ML21362A743
| ML21362A743 | |
| Person / Time | |
|---|---|
| Site: | 07000113 |
| Issue date: | 12/17/2021 |
| From: | Doncsecz J Penn State College of Engineering |
| To: | Richard Jervey NRC/NMSS/DFM/FFLB |
| R JERVEY NRC/NMSS/DFM/FFLB 3014156201 | |
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| Download: ML21362A743 (24) | |
Text
ATTACHMENT A-Penn State University Audited Financial Statements Document transmitted contains confidential financial information - withhold under IO CFR 2.390.
When separated from enclosures this document is uncontrolled.
Penn State Audited Financial Statements The Pennsylvania State University Fiscal Year Ended June 30, 2021
THE PENNSYLVANIA STATE UNIVERSITY UNIVERSITY OFFICERS as of December 17, 2021 ERIC J. BARRON President STEPHEN S. DUNHAM Vice President and General Counsel NICHOLAS P. JONES Executive Vice President and Provost STEPHEN M. MASSINI Chief Executive Officer, Penn State Health SARAF. THORNDIKE Senior Vice President for Finance and Business/Treasurer
CONTENTS Operating Revenues by Source 2
Operating Expenses by Function 3
Letter of Transmittal 5
Independent Auditors' Report 6
Consolidated Financial Statements:
Statement of Financial Position 8
Statement of Activities 10 Statement of Cash Flows 11 Notes to Consolidated Financial Statements 12
OPERATING REVENUES BY SOURCE ($7.3 billion)
For the Year Ended June 30, 2021
($ in millions)
Tuition and fees, net of discount
$1,796.0 (24.7%)
Health System
$3,424.0 (47.0%)
2 Government grants and contracts
$628.5 (8.6%)
Commonwealth of Pennsylvania appropriation
$323.8 (4.4%)
Endowment spending and other investment income
$310.8 (4.3%)
Auxiliary enterprises
$237.3 (3.3%)
Private gifts, grants and
~ --
contracts
$222.8 (3.1%)
Recovery of indirect costs
$204.2 Other sources (2.8%)
$128.2 '
(1.8%)
OPERATING EXPENSES BY FUNCTION ($6.8 billion)
For the Year Ended June 30, 2021
($ in millions)
Academic and student services
$1,966.3 (28.9%)
Health System
$3,131.3 (46.1%)
3 Research
$913.2 (13.4%)
Auxiliary enterprises
$428.5 (6.3%)
Institutional support
$196.7 (2.9%)
Public service
$163.3 (2.4%)
This Page is Intentionally Blank
v PennState December 17, 2021 Dr. Eric J. Barron, President The Pennsylvania State University 201 Old Main University Park, PA 16802
Dear Dr. Barron:
Joseph J. Doncsecz Associate Vice President for Finance and Corporate Controller (814) 865-1355 FAX: (814) 863-0701 The Pennsylvania State University 408OldMain University Park, PA 16802-1505 The audited consolidated financial statements of Toe Pennsylvania State University and subsidiaries
("University") for the fiscal year ended June 30, 2021 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 year 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 Sara F. Thorndike Senior Vice President for Finance and Business, and Treasurer 5
Deloitte.
INDEPENDENT AUDITORS' REPORT To the Board of Trustees of The Pennsylvania State University University Park, Pennsylvania Deloitte & Touche LLP 1700 Market Street Philadelphia, PA 19103-3984 USA Tel: +1 215 246-2300 Fax: +1 215 569-2441 www.deloitte.com We have audited the accompanying consolidated financial statements of The Pennsylvania State University and its subsidiaries (t he "University"), which comprise the consolidated statements of financial position as of June 30, 2021, and the related consolidated statements of activities and cash flows for the year then ended, and the related notes to the consol idated financial statements.
Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fa ir presentation of these conso li dated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordan ce with aud it ing standards generally accepted in the United States of America. Those standards require that we plan and perform t he audit to obta in reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedu res to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the conso lidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the University's preparation and fair presentation of the consolidated financial statements in order to design aud it 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. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as eva luating the overa ll presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opin ion.
