ML13016A179

Audited Financial Statements

ML13016A179
Person / Time
Site:	07000013, Pennsylvania State University
Issue date:	11/16/2012
From:	Randy Erickson, Deborah Gray, Kirsch R, Pangborn R, Paz H Pennsylvania State Univ
To:	NRC/NMSS/FCSS
References
Download: ML13016A179 (40)

Text

PENNSTATE Audited Financial Statements The Pennsylvania State University Fiscal Year Ended June 30, 2012

THE PENNSYLVANIA STATE UNIVERSITY UNIVERSITY OFFICERS as of October 26, 2012 RODNEY A. ERICKSON President DAVID J. GRAY Senior Vice President for Finance and Business/Treasurer RODNEY P. KIRSCH Senior Vice President for Development and Alumni Relations ROBERT N. PANGBORN Interim Executive Vice President and Provost HAROLD L. PAZ Chief Executive Officer, Penn State Milton S.

Hershey Medical Center; Senior Vice President for Health Affairs, Penn State University; and Dean, Penn State College of Medicine

CONTENTS Operating Revenues by Source 2 Operating Expenses by Function 3 Letter of Transmittal 4 Independent Auditors' Report 5 Consolidated Financial Statements:

Statements of Financial Position,,.. 6 Statements of Activities 8 Statements of Cash Flows 10 Notes to Consolidated Financial Statements 11

OPERATING REVENUES BY SOURCE ($4.6 billion)

For the Year Ended June 30, 2012

($ in Millions)

Government grants and contracts

$573.1 (12.4%) Auxiliary enterprises

$377.4 Private gifts, grants and contracts Medical Center $264.1

$1,261.7 (5.7%)

(27.3%)

Commonwealth of Pennsylvania appropriation

$261.0 (5.7%)

Recovery of indirect costs

$151.5 (3.3%)

Endowment spending and other investment income

$130.7 SOther (2.8%)

sources

$88.7 (1.9%)

Tuition and fees, net of discount

$1,508.8 (32.7%)

2

($4.5 billion)

BY FUNCTION OPERATING EXPENSES 30,2012 Enided June For the year ($ in Millions)

Research

$777.7 (17.1%)

enterprises Auxiliary

$387.1 (8.5%)

support Academ'ic (7.8%)

Center Medical

$1,195.7 (26.3%)

Institutional Support

$314.3 (6.9%)

Student services

$176.4 (3.9%)

Instruction

$1,234.6 (27.2%)

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(814) 865-13.55 (814) 863-0701 PENNSTATE Joseph J. Doncsecz The Pennsylvania State University Associate Vice President for Finance and Corporate Controller 408 Old Main University Park, PA 16802-1505 October 26, 2012 Dr. Rodney A. Erickson, President The Pennsylvania State University

Dear Dr. Erickson:

The audited consolidated financial statements of The Pennsylvania State University and subsidiaries (the "University") for the fiscal years ended June 30, 2012 and 2011 are presented on the accompanying pages. These financial statements represent a complete and permanent record of the finances of the University as of and for the years then ended.

These financial statements have been audited by Deloitte & Touche LLP, independent auditors, and their report has been made a part of this record.

Respectfully submitted, Joseph J. Doncsecz Associate Vice President for Finance and Corporate Controller David J. Gray Senior Vice President for Finance and Business, and Treasurer An Equal Opportunity University 4

Deloitte. Deloltte & Touche LLP 1700 Market Street Philadelphia, PA 19103-3984 USA Tel: 215 246 2300 Fax: 215 569 2441 www.delollte.com INDEPENDENT AUDITORS' REPORT To the Board of Trustees of The Pennsylvania State University University Park, IPenmsylvania We have audited the accompanying consolidated statements of financial position of The Pennsylvania State University and subsidiaries (the "University") as of June 30, 2012 and 2011, and the related consolidated statements of activities and cash flows for the years then ended. These consolidated financial statements are the responsibility of the University's management. Our iesponsibility 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 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 p)url)ose of expressing an op)inion on the effectiveness of ihe University's internal control over financial repomling. Accordingly, we express no such opinion. An audil also includes examining, on a test basis, evidence supporling the amounts and disclosures in the 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 financial position of the University as of June 30, 2012 and 2011, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

October 26, 2012 5

Member of Deloltte Touche Tohmatsu

THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ASSETS JUNE 30, 2012 AND 2011 (in thousands)

June 30, 2012 June 30, 2011 Current assets:

Cash and cash equivalents $ 1,599,863 $ 1,569,015 Short-term investments 256,882 219,483 Deposits held by bond trustees - 54,905 Deposits held for others 26,016 24,453 Accounts receivable, net of allowances of $62,217 and $48,096 383,173 365,308 Contributions receivable, net 67,038 69,610 Loans to students, net of allowances of $486 and $369 10,317 7,364 Inventories 30,769 36,045 Prepaid expenses and other assets 94,562 89,565 Investments held under securities lending program - 219,524 Total current assets 2,468,620 2,655,272 Noncurrent assets:

Deposits held by bond trustees 2,551 4,746 Contributions receivable, net 117,375 157,459 Loans to students, netof allowances of $2,247 and $2,384 47,693 47,630

-Deferred bond costs, net 6,241 6,748 Total investment in plant, net 3,547,803 3,372,005 Beneficial interest inperpetual trusts 12,891 12,843 Investments 3,794,668 3,443,905 Other assets 23,147 _

Total noncurrent assets 7,552,369 7,045,336 Total assets LI1.20 See notes to consolidated financial statements.

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THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENTS OF FINANCIAL POSITION LIABILITIES AND NET ASSETS JUNE 30, 2012 AND 2011 (in thousands)

June 30, 2012 June 30, 2011 Current liabilities:

Accounts payable and other accrued expenses $ 524,705 $ 508,426 Deferred revenue 244,104 233,132 Long-term debt 44,671 43,016 Present value of annuities payable 5,536 5,397 Accrued postretirement benefits 42,470 37,601 Liability under securities lending program _

219,524 Total current liabilities 861,486 1,047,096 Noncurrent liabilities:

Deposits held incustody for others 47,556 52,618 Deferred revenue 9,487 12,004 Long-term debt 1,108,035 1,146,642 Present value of annuities payable 37,631 39,028 Accrued postretirement benefits 1,822,429 1,441,442 Refundable United States Government student loans 44,478 43,764 Other liabilities 222,889 141,908 Total noncurrent liabilities 3,292,505 2,877,406 Total liabilities 4,153,991 3,924,502 Net assets:

Unrestricted -

Undesignated 1,617 1,591 Designated for specific purposes 2,193,627 2,195,213 Net investment in plant 2,044,408 1,913,962 Total unrestricted - The Pennsylvania State University 4,239,652 4,110,766 Noncontrolling interest 774 694 Total unrestricted 4,240,426 4,111,460 Temporarily restricted 482,208 555,375 Permanently restricted 1,144,364 1,109,271 Total net assets 5,866,998 5,776,106 Total liabilities and net assets $10.020.989 See notes to consolidated financial statements.

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THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2012 (in thousands)

Temporarily Permanently Unrestricted Restricted Restricted Total Operating revenues and other support:

Tuition and fees, net of discounts of $121,979 $ 1,508,843 $ $ $ 1,508,843 Commonwealth of Pennsylvania -

Appropriations 261,046 261,046 Special contracts 67,949 67,949 Department of General Services projects 28,142 28,142 United States Government grants and contracts 476,987 476,987 Private grants and contracts 173,401 173,401 Gifts and pledges 80,765 9,927 90,692 Endowment spending 70,843 70,843 Other investment income 59,303 553 59,856 Sales and services of educational activities 60,297 60,297

• Recovery of indirect costs 151,452 151,452 Auxiliary enterprises 377,375 377,375 Medical Center revenue 1,261,690 1,261,690 Other sources 28,438 28,438 Net assets released from restrictions 55,669 (55,669)

Total operating revenues and other support 4,662,200 (45,189) 4,617,011 Operating expenses:

Educational and general -

Instruction 1,234,581 1,234,581 Research 777,752 777,752 Public service 101,683 101,683 Academic support 355,795 355,795 Student services 176,398 176,398 Institutional support 314,307 314,307 Total educational and general 2,960,516 2,960,516 Auxiliary enterprises 387,120 387,120 Medical Center expense 1,195,695 1,195,695 Total operating expenses 4,543,331 4,543,331 Increase/(decrease) in net assets from operating activities 118,869 (45,189) 73,680 Nonoperating activities:

Gifts and pledges 33,653 33,653 Current year investment returns 49,555 (27,795) 5,125 26,885 Endowment appreciation utilized (33,131) (33,131)

Changes in funds held by others in perpetuity 375 51 426 Write-offs and disposals of assets (6,407) (6,407)

Actuarial adjustment on annuities payable (558) (3,736) (4,294)

Increase/(decrease) in net assets from nonoperating activities 10,017 (27,978) 35,093 17,132 Increasel(decrease) in net assets - The Pennsylvania State University 128,886 (73,167) 35,093 90,812 Noncontroillng Interest:

Excess of revenues over expenses 80 80 Increase in net assets noncontrolling interest 80 - 80 Increasel(decrease) in total net assets 128,966 (73,167) 35,093 90,892 Net assets at the beginning of the year 4,111,460 555,375 1,109,271 5,776,106 Net assets at the end of the year $ 4,240,426 $ 482,208 $ 1,144,364 $ 5,866,998 See notes to consolidated financial statements.

