Paul B. Lasiter


Message from the
Chief Financial Officer

Late last week a higher-education industry research report crossed my desk with the headline, “Weakened Tuition Revenue Plagues U.S. Higher Education.” That certainly wasn’t a pleasant headline for the chief financial officer of Pepperdine University to read, and it evoked a visceral, emotional response.

We don’t use the term plague too often in this modern age. But even with all of the terrible imagery the word plague brings to mind, I also realized that this particular “plague” is probably welcome news to the vast majority of future college students. Why? The plagues of increased competitive pressures, reduced numbers of incoming college students, and increased scrutiny on the value of a college degree are all making it harder for many universities to raise their costs. As a result, in the next few years, it will likely be comparatively easier for students, and harder for universities, to afford the real costs of a college education. In such an environment, continued support from our donors and friends, particularly for student scholarships, will be increasingly important in maintaining and improving the financial health of the University.

Throughout the University, per-student net tuition revenues have increased at an average annual rate of only 2.99 percent during the past five years. As I wrote last year, this low rate of increase has occurred by design. We strive to keep the University’s tuition growth rate as low as possible in order to maintain or improve student affordability. While the gross rate of college tuition increases has been a frequent news headline, the even greater increases in institutional financial aid are markedly less known by the public. At Pepperdine, total student financial aid costs have increased at an average annual rate of 7.8 percent over the past five years. Student aid is the fastest growing expense category at the University, a fact that is likely to continue. During fiscal 2013 we distributed a record $89 million (or about $14,700 per full-time-equivalent student) of University-funded student aid, the vast majority of which is need-based. As a result of our significant investment in student aid, the average annual net tuition cost for an undergraduate education at Seaver College has grown at an average annual rate of only 1.27 percent during the past five years.

In order to increase their rate of net tuition revenue growth, many universities have simply increased their student enrollment base. Here at Pepperdine we have chosen to employ the fiscal discipline necessary to free ourselves from the typical dependency on ever-increasing student enrollment to meet basic operational needs. With sound fiscal management, the University has been able to generate both strong operating and cash-flow margins, while at the same time reducing full-time-equivalent student enrollments from the peak level of 6,363 in fiscal 2004. For fiscal 2013, the University’s full-time-equivalent student base of 6,068 was virtually unchanged from five years ago at 6,055 during fiscal 2008. We don’t measure success by the increasing size of our student enrollment, but through the ways we enrich and encourage every student who enters our care. Our low student-to-faculty ratio and small class sizes are a comparatively expensive way to teach, but we believe that is the best way for our faculty to engage students and help transform their lives.

The University’s endowment funds ended fiscal 2013 at $716 million, nearly matching the all-time high achieved in 2007. Since increasing the level of operating support we receive from the endowment is critical to the future success of the University, we decided to transfer over $51 million of accumulated University reserves into quasi-endowment funds. These funds have been internally committed to long-term investments that will generate increased endowment support to operations for years to come. Even in the wake of the extreme volatility our endowment has experienced over the past five years, the operating support the endowment has provided to University operations has increased every year since 2007 from $26 million to over $33 million in fiscal 2013.

Of all of the plague images that came to my mind, none was more paramount than the sufferings of Egypt’s people under a proud and unmerciful pharaoh. That series of plagues led ultimately to the fulfillment of a promise God had made years before. I am confident that God will likewise fulfill the promises he has made to us as well. Our faith remains in Him.


Paul B. Lasiter's Signature
Paul B. Lasiter, CPA
Vice President and Chief Financial Officer


Consolidated Statements of Financial Position

At July 31, 2013 and 2012 (in thousands)

2013 2012
Cash and cash equivalents $       68,941 $       73,625
Student receivables, less allowance for doubtful accounts of $1,343 and $1,410, respectively 1,295 1,183
Other accounts receivable 4,062 3,119
Prepaid expenses, inventories and other assets 5,512 4,903
Student loans, less allowance for loan losses of $1,599 and $1,707, respectively 22,749 23,812
Contributions receivable, net 30,597 28,905
Investments 830,726 767,261
Assets held as trustee or agent 123,843 124,459
Property, facilities and equipment, net 362,409 341,180
      Total assets $ 1,450,134 $ 1,368,447

   Accounts payable and accrued liabilities $      28,855 $      15,730
   Accrued salaries and wages 3,579 3,364
   Student deposits, advance payments, and deferred revenue 9,977 10,012
   Asset retirement obligations 5,912 5,720
   U.S. government-funded student loans 15,340 15,006
   Trust and agency obligations 70,754 74,951
   Long-term obligations 238,750 239,422
      Total liabilities 373,167 364,205
Net assets:
   Unrestricted 630,777 595,418
   Temporarily restricted 118,605 103,043
   Permanently restricted 327,585 305,781
      Total net assets 1,076,697 1,004,242
      Total liabilities and net assets $ 1,450,134 $ 1,368,447


Consolidated Statements of Activities

For the year ended July 31, 2013 (in thousands)


Student tuition and fees $    280,531 $              - $              - $    280,531
   Less student aid (88,797) - - (88,797)
      Net student tuition and fees 191,734 - - 191,734
Room and board 34,675 - - 34,675
Private gifts and grants 12,098 5,171 4,265 21,534
Endowment support 32,855 - 365 33,220
Government grants 3,546 - - 3,546
Sales and services 7,032 - - 7,032
Other revenue 5,455 4,621 614 10,690
Net assets released from restriction 8,890 (8,890) - -
      Total revenues 296,285 902 5,244 302,431

Instruction and research 86,348 - - 86,348
Academic support 51,670 - - 51,670
Student services 48,381 - - 48,381
Public service 14,168 - - 14,168
Auxiliary enterprises 26,331 - - 26,331
Management and general 52,609 - - 52,609
Membership development 2,036 - - 2,036
Fundraising 7,431 - - 7,431
      Total expenses 288,974 - - 288,974
      Change in net assets before nonoperating revenues and expenses 7,311 902 5,244 13,457

Actuarial adjustment - 4,090 (76) 4,014
Investment income:
   Dividends 6,773 2,016 7 8,796
   Interest 299 8 83 390
   Other 6,731 - 3 6,734
Investment expenses (3,018) (965) - (3,983)
Net realized and unrealized investment losses 17,806 7,526 14,424 39,756
Foreign currency translation 1,362 - - 1,362
Other (1,905) 1,985 2,119 2,199
      Total nonoperating revenues and expenses 28,048 14,660 16,560 59,268
Change in net assets 35,359 15,562 21,804 72,725
      Net assets at beginning of year $    595,418 $    103,043 $    305,781 $ 1,004,242
      Net assets at end of year $    630,777 $    118,605 $    327,585 $ 1,076,967