(1) Summary of Significant Accounting Policies

(a) General
Johns Hopkins University is a private, nonprofit institution that provides education and related services to students and others, research and related services to sponsoring organizations and professional medical services to patients. The University is based in Baltimore, Maryland, but also maintains facilities and operates education programs elsewhere in Maryland, in Washington, D.C. and, on a more limited scale, in certain foreign locations.
     Education and related services (e.g., room, board, etc.) are provided to approximately 19,000 students, including 10,200 full-time students and 8,800 part-time students, and produce about 12% of the University’s operating revenues. The full-time students are divided about equally between graduate level (including postdoctoral) and undergraduate level. Students are drawn from a broad geographic area, including most of the states in the United States and numerous foreign countries. The majority of the part-time students are graduate level students from the Baltimore-Washington, D.C. area.
     Research and related services (e.g., research training) are provided to more than 1,340 government and private sponsors. Grants, contracts and similar agreements produce about 55% of the University’s operating revenues. Approximately 90% of the revenues from research services come from departments and agencies of the United States Government. Major government sponsors include the Department of Health and Human Services, the Department of Defense, the National Aeronautics and Space Administration and the Agency for International Development; these sponsors provided approximately 36%, 33%, 8% and 8%, respectively, of revenues from grants, contracts and similar agreements in 2001.
     Professional medical services are provided by members of the University’s faculty to patients at Johns Hopkins Hospital and other hospitals and outpatient care facilities in the Baltimore area and produce about 9% of the University’s operating revenues. The patients are predominantly from the Baltimore area, other parts of Maryland or surrounding states.

(b) Basis of Presentation
The financial statements include the accounts of the various academic and support divisions, the Applied Physics Laboratory (APL), the Johns Hopkins University Press and affiliated organizations which are controlled by the University, including JHPIEGO Corporation, Peabody Institute of the City of Baltimore and the Fund for Johns Hopkins Medicine. Investments in organizations which the University does not control, including Dome Corporation, Johns Hopkins Healthcare LLC and Johns Hopkins Home Care Group, Inc., are accounted for using the equity method. Certain amounts for 2000 have been reclassified to conform to the presentation for 2001.
     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingencies at the date of the financial statements and revenues and expenses recognized during the reporting period. Actual results could differ from those estimates.
     Net assets, revenues and gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the University are classified and reported as follows:

Permanently restricted—Net assets subject to donor-imposed stipulations that they be maintained permanently by the University. Generally, the donors of these assets permit the University to use all or part of the income earned on related investments for general or specific purposes, primarily divisional and departmental support and student financial aid.
Temporarily restricted—Net assets subject to donor-imposed stipulations that may or will be met by actions of the University and/or the passage of time.
Unrestricted—Net assets that are not subject to donor-imposed stipulations.

     Revenues are reported as increases in unrestricted net assets unless the use of the related assets is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulations or by law. Expirations of temporary restrictions recognized on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications from temporarily restricted net assets to unrestricted net assets. Temporary restrictions on gifts to acquire long-lived assets are considered met in the period in which the assets are acquired or placed in service.

(c) Contributions
Contributions, including unconditional promises to give, are recognized as revenues in the appropriate category of net assets in the period received, except that contributions which impose restrictions that are met in same fiscal year they are received are included in unrestricted revenues. Contributions received for capital projects or perpetual or term endowment funds and contributions under split interest agreements or perpetual trusts are reported as nonoperating revenues. All other contributions are reported as operating revenues. Changes in the nature of any restrictions on contributions due to amendments to agreements with donors are recognized by adjusting operating and nonoperating contribution revenues in the period in which the amendments are approved. Conditional promises to give are not recognized until the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value at the date of gift, except that contributions of works of art, historical treasures and similar assets held as part of collections are not recognized or capitalized.
     Allowance is made for uncollectible contributions receivable based upon management’s judgment and analysis of the creditworthiness of the donors, past collection experience and other relevant factors. Estimated collectible contributions to be received after one year are discounted using a risk-free rate for the expected period of collection. Amortization of the discount is recorded as additional contribution revenue.

