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Mcclellan Nuclear Research Center Financial Qualification Report University of California Davis
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1 MCCLELLAN NUCLEAR RESEARCH CENTER FINANCIAL QUALIFICATION REPORT UNIVERSITY OF CALIFORNIA DAVIS LICENSE No. R-130 DOCKET No. 50-607 June 6th 2018

2 Contents

1. Introduction..................................................................................................................................... 3

2. Annual Funding and Operating Expenditures.................................................................................. 3

3. Decommissioning Report................................................................................................................. 4 3.1. Decommissioning Cost Estimate...................................................................................... 4 3.1.1. UCD/MNRC Decommissioning Cost as based on 2015 Dade Moeller Study................. 4 3.1.2. Comparison with Recent Representative Decommissioning Projects............................4 3.1.3. Discussion of Costs........................................................................................................ 5 3.1.4. 2018 UCD/MNRC Reactor Decommissioning Estimate:................................................ 6 3.2. Funding Method............................................................................................................................7 3.3. Adjustment of Decommissioning Cost Estimate............................................................................7

4. References........................................................................................................................................ 8 University of California Annual Financial Report 2017 Statement of Intent (SOI) Regarding Decommissioning Funding for the UC Davis McClellan Nuclear Research Center and 2.0 MW TRIGA Reactor Delegations of Authority

3

1. INTRODUCTION This Financial Qualifications Report is submitted pursuant to the requirements of 10 CFR 50.33, 10CFR 50.71, and 10 CFR 50.75. Pursuant to 10 CFR 50.33(f)(2), none of the provisions of 10 CFR 50.33(d) apply.

The applicant is a government institution of the State of California. Pursuant to 10 CFR50.71(b), a copy of the most recent financial statement for University of California Davis is appended to this report.

Please reference Attachment 1, University of California Davis Annual Financial Report 2017.

2. ANNUAL FUNDING AND OPERATING EXPENDITURES Pursuant to 10 CFR 50.33(f)(2), the estimated annual funding (Sources) and expenditures (Uses) for the first 5-year period after the projected license renewal are given in Table 1. As indicated below, the projected annual sources and uses levels are equal.

Table 1-McClellan Nuclear Research Center Projected Annual Sources and Uses 1 SOURCES & USES OF FUNDS 2018-19 2019-20 2020-21 2021-22 2022-23 Percent Change Sources Indirect Cost Recovery 30,000 35,000 3,000 3,000 3,000 0.0%

Contracts & Grants 250,000 250,000 n/a Self Supporting Activities - Income & Recharges 410,000 420,000 430,000 440,000 450,000 2.3%

University Augmented Resources:

Gifts & Endowment 776,000 800,000 824,000 849,000 874,500 3.0%

Other Fund Types 170,000 173,000 170,000 170,000 170,000 0.0%

Total Sources 1,636,000 1,678,000 1,427,000 1,462,000 1,497,500 2.4%

Uses Personnel 986,000 1,016,000 1,047,000 1,079,000 1,111,500 3.0%

Operating and F&A Cost 400,000 412,000 380,000 383,000 386,000 0.8%

Contracts & Grants 250,000 250,000 n/a Total Sources of Funds 1,636,000 1,678,000 1,427,000 1,462,000 1,497,500 2.4%

1 Personnel budget estimate includes salaries and wages for all facility administrative, reactor operators and research staff, and graduate students.

Bases and Assumptions:

A. Budget figures above represent fiscal year projections (July 1st thru June 30th) over a 5-year period with projected increases estimated at 2.4% annual rate of inflation.

B. Funding and expenditures for research development and experimental capabilities has been included in these budget estimates.

4

3. DECOMMISSIONING REPORT Pursuant to 10 CFR 50.33(k) and 10 CFR 50.75(d), the following is a decommissioning report containing the following:

1) Cost estimate for facility decommissioning.

2) Indication of method used to provide funding assurance for decommissioning.

3) A means of periodically adjusting the cost estimate and associated funding level over the life of the facility.

3.1. Decommissioning Cost Estimate 3.1.1. UCD/MNRC Decommissioning Cost based on 2015 Dade Moeller Study A study was conducted in 2015 for the University of California Davis by Dade Moeller and Associates.

This study largely derived its cost estimate based on modifying individual line item costs of the University of Illinois Urbana-Champlain (UIUC) TRIGA reactor decommissioning. This was done as the UIUC reactor was one of the most recent TRIGA reactors of comparable maximum power rating to the UCD/MNRC reactor.

3.1.2. Comparison with Recent Representative Decommissioning Projects Per NUREG 1537 Part 1 Guideline for Preparing and Reviewing Applications for the Licensing if Non-Power Reactors - Format and Content Section 15.3[3], as an additional basis for estimating the decommissioning costs of the UCD/MNRC Reactor, actual recent decommissioning costs from two representative reactor facilities are considered:

1) The Ford Reactor at the University of Michigan, decommissioning completed in 2015, at an actual cost of $14.4 million. The 2 MW reactor structure and associated experimental facilities were decommissioned and removed, but the reactor building remained in place. The bulk of the deconstruction activity and low level radioactive waste shipments occurred in 2007.

2) The PULSTAR Reactor Facility at SUNY Buffalo, decommissioning completed in 2015, at an actual cost of $14.1 million. The entire reactor facility, including the 2 MW reactor structure, containment building, and associated administrative building was decommissioned and removed. The bulk of the deconstruction activity and low level radioactive waste shipments occurred in 2014.

The two reactors referenced resided in states that were not members of a radioactive waste compact at the time the facilities were decommissioned. The low level radioactive waste from the deconstruction and decommissioning of these facilities was shipped to the LLW disposal facility in Clive, Utah. This would also be the case for the UCD/MNRC reactor, as the State of California is also not currently part of

5 a waste compact. Applying the methodology of NUREG-1307[2] and using the known costs of the two representative reactor facility decommissioning efforts as bases, cost estimates for decommissioning these facilities in 2018 dollars are given in Table 2 below.

Table 2 - Estimated 2018 Decommissioning costs for two representative research reactors Reactor Facility Primary Year of Deconstruction Total Actual Cost Labor Adjusted LX Energy Adjusted EX Waste Burial Adjusted RX Estimated 2016 Decommissioning Cost1 Corrected 2018 Decommissioning Cost2 Ford Reactor 2007

$14.4 M 1.192 0.796 1.317

$16,800,000

$17,460,000 Buffalo PULSTAR 2014

$14.1 M 1.047 0.892 1.011

$14,400,000

$14,970,000 1: The estimated decommissioning cost is corrected from the primary year of deconstruction to 2016 based on the formulas of NUREG-1307 Section 3[1] and applying the labor, energy, and waste burial correction factors as given.

2: The Corrected 2017 Decommissioning Cost is calculated by applying an Organization for Economic Cooperation and Development (OECD) projected 2017 U.S. inflation factor of 1.9% and projected 2018 U.S. inflation factor 2.0%[4].

3.1.3. Discussion of Costs Out of the two cases studied, the decommissioning of the Ford Reactor is considered the most representative relative to the MNRC reactor (even though it was not a TRIGA reactor) based on the following factors. It is important to note, the MNRC is a highly specialized facility that has no direct analog among other research reactors.

1) The MNRC staff adjusted the original cost estimate of the Dade Moeller study to increase the direct costs associated with decommissioning the MNRC reactor and reactor building to what the they felt was more appropriate. This was done for several reasons. The Dade Moeller study based decommissioning estimates by scaling up the costs of decommissioning of the UIUC TRIGA reactor. While the core of the MNRC is similar to the UIUC reactor, the rest of the facility is substantially more complex than the UIUC reactor facility. The increased contingency factor places MNRC decommissioning cost estimates more in line with the Ford Reactor actual decommissioning costs. It is believed, this is the most appropriate recent comparison because the Ford reactor was a highly utilized 2 MW reactor with associated facilities more complex than typical pedestal style TRIGA reactors (like at UIUC). A 25% contingency is included per the requirement.

2) The Ford reactor facility and the MNRC facility contain a large number of complex radioactive beamlines embedded in concrete. These embedded items require a large amount of resources to remove.

3) Much of the cost overrun at the Ford Reactor was a result of unanticipated radioactive contamination (from primary water) in the soil under the reactor. It is thought that no primary water from the MNRC reactor has leaked into the soil under the MNRC reactor.

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4) Decommissioning of the MNRC will likely require the removal of more radioactive concrete than the Ford reactor (10,500 cubic feet). This additional cost is difficult to quantify as the extent of slightly activated concrete in the MNRCs massive neutron radiography bays is unknown at this time. This additional cost could offset the Ford reactors cost overrun from the unexpected soil contamination.

5) Overall square footage of the facilities is nearly identical.

6) The decommissioning of the Ford Reactor at the University of Michigan did not include the removal of the reactor building. Significant additional costs were incurred given the logistics of deconstructing the reactor facility without removing the surrounding building. This cost will likely offset the cost of demolishing the very large amount of non-activated concrete (relative to the Ford reactor) at MNRC during reactor building demolition.

3.1.4. 2018 UCD/MNRC Reactor Decommissioning Estimate:

Given the discussion above, it is thought that the decommissioning cost (in 2018 dollars) for the UCD/MNRC TRIGA reactor would be bounded by the $24.9 Million estimate given below.

Table 3 - Estimated 2018 Decommissioning costs for UCD/MNRC Reactor Year of Estimate Total Uninflated Cost Corrected 2018 Decommissioning Cost Decommissioning Costs 2015

$16,850,000

$17,760,000 University Staffing Cost 2017

$6,920,000

$7,130,000 The modified Dade Moeller estimate was determined to be $16.85 million in 2015 dollars including project management costs. Applying an Organization for Economic Cooperation and Development (OECD) average projected annual U.S. inflation estimate of 2.0% [4] from 2015 to 2018 dollars yields an estimated MNRC facility decommissioning cost of $17.8 million in 2018 dollars. A 25% contingency factor per NRC requirements is included in the cost estimate. This estimate assumes that the University of California Davis will utilize the DECON method of decommissioning, removing and disposing of all radioactive waste offsite. Based on the decommissioning timeline of the Ford reactor (if no delays had been encountered), a minimum UCD/MNRC staffing cost estimate during decommissioning was made.

This estimate includes essential utilities and services (e.g. phone, internet, climate control, etc.) required during the decommissioning process. This staffing cost was calculated to be $6.92 million in 2017 dollars. Using a 3% cost escalation, the 2018 UCD/MNRC staffing cost is expected to be $7.13 million.

This estimate also includes a 3% escalation per year during the duration of the decommissioning. The total decommissioning cost is therefore expected to $24.9 million.

Cost includes all building demolishment on the 2.4 acre MNRC site, but not free release from the State of California as it is not known at this time if the University will retain the property or if the property would be transferred to the surrounding McClellan Business Park. Unlike other University research reactors, the MNRC was transferred from the Department of Defense (DoD) to the University. The cost

7 of remediation of the MNRC site from DoD operations (e.g. jet fuel, hexavalent chromium, etc.) is not included in the cost estimate as this clean up would be the responsibility of the United States.

3.2. Funding Method Pursuant to 10 CFR 50.75(e)(1)(iv), the University of California Davis intends to use a Statement of Intent (SOI) as the method to provide decommissioning funding assurance. Please reference Attachment 2:

Statement of Intent (SOI) regarding Decommissioning Funding for the MNRC Reactor Facility at the University of California Davis, dated May 25th 2018.

3.3. Adjustment of Decommissioning Cost Estimate The 2018 Decommissioning cost estimate for the UCD/MNRC Reactor Facility is $24.9 million as detailed in section 3.1.4 above. This estimate will be updated periodically as required using the methodology described in NUREG 1307[1] and detailed below:

From NUREG 1307 Section 3: Estimated Cost (Year X) = (2018 $ Cost)*(ALX + BEX + CBX)

Where: 2018 Cost = $24.9 million A = The labor fraction which is the percent or portion of the 2018 cost attributable to labor, materials, and services (0.65).

B = The energy fraction which is a percent or portion of the 2018 energy and radioactive waste transportation (0.13).

C = The burial fraction which is the percentage or fraction of 2018 cost attributable to radioactive waste burial/disposition (0.22).

LX = The labor, materials, and services cost escalation from January 2018 to the latest month of Year X for which Producer Price Indexes (PPI) data are available.

EX = The energy and waste transportation cost escalation from January 2018 to the latest month of Year X for which Consumer Price Indexes data are avaialble.

BX = The low-level waste (LLW) burial cost escalation from January 2018 to the last month of Year X for which data is available. As the State of California is not affiliated with a waste compact BX will be selected accordingly and assuming PWR values.

LX, EX, and BX will be calculated in accordance with the guidance given in NUREG-1307 as needed in order to estimate decommissioning costs beyond 2018.

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4. REFERENCES 1 Report on Waste Burial Charges; Changes in Decommissioning Waste Disposal Costs at Low-Level Waste Burial Facilities, NUREG-1307, REV. 15, U.S. Nuclear Regulatory Commission, January 2013; https://www.nrc.gov/docs/ML1302/ML13023A030.pdf 2 Guideline for Preparing and Reviewing Applications for the Licensing of Non-Power Reactors-Format and Content, NUREG 1537 Part 1, U.S. Nuclear Regulatory Commission, February 1996; https://www.nrc.gov/reading-rm/doc-collections/nuregs/staff/sr1537 3 Organization for Economic Cooperation and Development (OECD) 2017 and 2018 U.S. Inflation; https://data.oecd.org/price/inflation-forecast.htm 4 2016 Bureau of Labor Statistics Labor and Producer Price Index; http://www.bls.gov/data/

9 University of California Annual Financial Report 2017

annual report 2017

In making my rounds as the new chancellor, I have heard many alumni and others describe UCDavis as kind of a sleeping giant a powerful institution that has yet to show the full extent of its power.

This report shows that the giant is waking up.

Whether its our record fundraising, our mens and womens basketball teams making campus history, our unmatched achievements in agricultural, animal and veterinary sciences, or our overall ranking as one of the top public research universities in the nation, UCDavis is unmistakably on the rise.

Increasingly, our university makes headlines on the frontlines of todays humanitarian crises in health care, public health, global hunger, water scarcity, immigration, climate change, poverty and environmental degradation.

Increasingly, UCDavis propels social mobility across California and the nation, graduating large numbers of students from underrepresented ethnic groups and from families with no previous college degrees.

People are stunned when they learn about UCDavis growing accomplishments our groundbreaking research in so many fields, our contributions to prosperity in the Sacramento region, our empowerment of students to do good in the world.

They move from merely thinking well of UCDavis to wanting to actively contribute to our successes.

In these pages, you will see a giant rising to the challenge of making our world a better place.

Gary S. May Chancellor From the Chancellor

A New Chancellor, a New Era for UCDavis My goal is to make us one of the handful of universities thats on the tip of the tongue when you talk about the nations great public research universities and we are not far from that now.

Gary S. May, upon his investiture as seventh chancellor of UCDavis, October 27, 2017

Campus Populations 1

3 1 6 7

1 LOW DEBT 47 percent of undergraduates completing degrees in 2015-16 accrued no debt while at UCDavis. Those who graduated with debt averaged $19,276 much lower than the national average of $30,156.

PELL GRANTS 44 percent of California resident undergraduates received Pell Grants in 2015-16.

Each year UC Davis has more recipients than in the entire Ivy League.

FINANCIAL AID In 2016-17, 71 percent of undergraduates received financial aid, averaging $21,389 per award.

COVERED TUITION AND FEES 57 percent of California resident undergraduates received enough gift aid to have systemwide tuition and fees completely covered in 2015-16.

Students (FALL 2017)

GRADE POINT AVERAGE 3.99 (Enrolled freshmen)

HEAD COUNT 30,212 Undergraduate 4,580 Graduate 1,226 Professional 1,362 Health science 991 Medical interns and residents 38,371 Total student population DEMOGRAPHICS for campus sustainability practices (GreenMetric World University Ranking) in environment/ecology (U.S. News & World Report) in veterinary medicine and plant and animal sciences (QS World University Rankings; U.S. News &

World Report) among top colleges doing the most for low-income students (The New York Times College Access Index) and second worldwide in agriculture (QS World University Rankings and U.S.

News & World Report) overall for public universities (Wall Street Journal/Times Higher Education) 25%

59%

47%

71%

44%

57%

Rankings UCDavis by the Numbers Financial Aid Staff (FALL 2016)

FULL TIME STAFF 9,058 Staff 8,214 Clinical staff STUDENT EMPLOYEES 9,690 Faculty 4,736 Faculty and other academic positions Alumni (FALL 2016) 250,000+ Living alumni with degrees Degrees (Awarded 2016-17) 7,856 Bachelors 1,950 Graduate and professional 9,806 Total degrees awarded 1st worldwide 3rd nationally 1st worldwide 7th worldwide 1st nationally 6th nationally Underrepresented minorities Women

600k Community service hours completed by students, faculty and staff 31%

Undergraduates admitted who are underrepresented minorities 44 %

New undergraduates who are first-generation UCDavis admitted 41,299 applicants for fall 2017, with gains among low-income and first-generation students and underrepresented minorities.

UCDavis strides toward gender parity in medicine, with women comprising 45 percent of surgical residents and fellows, and with recruitment of female trainees in male-dominated fields of neurological, orthopaedic and trauma surgery.

A pioneer in the use of telemedicine for underserved communities, UCDavis saves patients an average of 278 driving miles, $156 in travel costs and 4 hours4.62963e-5 days 0.00111 hours 6.613757e-6 weeks 1.522e-6 months of time per consultation.

Our Keller Pathway Fellowship gives women, cross-disciplinary researchers and other underrepresented university-based entrepreneurs a foundation for developing their business ideas.

Students at the UCDavis Immigration Law Clinic are ensuring the rights of immigrants regardless of legal status through education, preparation of deportation defense cases and representation.

The renovated Memorial Union, now home to the Veterans Services Office, includes a new display honoring the 135 Aggies who made the ultimate sacrifice.

Some 400 faculty are sharing stories of inspiration and persistence at the First-Generation Faculty project website, a resource for 44 percent of undergraduates who are first-generation students.

We are a community united in times of celebration and challenge. We break down barriers to advancement, advocate on behalf of the underserved and inspire the next generation. We strive for empathy, equity and inclusivity to achieve meaningful change.

We are a community in which all are valued and supported for the good of all.

We Move Forward, Together

14 Startups founded 294 Inventions 170 Patent applications filed 108 License agreements 135 Copyright licenses Alexander Forrest, assistant professor of civil and environmental engineering, led a deployment of underwater robots in Antarctica and the Arctic to help predict how and when polar ice shelves collapse.

PHOTO: DAMIEN GUIHEN/UNIVERSITY OF TASMANIA Zhou Yu, assistant professor of computer science, was named to Forbes 30 Under 30:

Science list for her work developing algorithms that enable software to adapt to users, such as a social chatbot for Amazons Echo platform.

Combining expertise in engineering and animal science, researchers are testing new cooling technologies for dairy cows that reduce energy and water use.

A stem cell therapy for chronic oral inflammatory disease in cats developed at the UCDavis Veterinary Institute for Regenerative Cures was licensed by VetCell Therapeutics with plans to commercialize treatment.

UCDavis scientists are the first to watch individual steps in the replication of a single DNA molecule opening new ways of thinking about this life-determining process.

Justin Siegel, co-founder of UCDavis spin-off PvP Biologics and assistant professor of chemistry, biochemistry and molecular medicine, co-created a therapeutic enzyme using synthetic DNA for the treatment of celiac disease.

Electrical and computer engineers developed a novel, high-frequency electronic chip potentially capable of transmitting tens of gigabits of data per second, bringing us closer to next-generation technology.

Innovation for Good At UCDavis, we innovate not only through research, but also by nurturing ambition and smart partnerships.

We put tools and know-how in the hands of entrepreneurs so beneficial technologies can move out of the lab and into the world faster with a lighter footprint, a lower cost and less reliance on resources like water and energy.

This innovation acceleration from underwater robots that give us a new perspective on climate change to the development of a therapeutic enzyme is addressing the challenges that hit us at home and around the world.

A Champion of Curiosity A vibrant and exciting community of thinkers, artists and writers, UCDavis champions curiosity-driven research, criticism and knowledge making.

For example, the inaugural season of the Ground and Field Theatre Festival in the College of Letters and Science brought together directors, playwrights, scholars and theater artists for a month to produce plays and musicals that explore the urgent need for sustainability in our world.

Our Mellon Public Scholars Program each year pairs graduate students with community organizations to put their humanities training and research to work for the public good.

The Jan Shrem and Maria Manetti Shrem Museum of Art serves as a hub of creativity for thinkers, makers and innovators, with spaces dedicated to both exhibits and student education.

UCDavis historian Andrés Reséndez continues to earn accolades for his history of Native American enslavement, The Other Slavery, winning a 2017 California Book Award and 2017 Bancroft Prize.

Lucky Brand CEO Carlos Alberini and family endowed the Alberini Family Speaker Series in Design at UCDavis.

Seth Sanders, professor of religious studies, is leading a project to produce open-access translations of the Dead Sea Scrolls, a 2,000-year-old collection of Aramaic and Hebrew texts including the oldest biblical manuscripts.

Through the Teaching California partnership, UCDavis is helping transform K-12 history-social science education with development of free, online curricula and teaching resources.

