Temple University Of The Commonwealth System of Higher Education

Transcription

1 Temple University Of The Commonwealth System of Higher Education Consolidated Financial Statements as of and for the Years Ended June 30, 2015 and 2014, Supplemental Schedules as of and for the Years Ended June 30, 2015 and 2014, Schedule of Expenditures of Federal Awards for the Year Ended June 30, 2015, and Independent Auditors Reports in Accordance with Government Auditing Standards and Office of Management and Budget Circular A-133

2 TEMPLE UNIVERSITY OF THE COMMONWEALTH SYSTEM OF HIGHER EDUCATION TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT 1 2 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES: Consolidated Balance Sheets as of June 30, 2015 and Consolidated Statements of Activities for the Years Ended June 30, 2015 and Consolidated Statements of Cash Flows for the Years Ended June 30, 2015 and Notes to Consolidated Financial Statements for the Years Ended June 30, 2015 and Page Supplemental Schedules Changes in Unrestricted Net Assets for the Years Ended June 30, 2015 and Schedule of Expenditures of Federal Awards for the Year Ended June 30, Notes to Schedule of Expenditures of Federal Awards for the Year Ended June 30, INDEPENDENT AUDITORS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A INDEPENDENT AUDITORS SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30,

3 INDEPENDENT AUDITORS REPORT To the Board of Trustees of Temple University Of the Commonwealth System of Higher Education Philadelphia, Pennsylvania We have audited the accompanying consolidated financial statements of Temple University Of the Commonwealth System of Higher Education and its subsidiaries (the University ), which comprise the consolidated balance sheets as of June 30, 2015 and 2014, and the related consolidated statements of activities, and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the University s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the University as of June 30, 2015 and 2014, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Report on Supplemental Schedules Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The supplemental schedules on pages are presented for purposes of additional analysis of the consolidated financial statements rather than to present the changes in net assets of the individual entities, and are not a required part of the consolidated financial statements. The schedule of expenditures of federal awards on pages 32-66, as required by Office of Management and Budget Circular A-133, Audit of States, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis and is not required part of the consolidated financial statements. This schedule is the responsibility of University s management and was derived from and relate directly to the underlying accounting and other records used to prepare the consolidated financial statements. Such schedule has been subjected to the auditing procedures applied in our audits of the consolidated financial statements and certain additional procedures, including comparing and reconciling such schedule directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued a report dated October 26, 2015 on our consideration of the University s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the University s internal controls over financial reporting and compliance. October 26, 2015 (March 28, 2016 as to the supplemental schedules on pages 32-66) 2

5 Temple University Of The Commonwealth System of Higher Education Consolidated Balance Sheets (in thousands) June 30, 2015 June 30, 2014 Current assets: Cash and cash equivalents $189,008 $182,512 Investments and self-insurance trust funds 894, ,003 Accounts, loans and contributions receivable, net 379, ,052 Inventories and other assets 51,437 38,551 Deposits with trustees 31,743 24,554 Total current assets 1,546,402 1,511,672 Non-current assets: Accounts, loans and contributions receivable, net 138, ,194 Investments and self-insurance trust funds 573, ,527 Deposits with trustees 79, ,228 Other assets 27,389 28,724 Property, plant and equipment, net 1,771,339 1,729,246 Goodwill and other intangibles 22,415 22,988 Funds held in trust by others 142, ,432 Total non-current assets 2,756,130 2,766,339 Total assets $4,302,532 $4,278,011 Current liabilities: Accounts payable and accrued expenses $381,635 $386,808 Deferred revenue 53,494 54,907 Current portion of long-term debt 34,768 26,131 Current portion of accrued pensions and postretirement benefits Total current liabilities 470, ,487 Non-current liabilities: Accrued expenses and other liabilities 266, ,861 Long-term debt 1,166,162 1,198,599 Refundable federal student loans 51,252 50,794 Accrued pensions and postretirement benefits 163, ,239 Total non-current liabilities 1,647,386 1,656,493 Total liabilities 2,117,881 2,124,980 Net assets: Unrestricted 1,651,970 1,642,977 Temporarily restricted 125, ,569 Permanently restricted 407, ,485 Total net assets 2,184,651 2,153,031 Total liabilities and net assets $4,302,532 $4,278,011 See notes to consolidated financial statements 3

