ML25070A087
| ML25070A087 | |
| Person / Time | |
|---|---|
| Site: | Pennsylvania State University |
| Issue date: | 02/04/2025 |
| From: | Teachey V Pennsylvania State Univ |
| To: | Xiaosong Yin Document Control Desk, Office of Nuclear Reactor Regulation |
| References | |
| Download: ML25070A087 (1) | |
Text
Official Use OHi)* PF0flrieta1y lHfurffiotieH WiHihele UHcl1'sl~ hlfs!\\ls-?90 Penn State FAX: (814) 863-0701 February 4, 2025 Document Control Desk Virginia A. Teachey Associate Vice President for Budget
& Finance U.S. Nuclear Regulatory Commission Attn: Xiaosong Yin One White Flint North 115 5 5 Rockville Pike Rockville, MD 20852 The Pennsylvania State University 308 Old Main University Park, PA 16802-1505
- Subj: Audited Financial Statements - Fiscal Year Ending June 30, 2024 and Self-Guarantee Agreement License numbers:
R-2 Breazeale Nuclear Reactor Docket 050-00005
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 $13,754,762,000 on June 30, 2024. The calculation of the University's net assets on June 30, 2024 was derived from the university's independently audited, year-end financial statements and footnotes for the fiscal year ending June 30, 2024. 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://budgetandfinance.psu.edu/public-reports.
Attachment B contains Penn State University's Self-Guarantee Agreement for Financial Assurance for Cost of Decommissioning Activities. Attachment C contains the Independent f-1oDI
/f!JZD N/2...R.
Document transmittep herewith contains sensitive unclassified information. When separated from enclosure(s), this document is decontrolled.
Official Use OHi)* Pref!rietary lHfurffiotieH \\l/ithhele UHeer 10 CFR 2.390
Offieiol Use OAly PreprietOF)' IHfeFfllOtio11 Withhola UAaer I 9 CFR 2.399 Accountant's Report on Applying Agreed-Upon Procedures for the year ended June 30, 2024. In addition, Attachment D contains an Affidavit regarding proprietary information.
This letter conveys a resubmittal of the package originally provided on December 13, 2024, but with updated proprietary marking and labeling.
Please contact Aaron Wihnot (adw154@psu.edu) if you have any questions.
Sincerely, d -* ~
Virginia ~
~
Associate Vice President for Budget and 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 Unlti, Director, Radiation Science and Engineering Center James Crandall, Senior Director of Environmental Health & Safety Lee Wagner, University Controller Document transmitted herewith contains sensitive unclassified information. When separated from enclosure(s), this document is decontrolled.
Offieiol Use OAI)' Proprietary lAfermotio11 \\1/ithhola U11aer I 9 CFR 2.399
ATTACHMENT A-Penn State University Audited Financial Statements
University Officers THE PENNSYLVANIA STATE UNIVERSITY as of November 7, 2024 NEELI BENDAPUDI President DEBORAH ADDO Interim Chief Executive Officer Penn State Health TRACY LANGKILDE Interim Executive Vice President and Provost TABITHA R. OMAN Vice President and General Counsel MICHAEL WADE SMITH Senior Vice President and Chief of Staff SARA F. THORNDIKE Senior Vice President for Finance and Business/Treasurer This publication is available in alternative media on request. Penn State is an equal opportunity, affirmative action employer, and is committed to providing employment opportunities to all qualified applicants without regard to race, color, religion, age, sex, sexual orientation, gender identity, national origin, disability or protected veteran status. MPC 5168850
Table of Contents University Officers......................................................... *...................................................... ii Letter from the Senior Vice President for Finance and Business/Treasurer.................... 1 Financial Overview.............................................................................................................. 2 Operating Results............................................................................................................................................................................
2 Financial Position............................................................................................................................................................................
5 Investments.....................................................................................................................................................................................
7 Capital Assets and Debt...............................................................................................................................................................
8 Research and Sponsored Programs..........................................................................................................................................
9 Looking Ahead................................................................................................................................................................................. 10 Independent Auditor's Report............................................................................................ 12 Consolidated Financial Statements.................................................................................... 14 Statements of Financial Position................................................................................................................................................ 14 Statements of Activities................................................................................................................................................................. 16 Statements of Cash Flows............................................................................................................................................................ 18 Notes to Consolidated Financial Statements..................................................................... 20 Board of Trustees................................................................................................................. 51
~.r -.,,
I I
Penn State Letter from the Senior Vice President for Finance and Business/Treasurer Under the leadership of President Neeli Bendapudi, the Pennsylvania State University has made significant strides in strengthening its financial position, adding $1 billion to our net assets this fiscal year, largely driven by robust investment returns. Fiscal year 2024 marks the first year of our new budget allocation model, which has led to enhanced financial stewardship, resulting in a much smaller actual deficit compared to the budget. This model also has facilitated increased investments in capital projects and boosted funding for our research enterprise.
Tuition revenues remain solid, supported by modest rate increases and steady enrollment growth at University Park.
Research expenditures reached an impressive record of $1.3 billion, further underscoring our commitment to academic excellence. Additionally, the launch of our new capital campaign has yielded encouraging fundraising results.
Our ongoing work on the strategic plan aligns with President Bendapudi's six key goals: enhancing student success; growing interdisciplinary research excellence; increasing land-grant impact; fostering diversity, equity, inclusion and belonging; transforming Penn State's internal operations; and transforming health through academic and clinical synergy. We remain dedicated to navigating institutional changes and improving operations through initiatives like the Research Support Transformation Project and Optimized Service Teams.
At University Park, our new engineering buildings are now occupied by students and faculty, while construction continues on the Susan Welch Liberal Arts building and design work for major renovations at Beaver Stadium is underway. Furthermore, at the Commonwealth Campuses, construction has commenced on a new academic building at Penn State Abington.
In July 2024, the University Trustees approved a balanced Education and General fund operating budget for fiscal year 2026, which includes modest increases in tuition, fees, and housing and food costs.
We look forward to another year of growth and opportunity as we continue to invest in our mission and enhance the Penn State experience for all students, faculty and staff.
Sara F. Thorndike, Ed.D., MBA, CPA Senior Vice President for Finance & Business/ Treasurer
Financial Overview The following section provides summarized results of the financial performance and position of the Pennsylvania State University ("Penn State", or the "University"), and as a result it should be read alongside the accompanying consolidated financial statements and notes to the financial statements. All figures in this section are consolidated and - unless specifically noted - include the University, Penn State Health, and other subsidiaries (see note one to the financial statements).
OPERATING RESULTS Penn State's net assets increased by $1.0 billion during the fiscal year ended June 30, 2024 (FY2024), a result of strong operating results at both the University and at Penn State Health alongside positive non-operating activities, particularly in the form of unrealized investment gains. A condensed view of the consolidated statements of activities follows:
2024 2023 Operating revenues University - excluding health care related
$4,890
$4,488 Health care related 4,294 3,867 Total 9,184 8,355 Operating expenses University - excluding health care related 4,437 4,272 Health care related 4,231 3,997 Total 8,668 8,269 Operating income (loss)
University - excluding health care related 453 216 Health care related 63 (130)
Total 516 86 Nonoperating activities Related to postretirement benefit expense (6) 211 Related to investments 450 68 Other 37 65 Total 481 344 Increase in net assets - Penn State University 997 430 Less change in noncontrolling interest 4
(69)
Increase in total net assets 1,001 361 Beginning net assets 12,754 12,393 Ending net assets
$13,755
$12,754 PAG E 2 THE PENNSYLVANIA STAT E UN IV ERSIT Y
Exhibit 1, which follows, shows a breakdown of operating expenses and revenues for the last five fiscal years (distinguishing between healthcare related revenues/ expenses and the rest of the University).
$5,000
$4,000
$3,000
$2,000
$1,000 Exhibit 1: Operating Revenues and Expenses
($ millions) 2020 2021 2022 2023 Revenues - excl. health care Expenses - excl. health care Revenues - health care Expenses - hea Ith care Operating Revenues 2024 In FY2024, University operating revenues (excluding Penn State Health) exceeded FY2023 by $402 million, or 9.0%,
with notable increases in tuition/fees ($94 million), grants/contracts ($141 million, including $66 million in additional grants from the PA Department of General Services for capital projects), investment income ($88 million), and auxiliary revenue ($65 million).
Tuition/fee revenues reflect the rate increases approved by the Board of Trustees in July of 2023: University Park tuition increased 2% and 4% for PA residents and non-residents, respectively, while Commonwealth Campus tuition rates were unchanged for PA residents and raised by 1% for non-residents. World Campus tuition increased by 1% for all students.
In addition to higher grant revenue from the Department of General Services, federal grant revenue increased by $96 million in FY2024, with most notable increases at the Applied Research Lab (ARL), the College of Engineering, the College of Medicine, and the airport.
The University recognized more operating investment revenue due to higher average interest rates and also due to an additional $500 million investment in the University's Long-Term Investment Pool from working capital (i.e. non-endowed, operating funds).
Auxiliary revenues increased most significantly in Intercollegiate Athletics, due to signing bonuses related to new vendor relationships as well as increased concessions sales; housing and food services, due to Board of Trustee approved room and board rates; and parking, due to increased rates.
Healthcare revenues increased in FY2024 due to the two new acute care hospitals being fully operational during the period. Additionally, Penn State Health onboarded the Pennsylvania Psychiatric Institute in July of 2023. During FY2024 Penn State Health also received one-time settlements of $45 million from an arbitration ruling and $32 million of prior year net revenues from Centers for Medicare and Medicaid Services due to a decision by the U.S. Supreme Court in September 2023.
A U DITED FINA N C IAL STATEME NT S FY2024 PAGE 3
Recent trends in consolidated operating revenues are illustrated below in exhibit 2:
$5,000
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500 Exhibit 2: Operating Revenues by Source
($ millions) 111 I *.* I *** I ***
- Net tuition and fees Hea lth system Gra nts and contracts Auxil iary Investment income Commonwealth of Other sources revenues enteqr ises PA 2020 2021 2022 2023 2024 Operating Expenses University operating expenses - excluding Penn State Health - increased by $165 million, or 3.9%, in FY2024.
Personnel expense makes up $61 million of the overall increase and is due to annual salary increases and compensation modernization adjustments, the latter of which went into effect during the second half of the fiscal year. Depreciation and interest expense increased $17 million and $11 million, respectively, while other non-personnel expenses increased a total of $77 million.
Specifically related to Penn State Health, salaries and wages increased 7% in FY2024 to remain market competitive and overcome the national nursing shortage. The health system also experienced an increase of medical surgical supplies of 10% which is directly related to the volume of patients treated by the health system and is supported by the increase in net revenues recognized by the health system.
Recent trends in consolidated operating expenses are illustrated below in exhibits 3 and 4.
Exhibit 3: Operating Expenses by Natural Classification
($ millions)
Salaries and wages Benefits Supplies and services Depreciation Plant operation and maintenance Interest
$1,000
$2,000
$3,000 2020 2021 2022 2023 2024
$4,000 PAG E 4 TH E PENNSY LVAN IA STATE UN IV ER SIT Y
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$- II I Academic and student services Non-Operating Activities I
Exhibit 4: Operating Expenses by Function
($ millions)
II I 1 1 I ** I ---.
Health system expenses Research Auxiliary Institutional support Public service enterprises 2020 2021 2022 2023 2024 Non-operating revenues had a significant impact on Penn State's overall increase in net assets during FY2024, with unrealized investment gains specifically accounting for roughly 45% of the $1.0 billion net increase. Non-operating, endowed, gifts and pledges also added $83 million to the bottom line in FY2024.
FINANCIAL POSITION Penn State's total assets crested the $20 billion mark in FY2024, ending the year at $20.7 billion, an increase of $1.0 billion, or 5.1%, from June 30, 2023. The University's liabilities increased modestly by $10 million, with payoff of long-term debt offset by increases in accounts payable and other accrued expenses.
