ML093030395
| ML093030395 | |
| Person / Time | |
|---|---|
| Site: | Pennsylvania State University |
| Issue date: | 06/30/2008 |
| From: | Unlu K Pennsylvania State Univ |
| To: | William Kennedy Division of Policy and Rulemaking |
| Kennedy W, NRR/ADRA/DPR/PRT, 415-2784 | |
| References | |
| TAC MC9534 | |
| Download: ML093030395 (32) | |
Text
{{#Wiki_filter:PENNSTATE KENAN KENAN UNLO,ONLU, Ph.D. Phone: (814) 865-6351 Director, Radiation Science and Engineering Center Radiation Science Center 863-4840 Fax: (814) 863-4840 Professor, Department Engineering Department of Mechanical and Nuclear Engineering E-mail: k-unlu)psu.edu k-unlu@psu.edu The Pennsylvania The Pennsylvania State State University University University Park, PA 16802-2304 University Park, PA 16802-2304 April 2, 2009 US Nuclear Regulatory Commission Commission ATTN: Mr.William Mr. William Kennedy, Project Manager Manager Office of Nuclear Reactor Office Reactor Regulation Regulation Mail Stop 012-G 0 12-G 1313 One White Flint North North 11555 Rockville 11555 Rockville Pike Rockville, MD 20852-2738 20852-2738
\
Reference:
Reference:
Pennsylvania State University Pennsylvania Breazeale Nuclear University Breazeale Nuclear Reactor Reactor No.50-005, License No. R-2 Docket No.50-005, USNRC Request Request for Additional Information (RAJ) (RAI) dated September 5, 2008 USNRC Request Additional Information (RAJ) Request for Additional (RAI) dated March 23, 2009 .
Subject:
Response to RAI dated September September 5, 2008
Dear Mr. Kennedy:
The attachment attachment to this letter answers the questions presented presented in the RAI RAJ dated March 23, 2009. Also attached is the Audited Financial Financial Statements Statements for the University University (fiscal year ending June 30, 2008) which which was not available for our October 31, 31, 2008 response to t6 the NRC RAJ RAI dated September 5, 2008. The response and attachments attachments do not contain any sensitive sensitive information. If there are any questions regarding regarding the information information submitted, submitted, please contact contact Mr. Mark Trump, Associate Director Director for Operations Operations at the RSEC. I declare under penalty penalty perjury that the foregoing is of perjury is true and correct. Executed on Executed _~A-ft_'#)_'_I_Q-I-I_:2D_O_lJ!...- T , ___-, Sincerel . rours, siffcerel ours, _
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KZný K nliio-/ý nan Unlil Director, Radiation Radiation Science Science and Engineering Center Center Professor, Department Mechanical and Nuclear Engineering Department of Mechanical Engineering cc: E.J. Pell (w/o) A.A. AA Atchley (w/o) Sathianathan (w/o) D. Sathianathan M.A. Trump M.A College of Engineering An Equal Opportunity Opportunity University
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THE PENNSYLVANIA PENNSYLVANIA STATE UNIVERSITY UNIVERSITY UNIVERSITY OFFICERS UNIVERSITY OFFICERS as of September September 30, 2008 GRAHAM B. SPANIER GRAHAM SPANIER President President of the University RODNEY A. ERICKSON RODNEY Executive Executive Vice President President and Provost of the University RODNEY RODNEY P. P. KIRSCH Senior Vice President for Development Development and Alumni Relations Relations HAROLD L. PAZ Chief Executive Officer, The Milton S. Hershey Medical Center, Hershey Center, and Senior President for Health Vice President Health Affairs, and Dean of the College of Medicine Medicine EVA EVAJ.J. PELL Senior Vice President President for Research Research and and Dean of the Graduate Graduate School GARY C. SCHULTZ Senior Vice President for Finance and BusinessITreasurer Business/Treasurer
CONTENTS CONTENTS Revenues by Source Revenues Source 2 Expenses by Function Expenses Function 3 Transmittal Letter of Transmittal 4 Independent Auditors' Report Independent Report 5 Consolidated Consolidated Financial Statements: Statements Financial Position Statements of Financial 6 Statements of Activities Statements Activities 8 Statements of Cash Flows Statements 10 Statements Notes To Consolidated Financial Statements 11 11
REVENUES BY REVENUES BY SOURCE SOURCE For the Year Ended Ended June 30,30, 2008 2008 (in Millions) (in Millions) Government Government grants Commonwealth Commonwealth of of and contracts Pennsylvania Pennsylvania
$553.5
$553.5 appropriations appropriations (15.0%)
(15.0%) $334.2
$334.2 S(9.0%)
(9.0 %) Auxiliary Auxiliary enterprises enterprises
$321.6
$321.6 (8.7%)
(8.7 %) Hospital Hospital Private Private gifts, grants operations and contracts
$875.0
$875.0 $302.9
$302.9 (23.7%)
(23.7%) (8.2%) (8.2%) Other Other
$164.8
$164.8 (4.5%)
(4.5 %) Tuition and fees, net of discounts
$1,143.0
$1,143.0 (30.9%)
(30.9%) 2
EXPENSES BY FUNCTION EXPENSES FUNCTION I Year Ended June 30, For the Year 30, 2008 2008 (in (in Millions) Million s) Research Research
$673.2
$673.2 (19.2 %)
(19.2%) Academjc support
$284.0 (8.1 %)
Auxiliary Auxiliary enterprises enterprises
* $281.8
$281.8 (8.0%)
(8.0%) Hospital Institutional InstitutionaJ operations operations support support
$863.2
$863.2 (24.6%)
(24.6 % )
$264.2 (7.5%)
(7.5 %)
/Student Student services services
$135.0
$135.0 (3.9%)
(3.9%) Public service and other other
$102.2
$102.2 (2.9%)
(2.9 %) Instruction Instruction
$906.3 (25.8%)
(25.8 %) APPLICATION BY OBJECT OBJECT Salaries $2,133.9 wages and (60.8%) fringe benefits Other expenses $1,376.0 (39.2%) 20 40 60 80 100 33
PENN STATE PENNSTATE W
~
Joseph J. Doncsecz Joseph Doncsecz The Pennsylvania State University The Pennsylvania University 814-865-1355 814-865-1355 Corporate Controller Corporate Controller 408 Old Main 408 Old Main Fax: 814-863-0701 814-863-0701 University Park, University Park, PA 16802-1505 16802-1505 September 2008 September 30, 2008 Graham Spanier, President Dr. Graham President Pennsylvania State University The Pennsylvania The
Dear Dr. Spanier:
audited consolidated financial statements The audited University and Pennsylvania State University statements of The Pennsylvania and "University") for the fiscal year ended June 30, 2008 are subsidiaries (the "University") subsidiaries presented on the are presented the accompanying pages. These accompanying These financial statements represent aa complete statements represent permanent record of complete and permanent the finances of the University University for the year. examined by Deloitte & statements have been examined These financial statements These Public
& Touche LLP, Certified Public Accountants of Philadelphia, Pennsylvania, and their report has Accountants been made a part of this record.
has been Respectfully submitted, Respectfully Joseph J. Doncsecz Joseph Doncsecz Corporate Controller Corporate Controller Albert G. Horvath nt for Finance & Vice Presiopnt Business
& Business
& Business/Treasurer 44 An An Equal Equal Opportunity Opportunity University University
D e lo itte o Oeloitteo Deloitte&Touche LLP Deloitte & Touche LLP 1700 Market Street 1700 Market Street Philadelphia, PA Philadelphia, PA 19103-3984 19103-3984 USA USA Tel:+12152462300 Tel: +1 215 246 2300 Fax: Fax: +1 215 569 2441
+12155692441 www.deloitte.com www.deloitte.com INDEPENDENT AUDITORS' REPORT INDEPENDENT AUDITORS' REPORT Trustees of The Pennsylvania To the Board of Trustees State University Pennsylvania State University University Park, Pennsylvania University Pennsylvania consolidated statements accompanying consolidated We have audited the accompanying position of The statements of financial position Pennsylvania State Pennsylvania State University "University") as of June 30, 2008 subsidiaries (the "University")
University and subsidiaries and 2007, and related consolidated and the related activities and cash flows for the statements of activities consolidated statements the consolidated financial years then ended. These consolidated responsibility of the statements are the responsibility financial statements the management of the University. Our management express an opinion on these responsibility is to express Our responsibility these statements based on our audits. consolidated financial statements consolidated accordance with auditing conducted our audits in accordance We conducted standards generally accepted in aUditing standards States of America. Those standards the United States perform the require that we plan and perform standards require the audit to obtain obtain reasonable reasonable assurance statements are free of assurance about whether the financial statements of material misstatement. An audit includes includes consideration of internal control over internal control over designing audit financial reporting as a basis for designing appropriate in the procedures that are appropriate audit procedures the purpose of expressing circumstances, but not for the purpose circumstances, effectiveness of expressing an opinion on the effectiveness of University's internal control over financial reporting. Accordingly, the University's Accordingly, we express no no such opinion. An audit also includes examining, on a test basis, evidence supporting the the amounts and disclosures disclosures in the financial statements, assessing the accounting principles accounting principles significant estimates made by management, as well as evaluating the overall used and significant overall presentation. We believe that our audits provide financial statement presentation. provide a reasonable reasonable basis for our opinion. consolidated financial statements, during the year ended As discussed in Note 9 to the consolidated ended June 30, 2007, the University adopted Statement of Financial Accounting Standards adopted Statement ("SFAS") ("SF "Employers' Accounting for Defined Benefit Pension and Other AS") No. 158, "Employers' Postretirement Plans". In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the University as of June 30, 2008 and 2007, and the changes in its net assets and its cash flows for the years then ended in conformityconformity with principles generally accepted in the United States of America. accounting principles accounting September 30, 2008 September 55 Member of Member Deloitte Touche Deloitte Tohmatsu Touche Tohmatsu
PENNSYLVANIA STATE THE PENNSYLVANIA THE STATE UNIVERSITY UNIVERSITY CONSOLIDATED STATEMENTS OF FINANCIAL POSITION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ASSETS ASSETS JUNE 30, JUNE 30, 2008 2008 AND AND 2007 2007 (in (in thousands) thousands) June 30,2008 June30, 2008 June 30, 2007 June0, 2007 Current assets: Current . . . .ts: Cash and Cash equivalents -- in cash equivalents and cash operating portfolios short-term operating in short-term portfolios $$ 518,227 518,227 $$ 386,578 386,578 Cash and Cash equivalents -- in cash equivalents and cash investment portfolios operating investment in operating portfolios 78,229 78,229 59,978 59,978 Short-term investments Short-term investments 298,037 298,037 236,297 236,297 Deposits Deposits 24,837 24,837 21,104 21,104 Accounts receivable, net Accounts receivable, allowances of netofof allowances $22,226 and of $22,226 and $24,139
$24,139 373,950 373,950 333,058 333,058 Contributions receivable, Contributions receivable, netnet 39,269 39,269 42,456 42,456 students, net Loans toto students, Loans net of allowances of ofallowances of$4,601
$4,601 and and $4,886
$4,886 10,422 10,422 11,305 11,305 Inventories Inventories 29,916 29,916 27,916 27,916 Prepaid expenses and Prepaid expenses and other other assets assets 53,096 53,096 48,857 48,857 Investments held Investments held under under securities lending program securities lending program 265,725 265,725 309,682 309,682 Total current assets Total current assets 1,691,708 1,691,708 1,477,231 1,477,231 Noncurrent assets:
Noncurrent _ata: Deposits held Deposits held by bond trustees by bond trustees 6,770 6,770 18,268 18,268 Contributions receivable, net Contributions receivable, net 106,430 106,430 91,863 91,863 Loans to Loans students, net to students, net of allowances of of allowances $14,570 and of$14,570 and $12,564
$12,564 33,192 33,192 28,793 28,793 Deferred bond costs Deferred bond costs 6,268 6,268 5,106 5,106 Total investment in Total investment plant, net in plant, net 2,732,744 2,732,744 2,552,935 2,552,935 Beneficial interest in perpetual trusts Beneficial interest in perpetual trusts 13,673 13,673 17,078 17,078 Investments Investments 3,066,609 3,066,609 3,066,165 3,066,165 noncurrent assets Total noncurrent Total 5,965,686 5,965,686 5,780,208 5,780,208 Total assets $7,657.394$72543
$ 7,657.394 $ 7,257.439 See notes See notes toto consolidated consolidated financial statements.