6 Temple University Of The Commonwealth System of Higher Education Consolidated Statement of Activities For the Year Ended June 30, 2015 (in thousands) Temporarily Permanently Unrestricted Restricted Restricted Total Net Assets Net Assets Net Assets Net Assets Revenues: Tuition and fees (net of discounts of $97,120) $711,601 $711,601 Commonwealth of Pennsylvania appropriation 121, ,136 Federal grants and contracts 124, ,569 Commonwealth of Pennsylvania grants and contracts 12,636 12,636 Local grants and contracts 3,043 3,043 Private grants and contracts 33,884 33,884 Contributions for operations and endowments 19,282 $16,793 $37,688 73,763 Investment return 39,393 4,219 (142) 43,470 Sales of educational activities 9,475 9,475 Auxiliary enterprises 97,221 97,221 Patient care actvities (net of bad debt expense of $52,248) 1,609,048 1,609,048 Other sources 52, ,858 Net assets released from restrictions 18,611 (18,611) Total revenues 2,852,700 2,458 37,546 2,892,704 Expenses: Educational and general: Instruction 456, ,383 Research 171, ,848 Public service 21,851 21,851 Academic support 167, ,485 Student services 81,555 81,555 Institutional support 136, ,129 Student aid 12,462 12,462 Total educational and general 1,047, ,047,713 Auxiliary enterprises 126, ,826 Patient care activities 1,644,368 1,644,368 Total expenses 2,818, ,818,907 Excess of revenues over expenses 33,793 2,458 37,546 73,797 Other changes in net assets: Investment return (11,585) (10,881) (2,629) (25,095) Commonwealth grants for property, plant and equipment (PP&E) 20,510 20,510 Contributions for PP&E Loss on disposal of PP&E (953) (953) Actuarial change in accrued pensions and postretirement benefits (37,591) (37,591) Currency translation adjustment Net assets released from restrictions for PP&E 4,175 (4,175) Total other changes in net assets (24,800) (14,748) (2,629) (42,177) Increase/(decrease) in net assets 8,993 (12,290) 34,917 31,620 Net assets July 1, ,642, , ,485 2,153,031 Net assets June 30, 2015 $1,651,970 $125,279 $407,402 $2,184,651 See notes to consolidated financial statements 4

7 Temple University Of The Commonwealth System of Higher Education Consolidated Statement of Activities For the Year Ended June 30, 2014 (in thousands) Temporarily Permanently Unrestricted Restricted Restricted Total Net Assets Net Assets Net Assets Net Assets Revenues: Tuition and fees (net of discounts of $90,499) $672,914 $672,914 Commonwealth of Pennsylvania appropriation 126, ,624 Federal grants and contracts 123, ,713 Commonwealth of Pennsylvania grants and contracts 12,056 12,056 Local grants and contracts 3,418 3,418 Private grants and contracts 34,761 34,761 Contributions for operations and endowments 23,737 $21,114 $15,337 60,188 Investment return 37,922 2, ,923 Sales of educational activities 8,649 8,649 Auxiliary enterprises 95,133 95,133 Patient care actvities (net of bad debt expense of $47,318) 1,497,846 1,497,846 Other sources 47,698 47,698 Net assets released from restrictions 17,036 (17,036) Total revenues 2,701,507 6,712 15,704 2,723,923 Expenses: Educational and general: Instruction 433, ,311 Research 166, ,235 Public service 16,433 16,433 Academic support 156, ,850 Student services 76,731 76,731 Institutional support 126, ,527 Student aid 12,016 12,016 Total educational and general 988, ,103 Auxiliary enterprises 118, ,558 Patient care activities 1,580,321 1,580,321 Total expenses 2,686, ,686,982 Excess of revenues over expenses 14,525 6,712 15,704 36,941 Other changes in net assets: Investment return 17,062 24,564 19,168 60,794 Commonwealth grants for property, plant and equipment (PP&E) 68,795 68,795 Contributions for PP&E 4,533 1,099 5,632 Loss on disposal of PP&E (1,856) (1,856) Actuarial change in accrued pensions and postretirement benefits 11,664 11,664 Currency translation adjustment (38) (38) Net assets released from restrictions for PP&E 4,364 (4,364) Total other changes in net assets 104,524 21,299 19, ,991 Increase in net assets 119,049 28,011 34, ,932 Net assets July 1, ,523, , ,613 1,971,099 Net assets June 30, 2014 $1,642,977 $137,569 $372,485 $2,153,031 See notes to consolidated financial statements 5

