ML062080712

Response to the Request for Additional Information Regarding License Renewal, Ohio State University

ML062080712
Person / Time
Site:	Ohio State University
Issue date:	07/26/2006
From:	Denning R Ohio State University
To:	Jessie Quichocho NRC/NRR/ADRA/DPR/PRTA
References
TAC MA7724
Download: ML062080712 (60)

Text

T -H -E OHNLIO STATE UNIVERSITY Nuclear Reactor Laboratory 1298 Kinnear Road Columbus, OH 43212-1154 Phone 614-688-8220 FAX 614-292-2209 Mr. Jessie Quichocho, Project Manager Research and Test Reactors Branch Division of Policy and Rulemaking Office of Nuclear Reactor Regulation July 26, 2006 RE: Responses to the Request for Additional Information Regarding License Renewal, Ohio State University (TAC NO. MA 7724)

Dear Mr. Quichocho,

Please find enclosed responses to your request for additional information of March 2006 addressed to Mr. Andrew Kauffman.For Financial Qualification (l.a.) we have enclosed the most recent Financial Report for The Ohio State University as you requested.

There is also a letter from the OSURR Fiscal Administrator, Patricia Chrisenberry, indicating our sources of funding. For Items (1 .b.) and (1.c.) there is a document entitled "Financial Qualifications" which provides the bases for the assumptions that there is reasonable assurance that The Ohio State University will be able to fund operating and eventual decommissioning costs for the OSURR.For Item (2), Operator Requalification Program, we have enclosed a copy of Administrative Procedure AP-09, RO/SRO Requalification, which constitutes our requal program.In Item (3) you make reference to an approved physical security plan on file with the NRC. Please be advised that we do not have a plan on file with the NRC and have not been required to since 1995. We have enclosed an explanation of this entitled "Physical Security Plan 1OCFR73.67".

AcD2 (D i"( )Q I College of Engineering If you have questions on these responses to your inquires please contact Mr. Andrew Kauffman at 614 688-8220.I declare under penalty of perjury that the foregoing is true and correct.Executed on July 19, 2006.Sinc ply, Richard Denning, Director c. W.A. "Bud" Baeslack III, Dean, College of Engineering, w/o enclosures

c. Andrew C. Kauffman, Associate Director, OSU Nuclear Reactor Lab THE OHIO STATE UNIVERSITY Wi;K 15 7- -2005 Financial RepoIrt I[3 Letter from the Senior Vice President for Business and Finance and the University ControllerIndependent Auditors' Report[] Management's Discussion and AnalysisConsolidated Statements of Net Assets.Consolidated Statements of Revenues, Expenses, and Other Changes in Net Assets[ Consolidated Statements of Cash Flows[] Notes to Financial Statements S Acknowledgements L~ 2005 Board of TrusteesInstitutional Highlights 2005 i-Letter e are pleased to present the consolidated financial report for The! Ohio State University for the years ended June 30,2005 and 2004.The accompanying financial report indicates that the university's financial health remains sound, with growth in tuition, grants and contracts, and patient care revenues offsetting similar increases in operating expenses.

Total expendable net assets (equity) decreased

$49 million, to $1.14 billion at June 30,2005, primarily due to expenditures for capital projects.Total net assets increased

$352 million, to$3.78 billion. Issuance of commercial paper increased the university's plant debt-in the form of bonds, notes, and capital leases-to$878 million. Total autumn 2004 enrollments exceeded 58,000 students, and freshman retention rates continue to improve.Under the leadership of Karen A.Holbrook, Ohio State has maintained its focus on the six core strategies that comprise the university's Academic Plan: " Build a world-class faculty" Develop academic programs that define Ohio State as the nation's leading land-grant university

• Enhance the quality of the teaching and learning environment

• Enhance and better serve the student body" Create a diverse university community" Help build Ohio's future Protecting the university's resources and reputation requires effective internal controls, both to prevent problems and to detect those that do occur. Ohio State operates in a decentralized environment, with college deans, their senior fiscal officers, and literally hundreds of faculty and staff playing key stewardship roles. We are working closely with our colleagues across the institution to provide clear policies and to monitor our compliance with these policies.

In addition, the university and its Board of Trustees are implementing best practices identified in the Sarbanes-Oxley Act, including a separate Board Audit Committee, a sub-certification process for colleges and support units, and (in 2006) an anonymous reporting system for suspected instances of fraud and non-compliance.

We encourage you to read the financial report, and we welcome your interest in this great university.

Go Bucks!Very truly yours, William J. Shkurti Senior Vice President for Business and Finance Greta J. Russell University Controller I

Deloitte.

eote&Tuh L 155 East Broad Street 18w' Floor Columbus, OH 43215-3611 USA Tel: 614-221-1000 Fax: 614-229-4647 www.deloltte.com Independent Auditors' Report To the Board of Trustees of The Ohio State University Columbus, Ohio We have audited the accompanying consolidated statements of net assets of The Ohio State University (the "University"), a component unit of the State of Ohio, as of June 30, 2005 and 2004, and the related consolidated statements of revenues, expenses, and changes in net assets, and of cash flows for the years then ended. These consolidated financial statements are the responsibility of the University's management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the respective financial statements are free of material misstatement.

An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University's internal control over financial reporting.

Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the respective financial statements, assessing the accounting principles used, and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the respective financial position of The Ohio State University as of June 30, 2005 and 2004 and their changes in net assets and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.The Management's Discussion and Analysis ("MD&A") on pages 3 through 13 is not a required part of the basic consolidated financial statements, but is supplementary information required by the Governmental Accounting Standards Board. This supplementary information is the responsibility of the University's management.

We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information.

However, we did not audit such information and we do not express an opinion on it.October 19, 2005 Member of Deloitte Touche Tohmatsu The Ohio State University Management's Discussion and Analysis for the Year Ended June 30, 2005 Mpniiemei s Dis-cussion 9n00nalysis, or MD&A, providesan overview of the financial position and activities of The Ohio State University for the year ended June 30,2005, with comparative information for the years ended June 30, 2004, and June 30, 2003. We encourage you to read this MD&A section in conjunction with the audited financial statements and footnotes appearing in this report.About The Ohio State University The Ohio State University is the State of Ohio's flagship research institution and one of the largest universities in the United States of America, with over 58,000 students, 4,700 faculty members, and 16,000 staff members. Founded in 1870 under the Morrill Land Grant Act, the university, which was originally known as the Ohio Agricultural and Mechanical College, has grown over the years into a comprehensive public institution of higher learning, with over 170 undergraduate majors, 110 master's degree programs, and 90 doctoral programs.

The university operates one of the nation's leading academic medical centers, which includes the OSU Health System. The health system comprises The Ohio State University Medical Center, Arthur G. James Cancer Hospital and Richard J. Solove Research Institute, Richard M. Ross Heart Hospital, University Hospital East, OSU Harding Hospital, and 24 outpatient care centers. The system provided services to over 51,000 inpatients and 857,000 outpatients during fiscal year 2005.Ohio State is governed by a board of 11 trustees who are responsible for oversight of academic programs, budgets, and general administration, and employment of faculty and staff. The governor annually appoints one voting member to a nine-year term and one non-voting student member to a two-year term. The university's 18 colleges, the OSU Health System, and various academic support units operate largely on a decentralized basis.The board approves annual budgets for university operations, but these budgets are managed at the college and department level.The following financial statements reflect all assets, liabilities and net assets (equity) of the university, the OSU Health System, the Ohio Agricultural Research and Development Center (OARDC), and the Ohio Supercomputer Center. In addition, these statements include consolidated financial results for a number of legally separate entities subject to board control, including:

• the OSU Research Foundation (which administers sponsored research grants and contracts for the university)

• the OSU Foundation (a fund-raising foundation operating exclusively for the benefit of the university)

• Campus Partners for Community Urban Redevelopment (a non-profit organization participating in the redevelopment of neighborhoods adjacent to the main Columbus campus)* Transportation Research Center (an automotive research and testing facility in East Liberty, Ohio)* OSU Managed Health Care Systems (a non-profit organization that administers university health care benefits)* OSU Physicians, Inc. (the central practice group for physician faculty members of the College of Medicine and Public Health)The entities listed above meet the"financial accountability" criteria set forth in Governmental Accounting Standards Board Statement No. 14, The Financial Reporting Entity. A complete listing of the entities that are included in the university's financial report is provided in the Basis of Presentation section of the footnotes.

3 About the Financial Statements The university presents its financial reports in a "business type activity" format, in accordance with Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments and GASB Statement No. 35, Basic Financial Statements-and Management's Discussion and Analysis-for Public Colleges and Universities-an amendment of GASB Statement No. 34. In* addition to this MD&A section, the financial report includes a Statement of Net Assets, a Statement of Revenues, Expenses and Other Changes in Net Assets, a Statement of Cash Flows, and Notes to the Financial Statements.

The Statement of Net Assets is the university's balance sheet. It reflects the total assets, liabilities, and net assets (equity)of the university as of June 30, 2005, with comparative information as of June 30,2004.Liabilities due within one year, and assets available to pay those liabilities, are classified as current. Other assets and liabilities are classified as non-current.

Investment assets are carried at market value. Capital assets, which include the university's land, buildings, improvements, and equipment, are shown net of accumulated depreciation.

Net assets are grouped in the following categories:

• Invested in capital assets, net of related debt* Restricted

-Nonexpendable (endowment and annuity funds)* Restricted

-Expendable (primarily current restricted and quasi-endowment funds)* Unrestricted The Statement of Revenues, Expenses, and Other Changes in Net Assets is the university's income statement.

It details how net assets have increased (or decreased) during the year ended June 30, 2005, with comparative information for Fiscal Year 2004.Tuition revenue is shown net of scholarship allowances, depreciation is provided for capital assets, and there are required subtotals for net operating income (loss) and net income (loss) before capital contributions and additions to permanent endowments.

It should be noted that the required subtotal for net operating income or loss will generally reflect a "loss" for state-supported colleges and universities.

This is primarily due to the way operating and non-operating items are defined under GASB Statement No.9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting.

Operating expenses include virtually all university expenses, except for interest on long-term debt. Operating revenues, however, exclude certain significant revenue streams that Ohio State and other public institutions have traditionally relied upon to fund current operations, including state instructional support, current-use gifts, and investment income.The Statement of Cash Flows details how cash has increased (or decreased) during the year ended June 30,2005, with comparative information for Fiscal Year 2004. It breaks out the sources and uses of university cash into the following categories:

• Operating activities

• Noncapital financing activities

• Capital financing activities

• Investing activities Cash flows associated with the university's expendable net assets appear in the operating and noncapital financing categories.

Capital financing activities include payments for capital assets, proceeds from long-term debt, and debt repayments.

Purchases and sales of investments are reflected as investing activities.

The Notes to the Financial Statements, which follow the financial statements, provide additional details on the numbers in the financial statements.

Financial Highlights and Key Trends The university's financial health remained sound in 2005, with growth in tuition, grants and contracts, and patient care revenues offsetting similar increases in operating expenses.

Total unrestricted and restricted-expendable net assets decreased

$49 million, to $1.14 billion at June 30, 2005, primarily due to expenditures for capital projects.

Issuance of commercial paper increased total plant debt $63 million, to $878 million. University investments yielded $154 million of net investment income.Student enrollment trends reflect continued strong demand for an Ohio State education.

Total autumn quarter 2004 enrollment for all campuses was 58,365, up from 58,254 in autumn 2003. And freshman retention continues to improve. Of the freshmen enrolled in autumn 2003, 88%returned to Ohio State in autumn 2004, up from 87.7% in the comparable 2002-2003 period.The following sections provide additional details on the university's 2005 financial results and a look ahead at significant economic conditions that are expected to affect the university in the future.1IF:M, Total university cash and current investment balances decreased

$545 million in 2005.To increase the level of operating support provided by endowment funds, the university transferred approximately

$478 million of temporary investments to the Endowment Fund to establish the Long Term Component and President's Strategic Investment endowment funds. The Statement of Cash Flows, which is discussed in more detail below, provides additional details on sources and uses of university cash.The market value of the university's endowment and other long-term investments increased

$569 million, to $1.72 billion at June 30,2005, due to a combination of transfers from temporary investments, market appreciation, and new endowment gifts. The Endowment Fund operates with a long-term investment goal of preserving the purchasing power of the principal in a diversified portfolio.

Capital assets, which indude the university's land, buildings, improvements, equipment, and library books, grew $380 million, to $2.47 billion at June 30,2005. The university depreciates its capital assets on a straight-line basis, using estimated useful lives ranging from 5 years (for computer equipment) to 100 years (for certain building components such as foundations).

Student enrollment trends reflect continued strong demand for an Ohio State education.

Total autumn quarter 2004 enrollment for all campuses I 5 L.~.

