Wittenberg University. Financial Report June 30, 2016

Transcription

1 Financial Report June 30, 2016

2 Contents Independent Auditor's Report 1-2 Financial Statements Statement of Financial Position 3 Statement of Activities 4 Statement of Cash Flows 5 Notes to Financial Statements 6-23 Uniform Guidance Requirements Schedule of Expenditures of Federal Awards 24 Notes to Schedule of Expenditures of Federal Awards 25 Independent Auditor s 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 For Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Findings and Questioned Costs Summary Schedule of Prior Year Findings and Questioned Costs 34 Corrective Action Plan 35 Corrective Action Taken 36

3 Independent Auditor s Report Board of Directors Wittenberg University Springfield, Ohio Report on the Financial Statements We have audited the accompanying financial statements of Wittenberg University which comprise the statement of financial position as of June 30, 2016, and the related statements of activities, and cash flows for the year then ended and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

4 Independent Auditor's Report (Continued) Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wittenberg University as of June 30, 2016, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 16 to the financial statements, the Statement of Activities has been restated to correct a misstatement. Our conclusion is not modified with respect to this matter. Other Matters Our audit, as of and for the year ended June 30, 2016, was conducted for the purpose of forming an opinion on the financial statements as a whole. The schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards is presented for purposes of additional analysis 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 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 16, 2017 on our consideration of Wittenberg University's internal control over financial reporting and on 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. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Wittenberg University's internal control over financial reporting and compliance. Dayton, Ohio March 16,

5 Statement of Financial Position June 30, 2016 Assets Cash and cash equivalents $ 4,749,190 Accounts receivable, net 2,260,219 Grants receivable 279,862 Contributions receivable, net 15,720,765 Prepaid expenses and other assets 302,968 Restricted bond proceeds and reserves 2,371,200 Student notes receivable, net 7,303,574 Investments 93,275,971 Cash surrender value of life insurance 921,099 Beneficial interest in trusts 2,580,875 Land, buildings and equipment, net 62,482,230 Total assets $ 192,247,953 Liabilities and Net Assets Accounts payable and accrued expenses $ 7,082,686 Deferred revenue and deposits 1,693,348 Accounts held on behalf of others 486,636 Lines of credit 1,613,000 Capital lease obligations 1,913,083 Long-term debt 29,922,841 Annuities and trusts payable 2,318,772 Advances from federal government for student loans 4,427,224 Accumulated postretirement benefit obligation - Total liabilities 49,457,590 Net assets: Unrestricted 11,834,827 Temporarily 44,563,647 Permanently 86,391,889 Total net assets 142,790,363 Total liabilities and net assets $ 192,247,953 See notes to financial statements. 3

6 Statement of Activities Year Ended June 30, 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Operating revenue: Tuition and fees $ 64,802,710 $ - $ - $ 64,802,710 Less: scholarships and aid: Institutional (34,327,756) - - (34,327,756) Endowed and other (3,296,729) - - (3,296,729) Net tuition and fees 27,178, ,178,225 Investment return designated for current operations 4,854,947 31,870 72,268 4,959,085 Grants and contracts 1,341, ,341,086 Contributions 3,047,044 15,810, ,148 19,192,100 Bequests 232,320-3,788,685 4,021,005 Other investment income 98,850-28, ,279 Loss on uncollectible pledges - (108,753) (500,000) (608,753) Other 1,116,072 1,933 6,000 1,124,005 Auxiliary enterprise revenue 12,663, ,663,957 Net assets released from restrictions 17,500 (17,500) - - Total operating revenues 50,550,001 15,718,458 3,729,530 69,997,989 Operating expenses: Instruction 14,615, ,615,415 Research 336, ,642 Academic support 2,353, ,353,215 Student services 8,129, ,129,400 Institutional support 9,153, ,153,254 Operation and maintenance of plant 5,392, ,392,712 Auxiliary enterprise expense 5,959, ,959,994 Interest expense 2,147, ,147,819 Depreciation and amortization 3,908, ,908,277 Total operating expenses 51,996, ,996,728 Change in net assets before other changes (1,446,727) 15,718,458 3,729,530 18,001,261 Other changes: Investment return in excess of (less than) amounts designated for current operations (3,953,452) (2,570,425) 109,261 (6,414,616) Change in value of split-interest agreements (3,139) 26,176 43,388 66,425 Net assets released from restrictions 125,373 (189,054) 63,681 - Asset retirement obligation (739,828) - - (739,828) Termination of postretirement benefit obligation 11,344, ,344,780 Defined-benefit plan net gain arising during the period 1,608, ,608,067 Amortization of prior service credit and net gain included in net periodic benefit cost (370,454) - - (370,454) 8,011,347 (2,733,303) 216,330 5,494,374 Change in net assets 6,564,620 12,985,155 3,945,860 23,495,635 Net assets, beginning of year - as originally reported 13,162,703 23,685,996 82,446, ,294,728 Restatement of net assets (Note 16) (7,892,496) 7,892, Net assets, beginning of year - as restated 5,270,207 31,578,492 82,446, ,294,728 Net assets, end of year $ 11,834,827 $ 44,563,647 $ 86,391,889 $ 142,790,363 See notes to financial statements. 4