68,321 Visitors to the Manetti Shrem Museum of Art in its inaugural year 30 Faculty members of the American Academy of Arts and Sciences 55 Guggenheim Fellows PHOTO OF MISSION SAN BUENAVENTURA, TRACEY STORER PAPERS, D-110/SPECIAL COLLECTIONS, UCDAVIS LIBRARY

Education Wide Open A UCDavis education is a promise of opportunity that benefits our students and society alike. Just ask 2017 graduate Srujan Kopparapu, a student in the University Honors Program who dove into experiential learning opportunities here: internships in a microbiology lab and at the UCDavis Medical Centers ER, a student biomedical engineering competition, and presentations at the Undergraduate Research, Scholarship and Creative Activities Conference, among others.

Now Kopparapu is taking the next steps toward a career in a neural-related field such as neurosurgery or neurology. At UCDavis, were fulfilling our promise so future leaders like Kopparapu can fulfill their dreams.

10K Internships facilitated by the Internship and Career Center in a year 4K Business leaders educated through the Graduate School of Management 715 Undergraduates who presented at the UCDavis Undergraduate Research, Scholarship and Creative Activities Conference 40 Countries where students gain an international perspective through UCDavis Study Abroad programs each year The College of Biological Sciences acquisition of a rare lattice light-sheet microscope will drive discoveries that transform the way students learn science.

The Coastal and Marine Sciences Institute and the Bodega Marine Laboratory won a $3 million National Science Foundation award to train students from mostly tribal and rural coastal towns on integrating policy and science.

The new Introduction to Beer and Brewing online course gives students all over the world access to this unique class and preserves the legacy of Charlie Bamforth, Anheuser-Busch Endowed Professor of Brewing Science.

The public is collaborating with scientists to address environmental issues such as local water quality and decreasing butterfly populations through the School of Educations new Center for Community and Citizen Science.

Undergraduates can strengthen their writing skills at the Student Academic Success Centers new Writing Studio, which features a collaborative writing space and writing specialists.

The new Native American Academic Student Success Center and Center for Chicanx and Latinx Academic Student Success offer academic support in community environments to help students persist and graduate.

With an eye on medical school, top graduating senior and University Medal recipient Srujan Kopparapu earned degrees in psychology and biochemistry and molecular biology in three years while taking on research, internships and clinical experiences.

Advancing Agriculture As the top university in the country and second in the world in agriculture, UCDavis continues to address global challenges of food security, sustainability and safety in remarkable ways. Whether its finding answers that mutually benefit the environment and food producers in California, the invention of a low-cost tool that African farmers can use to fight food loss or making significant connections between nutrition and human health, we continue to apply our expertise and leadership to the most pressing challenges in food.

Juan Medrano and other UCDavis researchers released the first public genome sequence for Coffea arabica, which will help develop high-quality, disease-resistant coffee varieties adaptable to climate change.

148 Active patents in the College of Agricultural and Environmental Sciences 2.3K Acres devoted to agricultural research and teaching 10,000+

Pounds of Student Farm produce donated to the ASUCD Pantry and Fruit and Veggie Up!

program UCDavis is helping fight food loss in Africa with the low-cost DryCard invention, a moisture-sensing tool farmers can use to reduce mold and toxins in dried food storage.

A study co-produced by UCDavis shows that California Central Valley rice fields managed as floodplains during winter can create surrogate wetland habitat for native fish.

The USDA has awarded a $4.5 million grant to the UCDavis Public Strawberry Breeding Program and its partners to improve disease resistance and sustainable production.

Good fats are not created equal, says food chemist Ameer Taha, who is exploring connections between excess linoleic acid and ailments such as chronic inflammation and headaches.

Animal cognition expert Kristina Horbacks research on pig personalities is helping the pork industry adapt to new market and legislative demands for group housing.

Health researchers at UCDavis have discovered how dietary fiber helps intestinal health, identifying a potential therapeutic target for rebalancing beneficial and harmful gut microbiota.

Members of the UCDavis Hospital Child Life team make a splash with a patient during the Duck Dash, an event benefiting the UCDavis Childrens Hospital. The hospital ranks among the nations best in five pediatric specialties (U.S. News & World Report).

A UCDavis-led team won a $1.2 million grant to explore the use of personalized mobile health data to improve chronic disease management and care.

UC Davis Sacramento campus became the home of the new UC Firearm Violence Prevention Research Center, led by Garen Wintemute, emergency medicine professor and authority on the epidemiology of firearm violence.

UCDavis physicians gave life-saving kidney transplants to more than 400 people in 2016, making it the highest-volume program of its kind in the nation.

Fetal surgeon Shinjiro Hirose (center), shown with Fetal Care and Treatment Center colleagues Diana Farmer and David Schrimmer, completed UC Davis Childrens Hospitals first open fetal surgery for spina bifida 10 weeks before birth, a procedure offered at only a dozen medical centers nationwide.

Researchers discovered a possible route for regenerating insulin-producing beta cells, brightening prospects for better treatment or cures for Type I diabetes.

Betty Irene Moore Hall, home to the Betty Irene Moore School of Nursing, opened on the UCDavis Sacramento campus, supporting interprofessional health sciences education with collaborative learning spaces and state-of-the-art simulation suites.

$3.4B Annual economic output generated by UCDavis Health in the Sacramento region and Northern California 33 Counties served by UCDavis Health

$3M Patient travel costs saved by use of telemedicine at UCDavis Health over 18 years You need to be bold to transform health care.

Thats why UCDavis Health is making bold strides in research, technology, patient care, partnerships and education and bringing together the most progressive, curious minds in medicine and nursing. Being bold is getting us closer to solving critical public health problems like diabetes. Its saving lives in utero. And its improving chronic disease care with personalized health information accessible by smartphone. Being bold is how were creating a healthier world.

Bold Health Care

What Connects Us All Darla and Spanky, bulldog puppies with spina bifida, were the first to be successfully treated with stem cell therapy and surgery, thanks to a UCDavis veterinary and medical school team.

The answers to global health lie at the nexus of humans, animals and the environment. We have experts in all of these fields. Our doctors, veterinarians, engineers and scientists are working together in novel ways to untangle this web of interdependent life. Our connections between species viruses to spina bifida are leading to innovations that help conserve, protect and advance the health of all.

10 Centers and institutes at UCDavis dedicated to solving critical issues with a One Health approach 30 Countries with partnerships with UCDavis and USAID to prevent pandemics 1K Unique viruses in animals and humans detected by the UCDavis-led PREDICT pandemic-prevention project Viruses rely on host cells to reproduce, but they also show social behavior, interacting with other viruses by competing, cooperating and even cheating to succeed. A new behavioral approach to studying viruses could lead to new vaccines and treatment strategies for infectious diseases.

Researchers have detected a herpes virus in wild mountain gorillas similar to the Epstein-Barr virus in humans, findings that could aid gorilla conservation and knowledge of human disease.

School of Veterinary Medicine researchers found that disinfectants in some common household products like toothpaste and shampoo de-energize human cells and cause reproductive harm in lab animals.

A collaborative study by the One Health Institute gives us an edge in preventing pandemics, finding that bats are the major animal host for coronaviruses, which cause SARS and MERS.

The SeaDoc Society is working to preserve southern resident killer whales, salmon, rockfish and pinto abalone all threatened by urban growth in the Pacific Northwest.

UCDavis alumna Alexis Robertson and her husband, Gillies, regularly rotate sheep grazing on their Capay Valley ranch to optimize grass growth, which captures the greenhouse gas carbon dioxide and stores it in the soil.

114 Department of Environmental Science and Policy experts who combine the natural and social sciences to find sustainable environmental solutions 22K Trees and plants in the 18 gardens at the UCDavis Arboretum, a living laboratory for faculty and students 8

LEED-certified Platinum buildings at UCDavis To Conserve and Protect Climate change is the environmental challenge of our lifetime. A global leader in climate science, UCDavis is taking this challenge head on.

Were connecting research and education to policy and action in air quality, energy conservation, water management and food sustainability.

Were studying how climate change is affecting species on land and at sea, and finding ways to help humans and animals adapt to the changes to come. Were also digging up solutions in unexpected places, from hillsides to the soil right under our feet.

Climate change is a major factor in lake health, says the latest Tahoe State of the Lake Report. It found an increase in dying trees and algae growth and a decline in lake clarity.

UCDavis hosted a UN Sustainable Development Goals conference to explore how universities could work together to help African nations access clean energy and water and sustain food production.

Marine reserves may help commercial fishermen catch more of the profitable fish, while also helping to sustain the West Coast groundfish fishery, says a UCDavis-led study.

Researchers are developing a genetic test to help ranchers breed cattle that prefer hillside grazing. This change could improve the sustainability of Californias 38 million acres of rangeland.

Sporting Scholars After defeating UC Irvine in the Big West Conference tournament, the Aggies earned their first berth in the NCAA Div. I Mens Basketball Tournament. They claimed a 67-63 victory over North Carolina Central in the First Four round, advancing to the round of 64.

Aggie softball, womens tennis, mens golf and mens tennis posted perfect 1,000 scores for multiyear Academic Progress Rate. Additionally, eight teams compiled the highest APRs in their respective conferences:

football, mens golf, mens soccer, mens tennis, softball, womens basketball, womens tennis and womens water polo.

The womens basketball team advanced to the third round of the National Invitation Tournament with victories over Utah and Colorado State, after clinching the Big West Conference title.

It was the best Div. I national postseason in Aggie history.

Former running back and assistant coach Dan Hawkins returned to his alma mater to become the programs 17th head football coach. Previously a studio analyst for ESPNs college football coverage, Hawkins is perhaps best known for transforming Boise State into a Division I Football Bowl Subdivision powerhouse in the early 2000s.

Mens water polo captured its first Western Water Polo Association championship since 1997, earning a spot in the National Collegiate Championship in Berkeley. The success of the program also helped result in the first endowed coaching position, with head coach Daniel Leysons position being renamed the Child And Meisel Families Director of Mens Water Polo.

1.7M Viewers of the UCDavis vs.

University of Kansas NCAA tournament game on TNT 14 Womens varsity sports supported by the Marya Welch fundraising initiative launched in August 4

Teams earning 2017 NCAA Public Recognition Awards for their outstanding academic achievements 100K Community service hours completed by UCDavis student-athletes in 2016-17 When the Aggie men joined the NCAAs Big Dance for the first time in school history, journalists and sports fans nationwide became enchanted not only with UCDavis Cinderella story, but also with our players backstories their talents, their sacrifices, their brains and their hearts.

These are points of commonality shared by student-athletes across all 23 of our NCAA teams. Their aptitude for excellence and perseverance extends beyond the court, field or pool to the classroom and the community which is why weve been enchanted all along.

Another Record-Breaking Fundraising Year 36,000 Donors

$250M Raised Thanks to the commitment of our supporters, UCDavis once again had a record-breaking philanthropic year. The university raised

$250 million, the largest donation total raised in a single fiscal year in the universitys 109-year history, bringing significant support for student scholarships, capital projects, scientific research and more.

This success builds upon the momentum of the previous fiscal years $226 million record-breaking total.

Faculty join in a quartet for the Sept. 22, 2016 dedication of the Ann E. Pitzer Center.

Guest pianist Alice Takemoto is the sister of Grace Noda.

Grace and her husband, Grant, were the first major donors to the center. The lobby is named in their honor.

There were nearly 36,000 donors to the university, up almost 2,300 donors from 2015-16. This increase is due, in part, to the universitys first Give Day, themed Every Aggie Counts: Together We Add Up, a 29-hour event that helped UCDavis achieve record performance for annual giving this fiscal year.

Ken Grossman of Sierra Nevada Brewing Co.

and his wife, Katie Gonser, presented a $2 million gift to support the universitys renowned brewing science program.

A $2.6 million gift from the estate of Robert H. Putnam will establish the Robert H. Putnam Endowed Chair in Bipolar Disorders Research and the Dwight Swaback M.D.

Bipolar Disorders Research Fund.

The Betty Irene Moore School of Nursing at UCDavis launched a new Family Caregiving Institute with a

$5 million grant from the Gordon and Betty Moore Foundation.

Mohini Jain, philanthropist, retired teacher and longtime Davis resident, made a $1.5 million gift to advance the study of Jainism, one of the worlds most revered and ancient philosophies.

CAL AGGIE ALUMNI ASSOCIATION 2017-18 BOARD OF DIRECTORS STUDENT GOVERNMENT (ASUCD)

UCDAVIS FOUNDATION MEMBERSHIP 2017-18 ADVISORS TO THE BOARD GARY S. MAY Chancellor SHAUN B. KEISTER, PH.D.

Vice Chancellor, Development and Alumni Relations President, UCDavis Foundation RICHARD R. ENGEL 90, CRED. 91 Assistant Vice Chancellor, Alumni Relations and Executive Director RAMAK SIADATAN 99, MBA 06 Past President BRUCE W. BELL 85 Chair, UCDavis Foundation BILL JOSTOCK President, Aggie Parent and Family Programs JOSH DALAVAI 18 President, ASUCD (Associated Students, UCDavis)

SAMANTHA TESHIMA 18 President, SAA (Student Alumni Association)

ROY TAGGUEG President, GSA (Graduate Student Association)

EXECUTIVE JOSH DALAVAI President ADILLA JAMALUDIN

Vice President JIN ZHANG Controller BOARD MEMBERS DEBBY STEGURA 79 President WILLIAM COCHRAN 73, CRED. 74 Vice President/President Elect NEPTALY AGUILERA 73 BRIDGET BUGBEE 13 DIANE CARLSON BIGGS 81 ALEX CHAN 01 BRIAN EBBERT 92 MOLLY FLUET 09 STACIE HARTUNG FRERICHS 01 SANDRA FRYE-LUCAS, PHD 03 ANU JOHL SINGH 04 SCOTT JUDSON 09, J.D. 12 ALEX KANG 09 PAUL KEEFER 89 RON MAROKO, JD 86 CHARLES MELTON 08 JILL MILLER 97 MOLLY MROWKA 93 ALGIE MOSLEY 96 KARLA STEVENSON 93 SCOTT STEVENSON 92 KYLE TRINOSKY 05, MBA 12 FREDERICK TAVERNER 87 RON VAN DE POL 72 JON WEINER 85 SENATORS SHANIAH BRANSON ANDREAS GODDERIS MICHAEL GOFMAN DANNY HALAWI

KHADEJA IBRAHIM GAVENJIT KAUR JESSE KULLAR BRYAN PEREZ MARCOS RODRIGUEZ YAJAIRA SIGALA JAKE SEDGLEY RAHI SURYAWANSHI JUDICIAL RYAN GARDNER Chair, Judicial Council EXECUTIVE TRUSTEES BRUCE W. BELL 85 Chair BRUCE G. WEST 71, M.S. 73 Vice Chair MICHAEL CHILD 76 Immediate Past Chair JACK MARIANI 69 Audit Committee Chair DAVID J. LOURY, PH.D. 79 Audit Committee Vice Chair JONCARLO MARK, MBA 00 Finance and Investment Committee Chair MAY SEEMAN, MBA 89 Finance and Investment Committee Vice Chair DARRYL L. GOSS 83 Global Campaign Leadership Council Chair DAVID W. PEARSON 84 Global Campaign Leadership Council Vice Chair CECELIA LAKATOS SULLIVAN 83 Nominating and Governance Committee Chair MOHINI JAIN Nominating and Governance Committee Vice Chair GIACOMO MARINI Stewardship Committee Chair JANE ROSENBERG 79 Stewardship Committee Vice Chair MARGARET M. LAPIZ 89 At-Large Executive Trustee TRUSTEES GUY BENSTEAD 81 FREDERICK L. CANNON 78 TK CHIANG 87 JEFFREY CHILD 82 DANIEL A. CORFEE 87 EAMONN F. DOLAN 83 BRUCE C. EDWARDS 60 JAMES P. FINCH 89 MICHAEL E. GILSON 73 ROGER HALUALANI 89, MBA 91 RUDY KADLUB 71, ED.D. 72 GLENYS M. KAYE BARBARA J. KERR EIVIND G. LANGE, III 77 JAMES T. LIM, J.D. 98 SUSAN MAYER 80 JOHN A. MCKINSEY, J.D. 99 DEBORAH J. NEFF 76 CHARLES C. NICHOLS 83 AND 84 CAROL E. PARKER GENE E. PENDERGAST, JR. 61 SANDRA I. REDENBACH 72, CRED 73 SANDRA L. REED, M.D. 85 EARL F. RENNISON 88 JAMES N. SEIBER, PH.D.

PATRICK J. SHERWOOD 87 ANTHONY R. STONE, M.D.

JEFFREY TRAUM 85 CAROL WALL 63, M.A. 65, PH.D. 71 HENRY WIRZ 73 ADVISORS KEVIN M. BACON 72 CRAIG R. DANDURAND, J.D. 97 STEVE ENOS 82 ANDY FAGAN, M.A. 84 BERT FEUSS 84 GREGORY S. HOUCK 83 PARKER A. LEE 76 STEPHEN MEISEL ROBERT E. MURPHY 63 TOM P. PALECEK 99 GABE SANTOS ALAN M. TAYLOR, PH.D.

THE VOLUNTEER CAL AGGIE ALUMNI ASSOCIATION BOARD OF DIRECTORS advances the associations mission: To enrich the lives of alumni, students, families and friends worldwide, and develop lifelong ambassadors for UCDavis.

LEADERS OF THE ASSOCIATED STUDENTS, UNIVERSITY OF CALIFORNIA, DAVIS, represent student interests and oversee the creation and administration of services that enrich student experiences on campus.

THE UCDAVIS FOUNDATION is governed by the volunteer Board of Executive Trustees, who are distinguished leaders in their fields. The board marshals philanthropic support and stewards private gifts to the university, furthering UCDavis mission and global impact. The board works with academic leaders and advancement staff to achieve the foundations goals.

EX-OFFICIO EXECUTIVE TRUSTEES SHAUN B. KEISTER, PH.D.

Vice Chancellor, Development and Alumni Relations President, UCDavis Foundation PAUL J. PROKOP Associate Vice Chancellor, School and Unit Programs TANIA WALDEN Treasurer and Chief Financial Officer, UCDavis Foundation Chief Operating Officer, Development and Alumni Relations GARY S. MAY Chancellor RACHAEL E. GOODHUE, PH.D.

Chair, Academic Senate KELLY RATLIFF Interim Lead, Finance, Operations and Administration DEBBY STEGURA 79 President, CAAA Board of Directors

2016-17 Revenues and Expenditures UC Davis revenues come from many sources. About 81 percent are designated for or restricted to specific purposes, such as research support, auxiliary services such as housing, and the UC Davis Medical Center.

Most of the funding for teaching comes from unrestricted state funds and student tuition.

2016-17 Revenues*

$4.9 billion 2016-17 Expenditures*

$4.9 billion Extramural Research Funding FY 2011-17 (millions)

Philanthropy FY 2011-17 (millions) 13 11 15 17 14 12 16

$783

$684

$749

$753

$704

$786

$760 13 11 15 17 14 12 16

$250

$118

$132

$149

$166

$184

$226 Depreciation/interest expense/other 6%

Medical center 44%

Medical center 39%

State unrestricted 8%

Tuition 11%

Instruction and academic support 25%

Indirect cost recovery 3%

Grants and contracts 11%

Research 12%

Federal Pell Grants 1%

Operation and maintenance 2%

Gifts, endowments, interest, other 5%

Auxiliary 2%

State designated and restricted 1%

Institutional support 3%

Student fees 4%

Public service 2%

Sales and service, auxiliary 12%

Student services and financial aid 9%

Financials at a Glance

Scholarship allowance is reported as an expenditure in student services and financial aid. For financial reporting purposes, scholarship allowance is reported as a reduction to student tuition and fee revenue.

UC Davis is one of ten campuses of the University of California (the University), which, as one of the largest and most acclaimed institutions of higher learning in the world, is dedicated to excellence in teaching, research, healthcare and public service. In addition to the ten campuses, the University encompasses five medical centers, four law schools and a statewide Division of Agriculture and Natural Resources. The University is also involved in the operation and management of three national laboratories for the U.S.

Department of Energy.

In 1905, the California Legislature approved the establishment of a state agriculture school.

Three years later, in 1908, the University Farm School opened in Davis as a branch of UC Berkeley. In 1959 the UC Regents designated UC Davis as an independent general campus of the University. Currently, UC Davis offers a full range of undergraduate and graduate programs, along with six professional schools. The Davis campus has undergraduate colleges of Agricultural and Environmental Sciences, Biological Sciences, Engineering, and Letters and Science. Graduate Studies administers graduate study and research in all schools and colleges. Professional studies are offered in the schools of Education, Law, Management, Medicine, Nursing and Veterinary Medicine.

Located off campus are numerous laboratories, extension centers and facilities, including the UC Davis Medical Center in Sacramento, the Tahoe Environmental Research Center in Lake Tahoe, the Veterinary Medicine Teaching and Research Center in Tulare, and Bodega Marine Laboratory at Bodega Bay.

University of California, Davis The objective of Managements Discussion and Analysis (MD&A) is to give readers an overview of the financial position and operating activities of the University of California, Davis (UC Davis or the Campus) for the year ended June 30, 2017, with selected comparative information for the year ended June 30, 2016. This discussion should be read in conjunction with the financial statements and the notes to the financial statements.

