Webster University

Accountants Report and Consolidated Financial Statements

May 31, 2012 and 2011

Webster University
May 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

Independent Accountants Report on Consolidated Financial Statements

Board of Trustees Webster University Webster Groves, Missouri

We have audited the accompanying consolidated statements of financial position of Webster University as 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 the Universitys management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about 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 also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Webster University as of May 31, 2012 and 2011, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

September 20, 2012

Webster University
Consolidated Statements of Financial Position May 31, 2012 and 2011

Assets
2012 Current Assets Cash Accounts receivable, net of allowance; 2012 - $5,472,343, 2011 - $5,708,430 Short-term investments Prepayments and deferred charges Total current assets $ 21,105,938 40,292,168 47,130,003 2,078,921 110,607,030 $ 2011 8,594,813 39,422,481 63,893,222 1,500,372 113,410,888

Noncurrent Contributions Receivable Student Loans Receivable, Net of Allowance - $40,000 Property and Equipment, Net Long-term Investments Escrowed Bond Investments Beneficial Interest in Charitable Remainder Trust Long-term Prepaid Expense Gifts Held in Trust Deferred Bond Issuance Costs, Net Total assets

6,030,141 2,233,711 148,380,386 140,211,903 6,813,648 3,550,645 560,000 479,540 1,104,250 $ 419,971,254

4,682,665 2,297,165 140,783,060 124,759,429 7,638,444 4,118,349 603,675 1,442,773 $ 399,736,448

See Notes to Consolidated Financial Statements

Liabilities and Net Assets

2012 Current Liabilities Current maturities of long-term debt Accounts payable and accrued expenses Current accrued benefit costs Deposits and deferred revenue Total current liabilities Annuities and Trusts Payable Accrued Benefit Costs Asset Retirement Obligation Note and Bonds Payable U.S. Government Grants Refundable Total liabilities Net Assets Unrestricted Temporarily restricted Permanently restricted Total net assets Total liabilities and net assets 2011

934,966 12,362,908 240,000 30,101,974 43,639,848 834,571 5,508,717 1,847,570 77,242,210 1,608,699 130,681,615

2,558,993 14,000,544 280,000 30,151,433 46,990,970 918,030 4,034,379 1,817,892 62,443,750 1,594,659 117,799,680

249,851,640 22,759,258 16,678,741 289,289,639 $ 419,971,254

241,470,112 24,983,668 15,482,988 281,936,768 $ 399,736,448

Webster University
Consolidated Statements of Activities and Changes in Net Assets Years Ended May 31, 2012 and 2011

Unrestricted Operating Revenue, Gains and Other Support Tuition and fees, net of scholarship allowances; 2012 - $22,706,807, 2011 - $21,797,232 Auxiliary enterprises Private gifts and grants Investment return - operating Federal grants and contracts Other income Net assets released from restrictions Total operating revenue, gains and other support Operating Expenses Instruction Academic support Institutional support Student services Auxiliary Public service Other Total operating expenses Change in Net Assets From Operating Activities Non-operating Activities Investment return - non-operating Change in value of split-interest agreements Permanently restricted private gifts and contracts Change in Net Assets From Non-operating Activities Foreign Currency Translation Change in Net Assets Net Assets, Beginning of Year Net Assets, End of Year $

Year Ended May 31, 2012 Temporarily Permanently Restricted Restricted

Total

188,631,290 10,590,893 1,400,111 4,445,796 1,210,166 3,456,495 4,452,309

3,527,770 15,959 795 (4,452,309)

188,631,290 10,590,893 4,927,881 4,461,755 1,210,166 3,457,290 -

214,187,060

(907,785)

213,279,275

79,424,705 41,211,473 48,997,536 17,229,997 9,995,317 1,218,098 904,440 198,981,566 15,205,494

(907,785)

79,424,705 41,211,473 48,997,536 17,229,997 9,995,317 1,218,098 904,440 198,981,566 14,297,709

(5,680,438) -

(1,317,060) 435 -

1,685 (24,965) 1,219,033

(6,995,813) (24,530) 1,219,033

(5,680,438) (1,143,528) 8,381,528 241,470,112 249,851,640 $

(1,316,625) (2,224,410) 24,983,668 22,759,258 $

1,195,753 1,195,753 15,482,988 16,678,741 $

(5,801,310) (1,143,528) 7,352,871 281,936,768 289,289,639

See Notes to Consolidated Financial Statements

Unrestricted

Year Ended May 31, 2011 Temporarily Permanently Restricted Restricted

Total

184,765,142 10,488,674 1,470,590 3,201,225 1,178,713 3,221,983 1,187,220

1,658,348 12,458 (1,187,220)

184,765,142 10,488,674 3,128,938 3,213,683 1,178,713 3,221,983 -

205,513,547

483,586

205,997,133

74,124,003 37,997,934 46,299,124 15,272,942 9,903,297 1,040,652 1,203,352 185,841,304 19,672,243

