Consolidated Financial Statements of The Johns Hopkins University, Study notes of Calculus

Download Consolidated Financial Statements of The Johns Hopkins University and more Study notes Calculus in PDF only on Docsity! THE JOHNS HOPKINS UNIVERSITY Consolidated Financial Statements June 30, 2020 and 2019 (With Independent Auditors’ Report Thereon) Independent Auditors’ Report The Board of Trustees The Johns Hopkins University: We have audited the accompanying consolidated financial statements of The Johns Hopkins University (the University), which comprise the consolidated balance sheets as of June 30, 2020 and 2019, the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’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 entity’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 The Johns Hopkins University as of June 30, 2020 and 2019, and the changes in its net assets and its cash flows for the years then ended, in accordance with U.S. generally accepted accounting principles. KPMG LLP 750 East Pratt Street, 18th Floor Baltimore, MD 21202 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. THE JOHNS HOPKINS UNIVERSITY Consolidated Statements of Activities Years ended June 30, 2020 and 2019 (In thousands) 2020 2019 Changes in net assets without donor restrictions: Operating revenues: Tuition and fees, net of financial aid of $417,091 and $363,694, respectively $ 703,360 690,465 Grants, contracts, and similar agreements 1,403,326 1,511,335 Facilities and administrative cost recoveries 366,779 372,478 Applied Physics Laboratory contract revenues 1,844,310 1,686,547 Sponsored research revenues 3,614,415 3,570,360 Contributions 124,988 123,341 Net assets released from restrictions 99,218 118,411 Contributions and donor support 224,206 241,752 Clinical services, net 705,107 745,197 Reimbursements from affiliated institutions 656,918 598,457 Other revenues 130,673 192,343 Net endowment payout used to support operations 256,408 196,770 Auxiliary enterprises 92,259 106,189 Maryland State aid 29,066 27,253 Investment return 58,166 41,331 Total operating revenues 6,470,578 6,410,117 Operating expenses: Compensation 3,075,083 2,909,517 Benefits 944,861 913,782 Compensation and benefits 4,019,944 3,823,299 Subcontractors and subrecipients 503,182 518,102 Contractual services 907,652 905,995 Supplies, materials, and other 583,399 599,214 Depreciation 220,926 223,263 Travel 116,027 162,989 Interest 44,789 44,518 Total operating expenses 6,395,919 6,277,380 Excess of operating revenues over operating expenses 74,659 132,737 4 (Continued) THE JOHNS HOPKINS UNIVERSITY Consolidated Statements of Activities Years ended June 30, 2020 and 2019 (In thousands) 2020 2019 Other changes in net assets without donor restrictions: Investment return (less than) in excess of endowment payout $ (5,908) 21,617 Change in benefit plans funded status, excluding benefit cost (126,094) (88,659) Other net periodic benefit cost 2,281 5,908 Change in fair value of interest rate swap agreements (10,918) (7,832) Other, net 21,353 22,342 Net assets released from restrictions 880 2,255 Other changes in net assets without donor restrictions (118,406) (44,369) Total changes in net assets without donor restrictions (43,747) 88,368 Changes in net assets with donor restrictions: Contributions 1,057,242 2,091,797 Investment return less than endowment payout (9,624) (41,894) Net assets released from restrictions (100,098) (120,666) Total changes in net assets with donor restrictions 947,520 1,929,237 Total change in net assets 903,773 2,017,605 Net assets at beginning of year 9,197,061 7,179,456 Net assets at end of year $ 10,100,834 9,197,061 See accompanying notes to consolidated financial statements. 5 THE JOHNS HOPKINS UNIVERSITY Consolidated Statements of Cash Flows Years ended June 30, 2020 and 2019 (In thousands) 2020 2019 Cash flows from operating activities: Changes in net assets $ 903,773 2,017,605 Adjustments to reconcile changes in net assets to net cash provided by operating activities: Depreciation, amortization, and other adjustments 205,664 220,664 Noncash gift of investments (377,977) (1,885,023) Contributions restricted for long-term investment (616,688) (227,248) Net realized and unrealized gains from investments (236,532) (148,076) Net unrealized losses from swaps 10,918 7,832 Earnings from joint ventures (13,965) (6,203) Change in benefit plans funded status 121,962 83,895 Changes in operating assets and liabilities: Sponsored research and accounts receivable, net 27,143 (75,329) Contributions receivable, net 89,856 140,605 Prepaid expenses and deferred charges (1,696) (13,910) Operating lease right-of-use assets, net of operating lease liabilities 20,543 — Other assets (11,023) (54,878) Accounts payable and accrued expenses 9,178 41,846 Sponsored research, other deferred revenues and other long-term liabilities 21,242 39,293 Interests and liabilities related to trusts and split-interest agreements 6,321 4,473 Net cash provided by operating activities 158,719 145,546 Cash flows from investing activities: Purchases of investments (5,621,926) (4,477,898) Proceeds from sales and maturities of investments 5,198,946 4,483,558 Purchases of property and equipment (646,096) (285,260) Repayments of student loans, net of disbursements 3,831 3,813 Loans to affiliates (8,720) (1,639) Repayments of loans to affiliates 7,063 7,614 Capital contributions to joint ventures, net of dividends (3,775) (3,177) Change in endowment and similar funds held for others (26,264) (25,735) Net cash used in investing activities (1,096,941) (298,724) Cash flows from financing activities: Contributions restricted for long-term investment 616,688 227,248 Proceeds from borrowings 682,047 125,000 Early retirement and refinancings of debt (153,150) (50,000) Scheduled debt and finance lease payments (22,416) (64,419) Net cash provided by financing activities 1,123,169 237,829 Net increase in cash and cash equivalents 184,947 84,651 Cash and cash equivalents at beginning of year 347,007 262,356 Cash and cash equivalents at end of year $ 531,954 347,007 See accompanying notes to consolidated financial statements. 6 THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 9 (Continued) give are recognized initially at fair value considering anticipated future cash receipts and discounting such amounts at a risk-adjusted rate. These inputs to the fair value estimate are considered Level 3 in the fair value hierarchy (see note 1(f)). Amortization of the discount is included in contributions revenue. Conditional promises to give are not recognized until one or more of the barriers have been overcome for the University to be entitled to the assets transferred and a right of return for the transferred assets or a right of release of the promisor’s obligation to transfer assets has expired. Contributions of assets are recorded at their estimated fair value at the date of gift, except that contributions of works of art, historical treasures, and similar assets held as part of collections are not recognized or capitalized. Allowance is made for uncollectible contributions receivable based upon management’s judgment and analysis of the creditworthiness of the donors, past collection experience, and other relevant factors. (e) Investments and Investment Return Investments in United States government and agency obligations, debt securities, and directly held United States and certain international equities in common collective trust funds (CCTFs) are stated at fair value, which are determined primarily based on quoted market prices. Fair values of CCTFs, similar to mutual funds that are deemed to have a readily determinable fair