UNIVERSITY CORPORATION FOR ATMOSPHERIC RESEARCH

Transcription

1 Consolidated Financial Statements and Reports in Accordance with the Requirements of OMB Circular A-133 (With Independent Auditors Report Thereon)

2 Table of Contents Independent Auditors Report 1 Consolidated Financial Statements: Consolidated Statements of Financial Position 3 Consolidated Statements of Activities 4 Consolidated Statements of Cash Flows 5 6 Reports Required by OMB Circular A-133 Schedule of Expenditures of Federal Awards 36 Notes to Schedule of Expenditures of Federal Awards 42 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 43 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 OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations 45 Schedule of Findings and Questioned Costs 47 Page

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. KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

4 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 21, 2015 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 21,

5 Consolidated Statements of Financial Position Assets Current assets: Cash and cash equivalents (note 4(l)) $ 36,457 18,948 Investments (notes 2, 4(l), and 10) 1,031 4,885 Receivables: Government agencies 11,450 11,640 Other (net of allowance for doubtful accounts of $30 at 2014 and 2013) 3,769 3,317 Other current assets 636 3,224 Total current assets 53,343 42,014 Property (note 3): Land and improvements 9,182 9,185 Buildings 163, ,055 Building construction in process Equipment 37,032 35,796 Total 209, ,192 Less accumulated depreciation on buildings and equipment (86,595) (78,299) Property, net 123, ,893 Other noncurrent assets: Long-term notes receivable 1,120 Restricted cash and cash equivalents (note 4(l)) 900 1,924 Investments (notes 2 and 10) 76,471 71,753 Deferred bond charges 1,194 1,636 Total other noncurrent assets 78,565 76,433 Total assets $ 255, ,340 Liabilities and Net Assets Current liabilities: Accounts payable $ 6,202 6,457 Accrued vacation liability 12,189 12,591 Other accrued liabilities (note 11) 9,873 9,515 Deferred revenue 17,222 10,092 Current portion of bonds payable (notes 4 and 10) 5,370 5,660 Current portion of other obligations (notes 5 and 8) Total current liabilities 51,295 44,403 Noncurrent liabilities: Bonds payable (notes 4 and 10) 62,252 66,202 Accrued postretirement benefit obligation (note 7) 7,098 6,687 Other obligations (notes 5 and 8) Total noncurrent liabilities 70,111 73,387 Net assets: Unrestricted 132, ,252 Temporarily restricted 1, Permanently restricted (note 12) Total net assets 133, ,550 Total liabilities and net assets $ 255, ,340 See accompanying notes to consolidated financial statements. 3