483,586

74,124,003 37,997,934 46,299,124 15,272,942 9,903,297 1,040,652 1,203,352 185,841,304 20,155,829

9,968,207 -

3,768,884 -

166,479 (33,264) 1,904,173

13,903,570 (33,264) 1,904,173

9,968,207 299,562 29,940,012 211,530,100 $ 241,470,112 $

3,768,884 4,252,470 20,731,198 24,983,668 $

2,037,388 2,037,388 13,445,600 15,482,988 $

15,774,479 299,562 36,229,870 245,706,898 281,936,768

Webster University
Consolidated Statements of Cash Flows Years Ended May 31, 2012 and 2011

2012 Operating Activities Change in net assets Items not requiring (providing) operating activities cash flows Depreciation and amortization Amortization of bond premium Loss on extinguishment of debt Effect of currency translation adjustments Net realized and unrealized (gains) losses on investments Change in value of split-interest agreements Change in value of accrued benefit costs Contributions received restricted for long-term investment Contributions received restricted for acquisition of long-lived assets Changes in Accounts and other receivables Prepayments and deferred charges Accounts payable and accrued expenses Deposits and deferred revenue U.S. government grants refundable Net cash provided by operating activities Investing Activities Purchase of property and equipment Proceeds from disposition of property and equipment Purchase of investments Proceeds from disposition of investments Net cash used in investing activities Financing Activities Proceeds from contributions restricted for permanent investment in endowment and loan funds Proceeds from contributions restricted for acquisition of long-lived assets (Increase) decrease in escrowed bond investments Proceeds from debt issuance Principal payments on long-term debt Cost of bond issuance Proceeds from issuance of annuities and trust payable Payments on annuities and trusts payable Net cash provided by financing activities

2011

7,352,871 11,978,214 708,031 1,279,871 1,232,916 8,116,334 24,530 1,434,338 (1,219,033) (2,139,352) (1,586,005) (1,138,549) (1,971,614) (49,459) 14,040 24,037,133

36,229,870 11,051,914 (2,265,024) (14,245,557) 33,264 547,334 (1,904,173) (1,232,417) (5,070,510) 170,799 (2,322,694) 1,059,634 23,246 22,075,686

(22,224,546) 318,941 (192,343,270) 184,626,393 (29,622,482)

(14,530,425) 332,785 (156,083,995) 104,034,145 (66,247,490)

1,219,033 2,139,352 824,796 15,685,228 (685,408) (1,028,197) 45,881 (104,211) 18,096,474

1,904,173 1,232,417 (384,485) (2,376,434) (50,450) 30,507 (99,350) 256,378

(Continued)

See Notes to Consolidated Financial Statements

Webster University
Consolidated Statements of Cash Flows (Continued) Years Ended May 31, 2012 and 2011

2012 Increase (Decrease) in Cash Cash, Beginning of Year Cash, End of Year $ $ 12,511,125 8,594,813 21,105,938 $

2011 $ (43,915,426) 52,510,239 8,594,813

Supplemental Cash Flows Information Interest paid In-kind contributions Property and equipment included in accounts payable $ $ $ 3,658,818 6,200 383,157 $ $ $ . 3,306,753 168,625 1,893,605

See Notes to Consolidated Financial Statements

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

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 Webster Groves, Missouri. The Universitys community is a highly diverse population of more than 22,000 men and women who represent approximately 100 nationalities, nearly every racial, ethnic, cultural and socioeconomic background and students who range from traditional college age to older adults. The University is an independent, nondenominational, international educational institution offering both undergraduate and graduate degree programs. Founded in 1915, the University has over 100 extended campuses located throughout the United States, as well as campuses in Austria, China, Great Britain, the Netherlands, Switzerland and Thailand. The University has international assets totaling $9,530,379 and $8,705,813 at May 31, 2012 and 2011, respectively, and international revenues totaling $32,563,146 and $30,561,396, respectively, for the years then ended. The Universitys primary source of revenue is tuition and fees paid by students. The majority of students rely on funds received from federal financial aid programs under Title IV of the Higher Education 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-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period, as well as, disclosure of contingent assets and liabilities. Significant items subject to such estimates and assumptions include valuations of certain investments which do not have readily determinable fair values, allowances for uncollectible accounts, contingency reserves and calculations of asset retirement obligations. Actual results ultimately could differ from managements estimates and assumptions. Cash The University considers all domestic bank checking account deposits and all international bank deposits used for operations to be cash. At May 31, 2012, cash consisted primarily of checking account balances under earnings credit arrangements. One or more of the financial institutions holding the Universitys cash accounts participated in the FDICs 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