8 Temple University Of The Commonwealth System of Higher Education Consolidated Statements of Cash Flows For the Years Ended June 30 (in thousands) Cash flows from operating activities: Change in net assets $31,620 $181,932 Adjustments to reconcile change in net assets to net cash provided by operating activities: Currency translation adjustment (77) 38 Provision for bad debts and impairments 57,288 51,352 Depreciation 137, ,491 Amortization and accretion 1,081 (2,595) Realized and unrealized gain on investments (1,702) (80,566) Actuarial change in accrued pensions and postretirement benefits 37,591 (11,664) Loss on disposal of property, plant and equipment 953 1,856 Noncash contributions received (2,184) (434) Proceeds from sale of donated securities 2, Contributions, grants and investment income of and for property, plant and equipment and for long-term investment (61,205) (94,670) Changes in operating assets and liabilities: Accounts and contributions receivable (65,644) (105,189) Inventories and other assets (10,326) 186 Accounts payable and accrued expenses (1,170) 31,547 Deferred revenue (1,413) (7,212) Accrued pensions and postretirement benefits 993 (1,866) Net cash provided by operating activities 125,985 93,640 Cash flows from investing activities: Purchases of investments, deposits with trustees and self-insurance trusts (928,547) (940,487) Sales and maturities of investments, deposits with trustees and self-insurance trusts 939, ,722 Purchases of property, plant and equipment (198,231) (204,037) Proceeds from sale of property, plant and equipment Loans to students (9,959) (10,987) Proceeds from collections on student loans 9,561 8,605 Net cash used by investing activities (187,220) (193,153) Cash flows from financing activities: Proceeds from contributions, Commonwealth grants and investment income restricted to property, plant and equipment and long-term investment 91,125 70,371 Refundable federal student loans 458 (215) Change in split interest agreements (371) 110 Proceeds from long-term debt 3,743 6,123 Payments to retire long-term debt (27,161) (36,154) Net cash provided by financing activities 67,794 40,235 Exchange rate adjustments (63) (51) Net increase/(decrease) in cash and cash equivalents 6,496 (59,329) Cash and cash equivalents at beginning of the year 182, ,841 Cash and cash equivalents at end of the year $189,008 $182,512 Supplemental disclosure of cash flow information: Cash paid for interest $62,656 $63,847 Property, plant and equipment acquired through capital leases $1,742 $22 Accrued property, plant and equipment $9,821 $28,544 See notes to consolidated financial statements 6

9 TEMPLE UNIVERSITY Of The Commonwealth System of Higher Education NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2015 and 2014 Note A. Summary of Significant Accounting Policies Organization and Basis of Consolidated Financial Statements: Temple University Of The Commonwealth System of Higher Education (the University) is comprised of Temple University (TU), the academic division of the University, which is a state-related comprehensive research university with its headquarters and largest campus located in Philadelphia, Pennsylvania, and Temple University Health System, Inc. (TUHS), a Pennsylvania not-for-profit corporation of which the University is the sole member. TUHS is the parent of many health care subsidiaries in the Philadelphia area and serves principally to coordinate the activities of these subsidiaries. The consolidated financial statements include TU, TUHS and the University s other subsidiaries, whose abbreviations used throughout these notes, are listed in the supplemental schedules at the end of this report. Basis of Accounting: The consolidated financial statements of the University have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (GAAP) for not-for-profit organizations. The University's consolidated financial statements are presented such that net assets, revenues, gains, expenses and losses are classified as unrestricted, temporarily restricted or permanently restricted based on the existence or absence of donorimposed restrictions as follows: Unrestricted: net assets not subject to donor-imposed restrictions. These net assets may be designated for specific purposes by action of the Board of Trustees or may otherwise be limited by contractual agreements with outside parties. Expenses are shown as decreases in unrestricted net assets. Temporarily restricted: net assets subject to donor-imposed restrictions that can be fulfilled by actions of the University in accordance with those stipulations, or by the passage of time. Contributions and income from endowments for which restrictions have been met in the same fiscal year as their receipt are combined and reported with unrestricted revenues. The University classifies contributions to acquire long-lived assets as temporarily restricted net assets. The release of restrictions occurs when the asset is placed in service. Permanently restricted: net assets subject to donor-imposed stipulations that they be maintained permanently by the University. Donors of these assets permit the use of all or part of the income earned on these assets. Temple University Physicians (TUP): Effective July 1, 1986, the Board of Trustees established the School of Medicine Designated Fund to account for unrestricted net assets generated by the excess of TUP revenues over expenses and transfers. TUP activity is included in Clinical Faculty Practice Plans in the supplemental information on unrestricted net assets presented at the end of these consolidated statements. Tuition Revenue: Tuition revenue is recorded at established rates, net of financial assistance provided directly by the University. The University recognizes tuition revenue in the academic period that it is earned. Any payments received in advance of the subsequent year are classified as deferred income in the consolidated balance sheets. 7