7 Statement of Cash Flows Year Ended June 30, 2016 Cash flows from operating activities: Change in net assets $ 23,495,635 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 3,908,277 Change in fair value of split-interest agreements (66,425) Net realized and unrealized losses (gains) on investments 3,300,416 (Gain) loss on beneficial interest in perpetual trusts 13,369 Gifts for permanently restricted purposes (3,622,833) Income restricted to long-term investment (34,429) Actuarial loss on annuity and trust obligations 132,088 In-kind gifts (362,291) Changes in: Accounts, student notes and grants receivable (580,616) Contributions receivable (13,527,973) Prepaid expenses and other assets 163,877 Accounts payable and accrued expenses 918,585 Deferred revenue and deposits (153,395) Accounts held on behalf of others (57,777) Accrued postretirement benefit obligation (13,126,928) Net cash provided by operating activities 399,580 Cash flows from investing activities: Proceeds from sale of investments 25,925,537 Purchase of investments (24,764,901) Change in restricted bond proceeds and reserves (116,862) Purchase of property, plant and equipment (1,415,589) Net cash used in investing activities (371,815) Cash flows from financing activities: Increase in federal advances for student loans 2,007 Repayment of long-term debt (1,659,663) Payments on lines of credit (62,630) Payment of capital lease obligations (144,698) Annuity payments (316,730) Gifts for permanently restricted purposes 3,622,833 Income restricted to long-term investment 34,429 Net cash provided by financing activities 1,475,548 Net increase in cash and cash equivalents 1,503,313 Cash and cash equivalents: Beginning 3,245,877 Ending $ 4,749,190 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 2,155,204 See notes to financial statements. 5