value (RDFV) are based on published net asset values (NAV). Investments in private equity and venture capital, certain real estate, natural resources, certain international equities in CCTFs and marketable alternatives, (collectively, alternative investments) are stated at estimated fair value based on the funds’ net asset values, or their equivalents (collectively NAV) as a practical expedient. If it is probable that alternative investments will be sold for an amount different than NAV, measurement of the alternative investments will be adjusted to fair value. As of June 30, 2020 and 2019, the University had no plans or intentions to sell investments at amounts different from NAV. The NAVs, which are estimated and reported by the general partners or investment managers, are reviewed and evaluated by the University’s investment office. These estimated fair values may differ from the values that would have been used had a ready market existed for these investments, and the differences could be significant. Investments in certain real estate assets are recorded at fair value based upon independent third-party appraisals. Investments are exposed to several risks, including interest rate, credit, liquidity, and overall market volatility. Due to the level of risk associated with certain investment securities, changes in the value of investment securities could occur in the near term, and these changes could materially affect the amounts reported in the accompanying consolidated financial statements. Liquidity risk represents the possibility that the University may not be able to rapidly adjust the size of its portfolio holdings in times of high volatility and financial stress at a reasonable price. If the University was forced to dispose of an illiquid investment at an inopportune time, it might be forced to do so at a substantial discount to fair value. Investment return included in operating revenues consists of income and realized gains and losses on operating investments, including cash equivalents, and nonpooled endowment funds (except where restricted by donors). Endowment payout for pooled endowment and similar funds approved by the Board of Trustees is also recognized in operating revenues. THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 10 (Continued) Unrealized gains and losses of operating investments and nonpooled endowment funds, any difference between the total return recognized and the payout for pooled endowment and similar funds, and income and realized gains restricted by donors are reported as nonoperating activities. (f) Fair Value Measurements Assets and liabilities that are reported at fair value on a recurring basis are categorized into a fair value hierarchy. As described further in the notes to the consolidated financial statements, such assets include investments, deferred compensation assets, and interests in trusts and endowment funds held by others, and such liabilities include interest rate swaps, obligations under deferred compensation arrangements, and endowment and similar funds held for others. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels of the fair value hierarchy are as follows:  Level 1: Quoted prices in active markets for identical assets or liabilities.  Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.  Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liabilities. When observable prices are not available, certain real asset investments are valued using one or more of the following valuation techniques: market approach – this approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities; income approach – this approach determines a valuation by discounting future cash flows; or cost approach – this approach is based on the principle of substitution and the concept that a market participant would not pay more than the amount that would currently be required to replace the asset. These valuation techniques may include inputs such as price information, operating statistics, specific and broad credit data, recent transactions, earnings forecasts, discount rates, reserve reports, and other factors. (g) Split-Interest Agreements and Interests in Trusts The University’s split-interest agreements with donors consist primarily of irrevocable charitable remainder trusts and charitable gift annuity agreements for which the University serves as trustee. Assets held under these arrangements are included in investments and are recorded at fair value. Contribution revenues are recognized at the date the trusts or agreements are established after recording liabilities for the present value of the estimated future payments to be made to the donors and/or other beneficiaries. The liabilities are adjusted during the terms of the trusts for changes in the values of the assets, accretion of the discounts, and other changes in estimates of future benefits. As of June 30, 2020 and 2019, assets under the University’s charitable gift annuity agreements were $58,944 and $64,025, respectively, and are classified in investments, and liabilities were $40,750 and $34,810, respectively, and are classified in liabilities under split-interest agreements. THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 11 (Continued) (h) Property and Equipment Property and equipment are stated at cost if purchased, or at estimated fair value at the date of gift if donated, less accumulated depreciation and amortization. Depreciation of buildings, equipment, and library collections and amortization of leasehold improvements are computed using the straight-line method over the estimated useful lives of the assets or lease term, if shorter. Land and certain historic buildings are not subject to depreciation. Title to certain equipment purchased using funds provided by government sponsors is vested in the University and is included in property and equipment on the consolidated balance sheets. Certain equipment used by the APL in connection with its performance under agreements with the United States government is owned by the government. These facilities and equipment are not included in the consolidated balance sheets; however, the University is accountable to the government for them. Repairs and maintenance costs are expensed as incurred. Costs of purchased software are capitalized along with internal and external costs incurred during the application development stage (i.e., from the time the software is selected until it is ready for use). Capitalized costs are amortized on a straight-line basis over the expected life of the software. Computer and software maintenance costs are expensed as incurred. Costs relating to retirement, disposal, or abandonment of assets for which the University has a legal obligation to perform certain activities are accrued using either site-specific surveys or square foot estimates, as appropriate. (i) Tuition and Fees, Net of Financial Aid Student tuition and fees are recorded as revenue as services are provided during the year the related academic services are rendered which generally aligns with the University’s fiscal year. Tuition and fees received in advance of services provided are reported in other deferred revenues and amounted to $78,171 and $97,082 at June 30, 2020 and 2019, respectively. The University provides institutional financial aid to eligible students, generally in an “aid package” that may also include loans, compensation under work-study programs, and/or grant and scholarship awards. The loans are provided primarily through programs of the United States government (including direct and guaranteed loan programs) under which the University is responsible only for certain administrative