SAINT LOUIS UNIVERSITY

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SAINT LOUIS UNIVERSITY

FINANCIAL REPORT

FISCAL YEARS ENDED

JUNE 30, 2007 and 2006

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Independent Auditors’ Report

The Board of Trustees Saint Louis University:

We have audited the accompanying statement of financial position of Saint Louis University as of June 30, 2007, and the related statements of activities and cash flows for the year then ended. These financial statements are the responsibility of Saint Louis University’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The accompanying financial statements of Saint Louis University as of June 30, 2006, were audited by other auditors whose report thereon dated September 6, 2006, expressed an unqualified opinion on those statements.

We conducted our audit 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Saint Louis University’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2007 financial statements referred to above present fairly, in all material respects, the financial position of Saint Louis University as of June 30, 2007, and the changes in its net assets and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

St. Louis, Missouri October 1, 2007

KPMG LLP

Suite 900 10 South Broadway St. Louis, MO 63102-1761

KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative.

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SAINT LOUIS UNIVERSITY

STATEMENTS OF FINANCIAL POSITION

AS OF JUNE 30, (000's Omitted)

2007 2006

Assets:

Cash and cash equivalents $ 50,254 $ 79,933 Accounts receivable, net 82,544 91,840 Prepaid expenses 4,553 4,183 Investments 1,081,964 876,665 Notes receivable 20,832 22,226 Funds held by trustees 64,989 71,205 Land, buildings, and equipment, net 484,188 400,352 Other assets 29,271 31,302 Total assets $ $1,818,595 1,577,706

Liabilities and Net Assets:

Accounts payable $ 42,025 $ 32,832 Accrued payroll and benefits 17,152 18,730 Deposits and deferred revenues 21,533 23,399 Other accrued liabilities 45,583 41,327 Notes and bonds payable 296,492 248,690 U.S. Government refundable grants 20,193 20,182 Total liabilities 442,978 385,160 Net Assets:

Unrestricted 1,075,881 914,549 Temporarily restricted 51,068 45,986 Permanently restricted 248,668 232,011 Total net assets 1,375,617 1,192,546 Total liabilities and net assets $ $1,818,595 1,577,706

See Accompanying Notes to the Financial Statements.

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SAINT LOUIS UNIVERSITY STATEMENT OF ACTIVITIES

FOR THE YEAR ENDED JUNE 30, 2007 (000's Omitted)

Temporarily Permanently June 30, 2007 Unrestricted Restricted Restricted Total Operating Revenues and Other Support:

Education & related activities:

Tuition and fees, gross $ 274,054 $ 274,054

Less: Scholarship allowances (73,647) (73,647)

Tuition and fees 200,407 200,407

Government grants and contracts 56,663 56,663 Contributions and private grants 26,379 $ 16,442 42,821 Endowment and other investment income 36,209 36,209 Auxiliary enterprises, net 37,422 37,422

Other 20,147 20,147

Total education & related activities 377,227 16,442 - 393,669

Patient care 204,171 204,171

Net assets released from restrictions 9,481 (9,481) Total operating revenues and other support 590,879 6,961 - 597,840 Operating Expenses:

Salaries & benefits 377,583 377,583

Supplies, repairs, utilities, & other expenses 146,427 146,427 Depreciation & amortization 23,564 23,564

Interest expense 7,646 7,646

Total operating expenses 555,220 555,220 Net Operating Results 35,659 6,961 - 42,620 Nonoperating:

Investment return net of amounts designated for operations 127,429 3 3,771 131,203 Permanently restricted contributions - - 10,558 10,558 Other, net (1,756) (1,882) 2,328 (1,310) Total nonoperating 125,673 (1,879) 16,657 140,451 Cumulative effect of a change in accounting principle - - - -Change in net assets 161,332 5,082 16,657 183,071 Net assets at beginning of year 914,549 45,986 232,011 1,192,546 Net assets at end of year $ 1,075,881 $ 51,068 $ 248,668 $ 1,375,617

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SAINT LOUIS UNIVERSITY STATEMENT OF ACTIVITIES

FOR THE YEAR ENDED JUNE 30, 2006 (000's Omitted)

Temporarily Permanently June 30, 2006 Unrestricted Restricted Restricted Total Operating Revenues and Other Support:

Education & related activities:

Tuition and fees, gross $ 251,802 $ 251,802

Less: Scholarship allowances (70,846) (70,846)

Tuition and fees 180,956 180,956

Government grants and contracts 62,093 62,093 Contributions and private grants 25,160 $ 28,077 53,237 Endowment and other investment income 32,745 32,745 Auxiliary enterprises, net 36,099 36,099

Other 22,810 22,810

Total education & related activities 359,863 28,077 - 387,940

Patient care 196,340 196,340

Net assets released from restrictions 6,884 (6,884) Total operating revenues and other support 563,087 21,193 - 584,280 Operating Expenses:

Salaries & benefits 364,907 364,907

Supplies, repairs, utilities, & other expenses 148,835 148,835 Depreciation & amortization 23,902 23,902

Interest expense 8,751 8,751

Total operating expenses 546,395 546,395 Net Operating Results 16,692 21,193 - 37,885 Nonoperating:

Investment return net of amounts designated for operations 73,806 4 2,426 76,236 Permanently restricted contributions - - 14,847 14,847 Other, net 4,349 (23) 115 4,441 Total nonoperating 78,155 (19) 17,388 95,524 Cumulative effect of a change in accounting principle (4,645) - - (4,645) Change in net assets 90,202 21,174 17,388 128,764 Net assets at beginning of year 824,347 24,812 214,623 1,063,782 Net assets at end of year $ 914,549 $ 45,986 $ 232,011 $ 1,192,546

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SAINT LOUIS UNIVERSITY

STATEMENTS OF CASH FLOWS

YEARS ENDED JUNE 30, (000's Omitted)

2007 2006

Net cash flows from operating activities:

Increase in net assets $ 183,071 $ 128,764 Adjustments to reconcile change in net assets:

Net gain on disposition of Abbott Ambulance, Inc. (150) (675) Net gain on disposition of property and equipment (783) (1,085) Net gain on disposition of other assets - (2,063) Depreciation and amortization 23,564 23,902 Cumulative effect of a change in accounting principle - 4,645 Changes in accounts receivable, net 9,296 (7,321) Changes in accounts payable 6,556 6,153 Changes in deposits and deferred revenues (1,866) (4,544) Changes in other accrued liabilities 4,256 7,820 Changes in other assets 2,031 (1,843) Other changes in assets and liabilities (543) (2,675) Contributions restricted for long-term investment (19,583) (25,026) Investment income restricted for long-term investment (1,663) (384) Net gains on long-term investments (145,129) (96,803) Net gains on assets held by trustees (2,828) (689) Net cash provided by operating activities 56,229 28,176

Net cash flows from investing activities:

Proceeds from sales and maturities of investments 389,899 269,116 Purchase of investments (450,069) (249,580) Proceeds from sale of Abbott Ambulance, Inc. 150 675 Proceeds from sale of property and equipment 1,348 1,833 Proceeds from sale of other assets - 4,896 Changes in assets held by trustees, excluding net gains and losses 9,044 (38,397) Acquisition of property and equipment, net (107,965) (49,327) Net cash used in investing activities (157,593) (60,784)

Net cash flows from financing activities:

Issuance of notes and bonds payable 100,950 71,600 Payments on notes and bonds payable (8,036) (10,804) Payments associated with the early extinguishment of debt (45,112) (8,435) Change in cash overdrafts 2,637 140 Contributions restricted for long-term investment 19,583 25,026 Investment income restricted for long-term investment 1,663 384 Net cash provided by financing activities 71,685 77,911 Net (decrease) increase in cash and cash equivalents (29,679) 45,303 Cash and cash equivalents, beginning of year 79,933 34,630 Cash and cash equivalents, end of year $ 50,254 $ 79,933 Supplemental data:

Interest paid $ 12,636 $ 10,597 Assets acquired by assuming directly related liabilities 41 1,570 Conditional asset retirement obligation (339) (4,645) See Accompanying Notes to the Financial Statements. 4

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NOTES TO THE FINANCIAL STATEMENTS Saint Louis University

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Saint Louis University (University) is a non-profit organization as described in Section 501(c)(3) of the Internal Revenue Code and is exempt from federal income taxes on related income pursuant to Section 501(a) of the Code. Founded in 1818, the University is a coeducational institution offering undergraduate and graduate programs in a variety of curricula and professional degree programs in medicine, law, business, social work, allied health, nursing, and advanced dentistry.

In addition to its higher education mission, the University devotes substantial resources, facilities and personnel to providing health care services in conjunction with the academic programs offered by the University at the Medical Center. The University operates physician practices staffed by the faculty of the University’s School of Medicine. The members of the faculty of the School of Medicine who provide medical services are referred to collectively as the “University Medical Group” and are marketed under the name “SLUCare”.

Financial Statement Presentation

The University's financial statements have been prepared on the accrual basis of accounting. The financial statements include, after elimination of all significant intercompany transactions, the accounts of Saint Louis University, SLUCare, and Saint Louis University in Spain. Certain reclassifications have been made to the prior year financial statements to conform to the fiscal year 2007 presentation.

Measure of Operations

Operating results (change in unrestricted net assets from operating activity) in the consolidated statements of activities reflect all transactions that change unrestricted net assets, except for activity associated with endowment investments and certain other nonrecurring items. In accordance with the University’s endowment spending policy, as described in Note 3, only the portion of total investment return distributed under this policy to meet operating needs in included in operating revenue. Operating investment income consists of dividends, interest, and realized/unrealized gains and losses on unrestricted, nonendowed investments.

The University’s primary programs are instruction, research and public service. Academic, student support, and auxiliary services are considered integral to the delivery of these programs. Fundraising costs are not material to the University’s total program costs. Costs related to the operation and maintenance of physical plant, including depreciation of plant assets, are allocated to operating programs and supporting activities based upon periodic facility usage surveys. Interest expense on external debt is recorded as institutional support.