Opinion In our opinion, the consolidated fin ancial statements referred to above present fairly, in all material respects, the financial position of the University as of June 30, 2021, and the changes in their consolidated net assets and t heir consolidated cash flows for the yea r then ended in accordance with accounting principles genera lly accepted in the United States of America.
6
Emphasis of Matter As discussed in Note 2 to the consolidated financial statements, the University has changed its method of accounting for leases, effective July 1, 2020, due to the adoption of Accounting Standard Codification Topic 842, Leases. Our opinion is not modified with respect to this matter.
Decem ber 17, 2021 7
THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS Current assets:
Cash and cash equivalents Short-term investments Deposits held by bond trustees Deposits held for others Accounts receivable, net of allowances Contributions receivable, net Loans to students, net of allowances Inventories Prepaid expenses and other assets Total current assets Noncurrent assets:
Contributions receivable, net Loans to students, net of allowances Total investment in plant, net Beneficial interest in perpetual trusts Investments Operating lease right-of-use assets Other assets Total noncurrent assets JUNE 30, 2021 (in thousands)
$ 1,839,705 1,211,525 48,520 45,690 663,850 44,112 5,501 72,604 196,046 4,127,553 162,534 37,411 6,619,801 29,931 8,553,375 146,215 201,914 15,751,181 Total assets
$19,878,734 See notes to consolidated financial statements.
8
THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENT OF FINANCIAL POSITION LIABILITIES AND NET ASSETS JUNE 30, 2021 (in thousands)
Current liabilities:
Accounts payable and other accrued expenses Deferred revenue Long-term debt Present value of annuities payable Accrued postretirement benefits Refundable United States Government student loans Operating lease liabilities Total current liabilities Noncurrent liabilities:
Deposits held in custody for others Deferred revenue Long-term debt Present value of annuities payable Accrued postretirement benefits Refundable United States Government student loans Operating lease liabilities Other liabilities Total noncurrent liabilities Total liabilities Net assets:
Without donor restrictions -
Designated for specific purposes Net investment in plant Total without donor restrictions - The Pennsylvania State University Noncontrolling interest Total without donor restrictions With donor restrictions Total net assets Total liabilities and net assets See notes to consolidated financial statements.
9
$ 1,032,727 170,078 208,659 7,238 53,755 5,613 24,373 1,502,443 25,667 581 3,300,119 57,679 2,006,929 28,261 123,681 426,703 5,969,620 7,472,063 4,678,123 3,615,323 8,293,446 322,165 8,615,611 3,791,060 12,406,671
$19,878,734
THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2021 (in thousands)
Operating revenues and other support:
Tuition and fees, net of discounts of $227,627 Commonwealth of Pennsylvania -
Appropriations Special contracts Department of General Services projects United States Government grants and contracts Private grants and contracts Gifts and pledges Endowment spending Other investment income Sales and services of educational activities Recovery of indirect costs Auxiliary enterprises Health System revenue Other sources Net assets released from restrictions Total operating revenues and other support Operating expenses:
Educational and general -
Academic and student services Research Public service Institutional support Total educational and general Auxiliary enterprises Health System expense Total operating expenses Increase in net assets from operating activities Nonoperating activities:
Gifts and pledges Current year investment returns Endowment appreciation utilized Changes in funds held by others in perpetuity Write-offs and disposals of assets Nonperiodic change in postretirement benefit plan Other components of net periodic postretirement benefit cost Actuarial adjustment on annuities payable Increase in net assets from nonoperating activities Increase in net assets - The Pennsylvania State University Noncontrolling interest:
Excess of revenues over expenses Increase in net assets - noncontrolling interest Increase in total net assets Net assets at the beginning of the year - as previously stated Correction of errors - see Note 2 Net assets at the beginning of the year - as restated Net assets at the end of the year Without Donor Restrictions 1,796,041 323,792 83,211 12,665 532,652 115,194 76,720 132,693 177,534 99,721 204,204 237,303 3,423,994 28,485 24,924 7,269,133 1,966,267 913,234 163,354 196,680 3,239,535 428,460 3,131,273 6,799,268 469,865 794,185 (113,608)
(11,261) 337,961 (62,033) 945,244 1,415,109 63,039 63,039 1,478,148 6,999,969 137,494 7,137,463 8,615,611 With Donor Restrictions 30,863 556 (24,924) 6,495 6,495 117,146 853,842 5,421 (16,155) 960,254 966,749 966,749 2,824,311 2,824,311 3,791,060 See notes to consolidated financial statements.
