KPMG

Financial Statements
 
June 30, 2017
(with summarized comparative financial information
for the year-ended June 30, 2016)
 
(With Independent Auditors’ Report Thereon)
 UNIVERSITY OF THE PACIFIC

Table of Contents

Page(s)

Independent Auditors’ Report 1–2

Financial Statements:

Balance Sheet 3

Statement of Activities 4

Statement of Cash Flows 5

Notes to Financial Statements 6–28

Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance
and Other Matters Based on an Audit of Financial Statements Performed in Accordance
with Government Auditing Standards 29–30
 KPMG LLP
500 Capitol Mall, Ste 2100
Sacramento, CA 95814-4754

Independent Auditors’ Report

The Board of Regents

University of the Pacific:

Report on the Financial Statements

We have audited the accompanying financial statements of the University of the Pacific (Pacific), which
comprise the balance sheet as of June 30, 2017, and the related statements of activities and cash flows for the
year then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in
accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and
maintenance of internal control relevant to the preparation and fair presentation of financial statements that are
free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our
audit in accordance with auditing standards generally accepted in the United States of America and the
standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller
General of the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of
the risks of material misstatement of the financial statements, whether due to fraud or error. In making those
risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation
of the financial statements in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we
express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of significant accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.

Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of the University of the Pacific as of June 30, 2017, and the changes in its net assets and its cash flows
for the year then ended in accordance with U.S. generally accepted accounting principles.

KPMG LLP is a Delaware limited liability partnership and the U.S. member
firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity.
Report on Summarized Comparative Information
We have previously audited the University of Pacific’s 2016 financial statements, and we expressed an
unmodified audit opinion on those audited financial statements in our report dated November 7, 2016. In our
opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2016
is consistent, in all material respects, with the audited financial statements from which it has been derived.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated November 1, 2017
on our consideration of the University of the Pacific’s internal control over financial reporting and on our tests of
its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters.
The purpose of that report is to describe the scope of our testing of internal control over financial reporting and
compliance and the results of that testing, and not to provide an opinion on internal control over financial
reporting or on compliance. That report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the University of the Pacific’s internal control over financial
reporting and compliance.

Sacramento, California
November 1, 2017

2
 UNIVERSITY OF THE PACIFIC
Balance Sheet
June 30, 2017
(with comparative financial information
as of June 30, 2016)
(In thousands)

Assets 2017 2016

Cash and cash equivalents $ 11,800 11,566
Accounts receivable, net 8,549 8,212
Pledges receivable, net 17,086 16,954
Estate gift receivable — 1,850
Inventories, prepaid expenses, and other assets 8,735 8,203
Student loans receivable, net 31,506 31,590
Investments 622,926 540,065
Fixed assets, net 366,627 367,944
Total assets $ 1,067,229 986,384

Liabilities and Net Assets

Liabilities:
Accounts payable and accrued liabilities $ 27,875 24,887
Advance deposits and deferred revenue 15,963 14,621
Self-insurance reserves 12,558 11,382
Early retirement reserves 2,041 1,691
Capital lease obligations 1,441 1,664
Asset retirement obligations 8,586 8,141
Notes and bonds payable 190,608 162,051
Trust and annuity obligations 11,545 9,349
Federal student loan funds 31,609 31,177
Total liabilities 302,226 264,963
Net assets:
Unrestricted 341,831 343,124
Temporarily restricted 98,542 68,505
Permanently restricted 324,630 309,792
Total net assets 765,003 721,421
Total liabilities and net assets $ 1,067,229 986,384

See accompanying notes to financial statements.

3
 UNIVERSITY OF THE PACIFIC
Statement of Activities
Year ended June 30, 2017
(with summarized financial information
for the year ended June 30, 2016)
(In thousands)

2017
Temporarily Permanently 2016
Unrestricted restricted restricted Total Total
Revenues, gains, and other support:
Tuition and student fees $ 304,749 — — 304,749 296,695
University-sponsored financial aid (65,738) — — (65,738) (63,523)
Donor-sponsored financial aid (8,664) — — (8,664) (7,582)
Net tuition and fees 230,347 — — 230,347 225,590
Sales and services of auxiliary enterprises 26,171 — — 26,171 28,523
Government grants and contracts 11,165 — — 11,165 11,604
Private grants, gifts, and bequests 12,116 438 16,960 29,514 23,135
Investment return distributed 3,619 13,611 — 17,230 17,101
Clinic fees 14,438 — — 14,438 13,633
Other 15,113 — — 15,113 12,009
Total revenues and gains 312,969 14,049 16,960 343,978 331,595
Reclassifications:
Net assets released from restrictions 14,075 (14,075) — — —
Total revenues, gains, and
reclassifications 327,044 (26) 16,960 343,978 331,595
Expenses:
Instructional and departmental research 153,919 — — 153,919 148,723
Auxiliary enterprises 32,210 — — 32,210 31,127
Sponsored programs 12,116 — — 12,116 10,692
Academic support 29,218 — — 29,218 28,833
Student services 26,171 — — 26,171 26,328
Student aid 1,311 — — 1,311 1,359
General administration 13,283 — — 13,283 12,288
Fundraising 14,444 — — 14,444 14,153
Operation and maintenance of plant 17,380 — — 17,380 18,624
Depreciation and amortization 24,017 — — 24,017 22,648
Interest 6,888 — — 6,888 7,746
Total expenses 330,957 — — 330,957 322,521
Increase (decrease) in net
assets from operations
before other changes (3,913) (26) 16,960 13,021 9,074
Other changes:
Investment return, net of distributions 2,620 30,934 — 33,554 (24,869)
Actuarial loss on annuity and
trust obligations — (88) (2,122) (2,210) (1,876)
Other changes — (783) — (783) (7,030)
Change in net assets (1,293) 30,037 14,838 43,582 (24,701)
Net assets, beginning of year 343,124 68,505 309,792 721,421 746,122
Net assets, end of year $ 341,831 98,542 324,630 765,003 721,421

See accompanying notes to financial statements.