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THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENT OF ACTIVITIES FOR THEYEAR ENDED JUNE 30, 2011 (in thousands)

Temporarily Permanently Unrestricted Restricted Restricted Total Operating revenues and other support-Tuition and fees, net of discounts of $116,588 $ 1,432,398 $ $ $ 1,432,398 Commonwealth of Pennsylvania -

Appropriations 333,863 333,863 Special contracts 65,919 65,919 Department of General Services projects 46,801 46,801 United States Government grants and contracts 450,710 450,710 Private grants and contracts 170,890 170,890 Gifts and pledges 76,141 81,916 158,057 Endowment spending 65,964 65,964 Other investment income 50,958 284 51,242 Sales and services of educational activities 63,737 63,737 Recovery of indirect costs 145,855 145,855 Auxiliary enterprises 363,781 363,781 Medical Center revenue 1,181,732 1,181,732 Other sources 24,928 24,928 Net assets released from restrictions 40,145 (40,145)

Total operating revenues and other support 4,513,822 42,055 4,555,877 Operating expenses:

Educational and general -

Instruction 1,105,503 1,105,503 Research 725,306 725,306 Public service 98,965 98,965 Academic support 318,771 318,771 Student services 160,006 160,006 Institutional support 270,982 270,982 Total educational and general 2,679,533 2,679,533 Auxiliary enterprises 316,617 316,617 Medical Center expense 1,144,462 1,144,462 Total operating expenses 4,140,612 4,140,612 Increase in net assets from operating activities 373,210 42,055 415,265 Nonoperating actMtles:

Gifts and pledges 77,867 77,867 Current year investment returns 162,243 177,541 6,190 345,974 Endowment appreciation utilized (28,539) (28,539)

Changes infunds held by others inperpetuity 712 1,419 2,131 Write-offs and disposals of assets (4,853) (4,853)

Actuarial adjustment on annuities payable (2,503) (10,926) (13,429)

Increase in net assets from nonoperating activities 128,851 175,750 74,550 379,151 Increase in net assets - The Pennsylvania State University 502,061 217,805 74,550 794,416 Noncontrelllng Interest:

Excess of revenues over expenses 37 37 Increase in net assets noncontrolling interest 37 37 Increase intotal net assets 502,098 217,805 74,550 794,453 Net assets at the beginning of the year 3,609,362 .337,570 1,034,721 4,981,653 Net assets at the end of the year $ 4,111,460 $ 555,375 $ 1,109,271 $ 5,776,106 See notes to consolidated financial statements.

THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2012 AND 2011 (in thousands)

June 30, 2012 June 30, 2011 Cash flows from operating activities:

Increase in net assets $ 90,892 $ 794,453 Adjustments to reconcile change in net assets to net cash provided by operating activities:

Actuarial adjustment on annuities payable 4,294 13,428 Contributions restricted for long-term investment (97,224) (156,224)

Interest and dividends restricted for long-term investment (23,206) (32,233)

Net realized and unrealized gains on long-term investments (37,231) (352,737)

Depreciation expense 242,531 223,642 Amortization expense 505 563 Loss on early extinguishment of debt 567 803 Write-offs and disposals of assets 6,407 4,961 Contributions of land, buildings and equipment (2,755) (2,787)

Buildings and equipment provided by Pennsylvania Department of General Services (16)

Contribution to government student loan funds 154 154 Provision for bad debts 57,555 56,920 (Increase)/decrease in deposits held for others (1,563) 1,520 Increase in receivables (44,410) (44,620)

(Increase)/decrease in inventories 4,821 (4,171)

Increase in prepaid expenses and other assets (4,164) (10,815)

Increase/(decrease) in accounts payable and other accruedexpenses 125,353 (1,328)

Increase indeferred revenue 8,424 7,961 Increase in accrued postretirement benefits 385,855 188,256 Net cash provided by operating activities 716,805 687,730 Cash flows from Investing activities:

Purchase of land, buildings and equipment (402,654) (424,404)

Decrease indeposits held by bond trustees 57,100 138,366 Advances on student loans. (10,482) (7,809)

Collections on student loans 7,025 7,881 Decrease in investments held under securities lending program 219,524 30,435 Decrease in liability under securities lending program (219,524) (30,435)

Purchase of investments (34,460,283) (40,211,674)

Proceeds from sale of investments 34,056,053 40,047,416 Net cash used in investing activities (753,241) (450,224)

Cash flows from financing activities:-

Contributions restricted for long-term investment 95,934 156,224 Interest and dividends restricted for long-term investment 23,206 32,233 Payments of annuity obligations (5,558) (5,419)

Proceeds from issuance of bonds 26,256 39,276 Bond issuance costs (301) (399)

Principal payments on notes, bonds and capital leases (72,864) (94,516) 611 624 Proceeds related to government student loan funds, net of collection costs

. Net cash provided by financing activities 67,284 128,023 Net increase in cash and cash equivalents 30,848 365,529 Cash and cash equivalents at the beginning of the year 1,569,015 1,203,486 Cash and cash equivalents at the end of the year $ 1,599,863 $ 1,569,015 Supplemental disclosures of cash flow information (Note 2)

See notes to consolidated financial statements.

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THE PENNSYLVANIA STATE UNIVERSITY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2012 AND 2011

1. THE UNIVERSITY AND RELATED ENTITIES The Pennsylvania State University ("the University"), which was created as an instrumentality of the Commonwealth of Pennsylvania ("the Commonwealth" or "Pennsylvania"), is organized as a non-profit corporation under the laws of the Commonwealth. As Pennsylvania's land grant university, the University is committed to improving the lives of the people of Pennsylvania, the nation and the world through its integrated, tri-part mission of high-quality teaching, research and outreach.

Basis of Presentation The financial statements of the University include, on a consolidated basis, the combined financial statements of The Milton S. Hershey Medical Center ("TMSHMC" or "Medical Center"), a not-for-profit corporation and Penn State Hershey Health System, Inc. ("Health System") and The Corporation for Penn State and. its subsidiaries ("the Corporation"). See Note 11 for additional information about TMSHMC and the Health System. The Corporation is a non-profit member corporation organized in 1985 for the exclusive purpose of benefiting and promoting the interests of the University, the Corporation's sole member. The Corporation's financial statements consist primarily of the assets and revenues of The Pennsylvania College of Technology

("Penn College"), a wholly-owned subsidiary of the Corporation. All significant transactions between the University, TMSHMC and the Corporation have been eliminated.

2.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The University's consolidated financial statements are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (GAAP). The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) is the source of authoritative GAAP.

The University's consolidated financial statements include statements of financial position, activities and cash flows. In accordance with FASB ASC requirements, net assets and the changes in net assets are classified as permanently restricted, temporarily restricted or unrestricted.

Permanently restricted net assets consist primarily of the historical amounts of endowed gifts. Additionally, contributions receivable and remainder interests, which are required by donors to be permanently retained, are included at their estimated net present values.

Temporarily restricted net assets consist of contributions receivable and remainder interests whose ultimate use is not permanently restricted. In addition, the excess of current market value over the historical cost of permanently restricted endowments is classified as temporarily restricted net assets.

Unrestricted net assets are all the remaining net assets of the University. Net unrealized losses on permanently restricted endowment funds for which historical cost exceeds market value are recorded as a reduction to unrestricted net assets.

Revenue from temporarily restricted sources is reclassified as unrestricted revenue when the circumstances of the restriction have been fulfilled. Donor-restricted revenues whose restrictions are met within the same fiscal year are reported as unrestricted income.

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Notes to ConsolidatedFinancialStatements Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts on the financial statements and the disclosure of contingencies and commitments: Actual results could differ from those estimates.

Revenue Recognition Tuition revenue is recognized in the fiscal year in which the substantial portion of the educational term occurs.

Institutional financial aid provided by the University for tuition and fees is reflected as a reduction of tuition and fee revenue. Revenues for auxiliary enterprises are recognized as the related goods and services are delivered and rendered. Grant revenues are recognized as the eligible grant activities are conducted.

Payments received in advance for tuition, goods and services are deferred.

Unconditional promises to give are recognized as revenues and receivables in the year made and consist of written or oral promises to contribute to the University in the future. Contributions receivable are recorded with the revenue assigned to the appropriate category of restriction. The amounts are present valued based on timing of expected collections.

TMSHMC and Health System have agreements with third-party payors that provide for payments to TMSHMC and Health System at amounts different from their established rates. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges and per diem payments. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payors. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined or such estimates change.

TMSHMC provides care to patients who meet certain citeria under its charity care policy without charge or at amounts less than established rates. The Medical Center does not pursue collection of amounts determined to qualify as charity care, they are not reported as net patient service revenue. The amounts of direct and indirect costs for services and supplies furnished under the Medical Center's charity care policy totaled approximately $17.6 million and $12.5 million for the years ended June30, 2012 and 2011, respectively and is based on a ratio of the Medical Center's operational costs to its gross charges. The amount of charges forgone for services and supplies furnished under the Medical Center's charity policy during 2012 and 2011 totaled approximately $51.7 million and $35.4 million, respectively.

Fair Value of Financial Instruments The University has provided fair value estimates for certain financial instruments in the notes to the financial statements. Fair value information presented in the financial statements is based on information available at June 30, 2012 and 2011. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable and other accrued expenses approximate fair value because of the terms and relatively short maturity of these financial instruments. The carrying values of the University's loans to students are also reasonable estimates of their fair value, asthe total outstanding loans to students as of June 30, 2012 and 2011 have been made at the rates available to students for similar loans at such -times. Investments are reported at fair value as disclosed in Note 3. The fair value of the University's bonds payable is disclosed in Note 7. See Note 5 for further discussion of fair value measurements.

