ML23012A060
| ML23012A060 | |
| Person / Time | |
|---|---|
| Site: | 07000113 |
| Issue date: | 12/13/2022 |
| From: | Teachey V Pennsylvania State Univ |
| To: | Richard Jervey Division of Fuel Management |
| References | |
| Download: ML23012A060 (1) | |
Text
(814) 865-1355 "PennState Virginia A. Teachey FAX: (8 14) 863-0701 The Pennsylvania State University Associate Vice Pres ident fo r Finance 308 Old Main University Park, PA 16802-1505 December 13, 2022 Attn: Rick Jervey Division of Fuel Management Office of Nuclear Material Safety and Safeguards U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 Subj: Audited Financial Statements - Fiscal Year Ending June 30, 2022 and Self-Guarantee Agreement License numbers: SNM-95 Penn State University Docket 070-00113
Dear Sir or Madam,
As required in 10 CFR 30.35.(f).(2), the financial test and self-guarantee method of 10 CFR 30 Appendix E will be used. The Pennsylvania State University (the "University") certifies the following:
(i) 10 CFR 30 Appendix E Paragraph II.A.(1) - The University currently holds a rating for its most recent bond issuance of AA as issued by Standard and Poor's, and a bond rating of Aal as issued by Moody's, and (ii) The University is currently a going concern, and it possessed positive net assets in the amount of $12,392,620,000 on June 30, 2022. The calculation of the University's net assets on June 30, 2022 was derived from the university ' s independently audited, year-end financial statements and footnotes for the fiscal year ending June 30, 2022. The University is not required to file a Form 10-K with the Securities and Exchange Commission for the latest fiscal year.
(iii) 10 CFR 30 Appendix E Paragraph II.C.(1)-Audited financial statements are attached as Attachment A. In addition to the enclosed report, an electronic version may also be found at:
https://controller.psu.edu/sites/controller/files/psu 2022 financial statements -
final.pdf Attachment B contains Penn State University ' s Self-Guarantee Agreement for Financial Assurance for Cost of Decommissioning Activities. Attachment C contains the Independent Accountant's Report on Applying Agreed-Upon Procedures for the year ended June 30, 2022. In addition, Attachment D contains an Affidavit regarding proprietary information.
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Please contact Aaron Wilmot (adwl54@psu.edu) if you have.any questions.
Sincerely, Virginia A. Teachey Associate Vice President for Finance Attachment A - Audited financial statements Attachment B -Penn State University's self-guarantee agreement Attachment C- Independent Accountant's Report on Applying Agreed-Upon Procedures Attachment D - Affidavit cc:
Aaron Wilmot, Manager, Radiation Protection Office & Radiation Safety Officer Dr. Kenan Unlu, Director, Radiation Science and Engineering Center Lee Wagner, University Controller, Office of Budget and Finance, University Park
ATTACHMENT D-Affidavit V PennState Virginia A. Teachey Associate Vice President for Finance (814) 865-1355 FAX: (814) 863-0701 The Pennsylvania State University 308OldMain University Park, PA 16802-1505 December 13, 2022 AFFIDAVIT (1) I am the Associate Vice President for Finance of The Pennsylvania State University (the "University"), and as such, I have been specifically delegated the function of reviewing confidential information sought to be withheld from public disclosure in connection with the University submittals to the Nuclear Regulatory Commission (the "Commission"), and am authorized to apply for its withholding on behalf of the University.
(2) I am making this Affidavit in conformance with the provisions of ;o CFR Section 2.390 of the Commission's regulations and in conjunction with the University's submission-of the Independent Accountant's Report on Applying Agreed-Upon Procedures for the year ended June 30, 2022 related to the University's annual financial test and self-guarantee.
(3) Pursuant to the provisions of paragraph (b)(4) of Section 2.390 of the Commission's regulations, the following is furnished for consideration by the Commission in determining whether the information sought to be withheld from public disclosure should be withheld.
(i) The information sought to be withheld from public disclosure is owned and has been held in confidence by the University.
(ii) The information, off-balance sheet exposures disclosed within the Independent Accountant's Report on Applying Agreed-Upon Procedures for the year ended June 30, 2022 sought to be withheld from public disclosure is not available in public sources and is not required to be disclosed by the University for purposes other than as part of the Independent Accountant's Report on Applying Agreed-Upon Procedures for Commission purposes related to Appendix E to 10 CFR Part 30.
(iii) The information is being transmitted to !he Commission in confidence and, under the provisions of 10 CFR 2.390; it is to be received in confide'nce by the Commissi'on.
The !,!c}5 set forth in this Affidavit are true and correct to the best of my knowledge, information, and belief.
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Virgin~
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Associate Vice President for Finance The Pennsylvania State University Transmitted herewith are proprietary versions of documents furnished to the NRC in connection with requirements of Appendix E to 10 CFR Part 30 for Commission review and approval. Non-proprietary versions of the documents are not provided as they essentially would consist of blank pages.
I I
I i
' i II Audited Financial Statements The Pennsylvania State University Fiscal Year Ended.June 30, 2022 i
l II
*------*--------- - - -----*- - - - -- ------ - - ---~-~~=--- ---*--- --- . ------------ -----____________J I
THE PENNSYLVANIA STATE UNIVERSITY UNIVERSITY OFFICERS as of November 21, 2022 NEELI BENDAPUDI President FRANK T. GUADAGNINO Interim Vice President and General Counsel STEPHEN M. MASSINI Chief Executive Officer, Penn State Health JUSTIN SCHWARTZ Interim Executive Vice President and Provost MICHAEL WADE SMITH Senior Vice President and Chief of Staff SARAF. THORNDIKE Senior Vice President for Finance and Business/Treasurer
ATTACHMENT A-Penn State University Audited Financial Statements CONTENTS Operating Revenues by Source 2 Operating Expenses by Function 3 Letter of Transmittal 5 Independent Auditor's Report 6 Consolidated Financial Statements:
Statements of Financial Position 8 Statements of Activities 10 Statements of Cash Flows 12 Notes to Consolidated Financial Statements 13
OPERATING REVENUES BY SOURCE ($7.9 billion)
For the Year Ended June 30, 2022
($ in millions)
Government grants and contracts
$765.6 Tuition and fees, (9.7%)
net of discount
$1,837.7 Auxiliary enterprises (23.4%) $485.1 (6.2%)
Endowment spending and other investment income
$334.4 (4.3%)
Commonwealth of Pennsylvania appropriation
$323.8 (4.1%)
....-,_ ____,Recovery
_ of indirect costs
$229.9 (2.9%)
Private gifts, grants and contracts
$226.4 Other sources (2.9%)
$136.1 (1.7%)
Health System
$3,528.5 (44.8%)
2
OPERATING EXPENSES BY FUNCTION ($7.8 billion)
For the Year Ended June 30, 2022
($ in millions)
Academic and student services
$1,991.2 (25.6%)
Research
$1,019.5 (13.1%)
Auxiliary enterprises
$479.6 (6.2%)
.,...,..._ _ Institutional support
$464.0 (6.0%)
Public service
$200.4 (2.6%)
Health System
$3 ,614.8 (46.5%)
3
This Page is Intentionally Blank V PennState Virginia A. Teachey Associate Vice President for Finance (814) 865-1355 FAX: (814) 863-0701 The Pennsylvania State University 308 Old Main University Park, PA 16802-ISOS November 21, 2022 Dr. Neeli Bendapudi, President The Pennsylvania State University 201 Old Main University Park, PA 16802
Dear Dr. Bendapudi:
The audited consolidated financial statements of The Pennsylvania State University and subsidiaries
("University") for the fiscal years ended June 30, 2022 and 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 years then e~d~d.
- 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, d~tl~
Virginia A. Teachey Associate Vice President for Finance Sara F. Thorndike Senior Vice President for Finance and Business, and Treasurer 5
Deloitte & Touche LLP Deloitteo 1700 Market Street Philadelphia, PA 19103-3984 USA Tel: +1 215 246-2300 Fax: +1 215 569-2441 www.deloitte.com INDEPENDENT AUDITOR'S REPORT To the Board of Trustees of The Pennsylvania State University University Park, Pennsylvania Opinion We have audited the consolidated financial statements ofThe Pennsylvania State University and subsidiaries (the "University"}, which comprise the consolidated statements of financial position as of June 30, 2022 and 2021, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the University as of June 30, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the University and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Emphasis of Matter As discussed in Note 2 to the financial statements, in 2021, the University 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.
Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation offinancial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Universities ability to continue as a going concern for one year after the date that the financial statements are issued.
6
Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial state~ents as a whole are free from material misstatemer)t, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
- Exercise professional judgment and maintain professional skepticism throughout the audit.
- Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University's internal control. Accordingly, no such opinion is expressed.
- Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. *
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the University's ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
November 21, 2022 7
THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ASSETS JUNE 30, 2022 AND 2021 (in thousands)
June 30, 2022 June 30, 2021 Current assets:
Cash and cash equivalents $ 1,058,303 $ 1,839,705 Short-term investments 1,549,884 1,211,525 Deposits held by bond trustees 91,521 48,520 Deposits held for others 34,460 45,690 Accounts receivable, net of allowances 846,172 663,850 Contributions receivable, net 40,306 44,112 Loans to students, net of allowances 3,952 5,501 Inventories 85,662 72,604 Prepaid expenses and other assets 127,277 196,046 Total current assets 3,837,537 4,127,553 Noncurrent assets:
Deposits held by bond trustees 100,097 Contributions receivable, net 152,443 162,534 Loans to students, net of allowances 2s:os2 37,411 Total investment in plant, net 6,885,672 6,619,801 Beneficial interest in perpetual trusts 26,240 29,931 Investments 8,045,673 . 8,553,375 Operating lease right-of-use assets 172,590 146,215 Other assets 191,385 201,914 Total noncurrent assets 15,602,152 15,751,181 Total assets $ 19,439,689 $19,878,734 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, 2022 AND 2021 (in thousands)
June 30, 2022 June 30, 2021 Current liabilities:
Accounts payable and other accrued expenses $ 984,226 $ 1,032,727 Deferred revenue 180,066 170,078 Long-term debt 110,633 208,659 Present value ofannuities payable 7,720 7,238 Accrued postretirement benefits 54,119 53,755 Refundable United States Government student loans 3,898 5,613 Operating lease liabilities 21,442 24,373 Total current liabilities 1,362,104 1,502,443 Noncurrent liabilities:
Deposits held in custody for others 22,269 25,667 Deferred revenue 563 581 Long-term debt 3,658,417 3,300,119 Present value *of annuities payable 56,275 57,679 Accrued postretirement benefits 1,417,337 2,006,929 Refundable United States Government student loans 17,233 28,261 Operating lease liabilities 150,800 123,681-Other liabilities 362,071 426,703 Total noncurrent liabilities 5,684,965 5,969,620 Total liabilities 7,047,069 7,472,063 Net assets:
Without donor restrictions -
Designated for specific purposes 4,912,904 4,678,123 Net investment in plant 3,606,865 3,615,323 Total without donor restrictions - The Pennsylvania State University 8,519,769 8,293,446 Noncontrolling interest 337,141 322,165 Total without donor restrictions 8,856,910 8,615,611 With donor restrictions 3,535,710 3,791,060 Total- net assets 12,392,620 12,406,671 Total liabilities and net assets $19,439,689 $19,878,734 See notes to consolidated financial statements.
