Webster University 2011-2012 Audited Financial Statements

7/28/2019 Webster University 2011-2012 Audited Financial Statements

1/36

Webster University

Accountants Report and Consolidated Financial Statements

May 31, 2012 and 2011


2/36

Webster UniversityMay 31, 2012 and 2011

Contents

Independent Accountants Report on Consolidated Financial Statements ..................... 1

Consolidated Financial Statements

Statements of Financial Position ........................................................................................................ 2

Statements of Activities and Changes in Net Assets .......................................................................... 3

Statements of Cash Flows .................................................................................................................. 4

Notes to Financial Statements ............................................................................................................ 6


3/36

Independent Accountants Report on ConsolidatedFinancial Statements

Board of TrusteesWebster UniversityWebster Groves, Missouri

We have audited the accompanying consolidated statements of financial position of Webster Universityas of May 31, 2012 and 2011, and the related consolidated statements of activities and changes in net

assets and cash flows for the years then ended. These financial statements are the responsibility of theUniversitys management. Our responsibility is to express an opinion on these financial statements basedon our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used and significant estimates made by management, as wellas evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all materialrespects, the financial position of Webster University as of May 31, 2012 and 2011, and the changes in itsnet assets and its cash flows for the years then ended in conformity with accounting principles generallyaccepted in the United States of America.

September 20, 2012


4/36

Webster UniversityConsolidated Statements of Financial Position

May 31, 2012 and 2011

See Notes to Consolidated Financial Statements

Assets2012 2011

Current Assets

Cash $ 21,105,938 $ 8,594,813

Accounts receivable, net of allowance; 2012 - $5,472,343,

2011 - $5,708,430 40,292,168 39,422,481

Short-term investments 47,130,003 63,893,222

Prepayments and deferred charges 2,078,921 1,500,372

Total current assets 110,607,030 113,410,888

Noncurrent Contributions Receivable 6,030,141 4,682,665

Student Loans Receivable, Net of Allowance - $40,000 2,233,711 2,297,165

Property and Equipment, Net 148,380,386 140,783,060

Long-term Investments 140,211,903 124,759,429

Escrowed Bond Investments 6,813,648 7,638,444

Beneficial Interest in Charitable Remainder Trust 3,550,645 4,118,349

Long-term Prepaid Expense 560,000 -

Gifts Held in Trust 479,540 603,675

Deferred Bond Issuance Costs, Net 1,104,250 1,442,773

Total assets $ 419,971,254 $ 399,736,448


5/36

2

Liabilities and Net Assets2012 2011

Current Liabilities

Current maturities of long-term debt $ 934,966 $ 2,558,993

Accounts payable and accrued expenses 12,362,908 14,000,544

Current accrued benefit costs 240,000 280,000

Deposits and deferred revenue 30,101,974 30,151,433

Total current liabilities 43,639,848 46,990,970

Annuities and Trusts Payable 834,571 918,030

Accrued Benefit Costs 5,508,717 4,034,379

Asset Retirement Obligation 1,847,570 1,817,892

Note and Bonds Payable 77,242,210 62,443,750

U.S. Government Grants Refundable 1,608,699 1,594,659

Total liabilities 130,681,615 117,799,680

Net AssetsUnrestricted 249,851,640 241,470,112

Temporarily restricted 22,759,258 24,983,668

Permanently restricted 16,678,741 15,482,988

Total net assets 289,289,639 281,936,768

Total liabilities and net assets $ 419,971,254 $ 399,736,448


6/36

Webster UniversityConsolidated Statements of Activities and Changes in Net Assets

Years Ended May 31, 2012 and 2011

See Notes to Consolidated Financial Statements

Temporarily Permanently

Unrestricted Restricted Restricted Total

Operating Revenue, Gains and Other Support

Tuition and fees, net of scholarship allowances;

2012 - $22,706,807, 2011 - $21,797,232 $ 188,631,290 $ - $ - $ 188,631,2

Auxiliary enterprises 10,590,893 - - 10,590,8

Private gifts and grants 1,400,111 3,527,770 - 4,927,8

Investment return - operating 4,445,796 15,959 - 4,461,7

Federal grants and contracts 1,210,166 - - 1,210,

Other income 3,456,495 795 - 3,457,2

Net assets released from restrictions 4,452,309 (4,452,309) -

Total operating revenue, gains and

other support 214,187,060 (907,785) - 213,279,2

Operating Expenses

Instruction 79,424,705 - - 79,424,7

Academic support 41,211,473 - - 41,211,4

Institutional support 48,997,536 - - 48,997,5

Student services 17,229,997 - - 17,229,9

Auxiliary 9,995,317 - - 9,995,3

Public service 1,218,098 - - 1,218,0

Other 904,440 - - 904,4

Total operating expenses 198,981,566 - - 198,981,5

Change in Net Assets From Operating Activities 15,205,494 (907,785) - 14,297,7

Non-operating Activities

Investment return - non-operating (5,680,438) (1,317,060) 1,685 (6,995,8

Change in value of split-interest agreements - 435 (24,965) (24,5

Permanently restricted private gifts and contracts - - 1,219,033 1,219,0

Change in Net Assets From Non-operating

Activities (5,680,438) (1,316,625) 1,195,753 (5,801,3

Foreign Currency Translation (1,143,528) - - (1,143,5

Change in Net Assets 8,381,528 (2,224,410) 1,195,753 7,352,8

Net Assets, Beginning of Year 241,470,112 24,983,668 15,482,988 281,936,7

Net Assets, End of Year $ 249,851,640 $ 22,759,258 $ 16,678,741 $ 289,289,6

Year Ended May 31, 2012


7/36

3



$ 184,765,142 $ - $ - $ 184,765,142

10,488,674 - - 10,488,674

1,470,590 1,658,348 - 3,128,938

3,201,225 12,458 - 3,213,683

1,178,713 - - 1,178,713

3,221,983 - - 3,221,983

1,187,220 (1,187,220) - -

205,513,547 483,586 - 205,997,133

74,124,003 - - 74,124,003

37,997,934 - - 37,997,934

46,299,124 - - 46,299,124

15,272,942 - - 15,272,942

9,903,297 - - 9,903,297

1,040,652 - - 1,040,652

1,203,352 - - 1,203,352

185,841,304 - - 185,841,304

19,672,243 483,586 - 20,155,829

9,968,207 3,768,884 166,479 13,903,570

- - (33,264) (33,264)

- - 1,904,173 1,904,173

9,968,207 3,768,884 2,037,388 15,774,479

299,562 - - 299,562

29,940,012 4,252,470 2,037,388 36,229,870

211,530,100 20,731,198 13,445,600 245,706,898

$ 241,470,112 $ 24,983,668 $ 15,482,988 $ 281,936,768

Year Ended May 31, 2011


8/36

Webster University

See Notes to Consolidated Financial Statements 4

Consolidated Statements of Cash Flows


2012 2011

Operating Activities

Change in net assets $ 7,352,871 $ 36,229,870

Items not requiring (providing) operating activities cash flows

Depreciation and amortization 11,978,214 11,051,914

Amortization of bond premium 708,031 -

Loss on extinguishment of debt 1,279,871 -

Effect of currency translation adjustments 1,232,916 (2,265,024)