(d) Cash and Cash Equivalents
Short-term investments with maturities at dates of purchase of three months or less are classified as cash equivalents, except that any such investments purchased with funds on deposit with bond trustees, with funds held in trusts by others or by external endowment investment managers are classified with the applicable assets. Cash equivalents include short-term U.S. Treasury securities and other highly liquid investments and are carried at cost which approximates fair value.

(e) Investments
Investments are stated at their fair values which are generally determined based on quoted market prices or estimates provided by external investment managers or other independent sources. In the limited cases where such values are not available, historical cost is used as an estimate of fair value.
Assets of pooled endowment and similar funds are invested on the basis of a total return policy to provide income and to realize appreciation in investment values. Realized investment gains of these funds may be used to support operations provided that the funds have market values in excess of their historical values. The endowment investment pool payout was approximately 4.5% of average market values in 2001 and 2000.
     Investment income included in operating revenues consists of income and realized gains and losses on investments of working capital and nonpooled endowment funds (except where restricted by donors) and the annual appropriation of income and realized gains for pooled endowment and similar funds approved by the Board of Trustees. All unrealized gains and losses, any difference between the income and realized gains earned and the appropriated amount for pooled endowment and similar funds and income and realized gains restricted by donors are reported as nonoperating revenues.

(f) Investment in Plant Assets
Investments in plant assets are stated at cost or at estimated fair value if acquired by gift, less accumulated depreciation and amortization. Depreciation of buildings, equipment and library collections and amortization of leasehold improvements are computed using the straight-line method over the estimated useful lives of the assets. Land and certain historic buildings are not subject to depreciation. Title to certain equipment purchased using funds provided by government sponsors is vested in the University. Such equipment is included in investment in plant assets. Certain facilities and equipment used by the APL in connection with its performance under agreements with the United States Government are owned by the government. These facilities and equipment are not included in the balance sheet; however, the University is accountable to the government for them.

(g) Split Interest Agreements and Perpetual Trusts
The University’s split interest agreements with donors consist primarily of irrevocable charitable remainder trusts for which the University serves as trustee. Assets held in these trusts are included in investments. Contribution revenues are recognized at the date the trusts are established after recording liabilities for the present value of the estimated future payments to be made to the donors and/or other beneficiaries. The liabilities are adjusted during the terms of the trusts for changes in the values of the assets, accretion of the discounts and other changes in estimates of future benefits.
     The University is also the beneficiary of certain perpetual trusts held and administered by others. The present values of the estimated future cash receipts from the trusts are recognized as assets and contribution revenues at the dates the trusts are established. Distributions from the trusts are recorded as contributions and the carrying value of the assets is adjusted for changes in estimates of future receipts.

(h) Insurance
The University, together with other institutions, has formed captive insurance companies which arrange and provide professional liability, general liability and property damage insurance for their shareholders. Defined portions of claims paid by these companies are self-insured. The University’s annual payments to the companies for insurance coverage are based on actuarial studies and are included in operating expenses.

(i) Affiliated Institutions
The University has separate administrative agreements for the exchange of services with Johns Hopkins Hospital (Hospital) and other medical and educational institutions. Costs incurred by the University in providing services to these institutions and the related reimbursements are reported as operating expenses and revenues, respectively, in the appropriate object and source classifications. Costs incurred by the University for services provided by these institutions are reported as operating expenses in the appropriate classifications.
     The University holds and manages endowment and similar funds which were designated by the donors for purposes or activities that are carried out by the Hospital. These funds are included in investments and other long-term liabilities. The liabilities are adjusted for earnings from and changes in the fair values of the investments.

(j) Fair Values of Financial Instruments
Fair values of financial instruments approximate their carrying values in the financial statements, except for indebtedness for which fair value information is provided in note 7.