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Notes to ConsolidatedFinancialStatements Cash Flows The following items are included as supplemental disclosure to the statements of cash flows for the years ended June 30:

(in thousandsof dollars) 2012 2011 Interest paid $ 48,569 $ 50,862 Taxes paid 1,500 102 Non-cash acquisitions of land, buildings and equipment 11,638 10,371 Cash and cash equivalents include certain investments in highly liquid instruments with initial maturities of 90 days or less, except for such assets held by the University's investment managers as part of their long-term investment strategies. Short-term investments include other current investments held for general operating purposes with maturities greater than three months but less than 12 months.

Accounts Receivable Accounts receivable, net at June 30 consists of the following:

(in thousands of dollars) 2012 2011 Grants and contracts, net of allowance of $1,241 and $1,260 $ 149,397 $ 141,503 Patient accounts receivable, net of allowance of $51,544 and $39,142 146,034 133,145 Student receivables, net of allowance of $5,418 and $4,258 42,805 34,053 Investment and interest receivable 16,967 30,558 Other, net of allowance of $4,014 and $3,436 27,970 26,049 Total accounts receivable, net $ 383,17 $

The University maintains allowances for doubtful accounts to reflect management's best estimate of probable losses inherent in receivable balances. Management determines the allowances for doubtful accounts based on known factors, historical experience, and other currently available evidence. Receivables are written off when management determines they will not be collected.

Related to patient accounts receivable associated with services provided to patients who have third-party coverage, management analyzes contractually due amounts and provides an allowance for doubtful accounts (for example, for expected uncollectible deductibles and copayments or for payors who are known to be having financial difficulties that make the realization of amounts due unlikely). For receivables from self-pay patients the Medical Center and Health System records a provision for bad debts in the period of service on the basis of its past experience, which indicates that many patients are unable or unwilling to pay the portion of their bill for which they are financially responsible. In estimating the allowance for doubtful accounts, account age is taken into consideration. The difference between the standard rates (or the discounted rates if negotiated) and the amounts actually collected after all reasonable collection efforts have been exhausted is charged off against the allowance for doubtful accounts. The increase in the allowance for doubtful accounts for patient accounts receivable for 2012 reflects a higher volume of services to self-pay patients, as well as a deterioration in the collection rate of self-pay accounts. For the years ended June 30, 2012 and 2011, revenues from third-party payors and self-pay patients represents approximately 98% and 2%, respectively, of patient service revenues net of contractual allowances.

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Notes to ConsolidatedFinancialStatements Loans to Students Loans to students are disbursed to qualified students based on need and include loans granted by the University from institutional resources and under federal government loan programs. Students have a grace period until repayment is required based upon the earlier of graduation or no longer achieving at least half-time enrollment status. The grace period varies depending on the type of loan. Loans accrue interest after the grace period and are repaid directly to the University. Loans to students are uncollateralized and carry default risk. At June 30,-2012 and 2011, respectively, student loans represent 0.6% of total assets.

The availability of funds for loans under federal government revolving loan programs is dependent on reimbursements to the pool from repayments of outstanding loans. Funds advanced by the federal government of $44.5 million and $43.8 million at June 30, 2012 and 2011, respectively, are ultimately refundable to the government and are classified as liabilities in the consolidated statements of financial position. Outstanding loans cancelled under the program result in a reduction of the funds available to loan and a decrease in the liability to the federal government.

At June 30, 2012 and 2011, loans to students consisted of the following:

(in thousands of dollars) 2012 2011 Loans to students:

Federal government loan programs:

Perkins loan program 42,294 $ 41,508 Health Professions Student Loans and Loans for Disadvantaged Students 285 377 Federal government loan programs 42,579 41,885 Institutional loan programs 18,164 15,862 60,743 57,747 Less allowance for doubtful accounts:

Balance, beginning of year (2,753) (3,043)

Provision for doubtful accounts 20 290 Balance, end of year (2,733) (2,753)

Loans to students, net 58.010 $ 54.994 Allowances for doubtful accounts are established based on prior collection experience and current economic factors which, in management's judgment, could influence the ability of loan recipients to repay the amounts according to the terms of the loan. Further, the University does not evaluate credit quality of student loans receivable after the initial approval of the loan. Loans to students are considered past due when payment is not received by the due date, and interest continues to accrue until the loan is paid in full or written off. When loans to students are deemed uncollectible, an allowance for doubtful accounts is established.

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Notes to Consolidated FinancialStatements The University considers the age of the amounts outstanding in determining the collectability of loans to students. The aging of the loans to students based on days delinquent and the related allowance for doubtful accounts at June 30, 2012 and 2011 are as follows:

(in thousands of dollars) 30 days Over or less 31-60 days 61-90 days 91 days Total 2012 Loans to students:

Federal government loan programs $ 41,069 $ 506 $ 111 $ 893 $ 42,579 Institutional loan programs 17,781 173 28 182 18,164 Total loans to students 679 139 1,075 Allowance for doubtful accounts:

Federal government loan programs (1,562)

Institutional loan programs (1,171)

Total allowance for doubtful accounts (2,733)

Total loans to students, net $ 8*10 (in thousands of dollars) 30 days Over or less 31-60 days 61-90 days 91 days Total 2011 Loans to students:

Federal government loan programs $ 40,470 $ 603 $ 48 $ 764 $ 41,885 Institutional loan programs 15,358 273 42 189 15,862 Total loans to students 876 90 953 57,747 Allowance for doubtful accounts:

Federal government loan programs (1,771)

Institutional loan programs (982)

Total allowance for doubtful accounts (2,753)

Total loans to students, net Inventories Inventories are stated at the lower of cost or market, generally on the first-in, first-out basis..

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Notes to Consolidated FinancialStatements Investments The University's noncurrent investments represent the University's endowment and other investments held for general operating purposes. The University's investments are reported at fair value in, the accompanying financial statements. Investments in equity securities with readily determinable fair values and all investments in debt securities are reported at fair values with gains and losses included in the consolidated statements of activities. In the management of investments, the University authorizes certain investment managers to purchase derivative securities to attain a desired market position; and the University may directly invest in derivative securities to attain a desired market position. The University does not trade or issue derivative financial instruments other than through the investment management practices noted above. The University records derivative securities at fair value with gains and losses reflected in the consolidated statements of activities.

The estimated fair value amounts for marketable debt, equity and fixed income securities held by the University have been reviewed by the University and determined using available market information as supplied by the various financial institutions that act as trustees or custodians for the University. For non-liquid holdings, generally limited partnership investments in private real estate, venture capital, private equity, natural resources, and private debt, estimated fair value is determined based upon financial information provided by the general partner. This financial information includes assumptions and methods that were reviewed by University management. The University believes that the estimated fair value is a reasonable estimate of market value as of June 30, 2012 and 2011. Because the limited partnerships 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 existed, and such differences could be material.

Income on operating investments and income used for the annual distribution under the annual spending policy for endowments are reported in operating revenues within the consolidated statement of activities.

Beneficial Interest in Perpetual Trusts The University is the beneficiary of certain perpetual trusts held and administered by outside trustees. The fair value of these trust assets has been recorded as permanently restricted net assets and related beneficial interest in perpetual trusts in the consolidated financial statements.

Investment in Plant Total investment in plant as of June 30 is comprised of the following:

(in thousandsof dollars) 2012 2011 Land $ 115,127 $ 110,409 Buildings 4,740,770 4,449,942 Improvements other than buildings 534,029 502,542 Equipment 1,032,923 979,857 Total plant 6,422,849 6,042,750 Less accumulated depreciation (2,875,046) (2,670,745)

Total investment in plant, net $ 3.547.803 $ 3.372.05 The value of land, buildings, and equipment is recorded at cost or, if received as gifts, at fair value at date of gift. The University does not capitalize the cost of library books. Depreciation is computed over the estimated useful lives of the assets using the straight-line method. Useful lives range from 10 to 50 years for buildings, 10 to 20 years for improvements other than buildings, and 3 to 20 years for equipment. Depreciation expense was $242.5 million and $223.6 million for the fiscal years ended June 30, 2012 and 2011, respectively. The University has certain building and equipment lease agreements in effect which are considered capital leases that are included as long-term debt in the statements of financial position. These leases have been capitalized at the net present value of the minimum lease payments. Buildings and equipment held under capital leases are amortized on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset. The capitalized cost and accumulated depreciation of the leases at June 30, 2012 and 2011 was $108.3 million and $33.4 million, and $101.8 million and $27.6 million, respectively.

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Notes to ConsolidatedFinancialStatements Accounts Payable and Other Accrued Expenses Accounts payable and other accrued expenses at June 30 consist of the following:

(in thousands of dollars) 2012 2011 Accounts payable (non-Medical Center) $ 246,127 $ 252,661 Medical Center accounts payable and other accrued expenses 177,063 151,293 Accrued payroll and other related liabilities 82,211 86,310 Accrued bond interest 14,398 13,294 Student deposits 4,906 4,868 Total accounts payable and other accrued expenses $ 524.705 Asset Retirement Obliaations Under ASC 410-20, Asset Retirement and Environmental Obligations - Asset Retirement Obligations, organizations must accrue for costs related to legal obligations to perform certain activities in connection with retirement, disposal, or abandonment of assets. The obligation to perform the asset retirement activity is not conditional even though the timing or method may be conditional.