UC Davis financial report, while not separately audited, is prepared from the official University of California records and accounts which are maintained in accordance with the standards prescribed by the Governmental Accounting Standards Board (GASB). The three primary statements - the statements of net position, the statements of revenues, expenses, and changes in net position, and the statements of cash flows

- encompass the UC Davis Campus and its discretely presented component, the UC Davis Foundation (the Foundation). However, the MD&A and the notes to the financial statements focus on the Campus, which includes the Medical Center. Information related to the UC Davis Foundation can be found in its separately issued financial statements. Information related to activities and balances centrally managed by the Office of the President can be found in the separately issued financial statements for the University of California.

Managements Discussion and Analysis 2017 Financial Report

UCDavis Assets and Deferred Outflows of Resources UC Davis total assets grew by $372 million in 2017 to over $6.5 billion. The increase in 2017 was primarily related to an increase in cash and investment balances and continued reinvestment in facilities.

Campus cash and investments, which are held at the Universitys Office of the President, are principally carried in three investment pools; the Short Term Investment Pool (STIP), the Total Return Investment Pool (TRIP) and the General Endowment Pool (GEP). Cash for operations and bond proceeds for construction expenditures are invested in STIP. UC Davis uses STIP to meet operational liquidity needs. TRIP allows the Campus to maximize the return on long-term capital by taking advantage of the economies of scale of investing in a large pool across a broad range of asset classes. TRIP is managed to a total return objective and is intended to supplement STIP. As a result of continued low STIP interest rates, the Campus continues to use TRIP to enhance investment returns, while still maintaining sufficient funds in STIP to meet operational liquidity needs. The GEP is a balanced portfolio and the primary investment vehicle for individual endowments and funds functioning as endowments.

The Regents of the University of California (the Regents) utilizes asset allocation strategies that are intended to optimize investment returns over time in accordance with investment objectives and at acceptable levels of risk. The rates of return on the University investment pools for the years ended June 30, 2017 and 2016 are as follows:

(shown as a percentage) 2017 RESTATED 2016 GEP 15.1%

(3.5)%

STIP 1.3 1.3 TRIP 7.7 0.3 Accounts receivable include amounts due from state and federal government agencies, local and private grants and contracts, receivables associated with patient care at the medical center and from others. Receivables are reported net of bad debt allowances. Accounts receivable increased by $21 million from $496 million in 2016 to $517 million in 2017. Receivables fluctuate based on the timing of collections. State and federal grants and contracts receivables increased by $1 million, medical center receivables increased by $5 million, while other receivables, including educational activities and local and private grants and contracts, increased by $15 million.

UCDavis Net Financial Position The University implemented new accounting policies for retiree health benefits. These changes in accounting policies are designed to improve transparency by requiring recognition of the net retiree health benefits liability in the financial statements. This standard requires recognition of retiree health benefit expense using a systematic method, designed to match the cost of retiree health benefits with service periods for eligible employees. Financial information for 2016 has been restated to retroactively apply these new accounting policies.

The statement of net position presents the financial position of UC Davis at the end of the year. It displays all of the Campus assets, deferred outflows, liabilities and deferred inflows. The difference between assets, deferred outflows, liabilities and deferred inflows is net position, representing a measure of the current fiscal condition of the Campus.

Certain reclassifications have been made to the prior year balances to conform to classifications used in the current year financial statement presentation.

The major components of the statement of net position, compared to the prior year are as follows:

(in millions of dollars) 2017 RESTATED 2016 CHANGE ASSETS Cash and investments

$2,500

$2,225

$275 Accounts receivable, net 517 496 21 Capital assets, net 3,298 3,225 73 Other assets 210 207 3

TOTAL ASSETS 6,525 6,153 372 DEFERRED OUTFLOWS OF RESOURCES 841 1,481 (640)

LIABILITIES Debt, including commercial paper 1,767 1,642 125 Pension related obligations 2,147 2,632 (485)

Net retiree benefits liability 2,888 3,280 (392)

Other liabilities 889 949 (60)

TOTAL LIABILITIES 7,691 8,503 (812)

DEFERRED INFLOWS OF RESOURCES 979 561 418 NET POSITION Net investment in capital assets 1,663 1,641 22 Restricted:

nonexpendable 121 119 2

Restricted:

expendable 730 670 60 Unrestricted (3,818)

(3,860) 42 TOTAL NET POSITION

($1,304)

($1,430)

$126 UC Davis Financial Report 2016-17 34 35

Capital assets includes land, infrastructure, buildings and improvements, software, intangible assets, equipment, library collections and construction in progress. As has been the case in recent years, the required spending for capital assets continues to increase. The net increase in the cost of capital assets was $256 million in 2017, consisting of capital expenditures of $313 million offset by $57 million of capital assets disposed of during the year in the normal course of doing business. Capital expenditures in 2016 were $296 million and disposals were $71 million.

During 2017, capitalized costs for completed construction projects were $284 million. The largest capitalized projects were the Health Sciences Education Building for $48 million, Tercero Student Housing Phase 4 for $54 million, the School of Veterinary Medicines Student Services and Administrative building for $26 million, the Jan Shrem and Maria Manetti Shrem Museum of Art for $29 million, and the Memorial Union Renewal Project for $23 million. Projects under construction, net of the cost of those projects completed and reclassified during 2017 to buildings and improvements or equipment, totaled $178 million.

Accumulated depreciation and amortization increased from $3.1 billion in 2016 to $3.2 billion in 2017. Depreciation and amortization expense for the year was $231 million and the accumulated depreciation on assets sold or disposed of during the year was $47 million. Generally, all of the disposals were for assets that were fully depreciated or had reached the end of their useful life.

Other assets include deferred charges, pledges receivable, notes and mortgages receivable, investments in joint ventures and inventories and totaled $210 million and $207 million for 2017 and 2016, respectively.

Losses on debt refundings and certain changes in the net pension and net retiree health benefits liabilities are reported as deferred outflows of resources. In 2017, deferred outflows of resources decreased due to higher than expected investment returns in the University of California Retirement Plan (UCRP) portfolio.

UCDavis Liabilities and Deferred Inflows of Resources In 2017, UC Davis total liabilities and deferred inflows of resources decreased by $394 million to $8.7 billion as compared to $9.1 billion in 2016.

The decrease in 2017 was primarily related to the decrease in liabilities for pension and retiree health benefits.

Capital expenditures are financed from a variety of sources including equity contributions, federal and state support, revenue bonds and leases.

UC Davis debt increased by $125 million in 2017 to $1.8 billion, with a $29 million increase in commercial paper and an increase in bonds of

$96 million.

In 2017, General Revenue Bonds totaling $36 million, including a bond premium of $5 million were issued to finance certain construction projects of the Campus.

In August 2016, Medical Center Pooled Revenue Bonds totaling $342 million were issued to finance and refinance certain facilities and projects of the Medical Center. Proceeds, including a net bond premium of $48 million, were used to pay for project construction, issuance costs and refinance the previously outstanding Medical Center Pooled Revenue Bonds totaling $265 million.

In 2016, General Revenue Bonds totaling $73 million and Limited Project Revenue Bonds totaling $7 million were issued to finance and refinance certain facilities and projects of the Campus. Proceeds, including a bond premium of $13 million were used to pay for project construction, issuance costs and refinance previously outstanding debt of $14 million.

The Universitys General Revenue Bond ratings are currently affirmed at Aa2, AA and AA by Moodys Investors Service, Standard & Poors and Fitch, respectively, all with stable outlooks.

The Universitys Limited Project Revenue Bonds and Medical Center Pooled Revenue Bonds are currently affirmed at Aa3, AA-and AA-by Moodys Investors Service, Standard & Poors and Fitch, respectively, all with stable outlooks.

Commercial paper is used as interim financing for construction projects and equipment financing.

Net commercial paper borrowings increased

$29 million in 2017 from $44 million in 2016 to

$73 million in 2017 primarily due to new funding of $73 million offset by transfers out of interim financing to permanent funding of $44 million.

The Campus has a financial responsibility for pension benefits associated with its defined benefit plans and for retiree health benefits.

The Campus had pension related obligations of $2.1 billion and $2.6 billion in 2017 and 2016, respectively. The decrease in net pension liability for 2017 is primarily driven by higher than expected investment returns on the UCRP investment portfolio. The increase in net pension liability for 2016 was primarily driven by lower than expected investment returns on the UCRP investment portfolio. UCRPs total investment rate of return was positive 14.5 percent in 2017 and negative 2.0 percent in 2016. The discount rate used to estimate the net pension liability was 7.25 percent in both 2017 and 2016.

The Campus 2016 financial statements have been restated as a result of adopting new accounting standards for retiree health benefits.

The Campus net retiree health benefits liability was $2.9 billion, and $3.3 billion, in 2017 and 2016, respectively. The University funds the retiree health benefits through the University of California Retiree Health Benefit Trust (UCRHBT) based on a projection of benefits on a pay-as-you-go basis and the assets in the trust are not sufficient to fund retiree health benefits.

Therefore, the Bond Buyer 20-year tax-exempt general obligations municipal bond index rate is used to discount the retiree health benefit liabilities. The changes in net retiree health benefits liability have been primarily driven by the changes in discount rates used to estimate the retiree health benefit liability. The discount rates as of June 30, 2017 and 2016 were 3.58 percent and 2.85 percent, respectively.

UC Davis Financial Report 2016-17 36 37

Other liabilities, including accounts payable, accrued salaries and benefits, unearned revenue, pollution remediation and federal refundable loans decreased from $949 million in 2016 to

$889 million in 2017. Other liabilities fluctuate based on the timing of payments.

Deferred inflows of resources are related to the Campus service concession arrangements and certain changes in the net pension and net retiree health benefits liabilities. Deferred inflows of resources in 2017 increased by $418 million due to the increase in the discount rate for estimating the net retiree health benefit liability.

UCDavis Net Position Net position represents the residual interest in UC Davis assets and deferred outflows after all liabilities and deferred inflows are deducted.

Net position was restated for 2016 as a result of adopting new accounting rules. UC Davis net position at the end of 2017 was negative $1.3 billion, increasing by $126 million from 2016. Net position is reported in the following categories:

net investment in capital assets; restricted, nonexpendable; restricted, expendable; and unrestricted.

The portion of net position invested in capital assets, net of accumulated depreciation and the related outstanding debt used to finance the acquisition, construction or improvement of these capital assets increased by $22 million from

$1,641 million in 2016 to $1,663 million in 2017 as a result of net capital asset additions and new debt issuances offset by principal debt repayments.

The Campus continues to invest in its physical facilities to support the growth at UC Davis.

Restricted nonexpendable net position includes the corpus of UC Davis permanent endowments and the estimated fair value of charitable remainder trusts. UC Davis endowments and other restricted nonexpendable net position increased by $2 million from $119 million in 2016 to $121 million in 2017 principally due to the receipt of new gifts.

Restricted expendable net position of $730 million, at June 30, 2017, is subject to externally imposed restrictions governing their use. Net position may be spent only in accordance with the restrictions placed upon them and may include endowment income and gains, subject to UC Davis spending policy; support received from gifts, appropriations, grants or contracts for specific programs or capital projects; trustee held investments; or other third party receipts. The increases or decreases in restricted, expendable funds are principally due to unrealized appreciation or depreciation, respectively in the fair value of investments related to restricted gifts and funds functioning as endowments.

Under generally accepted accounting principles, net position that is not subject to externally imposed restrictions governing its use must be classified as unrestricted for financial reporting purposes. Although unrestricted net position is not subject to externally imposed restrictions, substantially all of UC Davis reserves are designated for academic and research initiatives or programs, or for capital purposes. As of June 30, 2017, the Campus unrestricted net position is a deficit, primarily due to obligations for pension and retiree health benefits exceeding the Campus assets available to pay such obligations.

The decrease in the deficit from 2016 to 2017 is primarily due to decreases in the Campus pension related obligations and net retiree health benefit liability.

UCDavis Results of Operations The statement of revenues, expenses and changes in net position is a presentation of the Campus operating results, and indicates whether the financial condition has improved or deteriorated. In accordance with the Governmental Accounting Standards Board (GASB) requirements, certain significant revenues relied upon and budgeted for fundamental operational support of the core instructional mission of UC Davis are required to be recorded as nonoperating revenues, including state educational appropriations, private gifts and investment income. Results of operations for 2016 have been restated as a result of adopting new accounting policies for retiree health benefits.

Summarized on the next page are the operating results for 2017 and 2016, blending the GASB reporting requirements and UC Davis view of core operations:

UC Davis Financial Report 2016-17 38 39

(in millions of dollars)

YEAR ENDED JUNE 30, 2017 RESTATED YEAR ENDED JUNE 30, 2016 OPERATING NON OPERATING TOTAL OPERATING NON OPERATING TOTAL CHANGE REVENUES Student tuition and fees, net

$571

$527

$44 State educational appropriations

$432 432

$412 412 20 Grants and contracts, net 689 52 741 693 52 745 (4)

Sales and services:

Medical center, net 2,147 2,147 1,935 1,935 212 Other, net 543 543 498 498 45 Private gifts 85 85 74 74 11 Investment income, net 46 46 46 46 0

Other revenues, net 103 21 124 96 14 110 14 REVENUES SUPPORTING CORE ACTIVITIES

$4,053

$636

$4,689

$3,749

$598

$4,347

$342 EXPENSES Salaries and wages

$2,194

$2,046

$148 Pension benefits 302 302 421 421 (119)

Retiree health benefits 240 240 289 289 (49)

Other employee benefits 472 472 451 451 21 Scholarships and fellowships 88 88 89 89 (1)

Utilities 38 38 35 35 3

Supplies and materials 474 474 458 458 16 Depreciation and amortization 231 231 221 221 10 Interest expense

$55 55

$65 65 (10)

Other expenses 638 8

646 628 8

636 10 EXPENSES ASSOCIATED WITH CORE ACTIVITIES

$4,677

$63

$4,740

$4,638

$73

$4,711

$29 INCOME (LOSS) FROM CORE ACTIVITIES

($624)

$573

($51)

($889)

$525

($364)

$313 OTHER NONOPERATING ACTIVITIES Net appreciation (depreciation) in fair value of investments

$123

($54)

$177 INCOME (LOSS) BEFORE OTHER CHANGES IN NET POSITION

$72

($418)

$490 OTHER CHANGES IN NET POSITION Capital gifts and grants

$10

$0 Permanent endowments 2

2 0

Other changes in net position 42 17 25 INCREASE (DECREASE) IN NET POSITION

$126

($389)

$515 NET POSITION Beginning of year, as previously stated

$(1,430)

$1,597

$(3,027)

Cumulative effect of accounting changes (2,638) 2,638 BEGINNING OF YEAR, AS RESTATED

($1,430)

($1,041)

($389)

NET POSITION END OF YEAR

($1,304)

($1,430)

$126 Revenues Supporting Core Activities The following chart provides a breakdown of revenues supporting core activities for the fiscal years ended June 30, 2017 and 2016:

Revenues to support UC Davis core activities of more than $4.7 billion, including those classified as nonoperating revenues, increased by $342 million from 2016 to 2017. UC Davis has very diversified sources of revenue. State of California educational appropriations, in conjunction with student tuition and fees, are the core components that support the instructional mission of the Campus. Grants and contracts provide opportunities for undergraduate and graduate students to participate in dynamic research projects alongside some of the most prominent researchers in the country. Gifts to UC Davis allow crucial flexibility to faculty for support of their fundamental activities or new academic initiatives as well as support scholarships and capital projects. Sales and services revenue includes the medical center, educational activities from academic departments, primarily the veterinary and medical schools, and auxiliary enterprises such as student housing, the bookstore, food service operations and parking.

Net student tuition and fees revenue grew from

$527 million in 2016 to $571 million in 2017, an increase of $44 million. These fees are net of scholarship allowances of $147 million in 2017 and $139 million in 2016. The increase in tuition and fee revenue over the past several years is primarily due to enrollment growth coupled with modest tuition and fee increases for certain student groups. Consistent with past practices, a portion of the revenue generated from certain student tuition and fee increases is used for financial aid to mitigate the impact of tuition and fee increases on students with financial need.

OPERATING RESULTS FOR 2017 AND 2016 Student tuition and fees, net Grants and contracts, net Sales and services -

other, net Private gifts, net Investment income, net Other revenues, net Sales and services -

medical center, net State educational appropriations

$124

$110

$46

$85

$74

$543

$498 2017 2016 (RESTATED)

$2,147

$1,935

$741

$745

$432

$412

$571

$527 (in millions of dollars)

UC Davis Financial Report 2016-17 40 41

In 2017, total enrollment, consisting of undergraduate, graduate and professional students, grew by nearly 3.6 percent. Mandatory tuition rates for California residents was not changed in 2017 and 2016. Nonresident supplemental tuition was increased by 8 percent for undergraduate national and international students. Professional degree supplemental tuition varies by discipline and certain tuition rate increases were approved for 2017.

State of California educational appropriations to UC Davis were $432 million in 2017 and $412 million in 2016. The University budget framework agreed to in 2015 with the governor called for base budget adjustments of 4 percent annually over the next four years, through 2019. The framework also called for no tuition increases in 2017 and 2016, with tuition increases generally pegged to the rate of inflation beginning in 2018.

The student service fee increased 5 percent in 2017 and 2016, with the customary one-third of the increase being directed to financial aid. The framework also acknowledged the Universitys plan to increase undergraduate nonresident supplemental tuition by up to 8 percent for 2017 and 2016 and 5 percent thereafter.

The framework recognized the increases in professional degree supplemental tuition approved by the Regents in November 2014 for existing and new programs and called for no increases in law school tuition through 2019.

Revenue from federal, state, private and local grants and contracts decreased by $4 million to

$741 million in 2017 from $745 million in 2016.

Federal grant and contract revenue, including facilities and administration cost recovery of

$93 million and direct expenditures of $356 million, increased by $6 million to $449 million.

Expiring federal grants and federal budget cuts have slowed the Universitys growth in federal grants and contracts. This revenue represents support from a variety of agencies including the Department of Health and Human Services,

$214 million; the Department of Education, $63 million; the National Science Foundation, $46 million; and the Department of Agriculture, $30 million. State grants (including special research appropriations) decreased $15 million, or 10 percent, to $132 million in 2017. The decrease in revenue is primarily attributed to the completion of the South Valley Animal Health Laboratory award in Tulare which was awarded over a 3 year period to support a capital project, with the peak revenues being recognized in 2016. Private and local contracts and grants increased by $5 million primarily due to new awards received from the City of Davis.

Revenue from the UC Davis Medical Center, educational activities and auxiliary enterprises of $2.7 billion increased by $257 million, or 11 percent, from 2016. UC Davis Medical Center revenue increased by $212 million over the prior year to over $2.1 billion in 2017. The revenue growth is primarily due to increased third-party settlements and higher volumes and complexity of patient cases. Revenue from educational activities, primarily medical professional fees and auxiliary enterprises, net of related allowances, increased by $45 million or 9 percent reflecting an expanded patient base and improved collections.

Gifts may be made directly to UC Davis or through the UC Davis Foundation for the benefit of the Campus. UC Davis private gifts for operating purposes increased from $74 million in 2016 to $85 million in 2017. The increase was primarily related to new gifts including: $3 million for the Robert and Margrit Mondavi Center,

$2 million for the Veterinary Medical Teaching Hospital building fund, and $2 million for the Jan Shrem and Maria Manetti Shrem Museum.

Investment income for the year of $46 million consisted of $9 million from the University of Californias Short Term Investment Pool (STIP),

$17 million from the University of Californias Total Return Investment Pool (TRIP) and $20 million from endowments. Investment income in 2016 totaled $46 million consisting of $7 million from STIP, $21 million from TRIP and $18 million from endowments.

Other revenues for 2017 of $124 million included

$2 million in federal interest subsidies and $19 million of other revenues that are reported as nonoperating revenue and $103 million of other revenue reported as operating revenue. Other operating revenues grew $7 million, or 7 percent, to $103 million in 2017. The growth is primarily due to higher intercampus revenue of $2 million and increased enrollment and rates in the student health insurance plans.

UC Davis Financial Report 2016-17 42 43

Expenses Associated with Core Activities The chart to the right provides a breakdown of expenses associated with core activities for the fiscal years ended June 30, 2017 and 2016.

UC Davis expenses associated with core activities for 2017, including those classified as nonoperating expenses, were $4.7 billion in 2017 and 2016. Approximately 68 percent UC Davis expenses are related to salaries and benefits for over 24,000 full time equivalent employees of UC Davis.

Salaries and wages increased $148 million or 7 percent in 2017. The increase is primarily attributable to approved merit increases, contractual rate increases for represented and academic staff, as well as an increase in consolidated headcount of approximately 3 percent. Employee benefits, excluding pension and post-retirement health care benefits, increased by 5 percent in 2017 due to higher health insurance costs. Pension expense decreased by $119 million or 28 percent due to better than expected investment returns. Retiree health expense decreased by $49 million or 17 percent due to the higher discount rate in 2017.

The Campus places a high priority on student financial aid as part of its commitment to affordability and access. Scholarships and fellowships representing payments of financial aid made directly to students and reported as operating expenses were $88 million in 2017, a decrease of $1 million, or 1 percent, from 2016.