Over the last ten fiscal years, Penn State's consolidated net assets have grown at an annualized rate of 6.2%. Exhibit 5 illustrates ending consolidated net asset balances for the last ten fiscal years.
Exhibit 5: Consolidated Net Assets
($ billions)
$16.0
$13.8
$14.0
$12.4
$12.4
$12.8
$12.0
$9.9
$10.5
$8.8
$10.0
$8.0
$8.2
$12.0
$10.5
$11.0
$8.0 e
C
$9.0
$8.5
$8.3
$6.0
$7.2
$7.3
$7.8
$4.0
$1.5
$1.6
$1.6
$2.0
$1.9
$1.7
$1.8
$2.0
$0.8
$0.9
$1.1 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 consolidated university and Other Subs.
Penn State Health AUDITED FINANCIAL STATEMENTS FY202 4 PAGE 5
A condensed version of Penn State's statements of financial position (i.e. balance sheet) follows, along with a graphical representation of the consolidated statement of financial position at June 30, 2024 in exhibit 6.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
PAG E 6 June 30, 2024 June 30, 2023 Assets Cash and cash equivalents
$1,336
$1,008 Receivables, net 1,240 1,152 Investments 10,296 9,618 Property, plant, and equipment, net 7,053 7,001 Other assets 790 925 Total assets
$20,715
$19,704 Liabilities Accounts payable and accrued expenses
$1,045
$932 Debt 3,772 3,885 Accrued post-retirement liability 1,191 1,221 Other liabilities 952 912 Total liabilities 6,960 6,950 Net Assets Without donor restrictions 9,296 8,584 With donor restrictions 4,459 4,170 Total net assets 13,755 12,754 Total liabilities and net assets
$20,715
$19,704 Exhibit 6: Consolidated Financial Position at June 30, 2024
($ millions)
Net Assets - Unrestricted
$9,296 Net Assets
- Restricted
$4,459 Other Liabilities
$1,997 Post-Retirement Liability
$1,191 Debt
$3,772 Assets Liabilities & Net Assets TH E PENNSYLVAN IA STATE UN IVER SIT Y
INVESTMENTS Penn State's Office of Investment Management (OIM) is tasked with the day-to-day management and administration of the University's long-term and operating investments. Under the governance and oversight of the Penn State Investment Council (PSIC) and Board of Trustees, OIM executes the University's investment policy statement and manages the University's investments by taking a reasonable amount of risk. The investment objective is to achieve returns, after fees and expenses, that meet the University's cash needs and keep up with inflation.
The Long-Term Investment Pool (LTIP) is the University's investment portfolio containing most of its donor-endowed funds, in addition to other funds functioning as endowments, all with long-term investment objectives. This commingled pool operates similarly to a mutual fund, with each participating fund owning units of the pool.
$10,000
$8,000
$6,000 II*
I
$4,000
$2,000
$3,659
$3,642
$3,987 2015 2016 2017 Exhibit 7: Investments Growth
($ millions)
- II
$4,290
$4,548
$4,751 2018 2019 2020 LTIP Operating Investments
$6,484 2021
$3,376
$3,078
$3,507
$7,218 S6,242
$6,088 2022 2023 2024 The LTIP had a one-year return of 10.6% in FY2024 and annualized 3-, 5-, 10-, and 20-year returns of 3.3%, 10.3%, 8.2%,
and 9.1%, respectively. The 3-, 5-, 10-, and 20-year annualized returns all exceed the LTIP's tactical Strategic Allocation Benchmark (or "SAB"1). as well as a passive composite benchmark consisting of 70% MSCI All Country World Index and 30% Bloomberg US Aggregate Bond Index (a 70/30 stocks/bonds passive portfolio).
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1-Year Exhibit 8: LTIP Annualized Returns vs. Benchmarks 10.3%
ii'"
an Li3/4
- 1 iii 1*..
3-Year 5-Year 10-Year 20-Year LTIP SAB 70/30 Portfolio 1
SAB consists of index returns representing the following asset classes: public equities (36%), private equity (25%),
fixed income (15%), diversifying strategies (12%), and real assets (12%).
AUD IT ED FI NA N C IA L STATEMEN T S FY2024 PAG E 7
CAPITAL ASSETS AND DEBT FY2024 marks the start of a new capital campaign at Penn State, expected to total roughly $2.18 billion over the next five years. The 2024-2028 capital plan is a maintenance-centric plan focused on system renewals, maximizing funding impact, and minimizing administrative burden; $1.19 billion of the plan is tied to self-supporting units, including Intercollegiate Athletics, Auxiliary and Business Services, and the Applied Research Laboratory.
Exhibit 9 illustrates recent trends in capital expenditure, assets under construction, and depreciation expense.
$1,600.0
$1,400.0
$1,200.0
$1,000.0
$800.0
$600.0
$400.0
$200.0 Exhibit 9: Assets Under Construction, Capital Expenditures, and Depreciation
($ millions) 2015 2016 2017 2018 2019 2020 2021 2022 2023 Assets under construction Capital expenditures Depreciation 2024 Major University capital expenditures in FY2024 included over $493 million in building construction costs, with the most significant projects - based on dollars spent in FY2024 - being the East Halls phase 28 and 2C renovations
($143 million), the Engineering Collaborative Research and Education Building ($69 million), and the Susan Welch Liberal Arts Building ($57 million).
Improvements to land and infrastructure totaled $44 million in FY2024, and spend on equipment and information technology capital assets totaled $76 million.
The University's portfolio of outstanding long-term debt is the result of borrowings to fund capital projects as well as specific borrowing made to prefund a significant portion of the University's unfunded actuarial liability with the Commonwealth of Pennsylvania's State Employees' Retirement System (SERS). In April of 2020, the University entered into an agreement with SERS to prefund $1.061 billion of its unfunded liability in exchange for credits against future contributions ($93.3 million of credits in both FY2024 and FY2023). The University issued bonds in May of 2020 (series 2020D) in the amount of $1.065 billion in connection with this prefunding, and the resulting increase in the University's debt load is evident as illustrated on exhibit 10.
PAGE 8 THE PENNSYLVANIA STATE UN IVERS IT Y
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500 2015 2016 2017 Exhibit 10: Long-Term Debt
($ millions) 2018 2019 2020 2021 2022 University($)
Penn State Health($)
-Total debt 1o net assets(%)
2023 2024 Long-term debt declined during FY2024 as no new bonds were issued and principal payments totaling $123 million were made. However, subsequent to fiscal year end, the University issued general obligation bonds - series 2024 -
in the amount of $157.9 million to fund capital projects associated with the 2024-2028 capital plan. The series 2024 bonds, which closed in August 2024, are not included as outstanding debt in the University's statement of financial position as of June 30, 2024.
RESEARCH AND SPONSORED PROGRAMS 40%
35%
30%
25%
20%
15%
10%
5%
0%
Penn State is a top 30 U.S. research university, as designated by the National Science Foundation's Higher Education Research and Development (HERD) survey, with twelve disciplines - from psychology to atmospheric science and materials engineering - ranking in the top ten for research expenditures.
Exhibit 11 illustrates the growth in research expenses - based on functional expense classification - over the last ten fiscal years.
$1,300
$1,200
$1,100
$1,000
$900
$800
$700
$600
$500 2015 2016 Exhibit 11 : Research Expenses
($ millions) 2017 2018 2019 2020 2021 AUD ITED FINANCIAL STATEMENTS FY2 0 2 4
$1,200 2022 2023 2024 PAGE 9
Over the last ten years, research expenses have grown at an annualized rate of 5.1%; the annualized growth since fiscal year 2021, however, is 11.6%, with FY2024 research functional spend reaching $1.2 billion 2.
The University's research expenses are funded by federal, private, state, and other sources; the largest federal sponsor is the Office of Naval Research (an executive branch agency within the U.S. Department of Defense). The breakdown of FY2024 research funding follows in exhibit 12.
Exhibit 12: Research Funding in FY2024 Commonwealth of PA, 3%
LOOKING AHEAD University Strategic Planning Penn State is underway with phase two of its strategic plan to elevate the University's standing as a world-class institution through the advancement of six priority areas:
Enhancing student success Growing (inter)disciplinary research excellence
- Fostering diversity, equity, inclusion and belonging
- Increasing land-grant impact Transforming health care through academic and clinical synergy Transforming internal operations In this second phase, faculty, staff and students at all campuses have been encouraged to submit their feedback on the goals, objectives and metrics connected to each priority area that constitute an institutional plan. The future phases of strategic planning are illustrated in the graphic below.
2 There are certain reconciling items between research functional expenses in the audited financial statements and the total research spend amount reported externally based on industry standards, which is $1.3 billion.
PAGE 10 THE PENNSY LVA N IA STATE UN IVER SIT Y
Optimized Service Teams Penn State is moving forward in its effort to streamline internal operations through the design and implementation of Optimized Service Teams, or OSTs, encompassing the following functions: information technology, finance, facilities and safety.
These critical workstreams -
in alignment with Penn State's mission, strategic priorities and the University roadmap -
will result in improved business practices, enhanced service and support for the University community, and the creation of career pathways and development opportunities for staff.
Commonwealth Campuses To address enrollment challenges at the University's Commonwealth Campuses, Penn State has proactively engaged in strategic activities to put its campuses on solid financial footing and in a position to meet the needs of students and the public throughout the Commonwealth.
The University offered a Voluntary Separation Incentive Program for certain Commonwealth Campus faculty and staff in May 2024, and 383 employees enrolled in the program, representing roughly 21% of those eligible.
Additionally, Optimized Service Teams were implemented at the Commonwealth Campuses and Penn State unveiled a new regional leadership structure throughout the Commonwealth, whereby certain campuses have been placed under a single administration based on geographic proximity and other factors. The regionalization effort is being continually evaluated and refined.
Approval of Stadium Project In May 2024, the Penn State Board of Trustees approved up to $700 million to renovate Beaver Stadium as part of the 2024-2028 capital plan. The renovations will grow revenue-generating opportunities, transform the fan and community experience, and enable year-round use of Beaver Stadium, further driving economic growth and development in the surrounding region.
As a self-sustaining unit of the University, renovations will be paid for solely by Penn State Intercollegiate Athletics through fundraising, concessions, naming opportunities, sponsorships, multimedia rights and ticket sales, including new premium seating options. No tuition dollars or educational funds will be used toward the renovations. Renovations are scheduled to be completed before the 2027 football season.
AUDIT ED FINANC IA L STATE MENT S FY2024 PAG E 11
Qlante Thoran To the Board of Trustees The Pennsylvania State University Independent Auditor's Report Report on the Audits of the Consolidated Financial Statements Opinion Plante & Moran, PLLC Suto 100 1111 Michigan Ave.
East Lansing, Ml 48823 Tel: 517.332.6200 Fax: 517.332.8502 planlemoran.com We have audited the consolidated financial statements of the University and its subsidiaries (the "University"),
which comprise the consolidated statements of financial position as of June 30, 2024 and 2023 and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the University as of June 30, 2024 and 2023 and the changes in its net assets 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) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audits of the Financial Statements section of our report. We are required to be independent of the University and to meet our 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.
Responsibilities of Management for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated 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 of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the University's ability to continue as a going concern within one year after the date that the consolidated financial statements are issued or available to be issued.
Auditor's Responsibilities for the Audits of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, 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 audits conducted in accordance with GAAS and Government Auditing Standards 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 consolidated financial statements.
PAGE 12 T HE PENNSY LVANI A STATE UNIVERS ITY
To the Board of Trustees The Pennsylvania State University In performing audits in accordance with GAAS and Government Auditing Standards, we:
- Exercise professional judgment and maintain professional skepticism throughout the audits.
