Pepperdine University Annual Report 2012 by Pepperdine University

Annual Report 2012

Chair's Message President's Message Then and Now: 1937 Meets 2012 Year in Review Video 75th Anniversary Chair's Message Boards Administrators and Deans Financials

From academic achievements to athletic triumphs, Pepperdine University has come a long way from its early days as a budding college at the corner of 79th and Vermont in Los Angeles. Throughout its history Pepperdine has emerged as a shining beacon of academic excellence and Christian tradition formed by the enduring legacy of those who have paved the way ahead. Now, at the close of Pepperdine's 75th anniversary year, we celebrate its journey by commemorating the University’s storied past and recognizing its impact on current and future generations.

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Message from the Chair - 2012 Annual Report 2012

Chair's Message President's Message Then and Now: 1937 Meets 2012 Year in Review Video 75th Anniversary Chair's Message Boards Administrators and Deans Financials

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Pepperdine: Tradition and Trajectory The contrasts between 1937 and 2012—the first 75 years of Pepperdine University —are striking. Few would argue that the dramatic change in its physical location—from a flat, 34acre neighborhood campus in south Los Angeles to 138 acres in the spectacular foothills of Malibu—offers the most extraordinary comparison. The bold architectural lines of Streamlined Moderne on the 1930s original campus gave way to the classic, coastal Mediterranean buildings of renowned planner William Pereira, as Pepperdine became a university and made its miraculous move to Malibu in the early 1970s. And that initial Malibu real estate, thanks to strategic acquisitions and the support of many friends, has grown to 830 acres, enhanced globally by five metropolitan campuses in California, a grand new facility in Washington, D.C., and thriving international centers on three continents. There are other comparisons, both significant and amusing, from Pepperdine's Depression-era days to the new millennium—clothing and hairstyles, language and lore, cars and music, and certainly degree programs and requirements for admission and graduation. But across 75 years of a college on the move and 93,000 graduates making a difference in the world, the unchanging feature of Pepperdine University is the constancy of its character. Same enduring motto from Matthew: "Freely ye received, freely give." An unchanging mission: "…a Christian university committed to the highest standards of academic excellence and Christian values…" Same aspirations for students: "…to strengthen lives for purpose, service, and leadership." The video contained in our annual report for 2012 recounts many more of the traditions that still flourish after seven-plus decades of Pepperdine progress. Embedded in the fun facts is the University's abiding commitment to scholarship, service, and stewardship; to our Christian heritage; to building community; and to maintaining our connections with alumni across the globe. Yes, traditions set the stage for our trajectory. As Pepperdine moves confidently toward its centennial milestone in 2037, we invite you to join us in our journey, working together to transform the lives of those we teach and serve.

Edwin L. Biggers Chair, Board of Regents

Message from the President - 2012

Annual Report 2012

Chair's Message President's Message Then and Now: 1937 Meets 2012 Year in Review Video 75th Anniversary Chair's Message Boards Administrators and Deans Financials