I I. Summary Statements of Net Assets Cash and current investments Current receivables, inventories and prepaid expenses Total current assets Restricted cash and cash equivalents Noncurrent notes and pledges receivable Endowments and other long-term investments Capital assets, net of accumulated depreciation Total noncurrent assets Total assets Accounts payable and accrued expenses Deferred revenues and deposits Commercial paper and current portion of bonds, notes and lease obligations Other current liabilities Total current liabilities Noncurrent portion of bonds, notes and lease obligations Other noncurrent liabilities Total noncurrent liabilities Total liabilities Invested in capital assets, net of related debt Restricted

-nonexpendable net assets Restricted

-expendable net assets Unrestricted net assets Total net assets 2005$ 583,805 470,770 2004$1,128,570 405,275 2003$ 836,704 384,685 1,054,575 1,533,845 1,221,389 50,203 34,030 16,125 85,428 89,082 92,515 1,721,226 1,152,338 1,017,094 2,468,776 2,088,665 1,869,355 4,325,633 3,364,115 2,995,089$5,380,208

$4,897,960

$4,216,478

$368,127 $323,468 $272,636 154,424 140,647 138,787 480,580 411,270 349,206 10,140 10,809 9,496 1,013,271 886,194 770,125 396,960 403,336 237,027 190,896 181,678 171,781 587,856 585,014 408,808$1,601,127

$1,471,208

$1,178,933

$1,590,235

$1,273,058

$1,266,371 1,050,685 966,758 791,188 462,574 465,002 445,238 675,587 721,934 534,748$3,779,081

$3,426,752

$3,037,545 L Major projects completed in 2005 include the Richard M.Ross Heart Hospital, the Knowlton School of Architecture, the Physical Sciences Research Building, the Hagerty Hall and Page Hall renovations, and two new parking garages. In addition, several major construction projects are currently under way or in advanced planning stages, including:

• New Recreation Center A) -Construction is nearing completion on a new 604,800 square foot recreation center to replace Larkins Hall. The $140 million facility will house a 50-meter swimming pool and diving well, recreation, class and lap pools, 16 basketball courts, six multi-purpose rooms, squash courts, racquetball courts, and a 28,000 square foot fitness center.I 4 S Ic Biomedical Research Tower (B) -Construction continues on a ten-story$151 million biomedical research facility that will house up to 120 faculty and 400 additional researchers for the College of Medicine and Public Health.* Mechanical Engineering Building Replacement (C -Work continues on a$72 million project to construct new space for the Mechanical Engineering Department on the former Robinson Lab site.* McCracken Power Plant Improvements-A $73 million Emissions Compliance Project is under way to replace four boilers at the main campus power plant.The new boilers will reduce emissions, increase capacity, and meet future campus steam demands. Also under way are projects to add capacity to the central chilled water plant ($8 million) and to maintain the power plant's ability to burn coal ($3 million).* Wexner Center for the Arts Renovation (D)-A $14.5 million renovation and retrofit project is under way to correct building envelope and system problems.* William Oxley Thompson Memorial Library Renovation -Planning continues on a $99 million renovation of the university's main library, which will include an addition to the building, new landscaping of the surrounding area, and an expansion of the Library Book Depository.

The university's estimated future capital commitments, based on contracts and purchase orders, total approximately

$210 million at June 30,2005.Total university debt, in the form of commercial paper, bonds, notes and capital lease obligations, increased

$63 million, to$878 million at June 30,2005. During 2005, the university issued $128 million of commercial paper (net of current-year redemptions), secured by the general receipts of the university.

The university used these debt proceeds to fund current capital expenditures.

The university's plant debt includes variable rate demand bonds that mature at various dates through 2032. Governmental Accounting Standards Board Interpretation 1, Demand Bonds Issued by State and Local Governmental Entities, provides guidance on the balance sheet classification of these bonds.Under GASB Interpretation 1, outstanding principal balances on variable rate demand bonds may be classified as noncurrent liabilities if the issuer has entered into a"take-out agreement" to convert bonds "put" but not resold into some other form of long-term obligation.

In the absence of such an agreement, the total outstanding principal balances for these bonds are required to be classified as current liabilities.

Although it is the university's intent to repay its variable rate demand bonds in accordance with the maturities set forth in the bond offering circulars, the university does not have "take-out agreements" in place per the GASB Interpretation 1 requirements.

Accordingly, the university has classified the total outstanding principal balances on its variable rate demand bonds as current liabilities.

These obligations totaled $305 million and $320 million at June 30, 2005 and 2004, respectively.

On August 10, 2005, the university issued $279 million of general receipts bonds and $130 million of variable rate demand bonds, maturing at various dates through 2035. Approximately

$206 million of the bond proceeds was used to retire existing commercial paper and bond debt.The remainder will be used to fund various construction projects.1~I I ~~7

11. Summary of Revenues, Expenses, and Other Changes in Net Assets (in thousands) 2005 2004 2003 Operating Revenues: Tuition and fees, net Grants and contracts Auxiliary enterprises sales and services, net OSU Health System sales and services, net OSU Physicians sales and services Departmental sales and other operating revenues Total operating revenues Operating Expenses: Educational and general Auxiliary enterprises OSU Health System OSU Physicians Depreciation Total operating expenses Net operating income (loss)Non-operating revenues (expenses):

State share of instruction and line-item appropriations Gifts -current use Net investment income (loss)Other non-operating revenues (expense)Income (loss) before other revenues, expenses, gains or losses State capital appropriations Private capital gifts Additions to permanent endowments Income (loss) before extraordinary item Extraordinary item: Reallocation of unfunded workers'compensation liability to State of Ohio Increase (decrease) in net assets Net assets -beginning of year Net assets -end of year$ 501,941 534,476 160,711 1,078,181 189,101$ 436,218 508,974 163,162 932,200 112,036$ 392,609 482,228 141,543 819,015 18,857 Accounts payable and accrued expenses increased

$45 million, primarily due to a$37 million increase in medical malpractice accruals.2004-2003 Highlights Total university cash and Current investment balances increased S292 million, primarily due to two September 2003 bond issues, which yielded net proceeds (after refuinding of existing debt) of $244 million. Total university plant debt increased

$228 million, to $815 million. Total unrestricted and restricted-expendable net assets increased$207 million, to $1.19 billion.119,531 110,319 108,617 2,583,941 2,262,909 1,962,869 1,457,898 1,406,768 1,343,564 174,206 178,645 164,130 1,071,762 937,748 809,584 169,005 101,778 17,048 145,976 141,477 140,608 3,018,847 2,766,416 2,474,934 (434,906)

(503,507)

(512,065)438,499 433,984 437,363 65,676 52,500 79,144 154,289 244,013 69,754 (29,895) (19,617) (19,036)193,663 i207,373 55,160 87,305 l*102,709 56,878 16,638 27,647 18,213 54,723 51,478 46,026 352,329 389,207 176,277-53,489 352,329 389,207 229,766 3,426,752 3,037,545 2,807,779$3,779,081 1 $3,426,752

$3,037,545 Net tuition and fees increased

$66 million, to $502 million in 2005. In recognition of the difficult financial challenges facing Ohio State, the governor and the legislature allowed the university to raise tuition above the 9.9%tuition cap placed on most state institutions-up to a maximum of 12.9% above the prior academic year-under the condition that 3.9% of the increase would be earmarked for financial aid and student technology.

Grant and contract revenues increased$26 million, to $534 million in 2005, primarily due to a $31 million increase in sponsored research programs administered by the OSU Research Foundation.

This increase was partially offset by decreases in other grant/contract activity, including a $2 million decrease in local grants and contracts.

Fiscal Year 2005 saw a continuation of moderate growth in total educational and general expenses.

Total E&G expenses increased approximately 3.6%, to $1.46 billion.Additional details are provided at right.Total instructional and departmental research expenses increased

$40 million in 2005, primarily due to faculty/staff salary increases, which averaged 3.5%, targeted investments to enhance academic programs, and increases in college spending authority under the university's restructured budget process, which distributes incremental resources based on credit hours and enrollments.

Increases in separately budgeted research reflect continued growth in sponsored research programs administered by the OSU Research Foundation.

Public service expenses decreased$15 million, primarily due to reductions in restricted expenditures.

Institutional support decreased

$16 million, primarily due to reductions in central charges for self-insured employee health plans (increased health benefit costs in 2005 were distributed to other E&G categories, auxiliaries, and the OSU Health System via increases in the composite benefit rates charged to university departments).

Sales and service revenues of the university's Auxiliary Enterprises were stable in 2005, decreasing

$2 million, to $161 million. Total auxiliary expenses decreased

$4 million, to $174 million.The Ohio State University Health System continued to grow during Fiscal Year 2005. The Richard M. Ross Heart Hospital opened in first half of the year with 90 beds and specialized operating and procedure rooms. This new facility was very quickly filled to capacity.

The health system opened many new services while expanding established outpatient services at the Morehouse Medical Plaza on Kenny Road.Educational and General Expenses (in thousands)

Instruction and departmental research Separately budgeted research Public service Academic support Student services Institutional support Operation and maintenance of plant Scholarships and fellowships Total 2005$ 617,890 333,554 95,737 108,489 70,020 93,472 84,288 54,448 2004$ 577,500 317,310 110,750 103,502 65,906 109,331 73,133 49,336 2003$ 547,367 303,057 114,916 101,292 57,145 110,144 68,154 41,489$1,457,898 1 $1,406,768

$1,343,564 Health system inpatient admissions increased 4.1% while outpatients grew by 6,700 patients.

Consolidated health system sales and service revenues increased

$146 million (15.7%)due to volume increases along with selective rate increases.

Expenses for the consolidated health system (excluding depreciation, interest, and interfund transfers) increased

$134 million (14.3%). Salaries and benefits increased 15.6%due to labor market conditions and increased manpower needs. Supplies increased 11.2%due to medical advances, inflation, and more intensive patient care services, but tempered by cost-saving initiatives begun during the year.The health system's net income (including depredation, interest, and interfund transfers) for 2005 was $16.4 million.Looking ahead, the OSU Health System will be challenged by the national trend to meet the increase in demand for health services arising from an aging population and increasing consumer expectations.

The health system again expects revenues to increase by 12% with focus on the six signature programs:

cancer, critical care, heart, imaging, neurosdence, and transplantation.

In Fiscal Year 2006 this 4 9 will be driven by growing admissions that are projected to increase by 3,289 or 6.4%, and outpatient visits that are expected to increase by 8,800. Included are emergency department visits, which are expected to increase by 11,700 or 13.1%. The health system will continue to be challenged by the increasing cost for care givers, medical technicians, malpractice costs, supplies, pharmaceuticals, purchased service, and technology.

The health system continues to invest in the Medical Center research and teaching initiatives, resulting in the delivery of additional leading edge clinical services while fulfilling its academic mission. In response to the increased demand for services, the health system has a number of initiatives under way including:

expansion of the Ross Heart Hospital; continuing productivity and non-labor cost saving initiatives; Digestive Program construction to support clinical and faculty space; and planning for new clinical facilities including expansion of the James Cancer Hospital.

Despite the challenges and the changing health care environment, the health system expects to improve its financial position during the upcoming year. The health system will continue to play a key role in supporting the Medical Center and its goal of becoming a leading academic medical center provider by 2008.Revenues and expenses of OSU Physicians, Inc., the university's central practice group for physician faculty members of the College of Medicine and Public Health, continued to grow in 2005, reflecting the first full year of activity for several of the departmental practice groups that have joined the new combined entity. Total patient revenues grew from $112 million to $189 million. Total OSUP expenses (excluding depreciation, interest, and interfund transfers) grew from $102 million to $169 million.OSUP, Inc., which was incorporated in Ohio in 2002, is the single member of 16 limited liability companies.

As of June 30,2005, only 12 limited liability companies are consolidated with the operations of the OSUP, Inc. for financial statement purposes.

The other four (Anesthesiology, Orthopedics, Otolaryngology, and Radiation Medicine)had no 2005 activity.

The table at left lists those LLCs that were included in OSUP's financial reports in 2005 and 2004.Family Medicine Foundation, LLC X X OSU Anesthesiology, LLC OSU Children's Pediatrics, LLC X X OSU Emergency Medicine, LLC X X OSU Eye Physicians and Surgeons, LLC X OSU GYN and OB Consultants, LLC X X OSU Internal Medicine, LLC X X OSU Neuroscience Center, LLC X X OSU Orthopedics, LLC OSU Otolaryngology-Head and Neck Surgery, LLC OSU Pathology, LLC X X OSU Physical Medicine and Rehabilitation, LLC X X OSU Psychiatry, LLC X X OSU Radiation Medicine, LLC OSU Radiology, LLC X X OSU Surgery, LLC X X Non-endowment gifts to the university (including gifts for current use and gifts for capital projects) totaled$82.3 million in 2005, a $2.2 million increase over 2004. New gift additions to permanent endowments increased$3.2 million, a 6% increase over 2004.University Development estimates that gift additions to the endowment for fiscal year 2006 will be in the $50-$60 million range.During 2005, the number of donors to the university reached an all-time high of 104,607, compared with last year's previous record of 104,446.The university also experienced a 7%increase in the number of gifts of$10,000 or more.Modest returns in the equity market, coupled with a slight increase in bond prices due to falling interest rates for long-term bonds, resulted in net investment income of $154 million in 2005. This figure includes$63 million of interest and dividends and $91 million net appreciation in the fair market value of university investments.