- Identify and assess the risks of material misstatement of the consolidated 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 consolidated financial statements.
- Obtain an understanding of internal control relevant to the audits 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 consolidated 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 audits, significant audit findings, and certain internal control-related matters that we identified during the audits.
Additional Information Management is responsible for the accompanying list of university officers, letter from the senior vice president for finance and business/treasurer, financial overview, and list of the board of trustees, which are presented for the purpose of additional analysis and are not a required part of the consolidated financial statements. Our opinion on the consolidated financial statements does not cover such information, and we do not express an opinion or any form of assurance thereon.
Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 7, 2024 on our consideration of the University's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the University's internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the University's internal control over financial reporting and compliance.
November 7, 2024 AUDITED FINANC IAL STATEMENTS FY2 024 PAGE 13
Consolidated Financial Statements THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ASSETS Current assets:
Cash and cash equivalents Short-term investments Deposits held by bond trustees Deposits held for others Accounts receivable, net of allowances Contributions receivable, net Loans to students, net of allowances Inventories Prepaid expenses and other assets Total current assets Noncurrent assets:
Deposits held by bond trustees Contributions receivable, net Loans to students, net of allowances Total investment in plant, net Beneficial interest in perpetual trusts Investments Operating lease right-of-use assets, net Other assets Total noncurrent assets Total assets JUNE 30, 2024 AND 2023 (in thousands)
See notes to consolidated financial statements June 30, 2024
$ 1,335,572 1,122,093 103,673 39,089 1,031,786 39,169 2,580 85,358 126,528 3,885,848 144,313 22,252 7,053,208 32,105 9,174,349 163,453 239,500 16,829,180
$20,715,028
$ 1,007,504 1,560,597 212,274 38,012 940,216 47,701 3,264 90,572 110,579 4,010,719 56,215 136,385 25,474 7,001,411 28,117 8,057,417 164,769 223,789 15,693,577
$19,704,296 PAGE 14 TH E PENNSYLVANI A STATE UNIVERS IT Y
THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENTS OF FINANCIAL POSITION LIABILITIES AND NET ASSETS JUNE 30, 2024 AND 2023 (in thousands)
June 30, 2024 Current liabilities:
Accounts payable and other accrued expenses
$ 1,044,501 Deferred revenue 229,993 Long-term debt 121,436 Present value of annuities payable 8,522 Accrued postretirement benefits 56,600 Refundable United States Government student loans 3,200 Operating lease liabilities 30,661 Total current liabilities 1,494,913 Noncurrent liabilities:
Deposits held in custody for others 29,689 Long-term debt 3,651,284 Present value of_ annuities payable 62,154 Accrued postretirement benefits 1,133,636 Refundable United States Government student loans 10,107 Operating lease liabilities 141,046 Other liabilities 437,437 Total noncurrent liabilities 5,465,353 Total liabilities 6,960,266 Net assets:
Without donor restrictions 9,296,274 With donor restrictions 4,458,488 Total net assets 13,754,762 Total liabilities and net assets
$20,715,028 See notes to consolidated financial statements AUDITE D FINANC IAL STATEMEN T S FY2024 932,120 216,382 116,498 7,871 53,408 3,078 26,393 1,355,750 27,962 3,769,425 59,702 1,167,601 13,103 144,114 412,420 5,594,327 6,950,077 8,584,561 4,169,658 12,754,219
$19,704,296 PAGE 15
THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2024 (in thousands)
Without Donor Restrictions With Donor Restrictions Operating revenues and other support Tuition and fees, net of discounts of $300,968 2,01 1,793 Commonwealth of Pennsylvania -
Appropriations 329,777 Special contracts 100,002 Department of General Services projects 139,456 United States Government grants and contracts 832,021 Private grants and contracts 162,542 Gifts and pledges 114,704 28,048 Investment return, net 287,761 136,375 Sales and services of educational activities 102,496 269 Auxiliary enterprises 608,084 Health System revenue 4,294,189 Other sources 36,546 Net assets released from restrictions 184,229 (184,229)
Total operating revenues and other support 9,203,600 (19,537)
Operating expenses:
Educational and general -
Academic and student services 2,034,6 11 Research 1,200,191 Public service 226,977 Institutional support 441,279 Total educational and general 3,903,058 Auxiliary enterprises 533,689 Health System expense 4,231,258 Total operating expenses 8,668,005 Increase (decrease) in net assets from operating activities 535,595 (19,537)
Nonoperating activities:
Gifts and pledges 82,528 Current year investment returns 226,730 223,069 Changes in funds held by others in perpetuity 3,988 Loss on disposal of assets (37,953)
Nonperiodic change in postretirement benefit plan (32,101)
Other components of net periodic postretirement benefit cost 26,232 Actuarial adjustment on annuities payable (11,627)
Net asset transfer due to donor intent (10,409) 10,409 Increase in net assets from nonoperating activities 172,499 308,367 Increase in net assets - The Pennsylvania State University 708,094 288,830 Noncontrolling interest:
Excess of revenues over expenses 3,619 Increase in net assets - noncontrolling interest 3,619 Increase in total net assets 711,713 288,830 Net assets at the beginning of the year 8,584,561 4,169,658 Net assets at the end of the year
$ 9,296,274
$ 4,458,488 See notes to consolidated financial statements 2,011,793 329,777 100,002 139,456 832,021 162,542 142,752 424,136 102,765 608,084 4,294,189 36,546 9,184,063 2,034,611 1,200,191 226,977 441,279 3,903,058 533,689 4,231,258 8,668,005 516,058 82,528 449,799 3,988 (37,953)
(32,101) 26,232 (11,627) 480,866 996,924 3,619 3,619 1,000,543 12,754,219
$13,754,762 PAGE 16 TH E PENNSYLVANIA STATE UNIVERS ITY
THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2023 (in thousands)
With Donor Restrictions Donor Restrictions Operating revenues and other support:
Tuition and fees, net of discounts of $297,199 1,917,557 Commonwealth of Pennsylvania
- Appropriations 326,542 Special contracts 120,341 Department of General Services projects 73,622 United States Government grants and contracts 735,527 Private grants and contracts 163,129 Gifts and pledges 109,920 17,070 Investment return, net 198,551 137,828 Sales and services of educational activities 103,804 232 Auxiliary enterprises 542,730 Health System revenue 3,866,539 Other sources 41,581 Net assets released from restrictions 139,999 (139,999)
Total operating revenues and other support 8,339,842 15,131 Operating expenses:
Educational and general
- Academic and student services 2,011,757 Research 1,131,235 Public service 213,839 Institutional support 384,503 Total educational and general 3,741,334 Auxiliary enterprises 529,924 Health System expense 3,997,337 Total operating expenses 8,268,595 Increase in net assets from operating activities 71,247 15,131 Nonoperating activities:
Gifts and pledges 77,118 Current year investment returns 21,911 45,489 Changes in funds held by others in perpetuity 1,877 Loss on disposal of assets (2,329)
Nonperiodic change in postretirement benefit plan 189,862 Other components of net periodic postretirement benefit cost 21,313 Actuarial adjustment on annuities payable (11,447)
Net asset transfer due to donor intent (28,189) 28,189 Increase in net assets from nonoperating activities 202,568 141,226 Increase In net assets
- The Pennsylvania State University 273,815 156,357 Noncontrolling interest:
Excess of expenses over revenues (68,573)
Decrease in net assets
- noncontrolling interest (68,573)
Increase In total net assets 205,2421 156,357 I Net assets at the beginning of the year 8,379,319 4,013,301 Net assets at the end of the year
$ 8,584,561
$ 4,169,658 See notes to consolidated financial statements AU DI TED FINANCIAL STATEMENTS FY2024 Total 1,917,557 326,542 120,341 73,622 735,527 163,129 126,990 336,379 104,036 542,730 3,866,539 41,581 8,354,973 2,011,757 1,131,235 213,839 384,503 3,741,334 529,924 3,997,337 8,268,595 86,378 77,118 67,400 1,877 (2,329) 189,862 21,313 (11,447) 343,794 430,172 (68,573)
(68,573) 361,599 12,392,620
$ 12,754,219 PAGE 17
THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2024 AND 2023 (in thousands)
June 30, 2024 Cash flows from operating activities:
Increase in net assets Adjustments to reconcile change In net assets to net cash provided by operating activities.
Actuarial adjustment on annuities payable Contributions restricted for long-term investment Interest and dividends restricted for long-term investment Net realized and unrealized gains on long-term investments Depreciation and amortization expense Noncash lease expense Write-offs and disposals of assets Contributions of land, buildings and equipment Provision for bad debts Decrease in deposits held for others Increase in receivables Decrease (increase) in inventories Increase in prepaid expenses and other assets Increase (decrease) in accounts payable and other accrued expenses Increase in deferred revenue Decrease in accrued postretirement benefits Net cash provided by operating activities Cash flows from Investing activities:
Purchase of land, buildings and equipment Decrease (increase) in deposits held by bond trustees Repayments and advances on student loans Collections on student loans Purchase of investments Proceeds from sale of investments Net cash used in investing activities Cash flows from financing activities:
Contributions restricted for long-term investment Interest and dividends restricted for long-term investment Payments of annuity obligations Proceeds from long-term debt Principal payments on long-term debt Refundable federal student loans Net cash provided by financing activities Net increase (decrease) in unrestricted and restricted cash and cash equivalents Unrestricted and restricted cash and cash equivalents at the beginning of the year Unrestricted and restricted cash and cash equivalents at the end of the year Supplemental disclosures of cash flow information (Notes 2 and 9)
See notes to consolidated financial statements 1,000,543 11,627 (79,664)
(78,71 0)
(730,887) 559,566 2,517 54,548 (1.438)
(11,995) 2,059 (77,902) 5,214 (35,649) 137,398 13,610 (30,773) 740,064 (654,877) 165,141 (909) 4,046 (2,757,868) 2,810,326 (434,141) 79,664 78,710 (8,524)
(122,799)
(3,174) 23,877 329,800 1,039,327 1,369,127 361,599 11,454 (104,297)
(22,551)
(301,052) 549,574 6,086 30,334 (2,045) 44,098 6,248 (1 26,565)
(4,910)
(17,583)
(1,757) 35,753 (250,446) 213,940 (693,602)
(140.454)
(1.461 )
4,074 (3,934,661) 4,213,256 (552,848) 104,297 22,551 (7,876) 236,758 (1 19,885)
(7,21 1) 228,634 (1 10,274) 1,149,601 1,039,327 PAGE 18 THE PENNSYLVAN IA STATE UNIVERSI TY
AUDI TED FINA NCIA L STAT EMENT S FY2024 PAGE 19
Notes to Consolidated Financial Statements FOR T HE YEARS ENDED JUNE 30, 2024 AND 2023
- 1. THE UNIVERSITY AND RELATED ENTITIES The Pennsylvania State University ("University"), which was founded in 1855 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. In addition to its main campus located in University Park, PA, the University has a physical presence throughout the Commonwealth at its multiple commonwealth campuses, and a virtual presence globally via its World Campus.
As a state-related institution, the University receives an annual appropriation from the Commonwealth. The Commonwealth's General Assembly is not obligated to appropriate funding to the University, and there is no assurance that future appropriations will be made at either historical levels or to the extent requested by the University. The University's operating appropriation from the Commonwealth was $329.8 million and $326.5 million for the years ended June 30, 2024 and 2023, respectively.
Governance of the University, including oversight of administration and financial operations, is vested solely with the University's Board of Trustees (the "Board"). The Board is comprised of thirty-eight members. Thirty-six of the trustees are voting members, nine of whom are either appointed by the Governor of the Commonwealth or are cabinet-level members of the Governor's administration. The remaining voting members are elected by alumni (nine), elected by agricultural societies active in the Commonwealth (six), elected by the Board representing business and industry (six), elected by the Board as at-large members (three), a student trustee (one), an academic trustee (one), and the immediate past president of the Penn State Alumni Association (one).