Net realized and unrealized (gains) losses on investments 8,116,334 (14,245,557)

Change in value of split-interest agreements 24,530 33,264

Change in value of accrued benefit costs 1,434,338 547,334

Contributions received restricted for long-term investment (1,219,033) (1,904,173)

Contributions received restricted for acquisition of

long-lived assets (2,139,352) (1,232,417)

Changes in

Accounts and other receivables (1,586,005) (5,070,510)

Prepayments and deferred charges (1,138,549) 170,799

Accounts payable and accrued expenses (1,971,614) (2,322,694)

Deposits and deferred revenue (49,459) 1,059,634

U.S. government grants refundable 14,040 23,246

Net cash provided by operating activities 24,037,133 22,075,686

Investing Activities

Purchase of property and equipment (22,224,546) (14,530,425)Proceeds from disposition of property and equipment 318,941 332,785

Purchase of investments (192,343,270) (156,083,995)

Proceeds from disposition of investments 184,626,393 104,034,145

Net cash used in investing activities (29,622,482) (66,247,490)

Financing Activities

Proceeds from contributions restricted for permanent investment in

endowment and loan funds 1,219,033 1,904,173

Proceeds from contributions restricted for acquisition of

long-lived assets 2,139,352 1,232,417

(Increase) decrease in escrowed bond investments 824,796 (384,485)Proceeds from debt issuance 15,685,228 -

Principal payments on long-term debt (685,408) (2,376,434)

Cost of bond issuance (1,028,197) (50,450)

Proceeds from issuance of annuities and trust payable 45,881 30,507

Payments on annuities and trusts payable (104,211) (99,350)

Net cash provided by financing activities 18,096,474 256,378

(Continued)


9/36

Webster University

See Notes to Consolidated Financial Statements 5

Consolidated Statements of Cash Flows (Continued)


2012 2011

Increase (Decrease) in Cash $ 12,511,125 $ (43,915,426)

Cash, Beginning of Year 8,594,813 52,510,239

Cash, End of Year $ 21,105,938 $ 8,594,813

Supplemental Cash Flows Information

Interest paid $ 3,658,818 $ 3,306,753

In-kind contributions $ 6,200 $ 168,625

Property and equipment included in accounts payable $ 383,157 $ 1,893,605

.


10/36

Webster UniversityNotes to Consolidated Financial Statements

May 31, 2012 and 2011

6

Note 1: Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Webster University (the University) is a not-for-profit, private university located in WebsterGroves, Missouri. The Universitys community is a highly diverse population of more than 22,000men and women who represent approximately 100 nationalities, nearly every racial, ethnic, culturaland socioeconomic background and students who range from traditional college age to older adults.The University is an independent, nondenominational, international educational institution offeringboth undergraduate and graduate degree programs. Founded in 1915, the University has over 100extended campuses located throughout the United States, as well as campuses in Austria, China,

Great Britain, the Netherlands, Switzerland and Thailand. The University has international assetstotaling $9,530,379 and $8,705,813 at May 31, 2012 and 2011, respectively, and internationalrevenues totaling $32,563,146 and $30,561,396, respectively, for the years then ended. TheUniversitys primary source of revenue is tuition and fees paid by students. The majority ofstudents rely on funds received from federal financial aid programs under Title IV of the HigherEducation Act of 1965, as amended, to pay for a substantial portion of their tuition.

Principles of Consolidation

The consolidated financial statements include the accounts of the University and its wholly-ownedsubsidiaries. All significant intercompany accounts and transactions have been eliminated inconsolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generallyaccepted in the United States of America (GAAP) requires management to make estimates andassumptions that affect the reported amounts of assets, liabilities, revenues and expenses during thereporting period, as well as, disclosure of contingent assets and liabilities. Significant items subjectto such estimates and assumptions include valuations of certain investments which do not havereadily determinable fair values, allowances for uncollectible accounts, contingency reserves andcalculations of asset retirement obligations. Actual results ultimately could differ frommanagements estimates and assumptions.

Cash

The University considers all domestic bank checking account deposits and all international bankdeposits used for operations to be cash. At May 31, 2012, cash consisted primarily of checkingaccount balances under earnings credit arrangements.

One or more of the financial institutions holding the Universitys cash accounts participated in theFDICs Transaction Account Guarantee Program. Under that program, through December 31,2010, all noninterest-bearing transaction accounts were fully guaranteed by the FDIC for the entire


11/36


May 31, 2012 and 2011

7

amount in the account. Pursuant to legislation enacted in 2010, the FDIC will fully insure allnoninterest-bearing transaction accounts beginning December 31, 2010 through December 31,2012, at all FDIC-insured institutions.

Effective July 21, 2010, the FDICs insurance limits were permanently increased to $250,000. AtMay 31, 2012, the Universitys interest-bearing money market and commercial paper accounts heldat FDIC-insured institutions exceeded federally insured limits by approximately $2,535,000.

Accounts Receivable

Accounts receivable are stated at the amount billed to students. The University provides an

allowance for doubtful accounts, which is based upon a review of outstanding receivables,historical collection information and existing economic conditions. Payment in full or paymentarrangements are required at the time of registration. In the event an account is referred to anagency or attorney for collection, the student promises to pay, in addition to all amounts otherwisedue to the University, the costs and expenses of such collection and/or representation not to exceed33% of the amount owed, including, without limitation, reasonable attorneys fees and expenses, tothe extent permitted by applicable law. Delinquent receivables are written off based on individualcredit evaluation and specific circumstances of the student.

Student Loans Receivable

The University makes loans to students under the Federal Perkins Loan Program. Under the terms

of the program, these loans are subject to forgiveness or assignment back to the federal governmentunder certain circumstances. Such loans receivable are recorded net of estimated uncollectibleamounts. The amount to be forgiven or assigned is based on the occurrence of certain future eventswhich cannot be anticipated.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation, except for donated assets,which is recorded at fair value on the date of donation. Depreciation is calculated using thestraight-line method to allocate the cost of various classes of assets over their estimated usefullives. Leasehold improvements are depreciated over the shorter of the lease term or theirrespective estimated useful lives. Property and equipment are removed from the accounting

records at the time of disposal.The estimated useful lives used in calculating depreciation for the years ended May 31, 2012 and2011, are as follows:

Building 10 - 40 yearsImprovements 10 20 yearsEquipment 5 yearsFurniture and fixtures 10 years


12/36


May 31, 2012 and 2011

8

Investments and Investment Return

Investments are carried at fair value. The University considers money market funds held byinvestment managers as part of the investment portfolio. Investments acquired by gift or bequestare recorded at fair or appraised value at the date acquired. Investment return includes dividend,interest and other investment income; realized and unrealized gains and losses on investmentscarried at fair value; and realized gains and losses on other investments.