The University has identified asbestos abatement and the decommissioning of the Breazeale Nuclear Reactor as conditional asset retirement obligations. These obligations are reported as part of other noncurrent liabilities within the consolidated statement of financial position. The following table details the change in liabilities for the years ended June 30:

(in thousands of dollars)

Balance as of June 30, 2010 $ 57,463 Accretion expense 4,780 Liabilities settled (1,973)

Balance as of June 30, 2011 60,270 Accretion expense 5,430 Liabilities settled (3,766)

Balance as of June 30, 2012 $ 61934 Annuities Payable Annuities payable consist of annuity payments currently due and the actuarial amount of annuities payable.

The actuarial amount of annuities payable is the present value of the aggregate liability for annuity payments over the expected lives of the beneficiaries.

Income Taxes The University files U.S. federal and state tax returns. The statute of limitations on the University's federal returns generally remains open for three years following the year they are filed. In accordance with ASC 740 Income Taxes Topic, the University continues to evaluate tax positions and has determined there is no material impact on the University financial statements.

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Notes to Consolidated FinancialStatements Recent Accounting Pronouncements In August 2010, the FASB issued ASU 2010-24, Health Care Entities (Topic 954): Presentation of Insurance Claims and Related Insurance Recoveries,-which clarifies that a health care entity should not net insurance recoveries against a related claim. The adoption, effective July 1, 2011, had no impact on financial condition, results of operations or, cash flows. An insurance recovery receivable was recorded as of June 30, 2012 in the amount of $23.0 million with $2.8 million included in prepaid expense and other assets and $20.2 million in other noncurrent assets with a corresponding increase to accrued malpractice loss reserves included in other liabilities.

In July 2010, the FASB issued ASU 2010-23, Health Care Entities (Topic 954): Measuring Charity Care for Disclosure a consensus of the FASB Emerging Issues Task Force,which prescribes specific measurement basis of charity care for disclosure. The adoption, effective July 1, 2011, had no impact on financial condition, results of operations or cash flows.

In July 2011, the FASB issued ASU 2011-07, Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Entities, which requires health care entities to present the provision for doubtful accounts related to patient service revenue as a deduction from patient service revenue in the statement of operations and changes in net assets rather than as an operating expense. Additional disclosures relating to sources of patient revenue and the allowance for doubtful accounts related to patient accounts receivable are also required. Such disclosures are shown within the accounts receivable section of this footnote. The University has adopted these provisions of ASU 2011-07 effective June 30, 2012. The adoption of this ASU had no impact on financial condition, results of operations or cash flows.

In September 2011, the FASB issued ASU 2011-08, Intangibles- Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two step goodwill impairment test described in Topic 350. The guidance provided in this ASU is effective for annual tests performed for fiscal years beginning after December 15, 2011. The adoption of this standard on July 1, 2012 is not expected to have any impact on financial condition, results of operations or cash flows.

3. INVESTMENTS Investments by major category as of June 30 are summarized as follows:

(in thousands of dollars) 2012. 2011 Money markets $ 251,782 $ 172,027 Fixed income:

U.S. government/agency 1,230,097 892,659 U.S. corporate 639,456 524,413 Foreign 219,852 188,741 Other 108,140 306,152 Equities 887,826 918,265 Private capital 714,397 661,131 Investments held under securities lending program - 219,524 Total $ 4.051.550 $ 3882912 Other fixed income investments consist of collateralized mortgage obligations, mortgage-backed securities and asset-backed securities. Equity investments are comprised of domestic and foreign common stocks. Private capital consists primarily of interests in private real estate, venture capital, private equity, natural resources, private debt, and hedge fund limited partnerships.

Futures contracts, which are fully cash collateralized, comprise the University's directly held derivative instruments at June 30, 2012 and 2011, respectively, are marked to market daily and are included in the fair 18

Notes to ConsolidatedFinancialStatements value of the University's investments The fair value of derivative instruments is included in the fair value of the University's investments within the money market category. Futures contracts have minimal credit risk because the counterparties are the exchanges themselves: Fully cash collateralized derivative securities comprised approximately 4.3% and 2.8% of total investments at June 30, 2012 and 2011.

Through an agreement with its primary investment custodian, the University participated in lending securities to brokers. Collateral was generally limited to cash, government securities, and irrevocable letters of credit.

Both the investment custodian and the security borrowers had the right to terminate a specific loan of securities at any time. The University received lending fees and continued to earn interest and dividends on the loaned securities. At June 30 2011, the University held $219.5 million of short-term highly liquid investments as collateral deposits for the securities lending program. The collateral is included as an asset and the obligation to return such collateral is presented as a liability in the consolidated statements of financial position. The securities on loan had an estimated fair value of $214.5 million at June 30, 2011. Effective September 7, 2011, the University is no longer participating in the securities lending program.

The following schedules summarize the investment return and its classification in the consolidated statement of activities for the years ended June 30:

(in thousands of dollars) Temporarily Permanently 2012 Unrestricted Restricted Restricted Total Dividends and interest $ 97,015 $ 553 $ 5,125 $ 102,693 Net realized gains/(losses) 44,212 (12,172) - 32,040 Net unrealized gains/(losses) 5,343 (15,623) - (10,280)

Total returns $ 146;570 $ (27.242 L*1 =2A453 (in thousandsof dollars) Temporarily Permanently 2011 Unrestricted Restricted Restricted Total Dividends and interest $ 88,383 $ 284 $ 6,190 $ 94,857 Net realized gains 75,676 14,060 - 89,736 Net unrealized gains 86,567 163,481 250,048 Total returns $ 250,626 $ 177.825 $$6 90 $ 434.641

4. ENDOWMENT NET ASSETS The University's endowment includes both donor-restricted endowment funds and funds designated to function as endowments. As required by GAAP, net assets associated with endowment funds, including funds designated to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions.

The ASC Not-for-Profit Entities Presentation of Financial Statements Subtopic (ASC Subtopic 958-205) provides guidance on the net asset classification of donor-restricted endowment -funds for not-for-profit organizations subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act

("UPMIFA") and improves disclosure about an organization's endowment funds regardless of whether the organization is subject to UPMIFA. The Commonwealth of Pennsylvania has not adopted UPMIFA but rather has enacted Pennsylvania Act 141 ("PA Act 141"). PA Act 141 permits an organization's trustees to define income as a stipulated percentage of endowment assets (between 2% and 7% of the fair value of the assets averaged over a period of at least three preceding years) without regard to actual interest, dividend, or realized and unrealized gains.

The University has interpreted PA Act 141 to permit the University to spend the earnings of its endowment based on a total return approach, without regard to the fair value of the original gift. As a result of this interpretation, the University classifies as permanently restricted net assets the original value of gifts donated to the permanent endowment, the original value of subsequent gifts to the permanent endowment, and accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. Funds functioning as endowments are established at the direction of University management and are classified as unrestricted net assets due 19

Notes to ConsolidatedFinancialStatements to the lack of external donor restrictions. Gains and losses attributable to permanent endowments are recorded as temporarily restricted net assets and gains and losses attributable to funds functioning as endowments are recorded as unrestricted net assets.

From time to time, due to unfavorable market fluctuations, the fair value of some assets associated with individual donor-restricted endowment funds may fall below the level that donors require to be retained as a perpetual fund, while other assets are unaffected to the same extent and maintain or exceed the level required. The aggregate amount of deficiencies at June 30, 2012 and 2011 was $4.9 million and $3.3 million, respectively, reported in unrestricted net assets on the consolidated statement of activities. Subsequent investment gains will be used to restore the balance up to the fair market value of the original gift. Subsequent gains above that amount will be recorded as temporarily restricted net assets.

Endowment net asset composition by type of fund as of June 30:

(in thousands of dollars) Temporarily Permanently 2012 Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ (4,935) $ 284,539 $ 1,001,580 $ 1,281,184 Funds functioning as endowments 491,737 491,737

$ 486,802 $ 1.772..92 Total net assets (in thousands of dollars) Temporarily Permanently 2011 Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ (3,261) $ 314,769 $ 951,006 $ 1,262,514 Funds functioning as endowments 475,329 - 475,329 Total net assets $ 472,068 $ 314.769 951.06 $ 1,737,843 Changes in endowment net assets for the years ended June 30:

(in thousandsof dollars) Temporarily Permanently 2012 Unrestricted Restricted Restricted Total Endowment net assets, beginning of the year $ 472,068 $ 314,769 $ 951,006 $ 1,737,843 Endowment return:

Endowment earnings 37,712 74 3,109 40,895 Net realized gains/(losses) 33,131 (12,229) 20,902 Net unrealized losses (4,444) (20,754) (25,198)

Reclassification of funds with deficiencies (1,674) 1,674 Total endowment return 64,725 (31,235) 3,109 36,599 Contributions 1,005 47,465 48,470 Endowment spending (70,843) (70,843)

Transfers to create funds functioning as endowments 20,852 20,852 Endowment net assets, end of the year 20

Notes to ConsolidatedFinancialStatements (in thousands of dollars) Temporarily Permanently 2011 Unrestricted Restricted Restricted Total Endowment net assets, beginning of the year $ 329,679 $ 157,325 $ 863,312- $ 1,350,316 Endowment return:

Endowment earnings 37,425 48 3,081 40,554 Net realized gains 28,539 13,318 41,857 Net unrealized gains 66,659 171,629 238,288 Reclassification of funds with deficiencies 28,401 (28,401) -

Total endowment return 161,024 156,594 3,081 320,699 Contributions - 850 84,613 85,463 Endowment spending (65,964) - (65,964)

Transfers to create funds functioning as endowments 47,329 - 47,329 Endowment net assets, end of the year $ 472,068 $ 314769 $ 951006 $ 1.737.843 The University has adopted investment and spending policies for endowment assets that attempt to provide a relatively predictable stream of funding to programs supported by its endowment while seeking to maintain, over time, the purchasing power of the endowment assets. The overall management objective for the University's pooled endowment funds is to preserve or grow the real (inflation-adjusted) purchasing power of the assets through a prudent long-term investment strategy. This objective would be achieved on a total return basis. Under these policies, as approved by the Board of Trustees and the Penn State Investment Council, the primary investment objective of the University's pooled endowment is to attain a real total return (net of investment management fees) that at least equals a total annual effective spending rate of 5.25% (program spending of 4.5% plus administrative costs of 0.75%) over the long term.