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 (FASS) 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.
PAGE 20 THE PENNSYLVA NI A STATE UNIVERSI TY
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 contributions 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.
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, 2023, were recognized during the year ended June 30, 2024. Tuition receipts of $71.8 million, included in deferred revenue at June 30, 2022, were recognized during the year ended June 30, 2023. 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 $40.3 million, included in deferred revenue at June 30, 2023, were recognized during the year ended June 30, 2024. Grants and contracts receipts of $36.9 million, included in deferred revenue at June 30, 2022, were recognized during the year ended June 30, 2023. The University has entered into numerous grants and contracts, with periods of performance ending at various dates from July 1, 2024 through December 31, 2050.
The estimated performance obligations remaining under these grants and contracts as of June 30, 2024 total $1.593 billion. 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 AUDITED FINAN C IAL STATE MENT S FY202 4 PAGE 21
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, 2023 and 2022 were fully recognized during the years ended June 30, 2024 and 2023. In addition, the University has elected to apply the optional exemption prescribed by ASC 606-10-50-14 and, as such, has not disclosed the aggregate transaction price allocated to unsatisfied performance obligations or the time at which the revenue associated with these unsatisfied performance obligations is expected to be recognized. At June 30, unsatisfied performance obligations under sales and services of educational activities and auxiliary enterprises relate primarily to summer semester housing and food services to be provided in July and August of the subsequent year, as well as athletic events held during the fall semester. Transaction prices for sales and services of educational activities and auxiliary enterprises are typically straightforward and explicitly stated in the contract.
Health System Patient care service revenue is reported at the amount that reflects 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 health insurers and government programs), and others and include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations. Generally, the Health System bills the patients and third-party payers several days after the services are performed or the patient is discharged from the facility. Revenue is 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's hospital receiving inpatient acute-care services or patients receiving services in the Health System's outpatient centers or other clinical settings. The Health System measures the performance obligation from admission into the hospital, or the commencement of an outpatient services or other visit, to the point when it is no longer required to provide services to that patient, which is generally at the time of discharge or completion of the outpatient services or other visit. Revenue for performance obligations satisfied at a point in time is generally recognized when goods are provided to the Health System's patients and customers in a retail setting (for example, pharmaceuticals and medical equipment) and the Health System does not believe it is required to provide additional goods or services related to that sale.
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 determines the transaction price based on standard charges for goods and services provided, reduced by contractual adjustments provided to third-party payers, discounts provided to uninsured patients in accordance with the Health System's policy, and implicit price concessions provided to uninsured patients. The Health System determines its estimates of contractual adjustments and discounts based on contractual agreements, its discount policies, and historical experience. The Health System determines its estimate of implicit price concessions based on its historical collection experience with this class of patients.
Generally, patients who are covered by third-party payers are responsible for related deductibles and coinsurance, which vary in amount. The Health System also provides services to uninsured patients and offers those uninsured patients a discount, either by policy or law, from standard charges. The Health System estimates the transaction price for patients with deductibles and coinsurance and from those who are uninsured based on historical experience and current market conditions. The initial estimate of the transaction price is determined by reducing the standard charge by any contractual adjustments, discounts, and implicit price concessions. Subsequent changes to the estimate of the transaction price are generally recorded as adjustments to patient service revenue in the period of the change.
For the years ended June 30, 2024 and 2023, changes in its estimates of implicit price concessions, discounts, and contractual adjustments for performance obligations satisfied in prior years were not significant. Subsequent changes that are determined to be the result of an adverse change in the patient's ability to pay are recorded as bad debt expense.
PAGE 22 THE PENNSYLVAN IA STATE UNIVERSITY
Consistent with the Health System's mission, care is provided to patients regardless of their ability to pay. Therefore, the Health System has determined it has provided implicit price concessions to uninsured patients and patients with other uninsured balances (for example, copays and deductibles). The implicit price concessions included in estimating the transaction price represent the difference between amounts billed to patients and the amounts the Health System expects to collect based on its collection history with those patients.
Patients who meet the Health System's criteria for charity care are provided care without charge or at amounts less than established rates. Such amounts determined to qualify as charity care are not reported as revenue. The amount of charges foregone under the Health System's charity care policy was $87.1 million and $90.6 million for the years ended June 30, 2024 and 2023, respectively. The direct and indirect costs of charity care, based on a ratio of the Health System's operational costs to its gross charges, was $43.9 million and $40.8 million for the years ended June 30, 2024 and 2023, respectively.
The Health System has agreements with third party payors that provide for reimbursements at amounts different from its established rates. Cost report settlements result from the adjustment of interim payments to final reimbursement under the Medicare, Medicaid, Blue Cross/Blue Shield, and HMO programs that are subject to audit by fiscal intermediaries.
Laws and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretation. As a result of investigations by governmental agencies, various health care entities have received requests for information and notices regarding alleged noncompliance with those laws and regulations, which, in some instances, have resulted in entities entering into significant settlement agreements. Compliance with such laws and regulations may also be subject to future government review and interpretation, as well as significant regulatory action, including fines, penalties, and potential exclusion from the related programs. There can be no assurance that regulatory authorities will not challenge the Health System's compliance with these laws and regulations, and it is not possible to determine the impact (if any) such claims or penalties would have upon the Health System. In addition, the contracts the Health System has with commercial payors also provide for retroactive audit and review of claims.
Settlements with third-party payors for retroactive adjustments due to audits, reviews, or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor, and the Health System's historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known (that is, new information becomes available} or as years are settled or are no longer subject to such audits, reviews, and investigations. In November 2023, in light of the Supreme Court's decision in American Hospital Association v. Becerra and the district court's remand to the agency, the Centers for Medicare & Medicaid Services (CMS) issued a final rule outlining the remedy for the invalidated OPPS 340B-acquired drug payment policy for calendar years 2019-2022. In total, the Health System received approximately $31.7 million in payments under this final rule. These payments were received and recognized within Health System revenue in 2024 as an adjustment arising from a change in the transaction price. The budget neutrality offset is expected to be realized between 2026 and 2041. Adjustments arising from a change in the transaction price were not significant in 2023.
Additionally, during 2024 and 2023, the Health System recognized $6.5 million and $6.2 million, respectively, 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 Health System recognizes revenue related to retail pharmacy at a point in time. Retail pharmacy sales are recognized within Health System revenue on the accompanying consolidated statements of activities and totaled
$145.6 million and $120.6 million during the years ended June 30, 2024 and 2023, 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.
AUD IT ED FINANC IAL STATEMENTS FY2024 PAGE 23
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, 2024 and 2023. 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, 2024 and 2023 have been made at the rates available to students for similar loans at such times. Investments are reported at fair value as disclosed in Note 4. The fair value of the University's bonds payable is disclosed in Note 8.
See Note 6 for further discussion of fair value measurements.
CASH FLOWS The following items are included as supplemental disclosure to the statements of cash flows for the years ended June 30:
(in thousands of dollars) 2024 2023 Supplemental reconciliation data:
Cash and cash equivalents as shown on the statements of financial position
$ 1,335,572
$ 1,007,504 Restricted cash and cash equivalents included in deposits held by bond trustees 4,104 3,779 Restricted cash and cash equivalents included in deposits held for others 29,451 28,044 Total unrestricted and restricted cash and cash equivalents as shown in the statements of cash flows
$ 1,369,127
$ 1,039,327 Other supplemental data:
2024 2023 Interest paid 134,221 136,092 Capitalized costs accrued related to construction are $92.6 million and $84.5 million as of June 30, 2024 and 2023, respectively. Taxes paid for 2024 and 2023 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) 2024 2023 Grants and contracts, net of allowance of $3,100 and $3,100 270,362 255,462 Patient accounts receivable 619,638 568,116 Student receivables, net of allowance of $50,484 and $63,525 61,128 54,802 Other, net of allowance of $0 and $12 80,658 61,836 Total accounts receivable, net
$ 1,031,786 940,216 An allowance for credit losses is established for amounts expected to be uncollectible over the contractual life of the receivables. The University calculates the allowance using an expected loss model that considers actual historical loss rates adjusted for current economic conditions and reasonable and supportable forecasts. Receivables are written off when management determines they will not be collected. During the year ended June 30, 2023, the University changed its process for delinquent student receivable collections, resulting in an increased gross receivable offset by an increased allowance.
PAGE 24 THE PENN SY LVAN IA STATE UNIVER SITY
Changes in the allowance for credit losses related to student receivables for the years ended June 30, 2024 and 2023 were as follows:
(in thousands of dollars)
Balance as of June 30, 2022 14,845 Impact of collection process change 52,141 Write-offs, net of recoveries (3,461)
Balance as of June 30, 2023 63,525 Provisions (1,382)
Write-offs, net of recoveries (11,659)
Balance as of June 30, 2024 50,484 LOANS TO STUDENTS Loans to students are disbursed to qualified students based on need and include loans granted by the University from institutional resources and under federal government loan programs. Students enter a grace period upon ceasing at least half-time enrollment status. The grace period varies depending on the type of loan. Upon expiration of the grace period, interest begins to accrue, and repayment begins one month thereafter. Repayments of these loans are made directly to the University. Loans to students are uncollateralized and carry default risk.
Funds advanced by the federal government of $13.3 million and $16.2 million at June 30, 2024 and 2023, respectively, are ultimately refundable to the government and are classified as liabilities in the consolidated 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) 2024 2023 Loans to students:
Federal government loan programs:
Perkins loan program 10,905 14,250 Institutional loan programs 17,613 18,411 28,518 32,661 Less allowance for doubtful accounts:
Balance, beginning of year (3,923)
(7,444)
Provision for doubtful accounts 237 3,521 Balance, end of year (3,686)
(3,923)
Loans to students, net 24,8321 28,738 An allowance for credit losses is established for amounts expected to be uncollectible over the contractual life of the loans. The University calculates the allowance using an expected loss model that considers actual historical loss rates adjusted for current economic conditions and reasonable and supportable forecasts. 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.
AUD ITED FINA N CIA L STATEM ENT S FY2024 PAGE 25
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 2024 or less 46-75 days days 105 days Total Loans to students:
Federal government loan programs 10,617 15 15 258 10,905 Institutional loan programs 13,984 18 17 3,594 17,613 Total loans to students 24,601 3,8521 $
28,518 Allowance for doubtful accounts:
Federal government loan programs (1,008)
Institutional loan programs (2,678)
Total allowance for doubtful accounts (3,686)
Total loans to students, net 24,832 (in thousands of dollars) 45 days76-105 Over 2023 or less 46-75 days days 105 days Total Loans to students:
Federal government loan programs 13,713 20 16 501 14,250 Institutional loan programs 15,024 17 12 3,358 18,411 Total loans to students 28,7371 $
3,8591 $
32,661 Allowance for doubtful accounts:
Federal government loan programs (1,421)
Institutional loan programs (2,502)
Total allowance for doubtful accounts (3,923)
Total loans to students, net 28,738 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 are comprised of 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, 2024 and 2023. 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 PAGE 26 TH E PENNSY LVAN IA STAT E UN IVERS IT Y I
be material. The fair values of 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.