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THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2022 (in thousands)
Without With Donor Restrictions Donor Restrictions Total Operating revenues and other support:
Tuition and fees, net of discounts of $258,744 $ 1,837,714 $ $ 1,837,714 Commonwealth of Pennsylvania -
Appropriations 323,792 323,792 Special contracts 77,146 77,146 Department of General Services projects 50,023 50,023 United States Government grants and contracts 638,438 638,438 Private grants and contracts 106,289 106,289 Gifts and pledges 95,753 24,333 120,086 Endowment spending 140,047 140,047 Other investment income 192,756 1,574 194,330 Sales and services of educational activities 101,041 101,041 Recovery of indirect costs 229,932 229,932 Auxiliary enterprises 485,062 485,062 Health System revenue 3,528,452 3,528,452 Other sources 35,025 35,025 Net assets released from restrictions 50,545 (50,545)
Total operating revenues and other support 7,892,015 (24,638) 7,867,377 Operating expenses:
Educational and general -
Academic and student services 1,991,230 1,991,230 Research 1,019,530 1,019,530 Public service 200,359 200,359 Institutional support 463,959 463,959 Total educational and general 3,675,078 3,675,078 Auxiliary enterprises 479,608 479,608 Health System expense 3,614,830 3,614,830 Total operating.expenses 7,769,516 7,769,516 Increase (decrease) in net assets from operating activities 122,499 (24,638) 97,861 Nonoperating activities:
Gifts and pledges 137,819 137,819 Current year investment returns (361,526) (358,038) (719,564)
Endowment appreciation utilized (96,629) (96,629)
Changes in funds held by others in perpetuity (3,691) (3,691)
Write-offs and disposals of assets (5,174) (5,174)
Nonperiodic change in postretirement benefit plan 627,220 627,220 Other components of net periodic postretirement benefit cost (60,067) (60,067)
Actuarial adjustment on annuities payable (6,802) (6,802)
Increase (decrease) in net assets from nonoperating activities 103,824 (230,712) (126,888)
Increase (decrease) in net assets - The Pennsylvania State University 226,323 (255,350) (29,027)
Noncontrolling interest:
Excess of revenues over expenses 14,976 14,976 Increase in net assets - noncontrolling interest 14,976 14,976 Increase (decrease) in total net assets 241,299 (255,350) (14,051)
Net assets at the beginning of the year 8,615,611 3,791,060 12,406,671 Net assets at the end of the year $ 8,856,910 $ 3,535,710 $ 12,392,620
==
See notes to consolidated financial statements.
10
THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2021 (in thousands)
Without With Donor Restrictions Donor Restrictions Total Operating revenues and other support:
Tuition and fees, net of discounts of $227,627 $ 1,796,041 $ $ 1,796,041 Commonwealth of Pennsylvania -
Appropriations 323,792 323,792 Special contracts 83,211 83,211 Department of General Services projects 12,665 12,665 United States Government grants and contracts 532,652 532,652 Private grants and contracts 115,194 115,194 Gifts and pledges 76,720 30,863 107,583 Endowment spending 132,693 132,693 Other investment income 177,534 556 178,090 Sales and services of educational activities 99,721 99,721 Recovery of indirect costs 204,204 204,204 Auxiliary enterprises 237,303 237,303 Health System revenue 3,423,994 3,423,994 Other sources 28,485 28,485 Net assets released from restrictions 24,924 (24,924)
Total operating revenues and other support 7,269,133 6,495 7,275,628 Operating expenses:
Educational and general -
Academic and student services 1,966,267 1,966,267 Research 913,234 913,234 Public service 163,354 163,354 Institutional support 196,680 196,680 Total educational and general 3,239,535 3,239,535 Auxiliary enterprises 428,460 428,460 Health System expense 3,131,273 3,131,273 Total operating expenses 6,799,268 6,799,268 Increase in net assets from operating activities 469,865 6,495 476,360 Nonoperating activities:
Gifts and pledges 117,146 117,146 Current year investment returns 794,185 853,842 1,648,027 Endowment appreciation utilized (113,608) (113,608)
Changes in funds held by others in perpetuity 5,421 5,421 Write-offs and disposals of assets (11,261) (11,261)
Nonperiodic change in postretirement benefit plan 337,961 337,961 Other components of net periodic postretirement benefit cost (62,033) (62,033)
Actuarial adjustment on annuities payable (16,155) (16,155)
Increase in net assets from nonoperating activities 945,244 960,254 1,905,498 Increase in net assets - The Pennsylvania State University 1,415,109 966,749 2,381,858 Noncontrolling interest:
Excess of revenues over expenses 63,039 63,039 Increase in net assets - noncontrolling interest 63,039 63,039 Increase in total net assets 1,478,148 966,749 2,444,897 Net assets at the beginning of the year 7,137,463 2,824,311 9,961,774 Net assets at the end of the year $ 8,615,611 $ 3,791,060 $ 12,406,671 See notes to consolidated financial statements.
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THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2022 AND 2021 (in thousands)
June 30, 2022 June 30, 2021 Cash flows from operating activities:
- (Decrease) increase in net assets $ (14,051) $ 2,444,897
- Adjustments to reconcile change in net assets to net cash provided by operating activities -
Actuarial adjustment on annuities payable 6,805 16,155 Contributions restricted for long-term investment (166,153) (125,498)
Interest and dividends restricted for long-term investment (43,692) (39,852)
Net realized and unrealized losses (gains) on long-term investments 650,546 (1,918,202)
Depreciation and amortization expense 481,589 438,950 Noncash lease expense (2,187) 774 Inherent contributions from acquisition - Health System (123,591)
Write-offs and disposals of assets 5,174 11,261 Contributions of land, buildings and equipment (1,419) {7,286)
Provision for bad debts 4,451 9,048 (Increase) decrease in deposits held for others (2,917) 29,865 Increase in receivables (171,305) (115,025)
Increase in inventories (13,059) (13,675)
Decrease (increase) in prepaid expenses and other assets 82,991 (26,797)
(Decrease) increase in accounts payable and other accrued expenses (113,135) 263,569 Increase in deferred revenue 9,971 9,678 Decrease in accrued postretirement benefits (589,228) (284,130)
Net cash provided by operating activities 124,381 570,141 Cash flows from investing activities:
Purchase of land, buildings and equipment (742,66,1) (951,545)
(Increase) decrease in deposits held by bond trustees (106,334) 103,995 Repayments and advances on student loans (1,235) (8,094)
Collections on student loans 5,.145 7,102 Purchase of investments (4,076,999) (4,244,476)
Proceeds from sale of investments 3,595,795 3,927,664 Net cash used in investing activities (1,326,289) (1,165,354)
Cash flows from financing activities:
Contributions restricted for long-term investment 166,153 125,498 Interest and dividends restricted for long-term investment 43,692 J9,852 Payments of annuity obligations (7,727) (7,803)
Proceeds from long-term debt 514,300 177,666 Principal payments on long-term debt (262,580) (195,346)
Refundable federal student loans (7,317) 781 Net cash provided by financing activities 446,521 140,648 Net decrease in unrestricted and restricted cash and cash equivalents (755,387) (454,565)
Unrestricted and restricted cash and cash equivalents at the beginning of the year 1,904,988 2,359,553 Unrestricted and restricted cash and cash equivalents at the end of the year $ 1,149,601 $ 1,904,988 Supplemental disclosures of,cash flow information (Notes 2 and 9)
I 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, 2022 AND 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.
13
Notes to Consolidated Financial Statements 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.
Revenue Recognition Tuition 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 $72.0 million, included in deferred revenue at June 30, 2021, were recognized during the year ended June 30, 2022. Tuition receipts of $64.5 million, included in deferred revenue 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 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 $32.9 million, included in deferred revenue at June 30, 2021, were recognized during the year ended June 30, 2022. Grants and contracts receipts of $36.0 million, included in 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, 2022 thmugh December 31, 2050. The estimated performance obligations remaining under these grants and contracts as of June 30, 2022 total $927.9 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, 2021 and 2020 were recognized during the years ended June 30, 2022 and 2021. In addition, the University has elected to apply the optional exemption prescribed by ASC 606-10-50-14 and, as 14
Notes to Consolidated Financial Statements 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 payers 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, 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 2022 and 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 15
Notes to Consolidated Financial Statements 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 payors, 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 2022 and 2021, a decrease of $2.8 million and $6.0 million, respectively, was recognized reflecting the difference in actual versus estimated reimbursement and the change in certain estimates related to prior years' patient service revenue.
Additionally, during 2022 and 2021, the Health System recognized $6.3 million of net patient service revenue as a result of Medical Assistance payments made by the Commonwealth of Pennsylvania. These payments are intended to help offset medical education costs.
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 $38.6 million and $36.5 million for the years ended June 30, 2022 and 2021, respectively, 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 $81.9 million and $73.4 million during 2022 and 2021, respectively.
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 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, 2022 and 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, 2022 and 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.
16
Notes to Consolidated Financial Statements Cash Flows The following items are included as supplemental disclosure to the statements of cash flows for the years ended June 30:
(in thousands of dollars) 2022 2021 Supplemental reconciliation data:
Cash and cash equivalents as shown in the statements offinancial position $1,058,303 $1,839.705 Restricted cash and cash equivalents included in deposits held by bond trustees 67,362 30.598 Restricted cash and cash equivalents included in deposits held for others 23,936 34,685 Total unrestricted and restricted cash and cash equivalents as shown in the statements of cash flows $1,149.601 $ 1 904 988 Other supplemental data: 2022 2021 Interest paid $ 115.323 $ 108,656 Penn College:
Deposit with bond escrow agent (58,851)
Proceeds from 2021 bond issuance 52.665 Net original issue premium/underwriter's discount - 2021 bonds 6.186 Costs of 2021 bond issuance (777)
Capitalized costs accrued related to construction are $78.8 million and $87.7 million as of June 30, 2022 and 2021. respectively. Taxes paid for 2022 and 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.
