Consolidated Financial Statements June 30, 2021 and 2020, Summaries of Financial Statement Analysis

Download Consolidated Financial Statements June 30, 2021 and 2020 and more Summaries Financial Statement Analysis in PDF only on Docsity! CORNELL UNIVERSITY Consolidated Financial Statements June 30, 2021 and 2020 2 Report of Independent Auditors To The Board of Trustees of Cornell University We have audited the accompanying consolidated financial statements of Cornell University (the “University”), which comprise the consolidated statements of financial position as of June 30, 2021 and 2020 and the related consolidated statements of activities for the year ended June 30, 2021 and of cash flows for the years ended June 30, 2021 and 2020. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; 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 the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from 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 our 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, we consider 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. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cornell University as of June 30, 2021 and 2020 and the changes in their net assets for the year ended June 30, 2021 and their cash flows for the years ended June 30, 2021 and 2020 in accordance with accounting principles generally accepted in the United States of America. Other Matter We previously audited the consolidated statement of financial position as of June 30, 2020, and the related consolidated statements of activities and cash flows for the year then ended (the statement of activities is not presented herein), and in our report dated October 8, 2020, we expressed an unmodified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying summarized financial information as of June 30, 2020 and for the year then ended is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived. Rochester, New York October 22, 2021 5 2021 2020 Change in net assets 3,129,043$ (312,833)$ Proceeds from contributions for capital acquisitions, trusts and endowments (321,503) (218,333) Depreciation and amortization 290,351 298,224 Net realized and unrealized (gain)/loss on investments (2,884,628) (114,481) Pension and postretirement changes (63,226) 88,864 Change in unrealized (gain)/loss interest rate swaps (70,239) 99,928 (Gain)/loss on extinguishment of debt - 9,181 Loss on disposals of land, building, and equipment 20,006 5,593 Non-cash lease expense 8,818 3,813 State appropriations for capital acquisitions (19,931) (38,513) Other adjustments (11,539) (4,430) Change in assets and liabilities Accounts receivable, net, other than student loans (101,468) 25,724 Contributions receivable, net 428 26,305 Prepaid expenses and other assets (8,715) 7,250 Accounts payable and accrued expenses 52,435 58,657 Deferred revenue and other liabilities 8,921 31,490 Funds held in trust by others (3,718) (15,853) Obligations under split interest agreements 190 2,822 Deferred benefits 31,110 9,111 Net cash provided/(used) by operating activities 56,335 (37,481) Proceeds from the sale and maturities of investments 5,789,558 5,377,539 Purchase of investments (5,641,345) (5,325,825) Acquisition of land, buildings, and equipment (net) (359,455) (362,055) Student loans granted (5,190) (6,854) Student loans repaid 13,244 13,528 Change in funds held for others, net of unrealized (gain)/loss on investments 3,774 5,333 Net cash used by investing activities (199,414) (298,334) Proceeds from contributions for capital acquisitions, trusts and endowments 321,503 218,333 Proceeds from state appropriations for capital acquisitions 19,931 38,513 Principal payments of bonds, notes payable and finance leases (224,507) (420,750) Proceeds from issuance of bonds and notes payable 194,988 864,926 Gain/(loss) on extinguishment of debt - (9,181) Government advances for student loans (15,392) 918 Net cash provided by financing activities 296,523 692,759 Net change in cash and cash equivalents 153,444 356,944 Cash and cash equivalents, beginning of year 591,483 234,539 Cash and cash equivalents, end of year 744,927$ 591,483$ Cash paid for interest 45,969$ 61,141$ Increase/(decrease) in construction payables, non-cash activity (15,025)$ 1,562$ Right-of-use assets acquired under finance leases 3,174$ 4,565$ Right-of-use assets acquired under operating leases 41,092$ 56,106$ Gifts-in-kind 4,805$ 2,973$ CORNELL UNIVERSITY Cash flows from investing activities Cash flows from financing activities Supplemental disclosure of cash flow information The accompanying notes are an integral part of the consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS-ENDED JUNE 30, 2021 AND JUNE 30, 2020 (in thousands) Cash flows from operating activities Adjustments to reconcile change in net assets to net cash provided/(used) by operating activities Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 6 1. SIGNIFICANT ACCOUNTING POLICIES A. Description of the Organization Founded in 1865, Cornell University (“the University”) is dedicated to a mission of learning, discovery, and engagement. Cornell is a private university, the federal land-grant institution of New York State, and a member of the Ivy League. Cornell administers four contract colleges, which the University operates on behalf of the State University of New York. Described as the first truly American university because of its founders’ revolutionary egalitarian and practical vision of higher education, the University is dedicated to its land-grant mission of outreach and public engagement. Cornell’s community includes nearly 24,900 students, over 4,600 faculty, and approximately 298,000 alumni who live and work across the globe. The University comprises seven undergraduate units and four graduate and professional colleges and schools in Ithaca, New York; two medical graduate and professional units, together with its physician organization, collectively referred to as “Weill Cornell Medicine” or “WCM”, in New York City, and the “Weill Cornell Medicine - Qatar” in Doha, Qatar. The Cornell Tech campus, also in New York City, offers graduate programs in applied sciences, including three programs offered jointly with the Technion - Israel Institute of Technology under the auspices of the Joan and Irwin Jacobs Technion-Cornell Institute. The University is subject to the common administrative authority and control of the Cornell University Board of Trustees. The University is prohibited from using funds attributable to the contract colleges (i.e., those colleges operated by the University on behalf of New York State) for other units of the University. Except as specifically required by law, the contract and endowed colleges at Ithaca, Cornell Tech, and WCM are, to the extent practicable, governed by common management principles and policies determined at the private discretion of the University. In addition to the activities of the endowed and contract colleges, the activities of the University’s subsidiaries and certain affiliated organizations are included in the consolidated financial statements. All significant intercompany transactions and balances are eliminated in the accompanying consolidated financial statements. B. Basis of Presentation The accompanying consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Net assets, revenues, gains, and losses are categorized based on the existence or absence of donor-imposed restrictions. The University’s Board of Trustees, with consideration to the actions, reports, information, advice, and counsel provided by its duly constituted committees and appointed officers of the University, including University Counsel, has instructed the University to preserve the historical dollar value of donor-restricted (true) endowment funds, absent explicit donor direction to the contrary. As a result, the University classifies as net assets with donor restrictions the original gift value of true endowments, plus any subsequent gifts and accumulations made in accordance with the directions of the applicable gift instruments. Net assets with donor restrictions also include gifts and appropriations from the endowment that can be expended, but for which the donors’ purpose restrictions have not yet been met, as well as Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 7 net assets with explicit or implied time restrictions, such as pledges and split-interest agreements. Expiration of donor restrictions is reported in the consolidated statements of activities as a reclassification from net assets with donor restrictions to net assets without donor restrictions on the net assets released from restriction