West Virginia Wesleyan College

Transcription

1 Audited Financial Statements West Virginia Wesleyan College Years Ended June 30, 2012 and 2011 Certified Public Accountants

2 Audited Financial Statements Years Ended June 30, 2012 and 2011 TABLE OF CONTENTS Independent Auditor s Report 1-2 Financial Statements: Page Statement of Financial Position 3 Statement of Activities 4 Statement of Cash Flows 5 Notes to Financial Statements 6-21 Accompanying Information: Schedule of Functional Expenses 22 Schedule of Expenditures of Federal Awards 23 Notes to the Schedule of Expenditures of Federal Awards 24 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor s Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A Schedule of Findings and Questioned Costs 29-31

3 Certified Public Accountants 300 Chase Tower 707 Virginia Street, East Charleston, West Virginia Office: Fax: INDEPENDENT AUDITOR S REPORT To the Board of Trustees West Virginia Wesleyan College Buckhannon, West Virginia We have audited the accompanying statement of financial position of West Virginia Wesleyan College (the College) as of June 30, 2012 and 2011, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the College s 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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. 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 financial statements referred to above present fairly, in all material respects, the financial position of West Virginia Wesleyan College as of June 30, 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. In accordance with Government Auditing Standards, we have also issued our report dated October 2, 2012, on our consideration of the College s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of functional expenses is presented for purposes of additional analysis and is not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other gandkcpas.com Gibbons & Kawash, A.C.

4 2 additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. October 2, 2012 gandkcpas.com Gibbons & Kawash, A.C.

5 3 STATEMENT OF FINANCIAL POSITION Years Ended June 30, 2012 and 2011 ASSETS Cash and cash equivalents $ 401,969 $ 393,011 Accounts receivable, net of allowance for doubtful accounts of $222,502 for 2012 and $202,459 for , ,530 Prepaid and other 1,301,868 1,565,585 Contributions receivable 181, ,530 Deposits held by trustee under bond indenture 381,374 10,911,257 Student loans receivable, less allowance for doubtful accounts of $176,837 for 2012 and $176,837 for ,811,859 1,824,735 Property, equipment and intangible assets, net 37,608,195 37,606,922 Long-term investments 30,139,250 32,143,784 Beneficial interest in external trusts 9,203,211 9,556,391 Total assets $ 81,346,039 $ 94,642,745 LIABILITIES AND NET ASSETS Liabilities: Accounts payable $ 516,870 $ 1,008,732 Accrued liabilities 1,644,637 1,931,447 Deferred tuition and student deposits 716, ,615 Line of credit 2,118,929 7,117,503 Capital lease obligations 406, ,841 Bonds and notes payable 23,227,084 27,101,541 Obligations under annuity and charitable remainder trust agreements 1,476,281 1,586,790 Refundable advances 1,949,858 1,947,150 Total liabilities 32,056,888 41,739,619 Net assets: Unrestricted (2,942,362) (977,590) Temporarily restricted 5,883,435 7,541,293 Permanently restricted 46,348,078 46,339,423 Total net assets 49,289,151 52,903,126 Total liabilities and net assets $ 81,346,039 $ 94,642,745 The accompanying notes are an integral part of these financial statements.

6 STATEMENT OF ACTIVITES Years Ended June 30, 2012 and 2011 Unrestricted 2012 Temporarily Permanently Restricted Restricted Revenues and other support: Tuition and fees, net of scholarships and awards of $20,547,049 in 2012 and $19,934,249 in 2011 $ 13,166,394 $ - $ - $ 13,166,394 Gifts and grants 1,125,062 1,925, ,872 3,573,485 Auxiliary enterprises 9,081,960 72,177-9,154,137 Other income 266,837 47, ,277 Net assets released from restrictions 4,353,690 (4,353,690) - - Net assets reclassified to conform with donor requests 11,533 (234) (11,299) - Total Total revenues and other support 28,005,476 (2,308,756) 511,573 26,208,293 Expenses: Educational and general: Instructional 8,418, ,418,969 Academic support 2,695, ,695,837 Student services 5,874, ,874,901 Institutional support 4,723, ,723,688 Fundraising 939, ,271 Auxiliary enterprises 6,192, ,192,449 Total expenses 28,845, ,845,115 Change in net assets before investment income (loss) (839,639) (2,308,756) 511,573 (2,636,822) Investment income (loss): Investment income, net of expenses of $163,380 in 2012 and $179,680 in , , ,134 Net unrealized and realized gains (losses) (1,128,956) (200,175) (91,002) (1,420,133) Change in value of split-interest agreements - (19,238) (111,987) (131,225) Net gain (loss) on beneficial interest in perpetual trusts - - (299,929) (299,929) Change in net assets (1,964,772) (1,657,858) 8,655 (3,613,975) Net assets, beginning of year (977,590) 7,541,293 46,339,423 52,903,126 Net assets, end of year $ (2,942,362) $ 5,883,435 $ 46,348,078 $ 49,289,151 The accompanying notes are an integral part of these financial statements.