Scholarship Allowances

Education revenues are reported net of scholarship allowances. A scholarship allowance represents the difference between the stated charge for tuition and fees and the amount that is billed to the student and/or third parties making payments on behalf of the student. Scholarship allowances are presented, as follows:

June 30, June 30, 2007 2006 Tuition & Fees $ 73,647 $ 70,846 Auxiliary Enterprises 2,075 1,782 Total 75,722 72,628

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Contributions

Contributions received, including unconditional promises to give, are recognized as revenues in the period received at their estimated fair values. For financial reporting purposes, the University distinguishes between contributions of unrestricted assets, temporarily restricted assets, and permanently restricted assets. Contributions for which donors have imposed restrictions which limit the use of the donated assets are reported as restricted support if the restrictions are not met in the same reporting period. When such donor imposed restrictions are met in subsequent reporting periods, temporarily restricted net assets are reclassified to unrestricted net assets and reported as net assets released from restrictions. Contributions of assets which donors have stipulated must be maintained permanently, with only the income earned thereon available for current use, are classified as permanently restricted assets.

Contributions for which donors have not stipulated restrictions, as well as contributions for which donors have stipulated restrictions but which are met within the same reporting period, are reported as unrestricted support.

Conditional promises to give are not recognized until the conditions on which they depend are substantially met. Unconditional promises to give with payments due in future periods are reported as restricted support. Gifts of land, buildings, and equipment are reported as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire or construct long-lived assets are reported as restricted support. Absent explicit donor stipulation, the University reports expirations of donor restrictions when the donated, acquired, or constructed long-lived assets are placed in service. As of June 30, 2007, pledges receivable in less than one year were $10.8 million, pledges receivable in one to five years were $17.3 million and pledges receivable in more than 5 years were $9.6 million. As of June 30, 2006, pledges receivable in less than one year were $17.7 million, pledges receivable in one to five years were $19.9 million and pledges receivable in more than 5 years were $0.9 million. Pledges receivable are included with accounts receivable in the Statement of Financial Position, net of an allowance for uncollectible pledges of $1.6 million and $1.2 million at June 30, 2007 and 2006, respectively, and net of discount of $6.8million and $4.2 million at June 30, 2007 and 2006, respectively. Discount rates on outstanding pledges ranged from 6.1% to 8.0% for June 30, 2007 and were 8% for June 30, 2006. Collections of art are capitalized at cost if purchased or at the fair market value at date of gift. At June 30, 2007 and 2006, collections of art in the amount of $11.3 million and $11.1 million, respectively, are included in other assets within the accompanying Statement of Financial Position.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and temporary investments purchased with an initial maturity of three months or less. Cash and cash equivalents representing assets of endowment and similar funds are included in investments in the Statement of Financial Position. The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of these financial instruments.

Accounts Receivable, Net

Accounts Receivable are stated at estimated net realizable amounts. The allowance for doubtful accounts and contractual allowances at June 30, 2007 and 2006 was $35.2 million and $35.4 million, respectively. Accounts Receivable comprise the following:

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Accounts Receivable, Net (continued)

June 30, 2007

Allowance for

Accounts Doubtful Accounts/ Accounts Receivable, gross Contractual Allowances Receivable, net (000’s Omitted)

Patient care $ 60,487 $ 31,540 $ 28,947 Pledges, discounted 30,879 1,640 29,239 Government/private grants and contracts 14,122 - 14,122 Student accounts 7,799 886 6,913 Other 4,423 1,100 3,323 $ 117,710 $ 35,166 $ 82,544

June 30, 2006

Allowance for

Accounts Doubtful Accounts/ Accounts Receivable, gross Contractual Allowances Receivable, net (000’s Omitted)

Patient care $ 57,257 $ 32,531 $ 24,726 Pledges, discounted 34,354 1,157 33,197 Government/private grants and contracts 16,694 - 16,694 Student accounts 13,891 824 13,067

Other 5,029 873 4,156

$ 127,225 $ 35,385 $ 91,840

Investments

Investments in equity securities with readily determinable fair values and all investments in debt securities, as well as funds held by trustees, are reported at fair value based on quoted market prices. Alternative investments are carried at estimated fair value provided by the management of the alternative investment partnerships or funds. The University believes that the carrying amount of its alternative investments is a reasonable estimate of fair values as of June 30, 2007 and 2006. Because alternative investments are not readily marketable, the estimated value is subject to uncertainty and therefore may differ materially from the value that would have been used had a ready market for the investments existed. Alternative investments include certain amounts recorded as part of fixed income securities, equity securities, real assets, private equity/venture capital, and hedge funds.

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Derivative Financial Instruments

The derivative instruments held by the University, as discussed in Note 5, are recorded at current market value. Accordingly, gains and losses from changes in derivative fair value are recognized in the non-operating investment return component of the Statement of Activities.

Notes Receivable

Notes receivable primarily consist of amounts due from students under the University’s federally sponsored student loan programs. Such notes receivable include federally-mandated repayment terms and interest rates ranging from 3% to 9%.

Funds Held by Trustees

Funds held by trustees consist of irrevocable trusts totaling $32.1 million and $30.7 million at June 30, 2007 and 2006, respectively, as well as, the unexpended proceeds from, and the bond and interest sinking fund requirements for, the Health and Educational Facilities Revenue Bonds, totaling $32.9 million and $40.5 million at June 30, 2007 and 2006, respectively.