6 Consolidated Statements of Activities Years ended Changes in unrestricted net assets: Revenues, gains, and other support: National Science Foundation Cooperative Agreement: National Science Foundation $ 94, ,536 Other federal government 18,447 21,258 Other federal government 79,289 77,740 Other nongovernment 15,221 12,670 Donated property Proceeds from sale of assets 581 Investment income (note 2) 7,108 7,593 Total revenues and gains 214, ,398 Net assets released from restrictions Total revenues, gains, and other support 214, ,638 Expenses and losses: Scientific programs and support facilities 186, ,574 Management and general expenses 22,928 23,675 Total expenses (note 9) 209, ,249 Loss on bond redemption (notes 4(b) and 4(c)) Loss on disposal of property (net of proceeds from sale of assets) Unrealized loss (gain) from derivative obligations (note 11) 110 (1,334) Total expenses and losses 209, ,472 Postretirement benefit-related changes other than net periodic costs (note 7) 2,042 1,032 Increase in unrestricted net assets 3,037 8,134 Changes in temporarily restricted net assets: Other nongovernment revenue Investment income (loss) (note 2) 25 (19) Net assets released from restrictions (202) (240) Increase in temporarily restricted net assets Changes in permanently restricted net assets: Contributions 1 Net assets released from restrictions (213) (Decrease) increase in permanently restricted net assets (213) 1 Change in net assets 3,086 8,405 Net assets, beginning of year 130, ,145 Net assets, end of year $ 133, ,550 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 $ 3,086 8,405 Adjustments to reconcile change in net assets to net cash provided by operating activities: Net realized and unrealized gains on investments (5,983) (6,203) Donated property (85) (20) Depreciation and amortization 10,544 10,947 Investment premium amortization 214 Loss on disposal of property Net accretion of bonds payable premiums (213) (290) Deferred bond charges Changes in operating assets and liabilities: Receivables ,335 Other current assets 2, Accounts payable (255) (29,776) Accrued liabilities (44) (1,561) Deferred revenue 7, Accrued postretirement benefit obligation 411 (595) Net cash provided by operating activities 18,303 16,246 Cash flows from investing activities: Purchase of property and equipment (3,523) (5,390) Purchase of investments (14,353) (13,871) Proceeds from sale of investments 19,471 21,716 Proceeds from sale of assets 581 Change in cash and cash equivalents for investment in property and restricted funds 1,024 2,745 Net cash provided by investing activities 2,619 5,781 Cash flows from financing activities: Proceeds from issuance of bonds payable 29, Payments of bonds payable (33,555) (12,430) Payments of other obligations (88) (763) Issuance of other obligations Net cash used in financing activities (3,413) (12,458) Increase in cash and cash equivalents 17,509 9,569 Cash and cash equivalents, beginning of year 18,948 9,379 Cash and cash equivalents, end of year $ 36,457 18,948 Supplemental cash flow information: Interest paid $ 2,888 3,521 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. During 2013, UCAR was operating under a cooperative agreement that began on October 1, 2008, with an expiration date of September 30, This cooperative agreement was extended with a new expiration date of September 30, 2018, and during 2014, UCAR was operating under this newly extended cooperative agreement. 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. In addition, the consolidated financial statements include an investment in Global Weather Corporation (GWC) with the Foundation having 27.41% ownership (31.00% in 2013) and GWC is accounted for under the equity method. In 2013, the Foundation had an investment in Advanced Radar Corporation (ARC) with the Foundation having 4.62% ownership and ARC was accounted for at cost in During 2014, the Foundation s total stock ownership was converted to warrant purchase agreements, therefore, the Foundation had 0.00% ownership as of September 30, 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 revenues relate primarily to license fees and royalties from transferred technology. UCAR Child Care LLC was formed for the purpose of overseeing UCAR s child care facility and its outside operator. GWC is 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. ARC was formed to commercialize UCAR-developed technology related to weather radars. 6 (Continued)

9 (b) Basis of Presentation The accompanying consolidated financial statements have been prepared on the accrual basis of accounting. The net assets, revenues, 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: 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) (d) (e) 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents and Restricted Cash and Cash Equivalents UCAR considers cash as not only currency on hand but 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. 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) (g) (h) 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. 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. 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) (j) (k) 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, 2014 and 2013, management believes there has been no impairment of UCAR s long-lived assets. Deferred Bond Charges Certain costs incurred by UCAR in connection with the issuance of bonds are deferred and are amortized using the straight-line method, over the period that the related bonds are expected to be outstanding. 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. 8 (Continued)

11 (l) (m) (n) (o) Revenue and Expense Recognition Revenues from awards and contracts, considered to be exchange transactions, are recognized as revenues 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. 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. 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. 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. (p) American Recovery and Reinvestment Act of 2009 On February 19, 2009, the American Recovery and Reinvestment Act of 2009 (ARRA) was signed into law. ARRA is a $787 billion economic package designed to stimulate the national economy out of a continued recession. As of September 30, 2014, funding totaling $21,989,000 has been awarded to UCAR for scientific research with approximately $791,000 remaining funding to be spent on projects through the fourth quarter of fiscal year (q) Reclassifications Certain 2013 amounts have been reclassified to conform to the 2014 financial statement presentation. 9 (Continued)

12 (r) Subsequent Events UCAR evaluated events subsequent to September 30, 2014 and through January 21, 2015, and there were no significant events subsequent to year end. (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 turn-around 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. 10 (Continued)