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

amount in the account. Pursuant to legislation enacted in 2010, the FDIC will fully insure all noninterest-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. At May 31, 2012, the Universitys interest-bearing money market and commercial paper accounts held at 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 payment arrangements are required at the time of registration. In the event an account is referred to an agency or attorney for collection, the student promises to pay, in addition to all amounts otherwise due to the University, the costs and expenses of such collection and/or representation not to exceed 33% of the amount owed, including, without limitation, reasonable attorneys fees and expenses, to the extent permitted by applicable law. Delinquent receivables are written off based on individual credit 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 government under certain circumstances. Such loans receivable are recorded net of estimated uncollectible amounts. The amount to be forgiven or assigned is based on the occurrence of certain future events which 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 the straight-line method to allocate the cost of various classes of assets over their estimated useful lives. Leasehold improvements are depreciated over the shorter of the lease term or their respective 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 and 2011, are as follows: Building Improvements Equipment Furniture and fixtures 10 - 40 years 10 20 years 5 years 10 years

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Investments and Investment Return Investments are carried at fair value. The University considers money market funds held by investment managers as part of the investment portfolio. Investments acquired by gift or bequest are 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 investments carried 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 will be satisfied in the same year is included in unrestricted net assets. Other investment return is reflected 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. These accounts 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 gift annuities 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 at the date the agreements are established. In addition, the fair value of the estimated future payments to 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 in connection with the issuance of long-term debt. Debt issuance costs are amortized over the life of the 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 Facilities Improvement and Refunding Revenue Bond Series 2011 and a portion of the bond proceeds were used to refund outstanding Series 2001 and Series 2005 bonds. Approximately $1,280,000 of Series 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 asset categories pursuant to any donor-imposed restrictions applicable to law. Accordingly, the net assets of the University are classified in the accompanying financial statements in the categories that follow:

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Unrestricted net assets are not subject to donor-imposed restrictions. Included in unrestricted net assets are Board-designated net assets which the governing board, rather than a donor, has designated for investment (quasi-endowment), student loans, retirement of indebtedness, plant renewal fund and net investment in plant. Temporarily restricted net assets are subject to legal or donor-imposed stipulations that will be satisfied by either actions of the University, the passage of time or both. When a donor restriction expires, 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 the consolidated statements of activities and changes in net assets as net assets released from restrictions. Permanently restricted net assets are subject to donor-imposed stipulations that they be invested to provide a perpetual source of income to the University. Generally, donors of these assets require the University to maintain and invest the original contribution in perpetuity, but permit the use of some 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 fee revenues are presented net of scholarship allowances in the consolidated statement of activities and changes in net assets. Scholarship allowances are the difference between the stated charge for goods and services provided by the University, and the amount that is paid by students and/or third parties making payments on the students behalf. Scholarship allowances for the years ended May 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 unrestricted revenue and net assets. Gifts received with a donor stipulation that limits their use are reported as temporarily or permanently restricted revenue and net assets. When a donor stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statements of activities and changes in net assets as net assets released from restrictions. Gifts having donor stipulations which are 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 revenue and net assets unless explicit donor stipulations specify how such assets must be used, in which case the gifts are reported as temporarily or permanently restricted revenue and net assets. Absent explicit donor stipulations for the time long-lived assets must be held, expirations of restrictions resulting in reclassification of temporarily restricted net assets as unrestricted net assets are reported when the long-lived assets are placed in service. Unconditional gifts expected to be collected within one year are reported at their net realizable value. Unconditional gifts expected to be collected in future years are reported at the present value of estimated future cash flows. The discount is included in accretion of contribution revenue.

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Conditional gifts depend on the occurrence of a specified future and uncertain event to bind the potential donor and are recognized as assets and revenue when the conditions are substantially met and the gift becomes unconditional. The University receives donated works of art. These works of art are capitalized and recognized as gift revenue at the appraised value and are not subject to depreciation. Collection items sold or removed are reported as unrestricted or temporarily restricted gains or losses depending on donor stipulations, 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 services that have not yet been earned. Government Grants Revenues from governmental grants and contracts are recognized when allowable expenditures are incurred under such agreements. Income Taxes The University is exempt from income taxes under Section 501 of the Internal Revenue Code and similar 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 various foreign jurisdictions. With a few exceptions, the University is no longer subject to U.S. federal or non-U.S. examinations by tax authorities for years before 2009. Licensure As an educational institution, the University is subject to licensure from various accrediting and state 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 asset is recognized as a liability in the period in which it is incurred or becomes determinable even when the timing and/or method of settlement may be conditional on a future event. The Universitys conditional AROs primarily relate to asbestos contained in buildings that the University owns.

