UNIVERSITY CORPORATION FOR ATMOSPHERIC RESEARCH. Consolidated Financial Statements and Reports Required by the Uniform Guidance

Transcription

1 Consolidated Financial Statements and Reports Required by the Uniform Guidance (With Independent Auditors Reports Thereon)

2 Table of Contents Independent Auditors Report 1 Consolidated Financial Statements: Page Consolidated Statements of Financial Position 3 Consolidated Statements of Activities 4 Consolidated Statements of Cash Flows 5 6 Reports Required by the Uniform Guidance Schedule of Expenditures of Federal Awards 36 Notes to Schedule of Expenditures of Federal Awards 43 Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Consolidated Financial Statements Performed in Accordance with Government Auditing Standards 44 Independent Auditors Report on Compliance for the Major Federal Program; Report on Internal Control over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 46 Schedule of Findings and Questioned Costs 48

3 KPMG LLP Suite th Street Denver, CO Independent Auditors Report The Board of Trustees University Corporation for Atmospheric Research: Report on the Financial Statements We have audited the accompanying consolidated financial statements of the University Corporation for Atmospheric Research (UCAR), which comprise the consolidated statements of financial position as of, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the University Corporation for Atmospheric Research as of, and the changes in its net assets and its cash flows for the years then ended, in accordance with U.S. generally accepted accounting principles. KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

4 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 20, 2017 on our consideration of UCAR s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering UCAR s internal control over financial reporting and compliance. Denver, Colorado January 20,

5 Consolidated Statements of Financial Position Assets Current assets: Cash and cash equivalents (note 4(i)) $ 30,776 34,385 Investments (notes 2 and 10) Receivables: Government agencies 18,630 14,893 Other (net of allowance for doubtful accounts of $30 at 2016 and 2015) 4,083 2,753 Other current assets Total current assets 55,081 53,251 Property (note 3): Land and improvements 9,196 9,182 Buildings 163, ,626 Building construction in process 3, Equipment 38,551 37,906 Total 215, ,882 Less accumulated depreciation on buildings and equipment (102,315) (94,335) Property, net 112, ,547 Other noncurrent assets: Restricted cash and cash equivalents (note 4(i)) 373 Investments (notes 2 and 10) 79,064 76,517 Total other noncurrent assets 79,064 76,890 Total assets $ 246, ,688 Liabilities and Net Assets Current liabilities: Accounts payable $ 6,725 5,985 Accrued vacation liability 12,288 12,140 Other accrued liabilities (note 11) 7,084 11,097 Deferred revenue 15,471 14,495 Current portion of bonds payable (notes 4 and 10) 5,183 6,027 Current portion of other obligations (notes 5 and 8) Total current liabilities 47,014 50,007 Noncurrent liabilities: Bonds payable (notes 4 and 10) 49,968 55,364 Accrued postretirement benefit obligation (note 7) 7,033 7,192 Other obligations (notes 5 and 8) Total noncurrent liabilities 57,235 63,054 Net assets: Unrestricted 140, ,192 Temporarily restricted 1,801 1,249 Permanently restricted (note 12) Total net assets 142, ,627 Total liabilities and net assets $ 246, ,688 See accompanying notes to consolidated financial statements. 3

6 Consolidated Statements of Activities Years ended Changes in unrestricted net assets: Revenue, gains, and other support: National Science Foundation Cooperative Agreement: National Science Foundation $ 96,381 91,879 Other federal government 14,065 19,441 Other federal government 85,421 88,034 Other nongovernment 12,592 12,788 Donated property 14 Other 72 Investment income (note 2) 7, Total revenue and gains 215, ,225 Net assets released from restrictions Total revenue, gains, and other support 216, ,935 Expenses and losses: Scientific programs and support facilities 181, ,588 Management and general expenses 24,689 24,322 Total expenses (note 9) 206, ,910 Loss on disposal of property (net of proceeds from sale of assets) Unrealized loss from derivative obligations (note 11) Total expenses and losses 206, ,294 Postretirement benefit-related changes other than net periodic costs (note 7) 1,370 1,738 (Decrease) increase in unrestricted net assets 8,437 (97) Changes in temporarily restricted net assets: Other nongovernment revenue 1, Investment income (note 2) 8 20 Net assets released from restrictions (928) (710) Increase in temporarily restricted net assets Change in net assets 8,989 (9) Net assets, beginning of year 133, ,636 Net assets, end of year $ 142, ,627 See accompanying notes to consolidated financial statements. 4