Investment return that is initially restricted by donor stipulation and for which the restriction willbe satisfied in the same year is included in unrestricted net assets. Other investment return isreflected in the statements of activities as unrestricted, temporarily restricted or permanently

restricted based upon the existence and nature of any donor or legally imposed restrictions.

Escrowed Bond Investments

The University is required to maintain separate accounts for proceeds of bond financings. Theseaccounts are comprised of cash, money market accounts, Federal National Mortgage obligations,Federal Home Loan Mortgage obligations and obligations of municipal governments.

Split-Interest Agreements

The Universitys split-interest agreements with donors consists primarily of charitable giftannuities and irrevocable charitable remainder trusts for which the University serves as trustee.Assets are invested and payments are made to donors and/or other beneficiaries in accordance with

the respective agreements.

Contribution revenues for charitable gift annuities and charitable remainder trusts are recognized atthe date the agreements are established. In addition, the fair value of the estimated future paymentsto be made to the beneficiaries under these agreements is recorded as a liability.

Deferred Bond Issuance Costs

Debt issuance costs consist of legal, underwriting and other fees for services rendered inconnection with the issuance of long-term debt. Debt issuance costs are amortized over the life ofthe related debt. Amortization expense was $75,171 and $101,846 for the years ended May 31,2012 and 2011, respectively. In July 2011, the University issued Educational FacilitiesImprovement and Refunding Revenue Bond Series 2011 and a portion of the bond proceeds wereused to refund outstanding Series 2001 and Series 2005 bonds. Approximately $1,280,000 ofSeries 2001 and 2005 bonds issuance costs were written off in fiscal year ended May 31, 2012.

Net Assets

For the purposes of financial reporting, the University classifies resources into three net assetcategories pursuant to any donor-imposed restrictions applicable to law. Accordingly, the netassets of the University are classified in the accompanying financial statements in the categoriesthat follow:


13/36


May 31, 2012 and 2011

9

Unrestricted net assets are not subject to donor-imposed restrictions. Included in unrestricted netassets are Board-designated net assets which the governing board, rather than a donor, hasdesignated for investment (quasi-endowment), student loans, retirement of indebtedness, plantrenewal fund and net investment in plant.

Temporarily restricted net assets are subject to legal or donor-imposed stipulations that will besatisfied by either actions of the University, the passage of time or both. When a donor restrictionexpires, that is, when a stipulated time restriction ends or purpose restriction is accomplished,temporarily restricted net assets are reclassified to unrestricted net assets and reported in theconsolidated statements of activities and changes in net assets as net assets released fromrestrictions.

Permanently restricted net assets are subject to donor-imposed stipulations that they be investedto provide a perpetual source of income to the University. Generally, donors of these assets requirethe University to maintain and invest the original contribution in perpetuity, but permit the use ofsome or all investment returns for general or specific purposes.

Revenue Recognition

Revenues are recognized over the academic year as services are provided. Student tuition and feerevenues are presented net of scholarship allowances in the consolidated statement of activities andchanges in net assets. Scholarship allowances are the difference between the stated charge forgoods and services provided by the University, and the amount that is paid by students and/or thirdparties making payments on the students behalf. Scholarship allowances for the years endedMay 31, 2012 and 2011, were $22,706,807 and $21,797,232, respectively.

Contributions

Gifts of cash and other assets received without donor stipulations are reported as unrestrictedrevenue and net assets. Gifts received with a donor stipulation that limits their use are reported astemporarily or permanently restricted revenue and net assets. When a donor stipulated timerestriction ends or purpose restriction is accomplished, temporarily restricted net assets arereclassified to unrestricted net assets and reported in the consolidated statements of activities andchanges in net assets as net assets released from restrictions. Gifts having donor stipulations whichare satisfied in the period the gift is received are reported as unrestricted revenue and net assets.

Gifts of land, buildings, equipment and other long-lived assets are reported as unrestricted revenueand net assets unless explicit donor stipulations specify how such assets must be used, in whichcase the gifts are reported as temporarily or permanently restricted revenue and net assets. Absentexplicit donor stipulations for the time long-lived assets must be held, expirations of restrictionsresulting in reclassification of temporarily restricted net assets as unrestricted net assets arereported when the long-lived assets are placed in service.

Unconditional gifts expected to be collected within one year are reported at their net realizablevalue. Unconditional gifts expected to be collected in future years are reported at the present valueof estimated future cash flows. The discount is included in accretion of contribution revenue.


14/36


May 31, 2012 and 2011

10

Conditional gifts depend on the occurrence of a specified future and uncertain event to bind thepotential donor and are recognized as assets and revenue when the conditions are substantially metand the gift becomes unconditional.

The University receives donated works of art. These works of art are capitalized and recognized asgift revenue at the appraised value and are not subject to depreciation. Collection items sold orremoved are reported as unrestricted or temporarily restricted gains or losses depending on donorstipulations, if any, placed on the items at the time of acquisitions.

Deferred Revenue

Deferred revenue consists of amounts billed or received for educational, auxiliary or other servicesthat have not yet been earned.

Government Grants

Revenues from governmental grants and contracts are recognized when allowable expenditures areincurred under such agreements.

Income Taxes

The University is exempt from income taxes under Section 501 of the Internal Revenue Code andsimilar provisions of state law. However, the University is subject to federal income tax on any

unrelated business taxable income.

The University or one of its subsidiaries files tax returns in the U.S. federal jurisdiction and variousforeign jurisdictions. With a few exceptions, the University is no longer subject to U.S. federal ornon-U.S. examinations by tax authorities for years before 2009.

Licensure

As an educational institution, the University is subject to licensure from various accrediting andstate authorities and other regulatory requirements of the United States Department of Education.

Asset Retirement Obligation

An asset retirement obligation (ARO) associated with the retirement of a tangible long-lived assetis recognized as a liability in the period in which it is incurred or becomes determinable even whenthe timing and/or method of settlement may be conditional on a future event. The Universitysconditional AROs primarily relate to asbestos contained in buildings that the University owns.


15/36


May 31, 2012 and 2011

11

A summary of changes in the AROs liability is included in the table below.

2012 2011

Beginning of year $ 1,817,892 $ 1,813,657

Liabilities settled (25,297) (49,117)

Accretion expense 54,975 53,352

End of year $ 1,847,570 $ 1,817,892

Transfers Between Fair Value Hierarchy Levels

Transfers in and out of Level 1 (quoted market prices), Level 2 (other significant observableinputs) and Level 3 (significant unobservable inputs) are recognized on the period ending date.