duties. The institutional grants and scholarships include awards provided from gifts and grants from private donors, income earned on endowment funds restricted for student aid, and University funds. The composition of student tuition and fees, net revenue was as follows for the years ended June 30, 2020 and 2019: 2020 2019 Undergraduate programs $ 179,152 174,290 Graduate programs 450,369 440,720 Other programs 73,839 75,455 $ 703,360 690,465 THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 14 (Continued) and may be reloaned after collections. These funds are ultimately refundable to the government and are included in other long-term liabilities. These advances totaled $14,856 and $22,244 as of June 30, 2020 and 2019, respectively. (q) Income Taxes The University is qualified as a not-for-profit organization under Section 501(c)(3) of the Internal Revenue Code, as amended. Accordingly, it is not subject to income taxes except to the extent it has taxable income from activities that are not related to its exempt purpose. The University annually reviews its tax positions and has determined that there are no material uncertain tax positions that require recognition in the consolidated financial statements. (r) Leases The University conducts certain operations in third-party and related party facilities and determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets, net represents the University’s right to use an underlying asset for the lease term and lease liabilities represent the University’s obligation to make lease payments arising from the lease. Operating and finance lease right-of-use assets and related lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term discounted using an appropriate incremental borrowing rate. The incremental borrowing rate is based on the estimated interest rate for borrowing over a term similar to that of the lease payments available at commencement of the lease. The value of an option to extend a lease is reflected to the extent it is reasonably certain management will exercise that option. Certain leases require payment for taxes, insurance, and maintenance. These variable lease payments are recognized in contractual services in the consolidated statements of activities, but are not included in the right-of-use asset or liability balances in the consolidated balance sheets. Operating leases are included in operating right-of use assets, net and operating lease liabilities in the consolidated balance sheet. Finance leases are included in property and equipment, net and debt in the consolidated balance sheet. Lease expense for lease payments is recognized on a straight line basis over the lease term. Interest expense is recognized as a component of the lease payments for finance leases. Rental income arising from operating leases as a lessor is included in operating revenue in other revenues in the consolidated statement of activities. (s) Derivative Financial Instruments The University and its external investment managers are authorized to use specified derivative financial instruments in managing the assets under their control, subject to restrictions and limitations adopted by the Board of Trustees. The University uses interest rate swap agreements to manage interest rate risk associated with certain variable rate debt or to adjust its debt structure. Derivative financial instruments are measured at fair value and recognized in the consolidated balance sheets as assets or liabilities, with changes in fair value recognized in the consolidated statements of activities. THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 15 (Continued) (t) Deferred Compensation Plans The University maintains deferred compensation plans for certain employees. As of June 30, 2020 and 2019, other investments, included in other assets on the consolidated balance sheets, represent investments held by the University under these deferred compensation agreements. Such amounts approximate the University’s related liability to the employees and are included in other long-term liabilities. The assets and liabilities of the deferred compensation plans are categorized in Level 1 of the fair value hierarchy. The fair value of deferred compensation plan assets as of June 30, 2020 and 2019 is $139,091 and $134,852, respectively. (u) Statement of Cash Flows Supplemental Information Property and equipment additions included in accounts payable and accrued expenses increased $5,210 and $6,885 as of June 30, 2020 and 2019, respectively. (v) Recently Adopted Accounting Standards In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), as amended, which requires, among other things, a lessee to recognize a right-of-use asset representing an entity’s right to use the underlying asset for the lease term and a liability for lease payments on the balance sheet, regardless of classification of a lease as an operating or finance lease. As permitted by the ASU, for leases with a term of twelve months or less as a lessee, the University has elected not to recognize the lease assets and liabilities and account for the lease similar to existing guidance for operating leases. The University early-adopted the ASU effective July 1, 2019 using the modified retrospective method. The University elected the package of practical expedients available under the transition provisions of the ASU, which allows the carry forward of historical conclusions on whether an existing contract is or contains a lease, the classification of existing leases and the treatment of indirect costs. The University’s adoption of the ASU had significant impacts relating to the recognition of lease liabilities and right-of-use assets for operating leases greater than one year on the consolidated balance sheet. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (A Consensus of the Emerging Issues Task Force), which adds or clarifies certain guidance on the classification of certain cash flow items. The University adopted the provisions of this standard in fiscal 2020 and there was no material impact on the consolidated statements of cash flows. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The University's adoption of this ASU in fiscal 2020 did not impact the University’s consolidated financial statements other than additional disclosure about the nature of certain cash and cash equivalents held by the University. THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 16 (Continued) (w) Reclassifications Certain 2019 amounts have been reclassified in order to conform to the 2020 expense information presentation. The University reclassified $52,848 from supplies, materials, and other to contractual services. (2) Applied Physics Laboratory The Applied Physics Laboratory (APL), located in Howard County, Maryland, was established during World War II with funding from the United States government. APL functions as a research facility and conducts research and development primarily in national defense and space sciences. The University owns and operates the facility and conducts research under a multiple task order contract with the United States Navy (the Navy Contract) and separate contracts with other government agencies. APL is organized as a Limited Liability Company (LLC), wholly owned by the University, and operates as a division of the University. In accordance with an agreement between the United States government and the University, APL has been designated a national resource. Under the agreement, if the University determines that it can no longer sponsor APL or the Secretary of the Navy determines that the Navy can no longer contract with the University with respect to APL on mutually