13 UCAR s investments are pooled for investment management purposes. Bond trustee held investments are restricted for the acquisition or construction of noncurrent assets or for the liquidation of long-term bonds payable and are classified as either current or noncurrent investments (note 4(l)). UCAR s remaining investments are unrestricted. Investments consist of the following as of September 30: Fair value Corporate investments $ 77,254 76,638 Bond trustee held investments (note 4(l)) 248 Total $ 77,502 76,638 Certificates of deposit $ 2,357 3,557 U.S. government securities 13,541 20,969 Equity securities 47,004 41,796 Guaranteed investment contracts 3,150 Other fixed income securities 14,600 7,166 Total $ 77,502 76,638 UCAR s investment income for the years ended comprises the following: Fair value Interest and dividends, net $ 1,150 1,371 Net realized gains 1,867 2,848 Net unrealized gains 4,116 3,355 Total $ 7,133 7,574 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 $ Nonoperating activities: Investment return, net of amounts used in operations 7,066 7,553 Changes in temporarily restricted net assets: Investment return 25 (19) $ 7,133 7, (Continued)

14 Accounting Standards Codification (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. Investments whose values are based on quoted market prices in active markets and are, therefore, classified with Level 1 include equity securities, real estate investment trusts, 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 12 (Continued)

15 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. 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 (in thousands): September 30, 2014 Redemption Days Level 1 Level 2 Level 3 Total or liquidation notice Long-term investment strategies: Fixed income: U.S. Treasuries and agencies $ 13,541 13,541 Daily One U.S. Treasury inflationprotected Daily One Corporate notes 4,226 4,226 Daily One Certificates of deposit 2,109 2,109 Maturity One World government 1,074 1,074 Maturity One Other fixed income 2,397 6,903 9,300 Daily/Quarterly One Total 21,238 2,109 6,903 30,250 Domestic equities: Equity index 9,903 9,903 Daily One Equity income 7,335 7,335 Daily One Large cap value 4,389 4,389 Daily One Small-mid cap 6,979 6,979 Daily One Investment in subsidiaries (equity method) Illiquid(1) N/A Total 28, ,093 Global (ex-u.s.) equities: Developed markets 8,574 8,574 Daily One Total 8,574 8,574 Hedged equity funds of funds: Multiple strategy hedge 1,131 1,131 Quarterly 90 Absolute return/multiple strategies 1,625 1,625 Semiannual 95 Multiple strategy commodity 1,326 1,326 Monthly 30 Total 4,082 4,082 Private equity and venture capital funds 1,557 1,557 Illiquid(1) N/A Total 1,557 1, (Continued)

16 September 30, 2014 Redemption Days Level 1 Level 2 Level 3 Total or liquidation notice Real assets: U.S. real estate investment trust $ 3, ,698 Daily/Illiquid One Total 3, ,698 Total long-term investments 62,115 6,191 8,948 77,254 Bond trustee held investments: Certificates of Deposit Maturity One Total long-term and bond trustee held investments $ 62,115 6,439 8,948 77,502 (1) Illiquid funds are expected to liquidate within 1 10 years. Unfunded future commitments aggregate $932,000 (note 8). September 30, 2013 Redemption Days Level 1 Level 2 Level 3 Total or liquidation notice Long-term investment strategies: Fixed income: U.S. Treasuries and agencies $ 17,996 17,996 Daily One U.S. Treasury inflationprotected 2,973 2,973 Daily One Corporate notes 1,208 1,208 Daily One Certificates of deposit 3,557 3,557 Maturity One Guaranteed investment contract 3,150 3,150 12/1/13 N/A Other fixed income 1,915 4,043 5,958 Daily/Quarterly One Total 24,092 3,557 7,193 34,842 Domestic equities: Equity index 8,504 8,504 Daily One Equity income 6,331 6,331 Daily One Large cap value 3,774 3,774 Daily One Small-mid cap 6,695 6,695 Daily One Investment in subsidiaries (equity method) Illiquid(1) N/A Total 25, ,501 Global (ex-u.s.) equities: Developed markets 7,841 7,841 Daily One Total 7,841 7, (Continued)