Note 2: Receivables

The major components of receivables at May 31 consisted of the following:

2012 2011

Accounts receivable from students (net of allowance;

2012 - $5,463,318, 2011 - $5,702,939) $ 29,597,218 $ 30,371,932

Other receivables (net of allowance; 2012 - $9,025,

2011 - $5,491) 8,611,008 7,599,675

Grants receivable 359,191 438,695

Contributions receivable, net 7,754,892 5,694,844

Total receivables 46,322,309 44,105,146

Less noncurrent contributions receivable 6,030,141 4,682,665

Receivables - current $ 40,292,168 $ 39,422,481


16/36


May 31, 2012 and 2011

12

Contributions receivable consisted of the following:

Temporarily

Restricted Restricted Total

Due within one year $ 1,498,490 $ 374,658 $ 1,873,148

Due in one to five years 2,149,864 489,515 2,639,379

Due in more than five years 5,288,710 24,291 5,313,001

8,937,064 888,464 9,825,528

Less

Allowance for uncollectible

contributions 184,178 41,722 225,900

Unamortized discount 1,790,736 54,000 1,844,736

$ 6,962,150 $ 792,742 $ 7,754,892

TemporarilyRestricted Restricted Total

Due within one year $ 825,534 $ 285,722 $ 1,111,256

Due in one to five years 1,687,446 564,015 2,251,461

Due in more than five years 3,729,801 32,708 3,762,509

6,242,781 882,445 7,125,226

Less

Allowance for uncollectible

contributions 104,437 40,281 144,718

Unamortized discount 1,208,835 76,829 1,285,664

$ 4,929,509 $ 765,335 $ 5,694,844

May 31, 2012

May 31, 2011

Permanently

Permanently

The interest rate utilized for discounting contributions receivable for 2012 and 2011 ranged from1.6% to 6.0% and 3.0% to 6.0%, respectively.


17/36


May 31, 2012 and 2011

13

Note 3: Student Loans Receivable

The University loans money to students with exceptional financial need through the FederalPerkins Loan program. Determination of financial need is based on a nationally recognizedmethodology and regulations promulgated by the U.S. Department of Education. The loans arelong-term and bear an interest rate of 5%. The University acts as the lender with the loan madeprimarily with government funds. The University matches federal awards with a 33% match.Additionally, a liability is recorded to recognize the funds advanced from the U.S. Department ofEducation for original funding of the loans. The University holds the loans until maturity,assignment or cancellation. A third party manages the portfolio on behalf of the University. Asloan payments are received from borrowers, the funds are applied to both the recorded asset and

liability as these funds are then used to create additional loans to qualified students. The PerkinsLoan portfolio was $2,233,930 and $2,295,238 at May 31, 2012 and 2011, respectively. U.S.government grants refundable were $1,608,699 and $1,594,659 at May 31, 2012 and 2011,respectively.

Interest does not accrue on Perkins Loans until the student leaves school and enters repaymentstatus. Typically, there is a nine-month grace period upon graduation before interest begins toaccrue and payments are required. Interest income for the years ended May 31, 2012 and 2011,was $32,937 and $29,728, respectively.

Loans that are determined to be uncollectible after appropriate due diligence procedures have beenperformed can be assigned to the U.S. Department of Education. Thus, the ultimate credit risk ofthe portfolio is low. Loans are classified as: In School, In Grace, Active and Delinquent. InSchool and In Grace loans represent loans made to students who are still in school or who are in thenine-month grace period following graduation. Active loans are those loans that are in repaymentstatus and are considered current. Delinquent loans are those that are active but not current withpayments. Although ultimate collectibility can be ensured by the U.S. Department of Education,the University has established an allowance for uncollectible loans. The allowance was $40,000 atMay 31, 2012 and 2011. Loan default rates (Federal Cohort Rate) are monitored by the U.S.Department of Education based on a legislated formula and measured at June 30 of each year. Aninstitution that does not meet the federal expectation can lose future government funding. TheUniversitys Perkins Federal Cohort Rate at May 31, 2012 and 2011, was 25.25% and 19.20%,respectively.

Loans may also be deferred or cancelled based on federal guidelines. Cancelled loans are repaid to

the University by the federal government. Loans totaling $9,605 and $8,652 were cancelled for theyears ended May 31, 2012 and 2011, respectively.

The remainder of the loans receivable, $39,781 and $41,927 at May 31, 2012 and 2011,respectively, represent amounts advanced from a University loan fund. As dictated by donorbequest, the fund is to be used as a revolving loan fund for able but needy students. Terms of theseloans are similar to those of the Federal Perkins Loan program.


18/36


May 31, 2012 and 2011

14

Note 4: Property and Equipment

Property and equipment at May 31 consists of:

2012 2011

Land and improvements $ 22,474,889 $ 21,915,937

Buildings and improvements 187,489,049 162,400,000

Equipment 42,688,076 36,706,366

Collections and works of art 4,496,644 4,490,444

Construction in progress 1,116,146 15,265,111

Other 2,369,708 2,405,059

260,634,512 243,182,917

Less accumulated depreciation 112,254,126 102,399,857

$ 148,380,386 $ 140,783,060

Construction in progress includes certain projects started but not yet completed at fiscal year-end,the most significant of which is the construction of the East Academic Building which wascompleted in January 2012.

Depreciation expense for the years ended May 31, 2012 and 2011, was $11,827,000 and$10,869,000, respectively.

Note 5: Investments, Investment Return and Disclosures About Fair Value ofAssets and Liabilities

Accounting Standards Codification (ASC) Topic 820,Fair Value Measurements, defines fairvalue as the price that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date. Topic 820 also specifies a fairvalue hierarchy which requires a plan to maximize the use of observable inputs and minimize theuse of unobservable inputs when measuring fair value. The standard describes three levels of

inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets;quoted prices in markets that are not active; or other inputs that are observable or canbe corroborated by observable market data for substantially the full term of theassets

Level 3 Unobservable inputs that are supported by little or no market activity and that aresignificant to the fair value of the assets


19/36


May 31, 2012 and 2011

15

Following is a description of the valuation methodologies and inputs used for assets measured atfair value on a recurring basis and recognized in the accompanying consolidated statements offinancial position, as well as the general classification of such assets pursuant to the valuationhierarchy.

Investment and Escrowed Bond Investments

Where quoted market prices are available in an active market, investments are classified withinLevel 1 of the valuation hierarchy. Level 1 investments include money market accounts,commercial paper, mutual funds, common stocks and corporate and municipal bonds. If quotedmarket prices are not available, then fair values are estimated by using pricing models, quoted

prices of investments with similar characteristics or discounted cash flows. Level 2 investmentsinclude investments in certain mutual funds and in the net assets of funds in which the fund investslargely in securities with quoted market prices. In certain cases where Level 1 or Level 2 inputs arenot available, investments are classified within Level 3 of the hierarchy and include alternativestrategy investments and other investments.

Beneficial Interest in Charitable Remainder Trust

Fair value is estimated at the present value of the future distributions expected to be received overthe term of the agreement. Due to the nature of the valuation inputs, the interest is classified withinLevel 2 of the hierarchy.

