(1) Summary of Significant Accounting Policies
General
Johns Hopkins University is a private, nonprofit institution of
higher education based in Baltimore, Maryland. The University
provides education and training services, primarily for students
at the undergraduate, graduate and postdoctoral levels, and
performs research, training and other services under grants,
contracts and similar agreements with sponsoring organizations,
primarily departments and agencies of the United States
Government. Certain members of the faculty also provide
professional medical services to patients at The Johns Hopkins
Hospital and other hospitals in the Baltimore area.
Basis of presentation
The financial statements include the accounts of the various
academic and administrative divisions, the Applied Physics
Laboratory (APL), The Johns Hopkins University Press and certain
affiliated organizations which are controlled by the University,
including JHPIEGO Corporation and Peabody Institute of the City
of Baltimore.
In accordance with accounting principles for universities, resources available for particular purposes or objec- tives are classified into funds. Funds having similar purposes or objectives and the related financial transactions are combined and reported by fund groups. Within each fund group, restricted and unrestricted fund balances are identified separately. Restricted funds are those provided by external sources to be expended only for specific purposes, such as research, training, faculty support, scholarships or operating support of a particular department or division of the University. Restricted funds may be used only for the purposes established by the external sources. In contrast, the Board of Trustees retains full control over unrestricted funds and may use them for any institutional purposes. Substantially all of the University's unrestricted funds have been designated for specific purposes.
Funds received for restricted purposes are recorded initially as additions to the appropriate restricted fund balances. Restricted revenues and expenditures are recognized in the periods that the funds are used for the restricted purposes. Reimbursements of research support costs under grants, contracts and similar agreements are recorded as unrestricted revenues.
Agreements with affiliated institutions
The University has separate administrative agreements for the
exchange of services with The Johns Hopkins Hospital and certain
other medical and educational institutions. Costs incurred by the
University in providing services to these institutions and the
related reimbursements are reported as restricted current
funds expenditures and revenues, respectively, in the appropriate
functional and source classifications in the financial
statements. Costs incurred by the University for services
procured from these institutions are reported as current funds
expenditures in the appropriate functional classifications in the
financial statements.
Endowment and similar funds
Endowment and similar funds include gifts and bequests received
from various donors which are classified as follows:
The University's investment managers use foreign currency forward contracts to hedge the currency exchange risk associated with investments in foreign debt securities. Changes in the market value of the contracts are recognized as reductions in exchange gains or losses on the related investments.
Temporary investments include short-term U.S. Treasury securities and other short-term, highly liquid investments and are carried at cost which approximates market value.
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 accumulated by these funds may be used to support operations. Such gains are allocated only to pooled funds which have a market value in excess of historical value and are used in accordance with the same restrictions, if any, imposed by donors on the use of income earned by the endowment funds.
Receivables
Receivables under research and training agreements consist
primarily of awards committed to the University under grants,
contracts and similar agreements with government agencies,
corporations, foundations and others. These receivables will be
collected as expenditures are made by the University in
accordance with the related agreements. The terms of these
agreements are normally for one year. Receivables under pledge
agreements with donors are recorded at their estimated net
realizable value. Conditional pledges, bequests and similar gifts
are not recorded until received, as it is not practical to
estimate their net realizable value.
Government loan funds
Funds provided by the United States Government under the Perkins
and Health Professions Student Loan programs are loaned to
qualified students and may be reloaned after collections. Such
funds are ultimately refundable to the government.
Investment in plant
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 and equipment and
amortization of leasehold improvements are computed using the
straight-line method over the estimated useful lives of the
assets and are charged to the net investment in plant fund
balance. Land, library collections and certain historic buildings
are not subject to depreciation.
Title to certain equipment purchased using funds provided by government granting or contracting agencies is vested in the University. Such equipment is included in investment in plant assets. Equipment assets are subject to inventory controls and counts and inspections are performed periodically as the basis for adjusting the inventory records and the carrying value of the 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.
Insurance
The University, together with certain other institutions, has
formed captive insurance companies which provide and arrange
professional 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 charged to current funds expenditures.
(2) Applied Physics Laboratory (APL)
The APL is engaged in research and development work principally under an omnibus contract with the Space and Naval Warfare Systems Command of the United States Navy (SPAWAR). The contract defines reimbursable costs and provides for a fee to the University. Revenues and expenditures under the contract with SPAWAR and contracts with other agencies of the United States Government represent substantially all of the contract revenues and expenditures of the APL.