Scholarship allowances, representing financial aid and fee waivers awarded by UC Davis, also forms of financial aid, increased from $175 million in 2016 to $188 million in 2017, an increase of

$13 million. On a combined basis, total reported financial aid to students grew from $264 million in 2016 to $276 million in 2017, an increase of $12 million or 4 percent.

During 2017, supplies and materials costs increased $16 million, from $458 million in 2016 to $474 million in 2017. The largest increase occurred at the medical center due to higher patient volumes and inflationary pressure on the costs for medical supplies and laboratory instruments and higher costs for general supplies necessary to support increased medical patient volumes. The Campus continues to find opportunities to manage the costs of supplies and materials.

Other operating expenses increased by $10 million, from $628 million in 2016 to $638 million in 2017. The increase is primarily due to increases in space and equipment rentals and repairs and maintenance. Other nonoperating expenses, which includes the loss on disposal of capital assets, were $8 million in 2017 and 2016.

In accordance with the GASB reporting standards, operating losses were $624 million in 2017 and $889 million in 2016. The operating losses were partially offset by $573 million and

$525 million of net nonoperating revenues in 2017 and 2016, respectively. Although these amounts are classified as nonoperating for financial reporting purposes they are considered as support for the core operating activities of UC Davis. Expenses associated with core activities in 2017 and 2016 exceeded revenue available to support core activities by $51 million and $364 million, respectively.

Other Nonoperating Activities UC Davis other nonoperating activities, consisting of net appreciation or depreciation in the fair value of investments, are noncash transactions and, therefore, are not available to support operating expenses. In 2017, UC Davis recognized net appreciation in the fair value of investments of $123 million compared to net depreciation of $54 million in 2016. The Campus investment portfolio experienced positive returns in the equity markets in 2017 as compared to the negative net returns experienced in 2016.

Other Changes in Net Position Other changes in net position are generally not available to support the Campus operations in the current year. Capital gifts and grants may only be used for the purchase or construction of the specified capital assets. Only income earned from gifts of permanent endowments is available in future years to support the specified program.

Salaries and wages Retiree health bene"ts Scholarships and fellowships Utilities Supplies and materials Depreciation and amortization Other employee beneifts Pension bene"ts

$231

$221

$474

$458 Interest expense Other expenses

$646

$636

$55

$65

$38

$35

$88

$89 2017 2016 (RESTATED)

$472

$451

$240

$289

$302

$421

$2,194

$2,046 (in millions of dollars)

EXPENSES ASSOCIATED WITH CORE ACTIVITIES UC Davis Financial Report 2016-17 44 45

UCDavis Cash Flows The statement of cash flows presents detailed information about the cash activity of the institution during the year. The statement is divided into four parts. The first part represents operating cash flows and shows the net cash used in operating activities. The second section reflects cash flows from noncapital financing activities and includes cash received for state educational appropriations, gifts received for noncapital purposes, intercampus transfers and for activities other than those for operating, investing and capital financing purposes. The third section reflects the cash flows from capital and related financing activities and includes cash used for the acquisition and construction of capital and related items. The fourth section summarizes cash flows from investing activities and illustrates the purchases, proceeds and interest received from investing activities.

A summary comparison of cash flows for 2017 and 2016 is as follows:

(in millions of dollars) 2017 RESTATED 2016 CHANGE CASH PROVIDED BY (USED IN):

Operating activities

($301)

($298)

($3)

Noncapital financing activities 631 573 58 Capital and related financing activities (225)

(309) 84 Investing activities (1)

(102) 101 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 104 (136) 240 Cash and cash equivalents, beginning of the year 630 766 (136)

CASH AND CASH EQUIVALENTS, END OF THE YEAR

$734

$630

$104 UC Davis cash increased by $104 million from

$630 million in 2016 to $734 million in 2017.

Substantially all of UC Davis cash is invested in STIP managed by the Chief Investment Officer of the Regents and considered demand deposits.

The increase in cash is primarily due to the increase in the Medical Centers cash balance of

$163 million.

In 2017, cash of $301 million was used for operating activities, offset by $631 million in cash provided by noncapital financing activities.

Cash used in capital and related financing activities totaled $225 million in 2017, primarily the result of capital assets acquired during the year and principal and interest paid on debt and capital leases. Net cash used in investing activities totaled $1 million in 2017. The cash expended for investing activities included net investment income of $46 million offset by net purchases of investments exceeding proceeds by $47 million.

Looking Forward The University of California is part of a world center of learning, known for generating a steady stream of talent, knowledge and social benefits, and has always been at the center of Californias capacity to innovate. The excellence of its programs attracts the best students, leverages hundreds of millions of dollars in state, federal and private funding and promotes discovery of new knowledge that fuels economic growth.

The budget framework agreed to with the governor provides the University with base budget adjustments of up to 4 percent annually through 2019. The framework also called for modest tuition increases, generally pegged to the rate of inflation beginning in 2018, with approximately one-third of the increase directed to financial aid. The Student Services Fee is expected to continue to be increased by 5 percent annually with the customary one-third of the increase being directed to financial aid. Fifty percent of the remaining revenue generated from the increase will be used to enhance student mental health services and the remaining 50 percent will be distributed to support other student services programs. The framework also acknowledged the Universitys plan to increase nonresident supplemental tuition by up to 8 percent in 2016 and 2017 and up to 5 percent each year thereafter. The Regents are expected to approve varying annual increases to professional degree supplemental tuition for all professional programs except law, which will not be eligible for increases until 2019 under the terms of an agreement with the Governor. In addition to these funding elements, the budget framework includes a number of performance-related provisions. The state budget for 2018 also includes one-time funds of $169 million for UCRP.

The UC Davis campus remains highly competitive in attracting federal grants and contracts revenue, with fluctuations in the awards received closely paralleling trends in the budgets of federal research granting agencies. More than half of the Campus federal research revenue comes from two agencies, the Department of Health and Human Services, primarily through the National Institutes of Health, and the National Science Foundation. Other agencies that figure prominently in the Campus awards are the Department of Education, Department of Defense, Department of State and the Department of Agriculture.

In July 2017, the Regents approved increasing the University contribution rate for UCRP to 15 percent (from 14 percent) effective July 1, 2018.

The University funds retiree health benefits on a pay-as-you-go basis.

Although the Medical Center demonstrated positive operating margins in 2017, financial and regional market competition, along with the added costs and responsibilities related to functioning as an academic institution continue to be challenges facing this organization. The demand for health care services and the cost of providing them continue to increase significantly.

In addition to the rising costs of salaries, benefits and medical supplies faced by hospitals across the state, along with the costs of maintaining and upgrading facilities, the Medical Center also faces additional costs associated with new technologies, biomedical research, the education and training of health care professionals and the care for a disproportionate share of the medically underserved in California. Other than Medicare and Medi-Cal (Californias Medicaid Program),

health insurance payments do not recognize the added cost of teaching in their payment to UC Davis Financial Report 2016-17 46 47

academic medical centers. The growth in costs of publicly funded programs and health care reform will likely continue to reduce rates or limit payment growth, placing downward pressure on operating results for the UC Davis Medical Center.

The Campus must have a balanced array of many categories of facilities to meet its education, research and public service goals and continues to assess long-term capital requirements. Support for the Campus capital program is expected to be provided from a combination of sources, including the state of California, external financing, gifts and other sources.

Additional UC Davis budget information can be found at http://budget.ucdavis.edu. Additional University of California budget information can be found at http://universityofcalifornia.edu/news/

budget/welcome.html. Additional information concerning state budget matters and the states financial condition may be found on the State of California Department of Finance website at:

http://www.dof.ca.gov.

Cautionary Note Regarding Forward-Looking Statements Certain information provided by UC Davis, including written as outlined above or oral statements made by its representatives, may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts which address activities, events or developments that UC Davis expects or anticipates will or may occur in the future contain forward-looking information.

In reviewing such information it should be kept in mind that actual results may differ materially from those projected or suggested in such forward-looking information. This forward-looking information is based upon various factors and was derived using various assumptions. UC Davis does not undertake to update forward-looking information contained in this report or elsewhere to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking information.

University of California, Davis STATEMENTS OF NET POSITION AT JUNE 30, 2017 AND 2016 (in thousands of dollars)

UCDAVIS UCDAVIS FOUNDATION 2017 RESTATED 2016 2017 2016 ASSETS Cash and cash equivalents

$733,951

$629,882

$14,761

$18,097 Short term investments 105,588 14,364 Investments held by trustees 1,668 1,663 Accounts receivable, net 517,399 495,618 Pledges receivable, net 1,328 2,635 6,393 22,908 Notes and mortgages receivable, net 10,393 10,233 Inventories 41,199 37,216 Other current assets 64,103 62,033 CURRENT ASSETS 1,475,629 1,253,644 21,154 41,005 Investments 1,655,219 1,576,096 412,092 338,123 Investments held by trustees 3,263 3,260 Pledges receivable, net 1,439 1,244 26,631 9,343 Notes and mortgages receivable, net 73,254 74,294 Capital assets, net 3,298,211 3,225,128 Other noncurrent assets 18,194 18,837 NONCURRENT ASSETS 5,049,580 4,898,859 438,723 347,466 TOTAL ASSETS 6,525,209 6,152,503 459,877 388,471 DEFERRED OUTFLOWS OF RESOURCES 841,162 1,481,115 LIABILITIES Accounts payable 167,905 164,646 Accrued salaries and benefits 117,893 185,287 Unearned revenue 152,480 131,605 Commercial paper 72,507 43,876 Current portion of long-term debt 155,895 156,843 Funds held for others 720 682 Other current liabilities 248,294 271,816 CURRENT LIABILITIES 914,974 954,073 720 682 Federal refundable loans 59,902 58,086 Obligations under life income agreements 5,323 5,205 Long-term debt 1,538,305 1,441,361 Net pension liability 1,581,020 2,128,418 Pension payable to the University 566,321 503,269 Net retiree health benefits liability 2,887,576 3,280,085 Other noncurrent liabilities 142,994 137,935 384 339 NONCURRENT LIABILITIES 6,776,118 7,549,154 5,707 5,544 TOTAL LIABILITIES 7,691,092 8,503,227 6,427 6,226 DEFERRED INFLOWS OF RESOURCES 979,426 560,840 NET POSITION Net investment in capital assets 1,663,155 1,640,537 Restricted:

Nonexpendable:

Endowments and gifts 121,212 118,923 245,988 218,394 Expendable:

Endowments and gifts 549,702 483,328 205,347 161,639 Other, including loans, capital projects, endowment income, debt service and appropriations 180,216 186,590 Unrestricted (3,818,432)

(3,859,827) 2,115 2,212 TOTAL NET POSITION

($1,304,147)

($1,430,449)

$453,450

$382,245 See accompanying Notes to Financial Statements.

UC Davis Financial Report 2016-17 48 49

University of California, Davis STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEARS ENDED JUNE 30, 2017 AND 2016 University of California, Davis STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 2017 AND 2016 (in thousands of dollars)

UCDAVIS UCDAVIS FOUNDATION 2017 RESTATED 2016 2017 2016 OPERATING REVENUES Student tuition and fees, net

$571,058

$526,931 Grants and contracts, net:

Federal 396,905 391,549 State 131,982 146,606 Private 141,431 143,188 Local 18,208 11,516 Sales and services:

Medical center, net 2,147,374 1,935,274 Educational activities, net 444,969 402,167 Auxiliary enterprises, net 97,569 96,290 Campus foundation private gifts

$37,532

$31,400 Other operating revenues, net 103,361 96,277 800 76 TOTAL OPERATING REVENUES 4,052,857 3,749,798 38,332 31,476 OPERATING EXPENSES Salaries and wages 2,193,578 2,045,962 Pension benefits 301,796 420,988 Retiree health benefits 239,773 289,405 Other employee benefits 472,202 450,761 Scholarships and fellowships 88,371 89,308 Utilities 37,731 35,334 Supplies and materials 473,984 457,921 Depreciation and amortization 230,530 220,563 Campus foundation grants 40,063 33,590 Other operating expenses 639,029 628,415 249 270 TOTAL OPERATING EXPENSES 4,676,994 4,638,657 40,312 33,860 OPERATING LOSS (624,137)

(888,859)

(1,980)

(2,384)

NONOPERATING REVENUES (EXPENSES)

State educational appropriations 432,363 412,356 Build America Bonds federal interest subsidies 1,749 1,749 Federal Pell grants 52,098 51,621 Private gifts, net 84,789 74,314 Investment income, net 46,472 46,077 2,551 2,475 Net appreciation (depreciation) in fair value of investments 122,916 (54,051) 43,409 (14,673)

Interest expense (55,388)

(65,159)

Loss on disposal of capital assets (8,194)

(8,089)

Other nonoperating revenues (expenses) 19,168 12,747 NET NONOPERATING REVENUES (EXPENSES) 695,973 471,565 45,960 (12,198)

INCOME (LOSS) BEFORE OTHER CHANGES IN NET POSITION 71,836 (417,294) 43,980 (14,582)

OTHER CHANGES IN NET POSITION Capital gifts and grants, net 9,894 9,519 Permanent endowments 2,380 2,059 27,225 12,473 Other changes in net position 42,192 16,868 OTHER CHANGES IN NET POSITION 54,466 28,446 27,225 12,473 INCREASE (DECREASE) IN NET POSITION 126,302 (388,848) 71,205 (2,109)

NET POSITION Beginning of year, as previously reported (1,430,449) 1,596,562 382,245 384,354 Cumulative effect of accounting changes (2,638,163)

END OF YEAR

($1,304,147)

($1,430,449)

$453,450

$382,245 See accompanying Notes to Financial Statements.

(in thousands of dollars)

UCDAVIS UCDAVIS FOUNDATION 2017 RESTATED 2016 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES Student tuition and fees

$564,797

$526,562 Grants and contracts 696,694 663,516 Medical center 2,144,037 1,906,322 Educational activities 441,591 408,917 Auxiliary enterprises 98,302 96,298 Collection of loans from students and employees 12,696 13,470 Campus foundation private gifts

$32,872

$14,303 Payments to employees (2,241,424)

(2,055,615)

Payments to suppliers and utilities (1,129,307)

(1,034,908)

Payments for benefits (847,043)

(761,976)

Payments for scholarships and fellowships (88,371)

(89,308)

Loans issued to students and employees (12,620)

(15,205)

Payments to campus and beneficiaries (40,063)

(33,590)

Other receipts 59,744 43,781 555 (194)

NET CASH USED IN OPERATING ACTIVITIES (300,904)

(298,146)

(6,636)

(19,481)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State educational appropriations 430,808 410,784 Federal Pell Grants 52,102 51,558 State hospital fee grants 2,583 5,567 Gifts received for other than capital purposes:

Private gifts for endowment purposes 2,380 2,059 21,874 10,697 Other private gifts 85,901 75,678 Other receipts (payments) 56,843 27,225 NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES 630,617 572,871 21,874 10,697 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Commercial paper financing:

Proceeds from issuance 72,712 76,190 Payments of principal (44,081)

(54,618)

Interest paid (160)

(137)

State capital appropriations (51)

Build America Bonds federal interest subsidies 1,749 1,750 Capital gifts and grants 32 Proceeds from debt issuance 432,253 93,198 Proceeds from the sale of capital assets 367 1,737 Purchase of capital assets (294,110)

(284,281)

Refinancing or prepayment of outstanding debt (251,587)

(13,765)

Principal paid on debt and capital leases (76,884)

(58,210)

Interest paid on debt and capital leases (65,055)

(70,468)

NET CASH USED IN CAPITAL AND RELATED FINANCING ACTIVITIES (224,796)

(308,623)

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments 414,165 136,797 27,218 17,570 Purchases of investments (461,599)

(283,446)

(48,343)

(13,891)

Investment income, net of investment expenses 46,586 44,561 2,551 2,476 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (848)

(102,088)

(18,574) 6,155 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 104,069 (135,986)

(3,336)

(2,629)

Cash and cash equivalents, beginning of year 629,882 765,868 18,097 20,726 CASH AND CASH EQUIVALENTS, END OF YEAR

$733,951

$629,882

$14,761

$18,097 See accompanying Notes to Financial Statements.

UC Davis Financial Report 2016-17 50 51

University of California, Davis STATEMENTS OF CASH FLOWS CONTINUED YEARS ENDED JUNE 30, 2017 AND 2016 University of California, Davis NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 AND 2016 ORGANIZATION The University of California (the University) was founded in 1868 as a public, state-supported institution.

The California State Constitution provides that the University shall be a public trust administered by the corporation, The Regents of the University of California, which is vested with full powers of organization and government, subject only to such legislative control necessary to ensure the security of its funds and compliance with certain statutory and administrative requirements. The majority of the 26-member independent governing board (the Regents) is appointed by the governor and approved by the state Senate. Various University programs and capital outlay projects are funded through appropriations from the states annual Budget Act.

The Universitys financial statements are discretely presented in the states basic financial statements as a component unit.

The University of California, Davis (UC Davis or the Campus) is one of the ten campuses, five medical centers and three national laboratories that constitute the University of California. Founded in 1908 as the University Farm, UC Davis has emerged as an acknowledged international leader in agriculture, veterinary medicine, biological, biotechnological and environmental sciences and is gaining similar recognition for excellence in the arts, humanities, social sciences, engineering, health sciences, education, law and management.

FINANCIAL REPORTING ENTITY The UC Davis financial statements included in this annual financial report present the combined activities of the Davis campus, including the UC Davis Medical Center. The University of California system is subject to an annual audit of the consolidated financial statements which includes UC Davis. The financial statements for UC Davis have not been separately audited.

The financial data of the Associated Students of UC Davis (ASUCD) for the years ending June 30, 2017 and 2016 has been included in the primary financial reporting entity because the Regents have certain fiduciary responsibilities for this organization.

Organizations that are not significant or for which UC Davis is not financially accountable, such as the alumni organization, are not included in the reporting entity.

The UC Davis Foundation (the Foundation) is a nonprofit, public-benefit corporation organized for the purpose of accepting and administering the full range of private contributions for the Campus. The economic resources received or held by the Foundation are entirely for the benefit of the Campus. Because of the nature and significance of their relationship with UC Davis, including their ongoing financial support, the Foundation is reported under Governmental Accounting Standards Board (GASB) requirements as a discretely presented component unit of UC Davis.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, using the economic resources measurement focus and the accrual basis of accounting. The University follows accounting principles issued by the GASB.

GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, was implemented by the University as of July 1, 2016. This Statement revises existing standards for measuring and reporting retiree health benefits provided by the University to its employees. This Statement requires recognition of a liability equal to the net retiree health benefit liability, which is measured as the total retiree health benefits liability, less the amount of the UCRHBTs fiduciary net position. The total retiree health benefits liability is determined based upon discounting projected benefit payments based on claims costs, the benefit terms and legal agreements existing at the UCRHBTs fiscal year end. Projected benefit payments are required to be discounted using a single rate that reflects the expected rate of return on investments, to the extent that plan assets are available to pay benefits, and a tax-exempt, high-quality municipal bond rate when plan assets are not available.

(in thousands of dollars)

UCDAVIS UCDAVIS FOUNDATION 2017 RESTATED 2016 2017 2016 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH USED IN OPERATING ACTIVITIES Operating loss

($624,137)

($888,859)

($1,980)

($2,384)

Adjustments to reconcile operating loss to net cash used in operating activities:

Depreciation and amortization expense 230,530 220,563 Loss on impairment of capital assets 1,384 1,742 Noncash gifts (3,887)

(3,744)

Allowance for doubtful accounts 6,373 (16,702)

(190) 375 Changes in assets and liabilities:

Receivables, net (25,837)

(25,338)

(583)

(13,732)

Investments held by trustees (5)

(2)

Inventories (3,983)

(3,358)

Deferred charges (2,889)

(8,261)

Other assets 1,462 4,499 Accounts payable 3,262 21,228 4

4 Accrued salaries and benefits (67,394)

(22,331)

Unearned revenue 20,875 (1,967)

Net pension liability (61,669) 81,195 Net retiree health benefits liability 175,436 228,121 Other liabilities 45,688 111,324 NET CASH USED IN OPERATING ACTIVITIES

($300,904)

($298,146)

($6,636)

($19,481)

SUPPLEMENTAL NONCASH ACTVITIES Capital assets acquired through capital leases

$2,574 Capital assets acquired with liability at year-end 22,352

$20,666 Gifts of capital assets 10,391 9,487 Other noncash gifts

$8,721

$4,571 See accompanying Notes to Financial Statements.

UC Davis Financial Report 2016-17 52 53

The Statement requires that most changes in the net retiree health benefits liability be included in retiree health benefits expense in the period of change.

To implement Statement No. 75, UC Davis recorded its pro rata share of the Universitys net retiree health benefits liability and restated the 2016 financial statements for purposes of presenting comparative information as of and for the year ended June 30, 2017. The effects of reporting Statement No. 75 in the Universitys financial statements as of and for the year ended June 30, 2016 were as follows:

Interest income is reported as non-operating revenue in the statements of revenues, expenses and changes in net position.

Additional information on cash and cash equivalents can be obtained from the Universitys 2016-2017 Annual Financial Report.