10

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

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

2012 Beginning of year Liabilities settled Accretion expense End of year $ 1,817,892 (25,297) 54,975 $

2011 1,813,657 (49,117) 53,352

$ 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 observable inputs) 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 Accounts receivable from students (net of allowance; 2012 - $5,463,318, 2011 - $5,702,939) Other receivables (net of allowance; 2012 - $9,025, 2011 - $5,491) Grants receivable Contributions receivable, net Total receivables Less noncurrent contributions receivable Receivables - current

2011

$ 29,597,218 8,611,008 359,191 7,754,892 46,322,309 6,030,141 $ 40,292,168

$ 30,371,932 7,599,675 438,695 5,694,844 44,105,146 4,682,665 $ 39,422,481

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Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Contributions receivable consisted of the following:

May 31, 2012 Temporarily Restricted Due within one year Due in one to five years Due in more than five years $ 1,498,490 2,149,864 5,288,710 8,937,064 Less Allowance for uncollectible contributions Unamortized discount Permanently Restricted $ 374,658 489,515 24,291 888,464 Total $ 1,873,148 2,639,379 5,313,001 9,825,528

184,178 1,790,736 $ 6,962,150 $

41,722 54,000 792,742

225,900 1,844,736 $ 7,754,892

Temporarily Restricted Due within one year Due in one to five years Due in more than five years $ 825,534 1,687,446 3,729,801 6,242,781 Less Allowance for uncollectible contributions Unamortized discount

May 31, 2011 Permanently Restricted $ 285,722 564,015 32,708 882,445

Total $ 1,111,256 2,251,461 3,762,509 7,125,226

104,437 1,208,835 $ 4,929,509 $

40,281 76,829 765,335

144,718 1,285,664 $ 5,694,844

The interest rate utilized for discounting contributions receivable for 2012 and 2011 ranged from 1.6% to 6.0% and 3.0% to 6.0%, respectively.

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Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Note 3:

Student Loans Receivable

The University loans money to students with exceptional financial need through the Federal Perkins Loan program. Determination of financial need is based on a nationally recognized methodology and regulations promulgated by the U.S. Department of Education. The loans are long-term and bear an interest rate of 5%. The University acts as the lender with the loan made primarily 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 of Education 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. As loan 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 Perkins Loan 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 repayment status. Typically, there is a nine-month grace period upon graduation before interest begins to accrue 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 been performed can be assigned to the U.S. Department of Education. Thus, the ultimate credit risk of the portfolio is low. Loans are classified as: In School, In Grace, Active and Delinquent. In School and In Grace loans represent loans made to students who are still in school or who are in the nine-month grace period following graduation. Active loans are those loans that are in repayment status and are considered current. Delinquent loans are those that are active but not current with payments. 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 at May 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. An institution that does not meet the federal expectation can lose future government funding. The Universitys 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 the years 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 donor bequest, the fund is to be used as a revolving loan fund for able but needy students. Terms of these loans are similar to those of the Federal Perkins Loan program.

13

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Note 4:

Property and Equipment

Property and equipment at May 31 consists of:

2012 Land and improvements Buildings and improvements Equipment Collections and works of art Construction in progress Other Less accumulated depreciation $ 22,474,889 187,489,049 42,688,076 4,496,644 1,116,146 2,369,708 260,634,512 112,254,126 $ 148,380,386

2011 $ 21,915,937 162,400,000 36,706,366 4,490,444 15,265,111 2,405,059 243,182,917 102,399,857 $ 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 was completed 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 of Assets and Liabilities

Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy which requires a plan to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1 Level 2 Quoted prices in active markets for identical assets 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 can be corroborated by observable market data for substantially the full term of the assets Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets

Level 3

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Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated statements of financial position, as well as the general classification of such assets pursuant to the valuation hierarchy. Investment and Escrowed Bond Investments Where quoted market prices are available in an active market, investments are classified within Level 1 of the valuation hierarchy. Level 1 investments include money market accounts, commercial paper, mutual funds, common stocks and corporate and municipal bonds. If quoted market 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 investments include investments in certain mutual funds and in the net assets of funds in which the fund invests largely in securities with quoted market prices. In certain cases where Level 1 or Level 2 inputs are not available, investments are classified within Level 3 of the hierarchy and include alternative strategy 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 over the term of the agreement. Due to the nature of the valuation inputs, the interest is classified within Level 2 of the hierarchy. The following tables present the fair value measurements of assets recognized in the accompanying consolidated statements of financial position measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at May 31, 2012 and 2011:

15

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Fair Value Money market - short-term Money market - long-term Commercial paper Equity Securities Financials Industrials Information technology Consumer discretionary Other U.S. government bonds and notes Corporate bonds and notes Mutual funds Bond funds Large value Large blend Large growth Medium growth International large blend Other Limited partnership investments Alternative strategies Other Total investments Less short-term investments Total long-term investments Escrowed bond investments Money market funds U.S. government bonds and notes Municipal bonds $ 3,199,851 408,917 8,333,803 2,070,941 1,204,879 1,016,736 900,585 1,738,166 727,506 39,046,667 68,232,517 9,370,824 4,029,299 9,965,568 6,659,789 6,620,632 339,336 14,518,454 8,302,513 654,923 187,341,906 47,130,003 $ 140,211,903 $ 1,421,996 205,673 5,185,979 6,813,648 3,550,645