10 Total 1,796,041 323,792 83,211 12,665 532,652 115,194 107,583 132,693 178,090 99,721 204,204 237,303 3,423,994 28,485 7,275,628 1,966,267 913,234 163,354 196,680 3,239,535 428,460 3,131,273 6,799,268 476,360 117,146 1,648,027 (113,608) 5,421 (11,261) 337,961 (62,033)
(16,155) 1,905,498 2,381,858 63,039 63,039 2,444,897 9,824,280 137,494 9,961,774 12,406,671
THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2021 (in thousands)
Cash flows from operating activities:
Increase in net assets Adjustments to reconcile change in net assets to net cash provided by operating activities -
Actuarial adjustment on annuities payable Contributions restricted for long-term investment Interest and dividends restricted for long-term investment Net realized and unrealized gains on long-term investments Depreciation and amortization expense Noncash lease expense Inherent contributions from acquisition - Health System Write-offs and disposals of assets Contributions of land, buildings and equipment Provision for bad debts Decrease in deposits held for others Increase in receivables Increase in inventories Increase in prepaid expenses and other assets Increase in accounts payable and other accrued expenses Increase in deferred revenue Decrease in accrued postretirement benefits Net cash provided by operating activities Cash flows from investing activities:
Purchase of land, buildings and equipment Decrease in deposits held by bond trustees Repayments and advances on student loans Collections on student loans Purchase of investments Proceeds from sale of investments Net cash used in investing activities Cash flows from financing activities:
Contributions restricted for long-term investment Interest and dividends restricted for long-term investment Payments of annuity obligations Proceeds from long-term debt Principal payments on long-term debt Proceeds related to government student loan funds, net of collection costs Net cash provided by financing activities Net decrease in cash and cash equivalents and restricted cash and cash equivalents Cash and cash equivalents and restricted cash and cash equivalents at the beginning of the year Cash and cash equivalents and restricted cash and cash equivalents at the end of the year Supplemental disclosures of cash fiow information (Notes 2 and 9)
See notes to consolidated financial statements.
11 2,444,897 16,155 (125,498)
(39,852)
(1,918,202) 438,950 774 (123,591) 11,261 (7,286) 9,048 29,865 (115,025)
(13,675)
(26,797) 263,569 9,678 (284,130) 570,141 (951,545) 103,995 (8,094) 7,102 (4,244,476) 3,927,664 (1,165,354) 125,498 39,852 (7,803) 177,666 (195,346) 781 140,648 (454,565) 2,359,553 1,904,988
THE PENNSYLVANIA STATE UNIVERSITY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2021
- 1. THE UNIVERSITY AND RELATED ENTITIES The Pennsylvania State University ("University"), which was created as an instrumentality of the Commonwealth of Pennsylvania ("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 consolidated financial statements of Penn State Health ("Health System"), a Pennsylvania non-profit corporation, and its wholly owned subsidiaries (see Note 13 for additional information), and the financial statements of The Corporation for Penn State and its subsidiaries ("Corporation"). 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 transactions among the University, the Health System, 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 with donor restrictions or without donor restrictions.