financial statements. 6 6
THE THE PENNSYLVANIA PENNSYLVANIA STATE STATE UNIVERSITY UNIVERSITY CONSOLIDATED CONSOLIDATED STATEMENTS STATEMENTS OF OF FINANCIAL FINANCIAL POSITION POSITION LIABILITIES AND LIABILITIES AND NET ASSETS NET ASSETS JUNE JUNE 30, 30, 2008 2008 AND AND 2007 2007 (in (in thousands) thousands) June June 30,
- 30. 2008 2008 June June 30, 30, 2007 2007 Current Current liabilities:
liabilities: Accounts Accounts payable payableand andother otheraccrued accrued expenses expenses $$ 383,612 383,612 $$ 348,112 348,112 Deferred Deferred revenue revenue 206,519 206,519 193,148 193,148 Long-term Long-term debt debt 53,098 53,098 50,937 50,937 Present value Present value of ofannuities annuities payable payable 5,520 5,520 5,282 5,282 Accrued postretirement Accrued postretirementbenefits benefits 29,139 29,139 28,944 28,944 Liability Liability under undersecurities securities lending lending program program 265,725 265,725 309,682 309,682 Total Total current currentliabilities liabilities 943,613 943,613 936,105 936,105 Noncurrent Noncurrent liabilities: liabilities: Deposits Depositsheld heldinincustody custodyfor forothers others 37,750 37,750 34,088 34,088 Deferred revenue Deferred revenue 19,556 19,556 22,396 22,396 Long-term Long-term debtdebt 969,764 969,764 860,569 860,569 Present Present value valueofofannuities annuitiespayable payable 36,018 36,018 36,907 36,907 Accrued postretirement Accrued postretirement benefitsbenefits 895,198 895,198 805,618 805,618 Refundable Refundable UnitedUnited States States Government Governmentstudent studentloans loans 35,442 35,442 32,894 32,894 Other Otherliabilities liabilities 130,599 130,599 124,499 124,499 Total Total noncurrent noncurrentliabilities liabilities 2,124,327 2,124,327 1,916,971 1,916,971 Total liabilities Totalliabilities 3,067,940 3,067,940 2,853,076 2,853,076 Net Net assets: assets: Unrestricted Unrestricted-- Undesignated Undesig nated 987 987 950 950 Designated Designated for forspecific specificpurposes purposes 1,576,579 1,576,579 1,453,003 1,453,003 Net Netinvestment investmentin in plant plant 1,602,885 1,602,885 1,524,097 1,524,097 Total Total unrestricted unrestricted 3,180,451 3,180,451 2,978,050 2,978,050 Temporarily Tem porarilyrestricted restricted 514,094 514;094 587,469 587,469 Permanently Permanentlyrestricted restricted 894,909 894,909 838,844 838,844 Total Total netnet assets assets 4,589,454 4,589,454 4,404,363 4,404,363 Total Total liabilities liabilitiesandand net netassets assets $$ 7,657,394 7,657.394 $$ 7,257,439 7,257,439 See Seenotes notestotoconsolidated consolidatedfinancial financial statements. statements. 77
THE PENNSYLVANIA PENNSYLVANIA STATE STATE UNIVERSITYUNIVERSITY CONSOLIDATED CONSOLIDATED STATEMENT STATEMENT OF ACTIVITIES ACTIVITIES FOR THE YEAR YEAR ENDED ENDED JUNE 30, 2008 2008 (in thousands) Temporarily Temporarily Permanently Unrestricted Unrestricted Restricted Restricted Total Revenu. . end Revenues other support: and other support:. Tuition and fees; net of discou'nts discounts of $99,518
$99,518 $ 1,143,041 1,143,041 $ - $
$ $1,143,041
$1,143,041 Commonwealth Commonwealth of Pennsylvania Pennsylvania -
Appropriations Appropriations 334,230 334,230 334,230 334,230 Special contracts 104,967 104,967 104,967 Department of General Department General Services Services projects 53,499 53,499 United States Government grants and contracts States Government 394,986 394,986 394,986 394,986 Private grants and contracts contracts 149,374 149,374 149,374 149,374 Gifts and pledges 56,084 47,530 47,530 49,871 153,485 153,485 Endowment income/(loss), net 25,034 (81,828) 9,382 (47,412) income/(loss), net Other investment income/(loss), 35,818 35,818 (9,649) 266 26,435 Sales and services of educational activities activities 49,726 49,726 49,726 Recovery of indirect costs 118,637 118,637 enterprises Auxiliary enterprises 321,632 321,632 321,632 321,632 operations Hospital operations 874,977 874,977 874,977 Other sources Other sources 17,954 17,954 706 (1,280) (1,280) 17,380 17,380
*Net assets released from restrictions restrictions 27,493 (27,493)
Total Total revenues and other support 3,707,452 (70,734) 58,239 3,694,957 Expenses bpen ... end and 10 0losses: Educational and general Educational general - Instruction Instruction 906,308 906,308 Research 673,244 673,244 673,244 673,244 Public service service 91,836 91,836 91,836 Academic Academic support 283,954 283,954 services Student services 134,974 134,974 134,974 Institutional support Institutional 264,174 - - 264,174 264,174 Total educational and general 2,354,490 2,354,490 enterprises Auxiliary enterprises 281,817 281,817 281,817 281,817 operations Hospital operations 863,239 863,239 863,239 Write-offs Write-offs and disposals of assets 5,505 5,505 Actuarial adjustment on annuities payable Actuarial adjustment payable 2,641 2,174 4,815 4,815 Total expenses and losses 3,505,051 2,641 2,174 3,509,866 Increase Increase (decrease) in net assets 202,401 (73,375) 56,065 185,091 Net Net assets at the beginning of the year year 2,978,050 2,978,050 587,469 838,844 4,404,363 4,404,363 Net assets assets at the end of the year $ 3,180,451 $ 514,094 $ 894,909 $4,589,454
$4,589,454 See notes notes to consolidated consolidated financial statements.
8
THE PENNSYLVANIA PENNSYLVANIA STATE STATE UNIVERSITYUNIVERSITY CONSOLIDATED STATEMENT CONSOLIDATED STATEMENT OF ACTIVITIES ACTIVITIES FOR THE YEAR ENDED FOR ENDED JUNE 30, 2007 (in thousands) Temporarily Permanently Permanently Unrestricted Unrestricted Restricted Restricted Restricted Total Revenues .evenu_ and other othor support: support:. Tuition and fees, net of discounts of $91,906.
$91,906 $ 1,057,691 $ $1,057,691
$ 1,057,691 Commonwealth of Pennsylvania-Pennsylvania -
Appropriations Appropriations 327,715 327,715 327,715 327,715 Special contracts 108,448 108,448 108,448 108,448 Department of General Services projects Department projects 7,688 7,688 United States Government Government grants and contracts contracts 360,026 360,026 Private grants and contracts 136,130 136,130 136,130 Gifts and pledges 61,030 38,455 75,218 75,218 174,703 Endowment income, net 116,526 116,526 163,911 163,911 10,472 290,909 Other investment income, net 127,615 127,615 11,416 11,416 153 139,184 Sales and services of educational educational activities 40,599 40,599 Recovery Recovery of indirect costs 109,634 109,634 109,634 109,634 Auxiliary enterprises enterprises 291,773 291,773 291,773 Hospital operations Hospital operations 832,328 832,328 832,328 Other sources 16,339 16,339 1,091 1,412 1,412 18,842 18,842 Net assets released from restrictions restrictions 26,394 (26,394) Total revenues and other support support 3,619,936 188,479 188,479 87,255 3,895,670 Expanses and losses: bpenses Educational
- 10. . _=
Educational and general - Instruction Instruction 826,097 826,097 826,097 826,097 Research 625,519 625,519 625,519 625,519 Public PubliC service service 79,035 79,035 79,035 Academic support 261,816 261,816 261,816 261,816 Student services services 121,785 121,785 121,785 Institutional support 225,420 225,420 225,420 Total educational educational and general 2,139,672 2,139,672 2,139,672 Auxiliary enterprises enterprises 267,671 267,671 Hospital operations operations 806,062 806,062 806,062 Write-offs and disposals of assets 5,004 5,004 5,004 Actuarial adjustment adjustment on annuities payable payable 1,371 9,272 10,643 10,643 Total expenses expenses and losseslosses 3,218,409 3,218,409 1,371 9,272 3,229,052 3,229,052 Increase in net assets before cumUlative Increase cumulative effect 401,527 187,108 77,983 666,618 666,618 Cumulative effect Cumulative effect of adoption of new accounting accounting principle (103,601) (103,601) (103,601) (103,601) Increase Increase in net assets 297,926 297,926 187,108 77,983 563,017 563,017 Net assets assets at the beginning of the year year 2,680,124 2,680,124 400,361 760,861 3,841,346 3,841,346 Net assets at the end of the year $ 2,978,050 2,978,050 $$ 587,469 587,469 $ 838,844 $4,404,363
$ 4,404,363 See notes to consolidated consolidated financial statements.
9
THE PENNSYLVANIA PENNSYLVANIA STATE UNIVERSITY UNIVERSITY CONSOLIDATED STATEMENTS CONSOLIDATED STATEMENTS OF CASH CASH FLOWS FLOWS FOR THE YEARS ENDED ENDED JUNE 30, 2008 AND AND 2007 (in thousands) June 30, 3D, 2008 June 30, 3D, 2007 Cash C . .h flows from op.r.tlng operating .ctlvltl_= activities: Increase in in net assets $
$ 185,091 $ 563,017 563,017 Adjustments to reconcile change in in net assets to net cash provided by operating activities -
Actuarial adjustment on annuities payable annuities payable 4,815 10,644 10,644 Contributions Contributions restricted for long-term investment investment (66,835) (91,184) (91,184). (24,630) Interest and dividends restricted for long-term investment investment (24,630) (20,955) unrealized (gains)/losses on long-term Net realized and unrealized long-term investments investments 126,706 (270,579) Depreciation and amortization amortization expense 193,014 169,762 169,762 Write-offs and disposals of assetsassets 5,850 5,850 5,330 Contributions of land, buildings and equipment (2,789) (2,625) Buildings Buildings and equipment equipment provided by Pennsylvania Department Services Department of General Services (26,377) (1,785) (1,785) government student loan funds Contribution to government funds 4,054 4,054 254 Provision for bad debts debts 22,998 23,871 Cumulative effect accounting principle effect of adoption of new accounting prinCiple - 103,601 Increase inindeposits deposits (3,732) (2,984) Increase Increase ininreceivables receivables (76,697) (69,063) Increase Increase inininventories inventories (2,000) (824) Increase ininprepaid prepaid expenses expenses and other assets assets (28,118) (5,428) Increase inin accounts payable and other accrued expensesexpenses 36,119 36,119 7,904 7,904. Increase in revenue in deferred revenue 10,729 49,410 49,410 Increase in in accrued postretirement benefits 89,774 44,015 44,015 Net cash provided provided by operating activities activities 447,972 512,381 Cash flows from Inv_tlng C_h Investing .ctlvltl_= activities: Purchase of land, buildings and equipment Purchase equipment (325,180) (254,048) Decrease in Decrease indeposits held by bond trustees trustees 11,388 11,388 357 Advances on student loans loans (13,115) (13,465) (13,465) Collections on student student loans loans 6,976 10,346 10,346 (Increase)/decrease (Increase)/decrease in ininvestments investments held under securities lending program 43,956 (89,650) Increase/(decrease) in in liability under securities lending program (43,956) 89,650 Purchase of investments investments (5,065,459) (3,433,859) Proceeds from sale of investments investments 4,917,285 3,155,047 3,155,047
*Net cash used in in investing activities (468,105) (535,622)
Cash flows from financing C . .h flows activities: fln.nclng .ctlvltl_= Contributions Contributions restricted for long-term investment investment 66,835 91,184 Interest Interest and dividends dividends restricted restricted for long-term investment 24,630 20,955 Payments Payments of annuity obligations obligations (5,571) (5,571) (5,327) Proceeds Proceeds from issuance of bonds bonds 145,368 179,464 179,464 payments on notes, bonds and capital leases Principal payments leases (61,714) (121,303) (121,303) Proceeds related to government student loan funds, net of collection costs 485 480 Net cash provided by financing activities activities 170,033 170,033 165,453 165,453 Net increase in in cash and cash equivalents equivalents 149,900 149,900 142,212 142,212 Cash and cash equivalents equivalents at the beginning beginning of the year year 446,556 446,556 304,344 Cash and cash equivalents equivalents at the end of the year $$ 596,456 $ 446,556 See notes notes to consolidated financial statements. 10 10
THE THE PENNSYLVANIA PENNSYLVANIA STATE UNIVERSITY UNIVERSITY NOTES TO CONSOLIDATEDCONSOLIDATED FINANCIAL FINANCIAL STATEMENTS STATEMENTS FOR THE YEA YEARS R SEN ENDEDD E D JJUNE U N E 330, 0, 22008 0 0 8 AND AND 2 007 2007
- 1. THE UNIVERSITY UNIVERSITY AND AND RELATED ENTITIES ENTITIES The Pennsylvania State UniversityUniversity ("the University"), which was created as an instrumentality instrumentality of the Commonwealth of of Pennsylvania, is organized as a non-profit corporation under the laws of the Commonwealth. As Pennsylvania's Pennsylvania's land grant university, university, the University is is committed committed to improving the lives lives people of Pennsylvania, of the people Pennsylvania, thethe nation and the world throughthrough its integrated, tri-part mission of high-quality research and outreach.