8 Notes to Financial Statements Note 1. Nature of Activities and Summary of Significant Accounting Policies Nature of operations: Wittenberg University (University) was founded in 1845 and is a privately endowed educational institution affiliated with the Evangelical Lutheran Church in America (ELCA). The mission of the University is to provide a liberal arts education dedicated to intellectual inquiry and wholeness of a person within a diverse residential community. Reflecting its Lutheran heritage, Wittenberg challenges students to become responsible global citizens, to discover their callings, and to lead personal, professional, and civic lives of creativity, service, compassion and integrity. The University's revenues and other support are derived principally from student tuition and fees, investments, gifts and grants, operation of residence and dining halls and various related activities, and its activities are conducted principally in the Springfield, Ohio area. 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 the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, gains, losses and other changes in net assets during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents: The University considers all liquid investments with original maturities of three months or less to be cash equivalents. At June 30, 2016, the University's cash equivalents consisted of money market funds. The University's cash equivalents exclude uninvested cash that is attributable to the endowment, bond proceeds and reserves held in escrow. Accounts receivable: Accounts receivable are stated at the amount billed to students plus any accrued and unpaid interest. The University provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Accounts receivable are ordinarily due 30 days after the issuance of the invoice. Accounts that are unpaid after the due date incur a late fee of $100. Accounts past due more than 120 days are considered delinquent. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the individual. The University recorded an allowance for doubtful accounts of $94,000 at June 30, Investments and investment return: Investments in equity securities having a readily determinable fair value and in all debt securities are carried at fair value. Investment return includes interest, dividends, and realized and unrealized gains and losses. Investment return that is initially restricted by donor restriction and for which the restriction is satisfied in the same year is included in unrestricted revenue. Other investment return is reflected in the statement of activities as unrestricted, temporarily restricted or permanently restricted based upon the existence and nature of any donor imposed restrictions. Net appreciation/depreciation (realized and unrealized gains and losses) on endowment funds is classified in the accompanying financial statements as explicitly directed by the donor. In the absence of donor direction, net appreciation/depreciation is classified as temporarily restricted revenue until appropriated for spending by the Board of Directors in accordance with the University's interpretation of the State of Ohio Uniform Prudent Management of Institutional Funds Act (Ohio UPMIFA). The University has significant investments in stocks, bonds and mutual funds and is therefore subject to concentrations of credit risk. Investments are made by investment managers engaged by the University and the investments are monitored for the University by an investment advisor. Although the market value of investments is subject to fluctuations on a year-to-year basis, management believes the investment policy is prudent for the long-term welfare of the University. 6

9 Notes to Financial Statements Note 1. Nature of Activities and Summary of Significant Accounting Policies (Continued) Investments in alternative investments include limited partnerships, private equity, hedge funds and real estate partnerships, which do not have readily determinable fair values, and are carried at the University s proportionate share of the fund s net asset value used as a practical expedient. Such fair value estimates are based upon the funds net asset value at the University s year end. At June 30, 2016, approximately $11,300,000 of alternative investments were valued using values provided by the fund manager as of March 31, 2016 adjusted for contributions made and distributions received by the University through June 30, In management s opinion, the stated values approximate fair value. Due to the inherent uncertainty of valuation, the estimated values may differ from values that would have been used had a readily available market value for the investments existed, and such differences may be material. Student notes receivable: Student notes receivable are reported at their outstanding principal balances. Some of these loans have been issued to eligible students under the Federal Perkins Loan Program. The repayment period on these federal loans begins after an initial grace period of either six or nine months once the student ceases to be at least a half-time student. Interest income is recorded as monthly payments are received. The University does not provide an allowance for loan loss on federal loans. The University's share of any uncollectible accounts under the Federal Perkins Loan Program would not be material to the financial statements. Defaulted loans are handled in accordance with the guidelines of the Federal Perkins Loan Program. The University recorded an allowance for doubtful accounts of $49,736 at June 30, Land, buildings and equipment: Land, buildings and equipment are recorded at cost, at date of acquisition or fair value at date of donation, in the case of gifts. Assets are depreciated on a straight-line basis over the estimated useful life of each asset: buildings (50 years), building systems, renovations and land improvements (5-30 years) and equipment (5-10 years). Construction in process is not depreciated until placed in service. When major fixed assets are sold or otherwise disposed of, the carrying value of such assets is removed from the accounts and the net land, buildings and equipment is reduced accordingly. The related gain or loss is reflected in the statement of activities. Assets under capital lease obligations and leasehold improvements are depreciated over the shorter of the lease term or their respective estimated useful lives. Long-lived asset impairment: The University evaluates the recoverability of the carrying value of longlived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. No asset impairment was recognized during the year ended June 30, Asset retirement obligation: ASC 410, Asset Retirement and Environmental Obligations, provides guidance on when an entity is required to recognize a liability for a conditional asset retirement obligation. Management has considered ASC 410, specifically as it relates to its legal obligation to perform asset retirement activities or remediation on its existing properties. Management has determined a 50-year settlement date for the asset retirement obligations relating to asbestos removal from various buildings across campus. The University recognizes the fair value of a liability for legal obligations associated with asset retirement costs in the period in which it is incurred, if a reasonable estimate of the fair value of the obligation can be made. When the liability is initially recorded, the cost of the retirement obligation is capitalized by increasing the capitalized cost associated with the retirement obligation which is then depreciated over the useful live of the related assets. Upon settlement of the obligation, any difference between the cost to settle the asset retirement obligation and the liability recorded is recognized as a gain or loss in the statement of activities. The University reviews its estimate annually and adjusts the recorded liability as needed. The related liability was recorded at June 30, 2016 in the amount of $833,864 and is included in accounts payable and accrued expenses on the statement of financial position. 7