Net assets with donor restrictions are net assets subject to donor-imposed restrictions, either in perpetuity or for a specified time or purpose. Net assets with perpetual restrictions consist primarily of the historical amounts of endowed gifts. Additionally, contributions receivable and remainder interests which are required by donors to be retained in perpetuity are included at their estimated net present values. Net assets restricted by time or purpose consist of contributions receivable and remainder interests that are not required to be held in perpetuity.
In addition, endowment appreciation and net unrealized losses on donor-restricted endowment funds for which historical cost exceeds market value are included.
Net assets without donor restrictions are net assets not subject to donor-imposed restrictions. These net assets may be designated for specific purposes at the discretion of management or may otherwise be limited by contractual agreements with outside parties. Revenue from donor-restricted sources is reclassified as revenue without donor restrictions when the circumstances of the restriction have been fulfilled. Donor-restricted revenues whose restrictions are met within the same fiscal year are reported as revenue without donor restrictions. All expenses from operations are reported as a reduction of net assets without donor restrictions since the use of restricted contributions in accordance with donors' stipulations results in the release of the restriction.
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Notes to Consolidated Finonciol Stotements 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 investments, fair value measurements, postretirement benefits, and contingencies and commitments. Actual results could differ from those estimates.
Correction of Previously Reported Consolidated Financial Statements In preparing its fiscal 2021 consolidated financial statements, the University identified a cumulative out of period error related to certain unconditional gifts that were erroneously recognized as grant (conditional gift) revenue.
In accordance with ASC 958-605, since unconditional gifts are recognized as revenue upon receipt, accounts receivable should not have been recognized on amounts spent in excess of the original gift, and revenue should not have been deferred. The cumulative error was the result of certain individual gifts that were not accounted for correctly upon the receipt of the funds and accumulated over an extended period of time. As a result of this accumulation, previously reported accounts receivable and deferred revenue were overstated by approximately
$40.3 million and $113.2 million, respectively, as of June 30, 2020, and cumulative previously reported gift revenue was understated by $72.9 million. To correct this error, the University restated previously reported beginning net assets without donor restriction as of July 1, 2020 by $72.9 million.
In addition, during the fiscal year ended June 30, 2021, the University unwound the application of an accounting convention that had been employed for an extended period of time whereby summer semester tuition funds that are typically collected in April of each year, had been deferred at fiscal year-end and recognized in the subsequent fiscal year. That is, all of the funds were recognized as revenue in the subsequent fiscal year irrespective as to what period within that semester the tuition related, rather than recognized ratably over the entire summer semester (May through August). The rollover impact of deferring the funds from one fiscal year to the next has historically been immaterial to the University's financial statements. In order to unwind this accounting convention, the University restated previously reported beginning net assets without donor restrictions as of July 1, 2020 by $64.6 million to reflect the recognition of deferred tuition applicable to the portion of fiscal year 2020 summer semester that occurred and was earned prior to June 30, 2020.
The impact from the correction of the foregoing errors on the University's net assets at the beginning of the year
- July 1, 2020 is, as follows:
(in thousands of dollars)
Net assets at the beginning of the year - as previously stated Correction of cumulative gift error Unwind of accounting convention Net assets at the beginning of the year - as restated Revenue Recognition Tuition Without donor With donor restrictions restrictions
$ 6,999,969
$ 2,824,311 72,882 64 612
$ 7 137 463
$ 2 824 311 Total
$ 9,824,280 72,882 64 612
$ 9 961 774 Tuition revenue is recognized over the course of each semester (summer, fall, spring) as instruction is provided to students. Tuition is due from students by the beginning of each applicable semester. Overdue payments are reflected in accounts receivable as the University has an unconditional right to payment.
