Thomas Jefferson University
Consolidated Balance Sheet
June 30, 2015
Thomas Jefferson University
Table of Contents
June 30, 2015
Pages
Independent Auditors Report
1
Consolidated Balance Sheet
2
Notes to Consolidated Financial Statements
3 – 30
Supplemental Information:
Unaudited Pro Forma Information
31
Independent Auditor's Report
To the Board of Trustees
Thomas Jefferson University:
We have audited the accompanying consolidated balance sheet of Thomas Jefferson University and its
subsidiaries (the “University”) as of June 30, 2015.
Management's Responsibility for the Consolidated Balance Sheet
Management is responsible for the preparation and fair presentation of the consolidated balance sheet 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 a consolidated balance sheet that is free from material misstatement, whether due to fraud
or error.
Auditor's Responsibility
Our responsibility is to express an opinion on the consolidated balance sheet based on our audit. We
conducted our audit 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 balance sheet is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated balance sheet. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the consolidated balance sheet, 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 balance sheet 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 balance sheet. 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 accompanying consolidated balance sheet presents fairly, in all material respects, the
financial position of Thomas Jefferson University and its subsidiaries at June 30, 2015 in accordance with
accounting principles generally accepted in the United States of America.
October 23, 2015
PricewaterhouseCoopers LLP, Two Commerce Square, Suite 1800, 2001 Market Street, Philadelphia, PA 19013-7042
T: (267) 330 - 3000, F: (267) 330 - 3300, www.pwc.com/us
Thomas Jefferson University
Consolidated Balance Sheet
June 30, 2015
(In Thousands)
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, less allowance for doubtful accounts
of $52,161 in 2015
Inventory
Pledges receivable
Insurance recoverable
Assets whose use is limited, current
Other current assets
Total current assets
$245,663
1,029,742
400,949
37,921
18,226
30,614
20,050
24,379
1,807,544
Long-term investments
Assets whose use is limited, noncurrent
Assets held by affiliated foundation
Pledges receivable
Goodwill, net
Insurance recoverable
Loans receivable from students, net
Land, buildings and equipment, net
Other noncurrent assets
Total assets
929,750
143,871
8,781
82,686
25,964
134,544
26,417
1,389,913
18,011
$4,567,481
Liabilities and Net Assets
Current liabilities:
Current portion of:
Long-term obligations
Accrued professional liability claims
Accrued workers' compensation claims
Deferred revenues
Accounts payable and accrued expenses
Accrued payroll and related costs
Grant and contract advances
Total current liabilities
$22,110
51,459
7,400
13,160
269,464
214,530
17,844
595,967
Long-term obligations
Accrued pension liability
Federal student loan advances
Deferred revenues
Accrued professional liability claims
Accrued workers' compensation claims
Interest rate swap contracts
Other noncurrent liabilities
Total liabilities
955,550
289,383
18,247
8,040
311,259
22,856
29,826
21,938
2,253,066
Net assets:
Unrestricted
Noncontrolling interest in joint venture
Temporarily restricted
Permanently restricted
Total net assets
1,745,968
4,290
280,446
283,711
2,314,415
Total liabilities and net assets
$4,567,481
The accompanying notes are an integral part of the consolidated financial statements.
2
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations and Organization
The accompanying financial statements represent the consolidated financial position of
Thomas Jefferson University, TJUH System (“TJUHS”), and Abington Health (“AH”)
collectively referred to as TJU.
Thomas Jefferson University is an independent, non-profit corporation organized under the
laws of the Commonwealth of Pennsylvania and recognized as a tax-exempt organization
pursuant to Section 501(c)(3) of the Internal Revenue Code. Thomas Jefferson University has
a tripartite mission of education, research, and patient care. Thomas Jefferson University
conducts research and offers undergraduate and graduate instruction through the Sidney
Kimmel Medical College, and the Jefferson Colleges of Nursing, Pharmacy, Health
Professions, Population Health, and Biomedical Sciences. Thomas Jefferson University has
approximately 3,600 students and is located in Philadelphia, Pennsylvania.
TJUHS is an integrated healthcare organization that provides inpatient, outpatient, and
emergency care services through acute care, ambulatory care, physician, and other primary
care services for residents of the Greater Philadelphia Region. On June 30, 2014 TJUHS
combined with Thomas Jefferson University to form a new organization. This transaction was
accounted for as a merger.
Effective, May 1, 2015 TJU and AH merged to form a new organization that will serve the
greater Philadelphia area and further expand and enhance its tripartite mission of education,
research and patient care. AH is a not for profit healthcare organization located in suburban
Philadelphia and controlling entity of Abington Memorial Hospital, Lansdale Hospital
Corporation and Abington Health Foundation. The merger of TJU and AH was effected by
reconstituting the governing board of TJU to provide for equal representation by both TJU
and AH, and designating TJU as sole corporate member of AH. Effective the date of the
merger, TJU became a new entity for financial reporting purposes.
TJU includes the accounts of subsidiaries of Thomas Jefferson University including 1100
Walnut Associates; 925 Walnut Corporation; Delaware Health Sciences Alliance, LLC; and
the accounts of subsidiaries of TJUHS, including Thomas Jefferson University Hospitals,
Inc.; Jefferson University Physicians (“JUP”); Jefferson Physician Services; the Atrium
Corporation; Jeffex, Inc.; Methodist Associates in Healthcare, Inc.; JeffCare, Inc.; Jeffcare
Alliance, LLC; Jefferson University Radiology Associates (an 80% owned joint venture),
Jefferson Comprehensive Concussion Center (a 66% owned joint venture) and the Riverview
Surgery Center at the Navy Yard, LP (a 51% owned joint venture), Accountable Care
Organization (“the ACO” a 44% owned joint venture), and Mount Laurel Risk Retention
Group, Inc. and Five Pointe (49% owned joint venture insurance entities). AH includes the
accounts of subsidiaries of Abington Memorial Hospital including Abington Health; Abington
Health Foundation; and Lansdale Hospital Corporation.
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Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
Principle of Consolidation
The accompanying consolidated balance sheet presents the financial position of TJU as of
June 30, 2015. All significant intercompany accounts and transactions have been eliminated.
Financial Statement Presentation
The accompanying consolidated balance sheet has been prepared on an accrual basis.
TJU classifies net assets as follows:
Unrestricted Net Assets are those assets that are available for the support of operations and
whose use is not externally restricted, although their use may be limited by other factors such
as by board designation.
Temporarily Restricted Net Assets are subject to legal or donor imposed restrictions that will
be met by actions of TJU and/or the passage of time. These net assets include gifts
donated for specific purposes and capital appreciation on permanent endowment, which is
restricted by Pennsylvania law on the amounts that may be expended in a given year.
Permanently Restricted Net Assets are subject to donor-imposed restrictions that require the
original contribution be maintained in perpetuity by TJU, but permits the use of the
investment earnings for general or specific purposes.