10 Notes to Financial Statements Note 1. Nature of Activities and Summary of Significant Accounting Policies (Continued) Advances from federal government for student loans: Funds provided by the United States government under the Federal Perkins Loan Program are loaned to qualified students. Any funds collected from students may be re-loaned. These funds are ultimately refundable to the government and are recorded as a liability in the accompanying statement of financial position. Temporarily and permanently restricted net assets: Temporarily restricted net assets are those whose use by the University is subject to donor-imposed restrictions that can be fulfilled by actions of the University pursuant to those restrictions or that expire by the passage of time. Permanently restricted net assets have been restricted by donors to be maintained by the University in perpetuity. Generally, the donors of these assets permit the University to use all or part of the investment return on these assets as appropriated. Such assets primarily include the University's permanent endowment funds. Revenue recognition: Tuition and fees: The University records tuition and fees collected prior to the beginning of each academic semester as deferred revenue. Income from tuition and fees is recognized at the beginning of the semester when classes begin. Tuition and fees relating to summer sessions that begin after June 30 are recorded in the statement of financial position as deferred revenue. Contributions and bequests: Gifts of cash and other assets received without donor restrictions are reported as unrestricted revenue and net assets. Gifts received with a donor restriction that limits their use are reported as temporarily or permanently restricted revenue and net assets. When a donor stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Gifts having donor restrictions which are satisfied in the period the gift is received are reported as unrestricted revenue and net assets. Gifts of land, buildings, equipment and other long-lived assets are reported as unrestricted revenue and net assets unless explicit donor restrictions specify how such assets must be used, in which case, the gifts are reported as temporarily or permanently restricted revenue and net assets. Contributions of cash or other assets to be used to acquire land, buildings and equipment are reported as temporarily restricted net assets. Absent explicit donor restrictions for the time long-lived assets must be held, expirations of restrictions resulting in reclassification of temporarily restricted net assets as unrestricted net assets are reported when the long-lived assets are placed in service. Unconditional gifts are reported as pledges receivable and revenue of the appropriate net asset category in the period the promise is made. Unconditional pledges receivable are recognized at the estimated present value of the future cash flows, net of allowances. Conditional gifts depend on the occurrence of a specified future and uncertain event to bind the potential donor and are recognized as assets and revenue when the conditions are substantially met and the gift becomes unconditional. In-kind contributions: In addition to receiving cash contributions, the University receives in-kind contributions from various donors. It is the policy of the University to record the estimated fair value of certain in-kind donations as an expense or asset in its financial statements, and similarly increase contribution revenue by a like amount. 8