Revenue Recognition

The University recognized revenues from student tuition and fees within the fiscal year in which the academic term is predominantly conducted. Deposits and deferred revenues include advance tuition deposits and amounts billed to students for summer and certain fall sessions.

Other Accrued Liabilities

Other accrued liabilities include asset retirement obligations as discussed in Note 4, split-interest obligations as discussed in Note 7, the fair value of derivative financial instruments as discussed in Note 5, and an estimated medical malpractice self-insurance liability of $26.7 million and $22.4 million at June 30, 2007 and 2006, respectively.

U.S. Government Refundable Grants

U.S. Government refundable grants consist of funds advanced by the federal government on the condition that the University administer various campus based student loan programs subject to federal regulations. Under certain conditions, the funds must be returned to the federal government. Accordingly, they are classified as liabilities in the Statement of Financial Position.

Fair Value of Financial Instruments

Financial instruments are carried at or approximate fair market value with the exception of notes and bonds payable. Market values as of June 30, 2007 and 2006 for notes and bonds payable are disclosed in Note 5.

Foreign Currency Translation

The process of translating the University's Spanish campus financial statements from euros to U.S. dollars results in currency translation adjustments due to fluctuations in the exchange rate. The cumulative decrease in unrestricted net assets related to foreign currency translation adjustments as of June 30, 2007 and 2006 is $0.2 million and $0.5 million, respectively.

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Patient Care Revenues

SLUCare patient fee related charges are recorded at the time of service. Estimated adjustments are calculated based on current trends for payor mix, historical collection rates, consideration for modifications in federal or contractual reimbursement, and any fee schedules changes for each area of service. Adjustments are posted each month end based on charges generated. The initial adjustments are reconciled every six months comparing expectation vs. performance at which time entries are made to each individual service area to true up prior adjustments recorded. This method anticipates a 100% resolution of charges within 24 months.

The health care industry is subject to numerous laws and regulations of federal, state, and local governments. Laws and regulations governing Medicare and Medicaid programs are complex and subject to interpretation. Compliance with these laws and regulations, specifically those relating to the Medicare and Medicaid programs, can be subject to review and interpretation, as well as regulatory actions unknown and unasserted at this time. Federal government activity continues with respect to investigations and allegations concerning possible violations by health care providers of regulations, which could result in the imposition of significant fines and penalties, as well as significant repayments of previously billed and collected revenues from patient services. Management believes that SLUCare is in substantial compliance with current laws and regulations.

In accordance with the mission of SLUCare, medical care is provided to individuals without insurance or other means of paying for such care. Charity write-off is determined based on guidelines established by the Department of Health and Human Services. Charges are recognized at the time of service and written off as charity, if appropriate. During fiscal year 2007, $0.8 million in charges were determined to be charity.

Nonoperating

Nonoperating activities include the investment return net of amounts used for operations in accordance with the University’s spending policy, unrealized losses and gains on interest rate swap agreements, foreign currency translation adjustments pertaining to Saint Louis University in Spain, gain on sale of Abbott Ambulance, Inc. (see Note 10), gain on sale of properties, amounts relating to Saint Louis University Hospital (see Note 2) prior to February 28, 1998, actuarial adjustments on split-interest agreements, and permanently restricted contributions. Nonoperating activities comprise the following:

Year Ended

June 30, June 30, 2007 2006

__________ _________

Unrestricted net assets: (000's omitted) Investment return net of amounts allocated for operations

in accordance with the University’s spending policy:

Net return on endowment funds $ 119,065 $ 55,329 Net return on designated funds 10,494 4,394 Investment return on loan funds 324 171 Unrealized (losses) gains on interest rate swap agreements (2,454) 13,912 Foreign currency translation adjustment 320 298 Gain on sale of Abbott Ambulance, Inc. 150 675 Gain on sale of other assets - 2,192 Gain on sale of property and equipment - 1,085 Amounts relating to Saint Louis University Hospital prior

to February 28, 1998 372 140 Early extinguishment of debt (2,445) 112 Other, net (153) (153)

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Nonoperating (continued)

Year Ended

June 30, June 30, 2007 2006

__________ _________

(000's omitted) Temporarily restricted net assets:

Investment return 3 4 Other, net (1,882) (23) Permanently restricted net assets:

Investment return 3,771 2,426 Permanently restricted contributions 10,558 14,847 Other, net 2,328 115

$ 140,451 $ 95,524

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

2. THIRD-PARTY REIMBURSED HEALTH PROGRAMS

Contractual agreements exist with third-party payors which provide for patient care reimbursement at rates which differ from the established billing rates for such care.

Hospital

Effective February 27, 1998, the University sold the net assets of Saint Louis University Hospital (Hospital) to Tenet Health System Hospitals, Inc. (Tenet), while retaining all contingencies related to third-party reimbursement as it relates to Hospital services provided prior to February 28, 1998 and cost reports filed for periods through the date of the Hospital sale. Revenues received by the Hospital under certain third-party payor agreements are subject to retroactive adjustment based on Medicare and Medicaid cost reports filed by the Hospital. No adjustments occurred during the years ended June 30, 2007 and 2006. Management believes that the final settlement of prior year cost reports will not have a material effect on the University’s financial position or changes in net assets.