INVESTMENTS. Investments are measured and recorded at fair value. The Campus investments consist of investments in the UC Regents Total Return Investment Pool (TRIP) and General Endowment Pool (GEP). The basis of determining the fair value of pooled funds or mutual funds is determined as the number of units held in the pool multiplied by the price per unit share, computed on the last day of the month.

Securities are generally valued at the last sale price on the last business day of the fiscal year, as quoted on a recognized exchange or by utilizing an industry standard pricing service, when available. Securities for which no sale was reported as of the close of the last business day of the fiscal year are valued at the quoted bid price of a dealer who regularly trades in the security being valued. Certain securities may be valued on a basis of a price provided by a single source.

Investment transactions are recorded on the date the securities are purchased or sold (trade date). Realized gains or losses are recorded as the difference between the proceeds from the sale and the average cost of the investment sold. Dividend income is recorded on the ex-dividend date and interest income is accrued as earned. Gifts of securities are recorded at estimated fair value at the date of donation.

Additional information on investments can be obtained from the Universitys 2016-2017 Annual Financial Report.

FUNDS HELD BY TRUSTEES. The UC Davis campus has been named the irrevocable beneficiary for charitable remainder trusts for which the Campus is not the trustee.

Upon maturity of each trust, the remainder of the trust corpus will be transferred to the Campus. These funds cannot be sold, disbursed or consumed until a specified number of years have passed or a specific event has occurred. The Campus is also an income beneficiary of certain trusts where the assets are invested and administered by outside trustees.

Consistent with UC Davis recognition policy for pledges of endowments, receivables and contribution revenue associated with these trusts are not reflected in the accompanying financial statements. The Campus recognizes contribution revenue when all eligibility requirements have been met.

ACCOUNTS RECEIVABLE, NET. Accounts receivable, net of allowance for uncollectible amounts, includes reimbursements due from state and federal sponsors of externally funded research, patient billings, accrued income on investments held by the University, and other receivables. Other receivables include local government and private grants and contracts, educational activities, and amounts due from students and employees.

PLEDGES RECEIVABLE, NET. Unconditional pledges of private gifts, net of allowance for uncollectible amounts, are recorded as pledges receivable and revenue in the year pledged at the net present value of expected cash flows. Conditional pledges, including all pledges of endowments and intentions to pledge, are recognized as receivables and revenues when the specified conditions are met. Receivables and contribution revenue associated with externally held investment trusts are not reflected in the accompanying financial statements. UC Davis recognizes contribution revenue when all eligibility requirements have been met.

NOTES AND MORTGAGES RECEIVABLE, NET. Loans to students, net of allowance for uncollectible amounts, are provided from federal student loan programs and from other University sources. Home mortgage loans, primarily to faculty, are provided from the Universitys Short Term Investment Pool and from other University sources. Mortgage loans provided by the Short Term Investment Pool are classified as investments, and loans provided by other sources are classified as mortgages receivable in the statements of net position.

INVENTORIES. Inventories for the Campus, consisting primarily of supplies and merchandise for resale, are valued at cost, typically determined under the first-in-first-out (FIFO) or weighted average method, which is not in excess of net realizable value. Inventories for the medical center consist primarily of pharmaceuticals and medical supplies and are stated on a FIFO basis at the lower of cost or market.

CAPITAL ASSETS, NET. Land, infrastructure, buildings and improvements, software, intangible assets, equipment, libraries and collections and special collections are recorded at cost at the date of acquisition or estimated fair value at the date of donation in the case of gifts. Estimates of fair value involve assumptions and estimation methods that are uncertain and, therefore, the estimates could differ from actual value. Intangible assets include easements, land rights, trademarks, patents and other similar arrangements. Capital leases are recorded at the lower of the fair market value of the asset or the present value of future minimum lease payments. Significant Notes to Financial Statements In December 2015, the GASB issued Statement No. 78, Pensions Provided Through Certain Multiple-Employer Defined Benefit Pension Plans, effective for the Universitys fiscal year beginning July 1, 2016. This Statement amends the scope and applicability of Statement No. 68, Accounting and Financial Reporting for Pensions an Amendment of GASB Statement No. 27, to exclude pensions provided to employees of state or local governmental employers through cost-sharing, multiple-employer defined benefit pension plans that are not state or local governmental pension plans. This Statement establishes requirements for recognition and measurement of pension expense, expenditures and liabilities; note disclosures; and required supplementary information. Implementation of Statement No. 78 had no impact on the financial statements.

The adoption of Statements No. 75 and 78 did not result in any adjustments to the financial statements of the campus foundations or UCRS.

The significant accounting policies of UC Davis are as follows:

CASH AND CASH EQUIVALENTS. All University operating entities maximize the returns on their cash balances by investing in a Short Term Investment Pool (STIP) managed by the Chief Investment Officer of the Regents. The Regents are responsible for managing the Universitys STIP and establishing the investment policy, which is carried out by the Chief Investment Officer of the Regents.

Substantially all of UC Davis cash is deposited into STIP, and all UC Davis deposits into STIP are considered demand deposits except for certain deposits held for construction. None of these amounts are insured by the Federal Deposit Insurance Corporation.

(in thousands of dollars)

YEAR ENDING JUNE 30, 2016 AS PREVIOUSLY REPORTED EFFECT OF ADOPTION OF STATEMENT NO. 75 AS RESTATED STATEMENT OF NET POSITION Deferred outflows of resources

$779,548

$701,567

$1,481,115 Net retiree health benefits liability 3,280,085 3,280,085 Total liabilities 5,223,142 3,280,085 8,503,227 Deferred inflows of resources 273,074 287,766 560,840 Unrestricted (993,543)

(2,866,284)

(3,859,827)

Total net position

$1,435,835

($2,866,284)

($1,430,449)

STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Retiree health benefits

$48,331

$241,074

$289,405 Other employee benefits 464,480 (13,719) 450,761 Total operating expenses 4,404,289 234,368 4,638,657 Operating loss (657,587)

(231,272)

(888,859)

Operating loss before other changes in net position (189,173)

(228,121)

(417,294)

Change in net position (160,727)

(228,121)

(388,848)

Cumulative effect of restatements (2,638,163)

(2,638,163)

Net position, end of year

$1,435,835

($2,866,284)

($1,430,449)

UC Davis Financial Report 2016-17 54 55

additions, replacements, major repairs, and renovations to infrastructure and buildings are capitalized if the cost is $35,000 or more and if they have a useful life of more than one year. Minor renovations that do not meet the criteria for capitalization are charged to operations.

Equipment with a cost of $5,000 or more and a useful life of more than one year is capitalized. Incremental costs, including salaries and employee benefits, directly related to the acquisition, development and installation of major capital projects are included in the cost of the capital assets. All land, library collections, and special collections costs are capitalized.

Depreciation is calculated using the straight-line method over the estimated economic life of the asset.

Equipment under capital leases is amortized over the estimated useful life of the equipment. Leasehold improvements are amortized using the straight-line method over the shorter of the life of the applicable lease or the economic life of the asset.

Estimated economic lives are generally as follows:

YEARS Infrastructure 25 Buildings and improvements 15-33 Equipment 2-20 Computer software 3-7 Intangible assets 40 - Indefinite Library books and collections 15 - Indefinite Capital assets acquired through federal grants and contracts where the federal government retains a reversionary interest are capitalized and depreciated.

Inexhaustible capital assets, such as land and special collections that are protected, preserved and held for public exhibition, education or research, including art, museum, scientific and rare book collections, are not depreciated.

Interest on borrowings to finance facilities is capitalized during construction, net of any investment income earned on tax-exempt borrowings during the temporary investment of project-related borrowings.

SERVICE CONCESSION ARRANGEMENTS. UC Davis has entered into service concession arrangements with third parties for student housing and certain other faculty and student services. Under these arrangements, the Campus enters into ground leases with third parties at minimal or no cost, and gives the third party the right to construct, operate and maintain a facility, primarily for the benefit of students and faculty at competitive rates.

Rate increases for use of the facilities are subject to certain constraints and ownership of the facilities reverts to the Campus upon expiration of the ground lease. The facilities are reported as capital assets by the Campus when placed in service, and a corresponding deferred inflow of resources is reported. The Campus has not provided guarantees on financing obtained by the third parties under these arrangements.

INVESTMENT IN JOINT VENTURES. Certain medical centers, including the UC Davis Medical Center, have entered into joint-venture arrangements with various third-party entities that include home health services, cancer center operations and a health maintenance organization. Investments in these joint ventures are recorded using the equity method and are classified as noncurrent assets in the statements of net position. At June 30, 2017 the investment in joint ventures for the UC Davis Medical Center was $18.2 million.

UNEARNED REVENUE. Unearned revenue primarily includes amounts received from grant and contract sponsors that have not been earned under the terms of the agreement and other revenue billed in advance of the event, such as student tuition and fees for housing and dining services.

REFUNDABLE FEDERAL LOANS. Certain loans to students are administered by UC Davis with funding primarily supported by the federal government. UC Davis statement of net position includes both the notes receivable and the related federal refundable loan liability representing federal capital contributions owed upon termination of the program.

BOND PREMIUM. The premium received in the issuance of long-term debt is recorded as a component of long-term debt and is amortized as a reduction to interest expense over the term of the related long-term debt.

POLLUTION REMEDIATION OBLIGATIONS. Upon an obligating event, UC Davis estimates the components of any expected pollution remediation costs and recoveries from third parties. The costs, estimated using the expected cash flow technique, are accrued as a liability. Pollution remediation liabilities generally involve groundwater, soil and sediment contamination at certain sites where state and other regulatory agencies have indicated that the Campus is among the responsible parties. The liabilities are revalued annually and may increase or decrease the cost of recovery from third parties, if any, as a result of additional information that refines the estimates, or from payments made from revenue sources that support the activity. There were no expected recoveries at June 30, 2017 and 2016 reducing the pollution remediation liability.

DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES. Deferred outflows of resources and deferred inflows of resources represent a consumption and acquisition of net position that applies to a future period, respectively. UC Davis classifies gains on refunding of debt as deferred inflows of resources and losses as deferred outflows of resources and amortizes such amounts as a component of interest expense over the remaining life of the old debt, or the new debt, whichever is shorter.

Payments received or to be received by UC Davis from service concession arrangements are reported as deferred inflows of resources.

Changes in net pension liability not included in pension expense are reported as deferred outflows of resources or deferred inflows of resources. Employer contributions subsequent to the measurement date of the net pension liability are reported as deferred outflows of resources.

NET POSITION. Net position is required to be classified for accounting and reporting purposes into the following categories:

NET INVESTMENT IN CAPITAL ASSETS. This category includes all of UC Davis capital assets, net of accumulated depreciation, reduced by outstanding debt attributable to the acquisition, construction or improvement of those assets.

RESTRICTED. UC Davis classifies the net position resulting from transactions with purpose restrictions as restricted net position until the resources are used for the required purpose or for as long as the provider requires the resources to remain intact.

NONEXPENDABLE. The net position subject to externally imposed restrictions, which must be retained in perpetuity by UC Davis, is classified as nonexpendable net position. This includes UC Davis permanent endowment funds.

EXPENDABLE. The net position whose use by UC Davis is subject to externally imposed restrictions that can be fulfilled by actions of UC Davis pursuant to those restrictions, or that expire by the passage of time, are classified as expendable net position.

UNRESTRICTED. The net position that is not subject to externally imposed restrictions governing their use is classified as unrestricted net position. UC Davis unrestricted net position may be designated for specific purposes by management or the Regents. Substantially, all of UC Davis unrestricted net position is allocated for academic and research initiatives or programs, for capital programs or for other purposes.

Expenses are charged to either restricted or unrestricted net position based upon a variety of factors, including consideration of prior and future revenue sources, the type of expense incurred, UC Davis budgetary policies surrounding the various revenue sources or whether the expense is a recurring cost.

REVENUES AND EXPENSES. Operating revenues of UC Davis include receipts from student tuition and fees, grants and contracts for specific operating activities, and sales and services from the medical center, educational activities and auxiliary enterprises.

Operating expenses incurred in conducting the programs and services of UC Davis are presented in the statements of revenues, expenses and changes in net position as operating activities.

Certain significant revenues relied upon and budgeted for fundamental operational support of the core instructional mission of UC Davis are mandated by the GASB standards to be reported as nonoperating revenues, including state educational appropriations, certain federal grants for student financial aid, private gifts and investment income, since the GASB does not consider them to be related to the principal operating activities of UC Davis.

Nonoperating revenues and expenses include state financing appropriations, state hospital fee program grants, Build America Bonds federal interest subsidies, Federal Pell grants, private gifts for other than capital purposes, investment income, net appreciation or depreciation in the fair value of investments, interest expense, and loss on the disposal of capital assets.

State capital appropriations, capital gifts and grants and gifts for endowment purposes are classified as other changes in net position.

STUDENT TUITION AND FEES. Substantially all of the student tuition and fees provide for current operations of UC Davis.

UC Davis recognizes certain scholarship allowances as the difference between the stated charge for tuition and fees, housing and dining charges, recreational center and other fees, and the amount that is paid by the student, as well as third parties making payments on behalf of the student. Payments of financial aid made directly to students are classified as scholarship and fellowship expenses.

Notes to Financial Statements UC Davis Financial Report 2016-17 56 57

Scholarship allowances recorded as an offset to revenues in the statements of revenues, expenses and changes in net position for the years ended June 30 are as follows:

(in thousands of dollars) 2017 2016 Student tuition and fees

$146,508

$139,220 Auxiliary enterprises 27,410 23,501 Other operating revenues 13,611 12,625 SCHOLARSHIP ALLOWANCES

$187,529

$175,346 STATE APPROPRIATIONS. The state of California provides appropriations to the University on an annual basis and UC Davis receives an allocation of these funds. State educational appropriations are recognized as nonoperating revenue; however, the related expenses for educational, retirement or specific operating purposes are reported as operating expenses. State financing appropriations provide for principal and interest payments associated with lease-purchase agreements with the State Public Works Board and are also reported as nonoperating revenue.

State appropriations for capital projects are recorded as revenue under other changes in net position when the related expenditures are incurred. Special state appropriations, such as AIDS, tobacco, and breast cancer research, are reported as grant operating revenue.

GRANT AND CONTRACT REVENUE. UC Davis receives grant and contract revenue from governmental and private sources. Revenue associated with the direct costs of sponsored programs is recognized as the related expenditures are incurred. Recovery of facilities and administrative costs of federally sponsored programs is at cost reimbursement rates negotiated with UC Davis federal cognizant agency, the U.S. Department of Health and Human Services. For the fiscal year ended June 30, 2017, the facilities and administrative cost recovery totaled $131 million; $93 million from federally sponsored programs and $38 million from other sponsors. For the fiscal year ended June 30, 2016, the facilities and administrative cost recovery totaled $127 million; $89 million from federally sponsored programs and $38 million from other sponsors.

MEDICAL CENTER REVENUE. Medical center revenue is reported at the estimated net realizable amounts from patients, third-party payors including Medicare, Medi-Cal, and others, for services rendered, as well as estimated retroactive adjustments under reimbursement agreements with third-party payors.

Laws and regulations governing Medicare and Medi-Cal are complex and subject to interpretation. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined. It is reasonably possible that estimated amounts accrued could change significantly based upon settlement, or as additional information becomes available.

NET PENSION LIABILITY. The University of California Retirement Plan (UCRP) provides retirement benefits to retired employees of UC Davis. UC Davis is required to contribute to UCRP at a rate set by the Regents.

Net pension liability includes the Campus share of the Universitys net pension liability for UCRP. The Campus share of net pension liability, deferred inflows of resources, deferred outflows of resources and pension expense have been determined based upon its proportionate share of covered compensation for the fiscal year. The fiduciary net position and changes in the fiduciary net position of UCRP have been measured consistent with the accounting policies used by the Plan. For purposes of measuring UCRPs fiduciary net position, investments are reported at fair value and benefit payments are recognized when due and payable in accordance with the benefit terms.

The net pension liability is measured as the total pension liability, less the amount of the pension plans fiduciary net position. The fiduciary net position and changes in net position of the defined benefit plans has been measured consistent with the accounting polices used by the plans. The total pension liability is determined based upon discounting projected benefit payments based on the benefit terms and legal agreements existing at the pension plans fiscal year end. Projected benefit payments are discounted using a single rate that reflects the expected rate of return on investments, to the extent that plan assets are available to pay benefits, and a tax-exempt, high-quality municipal bond rate when plan assets are not available.

Pension expense is recognized for benefits earned during the period, interest on the unfunded liability and changes in benefit terms. The differences between expected and actual experience and changes in assumptions about future economic or demographic factors are reported as deferred inflows or outflows and are recognized over the average expected remaining service period for employees eligible for pension benefits. The differences between expected and actual returns are reported as deferred inflows or outflows and are recognized over five years.

PENSION PAYABLE TO UNIVERSITY. Additional deposits in UCRP have been made using University resources to make up the gap between the approved contribution rates and the required contributions based on the Regents funding policy. These deposits, carried as internal loans by the University, are being repaid by the Campus, plus accrued interest, over a thirty-year period through a supplemental pension assessment.

The Campus share of the internal loans has been determined based upon their proportionate share of covered compensation for the fiscal year. Supplemental pension assessments are reported as pension expense by the Campus. Additional deposits in UCRP by the University, and changes in the Campus share of the internal loans, are reported as other changes in net position.

RETIREE HEALTH BENEFITS AND LIABILITY. The University provides retiree health benefits to retired employees of the Campus. The University established the UCRHBT to allow certain University locations and affiliates, including UC Davis, to share the risks, rewards and costs of providing for retiree health benefits and to accumulate funds on a tax-exempt basis under an arrangement segregated from University assets.

Contributions from the Campus to the UCRHBT are effectively made to a single-employer health plan administered by the University as a cost-sharing plan.

The Campus is required to contribute at a rate assessed each year by the University.

Net retiree health benefits liability includes the Campus share of the Universitys net retiree health benefits liability for UCRHBT. The Campus share of net retiree health benefits liability, deferred inflows of resources, deferred outflows of resources and retiree health benefits expense have been determined based upon their proportionate share of covered compensation for the fiscal year. The fiduciary net position and changes in net position of UCRHBT have been measured consistent with the accounting policies used by the trust. For purposes of measuring UCRHBTs fiduciary net position, investments are reported at fair value and benefit payments are recognized when due and payable in accordance with the benefit terms.

Additional information on the UCRHBT can be obtained from the Universitys 2016-2017 Annual Financial Report.

TRANSACTIONS WITH THE UNIVERSITY AND UNIVERSITY AFFILITATES. The Campus has various transactions with the University and University affiliates.

The University, as the primary reporting entity, has at its discretion the ability to transfer cash from the Campus at will (subject to certain restrictive covenants or bond indentures) and to use that cash at its discretion. UC Davis records revenue and expense transactions where direct and incremental economic benefits are received by the Campus.

Certain revenues and expenses are allocated from the University to UC Davis. Allocated revenues and expenses reported in the statements of revenues, expenses and changes in net position are managements best estimates of UC Davis arms-length receipt and payment of such amounts.

COMPENSATED ABSENCES. UC Davis accrues annual leave, including employer-related costs, for employees at rates based upon length of service and job classification and compensatory time based upon job classification and hours worked.

ENDOWMENT SPENDING. Under provisions of California law, the Uniform Prudent Management of Institutional Funds Act allows for investment income, as well as a portion of realized and unrealized gains, to be expended for the operational requirements of UC Davis programs.

During fiscal 2017 and 2016 the University approved an endowment payout of 4.75 percent. To the extent that net income earned (interest and dividends reduced by investment management fees) is less than distributable endowment income, net gains are appropriated in order to meet the approved payout rate.

TAX EXEMPTION. The University of California is recognized as a tax-exempt organization under the provisions of Section 501(c)(3) of the Internal Revenue Code (IRC). Because the University is a state institution, related income received by UC Davis is also exempt from federal tax under IRC Section 115(a). In addition, UC Davis is exempt from state income taxes imposed under the California Revenue and Taxation Code.

USE OF ESTIMATES. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Although management believes the estimates and assumptions are reasonable, they are based upon information available at the time the estimate or judgment is made, and actual amounts could differ from those estimates.

Notes to Financial Statements UC Davis Financial Report 2016-17 58 59

NEW ACCOUNTING PRONOUCEMENTS. In March 2016, the GASB issued Statement No. 81, Irrevocable Split-Interest Agreements, effective for the Universitys fiscal year beginning July 1, 2017. This statement addresses when Irrevocable Split-Interest Agreements constitute an asset for accounting and financial reporting purposes when the resources are administered by a third party.

The Statement also provides expanded guidance for circumstances in which the government holds the assets. The University is evaluating the effect that Statement No. 81 will have on its financial statements.

In December 2016, the GASB issued Statement No.

83, Certain Asset Retirement Obligations, effective for the Universitys fiscal year beginning July 1, 2018.

This Statement establishes guidance for determining the timing and pattern of recognition for liabilities and corresponding deferred outflow of resources related to asset retirement obligations. The Statement requires the measurement of an asset retirement obligation to be based on the best estimate of the current value of outlays expected to be incurred. The deferred outflow of resources associated with an asset retirement obligation will be measured at the amount of the corresponding liability upon initial measurement and generally recognized as an expense during the reporting periods that the asset provides service. Disclosure requirements include a general description of the asset retirement obligation and associated tangible capital assets, the source of the obligation to retire the assets, the methods and assumptions used to measure the liability, and other relevant information. The University is evaluating the effect that Statement No. 83 will have on its financial statements.