7 Consolidated Statements of Cash Flows Years ended Cash flows from operating activities: Change in net assets $ 8,989 (9) Adjustments to reconcile change in net assets to net cash provided by operating activities: Net realized and unrealized gains on investments (5,792) 1,308 Donated property (14) Depreciation and amortization 10,724 10,363 Investment premium amortization (5) Loss on disposal of property Net accretion of bonds payable premiums (213) (196) Changes in operating assets and liabilities: Receivables (5,067) (2,427) Other current assets (156) (50) Accounts payable 740 (217) Accrued liabilities (3,865) 1,175 Deferred revenue 976 (2,727) Accrued postretirement benefit obligation (159) 94 Net cash provided by operating activities 6,196 7,336 Cash flows from investing activities: Purchase of property and equipment (6,749) (3,634) Purchase of investments (1,778) (11,432) Proceeds from sale of investments 4,807 10,412 Change in cash and cash equivalents for investment in property and restricted funds Net cash used in investing activities (3,347) (4,127) Cash flows from financing activities: Proceeds from issuance of bonds payable 528 Payments of bonds payable (6,195) (5,370) Payments of other obligations (263) (439) Net cash used in financing activities (6,458) (5,281) Decrease in cash and cash equivalents (3,609) (2,072) Cash and cash equivalents, beginning of year 34,385 36,457 Cash and cash equivalents, end of year $ 30,776 34,385 Supplemental cash flow information: Interest paid $ 2,561 2,721 See accompanying notes to consolidated financial statements. 5

8 (1) Organization and Significant Accounting Policies (a) Organization The University Corporation for Atmospheric Research (UCAR) is a nonprofit membership corporation engaged in scientific and educational activities in atmospheric research and related fields. UCAR operates the National Center for Atmospheric Research (NCAR) under cooperative agreement with the National Science Foundation (NSF) and also operates other scientific projects funded principally by other U.S. government agencies. In connection with its operations, UCAR has incurred bond indebtedness (note 4) and other indebtedness and commitments (notes 5, 7, 8, and 11) for which repayment is primarily dependent upon funding by NSF and other U.S. government agencies. The ability of NSF and other U.S. government agencies in any year to provide moneys to UCAR is dependent on annual Congressional appropriations. UCAR is operating under a cooperative agreement with an expiration date of September 30, Performance of work under U.S. government awards may be terminated whenever the sponsoring government agency shall determine that such termination is in the best interest of the U.S. government. Funding under all federal awards is subject to availability of funding as determined by the U.S. Congress. UCAR s management is unaware of any significant changes to the cooperative agreement or other federal grants in the upcoming year that will significantly impact UCAR s cash flows and its ability to pay current obligations as they become due. The consolidated financial statements of UCAR include the University Corporation for Atmospheric Research Foundation (Foundation) and the UCAR Child Care LLC where UCAR is the single member. UCAR Child Care LLC was formed for the purpose of overseeing UCAR s child care facility and its outside operator. In addition, the consolidated financial statements include an investment in Global Weather Corporation (GWC) (a wholesaler of precision weather information designed to meet the market need for personalized on-demand weather using NCAR s Research Applications Laboratory (RAL) DICast, LogiCast, and NowCast technologies) with the Foundation having 26.7% ownership (27.41% in 2015). GWC is accounted for under the equity method. During 2015, the Foundation s total stock ownership in Advanced Radar Corporation (formed to commercialize UCAR-developed technology related to weather radars) was converted to warrant purchase agreements; therefore, the Foundation had 0.00% ownership as of September 30, 2015 and The Foundation was incorporated by UCAR for the purpose of engaging in technology transfer and other scientific, educational, and charitable activities in support of UCAR s mission. UCAR s board of trustees approves the election of the members of the board of directors of the Foundation. The Foundation s revenue relates primarily to license fees and royalties from transferred technology. (b) Basis of Presentation The accompanying consolidated financial statements have been prepared on the accrual basis of accounting. 6 (Continued)

9 The net assets, revenue, gains, and other support in the accompanying consolidated financial statements are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of UCAR and changes therein are classified and reported as follows: (i) (ii) (iii) Unrestricted Net Assets Unrestricted net assets are net assets not subject to donor-imposed restrictions. Temporarily Restricted Net Assets Temporarily restricted net assets are those whose use by UCAR has been limited by donors for a specific purpose, which is generally related to scientific and education activities in atmospheric research. Permanently Restricted Net Assets Permanently restricted net assets are those whose use by UCAR has been restricted by donors to be maintained permanently but permits UCAR to spend the income derived for a specific purpose, which is generally related to scientific and educational activities in atmospheric research. (c) Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. (d) Cash and Cash Equivalents and Restricted Cash and Cash Equivalents UCAR considers cash as not only currency on hand but also demand deposits with banks or other financial institutions. Cash also includes other kinds of accounts that have the general characteristics of demand deposits in which UCAR may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. Cash and cash equivalents include highly liquid investments with a maturity of three months or less. Restricted cash and cash equivalents are restricted for investments in property related to bond requirements. (e) Investments Investments in equity, government, and other fixed-income securities are measured at fair value in the consolidated statements of financial position. Fair value of alternative investments is based on information provided by the various fund managers. The guaranteed investment contracts are not publicly traded and are recorded at cost. Investment income or loss (including realized and unrealized gains and losses, interest, and dividends) is included in the change in unrestricted net assets unless the income or loss is restricted by the donor or law. 7 (Continued)