INVESTMENT IN PLANT Total investment in plant as of June 30 is comprised of the following:
(in thousands of dollars) 2024 2023 Land 187,221 187,985 Buildings 9,656,329 9,243,547 Improvements other than buildings 936,864 887,180 Equipment 2,159,513 2,195,927 Assets under construction 784,534 771,342 Total plant 13,724,461 13,285,981 Less accumulated depreciation (6,671,253)
(6,284,570)
Total investment in plant, net 7,053,208 7,001,411 The value of land, buildings, and equipment is recorded at cost or, if received as gifts, at fair value at date of gift commitment. The University does not capitalize the cost of library books. Depreciation is computed over the estimated useful lives of the assets using the straight-line method. Useful lives range from 4 to 50 years for buildings, 10 to 20 years for improvements other than buildings, and 1 to 20 years for equipment. Depreciation expense was $559.6 million and
$549.6 million for the fiscal years ended June 30, 2024 and 2023, 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 $43.2 million and $42.3 million at June 30, 2024 and 2023, respectively.
LEASES 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 the Tax-Exempt Bloomberg Valuation Services (BVAL) Municipal AAA Curves Index Rate. The Index is constructed using hourly trades from the Municipal Securities Rulemaking Board (MSRB) AAA-rated municipal bonds normalized for differences in credit, optionality, and coupon size. 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 AUDITED FINAN CIAL STATEMENT S FY202 4 PAGE 27
term within consolidate related liab Operating statements finance lea operating expenses in the consolidated statements of activities and is not considered material to the d financial statements. Finance lease ROU assets are included in total investment in plant, net, with the ilities included in current and noncurrent long-term debt in the consolidated statements of financial position.
lease ROU assets and related current and long-term liabilities are separately presented in the consolidated of financial position. Expenses for operating leases, amortization of assets held under finance leases, and se interest expense are recognized within operating expenses in the consolidated statements of activities.
sity has elected, for all asset classes, the practical expedient to not separate lease and nonlease ts. Certain of the University's lease agreements include payments based on actual maintenance, taxes, The Univer componen insurance, deemed to the ROU as financial st restrictions and utilities. Other agreements include rental payments adjusted periodically for inflation. These are be variable lease payments and are recognized in operating expenses as incurred but are not included in set or liability balances. These variable lease payments are not considered material to the consolidated atements. The University's lease agreements do not contain any material residual value guarantees,
, or covenants.
ACCOUN TS PAYABLE AND OTHER ACCRUED EXPENSES Accounts p ayable and other accrued expenses at June 30 consist of the following:
nds of dollars)
(in thousa Accounts Health Sys Accrued p Accrued in payable (non-Health System) tern accounts payable and other accrued expenses ayroll and other related liabilities terest Student de posits Total acco unts payable and other accrued expenses ENT OF LONG-LIVED ASSETS 2024 2023 285.410 253,577 614,987 539,664 107,702 103,583 34,107 31,664 2,295 3,632 1,044,501 932,120 assets, which Include investment in plant and definite-lived intangible assets, are assessed for impairment IMPAIRM Long-lived whenever e impairment vents or changes in circumstances indicate the carrying amount of the asset may not be recoverable. An loss is recognized in change in net assets in the period that the impairment occurs.
TIREMENT OBLIGATIONS sity has recognized liabilities for asset retirement obligations. The University has identified asbestos ASSET RE The Univer abatement These oblig position. Th and the decommissioning of the Breazeale Nuclear Reactor as conditional asset retirement obligations.
ations are reported as part of other noncurrent liabilities within the consolidated statements of financial e following table details the change in liabilities:
ds of dollars) s of June 30, 2022 (in thousan Balance a Adjustmen Accretion Liabilities s Balance a Adjustmen Accretion Liabilities s Balance a t to liability expense ettled s of June 30, 2023 t to liability expense ettled s of June 30, 2024 ANNUITI ES PAYABLE 106,396 5,273 4,624 (6,784) 109,509 1,995 4.452 (4,982) 110,974 ayable consist of annuity payments currently due and the actuarial amount of annuities payable. The Annuities p actuarial am expected Ii cunt of annuities payable is the present value of the aggregate liability for annuity payments over the ves of the beneficiaries.
PAGE 28 THE PENNS YLVANIA STAT E UNIVERSITY
NET ASSETS Net assets consist of the following at June 30:
(in thousands of dollars)
Without donor 2024 restrictions Net assets by category:
Endowment funds 906,988 University capital activities 1,925,170 Operating general funds carryforward 812,173 Other unit non-general fund reserves 543,134 University other 62,706 Pledges Split-interest agreements Student loan funds 27,679 Net investment in plant 3,630,1 94 Postretirement benefits and pension prefunding (374,208)
Penn State Health operations 1,490,251 Non-controlling interest in Penn State Health 272,187 Total net assets 9,296,274 (in thousands of dollars)
Without donor 2023 restrictions Net assets by category:
Endowment funds 851,333 University capital activities 1,453,685 Operating general funds carryforward 818,350 Other unit non-general fund reserves 368,955 University other reserves 197,768 Pledges Split-interest agreements Student loan funds 24,779 Net investment in plant 3,727,311 Postretirement benefits and pension prefunding (546,563)
Penn State Health operations 1,420,375 Non-controlling interest in Penn State Health 268,568 Total net assets 8,584,561 INCOME TAXES The University files U.S. federal and state tax returns. The statute of limitations generally remains open for three years following the year they are filed. In ace Taxes, the University continues to evaluate tax positions and has determined t University financial statements.
AUD ITED FI NA N CIAL STATE ME NT S FY2024 With donor restrictions Total 3,876,918 4,783,906 14,616 1,939,786 812,173 246,311 789,445 62,706 183,482 183,482 116,900 116,900 20,261 47,940 3,630,194 (374,208) 1,490,251 272,187 4,458,488 13,754,762 With donor restrictions Total 3,606,007 4,457,340 19,435 1,473,120 818,350 206,606 575,561 197,768 207,022 207,022 110,434 110,434 20,154 44,933 3,727,311 (546,563) 1,420,375 268,568 4,169,658 12,754,219 on the University's federal returns ordance with ASC Topic 740, Income here is no material impact on the PAGE 29
RECENT ACCOUNTING PRONOUNCEMENTS In June 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-13, "Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments." This update includes changes to the accounting and measurement of financial assets, including the University's accounts receivable and loans to students, by requiring the University to recognize an allowance for all expected losses over the life of the financial asset at origination. This differs from the current practice where an allowance is not recognized until the losses are considered probable. Credit losses are recognized through the recording of an allowance rather than as a write-down of the carrying value. This update was effective for the University beginning July 1, 2023. The adoption of this guidance did not have a material impact on the consolidated financial statements.
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PAGE 30 TH E PENNSYLVANIA STAT E UN IVERS ITY
- 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 to be general expenditures.
Student loans receivable are not considered to be 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 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, 2024 and 2023.
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.
The following reflects the University's financial assets as of June 30, 2024 and 2023, 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)
Total assets Less:
Inventories Prepaid expenses and other assets Total investment in plant, net Beneficial interest in perpetual trusts Operating lease right-of-use assets Other assets Total financial assets Less:
Noncurrent investments Contractual or donor-imposed restrictions:
Deposits held by bond trustees Deposits held for others Receivables subject to time restrictions Receivables subject to donor-imposed restrictions Loans to students, net Financial assets available to meet cash needs for general expenditures within one year AUD ITED FINANCIAL STATEMEN T S FY2024 2024 2023 20,715,028
$ 19,704,296 (85,358)
(90,572)
(126,528)
(110,579)
(7,053,208)
(7,001,411)
(32,105)
(28,117)
(163,453)
(164,769)
(239,500)
(223,789) 13,014,876 12,085,059 (9,174,349)1 (8,057,417)
(103,673)
(268,489)
(39,089)
(38,012)
(44,672)
(38,676)
(121,187)
(120,426)
(24,832)
(28,738) 3,507,074 3,533,301 PAGE 31
- 4. INVESTMENTS Investments by major category as of June 30 are summarized as follows:
(in thousands of dollars) 2024 2023 Fixed income 3,416,894 3,594,516 Equity investments 4,793,916 4,319,325 Real assets 994,576 827,249 Opportunistic 1,091,056 876,924 Total
$ 10,296,442 9,618,014 Fixed income investments are comprised of public and private fixed income strategies such as government and corporate debt, mortgage-backed, and other asset-backed related debt. Equity includes investments such as public and private strategies across the globe. Real asset strategies include real estate, natural resources, and commodities.
Opportunistic includes investments such as 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 futures contracts comprise the University's derivative instruments as of June 30, 2024 and 2023, 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. Fully cash collateralized derivative securities were immaterial as of June 30, 2024 and 2023.
- 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 expendable 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, on behalf of the Board, 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, 2024 and 2023, funds with an original gift value of $96.8 million and $171.9 million were "underwater" by $3.8 million and $12.2 million, respectively. Subsequent investment gains will be used to restore the balance up to the fair market value of the original gift.
PAG E 32 THE PE NNSY LVAN IA STATE UN IVER SIT Y
Endowment net asset composition by type of fund as of June.30:
(in thousands of dollars)
Without donor With donor 2024 restrictions restrictions Total Donor-restricted endowment funds 3,876,918 3,876,918 Funds functioning as endowments 906,988 906,988 Total net assets 906,988 3,876,918 4,783,906 (in thousands of dollars)
Without donor With donor 2023 restrictions restrictions Total Donor-restricted endowment funds 3,606,007 3,606,007 Funds functioning as endowments 851,333 851,333 Total net assets 851,333 3,606,007 4,457,340 Changes in endowment net assets for the years ended June 30:
(in thousands of dollars)
Without donor With donor 2024 restrictions restrictions Total Endowment net assets, beginning of the year 851,333 3,606,007 4,457,340 Endowment return, net 79,008 333,470 412,478 Contributions 75,112 75,112 Endowment spending (33,879)
(137,671)
(171,550)
Transfers to create funds functioning as endowments 10,526 10,526 Endowment net assets, end of the year 906,988 3,876,918 4,783,906 (in thousands of dollars)
Without donor With donor 2023 restrictions restrictions Total Endowment net assets, beginning of the year 834,280 3,460,316 4,294,596 Endowment return, net 38,994 175,086 214,080 Contributions 86,928 86,928 Endowment spending (29,644)
(134,066)
(163,710)
Transfers to create funds functioning as endowments 7,703 7,703 Net asset transfer due to donor intent 17,743 17,743 Endowment net assets, end of the year 851,333
$ 3,606,007
$ 4,457,340 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 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.
I I
I I
I AUDITED FINANC IAL STATEMENTS FY2024 PAGE 33
The University expects the spending policy to provide generous current spending while preserving "intergenerational equity". The policy spending amount for both fiscal years 2024 and 2023 was based on 5.0% 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 value hierarchy, which prioritizes into three broad levels the inputs to valuation techniques used to measure fair value:
Level 1 -
Quoted prices (unadjusted) for identical assets or liabilities in active markets as of the measurement date.
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 indirect-ly, including quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived from observable market data by correlation or other means.
Level 3 - Unobservable inputs that cannot be corroborated by observable market data.
In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The University's assessment of significance of a particular item to the fair value measurement in its entirety requires judgment, including consideration of inputs specific to the asset.