teaching, research The financial statements statements of the University include, on a consolidated consolidated basis, the financial statements of The The Milton S. Hershey Medical Center ("TMSHMC"), a not-for-profit not-for-profit corporation, (see Note 10 for additional information about TMSHMC) information TMSHMC) and The CorporationCorporation for Penn State and its subsidiaries subsidiaries ("the Corporation"). non-profit member corporation The Corporation is a non-profit corporation organized in 1985 1985 for the exclusive purpose of benefiting and promoting the interests of the University, the Corporation's Corporation's sole member. The Corporation's Corporation's assets and revenues revenues consist primarily of the assets and revenues of The Pennsylvania College of Technology ("Penn College"), aa wholly-owned subsidiary of the Corporation. All material transactions transactions between between the University, TMSHMCTMSHMC and the Corporation Corporation have been eliminated.
- 2.
SUMMARY
OF SIGNIFICANT
- 2.
SUMMARY
SIGNIFICANT ACCOUNTING ACCOUNTING POLICIES The Significant The significant accounting accounting policies policies followed by the University, as summarized summarized below, are in accordanceaccordance with the recommendations recommendations for accounting accounting and reporting included in the Audit and Accounting Accounting Guide for Not-for-Not-for-Profit Organizations issued by the American Profit Organizations American Institute of Certified Public Accountants. Basis of Presentation The University's financial The University's financial statements statements include include statements statements of financial position, statements statements of activities and and statements of cash flows. Net assets and the changes changes in net assets assets are classified permanently restricted, classified as permanently restricted, temporarily restricted or unrestricted. unrestricted. . Permanentlyrestricted Permanently restricted net assets consist consist primarily of the historical historical amounts amounts of endowed endowed gifts. gifts. Additionally, contributions receivable contributions receivable and remainder remainder interests, which which are required by donors donors to be permanently permanently retained, are included at their estimated presentpresent values. Temporarily restricted Temporarily restricted net assets consist primarily of contributions contributions receivable receivable and accumulated accumulated endowment endowment gains which gains which cancan bebe expended, expended, but for which which restrictions have not not yet been met. Such restrictions restrictions include include time restrictions time restrictions imposed by donors donors or implied by by the nature nature of the gift gift or by by interpretations interpretations of law. Unrestrictednet assets are Unrestricted are all the remaining remaining net assets of the University. University. As As permitted, permitted, donor-restricted donor-restricted gifts gifts that that are are received received and either spent or deemed spent within or deemed within the same year are are reported reported as unrestricted unrestricted revenue. revenue. Gifts of long-lived long-lived assets areare reported as unrestricted unrestricted revenue. revenue. Gifts Gifts specified specified for the acquisition acquisition or construction construction of of long-lived long-lived assets assets are are reported reported as unrestricted unrestricted netnet assets assets when when the assets are placed in are placed in service. The University University maintains maintains various various funds funds and accounts, accounts, including including endowments, funds funds functioning as as endowments; departmental endowments, departmental funds and related accumulated accumulated gains, in in accordance accordance with with the principles principles of "fund "fund accounting." accounting." This This is the procedure procedure by which which resources resources forfor various purposes purposes are classified classified for accounting accounting and reporting and reporting purposes purposes into funds that are are in accordance accordance with specified specified activities or objectives. objectives. Separate Separate accounts are accounts are maintained maintained for each each fund. Gifts are recorded in funds and are recorded investment income and investment income is is distributed distributed to 11 11
funds throughout the year. Income Income distributed distributed to funds may be a combination of capital capital appreciation appreciation and earnings earnings pursuant pursuant to the University's University's total return investment policy. Accounting Basis of Accounting The financial statements statements of the University have been been prepared on the accrual basis of accounting. accounting. Use of Estimates Estimates The preparation preparation of financial statements conformity with accounting principles statements in conformity generally accepted principles generally accepted in thethe United States of America requires management United management to make estimates and assumptions assumptions that affect the reported amounts statements and the disclosure amounts on the financial statements disclosure of contingencies contingencies and commitments. commitments. Actual results could differ from those estimates. Revenue Recognition Revenue Recocqnition Tuition revenue is recognized in the fiscal year in which the substantial substantial portion of the educational educational term occurs. Revenues occurs. Revenues for auxiliary auxiliary enterprises enterprises are recognized recognized as the related related goods and services services are delivered and rendered. Grant revenues and revenues are recognized as the eligible grant activities are conducted. Payments Payments received in advance for tuition, goods and services are deferred. Unconditional Unconditional contributions receivable are recognized recognized when when received and consist of written or oral promises promises to contribute to contribute to the University University in the future. Contributions receivable receivable are recorded with the revenue revenue assigned to the appropriate assigned appropriate category of restriction. Contributions receivable are recorded after discounting discounting to the present value of the future cash flows. to the TMSHMC TMSHMC has has agreements agreements with third-party third-party payors that provide provide for payments to TMSHMC TMSHMC at amountsamounts different different from its established rates. Payment Payment arrangements arrangements include prospectively determined determined rates per discharge, discounted charges discharge, reimbursed costs, discounted charges and per per diem payments. Net Net patient service revenue is reported at reported at the estimated estimated net realizable amounts from patients, third-party third-party payors payors and others others for services services rendered, including estimated rendered, estimated retroactive retroactive adjustments under reimbursement reimbursement agreements agreements with third-party third-party payors. Retroactive Retroactive adjustments adjustments are accrued on an estimated estimated basis in in the period the related related services are rendered and adjusted adjusted in future periods periods as final settlements settlements are determined determined or such estimates estimates change. TMSHMC provides TMSHMC provides care to patients who meet certain criteria under under its charity care charge care policy without charge amounts less than its established or at amounts established rates. Fair Value Value of Financial Instruments Instruments The University The University has has provided provided fair value estimates for certain financial instruments in the notes to the financial statements. statements. Fair value information presented presented in the financial statements is based on information available information available at at June June 30, 2008 and 2007. The carrying 30, 2008 carrying amounts of cash and cash equivalents, accountsaccounts receivable receivable and accounts payable are accounts payable are reasonable reasonable estimates of their fair value. The carryingcarrying values of the amounts of the the University's loans to students University's students are also reasonable reasonable estimates estimates of their fair value, as the total outstanding outstanding loans loans to students as to students as of June June 30, 2008 and 2007 have been made at the rates available to students for similar loans loans at such times. at such times. TheThe fair value of investments is disclosed disclosed in Note 3. The fair value of the University's University's bonds payable is disclosed disclosed in Note 6. Flows Cash Flows The following items The following items are included supplemental disclosure included as supplemental disclosure to the statements statements of cash flows for the years ended June 30: 2008 2007 Interest paid Interest $ 37,583,000 37,583,000 33,932,000
$ 33,932,000 Non-cash acquisitions Non-cash acquisitions of land, buildings of land, buildings and equipment 27,651,000 27,651,000 3,969,000 Non-cash construction costs/deferred Non-cash construction costs/deferred lease lease obligation obligation at TMSHMC - 31,324,000 31,324,000 12
The University defines defines cash and cash equivalents based on the primary primary purpose purpose of the investment portfolio portfolio that holds the investment. Due to the investment investment strategies strategies of portfolio managers, there is $78,229,000
$78,229,000 and
$59,978,000 of cash and cash equivalents held in operating $59,978,000 investment portfolios operating investment portfolios at June 30, 2008 and 2007, respectively. These assets have been separately separately identified as cash and cash equivalents equivalents in the the statements of financial statements financial position. Inventories Inventories Inventories are stated at cost, generally Inventories generally on the first-in, first-out basis, which is lower than market. Investments Investments investments are reported at fair market The University's investments market value in the accompanying accompanying financial statements. Investments in equity securities with readily determinable Investments determinable fair values and all investments investments in debt securities securities are reported at fair values with gains and losses included consolidated statements included in the consolidated statements of activities. activities. The The University records derivative University derivative securities at market market value with changes in market value reflected in the the consolidated statements of activities. consolidated statements The estimated fair value amounts for marketable marketable debt and equity equity securities held by the University have have been reviewed reviewed by the University University and determined determined using available information as supplied by the various available market information various financial institutions that act as trustees or custodians for the University. For non-liquidnon-liquid holdings, generally generally investments in real estate, venture capital and energy limited partnerships, estimated estimated fair value is determined based based upon financial information provided financial information provided by the limited partnerships. partnerships. This financial information information includes assumptions assumptions and methods that were reviewed by University University management. The University University believes believes that the estimated fair value is a reasonable estimate of market value as of June 30, 2008 and 2007. Because Because the limited partnerships partnerships are not readily marketable, marketable, the estimated estimated value is subject subject to uncertainty and, therefore, may differ from the value that would have have been used had a readyready market existed, and such differences could be material. differences Beneficial Beneficial Interest in Perpetual Perpetual Trusts The University University receives endowment income from investments receives endowment investments of $13,673,000
$13,673,000 and $17,078,000
$17,078,000 held by by outside trustees at June June 30, 2008 and 2007, respectively. The present value of expected expected future cash flows flows to the University University from such investments investments has been recorded recorded as permanently permanently restricted net assets and related beneficial interest in perpetual perpetual trusts in the financial financial statements.