10 (f) Receivables from Government Agencies Receivables from government agencies consist of amounts owed to UCAR from the federal government based on costs incurred but not yet reimbursed under federal grants or cooperative agreement. No allowance is established for these receivables, as they are considered fully collectible from the federal government. (g) Concentrations of Credit Risk UCAR s credit risk is primarily concentrated in receivables from the NSF and other U.S. government agencies. In the opinion of management, this concentration does not result in increased credit risk due to the nature of the receivables. (h) Property Property with title vested in UCAR is capitalized and recorded at cost if the acquisition cost is $5,000 or more. Donated property is recorded at estimated fair market value at the time of donation. Depreciation is provided using the straight-line method over the estimated useful lives of the property ranging from 3 to 40 years. Property with title vested in the federal government and other sponsors is not recorded in the consolidated statements of financial position (note 3). (i) Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value. For the years ended September 30, 2016 and 2015, management believes there has been no impairment of UCAR s long-lived assets. (j) Accrued Vacation Liability In accordance with Colorado State Statutes (Section , Definitions), UCAR is required to pay upon separation from employment all vacation and paid time off (PTO) leave earned in accordance with the terms of UCAR s leave policy. Vacation and PTO leave is 100% vested and accrues when earned based on the employee s length of service and/or job position. Earned leave is funded through an indirect cost rate application charged to scientific programs and scientific support facilities. UCAR has fully funded and recorded the accrued vacation and PTO liability in the accompanying consolidated financial statements. (k) Revenue and Expense Recognition Revenue from awards and contracts, considered to be exchange transactions, is recognized as revenue when expenses under the award or contract are incurred. Expenses charged to federal awards are subject to government agency audit and possible adjustment. In the opinion of management, such adjustments, if any, will not have a significant impact on the accompanying consolidated financial statements. 8 (Continued)

11 (l) Functional Expenses UCAR s program expenses include scientific program s expenses and scientific support facilities. Scientific programs encompass basic and applied research, education and training, technology transfer, and fostering research and operational partnerships within the geosciences community. Scientific support facilities provide a host of tools and platforms for observing, computing, data access and storage, and scientific visualization, including operation and maintenance of research aircraft, supercomputing, and data systems. Management and general expenses are all costs associated with the overall management of UCAR. (m) Donor-Restricted Contributions Unconditional promises to give cash and other assets are reported at fair value at the date the promise is received. The contributions are reported as either temporarily or permanently restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified as unrestricted net assets and reported in the consolidated statements of activities as net assets released from restrictions. In the absence of donor specification that income and gains on donated funds are restricted, such income and gains are reported as income from unrestricted net assets. (n) Tax Status UCAR and the Foundation are exempt from federal income taxes under Section 501(a) of the Internal Revenue Code (IRC) as organizations described in Section 501(c)(3). However, income generated from activities unrelated to the entities exempt purpose is subject to tax under Section 511 of the IRC. UCAR Child Care LLC is a single-member limited liability company of UCAR and passes any income or loss to UCAR. (o) Reclassifications Certain 2015 footnote presentation amounts have been reclassified to conform to the 2016 footnote presentation. These reclassifications had no impact on the consolidated financial statements as previously reported. (p) Recently Issued Accounting Standards Impacts In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) , Revenue from Contracts with Customers, which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity also should disclose sufficient quantitative and qualitative information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard is effective for UCAR for annual periods in fiscal years beginning after December 15, 2018 (as amended in August 2015 by ASU , Deferral of the Effective Date). UCAR will implement the provisions of ASU as of October 1, UCAR has not yet determined the effect of the new standard on its current policies for revenue recognition. 9 (Continued)