7 4 Unrestricted 2011 Temporarily Permanently Restricted Restricted Total $ 12,595,130 $ - $ - $ 12,595,130 1,147,665 1,719, ,167 3,458,113 9,162, ,812-9,268, ,321 49, ,650 5,090,062 (5,090,062) - - (19,390) (5,462) 24,852-28,308,614 (3,221,102) 616,019 25,703,531 8,426, ,426,292 2,801, ,801,362 5,629, ,629,573 3,797, ,797, , ,243 6,268, ,268,413 27,802, ,802, ,109 (3,221,102) 616,019 (2,098,974) 3, , ,741 1,698,297 2,713, ,847 4,687,388-23,590 94, , ,031,657 1,031,657 2,208, ,578 2,017,536 4,498,415 (3,185,891) 7,268,715 44,321,887 48,404,711 $ (977,590) $ 7,541,293 $ 46,339,423 $ 52,903,126

8 STATEMENT OF CASH FLOWS Years Ended June 30, 2012 and Cash flows from operating activities: Change in net assets $ (3,613,975) $ 4,498,415 Adjustments to reconcile increase in net assets to net cash provided by (used in) operating activities: Depreciation and amortization 2,572,539 2,223,401 Provision for bad debts 90,000 70,500 Net unrealized and realized loss (gains) on long-term investments 1,420,133 (4,687,388) Net loss (gain) on beneficial interest in perpetual trusts 299,929 (1,031,657) Actuarial loss on obligations under annuity and charitable remainder trust agreements 178, ,627 (Increase) decrease in operating assets: Accounts receivable (71,074) (54,993) Inventories and prepaid expenses 263,717 (251,083) Contributions receivable 123,821 53,421 Increase (decrease) in operating liabilities: Accounts payable (491,862) 576,640 Accrued liabilities (286,810) 186,049 Deferred tuition and student deposits 221,201 (62,182) Refundable advances 2,708 (13,571) Contributions of stock (151,930) (129,383) Contributions restricted for long-term investment (522,872) (591,167) Contributions restricted for investment in property and equipment (621,819) (556,909) Net cash provided by (used in) operating activities (588,237) 548,720 The accompanying notes are an integral part of these financial statements.

9 Cash flows from investing activities: Release of deposits held by trustee under bond indenture 2,969,883 3,786,827 Purchase of property and equipment (2,197,326) (5,888,278) Proceeds from sale of investments 27,033,163 19,273,805 Purchase of investments (26,247,880) (18,684,965) Issuance of loans to students (211,002) (188,650) Payments received on loans to students 228, ,109 Net cash provided by (used in) investing activities 1,575,016 (1,479,152) Cash flows from financing activities: Proceeds from contributions restricted for: Long-term investment 522, ,167 Investment in property and equipment 621, ,909 1,144,691 1,148,076 Other financing activities: Payments of obligations under annuity and charitable remainder trust agreements (247,302) (251,608) Obligations incurred under annuity and charitable remainder trust agreements (41,264) (18,322) Net borrowings (repayments) on line of credit (1,498,574) 642,053 Payments on debt (335,372) (571,973) (2,122,512) (199,850) Net cash provided by (used in) financing activities (977,821) 948,226 Net change in cash and cash equivalents 8,958 17,794 Cash and cash equivalents, beginning of year 393, ,217 Cash and cash equivalents, end of year $ 401,969 $ 393,011

10 6 NOTES TO FINANCIAL STATEMENTS 1 - DESCRIPTION OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Since 1890, West Virginia Wesleyan College (the College), an independent residential college accredited by the North Central Association of Colleges and Secondary Schools, has served the immediate West Virginia region while enrolling students from other states and several foreign countries. Accounts Receivable Accounts receivable consist principally of student charges and are stated at unpaid balances, less an allowance for doubtful accounts. The College provides for losses on accounts receivable using the allowance method. The allowance is based on historical experience and other factors which may affect the ability of students to meet their obligations. Receivables are considered impaired if full principal payments are not received prior to the student ceasing to be currently enrolled. It is the College s policy to charge off uncollectible accounts receivable when management determines the receivable will not be collected. Contributions Contributions received and unconditional promises to give ( contribution receivable ) are measured at their fair values and are reported as an increase in net assets. The College reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. 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 statement of activities as net assets released from restrictions. The College reports gifts of land, buildings, and equipment 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 and other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about how long those long-lived assets must be maintained, the College reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service. Cash and Cash Equivalents Cash and cash equivalents consist primarily of demand deposits and money market funds, except that cash with donor-imposed restrictions that limit its use to long-term investment is classified as longterm investments. Investments Investments are reported at fair value. Fair value is 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. See Note 4 for discussion of fair value measurements. Property and Equipment Land and land improvements, buildings, equipment, and library books are stated at cost at the date of purchase or at fair value at the date of receipt in the case of donated assets. Interest on funds borrowed to finance the construction of major capital additions is capitalized during the construction period.