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Time marches ... time matters. The past 12 months at Pepperdine have been all about looking back and leaning forward in a very visible way. On banners across the Malibu campus and at our Southern California centers, in shopping plazas and airport terminals, on community kiosks and lampposts, and in an array of magazines, we proudly proclaimed Pepperdine's 75th anniversary year. Scores of Pepperdine alumni reunited across the country—including 200 at a signature event in Houston—equipped with 75th anniversary party packs provided by our alumni relations staff to help them celebrate in style. Here on campus, we opened a towering "Headlines of History" exhibit that recounts our modest beginnings and mighty advances over seven decades and more. If you have not seen it, visit the Thornton Administrative Center where it remains on display. In March, nearly 1,000 guests filled the New York Street back lot at Burbank's Warner Bros. Studios, as Pepperdine Associates and alumni—many in vintage attire—paused to recall what it was like in the Depression-era '30s as George Pepperdine built his college some 20 miles south. Our yearlong anniversary festivities came to a nostalgic close on September 19 as 3,000 students, faculty, alumni, staff, and board members assembled in Firestone Fieldhouse and later for lunch in Alumni Park to commemorate Founder's Day. Around the Southland, Los Angeles Times subscribers awoke that morning to find our 20-page, full-color insert, sharing our 75-year story and congratulatory messages from loyal fans and friends. This year's annual report celebrates these momentous 12 months in Pepperdine's history. Those of us privileged to be part of the University family will remember in the years ahead that 2012 was our time—teaching in classrooms, coaching athletes, conducting research, mentoring students, working in the library, grooming the landscape, serving others, changing lives. "Time has a wonderful way to show us what really matters," writes author and artist Margaret Peters. As we close this celebratory chapter in Pepperdine's still rather brief but colorful history in the annals of Christian higher education, I am reminded of the eight months it took George Pepperdine to open his college—from decision in February to dedication on September 21, 1937. I especially love his response to skeptical educators Batsell Baxter and Hugh Tiner, who would become his first and second college presidents, respectively. "But this is already February," Tiner protested. "I know," said Mr. Pepperdine, "so while we will have plenty of time, we won't have any to lose." Indeed, time marches ... and time matters. On Mr. Pepperdine's firm foundation, fueled by faith that endured far beyond the fortune he invested, this University shines today as our "city on a hill." As I expressed during the September Founder's Day ceremony, at Pepperdine we press confidently forward, earnestly toward our centennial year in 2037, because we believe in differences that matter, people who matter, and a heritage that matters.

Andrew K. Benton President and Chief Executive Officer

Message from the 75th Anniversary Chair

Annual Report 2012

Chair's Message President's Message Then and Now: 1937 Meets 2012 Year in Review Video 75th Anniversary Chair's Message Boards Administrators and Deans Financials

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Trends for Transformation It's been a big year for Pepperdine. We've taken 12 months to celebrate our first 75 years, reflecting on the struggle and success that have created our story over seven and a half decades. On several recent occasions, I have paused to ask the question, "What would George think if he could see us now?" Times have certainly changed since our founder last saw his beloved academy in 1962. Since then we have transitioned from college to university, moved from Los Angeles to Malibu, and we've become a University at the forefront of higher education—creating campuses and community for the 21st century. As the University grew out of the post-war golden age of higher education, Pepperdine was decades ahead of the trend in globalization, starting nearly 50 years ago with our first campus overseas. Today our six international campuses provide a global learning environment that has become invaluable for students entering today's workforce. In Malibu and across our Southern California campuses, we are creating an academic enterprise that thrives on technical and information literacy. We've developed long-term strategies that incorporate the newest technological innovations for faculty teaching, and we're deploying methods that give students superior access to research and information. And as the University's campus footprint grows, we'll lead the trend to redefine and reimagine how all of our spaces are designed, built, and used—forging ahead with plans for campus commons areas and pedagogical centers that will usher in an evolution of teaching, learning, and collaboration for this generation and those that follow. As we advance our Campaign for Pepperdine forward and anticipate its impact on these endeavors and more, I think Mr. Pepperdine would be proud … of the brand we've built, the culture we've created, the friends we've found, and the purpose we've pronounced. In just a few decades, Pepperdine has grown from an ennobled institution, sustained by the dream of our founder, to a world-class university, transformed unequivocally by 75 years of friends like you.

S. Keith Hinkle (JD '97) Senior Vice President for Advancement and Public Affairs and Chief Development Officer

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Pepperdine Boards Board of Regents Annual Report 2012

Chair's Message President's Message Then and Now: 1937 Meets 2012 Year in Review VideoÂ 75th Anniversary Chair's Message Boards Administrators and Deans Financials

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The 40-member Board of Regents is the legal governing body and chief policy board of the University. Life Regents are recognized and honored for their extraordinary service as past regents. The University administration, working in tandem with the governing and advisory boards, shapes the direction of the University. The guidance provided by these distinguished and committed men and women is greatly valued. Edwin L. Biggers Chair President (Retired), Hughes Missile Group James R. Porter Vice Chair Principal, Porter Capital Partners Susan F. Rice Secretary Senior Consulting Associate, Berkeley Briscoe, Inc. Frederick L. Ricker Assistant Secretary Vice President and Deputy General Manager Advanced Programs and Technology Northrop Grumman Aerospace Systems William S. Banowsky President Emeritus, Pepperdine University Andrew K. Benton President, Pepperdine University Sheila K. Bost Marriage and Family Therapist, Private Practice Charles L. Branch Professor of Neurosurgery Wake Forest University Health Center