Use of Estimates
The preparation of a financial statement in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements. Management
considers critical accounting policies to be those that require more significant judgments and
estimates in the preparation of the financial statements including, but not limited to valuation
of accounts receivable, which includes contractual allowances and provisions for bad debt;
recognition of estimates for healthcare professional and general liabilities; determination of
fair values of certain financial instruments; and assumptions for measurement of pension
obligations. Management relies on historical experience and other assumptions believed to be
reasonable relative to the circumstances in making judgments and estimates. Actual results
could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and investments in highly liquid debt instruments
with maturity of three months or less when purchased and are carried at cost, which
approximates fair value, except that any such investments purchased with funds on deposit
with bond trustees or with funds held in self-insurance trust arrangements are classified as
assets whose use is limited or purchased by investment managers of TJU’s pooled investment
fund are classified as investments.
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Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
Short-term investments
Investments classified as short-term investments are available to fund current operations as
needed.
Accounts Receivable, Allowance for Doubtful Accounts, Provision for Bad Debt
TJU records an allowance for doubtful accounts and bad debt expense for estimated losses
resulting from non-payment for accounts receivable for services from patients. TJU accounts
for uncollectible accounts receivable balances from third-party commercial insurers as
reductions to net patient service revenue rather than bad debt expense. Management routinely
evaluates account collection history, economic conditions, and trends in health care coverage
in determining the sufficiency of the allowance for doubtful accounts and provision for bad
debts. Accounts receivable are written off against the allowance for doubtful accounts when
management determines that recovery is unlikely and collection efforts cease.
Contributions
Contributions, including unconditional promises to donate cash and other assets, are
recognized at fair value on the date of receipt, recognized as revenue in the period received
and are reported as increases in the appropriate net asset category based on donor restrictions.
All contributions are considered to be available for unrestricted use unless specifically
restricted by the donor. Pledges received which are to be paid in future periods, and
contributions restricted by the donor for specific purposes are reported as temporarily
restricted or permanently restricted support that increases those net asset classes. When a
donor restriction expires, that is, when a time restriction ends or stipulated purpose restriction
is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets.
TJU capitalizes works of art, historical treasures, or similar assets (collectively, Collections).
Collections are recorded at fair value at the date of the contribution. Collections
of approximately $5.6 million are included in other noncurrent assets on the consolidated
balance sheet at June 30, 2015.
Investments
Investments are stated at fair value. The fair value of all debt and equity securities with a
readily determinable fair value are based on quotations obtained from national securities
exchanges. The alternative investments, which are not readily marketable, are carried at
estimated fair values as provided by the investment managers. As a practical expedient, TJU
is permitted under the Fair Value Measurement standard to estimate the fair value
of an investment in an investment company at the measurement date using the reported net
asset value (NAV). Adjustment is required if TJU expects to sell the investment at a value
other than NAV or if the NAV is not calculated in accordance with US generally
accepted accounting principles (US GAAP). TJU’s investments are valued based on the most
current NAV adjusted for cash flows when the reported NAV is not at the
measurement date. This amount represents fair value of these investments at June 30, 2015.
TJU performs additional procedures including due diligence reviews on its
alternative investments and other procedures with respect to the capital account or NAV
provided to ensure conformity compliance with valuation procedures in place, the ability to
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Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
redeem at NAV at the TJU measurement date and existence of certain redemption restrictions
at the measurement date. TJU reviews the values as provided by the investment managers
and believes that the carrying amount of these investments is a reasonable estimate of fair
value. Because alternative investments are not readily marketable, their estimated values are
subject to uncertainty and therefore may differ from the value that would have been used had
a ready market for such investments existed.
The Commonwealth of Pennsylvania has not adopted the Uniform Management of
Institutional Funds Act (UMIFA) or the Uniform Prudent Management of Institutional Funds
Act (UPMIFA). Rather, the Pennsylvania Act governs the investment, use and management of
the TJU’s endowment funds. The Pennsylvania Act allows a nonprofit to elect to appropriate
for expenditure an investment policy that seeks the long-term preservation of the real value of
the investments. In accordance with the Pennsylvania Act, the objectives of TJU’s investment
policy is to provide a level of spendable income which is sufficient to meet the current and
future budgetary requirements of TJU and which is consistent with the goal of protecting the
purchasing power of the investments.
TJU’s financial instruments that are exposed to concentrations of credit risk consist primarily
of cash and cash equivalents and investments. These funds are held in various high-quality
financial institutions managed by TJU personnel and outside advisors. TJU maintains its cash
and cash equivalents in financial institutions, which at times exceed federally insured limits.
Investment in Assets of Affiliated Foundation
The Methodist Hospital Foundation (the “Foundation”), a separate corporation not under the
control of TJUHS, accepts gifts and bequests and engages in fundraising activities for the
benefit of Methodist Hospital. The Board of Trustees of the Foundation, at its sole discretion,
is authorized to contribute Foundation funds to Methodist Hospital. Underlying investments
held by the Foundation with restrictions benefiting only Methodist Hospital amounting to
$8.8 million at June 30, 2015 are presented in the consolidated balance sheet. While the sole
purpose of the Foundation is to support Methodist Hospital, this accounting treatment does
not imply that the Foundation’s assets or investment income are those of TJUHS. The
consolidated balance sheet does not reflect or establish the legal relationship, agency or
otherwise, between the Foundation and TJUHS, or any right to assets owned by the
Foundation. The by-laws of the Foundation provide that all assets held by it shall not be
subject to attachments, execution, or sequestration for any debt, obligation or liability of
TJUHS or any other person or entity. In particular, the Foundation is not party to or obligated
by any debt instrument of TJUHS, and assets owned by the Foundation are not subject to the
lien of any such debt instrument.
Split Interest Agreements
TJU’s split-interest agreements consist of charitable gift annuities, pooled income funds,
charitable remainder trusts and a charitable lead trust. Contribution revenue for charitable gift
annuities and charitable remainder trusts is recognized at the date the agreement is
established, net of the liability recorded for the present value of the estimated future
payments. Contribution revenue for pooled income funds is recognized upon establishment of
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Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
the agreement at the fair value of the estimated future receipts discounted for the estimated
time period to complete the agreement.
Loans Receivable from Students
Many students receive financial aid that consists of scholarship grants, work-study
opportunities and student loans. TJU participaties in various federal revolving loan programs,
in addition to administering institutional loan programs. Student loan programs are funded by
donor contributions, other institutional sources, and governmental programs, primarily the
Federal Perkins Loan Program. The amounts received from the federal government’s portion
of federal loan programs are ultimately refundable to the federal government and are reported
as a liability on TJU’s consolidated balance sheet as federal student loan advances.
Determination of the fair value of student loans receivable is not practicable.