University Medical Group

Medicare reimburses physician services according to the “Physicians’ Medicare Fee Schedule”, a national fee schedule utilizing a Resource Based Relative Value System. Reimbursement under both the Missouri Medicaid program and the Illinois Public Aid program is based on state-published fee schedules. Reimbursement under the Medicaid Managed Care plans is based on both capitation payments (per member per month payment amounts) for primary care services and plan-specific fee schedules for specialized services. Payment for patient services covered by certain commercial insurance carriers, health maintenance organizations and preferred provider organizations is based upon reimbursement agreements which include negotiated rates and/or discounted fees for specific services. Revenues received by the University Medical Group (UMG) are subject to certain compliance requirements and audits by third-party payor groups which could result in retroactive adjustments. Management is of the opinion that the ultimate disposition of any retroactive adjustments as a result of such third-party audits would not have a material adverse effect on the University’s financial position or changes in net assets.

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3. INVESTMENTS

Investment securities comprise the following:

June 30, June 30, 2007 2006

(000's omitted)

Cash and Cash Equivalents $ 25,696 $ 29,195 Fixed Income Securities 183,297 149,199 Equity Securities 691,046 551,349 Real Assets 74,446 42,424 Private Equity/Venture Capital 49,709 44,481 Hedge Funds 57,770 60,017

$1,081,964 $ 876,665

The University designates only a portion of its cumulative investment return for support of current operations; the remainder is reinvested to support operations of future years. The amount computed under the spending policy for pooled long-term investments and certain investment income earned by investing cash in excess of daily requirements are used to support current operations and are reflected in Education and Related Activities operating revenue. Under the terms of certain limited partnership agreements, the University is obligated to periodically advance additional funding for private equity and real estate investments. At June 30, 2007 and 2006, the University had commitments of approximately $76.8 million and $76.5 million, respectively, for which capital calls had not been exercised. Such commitments generally have fixed expiration dates or other termination clauses. The University maintains sufficient liquidity in its investment portfolio to cover such calls.

The following schedule summarizes the investment return and its classification in the Statement of Activities excluding investments in irrevocable trusts that are included in funds held by trustee:

Year Ended June 30, 2007

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Temporarily Permanently

Unrestricted Restricted Restricted Total

(000’s omitted)

Dividends and interest $ 19,307 $ 3 $ 1,660 $ 20,970 Net realized and unrealized gains 143,018 - 2,111 145,129

Total return on investments 162,325 3 3,771 166,099 Cumulative investment return

designated for current operations (34,896) - - (34,896) Investment return net of amounts

designated for current operations $ 127,429 $ 3 $ 3,771 $ 131,203

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3. INVESTMENTS (continued)

Year Ended June 30, 2006

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Temporarily Permanently

Unrestricted Restricted Restricted Total

(000’s omitted)

Dividends and interest $ 14,510 $ 4 $ 380 $ 14,894 Net realized and unrealized gains 94,757 - 2,046 96,803 Total return on investments 109,267 4 2,426 111,697 Cumulative investment return

designated for current operations (35,461) - - (35,461) Investment return net of amounts

designated for current operations $ 73,806 $ 4 $ 2,426 $ 76,236 The total return on investments is reported net of custodial and management fees of $9.5 million and $7.8 million for the years ended June 30, 2007 and 2006, respectively.

4. LAND, BUILDINGS, AND EQUIPMENT

Physical properties comprise the following:

June 30, June 30, 2007 2006

________ _______

(000's omitted) Land $ 41,981 $ 40,431 Buildings and building improvements 475,407 472,576

Equipment 76,048 75,215

Construction in progress 146,100 50,102

________ ________

739,536 638,324

Less: Accumulated depreciation _{________} (255,348) _{________}(237,972)

$ 484,188 $ 400,352

Buildings and equipment are stated at cost, less accumulated depreciation. Land is stated at cost at the date of acquisition or estimated fair value at date of contribution. Maintenance, repairs, and minor renewals are expensed as incurred. Depreciation is calculated on the straight-line basis. Depreciable lives are estimated as 50 years for buildings, 10-35 years for building improvements, and 3-15 years for equipment.

Depreciation expense for the University was $23.4 million and $23.8 million for the years ended June 30, 2007 and 2006, respectively.

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4. LAND, BUILDINGS, AND EQUIPMENT (continued)

In March of 2005, the FASB issued FASB interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”), which was issued to provide clarity surrounding the recognition of conditional asset retirement obligations, as referred to in FASB Statement No. 143 “Accounting for Asset Retirement Obligations.” FIN 47 defines a conditional asset retirement obligation as a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. Uncertainty with respect to the timing and/or method of settlement of the asset retirement obligation, does not defer recognition of a liability. The obligation to perform the asset retirement activity is unconditional, and accordingly, a liability should be recognized. FIN 47 also provides guidance with respect to the criteria to be used to determine whether sufficient information exists to reasonably estimate the fair value of an asset retirement obligation. Based on the guidance in FIN 47, management of the University determined that sufficient information was available to reasonably estimate the fair value of known retirement obligations.