12 In April 2015, the FASB issued an accounting standards update that requires the presentation of debt issuance costs (deferred bond charges) in the statement of financial position to be presented as a deduction from the carrying amount of the related debt liability instead of a deferred charge. It is effective for annual reporting periods beginning after December 31, 2015, but early adoption is permitted. UCAR early adopted this standard at September 30, 2016 and applied provisions retrospectively. The adoption resulted in the reclassification of $1,025 unamortized deferred bond charges on the Consolidated Statements of Financial Position from Deferred Bond Charges to Bonds Payable at September 30, 2016 and the reclassification of $1,193 at September 30, In May 2015, the FASB issued ASU , Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU removes the requirement from U.S. GAAP to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. ASU is effective for UCAR for annual periods in fiscal years beginning after December 15, 2016 and requires retrospective adoption. UCAR will implement on October 1, In February 2016, the FASB issued ASU , Leases (Topic 842), which supersedes FASB Accounting Standards Codification (ASC) Topic 840, Leases, and makes other conforming amendments to U.S. GAAP. ASU requires, among other changes to the lease accounting guidance, lessees to recognize most leases on balance sheet via a right of use asset and lease liability, and additional qualitative and quantitative disclosures. ASU is effective for UCAR for annual periods in fiscal years beginning December 15, 2019, permits early adoption, and mandates a modified retrospective transition method. UCAR is required to adopt ASU on October 1, 2020, but is evaluating whether to early adopt the new standard. While UCAR expects ASU to add significant right-of-use assets and lease liabilities to the consolidated balance sheets, it is evaluating other effects that the new standard will have on the consolidated financial statements. In August 2016, the FASB issued ASU , Presentation of Financial Statements for Not-For-Profit Entities. ASU is effective for annual reporting periods beginning after December 31, 2017, but early adoption is permitted. The standard makes improvements to the information provided in financial statements and accompanying notes of not-for-profit entities. The amendments set forth the FASB s improvements to net asset classification requirements and the information presented about a not-for-profit entity s liquidity, financial performance, and cash flows. UCAR is currently evaluating the impact of the adoption of this standard will have on its consolidated financial statements. (q) Subsequent Events UCAR evaluated events subsequent to September 30, 2016 and through January 20, 2017, and there were no significant events subsequent to year-end. 10 (Continued)

13 (2) Investments Overall Investment Objective The overall investment objective of UCAR is to invest its assets in a prudent manner that will achieve the highest return on investments after inflation that can reasonably be expected given UCAR s practice of taking moderate investment risk according to the norms of not-for-profit organizations. UCAR diversifies its investments among various asset classes incorporating multiple strategies and managers. Major investment decisions are authorized by the Audit and Finance Committee of the UCAR Board, which oversees UCAR s investment program in accordance with established guidelines. Allocation of Investment Strategies In addition to traditional stocks and fixed-income securities, UCAR may also hold shares or units in alternative investment funds involving hedged strategies, private equity, and real asset strategies. Hedged strategies involve funds whose managers have the authority to invest in various asset classes at their discretion, including the ability to invest long and short. Funds with hedged strategies generally hold securities or other financial instruments for which a ready market exists and may include stocks, bonds, put or call options, swaps, currency hedges, and other instruments, and are valued accordingly. Private equity funds employ buyout and venture capital strategies and focus on investments in turnaround situations. Real asset funds generally hold interests in public real estate investment trusts (REITS) or commercial real estate through sole-member entities. Private equity and real asset strategies, therefore, often require the estimation of fair values by the fund managers in the absence of readily determinable market values. Because of the inherent uncertainties of valuation, these estimated fair values may differ significantly from values that would have been used had a ready market existed, and the differences could be material. Such valuations are determined by fund managers and generally consider variables such as operating results, comparable earnings multiples, projected cash flows, recent sales prices, and other pertinent information, and may reflect discounts for the illiquid nature of certain investments held. Moreover, the fair values of UCAR s interests in shares or units of these funds, because of liquidity and capital commitment terms that vary depending on the specific fund or partnership agreement, may differ from the fair value of the funds underlying net assets. Basis of Reporting Investments are reported at estimated fair value. If an investment is held directly by UCAR and an active market with quoted prices exists, the market price of an identical security is used as reported fair value. Reported fair values for shares in mutual funds are based on share prices reported by the funds as of the last business day of the fiscal year. UCAR s interests in alternative investment funds are generally reported at the net asset value (NAV) reported by the fund managers, which is used as a practical expedient to estimate the fair value of UCAR s interest therein, unless it is probable that all or a portion of the investment will be sold for an amount different from NAV. As of, UCAR had no plans or intentions to sell investments at amounts different from NAV. 11 (Continued)

14 UCAR s investments are pooled for investment management purposes. UCAR s remaining investments are unrestricted. Investments consist of the following as of September 30: Fair value Corporate investments $ 79,982 77,219 Total $ 79,982 77,219 Certificates of deposit $ 1,274 2,434 U.S. government securities 11,944 12,579 Equity securities 52,482 46,759 Other fixed-income securities 14,282 15,447 Total $ 79,982 77,219 UCAR s investment income for the years ended comprises the following: Fair value Interest and dividends, net $ 1,409 1,411 Net realized gains 3,511 3,867 Net unrealized gains (losses) 2,281 (5,175) Total $ 7, (Continued)