satisfactory terms, the University is required to establish a charitable trust to provide for the continued availability of the APL. The trust would be administered by five trustees and the corpus would consist of the University’s interest in the APL facilities, including land to the extent necessary, and the balances in the University’s APL stabilization, contingency, and research fund on the date the trust is established, less certain costs. Upon termination of the trust, the corpus, in whole or in part, 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 agree. The University works under an omnibus contract with the U.S. Navy. The most recent contract provides for a five-year initial term ending in September 2017, plus a five-year renewal option, which was exercised in February 2017 and subsequently amended in May 2019 to increase the aggregate purchase limit to $7,117,558 over the ten-year contract period ending September 2022. Approximately 71% and 73% of APL’s revenues in both fiscal years 2020 and 2019 were from the Department of Defense (primarily under the Navy Contract) and 21% and 18% were from the National Aeronautics and Space Administration, respectively. Contract work includes evaluation and design of various types of missile systems and command, control, and communication systems, assessment of submarine technologies, design of space systems for precision tracking, location and navigation, and conduct of space experiments. The contracts define costs for which reimbursements may be received and provide a management fee to the University. The Navy Contract requires that a portion of the fees earned under the Navy Contract be retained and used for various purposes, including, among other things, working capital, capital projects, and reserves. APL principally provides services under cost plus fixed-fee contracts for which revenue is recognized in the period that costs are incurred. Contract accounts receivable are recorded at invoiced amounts. The allowance for doubtful accounts is estimated based on historical trends of past-due accounts, and specific identification and review of past-due accounts. THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 19 (Continued) Investments are summarized as follows as of June 30, 2020 and 2019: 2020 2019 Operating investments $ 1,820,418 1,225,501 Investments 7,643,728 7,190,782 9,464,146 8,416,283 Cash and cash equivalents 142,438 301,847 United States government and agency obligations 1,809,620 1,253,009 Debt securities 431,771 375,421 United States equities 1,381,650 1,107,571 International equities 599,236 801,319 Private equity and venture capital 1,411,264 1,240,850 Real estate 556,008 543,953 Natural resources 421,382 534,966 Marketable alternatives 2,710,777 2,257,347 $ 9,464,146 8,416,283 The following table summarizes the University’s investments as of June 30, 2020 and 2019 for which NAV was used as a practical expedient to estimate fair value: Fair value determined Unfunded Redemption Redemption using NAV commitments frequency notice period 2020 2019 2020 2019 2020 2020 United States equities $ 643,346 213,266 23,256 24,200 4% Monthly 30 to 90 days 20% Quarterly 22% Annually 54% 2- to 5-Year International equities 450,509 472,683 2,906 9,800 54% Monthly 6 to 365 days 17% Quarterly 20% Annually 9% 3- to 5-Year Private equity and venture capital 1,346,542 1,197,873 605,888 639,226 N/A N/A Real estate 458,529 445,655 256,993 287,827 N/A N/A Natural resources 389,324 482,075 100,962 120,433 N/A N/A Marketable alternatives 2,710,777 2,257,347 272,005 221,199 See chart below 5 to 120 days (1) $ 5,999,027 5,068,899 1,262,010 1,302,685 (1) Investments that are not redeemable total $241,725 and $222,744 as of June 30, 2020 and 2019, respectively. The commitments may be drawn down over the next several years upon request by the general partners and fund managers. The University expects to finance these commitments with available cash and expected proceeds from the sales of securities. THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 20 (Continued) Marketable alternatives have the following redemption periods as of June 30, 2020 and 2019: 2020 2019 Quarterly redemptions $ 542,322 682,513 Annual redemptions 507,936 506,839 Quarterly or annually over 1- to 3-year period 1,022,732 558,851 Rolling 3- to 5-year redemptions 396,062 286,400 Drawdown funds over 15-year period 241,725 222,744 $ 2,710,777 2,257,347 Information with respect to investee strategies and redemptions for those investments in funds whose fair value is estimated based upon reported NAVs follow: (a) United States Equities This includes commingled funds that invest in publicly traded common stock of domestic companies. Funds offer redemptions monthly, quarterly, annually, or over the course of 2 to 5 years, with various notice requirements ranging from 30 to 90 days. (b) International Equities This includes commingled funds that invest in publicly traded common stock of developed and emerging market companies. Funds offer redemptions monthly, quarterly, annually, or over the course of 3 to 5 years, with various notice requirements ranging from 6 to 365 days. (c) Private Equity and Venture Capital This includes funds making investments in leveraged buyouts of both public and private companies, as well as investments in venture capital, growth-stage investing, and distressed debt. These are limited partnerships where distributions are made to investors through the liquidation of the underlying assets. It is expected to take up to 15 years to fully distribute these assets. (d) Real Estate This includes limited partnerships making investments in real estate. These investments make distributions to investors through the liquidation of underlying assets. It is expected to take up to 15 years to fully distribute these assets. (e) Natural Resources This includes limited partnerships making investments in oil and gas, timber, agriculture, minerals, and other commodities. These investments make distributions to investors through the liquidation of the underlying assets. It is expected to take up to 15 years to fully distribute these assets. THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 21 (Continued) (f) Marketable Alternatives This includes multi-strategy, credit and distressed debt, relative value, and event-driven funds in hedge fund and drawdown formats. Hedge funds have various redemption periods as summarized in the table above, with notice requirements ranging from 5 to 120 days. Drawdown funds are limited partnerships where distributions are made to investors through the liquidation of the underlying assets. It is expected to fully distribute these drawdown funds over a 15-year period. Investment return is classified in the consolidated statements of activities as follows for the years ended June 30, 2020 and 2019: 2020 2019 Without donor restrictions: Operating, including endowment payout $ 314,574 238,101 Nonoperating (5,908) 21,617 With donor restrictions (9,624) (41,894) $ 299,042 217,824 THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 24 (Continued) The following table presents the University’s activity for Level 3 investments measured at fair value on a recurring basis for the years ended June 30, 2020 and 2019: Private equity Debt U.S. and venture Real Natural securities equities capital estate resources Total Balance as of June 30, 2018 $ — — — 124,315 — 124,315 Net realized and unrealized losses 9 — — (45,700) — (45,691) Sales and distributions — — — (315) — (315) Purchases and contributions 2,999 — 42,977 — 38,295 84,271 Balance as of June 30, 2019 3,008 — 42,977 78,300 38,295 162,580 Transfers betw een