10 Note A. Summary of Significant Accounting Policies (continued) Contributions: Contributions are reported as an increase in the appropriate net asset category. Unconditional promises to give that are expected to be collected within one year are recorded at their estimated net realizable value. Unconditional promises to give (pledges) that are expected to be collected in future years are recorded at net present value. Conditional pledges are not included as revenue until such time as the conditions are substantially met. Grants and contracts: Income from grants and contracts, including overhead recovery, is recorded as the related direct expenses are incurred. Patient Care Activity: Included are patient service revenues of TUHS as well as TU revenues from the clinical activities of TUP, Dental practices and the School of Podiatric Medicine. The University has agreements with third-party payors that provide for payments to the University at amounts different from its established rates. Payment arrangements primarily include prospectively determined rates per discharge and per-diem payments and to a lesser extent reimbursed costs and discounted charges. In addition, the University receives Medical Assistance payments for the reimbursement of services for charity and uncompensated care services (Disproportionate Share Payments). The federal funding of such costs is subject to an upper payment limit and retrospective settlement. Patient care activity revenue is reported at the estimated net realizable amounts from patients, third-party payors and others for services rendered, including retroactive adjustments under reimbursement agreements with third-party payors. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered or when known, and adjusted in future periods as final settlements are determined. Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates could change by a material amount in the near term. Patient care activity revenue decreased by $410,000 and increased by $5,367,000 for 2015 and 2014, respectively, related to the final settlement of prior years TUHS cost reports. Charity Care: The University provides care without charge or for amounts less than its established rates to patients who meet certain criteria under the University's charity care policy. Some patients qualify for charity care based on federal poverty guidelines or their financial condition being such that requiring payment would impose a hardship on the patient. The University maintains detailed records to identify and monitor the level of charity care it provides to its patients. Charity care costs are estimated by applying an overall cost to charge ratio to charity care charges. The cost to charge ratio is calculated by dividing total expenses less bad debt by total gross patient service revenue. The estimated costs incurred to provide charity care, including the estimated unreimbursed cost of services in excess of payments from Medical Assistance programs were $207,245,000 and $201,867,000, for 2015 and 2014, respectively. The University received Commonwealth of Pennsylvania grants, Access to Care Program and other support of $145,515,000 and $136,916,000 resulting in net costs of $61,730,000 and $64,951,000, for 2015 and 2014, respectively. Because the University does not pursue collection of amounts determined to qualify as charity care, they are not reported as patient care activities revenue. Cash and Cash Equivalents: Cash equivalents consist primarily of highly liquid investments, such as money market funds and debt instruments with original maturities of three months or less at the time of purchase. At June 30, 2015 and 2014, the University had cash balances in financial institutions, which exceed federal depository insurance limits. Management believes that credit risks related to these deposits are minimal. Cash and cash equivalents are carried at cost, which approximates fair value. 8

11 Note A. Summary of Significant Accounting Policies (continued) Investments: Investments are comprised of the assets of the University's endowment, certain temporarily restricted funds, funds designated by the Board of Trustees to be invested as endowments, certain funds set aside to retire long-term debt, other plant-related funds and other unrestricted funds held for operating purposes. These investments vary as to their level of liquidity, with differing requirements for notice prior to redemption or withdrawal (Note H). The University reports investments, including debt and equity securities, at fair value. Investments established for endowments, and certain investments set aside to retire long-term debt are classified as non-current assets. All other investments are classified as current assets. The University also invests in various limited partnerships. Such investments are accounted for on the equity basis of accounting, which approximates fair value as determined by the fund managers and financial information provided by the limited partnership. This financial information includes assumptions and methods that are reviewed by the University. Because these investments are not readily marketable, the estimated fair values are subject to uncertainty and, therefore, may differ from the value that would have been used had a ready market existed, and such differences could be material. TU has adopted, for endowments and funds designated by the Board of Trustees to be invested as endowments, a spending rule based on 4.5% of the fair value of such investments, computed as a moving average over the past twelve quarters. For these investments the spending rule amount is reported as investment return in revenues, and the excess or shortfall of total return over the spending rule amount is reported as investment return in other changes in net assets in the consolidated statements of activities. For all other TU investments, interest and dividend income is reported as investment return in revenues and realized and unrealized gains or losses are reported as investment return in other changes in net assets in the consolidated statements of activities (Note I). TUHS interest, dividends and realized gains or losses are reported as investment return in revenues. TUHS unrealized gains or losses are reported as investment return in other changes in net assets in the consolidated statements of activities. Investment return is reported as increases to unrestricted, temporarily restricted or permanently restricted net assets based upon the existence or absence of donor imposed restrictions. Investments, in general, are exposed to various risks such as interest rate, credit and overall market volatility. As such, it is reasonably possible that changes in the value of investments will occur in the near term and that such changes could materially affect the amounts reported in the consolidated financial statements. Self-Insurance Trust Funds: Self-insurance trusts funds include assets that are designated for payments of insurance risk retained by the University. The University self-insures or maintains deductibles under its various insurance policies for property, casualty, automobile, general liability, medical malpractice, worker's compensation, certain health and welfare and other claims. Provisions are made for estimated losses (claims made and claims incurred but not reported) generally based on actuarial methods, which include discounting of certain loss provisions. Accounts, Loans and Contributions Receivable: Accounts, loans and contributions receivable are reported at their net realizable value. Accounts are written off against the allowance for doubtful accounts when they are determined to be uncollectible based upon management s assessment of individual accounts. The allowance for doubtful accounts is estimated based on historical losses and periodic review of individual accounts. The University does not accrue interest on these amounts (Note C). 9

