Pepperdine University finished fiscal 2003 on strong financial
footings. For the first time in its history, the University's total
assets surpassed the $1 billion mark at the end of a fiscal year.
The $21 million net increase from one year ago was due to continued
strong operations in each of the University's five schools, and
improved investment results compared to fiscal 2002. Net assets
increased $17 million during fiscal 2003 to $690 million, of which
$509 million is unrestricted.
During fiscal 2003, the University neared completion of the Drescher
Graduate Campus, which will be home to the residential programs
of the University's three graduate schools; the Graziadio School
of Business and Management, the Graduate School of Education and
Psychology, and the School of Public Policy. The Drescher Graduate
Campus academic and executive center buildings opened in August
of 2003 to positive reviews from students and faculty alike. The
300-bed student housing complex was completed in October of 2003,
and the 56 faculty and staff residences are expected to be complete
in early 2004.
During the course of the past three years, the University's investment
portfolio has been challenged by a period of volatility and negative
returns in the capital markets. However, over this period our long-term
diversified strategy, when combined with our five-year averaging
of market values for endowment payout purposes, has worked well
to protect the investment portfolio and to dampen the effect of
volatile markets on operations. In fact, during fiscal 2003, total
support from the endowment increased 11 percent to $20 million.
The University's investment portfolio benefited from the general
market recovery in fiscal 2003, generating total income and gains
of approximately $36 million, or a 6 percent total annual return.
These results compare very favorably to the 3 percent total return
for the average endowment included in the Cambridge Associates survey
the fiscal year ending June 30, 2003. University funds functioning
as endowment totaled $394 million at July 31, 2003, a 3 percent
increase from one year ago.
The University has bridge-funded a significant portion of the Drescher
Graduate Campus construction through the issue of taxable and tax-exempt
bonds. As a result, the University's long-term obligations totaled
$209 million at
the end of fiscal 2003. The University enjoys an "A1"
credit rating from Moody's Investors Service. We believe the University's
debt load is very manageable given the University's solid reserve
levels and strong ability to cover debt service from operating cash
flow. The completion of the Drescher Graduate Campus allows us the
opportunity to generate additional operating cash flow from increased
student housing, expansion of our graduate programs,
and new executive center operations that will help support the University's
debt service requirements.
University operations remained strong with net tuition and fee
revenues increasing 10 percent to $137 million for fiscal 2003.
This compares to 6 percent and 3 percent increases in the preceding
two fiscal years. Maintaining a diversified enrollment base and
enjoying an increasing reputation have strongly contributed to the
University's favorable market position. The University currently
enrolls approximately 8,300 students in its five colleges and schools.
Total enrollment has increased by 6 percent over the past five years,
with demand for each of the University's degree programs continuing
to increase, particularly at Seaver College and the Graduate School
of Education and Psychology.
The University's total operating expenses for fiscal 2003 increased
4 percent from last year to total $200 million. Although total expenses
increased by 4 percent, operating expenses for instruction, research,
academic support, and student services for fiscal 2003 increased
6 percent from last year and totaled $131 million. The University
remains committed to providing the best possible academic experience
for each of its students, and as such has concentrated its financial
resources in this vital area. During fiscal 2003, spending on management
and general expenses actually decreased by 5 percent or $2 million
as compared to last year.
I am pleased to report that Pepperdine University has never been
stronger financially, operationally, or strategically. We do not
take these blessings for granted, and know that with the help of
God, and the Pepperdine community of faculty, staff, students, alumni,
and friends, the future of Pepperdine University holds immeasurable
Charles J. Pippin
Vice President for Finance