Tuition receipts of $64.5 million, included in the adjusted deferred revenue balance at June 30, 2020, were recognized during the year ended June 30, 2021. Institutional financial aid provided by the University for tuition and fees is reflected as a reduction of tuition and fee revenue. As tuition contracts have a duration of one year or less, the University has elected to apply the optional exemption prescribed by ASC 606-10-50-14 and, as such, has not disclosed the aggregate transaction price allocated to unsatisfied performance obligations or the time at which the revenue associated with these unsatisfied performance obligations is expected to be recognized. At June 30, unsatisfied performance obligations under tuition contracts relate solely to summer 13
Notes to Consolidated Financial Statements semester instruction to be provided in July and August of the subsequent year. Transaction prices for tuition and fees are determined and allocated based on the applicable published tuition and fees schedules.
Grants and Contracts Grants and contracts revenue is recognized over time as the eligible grant activities are conducted. Grants and contracts deemed to be exchange transactions fall under the scope of ASC Topic 606, Revenue from Contracts with Customers. The performance obligation for each grant or contract is deemed to be the research or program work itself. Work completed under grants and contracts does not result in assets that can be sold to other customers and the University is entitled to payment for the work completed to date. Grants and contracts that are deemed to be contributions fall under the scope of ASC Topic 958, Not-for-Profit Entities. These are deemed to be conditional contributions, as eligible expenditures must be incurred in order to have a right of release of funding from the sponsor. Most grants and contracts are cost reimbursement basis, and incurred expenditures are periodically billed to the customer for reimbursement.
Grants and contracts receipts of $36.0 million, included in the adjusted deferred revenue at June 30, 2020, were recognized during the year ended June 30, 2021. The University has entered into numerous grants and contracts, with periods of performance ending at various dates from July 1, 2021 through December 31, 2050.
The estimated performance obligations remaining under these grants and contracts as of June 30, 2021 total
$1,090.1 million. Transaction prices for grants and contracts are determined and allocated based on the budgets included in the respective award agreements.
Sales and Services of Educational Activities and Auxiliary Enterprises Revenues from sales and services of educational activities and auxiliary enterprises consist primarily of health services, housing and food services, intercollegiate athletics, campus operations, and hospitality services.
Performance obligations associated with these contracts consist of the provision of goods or services, and significant judgment is involved to determine whether the performance obligations are satisfied over time or at a point in time. Typically, revenue associated with semester-based contracts, such as housing and food services, is recognized over the course of the semester as services are provided. For other contracts, such as health services, athletic ticket sales, hotel room charges, and other campus operations, revenue is recognized at a point in time, when the good or service is provided. Contracts included in sales and services of educational activities and auxiliary enterprises are typically one year or less in length. As such, receipts included in deferred revenue at June 30, 2020 were recognized during the year ended June 30, 2021. In addition, the University has elected to apply the optional exemption prescribed by ASC 606-10-50-14 and, as such, has not disclosed the aggregate transaction price allocated to unsatisfied performance obligations or the time at which the revenue associated with these unsatisfied performance obligations is expected to be recognized. At June 30, unsatisfied performance obligations under sales and services of educational activities and auxiliary enterprises relate primarily to summer semester housing and food services to be provided in July and August of the subsequent year, as well as athletic events held during the fall semester. Transaction prices for sales and services of educational activities and auxiliary enterprises are typically straightforward and explicitly stated in the contract.
Health System The Health System reports net patient service revenue at the amounts that reflect the consideration to which the Health System expects to be entitled in exchange for providing patient care. These amounts are due from patients, third-party payers (including managed care and government programs) and others, and they include explicit and implicit price concessions, as well as variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations. Generally, the Health System bills patients and third-party payors several days after the services are performed or shortly after discharge. Revenues are recognized as performance obligations are satisfied.
Performance obligations are determined based on the nature of the services provided by the Health System.
Revenue for performance obligations satisfied over time is recognized based on actual charges incurred in relation to total expected (or actual) charges. The Health System believes that this method provides a faithful depiction of the transfer of services over the term of the performance obligation based on the inputs needed to satisfy the obligation. Generally, performance obligations satisfied over time relate to patients in the Health System receiving inpatient acute care services. The Health System measures the performance obligation from admission into the Health System to the point when it is no longer required to provide services to that patient, 14
Notes to Consolidated Financial Statements which is generally at the time of discharge. Revenue for performance obligations satisfied at a point in time is recognized when goods or services are provided, and the Health System does not believe it is required to provide additional goods or services to the patient.