Mark A. Kirk Partner (Retired), Linsalata Capital Partners Dennis S. Lewis President and Owner, WorldTravelService Eff W. Martin Managing Director (Retired), Goldman Sachs & Company Faye W. McClure Head of Agent Marketing and Strategic Initiatives, Farmers Insurance Michael T. Okabayashi Partner, Ernst & Young Danny Phillips Investments/Ranching Timothy C. Phillips Chief Executive Officer, Phillips and Company Russell L. Ray, Jr. Airline and Aerospace Companies Executive (Retired) Carol Richards B. Joseph Rokus Manager, SPP LLC

Dale A. Brown Principal, Moriah Group, Petroleum Strategies

P. Bui Simon President, Angels Wings Foundation International

Janice R. Brown Circuit Court Judge, United States Court of Appeals for the D.C. Circuit

Harold R. Smethills Managing Director, Sterling Ranch, LLC

Jose A. Collazo Vice Chair and President, Form I-9 Compliance, LLC Jerry S. Cox President, Cox & Perkins Exploration, Inc. Terry M. Giles President and Owner, Giles Enterprises

Rosa Mercado Spivey Physician, Medical Director, LAUSD William W. Stevens Chair of the Board (Retired), Triad Systems Corporation Stephen M. Stewart President, Stewart Brothers Drilling Company

Michelle R. Hiepler Partner, Law Offices of Hiepler & Hiepler

Augustus Tagliaferri Chair and President Financial Structures, Inc.

Glen A. Holden United States Ambassador (Retired) Managing Partner, The Holden Company

Marta B. Tooma Philanthropic Dentist

Gail E. Hopkins Orthopaedic Surgeon

Robert L. Walker Senior Executive for Development Texas A&M University

John D. Katch District Manager (Retired), Southern California Edison Company

Marylyn M. Warren Senior Vice President (Retired), eHarmony.com Edward V. Yang Chair and President, U.S. Business Group, iSoftstone, Inc.

Life Regents Joe R. Barnett Lodwrick M. Cook Robert R. Dockson W. L. Fletcher III Hari N. Harilela

Jerry E. Hudson

Thomas J. Trimble

Jerve M. Jones

William R. Waugh

Rosemary Raitt

J. McDonald Williams

Charles B. Runnels

Helen M. Young

Richard M. Scaife

University Board The University Board is a national advisory group that provides guidance and leadership. Pat Boone (Chair)

Hank Frazee

Stephen E. Olson

William Ahmanson, Jr.

G. Louis Graziadio III

Kelly Roberts

Robert Barbera

Bart M. Hackley, Jr.

Twanna Rogers

Nabil Barsoum

Michael A. Hammer

Charles B. Runnels

William W. Beazley

Bruce Herschensohn

Margaret Sheppard

Paul F. Bennett

Robert W. P. Holstrom

Eric Small

Andrew K. Benton

Peter James Johnson

Lisa Smith

A. Ronald Berryman

M. Lawrence Lallande

Richard L. Stack

Viggo Butler

Carl J. Lambert

William G. Stephens

Rod Campbell

Stephen Lehman

Dorothy B. Straus

Peter Chung

Deanne Lewis

George Thomas

David Corbin

Ian R. Linde

Robert A. Virtue

Manuel Del Arroz

Seiji Masuda

Ellen Weitman

K. Duane Denney

Takuji Masuda

Jay Welker

Robert E. "Bob" Dudley

Gregory R. McClintock

Larry L. Westfall

Warren R. Merrill

Jeremy N. White

E. Chadwick Mooney

Gary L. Wilcox

Velma V. Morrison

Griffith J. Williams

William S. Mortensen

Judy Zierick

Maureen Duffy-Lewis Mark W. Dundee David G. Elmore Alex Fortunati

Kenneth Mosbey

Administrators and Deans

Annual Report 2012

Chair's Message President's Message Then and Now: 1937 Meets 2012 Year in Review Video 75th Anniversary Chair's Message Boards Administrators and Deans