2004-2003 Highlights:

Last year, the university reported significant growth in tuition, OSU Health System and OSU Physicians revenues, with total operating revenues increasing

$300 million, to $2.26 billion. A strong equity market coupled with a neutral fixed income market resulted in net investment income of $244 million.Total operating expenses increased

$291 million, to $2.76 billion, primarily due to increases in OSU Health System and OSU Physicians expenses.111. University Cash Flows Summary (in thousands) 2005$(281,695)

$Net cash flows from operating activities Net cash flows from noncapital financing activities 562,654 2004 2003 (333,195)

$(387,450) 549,711 578,294 119,597 76,797 390,955 124,461 Capital appropriations and gifts for capital projects Proceeds from issuance of bonds and notes payable Payments for purchase and construction of capital assets Principal and interest payments on capital debt Net cash flows from investing activities Net increase (decrease) in cash 102,938 174,622 (527,563)

(346,387)(140,854)

(177,091)20,497 (160,457)(246,072)(140,976)(182,088)$ (89,401)1

$ 43,133$(177,034)

Total university cash and cash equivalents decreased

$89 million in 2005. Total cash provided by operating and noncapital financial activities was $281 million, up $64 million compared with 2004. Total cash used for capital financing activities was$391 million, primarily due to payments for purchase and construction of capital assets, which totaled $528 million. The $175 million of proceeds from issuance of bonds and notes payable consists primarily of commercial paper issued for interim financing of capital expenditures.

Total cash provided by investing activities was $20 million, with net sales of temporary investments offsetting net purchases of long-term endowment investments.

4 11 Economic Factors That Will Affect the Future The Academic Plan, which was adopted in 2000, drives university spending and budgeting priorities.

It focuses on six core strategies that are necessary for Ohio State to become a truly great teaching and research university:

• Build a world-class faculty* Develop academic programs that define Ohio State as the nation's leading land-grant university

• Enhance the quality of the teaching and learning environment

• Enhance and better serve the student body* Create a diverse university community* Help build Ohio's future The colleges are the key focal points to advance the objectives of the Academic Plan.Consequently, the university's decentralized budget system is designed to make sure that at least three quarters of increased annual revenues from tuition and fees and state share of instruction, as well as all indirect cost recoveries, are distributed back to the generating colleges.

Major program priorities identified in the Fiscal Year 2006 budget process include faculty and staff compensation, student financial aid, student services, support of interdisciplinary research, support of private giving, and safety and security.

The university also allocates central discretionary funds to seed certain initiatives that cross college boundaries and strengthen core support services.

For 2006, this funding will include nearly $10 million to support interdisciplinary research, $4 million for safety and security enhancements, and $5 million to support private fundraising by University Development.

Sound finances are crucial to the university's quest to become a truly great teaching and research institution.

To assure a continued flow of resources to the activities and functions of the Academic Plan, the university has set the following long-term financial goals:* A 0.5% to 1.0% operating margin in the General Fund* A Rainy Day fund of $25 million* Targeted reserves in selected areas of special risk (e.g. malpractice, utilities, etc.)* At least 30 days of operating cash* Debt service at no more than 5% of annual operating expenses and a bond rating of at least "AA"* Multi-Year commitments of General Funds do not exceed 1% of current-year revenues In the past year, university management and the Board of Trustees have taken additional steps to protect Ohio State's financial resources, including:

Reviews of Core Administrative IProccsws

-- Core process reviews have identified a number of opportunities to save money and improve efficiencies.

Efforts by the Purchasing Office to direct a greater proportion of university purchasing activity through prime-vendor contracts are on track to realize $12-$15 million in savings in 2005, while improvements in the capital construction process realized a $14.5 million savings in calendar 2004 alone. The university also expects savings of $3-$8 million in annual savings from improved management of employee health benefits plans.

AMore Stringent Guidelines on Debt for Capital P'rojects

-- In 2004, the University's Board of Trustees set guidelines limiting the issuance of new university debt and establishing a $400 million cap for projects to be funded in the university's August 2005 bond issue. In 2005, the board strengthened these policies by expanding its guidance on use of university debt, internal lines of credit and leases. All access to university-issued debt requires pre-approval by the Provost, Senior Vice President for Business and Finance, Treasurer, President, and the Board of Trustees.

Internal lines of credit are subject to similar pre-approvals, with board approval required for amounts greater than$5 million. All leases are subject to Office of Business and Finance approval, with board approval required for leases with a present value of $1.5 million or more. These measures are intended to ensure that the university can continue to meet current commitments, take on new commitments consistent with the Academic Plan, and protect the university's"AA" credit rating.Endownient for Building Maintenance and Rencwals --In FY 2005, the Board of Trustees approved the establishment of an endowment to provide for scheduled maintenance and renewal needs on university buildings in future years. This is funded by an assessment of $0.12 per square foot, currently, on General Funds space. This endowment is expected to be at least $1 million at the end of FY 2006 and will grow significantly in future years.Enterprise-1vile Risk Mamligetient

--In 2005, the university embarked on a review of its enterprise-wide risk management strategies and processes.

The international consulting firm of Mercer Oliver Wyman has been retained to assist in this process. A preliminary report is expected in early 2006.In 2005, the university made continued progress towards its academic goals in a challenging financial environment.

Based on what is now known about FY 2006, university management believes that Ohio State will continue to maintain its sound financial position in the year ahead.Looking ahead to FY 2007 and beyond, university management sees continuing challenges regarding the levels of state support; increased resistance to tuition and fee increases; increased competition from other institutions for the best faculty, staff and students; and continued political uncertainty internationally.

Consequently, we are committed to building upon current efforts to diversify our revenue base, reduce our operating and capital costs, and effectively manage our financial risks. By doing so, we feel The Ohio State University will continue to maintain its sound financial position while continuing its progress towards becoming a top-tier public research university.

In 2005, the university made continued progress towards its academic goals in a challenging financial environment.

• 1 13

'VA s THE OHIO STATE UNIVERSITY CONSOLIDATED STATEMENTS OF NET ASSETS June 30, 2005 and 2004 (in thousands)

ASSETS: Current Assets: Cash and cash equivalents (including bond proceeds restricted for capital expenditures of $67,528 and $161,594, respectively)

Temporary investments Accounts receivable, net Notes receivable

-current portion, net Pledges receivable

-current portion, net Accrued interest receivable Inventories and prepaid expenses Total Current Assets Noncurrent Assets: Restricted cash and cash equivalents Notes receivable, net Pledges receivable, net Endowment investments Other long-term investments' Capital assets, net Total Noncurrent Assets Total Assets LIABILITIES AND NET ASSETS: Current Liabilities:

Accounts payable and accrued expenses Deposits and deferred revenues Commercial paper and current portion of bonds, notes and leases payable Compensated absences -current portion Obligations under annuity and life income agreements

-current portion Total Current Liabilities Noncurrent Liabilities:

Bonds, notes and leases payable Compensated absences Obligations under annuity and life income agreements Refundable advances for Federal Perkins loans Other noncurrent liabilities Total Noncurrent Liabilities Total Liabilities Net Assets: Invested in capital assets, net of related debt Restricted:

Nonexpendable Expendable Unrestricted Total Net Assets Total Liabilities and Net Assets 2005 2004$ 74,872 $ 180,446 508,933 948,124 373,220 302,519 9,108 12,056 16,402 13,200 19,641 15,510 52,399 61,990 1,054,575 1,533,845 50,203 34,030 62,946 59,324 22,482 29,758 1,703,845 1,137,594 17,381 14,744 2,468,776 2,088,665 4,325,633 3,364,115$5,380,208

$4,897,960

$ 368,127 $ 323,468 154,424 140,647 480,580 411,270 5,568 6,005 4,572 4,804 1,013,271 886,194 396,960 403,336 73,184 64,513 46,288 47,459 29,323 30,132 42,101 39,574 587,856 585,014 1,601,127 1,471,208 1,590,235 1,273,058 1,050,685 966,758 462,574 465,002 675,587 721,934 3,779,081 3,426,752$5,380,208

$4,897,960 The accompanying notes are an integral part of these financial statements.

C S THE OHIO STATE UNIVERSITY CONSOLIDATED STATEMENTS OF REVENUES, EXPENSES, AND OTHER CHANGES IN NET ASSETS Years Ended June 30,2005 and 2004 (in thousands)

Operating Revenues: Student tuition and fees (net of scholarship allowances of $83,161 and $83,430, respectively)

Federal grants and contracts State grants and contracts Local grants and contracts Private grants and contracts Sales and services of educational departments Sales and services of auxiliary enterprises (net of scholarship allowances of $10,234 and $11,240, respectively)

Sales and services of the OSU Health System (net of charity care of $41,786 and $30,725, respectively)

Sales and services of OSU Physicians, Inc.(net of charity care of $1,716 and $1,394, respectively)

Other operating revenues Total Operating Revenues Operating Expenses: Educational and General: Instructional and departmental research Separately budgeted research Public service Academic support Student services Institutional support Operation and maintenance of plant Scholarships and fellowships Auxiliary enterprises OSU Health System OSU Physicians, Inc.Depreciation Total Operating Expenses Operating Loss Non-operating Revenues (Expenses):

State share of instruction and line-item appropriations Gifts Net investment income (loss)Interest expense on plant debt Other non-operating revenues (expenses)

Net Non-operating Revenue (Expense)Income (Loss) Before Other Revenues, Expenses, Gains or Losses State capital appropriations Private capital gifts Additions to permanent endowments Increase (Decrease) in Net Assets Net Assets -Beginning of Year Net Assets -End of Year 2005$ 501,941 301,817 51,800 23,225 157,634 73,044 160,711 1,078,181 2004$ 436,218 291,036 47,873 25,123 144,942 69,952 163,162 932,200 189,101 46,487 112,036 40,367 2,583,941 2,262,909 617,890 577,500 333,554 317,310 95,737 110,750 108,489 103,502 70,020 65,906 93,472 109,331 84,288 73,133 54,448 49,336 174,206 178,645 1,071,762 937,748 169,005 101,778 145,976 141,477 3,018,847 2,766,416 (434,906)

(503,507)438,499 433,984 65,676 52,500 154,289 244,013 (29,168) (23,322)(727) 3,705 628,569 710,880 193,663 207,373 87,305 102,709 16,638 27,647 54,723 51,478 352,329 389,207 3,426,752 3,037,545$3,779,081

$3,426,752 The accompanying notes are an integral part of these financial statements.

15 THE OHIO STATE UNIVERSITY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended June 30,2005 and 2004 (in thousands)

Cash Flows from Operating Activities:

Tuition and fee receipts Grant and contract receipts Receipts for sales and services Payments to or on behalf of employees University employee benefit payments Payments to vendors for supplies and services Payments to students and fellows Student loans issued Student loans collected Student loan interest and fees collected Other receipts (payments)

Net cash provided (used) by operating activities Cash Flows from Noncapital Financing Activities:

State share of instruction and line-item appropriations Gift receipts for current use Additions to permanent endowments Drawdowns of federal direct loan proceeds Disbursements of federal direct loans to students Disbursements of loan proceeds to related organization Amounts received for annuity and life income funds Amounts paid to annuitants and life beneficiaries Agency funds receipts Agency funds disbursements Net cash provided (used) by noncapital financing activities Cash Flows from Capital Financing Activities:

Proceeds from capital debt State capital appropriations Gift receipts for capital projects Payments for purchase or construction of capital assets Principal payments on capital debt and leases Interest payments on capital debt and leases Net cash provided (used) by capital financing activities 2005 2004$ 388,395 521,681 1,478,045 (1,417,472)

(333,815)(915,504)(50,502)(13,177)13,062 1,721 45,871$ 348,477 511,419 1,241,448 (1,266,231)

(319,664)(860,782)(42,786)(14,534)16,989 1,992 50,475 (281,695)

(333,195)438,499 433,984 69,751 68,268 54,723 51,478 264,480 244,648 (263,085)

(244,571)(666) (8,164)3,296 8,250 (4,698) (4,473)4,857 4,857 (4,503) (4,566)562,654 549,711 174,622 390,955 86,300 91,950 16,638 27,647 (527,563)

(346,387)(111,916)

(158,037)(28,938) (19,054)(390,857)

(12,926)The accompanying notes are an integral part of these financial statements.

Cash Flows from Investing Activities:

Net (purchases) sales of temporary investments Proceeds from sales and maturities of long-term investments Investment income (net of related fees)Purchases of long-term investments Net cash provided (used) by investing activities Net Increase (Decrease) in Cash Cash and Cash Equivalents

-Beginning of Year Cash and Cash Equivalents

-End of Year Reconciliation of Net Operating Loss to Net Cash Provided (Used) by Operating Activities:

Operating loss Adjustments to reconcile net operating loss to net cash provided (used) by operating activities:

Depreciation expense Changes in assets and liabilities:

Accounts receivable, net Notes receivable, net Accrued interest receivable Inventories and prepaid expenses Accounts payable and accrued liabilities Deposits and deferred credits Compensated absences Refundable advances for federal Perkins loans Other noncurrent liabilities Net cash provided (used) by operating activities Non Cash Transactions:

Equipment Capital lease 2005 439,192 1,371,130 59,284 (1,849,109) 2004 (249,698)1,075,162 57,072 (1,042,993) 20,497 (160,457)(89,401) 43,133 214,476 171,343$ 125,075 $ 214,476$(434,906)

$(503,507) 145,976 141,477 (71,092) (7,779)(9) (3,797)2 (201)9,591 (266)45,177 35,898 13,386 2,092 8,234 5,977 (809) (1,038)2,755 (2,051)$(281,695)

$(333,195)

$ 6,784 (6,784)$ 2,591 (2,591)The accompanying notes are an integral part of these financial statements.