levels 100 — (9,611) — — (9,511) Net realized and unrealized loss (10) (1) 645 — (10,765) (10,131) Sales and distributions — — (1,548) — (1,593) (3,141) Purchases and contributions 142 333 11,269 — — 11,744 Balance as of June 30, 2020 $ 3,240 332 43,732 78,300 25,937 151,541 For the year ended June 30, 2019, the University did not have any transfers between fair value levels. For the year ended June 30, 2020 private equity assets totaling $7,392 and $2,219 moved from Level 3 to Level 2 and NAV, respectively. Debt security assets moved from Level 2 to Level 3. Transfers resulted from changes in the inputs used to value the investments. (7) Property and Equipment Property and equipment, net, are summarized as follows as of June 30, 2020 and 2019: Range of 2020 2019 useful lives Land $ 116,863 116,825 N/A Land improvements 113,552 113,199 15 years Buildings and leasehold improvements 3,534,434 3,449,885 10–40 years Equipment 1,089,861 1,062,860 7–15 years Capitalized software costs 131,055 128,035 3–10 years Library collections 364,193 347,330 25 years Construction in progress 690,674 217,109 N/A 6,040,632 5,435,243 Less accumulated depreciation and amortization 3,417,126 3,240,268 $ 2,623,506 2,194,975 THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 25 (Continued) (8) Debt Debt is summarized as follows as of June 30, 2020 and 2019: 2020 2019 Bonds payable, net $ 1,132,209 843,018 Notes payable – taxable 271,232 280,864 Commercial paper revenue notes – tax-exempt 67,169 67,169 Commercial paper revenue notes – taxable 114,000 — Line of credit advances 100,000 — Capital lease obligations (note 15) — 63,102 Finance lease obligations (note 15) 58,912 — $ 1,743,522 1,254,153 (a) Bonds Payable Bonds payable were 1) issued by the Maryland Health and Higher Educational Facilities Authority (MHHEFA) or 2) taxable bonds issued directly, and consist of the following as of June 30, 2020 and 2019: 2020 2019 Revenue Bonds Series 2005A, variable effective rate (0.11%), due July 2036 $ 69,265 69,265 Revenue Bonds Series 2012A, 4.00% to 5.00%, due July 2041 — 153,150 Taxable Bonds 2013 Series A, 4.08%, due July 2053 355,000 355,000 Revenue Bonds Series 2013B, 4.25% to 5.00%, due July 2041 91,030 99,625 Taxable Bonds 2015 Series A, 3.75%, due July 2045 150,000 150,000 Taxable Bonds 2020 Series A, 1.97% to 2.81%, due January 2060 470,000 — Subtotal 1,135,295 827,040 Premium and discount, net 2,417 20,495 Debt issuance cost, net (5,503) (4,517) $ 1,132,209 843,018 The bonds payable outstanding as of June 30, 2020 and 2019 are unsecured general obligations of the University. The loan agreements generally provide for semiannual payments of interest. THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 26 (Continued) In March 2020, the University issued $470,000 of 2020 Series A fixed rate bonds. The 2020 Series A Bonds are subject to redemption prior to final maturity. The Bonds provide for a $100,000 principal repayment in 2030 and annual payments of $92,500 in 2057 through 2060. Proceeds from the 2020 Series A were used 1) to refund all of the outstanding Revenue Bonds Series 2012A, 2) for financing and refinancing of certain capital projects, and 3) to pay costs of issuance of the Bonds. As a result of this refunding, the University recognized a loss of $966 in fiscal 2020, which includes the write-off of unamortized original issue premium and bond issuance costs associated with the Series 2012A Bonds. (b) Notes Payable – Taxable Notes payable – taxable consist of the following as of June 30, 2020 and 2019: 2020 2019 Note due December 2019 $ — 7,907 Note, 2.74%, due November 2023 25,000 25,000 Note, 2.89%, due November 2024 23,030 24,030 Note, 2.90%, due November 2024 23,202 23,927 Note, 2.94%, due November 2027 25,000 25,000 Note, 3.83%, due October 2028 25,000 25,000 Note, 3.92%, due November 2028 50,000 50,000 Notes, 4.16%, due May 2048 50,000 50,000 Note, 4.50%, due November 2049 50,000 50,000 $ 271,232 280,864 The note due in December 2019 had a fixed rate of 8.88% and was secured by certain of the University’s property. The note was retired in December 2019. The notes due November 2023 through November 2049 are unsecured general obligations of the University. (c) Commercial Paper Under the commercial paper program, the University may have commercial paper outstanding of up to $400,000. The notes are unsecured, bear interest at rates that are fixed at the date of issue and may have maturities up to 270 days from the date of issue. The notes outstanding as of June 30, 2020 bear interest at a weighted average rate of 0.16%. The tax-exempt commercial paper revenue notes were issued by MHHEFA to finance and refinance the costs of qualified assets. It is anticipated that the University will continuously renew maturing notes for a period of up to 120% of the estimated useful lives of the related assets. (d) Interest Costs Total interest costs incurred and paid were $51,631 in 2020 and $51,551 in 2019, of which $5,610 in 2020 and $4,114 in 2019 were capitalized. THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 29 (Continued) (g) Annual Principal Payments The following table summarizes the aggregate annual maturities of bonds payable, notes payable, the maturities of specific tax-exempt commercial paper revenue note tranches, as well as taxable commercial paper and line of credit advances issued for liquidity purposes, for the five fiscal years subsequent to June 30, 2020: Bonds Notes Commercial Line Fiscal year payable payable paper notes advances Total 2021 $ 8,590 2,658 114,000 — 125,248 2022 8,595 2,826 — — 11,421 2023 8,595 3,823 — 50,000 62,418 2024 — 30,567 7,310 50,000 87,877 2025 — 43,093 3,244 — 46,337 Thereafter 1,109,515 188,265 56,615 — 1,354,395 $ 1,135,295 271,232 181,169 100,000 1,687,696 Due to requirements to pay the trustee in advance of the payment due date, scheduled maturities in the table above are reflected in the fiscal year that they will be paid to the trustee. (9) Net Assets Net assets without donor restrictions consists of the following as of June 30, 2020 and 2019: 2020 2019 Net investment in plant $ 1,093,984 940,822 Board designated endowments 969,640 973,320 Undesignated 970,306 1,163,535 $ 3,033,930 3,077,677 THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 30 (Continued) Net assets with donor restrictions consists of the following as of June 30, 2020 and 2019: 2020 2019 Donor-restricted endowment funds $ 5,780,452 5,302,619 Contributions receivable for endowment 70,083 118,466 Contributions receivable for operating 154,129 174,237 Contributions restricted for facilities 530,077 116,326 Land subject to time and purpose restrictions 26,300 26,300 Perpetual trusts for scholarship and program support 64,838 61,157 Other contributions, including annuities and other trusts 441,025 320,279 $ 7,066,904 6,119,384 Other contributions, including annuities and other trusts are restricted for faculty support, research, and program support. (10) University Endowment The University’s endowment consists of approximately 4,300 individual funds established for a variety of purposes and includes both donor-restricted endowment funds and funds designated by the Board of Trustees to function as endowments. Net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. The Board of Trustees of the University has interpreted the Maryland enacted version of Uniform Prudent Management of Institutional Funds Act (UPMIFA) as allowing the University to appropriate for expenditure or accumulate so much of an endowment fund as the University determines is prudent for the uses, benefits, purposes, and duration for which the endowment fund is established, subject