4
 UNIVERSITY OF THE PACIFIC
Statement of Cash Flows
Year ended June 30, 2017
(with comparative financial information
for the year ended June 30, 2016)
(In thousands)

2017 2016
Cash flows from operating activities:
Change in net assets $ 43,582 (24,701)
Adjustments to reconcile change in net assets to net cash
provided by operating activities:
Depreciation and amortization 24,017 22,648
Noncash contributions 2,910 (2,901)
Noncash asset retirement provision 446 365
Actuarial loss on annuity and trust obligations 2,210 1,876
Net realized and unrealized (gains) losses on investments (42,014) 16,904
Contributions restricted for purchasing capital assets (2,087) 1,796
Contributions restricted for long-term investment (15,085) (9,515)
Other noncash items 3,413 10,760
Changes in assets and liabilities:
Accounts receivable (337) (583)
Pledges receivable (132) 3,149
Estate gift receivable 1,850 —
Inventories, prepaid expenses, and other assets (532) (126)
Accounts payable and accrued liabilities 2,988 777
Advance deposits and deferred revenue 1,342 1,628
Self-insurance reserves 1,177 511
Early retirement reserves 350 140
Federal student loan funds 433 545
Net cash provided by operating activities 24,531 23,273
Cash flows from investing activities:
Proceeds from sale of investments 823,178 495,567
Purchase of investments (866,301) (488,289)
Purchase of fixed assets (21,862) (11,910)
Proceeds from student loan collections 6,314 6,067
Student loans issued (6,230) (4,614)
Net cash used in investing activities (64,901) (3,179)
Cash flows from financing activities:
Contributions restricted for purchasing capital assets 2,087 (1,796)
Contributions restricted for long-term investment 15,085 9,515
Trust and annuity obligations (922) (1,547)
Proceeds from issuance of bonds 33,120 —
Payment on notes payable, bonds payable, and capital leases (8,766) (20,782)
Net cash provided by (used in) financing activities 40,604 (14,610)
Net change in cash and cash equivalents 234 5,484
Cash and cash equivalents, beginning of year 11,566 6,082
Cash and cash equivalents, end of year $ 11,800 11,566

Supplemental disclosure of cash flow information:

Interest paid $ 7,092 7,657
Supplemental disclosure of noncash investing and financing activities:
Equipment acquired under capital leases $ 953 1,794
Debt refinancing — 66,275
Contributed securities 1,630 421

See accompanying notes to financial statements.

5
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

(1) Organization and Summary of Significant Accounting Policies

(a) Nature of Operations
The University of the Pacific (Pacific) was founded in 1851 as the first chartered institution of higher
education in the state of California. Pacific is a mid-sized independent, comprehensive university
offering a wide variety of high-quality undergraduate and graduate programs at its Stockton,
Sacramento, and San Francisco campuses. Pacific’s 6,100+ students may choose from over 80
majors, including professional programs in dentistry, law, pharmacy, and business. Pacific is a
not-for-profit 501(c)(3) exempt organization under IRS regulations.

(b) Basis of Presentation

The accompanying financial statements have been prepared on the accrual basis of accounting.

Pacific classifies net assets as follows:

 Unrestricted net assets represent resources available to support Pacific’s operations and
temporarily restricted net assets that have become available for use for the purposes specified by
donor(s). Unrestricted net assets include funds designated by the Pacific Board of Regents for
specific purposes and may otherwise be limited by contractual agreements with outside parties.
 Temporarily restricted net assets represent contributions received for restricted purposes in
accordance with donor-specified stipulations. These stipulations may expire over a certain time
period or may be satisfied by the actions of Pacific in accordance with the donor’s intentions. Upon
satisfaction of donor-imposed requirements, the associated net assets are released from
temporarily restricted net assets and included in unrestricted net assets. Temporarily restricted net
assets include gifts of cash and securities, pledges, split-interest trusts, and other gifts not intended
to be invested in perpetuity but instead to be used to meet shorter-term operational needs such as
capital projects. Temporarily restricted net assets also include accumulated net gains on
permanently restricted endowment funds to be appropriated for spending according to donor
stipulations.
 Permanently restricted net assets represent contributions to be held in perpetuity as specified by
the terms of the underlying donor agreement, and further governed by the investment and
spending policies set by the Board of Regents. Permanently restricted net assets include gifts of
cash and securities held in the Pacific Endowment Pool, pledges, split-interest trusts, and similar
assets. Pledges, trusts, and remainder interests designated for permanently restricted purposes
are reported at their estimated net present values. All permanently restricted net assets are
reported at the original amount of the gift plus the portion, if any, of earnings explicitly stipulated by
the donor to be added to corpus.

Revenues are reported as increases in unrestricted net assets unless use of the related assets is
limited by donor-imposed restrictions as noted above. Expenses are reported as decreases in
unrestricted net assets. Gains and losses on investments and other assets or liabilities are reported as
increases or decreases in unrestricted net assets unless their use is restricted by explicit donor
stipulations or by law. Expiration of restrictions on net assets (i.e., the donor-stipulated purpose has

6 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications between
the applicable classes of net assets (i.e., released from restrictions).

Contributions, including unconditional promises to give, are recognized as revenues in the period
received. Conditional promises to give are not recognized until they become unconditional, (i.e., when
the conditions on which they depend are substantially met). Contributions of assets other than cash are
recorded at their estimated fair value on the date of contribution.

Income and realized and unrealized net gains on investments of permanently restricted net assets are
generally recorded as increases to temporarily restricted net assets. Realized and unrealized net
losses on investments of permanently restricted net assets are recorded as decreases to temporarily
restricted net assets to the extent that they exist, and then to unrestricted net assets.

In addition: (a) tuition and fees are reflected net of financial aid provided in the form of institutional
scholarships; (b) expenses include vested benefits of employees for future compensated absences;
and, (c) funds administered as an intermediary for others, including student loan funds provided by
federal agencies, are accounted for as liabilities rather than as net assets of Pacific.

(c) Net Assets Released from Restrictions

Net assets released from restrictions as reported in current operations include appropriation of
spending policy from endowed funds and the release of donor-restricted contributions received for
scholarships, program support, and capital improvements for which the purpose or time restriction of
the individual contributions were met during the reporting period. Capital improvements include
expenditures for University building and remodeling projects.

(d) Cash and Cash Equivalents

Cash and cash equivalents include all cash balances and highly liquid investments with a maturity of
three months or less other than cash equivalents included in Pacific’s investment pool, which are
accounted for as investments. Cash and cash equivalents at June 30, 2017 included $5,053,585 held
in money market funds.

Pacific maintains its operating cash accounts in several commercial banks in amounts that are
generally in excess of insured levels. The accounts at the banks are guaranteed by the Federal Deposit
Insurance Corporation up to $250,000 for each financial institution. As of June 30, 2017, Pacific’s cash
of $6,746,367 included $6,155,292 in excess of insured levels. Pacific has not experienced losses on
these deposits to date.

(e) Inventories
Inventories are valued at the lower of average cost or market.