11 7 NOTES TO FINANCIAL STATEMENTS (Continued) 1 - DESCRIPTION OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and Equipment (Continued) Depreciation is calculated on a straight-line basis over the estimated useful lives of buildings and equipment, which range from 3 to 30 years. Maintenance and repairs are charged to operations as incurred and major improvements are capitalized. Inventories Inventories are comprised of supplies for various departments and are stated at the lower of cost or market. Cost is determined using the most recent price of goods purchased. Government Grants Government grants are accounted for as either contributions or exchange transactions depending on the specific characteristics of each grant agreement. Split-Interest Agreements The College has beneficial interests in various donor-established charitable remainder trusts and charitable gift annuities. Assets received under such agreements are recorded at their fair values. Contribution revenue is calculated based on the present value of estimated future cash flows using a discount rate commensurate with the risks involved less the present value of payments expected to be made to other beneficiaries. During the terms of these agreements, activity relating to revaluations of expected future benefits to be received by the College or expected future payments to other beneficiaries are recognized as "changes in the value of split-interest agreements." As the beneficiary under various donor established perpetual trusts, the College has the irrevocable right to receive the income earned on trust assets held in perpetuity, but never receives the assets held in trust. When a trust is initially established, the College recognizes contribution revenue, classified as permanently restricted support, and contributions receivable measured at the present value of estimated future cash receipts from the trust s assets. Annual distributions from the trust are reported as investment income that increases unrestricted net assets unless restricted by the donor. Adjustments to the amount reported as contributions receivable, based on an annual review using the same basis as was used to measure the receivable initially, are recognized as permanently restricted gains or losses. Functional Reporting Expenses are reported on a functional basis that discloses the purposes for which the expenses have been incurred. A brief description of each of the functional classifications follows: Instructional - Expenses of the academic departments that are directly involved in teaching activities. Academic Support - Funds expended primarily to provide support services for instruction and public service. It includes the cost of educational material for the library and the provision of services that directly assist the academic functions, such as the academic dean.

12 8 NOTES TO FINANCIAL STATEMENTS (Continued) 1 - DESCRIPTION OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Functional Reporting (Continued) Student Services - Funds expended for offices of admissions and registrar and those activities of which the primary purpose is to contribute to the student s emotional and physical well-being and to their intellectual, cultural, and social development outside the context of the formal instruction program. Institutional Support - Expenses incurred principally for (1) central executive-level activities concerned with management of day-to-day operations and long-range planning, (2) legal and fiscal operations, (3) administrative data processing, and (4) personnel and employee records. Fundraising - Expenses related to community, donor, and alumni relations, including solicitation of financial support. Auxiliary Enterprises - Expenses incurred for operations such as residence halls, food service, and the bookstore, which exist to furnish goods or services to students, faculty, or staff and are, managed as essentially self-supporting activities. Income Taxes The College is classified as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code and, therefore, is not subject to taxes on income derived from its exempt activities. The Organization has been classified as an organization that is not a private foundation under Section 509(a)(2). The College is generally no longer subject to examination by income taxing authorities for years ended prior to June 30, Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Subsequent Events The date to which events occurring after June 30, 2012, have been evaluated for possible adjustment to or disclosure in the financial statements is October 2, 2012, which is the date the financial statements were available to be issued. 2 - CONTRIBUTIONS RECEIVABLE Contributions receivable consisted of the following unconditional promises to give at June 30, 2012 and 2011: Unrestricted $ 60,222 $ 49,218 Restricted to investment in capital projects 121, ,432