to the intent of the donor as expressed in the gift instrument. The Board of Trustees of the University manages and invests the individual endowment funds in the exercise of ordinary business care and prudence under facts and circumstances and considering the purposes, factors, and other requirements of UPMIFA. The University classifies as net assets with donor restrictions (a) the original value of gifts donated, which are donated to the endowment, (b) the original value of subsequent gifts to the endowment, and (c) accumulations to the endowment, which are not expendable on a current basis in accordance with the directions of the applicable donor gift instrument at the time the accumulation is added to the fund. At times, the fair value of individual donor restricted endowment funds may be in an underwater position (fall below historical book value) and are reported in net assets with donor restrictions. With respect to underwater endowments, the spending occurs only to the extent that the fair value of the endowment fund is 75% of historical book value. THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 31 (Continued) The University has adopted investment policies for its endowment, including board-designated funds, which attempt to provide a predictable stream of funding in support of the operating budget, while seeking to preserve the real value of the endowment assets over time. The University relies on a total return strategy under which investment returns are achieved through both appreciation (realized and unrealized) and yield (interest and dividends). Investments are diversified by asset class, as well as by investment manager and style, with a focus on achieving long-term return objectives within prudent risk constraints. Subject to the intent of the donor, the Board of Trustees appropriates for expenditure or accumulates funds in the endowments in the exercise of ordinary business care and prudence under the facts and circumstances and considering the purposes, factors, and other requirements of UPMIFA. The annual appropriation is determined in the context of the University’s spending rate policy. The current policy, which is based on a long-term investment return assumption as well as an estimated inflation factor, targets the appropriation to be in a range of 4.5% to 5.5% of the prior three years’ average value of the endowment. Endowment net assets consist of the following as of June 30, 2020: Without donor With donor restrictions restrictions Total Investments by type of fund: Donor-restricted endowments: Historical gift value $ — 5,039,142 5,039,142 Appreciation — 741,310 741,310 Board-designated endowments 969,640 — 969,640 Total endowment net assets $ 969,640 5,780,452 6,750,092 Endowment net assets consist of the following as of June 30, 2019: Without donor With donor restrictions restrictions Total Investments by type of fund: Donor-restricted endowments: Historical gift value $ — 4,483,000 4,483,000 Appreciation — 819,619 819,619 Board-designated endowments 973,320 — 973,320 Total endowment net assets $ 973,320 5,302,619 6,275,939 As of June 30, 2020 and 2019, donor-restricted endowments with original gift values of $2,537,444 and $244,503 were underwater by $19,683 and $1,077, respectively. These deficits resulted from unfavorable market fluctuations that occurred shortly after the investment of newly established endowments and authorized appropriation that was deemed prudent. THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 34 (Continued) (d) The Johns Hopkins Hospital Endowment Fund Incorporated (JHHEFI) In July 2007, the University and JHHEFI entered into an agreement whereby JHHEFI transferred approximately $381,000 to the University to invest in the University’s Endowment Investment Pool (EIP) and have the University manage these assets on JHHEFI’s behalf. The funds were invested with other University assets in the University’s name and title, and in accordance with the University’s EIP investment policies and objectives. JHHEFI receives payouts as determined by their Board of Trustees and may terminate the agreement upon 180 days’ written notice with liquidations to be made over a three-year period as specified in the agreement. The assets are included in investments in the consolidated balance sheets, and a corresponding liability of $496,651 and $502,375 is included in endowment and similar funds held for others as of June 30, 2020 and 2019, respectively. The corresponding liability has a fair value measurement of Level 3. JHHEFI’s assets represent approximately 9.6% of the combined investment pool of $5,158,400 as of June 30, 2020. (e) Jointly Owned Entities As of June 30, 2020 and 2019, the University and JHHS and its affiliates jointly own several entities that are accounted for on the equity method. The University’s aggregate investments in and advances to these joint ventures was approximately $317,121 and $297,274 as of June 30, 2020 and 2019, respectively. Equity in operating earnings of affiliates aggregated approximately $16,097 in fiscal 2020 and $7,613 in fiscal 2019. In 2005, one of these entities, JHMI Utilities LLC, was formed to provide utility services for the East Baltimore campus. The University and Hospital, each owning 50% of JHMI Utilities LLC, provide all of its funding, including debt service, through payments for services received. Utility and telecommunications services provided to the University in fiscal 2020 and 2019 were approximately $30,420 and $31,895, respectively. JHMI Utilities LLC has an agreement with the University to finance a portion of the costs of installation of an enterprise information technology system that provides integrated patient care information and service across JHM. The project has been successfully implemented with the total project cost at approximately $294,800 as of June 30, 2020. The cost of implementing the enterprise information technology strategy was financed through a combination of loans from, or guarantees by, the University and JHHS. The University committed to funding up to $36,800 of the project. As of June 30, 2020 and 2019, $17,400 and $19,500, respectively, was outstanding on the loan. In addition, the University has agreed to guarantee a pooled loan of up to $14,100. Although the University’s ownership interest in each of the jointly owned entities is generally 50%, the University and JHHS have entered into separate agreements whereby certain activities or lines of business within these entities are not shared equally. THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 35 (Continued) The following table summarizes the aggregate condensed financial information of the jointly owned entities and the University’s proportionate share of the entities as of and for the years ended June 30, 2020 and 2019, respectively: 2020 2019 University University Total interest Total interest Assets $ 1,383,730 617,251 1,298,710 588,185 Liabilities 865,622 383,637 832,480 372,761 Operating revenues 2,984,665 1,202,880 2,812,007 1,181,709 Operating expenses 2,913,204 1,186,783 2,787,401 1,174,096 (12) Pension and Postretirement Benefit Plans The University has several benefit plans that are available to substantially all full-time employees. Most of these plans are defined contribution plans for which the University’s policy is to fund benefit costs as earned. The University also has a defined benefit pension plan covering bargaining unit employees and those classified as support staff. Benefit plan expenses were $266,463 in fiscal 2020 and $249,164 in fiscal 2019, including $240,874 and $229,224, respectively, related to defined contribution plans. Of the total