Because all of its performance obligations relate to contracts with a duration of less than one year, the Health System has elected to apply the optional exemption provided in ASC 606-10-50-14(a) and, therefore, is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The unsatisfied or partially unsatisfied performance obligations referred to above are primarily related to inpatient acute care services at the end of the reporting period. The performance obligations for these contracts are generally completed when the patients are discharged, which generally occurs within days or weeks of the end of the reporting period.
The Health System has elected the practical expedient provided by ASC 340-40-25-4 and all incremental customer contract acquisition costs are expensed as they are incurred, as the amortization period of the asset that the Health System otherwise would have recognized is one year or less in duration.
The Health System utilizes the portfolio approach practical expedient in ASC 606 for contracts related to net patient service revenue. The Health System accounts for contracts within each portfolio as a collective group, rather than individual contracts, based on the payment pattern expected in each portfolio category and the similar nature and characteristics of the patients within each portfolio. As a result, the Health System has concluded that revenue for a given portfolio would not be materially different than if accounting for revenue on a contract by contract basis.
Generally, patients who are covered by third party payers are responsible for patient responsibility balances, including deductibles and coinsurance, which vary in amount. The Health System estimates the transaction price for patients with deductibles and coinsurance based on historical experience and current market conditions. The initial estimate of the transactions price is determined by reducing the standard charge by any contractual amounts, discounts, and implicit price concessions (routine uncollectible amounts). Subsequent changes to the estimate of the transaction price are generally recorded as adjustments to patient service revenue in the period of the change. Adjustments arising from a change in transaction price were not material in 2021.
The Health System has agreements with third party payers that provide for payments at amounts different from its established charges. Inpatient acute care services rendered are paid at prospectively determined rates per discharge in accordance with the Federal Prospective Payment System (PPS) for Medicare and generally at negotiated or otherwise predetermined amounts. Inpatient, nonacute, and outpatient services are paid at various rates under different arrangements with third party payers, commercial insurance carriers, and health maintenance organizations. The basis for payment under these agreements includes prospectively determined discounts from the Health System's established charges, fee schedules, and per diem rates for certain services.
Law and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term. During 2021, a decrease of $6.0 million was recognized reflecting the difference in actual versus estimated reimbursement and the change in certain estimates related to prior years' patient service revenue.
The subsidiaries of the Health System provide care to patients who meet certain criteria under its charity care policy without charge or at amounts less than established rates.
The Health System does not pursue collection of amounts determined to qualify as charity care; these amounts are not reported as net patient service revenue. The amounts of direct and indirect costs for services and supplies furnished under the Health System's charity care policy totaled approximately $36.5 million for the year ended June 30, 2021 and was based on a ratio of the Health System's operational costs to its gross charges. The amount of charges foregone for services and supplies furnished under the Health System's charity policy totaled approximately
$73.4 million during 2021.
Overall The University has elected to use the practical expedient prescribed by ASC 606-10-32-18, in which the promised amount of consideration need not be adjusted for the effects of a significant financing component if 15
Notes to Consolidated Financial Statements the period between when promised goods or services are transferred to a customer and when the customer pays for the goods or services is expected to be one year or less at contract inception.
Contributions 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 as donor-restricted revenue, either due to purpose restrictions and/or the implicit time restriction inherent in the future date at which the contribution is to be received. The amounts are present valued based on timing of expected collections.
Fair Value of Financial Instruments The University has provided fair value estimates for certain financial instruments. Fair value information presented in the financial statements is based on information available at June 30, 2021. 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, as the total outstanding loans to students as of June 30, 2021 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 4. The fair value of the University's bonds payable is disclosed in Note 8. See Note 6 for further discussion of fair value measurements.