Investment in Plant Investment collections, are stated at cost or fair market value at date of gift. Depreciation Fixed assets, including collections, Depreciation is computed over the estimated economic computed theassets economic lives of the assets using using the straight-line straight-line method. method. Total investment investment in plant as of June June-30 30 is comprised comprised of the following: 2008 2007 Land $ 91,506,000 91,506,000 $ 90,930,000 90,930,000 Buildings Buildings 3,472,408,000 3,4 72,408,000 3,197,891,000 3,197,891,000 Improvements other Improvements other than buildings buildings 445,576,000 445,576,000 422,692,000 422,692,000 Equipment 844,274,000 805,238,000 805,238,000 Total plant 4,853,764,000 4,853,764,000 4,516,751,000 4,516,751,000 Less accumulated depreciation accumulated depreciation (2,121,020,000) (1,963,816,000) (1,963,816,000) Total investment investment in plant, net $ 2732,744,000 2.732.744.000 $ 2.552.935_00 2,552,935,000 13
Asset Retirement Obligation Obliqation Effective June June 30, 2006, the University adopted Financial Financial Accounting Standards Board ("FASB") Standards Soard ("FASS") Interpretation No. 47, Accounting for Interpretation for Conditional ConditionalAsset Retirement Retirement Obligations Obligations ("FIN 47"). FIN 47 provides provides interpretation of Statement an interpretation Financial Accounting Statement of Financial Accounting Standard ("SFAS") ("SF AS") No. 143, Accounting for Retirement Obligations; Obligations, by clarifying clarifying that conditional conditional asset retirement obligations obligations meet the definition of aa liability even though uncertainty uncertainty may may exist about the timing or method of settlement. Under the provisions provisions of FIN 47, the University University is obligated to record aa liability for conditional asset retirement obligations. The The University performed performed an analysis of such obligations obligations and determined that asbestos abatement costs asbestos abatement represented the University's primary source of such liabilities. The University reviewed all facilities and determined determined the timing, method and cost of asbestos abatement abatement using a variety of assumptions assumptions and estimates. Conditional asset retirement obligations of $46,085,000 $46,085,000 and $44,248,000
$44,248,000 are included included in other noncurrent liabilities in the consolidated noncurrent consolidated statement of financial position at June 30, 2008 and 2007, respectively.
Accounting Pronouncements Accounting Pronouncements For the yearyear ended JuneJune 30, 2008, the University implemented implemented FASS FASB Interpretation Interpretation No. 48, Accounting Accounting for Uncertainty in Income Taxes - an interpretation Uncertainty interpretation of FASB Statement ofFASB Statement No. 109" ("FIN 48"). FIN 48 prescribes prescribes the minimum minimum recognition threshold a tax position must meet in connection with accounting for uncertainties uncertainties in income income tax positions taken or expected expected to be taken by an entity, before being measuredmeasured and and recognized in the financial statements. The adoption adoption of FIN 48 did not have have aa material impact on the University's University's financial statements. The University files U.S. federal tax returns. No returns are currently under financial statements. under examination. The statute examination. statute of limitations on the University's University's U.S. federal information returns remain open for three years following following the year they are filed. In September September 2006, the FASB issued SFAS 157, Fair Fair Value Measurements Measurements ("SFAS 157"). SFAS 157 157 defines fair value, establishes establishes aa framework framework for measuring measuring fair value and expands disclosures about fair value measurements. measurements. In February 2008, the FASS FASB issued FASS FASB Staff Position ("FSP") 157-2, Effective Date Date of FASB Statement No. 157 which delays delays the effective effective date of SFAS 157 for nonfinancial assets assets and nonfinancial liabilities, except those that are recognized or disclosed nonfinancial disclosed at fair value on a recurring recurring basis, at least annually, until fiscal years beginning after November least November 15, 2008. SFAS 157 157 is effective effective for thethe University in 2009. University management University management is currently evaluating evaluating the impact of SFAS 157. 157. In February February 2007, SFAS 159, Fair Option for Financial Fair Value Option FinancialAssets and and Financial Liabilities Including Financial Liabilities Including an Amendment Amendment of FASB Statement Statement 115 ("SFAS 159") 159") was issued. SFAS 159, which extends the availability availability of the fair value option option to assets assets and liabilities, is effective effective for the University in 2009. The University University does notnot expect the adoption adoption of SFAS 159 to have material impact have a material impact on its financial position or results of operations. In August In August 2008, 2008, the FASB issued FASS FASB Staff Position Position (FSP) FAS 117-1, 117-1, Endowments Endowments of Not-for-Profit Not-for-Profit Organizations: Organizations: Net Net Asset Classification Classification of Funds Funds Subject to an Enacted Version of the Uniform Enacted Version Uniform Prudent Prudent Management Management of Institutional InstitutionalFunds Funds Act (UPMIFA), (UPMIFA), and Enhanced Disclosures for All Endowment Funds. Enhanced Disclosures Funds. The The FSP FSP provides provides guidance guidance on the net asset classification of donor-restricted donor-restricted funds for a not-for-profit not-for-profit organization organization that is subject subject to an enacted version of UPMIFA UPMIFA of 2006. UPMIFA is a model act approved by the Uniform Law the Uniform Law Commission Commission that serves as a a guideline for states in enacting legislation. This FSP states to use in FSP also improves also improves disclosures disclosures about about an organization's endowment funds (both donor-restricted organization's endowment donor-restricted endowment endowment funds funds and board-designated endowment and board-designated endowment funds), whether or not the organization is subject to UPMIFA. The The FSP is effective for the University FSP is effective for the University in 2009. University managementmanagement is currently evaluating evaluating the impact of thethe FSP. Reclassifications Reclassifications Certain 2007 Certain 2007 amounts amounts related to private gifts, grants grants and contracts of $310,833,000 have been reclassified reclassified to conform to conform with 20082008 presentation of private grants and contracts of $136,130,000
$136,130,000 and gifts and pledges of $174,703,000 within the consolidated $174,703,000 consolidated statement of activities.
activities. 14
3.
- 3. INVESTMENTS INVESTMENTS Investments Investments by by major major category category as as of of June June 30 30 are are summarized summarized as as follows:
follows: 2008 2008 2007 2007 Money Money markets markets $$ 178,084,000 178,084,000 $$ 297,898,000 297,898,000 Fixed Fixed income: income: U.S. U.S. government/agency government/agency 525,362,000 525,362,000 397,180,000 397,180,000 U.S. U.S. corporate corporate 601,413,000 601,413,000 358,782,000 358,782,000 Foreign Foreign 129,624,000 129,624,000 76,227,000 76,227,000 Other Other 621,133,000 621,133,000 679,145,000 679,145,000 Equities Equities 856,545,000 856,545,000 1,002,935,000 1,002,935,000 Private Private capital capital 530,714,000 530,714,000 550,273,000 556,273,000 Investments Investments held held under under securities lending securities lending program program 265,725,000 265,725,000 309,682,000 309,682,000 Total $3,708,600,000 $3,672,122.000 Total $3708,600,000 $3.672 122000 Other Other fixed fixed income income investments investments consistconsist of of collateralized collateralized mortgage mortgage obligations, obligations, mortgage-backed mortgage-backed securities, securities, asset-backed asset-backed securitiessecurities and and municipal municipal bonds.. bonds. Equity Equity investments investments are are comprised comprised of of domestic domestic and and foreign foreign common common stocks. stocks. Private Private capital capital consists consists primarily primarily ofof interests interests in in real real estate, estate, private private equity, equity, venture venture capital, capital, energy energy and and hedge hedge fund fund limited limited partnerships. partnerships. Certain Certain 2007 2007 amounts amounts classified classified as as other other fixed fixed income income investments investments totaling totaling $69,168,000
$69,168,000 have have been been reclassified reclassified as as private private capital capital to to conform conform with with 2008 2008 presentation presentation of of these these investment investment categories.
categories. The The following following schedule schedule summarizes summarizes the investment. return the investment, return and and itsits classification classification in in the the consolidated consolidated statement statement of of activities activities for for the the year year ended ended June June 30, 30, 2008: 2008: Temporarily Temporarily Permanently Permanently Unrestricted Unrestricted Restricted Restricted Restricted Restricted Total Total Dividends Dividends and and interest interest $$ 98,359,000 98,359,000 $$ 6,907,000 6,907,000 $$ 9,619,000 9,619,000 $114,885,000
$ 114,885,000 Net Net realized realized gains, gains, including including endowment endowment spending spending 57,189,000 57,189,000 21,238,000 21,238,000 29,000 29,000 78,456,000 78,456,000 Net Net unrealized unrealized losseslosses (94,696,000)
(94,696,OOO) (119,622,000) (119,622,OOO) (214,318,000) (214,318,OOO) Total Total returns returns $$ 60.52.QQQ 6Q,852,QQQ $$ (91,477-000) (91 ,47Z QQQ) $ 9,648 QQQ $$ (20.977.000) (2Q,977,QQQ) The The following following schedule schedule summarizes summarizes the investment return the investment return and and itsits classification classification in in the the consolidated consolidated statement of activities for the year ended statement of activities for the year ended June 30, 2007: June 30, 2007: Temporarily Temporarily Permanently Permanently Unrestricted Unrestricted Restricted Restricted Restricted Restricted Total Dividends Dividends and and interest interest $$ 130,700,000 130,700,000 $$ 4,243,000 4,243,000 $$ 10,625,000 10,625,000 $$ 145,568,000 145,568,000 Net Net realized realized gains, gains, including including endowment endowment spending spending 38,690,000 38,690,000 53,757,000 53,757,000 92,447,000 92,447,000 Net Net unrealized unrealized gains gains 74,751,000 74,751,000 117,327,000 117,327,000 192,078,000 192,078,000 Total $$ 10.625.000 $ 430.093.000 Total returns returns $$ 244.141.000 244,141,QQQ $$ 175.327.000 175,327,QQQ 1Q,625 QQQ $ 43Q,Q93,QQQ In In the the management management of of investments, investments, the the University University authorizes authorizes certain certain of of its its investment investment managers managers to to purchase purchase derivative derivative securities securities to to attain attain aa desired desired market market position; position; andand thethe University University may may directly directly invest invest in in derivative derivative securities securities to to attain attain aa desired desired market market position. position. TheThe University University does. does. notnot trade trade or or issue issue derivative derivative financial financial instruments instruments other other thanthan through through thethe investment investment management management practicespractices noted noted above. above. Gains Gains andand losses losses from from derivative derivative instruments instruments are are reported reported inin the the consolidated consolidated statements statements of of activities. activities. Futures Futures contracts, contracts, which which are are fully fully cash cash collateralized, collateralized, are are marked marked to to market market daily daily and and areare included included in in the the carrying carrying value value of of the the University's University's investments. investments. The The market market value value of of all all derivative derivative instruments instruments isis included included in in the the market market valuevalue of of the the University's University's investments. investments. Futures Futures contracts contracts have have minimal minimal credit credit risk risk because because the the counterparties counterparties are are the the exchanges exchanges themselves. themselves. Fully Fully cash cash collateralized collateralized derivative derivative securities securities comprised comprised approximately approximately 2.8% 2.8% of of total total investments investments at at June June 30, 30, 2008. 2008. The The University University directly directly held held nono derivative derivative securities securities at at June June 30, 30, 2007. 2007. 15 15
Through an agreement agreement with its primary investment investment custodian, the University participates participates in lending lending securities securities to brokers. Collateral Collateral is generally generally limited to cash, government government securities, and irrevocable irrevocable letters of credit. investment custodian Both the investment custodian and the security security borrowers borrowers have the right to terminate terminate a specific loan of securities at any any time. The University receives lending continues to earn lending fees and continues earn interest interest and dividends dividends on the loaned securities. At June 30, 2008 and 2007, the University $265,725,000 and $309,682,000, University held $265,725,000 $309,682,000, respectively, of cash and cash equivalents as collateral collateral deposits for the securities lending lending program. The The collateral is included collateral included as an asset and the obligation to return such collateral collateral is presented presented as a liability in the the consolidated statements statements of financial financial position. position. The securities on loan had an estimated fair value of $261,096,000 and $303,370,000 $261,096,000 $303,370,000 at June June 30, 2008 and 2007, respectively respectively...