In October 1994, the University and SPAWAR reached agreement on the principal terms of a new omnibus contract. The new contract will be effective from October 1, 1994 and have a term of one year, subject to renewal for up to two years at the option of SPAWAR.
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 it 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 thereof 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 as determined by the University. Upon termination of the trust, the corpus thereof, in whole or in part as determined by the trustees, 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 shall agree.
The APL stabilization, contingency and research fund consists of the following fund balances in the balance sheet at June 30, 1994 (in thousands):
| Current funds | $37,033 |
| Quasi-endowment fund-restricted | 40,125 |
| Net investment in plant | 70,127 |
| Total stabilization, contingency and research fund |
$147,285 |
(3) Affiliated Organizations
The Johns Hopkins Hospital (Hospital)
The Hospital is a member of The Johns Hopkins Health System
(JHHS) and is incorporated, governed and operated separately from
the University; however, the University and Hospital maintain a
close relationship and share facilities and provide services to
each other in order to fulfill more effectively their respective
corporate purposes.
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 $34,600,000 in 1994 ($32,600,000 in 1993). Costs charged to the University under the JAA, related primarily to rental of Hospital facilities under a renewable one- year lease, aggregated approximately $28,300,000 in 1994 ($25,600,000 in 1993).
Certain University endowment funds with an aggregate historical book value of $5,734,000 are held for the benefit of the Hospital. These funds represent equity in the endowment investment pool having a market value of $40,624,000 at June 30, 1994 ($40,835,000 at June 30, 1993), and related income earned during 1994 of $1,751,000 ($1,786,000 in 1993) has been paid to the Hospital in accordance with the terms of the endowments.
Dome Corporation (Dome)
Dome is a for-profit, corporate joint venture of the University
and JHHS which provides property management and development and
certain other services to its owners and others. Costs charged to
the University by Dome, related primarily to property rentals and
management services, aggregated approximately $10,500,000 in 1994
($9,900,000 in 1993). The University has guaranteed payment of up
to $2,500,000 of debt obligations Dome may incur under
terms of a credit enhancement agreement relating to the financing
of certain properties and, together with JHHS, has agreed to
provide Dome with funds required, if any, to meet its obligations
under the agreement.
(4) Investments
The market values of investments are generally determined based on quoted market prices or estimated fair values provided by external investment managers or other sources. In the limited cases where such values are not available, carrying value is used as an estimate of market value.
At June 30, 1994, cash, temporary investments and investments of current funds (including such funds' share of the endowment investment pool) amounted to $220,294,000 at cost with a market value of $219,389,000 ($202,614,000 at cost with a market value of $208,978,000 at June 30, 1993); cash, temporary investments and investments of annuity and similar funds (including such funds' share of the endowment investment pool) amounted to $57,928,000 at cost with a market value of $60,663,000 ($51,776,000 at cost with a market value of $58,348,000 at June 30, 1993); and assets of endowment and similar funds, including cash and temporary investments and loans to other funds, amounted to $702,893,000 at cost with a market value of $746,777,000 ($666,366,000 at cost with a market value of $725,637,000 at June 30, 1993).
Certain assets of endowment and similar funds are combined in a common investment pool known as the Endowment Investment Pool (EIP). Each individual fund purchases or disposes of shares on the basis of the market value per share at the end of the quarter during which the transaction takes place. At June 30, 1994, assets of the EIP, including cash and temporary investments and loans to other funds, amounted to $651,678,000 at cost with a market value of $698,428,000 ($621,262,000 at cost with a market value of $678,364,000 at June 30, 1993). During 1994, net investment income of the EIP amounted to $29,305,000 ($26,952,000 in 1993) and the realized net gain on security transactions amounted to $11,854,000 ($32,119,000 in 1993).
| Investments | Carrying value | Market value |
|---|---|---|
| Current funds: | ||
| -- Debt securities | $96,082 | 95,060 |
| -- Other | 70,643 | 70,146 |
| -- Subtotal | 166,725 | 165,206 |
| Endowment and similar funds: | ||
| -- Debt securities | 297,888 | 289,609 |
| -- Common and preferred stocks | 275,061 | 296,943 |
| -- Limited partnership and similar interests | 52,518 | 84,648 |
| -- Mortgages and notes receivable and other | 14,041 | 13,895 |
| -- Subtotal | 639,508 | 685,095 |
| Annuity and similar funds: | ||
| -- Debt securities | 33,095 | 34,548 |
| -- Debt securities | 16,373 | 16,600 |
| -- Common stocks | 49,468 | 51,148 |
| Total | 855,701 | 901,449 |
At June 30, 1994, other investments of current funds include $55,675,000 ($53,084,000 at June 30, 1993) of investments held by the University under deferred compensation agreements. Such amount approximates the University's related liability to employees which is included in accounts payable and accrued expenses in the balance sheet.