Student loans receivable, net of allowance for doubtful accounts, consists of the following at
June 30, 2015 (in thousands):
Direct student loans
Allowance for doubtful accounts
$20,476
(3,796)
Net
16,680
Federally-sponsored student loans
9,737
Total
$26,417
TJU assesses the adequacy of the allowance for doubtful accounts related to direct student
loans receivable by performing evaluations of the student loan portfolio, including a
review of the aging of the student loan receivable balances and of the default rate by loan
program in comparison to prior years. The level of allowance is adjusted based on the results
of this analysis. The federally-sponsored student loans receivable represents amounts due
from current and former students under various Federal Government loan programs. For
direct student loans it is TJU’s policy to reserve 100% of a loan when the loan is
delinquent 2 years or more; a reserve of 85% is recorded for loans delinquent more than 270
days and less than 2 years. TJU considers the allowance recorded at June 30, 2015
to be reasonable and adequate to absorb potential credit losses inherent in the student loan
portfolio.
Land, Buildings, and Equipment, net
Land, buildings, and equipment are carried at cost on date of acquisition or fair value on the
date of donation in the case of gifts. Depreciation expense is computed on a straight-line
basis over the estimated useful lives of the assets, excluding land. All gifts of land, buildings,
and equipment are recorded as unrestricted nonoperating activities unless explicit donor
stipulations specify how the donated assets must be used. Interest expense on borrowed funds
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Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
used for construction, net of interest income earned on unexpended amounts, is capitalized
during the construction period.
Conditional Asset Retirement Obligation
A conditional asset retirement obligation is a legal obligation to perform an asset retirement
activity in which the timing and/or method of settlement are conditional on a future event that
may or may not be within the control of the entity. A conditional asset retirement obligation
of $5.4 million as of June 30, 2015 within other current and noncurrent liabilities in the
consolidated balance sheet.
Non Controlling Interest
TJU has a controlling interest in certain joint ventures in healthcare related organizations.
The amount not owned by TJU is shown as a non controlling interest.
New Accounting Standards
The Financial Accounting Standards Board ("FASB") issued an accounting standard update in
May 2014 regarding the accounting for and disclosure of revenue recognition. Specifically,
the update outlined a single comprehensive model for entities to use in accounting for revenue
arising from contracts with customers. The guidance was effective for annual periods
beginning after December 15, 2016, which allowed for full retrospective adoption of prior
period data or a modified retrospective adoption. Early adoption was not permitted. In July
2015, the FASB issued an update to delay the effective date of the new revenue standard by
one year, or, in other words, to be effective for annual and interim periods beginning after
December 15, 2018. Entities will be permitted to adopt the new revenue standard early, but
not before the original public organization effective date. TJU is currently evaluating the
effects of this guidance.
The FASB issued an accounting standard update in May 2015 regarding the required
disclosures for entities that elect to measure the fair value of certain investments using the net
asset value per share (or its equivalent) practical expedient in accordance with the fair value
measurement authoritative guidance. The update removes the requirement to categorize
within the fair value hierarchy, and also, limits the requirement to make certain other
disclosures, for all such investments. The amendments in this update are effective for fiscal
years beginning after December 15, 2016, and interim periods within those fiscal years, and
should be applied on a retrospective basis for the periods presented. Early adoption is
permitted. TJU is currently evaluating the effects of this guidance.
The FASB issued an accounting standard update in April 2015 regarding the presentation of
debt issuance costs on the balance sheet. The update requires capitalized debt issuance costs
be presented on the balance sheet as a reduction to debt, rather than recorded as a separate
asset. The amendments in this update are effective for annual and interim periods beginning
after December 15, 2015 and should be applied on a retrospective basis for the periods
presented. Early adoption is permitted and TJU’s consolidated balance sheet at June 30, 2015
reflect capitalized debt issuance costs as a reduction of debt.
8
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
Reclassification of Net Assets
Prior to the merger with AH, the University had elected to imply a time restriction on
contributions restricted by the donor for the purchase of long-lived assets. Such contributions
were recorded as increases in temporarily restricted net assets and were released from
restriction over the useful lives of the related long-lived assets as depreciation expense was
recorded. At the date of the merger, TJU elected to adopt the accounting policy of AH related
to contributions restricted for the purchase of long-lived assets, which is to release such
contributions from restriction when the related asset is placed in service. The amount of
reclassification of net assets at the date of the merger was the following (in thousands):
Unrestricted
Change in accounting policy for
contributions of long-lived assets
$16,084
Temporarily
Restricted
($16,084)
2. NET ASSETS
Restricted net assets as of June 30, 2015 are categorized as follows (in thousands):
Temporarily restricted
Pledges
Gifts restricted for operating or capital purposes
and loan funds
Undistributed net gains on permanently restricted
assets
$67,225
110,790
102,431
Total – Temporarily restricted
280,446
Permanently restricted assets
283,711
Total restricted net assets
$564,157
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Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
Temporarily restricted net assets are available for the following purposes at June 30, 2015 (in
thousands):
University operations
Clinical operations
Education and research
$12,245
96,098
172,103
Total temporarily restricted net assets
$280,446
Permanently restricted net assets are restricted to investment in perpetuity, the income from
which is expendable to support the following at June 30, 2015 (in thousands):
University operations
Clinical operations
Education and research
$8,550
88,919
186,242
Total permanently restricted net assets
$283,711
3. ASSETS WHOSE USE IS LIMITED
Assets whose use is limited are presented in the consolidated balance sheet at June 30, 2015
consist of the following (in thousands):
Board designated funds for plant replacement and expansion
Board designated funds for self-insurance arrangements
Debt service funds
Women’s Board and Medical Staff funds
Restricted for capital purposes
Escrow account-Inspira Health Network collaboration
Total
Less current portion
Noncurrent portion
10
$126,113
19,707
500
493
7,100
10,008
$163,921
(20,050)
$143,871
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
4. INVESTMENTS
Investments are presented in the consolidated balance sheet under the following
classifications (in thousands):
Short-term investments
Assets whose use is limited, current
Long-term investments
Assets whose use is limited, noncurrent
$1,029,742
20,050
929,750
143,871
$2,123,413
A summary of investments held at June 30, 2015 is as follows (in thousands):
Cash and cash equivalents
Equity securities
Fixed income securities
Funds:
Global equity
Fixed income
Real estate
Other mutual funds
Private equity
Real estate
Hedge funds
External trusts
Investments subject to equity method and other
$55,380
5,992
691,224
174,587
225,067
7,048
509,567
87,139
25,539
169,398
102,512
69,960
$2,123,413
TJU’s direct investments in equity and fixed income securities are considered liquid assets
because they are traded on established markets with enough participants to absorb sale
transactions without materially impacting the current price of the asset. The underlying assets
in TJU’s investments in equity and fixed income funds are traded on established markets with
enough participants to absorb sale transactions without materially impacting the current price.