11 Notes to Financial Statements Note 1. Nature of Activities and Summary of Significant Accounting Policies (Continued) Government grants: Support funded by government grants is recognized as the University performs the contracted services or incurs outlays eligible for reimbursement under the grant agreements. Any funding received before it is earned is recorded as a refundable advance. Grants receivable represent obligation from various organizations and government entities for program service fees and reimbursements of program expenses in accordance with contracts. Grant activities and outlays are subject to audit and acceptance by the granting agency and, as a result of such audit, adjustments could be required. Auxiliary enterprise revenue: Revenue from auxiliary enterprises is recognized as goods and services are provided. Income taxes: The University is exempt from income taxes under Section 501(a) of the U.S. Internal Revenue Code, and by a similar provision of state law. The University is subject to federal income tax on any unrelated business taxable income. The University's tax years still subject to examination by taxing authorities are years subsequent to The University completed an analysis of its tax position, in accordance with Accounting Standards Codification (ASC) 740, Income Taxes, and determined that no amounts were required to be recognized in the financial statements as of June 30, Functional expenses: Expenses have been classified as program services, management and general and fundraising based on the actual direct expenditures and allocation of indirect costs based on square footage assumptions. Recently issued accounting pronouncements: In May 2014, the FASB issued ASU , Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. In August 2015, the FASB issued ASU which defers the effective date of ASU one year making it effective for annual reporting periods beginning after December 15, The University is currently in the process of assessing what impact this new standard may have on its financial statements and determining what transition method will be used. In May 2015, the FASB issued ASU No , Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This ASU is required to be applied to annual reporting periods beginning on or after December 15, 2015, but early adoption is permitted. ASU No removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share as a practical expedient. The University adopted this pronouncement in 2016 and such adoption did not have a material impact on the financial statements. In April 2015, the FASB issued ASU No , simplifying the Presentation of Debt Issuance Costs. This ASU is required to be applied to financial statements issued for fiscal years beginning after December 15, The amendments in ASU are intended to simplify the presentation of debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the statement of financial position as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The University adopted this pronouncement in 2016 and such adoption did not have a material impact on the financial statements. 9

12 Notes to Financial Statements Note 1. Nature of Activities and Summary of Significant Accounting Policies (Continued) In February 2016, the FASB issued ASU , Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the statement of financial position for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of activities. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The University is currently evaluating the impact of the pending adoption of the new standard on its financial statements. In August 2016, the FASB issued ASU , Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. This accounting standard makes improvements to the information provided in financial statements and accompanying notes of not-for-profit entities. The standard sets forth improvements to net asset classification requirements and the information presented about a not-for-profit entity s liquidity, financial performance and cash flows. ASU will be effective for years beginning after December 15, The University is currently evaluating the impact of the adoption of this standard on its financial statements. In November 2016, the FASB issued ASU , Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force), which provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. ASU will be effective for the Company beginning on January 1, The University is currently evaluating the impact of the adoption of this guidance on its financial statements. Subsequent events: The University has evaluated subsequent events for potential recognition and/or disclosure through March 16, 2017 the date the financial statements were available to be issued. Note 2. Contributions, Net Contributions receivable consisted of the following at June 30, 2016: Due within one year $ 3,681,417 Due in one to five years 12,268,150 Due in more than five years 165,000 16,114,567 Less: discount on pledges (254,517) Less: allowance for uncollectible pledges (139,285) Total contributions receivable, net $ 15,720,765 10

13 Notes to Financial Statements Note 3. Investments and Restricted Bond Proceeds and Investment Return The fair value of investments and restricted bond proceeds and reserves at June 30, 2016 consisted of the following: Money market $ 4,793,327 Uninvested cash 4,334,603 Domestic equities 28,958,308 International equities 11,670,302 Bond funds 10,146,149 Absolute return 17,776,922 Private equity 9,998,825 Real estate 5,597,535 Total investments 93,275,971 Money market mutual funds 117,531 U.S. agency obligations 2,253,669 Total restricted bond proceeds and reserves 2,371,200 $ 95,647,171 Total investment return is comprised of the following as of June 30, 2016: Temporarily Permanently Unrestricted Restricted Restricted Total Interest and dividend income $ 1,117,634 $ 1,082,388 $ 33,569 $ 2,233,591 Net realized and unrealized gains (loss) (117,289) (3,620,943) 176,389 (3,561,843) Total investment return 1,000,345 (2,538,555) 209,958 (1,328,252) Less: Investment return designated for current operations (4,854,947) (31,870) (72,268) (4,959,085) Other investment income (98,850) - (28,429) (127,279) Investment return in excess of (less than) amounts designated for current operations $ (3,953,452) $ (2,570,425) $ 109,261 $ (6,414,616) The following tables present information regarding funds with fair values that are determined using the net asset value (or its equivalent) provided by the fund. Redemption Frequency Redemption Fair Unfunded (If Currently Notice Value Commitments Eligible) Period Absolute return (a) $ 17,776,922 $ - Eligible on an annual basis days Most not eligible, certain Real estate funds (b) 5,597, ,206 available with notice. 60 days Private equity funds (c) 9,998,825 4,398,617 Not eligible. N/A $ 33,373,282 $ 4,937,823 11