13 9 NOTES TO FINANCIAL STATEMENTS (Continued) 2 - CONTRIBUTIONS RECEIVABLE (Continued) Unconditional promises to give before unamortized discount 181, ,650 Less: unamortized discount Net unconditional promises to give $ 181,709 $ 305,530 Contributions receivable are expected to be collected as follows: Less than one year $ 173,722 $ 188,900 One to five years 8, ,750 $ 181,722 $ 305,650 No allowance for uncollectible contributions receivable is considered necessary at June 30, 2012 and LONG-TERM INVESTMENTS Long-term investments consisted of the following at June 30, 2012 and 2011: Government obligations $ 671,989 $ 324,532 Corporate obligations 4,372,607 5,420,001 Corporate equities 9,514,604 9,799,155 Hedge funds: Archstone Offshore Fund, Ltd. 2,984,419 3,622,256 Collins Capital Low Volatility Performance Fund II - 2,013,056 Mutual funds 9,897,787 7,925,979 Money market funds 1,286,796 1,565,684 International equities 1,251,879 1,429,760 Other 159,169 43,361 $ 30,139,250 $ 32,143,784 Government obligations consist principally of obligations of the U.S. Treasury and agencies. Corporate obligations are concentrated in the financial services, utility, and communications sectors. Corporate equities and mutual funds are diversified, with no significant industry concentrations. Archstone Partners L.P. is a multi-manager, multi-strategy hedge fund designed to offer investors diversification and returns with a low correlation to the direction of the equity market, structured around three strategies:

14 10 NOTES TO FINANCIAL STATEMENTS (Continued) 3 - LONG-TERM INVESTMENTS (Continued) long/short equities, global macro, and diversifying/low correlation. Collins Capital Low Volatility Performance Fund is a multi-manager/multi-strategy portfolio of relative value, market neutral, arbitrage and event driven strategies that focuses on preservation of capital while seeking to achieve superior consistent absolute returns with a risk level comparable to the major bond market indices. International equities consist of a broad and diverse group of securities associated with emerging markets. Realized and unrealized gains (losses) recognized during the years ended June 30, 2012 and 2011, consisted of the following: Realized $ 319,667 $ 659,942 Unrealized (1,739,800) 4,027,446 $ (1,420,133) $ 4,687, FAIR VALUE MEASUREMENT Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, provides the framework for measuring fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of fair value hierarchy under FASB ASC 820 are described as follows: Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access. Level 2 - Inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability. Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

15 11 NOTES TO FINANCIAL STATEMENTS (Continued) 4 - FAIR VALUE MEASUREMENT (Continued) The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at June 30, 2012 and Corporate and international equities, corporate obligations, government obligations, and mutual funds: Valued at the closing price reported on the active market on which the individual securities are traded. Hedge funds: Valued at the net asset value (NAV) of shares held at year end. Money market: Valued at amortized cost. Beneficial interest in perpetual trusts: Valued using the fair value of the assets in the trust as a practical expedient unless facts and circumstances indicate that the fair value of the assets in the trust differs from the fair value of the beneficial interests. Assets measured at fair value on a recurring basis consisted of the following at June 30, 2012 and 2011: Total Level 1 Level 2 Level 3 Investments: Government obligations $ 671,989 $ 671,989 $ - $ - Corporate obligations 4,372,607 4,372, Corporate equities 9,514,604 9,514, Hedge funds 2,984, ,984,419 Mutual funds 9,897,787 9,897, Money market funds 1,286,796 1,286, International equities 1,251,879 1,251, Other 159, , ,139,250 27,154,831-2,984, Beneficial interest in external trusts 9,203,211 9,203, Total Level 1 Level 2 Level 3 Investments: Government obligations $ 324,532 $ 324,532 $ - $ - Corporate obligations 5,420,001 5,420, Corporate equities 9,799,155 9,799, Hedge funds 5,635, ,635,312 Mutual funds 7,925,979 7,925, Money market funds 1,565,684 1,565, International equities 1,429,760 1,429, Other 43,361 43, ,143,784 26,508,472-5,635,312 Beneficial interest in external trusts 9,556,391 9,556,391

16 12 NOTES TO FINANCIAL STATEMENTS (Continued) 4 - FAIR VALUE MEASUREMENT (Continued) The changes in investments measured at fair value for Level 3 inputs are as follows: Balance, beginning of year $ 5,635,312 $ 5,075,195 Net unrealized gain (48,882) 650,763 Management fees (83,642) (90,646) Net purchases and sales (2,518,369) - Balance, end of year $ 2,984,419 $ 5,635, PROPERTY AND EQUIPMENT Property and equipment consisted of the following at June 30, 2012 and 2011: Land and land improvements $ 4,403,229 $ 4,377,150 Buildings and improvements 73,556,248 67,162,206 Vehicles 776, ,513 Equipment and library books 11,392,495 11,107,785 Construction in progress 18,576 4,313,071 Gas wells 400, ,639 90,547,190 88,127,364 Less accumulated depreciation 52,938,995 50,520,442 $ 37,608,195 $ 37,606, REFUNDABLE ADVANCES Refundable advances consist of amounts advanced to the College by the federal government for the purpose of funding the Perkins and Nursing Student Loan Programs. Upon termination of the College's participation in the programs, the College would be required to remit to the government all program cash on hand and to relinquish all interest in outstanding loans receivable. Refundable advances included $1,949,858 and $1,947,150 for 2012 and 2011, respectively, under these loan programs. 7 - DEBT Bonds and notes payable consisted of the following at June 30, 2012 and 2011: College Facilities Revenue Bonds, Series 2001, refunded as described below $ - $ 7,560,000