Accounts Receivable Accounts receivable at June 30 consists of the following:
(in thousands of dollars) 2022 2021 Grants and contracts, net of allowance of $2.330 and $2,132 $ 212,050 $ 160,777 Patient accounts receivable 531.271 395.887 Student receivables, net of allowance of $14.845 and $15,701 49.780 51,571 Other, net of allowance of $8,263 and $7,761 53 071 55,615 Total accounts receivable, net $ . 846,172 $ 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 a.nd 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 $21.1 million and $33.9 million at June 30. 2022 and 2021, respectively, are ultimately refundable to the government and are classified as liabilities in the consolidated 17
Notes to Consolidated Financial Statements statements 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:
(in thousands of dollars) 2022 2021 Loans to students:
Federal government loan programs:
- Perkins loan program $ 20,641 $ 26,252 Health Professions Student Loans and Loans for Disadvantaged Students 1 1 Federal government loan programs 20,642 26,253 Institutional loan programs 18 806 19 709 39,448 45,962 Less allowance for doubtful accounts:
Balance, beginning of year (3,050) (3,064)
Provision for doubtful accounts (4,394} 14 Balance, end of year (7,444} (3,050}
Loans to students, net $ 32,004 $ 42,912 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.
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 are as follows:
(in thousands of dollars) 45 days76-105 Over 2022 or less* 46-75 days days 105 days Total Loans to students:
Federal government loan programs $ 17,468 $ 33 $ 30 $ 3,111 $ 20,642 Institutional loan programs 16 485 26 25 2,270 18,806 Total loans to students ~ 33,953 ~ 59 ~ 55 ~ 5,381 39 448 Allowance for doubtful accounts:
Federal government loan programs (4,889)
Institutional loan programs (2,555}
Total allowance for doubtful accounts (7,444}
Total loans to students, net $ 32 004 18
Notes to Consolidated Financial Statements (in thousands of dollars) 45 days76-105 Over 2021 or less 46-75 days days 105 days Total Loans to students:
Federal government loan programs $ 20,833 $ 26 $ 27 $ 5,367 $ 26,253 Institutional loan programs 17 080 21 20 2,588 19 709 Total loans to students i 37,913 i 47 i 47 i 7,955 45,962 Allowance for doubtful I accounts:
Federal government loan programs (543)
Institutional loan programs (2,507)
Total allowance for doubtful accounts (3,050)
Total loans to students, net $ 42,912 Inventories Inventories are stated at the lower of cost or net realizable value on the first-in, first-out basis.
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 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, 2022 and 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 private investments are not readily marketable, 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 statements 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 is comprised of the following:
(in thousands of dollars) 2022 2021 Land $ 181,833 $ 169,965 Buildings 8,892,700 8,275,067 Improvements other than buildings 807,507 725,067 Equipment 2,071,893 1,950,794 Assets under construction 850,068 1,008,180 Total plant 12,804,001 12,129,073 Less accumulated depreciation (5,918,329) (5,509,272)
Total investment in plant, net $ 6 885 672 $ 6.619 801 I
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, 1Oto 20 years for improvements other than buildings, and 1 to 20 years for equipment. Depreciation expense was $484.5 million and $435.7 million for the fiscal years ended June 30, 2022 and 2021, respectively.
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 statements 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 $50.4 million and $46.7 million at June 30, 2022 and 2021, respectively.
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 Observable Reported Execution (CORE) Yields for various maturities. The CORE is a yield curve that represents an aggregation of daily trade data reported to the Municipal Securities Rulemaking Board. It is a simple average yield affixed-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 statements 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 statements 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 statements of financial position. Operating lease ROU assets and related current and long-term liabilities are separately presented in the consolidated statements of financial 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 statements 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 20
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 consist of the following:
~nthousandsofdollars) 2022 2021 Accounts payable (non-Health System) $ 249,140 $ 213,235 Health System accounts payable and other accrued expenses 535,351 507,550 Health System Medicare APP 37,631 117,054 Accrued payroll and other related liabilities 127,464 161,111 Accrued interest 30,835 30,459 Student deposits 3 805 3 318 Total accounts payable and other accrued expenses $ 984 226 $ 1,032,727 Impairment of Long-Lived Assets 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 statements of financial position. The following table details the change in liabilities:
(in thousands of dollars)
Balance as of June 30, 2020 $ 95,430 Adjustment to liability 7,321 Accretion expense 3,876 Liabilities settled (3,702)
Balance as of June 30, 2021 102,925 Adjustment to liability 4,972 Accretion expense 5,697 Liabilities settled (7,198)
Balance as of June 30, 2022 $ 106,396 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.
21
Notes to Consolidated Financiol Stotements Net Assets Net assets consist of the following at June 30:
(in thousands of dollars) 2022 2021 Net assets without donor restrictions:
. Designated for specific purposes:
Health System $ 1,542,270 $ 1,627,785 Designated for plant activities 1,422,756 1,524,081 Funds functioning as endowments 1,177,727 1,263,825 Operating general funds carryforward 962,139 1,018,758 Unit managed non-general funds 268,831 256,689 Designated for postretirement benefits 189,087 (370,630)
Designated for scholarships and program support 135,655 131,195 Designated for pension prefunding (990,267) (1,025,633)
Other designated net assets 204,706 252,053 Total designated for specific purposes 4,912,904 4,678,123 Net investment in plant 3,606,865 3,615,323 Non-controlling interest 337141 322,165 Total net assets without donor restrictions $ 8,856 910 $ 8,615 611 Net assets with donor restrictions:
Endowment funds $ 3,181,657 $ 3,373,624 Future contributions 214,669 228,797 Split-interest agreements 103,775 125,432 Student loan funds 19,602 19,314 Contributions for property, plant and equipment 16 007 43 893 Total net assets with donor restrictions $ 3,535 710 $ 3,791.060 Total net assets $12,392,620 $ 12,406.671 Net assets without donor restrictions that are designated for specific purposes have been designated at the discretion of management.
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 Topic 740, Income Taxes, the University continues to evaluate tax positions and has determined there is no material impact on the University financial statements.
Recent Accounting Pronouncements In August 2018, the FASB issued Accounting Standards Update (ASU) 2018-14, "Compensation -
Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20); Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." This update modified the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans and was effective for the University beginning July 1, 2021. The adoption of this guidance did not have a material impact on the consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments
- Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815); Clarifying the Interactions between Topic 321, Topic 323, and Topic 815." This update clarifies the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. This update is effective for the University beginning July 1, 2022 with early adoption 22
Notes to Consolidated Financial Statements permitted. The University is currently evaluating the impact this guidance may have on its consolidated financial statements.
In September 2020, the FASB issued ASU 2020-07, "Not-for-Profit Entities; Presentation and Disclosure by Not-for-Profit Entities for Contributed Nonfinancial Assets." This update requires a not-for-profit entity to present contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash and other financial assets. In addition, not-for-profit entities are required to disclose additional qualitative and quantitative information related to nonfinancial assets. This update was effective for the University beginning July 1, 2021. The adoption of this guidance did not have a material impact on the consolidated financial statements.
- Coronavirus Pandemic In March 2020, the World Health Organization declared the novel coronavirus ("COVID-19") a pandemic. The COVID-19 pandemic has negatively affected national, state, and local economies and global financial markets, and the higher education landscape in general. The pandemic may continue to adversely affect operations and financial condition, including, among other things, (i) the ability of the University to conduct its operations and/or the cost of operations, (ii) governmental and non-governmental funding, and (iii) financial markets impacting investments valuation and interest rates.
The federal government has taken several actions to provide financial assistance during this pandemic.
Congress set aside approximately $76.6 billion between the Coronavirus Aid, Relief and Economic Security Act (CARES), Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA), and the American Rescue Plan (ARP) allotted to the Educational Stabilization Fund through the Higher Education Emergency Relief Fund (HEERF).
Under CARES, CRRSAA, and ARP, the University received a total allocation of $131.2 million for emergency aid to students and $158.8 million for institutional needs. The University distributed student emergency grants of $76.2 million and $30.8 million during 2022 and 2021, respectively, with the disbursement of funds presented within academic and student services expense and the associated revenue captured in United States Government grants and contracts in the consolidated statement of activities. Revenues of $73.8 million and $85.0 million were also recognized as United States Government grants and contracts in the consolidated statement of activities in 2022 and 2021, respectively, related to the institutional portion of the allotted funds. The institutional funds were used to offset lost tuition revenues including student bad debt, refunds for housing and dining services, and COVID testing costs. CARES, CRRSAA, and ARP funding were fully utilized at June 30, 2022.
As allowed by the CARES Act, the University has deferred payment of $34.0 million and $68.0 million for the employer portion of Social Security payroll tax at June 30, 2022 and 2021, respectively, which is included in accounts payable and other accrued expenses and other liabilities in the consolidated statement of financial position. In December 2021, $34.0 million of the deferral was paid with the remaining $34.0 million due by December 31, 2022.
The CARES Act revised the Medicare accelerated payment program ("Medicare APP"). During 2020, the Health System received approximately $160.3 million of Medicare APP funding under this program, which is recorded as a contract liability within accounts payable and other accrued expenses in the consolidated statements of financial position. Through the acquisition of Holy Spirit Medical Center and Spirit Physician Services, Inc., an additional $27.9 million was recorded as a contract liability in 2021. The Health System has not received additional Medicare APP funding during the year ended June 30, 2022. On October 1, 2020, the Continuing Appropriations Act, 2021 and Other Extensions Act (the "Act") was passed, which revised the Medicare APP repayment terms and interest rate for amounts received between the passage of the CARES Act and the end of the COVID-19 public health emergency. The Act delays the beginning of the recoupment of the advance payments to twelve months after the receipt of Medicare APP funds and extends the full repayment term to twenty-nine months. In addition, the Act caps recoupments at 25% for the first eleven months of repayment and 50% for the following six months. The interest rate is capped at 4% for amounts that remain outstanding at the end of the revised recoupment period.
During 2022 and 2021, the Health System recorded recoupment of Medicare APP funds of $127.6 million and $23.0 million, respectively. As of June 30, 2022 and 2021, Medicare APP funds of $37.6 million and 23
Notes to Consolidated Financial Statements
$117.1 million, respectively are recorded in accounts payable and other accrued expenses within the consolidated statements of financial position. As of June 30, 2021, Medicare APP funds of $48.2 million are recorded in other liabilities within the consolidated statements of financial position.
During the years ended June 30, 2022 and 2021, the Health System received approximately $8.5 million and
$77.9 million, respectively, from the Public Health and Social Services Emergency Fund ("Provider Relief Fund" or "CARES Act Grant") of which the Health System recognized approximately $8.5 million and $87.1 million (including $9.1 million received and deferred at June 30, 2020) as other operating revenue in the accompanying consolidated statement of operations and changes in net assets for the years ended June 30, 2022 and 2021, respectively. Providers who have been allocated a Provider Relief Fund payment must sign an attestation confirming receipt of the funds and agreeing to certain terms and conditions of payment.