To satisfy its long-term rate-of-return objectives, the University relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The University targets diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. The endowment assets of the University are invested in a broad range of equities and fixed income securities, thereby limiting the market risk exposure in any one institution or individual investment.

The University has a policy of appropriating for distribution each year a certain percentage (4.5% for 2012 and 2011) of its pooled endowment fund's average fair market value over the prior five years preceding the fiscal year in which the distribution is planned. Accordingly, over the long term, the University expects the current spending policy to allow its endowment to provide generous current spending while preserving "intergenerational equity". This is consistent with the University's objective to maintain the purchasing power of the endowment assets held in perpetuity as well as to provide additional real growth through new gifts and investment returns.

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Notes to ConsolidatedFinancialStatements

5. FAIR VALUE MEASUREMENTS The University utilizes the following fair value hierarchy, which prioritizes into three broad levels, the inputs to valuation techniques used to measure fair value:

Level 1 - Quoted prices (unadjusted) for identical assets or liabilities in active markets as of the measurement date; Level 2 - Inputs other than unadjusted quoted prices that are observable for the asset or liability, directly or indirectly, including quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived from observable market data by correlation or other means.

Level 3 - Unobservable inputs that cannot be corroborated by observable market data.

In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The University's assessment of significance of a particular item to the fair value measurement in its entirety requires judgment, including consideration of inputs specific to the asset.

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Notes to ConsolidatedFinancialStatements The following table presents information as of June 30, 2012 about the University's financial assets and liabilities that are measured at fair value on a recurring basis:

Quoted Prices in Significant Active Markets Other Significant For Identical Observable Unobservable Assets Inputs Inputs Total (in thousands of dollars) Level 1 Level 2 Level 3 Fair Value Assets:

Long-term Investment Pool:

Money markets $ - $ 228,931 $ $ 228,931 Fixed income U.S. government/agency 108,848 11,700 120,548 U.S. corporate 4,263 84,240 88,503 Foreign 17,930 43,471 61,401 Other 7,465 7,465 Equities 600,109 208,043 808,152 Private capital 100,177 607,407 707,584 Total 684,027 $ 607,407Z $ 2,022,584 Operating investments:

Money markets 22,635 $ 216 $ $ 22,851 Fixed income U.S. government/agency 607,895 501,529 125 1,109,549 U.S. corporate 9,661 541,292 550,953 Foreign 3,679 154,772 158,451 Other 98,207 2,468 100,675 Equities 77,435 867 1,372 79,674 Private capital 6,813 6,813 Total $ 721,305 $ 10,778 $ 2.028.9 Deposits held by bond trustees:

Fixed income U.S. government/agency $ 2,551

$ 2,.551 $ 2,55 Total Beneficial interest in perpetual trusts $ - $ - $ 12,891 $ 12,891 Liabilities:

Present value of annuities payable $ - $ - $ 43,167 $ 43,167 23

Notes to ConsolidatedFinancialStatements The following table presents information as of June 30, 2011 about the University's financial assets and liabilities that are measured at fair value on a recurring basis:

Quoted Prices in Significant Active Markets Other Significant For Identical Observable Unobservable Assets Inputs Inputs Total (in thousands of dollars) Level 1 Level 2 Level 3 Fair Value Assets:

Long-term Investment Pool:

Money markets 4,897 $ 124,806 $ $ 129,703 Fixed income U.S. government/agency 68,454 23,580 92,034 U.S. corporate 3,388 103,733 107,121 Foreign 1,004 42,186 43,190 Other 13,770 13,770 Equities 578,847 262,730 841,577 Private capital 134,587 520,605 655,192 Total $ 520,605 $ 1,882,587

$ 705,392 Operating investments:

Money markets 23,662 $ 18,662 $ $ 42,324 Fixed income U.S. government/agency 400,147 400,365 113 800,625 U.S. corporate 11,158 406,134 417,292 Foreign 4,135 141,416 145,551 Other 290,216 2,166 292,382 Equities 75,142 519 1,027 76,688 Private capital 5,939 5,939 Total $ 514,244 $ 9,245 $ 1,780,801 Investments held under securities lending program $ - $ - $ 219,524 $ 219,524 Deposits held by bond trustees:

Money markets $ 54,905 $ $ 54,905 Fixed income U.S. government/agency 4,746 4,746 4,746 $ 59,651 Total Beneficial interest in perpetual trusts $ $ - $ 12,843 $ 12,843 Liabilities:

Present value of annuities payable $ - $ 44,425 $ 44,425 Liability under securities lending program - $ 219,524 $ 219,524 24

Notes to ConsolidatedFinancialStatements The Long-term Investment Pool (LTIP) is a mutual fund-like vehicle used for investing the University's endowment funds, funds functioning as endowments, and other operating funds that are expected to be held long-term. A share method of accounting for the LTIP is utilized by the University. Each participating fund enters into and withdraws from the LTIP basedon monthly share values. At June 30, 2012 and 2011, fair value of endowment funds and funds functioning as endowments within the LTIP totaled $1,780.6 million and $1,737.8 million, respectively. At June 30, 2012 and 2011, fair value of operating funds included in the LTIP totaled $242.0 million and $144.8 million, respectively.

The following tables present information related to changes in Level 3 for each category of assets and liabilities for year ended June 30, 2012:

Investments Held Under Beneficial (in thousands of dollars) Long-term Operating Securities Interest in Investment Pool Investments Lending Perpetual Trusts Assets:

Beginning balance $ 520,605 $ 9,245 $ 219,524 $ 12,843 Total realized and unrealized gains 22,361 1,150 48 Purchases 133,811 417 Sales (69,370) (36) (219,524)

Transfers into Level 3 2 Ending balance $ 607.407 $ 10,778 Present Value Liability Under of Annuities Securities Payable Lending Liabilities:

Beginning balance $ 44,425 $ 219,524 Actuarial adjustment of liability (1,860)

Gifts 722 Sales (120)

Withdrawal from program (219,524)

Ending balance $ 43,167 The following tables present information related to changes in Level 3 for each category of assets and liabilities for year ended June 30, 2011:

Investments Held Under Beneficial (in thousands of dollars) Long-term Operating Securities Interest in Investment Pool Investments Lending Perpetual Trusts Assets:

Beginning balance $ 413,870 $ 8,667 $ 249,959 $ 11,400 Total realized and unrealized gains/(losses) 97,994 (196) 1,443 Purchases 45,106 1,802 Sales (36,365) (250) (30,435)

Transfers out of Level 3 (778)

Ending balance $ 9,245 $ 12.843

$ 219,524 Present Value Liability Under of Annuities Securities Payable Lending Liabilities:

Beginning balance $ 36,423 $ 249,959 Actuarial adjustment of liability 2,680 Gifts 5,322 Sales (30,435)

Ending balance $ 44,425 $ 219,2 25

Notes to ConsolidatedFinancialStatements The following table presents the fair value and redemption frequency for those investments whose fair value is not readily determinable and is estimated using the net asset value per share or its equivalent as of June 30, 2012:

Unfunded Redemption Redemption (in thousands of dollars) Fair Value Commitment Frequency Notice Period Commingled Funds:

Non-U.S. Equity $ 148,068 Daily/Monthly 5-15 days Subtotal $ 148,068 Marketable Investment Partnerships:

Absolute Return $ 20,738 Quarterly 65 days Quarterly/

Private Debt/Distressed 60,101 Semi Annual 60-90 days Opportunistic 25,034 Quarterly 30 days Directional Long/Short 69,324 Quarterly 30-90 days Subtotal $ 175,197 Non-Marketable Investment Partnerships:

Private Real Estate -$ 86,567 $ 22,407 Venture Capital 129,354 92,911 Private Equity ' 229,766 80,808 Natural Resources 74,782 33,364 Private Debt 12,656 15,700 Subtotal $ 533,125 $ 245,190 Total $ 856,390 $ 2451 The following table presents the fair value and redemption frequency for those investments whose fair value is not readily determinable and is estimated using the net asset value per share or its equivalent as of June 30, 2011:

Unfunded Redemption Redemption (in thousands of dollars) Fair Value Commitment Frequency Notice Period Commingled Funds:

Non-U.S. Equity $ 201,602 Daily/Monthly 5-15 days Subtotal $ 201,602 Marketable Investment Partnerships:

Absolute Return $ 23,691 Quarterly 60 days Quarterly/

Private Debt 61,084 Semi Annual 60-90 days Directional Long/Short 79,756 Quarterly 30-65 days Subtotal $ 164,531 Non-Marketable Investment Partnerships:

Private Real Estate $ 79,978 $ 20,394 Venture Capital 95,009 91,759 Private Equity 227,632 83,398 Natural Resources 68,094 38,224 Private Debt 21,232 5,800 Subtotal $ 491,945 $ 239,575 Total Commingled funds include investments that aggregate assets from multiple investors and are managed collectively following a prescribed strategy. Redemptions vary from daily to monthly with required notification of 15 days or less. The non-U.S. equity strategy is invested in developed and developing 26

Notes to ConsolidatedFinancialStatements countries outside of the United States, and spans the entire equity capitalization spectrum. These collective portfolios preclude the need to obtain securities registration in foreign countries.