Senior Administration

Academic Deans

Andrew K. Benton President and Chief Executive Officer

Linda A. Livingstone Dean, Graziadio School of Business and Management

Darryl L. Tippens Provost and Chief Academic Officer

Rick R. Marrs Dean, Seaver College of Letters, Arts, and Sciences

Gary A. Hanson Executive Vice President and Chief Operating Officer Charles J. (Jeff) Pippin Senior Vice President for Investments and Chief Investment Officer S. Keith Hinkle Senior Vice President for Advancement and Public Affairs and Chief Development Officer

Mark S. Roosa Dean of Libraries Deanell Reece Tacha Dean, School of Law Margaret J. Weber Dean, Graduate School of Education and Psychology James R. Wilburn Dean, School of Public Policy

Financials

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Message from the Chief Financial Officer -2012 Annual Report 2012

Chair's Message President's Message Then and Now: 1937 Meets 2012 Year in Review Video 75th Anniversary Chair's Message Boards Administrators and Deans Financials

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Flat Is the New Up At a recent business meeting a colleague and I were discussing corporate revenue trends over the past few years and we concluded that "Flat is the new up." I didn't really like the way that sounded, but it generally seems to be true. When I look at Pepperdine University's total revenues over the past three years, our fiscal 2012 revenues of $291 million were indeed basically "flat," a picture that has become all too familiar across the current business landscape. "Flat" seems to be the new normal for the University because it's very difficult to increase total revenues without significantly expanding our student enrollments, endowment support, or gift revenues. Expanding student enrollments hasn't been a goal at Pepperdine. In fact, over the past decade we've intentionally striven to hold steady, or even decrease, our overall student enrollments in order to maintain and improve on our already "high-touch" educational experience. An indication of our effort can been seen in the University's full-time-equivalent student base which was 6,068 for fiscal 2012, a 2%decline from 6,202 in fiscal 2010. Our low student-to-faculty ratio and small class sizes are a comparatively expensive way to teach, but we believe it's the best way for our faculty to engage students and transform their lives. In addition to keeping our student enrollments basically "flat," we've tried very hard to keep our tuition rate growth as low as possible. Overall, there is strong demand for students seeking to enroll in one of our many educational programs, but while more students desire to attend Pepperdine University, the trend over the past several years shows that demand for University-funded financial aid has increased even more substantially. Accordingly, in fiscal 2012 we distributed a record $81 million (or about $13,400 per full-timeequivalent student) of University-funded student aid, and we are on track to surpass that figure by a wide margin in fiscal 2013. The University's endowment funds ended fiscal 2012 at$608 million, a level that remains below the $716 million high-value mark achieved in 2007. While it would certainly be desirable for our endowment to be restored to its previous highs, from my perspective the level of operating support we receive from the endowment each year is much more important than its value at the end of any fiscal year. 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 $32 million in fiscal 2012. In the face of flat total revenues, I wish I could say that "Flat is the new up" for expenses as well. Unfortunately, that's just not the case. In fiscal 2012, total expenses increased to $277 million. While we've done a good job of curtailing growth in management and general (also known as "plant and administrative") expenses, student-centered costs have continued to escalate. Increased demand for many student services including athletics, career services, disability services, student employment, the Volunteer Center, Intercultural Affairs, student activities, and our counseling and health centers has increased the cost of serving our students. I remain pleased with the University's overall liquidity and strong financial position. In order to take advantage of our excellent credit rating and the current low interest rate environment, in June of 2012 we refinanced $45 million of outstanding tax-exempt debt. As a result of that transaction, we generated almost $12 million in additional cash that can be used to improve facilities, generated significant present value interest savings, and at the same time reduced continuing interest costs by almost$500,000 annually.

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Pepperdine University is young at age 75. But during this short span, through every peak and valley, its leaders put their faith not in the economy, the size of an endowment, or cash in the bank. All of these can change in an instant. God, however, remains faithful, which is why our trust has always rested in Him alone. The faculty, staff, and friends of Pepperdine University keep the faith, and will continue to do what we can to support its unique mission.

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