15 Investment returns are included in the consolidated statements of activities as follows for the years ended September 30: Investment return: Operating: Investment earnings utilized in operations $ 6 8 Nonoperating activities: Investment return, net of amounts used in operations 7, Changes in temporarily restricted net assets: Investment return 8 20 $ 7, ASC , Fair Value Measurement, establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC are as follows: Level 1 Level 2 Level 3 Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that UCAR has the ability to access at the measurement date. Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active. Inputs that are unobservable and supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes observable requires significant judgment by UCAR. UCAR considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to UCAR s perceived risk of that instrument. In determining the placement of an investment within the hierarchy, UCAR separates UCAR s investment portfolio into two categories: investments and derivative instruments. See note 11 for discussion on derivative instruments. 13 (Continued)

16 Investments whose values are based on quoted market prices in active markets and are, therefore, classified with Level 1 include equity securities, REITS, active listed mutual funds, and certain U.S. government obligations. Investments that trade in markets that are not considered to be active, but are valued based on quoted market prices, dealer quotations, or alternative pricing sources supported by observable inputs, are classified within Level 2. These include certain certificates of deposit and hedge equity funds. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect liquidity and/or nontransferability, which are generally based on available market information. Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently or not at all. Level 3 instruments include certain guaranteed investment contracts, private equity, real estate partnerships, and other fixed-income securities. Most investments classified in Levels 2 and 3 consist of shares or units in investment funds as opposed to direct investments in the funds underlying holdings, which may be marketable. Because the NAV reported by each fund is used as a practical expedient to estimate the fair value of the UCAR s interest therein, its classification in Level 2 or 3 is based on UCAR s ability to redeem its interest at or near the date of the consolidated statements of financial position. If the interest can be redeemed in the near term, the investment is classified in Level 2. The classification of investments in the fair value hierarchy is not necessarily an indication of the risks, liquidity, or degree of difficulty in estimating the fair value of each investment s underlying assets and liabilities. 14 (Continued)

17 The following tables represent the fair value of financial instruments carried on the consolidated statements of financial position and by level within the valuation hierarchy as of September 30, 2016 and 2015 (in thousands): September 30, 2016 Redemption Days Level 1 Level 2 Level 3 Total or liquidation notice Investment strategies: Fixed income: U.S. Treasuries and agencies $ 11,944 11,944 Daily One Corporate notes 4,076 4,076 Daily One Certificates of deposit 1,274 1,274 Maturity One Other fixed income 3,816 6,390 10,206 Daily/Quarterly One Total 19,836 7,664 27,500 Domestic equities: Equity index 11,312 11,312 Daily One Equity income 7,933 7,933 Daily One Large cap value 4,754 4,754 Daily One Small-mid cap 7,681 7,681 Daily One Investment in subsidiaries (equity method) Illiquid(1) N/A Total 31, ,966 Global (ex-u.s.) equities: Developed markets 10,205 10,205 Daily One Total 10,205 10,205 Hedged equity funds of funds: Multiple strategy hedge 1,133 1,133 Quarterly 90 Absolute return/multiple strategies 1,596 1,596 Quarterly 95 Multiple strategy commodity Quarterly 30 Total 3,702 3,702 Private equity and venture capital funds 1,749 1,749 Illiquid(1) N/A Total 1,749 1,749 Real assets: U.S. real estate investment trust 4,860 4,860 Daily One Total 4,860 4,860 Total investments $ 66,581 11,366 2,035 79,982 (1) Illiquid funds are expected to liquidate within 1 10 years. Unfunded future commitments aggregate $613,000 (note 8). 15 (Continued)

18 September 30, 2015 Redemption Days Level 1 Level 2 Level 3 Total or liquidation notice Investment strategies: Fixed income: U.S. Treasuries and agencies $ 12,579 12,579 Daily One Corporate notes 4,160 4,160 Daily One Certificates of deposit 2,434 2,434 Maturity One World government 1,108 1,108 Maturity One Other fixed income 2,419 5,978 1,788 10,185 Daily/Quarterly One Total 20,266 8,412 1,788 30,466 Domestic equities: Equity index 9,853 9,853 Daily One Equity income 6,813 6,813 Daily One Large cap value 4,252 4,252 Daily One Small-mid cap 6,892 6,892 Daily One Investment in subsidiaries (equity method) Illiquid(1) N/A Total 27, ,179 Global (ex-u.s.) equities: Developed markets 8,982 8,982 Daily One Total 8,982 8,982 Hedged equity funds of funds: Multiple strategy hedge 1,156 1,156 Quarterly 90 Absolute return/multiple strategies 1,606 1,606 Semiannual 95 Multiple strategy commodity Monthly 30 Total 3,741 3,741 Private equity and venture capital funds 1,764 1,764 Illiquid(1) N/A Total 1,764 1,764 Real assets: U.S. real estate investment trust 4,087 4,087 Daily One Total 4,087 4,087 Total investments $ 61,145 12,153 3,921 77,219 (1) Illiquid funds are expected to liquidate within 1 10 years. Unfunded future commitments aggregate $732,000 (note 8). 16 (Continued)