Upon application of FIN 47, the University recognized a decrease of $0.3 million and $4.6 million for June 30, 2007 and 2006, respectively, in the Statement of Activities. As of June 30, 2007 and 2006, $ 1.6 million of asset retirement costs for each year, net of accumulated depreciation, has been included in property, plant and equipment and $6.5 million and $6.2 million for June 30, 2007 and 2006, respectively, of conditional retirement assets obligation are included within other accrued liabilities in the Statement of Financial Position.

Interest and depreciation expense related to the obligation and asset created by the adoption of FIN 47 for the year June 30, 2007 was $0.3 million and is included in depreciation expense recognized by the University.

5. DEBT AGREEMENTS

Outstanding balances of notes and bonds payable are summarized below:

June 30, June 30, 2007 2006

__________ _________

(000's omitted) Description

Twenty-eight-year Health and Educational Facilities Variable Rate Demand Revenue Bonds – Series 2006A. Interest rate is variable

(3.87% at June 30, 2007), with a maximum of 12% $ 100,950 $ - Thirty-year Health and Educational

Facilities Variable Rate Demand Revenue Bonds – Series 2005A. Interest rate is variable

(3.87% at June 30, 2007), with a maximum of 12% 71,600 71,600 Thirteen-year Health and Educational

Facilities Variable Rate Demand Revenue Bonds – Series 2003A. Interest rate is variable

(3.87% at June 30, 2007), with a maximum of 12%. 10,485 15,380

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5. DEBT AGREEMENTS (continued)

June 30, June 30, 2007 2006

__________ _________

(000's omitted) Description

Thirty-year Health and Educational Facilities Variable Rate Demand Revenue Bonds – Series 2002. Interest rate is variable

(3.94% at June 30, 2007), with a maximum of 12%. 11,620 12,535 Twenty-five year Health and Educational

Facilities Variable Rate Demand Revenue Bonds - Series A and B 1999. Interest rate is variable

(3.94% at June 30, 2007), with a maximum of 12%. 54,265 54,265 Twenty-year Health and Educational

Facilities Revenue Bonds - Series 1998.

Interest rates range from 4.5% to 5.5%. Face value: $45.6 million and $48.7 million at June 30, 2007

and 2006, respectively. 46,497 49,682 Thirty-year Health and Educational

Facilities Revenue Bonds - Series 1996.

Face value: $0 and $44.9 million at June 30, 2007

and 2006, respectively. - 42,710 Other bonds and notes due in various installments

through 2008. Interest rates range from 6.5% to 7.0% 1,075 2,518 $ 296,492 $ 248,690

The obligations of the University related to the Health and Educational Facilities Series 2006A, 2005A, Series 2003A, Series 2002, Series 1999, and Series 1998 Bonds are parity obligations that are not secured by a pledge or security interest in any specific property of the University other than the security interest in any funds deposited and held by either the applicable bond trustee or the Master Trustee under the University’s Master Trust Indenture. The University is required to comply with certain restrictive covenants under these bond agreements. The University is in compliance with these covenants at June 30, 2007. Certain bonds are subject to early redemptions at the option of the University.

Note and bond principal payments amount to $12.6 million, $12.1 million, $12.6 million, $12.3 million and $12.8 million for fiscals 2008 through 2012, respectively. Certain debt obligations require the maintenance of bond and interest sinking funds. Interest paid was $12.6 million and $10.6 million during fiscal years 2007 and 2006, respectively. As of June 30, 2007 and 2006, the estimated fair value of notes and bonds payable was $293.1 million and $253.4 million, respectively. The fair value of notes and bonds payable is based on rates currently available for instruments with similar maturities.

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5. DEBT AGREEMENTS (continued)

The University has entered into various interest rate swap agreements to reduce exposure to floating interest rates on variable rate debt. These swap agreements have the effect of fixing the rate of interest on the Health and Education Facilities Variable Rate Demand Revenue Bonds as follows:

Notional Weighted Amount Maturity Average Revenue Bonds ($ in millions) Date Interest Rate Series 1999 $ 54.3 2024 3.88% Series 2002 $ 11.6 2026 3.10% Series 2003 $ 10.5 2016 2.48% Series 2005 $ 71.6 2035 3.54% Series 2006 $101.0 2035 3.84%

These swap agreements contain the same payment dates as the corresponding original or expected issue. The fair market values of the swap agreements total $2.3 million and $4.7 million at June 30, 2007 and 2006, respectively, and are included in the “Other assets” component of the Statement of Financial Position. The fair market values of the interest rate swap agreements represent the estimated amount the University would receive or (pay) to terminate the agreements.

The University has a standby revolving bond purchase agreement with a maximum principal amount of $248.9 million to provide liquidity for the outstanding balances related to (i), the Series 1999A and Series 1999B Health and Educational Facilities Variable Rate Demand Revenue Bonds, (ii) the Series 2002 Health and Educational Facilities Variable Rate Demand Revenue Bonds, (iii) the Series 2003A Health and Educational Facilities Variable Rate Demand Revenue Bonds, (iv) the Series 2005A Health and Educational Facilities Variable Rate Demand Revenue Bonds and (v) the Series 2006A Health and Educational Facilities Variable Rate Demand Revenue Bonds. There were no advances outstanding under these agreements as of June 30, 2007.