12 Note A. Summary of Significant Accounting Policies (continued) Inventories: Inventories are stated at the lower of cost or market, cost being determined on the first-in, first-out or average cost method. Goodwill and Other Intangibles: Goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment annually or when indicators of a potential impairment are present. The University s annual impairment date is June 30th. The annual evaluation for impairment of goodwill and indefinite-lived intangibles is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans (Note M). The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed on a straight-line basis over the estimated periods benefited. Patents, technology and other intangibles with contractual terms are generally amortized over their respective legal or contractual lives. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted and impairment charges recorded. Fair Value of Assets and Liabilities: The University has categorized its assets measured at estimated fair value into a three-level hierarchy, based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An asset or liability s classification within the fair value hierarchy is based on the lowest level of significant input to its valuation (Note H). A reasonable estimate of the fair value of loans receivable from students under government loan programs and refundable federal student loans could not be made because the loans are not readily saleable. These loans are recorded at cost, less an allowance for doubtful accounts (Note C). Funds Held In Trust By Others: The University is the irrevocable beneficiary of the income from certain perpetual trusts administered by third parties. The University s beneficial interest is reported at the fair value of the underlying trust assets. Because the trusts are perpetual and the original corpus cannot be used, these funds are reported as permanently restricted net assets. As the University does not have the ability to redeem funds held in trust by others, these assets are categorized as Level 3 assets (Note H). Long-lived Tangible Asset Impairment: The University reviews long-lived tangible assets for impairment whenever events or changes indicate that the carrying value of the asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to their expected future cash flows. If such assets are considered to be impaired, the impairment is measured by the amount the carrying value exceeds the fair value of the assets. Based on the results of the University s review, a $1,144,000 impairment was recorded in the consolidated statements of activities during the fiscal year ended June 30, There was no impairment of longlived assets recorded during the fiscal year ended June 30,

13 Note A. Summary of Significant Accounting Policies (continued) Asset Retirement Obligations: The University recognizes the fair value of a liability for legal obligations associated with asset retirements in the period in which it is incurred if a reasonable estimate of the fair value of the obligation can be made. When the liability is initially recorded, the University capitalizes the cost of the asset retirement obligation by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value, and the capitalized cost associated with the retirement obligation is depreciated over the useful life of the related asset. Upon settlement of the obligation, any difference between the cost to settle the asset retirement obligation and the liability recorded is recognized as a gain or loss in the consolidated statements of activities. At June 30, 2015 and 2014, the recorded asset retirement obligation liability is $19,712,000 and $17,933,000, respectively. Accretion costs for 2015 and 2014 were $1,450,000 and $1,102,000 respectively, and costs abated in 2015 and 2014 were $329,000 and $(2,584,000), respectively. Defined Benefit Pension and Other Postretirement Plans: The University recognizes the over funded or under funded status of its defined benefit and postretirement plans as an asset or liability in its balance sheets and recognizes changes in the funded status of the plans that arise during the period, but are not recognized as components of net periodic benefit cost, as actuarial change in accrued pensions and postretirement benefits in the consolidated statements of activities. Income Taxes: Substantially all of the controlled entities of the University are nonprofit corporations and have been recognized as tax-exempt pursuant to Section 501(c)(3) of the Internal Revenue Code. The University s federal Exempt Organization Business Income Tax Returns for 2015, 2014, 2013, and 2012 remain subject to examination by the Internal Revenue Service. GAAP requires that a tax position be recognized or derecognized based on a more likely than not threshold. This applies to positions taken or expected to be taken in a tax return. The University does not believe its consolidated financial statements include any material uncertain tax positions that require disclosure. Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Recently Issued Accounting Pronouncements: In May 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) , Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the practical expedient, as defined by ASC 820, Fair Value Measurement. This update is effective for fiscal years beginning after December 15, Management is currently evaluating the impact of the adoption of ASU on the University s financial statements and disclosures. In April 2015, the FASB issued ASU , Interest Imputation of Interest (Subtopic ): Simplifying the Presentation of Debt Issuance Costs. To simplify the presentation of debt issuance costs, ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction of the carrying amount of that debt liability, consistent with debt discounts. This update is effective for fiscal years beginning after December 15, 2015 and is to be applied retrospectively. Management is currently evaluating the impact of the adoption of ASU on the University s financial statements and disclosures. 11

14 Note B. Investments and Self-Insurance Trust Funds The fair values of investments and self-insurance trust funds are as follows: June 30, 2015 June 30, 2014 Investments: Corporate bonds and notes $ 290,857,000 $ 251,561,000 U.S. government securities 302,015, ,922,000 Fixed income funds 355,987, ,979,000 Money market funds 56,806,000 44,616,000 Equity funds and securities 324,384, ,767,000 Limited partnerships 101,898,000 77,430,000 Other 21,789,000 12,375,000 $ 1,453,736,000 $ 1,385,650,000 Self-insurance trust funds: Corporate bonds and notes $ 3,537,000 $ 3,770,000 U.S. government securities 9,907,000 9,961,000 Money market funds 1,009,000 2,149,000 $ 14,453,000 $ 15,880,000 Investment return reported in the consolidated statements of activities is as follows: Interest and dividends $ 16,673,000 $ 21,151,000 Realized and unrealized gains, net 1,702,000 80,566,000 $ 18,375,000 $ 101,717,000 ********************************* Note C. Accounts, Loans and Contributions Receivable Accounts receivable are shown net of allowances as follows: June 30, 2015 June 30, 2014 Student $ 40,562,000 $ 36,430,000 Patients 242,811, ,444,000 Health care programs 37,856,000 55,024,000 Grants and contracts 35,981,000 32,899,000 Commonwealth construction 2,806,000 59,095,000 Recoveries from insurance providers 37,271,000 40,238,000 Pennsylvania Department of Welfare Access to Care 9,525,000 Other 33,577,000 28,590, ,389, ,720,000 Less: Allowance for doubtful patient accounts (44,172,000) (39,330,000) Allowance for doubtful student and other accounts (12,214,000) (10,089,000) Accounts receivable, net $ 384,003,000 $ 425,301,000 The University provides health care services primarily to area residents through its inpatient and outpatient care facilities in the Greater Philadelphia Metropolitan Area. The University serves a disproportionately high number of poor or indigent patients and accordingly, derives a substantial portion of its patient care revenues from the Federal Government (Medicare) and the Commonwealth of Pennsylvania (Medical Assistance) programs. At June 30, 2015 and 2014, the University had net accounts receivable from Medicare of $29,517,000 and $23,217,000, respectively, and from Medical Assistance of $45,413,000 and $42,065,000, respectively. 12