(k) Sponsored Projects
Revenues under grants, contracts and similar agreements with sponsoring organizations are recognized as expenditures are incurred for agreement purposes. These revenues include recoveries of facilities and administrative costs which are generally determined as a negotiated or agreed-upon percentage of direct costs, with certain exclusions. Facilities and administrative cost recovery revenues for the academic and support divisions of the University were $170,669,000 in 2001 and $150,958,000 in 2000.

(l) Student Financial Aid
The University provides financial aid to eligible students, generally in a “package” that includes loans, compensation under work-study programs and/or grant and scholarship awards. The loans are provided primarily through programs of the United States Government (including direct and guaranteed loan programs) under which the University is responsible only for certain administrative duties. The grants and scholarships include awards provided from gifts and grants from private donors, income earned on endowment funds restricted for student aid and general funds. Grant and scholarship awards were $96,644,000 in 2001 and $89,963,000 in 2000 and are netted against tuition and fees revenues.

(m) Income Taxes
The University is qualified as a not-for-profit organization under section 501(c)(3) of the Internal Revenue Code, as amended. Accordingly, it is not subject to income taxes except to the extent it has taxable income from businesses that are not related to its exempt purpose.

(n) Derivative Financial Instruments
Effective July 1, 2000, the University adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. This Statement requires that all derivatives be measured at fair value and that they be recognized in the balance sheet as assets or liabilities. There was no cumulative effect at July 1, 2000 of adoption of this Statement as all of the derivative instruments held by the University at that date (consisting of futures and forward currency contracts) were stated at fair value in accordance with the applicable authoritative guidance. The effect of adoption in 2001, relating to the accounting for an interest rate swap agreement entered into in April 2001, was not material.
     The University’s external investment managers are authorized to use specified derivative financial instruments, including futures and forward currency contracts, in managing the assets under their control, subject to restrictions and limitations adopted by the Board of Trustees.
     Futures contracts, which are commitments to buy or sell designated financial instruments at a future date for a specified price, may be used to adjust asset allocation, neutralize options in securities or construct a more efficient portfolio. The managers have made limited use of exchange-traded interest rate futures contracts. Margin requirements are met in cash; however, the managers settle their positions on a net basis and, accordingly, the cash requirements are substantially less than the contract amounts. Forward currency contracts, which are agreements to exchange designated currencies at a future date at a specified rate, may be used to hedge currency exchange risk associated with investments in fixed-income securities denominated in foreign currencies and investments in equity securities traded in foreign markets. The managers settle these contracts on a net basis and, accordingly, the cash requirements are substantially less than the contract amounts. Changes in the market value of the futures and forward currency contracts are included in investment income and were not significant in 2001 and 2000.
     The University makes limited use of interest rate swap agreements to manage interest rate risk associated with variable rate debt. Under interest rate swap agreements, the University and the counterparties agree to exchange the difference between fixed rate and variable rate interest amounts calculated by reference to specified notional principal amounts during the agreement period. Notional principal amounts are used to express the volume of these transactions, but the cash requirements and amounts subject to credit risk are substantially less. Amounts receivable or payable under swap agreements are accounted for as adjustments to interest expense on the related debt.
     Parties to interest rate exchange agreements are subject to market risk for changes in interest rates and risk of credit loss in the event of nonperformance by the counterparty. The University does not require any collateral under these agreements, but deals only with highly rated financial institution counterparties and does not expect that any counterparties will fail to meet their obligations.