17 13 NOTES TO FINANCIAL STATEMENTS (Continued) 7 - DEBT (Continued) College Commercial Development Revenue Bonds, Series 2008 A (tax exempt), due ,650,000 5,740,000 College Commercial Development Revenue Bonds, Series 2010 A (tax exempt), due ,410,000 6,410,000 College Commercial Development Revenue Bonds, Series 2010 B (taxable), due ,000 35,000 College Commercial Development Refunding Revenue Bonds, Series 2010 C (tax exempt), due ,795,000 7,855,000 Note payable to bank, payable in monthly installments of $23,330, including interest at LIBOR plus 2.25%, final payment due June 2017, secured by marketable securities 3,500,000 - Note payable to bank, payable in monthly installments of $1,410, including interest at 3.25%, balloon payment of approximately $145,407 due September 2016, secured by property 192,206 - Note payable to third party, payable in quarterly installments of $1,648, including interest at 5.0%, final payment due May 2016, unsecured 23,762 29,000 Note payable to third party, payable in monthly installments of $707, including interest at 5.0%, final payment due May 2015, unsecured 22,360 29,526 Note payable to bank, payable in monthly installments of $680, including interest at 5.5%, final payment due May 2015, secured by property 21,926 - Note payable to third party, payable in quarterly installments of $2,561, including interest at 5.0%, final payment due January 2013, unsecured 5,026 14,706 Note payable to third party, payable in annual installments of $11,016, including interest at 5.0%, final payment made February 2012, unsecured - 10,492 23,655,280 27,683,724 Less unamortized bond discount 428, ,183 $ 23,227,084 $ 27,101,541

18 14 NOTES TO FINANCIAL STATEMENTS (Continued) 7 - DEBT (Continued) Maturities of debt for each of the next five years are as follows: Bonds Notes June 30 Payable Payable Total 2013 $ 625,000 $ 230,879 $ 855, , , , , , , , , , ,000 2,837,295 3,542,295 The College Facilities Revenue Bonds (West Virginia Wesleyan College Project) Series 2001 were issued by the City of Buckhannon, West Virginia in the amount of $9,840,000 for the purpose of refinancing certain College debt and financing various capital improvements. The Series 2001 bonds were refunded on August 1, The College Commercial Development Refunding Revenue Bonds (West Virginia Wesleyan College Project) Series 2010 C (Tax-Exempt) were issued by the City of Buckhannon on October 15, 2010, in the amount of $7,855,000 for the purpose of refunding the Series 2001 bonds. The Series 2010 C bonds bear interest at rates ranging from 2.0% to 4.5% and are secured by a security interest in the gross receipts of the College and a first lien security interest in certain campus facilities. Scheduled principal redemptions range from $410,000 during the year ending June 30, 2013, increasing over the term of the bonds, with a final principal redemption of $675,000 during The College Commercial Development Revenue Bonds (West Virginia Wesleyan College Project) Series 2008 A (Tax-Exempt) and Commercial Development Revenue Bonds (West Virginia Wesleyan Project) Series 2008 B (Taxable) were issued by the City of Buckhannon on December 1, 2008, in the amount of $5,740,000 and $85,000, respectively, for the purpose of financing the cost of the design, acquisition, construction and equipping of certain capital improvements to the campus of the College, consisting of renovation and improvement of certain residence halls, specifically Fleming Hall, and classroom buildings, and certain other capital improvements. The Series 2008 bonds bear interest at rates ranging from 4.5% to 6.5% and are secured by a security interest in the gross receipts of the College and a first lien security interest in Fleming Hall. Scheduled principal redemptions range from $95,000 during the year ending June 30, 2013, increasing over the term of the bonds, with a final principal redemption of $410,000 during The College Commercial Development Revenue Bonds (West Virginia Wesleyan College Project) Series 2010 A (Tax-Exempt) and Commercial Development Revenue Bonds (West Virginia Wesleyan Project) Series 2010 B (Taxable) were issued by the City of Buckhannon on October 15, 2010, in the amount of $6,410,000 and $35,000, respectively, for the purpose of financing the cost of the design, acquisition, construction and equipping of certain capital improvements to the campus of the College, consisting of construction of a new residence hall, renovation of Jenkins Hall, and certain other capital improvements. The Series 2010 bonds bear interest at rates ranging from 2.0% to 5.0% and are secured by a security interest in the gross receipts of the College and a first lien security interest in the new residence hall. Scheduled principal redemptions range from $120,000 during the year ending June 30, 2013, increasing over the term of the bonds, with a final principal redemption of $395,000 during 2040.