2012 Fair Value Measurements Using Quoted Prices in Active Significant Significant Markets Other Unobservable for Identical Observable Inputs Assets Inputs (Level 3) (Level 1) (Level 2) $ 3,199,851 408,917 8,333,803 2,070,941 1,204,879 1,016,736 900,585 1,738,166 727,506 39,046,667 68,232,517 9,370,824 4,029,299 9,965,568 6,659,789 159,645 339,336 319,923 157,724,952 47,130,003 $ 110,594,949 $ 1,421,996 5,185,979 6,607,975 $ $ $ 6,460,987 14,518,454 20,979,441 20,979,441 205,673 205,673 3,550,645 $ $ $ 8,302,513 335,000 8,637,513 8,637,513 -

$ Beneficial interest in charitable remainder trust $

$ $

$ $

$ $

16

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Fair Value Money market - short-term Money market - long-term Commercial paper Equity Securities Financials Industrials Information technology Consumer discretionary Other U.S. government bonds and notes Corporate bonds and notes Mutual funds Bond funds Large value Large blend Large growth Medium growth International large blend Other Limited partnership investments Alternative strategies Other Total investments Less short-term investments Total long-term investments Escrowed bond investments Money market funds U.S. government bonds and notes Municipal bonds $ 31,985,473 264,593 31,840,666 1,709,005 1,285,543 976,425 864,092 1,927,637 504,003 848,108 53,069,948 9,415,950 5,203,532 9,033,102 7,893,391 7,491,211 400,842 16,244,641 7,048,194 646,295 188,652,651 63,893,222 $ 124,759,429 $ 2,943,852 3,005,638 1,688,954 7,638,444 4,118,349

2011 Fair Value Measurements Using Quoted Prices in Active Significant Significant Markets Other Unobservable for Identical Observable Inputs Assets Inputs (Level 1) (Level 2) (Level 3) $ 31,985,473 264,593 31,840,666 1,709,005 1,285,543 976,425 864,092 1,927,637 504,003 848,108 53,069,948 9,415,950 5,203,532 9,033,102 7,893,391 187,709 400,842 311,295 157,721,314 63,893,222 $ $ 93,828,092 2,943,852 2,587,633 1,688,954 7,220,439 $ $ $ 7,303,502 16,244,641 23,548,143 23,548,143 418,005 418,005 4,118,349 $ $ $ 7,048,194 335,000 7,383,194 7,383,194 -

$ Beneficial interest in charitable remainder trust $

$ $

$ $

$ $

17

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying consolidated statements of financial position using significant unobservable (Level 3) inputs:
Alternative Strategies Balance, June 1, 2010 Total realized and unrealized gains included in change in net assets Purchases Contribution received Liquidations Balance, May 31, 2011 Total realized and unrealized losses included in change in net assets Purchases Sales Balance, May 31, 2012 $ $ 5,638,630 674,613 886,000 (151,049) 7,048,194 (103,216) 4,731,256 (3,373,721) 8,302,513 $ $ Other 335,000 335,000 335,000 $ $ Total 5,638,630 674,613 886,000 335,000 (151,049) 7,383,194 (103,216) 4,731,256 (3,373,721) 8,637,513

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated statements of financial position. Discounted future cash flows using a discount rate commensurate with risks involved and the remaining maturities (contributions receivable). Actuarial evaluation of the estimated payments required under obligation (annuities and trusts payable, beneficial interest in charitable trusts, accrued benefit costs). Borrowing rates currently available to the University for debt with similar terms and maturities (notes payable). Quoted market prices or dealer quotes, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities (bonds payable). The carrying amount approximates fair value (accounts receivable, notes receivable, line of credit).

18

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

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

2012 Carrying Amount

Financial assets Cash and cash equivalents Investments Accounts and contributions receivable Student loans receivable Beneficial interest charitable remainder trust Escrowed bond investments Gifts held in trust Financial liabilities Note and bonds payable

2011 Estimated Fair Value Carrying Amount Estimated Fair Value

$ 21,105,938 $187,341,906 $ 46,322,309 $ 2,233,711 $ 3,550,645 $ 6,813,648 $ 479,540

$ 21,105,938 $187,341,906 $ 46,322,309 $ 2,233,711 $ $ $ 3,550,645 6,813,648 479,540

$ 8,594,813 $188,652,651 $ 44,105,146 $ 2,297,165 $ 4,118,349 $ 7,638,444 $ 603,675

$ 8,594,813 $188,652,651 $ 44,105,146 $ 2,297,165 $ 4,118,349 $ 7,638,444 $ 603,675