- 4. POOLED ASSETS ASSETS The University uses aa "total return" approach The University approach to endowment investment management. This approach endowment fund investment emphasizes emphasizes total investment return (current incomeincome plus or minus minus realized realized and unrealized unrealized capital gains and losses) as the basis for endowment endowment spending. The University has implemented implemented an endowment income endowment income spending policy whereby a predetermined predetermined amount amount is paid out each fiscal year based based upon aa prescribed prescribed formula formula in accordance accordance with Pennsylvania Pennsylvania statutes.
Investments Investments aggregating $1,522,988,000 and $1,587,197,000 aggregating $1,522,988,000 $1,587,197,000 at June 30, 2008 and 2007, respectively, for certain certain endowment endowment funds and funds functioning as endowments endowments are pooledpooled on a market value basis, with each each individual fund subscribing subscribing to or disposing of units on the basis of the market value per unit at the the beginning beginning of the month when the transaction takes place. The The following following schedule schedule summarizes certain certain information about about pooled pooled assets assets on aa per unit basis as of JuneJune 30: 2008 2007 Market value per unit $ 30.63 $ 32.57 Annual Annual net gains/(losses) gains/(Iosses) per unit $ (1.94) (1.94) $ 4.29 4.29 Average Average annual earnings per unit, exclusive of gains and losses $ 0.81 $ 1.42 1.42
- 5. CONTRIBUTIONS CONTRIBUTIONS RECEIVABLERECEIVABLE Contributions Contributions receivable receivable are summarized summarized as follows as of June 30:
2008 2007 In one year or less $ 51,814,000 51,814,000 $ 52,568,000 52,568,000 Between one year and five years Between 67,557,000 67,557,000 64,024,000 64,024,000 More More than five years 89,864,000 89,864,000 76,511,000 76,511,000 209,235,000 209,235,000 193,103,000 193,103,000 Less allowance (10,578,000) (10,578,000) (9,459,000) Less discount (52,958,000) (49,325,000) Contributions Contributions receivable, net 145.699.000
$ 145699,OQQ $ 134,319,OQQ 134.319,000 At June At June 30,30, 2008 University has received 2008 and 2007, the University received bequest bequest intentions and certain other conditional promises to give of $31,328,000 promises $31,328,000 and $30,748,000, respectively. These intentions and conditional conditional promises to give are not included included in the consolidated financial statements.
16
- 6. LONG* TERM DEBT LONG-TERM DEBT The various various bond issues, note payable obligations that are included payable and capital lease obligations included in long-term debt in in the statements statements of financial position consist of the following:
2008 2007 2007 Penns~lvania State University The Pennsylvania Universit~ Bonds Bonds Series 2008A $$ 77,670,000 $ Series 2008B 8,310,000 Series 2007A 90,570,000 90,570,000 90,570,000 Series 2007B 76,120,000 76,120,000 80,025,000 80,025,000 2005 Series 2005 94,885,000 94,885,000 96,555,000 96,555,000 Series 2004A 58,845,000 58,845,000 59,930,000 59,930,000 Refunding Series 2003 24,350,000 24,350,000 26,260,000 26,260,000 Series of 2002 100,000,000 100,000,000 100,000,000 100,000,000 Refunding Series 2002 Refunding 2002 112,240,000 112,240,000 126,835,000 126,835,000 Refunding Series 2001 Refunding 26,565,000 34,590,000 34,590,000 Series A of 2001 75,000,000 75,000,000 75,000,000 75,000,000 Series B of 1997 1997 8,805,000 8,805,000 Penns~lvania Higher Pennsylvania Hiqher Educational Educational Facilities Facilities Authorit~ Authority Universit~ University Revenue Revenue Bonds Bonds (issued for The Penns~lvania Pennsylvania State Universit~) University) 2006 Series 2006 4,480,000 4,480,000 4,650,000 4,650,000 2004 Series 2004 5,015,000 5,015,000 5,215,000 5,215,000 Series 2002 2002 5,670,000 5,670,000 5,965,000 5,965,000 Lycoming L:tcoming Count~ County Authorit~ Authority Collegqe College Revenue Revenue Bonds {issued (issued for Penn Collegie) Penn College} Series Series 2008 55,000,000 55,000,000 Series 2005 14,645,000 14,645,000 15,225,000 15,225,000 Series 2003 3,315,000 6,495,000 6,495,000 Series 2002 29,650,000 29,650,000 29,995,000 29,995,000 Series 2000 39,370,000 39,370,000 39,370,000 39,370,000 Series 1997 1997 11,300,000 11,300,000 Series 1993 1993 12,519,000 12,519,000 11,954,000 11,954,000 Total bonds payable payable 914,219,000 914,219,000 828,739,000 Unamortized bond premiums Unamortized premiums 27,231,000 24,704,000 24,704,000 Note payable
~a~able and capital ca~ital leases leases payable Demand note payable 10,000,000 10,000,000 10,000,000 10,000,000 Capital lease obligations obligations 71,412,000 71,412,000 16,739,000 16,739,000 Deferred lease obligation obligation 31,324,000 31,324,000 Total note payable and capital leases leases 81,412,000 81,412,000 58,063,000 Total long-term long-term debt $1.022.862,000
$1,Q22,862,QQO $ 911 911.506.000 5Q6,OQQ 17
The Pennsylvania Pennsylvania State State University University Bonds Bonds
- Series 2008A2008A and 2008B - general general obligation bonds issued in April 2008 for the purpose purpose of funding funding various construction various construction and renovation renovation projects and for the current refunding refunding of the Series 1997B Bonds, Series 1997B which previously which previously refunded the Series 1992B 1992B Bonds. The University, in conjunction with the issuance of the Series 2008B bonds, legally defeased the Series B of 1997 1997 Bonds, with an outstanding outstanding principal principal of
$8,105,000, by irrevocably irrevocably depositing $8,364,000
$8,364,000 in an escrow fund to be used to pay the interest accrued, maturing principal on and the redemption price of the refunded accrued, maturing refunded bonds. As a result of the the current refunding current refunding transaction, amounts related related to the Series 1997B Bonds have been removed from the Series 1997B the University's June 30, 2008 statement University's statement of financial position. Principal payments payments on the Series 2008A 2008A and 2008B bonds are due annually, in amounts ranging from $830,000 to $7,695,000
. 2008B $7,695,000 through August 2029.
The bonds pay interest interest at rates ranging from 3.00% to 5.00%. The 2008A Bonds are subject to early redemption provisions, at the option of the University, beginning February February 2018.
- Series 2007A Series 2007 A and 2007B - general obligation bonds issued in January January 2007 for the purpose of funding various construction various construction and and renovation renovation projects projects and for the advance advance refunding of the Series 1997A Bonds.
The University, The University, in conjunction conjunction with the issuance issuance of the Series 2007B bonds, legally defeased the Series Series A of 1997 Bonds, with A of 1997 Bonds, with an outstanding principal principal of $84,540,000, by irrevocably irrevocably depositing depositing $88,341,000
$88,341,000 in in an an escrow escrow fund fund to be used to pay the interest interest accrued, accrued, maturing principal on and the redemption price price of the refunded refunded bonds. As a result of the advance refunding transaction, advance refunding transaction, amounts related to the Series Series 1997A 1997 A Bonds Bonds were were removed from the University's June 30, 2007 statement statement of financial position.
Principal payments Principal payments on the Series on the Series 2007 2007A A and and 2007B bonds are due annually, in amounts amounts ranging from
$2,770,000
$2,770,000 to to $5,955,000
$5,955,000 through August 2027, with additional payments of $11,115,000 $11,115,000 due August 2028 and 2028 and $70,905,000
$70,905,000 due August 2036. The bonds pay interest interest at rates ranging from 3.55% to 5.25%
and are subject and are subject to to sinking fund redemption beginning beginning August 2023 and early redemption provisions, at the option of the University, beginning the beginning August 2016.
** Series 2005 - general obligation bonds issued in January 2005 for the purpose of funding various Series various construction projects.
construction payments are due annually in projects. Principal payments in amounts ranging from $1,720,000
$1,720,000 to to
$2,745,000
$2,745,000 through through September September 2019, 2019, withwith additional additional payments of $15,990,000, $20,550,000 and
$32,485,000
$32,485,000 due September 2024, 2029 and 2034, respectively. The bonds pay interest due September interest at rates ranging ranging from 3.00% to from 3.00% to 5.00% and are subject to sinking fund redemption redemption beginning beginning September 2020 and early redemption and early redemption provisions, at the option of the University, beginning September September 2015.
- Series Series 2004A2004A -- general general obligation obligation bonds bonds issued in April 2004 for the purpose of funding various various construction construction projects. Principal payments are due annually annually inin amounts ranging from $1,115,000
$1,115,000 to to
$1,825,000 through
$1,825,000 through September September 2019, with additional payments of $10,625,000, $10,625,000, $13,635,000
$13,635,000 and
$17,515,000 due
$17,515,000 due September September 2024, 2024, 2029 and 2034, respectively. The bonds pay interest at rates rates ranging from ranging from 3.00%
3.00% to 5.00% and are subject subject to sinking fund redemption beginningbeginning September September 20202020 and early redemption provisions, at the option of the University, beginning early redemption beginning September September 2014.
** Refunding Refunding Series Series 2003 2003 -- general general obligation obligation bonds issued in March 2003 for the purpose of refunding refunding the Refunding Series the Refunding Series 1993A 1993A and to pay costs associated associated with issuing the 2003 RefundingRefunding Bonds.
Principal payments Principal payments are are due due annually annually in in amounts ranging from $1,995,000
$1,995,000 to $2,970,000
$2,970,000 through March 2018. The bonds March 2018. The bonds pay interest pay interest at rates ranging from 3.25% to 5.25% and are subject subject to early early redemption provisions, at the option of the University, beginning March redemption March 2013.
*" Series Series of of 2002 2002 and and Series Series A of 20012001 - general general obligation bonds issued in May 2002 for the purpose purpose of of funding funding a a portion portion of of the the costs costs of of the acquisition, construction, construction, equipping, renovation renovation and improvement improvement of of certain certain facilities facilities of the University of the University and April 2001 2001 for the purpose of funding various various construction construction projects, respectively. The bonds are currently paying paying interest interest on aa variable variable rate basis; however, the however, the University University has the option to convert to another variable rate or to a a fixed rate basis basis (such rates are (such rates are generally determined on a market generally determined market basis). The bonds currently pay interest interest at 1.51%
1.51 % with adjustment on with adjustment on a Weekly weekly basis to the rate the remarketing remarketing agent believes will cause the bonds to have a have a market market valuevalue equal equal to the principal principal amount up to aa maximum maximum of 12%. The bondholders bondholders havehave the right to the right to tender tender bonds bonds at interest rate reset dates. The University, therefore, entered at interest entered into standby bond purchase bond purchase agreements agreements with with banks banks to to provide liquidity in Case case of tender. The principal principal amount amount of the Series the Series of of 2002 bonds is due March 2032; and the principal 2002 bonds principal amount of the Series Series A of 2001 is duedue 18
April 2031. 2031. The bonds are not subject to sinking fund redemption; redemption; however, the University has the option to redeem the bonds prior to their scheduled maturity.
- Refunding Series 2002 -- general Refunding Series general obligation bonds issued in in May May 2002 for the purpose of refunding the Second Refunding 1 992A Series (such bonds were previously issued to refund the Second 1992A Refunding 1988 1988 Series, 19891989 Series and 1991 Series Bonds). Principal payments are ana 1991 are due annually, in amounts in amounts ranging from $4,585,000 to $16,540,000 through August 2016. The bonds pay interest interest at at rates ranging from 4.79% to 5.25%.
from 4.79% 5.25%. The bonds are not subject to redemption prior to maturity.
- Refunding Series 2001 Refunding Series 2001 -- general general obligation bonds issued in December 2001 for the purpose of in December refunding the Refunding Refunding Series 1992 1992 Bonds (such bonds were previously issued to refund the 1986 1986 Series and the First Refunding Series Series of 1988 1988 Bonds).