The University has a line of credit in the amount of $20.0 million with US Bank, N.A., at an interest rate of prime less 1-1/2%. As of June 30, 2007, the University had no outstanding borrowings under the line of credit.

6. LEASE OBLIGATIONS

The University leases certain equipment and conducts certain of its operations in leased facilities. Terms of these operating leases, including renewals, maintenance costs and purchase options, vary by lease. Total rental expense charged to operations was approximately $8.7 million and $8.3 million for the fiscal years ended June 30, 2007 and 2006, respectively. At June 30, 2007, future minimum annual lease payments under noncancellable operating leases are $5.4 million, $1.6 million, $1.1 million, $1.1 million and $0.4 million for fiscals 2008 through 2012, respectively. In addition to the aforementioned operating leases, the University also maintains a capital lease for land. At June 30, 2007 and 2006, the University had approximately $1.1million, relating to this capital lease, which is included in the land classification in Note 4. Future principal payments totaling $1.1 million are included in the debt maturities in Note 5.

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7. SPLIT-INTEREST AGREEMENTS

The University has certain split-interest agreements with donors, which consist primarily of charitable gift annuities, charitable remainder annuity trusts, and charitable remainder unitrusts for which the University serves as trustee. Assets are invested and payments are made to donors and/or other beneficiaries in accordance with respective agreements. Contribution revenues for charitable gift annuities and charitable remainder trusts are recognized after recording liabilities for the present value of the estimated future payments to be made to the respective donors and/or other beneficiaries. At June 30, 2007 and 2006, the University reported split-interest obligations of $12.1 million and $12.2 million, respectively. Split-interest agreement related assets total $24.4 million and $23.5 million at June 30, 2007 and 2006, respectively. The discount rate was 7% for June 30, 2007 and 2006.

8. FUNCTIONAL EXPENSES

The University's classifications of expenses in the Statement of Activities are combined by functional category as follows:

Year Ended June 30,

________________________ 2007 2006

_________ _________

(000's omitted) Patient Care $ 203,649 $ 200,584 Education & Related Activities:

Instruction, Academic

Support and Student Services 206,056 197,549 Research & Public Service 56,127 60,260 Institutional Support 58,880 58,957 Auxiliary Enterprises 30,508 29,045 Total $ 555,220 $ 546,395

9. RESTRICTED NET ASSETS

The University's temporarily restricted net assets are available for the following purposes:

Year Ended June 30,

________________________ 2007 2006

_________ _________

(000's omitted) Buildings and equipment $ 30,641 $ 19,304 Annuity/life income trust agreements 4,143 3,155 Educational activity purposes 16,284 23,527

$ 51,068 $ 45,986

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9. RESTRICTED NET ASSETS (continued)

The University's permanently restricted net assets are restricted to:

Year Ended June 30,

________________________ 2007 2006

_________ _________

(000's omitted) Investment in perpetuity, the income

from which is expendable to support

educational activity purposes $ 234,588 $ 218,019 Annuity/life income trust agreements 7,513 7,597 Student loans 6,567 6,395

$ 248,668 $ 232,011

10. INVESTMENT IN ABBOTT AMBULANCE, INC.

The University was one of two members of Abbott Ambulance, Inc. (Abbott), a Missouri not-for-profit corporation. In September 2004, the University sold its entire investment interest in Abbott to a third party. For the fiscal years ended June 30, 2007 and 2006, respectively, the University recorded gains of approximately $0.2 million and $0.7 million related to the sale agreement. The gains are reflected within the Statement of Activities in “Other Nonoperating.”

11. INSURANCE PROGRAMS

The University has insurance coverage for medical malpractice and health insurance claims which is subject to certain aggregate and per claim limits and self-insurance retention limits. The University participates with other universities in self-insured risk pools that provide some of the University’s workers’ compensation, general liability, and property coverage. Whenever the pools’ actual losses exceed estimates, the University can be required to contribute additional funds. Management believes that any such additional contributions would not have a material effect on the University’s financial position or changes in net assets.

12. RETIREMENT BENEFITS

Retirement benefits for University employees are provided through the Teachers Insurance and Annuity Association (TIAA), Fidelity Investments, T. Rowe Price Investment Services, and Scudder Investments. Contributions are made to these organizations to provide individually owned retirement contracts and accounts for participating employees. Employees are eligible for the University’s retirement plan after one year of continuous service. The University provides a two to one matching contribution up to a maximum of 10% as the University’s contribution. Contributions made by the University are vested immediately. The University's share of the cost of these benefits was $18.5 million and $17.9 million for the fiscal years ended June 30, 2007 and 2006, respectively.

13. GOVERNMENTAL GRANTS AND CONTRACTS

The University has recovered indirect costs under certain grants and contracts with federal agencies for both the 2007 and 2006 fiscal years. These recoveries are reported as unrestricted revenue. Indirect cost rates vary according to the terms of the grant award or the contract. Most rates are based on modified total direct costs. Certain research grants and contracts allow indirect costs based on an indirect cost research rate that is negotiated with the Department of Health and Human Services.