The funds are priced daily and provide next day availability on all transaction requests.
TJUS’s investment in real asset funds provide for monthly liquidity on transaction requests.
11
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
TJU has made commitments to various private equity and real asset limited partnerships. The
total amount of unfunded commitments is $114.3 million at June 30, 2015 which represents
17.3% of the value of the pooled investments at June 30, 2015. TJU expects these funds to be
called over the next 3 to 5 years.
Private equity
Real estate
$111,118
3,217
$114,335
TJU’s investments at June 30, 2015 include $169.4 million of hedge fund investments. These
funds provide for quarterly or annual redemptions and require between 60 and 90 day notice
periods, limiting TJU’s ability to respond quickly to changes in market conditions.
Investments subject to the equity method and other includes $54.5 million for TJU’s
investment in Five Pointe Insurance Company.
Beneficial interests in perpetual trusts, which are administered by independent trustees, are
mainly comprised of domestic and international equity securities and domestic fixed income
securities.
A summary of investments held under split-interest agreements is as follows at June 30, 2015
(in thousands):
Charitable gift annuities
Pooled income funds
Charitable lead trust
Charitable remainder trusts
$14,338
11
1,251
10,492
$26,092
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Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
5. ENDOWMENT FUNDS
TJU’s endowments consist of 854 individual funds established for a variety of purposes. The
endowment includes both donor-restricted endowment funds and funds designated by the
Board of Trustees to function as endowments. Net assets associated with each of these groups
of funds are classified and reported based upon the existence or absence of donor-imposed
restrictions.
At June 30, 2015, the endowment net asset composition by type of fund consisted of the
following (in thousands):
Donor-restricted funds
Quasi-endowment funds
Total funds
Temporarily Permanently
Unrestricted
Restricted
Restricted
$156,519
$280,363
($1,520)
272,671
$271,151
$156,519
$280,363
Total
$435,362
272,671
$708,033
From time to time, the fair value of assets associated with individual donor-restricted
endowment funds may fall below the level that the donor requires TJU to retain as a fund of
perpetual duration. Shortfalls of this nature, which are reported in unrestricted net assets,
were $1.5 million as of June 30, 2015. These shortfalls resulted from unfavorable market
fluctuations that occurred shortly after the investment of new permanently restricted
contributions and continued appropriation for certain programs that was deemed prudent by
TJU.
6. FAIR VALUE MEASUREMENT
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair
value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are
as follows:
Level 1 Inputs that reflect unadjusted quoted prices in active markets for identical assets or
liabilities that the University has the ability to access at the measurement date;
Level 2 Inputs other than quoted prices that are observable for the asset or liability either
directly or indirectly, including inputs in markets that are not considered to be
active;
Level 3 Inputs that are not currently observable.
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Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
Inputs are used in applying the various valuations techniques and broadly refer to the
assumption that market participants use to make valuation decisions. An investments level
within the fair value hierarchy is based on the lowest level of any input that is significant to
the fair value measurement. However, the determination of what constitutes “observable”
requires significant judgment. The categorization of an investment within the hierarchy is
based upon the pricing transparency of the instrument and does not necessarily correspond to
TJU’s perceived risk of that instrument.
Level 1 - Investments whose values are based on quoted market prices in active markets, are
therefore classified within Level 1. Typically, securities traded on the NYSE, AMEX,
NASDAQ and other major exchanges will be classified as Level 1. These assets include
active listed equities, certain U.S. government obligations, mutual funds and certain money
market securities. For investments regularly traded on any recognized securities or
commodities exchange, the closing price on such exchange (or, if applicable, as reported on
the consolidated transactions reporting system) on the last trading date at the end of the fiscal
year is used. In the case of securities regularly traded in the over-the-counter market, the
closing bid quotations for long positions and the closing asked quotation for short positions on
the trading date ending on or preceding the end of the fiscal year is used.
Level 1 Liquidity – Daily based on quoted market value at time of transaction or at daily
NAV.
Level 2 - Investments that trade in markets that are not considered to be active, but are valued
based on quoted market prices, dealer quotations or alternative pricing sources supported by
observable inputs are classified within Level 2. They include investment- common trust
equity and fixed income funds, corporate grade bonds, high yield bonds and certain mortgage
products. These assets are valued based on quoted market prices in active markets or dealer
quotations and are categorized as Level 2. There were no transfers between Levels 1, 2, and 3
during 2015.
Level 2 Liquidity – Daily based on quoted market value at time of transaction or at daily
NAV.
Level 3- Investments classified within Level 3 have significant unobservable inputs, as they
trade infrequently or not at all. Level 3 instruments include private equity (direct and fund of
funds), real assets investments (real estate, natural resources - direct and fund of funds), hedge
funds (direct and fund of funds), and beneficial interests in perpetual trusts and charitable lead
trusts held by third parties. Within Level 3, the use of the market approach generally consists
of using comparable market transactions, while the use of the income approach generally
consists of the net present value of estimated of future cash flows, adjusted as appropriate for
liquidity, credit, market and/or other risk factors. TJU uses the "market approach value"
valuation technique to value its investments in private equity and real estate (“private
investments”) and hedge funds.
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Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
TJU estimates the fair value of an investment company at the measurement date using the
reported net asset value (“NAV”). Adjustment is required if TJU expects to sell the
investment at a value other than NAV or if the NAV is not calculated in accordance with US
GAAP. TJU uses the NAV to determine the fair value of all underlying investments which
(a) do not have readily determinable fair value and (b) prepare their financial statements
consistent with the measurement principles of an investment company or have the attributes
of an investment company.
Most private investment funds (private equity, real asset funds) are structured as closed-end,
commitment-based investment funds where TJU commits a specified amount of capital upon
inception of the fund (i.e., committed capital) which is then drawn down over a specified
period of the fund's life. Such funds generally do not provide redemption options for
investors and, subsequent to final closing, do not permit subscriptions by new or existing
investors. Accordingly, TJU generally holds interests in such funds for which there is no
active market, although in some situations, a transaction may occur in the "secondary market"
where an investor purchases a limited partner’s existing interest and remaining commitment.
The fund managers may value the underlying pirate investment based on an appraised value,
discounted cash flow, industry comparable or some other method. TJU values these limited
partnerships at NAV. These interests, in the absence of a recent and relevant secondary
market transaction, are classified as Level 3.
Unlike private investment funds, hedge funds are generally open-end funds as they typically
offer subscription and redemption options to investors. The frequency of such subscriptions or
redemptions is dictated by such fund's governing documents. The amount of liquidity
provided to investors in a particular fund is generally consistent with the liquidity and risk
associated with the underlying portfolio (i.e., the more liquid the investments in the portfolio,
the greater the liquidity provided to the investors). The fund managers invest in a variety of
securities which may not be quoted in an active market. Illiquid investments may be valued
based on appraise value, discounted cash flow, industry comparable or some other method.