$ 78,177,176

$ 84,418,268

$ 65,002,743

$ 61,994,842

19

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Alternative Investments The fair value of alternative strategies has been estimated using the net asset value per share of the investments. Alternative strategies held at May 31, consist of the following:
2012 Fair Value Multi-strategy hedge funds (A) $ 8,103,637 Unfunded Commitments None Redemption Frequency June 30 or December 31: Last business day of the year Redemption Notice Period At least 95 days written notice prior to June 30 or December 31; at least 60 days written notice prior to the last business day of the year

Venture capital (B)

198,876

None

None: Cannot be N/A redeemed until dissolution of the partnership. Extension to May 2013 approved by the Board in March 2012

20

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

2011 Fair Value Multi-strategy hedge funds (A) $ 6,903,149 Unfunded Commitments None Redemption Frequency Redemption Notice Period

December 31: Last By last business day of business day of the October for year December 31 redemption; at least 60 days written notice prior to the last business day of 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

(A) This category includes investments in multi-strategy, off-shore hedge funds and funds of funds that employ a variety of low volatility, absolute return oriented strategies. (B) This category includes investments in stock, preferred stock, stock warrants and secured notes in firms in the areas of pharmaceuticals, green technology, medical technology and devices and enabling platforms. These investments are locked in for the life of the agreement. The University invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the investment amounts reported in the consolidated statements of financial position. Total investment return is comprised of the following:
2012 Interest and dividend income Net realized and unrealized gains (losses) on investments reported at fair value $ 5,355,257 (7,889,315) $ (2,534,058) $ $ 2011 2,871,696 14,245,557 17,117,253

21

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Note 6:

Beneficial Interest in Charitable Remainder Trust

The University is a beneficiary under a charitable remainder unitrust agreement administered by a third party. The Universitys beneficial interest in the trust assets were $3,550,645 and $4,118,349 at May 31, 2012 and 2011, respectively. Distributions from the trust will be made as specified in the trust agreement. The trust provides for the payment of distributions to the grantor or other designated beneficiaries over the trusts term. At the end of the trusts term, the Universitys beneficial interest in the trusts assets are available to the University. The portion of the trust attributable to the future interest 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 nature of the estimate, it is reasonably possible that the Universitys estimate of the beneficial interest in trust 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) 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% 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%

11,395,458

13,687,743

26,800,000

20,790,000

22

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

2012
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 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

2011

63,071,971

3,709,747 78,177,176

3,725,000 65,002,743 2,558,993 $ 62,443,750

Less current maturities $

934,966 77,242,210

In July 2011, the University issued Educational Facilities Improvement and Refunding Revenue Bond Series 2011 in the aggregate principal amount of $61,385,000. The Bond proceeds were used, together with other funds contributed by the University, to (1) refund outstanding Series 2001 Bonds 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 East Academic Building houses the George Herbert Walker School of Business and Technology and provides general purpose classrooms. The Series 2001 and 2005 Bonds were redeemed in full on August 15, 2011. The Series 2011 Bonds are secured by a first lien security interest in all Unrestricted Gross Revenues of the University and a mortgage on certain real estate, all improvements and all buildings, 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 a liquidity ratio and a maximum annual debt service ratio at certain levels. The University is also required to maintain a minimum Debt Reserve Fund balance of $5,170,610 and make monthly deposits, 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 note imposes substantial penalties in the event of early extinguishment.

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Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

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

2013 2014 2015 2016 2017 Thereafter

934,966 937,710 3,285,616 3,331,238 3,393,920 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 the donor 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 annuity obligations. The liability has been determined using a discount rate of 6.0% and rates of return of 6.0% to 10.8%. At May 31, 2012 and 2011, the University holds $924,728 and $1,023,489 of long-term investments against these estimated liabilities, respectively. The University administers various charitable remainder trusts. A charitable remainder trust provides for the payment of distributions to the grantor or other designated beneficiaries over the trusts term (usually the designated beneficiarys lifetime). At the end of the trusts term, the remaining assets are available for the Universitys use. The portion of the trust attributable to the future interest of the University is recorded in the consolidated statements of activities and changes in net assets as temporarily restricted contributions in the period the trust is established. Assets held in the charitable remainder trusts are recorded at fair value in the Universitys consolidated statements of financial position as gifts held in trust. On an annual basis, the University revalues the liability to make distributions to the designated beneficiaries based on actuarial assumptions. The present value of the estimated future payments is calculated using a discount rate of 6.0% and applicable mortality tables. At May 31, 2012 and 2011, the recorded liability was $261,388 and $357,785, respectively.