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PAGE 34 THE PENNSYLVANIA STATE UNIVERSITY
AUDITED FINANCIA L STATEMEN T S FY2024 PAGE 35
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, 2024 and 2023:
(in thousonds of dollars) 2024 Level1 Level2 Level3 NAV Total Assets:
Long-term Investment Pool:
Fixed income Public separate accounts 466,166 466,166 Public funds 137,200 137,200 Private funds 493,183 493,183 Equity investments Public separate accounts 1,648,365 1,648,365 Private funds 2,729,585 2,729,585 Real assets Public separate accounts 81,812 81,812 Public funds 165,314 165,314 Private funds 746,389 746,389 Opportunistic Private funds 750,644 750,644 Total
$ 2,032,691 466,166
$ 4,719,801
$ 7,218,658 Operating Investments:
Fixed income Public separate accounts 2,014,001 2,014,001 Public funds 211,279 211,279 Private funds 95,065 95,065 Equity investments Public separate accounts 36,137 36,137 Private separate accounts 4,405 4,405 Public funds 276,589 276,589 Private funds 3,834 95,001 98,835 Real assets Public funds 899 899 Private funds 7
155 162 Opportunistic Public funds 84 84 Private funds 340,328 340,328 Total 524,988
$ 2,014,001 8,246 530,549
$ 3,077,784 Deposits held by bond trustees:
Fixed income Public funds 99,5691
-I $
-I $
-I $
99,569 Deposits held for others
-I 9,6381
-I $
-I $
9,638 Beneficial interest in perpetual trusts 32,105 32,105 Liabilities:
Present value of annuities payable 70,676 70,676 PAGE 36 THE PENNSYLVANIA STATE UNIVERS IT Y
(in thousands of dollars) 2023 Level 1 Level2 Levell NAV Total Assets:
Long-term Investment Pool:
Fixed income Public separate accounts 366,126 366,126 Public funds 110,730 110,730 Private funds 424,446 424,446 Equity investments Public separate accounts 1,145,174 1,145,174 Private funds 2,763,331 2,763,331 Real assets Public separate accounts 71,129 71,129 Public funds 153,350 153,350 Private funds 601,042 601,042 Opportunistic Private funds 606,237 606,237 Total
$ 1,480,383 366,126
$ 4,395,056
$ 6,241,565 Operating Investments:
Fixed income Public separate accounts 173
$ 2,423,970 2,424,143 Public funds 174,186 174,186 Private funds 94,885 94,885 Equity investments Public separate accounts 35,633 35,633 Private separate accounts 3,125 3,125 Public funds 281,855 281,855 Private funds 4,284 85,923 90,207 Real assets Public funds 1,039 1,039 Private funds 7
682 689 Opportunistic Public funds 68 68 Private funds 270,619 270,619 Total 492,954
$ 2,423,970 7,416 452,109
$ 3,376,449 Deposits held by bond trustees:
Fixed income Public funds 264,710 I $
-I $
-I
-I 264,710 Deposits held for others
-I 9,9681
-I $
-I 9,968 Beneficial interest in perpetual trusts 28,117 28,117 Liabilities:
Present value of annuities payable 67,573 67,573 AUDITED FINANCIAL STATEMEN T S FY2024 PAGE 37
Public separate accounts hold public fixed income and equity investments owned directly by the University. Some of these investments may be valued using matrix pricing which is based on the price or yield of a similar, more actively traded security. 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 structured similarly to a mutual fund and is used for investing the University's endowment funds, funds functioning as endowments, and other operating funds that are expected to be held long-term. A 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.
The following tables present information related to changes in Level 3 for each category of financial assets and liabilities for years ended June 30, 2024 and 2023:
(in thousands of dollars)
Assets:
Balance as of June 30, 2022 Gifts Total realized and unrealized gains Net transfers in (out)
Balance as of June 30, 2023 Gifts Purchases Sales Total realized and unrealized (losses) gains Net transfers in Balance as of June 30, 2024 Liabilities:
Balance as of June 30, 2022 Actuarial adjustment of liability Gifts Sales Balance as of June 30, 2023 Actuarial adjustment of liability Gifts Sales Balance as of June 30, 2024 PAGE 38 Long-Term Investment Pool 1,525 (1,525)
Present Value of Annuities Payable 63,995 1,551 2,904 (877) 67,573 5,952 691 (3,540) 70,676 Operating Investments 4,595 1,296 1,525 7,416 260 (161)
(209) 940 8,246 Beneficial Interest in Perpetual Trusts 26,240 1,029 848 28,117 2,611 1,377 32,105 THE PENNSYLVA NIA STATE UNIVERS IT Y
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:
Fair Value Unfunded Commitments Redemption Redemption (in thousands of dollars) 2024 I
2023 At June 30, 2024 Frequency Notice Period Private Funds With Redemption Ability:
Fixed income investments 431,400 393,545 Various 2-90 days Equity investments 1,333,700 1,273,408 Various 2-90 days Real asset investments 396,962 256,643 5,779 Various 2-90 days Opportunistic investments 929,168 750,127 Various 2-90 days Subtotal
$3,091,230
$2,673,723 5,779 Private Funds Without Redemption Ability:
Fixed income investments 156,848 125,786 198,840 Equity investments 1,490,886 1,575,846 542,982 Real asset investments 349,582 345,08 1 234,436 Opportunistic investments 161,804 126,729 159,873 Subtotal
$2,159,120
$2,173,442 1,136,131 Total
$ 5,250,350
$ 4,847,165 1,141,910 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 three years 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 LTIP's private funds as of June 30, 2024 that may be invested in the future.
- 7. CONTRIBUTIONS RECEIVABLE Contributions receivable are summarized as follows as of June 30:
(in thousands of dollars) 2024 2023 In one year or less 42,009 50,316 Between one year and five years 44,746 54,756 More than five years 164,005 131,382 Contributions receivable, gross 250,760 236,454 Less allowance (1,842)
(1,757)
Less discount (65,436)
(50,611)
Contributions receivable, net 183,482 184,086 Contributions received during the years ended June 30, 2024 and 2023 are discounted at rates ranging from 4.33% to 5.09% and 3.96% to 5.40%, respectively. The discount rates for prior periods ranged from 0.11% to 6.28%.
At June 30, 2024 and 2023 the University has received bequest intentions of $927.7 million and $865.1 million, respectively, and certain other conditional promises to give of $88.1 million and $59.7 million, respectively. These intentions and conditional promises to give are not included in the consolidated financial statements.
AUD ITED FINANC IAL STATEMEN TS FY2024 PAGE 39 I
- 8. LONG-TERM DEBT The various bond issues, notes payable and finance 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)
The Pennsylvania State University Bonds Series 2023 Series 2022A Series 20228 Series 2020A Series 20208 Series 2020D Series 2020E Series 2019A Series 20198 Series 2018 Series 2017 A Series 20178 Series 2016A Series 20168 Series 2015A Series 20158 Series 20078 Pennsylvania Higher Educational Facilities Authority University Revenue Bonds (issued for The Pennsylvania State University)
Series 2006 Series 2004 Penn State Health Taxable Bonds Series 2019 Cumberland County Municipal Authority Revenue Bonds (issued for Penn State Health)
Series 2019 Lancaster County Hospital Authority Revenue Bonds (issued for Penn State Health)
Series 2021 Lycoming County Authority College Revenue Bonds (issued for Penn College)
Series 2021A Series 20218 Series 2016 Series 2015 Total bonds payable Unamortized bond premiums Unamortized deferred bond costs 2024 2023 203,990 203,990 123,605 125,450 25,610 26,500 76,725 78,045 292,740 303,795 987,835 1,013,920 42,600 47,585 100,200 102,030 108,430 111,165 58,870 60,025 140,955 143,920 108,340 111,260 101,300 104,730 157,140 169,050 52,070 53,990 78,485 83,345 22,050 26,875 695 1,015 420 820 200.0001 200,000 222,000 222,000 288.8401 288,840 24,290 26,305 20,345 21,180 40,575 42,735 465 1,090 3,478,575 3,569,660 239,027 256,979 (16,029)
(16,847)
PAGE 40 THE PENNSY LVAN IA STATE U NI V ERSITY
(in thousands of dollars)
Notes payable and finance leases Notes payable Finance lease obligations Total notes payable and finance leases Total long-term debt Debt issuance Interest rate mode Interest rates The Pennsylvania State University Bonds Series 2023 Fixed 5.00% - 5.25%
Series 2022A Fixed 5.00% - 5.25%
Series 20228 Fixed 3.003% - 4.673%
Series 2020A Fixed 4.00% - 5.00%
Series 20208 Fixed 1.680% - 2.888%
Series 2020D Fixed 1.545% - 2.84%
Series 2020E Fixed 5.00%
Series 2019A Fixed 5.00%
Series 20198 Fixed 2.30% - 3.50%
Series 2018 Fixed 5.00%
Series 2017 A Fixed 5.00%
Series 20178 Fixed 2.616% - 3.793%
Series 2016A Fixed 5.00%
Series 20168 Fixed 4.00% - 5.00%
Series 2015A Fixed 5.00%
Series 20158 Fixed 5.00%
Series 20078 Fixed 5.25%
Pennsylvania Higher Educational Facilities Authority University Revenue Bonds Series 2006 Fixed 5.125%*
Series 2004 Fixed 5.00%*
Payment ranges and maturity (in thousands of dollars) 2024 31,810 39,337 71,147 3,112.1201 2023 36,958 39,173 76,131 3,885,923
$2,985 to $7,715 through September 2043 with $45,220 and
$58,795 due September 2048 and 2053, respectively
$1,940 to $4,770 through September 2042 with $27,765 and
$35,890 due September 2047 and 2052, respectively
$915 to $1,550 through September 2037 with
$8,940 due September 2042
$1,385 to $3,090 through September 2040 with $17,980 and
$22,490 due September 2045 and 2050, respectively
$5,895 to $13,910 through September 2035 with $67,170 and
$89,310 due September 2040 and 2050, respectively
$26,465 to $33,545 through September 2035 with $304,225 and
$328,000 due September 2043 and 2050, respectively
$5,230 to $7,010 through March 2031
$1,925 to $6,720 through September 2049
$2,800 to $3,720 through September 2034 with $20,455 and
$52,515 due September 2039 and September 2049, respectively
$1,210 to $2,320 through September 2037 with $16,650 and
$18,255 due September 2043 and September 2048, respectively
$3,115 to $5,965 through September 2037 with $34,750 and
$44,620 due September 2042 and September 2047, respectively
$2,995 to $3,830 through September 2032 with $21,305 and
$56,595 due September 2037 and September 2047, respectively
$3,600 to $6,465 through September 2036 with
$37,520 due September 2041
$7,165 to $22,195 through September 2036
$2,015 to $3,445 through September 2035 with
$20,000 due September 2040
$5,105 to $8,435 through September 2035
$5,085 to $5,955 through August 2027
$1,610 due September 2025
$1,905 due September 2024
- Annual interest costs to the University for interest rates greater than 3.00% are subsidized by PHEFA.
AUDIT ED FINANCIA L STATE MENT S FY2024 PAGE 41
Debt issuance Interest rate mode Interest rates Penn State Health Bonds Series 2019 Fixed 13.806%
Payment ranges and maturity (in thousands of dollars)
I $200,000 due November 2049 Cumberland County Municipal Authority Revenue Bonds Series 2019 Fixed 3.00% - 5.00%
$4,915 to $9,315 through November 2039 with $52,355 and
$63,940 due November 2044 and November 2049, respectively Lancaster County Hospital Authority Revenue Bonds
$5,780 to $13,690 through November 2041 with $79,750 and Series 2021 Fixed 5.00%
$152,421 due November 2046 and November 2051, respectively Lycoming County Authority College Revenue Bonds Series 2021A Fixed 5.00%
$2,015 to $4,565 through July 2030 Series 20218 Fixed 0.782% - 3.014%
$900 to $1,930 through January 2038 Series 2016 Fixed 2.125% - 5.00%
$1,545 to $4,075 through October 2037 Series 2015 Fixed 2.75% - 5.00%
$465 due January 2025 The University believes it has complied with all financial debt covenants for the years ended June 30, 2024 and 2023.
Maturities and sinking fund requirements on bonds payable for each of the next five fiscal years and thereafter are summarized as follows:
t Annual Installments Year (in thousands of dollars) 2025 96,885 2026 105,690 2027 109,270 2028 113,105 2029 116,940 Thereafter 2,936,685 Total
$ 3,478,575 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, 2024, the carrying value and estimated fair value of the University's bonds payable, including Issuance premiums and deferred bond costs, are $3.702 billion and $3.187 billion, respectively. At June 30, 2023, the carrying value and estimated fair value of the University's bonds payable, including Issuance premiums and deferred bond costs, are $3.810 billion and $3.297 billion, respectively. Certain bond Issues have associated Issuance premiums; these issuance premiums total $239.0 million and $257.0 million at June 30, 2024 and 2023, 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 $16.0 million and $16.8 million at June 30, 2024 and 2023, 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.