19 The following tables include a rollforward of the amounts for the years ended September 30, 2016 and 2015 for financial instruments classified within Level 3. The classification of a financial instrument within the Level 3 is based upon the significance of the unobservable inputs to the overall fair value measurement (in thousands): 2016 Guaranteed Other Limited investment fixed-income investment Description contracts securities partnerships Total Beginning balance at October 1, 2015 $ 1,788 2,133 3,921 Total gains, realized/unrealized (23) Purchases Sales, transfers (1,765) (257) (2,022) Ending balance at September 30, 2016 $ 2,035 2, Guaranteed Other Limited investment fixed-income investment Description contracts securities partnerships Total Beginning balance at October 1, 2014 $ 1,676 2,045 3,721 Total gains, realized/unrealized Purchases Sales, transfers (249) (249) Ending balance at September 30, 2015 $ 1,788 2,133 3,921 All unrealized gains in the tables above are reflected in the accompanying consolidated statements of activities for the years ended. No investment management or advisory fees were paid for the years ended September 30, 2016 and Private equity and venture capital investments are generally made through limited partnerships. Under the terms of such agreements, UCAR may be required to provide additional funding when capital or liquidity calls are made by fund managers. These partnerships have a limited existence, and they may provide for annual extensions for the purpose of disposing portfolio positions and returning capital to investors. However, depending on market conditions, the inability to execute the fund s strategy, or other factors, a manager may extend the terms of a fund beyond its originally anticipated existence or may wind the fund down prematurely. UCAR cannot anticipate such changes because they generally arise from unforeseeable events, but should they occur, they could reduce liquidity or originally anticipated investment returns. Accordingly, the timing and amount of future capital or liquidity calls in any particular future year are uncertain. 17 (Continued)

20 Investment liquidity as of September 30 is aggregated below based on redemption or sale period: Investment fair values Investment redemption or sale period: Daily $ 66,581 61,145 Monthly 979 Quarterly 10,092 10,528 Upon maturity or call 1,274 2,434 Illiquid 2,035 2,133 Total $ 79,982 77,219 (3) Property Property with title vested in UCAR, including property designated as to a particular purpose, is recorded in the consolidated financial statements. Property with title vested in the U.S. government and other sponsors is not recorded in the consolidated statements of financial position. Purchases of such property, totaling $6,254,000 and $6,674,000 in 2016 and 2015, respectively, are recorded as unrestricted expenses in the consolidated statements of activities. UCAR has the responsibility of maintaining property records and reporting balances to the respective sponsors. In the normal course of business, UCAR disposes of property in accordance with funding agency agreements. Government and other sponsor-owned property at cost consist of the following as of September 30: Real property: NSF titled $ 35,948 33,422 Total real property 35,948 33, (Continued)

21 Equipment: NSF titled $ 175, ,534 Other sponsors federal 8,301 7,427 Other sponsors nonfederal 2,203 1,810 Total equipment 185, ,771 Total $ 221, ,193 (4) Bonds Payable Bonds payable for the years ended, including unamortized premiums and discounts, are summarized in the following table: Series $ 16,203 17, Series B 3,621 4, Series A and B 12,386 13, Series A, B, and C 22,941 25,265 Subtotal 55,151 61,391 Less current portion 5,183 6,027 Long-term bonds payable $ 49,968 55,364 (a) 2010 Bonds UCAR borrowed $27,485,000 on May 20, 2010 through the issuance of the Colorado Educational and Cultural Facilities Authority Series 2010 (2010 Bonds) to refinance, pay, and cancel an outstanding term note and repay a draw on a line of credit, which financed the cost of acquiring a building, and land, and to refurbish, improve, and equip that building as well as other existing facilities of UCAR, and pay issuance costs. Additionally, proceeds were used to refund the Series 1996A Revenue Bonds and the Series 1999 Development Revenue Bonds. The maturity date of the 2010 Bonds is September 1, (Continued)