Amounts recognized as other operating revenue are subject to uncertainty as new or revised guidance is released regarding the treatment of the funds. In September 2021, the Health System completed the submission to the Department of Health and Human Services through the on-line portal for Provider Relief Funds received between April 10, 2020 through June 30, 2020. Final approval was received by the Health System on February 3, 2022. Subsequent to year-end, the Health System completed an additional submission for Provider Relief Funds received between July 1, 2021 through June 30, 2022 as of September 30, 2022, and final approval of this submission has not been received.
- 3. LIQUIDITY AND AVAILABILITY OF FINANCIAL ASSETS The University regularly monitors liquidity required to meet its operating needs and other contractual commitments, while also striving to maximize the investment of its available funds. For purposes of analyzing resources available to meet general expenditures over a 12-month period, the University considers all expenditures related to its ongoing mission-related activities as well as the conduct of services undertaken to support those activities to be general expenditures.
Student loans receivable are not considered to b~ available to meet general expenditures because principal and interest on these loans are used solely to make new loans.
In addition to financial assets available to meet general expenditures over the next 12 months, the University operates with a balanced budget and anticipates collecting sufficient revenue to cover general expenditures not covered by donor-restricted resources. Refer to the statements of cash flows, which identifies the sources and uses of the University's cash and shows positive cash generated by operations for the years ended June 30, 2022 and 2021.
The University has various sources of liquidity at its disposal, including cash and cash equivalents and fixed income and equity securities.
The University has designated a portion of its resources without donor restrictions for endowment and other purposes. These funds are invested for long-term appreciation and current income but remain available and may be spent at the discretion of management.
24
Notes to Consolidated Financial Statements The following reflects the University's financial assets as of June 30, 2022 and 2021, reduced by amounts not available for general use within one year. Certain long-term investments could be liquidated if needed based on the terms of their agreements.
(in thousands of dollars) 2022 2021 Total assets $ 19,439,689 $19,878,734 Less:
Inventories (85,662) (72,604)
Prepaid expenses and other assets (127,277) (196,046)
Total investment in plant, net (6,885,672) (6,619,801)
Beneficial int~rest in perpetual trusts (26,240) (29,931)
Operating lease right-of-use assets (172,590) (146,215)
Other assets (191,385) (201,914)
Total financial assets 11,950,863 12,612,223 Less:
Noncurrent investments (8,045,673) (8,553,375)
Contractual or donor-imposed restrictions:
Deposits held by bond trustees (191,618) (48,520)
Deposits held for others (34,460) (45,690)
Receivables subject to time restrictions (42,793) (40,714)
Receivables subject to donor-imposed restrictions (127,333) (143,715)
Loans to students, net (32,004) (42,912)
Financial assets available to meet cash needs for general expenditures within one year $ 3,476,982 $ 3 737 297
- 4. INVESTMENTS Investments by major category as of June 30 are summarized as follows:
(in thousands of dollars) 2022 2021 Fixed income $ 3,912,368 $ 3,782,575 Equity investments 4,217,348 4,823,628 Real assets 642,506 469,251 Opportunistic 823,335 689,446 Total $ 9 595 557 $ 9,764,900 Fixed income investments are comprised of public and private fixed income strategies, which include government and corporate debt, mortgage-backed, and other asset-backed related debt. Equity investments include public and private strategies across global, U.S., developed non-U.S., and emerging markets. Real asset investments include public and private strategies utilizing both equity and debt structures that are focused on producing a positive real return during an inflationary environment. Real asset strategies include real estate, natural resources, and commodities. Opportunistic investments include public and private strategies utilizing both equity and debt structures that are expected to achieve absolute returns over longer periods of time and do not classify well into the other three investment types.
Equity index and treasury note futures contracts comprise the University's beneficially held derivative instruments as of June 30, 2022 and 2021 and are included in the fair value of the University's investments.
These contracts are fully cash collateralized and marked to market daily. Futures contracts have minimal credit risk because the counterparties are the exchanges themselves and are employed as a low-cost investment vehicle with daily liquidity which allows the University to maintain desired market exposure considering irregular cash flows. Derivative securities were immaterial as of June 30, 2022 and 2021.
25
Notes to Consolidated Financial Statements The following schedules summarize the investment return and its classification in the consolidated statements of activities for the year ended June 30:
(in thousands of dollars) Without donor With donor 2022 restrictions restrictions Total Investment income $ 39,817 $ 58,233 $ 98,050 Net realized gains 339,757 123,024 462,781 Net unrealized losses (504,926) (537,721) (1,042,647)
Total returns $ (125,352) $ (356 464) $ (481,816)
(in thousands of dollars) Without donor With donor 2021 restrictions restrictions Total Investment income $ 196,619 $ 14,492 $ 211,111 Net realized gains, including endowment spending 144,522 100,527 245,049 Net unrealized gains 649,663 739,379 1,389,042 Total returns $ 990 804 $ 854,398 $ 1,845,202
- 5. 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 net assets with donor restrictions 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. Also included in net assets with donor restrictions are gains and losses attributable to permanent endowments and deficiencies associated with funds where the value of the fund has fallen below the original value of. the gift. Funds functioning as endowments are established at the direction of University management and are classified as net assets without donor restrictions due to the lack of external donor restrictions. Also included in net assets without donor restrictions are gains and losses attributable to funds functioning as endowments.
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. Such deficiencies are reported as net assets with donor restrictions. As of June 30, 2022 and 2021, funds with an original gift value of $121.4 million and $6.2 million were "underwater" by $20.8 million and $2.2 million, respectively. Subsequent investment gains will be used to restore the balance up to the fair market value of the original gift.
26
Notes to Consolidated Financial Statements Endowment net asset composition by type of fund as of June 30:
(in thousands of dollars) Without donor With donor 2022 restrictions restrictions Total Donor-restricted endowment funds $ $ 3,148,363 $ 3,148,363 Funds functioning as Endowments 1 174 108 1 174 108 Total net assets $ 1,174,108 $ 3 148 363 $ 4,322,471 (in thousands of dollars) Without donor With donor 2021 restrictions restrictions Total Donor-restricted endowment funds $ $ 3,335,969 $ 3,335,969 Funds functioning as Endowments 1,259,586 1,259,586 Total net assets $ 1,259,586 $ 3,335,969 $ 4,595,555 Changes in endowment net assets for the years ended June 30:
(in thousands of dollars) Without donor With donor 2022 restrictions restrictions Total Endowment net assets, beginning of the year $ 1,259,586 $ 3,335,969 $ 4,595,555 Endowment return, net 15,864 (340,015) (324,151)
Contributions 152,409 152,409 Endowment spending (140,047) (140,047)
Transfers to create funds functioning as endowments 38 705 38 705 Endowment net assets, end of the year $ 1,174,108 $ .3, 148,363 $ 4,322,471
~nthousandsofdollars) Without donor With donor 2021 restrictions restrictions Total Endowment net assets, beginning of the year $ 922,801 $ 2,424,281 $ 3,347,082 Endowment return, net 436,605 812,502 1,249,107 Contributions 99,186 99,186 Endowment spending (132,693) (132,693)
Transfers to create funds functioning as endowments 32,873 32,873 Endowment net assets, end of the year $ 1 259,586 $ 3,335 969 $ 4;595,555 Not included above are the endowment net assets of subsidiaries of $36.9 million and $42.1 million as of June 30, 2022 and 2021, respectively.
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 investment objective for the University's pooled endowment funds is to grow the real (inflation adjusted) purchasing power of the assets through a prudent long-term investment strategy. To satisfy its long-term objective, the University relies on a total return strategy in which investment returns are achieved through 27
Notes to Consolidated Financial Statements both capital appreciation and income. The University targets a diversified asset allocation, with prudent risk constraints, which places a greater emphasis on equity-based investments to achieve its long-term return objectives.
The University expects the spending policy to allow its endowment to provide generous current spending while preserving "intergenerational equity". The spending amount for fiscal year 2022 and 2021 was based on 4.5% of the endowment plan's average fair market value over the prior twenty quarters preceding the fiscal year in which the distribution was planned and was net of administrative expenses.
- 6. FAIR VALUE MEASUREMENTS The University utilizes the following fair va.lue 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. Such instruments valued at Level 1 primarily consist of securities that are directly held and actively traded in public markets.
- 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 significcint 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.
28
Notes to Consolidated Financial Statements The following table presents information about the University's financial assets and liabilities, as categorized by level of the fair value hierarchy according to the lowest level of inputs significant to each measurement or net asset value (NAV) per share as of June 30, 2022 and 2021:
(in thousands of dollars) 2022 Level 1 Level2 Level3 NAV Total Assets:
Long-term Investment Pool:
Fixed income Public separate accounts $ 173 $ 493,275 $ - $ - $ 493,448 Public funds 210,562 210,562 Private funds 328,267 328,267 Equity investments Public separate accounts 572,676 572,676 Private separate accounts 1,525 1,525 Public funds 79,326 79,326 Private funds 3,200,355 3,200,355 Real assets Public funds 88,306 88,306 Private funds 552,442 552,442 Opportunistic Private funds 561,089 561,089 Total $ 951,043 $ 493,275 $ 1 525 $ 4,642,153 $ 6,087,996 Operating Investments:
Fixed income Public separate accounts $ 4,792 $ 2,519,101 $ - $ - $ 2,523,893 Public funds 259,562 259,562 Private funds 96,636 96,636 Equity investments Public separate accounts 31,065 1 31,066 Private separate accounts 388 136 524 Public funds 250,165 250,165 Private funds 4,452 77,079 81,531 Real assets Public funds 1,586 1,586 Private funds 7 165 172 Opportunistic Public funds 74 74 Private funds 262,172 262,172 Total $ 547,632 $ 2,519,102 $ 4 595 $ 436,052 $ 3 507 381 Deposits held by bond trustees:
Fixed income Public funds $ 124,256 $ - $ - $ - $ 124 256 Deposits held for others $ - $ 10,524 $ - $ - $ 10,524 Beneficial interest in perpetual trusts $ - $ - $ 26,240 $ - $ 26,240 Liabilities:
Present value of annuities payable $ - $ - $ 63 995 $ - $ 63 995 29
Notes to Consolidated Financial Statements (in thousands of dollars) 2021 Level 1 Level3 NAV Total Assets:
Long-term Investment Pool:
Fixed income Public separate accounts $ 174 $ 577,871 $ - $ - $ 578,045 Public funds 127,368 127,368 Private funds 398,281 398,281 Equity investments Public separate accounts 669,086 669,086 Private separate accounts 1,308 1,308 Public funds 109,826 109,826 Private funds 3,650,925 3,650,925 Real assets Public funds 86,762 86,762 Private funds 380.894 380,894 Opportunistic Private funds 481 889 481,889 Total $ 993.216 $ 577.871 ~$====1,+/-1~30=8 $ 4.911 989 $ 6 484 384 Operating Investments:
Fixed income Public separate accounts $ 4,962 $ 2,221.167 $ - $ - $ 2,226.129 Public funds 310.045 310,045 Private funds 142.707 142.707 Equity investments Public separate accounts 25.437 5 25,442 Private separate accounts 1 420 421 Public funds 292.129 292.129 Private funds 4.783 69.708 74.491 Real assets Private separate accounts 7 7 Public funds 1.473 1,473 Private funds 115 115 Opportunistic Private funds 207,557 207,557 Total $ 634.046 $ 2.221.172 $ 4.791 $ 420.507 $ 3.280.516 Deposits held by bond trustees:
Fixed income Public funds $ 17,922 $ - $ - $ - $ 17,922 U.S. dollar cash 30,598 Total . $ 17,922 ~$====- ~$====- ,!!;$====- $ 48.520 Beneficial interest in perpetual trusts ,!!;$====- ~$====- $ 29 931 ,!!;$====- $ 29 931 Liabilities:
Present value of annuities payable ~$====- ~$====- $ 64.917 ~$===- ==$==64=="'=91"""7 Public separate accounts hold public fixed income and equity investments owned directly by the University.