PAGE 42 THE PENNSYLVANIA STATE UNIVERS ITY
NOTES PAYABLE The University has four notes payable included within the consolidated statements of financial position at June 30, 2024 with balances of $1.2 million, $2.4 million, $5.6 million, and $22.6 million. These notes have payments due through June 2025, March 2026, August 2039, and September 2040 and bear interest at 2.85%, 2.80%, 2.65%, and 2.65%, respectively.
Maturities on notes payable for each of the next five fiscal years and thereafter are summarized as follows:
I Annual Installments Year (in thousands of dollars) 2025 4,029 2026 2,515 2027 1,518 2028 1,559 2029 1,601 Thereafter 20,588 Total 31,810 LINE OF CREDIT In April 2021, the Health System entered into a revolving line of credit agreement with PNC Bank in the amount of
$230 million, expiring in April 2024. In May 2023, the credit agreement was amended to convert its variable interest rate index from the one-month London Interbank Offered Rate (LIBOR) plus an applicable spread to the Secured Overnight Financing Rate (SOFR) plus an applicable spread, as defined in the agreement. The effective interest rate as of June 30, 2023 was 5.9%.
In April 2024, the Health System entered into another revolving line of credit agreement with PNC Bank in the amount of $150 million to replace the expired line of credit. The new line of credit expires in April 2027. This credit bears interest at the SOFR plus 85 basis points (0.85%). In 2024, the Health System did not draw on this line of credit. The effective interest rate as of June 30, 2024 was 6.3%.
- 9. LEASES The University leases certain equipment and buildings under operating and finance leases expiring at various dates through 2043. Rentals generally include insurance, taxes and maintenance costs.
Future maturities of lease liabilities at June 30, 2024 are as follows:
(in thousands of dollars)
Year Finance Leases Operating Leases 2025 9,320 37,612 2026 7,859 33,516 2027 6,879 28,608 2028 2,898 22,714 2029 2,703 14,707 Thereafter 16,820 71,187 Total lease payments 46,479 208,344 Less amount representing interest (7,142)
(36,637)
Total lease obligations 39,337 171,707 Current portion 8,256 30,661 Long-term portion 31,081 141,046 AUDITED FINANCIAL STATEM ENT S FY2024 PAGE 43
Supplemental lease activity for the years ended June 30 is as follows:
(in thousands of dollars) 2024 2023 Components of Lease Expense Finance lease expense:
Amortization of ROU assets 10,208 9,133 Interest on lease liabilities 1,365 1,465 Total finance lease expense 11,573 10,598 Operating lease expense 38,709 35,969 Total lease expense 50,282 46,567 The weighted-average remaining lease term and weighted-average discount rate at June 30 were as follows:
University:
Finance leases Operating leases Health System:
Finance leases I
Operating leases Weighted-Average Remaining Lease Term (Years) 2024 I
2023 11.12 10.97 4.42 4.99 3.90 3.50 9.30 10.90 Weighted-Average Discount Rate 2024 I
2023 4.00%
3.81%
2.99%
2.89%
2.00%
3.20%
4.70%
4.00%
Supplemental cash flow information related to leases for the years ended June 30 is as follows:
(in thousands of dollars) 2024 2023 ROU assets acquired in exchange for finance lease liabilities 9,596 7,400 ROU assets acquired in exchange for operating lease liabilities 38,135 20,491 Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from finance leases 1,365 1,465 Operating cash outflows from operating leases 37,919 34,163 Financing cash outflows from finance leases 9,151 8,305 PAG E 44 THE PENNSYLVANI A STATE UN IVERS ITY
- 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 2024 and General Enterprises System Salaries and wages
$ 1,963,270 166,476 1,907,286 Benefits 707,504 62,714 476,173 Depreciation 340,504 45,663 173,399 Plant operations and maintenance 159,548 20,450 88,183 Other components of net periodic postretirement benefit cost (26,232)
Interest 50,139 39,259 28,113 Supplies, services, and other 682,093 199,127 1,558,104 Total
$ 3,876,826 533,689
$4,231,258 (in thousands of dollars)
Educational Auxiliary Health 2023 and General Enterprises System Salaries and wages 1,910,640 150,200 1,779,513 Benefits 708,108 70,482 455,531 Depreciation 322,697 46,617 180,260 Plant operations and maintenance 181,584 24,745 78,714 Other components of net periodic postretirement benefit cost (21,313)
Interest 45,160 33,456 28,697 Supplies, services, and other 573,145 204,424 1,474,622 Total
$ 3,720,021 529,924
$ 3,997,337 I
Total
$ 4,037,032 1,246,391 559,566 268,181 (26,232) 117,511 2,439,324
$8,641,773 Total
$ 3,840,353 1,234,121 549,574 285,043 (21,313) 107,313 2,252,191
$ 8,247,282 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 (TIAA). The University is billed for its share of the estimated actuarial cost of the defined benefit plans ($54.3 million and $44.4 million, net of applied setoff credits of $93.3 million for the years ended June 30, 2024 and 2023, respectively). 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 $260.5 million and $240.7 million for the years ended June 30, 2024 and 2023, 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 AUDITE D FI NA N C IAL STATEMENTS FY2 0 24 PAGE 45
sufficient to accumulate assets to pay benefits when due. In April 2020, the University entered into an agreement with SERS to prefund $1.061 billion 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, 2024 and 2023 were
$50.3 million and $39.5 million, respectively (net of applied setoff credits of $93.3 million) and represent approximately 5.8% and 5.9% of total contributions to the plan based on projections for fiscal years 2024 and 2023, respectively. The funded ratio of the plan was 69.6% as of December 31, 2023.
- 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.
Non-union employees retiring on or before December 31, 2020 received a $5,000 term life insurance policy benefit at no cost to the employee. 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.
PAG E 46 TH E PENNSY LVANI A STAT E UNIVERS ITY
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:
2024 2023 Benefit obligation at beginning of year 1,221,009 1,471,456 Service cost 14,057 16,947 Interest cost 60,518 60,115 Actuarial gain (33,379)
(204,940)
Benefits paid (50,700)
(56,219)
Plan amendment 883 Plan assumptions (22,152)
(66,350)
Benefit obligation at end of year
$ 1,190,236 1,221,009 Change in plan assets:
Fair value of plan assets at beginning of year Employer contributions 50,700 56,219 Benefits paid (50,700)
(56,219)
Fair value of plan assets at end of year Funded status
$ (1,190,236)
$ (1,221,009)
Unrecognized prior service cost (benefit)
Unrecognized net actuarial loss Accrued postretirement benefit expense
$ (1,190,236)
$ (1,221,009)
Net periodic postretirement cost includes the following components for the years ended June 30:
(in thousands of dollars)
Operating expenses:
2024 2023 Service cost 14,057 16,947 Nonoperating activities:
Interest cost 60,518 60,115 Amortization of prior service cost 92 Amortization of unrecognized net loss (87,634)
(81,428)
Net periodic postretirement cost (12,967)
(4,366)
The assumed healthcare cost trend rate used in measuring the accumulated postretirement benefit obligation was 7.60% and 7.40% for the years ended June 30, 2024 and 2023, respectively, reduced to an ultimate level of 4.50% and 4.50%, respectively. The postretirement benefit obligation discount rate was 5.52% and 5.20% for the years ended June 30, 2024 and 2023, respectively. During 2024 and 2023, the plan had favorable claims experience compared to assumptions, and the liability decreased due to the increase in discount rates.
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.
AUDITED FINANC IAL STATEMENTS FY2024 PAGE 47
Postretirement benefits expected to be paid for the years ended June 30 are as follows:
i (in thousonds of dollars) 2025 56,599 2026 60,867 2027 64,973 2028 68,437 2029 71,613 2030-34 391,632
- 13. PENN STATE HEALTH Penn State Health was organized exclusively to promote, support and further the charitable, educational, and scientific purposes of the University. These purposes are defined and limited by Section 501(c)(3) of the Internal Revenue Code of 1986. The Health System is controlled by the University with a 20% membership by High mark Health (HH). The University has recorded noncontrolling interest related to this membership, which is included in net assets without donor restrictions within the consolidated statements of financial position with a value at June 30, 2024 and 2023 of
$272.2 million and $268.6 million, respectively.
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), Penn State Health Life Lion, LLC (PSHLL), and Pennsylvania Psychiatric Institute (PPI), which was acquired during the year ended June 30, 2024. These subsidiaries provide a variety of health care seNices in the Dauphin, Centre, Berks, Cumberland, and Lancaster county regions of Pennsylvania.
The Health System, through its medical groups, operates a non-acute and ambulatory network that consists of a number of patient care sites in nine counties. The Heath System, through Nittany, jointly holds ownership interest in ambulatory surgical centers.
During 2024 and 2023, the Health System recorded $951.3 million and $854.2 million, respectively, of net patient seNice revenue received from HH. In 2023, the Health System transferred $10.7 million of net assets to HH. During 2024 and 2023, the Health System paid HH $276.9 million and $272.7 million, respectively, of employee benefits expense. As of June 30, 2024 and 2023, the Health System has a liability due to HH in the amount of $3.1 million and
$13.8 million, respectively. This liability 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 $1.806 billion, of which $1.572 billion has been paid or accrued as of June 30, 2024. 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 $32.7 million and $33.5 million as of June 30, 2024 and 2023, 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.
PAGE 48 TH E PENNSYLVA NIA STAT E UN IVER SIT Y
GUARANTEES The University has a contract with a third party whereby the third party acts as an agent of the University in connection with the 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, in accordance with Pennsylvania law. An estimate of the present value, discounted at 2% for the years ended June 30, 2024 and 2023, of the medical malpractice claims liability in the amount of $235.0 million and $212.7 million is recorded as of June 30, 2024 and 2023, respectively.
The subsidiaries of the Health System are self-insured for all medical malpractice claims asserted on or after July 1, 2001 that are below the coverage of excess insurance policies and not included in the insurance coverage of the Pennsylvania Medical Care Availability and Reduction of Error Fund. Under the self-insurance program, the Health System is required by the Commonwealth to maintain a malpractice trust fund in an amount equal to or greater than the expected loss of known claims. The balance of this trust fund was $42.4 million and $40.2 million at June 30, 2024 and 2023, respectively. The Health System intends to fund any claim payments due during the next year with 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 $6.5 million and $6.3 million, discounted at 4.33% and 4.13%, respectively, is recorded as of June 30, 2024 and 2023, respectively. The University has established a trust fund, in the amount of $14.4 million and
$13.8 million at June 30, 2024 and 2023, 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 also approved by the PA-DLI to self-insure Pennsylvania workers' compensation claims and has purchased an excess policy through a commercial insurer for claims in excess of $750,000 per incident.
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 benefit claims in excess of $1.0 million per employee per year. The University and the Health System provide for reported claims and claims incurred but not reported.
RELATED PARTY TRANSACTIONS During 2024 and 2023, the University paid HH, a related party as defined in Note 13, $338.7 million and $162.6 million, respectively, of employee benefits expense. As of June 30, 2024 and 2023, the University has a liability due to HH in the amount of $17.8 million and $24.7 million, respectively.
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.
AUDI TED FI NA N C IAL STATE M ENT S FY2024 PAGE 49
- 15. SUBSEQUENT EVENTS The University has evaluated subsequent events through November 7, 2024, 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.
In August 2024, the University issued general obligation bonds, Series 2024; in the amount of $157.9 million for the purpose of financing various construction and renovation projects.
