.
On what basis did Issuer select Counterparty/ies?
Competitive
Negotiated
2.
If competitive,
(a)
Who was bidding agent? ________________________
(b)
How many firms were invited to bid? ______________
(c)
How many firms bid? __________________________
(d)
Is bidding agent providing a closing certificate?
Yes ___ No ___
3.
If negotiated,
(a)
State reasons for negotiating derivative: _________________________________
__________________________________________________________________
(b)
State reasons for choosing Counterparty/ies: _____________________________
__________________________________________________________________
(c)
Estimated spread relative to mid-market or benchmark rate? _______________
(d)
Is Derivatives Advisor providing a certificate as to fair market valuation?
Yes ___ No ___
If no, what comfort will Issuer receive that the terms for the derivative are
commercially reasonable? ____________________________________________
4.
Does Counterparty/ies meet credit criteria of Issuer’s Derivatives Policy? Yes ___ No __
5.
What percentage of Issuer’s total notional amount of derivatives will be with the same
Counterparty/ies?______________
4
6.
If Issuer will have more than one derivatives transaction with Counterparty or any of the
Counterparties, will there be netting between or among separate derivatives transactions?
Yes ___ No ___
Credit Support
1.
Credit Support will be provided for:
(a)
Issuer
Yes ___
No ___
If yes, name of provider: ____________________________________________
(b)
Counterparty/ies
Yes ___
No ___
If yes, name of provider: ____________________________________________
2.
Has Issuer’s counsel reviewed Issuer’s credit support obligations? Yes ___ No ___
3.
Has Issuer established procedures sufficient to:
(a)
Comply with any such obligations?
Yes ___ No ___
(b)
Renew or replace Credit Support, if required?
Yes ___ No ___
(c)
Monitor the credit level of the Counterparty/ies?
Yes ___ No ___
(d)
Receive the benefit of, and comply with any obligations relating to, any credit
support obligations of Counterparty/ies?
Yes ___ No ___
Tax Issues
1.
Tax counsel reviewing the documentation: _____________________________________
2.
Has Issuer discussed with tax counsel:
(a)
Integration of the derivative with a bond issue?
Yes ___ No ___
(b)
Whether yield monitoring is required?
Yes ___ No ___
(c)
Whether the derivative’s performance or mark-to-market value should be
included in arbitrage compliance calculations?
Yes ___ No ___
3.
Will tax counsel deliver an opinion in connection with the derivative? Yes ___ No ___
Operations and Monitoring
1.
If the Expected Trade Date and the Effective Date are different, is the derivative part of a
series of transactions?
Yes ___ No ___
If yes,
(a)
Describe the subsequent transactions being considered: ____________________
________________________________________________________________________
________________________________________________________________________
(b)
Has Issuer established procedures or mechanisms to:
(i) Determine how and when any subsequent transaction will occur?
Yes ___ No ___
(ii) Evaluate and handle risks to completion of any subsequent transaction?
Yes ___ No ___
5
(iii)Complete, and pay expenses of, any subsequent transactions?
Yes ___ No ___
2.
Has Issuer discussed the appropriate accounting treatment for the derivative with its
independent auditor?
Yes ___ No ___
3.
Does the Issuer intend to use hedge accounting?
Yes ___ No ___
If yes, has the issuer received or made arrangements to receive confirmation of hedge
effectiveness?
Yes ___ No ___
If yes, from: ___________________________________________________________
4.
Who is responsible for confirming payment amounts and making necessary payments?
______________________________________________________________
5.
What is the source for Issuer’s regular payments? _______________________________
6.
How are such payments budgeted? ___________________________________________
7.
Who is responsible for monitoring mark-to-market valuations? ____________________
8.
What is the frequency of such monitoring? ________________________
9.
What is the frequency of:
(a)
Reporting monitoring results to Chief Executive Officer/Chief Financial Officer?
________________________
(b)
Sharing monitoring results with independent auditor? ______________________
10.
Has Issuer discussed this derivative with the rating agencies?
11.
Who is responsible for delivery of future documents required by the derivative’s
documentation? ___________________________
12.
Who is responsible for answering investors’ questions about Issuer’s derivatives
exposure? _______________________________________________________________
________________________________________________________________________
Yes ___ No ___
Information Provided By:
____________________________________
(signature)
6
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5.3. Code of Alabama, section 41-1-40 to 41-1-44, inclusive
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