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Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Note 9:

Net Assets

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

May 31, 2012 Unrestricted Undesignated Quasi-endowment fund University as lender program - quasi-endowment Departmental activities Student loans Retirement of indebtedness Plant renewal fund Net investment in plant Future buildings and capital maintenance Accumulated foreign currency translation adjustment Library operations Future educational activity expenses Scholarships $ 43,829,231 62,435,783 1,913,933 770,342 653,617 6,248,057 53,068,500 76,707,509 2,615,260 (4,666,066) 6,275,474 $ 249,851,640 $ Temporarily Restricted $ 14,619,136 873,198 2,388,173 4,878,751 22,759,258 $ Permanently Restricted $ 42,526 1,400,000 35,233 15,200,982 16,678,741 $ Total 43,829,231 62,435,783 1,913,933 770,342 696,143 6,248,057 53,068,500 76,707,509 18,634,396 (4,666,066) 873,198 8,698,880 20,079,733 $ 289,289,639

May 31, 2011 Unrestricted

Undesignated Quasi-endowment fund University as lender program - quasi-endowment Departmental activities Student loans Retirement of indebtedness Plant renewal fund Net investment in plant Future buildings and capital maintenance Accumulated foreign currency translation adjustment Library operations Future educational activity expenses Scholarships $ 36,507,014 62,573,873 2,176,118 781,435 653,617 7,206,492 44,617,589 82,623,140 2,299,978 (3,494,397) 5,525,253 $ 241,470,112 $

Temporarily Restricted
$ 16,157,466 (28,141) 962,209 2,832,182 5,059,952 24,983,668

Permanently Restricted
$ 42,096 1,400,000 8,503 14,032,389 $ 15,482,988 $

Total
36,507,014 62,573,873 2,176,118 781,435 695,713 7,206,492 44,617,589 82,623,140 19,857,444 (3,522,538) 962,209 8,365,938 19,092,341 $ 281,936,768

25

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Net Assets Released From Restrictions Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by donors.

2012 Scholarships Instruction program activities Academic support program activities Institutional support program activities Passage of specified time East Academic Building constructed and placed in service Student service program activities and other $ 488,938 212,499 75,878 137,357 283,806 3,224,844 28,987 $

2011 541,251 157,092 73,964 30,879 328,512 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 the governing body to function as endowments (quasi-endowment). As required by GAAP, net assets associated with endowment funds, including quasi-endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions. The Universitys governing body has interpreted the state of Missouri Uniform Management of Institutional Funds Act (UPMIFA) as requiring preservation of the historical value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the University classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of donor-restricted endowment funds is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the University in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the University considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 1. 2. 3. 4. Duration and preservation of the fund Purposes of the University and the fund General economic conditions Possible effect of inflation and deflation
26

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

5. Expected total return from investment income and appreciation or deprecation of investments 6. Other resources of the University 7. Investment policies of the University The composition of net assets by type of endowment fund at May 31, 2012 and 2011, was:
2012 Unrestricted Donor-restricted Quasi-endowment Total endowment fund $ (214,596) 64,349,716 64,135,120 Temporarily Restricted $ 5,681,686 5,681,686 Permanently Restricted $ 16,636,219 16,636,219 $ Total 22,103,309 64,349,716 86,453,025

2011 Unrestricted Donor-restricted Quasi-endowment Total endowment fund $ (162,207) 64,749,991 64,587,784 Temporarily Restricted $ 7,552,139 7,552,139 Permanently Restricted $ 15,440,893 15,440,893 $ Total 22,830,825 64,749,991 87,580,816

27

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Changes in endowment net assets for the years ended May 31, 2012 and 2011, were:
2012 Unrestricted Endowment Net Assets, Beginning of Year Investment return (loss) Contributions Change in reserve for contributions receivable Management fees Board designation of endowment funds Change in value of split interest agreements Appropriation of endowment assets for expenditure Endowment Net Assets, End of Year Temporarily Restricted Permanently Restricted Total

64,587,784 (3,783,161) (81,980) 5,145,000 (1,732,523)

7,552,139 (1,163,284) 14,594 (6,550) (24,750) 435 (690,898)

15,440,893 11,588 1,266,744 (48,140) (9,901) (24,965) -

87,580,816 (4,934,857) 1,281,338 (54,690) (116,631) 5,145,000 (24,530) (2,423,421)

64,135,120

5,681,686 2011

16,636,219

86,453,025

Unrestricted Endowment Net Assets, Beginning of Year Investment return Contributions Change in reserve for contributions receivable Management fees Board designation of endowment funds Change in value of split interest agreements Appropriation of endowment assets for expenditure Endowment Net Assets, End of Year

Temporarily Restricted

Permanently Restricted

Total

46,148,517 11,241,445 (87,555) 9,100,000 (1,814,623)

4,201,380 4,012,312 7,394 (6,067) (30,969) (631,911)

13,404,730 175,348 1,979,174 (76,226) (8,869) (33,264) -

63,754,627 15,429,105 1,986,568 (82,293) (127,393) 9,100,000 (33,264) (2,446,534)