lines. Net assets without donor restrictions are the remaining net assets of the University. The University’s measure of operations as presented in the consolidated statements of activities includes revenue and expenses related primarily to educational and training programs, research activities, contributions for operating programs, allocation of endowment spending for operations, medical services, and other revenues. The University’s non-operating activity within the consolidated statements of activities includes grants, contracts and appropriations for capital acquisition; contributions to the endowment and for building construction and renovation; investment returns and other activities related to the endowment; long-term benefit plan obligation; funding changes, and certain nonrecurring items. The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses during the reporting period. Management’s assumptions are related primarily to the appropriate inputs and discount rate for fair-value calculations, the discount rate for pension and postretirement benefit obligations, allowances for doubtful accounts and implicit price concessions, and self-insured risks. Actual results may differ from those estimates. C. Income Taxes The University is a not-for-profit organization as described in Section 501(c)(3) of the Internal Revenue Code. It is generally exempt from income taxes on related income under the appropriate sections of the Internal Revenue Code. In accordance with the accounting standards, the University evaluates its income tax position each fiscal year to determine whether the position is more likely than not to be sustained if examined by the applicable taxing authority. This review had no material impact on the University’s consolidated financial statements. D. Fair-Value Hierarchy The University values certain financial assets and liabilities, on a recurring basis, following a hierarchy that categorizes and prioritizes the sources used to measure and disclose fair value. Fair value is defined as the price associated with an orderly transaction between market participants at the measurement date. This fair-value hierarchy is categorized into three levels based on inputs that market participants would use in valuing the financial instruments, which is based on market data obtained from sources independent of the University. The hierarchy of inputs used to measure fair value, and the primary valuation methodologies used by the University for assets and liabilities measured at fair value, are disclosed below. The fair value of Level 1 securities is based upon quoted prices in accessible active markets for identical assets. Market price data is generally obtained from exchange or dealer markets. The University does not adjust the quoted price for such assets. Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 10 The Board authorizes a total annual payout distribution from endowment funds within a target range of 4.4 percent of a twenty-eight-quarter rolling average of the unit fair value, plus or minus 0.75 percent. The Trustees may occasionally make step adjustments, either incremental or decremental, based on prior investment performance, current market conditions, or any of the factors for prudent judgment described above. Total distributions, or spending, are presented as investment return, distributed, on the consolidated statements of activities, and includes endowment payout and an administrative fee, net of direct investment expenses, that supports the investment and stewardship costs of the University endowment. The New York Prudent Management of Institutional Funds Act (“NYPMIFA”) established a requirement related to appropriations from endowments for which the fair value falls below the historic dollar value (“underwater”). In compliance with NYPMIFA, the University notified available donors, who had established endowments before September 17, 2010, of the new law. It offered these donors the option of requiring the University to maintain historical dollar value for their endowment funds. A minority of donors requested this option; for those who did, the University has designed procedures to ensure that the University maintains historical dollar value by not expending the payout on any underwater fund. I. Split-Interest Agreements and Funds Held in Trust by Others The University’s split-interest agreements with donors consist primarily of charitable gift annuities, pooled income funds, and charitable trusts for which the University serves as trustee. Assets held in trust are either separately invested or included in the University’s investment pools in accordance with the agreements. Contributions of split-interest agreements, net of related liabilities, increase net assets with donor restrictions. Liabilities associated with charitable gift annuities and charitable trusts represent the present value of the expected payments to the beneficiaries based on the terms of the agreements. Pooled income funds are recognized at the net present value of the net assets expected at a future date. Gains or losses resulting from changes in fair value, changes in assumptions, and amortization of discount are recorded as changes in value of split-interest agreements in the appropriate restriction categories in the non- operating section of the consolidated statements of activities. Funds held in trust by others represent resources that are not in the possession or under the control of the University. These funds are administered by outside trustees, with the University receiving income or residual interest. Funds held in trust by others are recognized when the irrevocable trust is established or the University is notified of its existence at the estimated fair value of assets or the present value of future cash flows due to the University. Gains or losses resulting from changes in fair value are recorded as non-operating activities in the consolidated statements of activities. J. Land, Buildings, and Equipment, Net Land, buildings, and equipment are stated in the consolidated statements of financial position at cost on the date of acquisition or at fair value on the date of donation, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the asset and is reflected as an operating expense. Useful lives range from three to fifteen years for equipment and fifteen to fifty years for buildings and improvements. Expenditures Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 11 associated with the construction of new facilities are recorded as construction in progress until the projects are completed. The University’s collections of art, books, and other property have been acquired through purchases and contributions since the University’s inception. They are recognized as capital assets and are reflected, net of accumulated depreciation, in the consolidated statements of financial position. A collection received as a gift is recorded at fair value as an increase in net assets in the year in which it is received. K. Leases The University determines if an arrangement is a lease or contains a lease at a contract's inception. A contract is determined to be or contain a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) in exchange for consideration. The University determines these assets are leased because the University has the right to obtain substantially all of the economic benefits from and the right to direct the use of the identified asset. Assets in which the supplier or lessor has the practical ability, the right to substitute alternative assets for the identified asset and would benefit economically from the exercise of its right to substitute the asset are not considered to be or contain a lease, because the University determines it does not have the right to control and direct the use of the identified asset. The University’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. In evaluating its contracts, the University separately identifies lease and non-lease components, such as common area and other maintenance costs, for its office buildings, apartments, and vehicles. The University has elected the practical expedient to not separate lease and non-lease components and classifies the contract as a lease if consideration in the contract allocated to the lease component is greater than the consideration allocated to the non-lease component. Leases result in recognition of right-of-use (“ROU”) assets and lease liabilities on the consolidated statements of financial position. ROU assets represent the right to use an underlying asset for the lease term. Lease liabilities represent the obligation to make lease payments arising from the lease, measured on a discounted basis. The University determines lease classification as operating or finance at the lease commencement date. ROU assets and lease liabilities for operating and finance leases are included in our consolidated statements of financial position and presented separately based on the classification of the underlying lease arrangement. At lease inception, the lease liability is measured at the present value of the lease payments over the lease term. The ROU asset equals the lease liability adjusted for any initial direct costs, prepaid or deferred rent, and lease incentives. For the initial and subsequent measurement of all lease liabilities, the discount rate is based on the rate implied within the lease or on the University’s incremental borrowing rate using a period comparable with the lease term. The lease term may include options to extend or terminate the lease that the University is reasonably certain to exercise. Operating lease expense is generally recognized on a straight-line basis over the lease term. Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 12 L. Revenue Tuition and fees Tuition and mandatory fees revenue is recognized within the fiscal year in which educational services are provided. Institutional financial aid reduces the published price of tuition for students receiving such aid. Payments received in advance for summer session courses for credit toward a degree are recorded as deferred revenue. State and Federal Appropriations Revenue primarily consists of annual New York State appropriations through the legislative process and federal funding to Land Grant institutions via the Hatch, Smith-Lever, and other Acts in support of the contract colleges, and it is recognized over the fiscal year. Grants and Contracts Revenue under grants, contracts, and similar agreements comprise federal and non-federal (e.g., state, private foundation) grants and contracts. The funding may represent a reciprocal transaction in exchange for a commensurate benefit in return, or it may be a nonreciprocal transaction in which the resources provided are for the benefit of the University, the funding organization’s mission, or the public at large. All federal grants and non-federal grants with similar restrictions on spending are conditional, and revenue is recognized when expenditures are incurred. When the condition(s) and restrictions are met within the same year, revenue is recorded within net assets without donor restrictions. Unconditional non-exchange revenue is recognized in full when the contribution is received or a qualifying promise to give has been made, generally when the agreement is finalized. Revenues from exchange transactions are recognized as performance obligations satisfied, whether milestones are achieved or related costs are incurred. Amounts received in advance for which revenue recognition criteria have not been met are recorded as deferred revenues. Grants, contracts, and similar agreements typically provide for reimbursement of indirect costs based on predetermined rates negotiated with the University’s cognizant federal agency or separately negotiated with a non-federal sponsor. Indirect cost recoveries on federally sponsored programs, such as the recovery of facilities and administrative (F&A) costs, are normally at reimbursement rates negotiated with the University’s cognizant agency, the Department of Health and Human Services. The University has entered into agreements with the federal government that define the rates at which the University can be reimbursed for F&A costs applicable to federal awards through June 30, 2022 (Ithaca campus) and June 30, 2021 (Weill Cornell Medicine). These agreements remain effective, using provisional rates, until such time a new agreement is reached. Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 15 Auxiliary enterprises Auxiliary enterprises support the educational experience of students, and include housing, dining, and the campus store. Housing and dining revenues are recognized over the course of the academic year and campus store revenue is recognized at the time of the transaction. Educational Activities and Other Sales and Services Educational activities and other sales and services represent revenue from operations related to the University’s mission. These activities are managed like commercial entities. The largest component of this category is consideration received at WCM from New York-Presbyterian Hospital (“NYPH”) in exchange for providing personnel, space, and other services. The revenue is billed based upon an approved annual joint budget and actual costs incurred. WCM recognizes revenue throughout the fiscal year as services are rendered to NYPH and accrues for any unbilled services as of June 30. Educational activities and other sales and services also include activities such as royalties, transportation, parking, testing labs, teaching hotel, non-degree/non-credit course revenue, and athletics. These activities comprise exchange transactions with customers, which may be recognized at a specific point in time or over the period of the contract, depending on when the customer derives the benefit. Amounts received in advance are recorded as deferred revenues. M. Comparative Financial Information The consolidated statements of activities includes prior-year information in summary form rather than by restriction class. Such information does not include sufficient detail to constitute a presentation of prior-year data in conformity with U.S. GAAP. Accordingly, such information should be read in conjunction with the University’s consolidated financial statements for the prior fiscal year from which the summarized information was derived. N. Accounting Pronouncements In August 2018, the FASB issued ASU 2018-13, ASC 820 Fair Value Measurement. The new guidance simplifies fair value measurement disclosures by removing and modifying several investment-related disclosure requirements. Certain disclosures are no longer required, including the amount of and reasons for transfers between Levels 1 and 2, a policy for timing of transfers between levels, and valuation processes of Level 3 investments. The University adopted ASU 2018-13 in the fiscal year 2021, and there was no material impact on the University's consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In January 2021, the FASB subsequently issued ASU 2021-01, Reference Rate Reform (Topic 848), to amend the scope of the original guidance. The collective guidance provides temporary optional guidance to ease the potential burden in accounting for reference rate reform due to the discontinuation of the London Interbank Offered Rate (“LIBOR”). The amendments apply to contracts, hedges, and other transactions affected by reference rate reform due to reference to LIBOR or another reference rate expected to be discontinued. The standard is effective immediately and can be applied through December 31, 2022. The University assessed the impact of this transition across Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 16 its investment holdings. The LIBOR exposure in the University’s long-term investment (“LTI”) portfolio is considered minimal at this point. Benchmarks, manager fees, and service provider contracts associated with the LTI are not expected to be impacted by the transition. Interest rate swaptions in the current portfolio will expire before the end of the deadline while LIBOR is still in place. While the full impact of ASU 2020-04 on the consolidated financial statements is still being assessed, the University does not expect the impact to be material. In September 2020, the FASB issued ASU 2020-07, Presentation and Disclosures by Not-for- Profit Entities for Contributed Nonfinancial Assets. The new guidance amends ASC 958- 05, requiring not-for-profit entities to present contributed nonfinancial assets as a separate line item in the statements of activities, apart from contributions of cash and other financial assets, and disclose contributed nonfinancial assets. Not-for-profits entities are required to disclose the disaggregation of the amount of contributed nonfinancial assets, which is recognized within the statements of activities, by the category that depicts the type of contributed nonfinancial asset. The standard is effective for the fiscal year 2022. O. Reclassifications Certain June 30, 2020, balances and amounts previously reported have been reclassified to conform to the June 30, 2021, presentation. 