I I ortbeYearsEnded June X-2005 and 2004 All doflarfigures stated in these Notes are in thousands NOTE 1 -

SUMMARY

OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES Organization The Ohio State University is a land-grant institution created in 1870 by the Ohio General Assembly under provisions of the Morrill Act. The university is one of several state-supported universities in Ohio. It is declared by statute to be a body politic and corporate and an instrumentality of the State.The university is governed by an 11-member Board of Trustees which is granted authority under Ohio law to do all things necessary for the proper maintenance and continual successful operation of the university.

Nine trustees are appointed for staggered nine-year terms by the governor with the advice and consent of the state Senate. In addition, two non-voting student members are appointed to the Board of Trustees for staggered two-year terms.The Board of Trustees has responsibility for all the university's financial affairs and assets.The university operates largely on a decentralized basis by delegating this authority to its academic and support departments.

The board must approve the annual budgets for unrestricted academic and support functions, departmental earnings operations, and restricted funds operations, but these budgets are managed at the department level.Basis of Presentation The accompanying financial statements present the accounts of the following entities:* The Ohio State University and its hospitals and clinics* The Ohio State University Foundation, a not-for-profit fund-raising organization operating exclusively for the benefit of The Ohio State University Two separate statutory entities for which the university has special responsibility

-Ohio Agricultural Research and Development Center-Ohio Supercomputer Center Twelve legally independent corporations engaged in activities related to the university

-The Ohio State University Research Foundation

-The Ohio State University Student Loan Foundation, Inc.-Transportation Research Center of Ohio, Inc.-Campus Partners for Community Urban Redevelopment, Inc.-University Affiliates, Inc.-Reading Recovery and Early Literacy, Inc.-Ohio State University Retirees Association

-OSU Managed Health Care Systems, Inc.-The Ohio State University Physicians, Inc.-UMC Partners-Prologue Research International, Inc.-Oval Limited Component units (legally separate organizations for which the university is financially accountable) comprise, in part, the university's reporting entity. Governmental Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting Entity defines financial accountability.

The criteria for determining financial accountability include the following circumstances:

'~1-

• Appointment of a voting majority of an organization's governing authority and the ability of the primary government (i.e. the university) to either impose its will on that organization or the potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the primary government, or;* An organization is fiscally dependent on the primary government The legally separate organizations listed above meet the financial accountability criteria set forth in GASB Statement No. 14. In addition, these organizations provide services entirely, or almost entirely, to the university or otherwise exclusively, or almost exclusively, benefit the university.

Therefore, the transactions and balances for these organizations have been blended with those of the university.

The university, as a component unit of the State of Ohio, is included as a discrete entity in the State of Ohio's Comprehensive Annual Financial Report.Basis of Accounting The financial statements of the university have been prepared in accordance with accounting principles generally accepted in the United States of America, as prescribed by the GASB. The university is reporting as a special purpose government engaged in business type activities (BTA). Business type activities are those that are financed in whole or in part by fees charged to external parties for goods and services.

In accordance with BTA reporting, the university presents Management's Discussion and Analysis; a Consolidated Statement of Net Assets; a Consolidated Statement of Revenues, Expenses and Other Changes in Net Assets; a Consolidated Statement of Cash Flows; and Notes to the Financial Statements.

The university follows all GASB pronouncements as well as Financial Accounting Standards Board ("FASB") Statements and Interpretations, Accounting Principles Board ("APB") Opinions and Accounting Research Bulletins of the Committee on Accounting Procedures issued on or before November 30, 1989 unless those pronouncements conflict with or contradict GASB pronouncements.

The university has elected not to apply FASB Statements and Interpretations issued after November 30, 1989.The university's financial resources are classified for accounting and reporting purposes into the following four net asset categories:

Invested in capital assets, net of related debt: Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction, or improvement of those assets. These balances are maintained in the plant funds in the university's detailed accounting records.Restricted

-nonexpendable:

Net assets subject to externally imposed stipulations that they be maintained in perpetuity by the university.

These assets primarily consist of the university's permanent endowment funds.Restricted

-expendable:

Net assets whose use is subject to externally imposed stipulations that can be fulfilled by actions of the university pursuant to those stipulations or that expire by the passage of time. These resources include the current restricted funds, student loan funds, certain plant funds, annuity and life income funds, and restricted funds internally designated to function as endowments (restricted quasi-endowments).

19 Unrestricted:

Net assets that are not subject to externally imposed stipulations.

These resources include educational and general funds, auxiliary funds, hospitals funds, certain plant funds, and unrestricted quasi-endowments.

Substantially all unrestricted net assets are internally designated for use by university departments to support working capital needs, to fund related academic or research programs, and to provide for unanticipated shortfalls in revenues and deviations in enrollment.

Under the university's decentralized management structure, it is the responsibility of individual departments to determine whether to first apply restricted or unrestricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available.

For internal financial management purposes, the university classifies financial resources into funds that reflect the specific activities, objectives or restrictions of the resources.

Cash and Investments Cash and cash equivalents consist primarily of petty cash, demand deposit accounts, money market accounts, and savings accounts, and include bond proceeds restricted for capital expenditures.

Restricted cash and cash equivalents at June 30, 2005 and 2004, consist of cash and cash equivalents restricted for endowments and annuity/life income funds.Investments are carried at market value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. The fair value of private equity investments is based on estimated current values and independent appraisals.

The weighted average method is used for purposes of determining gains and losses on the sale of investments.

The specific identification method is used for purposes of determining gains and losses on the sale of gifted securities.

The university holds investments in limited partnerships, private equity, and other investments, which are carried at estimated fair value provided by the management of these funds. The purpose of this alternative investment class is to increase portfolio diversification and reduce risk due to the low correlation with other asset classes. Methods for determining estimated fair values include discounted cash flows and estimates provided by general partners.

Because these investments are not readily marketable, the estimated value is subject to uncertainty and, therefore, may differ from the value that would have been used had a ready market for the investments existed, and such differences could be material.

The amount of gain or loss associated with these investments is reflected in the accompanying financial statements using the equity method of accounting.

As of June 30, 2005, the university has made commitments to limited partnerships totaling $5,600 that have not yet been funded.Investment in real estate is carried at cost, if purchased, or appraised value at the date of the gift. Holdings in real estate investment trusts (REITs) are carried at estimated fair values. The carrying and market values of real estate at June 30,2005, are $87,596 and $109,24 1, respectively.

Investment income is recognized on an accrual basis. Interest and dividend income is recorded when earned.

Endowment Policy The university Endowment Fund consists of more than 3,000 named funds. Each named fund is assigned a number of shares in the university Endowment Fund based on the value of the gifts to that named fund. For donor-restricted endowments, the Uniform Management of Institutional Funds Act, as adopted in Ohio, permits the university's Board of Trustees to appropriate an amount of realized and unrealized endowment appreciation as the Board deems prudent.Net realized and unrealized endowment appreciation, after the spending rule distributions, is retained with the endowment.

For fiscal year 2004, the university's policy for all endowment funds was to distribute to each named fund income equal to 5% of the average market value per share of the endowment during the past three years.For fiscal year 2005, the university's policy for existing endowment funds was to distribute to each named fund income equal to 4.75% of the average market value per share of the endowment during the past five years. For new endowment funds, the university's policy is to distribute to each named fund income equal to 4% of the average market value per share of the endowment during the past five years.Endowment income is distributed to named endowment funds using the share method of accounting for pooled investments.

Based on this method, undistributed gains from prior years were transferred from the endowment fund to current restricted funds. These transfers total$77,551 and $63,479 in fiscal years 2005 and 2004, respectively.

Gift Pledges Receivable The university receives pledges and bequests of financial support from corporations, foundations, and individuals.

Revenue is recognized when a pledge representing an unconditional promise to pay is received and all eligibility requirements have been met. In the absence of such promise, revenue is recognized when the gift is received.

In accordance with GASB Statement No. 33, endowment pledges are not recorded as assets until the related gift is received.Inventories The university's inventories, which consist principally of publications, general stores, and other goods for resale by earnings operations, are valued at the lower of moving average cost or market.The inventories of the hospitals, which consist principally of pharmaceuticals and operating supplies, are valued at cost on a first-in, first-out basis.Capital Assets and Collections Capital assets are long-life assets in the service of the university TYPE OF ASSET ESTIMATED USEFUL LIFE and include land, buildings, improvements, equipment, and Improvements other than buildings 20 years library books. Capital assets are stated at cost or fair value at date of gift. Depreciation of capital assets (excluding land and Buildings 10 to 100 years construction in progress) is provided on a straight-line basis Moveable equipment and furniture 5 to 15 years over the following estimated useful lives: Library books 10 years.4 21 Interest incurred during the construction of capital assets is included in the cost of the asset when capitalized.

$7,250 and $3,478 of interest was capitalized in the years ended June 30, 2005 and 2004, respectively.

The university does not capitalize works of art or historical treasures that are held for exhibition, education, research, and public service. These collections are neither disposed of for financial gain nor encumbered in any way. Accordingly, such collections are not recognized or capitalized for financial statement purposes.Deferred Revenues Deferred revenues primarily consist of receipts relating to tuition, room, board, and athletic events received in advance of the services to be provided.

Tuition and fees relating to the summer academic quarter are recorded as revenue in the year to which they pertain. The university will recognize revenue to the extent these services are provided over the coming fiscal year.Operating and Non-Operating Revenues The university defines operating activities, for purposes of reporting on the Statement of Revenues, Expenses, and Other Changes in Net Assets, as those activities that generally result from exchange transactions, such as payments received for providing services and payments made for goods or services received.

With the exception of interest expense on long-term indebtedness, substantially all university expenses are considered to be operating expenses.

Certain significant revenue streams relied upon for operations are recorded as non-operating revenues, as defined by GASB Statement No. 35, including state appropriations, current-use gifts, and investment income.Tuition, Room and Board Student tuition and residence hall fees are presented net of scholarships and fellowships applied to student accounts.

Stipends and other payments made directly to students are presented as scholarship and fellowship expense. Fee authorizations provided to graduate teaching, research, and administrative associates as part of an employment arrangement are presented in instruction, research, and other functional categories of operating expense.State Support The university is a state-assisted institution of higher education that receives a student enrollment-based instructional subsidy from the State of Ohio. This subsidy, which is based upon a formula devised by the Ohio Board of Regents, is determined annually and is adjusted to state resources available.

The state also provides line-item appropriations which partially support the current operations of various activities, which include clinical teaching expenditures incurred at The Ohio State University Hospitals and other health sciences teaching facilities, The Ohio State University Extension, the Ohio Agricultural Research and Development Center, and the Center for Labor Research.In addition to current operating support, the State of Ohio provides the funding for and constructs major plant facilities on the university's campuses.

The funding is obtained from the issuance of revenue bonds by the Ohio Public Facilities Commission (OPFC), which, in turn, initiates the construction and subsequent lease of the facility by the Ohio Board of Regents.

Such facilities are reflected as buildings or construction in progress in the accompanying balance sheet. Neither the obligations for the revenue bonds issued by OPFC nor the annual debt service charges for principal and interest on the bonds are reflected in the university's financial statements.

Debt service is funded through appropriations to the Ohio Board of Regents by the General Assembly.These facilities are not pledged as collateral for the revenue bonds. Instead, the bonds are supported by a pledge of monies in the Higher Education Bond Service Fund and future payments to be received by such fund, which is established in the custody of the Treasurer of State.Government Grants and Contracts Government grants and contracts normally provide for the recovery of direct and indirect costs and are subject to audit by the appropriate government agency. Federal funds are subject to an annual OMB Circular A-133 audit. Grants and contracts determined to be exchange transactions are recognized as revenue when the exchange occurs. Grants and contracts determined to be non- exchange transactions are recognized as revenue when all eligibility requirements have been met. Recovery of related indirect costs is generally recorded at fixed rates negotiated for a period of one to three years.Hospital Revenue Revenue received under third-party cost reimbursement agreements (primarily the federal Medicare and Medicaid programs) are subject to examination and retroactive adjustments by the agencies administering the programs.

In the normal course of business, the hospitals contest certain issues resulting from examination of prior years' reimbursement reports. The accompanying financial statements include provisions for estimated retroactive adjustments arising from such examinations and contested issues. The hospitals recognize settlements of protested adjustments or appeals upon resolution of the matters.OSU Physicians Revenue Net patient service revenue repre sents amounts received and the estimated net realizable amounts due from patients and third-party payors for services rendered.

OSU Physicians provides care to patients under various reimbursable agreements, including Medicare and Medicaid.

These arrangements provide for payment for covered services at agreed-upon rates and under certain fee schedules and various discounts from charges. Provisions have been made in the consolidated financial statements for estimated contractual adjustments, representing the difference between the customary charges for services rendered and related reimbursement.

Management 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, liabilities, revenues, and expenditures during the reporting period. Disclosure of contingent assets and liabilities at the date of the financial statements may also be affected.

Actual results could differ from those estimates.

,23 Newly Issued Accounting Pronouncements In November 2003, GASB issued Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries.