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14. HOSPITAL AFFILIATIONS

The University has a thirty-year academic affiliation agreement, effective February 27, 1998, with Tenet to provide certain services in support of Saint Louis University Hospital for which it receives a contracted service fee. The services include medical staffing and direction, pastoral care, and laboratory testing. In addition, the University was entitled to receive an Efficiency Supplemental Payment (ESP) from Tenet, contingent upon the achievement of targeted earnings as established in the academic affiliation agreement. Effective June 1, 2004, this agreement was modified, for a five-year period, to provide a fixed payment to the University in lieu of the ESP. Also, effective May 31, 2006, Tenet entered into a Mission Support Agreement with the University to provide $21.8 million over a three year period in support of the University’s medical school. The University has contracted to purchase certain goods and services from Tenet, including information systems technical support, telephone services, pharmaceuticals, and steam. The University also has a Master Lease Agreement with Tenet in which space is leased to and from Tenet at contracted rates per square foot.

Revenues associated with the above described hospital affiliation transactions for the fiscal years ended June 30, 2007 and 2006 are $46.3million and $55.1 million, respectively. Expenses associated with the above described hospital affiliation transactions for the fiscal years ended June 30, 2007 and 2006 are $7.6 million and $7.4 million, respectively. Hospital affiliation revenues and expenses are classified in the “Patient care” and “Supplies, repairs, utilities, & other expenses” components, respectively, of the Statement of Activities. Amounts due from Tenet were $6.5 million and $3.8 million at June 30, 2007 and 2006, respectively, and are included in the “Accounts receivable, net” component of the Statement of Financial Position. Amounts due to Tenet were $0.4 million and $0.2 million at June 30, 2007 and 2006, respectively, and are included in the “Accounts payable” component of the Statement of Financial Position.

Tenet has asserted a claim for reimbursement from the University for certain resident support and medical supervision services paid to the University from February 28, 1998 through December 31, 2002. The ultimate outcome of this claim cannot be determined at this time.

15. LEGAL MATTERS, CONTINGENCIES, AND COMMITMENTS

In July 1997, the Office of Inspector General (OIG) of the United States Department of Education (DOE) issued its Final Audit Report entitled, “Professional Judgment at Saint Louis University”, recommending that the University refund Pell Grant funds disbursed as a result of unreasonable professional judgment actions during the period July 1, 1994 through June 30, 1996. Upon University appeal, the Office Financial Assistance Programs of the DOE issued its Final Audit Determination in December 1998 concurring with the OIG and demanding $2.8 million. The University then filed its formal appeal with the DOE Office of Hearings and Appeals. In May 2000, the University received a favorable judgment from the administrative law judge at the DOE Office of Hearing and Appeals that dismissed the $2.8 million liability. The DOE then appealed to the Secretary of Education. On February 23, 2007, the Secretary of Education reversed the decision of administrative law judge and remanded the matter to the judge for further proceedings. On March 22, 2007, the judge issued an order framing the issues for his review and scheduling the briefing by the parties. The matter is pending with the administrative law judge.

In February 2005, the OIG issued a final report entitled, “Final Audit Report”, resulting from the OIG’s subsequent audit of the University’s use of professional judgment during the period July 1, 2000 through June 30, 2003. In the report, the OIG recommended that the Office of Federal Student Aid of the DOE require the University to refund $1.5 million in Pell Grant funds disbursed to students based on the exercise of professional judgment for the period covered by the audit, to return Pell Grant funds identified by an additional file review to be performed by the University where documentation is insufficient for unreported professional judgment decisions, and to assess an administrative fine against the University for its failure to report all professional judgment actions accurately to the DOE. The ultimate outcome of this audit and potential claim cannot be determined at this time.

In October 2005, the Saint Louis University School of Public Health received a subpoena duces tecum from the United States Department of Health and Human Services (DHHS) Office of the Inspector General (OIG) seeking various faculty records relating to time and effort reporting and salary recovery from federal grants and contracts. Saint Louis

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15. LEGAL MATTERS, CONTINGENCIES, AND COMMITMENTS (continued)

University provided records responsive to the subpoena on November 30, 2005 and January 3, 2006. The University subsequently was contacted by the Atlanta United States Attorney concerning its investigation of the matter. The University and that office have been in contact about its investigation of additive pay practices. The amount of any final repayment obligation and/or penalty, if any, is unknown.

As a result of the Fiscal Year 2004 A-133 report, in early 2007 the Department of Health and Human Services Audit Resolution Group contacted the University’s director of sponsored programs and requested documentation relating to University time and effort and aggregate salary data reported on DHHS related grants and subcontracts for 2004. On September 10, 2007, the DHHS’ lead negotiator notified the University’s director of sponsored programs that the government is demanding reimbursement of $1,262,025, plus related fringe benefits for effort charged to grants for 2004 because of the University’s alleged failure to comply with OMB Circular A-21. The DHHS negotiator indicated that the government was using a “sliding scale” applied to the salaries and stipends charged to HHS programs based upon “the perceived risk to HHS—there was a greater risk of the salaries and stipends being mischarged by employees who were budgeted to work 0 percent in comparison to those employees who were budgeted to work 100 percent on HHS programs.” The University has until October 18, 2007 to respond.

There are various other lawsuits and legal proceedings against the University which are in varying states and may proceed for protracted periods of time. Management is of the opinion that the ultimate disposition of such litigation will not have a material adverse effect on the University’s financial position or changes in net assets.

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