64,587,784

7,552,139

15,440,893

87,580,816

28

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Amounts of donor-restricted endowment funds classified as permanently and temporarily restricted net assets at May 31, 2012 and 2011, consisted of:
2012 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 Scholarships Educational activity expenses Library operations Future period operations - Loretto Hilton Center Future period operations - without restrictions 2011

16,636,219

15,440,893

3,636,379 521,580 873,198 496,319 154,210 5,681,686

4,911,078 795,241 962,209 690,360 193,251 7,552,139

From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level the University is required to retain as a fund of perpetual duration pursuant to donor stipulation or UPMIFA. In accordance with GAAP, deficiencies of this nature are reported in unrestricted net assets and aggregated $214,596 and $162,207, at May 31, 2012 and 2011, respectively. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after investment of new permanently restricted contributions and continued appropriation for certain purposes that was deemed prudent by the governing body. The University has adopted investment and spending policies for endowment assets that support its mission over the long term. Accordingly, the policies ensure that the growth of the endowment is sufficient to offset inflation plus a reasonable spending rate, thereby preserving the purchasing power 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 for spending. 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 assets held in perpetuity or for a specified time, as well as to provide additional real growth through new gifts and investment return. To satisfy its long-term rate of return objectives, the University relies on a total return strategy in which investment returns are achieved through both current yield (investment income such as dividends and interest) and capital appreciation (both realized and unrealized). The University targets a diversified asset allocation that combines return enhancement and risk reduction.

29

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Note 11: Operating Leases

The University leases space at various sites domestically and at campuses abroad (future minimum payments for foreign locations are stated in United States dollars using May 31, 2012, exchange rates). These leases have varying terms which include renewal options and cost-of-living escalation clauses. Future minimum lease payments at May 31, 2012, were:

2013 2014 2015 2016 2017 Later years

7,806,980 6,099,744 4,836,258 3,826,796 3,344,676 2,915,932

$ 28,830,386
Rent expense under operating leases and rental contracts was $12,575,668 and $12,282,030 in 2012 and 2011, respectively. As of May 31, 2012, the University has paid $600,000 for various rights to utilize a soccer park for a 15 year term beginning June 1, 2012. This prepaid expense will be amortized over the term of the lease on a straight-line basis.

Note 12: Retirement and Postretirement Employee Health Insurance Benefit Plans
The University participates in a defined contribution retirement plan which covers regular full-time employees through the Teachers Insurance and Annuity Association (T.I.A.A.). Under this arrangement, the University and plan participants make monthly contributions to T.I.A.A. to purchase individually owned annuity contracts. The plan provides for the University to contribute an 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 and 2011, respectively. The University participates in an unfunded defined benefit postretirement plan which provides certain health, vision and dental benefits to eligible employees. Employees age 55 and over become eligible for benefits after completing 15 years of full-time service. The plan is contributory; with retiree contributions adjusted periodically and contains cost-sharing features such as deductibles and coinsurance. The accrued benefit obligation related to the postretirement employee 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, 2012 and 2011.
30

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

Note 13: Insurance Coverage

The University participates in the College and University Risk Management Association of Missouri (CURMA), which provides the property, crime, general and auto liability and excess liability insurance. Should actual insurance losses exceed CURMAs estimates, the University could be required to contribute additional funds. Management believes the risk of additional loss is minimal and any additional contributions that may be required would not materially impact the overall 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 into United States dollars using the exchange rates in effect at the date of the consolidated statements of financial position and the average exchange rates prevailing throughout the period, respectively, in accordance with GAAP. An analysis of the changes in the cumulative foreign currency translation adjustment for the years ended May 31, 2012 and 2011, is as follows:

2012 Balance, beginning of year Translation adjustment Balance, end of year $ (3,522,538) (1,143,528) $ (4,666,066)

2011 $ (3,822,100) 299,562 $ (3,522,538)

In addition, transaction gains and losses result due to exchange rate changes on transactions denominated in currencies other than the functional currency. Losses and gains on foreign currency transactions are included in the appropriate functional expense categories of the consolidated statements of activities and changes in net assets. Gains/(losses) on foreign currency transactions 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 its activities. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the financial position, change in net assets and cash flows of the University. Events could occur that would change this estimate materially in the 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 its subsidiary, Webster University, Geneva, Switzerland, for the period January 1, 2006 through

31

Webster University
Notes to Consolidated Financial Statements May 31, 2012 and 2011

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

Note 16: Current Economic Conditions

The current protracted economic decline continues to present difficult circumstances and challenges which may result in large and unanticipated declines in the fair value of investments and other assets, declines in contributions, student financial aid, enrollment revenue, etc., constraints on liquidity and difficulty obtaining financing. The consolidated financial statements have been prepared using values and information currently available to the University. These economic conditions may make it difficult for many donors to continue to contribute to colleges 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 statements could change rapidly, resulting in material future adjustments in investment values, allowances for contributions receivable and the valuation of intangibles that could negatively impact the Universitys 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 the consolidated financial statements were issued.

32