At June 30, 1994, debt securities investments of endowment and similar funds include foreign bonds with a carrying value of $31,932,000. At that date, the University held short positions in foreign currency forward contracts totalling $33,847,000 which expire at various dates to September 1994. The University settles its forward positions on a net basis and, accordingly, the cash flows relating to these contracts are substantially less than the contract amounts.
Pursuant to provisions of the Maryland Unemployment Insurance Law, investments having a market value at June 30, 1994 of $6,094,000 have been pledged as security for the payment of claims, in lieu of contributions (unemployment taxes) to the Unemployment Trust Fund. Investments having a market value at June 30, 1994 of $8,279,000 have been pledged as security for certain bonds and notes payable as described in note 7. Investments having a market value at June 30, 1994 of $4,428,000 have been pledged as security for certain indebtedness of the Hospital.
Accounts Receivable
Accounts receivable, net, are summarized as follows at June 30, 1994 and 1993 (in thousands):
| Accounts Receivable, Net | 1994 | 1993 |
|---|---|---|
| Reimbursement of costs incurred under government grants and cotnracts, primarily APL | $57,379 | 56,398 |
| Affiliated institutions, primarily The Johns Hopkins Hospital | 6,531 | 7,941 |
| Students and others | 17,525 | 16,555 |
| Subtotal | 81,435 | 80,894 |
| Less allowance for doubtful accounts | 628 | 537 |
| Subtotal | 80,807 | 80,357 |
| Medical services to patients, less allowances of $33,700 in 1994 and $34,100 in 1993 | 38,000 | 37,978 |
| Total | $118,807 | 118,335 |
(6) Plant Funds
Deposits with Bond Trustees
Deposits with bond trustees consist of debt service funds and the
unexpended proceeds of certain bonds payable. These funds are
invested in short-term, highly liquid securities and will be used
for construction of or payment of debt service on certain
facilities.
Plant Facilities
Investment in plant assets, net, is summarized as follows at June
30, 1994 and 1993 (in thousands):
| Investment in Plant Assets, Net | 1994 | 1993 |
|---|---|---|
| Land | $34,312 | 34,043 |
| Land improvements | 14,752 | 13,591 |
| Buildings and leasehold improvements | 762,972 | 749,224 |
| Equipment | 315,777 | 294,451 |
| Library collections | 71,692 | 66,783 |
| Construction in progress | 10,208 | 14,535 |
| Subtotal | 1,209,713 | 1,172,627 |
| Less accumulated depreciation and amortization | 451,678 | 398,754 |
| Total | $758,035 | 773,873 |
A summary of sources of funds for additions to plant assets for the years ended June 30, 1994 and 1993 is as follows (in thousands):
| Funds for Additions to Plant Assets | 1994 | 1993 |
|---|---|---|
| Current funds expenditures | $43,689 | 42,534 |
| Transfers from unexpended plant funds | 6,493 | 9,397 |
| Proceeds from indebtedness (expended portion) | 6,315 | 25,213 |
| Subtotal | 56,497 | 77,144 |
| Less disposals of assets | 19,411 | 9,752 |
| Total | $37,086 | 67,392 |
(7) Indebtedness
Current Funds
Under terms of a master note agreement with a commercial bank,
the University may borrow up to $30,000,000 under a line of
credit for APL working capital purposes. Borrowings are
unsecured, due on demand and bear interest at a rate which varies
based on certain specified market indices (5% at June 30, 1994).
There were no borrowings under the line of credit in 1994.