(2) Applied Physics Laboratory (APL)

The APL is engaged in research and development work principally under an omnibus contract with the Naval Sea Systems Command of the United States Navy (NAVSEA). Revenues and expenses under the contract with NAVSEA and contracts with other agencies of the United States Government represent substantially all of the revenues and expenses of the APL. The omnibus contract and other contracts define reimbursable costs and provide for fees to the University. The omnibus contract also requires that a portion of the fees earned by the University thereunder be retained and used for various APL-related purposes.
     The current contract with NAVSEA expires on September 30, 2002. University management expects that a contractual relationship with the United States Navy will continue after expiration of the current contract.
     In accordance with an agreement between the United States Government and the University, the APL has been designated a national resource. Under the agreement, if the University should determine that is can no longer sponsor the APL or the Secretary of the Navy should determine that the Navy can no longer contract with the University with respect to the APL, the University will establish a charitable trust to provide for the continued availability of the APL. The trust would be administered by five trustees and the corpus would consist of the University’s interest in the APL facilities, including land to the extent necessary, and the balances in the University’s APL stabilization, contingency and research fund on the date the trust is established, less certain costs. Upon termination of the trust, the corpus, in whole or in part, would be returned to and held and used by the University for such educational or research purposes and in such manner as the trustees and University agree.
     The APL stabilization, contingency and research fund is included in unrestricted net assets and was approximately $209,046,000 and $195,586,000 at June 30, 2001 and 2000, respectively, including net investments in property and equipment of $92,390,000 and $89,011,000, respectively. At June 30, 2001, APL purchase and subcontract commitments were approximately $62,000,000.

(3) Accounts Receivable

Accounts receivable, net, are summarized as follows at June 30 (in thousands):

(4) Contributions Receivable

Contributions receivable, net, are summarized as follows at June 30 (in thousands):

     At June 30, 2001, approximately 57% of the gross contributions receivable were due from ten donors. At June 30, 2000, approximately 30% of the gross contributions receivable were due from eleven donors. Approximately 66% and 29% of contribution revenues for 2001 and 2000, respectively, were from ten donors. At June 30, 2001, the University had also received bequest intentions of approximately $85,675,000 and certain other conditional promises to give. These intentions and conditional promises to give are not recognized as assets and, if they are received, they will generally be restricted for specific purposes stipulated by the donors, primarily endowments for faculty support, scholarships or general operating support of a particular department or division of the University.

(5) Investments

Investments are summarized as follows at June 30 (in thousands):

     Investments are professionally managed, primarily by outside investment organizations, subject to direction and oversight by a committee of the Board of Trustees. The Board has established investment policies and guidelines which cover asset allocation and performance objectives and impose various restrictions and limitations on the managers. These restrictions and limitations are specific to each asset classification and cover concentrations of market risk (at both the individual issuer and industry group levels), credit quality of fixed-income and short-term investments, use of derivative securities, investments in foreign securities and various other matters.
     Investment income is summarized as follows for the years ended June 30 (in thousands):

     Investment income is classified in the statements of activities as follows for the years ended June 30 (in thousands):

     At June 30, 2001 and 2000, assets of endowment and similar funds, including cash and cash equivalents and investments, amounted to $1,760,356,000 and $1,787,752,000, respectively. Substantially all assets of endowment and similar funds and certain other assets are combined in a common investment pool known as the Endowment Investment Pool (EIP). Purchases and disposals of shares in the EIP are made based on the market value per share at the end of the quarter during which the transaction takes place. At June 30, 2001 and 2000, assets of the EIP, including cash and cash equivalents and investments, amounted to $1,819,555,000 and $1,803,289,000, respectively.
      At June 30, 2001 and 2000, other investments include $89,498,000 and $106,860,000, respectively, of investments held by the University under deferred compensation agreements. Such amounts approximate the University’s related liabilities to employees which are included in obligations under deferred compensation agreements and other long-term liabilities. At June 30, 2001, investments having a fair value of $9,270,000 were pledged as security for the payment of unemployment claims. At June 30, 2001, commitments for purchases of investments were approximately $81,437,000.