15 Note C. Accounts, Loans and Contributions Receivable (continued) Net patient service revenue recognized from major payer sources based on primary insurance designation is as follows: June 30, 2015 June 30, 2014 Medicare and Medicaid $ 1,012,368,000 $ 959,788,000 Self-pay 21,609,000 19,768,000 Other third-party payers 627,319, ,610,000 1,661,296,000 1,545,166,000 Less: Allowance for doubtful accounts (52,248,000) (47,318,000) Patient service revenue, net $ 1,609,048,000 $ 1,497,848,000 Loans to students are disbursed based on financial need and consist of loans granted by the University under federal government loan programs and loans granted from institutional resources. Upon the earlier of graduation or no longer having full time student status, the students have a grace period, which varies by loan type, until repayment of loans is required. Loans to students are shown net of allowances as follows: June 30, 2015 June 30, 2014 Federal government loan programs: Perkins loan program $ 40,709,000 $ 40,496,000 Health professional and disadvantaged student loans 18,392,000 18,359,000 Nursing student loans 361, ,000 59,462,000 59,281,000 Institutional loan programs 1,488,000 1,477,000 60,950,000 60,758,000 Less: Allowance for doubtful accounts Balance, beginning of period (9,178,000) (9,030,000) Current year activity 206,000 (148,000) Balance, end of period (8,972,000) (9,178,000) Student loans receivable, net $ 51,978,000 $ 51,580,000 Student loans are considered past due when payment has not been received in over 30 days. At June 30, 2015 and 2014, past due student loans were $13,691,000 and $13,752,000, respectively. Allowances for doubtful accounts are established based on prior collection experience and current economic factors which, in management s judgment, could influence the ability of loan recipients to repay the amounts per the loan terms. Further, the University does not evaluate the credit quality of the student loans receivable after the initial approval and calculation of the loans. Contributions receivable are unconditional promises to give, restricted by donors for scholarships, capital acquisitions and other operating purposes. They are expected to be realized in the following periods: June 30, 2015 June 30, 2014 Less than one year $ 25,695,000 $ 27,740,000 One to five years 28,198,000 25,516,000 More than five years 49,356,000 31,699, ,249,000 84,955,000 Less: Allowance for uncollectible contributions (3,588,000) (4,343,000) Present value discount (17,040,000) (13,247,000) Contributions receivable, net $ 82,621,000 $ 67,365,000 The rates used to calculate the present value discount are primarily tied to U.S. Government treasury notes and were between 0.36% and 6.0% and 0.36% and 5.60% for the years ended June 30, 2015 and 2014, respectively. The University recognized $41,111,000 and $17,368,000 in contribution revenue from new pledges and collected $5,181,000 and $2,959,000 of those new pledges in 2015 and 2014, respectively. 13