22 As of, the outstanding balance of the 2010 Bonds was $16,170,000 and $17,810,000, respectively. The bonds bear interest and mature serially as follows (in thousands): 3.13% maturing September 1, 2017 $ 1, % maturing September 1, , % maturing September 1, , % maturing September 1, , % maturing September 1, , % 4.75% thereafter 8,935 Total $ 16,170 The 2010 Bonds maturing on or after September 1, 2020 are subject to optional redemption on or after September 1, 2020, in whole or part on any date, at a redemption price equal to 100% of the principal amount plus any accrued interest. The 2010 Bonds maturing on September 1 in each of the years 2023, 2028, and 2035 are subject to mandatory sinking fund redemption at a redemption price of 100% of the principal amount redeemed plus interest accrued to the redemption date beginning September 1, 2023 and continuing through September 1, The 2010 Bonds are not collateralized. Certain costs incurred by UCAR in connection with the issuance of these bonds were deferred and are being amortized over the period that the 2010 Bonds are expected to be outstanding. (b) 2011 Bonds Series B On September 7, 2011, UCAR borrowed $8,325,000 from the issuance of the Colorado Educational and Cultural Facilities Authority Series 2011B (2011B Bonds) to establish an escrow fund to refund $7,780,000 of the Series 2002 Bonds (representing the 2013 through 2021 maturities) on September 1, 2012, pay semiannual interest of $194,000 on March 1, 2012 and September 1, 2012 and pay issuance costs. The 2011B Bonds maturity date is September 1, As of, the outstanding balance of the 2011B Bonds was $3,790,000 and $4,820,000, respectively. The bonds bear interest and mature serially as follows (in thousands): 2.51% maturing September 1, 2017 $ 1, % maturing September 1, % maturing September 1, % maturing September 1, % maturing September 1, Total $ 3, (Continued)

23 The 2011B Bonds maturing on or after September 1, 2016 are subject to optional redemption, at the option of UCAR, in whole or in part, and in part in such order of maturities as UCAR shall determine and by lot within a maturity, at a redemption price equal to the principal amount plus any accrued interest, if any, without redemption premium. The 2011B Bonds are not collateralized. Certain costs incurred by UCAR in connection with the issuance of these bonds were deferred and are being amortized over the period that the 2011B Bonds are expected to be outstanding. (c) 2012 Bonds Series A On May 10, 2012, UCAR borrowed $7,740,000 from the issuance of the Colorado Educational and Cultural Facilities Authority Series 2012A Convertible Capital Appreciation Revenue Refunding Bonds (2012A Bonds) to establish an escrow fund to refund $1,100,000 of the Series 2002 Bonds and pay interest of $175,000 on September 1, 2012, to refund $6,580,000 of the Series 2003 Bonds on September 1, 2013, and pay semiannual interest of $159,000 at September 1, 2012, March 1, 2013, and September 1, 2013, respectively, and pay issuance costs. The 2012A Bonds converted to a par value of $7,935,000 on March 1, The 2012A Bonds maturity date is September 1, As of, the outstanding balance of the 2012A Bonds was $6,760,000 and $7,935,000, respectively. The bonds bear interest and mature serially as follows (in thousands): 4.25% maturing September 1, 2017 $ 1,140 Maturing September 1, % maturing September 1, , % maturing September 1, , % maturing September 1, % 5.00% thereafter 2,485 Total $ 6,760 The 2012A Bonds are not collateralized. Certain costs incurred by UCAR in connection with the issuance of these bonds were deferred and are being amortized over the period that the 2012A Bonds are expected to be outstanding. (d) 2012 Bonds Series B On May 10, 2012, UCAR borrowed $5,565,000 from the issuance of the Colorado Educational and Cultural Facilities Authority Series 2012B Revenue Refunding Bonds (2012B Bonds) to establish an escrow fund to refund $5,890,000 of the Series 2002 Bonds (representing the 2022 to 2033 maturities) and pay issuance costs. On September 1, 2012, these funds were used to refund the 2002 Bonds on their call date. The 2012B Bonds maturity date is September 1, (Continued)

24 As of, the outstanding balance of the 2012B Bonds was $5,565,000. The bonds bear interest and mature serially as follows (in thousands): Maturing September 1, 2017 $ Maturing September 1, 2018 Maturing September 1, 2019 Maturing September 1, 2020 Maturing September 1, % 5.00% thereafter 5,565 Total $ 5,565 The 2012B Bonds maturing on or after September 1, 2023 are subject to optional redemption on or after September 1, 2022, in whole or part on any date, at a redemption price equal to 100% of the principal amount plus any accrued interest. The 2012B Bonds maturing on September 1 in each of the years 2027, 2030, and 2033 are subject to mandatory sinking fund redemption at a redemption price of 100% of the principal amount redeemed plus interest accrued to the redemption date. The 2012B Bonds are not collateralized. Certain costs incurred by UCAR in connection with the issuance of these bonds were deferred and are being amortized over the period that the 2012B Bonds are expected to be outstanding. (e) 2013 Bonds Series A On November 13, 2013, UCAR borrowed $9,200,000 from the issuance of the Colorado Educational and Cultural Facilities Authority Series 2013A Revenue Refunding Bonds (2013A Bonds) to establish an escrow fund to refund the remaining $9,030,000 of the Series 2003 Bonds and pay issuance costs. On December 4, 2013, these funds were used to refund the remaining 2003 Bonds in full. The 2013A Bonds maturity date is September 1, The 2013A Bonds are floating-rate bonds based upon an applicable spread plus 68% of USD one-month LIBOR BBA. UCAR entered into a five-year Continuing Covenant Agreement (CCA) with PNC Bank to purchase the bonds. The CCA s initial period terminates on September 1, The CCA contains several covenants, including compliance with a debt service coverage ratio, a liquidity requirement, limitations on additional indebtedness, and other provisions. In connection with this transaction, UCAR entered into a swap agreement with PNC bank to fix the interest rate on the 2013A Bonds through September 1, 2035 (note 11). The floating-rate paid under the 2013A Bonds is offset by the floating-rate received from the swap counterparty under the swap terms. Interest on the 2013A Bonds is payable monthly. 22 (Continued)