The following tables present the fair value measurements of assets recognized in the accompanyingconsolidated statements of financial position measured at fair value on a recurring basis and thelevel within the fair value hierarchy in which the fair value measurements fall at May 31, 2012 and2011:


20/36


May 31, 2012 and 2011

16

in Active Significant

Markets Other

for Identical Observable

Assets Inputs

Fair Value (Level 1) (Level 2)

Money market - short-term $ 3,199,851 $ 3,199,851 $ - $ -

Money market - long-term 408,917 408,917 - -

Commercial paper 8,333,803 8,333,803 - -

Equity Securities

Financials 2,070,941 2,070,941 - -

Industrials 1,204,879 1,204,879 - -

Information technology 1,016,736 1,016,736 - -

Consumer discretionary 900,585 900,585 - -

Other 1,738,166 1,738,166 - -

U.S. government bonds and notes 727,506 727,506 - -

Corporate bonds and notes 39,046,667 39,046,667 - -

Mutual funds

Bond funds 68,232,517 68,232,517 - -

Large value 9,370,824 9,370,824 - -

Large blend 4,029,299 4,029,299 - -

Large growth 9,965,568 9,965,568 - -Medium growth 6,659,789 6,659,789 - -

International large blend 6,620,632 159,645 6,460,987 -

Other 339,336 339,336 - -

Limited partnership investments 14,518,454 - 14,518,454 -

Alternative strategies 8,302,513 - - 8,302,513

Other 654,923 319,923 - 335,000

Total investments 187,341,906 157,724,952 20,979,441 8,637,513

Less short-term investments 47,130,003 47,130,003 - -

Total long-term investments $ 140,211,903 $ 110,594,949 $ 20,979,441 $ 8,637,513

Escrowed bond investmentsMoney market funds $ 1,421,996 $ 1,421,996 $ - $ -

U.S. government bonds and notes 205,673 - 205,673 -

Municipal bonds 5,185,979 5,185,979 - -

$ 6,813,648 $ 6,607,975 $ 205,673 $ -

Beneficial interest in charitableremainder trust $ 3,550,645 $ - $ 3,550,645 $ -

2012

Unobservable

Significant

(Level 3)

Quoted Prices

Fair Value Measurements Using

Inputs


21/36


May 31, 2012 and 2011

17

in Active Significant

Markets Other

for Identical Observable

Assets Inputs

Fair Value (Level 1) (Level 2)

Money market - short-term $ 31,985,473 $ 31,985,473 $ - $ -

Money market - long-term 264,593 264,593 - -

Commercial paper 31,840,666 31,840,666 - -

Equity Securities

Financials 1,709,005 1,709,005 - -

Industrials 1,285,543 1,285,543 - -

Information technology 976,425 976,425 - -

Consumer discretionary 864,092 864,092 - -

Other 1,927,637 1,927,637 - -

U.S. government bonds and notes 504,003 504,003 - -

Corporate bonds and notes 848,108 848,108 - -

Mutual funds

Bond funds 53,069,948 53,069,948 - -

Large value 9,415,950 9,415,950 - -

Large blend 5,203,532 5,203,532 - -

Large growth 9,033,102 9,033,102 - -Medium growth 7,893,391 7,893,391 - -

International large blend 7,491,211 187,709 7,303,502 -

Other 400,842 400,842 - -

Limited partnership investments 16,244,641 - 16,244,641 -

Alternative strategies 7,048,194 - - 7,048,194

Other 646,295 311,295 - 335,000

Total investments 188,652,651 157,721,314 23,548,143 7,383,194

Less short-term investments 63,893,222 63,893,222 - -

Total long-term investments $ 124,759,429 $ 93,828,092 $ 23,548,143 $ 7,383,194

Escrowed bond investmentsMoney market funds $ 2,943,852 $ 2,943,852 $ - $ -

U.S. government bonds and notes 3,005,638 2,587,633 418,005 -

Municipal bonds 1,688,954 1,688,954 - -

$ 7,638,444 $ 7,220,439 $ 418,005 $ -

Beneficial interest in charitableremainder trust $ 4,118,349 $ - $ 4,118,349 $ -

Fair Value Measurements Using

Quoted Prices

Unobservable

Inputs

Significant

2011

(Level 3)


22/36


May 31, 2012 and 2011

18

The following is a reconciliation of the beginning and ending balances of recurring fair valuemeasurements recognized in the accompanying consolidated statements of financial position usingsignificant unobservable (Level 3) inputs:

AlternativeStrategies Other Total

Balance, June 1, 2010 $ 5,638,630 $ - $ 5,638,630

in change in net assets 674,613 - 674,613

Purchases 886,000 - 886,000

Contribution received - 335,000 335,000

(151,049) - (151,049)

Balance, May 31, 2011 7,048,194 335,000 7,383,194

in change in net assets (103,216) - (103,216)

4,731,256 - 4,731,256

Sales (3,373,721) - (3,373,721)

Balance, May 31, 2012 $ 8,302,513 $ 335,000 $ 8,637,513

Total realized and unrealized gains included

Total realized and unrealized losses included

Purchases

Liquidations

The following methods were used to estimate the fair value of all other financial instrumentsrecognized in the accompanying consolidated statements of financial position.

Discounted future cash flows using a discount rate commensurate with risks involved andthe remaining maturities (contributions receivable).

Actuarial evaluation of the estimated payments required under obligation (annuities andtrusts payable, beneficial interest in charitable trusts, accrued benefit costs).

Borrowing rates currently available to the University for debt with similar terms andmaturities (notes payable).

Quoted market prices or dealer quotes, if available. If a quoted market price is notavailable, fair value is estimated using quoted market prices for similar securities (bondspayable).

The carrying amount approximates fair value (accounts receivable, notes receivable, line ofcredit).


23/36


May 31, 2012 and 2011

19

The following table presents the carrying amount and the estimated fair values of the Universitysfinancial instruments at May 31, 2012 and 2011.

Carrying Estimated Carrying Estimated

Amount Fair Value Amount Fair Value

Financial assets

Cash and cash equivalents $ 21,105,938 $ 21,105,938 $ 8,594,813 $ 8,594,813

Investments $187,341,906 $187,341,906 $188,652,651 $188,652,651

Accounts and contributions receivable $ 46,322,309 $ 46,322,309 $ 44,105,146 $ 44,105,146Student loans receivable $ 2,233,711 $ 2,233,711 $ 2,297,165 $ 2,297,165

Beneficial interest charitable remainder

trust $ 3,550,645 $ 3,550,645 $ 4,118,349 $ 4,118,349

Escrowed bond investments $ 6,813,648 $ 6,813,648 $ 7,638,444 $ 7,638,444

Gifts held in trust $ 479,540 $ 479,540 $ 603,675 $ 603,675

Financial liabilities

Note and bonds payable $ 78,177,176 $ 84,418,268 $ 65,002,743 $ 61,994,842

2012 2011


24/36


May 31, 2012 and 2011

20

Alternative Investments

The fair value of alternative strategies has been estimated using the net asset value per share of theinvestments. Alternative strategies held at May 31, consist of the following:

Redemption

Fair Unfunded Redemption NoticeValue Frequency Period

Multi-strategy hedge funds (A) $ 8,103,637 None June 30 or

December 31: Last

business day of theyear

At least 95 days written

notice prior to June 30

December 31; at least 6days written notice prio

to the last business day

the year

Venture capital (B) $ 198,876 None None: Cannot be

redeemed until

dissolution of the

partnership.