14 Notes to Financial Statements Note 3. (a) (b) (c) Investments and Restricted Bond Proceeds and Investment Return (Continued) This category includes investments in hedge funds that take both long and short positions and hedge funds that pursue multiple strategies to diversify risks and reduce volatility. The funds' composite portfolio includes investments in U.S. common stocks, global real asset projects and arbitrage investments. Management of the funds has the ability to shift investments among differing investment strategies. Certain investments representing approximately 23% of the value in this category have commenced an orderly liquidation under the direction of the fund manager. Previously, these investments were under a redemption suspension. The University has received multiple payouts and expects to receive the remaining payouts over the next 18 months. The remaining investments in this category have annual liquidity with a 100-day notice period. This category includes several real estate funds that invest primarily in commercial real estate, energy and natural resources. These investments can never be redeemed. Distributions from each fund will be made as the underlying investments of the funds are liquidated. The underlying assets of the funds are estimated to be liquidated over the next 6 to 12 years. This category includes several private equity funds that invest primarily in distressed opportunities, buyouts and venture capital. These investments can never be redeemed. Instead, the nature of the investments in this category is that distributions are received through the liquidation of underlying assets of the fund. The underlying assets of the fund will be sold at the discretion of the respective fund managers. The underlying assets of the funds are estimated to be liquidated over the next 6 to 12 years. Note 4. Beneficial Interest in Trusts The University is the beneficiary under certain perpetual trusts administered by outside parties. Under the terms of these trusts, the University has the irrevocable right to receive income earned on the trust assets in perpetuity, but never receives the assets held in trust. The estimated value of the expected future cash flows is $817,191, which represents the fair value of the trust assets at June 30, The University is also the beneficiary under various charitable remainder trusts for which it is not the trustee. The University's beneficial interest in these trusts is recorded at fair value, measured by the present value of the estimated expected future benefits to be received when the trust assets are distributed. At June 30, 2016, the University's beneficial interest in remainder trusts administered by outside parties is $1,763,684. Note 5. Land, Buildings and Equipment, Net Land, buildings and equipment consists of the following at June 30, 2016: Land and buildings $ 135,375,161 Equipment 36,268,178 Construction in progress 1,141, ,784,379 Less: accumulated depreciation (110,302,149) $ 62,482,230 12

15 Notes to Financial Statements Note 6. Lines of Credit The University has an unsecured $2,500,000 revolving bank line of credit, which expires on May 6, At June 30, 2016, there was $1,613,000 borrowed against this line. The interest charged varies with the bank's prime rate and is payable monthly. On June 30, 2016, the interest rate was 2.25%. The University had an unsecured $187,785 (formerly $390,328) revolving bank line of credit, which expired on May 12, 2016 and was not renewed. The interest charged varied with the bank's prime rate and was payable monthly. Note 7. Capital Lease Obligations The University leases certain student apartments under capital leases which run through Future minimum lease payments under these leasing arrangements are as follows at June 30, 2016: 2017 $ 315, , , , ,628 Thereafter 1,291,996 2,870,136 Less: amount representing interest (957,053) Present value of future minimum lease payments $ 1,913,083 Property and equipment include the following property under capital leases at June 30, 2016: Buildings $ 3,167,786 Less: accumulated depreciation (1,127,801) $ 2,039,985 Note 8. Long-Term Debt The University s long-term debt consisted of the following at June 30, 2016: Interest Original Oustanding Type of debt Rate Principal Balance 1968 bonds 3% $ 430,000 $ 31, bonds Various 22,340,000 13,555, bonds Various 14,456,074 8,595, bonds Various 11,367,477 8,119,982 48,593,551 30,301,656 Less: Bond issuance costs - (378,815) $ 48,593,551 $ 29,922,841 13