The methods described above may produce a fair value calculation that may not be indicative
of a net realized value or reflective of future fair values. Furthermore, while TJU believes its
valuation methods are appropriate and consistent with other market participants, the use of
different methodologies or assumptions to demine the fair value of certain financial
instruments could result in a different estimate of fair value at the reporting date.
Level 3 Liquidity (Private investments and hedge funds)
Private Investments - Private investment funds have limited liquidity or redemption options.
Liquidity for private investments can be accomplished via a secondary sale transaction.
When available, distributions typically take place on a quarterly basis.
Hedge funds – Hedge funds provide quarterly liquidity with (90) notice prior to the quarter’s
end. Liquidity of individual hedge funds vary based on various factors and may include
"gates", "holdbacks" and "side pockets" imposed by the manager of the hedge fund, as well as
15
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
redemption fees which may also apply. Depending on the redemption options available, it
may be possible that the reported NAV represents fair value based on observable data such as
ongoing redemption and/or subscription activity. In these cases, the NAV is considered as a
Level 2 input. Limited partnerships are valued at NAV. However, certain hedge funds may
provide the manager with the ability to suspend or postpone redemption (a "gate") or "hold
back" from the payment of redemption proceeds a portion of the redemption (e.g. 10%) until
the annual audited financial statements are distributed. In the case of the imposition of a gate,
TJU does not have the ability to validate or verify the NAV through redemptions. Therefore,
the interest is generally classified as Level 3.
In the cases of a holdback, TJU considers the significance of the holdback, its impact on the
overall valuation and the associated risk that the holdback amount will not be fully realized
based on a prior history of adjustments to the initially reported NAV. If the holdback is
significant, then the interest is generally classified as Level 3.
For those private equity, real estate limited partnerships, or hedge-fund of fund transactions
where valuations dated on the last business day of the year are available, the valuations will
be based on the most recent capital account statement (monthly/quarterly), adjusted for
interim cash flow activity (contributions, distributions, fees). Substantially all of TJU’s
investments in such funds have been classified within Level 3.
The fair value of TJU’s interest rate swaps related to its debt obligations are based on thirdparty valuations independent of the counterparties. As the fair values of the hedges are
determined based on inputs that are readily available or can be derived from information
available in public markets, TJU has categorized the hedges as Level 2.
The following table presents the short term and long term investments, and assets whose use
is limited carried on the consolidated balance sheet by level within the valuation hierarchy as
of June 30, 2015 (in thousands):
Cash and cash equivalents
Equity securites
Fixed income securities
Funds:
Global equity
Fixed income
Real asset
Other mutual funds
Private equity
Real estate
Hedge funds
External trusts
Total
Level 1
$55,380
3,492
181,443
Level 2
$0
509,781
174,587
225,067
7,048
167,323
342,244
3,002
2,287
$582,559 $1,089,095
16
Level 3
$0
2,500
-
Total
$55,380
5,992
691,224
87,139
22,537
169,398
100,225
$381,799
174,587
225,067
7,048
509,567
87,139
25,539
169,398
102,512
$2,053,453
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
Investments not subject to fair value leveling at June 30, 2015 totaled $70.0 million.
The following table presents the other liabilities carried on the combined balance sheet by
level within the valuation hierarchy as of June 30, 2015 (in thousands):
Interest rate swaps
Level 1
-
Level 2
$29,826
Level 3
-
Total
$29,826
7. PLEDGES RECEIVABLE
A summary of pledges receivable is as follows at June 30, 2015 (in thousands):
Unconditional promises expected to be collected in:
Less than one year
One year to five years
Over five years
$18,226
45,147
78,000
141,373
Less: unamortized discount and allowance
for doubtful accounts
(40,458)
$100,915
The discount rate ranges from 0.9% to 5.5%. TJU’s largest pledge comprises 72% of the
pledge receivable at June 30, 2015. At June 30, 2015 TJU was the recipient of a conditional
pledge of $6.2 million for the expansion of a clinical program.
8.
LAND, BUILDINGS AND EQUIPMENT
Land and land improvements
Buildings and building improvements
Equipment
Leasehold improvements
Construction in progress
Less: accumulated depreciation
Total land, buildings and equipment, net
$155,582
1,691,452
1,285,717
65,962
33,473
(1,842,273)
$1,389,913
TJU uses straight-line depreciation over the assets’ estimated lives, which are as follows:
Land improvements
Buildings and building improvements
Equipment
Leasehold improvements
10-20 years
18-40 years
3-15 years
5-20 years
17
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
9.
LONG-TERM OBLIGATIONS
Final Maturity
Interest Rate at
June 30, 2015
2015
TJU
Fixed rate obligations:
2006 Series A Revenue Bonds
Unamortized premium and issue costs
2006 Series B Revenue Bonds
Unamortized premium and issue costs
2010 Series Revenue Bonds
Unamortized premium and issue costs
2012 Series Revenue Bonds
Unamortized premium and issue costs
2015 Series A Revenue Bonds
Unamortized premium and issue costs
Total fixed rate obligations
Variable rate obligations:
2015 Series B Revenue Bonds
Unamortized issue costs
2015 Series C Revenue Bonds
Unamortized issue costs
2015 Series D Revenue Bonds
Unamortized issue costs
2015 Series E Revenue Bonds
Unamortized issue costs
2015 Series F Revenue Bonds
Unamortized issue costs
2015 Series G Revenue Bonds
Unamortized issue costs
2015 Series H Revenue Bonds
Unamortized issue costs
Total variable rate obligation
Total Revenue Bonds
Capital lease obligations
Other
2040
5.00%
2032
3.625% - 5.25%
2040
4.00% - 5.00%
2042
1.25% - 5.00%
2051
4.00% - 5.25%
2046
0.50%
2042
0.86%
2042
0.93%
2042
0.86%
2042
0.92%
2042
0.87%
2042
1.38%
Total TJU
Variable rate obligations:
2012 Series B Revenue Bonds
60,000
(582)
8,885
(157)
8,820
(156)
8,880
(157)
8,820
(156)
5,965
(94)
29,050
(130)
128,988
640,496
7,812
40
648,348
2021
2017
Abington Health
Fixed rate obligations:
1993 Series A Revenue Bonds
Unamortized premium and issue costs
2009 Series A Revenue Bonds
Unamortized premium and issue costs
2012 Series A Revenue Bonds
Unamortized premium and issue costs
$25,500
911
40,405
471
75,000
(270)
41,320
2,438
301,805
23,928
511,508
2022
4.70% - 6.10%
2033
3.00% - 5.25%
2031
3.25% - 5.00%
2035
8,790
(134)
121,280
(600)
138,415
11,320
279,071
50,000
0.69%
Total Revenue Bonds
Other
Total Abington Health
329,071
241
329,312
Total
$977,660
18
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
All TJU Revenue bonds were issued by certain financing authorities as limited obligations of
the authorities payable from amounts received under loan agreements with TJU. The bonds
are subject to optional redemption by TJU prior to maturity on specified dates at a price equal
to 100% of the principal amount, plus any accrued interest. The bond agreements contain
certain covenants, including financial covenants that require TJU to generate net revenue (as
defined) at least equal to 110% of maximum annual debt service requirements. TJU was in
compliance with this financial covenant requirement at June 30, 2015.