Bonds). Principal payments are due annually, in in
$8,425,000 to $9,290,000 through amounts ranging from $8,425,000 through March March 2011.
2011. The bonds pay interest at rates ranging from 5.00% to 5.25%/. from 5.000/ 5.25%. The bonds are not subject to redemption redemption prior prior to maturity. Pennsylvania Higher EducationalEducational Facilities Authority Authority University Revenue Bonds (issued (issued for The Pennsylvania State University)
** Series 2006 Series 2006 -- Pennsylvania Higher Educational Pennsylvania Higher Educational Facilities Authority (PHEFA) (PHEFA) University Revenue Bonds issued by the Pennsylvania State University Bonds University in in April 2006 for the purpose of funding the costs of sprinkler system installation and repairs in in certain of the University's dormitories dormitories during the period 2006-2008, 2006-2008, related design costs and payment of issuance costs. Principal Principal payments are due annually in annually in amounts ranging from $175,000 to $280,000 through September September 2020, with an additional payment of payment of $1,610,000 due September September 2025. The bonds pay iriterest interest at rates rates ranging from 3.65%
3.65% toto 5.125%, with 5.125%, with PHEFA PHEFA subsidizing the annual interest cost to the University for interest interest rates greater than 3.00%. 3.00%. The bonds are subject to sinking fund redemption beginning beginning September September 2021 and early early redemption provisions, at the option of the University, beginning September September 2016.
** Series 2004 Series Pennsylvania Higher 2004 -- Pennsylvania Higher Educational Educational Facilities Authority Authority University Revenue Bonds issued by the Pennsylvania State University in in May May 2004 for the purpose of funding the costs of sprinkler sprinkler system installation system installation and repairs in in certain of the University's University's dormitories dormitories during 2004-2005. Principal payments are due annually in payments in amounts ranging from $205,000 to $325,000 through September 2019, through September with an additional payment of $1,905,000 due September September 2024. The bonds pay interest at rates ranging from ranging from 3.10%
3.10% toto 5.00%, 5.00%, with PHEFA PHEFA subsidizing the annual annual interest cost to the University for interest rates greater greater than 3.00%. 3.00%. The bonds are subject to sinking fund redemption redemption beginning September September 2020 and early redemption provisions, at the option of the University, beginning September 2014.
** Series 2002 -- Pennsylvania Series 2002 Higher Educational Pennsylvania Higher Educational Facilities Facilities Authority University Revenue Bonds Bonds issued by the Pennsylvania State University in in June 2002 for the purpose purpose of funding the costs of sprinkler sprinkler system installation and repairs in in certain of the University's dormitories during University's dormitories during the period 2002 through 2004. Principal payments are due annually in in amounts ranging from $305,000 to $425,000 through March through March 2017, with an additional payment of $2,435,000 due March 2022. The The bonds paypay interest at interest at rates rates ranging from 3.75%
3.750/ to 5.00%, 5.00%/, with PHEFA PHEFA subsidizing the annual interest cost to the University University for interest interest rates greater 3.00%. The greater than 3.00%. The bonds are subject to sinking fund redemption redemption beginning March 2018 and early redemption beginning redemption provisions, at the option of the University, beginning March 2011. March Lycoming County County Authority Authority College College Revenue BondsBonds (issued forfor Penn Penn College) College)
* *Series 2008 -- Lycoming Series 2008 Lycoming County Authority College Revenue Bonds issued by Penn College in February in February 2008 for 2008 for the purpose of funding various construction construction projects at the Penn Penn College campus. Principal Principal payments are payments are due due annually annually inin amounts ranging from $1,455,000 to $4,140,000 through through October 2037.
The bonds pay interest at rates ranging from 3.50% to 5.50%. The 5.50%. 19
- Series 2005 - Lycoming Lycoming County Authority College Revenue Revenue Bonds issued by Penn College in in February 2005 for the purpose purpose of refunding $7,765,000
$7,765,000 of the Authority's College College Bonds, Series of 1997, funding aa deposit into the debt service reserve account, funding various various construction projects construction and renovation projects and payment payment of costs of issuanceissuance of 2005 Bonds. Principal payments are due annually in amounts amounts ranging from $500,000
$500,000 to $1,855,000
$1,855,000 through through January January 2025. The bonds pay interest at rates ranging ranging from 3.00% to 5.00%.
- Series 2003 - Lycoming County Series County Authority College Revenue Bonds issued by Penn College in College Revenue in February 2003 for the purpose purpose of refunding refunding $17,385,000
$17,385,000 of the Authority's College Revenue Revenue Bonds, Series of 1993 1993 and the payment of costs of issuance of 2003 Bonds. PrinCipal Principal payment is due due in the amount of
$3,315,000 in November
$3,315,000 November 2008. The bonds pay interest at rates ranging from 4.00% to 4.625%.
** Series 2002 Series 2002 - Lycoming County Authority Authority College Revenue Bonds issued by Penn Perin College in MayMay 2002 for 2002 for thethe purpose purpose of funding various construction projects projects at the Penn College campus. Principal payments are due annually in amounts amounts ranging from $350,000$350,000 to $2,775,000
$2,775,000 through May 2032. The The bonds pay interest interest at rates ranging from 4.00% to 5.25%.
** Series 2000 - Lycoming Series 2000 Lycoming County Authority College Revenue Revenue BondsBonds issued by Penn CollegeCollege in in December 2000 for the purpose of funding various construction December construction projects, 1996 Lycoming projects, refunding the 1996 Lycoming County County Authority College Revenue Bonds, advance advance refunding $4,235,000 of the 1997 Lycoming County refunding $4,235,000 Authority College Revenue Revenue Bonds (1997 Series Bonds), funding of a deposit deposit to the debt service fund reserve account established under the indenture account established indenture and payment of the costs of issuance issuance of the Series Series 2000 Bonds.
2000 Bonds. Principal Principal payments payments are due due annually annually in amounts amounts ranging ranging from $30,000 to $5,225,000
$5,225,000 through through July July 2030. The bonds pay interest interest at rates ranging from 4.75% to 5.50%. ** Series 1997 Series 1997 -- Lycoming Lycoming County Authority College Revenue Revenue BondsBonds issued by Penn CollegeCollege in in September 1997 September 1997 for the purpose of funding various construction projects at the Penn College campus.
construction projects Principal payments Principal payments are due annually in amounts ranging from $275,000 $275,000 to $5,010,000
$5,010,000 through JulyJuly 2018. The bonds pay interest at rates ranging from 4.90%' to 5.25%. The 1997 Series Bonds were 2018. were refunded by refunded the 2000 by the 2000 Series Series Bonds at par amounting to $4,235,000.$4,235,000. These bonds were paid in in full during 2008.
** Series 1993 Series 1993 -- Lycoming Lycoming County Authority College Revenue Revenue Bonds issued by Penn College in in 1993 for the purpose purpose of undertaking undertaking a series of capital improvement capital improvement projects. Principal Principal payments are due due annually in amounts annually amounts ranging from $450,000 $1,302,000 through November
$450,000 to $1,302,000 November 2015. The bonds pay interest at rates ranging ranging from 6.00% to 6.15%. 6.15%.
Maturities Maturities and sinking fund requirements on bonds payable for each of the next five fiscal years and and sinking thereafter are summarized as follows: Annual Year Installments Installments 2009 $ 37,130,000 37,130,000 2010 35,460,000 35,460,000 2011 35,335,000 35,335,000 2012 27,630,000 27,630,000 2013 29,035,000 29,035,000 Thereafter 749,629,000 The fair The fair value value ofof the University's bonds payable the University's estimated based on current rates offered for similar payable is estimated issues with issues with similar similar security, security, terms and maturities using available market information available market information as supplied by the the various financial various financial institutions institutions who who act as trustees trustees or custodians custodians for the University. At JuneJune 30, 2008, the the carrying carrying value and estimated fair value of the University'sUniversity's bonds payable, including issuance premiums, are are
$941,450,000
$941,450,000 and and $934,952,000,
$934,952,000, respectively. At June 30, 2007, the carrying carrying value and estimated estimated fair value of the University's value of the University's bonds payable, including issuance premiums, premiums, were $853,443,000 and
$845,086,000,
$845,086,000, respectively. Certain bond issues have associated issuance premiums, these issuance issuance premiums total premiums $27,231,000 and $24,704,000 total $27,231,000 $24,704,000 at June 30, 2008 and 2007, respectivelyrespectively and are presented presented within within the the statement statement of of financial position long-term debt. These issuance position as long-term issuance premiums premiums will be amortized over the term of the respective outstanding outstanding bonds.
20 20
Note payable and capital leases leases A $10,000,000
$10,000,000 demand note payable bearing interest at a variable rate (3.00% at June June 30, 2008) is included included in in the current portion of long-term long-term debt within the statements of financial financial position.
University has certain lease agreements The University agreements in effect effect which are considered considered capital leases that are included as long-term long-term debt in in the statements statements of financial position. These leases leases have been capitalized at the net present present value of the minimum lease payments. payments. The University University has recorded fixed assets in the amount amount of $82,870,000 and $26,946,000 at June $82,870,000 representing capitalized June 30, 2008 and 2007, respectively, representing capitalized leases. Future minimum Future minimum lease payments under capital capital leases together with the present value of the net minimum lease payments lease payments as of June 30, 2008 are as follows: Year 2009 $ 8,378,000 8,378,000 2010 8,279,000 8,279,000 2011 8,210,000 8,210,000 2012 7,796,000 2013 6,905,000 6,905,000 Thereafter Thereafter 162,337,000 162,337,000 Total minimum minimum lease payments payments 201,905,000 Less imputed interest imputed interest (130,493,000) (130,493,000) Capital lease obligation 71,412,000 Capital lease obligation 71,412,000 Current Current portion 4,030,000 Long-term portion $ 67,382,00Q 67 382 000 The University University has entered entered into a Master Building Sublease with ADG - Hospital Drive Associates Associates ("ADG-("ADG-HDA"), aa limited HDA"), limited partnership (of which the University University maintains a 75% 75% interest, carried at $1,489,000
$1,489,000 and
$1,329,000 in investments
$1,329,000 investments at JuneJune 30, 2008 and 2007, respectively), which which required required ADG-HDA to construct the Centre the Centre Medical Medical Sciences Sciences Building Building ("Building")
("Building") and lease itit to the University University for an initial term of twenty-five years. The Building five years. Building was constructed constructed on land jOintly jointly owned by the University University and Mount Nittany Medical Center, which has been leased by ADG-HDA for a term of sixty years. The University University has subleased portions of the Building to the Mount NittanyNittany Medical healthcare related entities. Medical Center and other healthcare During 2007, TMSHMC During 2007, TMSHMC entered into a lease agreement agreement for a facility currently under construction construction located on on the Medical Center's the Medical Center's campus. As a result of certain certain provisions contained contained within the lease and related agreements, agreements, the Medical Center accounted accounted for the facility as an owned facility and therefore therefore recognized non-cash construction costs incurred as of June 30, 2007 (included non-cash construction construction in progress), together (included as construction with a corresponding corresponding deferred lease lease obligation, as of June June 30, 2007, in the amount of $31,324,000.
$31,324,000. During During 2008, TMSHMC capitalized 2008, TMSHMC capitalized additional additional costs related related to the facility in the amount of $17,276,000.
$17,276,000. In In March March 2008, 2008, thethe facility was opened and the deferred obligation obligation in the amount of $48,600,000
$48,600,000 was reclassified reclassified to a capital capital lease obligation.
- 7. OPERATING LEASES
- 7. OPERATING LEASES The University has The University has certain certain lease lease agreements agreements in effect which are considered considered operating leases. During the the year ended June year ended June 30,30, 2008, the University recorded recorded expenses expenses of $22,481,000
$22,481,000 for leased equipment and
$15,619,000 for
$15,619,000 for leased building space. During the year ended June 30, 2007, the University recorded expenses expenses of $23,570,000
$23,570,000 for leased equipment and $13,541,000 $13,541,000 for leased building space.