Plant Funds
Bonds payable:
The University is obligated with respect to the following issues of bonds payable at June 30, 1994 (in thousands):
Maryland Health and Higher Educational Facilities Authority (MHHEFA) issues:
| Revenue Bonds of 1979, 5.40% to 6.40% due January 2009 | $5,850 |
| Revenue Bonds of 1981, 59% of prime interest rate (4.28% at June 30, 1994) due October 1996 | 865 |
| Revenue Bonds of 1982, 59% of prime interest rate (4.28% at June 30, 1994) due July 1997 | 2,327 |
| Revenue Bonds of 1983, 6.00% to 9.88% due July 2013, net of unamortized discount of $2,270 | 30,410 |
| Revenue Bonds of 1985 (APL/STScI Project), 67.22% of prime interest rate (4.87% at June 30, 1994) due October 2000 | 5,615 |
| Revenue Bonds of 1985A, 6.00% due July 2015, net of unamortized discount of $2,743 | 7,917 |
| Revenue Bonds of 1985, 73.32% of prime interest rate (5.32% at June 30, 1994) due January 2001 | 6,500 |
| Refunding Revenue Bonds of 1988, 5.30% to 7.50% due July 2020, net of unamortized discount of $727 | 206,553 |
| Subtotal | 266,037 |
| Other issue--Fifth Off-Street Parking Serial Bonds, Series A, 4.26% due October 2009 | 269 |
| Total bonds payable | $266,306 |
The Revenue Bonds of 1979 are secured under a collateral security agreement which provides for a security interest in certain investment securities and requires that the market value of such securities exceed a specified level. At June 30, 1994, investment securities with a market value of $6,787,000 were held by the trustee under the agreement. The Revenue Bonds of 1981 and 1982 are secured under loan agreements which provide for mortgages on certain of the University's property and equipment. The Revenue Bonds of 1983, 1985(APL/STScI Project), 1985A, 1985 and 1988 are unsecured general obligations of the University. The loan agreements relating to the Revenue Bonds of 1983 and 1985A provide for limitations on the amount of indebtedness the University may incur. The Fifth Off-Street Parking Serial Bonds are secured by an easement and first lien on the related property.
The Refunding Revenue Bonds of 1988 were issued for the purpose of advance refunding portions of the Revenue Bonds of 1983 and 1985A. 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 portions of the Revenue Bonds of 1983 and 1985A. Accordingly, such portions of those Revenue Bonds are considered to have been extinguished and neither the indebtedness ($184,035,000 at June 30, 1994) nor the irrevocable trusts are included in the balance sheet.
Notes payable:
The University is obligated with respect to the following notes payable at June 30, 1994 (in thousands):
| MHHEFA issue: | |
| Notes due February 2001 | $1,305 |
| Note due November 2015 | 58,487 |
| Note due August 2016 | 8,187 |
| Note due November 2020 | 19,768 |
| Subtotal | 87,757 |
| Other issues: | |
| Note due June 2002, 10% | 9,819 |
| Note due December 2002, 7.91% | 12,390 |
| Note due July 2004, 3% (government subsidized effective rate) | 808 |
| Note due January 2012, 10% | 59 |
| Note due June 2012, 8.90% | 3,115 |
| Note due December 2019, 8.88% | 86,339 |
| Subtotal | 112,530 |
| Total notes payable | $200,287 |
The MHHEFA issues are part of a pooled loan program issue of MHHEFA. The notes are unsecured general obligations of the University and bear interest at a variable rate (3.66% at June 30, 1994). Under terms of the loan agreements, the University may be required to provide security for the loans in certain circumstances.
The other note issues 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 note due July 2004 is secured by mortgages on certain of the University's property and a collateral account with a trustee in which investment securities having a market value of $1,492,000 at June 30, 1994 have been deposited. The notes due January 2012 and December 2019 are secured by certain of the University's property.
The aggregate annual maturities of the bonds and notes payable (based on principal outstanding at June 30, 1994) for the five years subsequent to June 30, 1994 are as follows: 1995, $12,225,000; 1996, $13,078,000; 1997, $13,561,000; 1998, $14,430,000; and 1999, $13,293,000.
In accordance with Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," the estimated fair value of the University's indebtedness 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 value and estimated fair value of the University's indebtedness at June 30, 1994 are summarized as follows (in thousands):
| University's Indebtedness | Carrying Value | Estimated Fair Value |
|---|---|---|
| Variable rate loans | $103,063 | 103,063 |
| Fixed rate loans | 363,530 | 388,911 |
| Total | $466,593 | 491,974 |
Fair value estimates are made at a specific point in time, are subjective in nature and involve uncertainties and matters of judgement. The University is not required to settle its debt obligations at fair value and settlement is not possible in most cases because of the terms under which the debt was issued and legal limitations on refunding University tax-exempt debt.
Total interest costs incurred on plant funds indebtedness in 1994 were $32,738,000 ($33,542,000 in 1993) of which $32,636,000 has been included in current funds expenditures ($31,728,000 in 1993) and $102,000 ($1,814,000 in 1993) has been capitalized.
(8) 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 accrued. Pension expense for 1994 was $45,047,000, ($43,448,000 in 1993), including $18,347,000 ($18,248,000 in 1993) related to the 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 its annual net postretirement benefit cost, including amortization of the transition obligation over a period of 20 years. Contributions to the trust fund for benefits of participants who are or were employed at APL will begin October 1, 1994, the effective date of the new omnibus contract.