16 Note D. Pensions and Postretirement Benefits Faculty, administration and certain clerical employees are offered pension benefits through the University's participation in the Teacher's Insurance and Annuity Association, the College Retirement Equities Fund, Fidelity Investments and other defined contribution pension plans. The policy of the University is to contribute its share of the annual amount accrued in connection with these plans. Pension expense for these plans was $59,845,000 and $56,858,000 in 2015 and 2014, respectively. Certain union employees are covered by multi-employer pension plans to which the University contributes. A contributor to a multi-employer plan is liable, upon termination of the plan or its withdrawal from the plan, for its share of the plan's unfunded vested liabilities. Until either event occurs, the University's share, if any, of the unfunded vested liabilities cannot be determined. At present, the University has no plans to withdraw from the union multi-employer pension plans. Pension expense for these plans was $6,608,000 and $5,946,000 in 2015 and 2014, respectively. The University maintains postretirement benefits and defined benefit pension plans covering certain employees and makes contributions to the plans that comply with the funding provisions of the Internal Revenue Code. Covered retirees are eligible to begin receiving benefits payments at age 62, and upon the accumulation of 10 years of service. The activity of these benefits plans for the years ended June 30, 2015 and 2014 is as follows: Benefit Obligations and Funded Status Pensions Postretirement Benefits Change in benefit obligation: Benefit obligation, beginning of period $ 208,017,000 $ 192,497,000 $ 406,635,000 $ 375,544,000 Service cost 2,662,000 2,254,000 15,957,000 14,553,000 Interest cost 8,831,000 9,133,000 17,320,000 17,228,000 Plan participant contributions 189, ,000 2,408,000 2,431,000 Actuarial loss/(gain) 6,992,000 13,783,000 (6,045,000) 12,444,000 Benefits paid (7,984,000) (7,869,000) (17,657,000) (15,565,000) Plan expenses (1,339,000) (1,966,000) Benefit obligation, end of period 217,368, ,017, ,618, ,635,000 Change in plan assets: Fair value of plan assets, beginning of period 187,287, ,785, ,555, ,782,000 Actual return on plan assets 450,000 25,174,000 (3,600,000) 41,587,000 Employer contributions 4,700,000 3,978,000 7,759,000 10,320,000 Plan participant contributions 189, ,000 2,408,000 2,431,000 Plan expenses (1,339,000) (1,966,000) Benefits paid (7,984,000) (7,869,000) (17,657,000) (15,565,000) Fair value of plan assets, end of period 183,303, ,287, ,465, ,555,000 Funded status $ (34,065,000) $ (20,730,000) $ (128,153,000) $ (105,080,000) Amounts recognized in the balance sheets: Assets $ 2,113,000 $ 5,059,000 Liabilities (36,178,000) (25,789,000) $ (128,153,000) $ (105,080,000) Net amount recognized $ (34,065,000) $ (20,730,000) $ (128,153,000) $ (105,080,000) Accumulated amounts recognized in other changes in net assets: Prior service cost/(benefit) $ 1,000 $ (9,655,000) Unrecognized net loss $ 91,256,000 78,407,000 71,529,000 $ 36,638,000 Net amount recognized $ 91,256,000 $ 78,408,000 $ 61,874,000 $ 36,638,000 14

17 Note D. Pensions and Postretirement Benefits (continued) Benefit Obligations and Funded Status Pensions Postretirement Benefits Weighted-average assumptions used to determine the benefit obligations: Discount rates 4.35% % 4.25% % 2.95% % 2.65% % Rate of compensation increase 3.00% % 3.00% % N/A N/A Health care cost trend rate 6.75% 7.40% Ultimate rate 5.00% 5.00% Year that ultimate rate is reached Assumed health care cost trend rates have a significant effect on amounts reported for the postretirement benefits plan. A one-percentage point change in the assumed health care trend rate would have the following effects for the year ended or as of June 30, 2015: The long-term investment strategy for pension and postretirement benefits plans assets is to: meet present and future benefit obligations to all participants and beneficiaries; cover reasonable expenses incurred to provide such benefits; and provide a total return that maximizes the ratio of assets to liabilities by maximizing investment return at the appropriate level of risk (Note H). The expected return on plan assets equals a weighted average of the individual expected returns for each asset category in the plans portfolio. The target ranges for the pension plan investment portfolio is equity funds and securities 30% to 90% and fixed income and cash 10% to 70%. The target ranges for the postretirement benefits plan investment portfolio is equity funds and securities 25% to 75% and fixed income and cash 25% to 75%. The actual asset allocation as of June 30 is as follows: 15 Net Periodic Cost Pensions Postretirement Benefits Components of net periodic cost: Service cost $ 2,662,000 $ 2,254,000 $ 15,957,000 $ 14,553,000 Interest cost 8,831,000 9,133,000 17,320,000 17,228,000 Expected return on plan assets (11,959,000) (12,037,000) (22,308,000) (19,529,000) Amortization of prior service cost/(credit) 1,000 14,000 (8,092,000) (8,091,000) Amortization of net actuarial loss 5,650,000 4,958,000 2,718,000 4,188,000 Net periodic cost $ 5,185,000 $ 4,322,000 $ 5,595,000 $ 8,349,000 Weighted-average assumptions used to determine net periodic cost: Discount rates 4.25% % 4.65% % 2.65% % 2.95% % Expected return on plan assets 6.50% % 7.00% % 7.50% 7.50% Rate of compensation increase 3.00% % 3.00% % N/A N/A Health care cost trend rate 7.00% % 7.50% % Ultimate rate 5.00% 5.00% Year that ultimate rate is reached Increase Decrease Effect on service cost and interest cost components of net periodic postretirement benefits cost $ 5,528,000 $ (4,444,000) 16.73% (13.45)% Effect on benefit obligation, end of year $ 59,381,000 $ (49,169,000) 14.43% (11.95)% Plan Assets Pensions Postretirement Benefits Asset class Equity funds and securities 76% 74% 73% 69% Fixed income and cash 24% 26% 27% 31%