16 Notes to Financial Statements Note 8. Long-Term Debt (Continued) The 1968 bond indenture provides for the establishment of specified sinking funds and, in most cases, renewal and replacement reserves. The funding of the debt service requirements for these bond indentures will be derived from current operations and the appropriate sinking funds. The bonds mature at varying amounts through November 1, Interest is payable semiannually on November 1 and May 1 each year. On April 1, 1999, the Ohio Higher Educational Facility Commission (Commission) issued $22,340,000 of Revenue Bonds on behalf of the University (the 1999 Series Bond Issue). These bonds mature at varying amounts through April 1, 2029, and bear interest from inception at rates ranging from 5.00% to 5.25%. The principal and interest payments are due in semiannual payments on December 1 and June 1 of each year. The 1999 Series Bond Issue proceeds were used to tender 1995 debt and satisfy the release from the current bondholder. Remaining bond proceeds were used to accommodate the cost of construction of Hollenbeck Hall, a humanities center. These bonds are insured by AMBAC Assurance Corporation. On July 15, 2001, the Commission issued $14,456,074 of Revenue Bonds on behalf of the University as part of the Wittenberg University 2001 Project. The par amount of these bonds was $14,395,000 with a premium amount of $61,074. The bonds mature at varying amounts through December 1, 2026, and bear interest from inception at rates ranging from 5.00% to 5.50%. Interest is payable semiannually on December 1 and June 1 of each year. The proceeds of the bonds were used to fund the renovation of the University's science building. On May 5, 2005, the Commission issued $11,367,477 of Revenue Bonds on behalf of the University. The par amount of these bonds was $11,225,000 with a premium amount of $142,477. These bonds mature at varying lengths through December 1, 2029, and bear interest from inception at rates ranging from 4.30% to 5.00%. The principal and interest payments are due in semiannual payments on December 1 and June 1 of each year. The proceeds of the bonds were used to fund the construction of a new residence hall. In connection with the Ohio Higher Educational Facility Commission Revenue Bonds, the University is required to maintain certain financial covenants. The University is in compliance with these covenants, including obtaining necessary waivers. In conjunction with the issuance of the Ohio Educational Facility Commission Revenue Bonds, the University entered into certain lease agreements that provide the mechanism through which qualifying capital projects are financed, proceeds are advanced and the bonds are repaid. Additionally, the Ohio Educational Facility Revenue Bonds are secured by revenues and certain plant assets. The future maturities of long-term debt for the University are as follows: 2017 $ 1,777, ,872, ,961, ,061, ,166,785 Thereafter 20,460,731 $ 30,301,656 14

17 Notes to Financial Statements Note 9. Annuities and Trusts Payable The University has been the recipient of numerous gift annuities, which require future payments to donors or their named beneficiaries. The assets received from the donors are recorded at fair value. The University has recorded liabilities at June 30, 2016 of $914,689, which represents the present value of the future annuity obligations. The liabilities have been determined using the discount rate applicable on the date the trust was established which was 5% to 11% for The University also administers various charitable remainder trusts. A charitable remainder trust provides for the payment of distributions to the grantor or other designated beneficiaries over the trust's term (usually the designated beneficiary's lifetime). At the end of the trust's term, the remaining assets are available for the University's use. Assets held in the charitable remainder trusts are recorded at fair value of $2,575,827 as of June 30, 2016 and are included in investments on the University's statement of financial position. The University has recorded a liability at June 30, 2016 of $1,404,083, which represents the present value of future obligations to make distributions to the designated beneficiaries. On an annual basis, the University revalues the related liabilities for distributions to the designated beneficiaries based on certain actuarial assumptions. The present value of the estimated future payments is calculated using discount rates ranging from 5.0% to 11.0% and applicable mortality tables. The portion of the trust attributable to the future interest of the University is recorded in the statement of activities as temporarily restricted contributions in the period the trust is established. Note 10. Pension and Other Postretirement Benefit Plans Retirement benefits are provided for the University's staff through Teachers Insurance and Annuity Association (TIAA), a national organization used to fund pension benefits for educational institutions. Under this arrangement, the University and plan participants make annual contributions to TIAA to purchase individual annuities equivalent to retirement benefits earned. The University's share of the cost of these benefits was approximately $977,000 in The University had two noncontributory defined-benefit postretirement plans that provide health and life insurance benefits for eligible retired employees and their dependents. Effective January 1, 2016, the Board approved the elimination of all postretirement benefits under this plan. The University uses a June 30 measurement date for the plans. Other significant balances and costs are: Health Benefits Life Insurance Benefits paid $ 282,946 $ 830 Net periodic benefit costs 44,587 (2,832) The following amounts have been recognized in the statement of activities for the year ended June 30, 2016: Health Life Benefits Insurance Amounts arising during the period: Net gain $ 1,571,058 $ 37,008 Amounts reclassified as components of net periodic benefit cost of the period: Net gain $ (363,603) $ (6,851) 15