The Series 2015 A through H Revenue Bonds were issued in February 2015. The proceeds
provided funds to refinance the Series 2008 A and B Revenue Bonds, Series 2014 A and B
Notes and to provide funds for certain capital projects. The Series 2015 C through G Revenue
Bonds were structured as drawdown bonds and purchased by certain financial institutions.
These financial institutions have agreed to advance funds available to be drawn through
September 1, 2016 up to the maximum principal amount of each of the Series 2015 C through
G Revenue Bonds. The principal amounts of each of the respective Series 2015 C through G
Revenue Bonds are increased as available funds are drawn. The following table summarizes
the principal amounts outstanding (funds drawn) and balance of funds available to be drawn
as of June 30, 2015, and maximum principal amount for each of the respective Series 2015 C
through G Revenue Bonds (in thousands):
2015 Series C
2015 Series D
2015 Series E
2015 Series F
2015 Series G
Total
Principal Amount
Outstanding
$8,885
8,820
8,880
8,820
5,965
$41,370
Balance
Available to be
Drawn
$26,240
26,055
26,245
26,055
14,985
$119,580
Maximum
Principal
Amount
$35,125
34,875
35,125
34,875
20,950
$160,950
All AH Revenue bonds were issued by certain financing authorities as limited obligations of
the authorities payable from amounts received under loan agreements with AH. The bonds
are subject to optional redemption by AH prior to maturity on specified dates at a price equal
to 100% of the principal amount, plus any accrued interest. The bond agreements contain
certain covenants, including financial covenants that require AH to generate net revenue (as
defined) at least equal to 110% of maximum annual debt service requirements. AH was in
compliance with this financial covenant requirement at June 30, 2015.
19
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
The fair value of TJU’s debt obligation was $994.7 million at June 30, 2015. The fair value
represents the quoted market value for Revenue bonds (Level 2) and carrying amounts for all
other debt, which approximates fair value.
Maturities for long-term debt for each of the next five years are as follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
$20,994
19,635
19,397
20,025
21,186
$840,264
TJU had available unsecured lines of credit from various banks of $47.0 million at June 30,
2015 under which there were no borrowings at June 30, 2015. No compensating balances are
required or maintained.
20
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
10. DERIVATIVE FINANCIAL INSTRUMENTS
TJU entered into derivative transactions for the purpose of reducing the impact of fluctuations
in interest rates under the terms of various interest rate swap contracts. The fair value of these
derivative instruments at June 30, 2015 in the consolidated balance sheet is as follows (in
thousands):
TJU Receives
TJU Pays
Notional
Amount at
June 30, 2015
Expiration
2/1/34
67% of United
States Dollar
LIBOR (one
Month)
2.98%
$67,260
Noncurrent
liability
$7,634
Expiration
5/1/18
67% of United
States Dollar
LIBOR (one
Month)
4.542%
$15,415
Noncurrent
liability
$1,527
Expiraton
9/1/45
67% of United
States Dollar
LIBOR (one
Month)
3.925%
$5,103
Noncurrent
liability
$14,977
Expiration
5/1/27
68% of United
States Dollar
LIBOR (one
Month)
3.980%
$42,325
Noncurrent
liability
$8,022
Expiration
5/1/27
68% of United
States LIBOR
(Five Year
minus 0.293%)
$73,700
Noncurrent
liability
($1,777)
Expiration
5/1/27
68% of United
States LIBOR
(Five Year
minus 0.325%)
-
Noncurrent
liability
($557)
Amended /
Expiration Date
68% of
United
States Dollar
LIBOR (one
Month)
68% of
United
States Dollar
LIBOR (one
Month)
Balance Sheet
Location
Fair Value at
June 30,
2015
Accumluated losses on interest rate swap contracts of $29.8 million at June 30, 2015 are
reflected in the consolidated balance sheet.
21
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
11. OPERATING LEASES
TJU has lease obligations for buildings, equipment and ambulatory facilities under various
operating leases. At June 30, 2015 the minimum future non-cancelable rental lease
commitments are as follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
$29,961
26,764
23,873
20,874
17,931
113,965
$233,368
22
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
12. PENSION PLANS
Retirement benefits are provided to certain employees through direct payments to various
funds. Employees not subject to TJU’s defined benefit plans may be eligible to participate in
one of the following defined contribution arrangements.
Plan
TJU faculty and senior
administrators
Description
9% to 13% of eligible compensation based
upon age
TJU non-faculty and non-union
4.5% of eligible compensation, plus matching
contribution of 25% of the first 6% of employee
contributions
JUP
10% of eligible compensation for physicians
and 3.5% to 5.5% of eligible compensation for
non-physicians based upon years of service
Abington Memorial Hospital
2% to 5% of eligible compensation based upon
years of services, plus matching contribution of
50% of the first $2,000 of employee
contributions
Landsdale Hospital Corporation
Matching contribution of 50% with a 4%
maximum
TJU also has non-contributory defined benefit pension plans for certain full-time employees.
The TJU, TJUHS and AH plans are frozen to new entrants. Commensurate with the freeze of
each of these plans to new entrants, existing employees that met certain age and years of
service threholds were eligible to remain in the plans and continue to earn benefits. Benefits
under the non-contributory defined benefit plans are based on the employee’s years of service
and compensation during the years preceding retirement. Contributions to the plan are
designed to meet the minimum funding requirements of the Employee Retirement Income
Security Act of 1974.
The accounting guidance for defined benefit pension plans requires employers to recognize
the overfunded or underfunded projected benefit obligation (“PBO”) of a defined benefit
pension plan as an asset or liability in the balance sheet. The PBO represents the actuarial
present value of benefits attributable to employee service rendered to date, including the
effects of estimated future salary increases. The accounting guidance also requires employers
to recognize annual changes in gains or losses, prior service costs, or other
credits that have not been recognized as a component of net periodic pension cost through
unrestricted net assets.
