Message from the Chief Financial Officer
Paul B. Lasiter
Fiscal 2010 unfolded as a year of recovery and stabilization for Pepperdine University. Following fiscal 2009, a year that proved to be one of the most challenging in our history, we were able to reallocate funds to improve operating efficiency and institutional liquidity, recover a significant balance of the net assets lost from investments in the prior year, and begin the reinvestment of resources into areas of strategic importance. The challenge we faced at the beginning of fiscal 2010 was indeed significant, but thanks to the guidance of God, we have not only survived the recent economic tumult, but have emerged a stronger, more vibrant, and more nimble institution.
As a result of both positive operating results and investment increases, the University's net assets increased 8.8 percent or $75 million to total $929 million at fiscal year end.
During fiscal 2010, the University's endowment funds increased $36 million, or 7 percent from one year ago, to total $565 million. It is important to note that this is the increase net of accounting for the expenditure of more than $30 million to support student aid and operating costs. If endowment assets remain at their current levels, we expect a modest decrease in endowment support in future years since the University distributes endowment support based on a five-year moving average of endowment value multiplied by a 5 percent payout rate.
Endowment support totaled $32 million in fiscal 2010, or approximately 13 percent of total expenses. Though still significant in absolute terms, the University's endowment provides a comparatively low level of support for operations, which has been advantageous in the midst of a challenging investment environment. Net tuition and fees combined with room and board revenues totaled $209 million in fiscal 2010, or approximately 71 percent of total revenues. Strong demand for the vast majority of our academic offerings, in light of this comparatively high level of student-related revenues, has provided the University with a stable source of operating cash flow.
We have continued to improve our liquidity position through positive operating results and increases in investment values. At the same time, we have continued to invest in property, facilities, and equipment. Investments in facilities have been funded through the use of existing reserve funds and gifts from friends and alumni.
At the end of fiscal 2010, we had no exposure to variable-rate debt, completely insulating the University from potential higher interest costs resulting from rate increases. The University's long-term debt-to-total capitalization ratio totaled approximately 19.7 percent at the end of fiscal 2010.
During the past two fiscal years, we took decisive steps to curtail operating costs and invest those funds in student aid. In fiscal 2010 we reduced total operating expenses by 4.2 percent or $11 million, and increased student aid by 13.5 percent or $9 million. Additionally we were able to set aside reserves that can be used to shore up declines in future endowment support, fund even more student aid should that need arise, make strategic investments in scholarship and instruction, or reduce student enrollment targets in future years.
The University's results from operations improved significantly in fiscal 2010, as a result of the generosity of our alumni and friends, as well as reductions of management and general expenses which declined 12 percent from the prior year as we reduced controllable costs in response to the economic crisis.
Additionally, we have undertaken tremendous efforts to curtail increases in the cost of a Pepperdine education. Net tuition revenues increased only 1.4 percent or $2 million to total $177 million in fiscal 2010. From a student's perspective, net tuition and fee revenues amounted to $28,612 per full-time-equivalent student in fiscal 2010. At the same time, expenses that directly affect each student's experience—such as instruction, research, academic support, and student services—amounted to $27,228 per full-time-equivalent student, representing approximately 95.2 percent of each net tuition-and-fee dollar paid.
Private gift and grant revenues increased 82.6 percent to $38 million thanks to the tremendous generosity of our alumni and friends. With an increase in the total volume of private gift and grant revenues, our cost to raise each dollar of support decreased to 20.1 percent in fiscal 2010 from 35.3 percent in fiscal 2009. It is vitally important to the future of the University that we maintain and sustain this higher level of private gift and grant revenues to both increase the value of our endowment and support current operations. We continue to need the support of our alumni and friends, as the University’s ability to provide additional student financial aid has emerged as a key concern for students.
God has continued to bless this University and the people who dedicate their lives to the service of our students. I sincerely thank all of you who support Pepperdine University in furthering our mission of equipping students for lives of purpose, service, and leadership.
Paul B. Lasiter