This statement establishes accounting and financial reporting standards for impairment of capital assets. The provisions of this statement are effective for periods beginning after December 31,2004.In April 2004, GASB issued Statement No. 43, Financial Reporting for Postemployment Benefits Other than Pension Plans. The standards in this statement apply for trust funds included in the financial reports of plan sponsors or employers, as well as for the stand-alone financial reports of OPEB plans or the public employee retirement systems, or other third parties, that administer them. The provisions of this statement are effective for periods beginning after December 15, 2005.In June 2004, GASB issued Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions This statement establishes standards for the measurement, recognition, and display of OPEB expense/expenditures and related liabilities (assets), note disclosures, and, if applicable, required supplementary information in the financial reports of state and local governmental employers.

This statement is effective for periods beginning after December 15, 2006.In June 2005, GASB issued Statement No. 47, Accounting for Termination Benefits.

This statement establishes standards for accounting and financial reporting for termination benefits provided by employees including early retirement incentives, severance benefits, and other termination-related benefits.

The provisions of this statement are effective for financial statements for periods beginning after June 15, 2005.University management has not yet determined the impact that implementation of GASB Statements 42,43,45, and 47 will have on the university's financial statements.

Other The university is exempt from income taxes as a non-profit organization under Internal Revenue Code § 115 and Internal Revenue Service regulations.

Any unrelated business income is taxable.Certain reclassifications have been made to the 2004 comparative information to conform to the 2005 presentation.

NOTE 2 -CASH AND CASH EQUIVALENTS At June 30,2005, the carrying amount of the university's cash and cash equivalents for all funds is $125,075 as compared to bank balances of $167,335.

The differences in carrying amount and bank balances are caused by outstanding checks and deposits in transit. Of the bank balances,$4,004 is covered by federal deposit insurance and $163,331 is uninsured but collateralized by pools of securities pledged by the depository banks and held in the name of the respective banks.NOTE 3 -INVESTMENTS The university's investment policy authorizes the university to invest non-endowment funds in the following investments:

I I* Obligations of the U.S. Treasury and other federal agencies and instrumentalities

• Municipal and state bonds* Certificates of deposit* Repurchase agreements

• Mutual funds and mutual fund pools* Money market funds The university's investment policy authorizes the university to invest endowment funds in the following investments:

• Obligations of the U.S. Treasury and other federal agencies and instrumentalities

• Municipal and state bonds* Certificates of deposit (domestic and Eurodollar)

• Repurchase agreements

• Mutual funds* Commercial paper* Banker's acceptances Corporate bonds and notes Common and preferred stock Real estate Guaranteed investment contracts Collateralized mortgage obligations Asset-backed securities Private equity and venture capital The university's endowment fund operates with a long-term investment goal of preserving the purchasing power of the principal in a diversified portfolio.

Mutual funds held by the university include a wide range of investments, including hedge funds. These hedge funds may include, but are not limited to, investments in equity securities, mutual funds, limited and general partnerships, foreign securities, short sales positions, distressed securities, fixed income securities, options, currencies, commodities, futures, and derivatives.

The university's objective for investing in these hedge funds is to provide stable, absolute returns that are uncorrelated to fluctuations in the stock and bond markets.U.S. government and agency securities are invested through trust agreements with banks that keep the securities in their safekeeping accounts at the Federal Reserve Bank in "book entry" form. The banks internally designate the securities as owned by or pledged to the university.

Common stocks, corporate bonds, money market instruments, mutual funds, and other investments are invested through trust agreements with banks that keep the investments in their safekeeping accounts at the Depository Trust Company, Bank One, or State Street in "book entry" form. The banks internally designate the securities as owned by or pledged to the university.

The values of investments at June 30,2005 and 2004, are as follows: Common stock Equity mutual funds U.S. government obligations U.S. government agency obligations Repurchase agreements Corporate bonds and notes Bond mutual funds Real estate Partnerships and hedge funds Other Total 2005$ 492,865 679,019 89,117 197,539 82,730 75,389 416,494 87,596 83,954 25,456 2004$ 431,387 730,731 95,088 251,160 78,396 381,150 60,757 49,179 22,614$ 2,230,159

$ 2,100,462 I.The bulk of the university's investment assets are accounted for on a pooled basis. The following chart summarizes total pooled and non-pooled amounts at June 30,2005 and 2004, respectively.

Temporary investments Endowment investments Other long-term investments Total 2005 Total 2004 Pooled$ 461,974 1,672,938 11,881 Non-Pooled

$ 46,959 30,907 5,500 Total$ 508,933 1,703,845 17,381$2,146,793

$83,366 $2,230,159

$1,999,900

$100,562 $2,100,462 Net appreciation in the fair value of investments includes both realized and unrealized gains and losses on investments.

During the year ended June 30,2005, the university realized a net gain of $92,548 from the sale of investments.

The calculation of realized gains and losses is independent of the net appreciation in the fair value of investments held at year-end.

Realized gains and losses on investments that had been held for more than one fiscal year and sold in the current year were included as a change in the fair value of investments reported in the prior year and the current year. The net appreciation in the fair value of investments during the year ended June 30, 2005, was$90,908. This amount includes all changes in fair value, both realized and unrealized, that occurred during the year. The unrealized depreciation during the year on investments was $1,640.The components of the net investment income (loss) are as follows: Interest and Dividends (net)$ 54,339 756 8,286 Net Appreciation (Depreciation) in Market Value of Investments

$ (1,436)92,213 131 Net Investment Income (Loss)$ 52,903 92,969 8,417 Temporary investments Endowment investments Other long-term investments Total 2005 Total 2004$ 63,381 $ 90,908 S 154,289$ 59,658 $184,355 $244,013 Additional Risk Disclosures for Investments:

Statement Nos. 3 and 40 of the Governmental Accounting Standards Board require certain additional disclosures related to the interest-rate, credit and foreign currency risks associated with deposits and investments.

Interest-rate risk -Interest-rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment.

Investments with interest rates that are fixed for longer periods are likely to be subject to more variability in their fair values as a result of future changes in interest rates.The maturities of the university's interest-bearing investments at June 30,2005, are as follows:

U.S. government obligations U.S. agency obligations Repurchase agreements Corporate bonds Bond mutual funds Total Investment Maturities (in years)Fair Value Less than 1 Ito 5 6 to 10 More than 20$ 89,117 $ 3,594 $ 51,340 $ 19,078 $ 15,105 197,539 15,202 131,101 34,981 16,255 82,730 82,730 ---75,389 3,089 38,975 13,180 20,145 416,494 80,014 174,194 104,017 58,269$861,269 $184,629 $395,610 $171,256 $109,774 Credit risk -Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations.

Credit quality information-as commonly expressed in terms of the credit ratings issued by nationally recognized statistical rating organizations such as Moody's Investors Service, Standard & Poor's, or Fitch Ratings-provides a current depiction of potential variable cash flows and credit risk.The credit ratings of the university's interest-bearing investments at June 30,2005, are as follows: Credit Rating (Moody's)Aaa Aa A Baa Ba B Caa Ca C Total Total$ 655,302 38,293 90,793 50,224 4,086 21,026 1,545 U.S.Government Obligations

$89,117 U.S. Agency Obligations

$197,539 Repurchase Agreements

$ 82,730 Corporate Bonds$ 22,646 9,109 24,844 18,442 348 Bond Mutual Funds$ 263,270 29,184 65,949 31,782 3,738 21,026 1,545$861,269 $89,117 $197,539 $82,730 $75,389 $416,494 Foreign currency risk -Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or deposit. At June 30, 2005, the university's exposure to foreign currency risk is as follows: Currency Australian dollar Canadian dollar Euro Hong Kong dollar Japanese yen Korean won Pound sterling Swedish krona Swiss franc Taiwan dollar Other foreign currencies Total Common Stock$ 417 740 7,707 539 5,176 5,829 300 2,243 719 Equity Mutual Funds$ 7,061 8,982 43,109 2,002 26,337 3,443 32,570 2,171 6,217 2,875 13,738 Bond Mutual Funds$ 156 987 21,298 Corporate Bonds$ 234 Other 14,909 2,753 831$26$ 23,670 $ 148,505 $ 40,934 $ 234 $ 26 I 27 NOTE 4--ACCOUNTS, NOTES AND PLEDGES RECEIVABLE Accounts receivable at June 30, 2005 and 2004, consist of the following:

Patient receivables

-OSU Health System Patient receivables

-OSU Physicians, Inc.Grant and contract receivables Tuition and fees receivable Receivables for departmental and auxiliary sales and services State and federal receivables Less: Allowances for doubtful accounts 2005$453,599 63,571 77,772 47,687 2004$315,288 49,077 65,725 42,699 38,320 17,860 19,427 18,719 700,376 509,368 327,156 206,849$373,220 $ 302,519 Notes receivable at June 30, 2005, consist primarily of Perkins Loans and are net of an allowance for doubtful accounts of $12,405. Federal capital contributions to the Perkins Loan programs represent advances which are ultimately refundable to the federal government.

In accordance with GASB Statement No. 33, Accounting and Reporting for Non-exchange Transactions, the university has recorded $48,318 in non-endowment pledges receivable at June 30, 2005, and a related allowance for doubtful accounts of $9,434.NOTE 5-- CAPITAL ASSETS Capital assets activity for the year ended June 30, 2005, is summarized as follows: Land Improvements other than buildings Buildings and fixed equipment Movable equipment and furniture Library books Construction in progress Less: Accumulated depreciation Capital assets, net Beginning Balance$ 42,202 193,563 2,281,483 685,915 160,540 377,423 Additions$ 4,934 25,925 396,167 114,322 2,816 (6,670)Retirements

$ 3,120 1,647 7,237 51,854 2,313 Ending Balance$ 44,016 217,841 2,670,413 748,383 161,043 370,753 3,741,126 537,494 66,171 4,212,449 1,652,461 145,976 54,764 1,743,673$2,088,665

$391,518 $ 11,407 $2,468,776 I~1 Capital assets activity for the year ended June 30, 2004, is summarized as follows: Beginning Ending Balance Additions Retirements Balance Land $ 42,025 $ 177 $ -$ 42,202 Improvements other than buildings 181,959 11,606 2 193,563 Buildings and fixed equipment 2,141,374 141,031 922 2,281,483 Movable equipment and furniture 655,875 67,106 37,066 685,915 Library books 158,472 3,673 1,605 160,540 Construction in progress 237,643 139,780 -377,423 Less: Accumulated depreciation Capital assets, net 3,417,348 363,373 39,595 3,741,126 1,547,993 141,477 37,009 1,652,461$1,869,355

$ 221,896 $ 2,586 $ 2,088,665 In the above tables, additions to construction in progress represent expenditures for new projects, net of the amount of capital assets placed in service.NOTE 6- ACCOUNTS PAYABLE, ACCRUED EXPENSES AND SELF-INSURANCE Accounts payable and accrued expenses at June 30, 2005 and 2004, consist of the following:

2005 2004 Payables to vendors for supplies and services $137,049 $160,937 Accrued compensation and benefits 86,983 74,916 Retirement system contributions payable 24,908 21,790 Self-insurance accruals: Medical malpractice 71,549 34,891 Employee health insurance 15,373 15,090 Current portion of amounts due to third-party 9,414 (180)payers -OSU Health System Other accrued expenses 22,851 16,024$368,127 $323,468 Self-Insurance Programs The hospitals have established trusteed self-insurance funds for professional medical malpractice liability daims with a $4 million limit per occurrence with no annual aggregate.

The university self-insurance funds have insurance in excess of $4 million per occurrence through Oval Limited, a blended component unit of the university.

Oval Limited provides coverage with limits of $25 million per occurrence and in the aggregate.

A portion of the risks written by Oval Limited to date is reinsured by a single reinsurance company rated A by A.M. Best. The reinsurance company's net retention was 50% of the first $15 million and 100% for the remaining

$10 million per occurrence and in the aggregate for the years ended June 30,2005 and 2004, respectively.

The estimated liability and the related contributions to the fund are based upon an independent actuarial determination as of June 30, 2005. OSU Physicians, Inc. participates in the university self-insurance fund for professional medical malpractice liability claims. OSU Physicians premiums incurred and paid to the university were $9,112 and $5,334 during the years ended June 30,2005 and 2004, respectively.

The hospitals' estimate of professional malpractice liability includes provisions for known claims and actuarially determined estimates of incurred but not reported claims and incidents.

This liability at June 30, 2005, of the anticipated future payments on gross claims is estimated at its present value of $44,582 discounted at an estimated rate of 5.0% (university funds) and an additional

$26,967 discounted at an estimated rate of 3.0% (Oval Limited).Although actual experience upon the ultimate disposition of the claims may vary from this estimate, the self-insurance fund assets of $81,697 are more than the recorded liability at June 30, 2005, and the surplus of $10,148 is included in unrestricted net assets.The university is also self-insured with a stop-loss ceiling of $4,640 for employee health insurance.

As of June 30,2005, $15,373 is recorded as a liability relating to both claims received but not paid and estimates of claims incurred but not yet reported.Changes in the reported liabilities since June 30, 2003, result from the following activities:

Liability at beginning of fiscal year Current year claims, changes in estimates Claim payments Balance at fiscal year end NOTE 7 -DEBT Malpractice Health and Life 2005 2004 2005 2004$34,891 $28,458 $15,090 $20,337 38,530 8,012 125,569 84,735 (1,872) (1,579) (125,286)

(89,982)$71,549 $34,891 $15,373 $15,090 The university may finance the construction, renovation and acquisition of certain facilities through the issuance of debt obligations that may include general receipts bonds, certificates of participation, commercial paper, capital lease obligations, and other borrowings.