Prior to 1994, the University accounted for the cost of postretirement medical benefits on the cash basis. The cost of these benefits was not material in 1993. Effective July 1, 1993, the University adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires that postretirement benefits costs be recognized on the accrual basis as employees render the services required to be eligible for benefits.
The postretirement benefit cost for 1994 includes the following components (in thousands):
| Service cost | $1,974 |
| Interest cost on accumulated postretirement benefit obligation | 4,810 |
| Amortization of transition obligation at July 1, 1993 | 3,137 |
| Actual return on plan assets | (111) |
| Other, net | (82) |
| Total | $9,728 |
The status of the University's postretirement benefit plan at June 30, 1994 is summarized as follows (in thousands):
| Accumulated postretirement benefit obligation: | |
| -- Retirees and beneficiaries | $36,824 |
| -- Other fully eligible participants | 15,955 |
| -- Other active participants | 14,369 |
| -- Subtotal | 67,148 |
| Plan assets at fair value | (3,030) |
| Unrecognized net loss | (619) |
| Unrecognized transition obligation | (59,589) |
| Accrued postretirement benefit cost | $3,910 |
The transition obligation at July 1, 1993, is being amortized to postretirement benefit cost over 20 years. The discount rate used to calculate the accumulated postretirement benefit obligation was 8.25% at June 30, 1994. The trend rates for growth in health care costs used in the calculation were 12%15% for 1995 for participants under age 65 and 10% for 1995 for those over 65; these growth rates were assumed to decrease gradually to 6% in 2002 and to remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the postretirement benefit cost and obligation. An increase of 1% in the assumed annual health care cost trend rates would increase the aggregate service and interest cost components of postretirement benefit cost for 1994 by approximately $850,000 and increase the reported accumulated postretirement benefit obligation at June 30, 1994 by approximately $6,800,000. The plan assets consist primarily of investments in mutual funds managed by an independent investment management organization.
(9) Commitments
As described in note 3, the University leases certain facil-ities from the Hospital under a renewable one-year lease which provides for a rent equal to the cost to the Hospital of providing and maintaining the facilities. This lease has been renewed for the year ending June 30, 1995.
The University leases certain other facilities used in its academic and research operations under long-term operating leases expiring at various dates to 2014, subject to renewal options in certain cases. Certain of these facilities are leased from Dome and other affiliated organizations. The aggregate annual minimum rents to be paid to the expiration of the initial terms of these leases are as follows at June 30, 1994 (in thousands):
| Year | Affiliates | Other | Total |
|---|---|---|---|
| 1995 | $10,949 | 3,841 | 14,790 |
| 1996 | 8,444 | 3,106 | 11,550 |
| 1997 | 7,969 | 2,735 | 10,704 |
| 1998 | 7,986 | 2,350 | 10,336 |
| 1999 | 7,887 | 1,864 | 9,751 |
| After 1999 | 91,585 | 6,621 | 98,206 |
| Total | $134,820 | 20,517 | 155,337 |
At June 30, 1994, commitments relating to research and development work amounted to approximately $55,000,000 and commitments for purchases of investments amounted to approximately $33,200,000.
(10) Contingencies
Amounts received and expended by the University under various federal and state programs are subject to audit by governmental agencies. In the opinion of management, audit adjustments, if any, will not have a significant effect on the financial position of the University.
The University is a party to various litigation and other claims in the ordinary course of business. In the opinion of management, appropriate provision has been made for possible losses and the ultimate resolution of these matters will not have a significant effect on the financial position of the University.
(11) New Accounting Standards
In June 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 116, "Accounting for Contributions Received and Contributions Made" and Statement of Financial Accounting Standards No. 117, "Financial Statements of Not-for-Profit Organizations." Statement No. 116 establishes revised standards of accounting and reporting for contributions and applies to all entities that receive or make contributions. Statement No. 117 establishes revised standards for general purpose financial statements of not-for-profit organizations. The provisions of these Statements are effective with respect to the University for the fiscal year beginning July 1, 1995, with earlier application encouraged. The provisions of Statement No. 116 may be applied retroactively or by recognizing the cumulative effect of adoption in the year of change. Under either method, provisions of the Statement relating to recognition of expirations of donor-imposed restrictions may be applied prospectively. The University intends to adopt the Statements in the fiscal year beginning July 1, 1994, but has not decided upon the the method for adoption of Statement No. 116.
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