(6) Investment in Plant Assets

Investment in plant assets, net, is summarized as follows at June 30 (in thousands):

(7) Debt

Debt is summarized as follows at June 30 (in thousands):

Bonds payable consist of the following at June 30 (in thousands):

      The bonds payable outstanding at June 30, 2001, are unsecured general obligations of the University. The loan agreement relating to the Revenue Bonds of 1983 provides for limitations on the amount of indebtedness the University may incur.
      In August 2001, MHHEFA issued an additional series of refunding revenue bonds (2001B bonds) aggregating $85,775,000 on behalf of the University. The proceeds of the 2001B bonds were used to refinance the Revenue Bonds of 1999. The series 2001B bonds are unsecured, bear interest at an effective rate of 5.15% and mature on July 31, 2041. The University will recognize an extraordinary loss of approximately $9,000,000 on the early extinguishment of the Revenue Bonds of 1999 in 2002.
      Certain MHHEFA revenue bonds were advance refunded in 1988 using proceeds of an issue of bonds that was later refinanced. The net proceeds were irrevocably placed in trust pursuant to escrow agreements and used to purchase government securities which are payable as to principal and interest at such times and in such amounts as to pay all principal and interest on the refunded bonds. Accordingly, these bonds are considered to have been extinguished and neither the debt ($33,135,000 at June 30, 2001) nor the irrevocable trusts are included in the balance sheet.
      Notes payable consist of the following at June 30 (in thousands):

      The MHHEFA notes are part of a pooled loan program. The notes are unsecured general obligations of the University and bear interest at a variable rate (3.40% at June 30, 2001). Under terms of the loan agreements, the University may be required to provide security for the loans in certain circumstances.
      The notes due June 2002, December 2002 and June 2012 are unsecured general obligations of the University. Under terms of the related loan agreements, the University may be required to provide security for the loans in certain circumstances. The notes due July 2004 and December 2019 are secured by certain of the University’s property.
      The commercial paper revenue notes were issued by MHHEFA. Under the commercial paper program, the University may have revenue notes outstanding of up to $80,000,000 to finance and refinance the costs of qualified projects to July 2031. The notes are unsecured, bear interest at rates that are fixed at the date of issue and may have maturities up to 270 days from that date. The notes outstanding at June 30, 2001, bear interest at a weighted-average rate of 3.24%.
      In April 2001, the University entered into an interest rate swap agreement with a national bank to reduce its interest rate risk on a portion of the commercial paper revenue notes. The agreement extends through April 2007 and provides for the University to pay a fixed rate of 5.414% and receive a variable rate based on a notional principal amount of $20,100,000.
      The aggregate annual maturities of the bonds and notes payable for the five years subsequent to June 30, 2001 are as follows: 2002, $14,850,000; 2003, $24,306,000; 2004, $16,772,000; 2005, $14,451,000; and 2006, $15,359,000.
      Total interest costs incurred and paid were $28,922,000 in 2001 and $28,426,000 in 2000, of which $514,000 and $2,653,000 was capitalized in 2001 and 2000, respectively. Interest income of $2,484,000 in 2001 and $2,480,000 in 2000 earned from the investment of the unexpended proceeds of certain borrowings has been applied to reduce the costs of the related assets acquired.
      Under terms of a master note agreement with a commercial bank, the University may borrow up to $50,000,000 under a line of credit for APL working capital purposes. Advances under the line of credit are unsecured, due on demand and bear interest a rate which varies based on certain specified market indices. No advances were outstanding at June 30, 2001 and 2000.
      The estimated fair value of the University’s debt is determined based on quoted market prices for publicly-traded issues and on the discounted future cash payments to be made for other issues. The discount rates used approximate current market rates for loans or groups of loans with similar maturities and credit quality. The carrying amount and estimated fair value of the University’s debt are summarized as follows at June 30 (in thousands):

      Fair value estimates are made at a specific point in time, are subjective in nature and involve uncertainties and matters of judgment. The University is not required to settle its debt obligations at fair value and settlement is not possible in some cases because of the terms under which the debt was issued.

(8) Refundable Advances from the United States Government

Funds provided by the United States Government under the Federal Perkins, Nursing and Health Professions Student Loan programs are loaned to qualified students and may be reloaned after collections. These funds are ultimately refundable to the government and are included in obligations under deferred compensation agreements and other long-term liabilities. These advances totaled approximately $30,352,000 and $29,812,000 at June 30, 2001 and 2000, respectively.