Debt activity for the year ended June 30, 2005, is as follows:

I-Beginning Ending Current Balance Additions Reductions Balance Portion Commercial Paper.Series E Series F Notes: Ohio Board of Regents Note, due through 2006 Capital One Funding Corporation, due through 2014 Fifth Third Note, due through 2008 Fifth Third Line of Credit ESIC New Markets Partners II note General Receipts Bonds -Fixed Rate: 1999A, due serially through 2029 2002A, due serially through 2031 2003B, due serially through 2033 General Receipts Bonds -Variable Rate.* 1997, due serially through 2027 1999B1, due serially through 2029 1999B2, due 2006 2001, due serially through 2032 2003C, due serially through 2031 Capital Lease Obligations

$ 22,100-$150,000$ 22,100$150,000 $150,000 425 213 2,405 9,691 300 1,403 4,663 12,000 182 4,546 4,829 3,185 6,010 48,695 212 2,223 6,548 134 12,000 68,965 133,330 177,345 212 190 2,948 134 2,410 6,445 6,255 72,150 139,340 226,040 47,340 64,600 12,100 76,950 119,255 21,910 6,784 3,800 43,540 43,540 4,600 60,000 60,000 3,800 8,300 8,300 76,950 76,950 2,900 116,355 116,355 7,056 21,638 6,841$814,606 $174,850 $111,916 $877,540 $ 480,580 Debt activity for the year ended June 30, 2004, is as follows: Commercial Paper.Series E Notes: Ohio Board of Regents Note, due through 2006 Capital One Funding Corporation, due through 2014 Fifth Third Note, due through 2008 Fifth Third Line of Credit 2003 Short Term Note Payable General Receipts Bonds -Fixed Rate: 1999A, due serially through 2029 2002A, due serially through 2031 2003B, due serially through 2033 General Receipts Bonds -Variable Rate: 1997, due serially through 2027 1999B 1, due serially through 2029 1999B2, due 2006 2001, due serially through 2032 2003C, due serially through 2031 Capital Lease Obligations Beginning Ending Balance Additions Reductions Balance Current Portion$ 70,150 $ 20,450 $ 68,500 $ 22,100$ 22,100 637 212 425 213 2,575 3,041 307 50,965 75,190 145,075 50,840 69,300 15,600 76,950 8,700 300 170 2,050 307 50,965 2,405 9,691 300 233,780 3,040 72,150 5,735 139,340 7,740 226,040 3,500 47,340 4,700 64,600 3,500 12,100 76,950 2,040 119,255 177 4,555 300 3,185 6,010 48,695 47,340 64,600 12,100 76,950 119,255 121,295 25,603 2,590 6,283 21,910 5,790$586,233 $387,115 $158,742 $814,606 $ 411,270 4 31 Debt obligations are generally callable by the university, bear interest at fixed and variable rates ranging from 0% to 6% and mature at various dates through 2033. Maturities and interest on debt obligations for the next five years and in five-year periods are as follows: Commercial Paper. Bonds, Capital Leases and and Notes Payable Certificates of Participation 2006 2007 2008 2009 2010 2011-2015 2016-2020 2021-2025 2026-2030 2031-2033 Principal Interest Principal Interest$473,739 $ 24,139 $ 6,841 S 727 17,552 17,686 5,024 505 19,588 17,118 2,415 381 18,659 16,470 1,166 323 19,145 15,762 1,022 275 96,208 66,627 3,382 852 78,865 45,889 1,788 138 60,585 26,216 49,565 12,800 21,996 1,810$855,902 $244,517 $21,638 $ 3,201 General receipts bonds are backed by the unrestricted receipts of the university, excluding certain items as described in the bond indentures.

The outstanding bond indentures do not require mandatory reserves for future payment of principal and interest.

However, the university has set aside $34,336 for future debt service that is included in unrestricted net assets.In prior years, the university defeased various bonds by placing the proceeds of new bonds into an irrevocable trust to provide for all future debt service payments on the old bonds. The defeased bonds are as follows: Amount Amount Outstanding Defeased at June 30, 2005 Revenue Bonds: Series I $5,951 $1,025 Neither the outstanding indebtedness nor the related trust account assets for the above bonds are included in the university's financial statements.

Variable Rate Demand Bonds Series 1997, 1999B1, 1999B2, 2001, and 2003C variable rate demand bonds bear interest at rates based upon yield evaluations at par of comparable securities.

The maximum interest rate allowable and the effective average interest rate from issue date to June 30, 2005, are as follows: Interest Rate Effective Average Series: Not to Exceed Interest Rate 1997 12% 2.329%1999 B1 12% 1.994%1999 B2 12% 2.157%2001 12% 1.365 %2003 C 12% 1.365%

At the discretion of the university, the interest rate on the bonds can be converted to a fixed rate. The bonds may be redeemed by the university or sold by the bondholders to a remarketing agent appointed by the university at any time prior to conversion to a fixed rate at a price equal to the principal amount plus accrued interest.The university's variable rate demand bonds mature at various dates through 2032. GASB Interpretation No. I, Demand Bonds Issued by State and Local Governmental Entities, provides guidance on the balance sheet classification of these bonds. Under GASB Interpretation No. 1, outstanding principal balances on variable rate demand bonds may be classified as non-current liabilities if the issuer has entered into a "take-out agreement" to convert bonds "put" but not resold into some other form of long-term obligation.

In the absence of such an agreement, the total outstanding principal balances for these bonds are required to be classified as current liabilities.

Although it is the university's intent to repay its variable rate demand bonds in accordance with the maturities set forth in the bond offering circulars, the university does not have "take-out agreements" in place per the GASB Interpretation No. 1 requirements.

Accordingly, the university has classified the total outstanding principal balances on its variable rate demand bonds as current liabilities.

The obligations totaled $305,145 and $320,245 at June 30,2005 and 2004, respectively.

Commercial Paper The General Receipts Commercial Paper Notes (the "Notes") are limited obligations of the university secured by a pledge of the General Receipts of the university.

The Notes are not debts or bonded indebtedness of the State of Ohio and are not general obligations of the State of Ohio or the university, and neither the full faith and credit of the State of Ohio nor the university are pledged to the payment of the Notes. The Notes have been issued to provide for interim financing of various projects approved by the Board of Trustees.

It is the university's intention to roll each maturity into new Notes as they mature and to issue additional Notes as project expenditures are incurred.

It is the university's intention ultimately to roll the Notes into permanent tax exempt bonds.Capital Lease Obligations Computer equipment and the facilities for child care, stores/receiving, and ATI residence hall are financed as capital leases. The original cost and lease obligations related to these capital leases as of June 30, 2005, are $46,955 and $21,638 respectively.

The original cost and lease obligations related to these capital leases as of June 30,2004 are $44,225 and $21,910, respectively.

NOTE 8- OPERATING LEASES The university leases various buildings, office space, and equipment under operating lease agreements.

These facilities and equipment are not recorded as assets on the balance sheet. The total rental expense under these agreements was $26,242 and $24,059 for the years ended June 30,2005 and 2004, respectively.

33 Future minimum payments for all significant operating leases with initial or remaining terms in excess of one year as of June 30,2005, are as follows: Year Ending June 30, 2006 $17,528 2007 12,077 2008 7,668 2009 5,484 2010 4,472 2011-2015 11,194 2016-2020 3,251 2021-2025 1,141 2026-2030 98 2031-2035 63 2036-2040 63 2041-2045 63 2046-3000 2,501 Total minimum lease payments $ 65,603 NOTE 9 -COMPENSATED ABSENCES University employees earn vacation and sick leave on a monthly basis.Classified civil service employees may accrue vacation benefits up to a maximum of three years credit. Administrative and professional staff and faculty may accrue vacation benefits up to a maximum of 240 hours0.00278 days <br />0.0667 hours <br />3.968254e-4 weeks <br />9.132e-5 months <br />. For all classes of employees, any earned but unused vacation benefit is payable upon termination.

Sick leave may be accrued without limit. However, earned but unused sick leave benefits are payable only upon retirement from the university with 10 or more years of service with the state.The amount of sick leave benefit payable at retirement is one fourth of the value of the accrued but unused sick leave up to a maximum of 240 hours0.00278 days <br />0.0667 hours <br />3.968254e-4 weeks <br />9.132e-5 months <br />.The university accrues sick leave liability for those employees who are currently eligible to receive termination payments as well as other employees who are expected to become eligible to receive such payments.

This liability is calculated using the "termination payment method" which is set forth in Appendix C, Example 4 of the GASB Statement No. 16, Accounting for Compensated Absences.

Under the termination method, the university calculates a ratio, Sick Leave Termination Cost per Year Worked, which is based on the university's actual historical experience of sick leave payouts to terminated employees.

This ratio is then applied to the total years-of-service for current employees.

Certain employees of the university (mostly classified civil service employees) receive comp time in lieu of overtime pay. Any unused comp time must be paid to the employee at termination or retirement.

--4 NOTE 10- NONCURRENT LIABILITIES Non-current liability activity for the year ended June 30,2005, is as follows: Beginning Balance Ending Additions Reductions Balance Compensated absences Obligations under annuity and life income agreements Refundable advances for Federal Perkins Loans Other non-current liabilities

$ 70,518$13,802 $ 5,568 $ 78,752 52,263 30,132 39,574 3,169 4,527 4,572 809 2,000 50,860 29,323 42,101 Less: Current portion 192,487 10,809$181,678$21,498 $12,949 201,036 10,140$190,896 Non-current liability activity for the year ended June 30, 2004 is as follows: Beginning Balance Ending Additions Reductions Balance Compensated absences Obligations under annuity and life income agreements Refundable advances for Federal Perkins Loans Other non-current liabilities

$ 64,541 $11,982 $ 6,005 $ 70,518 48,485 31,170 37,081 8,251 4,493 4,473 1,038 2,000 52,263 30,132 39,574 Less: Current portion 181,277 9,496$171,781$24,726 $13,516 192,487 10,809$181,678 Other non-current liabilities at June 30,2005 and 2004, consist of the following:

2005 2004 Amounts due to third-party payers -OSU Health System Advance payments under exclusivity agreements Bond premium$ 33,785 4,000 4,316$ 29,030 6,000 4,544$ 42,101 $ 39,574 NOTE 11 -UNRESTRICTED AND RESTRICTED-EXPENDABLE NET ASSETS Substantially all unrestricted net assets are internally designated for use by university departments to support working capital needs, to fund related academic or research programs, and to provide for unanticipated shortfalls in revenues and deviations in enrollment.

Major components of unrestricted net assets at June 30,2005 and 2004, are as follows: I 35 Educational and general Auxiliary enterprises OSU Health System Loan funds Unrestricted quasi-endowments Plant 2005$ 478,312 (3,017)151,835 2,716 43,651 2,090 2004$ 414,683 (2,061)158,403 2,705 43,312 104,892$ 675,587 $ 721,934 Restricted expendable net assets are subject to various purpose or time-based restrictions set forth by donors or granting agencies.

Major components of restricted-expendable net assets at June 30, 2005 and 2004, are as follows: Current operations Loan funds Restricted quasi-endowments Plant 2005$ 265,434 41,033 139,399 16,708 2004$ 278,858 40,927 130,433 14,784$ 462,574 $ 465,002 NOTE 12-OPERATING EXPENSES BY OBJECT In accordance with requirements set forth by the Ohio Board of Regents, the university reports operating expenses by functional classification on the Statement of Revenues, Expenses and Other Changes in Net Assets. Operating expenses by object for the years ended June 30,2005 and 2004, are summarized as follows: Year Ended June 30, 2005 Compensation and Benefits Supplies and Services Scholarships and Fellowships Depreciation Total Instruction Separately budgeted research Public service Academic support Student services Institutional support Operation and maintenance of plant Scholarships and fellowships Auxiliary enterprises OSU Health System OSU Physicians, Inc.Depreciation Total operating expenses$ 554,258 235,623 74,229 91,983 47,266 83,554 37,477 2,433 85,245 546,105 120,008$ 63,632 97,931 21,508 16,506 22,754 9,918 46,811 1,513 88,961 525,657 48,997$ 617,890 333,554 95,737 108,489 70,020 93,472 84,288 54,448 174,206 1,071,762 169,005$ 50,502$145,976 145,976$1,878,181

$944,188 $ 50,502 $145,976 $3,018,847

, 'I-Year Ended June 30, 2004 Compensation and Benefits Supplies and Services Scholarships and Fellowships Depreciation Total t Instruction Separately budgeted research Public service Academic support Student services Institutional support Operation and maintenance of plant Scholarships and fellowships Auxiliary enterprises OSU Health System OSU Physicians, Inc.Depreciation Total operating expenses$ 504,285 218,095 79,511 85,535 44,412 97,842 32,787 4,467 84,861 478,133 67,074$ 73,215 99,215 31,239 17,967 21,494 11,489 40,347 2,083 93,783 459,615 34,704$ 577,500 317,310 110,750 103,502 65,906 109,331 73,134 49,336 178,644 937,748 101,778$141,477 141,477$42,786$1,697,002.