7 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

(f) Investments
Investments represent a diversified portfolio of public and private domestic and international equity
securities, fixed income securities, and alternative investments, and are reported at fair value as further
discussed in note 3. Invested assets include permanently restricted endowed and unrestricted
quasi-endowed funds held in the endowment pool as further discussed in note 4. Investments also
include temporarily and permanently restricted split-interest trust assets and shorter-term investments
of unrestricted and temporarily restricted assets.

All realized and unrealized gains and losses, dividends, interest and other income on investments are
reflected in the statement of activities. Gains and investment income limited to specific uses by
donor-imposed restrictions (for both temporarily restricted gifts and donor-restricted endowment funds)
are reported as increases in temporarily restricted net assets until donor-imposed purpose and/or time
restrictions have been satisfied. Losses on investments of donor-restricted endowment funds are
classified as decreases in temporarily restricted net assets to the extent that they exist, and then to
unrestricted net assets. Subsequent gains that restore the fair value of donor-restricted endowments to
required levels are recorded as increases in unrestricted net assets.

Investment securities are exposed to various risks such as interest rate, market fluctuations, and credit
risk. Due to the level of risk associated with certain investment securities, it is at least reasonably
possible that changes in the valuation of investment securities will occur in the near term and
potentially have a material positive or negative impact on the net assets reported in the balance sheet.

Adoption of New Accounting Pronouncements

The University has adopted in the current year the required guidance under ASU 2015-07, Fair Value
Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset
Value per Share or Its Equivalent). Under the new guidance, investments measured at net asset value
(NAV), as a practical expedient for fair value, are excluded from the fair value hierarchy, and applied its
provisions retrospectively.

(g) Fixed Assets

Fixed assets are recorded at cost, if purchased, or at fair market value at the date of gift, if acquired by
donation. Depreciation is computed using the straight-line method over the estimated useful lives of the
assets ranging from 3 to 40 years.

Repairs and maintenance are expensed as incurred and assets are capitalized. The cost and
accumulated depreciation of assets retired or sold are removed from the accounts and a gain or loss is
recognized in the year of disposal.

8 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

(h) Pledges Receivable

Unconditional promises to give expected to be collected in future years are recorded at the present
value of their estimated future cash flows. Amortization of discounts is included in contributions
revenue. Pledges are reserved based on the judgment of management as to collectability. Donor
restricted promises to give are reported as temporarily or permanently restricted contributions,
depending on the donor restriction.

(i) Split-Interest Trusts

Split-interest trusts are established by gifts that require payments to be made to the donor or the
donor’s designee(s) from assets of the trust and which name Pacific as a beneficiary of all or a portion
of the assets remaining at the termination of the trust. Split-interest trusts for which Pacific is the trustee
are recorded as contribution revenue at the fair value of the assets received less a liability, computed
using actuarial methods, for the present value of the estimated payouts under the agreement. An
annual adjustment is made for the actuarial gain or loss on annuity and trust obligations representing
differences between assumed and actual experience as to earnings, payouts, and life expectancies
used in the computation of the liability for distributions. The net amount of the split-interest trusts are
included in temporarily or permanently restricted net assets, depending on the terms of the donor’s
restriction.

(j) Assets Held by Other Trustees

Funds held in trust by others represent assets irrevocably held and administered by trustees other than
Pacific with Pacific named as a beneficiary to derive income or a residual interest from the assets of
such funds after the passage of time or occurrence of specified events. When Pacific is notified that
funds have been put in a trust held by others with Pacific designated as beneficiary, contribution
revenue is recognized as an increase in temporarily or permanently restricted net assets, depending on
the nature of the restriction imposed by the donor, at the estimated present value of the future cash
flows to be received by Pacific.

(k) Collections
Collections include works of art, historical treasures, or similar assets that are held for public exhibition,
education, or research in furtherance of Pacific’s mission. Pacific has capitalized its collections since its
inception. If purchased, items accessioned into collections are capitalized at cost; if donated, they are
capitalized at their appraised or estimated fair value on the accession date (the date on which the item
is accepted by the Gift Acceptance Committee). Gains or losses on the deaccession of collection items
are classified on the statement of activities as unrestricted or temporarily restricted support depending
on donor restrictions, if any, placed on the item at the time of accession.

(l) Self-Insurance Reserves

Pacific is self-insured for workers’ compensation, unemployment, dental, and disability benefits. Annual
provisions to adjust the reserves for unpaid claims are recorded as an expense of unrestricted net
assets. The reserve for unpaid claims related to workers’ compensation is estimated using actuarial
methods. It is possible that the amounts paid in connection with self-insured risks will vary from the
amount recorded as self-insurance reserves as of June 30, 2017.

9 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

(m) Asset Retirement Obligations

In accordance with Financial Accounting Standards Board Accounting Standards Codification
Topic 410, Asset Retirement and Environmental Obligations (formerly known as Financial Accounting
Standards Board Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, an
Interpretation of FASB Statement No. 143), Pacific has recorded an estimated liability for the fair value
of its conditional asset retirement obligations resulting from statutory and/or regulatory requirements to
apply special handling and disposal to asbestos upon retirement of certain buildings. The estimated
liability is determined annually on June 30 to reflect remediation efforts and updated costs for
abatement.

(n) Undistributed Estates

Bequests are recorded as contribution revenue when the court orders distribution.

(o) Expenses
Expenses are reported as decreases in unrestricted net assets.

(p) Income Taxes

Pacific is tax exempt under Section 501(c)(3) of the Internal Revenue Code and Section 23701d of the
Revenue and Taxation Code of the State of California and, generally, is not subject to state or federal
taxes on income. However, Pacific remains subject to income taxes on any net income that is derived
from a trade or business, regularly carried on, and not in furtherance of the purpose for which it was
granted exemption. No income tax provision has been recorded as net income, if any, from any
unrelated trade or business and, in the opinion of management, is not material to the financial
statements taken as a whole.

(q) Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

(r) Comparative Totals

The financial statements include certain prior year summarized information in total but not by net asset
class. Such information does not include sufficient detail to constitute a presentation in conformity with
U.S. generally accepted accounting principles. Accordingly, such information should be read in
conjunction with Pacific’s financial statements for the year ended June 30, 2016, from which the
summarized information was derived.

(s) Reclassifications
Certain prior year amounts have been reclassified for consistency with the current period presentation.
These reclassifications had no effect on the reported change in net assets.