19 15 NOTES TO FINANCIAL STATEMENTS (Continued) 7 - DEBT (Continued) On June 27, 2012, borrowings of $3,500,000 on the $7,500,000 line of credit were refinanced into a long-term note payable, the terms of which are described above, and the line of credit was modified to reflect maximum borrowings of $5,000,000. As of June 30, 2012, the College had $2,881,070 available under the line. The line, which has a maturity date of January 31, 2014, bears interest at the LIBOR rate plus 2.25% and is secured by a first lien security interest on certain marketable securities. The loan agreements in connection with the Series 2008 and 2010 bonds and the line of credit impose certain restrictive and financial covenants on the College, including the maintenance of a specified debt service coverage ratio and restrictions on additional indebtedness. For the purpose of supplemental cash flows disclosure, interest paid during the years ended June 30, 2012 and 2011, was $1,113,639 and $1,141,468, respectively. Interest capitalized during the years ended June 30, 2012 and 2011 was $24,686 and $119,959, respectively. Noncash investing and financing activity consisted of the following during the years ended June 30, 2012 and 2011: Property and equipment acquired, through the issuance of debt $ 222,500 $ 731,186 Proceeds from issuance of debt held by trustee - 14,005,196 Costs of debt issuance - 294,804 Refunding of debt through deposits held by trustee 7,560,000 - Line of credit borrowings converted to long-term debt 3,500, CAPITAL LEASE OBLIGATION The College is the lessee of network equipment under a capital lease expiring in The assets and liabilities are recorded at the fair value of the asset. The assets are depreciated over their estimated useful life. At June 30, 2012, property and equipment included network equipment under capital lease of $702,186 less accumulated depreciation of $175,547. Depreciation expense for the leased equipment was $140,438 for the year ended June 30, Minimum future lease payments for each of the next three years are as follows: 2013 $ 159, , ,265 Total minimum lease payments 427,711 Less amount representing interest (21,298) Present value of net lease payments $ 406,413

20 16 NOTES TO FINANCIAL STATEMENTS (Continued) 9 - ENDOWMENT Interpretation of Relevant Law The Board of Trustees has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donorrestricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the College 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 the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the organization in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the organization considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) The duration and preservation of the fund (2) The purposes of the organization and the donor-restricted endowment fund (3) General economic conditions (4) The possible effect of inflation and deflation (5) The expected total return from income and the appreciation of investments (6) Other resources of the organization (7) The investment policies of the organization Return Objectives and Risk Parameters The College has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the organization must hold in perpetuity or for a donor-specified period(s) as well as board-designated funds. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results that exceed the price and yield results of the S&P500 index while assuming a moderate level of investment risk. The College expects its endowment funds, over time, to provide an average rate of return of approximately 7 percent annually. Actual returns in any given year may vary from this amount. Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, the College relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The College targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. Spending Policy and How the Investment Objectives Relate to Spending Policy The College has a policy of appropriating for distribution each year 5 percent of its endowment fund's average fair value over the prior 13 quarters through the third quarter of the fiscal year-end preceding the fiscal year in which the distribution is planned. In establishing this policy, the College considered the longterm expected return on its endowment. Accordingly, over the long term, the College expects the current

21 17 NOTES TO FINANCIAL STATEMENTS (Continued) 9 - ENDOWMENT (Continued) Spending Policy and How the Investment Objectives Relate to Spending Policy (Continued) spending policy to allow its endowment to grow at an average of 2 percent annually. This is consistent with the College's objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return. The spending rate was 5 percent during the years ended June 30, 2012 and Management expects the spending rate for the year ending June 30, 2013, to be 5 percent. Endowment Net Asset Composition by Type of Fund as of June 30, 2012 and Temporarily Permanently Unrestricted Restricted Restricted Total Donor restricted endowment funds $ (4,709,952) $3,266,728 $34,716,774 $ 33,273,550 Board designated endowment funds (6,156) 758, ,982 Total funds $ (4,716,108) $4,024,866 $34,716,774 $ 34,025, Temporarily Permanently Unrestricted Restricted Restricted Total Donor restricted endowment funds $ (3,597,889) $4,323,495 $34,345,439 $ 35,071,045 Board designated endowment funds 3, , ,789 Total funds $ (3,594,032) $5,123,427 $34,345,439 $ 35,874,834