$ 885,151 $42,786 $141,477 $ 2,766,416 NOTE 13 -RETIREMENT PLANS University employees are covered by one of three retirement systems. The university faculty is covered by the State Teachers Retirement System of Ohio (STRS Ohio). Substantially all other employees are covered by the Public Employees Retirement System of Ohio (OPERS). Employees may opt out of STRS Ohio and OPERS and participate in the Alternative Retirement Plan (ARP)if they meet certain eligibility requirements.

STRS Ohio and OPERS each offer three separate plans: 1) a defined benefit plan, 2) a defined contribution plan and 3) a combined plan. Each of these three options is discussed in greater detail in the following sections.Defined Benefit Plans STRS Ohio and OPERS offer statewide cost-sharing multiple-employer defined benefit pension plans. STRS Ohio and OPERS provide retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries.

Benefits are established by state statute and are calculated using formulas that include years of service and final average salary as factors. Both STRS Ohio and OPERS issue separate, publicly available financial reports that include financial statements and required supplemental information.

These reports may be obtained by contacting the two organizations.

STRS Ohio 275 East Broad Street Columbus, OH 43215-3771 (614) 227-4090 (888) 227-7877 www.strsoh.org Ohio PERS 277 East Town Street Columbus, OH 43215-4642 (614) 466-2085 (888) 400-0965 www.opers.org In addition to the retirement benefits described above, STRS Ohio and OPERS provide post-employment health care benefits.37 OPERS currently provides post-employment health care benefits to retirees with ten or more years of qualifying service credit. These benefits are advance-funded on an actuarially determined basis and are financed through employer contributions and investment earnings.

OPERS determines the amount, if any, of the associated health care costs that will be absorbed by OPERS.Under Ohio Revised Code (ORC), funding for medical costs paid from the funds of OPERS is included in the employer contribution rate. For the fiscal year ended December 31,2004, OPERS allocated 4.0% of the employer contribution rate to fund the health care program for retirees.The actuarial value of assets available for these benefits at December 31, 2003 (the date of the system's latest actuarial review), was $10.5 billion. There were 369,885 active contributing benefit recipients eligible for post-employment benefits as of December 31, 2004.On September 9,2004, the OPERS Retirement Board adopted a Health Care Preservation Plan (HCPP) with an effective date of January 1,2007. The HCPP restructures OPERS' health care coverage to improve the financial solvency of the fund in response to skyrocketing health care costs.Under the HCPP, retirees eligible for health care coverage will receive a graded monthly allocation based on their years of service at retirement.

HCPP incorporates a cafeteria approach, offering a broad range of health care options which allows benefit recipients to use their monthly allocation to purchase health care coverage customized to meet their individual needs.If the monthly allocation exceeds the cost of the options selected, the excess is deposited into a Retiree Medical Account that can be used to fund future health care expenses.STRS Ohio currently provides access to health care coverage to retirees who participated in the deferred benefit or combined plans and their dependents.

Coverage under the current program includes hospitalization, physicians' fees, prescription drugs, and partial reimbursement of monthly Medicare Part B premiums.

Pursuant to ORC, STRS Ohio has discretionary authority over how much, if any, of the associated health care costs will be absorbed by STRS Ohio. All benefit recipients pay a portion of the health care cost in the form of monthly premiums.

Under ORC, medical costs paid from the funds of STRS Ohio are included in the employer contribution rate. For the fiscal year ended June 30,2004, STRS Ohio allocated employer contributions equal to 1.0% of covered payroll to a Health Care Stabilization Fund (HCSF) from which payments for health care benefits are paid. The balance in the HCSF was $3.1 billion at June 30,2004.STRS Ohio expenditures for post-employment benefits during the year ended June 30, 2004, were $268.7 million. There were 111,853 benefit recipients eligible for post-employment benefits at that date.Post-employment health care benefits are not guaranteed by ORC to be covered under either OPERS or STRS Ohio defined benefit plans.Defined Contribution Plans ARP is a defined contribution pension plan. Full-time administrative and professional staff and faculty may choose enrollment in ARP in lieu of OPERS or STRS Ohio. Classified civil service employees are not eligible to participate in ARR ARP does not provide disability benefits, annual cost-of-living adjustments, postretirement health care benefits, or death benefits to plan members and beneficiaries.

Benefits are entirely dependent on the sum of contributions and investment returns earned by each participant's choice of investment options.

OPERS also offers a defined contribution plan, the Member-Directed Plan (MD). The MD plan does not provide disability benefits, annual cost-of-living adjustments, postretirement health care benefits or death benefits to plan members and beneficiaries.

Benefits are entirely dependent on the sum of contributions and investment returns earned by each participant's choice of investment options.STRS Ohio also offers a defined contribution plan in addition to its long-established defined benefit plan. All employee contributions and employer contributions at a rate of 10.5%are placed in an investment account directed by the employee.

Disability benefits are limited to the employee's account balance. Employees electing the defined contribution plan receive no post-retirement health care benefits.Combined Plans STRS Ohio offers a combined plan with features of both a defined contribution plan and a defined benefit plan. In the combined plan, employee contributions are invested in self directed investments, and the employer contribution is used to fund a reduced defined benefit.Employees electing the combined plan receive post-retirement health care benefits.OPERS also offers a combined plan. This is a cost-sharing multiple-employer defined benefit plan that has elements of both a defined benefit and defined contribution plan. In the combined plan, employee contributions are invested in self directed investments, and the employer contribution is used to fund a reduced defined benefit. Employees electing the combined plan receive postretirement health care benefits.

OPERS provides retirement, disability, survivor and post-retirement health benefits to qualifying members of the combined plan.Funding Policy ORC provides STRS Ohio and OPERS statutory authority to set employee and employer contributions.

Contributions equal to those required by STRS Ohio and OPERS are required for ARP. For employees enrolling in ARP, ORC requires a portion (which may be revised pursuant to periodic actuarial studies) of the employer contribution be contributed to STRS Ohio and OPERS to enhance the stability of these plans. The required contribution rates (as a percentage of covered payroll) for plan members and the university are as follows: STRS Ohio OPERS ARP Faculty: Plan member 10.0% 10.0%University 14.0% 14.0%*Staff: Plan member 8.5% 8.5%University 13.31% 13.31%Law enforcement staff: Plan member 10.1% 10.1%University 16.7% 16.7%* Employer contributions include 3.5% paid to STRS Ohio.The remaining amount, 10.5%, is credited to employee's ARP account.39 a " 'The university's contributions, which represent 100% of required employer contributions, for the year ended June 30, 2005, and for each of the two preceding years are as follows: STRS Ohio OPERS ARP Year Ended Annual Required Annual Required Annual Required June 30, Contribution Contribution Contribution 2003 $ 37,345 $ 76,408 $ 21,836 2004 $ 38,155 $ 82,927 $23,337 2005 $ 40,597 $ 91,424 $ 27,094 OSU Physicians Retirement Plan Retirement benefits are provided for the employees of OSU Physicians (OSUP) through a tax-sheltered 403(b) and 401(a) program administered by an insurance company. OSUP is required to make nondiscretionary contributions of no less than 7.5% under the Interim Retirement Plan; however, some subsidiaries make an additional discretionary contribution of up to 17.5%, for a range of total employer contributions of 7.5% to 25%. Employees are allowed, but not required, to make contributions to the 403(b) plan. OSUP's share of the cost of these benefits was $9,943 for the year ended June 30,2005.NOTE 14-- CAPITAL PROJECT COMMITMENTS At June 30, 2005, the university is committed to future contractual obligations for capital expenditures of approximately

$209,674.These projects are funded by the following sources: State appropriations

$110,161 Internal and other sources 99,513 Total $209,674 NOTE 15-CONTINGENCIES AND RISK MANAGEMENT The university is a party in a number of legal actions. While the final outcome cannot be determined at this time, management is of the opinion that the liability, if any, for these legal actions will not have a material adverse effect on the university's financial position.The university is self-insured for hospitals' professional malpractice liability, employee health benefits, and employee life, accidental death and dismemberment benefits.

Additional details regarding these self-insurance arrangements are provided in Note 5. The university also carries commercial insurance policies for various property, casualty, and excess liability risks.Over the past three years, settlement amounts related to these insured risks have not exceeded the university's coverage amounts.

Under the terms of federal grants, periodic audits are required and certain costs maybe questioned as not being appropriate expenditures under the terms of the grants. Such audits could lead to reimbursements to the grantor agencies.

While questioned costs may occur, ultimate repayments required of the university have been infrequent in prior years.NOTE 16 -FUNDS HELD IN TRUST BY OTHERS The university is the beneficiary of and annually receives income from funds held in trust by other trustees.

These funds are administered by outside trustees and are neither in the possession nor under the control of the university.

The principal amount of these funds is not determinable at the present time.NOTE 17 -SUBSEQUENT EVENTS The Ohio State University issued $279,050 in General Receipts Bonds, Series 2005A and$129,980 in Variable Rate Demand General Receipts Bonds, Series 2005B on August 10, 2005.The proceeds of these bond issues will be used for the following purposes:

1) to retire $ 150,000 of Series F Commercial Paper notes, 2) to refund and retire $55,670 of General Receipts Bond Series 1999A, and 3) to construct and/or renovate a variety of projects including residence halls, administrative and classroom buildings, parking garages, utility, and student services.

Both Series A and B Bonds will have annual principal repayments until final maturity on June 1,2035.I 41

• , t The 2005 Financial Report and the included financial statements are prepared by the staff of the Office of the Controller, Division of Accounting.

Michael A. Baker -Financial Systems Analyst Suzanne M. Chizmar -Chief Accountant Thomas F. Ewing -Associate Controller Allan E. Freeman -Cost Analyst Steven W. Hoffman -University Tax Compliance Specialist Robert L. Hupp, II -Financial Systems Analyst Hang (Becky) Lu -Accountant Brenda K. Payne -Accountant Patricia M. Privette -Financial Reporting Analyst Phil A. Schirtzinger

-Senior Cost Analyst Jan E. Soboslai -Senior Accountant Anne M. Wilcheck -Senior Accountant William J. Shkurti -Senior Vice President and Chief Financial Officer Greta J. Russell -University Controller

-, % r , 2005 Board of Trustees The expiration date of each trustee's term is given in parentheses.

Daniel M. Slane, Chair Columbus (2006)Robert M. Duncan, Vice Chair Columbus (2007)Karen L. Hendricks Cincinnati (2008)Dimon R. McFerson Powell (2009)Jo Ann Davidson Reynoldsburg (2010)Douglas G. Borror Dublin (2011)m-~Walden W. O'Dell North Canton (2012)Brian K. Hicks Hilliard (2013)Robert H. Schottenstein Columbus (2014)Chad A. Endsley Student Member (2006)Yoonhee P. Ha Student Member (2007).=1 ....-i David 0. Frantz, secretary James L. Nichols, treasurer I 43

-4 k I *Institutional Highlights 2005 the story...cademic excellence, diversity, renowned faculty, and some of the nation's top students have made Ohio State one of the most recognized and respected universities in the world. In 2005, our numbers told the story:* Ohio State now ranks among the top 10 public research universities in sponsored funding and sixth in corporate support, according to the National Science Foundation.

• Ohio State ranks among U.S. News & World Report's top 25 public universities (21).* For the 11th consecutive year, the incoming freshman class was the best-prepared class in Ohio State's history.* Average ACT score is now 25.8.* 39% of the freshmen were in the top 10% of their high school classes.-77% ranked in the top 25% of their high school classes.16% of the incoming class were students of color, compared to 15.4% in 2004. This reflects a 6% increase in enrollment of new African American students and a nearly 7% increase in Hispanic enrollment.

Six-year graduation rate was 68%. Even though enrollment has remained fairly steady, the size of the graduating classes has been steadily increasing.

Each of the last three spring graduating classes has set new records, with 6,882 graduates in 2003; 7,203 in 2004; and a record 7,335 students in 2005.Freshman retention rate was 89.7%. The national average among public institutions that award Ph.D.s is 77.5%.Research grants reached an all-time high of $552 million in 2005. The latest government statistics put Ohio State 10th among the nation's public universities in research expenditures.

For the third straight year, Ohio State has led the country in the number of faculty named as fellows of the American Association for the Advancement of Science (AAAS). This year 20 faculty were so recognized.

In all, 120 Ohio State faculty members have earned recognition as fellows of the AAAS, making the community of AAAS fellows at Ohio State one of the largest in the country.-4

-k 'Two new Ohio Eminent Scholars joined our faculty in 2005-06, bringing to 12 the number of Ohio Eminent Scholars hired in the last five years.The Ohio State faculty now includes nine members of the National Academy of Sciences, 10 members of the National Academy of Engineering, three members of the Institute of Medicine, and nine members of the American Academy of Arts and Sciences.Journal of Blacks in Higher Education ranked Ohio State 2nd for the percentage of African Americans in the MBA program, and Hispanic Outlook ranked Ohio State among the top 50 best colleges for Hispanic women.Ohio State was again chosen as one of the country's 50 best colleges for African Americans by Black Enterprise magazine.Annually recognized among the nation's best, The Ohio State University Medical Center's five acute-care hospitals and primary care network attract patients from Ohio and around the world. Each year, the Medical Center accommodates 850,000 outpatient visits and $41 million in uncompensated care.U.S. News ranked many graduate/professional programs among the best in the nation, including Arts (28th), Fisher College of Business (21st), Education (20th), Engineering (26th), Moritz College of Law (39th), Medicine (38th), Nursing (19th), College of Social Work (24th), Veterinary Medicine (6th).Ohio State ranked 8th in the nation among public universities in total private support, according to the Council on Aid to Education.