Private separate accounts hold private fixed income and equity investments owned directly by the University.
Public funds are commingled investment structures that are publicly listed and whose valuations are readily available. Private funds comprise commingled investment structures that are not publicly listed and are managed collectively following a prescribed investment strategy.
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 30
- Notes to Consolidated Financial Statements long-term. A unit method of accounting for the LTIP is utilized by the University. Each participating fund enters and withdraws from the LTIP based on monthly unit values. As of June 30, 2022 and 2021, the fair value of endowment funds and funds functioning as endowments within the LTIP totaled $4,391.6 million and
$4,630.9 million, respectively. As of June 30, 2022 and 2021, the fair value of operating funds included in the LTIP totaled $1,696.4 million and $1,853.5 million, respectively.
The following tables present information related to changes in Level 3 for each category of financial assets and liabilities for years ended June 30, 2022 and 2021:
Beneficial Long-Term Interest in Investment Operating Perpetual (in thousands of dollars) Pool Investments Trusts Assets:
Balance as of June 30, 2020 $ $ 5,132 $ 24,509 Total realized and unrealized (losses) gains (331) 5,422 Net transfers in (out) 1 308 (10)
Balance as of June 30; 2021 1,308 4,791 29,931 Purchases 136 Total realized and unrealized (losses) gains 217 (332) (3,691)
Net transfers in (out)
Balance as of June 30, 2022 $ 1 525 $ 4 595 $ 26,240 Present Value of Annuities Payable Liabilities:
Balance as of June 30, 2020 $ 56,564 Actuarial adjustment of liability 8,435 Gifts 1,160 Sales (1,242)
Balance as of June 30, 2021 64,917 Actuarial adjustment of liability 1,726 Gifts 772 Sales (3,420)
Balance as of June 30, 202~ $ 63 995 31
Notes to Consolidated Finonciol Statements The following table presents the fair value and redemption frequency for private funds' investments whose fair value is not readily determinable and is estimated using NAV or its equivalent as of June 30:
Unfunded Fair Value Commitments Redemption Redemption (in thousands of dollars) 2022 2021 At June 30, 2022 Frequency Notice Period Private Funds With Redemption Ability:
Fixed income investments $ 247,426 $ 421,442 Monthly 10 days Equity investments 1,661,652 2,043,168 Daily/Quarterly 2-90 days Real asset investments 237,814 136,802 Daily/Monthly 0-60 Days Opportunistic investments 730,960 610,372 Daily/Quarterly 90-365 Days Subtotal $2,877,852 $3,211,784 Private Funds Without Redemption Ability:
Fixed income investments $ 177,477 $ 119,546 $ 94,494 Equity investments 1,615,782 1,677,885 519,333 Real asset investments 314,793 244,207 217,986 Opportunistic investments 92,301 79 074 100 577 Subtotal $ 2,200,353 $2,120,712 $ 932,390 Total $ 5,078,205 $ 5,332,496 $ 932 390 Private funds with redemption ability include private funds that the University has some discretion as to the timing of withdrawing money from the commingled fund. Redemptions vary from daily to quarterly with required notification of 90 days or less.
Private funds without redemption ability include private funds that the University has no or very little discretion as to the timing of withdrawing money from the commingled fund. Realizations from these funds are received as the underlying investments are liquidated or distributed, typically within 10-15 years after initial commitment.
Unfunded commitments represent remaining commitments of the LTl P's drawdown funds as of June 30, 2022.
- 7. CONTRIBUTIONS RECEIVABLE Contributions receivable are summarized as follows as of June 30:
(in thousands of dollars) 2022 2021 In one year or less $ 42,361 $ 45,821 Between one year and five years 68,283 85,599 More than five years 133 463 122,100 Contributions receivable, gross 244,107 253,520 Less allowance (1,656) (1,415)
Less discount (49,702) (45,459)
Contributions receivable, net $ 192 749 $ 206 646 Contributions received during the years ended June 30, 2022 and 2021 are discounted at rates ranging from 2.80% to 3.18% and 0.07% to 1. 75%, respectively. The discount rates for prior periods ranged from 0.11 % to 6.28%.
At June 30, 2022 and 2021 the University has received bequest intentions of $797.5 million and $714.0 million, respectively, and certain other conditional promises to give of $65.5 million and $57.5 million, respectively.
These intentions and conditional promises to give are not included in the consolidated financial statements.
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Notes to Consolidated Financial Statements The following table summarizes the change in contributions receivable,' net during the years ended June 30, 2022 and 2021: *
(in thousands of dollars)
Balance as of June 30, 2020 $ 208,587 New pledges 59,821 Collections on pledges (65,194)
Decrease in allowance 2,410 Decrease in unamortized discounts 1,022 Balance as of June 30, 2021 206,646 New pledges 64,172 Collections on pledges (73,585)
Increase in allowance (241)
Increase in unamortized discounts (4,243)
Balance as of June 30, 2022 $ 192.749
- 8. LONG-TERM DEBT The various bond issues, notes payable and capital lease obligations that are included in long-term debt in the statement of financial position consist of the following at June 30:
(in thousands of dollars) 2021 The Pennsylvania State University Bonds Series 2022A $ 125,450 $
Series 2022B 26,500 .
Series 2020A 79,300 80,495 Series 2020B 314,675 325,390 Series 2020D 1,039,685 1,065,165 Series 2020E 52,330 56,850 Series 2019A 103,770 105,425 Series 2019B 113,835 116,445 Series 2018 61,140 62,215 Series 2017A 146,780 149,540 Series 2017B 114,115 116,905 Series 2016A 107,995 111,105 Series 2016B 180,645 191,375 Series 2015A 55,820 57,560 Series 2015B 87,965 92,360 Series 2007B 31,455 35,800 Pennsylvania Higher Educational Facilities Authority University Revenue Bonds (issued for The Pennsylvania State University)
Series 2006 1,320 1,610 Series 2004 1,200 1,560 Series 2002 535 Penn State Health Bonds Series 2019 222,000 222,000 Cumberland County Municipal Authority Revenue Bonds (issued for Penn State Health)
Series 2019 200,000 200,000 Lancaster County Hospital Authority Revenue Bonds (issued for Penn State Health)
Series 2021 288,840 33
Notes to Consolidated Financial Statements Lycoming County Authority College Revenue Bonds (issued for Penn College)
Series 2021A 28,025 29,885 Series 2021 B 21,980 22,780 Series 2016 44,865 . 46,890 Series 2015 1 700 2,295 Total bonds payable 3,451,390 3,094,185 Unamortized bond premiums 247,135 186,794 Unamortized deferred bond costs (16,526) (14,073)
Notes payable, lines of credit and finance leases Notes payable 41,968 46,843 Lines of credit 150,000 Finance lease obligations 45 083 45 029 Total notes payable, lines of credit and finance leases 87 051 241,872 Total long-term debt $ 3,769,050 $ 3,508,778 Interest rate Debt issuance mode Interest rates Payment ranges and maturity (in thousands of dollars)
The Pennsylvania State University Bonds
$1,845 to $4,770 through September 2042 with
$27,765 and $35,890 due September 2047 and Series 2022A Fixed 2.08% - 3.69% 2052, respectively
$890 to $1,550 through September 2037 with Series 2022B Fixed 2.773% - 4.673% $8,940 due September 2042
$1,255 to $3,090 through September 2040 with
$17,980 and $22,490 due September 2045 and Series 2020A Fixed 4.00% - 5.00% 2050, respectively
$5,895 to $13,910 through September 2035 with
$67,170 and $89,310 due September 2040 and Series 2020B Fixed 1.549% - 2.888% 2050, respectively
$25,765 to $33,545 through September 2035 with $304,225 and $328,000 due September Series 20200 Fixed 1.14%-2.84% 2043 and 2050, respectively Series 2020E Fixed 5.00% $4,520 to $7,010 through March 2031 Series 2019A Fixed 5.00% $1,740 to $6,720 through September 2049
$2,670 to $3,720 through September 2034 with
$20,455 and $52,515 due September 2039 and Series 2019B Fixed 2.10% - 3.50% September 2049, respectively
$1,115 to $2,320 through September 2037 with
$16,650 and $18,255 due September 2043 and Series 2018 Fixed 2.00% - 5.00% September 2048, respectively
$2,860 to $5,965 through September 2037 with
$34,750 and $44,620 due September 2042 and Series 2017A Fixed 2.00% - 5.00% September 2047, respectively
$2,855 to $3,830 through September 2032 with
$21,305 and $56,595 due September 2037 and Series 2017B Fixed 2.283% - 3.793% September 2047, respectively
$3,625 to $6,465 through September 2036 with Series 2016A Fixed 5.00% $37,520 due September 2041 Series 2016B Fixed 4.00% - 5.00% $7,165 to $22,195 through September 2036
$1,830 to $3,445 through September 2035 with Series 2015A Fixed 5.00% $20,000 due September 2040 34
Notes to Consolidated Financial Statements Interest rate Debt issuance mode Interest rates Payment ranges and maturity Series 2015B Fixed 5.00% $4,620 to $8,435 through September 2035 Series 2007B Fixed 5.25% $4;580 to $5,955 through August 2027 Pennsylvania Higher Educational Facilities Authority University Revenue Bonds Series2006 Fixed 5.125%* $1,610dueSeptember2025 Series 2004 Fixed 5.00%* $1,905 due September 2024
- Annual interest costs to the University for interest rates greater than 3.00% are subsidized by PHEFA.