In January 2017, the GASB issued Statement No. 84, Fiduciary Activities, effective for the Universitys fiscal year beginning July 1, 2019. This Statement establishes criteria for identifying fiduciary activities of all state and local governments. Governments with activities meeting the criteria should present a statement of fiduciary net position and a statement of changes in fiduciary net position. This Statement describes four fiduciary funds that should be reported, if applicable: (1) pension (and other employee benefit) trust funds, (2) investment trust funds, (3) private-purpose trust funds and (4) custodial funds. Custodial funds generally should report fiduciary activities that are not held in a trust or equivalent arrangement that meets specific criteria. The University is evaluating the effect that Statement No. 84 will have on its financial statements.

In March 2017, the GASB issued Statement No. 85, Omnibus 2017, effective for the Universitys fiscal year beginning July 1, 2017. The Statement addresses practice issues that have been identified during implementation and application of certain GASB Statements including issues related to blending component units, goodwill, fair value measurement and application and post-employment benefits. The University is evaluating the effect Statement No. 85 will have on its financial statements.

In May 2017, the GASB issued Statement No. 86, Certain Debt Extinguishment Issues, effective for the Universitys fiscal year beginning July 1, 2017. This Statement establishes standards of accounting and financial reporting for in-substance defeasance transactions in which cash and other monetary assets acquired with resources other than the proceeds of the refunding debt are placed in an irrevocable trust for the sole purpose of extinguishing debt. In addition, this Statement revises existing standards for prepaid insurance associated with extinguished debt. The University is evaluating the effect Statement No. 86 will have on its financial statements.

In June 2017, the GASB issued Statement No. 87, Leases, effective for the Universitys fiscal year beginning July 1, 2020. This Statement establishes a single approach to accounting for and reporting leases based on the principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources. Limited exceptions to the single-approach guidance are provided for short-term leases, defined as lasting a maximum of twelve months at inception, including any options to extend, financed purchases, leases of assets that are investments and certain regulated leases. The University is evaluating the effect Statement No. 87 will have on its financial statements.

1. Cash and Cash Equivalents The University maintains centralized management for substantially all of its cash and cash equivalents. UC Daviss cash and cash equivalents consists of cash in demand deposit accounts and cash in the University STIP.

Cash in UC Davis demand deposit accounts is minimized by sweeping available cash balances into the Universitys investment accounts on a daily basis. At June 30, 2017 and 2016, the carrying amount of UC Davis STIP balance and demand deposits, generally held in nationally recognized banking institutions, was $734 million and $630 million, respectively and bank balances were $729 million and $625 million, respectively. The difference between the carrying amount and the bank balance is due to outstanding transfers, checks, and other reconciling items. UC Davis deposits in demand deposit accounts are uninsured and uncollateralized. UC Davis does not have significant exposure to foreign currency risk in its cash and cash equivalents.

A portion of UC Davis cash is deposited by the University into STIP. STIP allows UC Davis to maximize its returns on its short-term cash balances by taking advantage of the economies of scale of investing in a large pool with a broad range of maturities and is managed to maximize current earned income. Cash to provide for payroll, construction expenditures and other operating expenses is invested in STIP. At June 30, 2017 and 2016, the carrying amount of UC Davis STIP was

$742 million and $626 million, respectively.

Notes to Financial Statements

2. Investments The Regents, as the governing Board of the University, are responsible for the oversight of the Universitys investments and establishes an investment policy, which is carried out by the Universitys Chief Investment Officer. These investments are associated with the STIP, TRIP, GEP, and other investment pools managed by the Universitys Chief Investment Officer, or are separately invested.

UC Davis share of STIP is classified as cash and cash equivalents in the statements of net position.

The University does not maintain the composition of investments by investment type for each campus. The University managed commingled funds (UC pooled funds) serve as the core investment vehicle for UC Davis. A description of the funds used is as follows:

TRIP allows UC Davis the opportunity to maximize the return on its long-term working capital by taking advantage of the economies of scale of investing in a large pool across a broad range of asset classes. TRIP is managed to a total return objective and is intended to supplement STIP. Investments authorized by The Regents for TRIP include a diversified portfolio of equity, fixed income and alternative investments. The fair value of UC Davis investment in TRIP was $915.2 million and $913.0 million at June 30, 2017 and 2016, respectively.

GEP is an investment pool in which a large number of individual endowments participate in order to benefit from diversification and economies of scale. GEP is a balanced portfolio and the primary investment vehicle for endowed gift funds. Where donor agreements place constraints on allowable investments, assets associated with endowments are invested in accordance with the terms of the agreements. The fair value of UC Daviss investment in GEP was $740.0 million and $663.1 million at June 30, 2017 and 2016, respectively.

There are many factors that can affect the value of investments. In addition to market risk, credit risk, custodial credit risk, concentration of credit risk and foreign currency risk may affect both equity and fixed-income securities. Equity securities are affected by such factors as economic conditions, individual company earnings performance and market liquidity, while fixed-income securities are particularly sensitive to credit risk, inflation and changes in interest rates.

More detail about the University of Californias investments can be found in the Universitys 2016-2017 Annual Financial Report.

UC Davis Financial Report 2016-17 60 61

3. Investments Held by Trustees UC Davis has entered into agreements with trustees to maintain trusts for UC Davis long-term debt requirements, capital projects and landfill closure requirements. All investments held by trustees are insured, registered or held by the University of Californias trustee or custodial bank, as fiduciary for the bondholder or as an agent for the University.

The trust agreements permit trustees to invest in U.S. and state government or agency obligations, commercial paper or other corporate obligations meeting certain credit rating requirements.

Investments held by trustees for future landfill closure expenditures are in accordance with requirements of the California Integrated Waste Management Board and reported as current assets. The fair value of these investments was $1.7 million at June 30, 2017.

Investments held by trustees for endowment life annuities are reported as noncurrent assets. The fair value of these investments was $3.3 million at June 30, 2017.

UC Davis deposits into the trusts, or receipts from the trusts, are classified as a capital and related financing activity in the statements of cash flows if related to long-term debt requirements or capital projects. Investment transactions initiated by trustees in conjunction with the management of the trust assets and payments from the trust to third parties are not included in UC Davis statements of cash flows.

4. Accounts Receivable Accounts receivable and the allowances for uncollectable amounts are as follows:

(in thousands of dollars)

STATE AND FEDERAL GOVERNMENT MEDICAL CENTER LOCAL AND PRIVATE GRANTS AND CONTRACTS EDUCATIONAL ACTIVITIES OTHER TOTAL At June 30, 2017 Accounts receivable

$98,796

$361,297

$40,620

$36,068

$53,696

$590,477 Allowance for uncollectible amounts (5)

(61,991)

(237)

(10,461)

(384)

(73,078)

ACCOUNTS RECEIVABLE, NET

$98,791

$299,306

$40,383

$25,607

$53,312

$517,399 At June 30, 2016 Accounts receivable

$97,699

$344,223

$38,411

$37,483

$43,819

$561,635 Allowance for uncollectible amounts (11)

(49,962)

(246)

(15,253)

(545)

(66,017)

ACCOUNTS RECEIVABLE, NET

$97,688

$294,261

$38,165

$22,230

$43,274

$495,618 Other accounts receivable are primarily related to student tuition and fees and auxiliary enterprises.

The expense for uncollectible accounts have decreased the following revenues for the years ended June 30:

(in thousands of dollars) 2017 2016 Medical center

$108,876

$96,770 Educational activities 11,398 10,203 All other revenues 902 1,354 EXPENSE FOR UNCOLLECTIBLE ACCOUNTS

$121,176

$108,327 Notes to Financial Statements

5. Pledges Receivable The composition of pledges receivable at June 30 is summarized as follows:

(in thousands of dollars) 2017 2016 Total pledges receivable outstanding

$3,205

$4,460 Less: Unamortized discount to present value (40)

(38)

Allowance for uncollectible pledges (398)

(543)

TOTAL PLEDGES RECEIVABLE, NET

$2,767

$3,879 Less: Current portion of pledges receivable (1,328)

(2,635)

NONCURRENT PORTION OF PLEDGES RECEIVABLE

$1,439

$1,244 Future receipts under pledge agreements for each of the five fiscal years subsequent to June 30, 2017 and thereafter are as follows:

(in thousands of dollars)

Year ending June 30 2018

$1,725 2019 475 2020 366 2021 305 2022 134 2023-2024 200 TOTAL PAYMENTS ON PLEDGES RECEIVABLE

$3,205

6. Notes And Mortgages Receivable Notes and mortgages receivable, along with the allowance for uncollectible amounts, are as follows:

(in thousands of dollars)

CURRENT PORTION NONCURRENT PORTION NOTES MORTGAGES TOTAL At June 30, 2017 Notes and mortgages receivable

$11,237

$78,346

$334

$78,680 Allowance for uncollectible amounts (844)

(5,426)

NOTES AND MORTGAGES RECEIVABLE, NET

$10,393

$72,920

$334

$73,254 At June 30, 2016 Notes and mortgages receivable

$11,449

$79,760

$277

$80,037 Allowance for uncollectible amounts (1,216)

(5,743)

NOTES AND MORTGAGES RECEIVABLE, NET

$10,233

$74,017

$277

$74,294 UC Davis Financial Report 2016-17 62 63

7. Capital Assets, Net UCDavis capital asset activity for the years ended June 30, 2017 and 2016, is as follows:

(in thousands of dollars) 2015 ADDITIONS DISPOSALS 2016 ADDITIONS DISPOSALS 2017 ORIGINAL COST Land

$60,894

$65

($860)

$60,099

$1,222

$61,321 Infrastructure 213,356 2,470 215,826 8,152 223,978 Buildings & improvements 4,064,414 127,266 (4,724) 4,186,956 243,041

$(1,198) 4,428,799 Equipment 986,244 75,891 (39,073) 1,023,062 76,303 (45,992) 1,053,373 Software 78,504 2,850 (23,654) 57,700 7,986 (8,467) 57,219 Intangible assets 7,010 1,983 (1,741) 7,252 1,380 (1,384) 7,248 Libraries & collections 444,725 15,142 (849) 459,018 13,772 (273) 472,517 Special collections 46,703 4,214 (2) 50,915 6,053 56,968 Construction in progress 155,930 66,180 222,110 (44,351) 177,759 CAPITAL ASSETS, AT ORIGINAL COST

$6,057,780 296,061

($70,903)

$6,282,938

$313,558

($57,314)

$6,539,182 2015 DEPRECIATION &

AMORTIZATION DISPOSALS 2016 DEPRECIATION &

AMORTIZATION DISPOSALS 2017 ACCUMULATED DEPRECIATION AND AMORTIZATION Infrastructure

$96,367

$7,513

$103,880

$7,427

$111,307 Buildings & improvements 1,733,879 107,175

$(3,107) 1,837,947 130,082

$(1,046) 1,966,983 Equipment 693,423 82,251 (32,456) 743,218 69,880 (37,007) 776,091 Software 46,119 9,199 (22,806) 32,512 8,537 (8,467) 32,582 Intangible assets 2,684 1

2,685 13 2,698 Libraries & collections 324,111 14,424 (967) 337,568 14,591 (849) 351,310 ACCUMULATED DEPRECIATION AND AMORTIZATION

$2,896,583

$220,563

($59,336)

$3,057,810

$230,530

($47,369)

$3,240,971 CAPITAL ASSETS, NET

$3,161,197

$3,225,128

$3,298,211 Service concession arrangements with an original cost of $70 million are reported as buildings and improvements, with a corresponding $19 million and $18 million of accumulated depreciation at June 30, 2017 and 2016, respectively.

8. Debt The University directly finances the construction, renovation and acquisition of facilities and equipment, or for such other purposes as are authorized by the Regents for UC Davis and other UC campuses through the issuance of debt obligations or indirectly through structures that involve legally separate entities reported as blended component units.

Commercial paper and bank loans provide interim financing. Long-term financing includes revenue bonds, capital lease obligations and other borrowings.

UC Davis portion of the University of Californias outstanding debt at June 30 is as follows:

(in thousands of dollars)

INTEREST RATE RANGE PRINCIPLE PAYMENT TERMS 2017 RESTATED 2016 THE REGENTS OF THE UNIVERSITY OF CALIFORNIA:

General Revenue Bonds Fixed Rate 1.0 - 7.6%

Through 2115

$907,445

$896,535 Variable Rate 0.9 - 1.1%

Through 2048 88,603 88,603 Medical Center Pooled Revenue Bonds 0.9 - 5.3%

Through 2047 337,570 282,054 Limited Project Revenue Bonds 1.0 - 6.3%

Through 2046 218,719 223,898 Unamortized bond premium 134,007 94,603 REVENUE BONDS 1,686,344 1,585,693 Mortgages and other borrowings Various Through 2018 5,520 11,952 Capital lease obligations 1.3 - 2.25%

Through 2021 2,336 559 TOTAL DEBT OBLIGATIONS 1,694,200 1,598,204 Less: Amounts due within one year (155,895)

(156,843)

NONCURRENT PORTION OF DEBT

$1,538,305

$1,441,361 Total interest expense for the years ended June 30, 2017 and 2016 was $55 million and $65 million, respectively.

Notes to Financial Statements UC Davis Financial Report 2016-17 64 65

Outstanding Debt Activity Activity with respect to UC Davis current and noncurrent debt for the years ended June 30 is as follows:

(in thousands of dollars)

REVENUE BONDS MORTGAGES AND OTHER BORROWINGS CAPITAL LEASE OBLIGATIONS TOTAL Year ended June 30, 2017 Current portion

$145,256

$11,333

$254

$156,843 Reclassification from noncurrent 84,435 668 1,193 86,296 Principal payments (69,606)

(6,481)

(797)

(76,884)

Amortization of deferred premium (10,360)

(10,360)

CURRENT PORTION

$149,725

$5,520

$650

$155,895 Noncurrent portion

$1,440,437

$619

$305

$1,441,361 New obligations 432,204 49 2,574 434,827 Refinancing or prepayment of debt (251,587)

(251,587)

Reclassification to current (84,435)

(668)

(1,193)

(86,296)

NONCURRENT PORTION

$1,536,619

$0

$1,686

$1,538,305 Year ended June 30, 2016 (RESTATED)

Current portion

$142,294

$15,652

$854

$158,800 Reclassification from noncurrent 56,345 6,481 254 63,080 Principal payments (46,556)

(10,800)

(854)

(58,210)

Amortization of deferred premium (6,827)

(6,827)

CURRENT PORTION

$145,256

$11,333

$254

$156,843 Noncurrent portion

$1,417,349

$7,100

$559

$1,425,008 New obligations 93,198 93,198 Refinancing or prepayment of debt (13,765)

(13,765)

Reclassification to current (56,345)

(6,481)

(254)

(63,080)

NONCURRENT PORTION

$1,440,437

$619

$305

$1,441,361 Commercial Paper The University has a commercial paper program available which may be used for interim financing for capital assets, gift financed projects or working capital.

The programs liquidity is supported by available investments in STIP and TRIP. Commercial paper is collateralized by a pledge of the revenues derived from the ownership or operation of the projects financed and constitutes limited obligations of the University. There is no encumbrance, mortgage or other pledge of property securing commercial paper and the paper does not constitute general obligations of the University.

UC Davis commercial paper outstanding at June 30, 2017 and 2016 was $73 million and $44 million, respectively. Unallocated commercial paper available to draw at June 30, 2017 and 2016 was $180 million and

$221 million, respectively.

Revenue Bonds Revenue bonds have financed various auxiliary, administrative, academic and research facilities of UC Davis. They have annual principal and semiannual interest payments, serial and term maturities, contain sinking fund requirements and may have optional redemption provisions.

General Revenue Bonds are collateralized solely by general revenues defined in the indenture as certain operating and nonoperating revenues consisting of gross student tuition and fees; facilities and administrative cost recovery from contracts and grants; revenues from educational, auxiliary, and other activities and other revenues, including unrestricted investment income. The General Revenue Bond indenture requires the University to set rates, charges, and fees each year sufficient for general revenues to pay for the annual principal and interest on the bonds and certain other financial covenants. UC Davis general revenues for the years ended June 30, 2017 and 2016 were $1.5 billion and $1.4 billion, respectively.

Limited Project Revenue Bonds are issued to finance auxiliary enterprises and are collateralized by a pledge consisting of the sum of the gross revenues of the specific projects. The bonds are not collateralized by any encumbrance, mortgage or other pledge of property, except pledged revenues, and do not constitute general obligations of the Regents. The indenture requires the University to achieve the sum of gross project revenues equal to 1.1 times debt service and maintain certain other financial covenants.

Medical Center Pooled Revenue Bonds are issued to finance the University of California medical centers and are collateralized by a joint and several pledge of the gross revenues of all five of the Universitys medical centers. Medical center gross revenues are excluded from General Revenues. The Medical Center Pooled Revenue Bond indenture requires the medical centers to set rates, charges and fees each year sufficient for the medical center gross revenues to pay for the annual principal and interest on the bonds and certain other financial covenants.

The pledge of revenues under Limited Project Revenue Bonds is subordinate to the pledge of revenues associated with projects financed with General Revenue Bonds, but senior to pledges for commercial paper notes. Medical center gross revenues are not pledged for any purpose other than under the indentures for the Medical Center Pooled Revenue Bonds.

All indentures permit the University to issue additional bonds as long as certain conditions are met.

Notes to Financial Statements UC Davis Financial Report 2016-17 66 67

2017 Activity In August 2016, Medical Center Pooled Revenue Bonds totaling $342.4 million, including $276.7 million of fixed-rate bonds and $65.7 million variable-rate demand bonds, were issued to finance and refinance certain facilities and projects of the Medical Center. Proceeds for the UC Davis Medical Center, including a net bond premium of $48.4 million, were used to pay for project construction, and issuance costs, and to refund $265.2 million of outstanding Medical Center Pooled Revenue Bonds. The bonds mature at various dates through 2047. The tax-exempt and taxable bonds have a stated weighted average interest rate of 4.5 percent and 3.0 percent, respectively. The refunding of the outstanding Medical Center Pooled Revenue Bonds resulted in a loss of $9.5 million, recorded as a deferred outflow of resources that will be amortized as interest expense over the term of the refunded bonds. The deferred premium will be amortized as a reduction to interest expense over the term of the bonds. Medical Center gross revenues continue to be pledged under the Indenture for the Medical Center Pooled Revenue Bonds.

In April 2017, General Revenue Bonds totaling $36.2 million, including $34.7 million in tax-exempt bonds and

$1.5 million in taxable bonds, were issued to finance certain projects and working capital purposes of the Campus. The bonds mature at various dates through 2047 and the taxable fixed rate notes mature in 2028.

Proceeds, including a bond premium of $5.2 million, were used to pay for project construction and issuance costs. The tax-exempt bonds have a stated weighted average interest rate of 4.8 percent. The taxable bonds have a stated weighted average interest rate of 3.8 percent. The deferred premium will be amortized as a reduction to interest expense over the term of the bonds.

2016 Activity In April 2016, General Revenue Bonds totaling $72.9 million, including $56.1 million in tax-exempt bonds and $16.8 million in taxable bonds were issued to finance or refinance certain facilities and projects of the University. The bonds mature at various dates through 2046. Proceeds for the campus, including a bond premium of $12 million, were used to pay for project construction and issuance costs and to refund $14 million of outstanding General Revenue Bonds. The refunding of the outstanding General Revenue Bonds resulted in a loss of $0.8 million, recorded as a deferred outflow of resources that will be amortized as interest expense over the remaining life of the refunded bonds. The taxable bonds have a stated weighted average interest rate of 3.5 percent. The tax-exempt bonds have a stated weighted average interest rate of 4.5 percent. The deferred premium will be amortized as a reduction to interest expense over the term of the bonds.

In June 2016, Limited Project Revenue Bonds totaling

$7.4 million, including $5.7 million tax-exempt bonds and

$1.7 million taxable bonds, were issued to finance certain construction projects of the University. The bonds mature at various dates through 2046. Proceeds for the campus, including a bond premium of $1 million, were used to pay for project construction and issuance costs. A loss of $0.2 million was recorded as a deferred outflow of resources that will be amortized as interest expense over the remaining life of the refunded bonds. The taxable bonds have a stated weighted average interest rate of 3.1 percent. The tax-exempt bonds have a stated weighted average interest rate of 4.3 percent. The deferred premium will be amortized as a reduction to interest expense over the term of the bonds.

Subsequent Events In September 2017, $48.4 million tax-exempt Limited Project Revenue Bonds were issued to finance the acquisition, construction, improvement and renovation of certain facilities of the Campus. The bonds mature at various dates through 2047. Proceeds, including a bond premium of $8.6 million, were used to pay for project construction and issuance costs. The tax-exempt bonds have a stated weighted average interest rate of 4.9 percent. The deferred premium will be amortized as a reduction to interest expense over the term of the bonds.

Capital Leases Capital leases entered into with other lessors, typically for equipment, totaled $2.6 million for the year ended June 30, 2017.

Other University Borrowings UC Davis may use uncollateralized revolving lines of credit with commercial banks to provide interim financing for buildings and equipment. Lines of credit commitments totaled $13 million at June 30, 2017.