benefit expense, APL’s defined contribution plan accounted for $87,828 in fiscal 2020 and $81,167 in fiscal 2019. Effective July 1, 2011, the University closed the support staff pension plan to new participants other than bargaining unit employees. In addition, the University offered a choice to current participants between the current support staff pension plan and its 403(b) plan. The University has retiree benefits plans that provide postretirement medical benefits to employees, including those at APL, 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 plans and intends to make contributions to the fund approximately equal to the annual net postretirement benefit cost. Effective July 1, 2019, APL adopted an amendment to the postretirement medical plan to allow employees who were originally hired before January 1, 2012, had a break in service and returned after December 31, 2011 to be eligible for the medical subsidy. The plan change increased the accumulated postretirement benefit obligation by $1,260 for the year ended June 30, 2020. Effective July 1, 2018, APL adopted an amendment to the postretirement medical plan for employees who retired after December 31, 2012. For those employees, the percentage of premium paid by APL would become a fixed dollar amount beginning in 2021 and it would be based on the premium rates of 2020. The plan change increased the accumulated postretirement benefit obligation by $9,272 for the year ended June 30, 2019. In 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively, the Health Care Acts) were signed into law. The Health Care Acts include several THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 36 (Continued) provisions that may affect the University’s postretirement benefit plans, and have been considered in the measurement of the postretirement benefit obligation. The University uses a June 30 measurement date for its defined benefit pension plan and retiree benefit plans. Information relating to the benefit obligation, assets, and funded status of the defined benefit pension plan and the postretirement benefit plans as of and for the years ended June 30, 2020 and 2019 is summarized as follows: Pension plan Postretirement plans 2020 2019 2020 2019 Change in benefit obligation: Benefit obligation at beginning of year $ 788,729 691,268 268,019 245,014 Service cost 15,246 13,978 7,855 7,034 Interest cost 26,873 28,592 8,790 9,720 Participant contributions — — 11,492 10,718 Plan amendment — — 1,260 9,272 Actuarial loss 105,669 77,036 20,478 6,868 Benefits paid (25,317) (22,145) (21,975) (21,547) Medicare subsidies received — — 831 940 Benefit obligation at end of year 911,200 788,729 296,750 268,019 Change in plan assets: Fair value of plan assets at beginning of year 559,695 531,825 312,441 303,740 Actual return on plan assets 20,983 30,075 15,063 18,665 University contributions 25,267 19,940 — — Participant contributions — — 11,171 10,643 Benefits paid (25,317) (22,145) (18,758) (21,547) Medicare subsidies received — — 831 940 Fair value of plan assets at end of year 580,628 559,695 320,748 312,441 Funded status recognized as pension and postretirement obligations, net $ (330,572) (229,034) 23,998 44,422 The accumulated benefit obligation for the pension plan was $880,527 and $763,194 as of June 30, 2020 and 2019, respectively. THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 39 (Continued) The rate of increase in healthcare costs was assumed to begin with an initial rate of 6.3% in 2020 and decrease to 4.5% in 2036 and to remain at that level thereafter. Assumed healthcare cost trend rates have a significant effect on the reported postretirement benefit cost and obligation. A one-percentage-point change in the assumed rates used at June 30, 2020 would have the following effects: Increase Decrease Total service and interest cost components $ 206 (187) Postretirement benefit obligation 5,788 (5,160) (a) Plans’ Assets The purpose of the pension and postretirement plans is to meet the retirement benefit obligations of eligible University employees. The plans’ assets are invested with the objective of meeting these obligations under the rules stipulated by the Employee Retirement Income Security Act. An asset allocation has been established, which endeavors to adequately cover the liability stream posed by the beneficiaries of the plans and minimize the frequency and amount of the plans’ contributions by the University. The intended benefits of this diversification are reduced risk and improved investment returns. (b) Pension Plan The following table presents the fair value and categorization within the fair value hierarchy of the assets of the defined benefit pension plan as of June 30, 2020 and 2019: 2020 2019 Funds at Funds at Total Level 1 NAV Total Level 1 NAV Cash and cash equivalents $ 10,529 10,529 — 170 170 — Fixed income securities 207,805 199,287 8,518 203,656 195,711 7,945 United States equities and international equities 312,631 281,266 31,365 275,814 275,814 — Marketable alternatives 49,663 — 49,663 80,055 — 80,055 Total $ 580,628 491,082 89,546 559,695 471,695 88,000 THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 40 (Continued) (c) Postretirement Plans The following table presents the fair value and categorization within the fair value hierarchy of the assets of the postretirement plans as of June 30, 2020 and 2019: 2020 2019 Funds at Funds at Total Level 1 NAV Total Level 1 NAV Cash and cash equivalents $ 11,613 11,613 — 2,481 2,481 — Accounts receivable - rebates earned 3,217 3,217 — — — — Fixed income securities 101,367 101,367 — 92,038 92,038 — United States equities and international equities 182,256 165,457 16,799 175,372 175,372 — Marketable alternatives 22,295 — 22,295 42,550 — 42,550 Total $ 320,748 281,654 39,094 312,441 269,891 42,550 The Plans have no unfunded commitments to fund managers as of June 30, 2020 and 2019. The University’s target asset allocations for the pension plan and the postretirement plans as of June 30, 2020 and 2019: Pension plan Postretirement plans 2020 2019 2020 2019 Fixed income securities 30 % 30 % 35 % 35 % United States equities and international equities 55 55 55 55 Real estate 5 5 — — Marketable alternatives 10 10 10 10 Total 100 % 100 % 100 % 100 % (d) Cash Flows The University expects to contribute $34,120 to the pension plan in fiscal 2021. THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 41 (Continued) The benefits expected to be paid and Medicare subsidies to be received in the five years subsequent to June 30, 2020 and in aggregate for the five fiscal years thereafter are as follows: Pension Postretirement Medicare Fiscal year plan plans subsidies 2021 $ 29,166 11,914 293 2022 30,958 12,643 301 2023 32,623 13,280 309 2024 34,330 13,901 316 2025 36,066 14,407 326 2026–2030 204,043 78,504 1,764 (13) Functional Expense Information Operating expenses by nature and function are summarized as follows for the year ended June 30, 2020: 2020 Programs Instruction, research and clinical Student Total Institutional Total practice APL services Auxiliaries Libraries programs support expenses Compensation $ 1,881,398 853,216 61,196 19,168 13,920 2,828,898 246,185 3,075,083 Benefits 484,081 362,326 17,591 4,845 3,622 872,465 72,396 944,861 Subcontractors and subrecipients 278,760 224,422 — — — 503,182 — 503,182 Contractual services 592,729 69,384 43,033 37,950 7,811 750,907 156,745 907,652 Supplies, materials and other 350,157 158,029 8,998 30,762 8,290 556,236 27,163 583,399 Depreciation 94,879 62,758 4,471 8,222 16,491 186,821 34,105 220,926 Travel 83,072 23,590 2,991 385 281 110,319 5,708 116,027 Interest 30,276 — 1,239 2,795 832 35,142 