NOTE: The remainder of this page is intentionally left blank.
PAGE 50 TH E PENNSY LVANIA STATE UNIVERS ITY
Board of Trustees THE PENNSYLVANIA STATE UNIVERSITY as of June 30, 2024 ABRAHAM AMOROS Director of Operations PA Municipal League DANIEL J. DELLIGATTI President and Owner/Operator M&J Management Corporation
'NEELI BENDAPUDI President The Pennsylvania State University "Non*Voting Trustee
'JOSHUA D. SHAPIRO Governor Commonwealth of Pennsylvania 0Non*Voting Trustee EDWARD B. BROWN, Ill President & CEO KETCHConsulting, Inc.
ALVIN F. de LEVIE Attorney and Founder Law Offices of Alvin F. de Levie BARRY J. FENCHAK Registered Investment Advisor Securities Principal APPOINTED BY THE GOVERNOR DANIEL A. ONORATO Exec. Vice Pres. & Chief Corporate Affairs Officer Highmark Health DAVID M. KLEPPINGER Chairman Emeritus McNees Wallace & Nurick LLC MEMBERS EX OFFICIO CYNTHIA A. DUNN Secretary Pennsylvania Department of Conservation and Natural Resources KHALID M. MUMIN Acting Secretary Pennsylvania Department of Education ELECTED BY ALUMNI CHRISTA A. HASENKOPF Director, Air Quality Programs & AQLI Energy Policy Institute, Univ. of Chicago ANTHONY P. LUBRANO President A.P. Lubrano & Company, Inc.
JOSEPH V. PATERNO, JR.
President Blue Line 409 LLC TERRENCE M. PEGULA CEO Buffalo Bills, Buffalo Sabres, JKLM Energy, LLC DAVID DAVIS Managing Director Accenture RUSSELL C. REDDING Secretary Pennsylvania Department of Agriculture "EVAN A. MYERS Governor's Non-Voting Representative Sr. Vice President, AccuWeather, Inc.
.. Non*Voting Representative ALI KRIEGER Professional Soccer Player Gotham FC BRANDON D. SHORT Executive Director and Portfolio Manager PGIM Real Estate STEVEN B. WAGMAN National Healthcare Business Leader Siemens Industry, Inc. - Smart Infrastructure RANDALL E. BLACK CEO & President ELECTED BY DELEGATES FROM AGRICULTURAL SOCIETIES VALERIE L. DETWILER M. ABRAHAM HARPSTER Co-Owner Evergreen Farms, Inc.
First Citizens Community Bank DONALD W. CAIRNS Owner/Operator Cairns Family Farm Senior Vice President. Senior Commercial Banker Reliance Bank LYNN A. DIETRICH Retired Professional Engineer (PE)
CHRIS R. HOFFMAN President Pennsylvania Farm Bureau ELECTED BY THE BOARD - REPRESENTING BUSINESS AND INDUSTRY ROBERT F. BEARD Chief Operating Officer UGI Corporation ROBERT E. FENZA Retired Chief Operating Officer Liberty Property Trust TRACY A. RIEGEL Former Project Manager The Vanguard Group STUDENT TRUSTEE KEVIN F. SCHUYLER Student The Pennsylvania State University DONALD G. COTNER Officer, Cotner Farms, Inc.
Partner, Don Cotner Farms, LP Partner, Boyd Station, LLP MARK H. DAMBLY Chief Executive Officer Pennrose Properties, LLC DAVIDC. HAN Professor Emeritus Penn State Colleges of Medicine and Engineering BARBARA L. DORAN CEO/CIO BDB Capital Partners, LLC GEORGE T. HENNING, JR.
Retired Business Executive KAREN L. QUINTOS Retired Chief Customer and Marketing Officer Dell Technologies MARY LEE SCHNEIDER Former President and CEO SG360" ELECTED BY THE BOARD NAT-LARGE JULIE ANNA POTTS President and Chief Executive Officer North American Meat Institute ACADEMIC TRUSTEE NICHOLAS J. ROWLAND Professor of Sociology Penn State Altoona EMERITI TRUSTEES IRA M. LUBERT Chairman and Co-Founder Independence Capital Partners and Lubert Adler Partners, LP ALICE W. POPE Associate Professor, Department of Psychology St. John's University WALTER C. RAKOWICH Retired Chief Executive Officer Prologis ROBERT C. JUBELIRER Partner Next Generation Partners, Inc.
RYAN J. McCOMBIE Retired U.S. Navy Captain (SEAL)
AUD ITED FINA N C IAL STATEMEN T S FY2024 NAREN K. GURSAHANEY Retired President, CEO & Director ADT Corporation RICHARD S. SOKOLOV Vice Chairman Simon Property Group MATTHEW W. SCHUYLER Former Chief Brand Officer Hilton Worldwide IMMEDIATE PAST PRESIDENT ALUMNI ASSOCIATION KELLEY M. LYNCH Chief Financial Officer sovaSafe KATHLEEN L. CASEY Senior Advisor Patomak Global Partners, LLC KLC Consulting Group, LLC KEITH E. MASSER Chairman and Chief Executive Officer Sterman Masser, Inc.
ROBERT J. TRIBECK Chief Legal Officer Post Acute Medical, LLC RICHARD K. DANDREA Attorney Eckert Seamans Cherin & Mellott LLC WILLIAM F. OLDSEY Retired Educational Publishing Executive PAGE 51
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 February 4, 2025 (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: R-2 Breazeale Nuclear Reactor Docket 050-00005 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:
License#
(Docket#)
R-2 (050-00005)
License Description and Method Research Reactor 12/12/19 base estimate of
$21,480,473 plus 5% per year compounded increase.'
Certified Amounts or Current Cost Estimates - 2024
$27,415,132 25% contin enc fund
$6,853,783
+------'---<----'-----j Total Estimated Costs:
$34,268,915 1 The 2019 value with 5%/year escalation is used here. This is because approval has not yet been received for the 2022 value ($18,541,855) submitted as part of Penn State University's decommissioning funding plan subm ittal. If the 2022 value were to be used, with 5% per year compounded escalation, the certified annual current cost estimate for 2024 would be smaller ($20,442,395) than that presented in the table above. Therefore, without having yet received approval, the largest of the two values is used in this document.
- 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 30 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 year 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 2
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 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, except 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 guarantor 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.
3
- 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 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: cQ,/'(,bE>-
Pennsylvania State University:
Virginia Te ey Associate Vice President for Budget and Fi Signature of witness or notary~ ~ ~
4
Offieiul Use OAI)'
Pre13rietGF)' IAfomrntioA Withhold UAder IO CFR 2.390 ATTACHMENT C-lndependent Accountant's Report on Applying Agreed-Upon Procedures Offieial Use OAI)'
Pre13rietary lAformatioA 'Nithhold UAder 10 C-FR 2.390
Qlante Thoran Official Use Only Proprietary foformation Withhold UAder 10 CFR 2.390 Independent Accountant's Report on Applying Agreed-upon Procedures Plante & Moran, PLLC Suite 300 634 Front Avenue N.W.
Grand Rapids, Ml 49504 Tel: 616.774.822 1 Fax: 616.459.3594 planlemoran.com To Ms. Virginia Teachey, Associate Vice President for Budget and Finance The Pennsylvania State University 308 Old Main University Park, PA 16802 We have performed the procedures enumerated below on The Pennsylvania State University's (the "University") compliance with the U.S. Nuclear Regulatory Commission's (the "NRC") financial assurance regulations, Appendix E to 10 CFR Part 30, related to the University's use of financial tests and self-guarantee for providing reasonable assurance of funds for decommissioning the Breazeale Reactor Facility and Special Nuclear Material for research and teaching (the "Regulations"), as of June 30, 2024 (the "subject matter"). The University's management is responsible for the subject matter.
The University has agreed to the procedures performed and acknowledged that they are appropriate to meet the intended purpose of assisting the University and the NRC in evaluating the subject matter. No other parties have agreed to and acknowledged the appropriateness of the procedures. This report may not be suitable for any other purpose. The procedures performed may not address all items of interest to a user of this report and may not meet the needs of all users of this report, and, as such, users are responsible for determining whether the procedures performed are appropriate for their purposes. We make no representation regarding the sufficiency of these procedures, either for the purpose intended or for any other purpose.
An agreed-upon procedures engagement involves performing specific procedures that the engaging party has agreed to and acknowledged to be appropriate for the intended purpose of the engagement and reporting on findings based on the procedures performed. Those procedures and findings are as follows:
- 1.
For the University's most recent uninsured, uncollateralized, and unencumbered bond issuance, which is $157,860,000 of tax-exempt Series 2024 bonds, we compared the rating of AA from S&P Global Ratings and the rating of Aa1 from Moody's Investors Service, reported in the 2024 NRC Annual Certification Letter prepared by the University, to the letter dated August 8, 2024 from S&P Global Ratings to the University and to the letter dated August 15, 2024 from Moody's Investors Service to the University, respectively.
- 2.
We found no exceptions as a result of the procedures.
We recalculated the total figure of off-balance-sheet exposures for mathematical accuracy. We compared the total of off-balance-sheet exposure included in the schedule provided by the University's management to the total net assets of $13,754,762,000 reported in the 2024 NRC Annual Certification Letter prepared by the University and confirmed the total off-balance-sheet exposure was less than the total net assets reported in the 2024 NRC Annual Certification Letter.
We found no exceptions as a result of the procedures.
We were engaged by the University to perform this agreed-upon procedures engagement and conducted our engagement in accordance with attestation standards established by the American Institute of Certified Public Accountants (AICPA). We were not engaged to, and did not, conduct an examination or review engagement, the objective of which would be the expression of an opinion or conclusion, respectively, on the subject matter. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.
~
P.E1~I!".Y' 1
Official Use Only Proprietary InformatioA Withhold UAder IO CFR 2.390
Offieial Use ORiy Prn13rietal)' TnformatioR Withhold URder IO CFR 2.390 To Ms. Virginia Teachey, Associate Vice President for Budget and Finance The Pennsylvania State University We are required to be independent of the University and to meet our other ethical responsibilities in accordance with the relevant ethical requirements related to our agreed-upon procedures engagement.
This report is intended solely for the information and use of the University and the NRC and is not intended to be and should not be used by anyone other than those specified parties.
~
I ~I l'J..LC December 13, 2024 2
Offieial Use ORiy Pro13rietary TnformatioR Wit!:il~old URder IO CFR 2.390
Offieial Use ORiy PFepFietary lHfem1ati0R Withheld URder IO CfR 2.390 Schedule for Reconciling Amounts Contained in the NRC Annual Certification Letter with Amounts in the Consolidated Financial Statements Total positive net assets The Pennsylvania State University Year Ended June 30, 2024 Per Consolidated Financial Statements
$13,754,762,000 3
Reconciling items
$0 Per NRC Annual Certification Letter
$13,754,762,000 Offieial Use ORiy Preprietary InfermatieR '.Vitl~lmld URder IO CfR 2.390
ATTACHMENT D - Affidavit
fZJ PennState Virginia A. Teachey Associate Vice President for Budget
& Finance AFFIDAVIT (8 14) 865-1355 FAX: (8 14) 863-0701 The Pennsylvania State University 308 Old Main University Park, PA 16802-1505 February 4, 2025 (1) I am the Associate Vice President for Budget and Finance ofThe 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 10 CFR Section 2.390 of the Commission's regulations and in conjunction with the University's submission of the Independent Accountant's Report on Ap.plying Agreed-Upon Procedures for the year ended June 30, 2024 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, 2024 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 the Commission in confidence and, under the provisions of 10 CFR 2.390; it is to be received in confidence by the Commission.
The facts set forth in this Affidavit are true and correct to the best of my knowledge, information, and beli0~u'- ~
Virginia A. Teachey Associate Vice President for Budget and 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.