23
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
The components of the net pension plan financial position on the consolidated balance sheet
are as follows (in thousands):
Change in projected benefit obligation:
Benefit obligation, beginning of year
Service cost
Interest cost
Net experience loss
Benefits paid
Projected benefit obligation, end of year
$1,196,082
36,390
53,021
14,725
(28,390)
$1,271,828
Change in plan assets:
Fair value of plan assets, beginning of year
Actual return of plan assets
Employer contributions
Benefit payments
Fair value of plan assets, end of year
Plan funded status
$919,983
38,716
52,135
(28,389)
$982,445
($289,383)
Amounts recognized in unrestricted net assets consist of:
Net actuarial loss
$329,619
The accumulated benefit obligation at June 30, 2015 was as follows:
Accumulated benefit obligation
$1,136,683
The estimated actuarial loss that will be amortized from unrestricted net assets during the
upcoming fiscal year is $16.6 million.
The average assumptions used to estimate the June 30, 2015 pension obligation were as
follows:
Discount rate
Rate of compensation increase
Expected return on plan assets
24
4.62%
3.78%
7.43%
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
A summary of the plans’ targeted and actual asset allocations are as follows:
Cash
Bonds
Global equity
Real estate and other
Targeted
Range
0-5%
25-45%
45-65%
5-10%
Percentage of
Plan Assets
June 30, 2015
2%
28%
64%
6%
100%
The portfolios utilize a long-term asset allocation strategy that allows management to
rebalance the asset allocation back to target levels on a monthly basis. Short-term compliance
with the target ranges can be impacted by the severity of market conditions.
The expected long-term rate of return for the plan’s assets are based on the historical return of
each of the above categories, weighted based on the target allocations for each class.
The assets of the defined benefit pension plan are invested in a manner that is intended to
preserve the purchasing power of the plan’s assets and provide payments to beneficiaries.
Thus, a rate of return objective of inflation plus 5% is targeted.
TJU expects to contribute $52.0 million during fiscal year 2016.
Projected benefit payments for the next five years are as follows (in thousands):
2016
2017
2018
2019
2020
$35,672
39,752
44,009
48,672
53,531
25
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
The following table present the plan assets by level within the valuation hierarchy, as
discussed in Note 6, as of June 30, 2015 (in thousands):
Level 1
Cash and cash equivalents
Equity securities
Fixed income securities
Funds:
Global equity
Fixed income
Hedge funds
Private equity
Real estate
Total
Level 2
$15,033
301,635
308
$4,161
76,030
199,735
2,041
$319,017
249,636
74,783
52
$604,397
Level 3
$ 55,273
2,604
1,154
$59,031
Total
$19,194
377,665
200,043
249,636
74,783
55,273
4,697
1,154
$982,445
Participation in Multiemployer Defined Benefit Pension Plan
TJU is a participating employers in The Pension Fund for Hospital and Health Care
Employees – Philadelphia and Vicinity (the Pension Fund), a jointly-trusted multiemployer
defined benefit pension plan. The Pension Fund is operated for the benefit of Chapter 1199C
of the American Federation of State, County and Municipal Employees (the Union).
Information about the Pension Fund and the University’s participation is summarized as
follows.
The employer identification number for the Pension Fund is 23-2627428. At the date the
financial statements were issued Form 5500 was not available for the plan years ending in
2015. TJU’s contribution to the Pension Fund was $5.8 million for the year ended June 30,
2015. The contributions represent approximately 28% of the contributions to the Pension
Fund. A six year collective-bargaining agreement was approved by the Union effective
July 1, 2012. TJU contributions as a percentage of covered payroll to the Pension Fund over
the remaining term of the agreement is as follows:
2016
2017
2018
17.25%
18.75%
20.50%
For the Plan Years beginning January 1, 2013 and January 1, 2014, the Pension Fund was
determined to be in endangered status (also referred to as yellow zone status) under the
Pension Protection Act of 2006. Accordingly, the Pension Fund is subject to a funding
improvement plan. The zone status is based on information that TJU received from the plan
and is certified by the plan’s actuary. Among other factors, plans in the yellow zone are
generally less than 80 percent funding.
26
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
At January 1, 2014, the most recent date for which such information is available, the projected
benefit obligation of the Pension Fund exceeded the plan assets by $206.6 million.
13. PROFESSIONAL LIABILITY CLAIMS
TJU, TJUHS and AH maintain professional liability insurance under both self-insured and
alternative risk financing insurance programs for the distinct services each provides. For all
self-insured programs TJU, TJUHS and AH accrue for estimated retained risk liability arising
from both asserted and unasserted claims. The estimate of liability is based upon an analysis
of historical claims data as prepared by independent actuaries.
The professional liability insurance program for TJU and TJUHS is administered through a
policyholder-owned, Vermont-domiciled, risk retention group, Mountain Laurel Risk
Retention Group, Inc. (“MLRRG”) which was exclusively owned by JHS until June 30, 2014.
For the professional liability coverage only, the MLRRG is 100% reinsured by a non-profit
captive protected cell insurance company, Five Pointe Insurance Company, domiciled in
Delaware. Until June 30, 2014, the former JHS held the sole common membership in Five
Pointe (“Five Pointe”). On June 30, 2014 the former JHS transferred certain ownership
interests to TJUHS and to the University in both Five Pointe and MLRRG, respectively; the
remaining interests in both corporations were transferred to other former members of JHS.
The professional liability insurance program for AH is administered through a policyholderowned, Vermont-domiciled, risk retention group, Cassatt RRG (“CRRG”). CRRG is owned
by various regional non-profit hospitals including AH. CRRG reinsures with Cassatt
Insurance Company, LTD which is owned by the various regional non-profit hospitals,
including AH, and incorporated as an insurance company under the laws of Bermuda.
For both TJUHS and AH the first (“primary”) layer of coverage is claims-made coverage with
limits of $500,000 per medical incident and $2,500,000 annual aggregate per hospital and
$500,000 per medical incident and $1,500,000 annual aggregate per physician. The limits for
this primary coverage layer are statutorily prescribed in Pennsylvania. In addition for TJUHS,
a $1,000,000 per medical incident and $3,000,000 annual aggregate limit is provided for
scheduled dentists, as well as physicians and residents practicing in Delaware and New
Jersey. At June 30, 2015, TJUHS non-healthcare provider entities are provided with a shared
$1,000,000 per incident and $3,000,000 annual aggregate limit of liability.
The second layer of professional liability coverage for TJUHS and AH is provided through
Pennsylvania’s Medical Care Availability and Reduction of Error Fund (the “MCARE
Fund”). This second layer, required by statute, consists of coverage with limits of $500,000
per claim and $1,500,000 annual aggregate per hospital and per employed physician/resident
at June 30, 2015. The annual assessments for MCARE Fund coverage are based on the
schedule of occurrence rates approved by the Insurance Commissioner of Pennsylvania for
the Pennsylvania Professional Liability Joint Underwriting Association multiplied by an
annual assessment percentage. This assessment is recognized as an expense in the period
incurred.
27
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
No provision has been made for future MCARE Fund assessments as the unfunded portion of
the MCARE Fund liability cannot be reasonably estimated.