21
Future minimum leaselease payments payments under operating leases as of June operating leases June 30, 2008 are as follows: Year 2009 $ 16,299,000 16,299,000 2010 12,801,000 12,801,000 2011 10,440,000 10,440,000 2012 7,798,000 7,798,000 2013 6,186,000 6,186,000 Thereafter Thereafter 40,705,000 Total minimum lease lease payments payments $ 94.229,000 94,229.000 RETIREMENT BENEFITS
- 8. RETIREMENT The University University provides retirement benefits provides retirement benefits for substantially substantially all regular employees, primarily through either contributory defined benefit plans administered by the Commonwealth Commonwealth of Pennsylvania Pennsylvania State Employees' Employees' Retirement Retirement System and The Public School Employees' Employees' Retirement Retirement System or defined defined contribution plans administered by the Teachers Insurance and Annuity Teachers Insurance Annuity Association - College Retirement Retirement Equity Fund and and Fidelity Investments. The University is billed for its share of the estimated actuarial cost of the defined defined benefit benefit plans ($10,614,000
($10,614,000 and $9,866,000 for the years ended June 30, 2008 and 2007, respectively). The The University's total cost for retirement benefits, included in expenses, is $99,263,000
$99,263,000 and $92,863,000
$92,863,000 for the the years ended ended June June 30, 2008 and 2007, respectively.
POSTRETIREMENT BENEFITS
- 9. POSTRETIREMENT BENEFITS The University sponsors aa retiree medical medical plan covering eligible retirees and eligible dependents.
dependents. For the the 2008 benefit benefit plan year, this program includes Organization ("PPO") plan for retirees includes a Preferred Provider Organization retirees dependents who are not eligible for Medicare, and their dependents Medicare Advantage Medicare, a Medicare Advantage Private Private Fee For Service Service ("PFFS") plan and a Medicare Medicare Supplement Supplement plan. In addition, addition, the University provides insurance provides retiree life insurance benefits of $5,000
$5,000 at no cost to the retiree. A limited number $10,000 of life insurance number of retirees have $10,000 insurance coverage; $5,000 of which is provided provided by the University and and $5,000 is paid by the retiree.
Retirees are eligible for medical coverage Retirees coverage and life insurance insurance after they retire if:if:
** they are at least age 60 and have have at least least 15 years of regular regular full-time employment employment and participation in aa University-sponsored participation University-sponsored medical medical plan immediately preceding the retirement date immediately preceding date OR OR
*" regardless of age, ifif they have at least 25 years of regular full-time service. The last 10 regardless 10 of those those 25 years years of University University service must be continuous and they must participate in a University University -
sponsored medical medical plan during the last 10 years immediately immediately preceding the retirement date. The retiree PPO medical plan and the $5,000 $5,000 life insurance insurance coverage coverage are self-funded self-funded programs, and all medical claims, death medical death benefits and other expenses are paid from the unrestricted unrestricted net assets of the the University. The PFFS plan and the Medicare Supplement Supplement plan are fully insured. The retirees pay varying varying amounts for coverage coverage under the medical medical plan. As of JanuaryJanuary 1, 2008, the monthly amounts ranged from $10 $10 to $221 depending
$221 depending on age and dependent coverage dependent coverage options selected.
Effective June 30, 2007, the University University adopted adopted SFAS No. 158, Employers' Employers' Accounting for Defined Benefit Pension Pension and Other Other Postretirement PostretirementPlans Plans - an amendment amendment of SFAS No's. 87, 88, 106 and 132(R) 88,106 ("SFAS No. 158"). The new standard standard requires requires that the funded status of the plan be fully recognized recognized as a net asset or liability within the statements of financial position. Additionally, SFAS No. 158 requires an employer to measure the funded status of the plan as of the date of the fiscal year-end statement employer statement of financial position. financial position. The University has historically historically measured and continues continues to measure measure the funded status status of the plan as of June 30. 22 22
The incremental incremental effect effect ofof adopting adopting the provision provIsion of of SFAS SFAS No. No. 158158 on the University's University's statement statement of financial financial position position at June June 30, 2007 2007 is as follows: Prior to Prior to Effect of Effect Adoption Adoption Adoption Adoption As As Reported Reported Accrued Accrued postretirement benefits postretirement benefits $ 730,961,000 730,961,000 $ 103,601,000 103,601,000 $ 834,562,000 834,562,000 Unrestricted net assets Unrestricted assets $$ 3,081,651,000 3,081,651,000 (103,601,000)
$ (103,601,000) 2,978,050,000
$ 2,978,050,000 Included in unrestricted Included unrestricted net assets assets at June June 30, 2008 2008 and 2007 are the the following amounts amounts that have have not yet been recognized recognized in net periodic periodic postretirement postretirement cost:
cost: unrecognized unrecognized prior prior service service cost (benefit) (benefit) of of ($194,389,000) ($194,389,000) and ($216,018,000) ($216,018,000) and and unrecognized unrecognized actuarial actuarial loss of $334,646,000
$334,646,000 and and $319,619,000,
$319,619,000, respectively.
The The following following sets forth the plan's plan's benefit benefit obligation, plan assets assets andand funded status reconciled reconciled with the the amounts amounts recognized recognized in thethe University's University's consolidated consolidated statements statements of financial position position at June June 30: Change in benefit obligation: Change 2008 2007 Benefit obligation at beginning Benefit beginning of year $ 834,562,000 834,562,000 $ 822,552,000 822,552,000 Service Service cost 32,882,000 32,882,000 29,693,000 29,693,000 Interest cost 53,390,000 53,390,000 48,168,000 48,168,000 Actuarial loss loss 32,793,000 32,793,000 72,109,000 72,109,000 Benefits paid Benefits paid (29,290,000) (29,081,000) amendment Plan amendment (178,478,000) Plan assumptions assumptions 69,599,000 69,599,000 Benefit obligation obligation at end of year $ 924.337.000 924,337,000 $ 834.562.000 834.562,000 Change Change in plan assets: 2008 2008 2007 Fair value of plan assets at beginning beginning of year $ $ 29,081,000 Employer contributions contributions 29,290,000 29,290,000 29,081,000 (29,081,000) Benefits paid paid (29,290,000) (29,290,000) (29,081,000) Fair value of plan assets at end of year $ $ status Funded status $ (924,337,000) (924,337,000) $ (834,562,000) Unrecognized prior service cost (benefit) Unrecognized Unrecognized net actuarial loss Unrecognized loss Accrued postretirement benefit expenseexpense $ (924 (924.337.000) 33Z QQQ) $ (83~ 562 QQQ) Net periodic postretirement cost includes the following components for the years ended June 30: 2008 2007 Service cost $$ 32,882,000 32,882,000 $ 29,693,000 29,693,000 Interest cost 53,390,000 53,390,000 48,168,000 48,168,000 Amortization Amortization of prior service cost (21,629,000) (21,629,000) Amortization of unrecognized Amortization unrecognized net loss loss 17,766,000 17,766,000 16,863,000 16,863,000 73.095,000 postretirement cost Net periodic postretirement cost $$ 82 82.409.000 4Q9 QQQ $$ 73 Q95,QQQ assumed healthcare cost trend rate The assumed rate used in measuring the the accumulated postretirement postretirement benefit and_9.50% for the 2007-2008 obligation was 9.00% and_9.50% 2007-2008 and 2006-2007 plan plan years, respectively, reduced by 0.50% per year to to aa fixed level of 5.00%. The weighted average postretirement benefit obligation discount 6.25% for each of the years ended June 30, 2008 and 2007, respectively. rate was 6.25% respectively. 23
IfIf the healthcare healthcare cost trend rate assumptions assumptions were increased by 1 1%
% in each year, the accumulated accumulated postretirement benefit obligation postretirement increased by $160,053,000 obligation would be increased $160,053,000 and $145,204,000
$145,204,000 as of June 30, 2008 and 2007, respectively. The effect effect of this change change on the sum of the service cost and interest cost components components of the net periodic postretirement postretirement benefit cost would be an increase of $17,898,000 $17,898,000 and
$16,311,000 as of June 30, 2008 and 2007, respectively. If $16,311,000 If the healthcare cost trend rate assumptions assumptions werewere decreased by 11% % in each each year, the accumulated postretirement benefit obligation would be decreased accumulated postretirement decreased by $127,972,000 and $115,930,000 $127,972,000 $115,930,000 as of June 30, 2008 and 2007, respectively. The effect effect of this change on the sum of the service service cost and interest interest cost components of the net periodic postretirement postretirement benefit cost would be a decrease of $13,958,000 $13,958,000 and $12,664,000
$12,664,000 as of June 30, 2008 and 2007, respectively.
postretirement benefits expected to be paid in each year for 2009-2013 are $34,045,000, $36,427,000, The postretirement $38,902,000, $41,391,000 $38,902,000, $41,391,000 and $43,614,000, respectively. The benefits expected to be paid in in the five five years from 2014-2018 are $259,031,000.$259,031,000. Gains and losses in excess of 10% 10% of the accumulated accumulated postretirement postretirement benefit obligation are amortized over the average future service to assumed assumed retirement retirement of active active participants.
- 10. THE MILTON MILTON S. HERSHEYHERSHEY MEDICAL MEDICAL CENTER CENTER The University's University's wholly-owned wholly-owned subsidiary, TMSHMC, owns the assets of the clinical enterprise of the the Hershey Hershey Medical Center complex.
complex. The University ow'ns owns the Hershey Hershey Medical Medical Center complex, including all buildings and land occupied by the University Hospital land occupied Hospital and operates operates the College College of Medicine. Medicine. The clinical facilities of the Hershey Hershey Medical Medical Center complex complex are leased to TMSHMC TMSHMC and TMSHMCTMSHMC makes makes certain certain payments to support the College payments College of Medicine.
- 11. CONTINGENCIES AND
- 11. CONTINGENCIES AND COMMITMENTS COMMITMENTS Contractual Contractual Obliqations Obligations The University The University has has contractual contractual obligations for the construction of new buildings and for additions additions to existing buildings in the amount of $427,549,000
$427,549,000 of which which $311,370,000
$311,370,000 has been paid or accrued accrued as of June June 30, 2008. The contract 2008. contract costs are being financed from available resources and from borrowings.
Under the Under the terms terms of certain limited partnership agreements, the University limited partnership University is obligated obligated to periodically periodically advance advance additional funding for private private equity and real estate investments. The University University has unfunded commitments of commitments of approximately approximately $280,520,000
$280,520,000 as of June June 30, 2008 for which capital capital calls have not been exercised.
exercised. Such Such commitments generally generally have fixed expiration dates dates or other other termination termination clauses. The The University maintains University maintains sufficient sufficient liquidity in in its investment investment portfolio in the event that such calls are exercised. Letters of Credit Credit The University The University has outstanding outstanding letters letters of credit in in the amount amount of $15,404,000
$15,404,000 and $17,328,000
$17,328,000 as of JuneJune 30, 2008 and 2007, respectively.
30, 2008 and 2007, respectively. These letters of credit are used primarily to comply with minimum state and federal and federal regulatory regulatory laws that govern govern various University activities. The fair value of these letters of credit approximates contract approximates contract values based on the nature of the fee arrangements with the issuing banks. Self-Insurance Self-Insurance The University The University has a coordinated coordinated program of commercial commercial and self-insurance self-insurance for medical medical malpractice claims malpractice claims at TMSHMC at TMSHMC through through thethe use of a qualified qualified trust and a domestic domestic captive insurance insurance company in combination combination with aa self-insured with self-insured retention retention layer and is supplementing this program program through participation in in the the Pennsylvania Pennsylvania Medical Medical CareCare Availability and and Reduction of Error Fund ("Mcare Fund"), formerly the the Pennsylvania Pennsylvania Medical Medical Professional Professional Liability Catastrophe Catastrophe Loss Fund ("CAT Fund"), in in accordance accordance withwith Pennsylvania Pennsylvania law. law. An estimate of An estimate of the the present value, discounted malpractice claims discounted at 4%, of the medical malpractice claims liability liability in the amount in the amount of $74,234,000
$74,234,000 and $72,877,000
$72,877,000 is recorded as of June June 30, 2008 and 2007, respectively.