22 18 NOTES TO FINANCIAL STATEMENTS (Continued) 9 - ENDOWMENT (Continued) Change in Endowment Net Assets for the years ended June 30, 2012 and 2011 Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, July 1, 2010 $ (5,277,256) $ 3,581,236 $ 33,619,175 $ 31,923,155 Investment return: Investment income , ,770 Net unrealized and realized gains (losses) 1,684,302 2,746, ,850 4,572,495 Total invesment return 1,684,656 3,140, ,850 4,967,265 Contributions , ,488 Appropriation of endowment assets for expenditure (1,432) (1,598,568) - (1,600,000) Assets reclassified to conform with donor requests - - 9,926 9,926 Endowment net assets, June 30, 2011 (3,594,032) 5,123,427 34,345,439 35,874,834 Investment return: Investment income , ,179 Net unrealized and realized gains (losses) (1,121,259) (170,557) (95,503) (1,387,319) Total investment return (1,120,799) 350,162 (95,503) (866,140) Contributions , ,137 Appropriation of endowment assets for expenditure (1,277) (1,448,723) - (1,450,000) Assets reclassified to conform with donor requests - - 2,701 2,701 Endowment net assets, June 30, 2012 $ (4,716,108) $ 4,024,866 $ 34,716,774 $ 34,025,532

23 19 NOTES TO FINANCIAL STATEMENTS (Continued) 9 - ENDOWMENT (Continued) Permanently Restricted Net Assets The portion of perpetual endowment funds that is required to be retained permanently either by explicit donor stipulation or UPMIFA $ 34,716,774 $ 34,345,439 Total endowment funds classified as permanently restricted net assets $ 34,716,774 $ 34,345,439 Temporarily Restricted Net Assets Term endowment funds $ 23,142 $ 24,736 The portion of perpetual endowment funds subject to purpose restrictions 4,001,724 5,098,691 Total endowment funds classified as temporarily restricted net assets $ 4,024,866 $ 5,123,427 Funds with Deficiencies From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the level that the donor or UPMIFA requires the College to retain as a fund of perpetual duration. In accordance with generally accepted accounting principles, deficiencies of this nature that are reported in unrestricted net assets were $4,757,799 and $3,635,722 as of June 30, 2012 and 2011, respectively. These deficiencies occurred principally due to unrealized declines in investment values TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes: Instructional activities $ 631,363 $ 743,718 Academic support activities 524, ,378 Student services 35,419 67,276 Institutional support 171, ,490 Capital maintenance and improvements 1,017,161 1,189,602 Auxiliary enterprises 3,376 3,376 Scholarships and awards 3,318,169 4,397,410 Charitable remainder trusts available for scholarships and other educational purposes upon death of beneficiaries 181, ,043 $ 5,883,435 $ 7,541,293

24 20 NOTES TO FINANCIAL STATEMENTS (Continued) 11 - PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets are restricted to: Investment in perpetuity, the income from which is expendable to support: Instructional activities $ 3,543,821 $ 3,586,532 Academic support activities 40,809 40,809 Loans to students 828, ,085 Capital maintenance and improvements 1,978,245 1,977,768 Scholarships and awards 26,845,711 26,421,796 Any activities of the College 1,479,684 1,473,449 34,716,774 34,345,439 Beneficial interest in perpetual trusts, the income from which is to be used for scholarships and to support general operations 9,021,407 9,355,348 Charitable remainder trusts and gift annuities to be invested in perpetuity, upon death of the beneficiaries the income from which will be available for scholarships and other educational purposes 1,174,789 1,242,275 Revolving student loan funds, the net income from which is required to be added to the funds 1,435,108 1,396,361 $ 46,348,078 $ 46,339, NET ASSETS RELEASED FROM RESTRICTIONS Net assets were released from restrictions during the years ended June 30, 2012 and 2011, as follows: Purpose restrictions accomplished: Instructional expenses $ 197,017 $ 234,967 Academic support expenses 1,006, ,446 Performing Arts building construction 127, ,391 Science Hall renovation project 522, ,418 Student services expenses 169, ,998 Institutional support expenses 43,854 32,799 Capital maintenance and improvements 185, ,516 Auxiliary enterprises expenses - 1,047 Scholarships and awards 2,101,990 1,764,480 $ 4,353,690 $ 5,090,062