Extension to May

2013 approved by

the Board in March

2012

N/A

Commitments

2012


25/36


May 31, 2012 and 2011

21

Redemption

Fair Unfunded Redemption NoticeValue Frequency Period

Multi-strategy hedge funds (A) $ 6,903,149 None December 31: Last

business day of the

year

By last business day of

October for

December 31

redemption; at least 60

days written notice prio

to the last business day

the year

Venture capital (B) $ 145,045 None None: Cannot be

redeemed until

dissolution of the

partnership which

is scheduled to

occur no later than

May 10, 2012

N/A

2011

Commitments

(A) This category includes investments in multi-strategy, off-shore hedge funds and funds offunds that employ a variety of low volatility, absolute return oriented strategies.

(B) This category includes investments in stock, preferred stock, stock warrants and securednotes in firms in the areas of pharmaceuticals, green technology, medical technology anddevices and enabling platforms. These investments are locked in for the life of theagreement.

The University invests in various investment securities. Investment securities are exposed tovarious risks such as interest rate, market and credit risks. Due to the level of risk associated withcertain investment securities, it is at least reasonably possible that changes in the values ofinvestment securities will occur in the near term and that such changes could materially affect theinvestment amounts reported in the consolidated statements of financial position.

Total investment return is comprised of the following:

2012 2011

Interest and dividend income $ 5,355,257 $ 2,871,696

investments reported at fair value (7,889,315) 14,245,557

$ (2,534,058) $ 17,117,253

Net realized and unrealized gains (losses) on


26/36


May 31, 2012 and 2011

22

Note 6: Beneficial Interest in Charitable Remainder Trust

The University is a beneficiary under a charitable remainder unitrust agreement administered by athird party. The Universitys beneficial interest in the trust assets were $3,550,645 and $4,118,349at May 31, 2012 and 2011, respectively. Distributions from the trust will be made as specified inthe trust agreement.

The trust provides for the payment of distributions to the grantor or other designated beneficiariesover the trusts term. At the end of the trusts term, the Universitys beneficial interest in thetrusts assets are available to the University. The portion of the trust attributable to the futureinterest of the University is recorded in the consolidated statement of activities and changes in net

assets as temporarily restricted contributions in the period the trust is established. Given the natureof the estimate, it is reasonably possible that the Universitys estimate of the beneficial interest intrust will materially change in the near term.

Note 7: Notes and Bonds Payable

2012 2011

Notes payable to bank; due in quarterly installments of 150,000 Swiss francs

through 2030; with interest payable quarterly at interest rates of

4.15% and 5.20%; secured by property owned in Geneva, Switzerland, with

a current cost of $23,601,040 (using May 31, 2012, exchange rates) $ 11,395,458 $ 13,687,74

Series 2001 Health & Educational Facilities Authority Revenue Bonds

(Series 2001 Bonds); maturing in varying amounts through 2027; interest

rates varying from 4.50% to 5.50% - 26,800,00

Series 2005 Residential Facilities Authority Revenue Bonds (Series 2005

Bonds); maturing in varying amounts through 2029; interest rates varying

from 4.00% to 5.10% - 20,790,00


27/36


May 31, 2012 and 2011

23

2012 2011

Series 2011 Educational Facilities Improvement and Funding Revenue Bonds

(Series 2011 Bonds); maturing in varying amounts through 2036; interest

rates varying from 4.0% to 5.0%, includes bond premium of $1,686,971 $ 63,071,971 $

Note payable to bank; fixed interest rate of 5.69% with interest only

payments for 41 months beginning September 1, 2008. From the 42nd

month forward (February 2012), payments of principal and interest shall be

in the amount of $21,596. The loan matures January 1, 2017, at which time

the entire outstanding principal and interest is due. The note is secured

by real estate 3,709,747 3,725,000

78,177,176 65,002,74

Less current maturities 934,966 2,558,99

$ 77,242,210 $ 62,443,750

In July 2011, the University issued Educational Facilities Improvement and Refunding RevenueBond Series 2011 in the aggregate principal amount of $61,385,000. The Bond proceeds wereused, together with other funds contributed by the University, to (1) refund outstanding Series 2001Bonds and Series 2005 Bonds and (2) construct a new academic classroom building containing

approximately 90,000 square feet on the Webster Groves, Missouri campus. The new EastAcademic Building houses the George Herbert Walker School of Business and Technology andprovides general purpose classrooms. The Series 2001 and 2005 Bonds were redeemed in full onAugust 15, 2011.

The Series 2011 Bonds are secured by a first lien security interest in all Unrestricted GrossRevenues of the University and a mortgage on certain real estate, all improvements and allbuildings, fixtures and other real property on the collateral located in Webster Groves, Missouri.The bond indenture contains covenants, including the requirement that the University maintains aliquidity ratio and a maximum annual debt service ratio at certain levels. The University is alsorequired to maintain a minimum Debt Reserve Fund balance of $5,170,610 and make monthlydeposits, of varying amounts, to a Debt Service Reserve Fund to fund semiannual interest and

principal payments based on the refunded Series 2001 bonds.

The fixed rate note payable to bank was assumed by the University in August 2008. The noteimposes substantial penalties in the event of early extinguishment.


28/36


May 31, 2012 and 2011

24

Aggregate annual maturities and sinking fund requirements of long-term debt at May 31, 2012, are:

2013 $ 934,966

2014 937,710

2015 3,285,616

2016 3,331,238

2017 3,393,920

Thereafter 66,293,726

$ 78,177,176

Note 8: Annuities and Trusts Payable

The University has been the recipient of several gift annuities which require future payments to thedonor or their named beneficiaries. The assets received from the donor are recorded at fair value.The University has recorded a liability for the charitable gift annuities at May 31, 2012 and 2011,of $573,183 and $560,245, respectively, which represents the present value of the future annuityobligations. The liability has been determined using a discount rate of 6.0% and rates of return of6.0% to 10.8%. At May 31, 2012 and 2011, the University holds $924,728 and $1,023,489 oflong-term investments against these estimated liabilities, respectively.

The University administers various charitable remainder trusts. A charitable remainder trustprovides for the payment of distributions to the grantor or other designated beneficiaries over thetrusts term (usually the designated beneficiarys lifetime). At the end of the trusts term, theremaining assets are available for the Universitys use. The portion of the trust attributable to thefuture interest of the University is recorded in the consolidated statements of activities and changesin net assets as temporarily restricted contributions in the period the trust is established. Assets heldin the charitable remainder trusts are recorded at fair value in the Universitys consolidatedstatements of financial position as gifts held in trust. On an annual basis, the University revalues theliability to make distributions to the designated beneficiaries based on actuarial assumptions. Thepresent value of the estimated future payments is calculated using a discount rate of 6.0% andapplicable mortality tables. At May 31, 2012 and 2011, the recorded liability was $261,388 and$357,785, respectively.