Marketable Investment Partnerships include several hedge funds whose underlying positions are traded via public securities markets. Liquidity terms range from quarterly to annually with advance notification for redemption ranging from 30 to 90 days. Three newly funded partnerships have initial one-year lock ups with quarterly redemptions thereafter. The fair values of the investments for each fund in this category have been estimated using the net asset value of the ownership interest in partner's capital. Four major investment strategies are included within this category. Absolute Return refers to relative value strategies in long/short credit. Directional refers to equity long/short strategies in both U.S. and non-U.S. markets. Opportunistic refers to global multi-strategy. Private Debt/Distressed refers to securities rated below investment grade, along with non-rated debt.

Nonmarketable Investment Partnerships include limited partnership interests in a variety of illiquid investments. The fair values of the investments for each fund in this category have been estimated using the net asset value of the ownership interest in partner's capital and cannot be redeemed. Realizations from each fund are received as the underlying investments are liquidated or distributed, typically within 10 years after initial commitment. Unfunded commitments represent remaining commitments for which capital calls have not been exercised as of June 30, 2012 and 2011, respectively. Five major investment strategies are included within this category. Private Real Estate includes properties primarily located in the U.S. Venture Capital includes non-public startups and enterprises in early stages of growth located globally. Private Equity includes buyouts of previously public companies as well as enterprises that are planning to go public in the near future, including funds focusing on opportunities outside the U.S. Natural Resources largely include companies primarily involved in oil and natural gas in addition to a variety of other natural resources. Private Debt includes global private credit securities rated below investment grade as well as non-rated debt.

6. CONTRIBUTIONS RECEIVABLE Contributions receivable are summarized as follows as of June 30:

(in thousands of dollars) 2012 2011 In one year or less $ 75,753 $ 76,640 Between one year and five years 53,998 92,869 More than five years 118,130 125,732 247,881 295,241 Less allowance (7,739) (6,107)

Less discount (55,729) (62,065)

Contributions receivable, net $ 184,413 $ 227.069 Contributions receivable are discounted at rates ranging from 0.21% to 2.06% and 0.19%,to 3.57% at June 30, 2012 and 2011, respectively. The discount rates for prior periods ranged from 0.19% to 6.28%.

At June 30, 2012 and 2011, the University has received bequest intentions and certain other conditional promises to give of $69.0 million and $58.1 million, respectively. These intentions and conditional promises to give are not included in the consolidated financial statements.

The following table summarizes the change in contributions receivable, net during the year ended June 30, 2012:

(in thousands of dollars)

Balance beginning of year $ 227,069 New pledges 22,501 Collections on pledges (69,861)

Increase in allowance (1,632)

Decrease in unamortized discounts 6,336 Balance at the end of year 184,413 27

Notes to ConsolidatedFinancialStatements

7. LONG-TERM DEBT The various bond issues and capital lease obligations that are included in long-term debt in the statements of financial position consist of the following at June 30:

(in thousandsof dollars) 2012 2011 The Pennsylvania.State University Bonds Series 2010 $ 135,035 $ 135,035 Series 2009A 120,075 125,850 Series 2009B 74,235 74,235 Series 2008A 77,670 77,670 Series 2008B 4,890 5,775 Series 2007A 88,645 89,150

.Series 2007B 66,255 68,880 Series 2005 87,665 89,560 Series 2004A 54,135 55,385 Refunding Series 2003 15,890 18,140 Series of 2002 100,000 100,000 Refunding Series 2002 56,540 70,670 Pennsylvania Higher Educational Facilities Authority University Revenue Bonds (issued for The Pennsylvania State University)

Series 2006 3,745 3,940 Series 2004 4,145 4,375 Series 2002 4,375 4,720 Lycomincq County Authority Collegqe Revenue Bonds (issued for Penn College)

Series 2012 24,685 Series 2011 39,050 39,050 Series 2008 55,000 55,000 Series 2005 12,020 12,875 Series 2002 28,550 Series 1993 7,000 8,750 Total bonds payable 1,031,055 1,067,610 Unamortized bond premiums 41,317. 42,203 Capital lease obligations 80,334 79,845 Total long-term debt $ 1.152.706 $ 1,189,658 28

Notes to ConsolidatedFinancialStatements Interest rate Debt issuance mode Interest rates Payment rances and maturity (in thousands of dollars)

The Pennsylvania State University Bonds

$3,655 to $6,595 through March 2030 with $21,805 and $44,245 due March Series 2010 Fixed 3.375% - 5.00% 2035 and 2040 Series 2009A Fixed 4.00% - 5.00% $6,000 to $9,320 through March 2029 Series 2009B Variable 0.22% June 2031 Series 2008A Fixed 5.00% $1,840 to $7,695 through August 2029 Series 2008B Fixed 3.25% - 3.75% $910 to $1,050 through August 2016

$520 to $700 through August 2022, with

$11,115 and $70,905 due August 2028 Series 2007A Fixed 3.65% - 4.50% and 2036 Series 2007B Fixed 5.00% - 5.25% $2,740 to $5,955 through August 2027

$1,965 to $2,745 through September 2019 with $15,990, $20,550, and $32,485 Series 2005 Fixed 3.30% - 5.00% due September 2024, 2029, and 2035

$1,300 to $1,825 through September 2019, with $10,625, $13,635, and $17,515 Series 2004A Fixed 4.50% - 5.00% due September 2024, 2029, and 2034 Refunding Series 2003 Fixed 4.00% - 5.25% $2,360 to $2,970 through March 2018 Series of 2002 Variable 0.15% March 2032 Refunding Series 2002 Fixed 5.25% $4,585 to $16,540 through August 2016 Pennsylvania Higher Education Facilities Authority ("PHEFA") University Revenue Bonds

$200 to $280 through 2020, with $1,610 Series 2006 Fixed 3.90% - 5.125%* due September 2025

$240 to $325 through 2019, with $1,905 Series 2004 Fixed 4.00% - 5.00%* due September 2024

$355 to $425 due through 2017, Series 2002 Fixed 4.20% - 5.00%* with $2,435 due March 2022

• Annual interest costs to the University for interest rates greater than 3.00% are subsidized by PHEFA.

Lycoming County Authority College Revenue Bonds Series 2012 Fixed 2.00% - 5.00% $410 to $2,635 through May 2032 Series 2011 Fixed 3.00% - 5.50% $70 to $5,230 through July 2030 Series 2008 Fixed 3.50% - 5.50% $1,455 to $4,140 through October 2037 Series 2005 Fixed 4.00% - 5.00% $505 to $1,855 through January 2025 Series 2002 Fixed 4.40% - 5.25% Paid in full during 2012 Series 1993 Fixed 6.10% - 6.15% $450 to $544 through November 2015 The Series 2012 bonds are Lycoming County Authority (the "Authority") College Revenue Bonds issued by Penn College in May 2012 for the purpose of refinancing $28.1 million of the Authority's College Revenue Bonds Series 2002. The Series 2002 bonds were paid in full during 2012.

The Series 2011 bonds are Lycoming County Authority (the "Authority") College Revenue Bonds issued by Penn College in June 2011 for the purpose of refunding $39.3 million of the Authority's College Revenue Bonds Series 2000. The Series 2000 bonds were paid in full during 2011.

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Notes to ConsolidatedFinancialStatements The Series 2009B Bonds are currently paying interest on a variable rate basis at a long term rate for the period June 1, 2012 through May 31, 2013. The University has the option to convert to another variable rate (daily, weekly, monthly or flexible) or to a fixed rate basis (such rates are generally determined on a market basis) at respective conversion dates. The bonds currently pay interest at 0.22% with adjustment on the respective date to the rate the remarketing agent believes will cause the bonds to have a market value equal to the principal.

The 2009B bondholders have the right to tender bonds on the purchase dates while such bonds bear interest at the daily, weekly or monthly rate. The 2009B Bonds were issued subject to the self-liquidity program established by the University on the date of issuance pursuant to which the University will provide liquidity for the 2009B Bonds from its general funds in the event of insufficient remarketing proceeds.

The Series of 2002 bonds currently pay interest on a variable rate basis in the weekly mode; however, the University has the option to convert to another variable rate (daily, monthly, flexible, semiannual or long mode) or to a fixed rate basis. The bonds currently pay interest at 0.15% with adjustment on a weekly basis to the rate the remarketing agent believes will cause the bonds to have a market value equal to the principal amount up to a maximum of 12%. The bondholders have the right to tender bonds at interest rate reset dates. The University, therefore, entered into standby bond purchase agreement with a bank to provide liquidity in case of tender. The bonds are not subject to sinking fund redemption; however, the University has the option to redeem the bonds prior to their scheduled maturity.

Maturities and sinking fund requirements on bonds payable for each of the next five fiscal years and thereafter are summarized as follows:

Annual Year Installments (in thousandsof dollars) 2013 $ 34,160 2014 35,785 2015 37,910 2016 27,000 2017 31,600 Thereafter 864,600

$1.031.055 The fair value of the University's bonds payable is estimated based on current rates offered for similar issues with similar security, terms and maturities using available market information as supplied by the various financial institutions who act as trustees or custodians for the University. At June 30, 2012, the carrying value and estimated fair value of the University's bonds payable, including issuance premiums, are $1,072.4 million and

$1,118.5 million, respectively. At June 30, 2011, the carrying value and estimated fair value of the University's bonds payable, including issuance premiums, were $1,109.8 million and $1,121.5 million, respectively. Certain bond issues have associated issuance premiums, these issuance premiums total $41.3 million and $42.2 million at June 30, 2012 and 2011, respectively and are presented within the statement of financial position as long-term debt. These issuance premiums will be amortized over the term of the respective outstanding bonds.