Penn State Health Bonds Series 2019 Fixed 3.806% $200,000 due November 2049 Cumberland County Municipal Authority Revenue Bonds
$4,915 to $9,315 through November 2039 with
$52,355 and $63,940 due November 2044 and Series 2019 Fixed 3.00% - 5.00% November 2049, respectively Lancaster County Hospital Authority Revenue Bonds
$5,780 to $13,690 through November 2041 with
$79,750 and $152,421 due November 2046 and Series 2021 Fixed 5.00% November 2051, respectively Lycoming County Authority College Revenue Bonds Series 2021A Fixed 5.00% $1,720 to $4,565 through July 2030 Series 2021 B Fixed 0.50% - 3.014% $835 to $1,930 through January 2038 Series 2016 Fixed 2.125% - 5.00% $1,545 to $4,075 through October 2037 Series 2015 Fixed 2.65% - 5.00% $465 to $625 through January 2025 The Series 2022A Bonds are general obligation bonds issued in May 2022 for the purpose of financing various construction and renovation projects. The Series 2022A Bonds are subject to early redemption provisions, at the option of the University, beginning September 2032. The bonds maturing September 2047 and September 2052 are subject to mandatory sinking fund redemption.
The Series 2022B Bonds are taxable general obligation bonds issued in May 2022 for the purposes of financing a renovation project. The Series 2022B Bonds are subject to optional redemption provisions prior to maturity, in such order of their maturity as directed by the University, at the greater of (1) the sum of present values of the.
remaining scheduled payments of principal and interest thereon discounted at the redemption rate on a semi-annual basis or (2) 100% of the principal amount of the Series 2022B Bonds to be redeemed. The bonds maturing September 2042 are subject to mandatory sinking fund redemption.
The Lancaster County Hospital Authority Revenue Bonds, Series 2021 were issued by the Health System in November 2021 for the purpose of financing the construction of the Penn State Health Lancaster Medical Center.
The University believes it has complied with all financial debt covenants for the years ended June 30, 2022 and 2021.
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Notes to Consolidated Financial Statements Maturities and sinking fund requirements on bonds payable for each of the next five fiscal years and thereafter are summarized as follows:
Annual Installments Year (in thousands of dollars) 2023 $ 85,720 2024 91,085 2025 93,900 2026 102,555 2027 105,975 Thereafter 2,972,155 Total $ 3 451,390 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, 2022, the carrying value and estimated fair value of the University's bonds payable, including issuance premiums and deferred bond costs, are $3,682.0 million and $3,288.8 million, respectively. At June 30, 2021, the carrying value and estimated fair value of the University's bonds payable, including issuance premiums and deferred bond costs, are $3,266.9 million and
$3,430.7 million, respectively. Certain bond issues have associated issuance premiums; these issuance premiums total $247.1 million and $186.8 million at June 30, 2022 and 2021, respectively, and are presented within the statements of financial position as long-term debt. These issuance premiums will be amortized over the term of the respective outstanding bonds. Certain bond issues have associated deferred bond costs; these deferred bond costs total $16.5 million and $14.1 million at June 30, 2022 and 2021, respectively, and are presented within the statements of financial position as a reduction in long-term debt. These deferred bond costs will be amortized over the term of the respective outstanding bonds.
Notes payable and lines of credit The University has five notes payable included within the consolidated statements offinancial position at June 30, 2022 with balances of $2.4 million, $3.6 million, $5.0 million, $6.1 million, and $24.8 million. These notes have payments due through June 2024, June 2025, March 2026, August 2039, and September 2040 and bear interest at 2.60%, 2.85%, 2.80%, 2.65%, and 2.65%, respectively. The current portion of payments due under these notes totals $5.0 million at June 30, 2022.
- In July 2020, the University issued two lines of credit totaling $250 million to provide support for its liquidity position in the wake of the COVID-19 pandemic. Total drawn amounts of $50 million on these lines of credit were repaid in full in July 2021 and the related loan documents were fully terminated.
During 2020, the Health System established several lines of credit, all of which were repaid in full in 2021 and have expired.
In April 2021, the Health System established a revolving line of credit with PNC Bank in the amount of$230 million, expiring in April 2024. The interest rate on the line of credit is LIBOR-based plus a spread, with a commitment fee on the undrawn portion. In 2021, the Health System had drawn $100 million on the line. During 2022, the Health System did not draw on this line of credit and repaid the outstanding balance in full. The interest rate as of June 30, 2022 and 2021 was 2.3% and 0.8%, respectively. As of June 30, 2022 the line of credit was closed.
- 9. LEASES The University leases certain equipment and buildings under operating and finance leases expi~ing at various dates through 2043. Rentals generally include insurance, taxes and maintenance costs.
36
Notes to Consolidated Financial Statements Future maturities of lease liabilities at June 30, 2022 are as follows:
(in thousands of dollars)
Year Finance Leases Operating Leases 2023 $ 10,350 $ 31,725 2024 9,232 26,590 2025 6,602 24,094 2026 4,510 21,215 2027 3,747 19,556 Thereafter 21268 86015 Total lease payments 55,709 209,195 Less amount representing interest (10,626) (36,953)
Total lease obligations 45,083 172,242 Current portion 7 860 21 442 Long-term portion $ 37,223 =$====15='0"",8'='0==0 Supplemental lease activity for the years ended June 30 is as follows:
(in thousands of dollars) 2022 Components of Lease Expense Finance lease expense:
Amortization of ROU assets $ 7,573 $ 9,210 Interest on lease liabilities 1 762 2 042 Total finance lease expense 9 335 11 252 Operating lease expense 41 959 44 788 Total lease expense $ 51,294 =$====5'='6='=,0==4='=0 The weighted-average remaining lease term and weighted-average discount rate at June 30 were as follows:
Weighted-Average Weighted-Average Remaining Lease Discount Term (Years) Rate 2022 2021 2022 2021 University:
Finance leases 12.17 12.37 4.10% 4.00%
Operating leases 5.62 5.79 3.62% 3.52%
Health S~stem:
Finance leases 3.90 6.57 3.30% 6.55%
Operating leases 11.70 10.12 4.30% 5.00%
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Notes to Consolidated Financial Statements Supplemental cash flow information related to leases for the years ended June 30 is as follows:
(in thousands of dollars) 2022 2021 ROU assets acquired in exchange for finance lease liabilities $ 8,553 $ 7,495 ROU assets acquired in exchange for operating lease liabilities 51,793 25,444 Beginning operating lease ROU asset balance 146,215 147,991 Beginning operating lease liability balance 148,054 147,991 Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from finance leases 1,762 2,042 Operating cash outflows from operating leases 30,459 23,019 Financing cash outflows from finance leases 8,161 10,908
- 10. FUNCTIONAL AND NATURAL CLASSIFICATION OF EXPENSES Functional expenses by natural classification as of June 30 are as follows:
(in thousands of dollars) Educational Auxiliary Health 2022 and General Enteri;1rises System Total Salaries and wages $1,828,618 $ 139,481 $1,612,756 $3,580,855 Benefits 642,514 66,767 405,583 1,114,864 Depreciation 304,081 41,942 138,456 484,479 Plant operations and maintenance 149,085 18,997 96,458 264,540 Other components of net periodic postretirement benefit cost 60,067 60,067 Interest 37,510 30,654 9,345 77,509 Supplies, services, and other 713,270 181 767 1,352,232 2,247,269 Total $ 3 735 145 $ 479 608 $ 3 614 830 $ 7 829,583 Educational Auxiliary Health 2021 and General Enteri;1rises System Total Salaries and wages $1,762,358 $ 122,132 $1,431,531 $3,316,021 Benefits 636,626 61,539 376,882 1,075,047 Depreciation 283,963 37,470 114,241 435,674 Plant operations and maintenance 98,383 11,675 82,963 193,021 other components of net periodic postretirement benefit cost 62,033 62,033 Interest 23,058 26,595 5,589 55,242 Supplies, services, and other 435 147 169,049 1,120,067 1,724,263 Total $ 3 301 568 $ 428,460 $3,131,273 $ 6 861 301 Education and general is comprised of academic and student services (which consists of instruction, academic support and student services), research, public service and institutional support. The costs of plant operations and maintenance, depreciation, and interest have been allocated across all functional expense categories to reflect the full cost of those activities. Plant operations and maintenance and depreciation expense are allocated based on the total proportionate expenses of each functional classification. Interest expense is allocated based on the proportionate share of total debt-financed construction.
- 11. 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 (SERS) and The Public School Employees' Retirement System (PSERS) or defined contribution plans administered by the Teachers Insurance and Annuity Association (TIM). The University is billed for its share of the estimated actuarial cost of the defined benefit plans ($38.0 million and $34.5 million, 38
Notes to Consolidated Financial Statements net of applied setoff credits of $93.3 million for the years ended June 30, 2022 and 2021). The Health System provides retirement benefits for substantially all employees through one of three defined contribution plans administered by Empower Retirement. The University's total cost for retirement benefits, included in expenses, is $224.1 million and $213.0 million for the years ended June 30, 2022 and 2021, respectively.
The SERS is the administrator of a cost-sharing, multi-employer retirement system established by the Commonwealth of Pennsylvania to provide pension benefits for employees of state government and certain independent agencies. As provided by statute, the SERS Board of Trustees has exclusive control and management responsibility of the funds and full power to invest the funds. The SERS funding policy provides for periodic member contributions at statutory rates and employer contributions at actuarially determined rates (expressed as a percentage of annual gross pay) that are sufficient to accumulate assets to pay benefits when due. In April 2020, the University entered into an agreement with SERS to prefund $1,061.0 million of the University's unfunded actuarial accrued liability in exchange for credits against future contributions. The University's contributions to this plan for the years ended June 30, 2022 and 2021 were $34.1 million and $31.0 million, respectively (net of applied setoff credits of $93.3 million) and represent approximately 5.8% of total contributions to the plan based on projections for fiscal years 2022 and 2021. The funded ratio of the plan was 69.6% as of December 31, 2021.
- 12. POSTRETIREMENT BENEFITS The University sponsors a retiree medical plan covering eligible retirees and eligible dependents. This program includes a Preferred Provider Organization (PPO) plan (both a traditional and a qualified high deductible option) for retirees and their dependents who are not eligible for Medicare, and a Medicare Advantage PPO plan. In addition, the University provides certain retiree life insurance benefits to eligible retirees as described below.
Employees who were hired prior to January 1, 2010 are eligible for medical coverage after they retire if either of the following requirements are satisfied:
- they are at least age 60 and have at least 15 years of continuous 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.