25 21 NOTES TO FINANCIAL STATEMENTS (Continued) 13 - FINANCIAL INSTRUMENTS Financial instruments which potentially subject the College to concentrations of credit risk consist of cash, investments, and accounts and student loans receivable. The College places its cash with several high-credit quality financial institutions. At times, the balances in such institutions may exceed the FDIC limit. Accounts receivable consist primarily of amounts due from students for tuition, room and board. Credit is granted to students on an individual basis, after reviewing a student's financial resources and repayment history, and communicating to the student the need to pay the balance in full prior to the completion of the semester. Generally, students are not permitted to register for classes until the account balance from the previous semester has been paid. Student loans consist primarily of loans under the federal Perkins Loan and Nursing Student Loan programs to students meeting federal eligibility requirements. The College provides an allowance for doubtful accounts based upon the credit risk of specific students, historical trends, and other information. Investments consist of a diversified portfolio of publicly traded and government securities, mutual funds, and money market funds, and alternative investments. The investment committee of the board of trustees is responsible for establishing investment policies and selecting investment advisors. Management does not believe significant concentrations of credit risk existed at June 30, RETIREMENT PLAN The College maintains a defined contribution retirement plan (the Plan) under Section 403(b) of the Internal Revenue Code which covers substantially all full-time employees. Effective March 1, 2007, for all new hires, the College makes monthly contributions to the Plan based on 6% of the regular salary of participants. After the completion of five years of participation in the Plan, the contribution rate will be 8% of the regular salary of the participants. For all employees hired prior to March 1, 2007, the College makes monthly contributions to the Plan based on 12% of the regular salary of participants. Retirement expense for the years ended June 30, 2012 and 2011, was $972,621 and $967,053, respectively.

26 ACCOMPANYING INFORMATION

27 SCHEDULE OF FUNCTIONAL EXPENSES Year Ended June 30, 2012 Academic Student Institutional Instructional Support Services Support Salaries $ 5,581,463 $ 930,023 $ 2,529,610 $ 1,355,493 Fringe benefits and payroll taxes 1,287, , ,566 1,143,221 Student employment 110,170 87, ,644 11,184 Professional fees ,338 Supplies 278, , , ,929 Utilities 250, , ,826 64,225 Travel 175, , ,154 1,269 Repairs and maintenance 58,916 32,810 55, ,109 Interest expense ,216 Insurance 35,229 17, ,080 7,424 Publications ,071 18,178 Food service 9,538 14, ,010 26,289 Other contract services 115, , , ,713 Depreciation 502, , , ,122 Miscellaneous 13, , , ,978 $ 8,418,969 $ 2,695,837 $ 5,874,901 $ 4,723,688 See Independent Auditor's Report.

28 22 Fund- Auxiliary Raising Enterprises Total Total $ 467,278 $ 743,670 $ 11,607,537 $ 11,283, , ,162 3,754,235 3,433,227 7,230 93, , , , ,511 88,934 92,252 1,417,378 1,443,837 39, ,872 1,570,564 1,576,059 31,237 18, , ,776 8, , , , ,045 1,113,639 1,141,468 5,220 88, , ,419 53,145 2, , ,777 22,909 1,945,927 2,135,218 2,163,978 11,666 91,237 1,386,308 1,310,589 50, ,409 2,418,553 2,198,726 30,191 1, , ,137 $ 939,271 $ 6,192,449 $ 28,845,115 $ 27,802,505

29 23 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended June 30, 2012 CFDA # Disbursements Major programs: Department of Health and Human Services: Nursing Student Loans $ 162,824 Department of Education: Federal Direct Student Loans ,347,681 Federal Perkins Loan Program ,638,119 Federal Pell Grant Program ,890,960 Federal Supplemental Educational Opportunity Grant ,968 Federal Work-Study Program ,114 Total major programs 12,493,666 Non-major programs: National Aeronautics and Space Administration: Aerospace Education Services Program ,431 Department of Health and Human Services National Institutes of Health: Trans-NIH Recovery Act Reasearch Support ,007 National Center for Research Resources ,000 National Institute of General Medical Sciences ,569 Total expenditures of federal awards $ 12,581,673 See Independent Auditor's Report and Notes to Schedule of Expenditures of Federal Awards.

30 24 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended June 30, BASIS OF PRESENTATION The preceding schedule of expenditures of federal awards includes the federal grant activity of the College and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. 2 - LOANS OUTSTANDING West Virginia Wesleyan College administers two revolving student loan programs, the Perkins Loan and Nursing Student Loan Programs, which are funded through periodic capital contributions from the U.S. Department of Education and U.S. Department of Health and Human Services, respectively, with required matching contributions from the College. Outstanding student loan balances under the Perkins and Nursing Student Loan Programs at June 30, 2012, were $1,638,119 and $162,824, respectively. These outstanding loan balances are also included in the federal expenditures presented on the schedule.