10 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

(2) Receivables
(a) Accounts Receivable
Accounts receivable as of June 30, 2017 and 2016 are without collateral and consist of (in thousands):

2017 2016

Student accounts $ 2,105 2,270

Clinic 3,382 3,159
Government contracts and other 4,415 4,211
Total 9,902 9,640

Less allowance for doubtful accounts (1,353) (1,428)

Accounts receivable, net $ 8,549 8,212

(b) Student Loans Receivable

The University makes loans to students based on financial need. Student loans are funded through
federal government loan programs or institutional resources.

Student loans receivable as of June 30, 2017 and 2016 are without collateral and consist of (in
thousands):

2017 2016
Federal government programs $ 29,528 30,098
Institutional programs 2,878 2,392
Total 32,406 32,490
Less allowance for doubtful loans (900) (900)
Student loans receivable, net $ 31,506 31,590

The University participates in the Federal Perkins Loan program and the Health Professionals Student
Loan program. The availability of loan funds under the programs is dependent on reimbursements to
the pool from repayments on outstanding loans.

11 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

Funds advanced by the federal government of $31.6 million and $31.2 million at June 30, 2017 and
2016, respectively, are ultimately refundable to the government and are classified as liabilities in the
balance sheet. Outstanding loans canceled under the program result in a reduction of the funds
available for loan and a decrease in the liability to the government. At June 30, 2017 and 2016, the
following amounts were past due under federal student loan programs:

1–59 60–90
days past days past 90+ days Total
due due past due past due
June 30, 2017 $ 385,354 230,196 2,268,355 2,883,905
June 30, 2016 805,859 412,912 2,137,964 3,356,735

Allowances for doubtful loans are established based on prior collection experience and current
economic factors, which, in management’s judgment, could influence the ability of loan recipients to
repay the amounts per the loan terms. Institutional loan balances are written off only when they are
deemed to be permanently uncollectible. Amounts due under the Federal Perkins Loan program and
the Health Professionals Student Loan program are guaranteed by the government, and therefore, no
reserves are placed on any past-due balances under either program.

(c) Pledges Receivable

Pledges receivable as of June 30, 2017 and 2016 are without collateral and consist of (in thousands):

2017 2016
Pledges to be collected:
In one year or less $ 13,013 13,340
Between one year and five years 11,561 12,081
In more than five years 697 694

Total pledges 25,271 26,115

Less:
Allowance for nonfulfillment (7,718) (8,538)
Discount to present value at 0.02% to 5.16% (467) (623)
Pledges receivable, net $ 17,086 16,954

12 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

Pledges receivable as of June 30, 2017 and 2016 will, when collected, have the following restrictions
(in thousands):

2017 2016

Endowment with earnings expendable for departmental

programs and activities $ 3,430 4,534
Endowments with earnings expendable for scholarships 3,625 1,794
Building construction 5,056 7,349
Departmental programs and activities 4,975 3,277
$ 17,086 16,954

(3) Investments
The Financial Accounting Standards Boards ASC Topic 820, Fair Value Measurements and Disclosures,
defined fair value, established a framework used to measure fair value, and expanded disclosures about
fair value measurement. The standard prioritized, within the measurement of fair value, the use of
market-based information over entity-specific information and established a three-level hierarchy for fair
value measurements based on the transparency of information, such as the pricing source, used in the
valuation of an asset or liability as of the measurement date.

Pacific groups its invested assets within the three-level hierarchy, based upon the markets in which the
assets are traded and the observability of the assumptions and underlying information used in the
determination of fair value at the measurement date. Valuations within these levels are based upon:

Level I – Quoted market prices for identical instruments traded in active exchange markets. Assets in
Level I include cash and cash equivalents, time deposits, listed equities, and mutual funds.

Level II – Quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active, and estimated valuation techniques for which all significant
assumptions are observable or can be corroborated by observable market data. Assets in Level II include
long-term government and corporate bonds and commingled funds that invest in Level I securities that are
in a limited partnership structure.

Level III – For alternative investments, primarily private equity funds and hedge funds, fair value is
estimated, as a practical expedient, by using the net asset value of the investment if the net asset value per
share of the investment is calculated in a manner consistent with ASC Topic 946-10-15-2. For other assets
in Level III, valuation is based on pricing inputs that reflect assumptions about the factors market
participants would use in pricing the asset based on the best information available.

13 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

Effective as of fiscal year 2017, Pacific adopted the provision of ASU No. 2015-07, Fair Value
Measurement: Disclosures for Investments in Certain Entities that Calculate NAV per share (or its
equivalent). ASU 2015-07 removed the requirement to classify within the fair value hierarchy table in
Level II and III investments in certain funds measured at NAV as a practical expedient to estimate fair
value. The ASU also required that NAV-measured investments excluded from the fair value hierarchy table
be summarized as an adjustment to the table so that total investments can be reconciled to the Balance
Sheet.

The following table summarizes the valuation of Pacific’s investments by the ASC 820 fair value and net
asset value (NAV) hierarchy as of June 30, 2017 (in thousands):

Fair value measurement at June 30, 2017

Quoted
prices
in active Significant
markets for other Significant Investments
identical observable unobservable measured
assets inputs inputs at June 30,
(Level I) (Level II) (Level III) NAV 2017

Cash and cash equivalents $ 99,337 — — — 99,337

Time deposits 9,000 — — — 9,000
Long-duration government bonds — 14,239 — — 14,239
Long-duration bond mutual funds 53,602 — — — 53,602
Short-duration bond mutual funds 65,646 — — — 65,646
Global bond funds — — — 5,048 5,048
U.S. equities 81,646 — 469 38,982 121,097
U.S. equities mutual funds 29,853 — — — 29,853
International equities funds 49,754 — — 63,676 113,430
Private equity funds — — — 30,713 30,713
Hedge funds — — 1,095 60,337 61,432
Real asset funds — — — 17,111 17,111
Assets held by other trustees — — 1,751 — 1,751
Real and personal property — — 667 — 667

$ 388,838 14,239 3,982 215,867 622,926

The following methods and assumptions were used to estimate the fair value of each class of investments:

Cash, cash equivalents, and marketable securities: The carrying amount at face value approximates fair
value because of the short maturity of these instruments.

U.S. bond mutual funds, international bond mutual funds, U.S. equities, U.S. equities mutual funds, and
international equities mutual funds: These are valued using quoted prices in principal active markets for
identical assets as of the valuation date.

14 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

Corporate bonds, government bonds, global bond funds, and some international bond funds: For the
valuation of these investments, Pacific used significant other observable inputs, particularly dealer and
market prices for comparable investments as of the valuation date.