29/36


May 31, 2012 and 2011

25

Note 9: Net Assets

Details of the Universitys net assets as of May 31 are as follows:



Undesignated $ 43,829,231 $ - $ - $ 43,829,23

Quasi-endowment fund 62,435,783 - - 62,435,78

University as lender program - quasi-endowment 1,913,933 - - 1,913,93

Departmental activities 770,342 - - 770,34

Student loans 653,617 - 42,526 696,14Retirement of indebtedness 6,248,057 - - 6,248,05

Plant renewal fund 53,068,500 - - 53,068,50

Net investment in plant 76,707,509 - - 76,707,50

Future buildings and capital maintenance 2,615,260 14,619,136 1,400,000 18,634,39

Accumulated foreign currencytranslation adjustment (4,666,066) - - (4,666,06

Library operations - 873,198 - 873,19

Future educational activity expenses 6,275,474 2,388,173 35,233 8,698,88

Scholarships - 4,878,751 15,200,982 20,079,73

$ 249,851,640 $ 22,759,258 $ 16,678,741 $ 289,289,63

May 31, 2012



Undesignated $ 36,507,014 $ - $ - $ 36,507,01

Quasi-endowment fund 62,573,873 - - 62,573,87

University as lender program - quasi-endowment 2,176,118 - - 2,176,11

Departmental activities 781,435 - - 781,43

Student loans 653,617 - 42,096 695,71

Retirement of indebtedness 7,206,492 - - 7,206,49

Plant renewal fund 44,617,589 - - 44,617,58Net investment in plant 82,623,140 - - 82,623,14

Future buildings and capital maintenance 2,299,978 16,157,466 1,400,000 19,857,44

Accumulated foreign currencytranslation adjustment (3,494,397) (28,141) - (3,522,53

Library operations - 962,209 - 962,20

Future educational activity expenses 5,525,253 2,832,182 8,503 8,365,93

Scholarships - 5,059,952 14,032,389 19,092,34

$ 241,470,112 $ 24,983,668 $ 15,482,988 $ 281,936,76

May 31, 2011


30/36


May 31, 2012 and 2011

26

Net Assets Released From Restrictions

Net assets were released from donor restrictions by incurring expenses satisfying the restrictedpurposes or by occurrence of other events specified by donors.

2012 2011

Scholarships $ 488,938 $ 541,251

Instruction program activities 212,499 157,092

Academic support program activities 75,878 73,964

Institutional support program activities 137,357 30,879

Passage of specified time 283,806 328,512

East Academic Building constructed and placed in service 3,224,844 -

Student service program activities and other 28,987 55,522

$ 4,452,309 $ 1,187,220

Note 10: Endowment

The Universitys endowment consists of individual funds established for a variety of purposes.The endowment includes both donor-restricted endowment funds and funds designated by thegoverning body to function as endowments (quasi-endowment). As required by GAAP, net assetsassociated with endowment funds, including quasi-endowment funds, are classified and reportedbased on the existence or absence of donor-imposed restrictions.

The Universitys governing body has interpreted the state of Missouri Uniform Management ofInstitutional Funds Act (UPMIFA) as requiring preservation of the historical value of the originalgift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations tothe contrary. As a result of this interpretation, the University classifies as permanently restrictednet assets (a) the original value of gifts donated to the permanent endowment, (b) the original valueof subsequent gifts to the permanent endowment and (c) accumulations to the permanentendowment made in accordance with the direction of the applicable donor gift instrument at thetime the accumulation is added to the fund.

The remaining portion of donor-restricted endowment funds is classified as temporarily restrictednet assets until those amounts are appropriated for expenditure by the University in a mannerconsistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA,the University considers the following factors in making a determination to appropriate oraccumulate donor-restricted endowment funds:

1. Duration and preservation of the fund2. Purposes of the University and the fund3. General economic conditions4. Possible effect of inflation and deflation


31/36


May 31, 2012 and 2011

27

5. Expected total return from investment income and appreciation or deprecation ofinvestments

6. Other resources of the University7. Investment policies of the University

The composition of net assets by type of endowment fund at May 31, 2012 and 2011, was:



Donor-restricted $ (214,596) $ 5,681,686 $ 16,636,219 $ 22,103,309

Quasi-endowment 64,349,716 - - 64,349,716

Total endowment fund $ 64,135,120 $ 5,681,686 $ 16,636,219 $ 86,453,025

Temporarily PermanentlyUnrestricted Restricted Restricted Total

Donor-restricted $ (162,207) $ 7,552,139 $ 15,440,893 $ 22,830,825

Quasi-endowment 64,749,991 - - 64,749,991

Total endowment fund $ 64,587,784 $ 7,552,139 $ 15,440,893 $ 87,580,816

2012

2011


32/36


May 31, 2012 and 2011

28

Changes in endowment net assets for the years ended May 31, 2012 and 2011, were:


Endowment Net Assets, Beginning

of Year $ 64,587,784 $ 7,552,139 $ 15,440,893 $ 87,580,81

Investment return (loss) (3,783,161) (1,163,284) 11,588 (4,934,85

Contributions - 14,594 1,266,744 1,281,33

Change in reserve for contributions

receivable - (6,550) (48,140) (54,69

Management fees (81,980) (24,750) (9,901) (116,63

Board designation of endowment funds 5,145,000 - - 5,145,00

Change in value of split interest

agreements - 435 (24,965) (24,53

Appropriation of endowment assets for

expenditure (1,732,523) (690,898) - (2,423,42

Endowment Net Assets, End of Year $ 64,135,120 $ 5,681,686 $ 16,636,219 $ 86,453,02


Endowment Net Assets, Beginning

of Year $ 46,148,517 $ 4,201,380 $ 13,404,730 $ 63,754,62

Investment return 11,241,445 4,012,312 175,348 15,429,10

Contributions - 7,394 1,979,174 1,986,56

Change in reserve for contributions

receivable - (6,067) (76,226) (82,29

Management fees (87,555) (30,969) (8,869) (127,39

Board designation of endowment funds 9,100,000 - - 9,100,00

Change in value of split interest

agreements - - (33,264) (33,26

Appropriation of endowment assets for

expenditure (1,814,623) (631,911) - (2,446,53

Endowment Net Assets, End of Year $ 64,587,784 $ 7,552,139 $ 15,440,893 $ 87,580,81

2012

2011


33/36


May 31, 2012 and 2011

29

Amounts of donor-restricted endowment funds classified as permanently and temporarily restrictednet assets at May 31, 2012 and 2011, consisted of:

2012 2011

$ 16,636,219 $ 15,440,89

Scholarships $ 3,636,379 $ 4,911,07Educational activity expenses 521,580 795,24

Library operations 873,198 962,20

496,319 690,36

154,210 193,25

$ 5,681,686 $ 7,552,13

Future period operations - without restrictions

Permanently restricted net assets - portion of perpetual endowment funds

required to be retained permanently by explicit donor stipulation or

UPMIFA

Temporarily restricted net assets - portion of perpetual endowment funds subject to

a time restriction under UPMIFA

Future period operations - Loretto Hilton Center

From time to time, the fair value of assets associated with individual donor-restricted endowmentfunds may fall below the level the University is required to retain as a fund of perpetual durationpursuant to donor stipulation or UPMIFA. In accordance with GAAP, deficiencies of this natureare reported in unrestricted net assets and aggregated $214,596 and $162,207, at May 31, 2012 and2011, respectively. These deficiencies resulted from unfavorable market fluctuations that occurredshortly after investment of new permanently restricted contributions and continued appropriationfor certain purposes that was deemed prudent by the governing body.