Effective January 1, 2016, any non-union employee who retires on or before December 31, 2020 will receive a $5,000 term life insurance policy benefit at no cost to the employee. If a non-union employee retires after December 31, 2020, no life insurance benefit is provided. For certain union employees, a $5,000 term life insurance policy is provided at no cost to the employee regardless of their retirement date.
The retiree PPO medical plan is a self-funded program, and all medical claims and other expenses are paid from net assets without donor restrictions of the University.-- The Medicare Advantage PPO plan and life insurance program 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 Retirement Healthcare Savings Plan 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.
39
Notes to Consolidated Financial Statements 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:
(in thousands of dollars)
Change in benefit obligation: 2022 2021 Benefit obligation at beginning of year $ 2,060,684 $ 2,344,814 Service cost 31,758 37,137 Interest cost 59,566 61,951 Actuarial gain (185,469) (399,022)
Benefits paid (53,834) (45,338)
Plan assumptions (441,249) 61 142 Benefit obligation at end of year $ 1,471 456 $ 2 060,684 Change in plan assets:
Fair value of plan assets at beginning of $ $
year Employer contributions 53,834 45,338 Benefits paid (53,834) (45,338)
Fair value of plan assets at end of year $ $
Funded status $ (1,471,456) $ (2,060,684)
Unrecognized prior service cost (benefit)
Unrecognized net actuarial loss Accrued postretirement benefit expense $ (1,471 456) $ (2 060 684)
Net periodic postretirement cost includes the following components for the years ended June 30:
(in thousands of dollars)
Operating expenses: 2022 2021 Service cost $ 31,758 $ 37,137 Nonoperating activities:
Interest cost 59,566 61,951 Amortization of prior service cost (4) (906)
Amortization of unrecognized net loss 505 987 Net periodic postretirement cost $ 91,825 $ 99 169 The assumed healthcare cost trend rate used in measuring the accumulated postretirement benefit obligation was 7.60% and 6.70% for the years ended June 30, 2022 and 2021, respectively, reduced to an ultimate level of 4.50% and 5.00%, respectively. The postretirement benefit obligation discount rate was 4.87% and 3.23%
for the years ended June 30, 2022 and 2021, respectively. During 2022, the plan had favorable claims experience compared to assumptions, and the liability decreased significantly due to the increase in discount rates. During 2021, the plan also had favorable claims experience compared to assumptions in addition to positive results related to the change in the mortality table improvement scale.
- 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.
40
Notes to Consolidated Financial Statements Postretirement benefits expected to be paid for the years ended June 30 are as follows:
(in thousands of dollars) 2023 $ 54,060 2024 59,307 2025 64,333 2026 68,896 2027 73,299 2028-32 417,900
- 13. PENN STATE HEALTH Penn State Health was organized exclusively for the charitable, educational, and scientific purposes as defined and limited by Section 501 (c)(3) of the Internal Revenue Code of 1986. The Health System's purpose is to promote, support and further the charitable, educational, and scientific purposes of the University. The Health System is controlled by the University with a 20% minority ownership by Highmark Health (HH). The Health System recorded non-controlling interest, excess of revenues over expenses, related to this minority interest. The total noncontrolling interest related to Highmark Health is recorded in net assets without donor restrictions within the consolidated statements of financial position with a value at June 30, 2022 and 2021 of
$334.7 million and $319.8 million, respectively.
I The wholly owned subsidiaries of the Health System include the Milton S. Hershey Medical Center (MSHMC),
Saint Joseph's Regional Health Network and Medical Group (SJRHN/SJMG), Penn State Community Medical Group (PSCMG), Holy Spirit Medical Center (HSMC), Nittany Health, Inc. ("Nittany"), Central PA Health Network (CIN), Penn State Health Hampden Medical Center ("Hampden"), Penn State Health Lancaster Medical Center (LMC) and Penn State Health Life Lion, LLC (PSHLL).
The Health System has four, not-for-profit, acute care hospitals. MSHMC is a 634-licensed bed academic medical center located in Hershey, Pennsylvania. The hospital is a Level 1 Regional Trauma Center.
Additionally, MSHMC operates an ambulatory surgical center, which provides endoscopy procedures to the Centre County Region. SJRHN is a 204-licensed bed hospital in the Berks County Region. SJRHN owns Saint Joseph Health Services, LLC ("SJHS, LLC") which is a for-profit subsidiary. HSMC was acquired on November 1, 2020 and is a 307-licensed bed hospital in Cumberland County. Hampden is a 120-licensed bed hospital in Cumberland County which opened October 1, 2021. All acute care hospitals provide inpatient, outpatient and emergency care services.
The Health System has one acute care hospital under construction. LMC will be a 129-licensed bed acute care hospital located in Lancaster County and is expected to open in the fall of 2022.
On June 23, 2020, the Health System established PSHLL. The purpose of PSHLL is to provide emergency medical services into a broader geographic region. On December 1, 2020 PSHLL began operations.
The Health System, through its medical groups, operates a non-acute and ambulatory network which consists of over 84 sites of patient care in nine counties. The Health System, through its affiliates, also operates two joint venture specialty hospitals, the Penn State Health Rehabilitation Hospital (PSHR) and Pennsylvania Psychiatric Institute (PPI). The Health System has additional jointly owned health care centers, home health care services and ambulatory surgical centers. These include Hershey Outpatient Surgery Center (HOSC),
Hershey Endoscopy Center (HEC) and Cancer Care Partnership (CCP). Nittany owns 72% interest in HOSC and therefore the operations of HOSC are included in the consolidated financial statements of the Health System, with the 28% unowned interest reported as noncontrolling interest. This non-controlling interest is recorded in net assets without donor restrictions within the consolidated statements of financial position with a value at June 30, 2022 and 2021 of $2.4 million.
During 2022 and 2021, the Health System received cash contributions related to the Community Health Reinvestment Act from HH. The cash contributions of $30.0 million are recorded as Health System revenue on the consolidated statements of activities. Additionally, during 2022 and 2021, the Health System paid HH
$243.2 million and $226.6 million, respectively related to employee benefit expenses and recorded $659.8 41
Notes to Consolidated Financial Statements million and $658.2 million, respectively in net patient revenue related to HH third party payor contracts. As of June 30, 2022 and 2021, the Health System has a liability due to HH in the amount of $3.1 million. This liability is related to a contractual agreement between the parties and is included in accounts payable and other accrued expenses in the consolidated statements of financial position.
- 14. 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 $1,731.5 million, of which $1,345.7 million has been paid or accrued as of June 30, 2022. 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 $38.4 million and $39. 7 million as of June 30, 2022 and 2021, 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.
Self-Insurance The University has a coordinated program of commercial and self-insurance for medical malpractice claims for the Health System 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% for the years ended June 30, 2022 and 2021, of the medical malpractice claims liability in the amount of $186.4 million and $162.5 million is recorded as of June 30, 2022 and 2021, respectively.
The subsidiaries of the Health System are self-insured for all medical malpractice claims asserted on or after July 1, 2001, for all amounts that are below the coverage of excess insurance policies and not included in the insurance coverage of the MCARE Fund. Under the self-insurance program, the Health System 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 $33.6 million at June 30, 2022 and 2021. The Health System intends to fund any claims due during the next year from cash flows from operations.
With approval from the Pennsylvania Department of Labor and Industry (PA-DLI), the University elected to self-insure potential obligations applicable to Pennsylvania workers' compensation. Claims under the program are contractually administered by a third-party administrator. The University purchased insurance coverage from a commercial insurer for claims in excess of $600,000 per incident. An estimate of the self-insured workers' compensation claims liability in the amount of $5.8 million and $7.3 million, discounted at 3.01% and 0.87%,
respectively. is recorded as of June 30, 2022 and 2021, respectively. The University has established a trust fund, in the amount of $13.9 million and $14.5 million at June 30, 2022 and 2021, respectively, as required by PA-DLI, to collateralize and to provide for the payment of claims under this self-insurance program. The Health System is self-insured for workers' compensation claims and has purchased excess policies through commercial insurers which cover individual claims in excess of $750,000 per incident for workers' compensation claims.
The University and the Health System are self-insured for certain health care benefits provided to employees.
The University and the Health System have purchased excess insurance policies which cover employee health 42
Notes to Consolidated Financial Statements benefit claims in excess of $600,000 per employee per year. The University and the Health System provide for reported claims and claims incurred but not reported.
Litigation and Contingencies 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.
Based on its operation of the Health System (see Note 13), the University, like the rest of 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.
Government activity has continued with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. 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.
- 15. SUBSEQUENT EVENTS The University has evaluated subsequent events through November 21, 2022, the date on which the consolidated financial statements were issued. It did not identify any subsequent events to be disclosed other than those below or previously noted.
43
THE PENNSYLVANIA STATE UNIVERSITY BOARD OF TRUSTEES as of June 30, 2022 APPOINTED BY THE GOVERNOR ABRAHAM AMOROS J. ALEX HARTZLER TERRENCE M. PEGULA President Managing Partner CEO Amoros Communications WCI Partners, LP Buffalo Bills, Buffalo Sabres, JKLM Energy, LLC Managing Director City of Reading DAVID M. KLEPPINGER STANLEY I. RAPP Chairman Emeritus Senior Partner DANIEL J. DELLIGATTI McNees Wallace & Nurick LLC Greenlee Partners, LLC President and Owner/Operator M&J Mana ement Cor .
MEMBERS EX OFFICIO
- NEEL! BENDAPUDI CYNTHIA A. DUNN RUSSELL C. REDDING President Secretary Secretary The Pennsylvania State University Pennsylvania Department of Pennsylvania Department of Agriculture
- Non-Voting Trustee Conservation and Natural Resources
- WILLIAM S. SHIPLEY, Ill
- THOMAS W. WOLF ERIC HAGARTY Governor's Non-Voting Representative Governor Acting Secretary Chairman, Shipley Group Commonwealth of Pennsylvania Pennsylvania Department of Education ..Non-Voting Representative
- Non-Volin Trustee ELECTED BY ALUMNI EDWARD B. BROWN, Ill ANTHONY P. LUBRANO ALICE W. POPE President & CEO President Retired Associate Professor KETCHConsulting, Inc. A.P. Lubrano & Company, Inc. Department of Psychology St. John's University ALVIN F. de LEVIE WILLIAM F. OLDSEY Attorney and Founder Educational Publishing Executive BRANDON D. SHORT Law Offices of Alvin F. de Levie Executive Director and Portfolio Manager JOSEPH V. PATERNO, JR. PGIM Real Estate BARBARA L. DORAN President, Blue Line 409 LLC CEO, Chief Investment Officer STEVEN B. WAGMAN BD8 Capital Partners, LLC National Healthcare Business Leader Siemens Industry, Inc .- Smart Infrastructure ELECTED BY DELEGATES FROM AGRICULTURAL SOCIETIES RANDALL E. BLACK VALERIE L. DETWILER M. ABRAHAM HARPSTER CEO & President Vice President, Senior Business Banker Co-Owner First Citizens Community Bank Reliance Bank Evergreen Farms, Inc.