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Notes to Consolidated FinancialStatements Capital leases The University has certain building and equipment lease agreements in effect which are considered capital leases. Future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of June 30, 2012 are as follows:

Year (in thousandsof dollars) 2013 $ 13,116 2014 11,220 2015 10,035 2016 9,166 2017 8,379 Thereafter 140,994 Total minimum lease payments 192,910 Less imputed interest (112,576)

Capital lease obligation 80,334 Current portion 7,820 Long-term portion $ 72,514

8. OPERATING LEASES The University has certain lease agreements in effect which are considered operating leases. During the year ended June 30, 2012, the University recorded expenses of $19.0 million for leased equipment and $23.6 million for leased building space. During the year ended June 30, 2011, the University recorded expenses of

$20.0 million for leased equipment and $21.6 million for leased building space.

Future minimum lease payments under operating leases as of June 30, 2012 are as follows:

Year (in thousands of dollars) 2013 $ 17,416 2014 14,409 2015 12,138 2016 9,888 2017 9,000 Thereafter 47,126 Total minimum lease payments $_109.977

9. RETIREMENT BENEFITS The University provides retirement benefits for substantially all regular employees, primarily through either contributory defined benefit plans administered by the Commonwealth of Pennsylvania State Employees' Retirement System and The Public School Employees' Retirement System or defined contribution plans administered by the Teachers Insurance and Annuity Association - College Retirement Equity Fund and Fidelity Investments. The University is billed for its share of the estimated actuarial cost of the defined benefit plans ($25.1 million and $14.8 million for the years ended June 30, 2012 and 2011, respectively). The University's total cost for retirement benefits, included in expenses, is $130.9 million and $118.7 million for the years ended June 30, 2012 and 2011, respectively.

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Notes to ConsolidatedFinancialStatements

10. POSTRETIREMENT BENEFITS The University sponsors a retiree medical plan covering eligible retirees and eligible dependents. This program includes a Preferred Provider Organization ("PPO") plan for retirees and their dependents who are not eligible for Medicare, a Medicare Advantage PPO plan and a Medicare Supplement plan. In addition, the University provides retiree life insurance benefits at no cost to the retiree.

Employees who were hired prior to January 1, 2010 are eligible for medical coverage and life insurance after they retire if either of the following requirements are satisfied:

• they are at least age 60 and have at least 15 years of regular full-time employment and participation in a University-sponsored medical plan immediately preceding the retirement date

• regardless of age, if they have at least 25 years of regular full-time service. The last 10 of those 25 years of University service must be continuous and they must participate in a University -sponsored medical plan during the last 10 years immediately preceding the retirement date.

The retiree PPO medical plan and the life insurance coverage are self-funded programs, and all medical claims, death benefits and other expenses are paid from the unrestricted net assets of the University. The Medicare Advantage PPO plan and the Medicare Supplement plan are fully insured. The retirees pay varying amounts for coverage under the medical plan.

For those employees who were hired after December 31, 2009, the University will contribute funds each month on their behalf to a retirement healthcare savings plan. This plan is designed to help pay for qualified medical and health-related expenses in retirement, including the purchase of a health insurance policy.

Retirees will be eligible to access their Penn State Retirement Savings Account when they are no longer actively employed at Penn State and have satisfied either of the following requirements:

• completed,25 years of continuous full-time service and are age 60 or older

• completed a minimum of 15 years of continuous full-time service and are age 65 or older.

Included in unrestricted net assets at June 30, 2012 and 2011 are the following amounts that have not yet been recognized in net periodic postretirement cost: unrecognized prior service cost (benefit) of ($108.0) million and ($129.7) million and unrecognized actuarial loss of $852.7 million and $579.1 million, respectively.

The following sets forth the plan's benefit obligation, plan assets and funded status reconciled with the amounts recognized in the University's consolidated statements of financial position at June 30:

Change in benefit obligation:

(in thousands of dollars) 2012 2011 Benefit obligation at beginning of year $ 1,479,043 $ 1,290,787 Service cost 45,124 57,030 Interest cost 80,779 76,285 Actuarial gain (15,784) (58,555)

Benefits paid (42,813) (37,849)

Plan assumptions 318,550 151,345 Benefit obligation at end of year $ 1.864,899 $ 1,479,4 32

Notes to Consolidated FinancialStatements Change in plan assets:

(in thousandsof dollars) 2012 2011 Fair value of plan assets at beginning of year $

Employer contributions 42,813 37,849 Benefits paid (42,813) (37,849)

Fair value of plan assets at end of year Funded status $ (1,864,899) $ (1,479,043)

Unrecognized prior service cost (benefit)

Unrecognized net actuarial loss Accrued postretirement benefit expense $ (1,864,899) $ (1.479.043)

Net periodic postretirement cost includes the following components for the years ended June 30:

(in thousands of dollars) 2012 2011 Service cost $ 45,124 $ 57,030 Interest cost 80,779 76,285 Amortization of prior service cost (21,699) (21,673)

Amortization of unrecognized net loss 29,178 35,497 Net periodic postretirement cost $ 133,%382 $ 147 The assumed healthcare cost trend rate used in measuring the accumulated postretirement benefit obligation was 8.50% and 9.00% for the years ended June 30, 2012 and 2011, respectively, reduced by 0.50% per year to a fixed level of 5.00%. The weighted average postretirement benefit obligation discount rate was 4.50%

and 5.75% for the years ended June 30, 2012 and 2011, respectively.

If the healthcare cost trend rate assumptions were increased by 1% in each year, the accumulated postretirement benefit obligation would be increased by $595.2 million and $448.6 million as of June 30, 2012 and 2011, respectively. The effect of this change on the sum of the service cost and interest cost components of the net periodic postretirement benefit cost would be an increase of $42.2 million and $46.1 million as of June 30, 2012 and 2011, respectively. If the healthcare cost trend rate assumptions were decreased by 1% in each year, the accumulated postretirement benefit obligation would be decreased by $327.0 million and

$242.6 million as of June 30, 2012 and 2011, respectively. The effect of this change on the sum of the service cost and interest cost components of the net periodic postretirement benefit cost would be a decrease of

$23.1 million and $25.3 million as of June 30, 2012 and 2011, respectively.

Gains and losses in excess of 10% of the accumulated postretirement benefit obligation are amortized over the average future service to assumed retirement of active participants.

Postretirement benefits expected to be paid for the years ended June 30 are as follows:

(in thousands of dollars) 2013 $ 48,813 2014 52,678 2015 56,915 2016 61,217 2017 65,535 2018-22 386,329 33

Notes to ConsolidatedFinancialStatements

11. THE MILTON S. HERSHEY MEDICAL CENTER AND PENN STATE HERSHEY HEALTH SYSTEM The University's wholly-owned subsidiary, TMSHMC, owns the assets of the clinical enterprise of the Hershey Medical Center complex. The University owns the Hershey Medical Center complex, including all buildings and land occupied by the Medical Center and operates the College of Medicine. The clinical facilities of the Hershey Medical Center complex are leased to TMSHMC and TMSHMC makes certain payments to support the College of Medicine.

The Health System is a corporate investor in healthcare joint ventures, which are supportive of the missions of the Medical Center. The Health System was organized in 1995 as a wholly-owned subsidiary of the Corporation for the purpose of organizing components of an integrated health care delivery system. The Health System recorded non-controlling interest related to the acquisition of additional ownership interest in a joint venture. This noncontrolling interest is recorded in the net assets within the consolidated statements of financial position with a value at June 30, 2012 and 2011 of $774,000 and $694,000, respectively.

12. CONTINGENCIES AND COMMITMENTS Contractual Obligations The University has contractual obligations for the construction of new buildings and for additions to existing buildings in the amount of $759.7 million of which $552.7 million has been paid or accrued as of June 30, 2012. The contract costs are being financed from available resources and from borrowings.

Letters of Credit The University has available letters of credit in the amount of $18.2 million and $16.0 million as of June 30, 2012 and 2011, respectively. These letters of credit are used primarily to comply with minimum state and federal regulatory laws that govern various University activities. The fair value of these letters of credit approximates contract values based on the nature of the fee arrangements with the issuing banks.

Guarantees The University has a contract with a third party whereby the third party acts as an agent of the University in connection with procurement of electricity. The University guarantees the payment of the obligations of the third party incurred on behalf of the University to counterparties. No liabilities related to guarantees have been recorded as of June 30, 2012.

Self-Insurance The University has a coordinated program of commercial and self-insurance for medical malpractice claims at TMSHMC through the use of a qualified trust and a domestic captive insurance company in combination with a self-insured retention layer and is supplementing this program through participation in the Pennsylvania Medical Care Availability and Reduction of Error Fund ("Mcare Fund"), in accordance with Pennsylvania law.

An estimate of the present value, discounted at 2% and 3% at June 30, 2012 and 2011, respectively, of the medical malpractice claims liability in the amount of $101.1 million and $66.6 million is recorded as of June 30, 2012 and 2011, respectively.