For TJUHS, liabilities for potential losses in excess of the primary and MCARE layers up to
$5,000,000 each medical incident and $5,000,000 aggregate retention excess of a $7,000,000
each and every medical incident retention are based on actuarially-determined estimates,
which reflect a 65% confidence level and a 3% discount rate for 2015. These estimates are
based on historical information along with certain assumptions about future events. Changes
in assumptions for such considerations as medical costs and actual experience could cause
these estimates to change.
TJUHS maintains claims-made excess catastrophic professional liability insurance coverage
through Five Pointe in the amount of $95,000,000 per medical incident and $95,000,000
annual aggregate after a $5,000,000 each medical incident and $5,000,000 aggregate retention
excess of a $7,000,000 each and every medical incident retention (inclusive of the primary
and MCARE layers of coverage). For TJU’s miscellaneous professional liability exposure the
excess professional liability insurance coverage attaches excess of $1,000,000 per claim and
$3,000,000 annual aggregate. Five Pointe reinsured 100% of this risk to seven currently Arated insurers (ACE, XL, Lloyd’s Syndicates, Berkley, Zurich, Endurance, and Swiss Re). A
separate limit of $95,000,000 per occurrence and $95,000,000 aggregate is also maintained to
provide liability insurance coverage excess of the primary general, auto, employers and
aviation liability coverages.
For AH, liabilities for potential professional liability losses in excess of the primary and
MCARE layers, Cassatt Insurance Company provides coverage up to a $4,000,000 claim
limit and through reinsurance provides layered excess professional liability coverage of
$15,000,000 per occurrence with a $45,000,000 annual aggregate. In addition, CRRG
provides an umbrella liability policy with limits of $49,000,000 per occurrence and
$49,000,000 annual aggregate for the general, auto, employers and aviation liability
exposures. The excess professional and umbrella policies coverage limits are shared with the
various regional non-profit hospital owners of CRRG and Cassatt Insurance Company Ltd.
The MLRRG provides a $2,000,000 per occurrence and $4,000,000 annual aggregate general
liability coverage limit for TJU and TJUHS. The MLRRG retains 100% of the general
liability coverage exposure.
CRRG provides a $1,000,000 per occurrence and $2,000,000 annual aggregate general
liability coverage limit for AH.
For MLRRG the premiums charged for the primary professional and general liability layers of
coverage are determined by an independent actuary, based on loss and loss adjustment
expense experience and other factors, at a 65% confidence level and a 3% discount rate for
2015 and include a charge for premium tax and operating expenses.
28
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
For CRRG the premiums charged for the primary professional and general liability layers of
coverage are determined by an independent actuary, based on loss and loss adjustment
expense experience and other factors, at an expected level and a 3.5% discount rate for 2015.
TJU has accrued professional liability claims of $362.7 million at June 30, 2015, of which
$51.5 million was current. The interest rates used to discount malpractice claims ranged from
3.0% to 3.5% at June 30, 2015. Anticipated insurance recoveries associated with these
liabilities for June 30, 2015 is $165.1 million.
14. WORKERS’ COMPENSATION CLAIMS
TJU is self-insured for its workers’ compensation exposures. TJU accrues for its workers’
compensation liability based upon actuarial estimates using discount rates ranging from 3% to
3.5%. Accrued workers’ compensation liabilities were $30.3 million at June 30, 2015. These
amounts are presented in the accompanying consolidated balance sheet.
15. COMMITMENTS AND CONTINGENCIES
Letters of Credit
At June 30, 2015, TJU had open letters of credit aggregating $25.1 million expiring December
31, 2015 related to self-insurance arangements.
Litigation
TJU is involved in litigation and regulatory investigations arising in the ordinary course of
business. In the opinion of management, all such matters are adequately covered by
commercial insurance or by accruals, and if not so covered, are without merit or are of such
kind, or involve such amounts, as would not have a material adverse effect on the financial
position or results of operations of TJU.
On November 20, 2009, a class action lawsuit was filed against the former JHS and its
members by certain hourly employees alleging restitution for unfair business practices,
injunctive relief for unfair business practices, failure to pay overtime wages, and penalties
associated therewith. On September 8, 2011, the Court granted the defendants’ motions to
dismiss all asserted claims but provided the plaintiffs with thirty days to file a second
complaint. Plaintiffs filed a second amended complaint on November 10, 2011. Plaintiffs
agreed to withdraw the RICO claim and their claims against individual defendants when they
were confronted with a Rule 11 letter related to the RICO claim. On February 10, 2012, they
filed a Third Amended Complaint. JHS filed a motion to dismiss the entire Third Amended
Complaint. On August 8, 2012, the Court dismissed the Third Amended Complaint with
prejudice to plaintiffs’ claim under the Fair Labor Standards Act. The Court dismissed the
state law claims without prejudice, allowing plaintiffs to file those claims in state court. On
September 15, 2012, plaintiffs appealed all orders in this matter. On August 26, 2014, the
Court of Appeals for the Third Circuit affirmed the District Court ruling.
29
Thomas Jefferson University
Notes to Consolidated Balance Sheet
June 30, 2015
Plaintiffs did not appeal the decision of the U.S. Court of Appeals for the Third Circuit or ask
for an enbanc hearing. After the affirmance by the Third Circuit, Plaintiffs requested that the
District Court Judge lift the stay of proceedings that had been imposed on the state court
claims during the appeal and remand them to state court. The Judge lifted the stay of
proceedings and requested additional briefing on the remand issues. The TJUHS argument
was that the judge should not remand and asserted the previously asserted federal preemption
arguments. All briefings were completed on October 31, 2014. No ruling or decision has
been made on this issue at the release date of this report.
16. SUBSEQUENT EVENTS
TJU has evaluated subsequent events through October 23, 2015, the date the consolidated
balance sheet was issued. There were no events that require adjustments to the consolidated
balance sheet.
Between July 1, 2015 and October 23, 2015, additional draws on the 2015 Series C through G
Revenue Bonds were made aggregating $46.5 million.
On October 6, 2015 TJU and Aria Health System signed a letter of intent setting forth certain
non-binding understandings relating to a potential business combination.
30
Supplemental Information
Thomas Jefferson University
Unaudited Pro Forma Information
(in thousands)
TJU's operating revenues, gains and other support, changes in unrestricted net assets, temporarily
restricted net assets and permanently restricted net assets for the year ended June 30, 2015, as if the
merger between Thomas Jefferson University and Abington Health had occurred at July 1, 2014, are:
Supplemental pro forma
information for 7/1/2014
to 6/30/2015
Operating
Revenues, Gains
& Other Support
Change in
Unrestricted Net
Assets
Change in
Temporarily
Restricted Net
Assets
$2,968,711
$81,531
($2,852)
31
Change in
Permanently
Restricted Net
Assets
$3,077