18 Note D. Pensions and Postretirement Benefits (continued) Cash Flows The following table shows expected cash flows of the pension and postretirement benefits plans: Postretirement Pensions Benefits Expected contributions for next fiscal year: Employer $ 3,278,000 $ 11,998,000 Employee 2,408,000 Estimated future benefit payments reflecting expected future service for fiscal years ending: 6/30/2016 $ 10,085,000 $ 18,875,000 6/30/ ,768,000 19,934,000 6/30/ ,340,000 21,064,000 6/30/ ,872,000 22,102,000 6/30/ ,404,000 22,957,000 Thereafter 67,801, ,940,000 The actuarial present value of accumulated plan benefits related to a non-active group annuity pension plan has neither been determined nor included above because a guarantee of payment to the plan's beneficiaries has been made by The Equitable Life Assurance Society of America. This plan had total net assets available for benefits of $1,916,000 and $2,078,000 at June 30, 2015 and 2014, respectively. Note E. Deposits with Trustees ********************************* The University has on deposit with trustees amounts established for construction and debt repayment. These deposits are primarily invested in U.S. Government securities and money market funds. See Note G for bond descriptions. A summary of these deposits stated at fair value and the related debt is as follows: June 30, 2015 June 30, 2014 Construction Funds: PHEFA, First Series of 2012 $ 7,581,000 $ 75,322,000 PHEFA, First Series of 2010A 1,694,000 2,758,000 THHEFAP, First Series of 2012 (TUHS) 26,962,000 39,094,000 $ 36,237,000 $ 117,174,000 Debt Repayment Funds: THHEFAP, First Series of 2012 (TUHS) $ 45,475,000 $ 36,403,000 THHEFAP, First Series of 2007 (TUHS) 29,725,000 29,756,000 $ 75,200,000 $ 66,159,000 Capitalized Interest Fund: THHEFAP, First Series of 2012 (TUHS) $ 0 $ 1,449,000 $ 0 $ 1,449,000 Total Deposits with Trustees $ 111,437,000 $ 184,782,000 16

19 Note F. Property, Plant and Equipment Property, plant and equipment are summarized as follows: June 30, 2015 June 30, 2014 Land and land improvements $ 96,822,000 $ 72,738,000 Land - Commonwealth of Pennsylvania 12,442,000 12,445,000 Buildings 1,876,367,000 1,742,465,000 Buildings - Commonwealth of Pennsylvania 232,135, ,378,000 Equipment and library books 1,063,550,000 1,011,576,000 Equipment - Commonwealth of Pennsylvania 34,549,000 36,163,000 Construction in progress 78,103, ,495,000 3,393,968,000 3,249,260,000 Less accumulated depreciation (1,622,629,000) (1,520,014,000) Property, plant and equipment, net $ 1,771,339,000 $ 1,729,246,000 Property, plant and equipment are stated at cost or, if acquired by gift at the fair value at the date of acquisition. Buildings and equipment are depreciated primarily by the straight-line method over their estimated useful lives. Estimated useful lives are as follows: land improvements, 15 years; buildings, between 20 and 40 years; leasehold improvements, the lesser of the asset life or term of the lease; and equipment and library books, between 3 and 20 years. Depreciation expense was $137,996,000 and $130,491,000 in 2015 and 2014, respectively. Note G. Debt ********************************* June 30, 2015 June 30, 2014 Long-term debt: American Athletic Conference interest free loan, paid June 2015 $ 1,000,000 TUHS Equipment Financing Arrangement with varying amounts due between 2016 and 2020 with stated rates of 1.34% and 3.80% $ 11,358,000 11,464,000 EH Episcopal Hospital Foundation loan due December 2020 with a stated rate of 4.00% 3,294,000 3,819,000 PHEFA Temple University Revenue Bonds, First Series of 2006, net of unamortized premium 2015, $4,247,000; 2014, $4,681,000 with varying amounts due between 2016 and 2036 with stated rates between 4.50% and 5.00% at an effective rate for 2015 of 4.60%* 293,362, ,501,000 PHEFA Temple University Revenue Bonds, First Series of 2010A, net of unamortized premium 2015, $2,803,000; 2014, $2,893,000; with varying amounts due between 2016 and 2021 with stated rates between 4.00% and 5.00% at an effective rate for 2015 of 3.88%* 21,258,000 27,423,000 PHEFA Temple University Revenue Bonds, First Series of 2010B, with varying amounts due between 2016 and 2040 with stated rates between 4.21% and 6.29% at an effective rate for 2015 of 3.83%* 143,590, ,590,000 PHEFA Temple University Revenue Bonds, First Series of 2012, net of unamortized premium 2015, $23,373,000; 2014, $24,315,000 with varying amounts due between 2016 and 2042 with a stated rates between 4.00% and 5.00% at an effective rate for 2015 of 3.91%* 211,788, ,170,000 THHEFAP TUHS Hospital Revenue Bonds, Series A and B of 2007, net of unamortized discount 2015, $609,000; 2014, $653,000, with varying amounts due between 2016 and 2035 with stated rates of 5.00% and 5.50% at an effective rate for 2015 of 5.26%** 205,815, ,267,000 17