The University has adopted investment and spending policies for endowment assets that support itsmission over the long term. Accordingly, the policies ensure that the growth of the endowment issufficient to offset inflation plus a reasonable spending rate, thereby preserving the purchasingpower of the endowment for future generations.

Under the Universitys investment policy, unless otherwise stated by the donor of the principal,4.5% of the three-year rolling average market value average of investments is available forspending. Investment earnings in excess of the 4.5% spending policy are reinvested. This is

consistent with the Universitys objective to maintain the purchasing power of endowment assetsheld in perpetuity or for a specified time, as well as to provide additional real growth through newgifts and investment return.

To satisfy its long-term rate of return objectives, the University relies on a total return strategy inwhich investment returns are achieved through both current yield (investment income such asdividends and interest) and capital appreciation (both realized and unrealized). The Universitytargets a diversified asset allocation that combines return enhancement and risk reduction.


34/36


May 31, 2012 and 2011

30

Note 11: Operating Leases

The University leases space at various sites domestically and at campuses abroad (future minimumpayments for foreign locations are stated in United States dollars using May 31, 2012, exchangerates). These leases have varying terms which include renewal options and cost-of-livingescalation clauses.

Future minimum lease payments at May 31, 2012, were:

2013 $ 7,806,980

2014 6,099,744

2015 4,836,2582016 3,826,796

2017 3,344,676

Later years 2,915,932

$ 28,830,386

Rent expense under operating leases and rental contracts was $12,575,668 and $12,282,030 in 2012and 2011, respectively.

As of May 31, 2012, the University has paid $600,000 for various rights to utilize a soccer park fora 15 year term beginning June 1, 2012. This prepaid expense will be amortized over the term ofthe lease on a straight-line basis.

Note 12: Retirement and Postretirement Employee Health Insurance BenefitPlans

The University participates in a defined contribution retirement plan which covers regular full-timeemployees through the Teachers Insurance and Annuity Association (T.I.A.A.). Under thisarrangement, the University and plan participants make monthly contributions to T.I.A.A. topurchase individually owned annuity contracts. The plan provides for the University to contributean amount of 1.0% - 3.5% greater than the employees contribution as specified by the plan

agreement. Vesting provisions are full and immediate. There are no unfunded past service costs.The Universitys share of the cost of these benefits was $4,453,767 and $4,089,565 for 2012 and2011, respectively.

The University participates in an unfunded defined benefit postretirement plan which providescertain health, vision and dental benefits to eligible employees. Employees age 55 and overbecome eligible for benefits after completing 15 years of full-time service. The plan iscontributory; with retiree contributions adjusted periodically and contains cost-sharing featuressuch as deductibles and coinsurance. The accrued benefit obligation related to the postretirementemployee health insurance benefit plan was $5,748,717 and $4,314,379 at May 31, 2012 and 2011,respectively. The net periodic cost was $554,241 and $521,236 for the years ended May 31, 2012and 2011.


35/36


May 31, 2012 and 2011

31

Note 13: Insurance Coverage

The University participates in the College and University Risk Management Association ofMissouri (CURMA), which provides the property, crime, general and auto liability and excessliability insurance. Should actual insurance losses exceed CURMAs estimates, the Universitycould be required to contribute additional funds. Management believes the risk of additional loss isminimal and any additional contributions that may be required would not materially impact theoverall financial position or operations of the University.

Note 14: Foreign Currency Translation

The accounts and transactions of subsidiaries located outside the United States are translated intoUnited States dollars using the exchange rates in effect at the date of the consolidated statements offinancial position and the average exchange rates prevailing throughout the period, respectively, inaccordance with GAAP. An analysis of the changes in the cumulative foreign currency translationadjustment for the years ended May 31, 2012 and 2011, is as follows:

2012 2011

Balance, beginning of year $ (3,522,538) $ (3,822,100)

Translation adjustment (1,143,528) 299,562

Balance, end of year $ (4,666,066) $ (3,522,538)

In addition, transaction gains and losses result due to exchange rate changes on transactionsdenominated in currencies other than the functional currency. Losses and gains on foreigncurrency transactions are included in the appropriate functional expense categories of theconsolidated statements of activities and changes in net assets. Gains/(losses) on foreign currencytransactions were $(9,595) and $2,128,490 for 2012 and 2011, respectively.

Note 15: Contingencies

The University is subject to claims and lawsuits that arose primarily in the ordinary course of itsactivities. It is the opinion of management that the disposition or ultimate resolution of such claimsand lawsuits will not have a material adverse effect on the financial position, change in net assetsand cash flows of the University. Events could occur that would change this estimate materially inthe near term.

At May 31, 2012 and 2011, a contingency was recorded in the amount of $784,000 and $870,000,respectively, representing 7.6% of the value of services supplied by Webster University, USA to itssubsidiary, Webster University, Geneva, Switzerland, for the period January 1, 2006 through


36/36


May 31, 2012 and 2011

May 31, 2012. This is in response to the Swiss Federal Tax Administrations preliminary findingthat the value of these services are subject to Swiss Value Added Tax (VAT). The Universitybelieves this finding is without merit and in contradiction of Swiss law and guidelines issued by theSwiss Federal Tax Administration, and the matter is in current litigation in the Swiss judicialsystem.

Note 16: Current Economic Conditions

The current protracted economic decline continues to present difficult circumstances andchallenges which may result in large and unanticipated declines in the fair value of investments andother assets, declines in contributions, student financial aid, enrollment revenue, etc., constraints onliquidity and difficulty obtaining financing. The consolidated financial statements have beenprepared using values and information currently available to the University.

These economic conditions may make it difficult for many donors to continue to contribute tocolleges and universities. A significant decline in contribution revenue, student financial aid,enrollment revenue, etc. could have an adverse impact on the Universitys future operating results.

In addition, the values of assets and liabilities recorded in the consolidated financial statementscould change rapidly, resulting in material future adjustments in investment values, allowances forcontributions receivable and the valuation of intangibles that could negatively impact theUniversitys ability to meet debt covenants or maintain sufficient liquidity.

Note 17: Subsequent Events

Subsequent events have been evaluated through September 20, 2012, which is the date theconsolidated financial statements were issued.

Documents

Webster University 2011-2012 Audited Financial Statements