Outstanding borrowings under these bank lines totaled

$5 million at June 30, 2017.

Future Debt Service Future debt service payments for each of the five fiscal years subsequent to June 30, 2017, and thereafter are as follows:

(in thousands of dollars)

REVENUE BONDS MORTGAGES AND OTHER BORROWINGS CAPITAL LEASE OBLIGATIONS TOTAL PAYMENTS PRINCIPAL INTEREST Year ending June 30 2018

$115,474

$5,523

$680

$121,677

$57,129

$64,548 2019 117,350 596 117,946 52,910 65,036 2020 115,346 596 115,942 52,951 62,991 2021 113,263 533 113,796 52,889 60,907 2022 111,693 111,693 53,078 58,615 2023 - 2027 525,894 525,894 280,055 245,839 2028 - 2032 407,952 407,952 221,833 186,119 2033 - 2037 376,018 376,018 240,732 135,286 2038 - 2042 299,609 299,609 216,611 82,998 2043 - 2047 220,220 220,220 172,866 47,354 2048 - 2052 52,900 52,900 19,139 33,761 2053 - 2115 556,025 556,025 140,000 416,025 TOTAL FUTURE DEBT SERVICE 3,011,744 5,523 2,405 3,019,672

$1,560,193

$1,459,479 Less: Interest component of future payments (1,459,407)

(3)

(69)

(1,459,479)

PRINCIPAL PORTION OF FUTURE PAYMENTS 1,552,337 5,520 2,336 1,560,193 Adjusted by:

Unamortized bond premium 134,007 134,007 TOTAL DEBT

$1,686,344

$5,520

$2,336

$1,694,200 General Revenue Bonds of $89 million are variable-rate demand bonds which reset weekly and, in the event of a failed remarketing, can be put back to the Regents for tender, therefore, UC Davis has classified these bonds as current liabilities as of June 30, 2017 and 2016.

Notes to Financial Statements UC Davis Financial Report 2016-17 68 69

10. Deferred Outflows And Inflows Of Resources The composition of deferred outflows and inflows of resources as of June 30 is summarized as follows:

(in thousands of dollars)

SERVICE CONCESSION ARRANGEMENTS NET PENSION LIABILITY NET RETIREE HEALTH BENEFITS LIABILITY DEBT REFUNDING TOTAL At June 30, 2017 Deferred outflows of resources

$172,058

$624,820

$44,284

$841,162 Deferred inflows of resources

$50,293 150169 778964 979,426 At June 30, 2016 Deferred outflows of resources

$729,160

$701,567

$50,388

$1,481,115 Deferred inflows of resources

$51,532 221542 287766 560,840 Notes to Financial Statements

9. Other Current and Noncurrent Liabilities UC Davis other liabilities as of June 30 are as follows:

(in thousands of dollars) 2017 RESTATED 2016 CURRENT NONCURRENT CURRENT NONCURRENT Compensated absences

$95,303

$63,511

$90,399

$58,959 Third-party payor settlement liability 128,503 157,176 Accrued interest 8,722 8,782 McClellan closure 17,593 17,593 Pollution remediation 56,136 56,366 Landfill closure 2,030 2,040 Other liabilities 15,766 3,724 15,459 2,977 TOTAL OTHER LIABILITIES

$248,294

$142,994

$271,816

$137,935 Pollution Remediation Liabilities Pollution remediation liabilities generally involve groundwater, soil and sediment contamination at certain sites where state and other regulatory agencies have indicated UC Davis is among the responsible parties.

The Campus reviews the liabilities annually and may increase or decrease the cost or recovery from third parties, if any, as a result of additional information that refines the estimates, or from payments made from revenue sources that support the activity. These estimates consider the investigative work and analysis of engineers, outside environmental consultants, and the advice of legal staff regarding the status and anticipated results of various administrative and legal proceedings.

In most cases, only a range of reasonably possible costs can be estimated. In establishing the Campus liability, the sum of probability-weighted amounts in a range of possible estimated amounts is used.

Accordingly, such estimates can change as the Campus periodically evaluates and revises these estimates as new information becomes available. The Campus cannot predict whether new information gained as projects progress will affect the estimated liability accrued. The timing of payment for estimated future environmental costs is influenced by a number of factors such as the regulatory approval process, and the time required to design, construct, and implement the remedy. There were no expected recoveries at June 30, 2017 reducing the pollution remediation liability.

McClellan Closure Liability In September 1999, the Regents of the University of California authorized UC Davis to acquire the McClellan Nuclear Radiation Center (MNRC) from the Department of Defense. The Nuclear Regulatory Commission license for this reactor requires that the majority (51 percent) of the workload be for the purposes of education and research. Legislation authorized the allocation of $17.6 million to UC Davis to cover the cost of the eventual decommissioning of the MNRC which is anticipated to occur in 2029. A fund functioning as an endowment has been established for these funds and the estimated decommission costs recorded as a liability.

Landfill Closure UC Davis has two landfill units. Unit I has a total capacity of nearly 252 thousand cubic yards and was closed in June 2001. Unit II is made up of 8 cells with a combined capacity of 703 thousand cubic yards and was closed as of August 2011 before reaching its full capacity.

State laws and regulations require UC Davis to perform certain maintenance and monitoring functions at each landfill site for 30 years after closure. In 2012, with the formal closing of the landfill, the full present value of the closure and post closure costs was reported for a total liability of $4 million.

UC Davis is required by state laws and regulations to make contributions to a trust to finance closure care. At June 30, 2017, investments of $1.7 million were held for these purposes.

11. Retirement Plans Substantially all full-time employees of UC Davis participate in the University of California Retirement System (UCRS) that is administered by the University. The UCRS consists of UCRP, a single-employer defined benefit pension plan, and the University of California Retirement Savings Program (UCRSP) that includes four defined contribution plans with several investment portfolios generally funded with employee non-elective and elective contributions. The Regents have the authority to establish and amend the benefit plans. Additional information on the retirement plans can be obtained from the 2016-2017 annual reports of the University of California Retirement System.

UNIVERSITY OF CALIFORNIA RETIREMENT PLAN.

UCRP provides lifetime retirement income, disability protection, death benefits, and post-retirement and pre-retirement survivor benefits to eligible employees of the University, and its affiliates. Membership is required in UCRP for all employees appointed to work at least 50 percent time for one year or more or for an indefinite period or for a definite period of a year or more. An employee may also become eligible by completing 1,000 hours0 days 0 hours 0 weeks 0 months within a 12-month period. Generally, five years of service are required for entitlement to plan benefits.

The amount of pension benefit is determined under the basic formula of covered compensation times age factor times years of service credit. The maximum monthly benefit cannot exceed 100 percent of the employees highest average plan compensation over a 36-month period, subject to certain limits imposed under the Internal Revenue Code. Annual cost-of-living adjustments (COLAs) are made to monthly benefits according to a specified formula based on the Consumer Price Index. Ad hoc COLAs may be granted subject to funding availability.

The Universitys membership in UCRP consisted of the following at June 30, 2017:

UNIVERSITY OF CALIFORNIIA Retirees and beneficiaries receiving benefits 72,995 Inactive members entitled to, but not receiving benefits 87,052 Active members:

Vested 76,064 Nonvested 53,318 Total active members 129,382 TOTAL MEMBERSHIP 289,429 UC Davis Financial Report 2016-17 70 71

CONTRIBUTIONS. Contributions to UCRP are made by UC Davis and its employees. The rates for contributions as a percentage of payroll are determined annually pursuant to the Regents funding policy and based upon recommendations of the consulting actuary. The Regents determine the portion of the total contribution to be made by the campuses and by the employees. Employee contributions by represented employees are subject to collective bargaining agreements.

Effective July 1, 2014, employee member contributions range from 7 percent to 9 percent. The University pays a uniform contribution rate of 14 percent of covered payroll on behalf of all UCRP members.

Employee contributions to UCRP are accounted for separately and currently accrue interest at 6 percent annually. Upon termination, members may elect a refund of their contributions plus accumulated interest; vested terminated members who are eligible to retire may also elect monthly retirement income or a lump sum equal to the present value of their accrued benefits.

Contributions were as follows for the years ended June 30:

(in thousands of dollars) 2017 2016 EMPLOYER EMPLOYEE TOTAL EMPLOYER EMPLOYEE TOTAL Campus

$137,400

$78,725

$216,125

$131,276

$75,502

$206,778 Medical Center 102,403 58,672 161,075 95,435 54,888 150,323 TOTAL

$239,803

$137,397

$377,200

$226,711

$130,390

$357,101 Additional deposits were made by the University to UCRP for the fiscal years ended June 30, 2017 and 2016. The Campus and medical center reported pension expense and an increase in the pension payable to the University for its portion of these additional deposits based upon their proportionate share of covered compensation for the year ended June 30 as follows:

(in thousands of dollars) 2017 2016 Campus

$42,946

$50,907 Medical Center 32,007 37,008 TOTAL

$74,953

$87,915 NET PENSION LIABILITY. The UCDavis Campus and medical centers proportionate share of the net pension liability for UCRP as of June 30 is as follows:

(in thousands of dollars) 2017 2016 PROPORTION OF THE NET PENSION LIABILITY PROPORTIONATE SHARE OF THE NET PENSION LIABILITY PROPORTION OF THE NET PENSION LIABILITY PROPORTIONATE SHARE OF THE NET PENSION LIABILITY Campus 8.9%

$905,879 9.0%

$1,232,451 Medical Center 6.7%

675,141 6.6%

895,967 TOTAL

$1,581,020

$2,128,418 UC Davis net pension liability was measured as of June 30 and calculated using the plan net position valued as of the measurement date and total pension liability determined based upon rolling forward the total pension liability from the results of the actuarial valuations as of July 1 one year prior to the measurement date.

Actuarial valuations represent a long-term perspective and involve estimates of the value of reported benefits and assumptions about the probability of certain events occurring far into the future. UC Davis net pension liability was calculated using the following methods and assumptions:

(shown as a percentage) 2017 2016 Inflation 3.0%

3.0%

Investment rate of return 7.25 7.25 Projected salary increases 3.8 - 6.2 3.8 - 6.2 Cost-of-living adjustments 2.0 2.0 Actuarial assumptions are subject to periodic revisions as actual results are compared with past expectations and new estimates are made about the future. The actuarial assumptions used in 2017 were based upon the results of an experience study conducted for the period of July 1, 2010 through June 30, 2014. For active members, inactive members and healthy retirees, the RP-2014 White Collar Mortality Tables are used (separate tables for males and females), projected with the two-dimensional MP-2014 projection scale of 2029, with ages then set forward one year. For disabled members, rates are based on the RP-2014 Disabled Retiree Mortality Table, projected with the two-dimensional MP 2014 projection scale to 2029, and with ages then set back one year for males and set forward five years for females.

The long-term expected investment rate of return assumption for UCRP was determined in 2015 based on a building-block method in which expected future real rates of return (expected returns, net of inflation) are developed for each major asset class. These returns are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage, adding expected inflation and subtracting expected investment expenses and a risk margin. The target allocation and projected arithmetic real rates of return for each major asset class, after deducting inflation, but before deducting investment expenses, used in the derivation of the long-term expected investment rate of return assumption are summarized in the following table:

(shown as a percentage)

TARGET ALLOCATION LONG-TERM EXPECTED REAL RATE OF RETURN U.S. Equity 28.5%

6.1%

Developed International Equity 18.5 7.0 Emerging Market Equity 8.0 8.6 Core Fixed Income 12.5 0.8 High Yield Bonds 2.5 3.0 Emerging Market Debt 2.5 3.9 TIPS 4.5 0.4 Real Estate 5.5 4.8 Private Equity 8.0 11.2 Absolute Return 6.5 4.2 Real Assets 3.0 4.4 TOTAL 100.0%

5.6%

DISCOUNT RATE. The discount rate used to estimate the net pension liability as of June 30, 2017 and 2016 was 7.25 percent. To calculate the discount rate, cash flows into and out of UCRP were projected in order to determine whether UCRP has sufficient cash in future periods for projected benefit payments for current members. For this purpose, the Campus and medical center contributions that are intended to fund benefits of current plan members and their beneficiaries are included. Projected Campus, medical center and member contributions that are intended to fund the service costs of future plan members and their beneficiaries, as well as projected contributions of future plan members, are not included. UCRP was projected to have assets sufficient to make projected benefit payments for current members for all future years as of June 30, 2017 and 2016.

Notes to Financial Statements UC Davis Financial Report 2016-17 72 73

SENSITIVITY OF THE NET PENSION LIABILITY TO THE DISCOUNT RATE ASSUMPTION. The following presents the June 30, 2017 net pension liability of the Campus and the medical center calculated using the June 30, 2017 discount rate assumption of 7.25 percent, as well as what the net pension liability would be if it were calculated using a discount rate different than the current assumption:

(in thousands of dollars) 1% DECREASE (6.25%)

CURRENT DISCOUNT (7.25%)

1% INCREASE (8.25%)

Campus

$1,637,924

$905,879

$294,576 Medical Center 1,220,725 675,141 219,544 TOTAL

$2,858,649

$1,581,020

$514,120 DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES. Deferred outflows of resources and deferred inflows of resources for pension were related to the following sources as of the years ended June 30:

(in thousands of dollars)

CAMPUS MEDICAL CENTER TOTAL At June 30, 2017 DEFERRED OUTFLOW OF RESOURCES Changes in proportion and differences between contributions and proportionate share of contributions

$2,799

$18,863

$21,662 Changes of assumptions or other inputs 70,154 52,287 122,441 Difference between expected and actual experience 16,018 11,937 27,955 TOTAL

$88,971

$83,087

$172,058 DEFERRED INFLOWS OF RESOURCES Changes in proportion and differences between contributions and proportionate share of contributions

$30,548

$6,509

$37,057 Changes of assumptions or other inputs 33,822 25,208 59,030 Net difference between projected and actual earnings on pension plan investments 17,500 13,043 30,543 Difference between expected and actual experience 13,488 10,051 23,539 TOTAL

$95,358

$54,811

$150,169 At June 30, 2016 DEFERRED OUTFLOW OF RESOURCES Changes in proportion and differences between contributions and proportionate share of contributions

$2,444

$20,867

$23,311 Changes of assumptions or other inputs 161,705 117,557 279,262 Net difference between projected and actual earnings on pension plan investments 234,970 170,818 405,788 Difference between expected and actual experience 12,044 8,755 20,799 TOTAL

$411,163

$317,997

$729,160 DEFERRED INFLOWS OF RESOURCES Changes in proportion and differences between contributions and proportionate share of contributions

$32,965

$9,521

$42,486 Changes of assumptions or other inputs 79,247 57,612 136,859 Difference between expected and actual experience 24,434 17,763 42,197 TOTAL

$136,646

$84,896

$221,542 Net deferred outflows of resources and deferred inflows of resources as of June 30, 2017 related to pensions will be recognized in pension expense during the five years ending June 30 as follows:

(in thousands of dollars)

CAMPUS MEDICAL CENTER TOTAL Year ending June 30 2018

($40,993)

($18,243)

($59,236) 2019 67,710 58,071 125,781 2020 27,179 26,444 53,623 2021 (60,151)

(39,610)

(99,761) 2022 (132) 1,614 1,482 TOTAL

($6,387)

$28,276

$21,889 UCRSP PLANS. The UCRSP plans (DC Plan, Supplemental DC Plan, 403(b) Plan and 457(b) Plan) provide savings incentives and additional retirement security for all eligible employees. The DC Plan accepts both pretax and after-tax employee contributions. The Supplemental DC Plan accepts employer contributions on behalf of certain qualifying employees. The 403(b) and 457(b) Plans accept pretax employee contributions and the University may also make contributions on behalf of certain members of management. Benefits from the Plans are based on participants mandatory and voluntary contributions, plus earnings, and are immediately vested.

Additional information on the retirement plans can be obtained from the 2016-2017 annual report of the University of California Retirement System which can be obtained at http://reportingtransparency.

universityofcalifornia.edu/.

Notes to Financial Statements

12. Retiree Health Benefit Costs and Obligations The University administers single-employer health and welfare plans to provide health and welfare benefits, primarily medical, dental and vision benefits, to eligible retirees and their eligible family members (retirees) of the University of California and its affiliates. The Regents has the authority to establish and amend the benefit plans.

Membership in UCRP is required to become eligible for retiree health benefits. Participation in the retiree health benefit plans consisted of the following at July 1, 2015, the date of the latest actuarial valuation:

UNIVERSITY OF CALIFORNIIA Retirees who are currently receiving benefits 42,974 Active members entitled to, but not yet receiving benefits 125,510 TOTAL MEMBERSHIP 168,484 CONTRIBUTIONS. The contribution requirements of eligible retirees and the participating university locations, such as UC Davis, are established and may be amended by the University. Contributions toward benefits are shared with the retiree. The University determines the employers contribution. Retirees are required to pay the difference between the employers contribution and the full cost of the health insurance.

Retirees who are employed by the University after July 1, 2013, and retire at the age of 56 or older, become eligible for a percentage of the Universitys contribution based on age and years of service. Retirees are eligible for the maximum University contribution at age 65 with 20 or more years of service. Retirees employed by the University prior to 1990 and not rehired after that date are eligible for the Universitys maximum contribution if they retire before age 55 and have at least 10 years of service, or if they retire at age 55 or later and have at least 5 years of service. Retirees employed by the University after 1989 are subject to graduated eligibility provisions that generally require 10 years of service before becoming eligible for 50 percent of the maximum University contribution, increasing to 100 percent after 20 years of service.

Active employees do not make any contributions toward the retiree health benefit plans. Retirees pay the excess, if any, of the premium over the applicable portion of the Universitys contribution.

In addition to the explicit University contribution provided to retirees, there is an implicit subsidy. The gross premiums for members that are not currently eligible for Medicare benefits are the same for active employees and retirees, based on a blend of their UC Davis Financial Report 2016-17 74 75

health costs. Retirees, on average, are expected to have higher health care costs than active employees. This is primarily due to the older average age of retirees. Since the same gross premiums apply to both groups, the premiums paid for active employees by the University are subsidizing the premiums for retirees. This effect is called the implicit subsidy. The implicit subsidy associated with retiree health costs paid during the past year is also considered to be a contribution from the University.

Participating University locations, such as UC Davis, are required to contribute at a rate assessed each year by the University. The contribution requirements are based upon projected pay-as-you-go financing requirements.

The assessment rates were $2.93 and $2.98 per $100 of UCRP covered payroll effective July 1, 2016 and 2015, respectively. This resulted in UC Davis contributions of

$51 million and $48 million for years ended June 30, 2017 and 2016, respectively.

UC Davis net retiree health benefits liability was measured as of June 30 based on rolling forward the results of the actuarial valuations as of July 1. Actuarial valuations represent a long-term perspective and involve estimates of the value of reported benefits and assumptions about the probability of occurrence of events far into the future. Significant actuarial methods and assumptions used to calculate the UC Davis net retiree health benefits liability were:

(shown as a percentage) 2017 2016 Discount rate 3.6 %

2.9 %

Inflation 3.0 3.0 Investment rate of return 3.0 3.0 Health care cost trend rates Initially ranges from 5.0 to 9.5 decreasing to an ultimate rate of 5.0 for 2032 and later years.

Initially ranges from 6.3 to 9.0 decreasing to an ultimate rate of 5.0 for 2031 and later years.

Notes to Financial Statements Actuarial assumptions are subject to periodic revisions as actual results are compared with past expectations and new estimates are made about the future. The actuarial assumptions are based upon the results of an experience study conducted for the period of July 1, 2010 through June 30, 2014. For pre-retirement mortality rates, the RP-2014 White Collar Employee Mortality Tables (separate table for males and females) projected with the two-dimensional MP-2014 projection scale to 2029 were used. For post-retirement, healthy mortality rates are based on the RP-2014 White Collar Healthy Annuitant Mortality Table projected with the two-dimensional MP-2014 projection scale to 2029, and with ages then set forward one year. For disabled members, rates are based on the RP-2014 Disabled Retiree Mortality Table projected with the two-dimensional MP-2014 projection scale to 2029, and with ages then set back one year for males and set forward five years for females. For disabled members, rates are based on the RP-2014 Disabled Retiree Mortality Table, projected with the two-dimensional MP-2014 projection scale to 2029 and with ages then set back one year for males and set forward five years for females.

SENSITIVITY OF NET RETIREE HEALTH BENEFITS LIABILITY TO THE HEALTH CARE COST TREND RATE. The following presents the June 30, 2017 net retiree health benefits liability of the UC Davis Campus and medical center calculated using the June 30, 2017 health care cost trend rate assumption with initial trend ranging from 5.0 percent to 9.5 percent grading down to an ultimate trend of 5.0 percent over 15 years, as well as what the net retiree health benefits liability would be if it were calculated using a health care cost trend rate different than the current assumption:

(in thousands of dollars) 1% DECREASE (4.0% TO 8.5%

DECREASING TO 4.0%)

CURRENT DISCOUNT (5.0% TO 9.5%

DECREASING TO 5.0%)

1% INCREASE (6.0% - 10.5%

INCREASING TO 6.0%)

Campus

$1,410,593

$1,659,773

$2,004,273 Medical Center 1,043,474 1,227,803 1,482,643 TOTAL

$2,454,067

$2,887,576

$3,486,916 DISCOUNT RATE. The discount rate used to estimate the net retiree health benefits liability as of June 30, 2017 and 2016 was 3.58 percent and 2.85 percent, respectively. The discount rate was based on the Bond Buyer 20-Bond General Obligation index since UCHRBT plan assets are not sufficient to make benefit payments.