24 24
On July 1, 2003, TMSHMC TMSHMC became self-insured for all medical malpractice claims asserted on or after July medical malpractice 1, 2003, for all amounts amounts that are below the coverage coverage of the TMSHMC's TMSHMC's excessexcess insurance insurance policies and not included included in the insurance coverage of the Mcare Fund. Under self-insurance program, Under the self-insurance program, TMSHMC is required required to maintain a malpractice malpractice trust fund in an amount amount at least equal to the expected expected loss of known claims. The balance balance of this trust fund was $24,648,000 and $16,399,000 $16,399,000 at JuneJune 30, 2008 and 2007, respectively. TMSHMC intends to fund any claims due during the next year from cash flows from from operations. With approval from the Pennsylvania Pennsylvania Department of Labor Labor and Industry ("PA-DLI"), the University Industry ("PA-DU"), University elected to self-insure self-insure potential potential obligations applicable applicable to workers' compensation. compensation. Certain Certain claims under the program program areare contractually contractually administered by a private agency. The University purchased purchased insurance insurance coverage for excess obligations obligations over $600,000 per incident. An estimate of the self-insured workers' compensation claims claims liability in the amount amount of $11,081,000
$11,081,000 and $9,662,000 is recorded recorded as of June 30, 2008 and 2007, established a trust fund, in the amount respectively. The University has established amount of $11,001,000
$11,001,000 and and $9,955,000 at June June 30, 2008 and 2007, respectively, as required by PA-DU, PA-DLI, to provide for the payment payment of claims under self-insurance program. TMSHMC this self-insurance TMSHMC is self-insured for workers'workers' compensation claims and has purchased an excess policy through a commercial commercial insurer which covers covers individual claims in in excess of $500,000 per incident for workers' workers' compensation compensation claims.
The University University and TMSHMC TMSHMC are self-insured self-insured for certain health care benefits benefits provided provided to employees. employees. The The University and TMSHMCTMSHMC have purchased purchased excess excess policies which cover employeeemployee health benefit claims in excess excess of $500,000
$500,000 and $300,000 per employeeemployee per year, respectively. The University and TMSHMC TMSHMC provide for reported claims and claims incurred incurred but not reported.
reported. Liti~gation and Contingencies Litigation Contingencies Various legal proceedings have arisen in the course of conducting University business. The outcome of such litigation litigation is not expected to have aa material effect on the financial position of the University. Based on its operation operation of the University University Hospital Hospital (see Note 10), the University, like the healthcare healthcare industry, is subject to numerous regulations of federal, state and local numerous laws and regulations local governments. Compliance with these these laws and regulations regulations can be subject to government government review and interpretation, as well as regulatory actions. Recently, government reviews of healthcare healthcare providers compliance with regulations have increased. providers for compliance increased. Although the University University believes itit has done done its best to comply with these numerous numerous regulations, such government reviews could result in government repayments of previously in significant repayments previously billed and collected revenues revenues from services. patient services.
- 12. SUBSEQUENT SUBSEQUENT EVENT EVENT On September September 29, 2008, the University was notified that Wachovia "Trustee")
Wachovia Bank N.A., as Trustee (the "Trustee") of the Common Common Fund for Short Term Investments Investments (the "Fund") was initiating the process of terminating terminating thethe Fund. As part of this termination termination plan the Trustee Trustee has established established procedures procedures for an orderly liquidation orderly liquidation and distribution and distribution of the assets of the Fund to all participants. participants. Liquidity in the Fund was restricted restricted based upon each participant's account each partiCipant's account value as of the close of business on September September 26, 2008. The The University's holdings in the Fund as of September University's September 26, 2008 were $465,335,000. As of September September 30, 2008, the University received 10% of the account University has received account value value and fully anticipates approximately 50% anticipates that approximately will be will be available available for withdrawal by October 31, 31, 2008. ItIt is expected expected that 60% of the Fund will be availableavailable by December 31, 31, 2008, 74% by September 30, 2009 and the balance of 26% thereafter. As a result, at June 30, 2008, the University University designated designated $298,037,000 as short-term investmentsinvestments within the consolidated consolidated statements of financial position based on the estimate estimate of the timing of the liquidation of the Fund. Fund. TheThe University's investment investment in the Fund at June 30, 2007 of $236,297,000$236,297,000 was reclassified reclassified from cash and cash equivalents equivalents to short-term investments investments to conform conform with the 2008 presentation. presentation. The University has has evaluated the impact of this termination plan and the availability evaluated availability of funds and has determined determined that the the plan does not have aa material impact on the University's University's financial statements or overall liquidity. 25 25
THE PENNSYLVANIA PENNSYLVANIA STATE STATE UNIVERSITY UNIVERSITY BOARD OF TRUSTEES TRUSTEES as of September September 30, 2008 APPOINTED MEMBERS MEMBERS ELECTED BY BOARD BOARD REPRESENTING REPRESENTING BY THE GOVERNOR BY GOVERNOR OFFICIO EX OFFICIO BUSINESS BUSINESS AND AND INDUSTRY INDUSTRY CYNTHIA A. CYNTHIA A. BALDWIN BALDWIN EDWARD G. RENDELL EDWARD JAMES S. JAMES S. BROADHURST BROADHURST Partner, Duane Morris LLP Partner, LLP Governor Chairman Chairman Commonwealth of Pennsylvania* Commonwealth Pennsylvania* Eat'n Park Eatn Park Hospitality Hospitality Group, Inc. EUGENE B. CHAIKEN Chairman/CEO, Chairman/CEO, Almo Alma Corporation DENNIS C WOLFF DENNIS WOLFF EDWARD R. HINTZ, EDWARD JR. HINTZ, JR. Secretary Secretary President ALVIN ALVIN H. CLEMENS H. CLEMENS Pennsylvania Department Pennsylvania Department of Agriculture Agriculture HHR Asset Management, LLC LLC Executive Officer Chairman and Chief Executive Officer Health Health Benefits Direct Corporation Corporation GERALD L. ZAHORCHAK GERALD ZAHORCHAK EDWARD P. EDWARD P. JUNKER III III Secretary Secretary Retired Vice Chairman Retired Chairman RODNEY P. HUGHES RODNEY HUGHES Pennsylvania Department Pennsylvania Department of of Education Education PNC Bank Corp. PNC Corp. Graduate Student The Pennsylvania Pennsylvania State University State University MICHAEL DiBERARDINIS MICHAEL DiBERARDINIS ROBERT ROBERT D. METZGAR D. METZGAR Secretary, Pennsylvania Department Secretary, Department of President President M. LUBERT IRA M. Conservation and Natural Resources Conservation Resources North Penn Pipe & Supply, Inc. Chairman Chairman and Co-founder Independence Capital Independence Capital Partners andand GRAHAM GRAHAM B. SPANIERSPANIER LINDA B. B. STRUMPF STRUMPF Lubert-Adler Partners, Lubert-Adler Partners, L.P. President of the University Vice President President andand Chief Investment Officer Chief Investment Officer The Ford Ford Foundation Foundation PATRICIA K. K. POPRIK POPRIK ROBERT J. LEWISLEWIS President, First American Municipals Municipals Inc. Inc. Chief Executive Officer Officer JOHN P. JOHN P. SURMA Orbital Engineering, Engineering, Inc. Chairman Chairman and and Chief Executive Officer
*Governor'g Non-Voting
*Governor's Non-Voting Representative Representative United States States Steel Corporation Corporation ELECTED ELECTED BY DELEGATES DELEGATES FROM BY ALUMNI ALUMNI AGRICULTURAL AGRICULTURAL SOCIETIES SOCIETIES MARIANNE MARIANNE E. ALEXANDER ALEXANDER DAVID DAVID M. M. JOYNER KEITH KEITH W. W. ECKEL President Emerita President Emerita Orthopedic Physician Orthopedic Physician Sole Sole Proprietor Proprietor and and President President Public Leadership Education Education Network Fred W. Eckel Sons Farms, Fred Farms, Inc.
Inc. JOEL JOEL N. N. MYERS MYERS JESSE ARNELLE H. JESSE ARNELLE President President SAMUEL E. HAYES, JR. Attorney Attorney AccuWeather, AccuWeather, Inc. BARRON HETHERINGTON BARRON L. HETHERINGTON STEVE A. GARBAN ANNE RILEY Owner, B & &R R Farms Farms Senior Senior Vice Vice President for Finance Finance and Teacher Teacher OperationslTreasurer Emeritus OperationsfTreasurer Emeritus BETSY E. HUBERHUBER The Pennsylvania Pennsylvania State University PAUL V. V. SUHEY Pennsylvania State Grange Master, Pennsylvania Grange Orthopedic Surgeon Orthopedic GEORGE GEORGE T. T HENNING, HENNING, JR. Martin Martin and and Suhey Orthopedics Suhey Orthopedics KEITH KEITH E. MASSER Business Consultant Consultant and Retired CFO CFO President President LTV Corporation Sterman Masser, Inc. Sterman DAVID DAVID R. JONES JONES SHAFFER CARL T. SHAFFER Assistant Managing Managing Editor (Retired) (Retired) President President The New York Times York Times Pennsylvania Pennsylvania Farm Bureau EMERITI TRUSTEES EMERITI TRUSTEES HOWARD O. 0. BEAVER, BEAVER, JR. JR. J. J. LLOYD HUCK HUCK WILLIAM A. SCHREYER A. SCHREYER Director and Retired Director and Retired Chairman Chairman of the Board Retired Chairman of the Board Emeritus Chairman Emeritus Carpenter Technology Carpenter Technology Corporation Corporation Merck Merck and Company, Inc. Inc. Merrill Merrill Lynch Lynch & Co., Inc. CHARLES C. CHARLES BROSIUS C. BROSIUS ROGER ROGER A. MADIGAN MADIGAN CECILE M. SPRINGER SPRINGER Retired President, Retired President, Madboro Mushrooms Marlboro Mushrooms State Senator Associates President, Springer Associates 23rd Senatorial Senatorial District WALTER J. WALTER J. CONTI HELEN D. D. WISE WISE Retired Owner Retired Owner BARRY K. K. ROBINSON Former Deputy Former Deputy Chief Chief of Staff Staff for for Cross Keys Cross Inn/Pipersville Inn Keys Inn/Pipersville Inn Senior Senior Counsel for Corporate Corporate Affairs Affairs Programs and Secretary of the Recording Industry Association of America America Cabinet, Governor's Office Office DONALD DONALD M. M. COOK. COOK, JR. Retired President Retired President L. J. ROWELL, L. ROWELL, JR. BOYD E. E. WOLFF WOLFF SEMCOR, Inc. SEMCOR. Retired Chairman and and Retired, Owner and Operator Operator Chief Chief Executive Officer Executive Officer Wolfden Farms Farms MARIAN MARIAN U. U. BARASH BARASH COPPERSMITH COPPERSMITH Mutual Life Provident Mutual LifeInsurance Insurance Company Company Retired Chairman of Retired Chairman of the Board the Board QUENTIN QUENTIN E. WOOD The Barash The Group Barash Group STANLEY STANLEY G. G. SCHAFFER SCHAFFER Retired Chairman Chairman of the Board and and CEOCEO Retired President President Quaker State Corporation Quaker Corporation ROBERT ROBERT M. M.FREY FREY Duquesne Light Company Attorney-at-Law Attorney-at-Law EDWARD P. ZEMPRELLI Attorney
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