The following table summarizes the valuation of Pacific’s investments by the ASC 820 fair value and net
asset value (NAV) hierarchy as of June 30, 2016 (in thousands):

Fair value measurement at June 30, 2016

Quoted
prices
in active Significant
markets for other Significant
identical observable unobservable Investments
assets inputs inputs measured at June 30,
(Level I) (Level II) (Level III) NAV 2016

Cash and cash equivalents $ 29,044 — — — 29,044

Time deposits 19,000 — — — 19,000
Long-duration government bonds — 534 — — 534
Long-duration bond mutual funds 49,668 — — — 49,668
Short-duration bond mutual funds 105,772 — — — 105,772
International bond funds — — — 5,692 5,692
Global bond funds — — — 5,883 5,883
U.S. equities 83,953 — 399 19,995 104,347
U.S. equities mutual funds 43,473 — — — 43,473
International equities funds 57,631 — — 26,432 84,063
Private equity funds — — — 28,505 28,505
Hedge funds — — 1,090 33,695 34,785
Real asset funds — — — 15,904 15,904
Assets held by other trustees — — 1,670 — 1,670
High yield credit — — — 8,148 8,148
Real and personal property — — 3,577 — 3,577

$ 388,541 534 6,736 144,254 540,065

Pacific’s policy is to recognize significant transfers in and out of Levels I, II, and III at the end of the
reporting period. There were no transfers between levels in the current year.

15 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

The following table presents Pacific’s activities for investments measured at fair value on a recurring basis
using significant unobservable inputs (Level III) as defined in ASC 820 for the year ended June 30, 2017.

Fair value measurements using significant

unobservable inputs (Level III)
U.S. equities Hedge funds
and assets and private Real and
held by others equity personal
trustees funds property Total
Balance at June 30, 2016 $ 2,069 1,090 3,577 6,736
Income and dividends — — — —
Realized and unrealized gains (losses)
included in change in net assets 151 86 — 237
Purchases and issuances — — — —
Sales and settlements — (81) (2,910) (2,991)
Investment management fees — — — —
Balance at June 30, 2017 $ 2,220 1,095 667 3,982

The amount of total gains (losses)

for the period included in change in
net assets attributable to the
change in unrealized gains (losses)
relating to investments still held
at the reporting date $ 151 86 — 237

The following table presents for applicable investments regarding funding commitments, redemption, and
restrictions as of June 30, 2017 (in thousands):

Unfunded Redemption Redemption

Fair value commitments frequency notice period
Private equity funds – global (a) $ 30,713 15,468 See note See note
Multistrategy hedge funds (b) 19,840 — Quarterly, semi-annually 45–95 days
Event-driven hedge funds (c ) 13,861 — Quarterly 65-90 days
Equity long/short hedge funds (d) 27,731 — Monthly, quarterly 30–65 days
Real asset funds (e) 17,111 — Monthly 16–30 days
U.S. equities and assets held by
other trustees (f) 2,220 — See note See note
Real and personal property (g) 667 — See note See note
International equities funds (h) 63,676 — Monthly 30 days
Global bond funds (i) 5,048 — Monthly 10 days
Domestic equity-mid cap growth (j) 38,982 — Monthly 52–30 days
Total $ 219,849 15,468

16 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

(a) This category includes several private equity funds that invest in the United States and internationally.
These investments can be recouped through the sale of limited partner interest in the fund. In addition,
distributions are received through the liquidation of the underlying assets of the fund to the limited
partners. If these investments were held, it is estimated that the underlying assets of the fund would be
liquidated over 5 to 10 years. As of June 30, 2017, it is probable that all of the investments in this
category will be sold at an amount different from the net asset value of Pacific’s ownership interest in
partners’ capital due to future market fluctuations. The fair values of the investments in this category
have been estimated as the net asset value of Pacific’s ownership interest in partners’ capital. The
process for liquidating these investments is through the solicitation of buyers. As of June 30, 2017, a
buyer (or buyers) for these investments has not yet been identified. Once a buyer has been identified,
the investee fund’s management must approve of the buyer before the sale of the investments can be
completed.

(b) This category invests in hedge funds that pursue multiple strategies to diversify risks and reduce
volatility. The hedge funds’ composite portfolio for this category includes investments in undervalued
and overvalued equity, stressed and distressed credits, private real estate, and arbitrage investments.
The fair values of the investments in this category have been estimated using the net asset value per
share of the investments. All investments in this category can be redeemed quarterly or semiannually
subject to the redemption notice period.

(c) This category includes investments in hedge funds that seek to profit from companies undergoing
extraordinary events that will impact the companies’ financial structures. These events can include
mergers and acquisitions, distressed and stressed investing, capital structure arbitrage, restructurings
and spin-offs. The fair values of the investments in this category have been estimated using the net
asset value per share of the investments. All investments in this category can be redeemed quarterly
subject to the notice period.

(d) This category includes investments in hedge funds that invest both long and short in global equities.
Management of the hedge funds has the ability to shift investments from value to growth strategies,
from small to large capitalization stocks, U.S. and international stocks, and from a net long position to a
net short position. The fair values of the investments in this category have been estimated using the net
asset value per share of the investments. All investments in this category can be redeemed monthly or
quarterly subject to the notice period.

(e) This category includes commodity and inflation hedge strategy funds that invest primarily in global
equities, precious metals, commodities, and inflation-linked fixed income. The fair values of the
investments in this category have been estimated using the net asset value per share of the
investments. All investments in this category can be redeemed monthly subject to the notice period.

(f) Equities and assets held by others in Level III include a $1,751 endowment fund gifted to Pacific for
which the investments are managed by an outside trustee bank in perpetuity according to the donor’s
wishes. Because the endowment is to be invested in perpetuity, the funds may not be redeemed but
distributions are made to the University to be allocated for scholarships. Other assets in this fund
represent miscellaneous Level III securities included in domestic corporate stocks and bonds.

17 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

(g) Real and personal property primarily includes an investment in an office building, farmland, and houses
located in Northern and Central California.

(h) This category includes investments in equity securities of issuers located outside the United States.
The fund focuses on issuers located in developed market countries but may allocate a portion of net
assets to issuers in emerging market countries. Management of the fund may also invest in
non-U.S. currencies and foreign currency exchange contracts to hedge its equity positions. The fair
values of the investments in this category have been estimated using the net asset value per share of
the investments. All investments in this category can be redeemed monthly.

(i) This category includes investments in the sovereign debt and currencies of countries around the world.
Investments also include highly rated corporate bonds and mortgage-backed securities. Management
may also invest a small allocation in emerging markets and high yield debt. The fair values of the
investments in this category have been estimated using the net asset value per share of the
investments. All investments in this category can be redeemed monthly.