I ~ '~'L' YPF~t~'1l'¶9 A '~h'9 J 45

Engineering Experiment Station 228 Bolz Hall 2036 Neil Ave.'e-" 0, Columbus, OH 43210-1275 Phone 614-292-2826 Fax 614-247-4521 July 7, 2006 To Whom It May Concern: This letter is in response to a request to describe the sources of funding utilized to cover the costs of operation for the Nuclear Reactor Laboratory:

A portion of the funding is received from The College of Engineering which provides an annual allotment from the general funds received from the University.

In addition, costs for various services provided to internal and external customers of the Reactor Laboratory are recovered through invoicing and internal fund transfers.

The final source of funding is obtained through state and federal grants provided for various research projects.If more information is required, please feel free to contact me.hank J Pat cia Chrisenberry Fiscal Administrator chrisenberry.

1 @osu.edu P. 614/292-8312 F. 614/247-4521 College of Engineering FINANCIAL QUALIFICATION The following information is provided indicating there is reasonable assurance that funds will be available to cover the operating costs for the period of the license renewal plus the estimated costs of decommissioning the facility at some later date.We have enclosed the most recent biennial Financial Report for The Ohio State University for the years ended June 30, 2005 and 2004. University funding for the OSU Nuclear Reactor Laboratory is administered and distributed by the College of Engineering through the Engineering Experiment Station which has responsibility for the Centers and Laboratories of the College. The Director of the Engineering Experiment Station is the Level 1 individual identified in Chapter 6 of the Technical Specifications and in Chapter 9 of the Safety Analysis Report for the OSURR. This individual is also the Dean of the College of Engineering and ultimately responsible for budget allocation decisions.

The estimated annual cost to operate the OSURR facility for the first five years of the requested period of renewal is $336,000 per year. The underlying assumptions are: " The renewal period begins July 1, 2006" There continue to be the same individuals making up 3.6 FTEs" Costs increase at 4% per year Since the start of this relicensing process in December of 1999 the OSURR has had three Deans, three Directors, and two Associate Directors.

Collectively they have managed te budget process the last six years to assure continued operation of the facility.

We anticipate this will continue for the foreseeable future and at least five years after license renewal has been completed.

The Ohio State University is a large land grant institution and as such provides teaching, research, and service. The budget sources are reflective o.this mission: " University allocation 40%" Grants and Research projects 35%" Reactor services 25%The above percentages vary from year to year but have been reliable sources for at leas the last twenty years.In a letter dated July 30, 1990 signed by then Vice President and Provost Fredrick E.Hutchinson the OSURR submitted its Decommissioning Funding Plan as required by I CFR50.33.

At that point in time we chose the "DECON" method of decommissioning and provided a statement of intent to obtain funds sufficiently in advance of decommissioning to prevent delay in the required activities.

These two items remain th same today. The cost estimate to decommission by "DECON" was $706,250 in 1990.

In order to estimate the current cost of decommissioning the reactor by decontamination the following methods/assumptions were made.1. The cost of fuel shipment was not included as this is considered an operational cost.2. A qualified staff of at least three individuals is on hand to plan and supervise the process.3. The decommissioning requires a total of seven years based on the most recent University of Virginia experience.

4. The current charge out rate of $41/hour used for the entire period is not corrected for inflation.

5. The minimum of structural material is removed and only radioactive material waste disposal cost estimates are included.6. Waste disposal costs are based on the Ohio State University Radiation Safety Section estimates of $287/cuft for low level waste and double that for high level waste with no correction for inflation over the seven year period.7. We assume there are about 300 cuft of low level waste and about 100 cuft of high level waste.8. Labor and waste disposal account for 90% of the total decommissioning by decontamination cost estimate.9. A 60% contingency is added based on the University of Virginia experience.

Our estimate for decommissioning the OSURR by decontamination is $3,438,898.

NRL OPERATING PROCEDURES Administrative Procedures AP-09 RO/SRO Requalification I. SCOPE: This instruction outlines the requirements for requalifying reactor operators and senior reactor operators at the OSU-NRL.II. DISCUSSION:

The RO/SRO requalification program is designed to demonstrate RO/SRO competence and to satisfy the requirements of lOCFR55.53 and lOCFR55.59 For the purpose of this procedure, RO shall refer to any licensed Reactor Operator, SRO shall refer to any licensed Senior Reactor Operator, and Operator shall refer to any licensed operator, reactor, or senior reactor.III.

REFERENCES:

A. 1OCFR55.53 B. 1OCFR55.59 C. AP-07 Review of Procedures D. AP-10 OSURR Console Operating Experience E. Non-Power Reactor Operator Licensing Examiner Standards

-NUREG 1478, June 1994.IV. PRECAUTIONS:

To maintain an active Operator's License at the OSU-NRL one shall: A. Be the console operator at least once every three months and operate a total of at least 4 hours4.62963e-5 days <br />0.00111 hours <br />6.613757e-6 weeks <br />1.522e-6 months <br /> or complete SRO duties for at least 4 hours4.62963e-5 days <br />0.00111 hours <br />6.613757e-6 weeks <br />1.522e-6 months <br />. (10CFR 55.53e)B. Complete the OSU-NRL Annual Requal Exam successfully and in a timely manner. Annual means during each calendar year. Timely means 365+30 days.C. Renew one's NRC License every six years in a timely manner.D. Review changes to the Facility License, Technical Specifications, Procedures, Emergency Plan, Security Plan, Facility Design Changes, NRC Notices, and other important Reactor related material in a timely manner. The review of these changes and documents shall be Revised by/Date Approved by/Date Revision No. Procedure No.KRH 9/25/96 f, }'\ i /i 7 AP-09 Page 1 of 6 accomplished and verified by following NRL Procedure AP-07 "Review of Procedures." E. Successfully complete a biennial medical evaluation.

V. PROCEDURE

S:

A. INTRODUCTION The Operator Requalification Program is designed to demonstrate Operator and Senior Operator competence, and to satisfy the requirements of 10CFR55.59 for license renewal. The Program embodies the substance of 10CFR55.59, including provisions for an annual written examination, a structured lecture and study program when necessary to correct deficiencies, on the job training and evaluation of licensees, and a records maintenance system.During each calendar year, a comprehensive operational and written examination shall be administered to all licensed personnel having regular operational responsibility at The Ohio State University Nuclear Reactor Laboratory (NRL).Subsequent to determining any deficiencies indicated by the comprehensive examination, a retraining program will be initiated which consists of a combination of lectures, self-study by the licensee, tutoring of the licensee, and appropriate examination on the material covered. The final selection of the combination of retraining sessions, will depend upon the performance of the licensee on the written examination.

All study materials used in the Program shall be reviewed to assure they remain current. Study materials shall be collected and made available to all licensees throughout the year.B. PROGRAM ADMINISTRATION AND REVIEW The Associate Director of the NRL shall serve as the Training Coordinator, and shall be responsible for the implementation, coordination, and operation of the Operator Requalification Program.The duties of the Training Coordinator shall be designated to another SRO on alternate years. The Training Coordinator or his designee will prepare, administer, grade, and review all examinations and quizzes required by the Program. In this capacity, and since he is a licensed Senior Operator, he will be considered as having completed the examination and retraining program requirements for that year.C. COMPREHENSIVE ANNUAL WRITTEN EXAMINATION

1. The comprehensive annual written examination (Exam) given to all licensed personnel, will include questions taken from: Revision No. Procedure No.RO/SRO Requalification 7 AP-09 Page 2 of 6 A. Reactor Theory, Thermodynamics, and Facility Operating Characteristics.

B. Normal and Emergency Operating Procedures and Radiological Controls.C. Facility and Radiation Monitoring Systems.2. The exam should contain at least 10 objective questions from each section.3. The Exams will be graded, reviewed and retained at the NRL. For each licensee, a review form will be prepared indicating his grade in each Exam category.

The areas of deficiency and the retraining to be followed in improving the licensee's competence in that area will then be determined.

A grade below 70% in a single category shall require retraining for that licensee in that area of deficiency.

An overall score below 70% on the Exam shall require that: A. The licensee shall be immediately enrolled in a retraining program.B. Prior to continuing his/her responsibilities of operation of the OSURR, the licensee shall be given an oral exam to verify competence as a console operator.D. RETRAINING PROGRAM 1. The Retraining Program shall consist of an appropriate combination of: i a. Lectures b. Self-study of reference materials c. Tutoring sessions d. Examination

2. Retraining shall be completed within 90 days and require passing of a written exam on appropriate sections.E. REACTOR OPERATIONAL EXAM One reactor operation of each year for each licensee shall be devoted to operator requalification.

The Training Coordinator shall be present in the control room during all reactivity control manipulations associated with the operation, and shall evaluate the Operator's performance, competence, knowledge of the reactor system, and knowledge of operating and emergency procedures.

If deficiencies are noted, a retraining program will be organized, implemented and Revision No. Procedure No.RO/SRO Requalification 7 AP-09 Page 3 of 6 conducted within a period of 90 days. The performance evaluationi should include: 1. Administrative Topics 2. Control Room Systems 3. Facility Walkthrough

4. Reactor Operation F. REQUALIFICATION PROGRAM STUDY MATERIALS A complete set of study and reference materials shall be provided for use by the licensees.

It shall be the responsibility of the Training Coordinator to perform a review of the contents of these reference materials to ensure they are adequate and accurately reflect operations, conditions, and design characteristics of the facility.*As a minimum, these materials shall include: 1. A suitable general reference text on reactor physics 2. Copies of the operating procedures for the NRL 3. Copies of the Technical Specifications for the OSURR 4. Copies of emergency procedures for the facility 5. Copies of the Reactor Description and Hazards Summary Report 6. Copies of 10CFRl9, 20, 50, 55, and 70.7. Reference material on Health Physics principles and techniques.

G. SPECIAL CONDITIONS

1. Operating Frequency a. A monthly review shall be performed to assure that each licensee has participated in at least one reactor operation during each three month period for at least four (4) hours or supervised licensed activities for at least four (4) hours or a combination totaling four (4) hours.b. A licensee who does not participate in reactor operation for three or more months shall be given an oral examination on facility and procedure changes, and shall perform a minimum of six (6) hours of supervised reactor operations before being reassigned regular operational duties at the facility, provided he is up to date on the comprehensive annual written examination.

These actions are required to meet 10CFR55.53(f)

Revision No. Procedure No.RO/SRO Requalification 7 AP-09 Page 4 of 6 recertification requirements.

Results of these examinations shall be retained in the licensee's file.2. A licensee who does not complete the annual exam shall not be allowed to operate until the exam is successfully completed and graded.3. Serious deficiencies in either the written exam (< 55% overall) or the operational exam may result in removal of certification until retraining is successfully completed.

H. RECORDS These records shall be retained at the NRL for the period until the individual's license is renewed: 1. All exams and required re-examinations, which were taken by the licensee during each of the requalification periods.2. The examination review sheets filled out at the conclusion of the Exam and after any indicated re-exams.

There should also be an evaluation sheet completed for each operational exam.3. Summaries of control manipulations for licensees involved in the requalification program (See AP-10)4. Certification that each licensee has reviewed changes in the facility license, design, and procedures. (See AP-07)VI. ATTACHMENTS:

A. Exam Cover Sheet Revision No. Procedure No.RO/SRO Requalification 7 AP-09 Page 5 of 6 THE OHIO STATE UNIVERSITY RESEARCH REACTOR OPERATOR REQUALIFICATION EXAMINATION Name: License Number: Date Administered:

Instructions:

Answers are to be written on the examination page itself. A grade of 70%is required to pass the examination.

Three hours are permitted to complete the examination.

Candidate's Declaration:

All work done on this examination is my own. I have neither given nor received aid.Candidate's Signature Examination Results: SECTION POINTS SECTION SCORE PERCENT OF SECTION SECTION A. Reactor Theory, Thermodynamics, Facility Characteristics B. Normal & Emergency Procedures, Radiological Controls C. Facility and Radiation Monitoring Systems 10 10 10 30 TOTAL Evaluation:

Satisfactory

(>70%)Unsatisfactory Examiner's Signature:

Date: Revision No. Procedure No.RO/SRO Requalification 7 AP-09 Page 6 of 6 PHYSICAL SECURITY PLAN 1OCFR73.67 There should not be an approved physical security plan on file with the NRC. In a letter dated December 4, 1995 the NRC issued Amendment 16 to our facility operating license No. R-75. This amendment deleted license condition 3.F which required a physical security plan be maintained because we possess less than ten kilograms of low strategic significance SNM at the facility.

We realize that we must still maintain a physical protection system as described in IOCFR73.67.

This is accomplished by our Physical Security Implementation Plan for Protection of Special Nuclear Material of Low Strategic Significance based on Regulatory Guide 5.59 as well as our Security Procedures.

These documents are routinely reviewed on site by the NRC and have been as recently as 2005.