(9) Net Assets

Under accounting principles generally accepted in the United States of America for external financial reporting by not-for-profit organizations, unrestricted net assets are those which are not subject to donor-imposed restrictions. The practices used by the University for internal financial management and reporting purposes differ in certain respects from the practices prescribed for external financial reporting purposes, particularly with respect to the timing of recognition of the release of donor-imposed restrictions on contributions and related investment income and gains. In addition, certain net assets classified as unrestricted for external financial reporting purposes are designated for specific uses.
      Unrestricted net assets consist of the following at June 30 (in thousands):

Temporarily restricted new assets consist of the following at June 30 (in thousands):

Permanently restriced new assets consist of the following at June 30 (in thousands):

(10) Affiliated Organizations

The Johns Hopkins Health System Corporation (JHHS)
JHHS is incorporated and governed separately from the University and is the parent entity of an academically-based health system which includes The Johns Hopkins Hospital, The Johns Hopkins Bayview Medical Center, Howard County General Hospital and other related organizations. The University and JHHS have established a Board of Johns Hopkins Medicine (JHM) to direct, integrate and coordinate the clinical activities of the two organizations. JHM does not have the authority to incur debt or issue guarantees and its annual budgets require the approval of the boards of trustees of both the University and JHHS.

The Johns Hopkins Hospital (Hospital)
The Hospital is a member of JHHS and serves as the primary teaching facility of the University’s School of Medicine. Because of the closely related nature of their operations, the University and Hospital share facilities and provide services to each other to fulfill their purposes more effectively. The sharing of facilities and services is negotiated annually and set forth in a Joint Administrative Agreement (JAA). Costs charged to the Hospital under the JAA, related primarily to the provision of professional medical services by the University, aggregated approximately $68,000,000 in 2001 and 2000. Costs charged to the University under the JAA, related primarily to rental of space in Hospital facilities under a renewable one-year lease, aggregated approximately $43,600,000 in 2001 and $42,900,000 in 2000.

Dome Corporation (Dome)
Dome is a for-profit, corporate joint venture of the University and JHHS which is 50% owned by each institution. Dome provides property management and development and certain other services to its owners and others. Costs charged to the University by Dome and its affiliates, related primarily to property rentals and management services, aggregated approximately $13,100,000 in 2001 and $13,300,000 in 2000.

(11) Pension and Postretirement Benefit Plans

The University has several pension plans, primarily defined contribution plans, that are available to substantially all full-time employees. The policy of the University is to fund pension costs as accrued. Pension expense was $52,416,000 in 2001 and $52,217,000 in 2000, including $16,888,000 and $19,792,000, respectively, related to pension plans for employees at APL.
      The University has a retiree benefits plan that provides postretirement medical benefits to employees who meet specified minimum age and service requirements at the time they retire. The University pays a portion of the cost of participants’ medical insurance coverage. The University’s portion of the cost for an individual participant depends on various factors, including the age, years of service and time of retirement or retirement eligibility of the participant. The University has established a trust fund for its retiree benefits plan and intends to make contributions to the fund approximately equal to the annual net postretirement benefit cost, including amortization of the transition obligation over a period of 20 years from July 1, 1993.
      Information relating to the obligations, assets and funded status of the plan at June 30, 2001 and 2000 and for the years then ended is summarized as follows (in thousands):

      The plan assets consist primarily of investments in mutual funds managed by an independent investment management organization.
      The rates of increase in health care costs were assumed to decrease to 5.25% in 2003 and to remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the reported postretirement benefit cost and obligation. A one-percentage point change in the assumed rates used at June 30, 2001 would have the following effects (in thousands):

      The postretirement benefit cost includes the following components for the years ended June 30 (in thousands):

(12) Functional Expense Information

Operating expenses by function are summarized as follows for the years ended June 30 (in thousands)