(j) This category includes investments in domestic equity mid-cap securities with above-average earnings
growth potential. The fund’s initial investments are within the capitalization of the Russell Midcap
Growth Index. The fair values of the investments in this category have been estimated using the net
asset value per share of the investments. All investments in this category can be redeemed monthly.

Investments include approximately $18,749,000 and $18,447,000 held under split-interest trust agreements
as of June 30, 2017 and 2016, respectively. Bond and note proceeds included in investment and restricted
for construction and equipment financing were $22,874,548 as of June 30, 2017 and $0 as of June 30,
2016.

The following summarizes total investment return for endowed and nonendowed assets for the year ended
June 30, 2017 and its classification in the statement of activities (in thousands):

Temporarily
Total Unrestricted restricted
Dividends and interest $ 8,770 3,048 5,722
Realized and unrealized gains on investments 42,014 3,191 38,823
Total investment return, net $ 50,784 6,239 44,545

Investment return distributed $ 17,230 3,619 13,611

Investment return, net of distributions 33,554 2,620 30,934
Total investment return, net $ 50,784 6,239 44,545

18 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

The following summarizes total investment return for endowed and nonendowed assets for the year ended
June 30, 2016 and its classification in the statement of activities (in thousands):

Temporarily
Total Unrestricted restricted
Dividends and interest $ 9,136 3,523 5,613
Realized and unrealized losses on investments (16,904) (1,777) (15,127)
Total investment (loss) return, net $ (7,768) 1,746 (9,514)

Investment return distributed $ 17,101 4,105 12,996

Investment (loss) return, net of distributions (24,869) (2,359) (22,510)
Total investment (loss) return, net $ (7,768) 1,746 (9,514)

(4) Endowments
In accordance with the California Prudent Management of Institutional Funds Act (CPMIFA), Pacific
classifies as permanently restricted net assets: (a) the original value of gifts donated to the permanent
endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) the
accumulations to the permanent endowment made in accordance with the direction of the applicable donor
gift instrument at the time the accumulation is added to the fund. The portion of the donor-restricted
endowment fund not classified in permanently restricted net assets is classified as temporarily restricted
net assets to the extent of available accumulated income and gains and losses. Temporarily restricted net
assets on endowed funds are then appropriated for spending according to donor-imposed purpose
restrictions and Pacific’s spending policy as set by the Board of Regents in accordance with the provisions
of the CPMIFA.

In the absence of explicit donor instructions on the use of the portion of the endowment funds not stipulated
by the donor to be restricted in perpetuity, investment returns, including dividends, interest, and realized
and unrealized gains and losses, must be classified as temporarily restricted until appropriated for
expenditure in accordance with the Endowment Fund Investment Policy established by Pacific’s Board of
Regents.

Pacific’s investment and spending policy for endowment assets seeks to provide a predictable stream of
funding to programs supported by the endowment while simultaneously maintaining the purchasing power
of the endowment assets over time. The Pacific endowment represents a collection of individual
endowments from benefactors that in the aggregate form a fund from which earnings will support the
purposes of each endowment for generations to come.

For the year ended June 30, 2017, Pacific’s endowment’s spending policy was a target rate of 4% of a
twelve-quarter moving average of the fair value of each endowment as of each quarter-end. If an
endowment existed less than three years, the fair value for purposes of applying the spending rate was the
average of the year-end values since the individual endowment was established. While pledges restricted
to permanently donor-restricted endowment funds were included in the total endowment at June 30, 2017,

19 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

these investments are not subject to the target rate per the spending policy and are not considered part of
invested endowed assets. Funds from spending appropriations are distributed in equal quarterly
installments as determined at the beginning of each fiscal year.

Effective for fiscal years beginning July 1, 2010 and thereafter, Pacific’s Board of Regents adopted an
Endowment Fund Investment Policy reflective of CPMIFA provisions and the Board’s desire to balance
near-term spending and investment returns in a manner that ensures current programs receive appropriate
support while protecting the Endowment’s future purchasing power from the effects of inflation. Under the
policy, in future periods, endowed funds with deficiencies will be allowed to utilize accumulated realized
and unrealized gains to fund spending appropriations, while spending rates will be adjusted from time to
time as considered prudent in order to preserve future Endowment purchasing power.

Endowment net asset composition by type of fund as of June 30, 2017 (in thousands):

Temporarily Permanently
Unrestricted restricted restricted Total

Donor-restricted endowment funds $ (2) 83,895 312,186 396,079

Board-designated endowment funds 27,400 — — 27,400
Total funds $ 27,398 83,895 312,186 423,479

Endowment net asset composition by type and fund as of June 30, 2016 (in thousands):

Temporarily Permanently
Unrestricted restricted restricted Total
Donor-restricted endowment funds $ (606) 53,762 296,289 349,445
Board-designated endowment funds 25,799 — — 25,799
Total funds $ 25,193 53,762 296,289 375,244

20 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

Changes in endowment net assets were as follows for the year ended June 30, 2017 (in thousands):

Temporarily Permanently
Unrestricted restricted restricted Total

Invested and other endowment

assets beginning of year $ 25,193 53,762 309,792 388,747
Less pledge and trust assets, net — — (13,503) (13,503)

Invested endowment assets, beginning

of year 25,193 53,762 296,289 375,244

Investment return:
Dividends and interest (3,017) 6,085 — 3,068
Realized and unrealized gains
net 2,806 37,362 — 40,168
Total investment (loss) return (211) 43,447 — 43,236

Contributions 442 — 15,085 15,527

Spending policy distributed (1,310) (13,564) — (14,874)
Transfers into endowment 3,284 250 812 4,346
Endowment net assets, end of year $ 27,398 83,895 312,186 423,479

Other permanently restricted net assets:

Trust and annuities 5,389
Pledges 7,055
Total invested and other
endowment assets $ 324,630

21 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

Changes in endowment net assets were as follows for the year ended June 30, 2016 (in thousands):

Temporarily Permanently
Unrestricted restricted restricted Total
Invested and other endowment
assets beginning of year $ 26,442 77,589 297,394 401,425
Less pledge and trust assets, net — — (10,800) (10,800)

Invested endowment assets, beginning

of year 26,442 77,589 286,594 390,625
Investment return:
Dividends and interest 291 3,066 — 3,357
Realized and unrealized gains and
(losses) net (195) (14,072) — (14,267)
Total investment (loss) return 96 (11,006) — (10,910)
Contributions — — 9,515 9,515
Spending policy distributed (1,402) (12,812) — (14,214)
Transfers into endowment 57 (9) 180 228
Endowment net assets, end of year $ 25,193 53,762 296,289 375,244

Other permanently restricted net assets:

Trust and annuities 7,175
Pledges 6,328
Total invested and other
endowment assets $ 309,792

From time to time, the fair value of assets associated with individual donor-restricted endowment funds
may fall below the value of the permanently restricted portion of the fund. Deficiencies of this nature
reported in unrestricted net assets were $2,000 and $606,000 as of June 30, 2017 and June 30, 2016,
respectively. These cumulative deficiencies resulted from unfavorable market fluctuations.