2. LIQUIDITY AND AVAILABILITY Financial assets available for general expenditure within one year of June 30 are as follows: Included within Endowment funds and other illiquid investments above is $1,726,967 and $1,297,912 in funds functioning as endowment (FFE) as of June 30, 2021, and 2020, respectively. These represent unrestricted operating funds that the University has internally designated. These could be liquidated over time, if necessary, to support operations. 2021 2020 Total assets 17,907,729$ 14,850,618$ Less: Endowment funds and other illiquid investments 10,539,978 7,481,171 Land, buildings, and equipment, net 4,314,495 4,286,656 Contributions receivable, net, due after one year 507,867 531,715 Right-of-use assets, operating leases, net 448,191 465,124 Funds held in trust by others 152,751 149,033 Prepaid expenses and other assets 142,739 134,024 Right-of-use assets, finance leases, net 111,456 114,036 Reinsurance receivable 110,185 116,010 Student loans receivable, net 55,161 63,211 Financial assets available within one year 1,524,906$ 1,509,638$ LIQUIDITY AND AVAILABILITY Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 17 The University manages its financial assets to be available as its operating expenditures, liabilities, and other obligations come due. The University’s cash flows have seasonal variations during the year primarily attributable to tuition billing and a concentration of contributions received at the calendar and fiscal year-end. As of June 30, 2021, the University maintained four lines of credit totaling $300 million; with $25 million expiring January 2022, $100 million expiring March 2022, $75 million expiring April 2022, and $100 million expiring July 2025. There were no outstanding borrowings under these agreements. As of June 30, 2020, the University maintained three lines of credit totaling $200 million; with $25 million expiring January 2021, $100 million expiring March 2021, and $75 million expiring April 2021. There were no outstanding borrowings under these agreements. In addition, the University has a taxable commercial paper program with an undrawn available balance of $146.1 million as of June 30, 2021, and 2020. 3. RECEIVABLES A. Accounts Receivable Accounts receivable from the following sources were outstanding as of June 30: The University’s receivables are reviewed and monitored for aging and other factors that affect collectability. Receivables are reduced by an allowance for doubtful accounts of $33,243 and $32,286 at June 30, 2021, and 2020, respectively. The patient accounts receivable for medical services comprises the following on June 30, 2021, and 2020, respectively: commercial third parties 79.1 percent and 79.1 percent; federal and state government 14.7 percent and 13.5 percent; and patients 6.2 percent and 7.4 percent. Note 13 provides additional information related to the reinsurance receivable. Other accounts receivable include receivables from other government agencies, matured bequests, and other operating activities. SUMMARY OF ACCOUNTS RECEIVABLE 2021 2020 Grants and contracts 137,893$ 112,954$ NewYork-Presbyterian Hospital and other affiliates 83,103 70,548 Patients (net of price concessions and bad debt allowances) 104,732 61,424 Reinsurance receivable 110,185 116,010 Federal revolving student loans 17,632 23,262 Institutional student loans 37,529 39,949 Student accounts 26,206 13,066 Other 94,291 80,940 Net accounts receivable 611,571$ 518,153$ Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 20 B. Fair Value The University’s investment holdings as of June 30, categorized in accordance with the fair- value hierarchy, are summarized in the following tables: INVESTMENTS AT FAIR VALUE Level 1 fair value Level 2 fair value Level 3 fair value Net asset value 2021 Total Short-term investments 158,480$ 2,451$ -$ -$ 160,931$ Derivatives - 5,087 - - 5,087 Equity Domestic equity 482,168 346,689 172 - 829,029 Foreign equity 519,153 440,217 2,260 450,326 1,411,956 Hedged equity - - 1,508 - 1,508 Private equity - 188,270 61,115 3,216,852 3,466,237 Fixed income Asset backed fixed income - 12,882 - - 12,882 Corporate bonds 89 78,776 4,005 - 82,870 Equity partnership - - - 737,734 737,734 International - 15,962 992 - 16,954 Municipals - 2,022 - - 2,022 Mutual funds (non-equity) 10,758 7,124 - - 17,882 Preferred/convertible 9,491 258 1,264 - 11,013 Other fixed income - 179 - - 179 US government 643,913 35,817 - - 679,730 Marketable alternatives - 82,881 - 1,503,139 1,586,020 Diversifying Assets - - - 45,675 45,675 Real assets 15,889 - 17,643 1,418,418 1,451,950 Receivable for investments sold 22,039 - - - 22,039 Payable for investments purchased (29,439) - - - (29,439) Other - - 19,682 4,945 24,627 Total 1,832,541$ 1,218,615$ 108,641$ 7,377,089$ 10,536,886$ Equity Method 66,542 Total investments 10,603,428$ Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 21 Level 1 investments consist of short-term investments, equity, and fixed-income securities with observable market prices. Fair value is readily determinable based on quoted prices in active markets. Unsettled trade receivable and payable valuations reflect cash settlements after the fiscal year-end and are also categorized as Level 1. The University does not adjust the quoted price for such instruments, even when it holds a significant position and a sale of all its holdings could reasonably impact the quoted price. Investments classified as Level 2 include short-term investments, domestic and foreign equities, and fixed income securities that trade in markets that are not considered to be active. Fair value is based on observable inputs for similar instruments in the market and obtained by various sources, including market participants, dealers, and brokers. The University’s custodian secures pricing for these assets. The fair value of derivative investments is based on market prices from the financial institution that is the counterparty to the derivative. On July 1, 2021, the University sold its investment holdings in two private equity partnerships for approximately $188 million. The sale price for these investments was used as the fair value on June 30, 2021, within the consolidated financial statements and was classified as level 2 within the fair value hierarchy. Level 1 fair value Level 2 fair value Level 3 fair value Net asset value 2020 Total Short-term investments 160,989$ 3,660$ -$ -$ 164,649$ Derivatives - 7,276 - - 7,276 Equity Domestic equity 291,449 239,476 394 - 531,319 Foreign equity 351,412 361,471 1,447 450,758 1,165,088 Hedged equity - - 2,057 - 2,057 Private equity - - 50,726 1,915,955 1,966,681 Fixed income Asset backed fixed income 214 15,460 - - 15,674 Corporate bonds 215 94,484 4,725 - 99,424 Equity partnership - 29 - 608,061 608,090 International 476 57,889 784 - 59,149 Municipals 64 2,218 - - 2,282 Mutual funds (non-equity) 10,450 8,637 - - 19,087 Preferred/convertible 1,267 - 4,412 - 5,679 Other fixed income - 135 2,489 - 2,624 US government 461,471 130,104 - - 591,575 Marketable alternatives - 65,074 - 1,205,146 1,270,220 Diversifying Assets - - - 39,441 39,441 Real assets 14,292 - 18,653 1,153,150 1,186,095 Receivable for investments sold 13,739 - - - 13,739 Payable for investments purchased (17,994) - - - (17,994) Other - - 16,651 4,631 21,282 Total 1,288,044$ 985,913$ 102,338$ 5,377,142$ 7,753,437$ Equity Method 60,073 Total investments 7,813,510$ INVESTMENTS AT FAIR VALUE Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 22 Level 3 investments have significant unobservable inputs because they trade infrequently or not at all. The inputs into determining fair value are based upon the best information in the circumstance and may require significant management judgment. Investments included in Level 3 consist primarily of the University’s ownership in real estate, oil and mineral rights, limited partnerships, and equity positions in private companies. Equity method investments include certain other investments that are accounted for using the equity method. These investments are structured as joint ventures where the University holds a percent ownership. C. Investments Using Net Asset Value The net asset value (“NAV”) column above represents the University’s ownership interest in certain alternative investments. As a practical expedient, the University uses its ownership interest in the NAV to determine the fair value of all alternative investments that do not have a readily determinable fair value and that have financial statements consistent with the measurement principles of an investment company or the attributes of an investment company. The NAV of these investments is determined by the general partner. It is based on appraisals or other estimates that require varying degrees of judgment. If no public market exists for the investment securities, the general partner will take into consideration, among other things, the cost of the securities, prices of recent significant placements of securities of the same issuer, and subsequent developments concerning the companies to which the securities relate. The University has performed significant due diligence around these investments to ensure that the NAV is an appropriate measure of fair value as of June 30. Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 25 Level 3 equities not priced by qualified third parties (e.g., brokers, pricing services) are valued using discounted cash flows, considering various factors including nonperformance risk, counterparty risk, and marketability. Investment value is also derived using a market approach through comparison to recent and relevant market multiples of comparable companies. Start-up assets, held by the University’s student-run venture fund or other similar programs, are maintained at or near initial investment amounts due to the nature of the activity. Level 3 asset-backed fixed-income investments are valued using discounted cash flows. Preferred or convertible fixed-income investments are valued using discounted cash flows or a SUMMARY OF LEVEL 3 INVESTMENT ACTIVITY Fair value at June 30, 2020 Realized gain/(loss) Unrealized gain/(loss) Purchases Sales Transfers in/(out) of Level 3 Fair value at June 30, 2021 Equity Domestic equity 394$ (219)$ 22$ -$ (25)$ -$ 172$ Foreign equity 1,447 1 309 503 - - 2,260 Hedged equity 2,057 (22) (451) - (76) - 1,508 Private equity 50,726 107 3,450 6,963 (131) - 61,115 Fixed income Asset backed fixed income - - - - - - - Corporate bonds 4,725 - (685) - (35) - 4,005 International 784 - (4) 212 - - 992 Preferred/convertible 4,412 1,751 (810) - (4,089) - 1,264 Other fixed income 2,489 (4,117) 134 1,494 - - - Real assets 18,653 (140) (870) - - - 17,643 Other 16,651 42 489 2,807 (307) - 19,682 Total level 3 investments 102,338$ (2,597)$ 1,584$ 11,979$ (4,663)$ -$ 108,641$ SUMMARY OF LEVEL 3 INVESTMENT ACTIVITY Fair value at June 30, 2019 Realized gain/(loss) Unrealized gain/(loss) Purchases Sales Transfers in/(out) of Level 3 Fair value at June 30, 2020 Equity Domestic equity 867$ (3,667)$ (716)$ 7,577$ (3,667)$ -$ 394$ Foreign equity 2,599 1 (497) 1,283 (503) (1,436) 1,447 Hedged equity 2,526 (140) 60 98 (487) - 2,057 Private equity 52,040 (25) (1,993) 749 (45) - 50,726 Fixed income Asset backed fixed income 790 630 (373) - (1,047) - - Corporate bonds 1,730 (4,033) (252) 7,280 - - 4,725 International 553 - 39 221 (29) - 784 Preferred/convertible 5,057 2 (644) - (3) - 4,412 Other fixed income - 673 (134) 3,319 (1,369) - 2,489 Real assets 18,749 (239) 194 - (51) - 18,653 Other 12,602 (1) 1,531 2,519 - - 16,651 Total level 3 investments 97,513$ (6,799)$ (2,785)$ 23,046$ (7,201)$ (1,436)$ 102,338$ Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 26 market approach using a dividend multiplier. Investments in start-up companies, as described above, are valued at or near initial investment amounts. Level 3 real assets represent directly owned real estate and oil or mineral rights. To the extent feasible, third-party appraisals are used to value real estate directly owned by the University. If current appraisals are not available, fair value is based on the capitalization rate valuation model or discounted cash flow, corroborated by local market data, if available. Oil and mineral rights are valued based on industry-standard revenue multiplier methodologies or discounted cash flows. Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 27 The following table provides additional information related to the valuation of the investments classified by the University as Level 3. The methods described above may produce a fair-value calculation that is not indicative of net realizable value or reflective of future fair values. Furthermore, while the University believes its valuation methods are appropriate and consistent with other market participants, using different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Level 3 fair value Valuation technique(s) Unobservable inputs Range (weighted average)a Equity Domestic equity $ 172 Start-up valuation Foreign equity 2,260 Third-party valuation Hedged equity 1,508 Third-party valuation Private equity 25,088 Discounted cash flow Discount rate 4% - 11% (4.9%) Discount for lack of marketability 0%-20% (12.5%) 11,502 Start-up valuation 24,525 Third-party valuation Fixed income Corporate bonds 4,005 Third-party valuation International 992 Third-party valuation Preferred/convertible 1,175 Market comparable Dividend multiple 18.5x - 19.4x (18.8x) 89 Start-up valuation Real assets 2,076 Discounted cash flow Discount rate 9.5% - 15% (11.2%) 1,212 Sales comparison Recent transactions 4,348 Third-party valuation 10,007 Cap rate valuation model Capitalization rate 4.4% Other 11,484 Discounted cash flow Discount rate 0% - 5.3% (0.9%) Years to maturity 1 - 14 (4) 5,394 Start-up valuation 2,804 Third-party valuation Total Level 3 investments $ 108,641 (a) Unobservable inputs were weighted by the relative fair value of the instruments QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENT Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 30 units. During the years ended June 30, 2021, and June 30, 2020, gap rent payments were made of $2,982. Cornell Tech met its first milestone when faculty, staff, and researchers moved into the first academic building (Bloomberg Center) on Roosevelt Island during the summer of 2017. Students, faculty, and researchers moved into The House at Cornell Tech in advance of the fall semester. In addition, programs and operations in the Bloomberg Center and The Tata Innovation Center began during the 2017-2018 academic year, rounding out the University’s operational commitments. 6. OBLIGATIONS UNDER SPLIT-INTEREST AGREEMENTS AND FUNDS HELD IN TRUST BY OTHERS The University reports its obligations under split-interest agreements at fair value. The fair value of the obligations are calculated annually and considered Level 3 in the fair-value hierarchy. The discount rate is based on average return of investment-grade corporate bonds, weighted using a schedule of actuarial estimates of the lives of the income beneficiaries and the relative value of the agreements. The University’s interest in funds held in trust by others is considered Level 3 in the fair-value hierarchy. Trusts in which the University has an income interest are valued annually using estimated cash flows based on average actual income over three years. Remainder interests are determined using present value calculations based on annual valuation reports received from the funds’ trustees. The discount rates used to estimate present value are based on the average return of investment-grade corporate bonds, weighted according to a schedule of actuarial estimates. The following tables summarize the fair values and activity of funds held in trust by others and obligations under split interest agreements. Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 31 2021 Total Valuation methodologies Unobservable inputs Range (weighted average) Funds held in trust by others Remainder 64,365$ Present value calculation Discount rate 2.50% Years to maturity 0-52 (15) Lead and perpetual 88,386 Discounted cash flow Discount rate 3.46% Total funds held in trust by others 152,751$ Obligations under split-interest agreements 137,099$ Discounted cash flow Discount rate 3.02% Years to maturity 0-63 (16) 2020 Total Valuation methodologies Unobservable inputs Range (weighted average) Funds held in trust by others Remainder 57,325$ Present value calculation Discount rate 2.43% Years to maturity 0-53 (17) Lead and perpetual 91,708 Discounted cash flows Discount rate 3.05% Total funds held in trust by others 149,033$ Obligations under split-interest agreements 136,909$ Discounted cash flows Discount rate 2.94% Years to maturity 0-65 (16) SPLIT-INTEREST AGREEMENTS AT FAIR VALUE AND LEVEL 3 QUANTITATIVE INFORMATION Fair value at June 30, 2020 Realized gain/(loss) Unrealized gain/(loss) Purchases Sales Transfers in/(out) of Level 3 Fair value at June 30, 2021 Funds held in trust by others Remainder 57,325$ 1,265$ 6,919$ -$ (1,144)$ -$ 64,365$ Lead and perpetual 91,708 (130) (3,192) - - - 88,386 Total funds held in trust by others 149,033$ 1,135$ 3,727$ -$ (1,144)$ -$ 152,751$ Obligations under split-interest agreements 136,909$ -$ 190$ -$ -$ -$ 137,099$ Fair value at June 30, 2019 Realized gain/(loss) Unrealized gain/(loss) Purchases Sales Transfers in/(out) of Level 3 Fair value at June 30, 2020 Funds held in trust by others Remainder 59,618$ 4,252$ 2,401$ -$ (8,946)$ -$ 57,325$ Lead and perpetual 73,562 18,317 (171) - - - 91,708 Total funds held in trust by others 133,180$ 22,569$ 2,230$ -$ (8,946)$ -$ 149,033$ Obligations under split-interest agreements 134,087$ -$ 2,822$ -$ -$ -$ 136,909$ SUMMARY OF LEVEL 3 SPLIT-INTEREST AGREEMENT ACTIVITY Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 32 7. DEFERRED BENEFITS A. General Information Accrued employee benefit obligations as of June 30 include the following: Accrued postemployment benefits include workers’ compensation and medical continuation benefits for those on long-term disability. Other deferred benefits include primarily vacation accruals, deferred compensation, and medical benefit claims incurred-but-not-reported (“IBNR”). Additionally, the University provides various benefits to former or inactive employees after employment, but before retirement, that are recognized when they are earned. B. Pension and Postretirement Plans The University’s employee retirement plan coverage is provided by two basic types of plans: one based on a predetermined level of funding (defined contribution), and the other based on a years- of-service calculation to determine the level of benefit to be provided (defined benefit). The defined contribution plans for endowed colleges and exempt employees (those not subject to the overtime provisions of the Fair Labor Standards Act) at WCM are funded either by employer contributions based on a percentage of salary or by voluntary employee contributions. The contributions to the defined contribution plans are held on investment platforms with record keeping services performed by the Teachers Insurance and Annuity Association and Fidelity Investments (endowed colleges only). Total contributions of the endowed colleges and WCM plans for the fiscal years ended June 30, 2021, and 2020 amounted to $111,587 and $126,647, respectively. WCM maintains the University’s only defined benefit pension plan. The participants include non-exempt employees at WCM who meet the eligibility requirements for participation. The plan was frozen in 1976 for exempt employees at WCM, and the accrued benefits were merged with the active non-exempt retirement plan in 1989. In accordance with the funding requirements applicable to defined benefit plans under the Employee Retirement Income Security Act of 1974 (“ERISA”), the University must contribute to the plan’s trust an actuarially determined amount that represents current year benefits plus an amount to fund any shortfall in trust assets needed to satisfy plan benefit obligations. Additionally, the University provides health and life insurance benefits for eligible retired employees and their dependents, based on the attainment of a set of defined service and age requirements. The cost of providing these benefits is accrued during the service lives of employees. SUMMARY OF DEFERRED BENEFITS 2021 2020 Postemployment benefits 36,288$ 34,146$ Pension and other postretirement benefits 425,895 473,283 Other deferred benefits 226,577 196,287 Total deferred benefits 688,760$ 703,716$ Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 35 E. Actuarial Assumptions Assumptions used in determining the pension and postretirement plans’ benefit obligations and net periodic costs are as follows: The health care cost trend rate assumption significantly affects the amounts reported for postretirement health care plans. Increasing the health care cost trend rate by one percent in each future year would increase the benefit obligation by $133,930, and the annual service and interest cost by $12,460. Decreasing the health care cost trend rate by one percent in each future year would decrease the benefit obligation by $106,701 and the annual service and interest cost by $9,473. F. Plan Assets The University’s Retirement Plan Oversight Committee (“RPOC”) is chaired by the Vice President and Chief Human Resources Officer, with committee members selected from across multiple disciplines at the University. Its primary purpose is to assist the University in fulfilling its fiduciary responsibilities by providing guidance and oversight for the University’s retirement plans, including oversight of the custodial bank. The RPOC, in accordance with an Investment Policy Statement and in conjunction with its outside consultant, regularly reviews the investment strategies, along with evolving institutional objectives, and will make recommendations regarding possible changes to asset allocation and investment managers accordingly. The University’s overall investment objectives for pension and postretirement healthcare plan assets are broadly defined to include an inflation-adjusted rate of return that seeks growth commensurate with a prudent level of risk. To achieve this objective, the University has established fully discretionary trusts with a custodial bank as trustee and an investment manager for WCM’s defined benefit pension plan as well as the postretirement medical benefit plan for the University’s endowed employees on the Ithaca campus. Under those trust agreements, the custodial bank implements investment allocations through various investment funds to carry out the investment objectives established by the RPOC. SUMMARY OF ACTUARIAL ASSUMPTIONS 2021 2020 2021 2020 Used to calculate benefit obligations at June 30 Discount rate 3.39% 3.49% 3.21% / 2.89% 3.24% / 2.84% Rate of compensation increase 3.00% 0.00% - 3.00% Used to calculate net periodic cost at July 1 Discount rate 3.49% 3.96% 3.24% / 2.84% 3.83% / 3.62% Expected return on plan assets 7.30% 7.30% 7.30% 7.30% Rate of compensation increase 0.00% - 3.00% 3.00% Assumed health care cost trend rates Health care cost trend rate assumed for next year n/a n/a 4.50% / 6.50% 5.00% / 6.50% Ultimate trend rate n/a n/a 4.50% 4.50% Years to reach ultimate trend rate n/a n/a 5 1 / 6 Pension benefits Other postretirement Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 36 Risk mitigation is achieved by diversifying investments across multiple asset classes, investing in high-quality securities, and permitting flexibility in the balance of investments in the recommended asset classes. Market risk is inherent in any portfolio, but the investment policies and strategies are designed to avoid concentration of risk in any one entity, industry, country, or commodity. The funds in which the plan assets are invested are well-diversified and managed to avoid concentration of risk. The expected rate of return assumptions are based on the expertise provided by investment managers at the custodial bank. The factors impacting the expected rates of return for various asset types include assumptions about inflation, historically based real returns, anticipated value added by investment managers, and expected average asset allocations. The fair values of the pension plan assets and postretirement medical benefit plan assets are categorized according to the fair-value hierarchy. Both the pension plan and postretirement medical benefit plans invest in funds to meet their investment objectives. The asset allocation is based on the underlying assets of the various funds. The fair-value level is based upon each fund as the unit of measure. The fair value of the plans’ assets as of June 30 and the roll-forward for Level 3 assets are disclosed in the tables below. SUMMARY OF PLAN ASSETS Target allocation 2021 2020 2021 2020 Percentage of plan assets Equity securities 39-85% 64% 66% 74% 74% Fixed income securities 15-55% 32% 29% 26% 26% Real estate 0-10% 4% 5% 0% 0% Total 100% 100% 100% 100% Pension benefits Other postretirement Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 37 Level 1 fair value Level 2 fair value Level 3 fair value 2021 Total Cash and cash equivalents Money market 8,834$ -$ -$ 8,834$ Equity securities U.S. small cap - 8,540 - 8,540 U.S. large cap - 48,050 - 48,050 U.S. multi cap - 5,621 - 5,621 U.S. REITS - 6,022 - 6,022 Emerging markets - 10,962 - 10,962 International equity - 36,336 - 36,336 Fixed income securities U.S. high yield bonds - 7,252 - 7,252 Corporate bonds - 36,606 - 36,606 Mortgage-backed securities - - - - International fixed income - 3,531 - 3,531 Other types of investments Real estate - - 7,351 7,351 Receivable for investments sold 497 - - 497 Total assets 9,331$ 162,920$ 7,351$ 179,602$ PENSION PLAN ASSETS AT FAIR VALUE Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 40 G. Expected Contributions and Benefit Payments The expected annual contributions and benefit payments that reflect anticipated service are as follows: The Medicare Prescription Drug, Improvement and Modernization Act of 2003 established a prescription drug benefit known as “Medicare Part D” that also established a federal subsidy to sponsors of retiree healthcare benefit plans. The estimated future government subsidy amounts are reflected in the table above. H. Contract College Employees Employees of the Contract Colleges are covered under the New York State pension plans. Contributions to the state retirement system and other fringe benefit costs are paid directly by the state. The amount of the direct payments applicable to the University as revenue and expenditures is not currently determinable and is not included in the consolidated financial statements. The University reimburses the state for fringe benefit costs on certain salaries, principally those associated with externally sponsored programs. The amounts reimbursed to the state during the fiscal years ended June 30, 2021, and 2020 were $16,913 and $19,203, respectively, and are included in operating expenses. 