9,647 44,789 Total $ 3,795,352 1,753,725 139,519 104,127 51,247 5,843,970 551,949 6,395,919 Operating expenses by nature and function are summarized as follows for the year ended June 30, 2019: 2019 Programs Instruction, research and clinical Student Total Institutional Total practice APL services Auxiliaries Libraries programs support expenses Compensation $ 1,826,521 761,393 56,958 17,993 15,931 2,678,796 230,721 2,909,517 Benefits 482,055 338,237 16,841 4,776 4,437 846,346 67,436 913,782 Subcontractors and subrecipients 330,044 188,058 — — — 518,102 — 518,102 Contractual services 570,924 68,111 40,067 37,154 7,836 724,092 181,903 905,995 Supplies, materials and other 355,292 160,748 11,610 28,931 8,289 564,870 34,344 599,214 Depreciation 96,544 63,125 4,760 8,123 15,917 188,469 34,794 223,263 Travel 119,636 29,767 4,710 498 396 155,007 7,982 162,989 Interest 29,992 92 1,252 2,721 805 34,862 9,656 44,518 Total $ 3,811,008 1,609,531 136,198 100,196 53,611 5,710,544 566,836 6,277,380 THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 44 (Continued) Payments due for finance leases through fiscal year 2031 are summarized below as of June 30, 2020: 2021 $ 8,050 2022 8,283 2023 8,524 2024 8,772 2025 9,027 After 2025 33,789 76,445 Less: amounts representing interest 17,533 Total obligation $ 58,912 As of June 30, 2020, the gross amount of assets and accumulated depreciation thereon are reflected in property and equipment and amounted to $95,149 and $55,593, respectively. The following presents supplemental cash flow information for the year ended June 30, 2020 as it relates to cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 52,820 Operating cash flows for finance leases 4,190 Financing cash flows for finance leases 3,797 As reflected in the fiscal 2019 financial statements, the aggregate annual minimum guaranteed rents to be paid to the expiration of the initial terms for operating leases are as follows as of June 30, 2019: Affiliates Others Total 2020 $ 16,620 34,506 51,126 2021 13,486 31,332 44,818 2022 12,107 26,328 38,435 2023 8,215 21,264 29,479 2024 6,394 20,128 26,522 After 2024 23,088 38,827 61,915 $ 79,910 172,385 252,295 Rental expense for the long-term operating leases was $54,440 in fiscal year 2019. THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 45 (Continued) The following is a summary of minimum lease payments for these leases as of June 30, 2019: 2020 $ 7,987 2021 8,050 2022 8,283 2023 8,524 2024 8,772 After 2024 42,842 Minimum lease payments 84,458 Less imputed interest (at rates from 3.24% to 8.41%) 21,356 Present value of minimum lease payments $ 63,102 As of June 30, 2019, the gross amount of assets and accumulated depreciation thereon accounted for as capital leases amounted to $95,149 and $51,043, respectively. (16) Risks and Uncertainties In March 2020, the World Health Organization declared the novel coronavirus (COVID-19) a pandemic. The widespread outbreak of COVID-19, together with the resulting voluntary restrictions and governmental orders, public gathering limitations, restrictions on travel and quarantines, has disrupted, and is expected to continue to meaningfully disrupt, the global economy, including universities and colleges. Although it is not possible to determine the pandemic’s ultimate length, severity, or impacts on the economy or the University’s finances, the University has experienced adverse effects related to COVID-19. As a result of the pandemic, in March 2020, the University suspended in-person education and other campus-based activities, resulting in a reduction in revenues, including lost revenues resulting from the deferral of clinical elective procedures, a decrease in sponsored activities and the refunding of a portion of student housing and dining revenues. Although the University has incurred certain incremental costs due to the pandemic, including transitioning to online education and work environments, it has also experienced reductions in certain other recurring costs, such as travel and utilities. The pandemic is expected to continue to adversely affect the University’s ability to conduct its operations, the cost of its operations, and the generation of certain revenue, including from enrollment, campus housing and dining, clinical services, international activities, and other operating activities, as well as from financial markets and fundraising, and such effects could be consequential to the University. As a result, the University has taken a variety of mitigating actions to reduce costs, including the temporary suspension of employer 403(b) contributions beginning July 1, 2020. The full extent of the impact of COVID-19 on the University will depend on various future developments, particularly the duration and depth of the pandemic, which may be influenced by emerging vaccines, medical treatments and applicable health and safety regulations. THE JOHNS HOPKINS UNIVERSITY Notes to Consolidated Financial Statements June 30, 2020 and 2019 (Dollars in thousands) 46 (Continued) (17) Other Commitments and Contingencies (a) Guarantees The University and the Hospital have also provided guarantees of principal and interest payments related to loans granted to JHMI Utilities LLC under the MHHEFA Pooled Loan Program. As of June 30, 2020, the University’s guarantee amounted to $14,000 and continues until maturity of the loans occurring through 2029. (b) Regulatory and Legal Matters 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 material adverse effect on the financial position of the University. The University is subject to various claims, litigation, tax, and other assessments in connection with its domestic and foreign operations. In the opinion of management, adequate provision has been made for losses on these matters, where material, including insurance for malpractice and general liability claims, and their ultimate resolution will not have a material adverse effect on the financial position of the University. (i) Specific Matters On April 1, 2015, a complaint was filed against the University, its Bloomberg School of Public Health and its School of Medicine, JHHSC and JHH (collectively the “Johns Hopkins Defendants”), as well as another institution and a pharmaceutical company (collectively the “defendants”). The claims arise from human experiments conducted in Guatemala between 1946 and 1948 (the “Study”) under the auspices of the United States Public Health Service, the Guatemalan government, and the Pan American Sanitary Bureau. The plaintiffs’ third amended complaint alleges that physicians and scientists employed by defendants “approved, encouraged, and directed nonconsensual and nontherapeutic human experiments in Guatemala” in which research subjects were intentionally exposed to and infected with venereal diseases without informed consent, and that the individuals were not advised about the consequences of the experiments or given follow-up care, treatment, or education. The third amended complaint alleges claims under both the Guatemala civil code and the federal Alien Tort Statute (the “ATS”), and seeks compensatory damages in excess of $75 and punitive damages of $1,000,000. The Johns Hopkins Defendants dispute both the factual allegations and legal claims. The Johns Hopkins Defendants did not initiate, pay for, direct, or conduct the Study. In 2010, the United States government accepted responsibility for the Study and apologized to all who were affected by it. A prior lawsuit against officials of the United States government for the same injuries alleged in the suit against the Johns Hopkins Defendants was dismissed by the U.S. District Court for the District of Columbia.