Professional fees for management of the pooled investments are recorded against investment returns and
amounted to approximately $2,849,000 and $2,227,000 for the years ended June 30, 2017 and 2016,
respectively.

22 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

(5) Fixed Assets

Fixed assets as of June 30, 2017 and 2016 consist of (in thousands):

2017 2016
Land $ 6,263 6,263
Buildings 452,614 452,103
Equipment 65,250 61,825
Library books and collections 46,483 45,897
Construction in progress 20,621 4,073
Improvements other than buildings 17,680 17,037
608,911 587,198
Less accumulated depreciation (242,284) (219,254)
Total fixed assets, net $ 366,627 367,944

(6) Notes and Bonds Payable

Notes and bonds payable as of June 30, 2017 and 2016 consist of (in thousands):

2017 2016

Bonds payable:
California Educational Facilities Authority (CEFA)
Project Revenue Bonds:
Series 2009, 4.000–5.500%, due 2010 to 2039 $ 12,010 12,310
Series 2012A, 2.000–4.500%, due 2012 to 2042 30,020 31,305
Series 2014, 2.37%, due 2014 to 2034 23,856 26,385
Series 2015, 2.000–5.000%, due 2015 to 2036 64,595 66,275
California Municipal Finance Authority (CMFA)
Project Revenue Bonds:
Series 2016, 4.000–5.000%, due 2019 to 2048 33,120 —

163,601 136,275

Unamortized premium on bonds 12,732 9,706

Total bonds payable 176,333 145,981

Notes payable:
JPMC Term Loan, 3.13%, due 2014 to 2024 14,275 16,070
Total notes and bonds payable $ 190,608 162,051

23 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

Scheduled maturities of notes and bonds payable are (in thousands):

Bonds Notes Total

Year ending June 30:

2018 $ 4,950 1,853 6,803
2019 5,140 1,912 7,052
2020 5,860 1,972 7,832
2021 5,275 1,009 6,284
2022 22,906 7,529 30,435
Thereafter 119,470 — 119,470
$ 163,601 14,275 177,876

Sinking fund requirements on CEFA Revenue Bonds, Series 2012A and Series 2015, and CMFA Revenue
Bonds, Series 2016, are as follows (in thousands):

Long-term
debt

Year ending June 30, 2017:

2024 $ 1,205
2025 1,265
2026 1,325
2027 1,395
2028 1,470
Thereafter 44,870
$ 51,530

(a) California Municipal Finance Authority (CMFA) Project Revenue Bonds

In October 2016, Pacific issued CMFA Revenue Bonds, Series 2016, in the amount of $33,120,000
with premium of $3,584,279. Such bonds are payable in varying annual installments through 2048 with
interest paid semiannually at rates ranging from 4.00%–5.00%. After original issue premium and costs
of issuance, net proceeds of $34,000,000 were used to finance the Upper Division Housing Project that
includes two four-story residence halls on the Stockton campus.

(b) California Educational Facilities Authority (CEFA) Project Revenue Bonds

In August 2015, Pacific issued CEFA Revenue Bonds, Series 2015, in the amount of $68,005,000 with
premium of $7,992,350. Such bonds are payable in varying annual installments through 2036 with
interest paid semiannually at rates ranging from 2.00%–5.00%. After original issue premium and costs
of issuance, net proceeds of $6,003,755 were deposited into an escrow account for the purpose of

24 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

refunding payments of principal and interest on Pacific’s Series 2004 Bonds and $69,105,500 was
deposited into an escrow account for the purpose of refunding payments of principal and interest on
Pacific’s Series 2006 Bonds. No new debt was incurred with this issuance.

In June 2014, Pacific entered into a Loan Agreement with CEFA, whereby CEFA privately placed
issuances with a bank of par $36,500,000 fixed rate tax exempt Revenue Bonds (Series 2014) with
final maturity of 2034. The proceeds of the 2014 Bonds were used to pay off a Line of Credit and to
finance the capital project in San Francisco. The Series 2014 Bonds were issued at par value with a
stated interest rate of 2.37% that are fixed under an initial rate period until June 22, 2021. Subsequent
to this initial rate period, the bonds are convertible to one of several different fixed or variable interest
rate options based on market conditions at that time. The bonds are subject to annual principal and
interest payments since 2014.

In January 2012, Pacific issued CEFA Revenue Bonds, Series 2012A in the amount of $35,435,000
with premium of $2,552,510. Such bonds are payable in varying annual installments through 2042 with
interest paid semiannually at rates ranging from 2.00%–4.50%. After original issue premium and costs
of issuance, net proceeds of $8,575,978 were deposited into an irrevocable trust for the purpose of
funding payments of principal and interest on Pacific’s Series 1998 Bonds; $12,503,754 was deposited
into an irrevocable trust for the purpose of funding payments of principal and interest on Pacific’s
Series 2000 Bonds and $15,500,302 was utilized to finance a portion of the acquisition and renovation
of an office building in San Francisco that will be the home of the University’s San Francisco campus,
which includes the University’s Dugoni School of Dentistry.

In May 2009, Pacific issued CEFA Revenue Bonds, Series 2009 in the amount of $15,000,000. Such
bonds are payable in varying annual installments through 2039 with interest paid semiannually at rates
ranging from 4.00%–5.50%. After original discount and costs of issuance, net proceeds of $14,636,023
were utilized for facility and equipment upgrades and renovations.

(c) JPMorgan Chase Term Loan

In June 2014, Pacific entered into a taxable Loan Agreement with JPMorgan Chase in the amount of
$19,500,000 with final maturity of 2024. The proceeds of the loan were used to pay off a line of credit
and to cover the costs associated with the leased tenant space at 155 5th Street. The taxable loan has
principal and interest payable semi-annually with a stated interest rate of 3.13% that is fixed under an
initial rate period until June 22, 2021.