DONALD W. CAIRNS LYNN A."DIETRICH CHRIS R. HOFFMAN Owner/Operator Retired Professional Engineer (PE) Vice President Cairns Family Farm Pennsylvania Farm Bureau ELECTED BY THE BOARD - REPRESENTING BUSINESS AND INDUSTRY MARK H. DAMBLY WALTER C. RAKOWICH VACANT President Retired Chief Executive Officer Pennrose Properties, LLC Prologis ROBERT E. FENZA MARY LEE SCHNEIDER VACANT Retired Chief Operating Officer Former President and CEO Liberty Property Trust SG360° ELECTED BY THE BOARD-AT-LARGE KATHLEEN L. CASEY JULIE ANNA POTTS MATTHEW W. SCHUYLER Senior Advisor President and Chief Executive Officer Chief Brand Officer Patomak Global Partners, LLC North American Meat Institute Hilton KLC Consulting Group, LLC IMMEDIATE PAST PRESIDENT STUDENT TRUSTEE ACADEMIC TRUSTEE ALUMNI ASSOCIATION JANIYAH R. DAVIS NICHOLAS J. ROWLAND RANDALL 8. HOUSTON, JR.
Student Professor of Sociology Immediate Past President The Pennsylvania State University Penn State Altoona Penn State Alumni Association EMERITI TRUSTEES DONALD G. COTNER BETSY E. HUBER RYAN J. McCOMBIE Officer, Cotner Farms, Inc. President Partner, Don Cotner Farms, LP The National Grange KEITH E. MASSER Partner, Boyd Station, LLP Chairman and Chief Executive Officer ROBERT C. JUBELIRER Sterman Masser, Inc.
DAVIDC. HAN Partner Professor Emeritus Obermeyer, Rebmann, Maxwell & Hippel PAUL H. SILVIS Penn State Colleges of Medicine and Engineering Head Coach IRA M. LUBERT Silkotek GEORGE T. HENNING, JR. Chairman and Co-Founder Retired Business Executive Independence Capital Partners and ROBERT J. TRIBECK Luber! Adler Partners, LP Chief Legal Officer Post Acute Medical, LLC
This publication is available in alternative media on request.
The University is committed to equal access to programs, facilities, admission and employment for all persons. It is the policy of the University to maintain an environment free of harassment and free of discrimination against any person because of age, race, color, ancestry, national origin, religion, creed , service in the uniformed services (as defined in state and federal law), veteran status, sex, sexual orientation, marital or fam ily status, pregnancy, pregnancy-related cond itions, physical or mental disability, gender, perceived gender, gender identity, genetic information or political ideas. Discriminatory conduct and harassment, as well as sexual misconduct and relationship violence, violates the dignity of individuals, impedes the realization of the University's educational mission, and will not be tolerated. Direct all inquiries regarding the nondiscrimination policy to the Affirmative Action Office, The Pennsylvania State University, 328 Beucke Building, University Park, PA 16802-590 1, Email: aao @psu .edu, Tel (814) 863-0471 .
ATTACHMENT B-Penn State University Self-Guarantee Agreement The Pennsylvania State University Financial Assurance for Cost of Decommissioning Activities Self-Guarantee Agreement with the Nuclear Regulatory Commission December 13, 2022 (Source: NUREG-1757, Vol. 3, Rev 1, Appendix A, Section A.9.12)
Guarantee made by The Pennsylvania State University, a nonprofit university, organized under the laws of the Commonwealth of Pennsylvania, herein referred to as "guarantor," to the U.S.
Nuclear Regulatory Commission, on behalf of the university as licensee.
The following license is covered under this guarantee:
License number: SNM-95 Penn State University Docket 070-00113 Recitals
- 1. The guarantor has full authority and capacity to enter into this self-guarantee by the bylaws of the Trustees of the Pennsylvania State University.
- 2. This self-guarantee is being issued to comply with regulations issued by NRC, an agency of the U.S. Government, pursuant to the Atomic Energy Act of 1954, as amended, and the Energy Reorganization Act of 1974. NRC has promulgated regulations in Title 10, Chapter I of the Code of Federal Regulations, Parts 30, 50, and 70, which require that a holder of, or an applicant for, a materials license issued pursuant to 10 CFR Parts 30, 50, and 70 provide assurance that funds will be available when needed for required decommissioning activities.
- 3. The self-guarantee is issued to provide financial assurance for decommissioning activities for the license and facilities shown. The decommissioning costs for these activities are as follows:
Certified Amounts or License# License Description Current Cost (Docket#) and Method Estimates - 2022 Special Nuclear Material 12/12/19 base SNM-95 estimate of $286,710 plus 5% per year $331,903 (070-00113) compounded increase.
25% contingency fund $82,976 Total Estimated Costs: $414,879
- 4. The guarantor meets or exceeds the following financial test criteria for a nonprofit university that issues bonds, and agrees to comply with all notification requirements as specified in 10 CFR 30 and 10 CFR 3 0 Appendix E.
Financial Test: The current rating for our most recent uninsured, uncollateralized, and unencumbered bond issuance is AA as issued by Standard'& Poor's and Aal as issued by Moody's.
- 5. The guarantor does not have a parent company holding majority control of its voting stock.
- 6. Decommissioning activities as used below refer to the activities required by 10 CFR Part 30, 50, and 70 for decommissioning of the facilities identified above.
- 7. Pursuant to the guarantor's authority to enter into this guarantee, the guarantor guarantees to the NRC that the guarantor shall:
(a) Carry out the required decommissioning activities, as required by the licenses listed above.
- 8. The guarantor agrees to submit revised financial statements, financial test data, and an auditor's special report and reconciling schedule annually within 180 days of the close of its fiscal year.
- 9. Not applicable.
- 10. The guarantor agrees that if, at the end of any fiscal yeai' before termination of this self-guarantee, it fails to meet the self-guarantee financial test criteria, it shall send within 90 days of the end of the fiscal year, by certified mail, notice to the NRC that it intends to provide alternative financial assurance as specified in 10 CFR Part 30, 50, or 70. Within 120 days after the end of the fiscal year, the guarantor shall establish such financial assurance.
- 11. The guarantor also agrees to notify the NRC in writing in advance of any proposed change in or transfer of ownership of the licensed activity and to maintain this guarantee until the new licensee provides alternative financial assurance acceptable to the beneficiary.
- 12. The guarantor agrees that if it determines, at any time other than as described in Recital 10, that it no longer meets the self-guarantee financial test criteria or it is disallowed from continuing as a self-guarantor, it shall establish alternative financial assurance as specified in 10 CFR Parts 30, 50, or 70 within 30 days.
- 13. The guarantor, as well as its successors and assigns and agrees to remain bound jointly and severally under this guarantee notwithstanding any or all of the following:
amendment or modification of the license or NRC-approved decommissioning funding plan for that facility, the extension or reduction of the time of performance of required activities, or any other modification or alteration of an obligation of the licensee pursuant to 10 CFR Parts 30, 50, or 70.
- 14. The guarantor agrees that it shall be liable for all litigation costs incurred by the NRC in any successful effort to enforce the agreement against the guarantor. Such litigation costs 2
shall not be deducted from or otherwise reduce the financial assurance provided by this guarantee.
- 15. The guarantor agrees to remain bound under this self-guarantee for as long as it, as licensee, must comply with the applicable financial assurance requirements of 10 CFR Part 30, 50, or 70, for the previously listed facilities, ex:()_ept that the guarantor may cancel this self-guarantee by sending notice by certified mail to the NRC, such cancellation to become effective not before an alternative financial assurance mechanism has been put in place by the guarantor.
- 16. The guarantor agrees that if it, as licensee, fails to provide alternative financial assurance as specified in 10 CFR Part 30, 50, or 70 and obtain written approval of such assurance from the NRC within 90 days after a notice of cancellation by the guarantor is received by the NRC from the guarantor, the guarantor shall make full payment under the self-guarantee.
- 17. The guarantor expressly waives notice of acceptance of this self-guarantee by the NRC.
The guarantor also expressly waives notice of amendments or modifications of the decommissioning requirements.
- 18. If the guarantor files financial reports with the U.S. Securities and Exchange Commission, then it shall promptly submit them to its independent auditor and to NRC during each year in which this self-guarantee is in effect.
- 19. The guarantor agrees that if the guaran,tor admits in writing its inability to pay its debts generally, or makes a general assignment for the benefit of creditors, or any proceeding is instituted by or against the guarantor seeking to adjudicate it as bankrupt or insolvent, or seeking dissolution, liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian, or other similar official for the guarantor or for any substantial part of its property, or the guarantor takes any action to authorize or effect any of the actions stated in this paragraph, then the Commission may:
(a) Declare that the financial assurance guaranteed by the guarantee agreement is immediately due and payable to the standby trust set up to protect the public health and safety and the environment, without diligence, presentment, demand, protect, or any other notice of any kind, all of which are expressly waived by guarantor; and (b) Exercise any and all of its other rights under applicable law.
- 20. The guarantor agrees to notify the NRC, in writing, immediately following the filing of a voluntary or involuntary petition for bankruptcy under any chapter of Title 11 (Bankruptcy) of the United States Code, or the occurrence of any other event listed in paragraph 19 of this guarantee and by or against the guarantor; the licensee; an entity
( as that term is defined in 11 U.S. C. 101 (14)) controlling the licensee or listing the 3
license or licensees as property of the estate; or an affiliate (as that term is defined in 11 U.S.C. 101(2)) of the licensee. This notification must include: a description of the event, including major creditors, the amounts involved, and the actions taken to assure that the amount of funds guaranteed by the guarantee for decommissioning will be transferred to the standby trust as soon as possible; if a petition of bankruptcy was filed, the identity of the bankruptcy court in which the petition for bankruptcy was filed; and the date of filing of any petitions.
- 21. Not applicable.
- 22. The guarantor agrees that if, at any time before termination of this self-guarantee, its most recent bond issuance ceases to be rated in any category of A- and above by Standard and Poor' s or in any category of A3 and above by Moody's, the licensee will notify the Commission in writing within 20 days after publication of the change by the rating service.
I hereby certify that this self-guarantee is true and correct to the best of my knowledge.
Effective date: 18} I g/ 9c>8a-Pennsylvania tate University:
Virginia A. Teachey '-:::
Associate Vice President for Finance 4