On July 1, 2003, TMSHMC became self-insured for all medical malpractice claims asserted on or after July 1, 2003, for all amounts that are below the coverage of the TMSHMC's excess insurance policies and not included in the insurance coverage of the Mcare Fund. Under the self-insurance program, TMSHMC is required to maintain a malpractice trust fund in an amount at least equal to the expected loss of known claims.

The balance of this trust fund was $21.3 million and $21.0 million at June 30, 2012 and 2011, respectively.

TMSHMC intends to fund any claims due during the next year from cash flows from operations.

34

Notes to ConsolidatedFinancialStatements With approval from the Pennsylvania Department of Labor and Industry ("PA-DLI"), the University elected to self-insure potential obligations applicable to workers' compensation. Certain claims under the program are contractually administered by a private agency. The University purchased insurance coverage for excess obligations over $600,000 per incident. An estimate of the self-insured workers' compensation claims liability in the amount of $12.4 million and $13.1 million, discounted at 1.25%, is recorded as of June 30, 2012 and 2011, respectively. The University has established a trust fund, in the amount of $12.7 million and $12.4 million at June 30, 2012 and 2011, respectively, as required by PA-DLI, to provide for the payment of claims under this self-insurance program. TMSHMC is self-insured for workers' compensation claims and has purchased an excess policy through a commercial insurer which covers individual claims in excess of

$500,000 per incident for workers' compensation claims.

The University and TMSHMC are self-insured for certain health care benefits provided to employees. The University and TMSHMC have purchased excess policies which cover employee health benefit claims in excess of $500,000 and $350,000 per employee per year, respectively. The University and TMSHMC provide for reported claims and claims incurred but not reported.

Litigation and Contingencies In November 2011, the University was made aware of certain allegations in a Commonwealth of Pennsylvania Grand Jury presentment. Various legal proceedings and investigations have arisen as a result of such allegations, including criminal proceedings against a former officer, an administrator and a former employee of the University. Certain civil litigation has been filed against the University with anticipation that other complaints will be filed. The outcome of such litigation and potential for future litigation is unknown at June 30, 2012 and, therefore, no accruals for future costs have been recorded in the 2012 financial statements. Through June 30, 2012, the University has incurred costs, net of insurance reimbursements totaling $16.1 million for internal investigation, legal, communications and other related costs. These costs are included in institutional support within the 2012 consolidated statement of activities.

Insurance reimbursements through June 30, 2012 totaled $779,000.

The University has included $2.0 million in accruals for costs that were incurred but not paid at the balance sheet date. Such accruals are part of the costs, net of insurance reimbursements, noted above and are included in current liabilities. Potential for future insurance reimbursement is unknown as of June 30, 2012 and as a result no revenue accruals have been recorded in the 2012 financial statements.

Based on its operation of the Medical Center (see Note 11), the University, like the healthcare industry, is subject to numerous laws and regulations of federal, state and local governments. Compliance with these laws and regulations can be subject to government review and interpretation, as well as regulatory actions.

Recently, government reviews of healthcare providers for compliance with regulations have increased.

Although the University believes it has done its best to comply with these numerous regulations, such government reviews could result in significant repayments of previously billed and collected revenues from patient services.

Various legal proceedings have arisen in the normal course of conducting University business. The outcome of such litigation is not expected to have a material effect on the financial position of the University, 35

Notes to ConsolidatedFinancialStatements

13. SUBSEQUENT EVENTS The. University, has evaluated subsequent events through October 26, 2012, the date when the financial statements were available to be issued. It did not identify any subsequent events to be disclosed other than thos6 below 6r j)revioLjsly n6ted. y On July 23, 2012, the National Collegiate Athletic Association (NCAA) imposed via an agreed upon binding consent decree certain sanctions against the University. Such sanctions were disclosed in two components: a punitive component and a corrective component. As part of the punitive component, the NCAA imposed a $60 million fine that is. to be paid over a five-year period beginning in 2012. The University has accrued this amount within the 2012 financial statements, with $12 million included in accounts payable 'and other accrued expenses within current liabilities and $48 million in other liabilities within noncurrentliabilities within the consolidated statement of financial position. The total amount is included in auxil.iary enterprise expenses within the 2012 consolidated statement of activities.'

The University is currently under various reviews and investigations by certain external parties, including the United States Department of Education and the Middle States Commission on Higher Education. The outcome of such third party actions is unknown as of the date the financial statements were available to be issued. .

• .3- ,"' -"

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THE PENNSYLVANIA STATE UNIVERSITY BOARD OF TRUSTEES as of June 30, 2012 APPOINTED MEMBERS ELECTED BY BOARD REPRESENTING BY THE GOVERNOR EX OFFICIO BUSINESS AND INDUSTRY ALVINH. CLEMENS THOMAS W. CORBETT JR. JAMES S. BROADHURST Senior Partner Governor Chairman Agility-Partners LLC Commonwealth of Pennsylvania* Eatn Park Hospitality Group, Incorporated MARK H. DAMBLY RODNEY A. ERICKSON KENNETH C. FRAZIER President - President Chairman, President & Chief Executive Officer Pennrose Properties, LLC The Pennsylvania State University Merck & Company, Incorporated MICHAEL F. DIBERARDINIS GEORGE 0. GREIG EDWARD R. HINTZ, JR.

Deputy Mayor for Environmental and Secretary President Community Resources, City of Philadelphia; Pennsylvania Department of Agdcuiture Hintz Capital Management, Incorporated Commissioner, Department of Parks and Recreation RICHARD J. ALLAN KAREN B. PEETZ PETER A. KHOURY Secretary Vice Chairman, CEO of Financial Markets and Graduate Student Pennsylvania Department of Treasury Services, Bank of New York Mellon The Pennsylvania State University Conservation and Natural Resources LINDA B. STRUMPF IRA M. LUBERT RONALD J. TOMALIS Retired Chief Investment Officer Chairman and Co-founder Secretary The Helmsley Charitable Trust Independence Capital Partners and Pennsylvania Department of Education Lubert Adler Partners LP. JOHN P. SURMA

• JENNIFER BRANSTETTER Chairman and Chief Executive Officer PAUL H. SILVIS Govemor's Non-Voting Representative United States Steel Corporation Head Coach Director of Policy and Planning SilcoTek Office of the Governor ELECTED ELECTED BY DELEGATES FROM BY ALUMNI AGRICULTURAL SOCIETIES MARIANNE E. ALEXANDER DAVIDR. JONES KEITH W. ECKEL President Emerita of the Assistant Managing Editor (Retired) Sole Proprietor and President Public Leadership Education Network The New York Times Fred W. Eckel and Sons Farms, Incorporated H. JESSE ARNELLE JOEL N. MYERS SAMUEL E. HAYES, JR.

Attorney President AccuWeather, Incorporated BARRON L. HETHERINGTON STEPHANIE N. DEVINEY Special Advisor to the Governor, Pennsylvania Attorney at Law ANNE RILEY Department of Agriculture, Owner, B & R Farms Fox Rothschild LLP Teacher BETSY E. HUBER STEVE A. GARBAN PAUL V. SUHEY Immediate Past Master, Pennsylvania State Grange Senior Vice President for Finance and Orthopedic Surgeon Operations/Treasurer Emeritus Martin & Suhey Orthopedics KEITH E. MASSER The Pennsylvania State University Chairman & Chief Executive Officer Sterman Masser, Incorporated CARL T. SHAFFER President Pennsylvania Farm Bureau EMERITI TRUSTEES CHARLES C. BROSIUS J. LLOYD HUCK CECILE M.SPRINGER Retired President Retired Chairman of the Board President. Springer Associates Marlboro Mushrooms Merck and Company, Incorporated HELEN D. WISE WALTER J. CONTI EDWARD P. JUNKER III Former Deputy Chief of Staff for Retired Owner Retired Vice Chairman Programs and Secretary of the Cabinet Cross Keys InnfPipersville Inn PNC Bank Corporation Governor's Office DONALD M. COOK, JR. ROGER A. MADIGAN BOYD E. WOLFF Retired President Retired State Senator Retired, Owner and Operator SEMCOR, Incorporated 23rd Senatorial District Wodfden Farms MARIAN U.BARASH COPPERSMITH ROBERT D. METZGAR QUENTIN E. WOOD Retired Chairman of the Board Former President Retired Chairman of the Board and The Barash Group North Penn Pipe & Supply, Incorporated Chief Executive Officer Quaker State Corporation ROBERT M.FREY BARRY K. ROBINSON Attomey-at-Law Chief Counsel for Economic Affairs EDWARD P. ZEMPRELB Frey & riley, RC_ US. Department of Commerce Attorney L J. ROWELL, JR.

Retired Chairman and Chief Executive Officer Provident Mutual Life Insurance

This publication Is available In alternative media on request.

The Pennsylvania State University is committed to the policy that all persons shall have equal access to programs, facilities, admission and employment without regard to personal characteristics not related to ability, performance, or qualifications as determined by University policy or by state or federal authorities. It is the policy of the University to maintain an academic and work environment free of discrimination, including harassment. The Pennsylvania State University prohibits discrimination, harassment against any person because of age, ancestry, color, disability or handicap, genetic information, national origin, race, religious creed, sex, sexual orientation, gender identity or veteran status and retaliation due to the reporting of discrimination or harassment. Discrimination, harassment, or retaliation against faculty, staff or students will not be tolerated at The Pennsylvania State University. Direct all inquiries regarding the nondiscrimination policy to the Affirmative Action Office, The Pennsylvania State University, 328 Boucke Building, University Park, PA 16802-5901, Tel (814) 865-4700/V, (814) 863-0471/'TTY.