Cash Flows The following items are included as supplemental disclosure to the statement of cash flows for the year ended June 30, 2021:
(in thousands of dollars)
Supplemental reconciliation data:
Cash and cash equivalents as shown in the statement of financial position Restricted cash and cash equivalents included in deposits held by bond trustees Restricted cash and cash equivalents included in deposits held for others Total cash and cash equivalents and restricted cash and cash equivalents as shown in the statement of cash flows Other supplemental data:
Interest paid Penn College:
Deposit with bond escrow agent Proceeds from 2021 bond issuance Net original issue premium/underwriter's discount - 2021 bonds Costs of 2021 bond issuance 1,839,705 30,598 34 685 1 904 988 108,656 (58,851) 52,665 6,186 (777)
Capitalized costs accrued related to construction are $87.7 million as of June 30, 2021. Taxes paid for 2021 are considered immaterial. Cash and cash equivalents include certain investments in highly liquid instruments with remaining 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 3 months but less than 12 months.
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Notes to Consolidated Financial Statements Accounts Receivable Accounts receivable at June 30, 2021 consists of the following:
(in thousands of dollars)
Grants and contracts, net of allowance of $2,132 Patient accounts receivable Student receivables, net of allowance of $15,701 Other, net of allowance of $7,761 Total accounts receivable, net 160,777 395,887 51,571 55 615 663.850 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.
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 enter a grace period upon ceasing at least half-time enrollment status. The grace period varies depending on the type of loan. Upon expiration of the grace period. interest begins to accrue. and repayment begins one month thereafter. Repayments of these loans are made directly to the University. Loans to students are uncollateralized and carry default risk.
Funds advanced by the federal government of $33.9 million at June 30. 2021 are ultimately refundable to the government and are classified as liabilities in the consolidated statement of financial position. The federal liability related to the Perkins loan program will be reduced through the return of funds as required by the Department of Education.
Loans to students consisted of the following at June 30, 2021:
(in thousands of dollars)
Loans to students:
Federal government loan programs:
Perkins loan program 26,252 Health Professions Student Loans and Loans for Disadvantaged Students 1
Federal government loan programs 26,253 Institutional loan programs 19 709 45,962 Less allowance for doubtful accounts:
Balance, beginning of year (3,064)
Provision for doubtful accounts 14 Balance, end of year (3,050)
Loans to students. net
~2 912 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.
17
Notes to Consolidated Financial Statements 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, 2021 are as follows:
Loans to students:
Federal government loan programs Institutional loan programs Total loans to students Allowance for doubtful accounts:
Federal government loan programs Institutional loan programs Total allowance for doubtful accounts Total loans to students, net Inventories 45 days or less 20,833 17 080 37,913 (in thousands of dollars)76-105 Over 46-75 days days 105 days 26 27 5,367 21 20 2,588 47 47 7,955 Inventories are stated at the lower of cost or net realizable value on the first-in, first-out basis.
Investments Total 26,253 19 709 45 962 (543)
(2,507)
(3,050) 42,912 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 with gains and losses included in the consolidated statement of activities. The University believes that the estimated fair value is a reasonable estimate of market value as of June 30, 2021. The fair value estimations include assumptions and methods that were reviewed by University management. The estimated fair value amounts for public securities held by the University with readily determinable fair values have been based on information as supplied by the various financial institutions that act as trustees or custodians for the University.
Because the fair market value of certain investments is not readily available, the estimated fair 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. The fair values on these private investments are determined based upon financial information provided by the investment manager.
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 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 net assets with donor restrictions and related beneficial interest in perpetual trusts in the consolidated financial statements.