(7) Retirement Benefits

Defined contribution retirement benefits are provided for University employees principally through the
Teachers Insurance and Annuity Association (TIAA-CREF), a national organization used to manage
retirement benefits for educational institutions. Under this arrangement, Pacific and plan participants make
monthly contributions to TIAA-CREF to fund retirement benefits, which are immediately vested with the
employee. Pacific’s share of the cost of these benefits for the years ended June 30, 2017 and 2016 was
approximately $13,671,784 and $12,957,000, respectively.

25 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

(8) Commitments and Contingencies

Pacific is involved in various items of litigation, most of which involve employment matters. Management
believes each of these matters has meritorious defenses and intends to defend these cases vigorously and
believes the ultimate liability, if any, will not be material to the financial position of Pacific.

(9) Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:

(a) Cash and Cash Equivalents, Estate Gift Receivable, Accounts Payable and Accrued Liabilities,
Inventories, Prepaid Expenses and Other Assets, Advance Deposits and Deferred Revenue
The carrying amount approximates fair value, based on the short maturity of those instruments.

(b) Student Loans Receivable and Federal Student Loan Funds

The fair value of student loans receivable and federal student loan funds approximates their carrying
value, based on current comparable loan rates.

(c) Investments
The fair value of investments is estimated according to FASB ASC 820, as outlined in note 3.

(d) Notes and Bonds Payable

The fair value of Pacific’s long-term debt is estimated based on the current rates available to Pacific for
debt of the same remaining maturities. As of June 30, 2017 and 2016, the fair value of Pacific’s notes
and bonds approximates $194,500,000 and $171,600,000, respectively.

(e) Pledges Receivable

The carrying amounts approximate fair value because of the short term nature of the instruments as
well as the discounting to present value of the estimated future cash flows.

(f) Trust and Annuities

The carrying amount of annuity and trust obligations approximates fair value as the investments are
recorded at the estimated net present value of future cash flows.

(g) Asset Retirement Obligations

The fair value of the asset retirement obligation is estimated according to FASB ASC 410 and
approximates carrying value.

26 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

(10) Leases
Pacific is obligated under various capital leases for equipment that expires at various dates during the next
five years. As of June 30, 2017 and 2016, the gross amount of equipment recorded under capital leases
was as follows (in thousands):

2017 2016
Equipment $ 12,570 12,027
Less accumulated amortization (10,851) (9,579)
$ 1,719 2,448

Future minimum capital lease payments as of June 30, 2017 are as follows (in thousands):

Capital
leases
Fiscal year ending June 30:
2018 $ 729
2019 539
2020 136
2021 77
Total minimum lease payments 1,481
Less amounts representing interest (40)
Present value of net minimum
capital lease payments $ 1,441

(11) Composition of Net Assets

The composition of the categories of net assets as of June 30, 2017 and 2016 consists of (in thousands):

2017 2016
Unrestricted net assets:
Undesignated net assets $ 18,897 17,718
Designated for specific purposes 119,517 94,320
Quasi-endowment 27,400 25,799
Accumulated net losses on permanently restricted
endowed funds (2) (606)
Investment in fixed assets, net of long-term debt 176,019 205,893
341,831 343,124

27 (Continued)
 UNIVERSITY OF THE PACIFIC
Notes to Financial Statements
June 30, 2017
(with summarized comparative financial information
for the year ended June 30, 2016)

2017 2016

Temporarily restricted net assets:

Accumulated investment return on permanently restricted
endowed funds $ 83,895 53,762
Amounts restricted by donors for programs 1,659 944
Amounts restricted by donors for investment in plant 2,957 3,173
Pledges receivable for programs 4,975 3,277
Pledges receivable for investment in plant 5,056 7,349

98,542 68,505
Permanently restricted net assets:
Permanent endowment 312,186 296,289
Pledges 7,055 6,328
Trusts and annuities 5,389 7,175

324,630 309,792
$ 765,003 721,421

(12) Related-Party Transactions

Included in revenues for the years ended June 30, 2017 and 2016 are contributions from Board of Regents
members totaling $829,470 and $2,267,802, respectively. In addition, pledge payments totaling $2,227,741
and $1,119,051 were received from Board of Regents members during the years ended June 30, 2017 and
2016, respectively.

Pledges include promises to give from members of the Board of Regents. As of June 30, 2017 and 2016,
the net present value of Board of Regents’ pledges outstanding totaled approximately $2,918,673 and
$5,086,375, respectively.

(13) Subsequent Events

Pacific has evaluated its subsequent events through November 1, 2017, the date the financial statements
were issued.

28
 KPMG LLP
500 Capitol Mall, Ste 2100
Sacramento, CA 95814-4754

Independent Auditors’ Report on Internal Control over Financial Reporting

and on Compliance and Other Matters Based on an Audit of Financial Statements
Performed in Accordance with Government Auditing Standards

The Board of Regents

The University of the Pacific:

We have audited, in accordance with the auditing standards generally accepted in the United States of America
and the standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States, the financial statements of the University of the Pacific, which
comprise the balance sheet as of June 30, 2017, and the related statements of activities and cash flows for the
year then ended, and the related notes to the financial statements, and have issued our report thereon dated
November 1, 2017.

Internal Control over Financial Reporting

In planning and performing our audit of the financial statements, we considered University of the Pacific’s
internal control over financial reporting (internal control) to determine the audit procedures that are appropriate
in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the
purpose of expressing an opinion on the effectiveness of University of the Pacific’s internal control. Accordingly,
we do not express an opinion on the effectiveness of University of the Pacific’s internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent, or detect and correct,
misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal
control, such that there is a reasonable possibility that a material misstatement of the entity’s financial
statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a
deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet
important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section
and was not designed to identify all deficiencies in internal control that might be material weaknesses or
significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal
control that we consider to be material weaknesses. However, material weaknesses may exist that have not
been identified.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether University of the Pacific’s financial statements are
free from material misstatement, we performed tests of its compliance with certain provisions of laws,
regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect
on the determination of financial statement amounts. However, providing an opinion on compliance with those
provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of
our tests disclosed no instances of noncompliance or other matters that are required to be reported under
Government Auditing Standards.

29

KPMG LLP is a Delaware limited liability partnership and the U.S. member
firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and
the results of that testing, and not to provide an opinion on the effectiveness of University of the Pacific’s
internal control or on compliance. This report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the University of the Pacific’s internal control and compliance.
Accordingly, this communication is not suitable for any other purpose.

Sacramento, California
November 1, 2017

30