17 September 30, 2013 Redemption Days Level 1 Level 2 Level 3 Total or liquidation notice Hedged equity funds of funds: Multiple strategy hedge $ 1,610 1,610 Quarterly 90 Absolute return/multiple strategies 1,575 1,575 Semiannual 95 Multiple strategy commodity 1,416 1,416 Monthly 30 Total 4,601 4,601 Private equity and venture capital funds 1,276 1,276 Illiquid(1) N/A Total 1,276 1,276 Real assets: U.S. real estate investment trust 2, ,577 Daily/Illiquid One Total 2, ,577 Total long-term investments 59,808 8,158 8,672 76,638 Bond trustee held investments: Corporate notes Total long-term and bond trustee held investments $ 59,808 8,158 8,672 76,638 (1) Illiquid funds are expected to liquidate within 1 10 years. Unfunded future commitments aggregate $1,209,000 (note 8). The following tables include a rollforward of the amounts for the years ended September 30, 2014 and 2013 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): 2014 Guaranteed Other Limited investment fixed income investment Description contracts securities partnerships Total Beginning balance at October 1, 2013 $ 3,150 4,043 1,479 8,672 Total gains, realized/unrealized 1, ,901 Purchases 2, ,768 Sales, transfers (3,150) (1,000) (243) (4,393) Ending balance at September 30, 2014 $ 6,903 2,045 8, (Continued)

18 2013 Guaranteed Other Limited investment fixed income investment Description contracts securities partnerships Total Beginning balance at October 1, 2012 $ 3,150 2,257 1,411 6,818 Total gains, realized/unrealized Purchases 2, ,284 Sales, transfers (1,000) (368) (1,368) Ending balance at September 30, 2013 $ 3,150 4,043 1,479 8,672 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. 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. Investment liquidity as of September 30 is aggregated below based on redemption or sale period: Investment fair values Investment redemption or sale period: Daily $ 61,041 59,808 Monthly 1,326 1,416 Quarterly 8,034 5,653 Upon maturity or call 3,431 6,707 Semiannually 1,625 1,575 Illiquid 2,045 1,479 Total $ 77,502 76, (Continued)

19 (3) Property Property with title vested in UCAR, including property designated as to a particular purpose, is recorded in the consolidated financial statements. The NCAR-Wyoming Supercomputing Center (NWSC) facility was placed in service in October 2011 and title to the NWSC facility vests in UCAR. The NWSC project was undertaken through a collaboration involving UCAR, NSF, the University of Wyoming, the State of Wyoming through the Wyoming Business Council and Cheyenne-LEADS. As of September 30, 2014, the State of Wyoming through the Wyoming Business Council and the University of Wyoming awarded funding totaling $20,000,000 and NSF awarded funding totaling $52,700,000 for the NWSC project. The associated expenditures incurred related to this funding are reflected as other nongovernment and NSF revenue, respectively, in the September 30, 2013 consolidated statements of activities. No significant associated expenditures were incurred during 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 $6,614,000 and $5,307,000 in 2014 and 2013, 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 $ 33,422 33,376 Total real property 33,422 33,376 Equipment: NSF titled 173, ,207 Other sponsors federal 2,665 1,108 Other sponsors nonfederal 1,198 1,052 Total equipment 177, ,367 Total $ 210, , (Continued)

20 (4) Bonds Payable Bonds payable for the years ended, including unamortized premiums and discounts, are summarized in the following table: Series $ 8, Series 20,033 22, Series A1, A2, and B 5,870 25, Series A and B 14,401 14, Series A, B, and C 27,318 Subtotal 67,622 71,862 Less current portion 5,370 5,660 Long-term bonds payable $ 62,252 66,202 (a) 2003 Bonds UCAR borrowed $25,000,000 on December 4, 2003 through the issuance of County of Boulder, Colorado Development Revenue Bonds, Series 2003 (2003 Bonds) to construct and equip a new research laboratory and office building, and to refurbish, improve, and equip other existing facilities of UCAR, and pay issuance costs. The maturity date of the 2003 Bonds was September 1, The 2003 Bonds maturing on or after September 1, 2014 were subject to optional redemption on or after September 1, 2013, in whole or part on any date, at a redemption price equal to 100% of the principal amount plus any accrued interest. On May 10, 2012, UCAR used proceeds from the issuance of the Colorado Educational and Cultural Facilities Authority Series 2012A Bonds (2012A Bonds), to establish an escrow fund to refund $6,580,000 of the Series 2003 Bonds and pay interest of $159,000 on September 1, 2012, March 1, 2013, and September 1, 2013 and pay issuance costs. On September 1, 2013, these funds were used to partially refund the 2003 Bonds on their call date. Write-off of the associated deferred bond charges related to the 2003 Bonds totaling $249,000 has been recorded in the consolidated statement of activities for the year ended September 30, The maturity date on the 2012 Bonds is September 1, On November 13, 2013, UCAR used proceeds from the issuance of the Colorado Educational and Cultural Facilities Authority Series 2013A 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, 2014, these funds were used to refund the remaining 2003 Bonds. Write-off of the associated deferred bond charges related to the 2003 Bonds totaling $320,000 has been recorded in the consolidated statement of activities for the year ended September 30, The maturity date on the 2013A Bonds is September 1, As of, the outstanding balance of the 2003 Bonds was $0 and $9,030,000, respectively. 18 (Continued)