8. FUNDS HELD FOR OTHERS The University, in limited instances, invests funds on behalf of related parties. Independent trustees are responsible for the designation of income distribution. The value of the funds included in investments in the consolidated statements of financial position was $296,207 and $220,127 for the fiscal years ended June 30, 2021, and 2020, respectively. The University recognizes an offsetting liability for funds held for others, with one adjustment described below. The New York Hospital-Cornell Medical Center Fund, Inc. (“Center Fund”), which benefits WCM and the New York-Presbyterian Hospital, is the major external organization invested in the University’s long-term investment portfolio with assets of $246,483 and $180,905 for the fiscal years ended June 30, 2021, and 2020, respectively. WCM holds a significant beneficial interest in the assets of the Center Fund of $162,797 and $119,691, for the fiscal years ended Pension benefits Employer paid subsidy University contributions 2022 6,500$ 23,976$ n/a Future benefit payments 2022 7,964 25,129 1,535 2023 9,202 26,851 1,620 2024 9,526 28,662 1,710 2025 10,927 30,341 1,810 2026 11,594 32,068 1,919 2027-2031 67,815 190,213 11,475 EXPECTED CONTRIBUTIONS AND BENEFIT PAYMENTS Other postretirement Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 41 June 30, 2021, and 2020, respectively. The liability related to New York-Presbyterian’s interest is $83,686 and $61,214 for the fiscal years ended June 30, 2021, and 2020, respectively. 9. BONDS AND NOTES PAYABLE A. General Information Bonds and notes payable are reported at carrying value, which is the par amount net of unamortized issuance costs, premiums, and discounts. Bonds and notes payable as of June 30 are summarized as follows: SUMMARY OF BONDS AND NOTES PAYABLE 2021 2020 Interest rates (%) Final maturity (fiscal year) Dormitory Authority of the State of New York (DASNY) Revenue Bond Series 1990B-fixed rate -$ 20,825$ 5.00 2021 2000A-variable rate/monthly 27,175 30,010 0.64 to 0.71 2029 2000B-variable rate/monthly 39,060 42,560 0.64 to 0.71 2030 2004A&B-variable rate/weekly 53,075 56,450 0.01 to 0.17 2033 2016A-fixed rate 101,800 107,105 4.00 to 5.00 2035 2019A-fixed rate 96,260 106,035 4.00 to 5.00 2029 2019B-variable rate/daily 92,210 92,210 0.01 to 0.15 2039 2019C-variable rate/monthly 79,370 79,370 0.62 to 0.69 2034 2019D-fixed rate 121,415 121,415 5.00 2036 2020A-fixed rate 233,000 233,000 4.00 to 5.00 2050 2020A2-fixed rate 77,840 77,840 5.00 2031 Tompkins County Industrial Development Agency (TCIDA) 2002A-variable rate/monthly 24,205 26,350 0.64 to 0.71 2030 2008A-fixed rate - 53,410 5.00 2021 Empire State Development 1,000 1,125 - 2029 2018A-fixed rate 150,000 150,000 3.85 2049 2007A Taxable commercial paper 153,890 153,890 0.12 to 0.23 - 2020B-variable rate/monthly 138,000 138,000 0.81 to 0.87 2030 2020C-variable rate/monthly 23,000 23,000 1.19 to 1.25 2026 2020D-variable rate/monthly 150,000 150,000 1.35 to 1.43 2025 2020E-fixed rate 75,000 - 2.50 2028 Hudson Cornell Residential JV LLC 97,550 97,550 1.57 to 1.69 2024 Other 7,308 7,723 2.75 to 6.63 2050 Outstanding bonds and notes payable 1,741,158$ 1,767,868$ Unamortized premium and issuance costs 135,572 150,614 Total bonds and notes payable 1,876,730$ 1,918,482$ Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 42 Debt and related debt service for borrowings by New York State for the construction and renovation of facilities of the contract colleges are not included in the consolidated financial statements because they are not liabilities of the University. During the fiscal year ended June 30, 2021, the University executed a $75.0 million taxable seven-year fixed-rate note and a $100 million five-year line of credit for general corporate purposes. Additionally, the University redeemed $53.4 million of Tompkins County Industrial Development Agency (TCIDA) Series 2008A bonds and $20.8 million Dormitory Authority of the State of New York (DASNY) Series 1990B bonds. During the fiscal year ended June 30, 2020, the University issued $121.4 million tax-exempt fixed-rate debt to finance capital projects and $310.8 million tax-exempt fixed rate debt to affect a current refunding of DASNY Series 2008B&C and 2010A bonds. In addition, the University issued $311 million of taxable bank loans for working capital purposes, refinancing debt and funding future capital projects. The University maintains tax-exempt and taxable commercial paper programs. Tax-exempt commercial paper is used to finance qualified capital projects and equipment purchases. Taxable commercial paper is also used for these purposes and can also finance short-term working capital needs. During the fiscal year ended June 30, 2021, the maximum authorized amount for the taxable commercial paper program is $300 million. The maximum authorized amount for the tax-exempt commercial paper program is $200 million. Scheduled principal and interest payments on bonds and notes for the next five fiscal years and thereafter are shown below: The University estimates future interest payments on variable-rate debt based on the Securities Industry and Financial Markets Association (SIFMA) rate for tax-exempt debt and the London Interbank Offered Rates (LIBOR) rate for taxable debt. B. Interest-Rate Swaps The University approved the use of interest-rate swaps to mitigate interest-rate risk in the debt portfolio. Interest-rate swaps are derivative instruments; however, their use by the University is not considered hedging activity, based on definitions in generally accepted accounting principles. Using interest-rate swap agreements, the University is exposed to the risk that counterparties will fail to meet their contractual obligations. The University limits swap exposure for each Year Principal Interest Total 2022 39,324$ 31,282$ 70,606$ 2023 40,785 34,680 75,465 2024 140,024 37,159 177,183 2025 194,235 32,616 226,851 2026 119,817 30,995 150,812 Thereafter 1,206,973 321,437 1,528,410 Total 1,741,158$ 488,169$ 2,229,327$ ANNUAL DEBT SERVICE REQUIREMENTS Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 45 B. Quantitative Disclosures The lease cost and other required information as of June 30, are as follows: 2021 2020 Lease cost Finance lease cost Amortization of right-of-use asset 2,823$ 6,987$ Interest on lease liabilities 8,323 8,327 Operating lease cost 71,548 62,712 Short-term lease cost 721 1,050 Variable lease cost 80 277 Sublease income (144) (153) Total lease cost 83,351$ 79,200$ 2021 2020 Other information Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from finance leases 8,323$ 8,327$ Financing cash flows from finance leases 2,797 1,906 Operating cash flows from operating leases 65,039 58,899 Right-of-use assets obtained in exchange for new finance lease liabilities 3,174 4,565 Right-of-use assets obtained in exchange for new operating lease liabilities 41,092 56,106 Weighted-average remaining lease term Finance leases 27.7 years 28.9 years Operating leases 14.7 years 14.8 years Weighted-average discount rate Finance leases 6.8% 6.8% Operating leases 3.4% 3.4% QUANTIATIVE DISCLOSURES Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 46 C. Future Minimum Lease Payments Future minimum lease payments and reconciliation to the consolidated statements of financial position on June 30, 2021, are as follows: Future minimum lease payments and reconciliation to the consolidated statements of financial position on June 30, 2020, are as follows: Finance Operating 2022 10,354$ 63,154$ 2023 10,281 56,269 2024 10,093 50,424 2025 9,570 47,278 2026 9,006 44,631 Thereafter 265,770 320,572 Total minimum lease payments 315,074$ 582,328$ Less: Amount representing interest (193,125) (123,711) Present value of net