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Notes to Consolidated Financial Statements Investment in Plant Total investment in plant as of June 30, 2021 is comprised of the following:
(in thousands of dollars)
Land Buildings Improvements other than buildings Equipment Assets under construction Total plant Less accumulated depreciation Total investment in plant, net 169,965 8,275,067 725,067 1,950,794 1,008,180 12,129,073 (5,509,272)
$ 6.619.801 The value of land, buildings, and equipment is recorded at cost or, if received as gifts, at fair value at date of gift commitment. 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 4 to 50 years for buildings, 10 to 20 years for improvements other than buildings, and 1 to 20 years for equipment. Depreciation expense was $435.7 million for the fiscal year ended June 30, 2021. The University has certain building and equipment lease agreements in effect which are considered finance leases that are included as long-term debt in the statement of financial position. Buildings and equipment held under finance leases are amortized on a straight-line basis over the shorter of the lease terms or the estimated useful lives of the assets. Total investment in plant associated with these leases was $46.7 million at June 30, 2021.
The University determines if an arrangement is or contains a lease at inception of the contract. The right-of-use (ROU) assets represent the right to use the underlying assets for the lease term and the lease liabilities represent the obligation to make lease payments arising from the leases. ROU assets are recognized at commencement date based on the present value of lease payments over the lease term, adjusted for any initial direct costs incurred and lease incentives received, with the subsequent measurement based on lease classification. The lease liability is initially measured as the present value of unpaid lease payments and is subsequently measured using the effective interest method. The value of an option to extend or terminate a lease is reflected to the extent it is reasonably certain the University will exercise that option. The University has used the incremental borrowing rate when measuring its leases as the rate implicit in the lease is not readily determinable. The University's incremental borrowing rate is determined based on comparisons to Indicative Composite ObseNable Reported Execution (CORE) Yields for various maturities. The CORE is a yield cuNe that represents an aggregation of daily trade data reported to the Municipal Securities Rulemaking Board. It is a simple average yield of fixed-rate, non-Alternative Minimum Tax, tax-exempt, coupon-bearing municipal bond trades. ASC 842 defines a short-term lease as a lease with a term of twelve months or less that does not include a purchase option that is reasonably certain of being exercised ("short-term leases"). The University has elected, for all asset classes, the short-term lease recognition exemption provided in the standard that eliminates the requirement to recognize on the statement of financial position any short-term leases. The lease expense for these short-term leases is recognized on a straight-line basis over the lease term within operating expenses in the consolidated statement of activities and is not considered material to the consolidated financial statements. Finance lease ROU assets are included in total investment in plant, net, with the related liabilities included in current and noncurrent long-term debt in the consolidated statement of financial position. Operating lease ROU assets and related current and long-term liabilities are separately presented in the consolidated statement offinancial position. Expenses for operating leases, amortization of assets held under finance leases, and finance lease interest expense are recognized within operating expenses in the consolidated statement of activities.
The University has elected, for all asset classes, the practical expedient to not separate lease and nonlease components. Certain of the University's lease agreements include payments based on actual maintenance, taxes, insurance, and utilities. Other agreements include rental payments adjusted periodically for inflation.
These are deemed to be variable lease payments and are recognized in operating expenses as incurred but are not included in the ROU asset or liability balances. These variable lease payments are not considered 19
Notes to Consolidated Financial Statements material to the consolidated financial statements. The University's lease agreements do not contain any material residual value guarantees, restrictions, or covenants.
Accounts Payable and Other Accrued Expenses Accounts payable and other accrued expenses at June 30, 2021 consist of the following:
(in thousands of dollars)
Accounts payable (non-Health System)
Health System accounts payable and other accrued expenses Health System Medicare APP Accrued payroll and other related liabilities Accrued interest Student deposits Total accounts payable and other accrued expenses Impairment of Long-Lived Assets 213,235 507,550 117,054 161,111 30,459 3 318 1 Q32 Z2Z Long-lived assets, which include investment in plant and definite-lived intangible assets, are assessed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. An impairment loss is recognized in change in net assets in the period that the impairment occurs.
Asset Retirement Obligations The University has recognized liabilities for asset retirement obligations. 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:
Annuities Payable (in thousands of dollars)
Balance as of June 30, 2020 Adjustment to liability Accretion expense Liabilities settled Balance as of June 30, 2021 95,430 7,321 3,876 (3,702) 102,925 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.
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