21 (b) 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, As of, the outstanding balance of the 2010 Bonds was $19,730,000 and $21,930,000, respectively. The bonds bear interest and mature serially as follows (in thousands): 3.00% maturing September 1, 2015 $ 1, % maturing September 1, , % maturing September 1, , % maturing September 1, , % maturing September 1, , % 5.00% thereafter 11,775 Total $ 19,730 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. (c) 2011 Bonds Series A1 UCAR borrowed $21,325,000 on August 16, 2011 through the issuance of the Colorado Educational and Cultural Facilities Authority Series 2011A1 (2011A1 Bonds) to refund the 2001 Bond Series, fund capital improvements, and pay issuance costs. The 2011A1 Bonds were floating-rate bonds based upon an applicable spread plus 68% of USD one-month LIBOR BBA. UCAR entered into a three-year Continuing Covenant Agreement (CCA) with JPMorgan Chase Bank to purchase the bonds. The CCA s initial period terminates on August 16, The CCA also contains several covenants, including compliance of a debt service coverage ratio, limitations on additional indebtedness, and other provisions. In connection with this transaction, UCAR entered into a swap agreement with Deutsche Bank to fix the interest rate on the 2011A1 Bond through September 1, 2021 (note 11). The floating-rate paid under the 2011A1 Bonds is offset by the floating-rate received from the swap counterparty under the swap terms. Interest on the 2011A1 Bonds is payable monthly. 19 (Continued)

22 On November 13, 2013, UCAR used proceeds from the issuance of the Colorado Educational and Cultural Facilities Authority Series 2013B Bonds (2013B Bonds), to refund the remaining $18,975,000 of the Series 2011A1 Bonds. Write-off of the associated deferred bond charges related to the 2011A1 Bonds totaling $102,000 has been recorded in the consolidated statement of activities for the year ended September 30, The maturity date on the 2013B Bonds is September 1, The swap agreement with Deutsche Bank was also amended. See note 4(i) for 2013B Bonds. As of, the outstanding balance of the 2011A1 Bonds was $0 and $18,975,000, respectively. (d) 2011 Bonds Series A2 UCAR borrowed $50,001 on August 16, 2011 through the issuance of the Colorado Educational and Cultural Facilities Authority Series 2011A2 (2011A2 Bonds) to provide project funds to refurbish buildings and to purchase equipment and pay issuance costs. Additional drawdown bonds of $3,749,999 were available under the borrowing to be drawn as needed for UCAR projects through September 1, The 2011A2 Bonds maturity date was September 1, The 2011A2 Bonds were not collateralized. The 2011A2 Bonds were governed by the same CCA terms described in note 4(e). On November 1, 2013, UCAR paid off the $50,001 balance of the 2011A2 Bonds. See also note 4(j) for 2013C Bonds. As of, the outstanding balance of the 2011A2 Bonds was $0 and $50,001, respectively. (e) 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 semi-annual 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 $5,870,000 and $6,960,000, respectively. The bonds bear interest and mature serially as follows (in thousands): 2.51% maturing September 1, 2015 $ 1, % maturing September 1, , % maturing September 1, , % maturing September 1, % maturing September 1, % thereafter 1,285 Total $ 5, (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. (f) 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 maturity date is September 1, As of, the outstanding balance of the 2012A Bonds was $7,935,000. The bonds bear interest and mature serially as follows (in thousands): Maturing September 1, 2015 $ 4.00% maturing September 1, , % maturing September 1, ,140 Maturing September 1, % maturing September 1, , % 5.00% thereafter 4,485 Total $ 7,935 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. (g) 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, 2015 $ Maturing September 1, 2016 Maturing September 1, 2017 Maturing September 1, 2018 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. (h) 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)