SENSITIVITY OF NET RETIREE HEALTH BENEFITS LIABILITY TO THE DISCOUNT RATE ASSUMPTION. The following presents the June 30, 2017 net retiree health benefits liability of the UC Davis campus and medical center calculated using the June 30, 2017 discount rate assumption of 3.58 percent, as well as what the net retiree health benefits liability would be if it were calculated using a discount rate different than the current assumption:

(in thousands of dollars) 1% DECREASE (2.58%)

CURRENT DISCOUNT (3.58%)

1% INCREASE (4.58%)

Campus

$1,988,657

$1,659,773

$1,416,501 Medical Center 1,471,092 1,227,803 1,047,844 TOTAL

$3,459,749

$2,887,576

$2,464,345 NET RETIREE HEALTH BENEFITS LIABILITY. The UC Davis Campus and medical centers proportionate share of the net retiree health benefits liability as of June 30 is as follows:

(in thousands of dollars) 2017 2016 PROPORTION OF THE NET RETIREE HEALTH BENEFITS LIABILITY PROPORTIONATE SHARE OF THE NET RETIREE HEALTH BENEFITS LIABILITY PROPORTION OF THE NET RETIREE HEALTH BENEFITS LIABILITY PROPORTIONATE SHARE OF THE NET RETIREE HEALTH BENEFITS LIABILITY Campus 8.9%

$1,659,773 9.0%

$1,894,693 Medical Center 6.6%

1,227,803 6.6%

1,385,392 TOTAL

$2,887,576

$3,280,085 UC Davis Financial Report 2016-17 76 77

DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES. Deferred outflows of resources and deferred inflows of resources for pension were related to the following sources as of the years ending June 30:

(in thousands of dollars)

CAMPUS MEDICAL CENTER TOTAL 2017 DEFERRED OUTFLOWS OF RESOURCES Changes in proportion and differences between locations contributions and proportionate share of contributions

$8,740

$8,740 Difference between expected and actual experience

$7,554 5,588 13,142 Changes of assumptions or other inputs 346,270 256,150 602,420 Net difference between projected and actual earnings on plan investments 298 220 518 TOTAL

$354,122

$270,698

$624,820 DEFERRED INFLOWS OF RESOURCES Difference between expected and actual experience

$130,776

$96,740

$227,516 Changes of assumptions or other inputs 333,933 217,515 551,448 TOTAL

$464,709

$314,255

$778,964 2016 DEFERRED INFLOWS OF RESOURCES Changes in proportion and differences between locations contributions and proportionate share of contributions

$8,823

$8,823 Changes of assumptions or other inputs

$399,940 292,435 692,375 Net difference between projected and actual earnings on plan investments 213 156 369 TOTAL

$400,153

$301,414

$701,567 DEFERRED INFLOWS OF RESOURCES Difference between expected and actual experience

$177,874

$109,892

$287,766 TOTAL

$177,874

$109,892

$287,766 The net amount of deferred outflows of resources and deferred inflows of resources related to retiree health benefits that will be recognized in retiree health benefit expense during the years ending June 30 is as follows:

(in thousands of dollars)

CAMPUS MEDICAL CENTER TOTAL Year ending June 30 2018

($8,128)

($981)

($9,109) 2019 (8,128)

(981)

($9,109) 2020 (8,158)

(1,003)

($9,161) 2021 (8,188)

(1,025)

($9,213) 2022 (8,188)

(1,053)

($9,241)

Thereafter (69,797)

(38,514)

($108,311)

TOTAL

($110,587)

($43,557)

($154,144)

Additional information on the retiree health plans can be obtained from the Universitys 2016-2017 Annual Financial Report.

13. Endowment Funds The value of endowments and gifts held and administered by the University but reflected in UC Davis statements of net position at June 30, 2017 and 2016 is as follows:

(in thousands of dollars)

RESTRICTED NON-EXPENDABLE RESTRICTED EXPENDABLE UNRESTRICTED TOTAL At June 30, 2017 Endowments

$119,110

$186,036

$305,146 Funds functioning as endowments 246,521

$161,389 407,910 Annuity and life income 2,102 1,161 3,263 Gifts 115,984 1,779 117,763 ENDOWMENTS AND GIFTS

$121,212

$549,702

$163,168

$834,082 At June 30, 2016 (RESTATED)

Endowments

$116,695

$155,764

$272,459 Funds functioning as endowments 221,139

$143,451 364,590 Annuity and life income 2,228 1,032 3,260 Gifts 105,393 1,920 107,313 ENDOWMENTS AND GIFTS

$118,923

$483,328

$145,371

$747,622 The Universitys endowment income distribution policies are designed to preserve the value of the endowment in real terms (after inflation) and to generate a predictable stream of spendable income. Endowment investments are managed to achieve the maximum long-term total return. As a result of this emphasis on total return, the proportion of the annual income distribution provided by dividend and interest income and by capital gains may vary significantly from year to year. The Universitys policy is to retain the realized and unrealized appreciation with the endowment after the annual income distribution has been made. The portion of investment returns earned on endowments held by the University and distributed each year to support current operations of UC Davis is based upon a rate of 4.75 percent (stated in dollars per share). The total distribution from endowments held by the University to UC Davis was $26 million for the year ended June 30, 2017.

Notes to Financial Statements UC Davis Financial Report 2016-17 78 79

14. Operating Expenses By Function Operating expenses, by functional classification, for the years ended June 30, 2017 and 2016 are as follows:

(in thousands of dollars) 2017 RESTATED 2016 Instruction

$916,548

$889,989 Research 569,826 609,357 Public service 97,678 93,797 Academic support 290,873 308,897 Student services 159,397 158,013 Institutional support 181,283 148,937 Operations and maintenance of plant 106,141 101,828 Student financial aid 87,817 88,472 Medical center 1,917,831 1,907,975 Auxiliary enterprises 110,606 104,842 Depreciation and amortization 230,530 220,563 Other, including impairment of capital assets 8,464 5,987 TOTAL

$4,676,994

$4,638,657 (in thousands of dollars) 2017 2016 Revenue bonds outstanding

$337,570

$282,054 Related debt service payments 32,491 32,833 Bonds due serially through 2047 2047 CONDENSED STATEMENTS OF NET POSITION ASSETS Current assets

$999,025

$825,786 Capital assets, net 1,030,246 1,004,073 Other noncurrent assets 104,942 18,837 TOTAL ASSETS 2,134,213 1,848,696 DEFERRED OUTFLOWS OF RESOURCES 362,917 630,774 LIABILITIES Current liabilities 328,609 374,616 Long-term debt 362,743 268,671 Other noncurrent liabilities 2,145,257 2,493,557 TOTAL LIABILITIES 2,836,609 3,136,844 DEFERRED INFLOWS OF RESOURCES 369,066 194,788 NET POSITION Net investment in capital assets 640,415 701,366 Restricted: Expendable capital projects and other 86,748 Unrestricted (1,435,708)

(1,553,528)

TOTAL NET POSITION

($708,545)

($852,162)

CONDENSED STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION Operating revenues

$2,147,374

$1,935,274 Operating expenses (1,904,823)

(1,895,627)

Depreciation expense (78,839)

(79,291)

OPERATING INCOME (LOSS) 163,712 (39,644)

Nonoperating revenues (expenses), net 9,467 (461)

INCOME (LOSS) BEFORE OTHER CHANGES IN NET POSITION 173,179 (40,105)

Health system support (28,088)

(41,387)

Transfers (to) from University, net (4,349)

(8,563)

Changes in allocation for pension payable to University 1,892 (1,184)

Other, included donated assets 983 2,074 INCREASE (DECREASE) IN NET POSITION 143,617 (89,165)

Net position - beginning of year (852,162)

(762,997)

NET POSITION - END OF YEAR

($708,545)

($852,162)

CONDENSED STATEMENT OF CASH FLOWS Net cash provided by (used in):

Operating activities

$289,030

$207,723 Noncapital financing activities (29,396)

(46,176)

Capital and related financing activities (25,665)

(118,061)

Investing activities (70,468) 12,168 NET INCREASE IN CASH AND CASH EQUIVALENTS 163,501 55,654 Cash and cash equivalents - beginning of year 464,908 409,254 CASH AND CASH EQUIVALENTS - END OF YEAR

$628,409

$464,908 Notes to Financial Statements

15. Segment Information UC Davis Medical Center revenues are pledged in support of the outstanding University of California Medical Center Pooled Revenue Bonds. The medical centers operating revenues and expenses consist primarily of revenues associated with patient care and the related costs of providing that care.

Condensed financial statement information related to each of the Universitys medical centers for the year ended June 30, 2017 is provided in footnote 18 of the University of California Annual Financial Report. Condensed financial statement information for the UC Davis Medical Center for the years ended June 30, 2017, and 2016, is below:

UC Davis Financial Report 2016-17 80 81

16. UCDavis Foundation Under University policies approved by the Regents, each campus may establish a separate foundation to provide valuable assistance in fundraising, public outreach and other support for the mission of the Campus and the University. Although an independent board governs the UC Davis Foundation, its assets are dedicated for the benefit of the Campus.

The UC Davis Foundation was established in 1959 to raise funds to benefit UC Davis. The UC Davis Foundation is a component unit of the Campus. The financial statements of the UC Davis Foundation are presented discretely in a separate column on the Campus financial statements because of its nature and the significance of its relationship with the Campus. During the years ended June 30, 2017 and 2016, gifts of $40.0 million and $33.6 million, respectively, were transferred to the Campus from the UC Davis Foundation.

Condensed financial statement information related to UC Davis foundation for the years ended June 30, 2017 and 2016 is as follows:

(in thousands of dollars) 2017 2016 CONDENSED STATEMENTS OF NET POSITION ASSETS Current assets

$21,154

$41,005 Noncurrent assets 438,723 347,466 TOTAL ASSETS 459,877 388,471 LIABILITIES Current liabilities 720 682 Noncurrent liabilities 5,707 5,544 TOTAL LIABILITIES 6,427 6,226 NET POSITION Restricted 451,335 380,033 Unrestricted 2,115 2,212 TOTAL NET POSITION

$453,450

$382,245 CONDENSED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Operating revenues

$38,332

$31,476 Operating expenses (40,312)

(33,860)

OPERATING INCOME (LOSS)

(1,980)

(2,384)

Nonoperating revenues (expenses), net 45,960 (12,198)

INCOME (LOSS) BEFORE CHANGES IN NET POSITION 43,980 (14,582)

Additions to permanent endowments 27,225 12,473 INCREASE (DECREASE) IN NET POSITION 71,205 (2,109)

Net position - beginning of year 382,245 384,354 NET POSITION - END OF YEAR

$453,450

$382,245 CONDENSED STATEMENTS OF CASH FLOWS Net cash provided by (used in):

Operating activities

($6,636)

($19,481)

Noncapital financing activities 21,874 10,697 Investing activities (18,574) 6,155 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,336)

(2,629)

Cash and cash equivalents - beginning of year 18,097 20,726 CASH AND CASH EQUIVALENTS - END OF YEAR

$14,761

$18,097 Additional information for the Foundation can be found at:

http://giving.ucdavis.edu/recognition-resources/uc-davis-foundation/.

17. Commitments And Contingencies CONTRACTUAL COMMITMENTS. Amounts committed but unexpended for construction projects totaled $224 million at June 30, 2017.

UC Davis leases land, buildings and equipment under agreements recorded as operating leases. Operating lease expenses for the years ended June 30, 2017 and 2016 were $50 million and $35 million, respectively. The terms of operating leases extend through the year 2034.

Future minimum payments on operating leases with an initial or remaining non-cancelable term in excess of one year are as follows:

(in thousands of dollars)

MINIMUM ANNUAL LEASE PAYMENTS Year Ending June 30 2018

$45,918 2019 34,173 2020 27,139 2021 21,350 2022 18,733 2023 - 2027 38,448 2028 - 2032 19,311 2033 - 2034 8

TOTAL

$205,080 CONTINGENCIES. Substantial amounts are received and expended by UC Davis, including its medical center, under federal and state programs, and are subject to audit by cognizant governmental agencies. This funding relates to research, student aid, medical center operations and other programs. UC Davis management believes that any liabilities arising from such audits will not have a material effect on UC Davis financial position.

UC Davis is contingently liable in connection with certain other claims and contracts, including those currently in litigation, arising in the normal course of its activities. Although there are inherent uncertainties in any litigation, UCDavis management and general counsel are of the opinion that the outcome of such matters will not have a material effect on UC Davis financial position.

Notes to Financial Statements UC Davis Financial Report 2016-17 82 83

Required Supplementary Information The schedule of the Campus and medical centers proportionate share of UCRPs net pension liability is presented below:

(in thousands of dollars)

AS OF JUNE 30 PROPORTION OF THE NET PENSION LIABILITY PROPORTIONATE SHARE OF THE NET PENSION LIABILITY COVERED PAYROLL PROPORTIONATE SHARE OF THE NET PENSION LIABILITY AS A PERCENTAGE OF ITS COVERED PAYROLL PLAN FIDUCIARY NET POSITION AS A PERCENTAGE OF THE TOTAL PENSION LIABILITY Davis Campus 2017 8.9 %

$905,879

$982,584 92.2 %

84.0 %

2016 9.0 1,232,451 939,207 131.2 77.2 2015 9.2 888,905 899,612 98.8 82.9 2014 9.2 660,342 850,488 77.6 86.3 2013 9.5 1,004,519 819,467 122.6 78.3 Davis Medical Center 2017 6.7 %

$675,141

$732,307 92.2 %

84.0 %

2016 6.6 895,967 682,784 131.2 77.2 2015 6.5 627,561 635,120 98.8 82.9 2014 6.6 468,810 603,824 77.6 86.3 2013 6.5 690,989 563,695 122.6 78.3 Total 2017 15.6%

$1,581,020

$1,714,891 92.2 %

84.0 %

2016 15.6 2,128,418 1,621,991 131.2 77.2 2015 15.7 1,516,466 1,534,732 98.8 82.9 2014 15.8 1,129,152 1,454,312 77.6 86.3 2013 16.0 1,695,508 1,383,162 122.6 78.3 The schedule of the Campus and medical centers proportionate share of UCRHBTs net retiree health benefits liability is presented below:

(in thousands of dollars)

PROPORTION OF THE NET RETIREE HEALTH BENEFITS LIABILITY PROPORTIONATE SHARE OF NET RETIREE HEALTH BENEFITS LIABILITY COVERED PAYROLL PROPORTIONATE SHARE OF THE NET RETIREE HEALTH BENEFITS LIABILITY AS A PERCENTAGE OF ITS COVERED PAYROLL PLAN FIDUCIARY NET POSITION AS A PERCENTAGE OF THE TOTAL RETIREE HEALTH BENEFITS LIABILITY Davis Campus 2017 8.9 %

$1,659,773

$994,901 166.8 %

0.6 %

2016 9.0 1,894,693 933,779 202.9 0.3 2015 9.2 1,653,816 894,410 184.9 0.3 Davis Medical Center 2017 6.6 %

$1,227,803

$735,904 166.8 %

0.6 %

2016 6.6 1,385,392 682,784 202.9 0.3 2015 6.5 1,174,370 635,120 184.9 0.3 Total 2017 15.5 %

$2,887,576

$1,730,805 166.8 %

0.6 %

2016 15.6 3,280,085 1,616,563 202.9 0.3 2015 15.7 2,828,186 1,529,530 184.9 0.3 84

annual report 2017 The UCDavis 2017 Annual Report is produced by the Office of Strategic Communications and the Division of Finance, Operations and Administration. No tuition or state funds were used to print this document.

Online version available at chancellor.ucdavis.edu/

reports/

10 Statement of Intent (SOI) Regarding Decommissioning Funding for the UC Davis McClellan Nuclear Research Center and 2.0 MW TRIGA Reactor

' UNIVERSITY OF CALIFORNIA, DAVIS DERKELEY

DAVIS

IRVI:S:E

LOS A'.'JGELE.c; * :\\IERCED

RIVERSIDE

SAN DIEGO

S.a\\.N FRANCISCO SA,.'4TA llARllARA

SA.,TA CRUZ KELLY M. RATLIFF Vice Chancellor FINANCE, OPERATIONS AND ADMINISTRATION ONE SHIELDS AVENUE DAVIS, CALIFORNIA 95616-8558 TELEPHONE: (530) 752-4964 May 25, 2018 U.S. Nuclear Regulatory Commission Document Control Desk Washington, DC 20555 RE:

UC Davis McClellan Nuclear Research Center, License No. R-130 Docket No. 50-607 University of California, Davis Financial Assurance Statement of Intent As the Vice Chancellor of Finance, Operations, and Administration I have wide ranging authority and responsibility for campus operations and the allocation of resources. The University of California, Davis intends to operate its TRIGA reactor, located at the McClellan Nuclear Research Center, for the foreseeable future. The UC Davis McClellan Nuclear Research Center is a non-power reactor operated by The Regents of the University of California, a State of California government entity established by Article IX,Section IX of the California State Constitution, which reads in part:

"a) The University of California shall constitute a public trust, to be administered by the existing corporation known as "The Regents of the University of California," with full powers of organization and government, subject only to such legislative control as may be necessary to insure the security of its funds and compliance with the terms of the endowments of the university and such competitive bidding procedures as may be made applicable to the university by statute for the letting of construction contracts, sales of real property, and purchasing of materials, goods, and services."

Based on a recent similar example at the University of Michigan, decommissioning costs of the reactor are currently estimated to be $24.9 million. A decommissioning fund is held in escrow and is approximately the same value as the estimated decommissioning cost. Any shortfall in decommissioning funds at the time of decommissioning are well within the University's financial ability to respond to as indicated under 10 CFR 50.75(e)(2)(iv). The University will make such funds (amount to be appropriately updated over time) available for decommissioning when necessary. The undersigned has been delegated authority to make this commitment and approved this Statement of Intent under Delegation of Authority 0131 and is therefore authorized by the Chancellor to make this commitment.

/MCH Kelly Ratliff Vice Chancellor Finance, Operations, and Administration

CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT CIVIL CODE § 1189 A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

State of California

}

County of __ ~Y~a_l_o ______ _

On,2/2&(5/; '?'

Date O

Here Insert Name and Title of the Officer personally appeared ~~~~L~l0__~m_'d~1~rt_,_..,(_..,._f.KA

................. i'-l'/~1~l_r:>~;,------------

J Name(s) of Signer(s) who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

Place Notary Seal and/or Stamp Above I certify under PENAL TY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signatur

. ~

""' 6i (j[J'

~~p OPTIONAL Completing this information can deter alteration of the document or fraudulent reattachment of this form to an unintended document.

Description of Attached Document t( (:. f)ai1 ~ /111n J2_c Title or Type of Document: £6a 11c:1tt/ tf,$SL/l....rll:r1Ce Document Date:

fV/p *1.-

,gs;-t!!-,,52-C)f g r

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Number of Pages:-'---

Signer(s) Other Than Named Above: _______________________ _

Capacity(ies) Claimed by Signer(s)

Signer's Name: ___________ _

Corporate Officer - Title(s): ______ _

Corporate Officer - Title(s): ______ _

D Partner -

Limited

General

Partner -

Limited

General

Individual

Attorney in Fact

Individual

Attorney in Fact

Trustee

Guardian of Conservator

Trustee

Guardian of Conservator

Other:

Other:

Signer is Representing: ________ _

11 Delegations of Authority

Official UC Davis Delegation of Authority Offices of the Chancellor and Provost

- Retain this delegation for your records..

Delegation of Authority-Licenses for Radioactive Materials (DA 0131)

Vice Chancellor-Finance, Operations, and Administration Source of Delegation: President Kerr's delegation dated 11/23/66 (DA 0131)

Effective Date of Delegation: 7 /1/14 Supersedes: Chancellor Meyer's redelegation to Vice Chancellor-Business and Finance dated 7/2/86 and all subsequent redelegations (DA 0131)

The position of Vice Chancellor-Finance, Operations, and Administration is responsibility for nuclear reactor construction and operating licenses, AEC licenses for out-of-state operations, and any other licenses for radioactive materials and related activities within the parameters of the delegation from President Kerr.

Any redelegation of this authority must be in writing with copies to the individuals listed below.

Attachment:

DA 0131 from President Kerr c:

Campus Policy Coordinator Unit Policy Coordinator Linda P.B. Katehi Chancellor

DA0131 DA 0131 November 23, 1966 CHANCELLORS:

Re: Licenses for Radioactive Materials Page 1 of 1 Authority and responsibility for licenses for radioactive materials and related activities have been undergoing gradual decentralization. Effective immediately, responsibility for nuclear reactor construction and operating licenses, for AEC1 licenses for out-of-state operations and for any other licenses for radioactive materials and related activities is delegated to the Chancellors.

Clark Kerr cc: University-wide Administrative Officer.

1NowDOE.

https://policy.ucop.edu/ _ files/da/da0 131.html 5/15/2018

ML18179A506

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SUMMARY

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