minimum lease payments 121,949$ 458,617$ ANNUAL MINIMUM LEASE PAYMENTS Finance Operating 2021 9,720$ 60,339$ 2022 9,657 56,965 2023 9,696 50,857 2024 9,472 46,987 2025 9,026 43,904 Thereafter 274,620 343,492 Total minimum lease payments 322,191$ 602,544$ Less: Amount representing interest (200,508) (134,573) Present value of net minimum lease payments 121,683$ 467,971$ ANNUAL MINIMUM LEASE PAYMENTS Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 47 11. FUNCTIONAL EXPENSES AND STUDENT AID Total expenses by functional categories for the fiscal years ended June 30 are as follows: Instruction, student services and academic support Research Public service Healthcare services Institutional support Enterprises and subsidiaries 2021 Total Compensation and benefits $ 1,040,175 $ 385,432 $ 89,538 $ 1,065,999 $ 378,041 $ 101,458 $ 3,060,643 Other operating expenses 300,190 215,034 37,854 221,382 78,876 107,812 961,148 Maintenance and facilities costs 20,734 18,003 7,272 45,588 28,537 25,895 146,029 Interest expense 13,770 4,357 175 14 8,446 4,178 30,940 Depreciation expense 134,501 52,709 5,577 45,801 26,717 40,076 305,381 Total operating expenses $ 1,509,370 $ 675,535 $ 140,416 $ 1,378,784 $ 520,617 $ 279,419 $ 4,504,141 Net periodic benefit cost (1,210) (136) (15) (2,589) (560) (120) (4,630) Non-operating foundation distributions - - - - - 22,568 22,568 Non-capitalized plant expenses 3,846 999 264 - 919 1,542 7,570 Total $ 1,512,006 $ 676,398 $ 140,665 $ 1,376,195 $ 520,976 $ 303,409 $ 4,529,649 FUNCTIONAL EXPENSES FUNCTIONAL EXPENSES Instruction, student services and academic support Research Public service Healthcare services Institutional support Enterprises and subsidiaries 2020 Total Compensation and benefits $ 1,032,182 $ 365,449 $ 89,461 $ 1,021,501 $ 368,311 $ 118,201 $ 2,995,105 Other operating expenses 352,081 216,939 35,574 250,482 56,633 126,229 1,037,938 Maintenance and facilities costs 15,499 14,508 7,336 38,973 31,374 25,035 132,725 Interest expense 13,046 10,974 268 24 5,948 7,749 38,009 Depreciation expense 135,364 53,194 5,627 49,939 27,732 40,924 312,780 Total operating expenses $ 1,548,172 $ 661,064 $ 138,266 $ 1,360,919 $ 489,998 $ 318,138 $ 4,516,557 Net periodic benefit cost (2,831) (361) (43) (4,345) (1,147) (297) (9,024) Non-operating foundation distributions - - - - - 15,685 15,685 Non-capitalized plant expenses 2,651 617 196 - 480 754 4,698 Total $ 1,547,992 $ 661,320 $ 138,419 $ 1,356,574 $ 489,331 $ 334,280 $ 4,527,916 Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 50 13. SELF-INSURANCE The University retains self-insurance for property, general liability, student health insurance, and certain health benefits. In addition, the University has an equity interest in a multi-provider captive insurance company for medical malpractice. A. Medical Malpractice The University obtains medical malpractice insurance through MCIC Vermont (“MCIC”). MCIC is a reciprocal risk retention group that provides medical malpractice insurance coverage and risk management services to its subscribers. MCIC is owned by the University, New York-Presbyterian Hospital, and four other higher education institutions and their respective teaching hospitals. All of WCM’s faculty physicians are enrolled in MCIC. The medical malpractice incurred but not reported liability is calculated annually on an actuarial basis. WCM has recorded medical malpractice liabilities of $164,346 and $174,046 on June 30, 2021, and 2020, respectively, as other liabilities in the consolidated statements of financial position. In addition, WCM maintains a reinsurance program with MCIC with anticipated recoveries of $110,185 and $116,010, respectively, recorded as accounts receivable (Note 3A). B. Student Health Plan The University has established a self-funded student health plan under Section 1124 of the New York State Insurance Law (“NYSIL”). The Student Health Plan (“SHP”) provides health insurance coverage to students at the University’s Ithaca-based campuses. As of July 1, 2020 with the approval of New York State Department of Financial Services (“NYS DFS”), SHP Without donor restrictions With donor restrictions 2021 Total Without donor restrictions With donor restrictions 2020 Total True endowment and FFE, beginning of year 1,297,912$ 5,380,615$ 6,678,527$ 1,367,064$ 5,416,070$ 6,783,134$ Investment return Net investment income 5,762 25,220 30,982 8,234 25,873 34,107 Net realized and unrealized gain/(loss) 485,797 2,188,093 2,673,890 18,650 59,161 77,811 Total investment return 491,559$ 2,213,313$ 2,704,872$ 26,884$ 85,034$ 111,918$ New gifts 2,052 210,735 212,787 2,861 198,273 201,134 Amounts appropriated for expenditure/reinvestment (62,426) (275,956) (338,382) (76,183) (237,882) (314,065) Other changes and reclassifications (2,130) (25,358) (27,488) (22,714) (80,880) (103,594) Total true endowment and FFE, end of year 1,726,967$ 7,503,349$ 9,230,316$ 1,297,912$ 5,380,615$ 6,678,527$ SUMMARY OF ENDOWMENT ACTIVITY Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 51 coverage was expanded to include the students at Weill Cornell Medical. The table below summarizes of SHP operations occurring during the University’s fiscal years ended June 30. The University has established reserves with the amounts necessary to satisfy obligations of the plan. Based on an analysis and recommendation of a qualified actuary, and with the approval of NYS DFS, the reserve for IBNR medical claims and claims reported-but-not-paid (“RBNP”) is maintained at an amount not less than 14.5 percent of expected medical claims and 5 percent of expected pharmacy drug claims. In addition, a separate contingency reserve has been established to satisfy unexpected obligations in the event of termination of the plan. The contingency reserve is maintained at an amount not less than 5 percent of the total current plan year premiums and is invested in the University’s endowment. NYS requires that the assets of the contingency reserve consist of certain investments of the types specified in Section 1404 of NYSIL. The specified types of investments include U.S. government securities categorized in fair-value hierarchy Level 1, of which the University holds $643,913 and $461,471 in its investment portfolio as of June 30, 2021, and 2020, respectively (Note 4B). Premium revenue is billed in advance of the plan year (unearned) and recognized as revenue monthly as coverage is provided. For the fiscal year 2021, SHP changed from annual premium billing to semester billing. With semester billing, only six months’ premium was billed in advance rather than the full annual premium. The changes in the unearned premiums and SHP reserves during the fiscal years ended June 30 are presented below. July 1 - July 31 (prior plan year) August 1 - June 30 (current plan year) 2021 Fiscal year total July 1 - July 31 (prior plan year) August 1 - June 30 (current plan year) 2020 Fiscal year total Total premium revenue 3,900$ 41,416$ 45,316$ 3,297$ 37,870$ 41,167$ Expenses Medical and prescription drug expense 3,677 31,105 34,782 3,850 24,563 28,413 Health center capitation 649 4,744 5,393 704 7,574 8,278 Administrative fees 437 3,210 3,647 336 3,663 3,999 Total expenses 4,763$ 39,059$ 43,822$ 4,890$ 35,800$ 40,690$ Net income from health plan operations (863)$ 2,357$ 1,494$ (1,593)$ 2,070$ 477$ SUMMARY OF STUDENT HEALTH PLAN OPERATIONS 2021 2020 2019-2020 plan year 2020-2021 plan year 2018-2019 plan year 2019-2020 plan year Balance as of July 1 3,299$ -$ 2,837$ -$ Balance as of June 30 - 2,458 - 3,299 Net change (3,299)$ 2,458$ (2,837)$ 3,299$ SUMMARY OF STUDENT HEALTH PLAN UNEARNED PREMIUMS 2021 2020 Unearned premiums Unearned premiums Cornell University Notes to Consolidated Financial Statements (dollars in thousands) June 30, 2021 and 2020 52 14. CONTINGENT LIABILITIES The University is a defendant in various legal actions, some for substantial monetary amounts that arise out of the normal course of its operations. Although the final outcome of the actions cannot be foreseen, the University’s administration is of the opinion that eventual liability, if any, will not have a material effect on the University’s financial position. 15. SUBSEQUENT EVENTS Based on the University’s evaluation of subsequent events through October 22, 2021, the date on which the consolidated financial statements were issued, there were no other events with material impact on the University’s consolidated financial statements. 2021 2020 2021 2020 Balance as of July 1 3,268$ 3,394$ 2,183$ 2,104$ Balance as of June 30 3,531 3,268 3,214 2,183 Net change 263$ (126)$ 1,031$ 79$ SUMMARY OF STUDENT HEALTH PLAN RESERVES IBNR/RBNP reserve Contingency reserve