25 As of, the outstanding balance of the 2013A Bonds was $7,675,000 and $8,125,000, respectively. The bonds bear interest and mature serially as follows (in thousands): Variable rate maturing September 1, 2017 $ 450 Variable rate maturing September 1, Variable rate maturing September 1, Variable rate maturing September 1, Variable rate maturing September 1, Variable rate thereafter 5,425 Total $ 7,675 The 2013A Bonds are not collateralized. Certain costs incurred by UCAR in connection with the issuance of these bonds were deferred and are being amortized over the period that the 2013A Bonds are expected to be outstanding. (f) 2013 Bonds Series B On November 13, 2013, UCAR borrowed $18,975,000 from the issuance of the Colorado Educational and Cultural Facilities Authority Series 2013B Revenue Refunding Bonds (2013B Bonds) to refund the $18,975,000 of the Series 2011A1 Bonds. The 2013B Bonds maturity date is September 1, The 2013B Bonds are floating-rate bonds based upon an applicable spread plus 68% of USD one-month LIBOR BBA. UCAR entered into a five-year CCA with PNC Bank to purchase the bonds. The CCA s initial period terminates on September 1, The CCA also contains several covenants, including compliance with a debt service coverage ratio, a liquidity requirement, limitations on additional indebtedness, and other provisions. In connection with this transaction, UCAR entered into an amended swap agreement with Deutsche Bank to fix the interest rate on the 2013B Bonds through September 1, 2032 (note 11). The floating rate paid under the 2013B Bonds is offset by the floating rate received from the swap counterparty under the swap terms. Interest on the 2013B Bonds is payable monthly. As of, the outstanding balance of the 2013B Bonds was $15,350,000 and $16,550,000, respectively. The bonds bear interest and mature serially as follows (in thousands): Variable rate maturing September 1, 2017 $ 1,275 Variable rate maturing September 1, ,225 Variable rate maturing September 1, ,300 Variable rate maturing September 1, ,300 Variable rate maturing September 1, ,275 Variable rate thereafter 8,975 Total $ 15, (Continued)

26 The 2013B Bonds are not collateralized. Certain issuance costs related to these bonds are being amortized over the period the 2013B Bonds are expected to be outstanding. (g) 2013 Bonds Series C On November 13, 2013, UCAR borrowed $583,000 from the issuance of the Colorado Educational and Cultural Facilities Authority Series 2013C Revenue Bonds (2013C Bonds) to provide project funds to purchase equipment and pay issuance costs. Additional funds of $770,000 were drawn during fiscal year 2014 under the drawdown bonds facility of $3,800,000, leaving $2,447,000 of available funds to be drawn as needed for UCAR projects through September 1, UCAR also paid principal of $460,000 under this bond on September 1, The maturity date for the 2013C Bonds is September 1, The 2013C Bonds are floating-rate bonds based upon an applicable spread plus 68% of USD one-month LIBOR BBA. UCAR entered into a five-year CCA with PNC Bank to purchase the bonds. The CCA s initial period terminates on September 1, The CCA also contains several covenants, including compliance with a debt service coverage ratio, a liquidity requirement, limitations on additional indebtedness, and other provisions. Interest on the 2013C Bonds is payable monthly. As of, the outstanding balance of the 2013C Bonds was $71,000 and $771,000, respectively. The bonds bear interest and mature serially as follows (in thousands): Variable rate maturing September 1, 2017 $ 71 Total $ 71 The 2013C Bonds are not collateralized. Certain costs incurred by UCAR in connection with the issuance of these bonds were deferred and are being amortized over the period that the 2013C Bonds are expected to be outstanding. (h) Arbitrage Liability The IRC, as amended, requires that cumulative income earned from investing tax-exempt bond proceeds in excess of the related bond interest expense (arbitrage) be rebated to the federal government, generally every five years or upon repayment of the underlying bonds. As of, UCAR has no liability for cumulative arbitrage. 24 (Continued)