18 Notes to Financial Statements Note 11. Net Assets Temporarily restricted net assets at June 30, 2016 are available for the following purposes or periods: General operations/time restricted $ 8,833,829 Instruction and academic support 4,453,074 Institutional support 1,971,736 Plant, property and equipment 18,588,776 Student scholarships and awards 8,779,730 Library 1,204,071 Student services 412,389 Unitrusts and pooled income 320,042 $ 44,563,647 Permanently restricted net assets at June 30, 2016 are restricted to: Investment in perpetuity, the income of which is expendable to support: General operations $ 13,546,439 Instruction and academic support 9,672,877 Institutional support 7,191,517 Plant operation and maintenance 1,246,337 Student scholarships and awards 42,956,415 Library 3,938,195 Student loans 6,023,057 Annuities, unitrusts and pooled income 1,817,052 $ 86,391,889 Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by donors. Purpose restrictions accomplished: Acquisition or construction of property and equipment $ - General operations $ 142, ,873 16

19 Notes to Financial Statements Note 12. Endowment The University's endowment consists of various individual funds established for a variety of purposes. The endowment includes both donor-restricted endowment funds and funds designated by the governing body to function as endowments (board-designated endowment funds). As required by accounting principles generally accepted in the United States of America (GAAP), net assets associated with endowment funds, including board-designated endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions. The University's governing body has interpreted the State of Ohio Uniform Prudent Management of Institutional Funds Act (Ohio UPMlFA) as requiring preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor restrictions to the contrary. As a result of this interpretation, the University classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of donor-restricted endowment funds is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the University in a manner consistent with the standard of prudence prescribed by Ohio UPMIFA. In accordance with Ohio UPMIFA, the University considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 1. Duration and preservation of the fund 2. Purposes of the University and the fund 3. General economic conditions 4. Possible effect of inflation and deflation 5. Expected total return from investment income and appreciation or depreciation of investments 6. Other resources of the University 7. Investment policies of the University The composition of net assets, by type, of endowment fund at June 30, 2016 is as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ (5,938,840) $ 15,155,124 $ 78,700,586 $ 87,916,870 Board-designated endowment funds 8,218, ,218,426 $ 2,279,586 $ 15,155,124 $ 78,700,586 $ 96,135,296 17

20 Notes to Financial Statements Note 12. Endowment (Continued) Changes in endowment net assets for the year ended June 30, 2016 are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year: $ 7,627,743 $ 17,741,114 $ 74,542,267 $ 99,911,124 Investment return: Investment income 951,415 1,082,388 5,154 2,038,957 Net appreciation (depreciation) 261,167 (3,620,943) 177,537 (3,182,239) Total investment return 1,212,582 (2,538,555) 182,691 (1,143,282) Contributions and other changes 448 4,837 3,580,989 3,586,274 Other transfers (46,240) (52,272) 394, ,127 Appropriation for debt service (1,660,000) - - (1,660,000) Appropriation of endowment assets for expenditure (4,854,947) - - (4,854,947) Endowment net assets, end of year $ 2,279,586 $ 15,155,124 $ 78,700,586 $ 96,135,296 Amounts of donor-restricted funds classified as permanently and temporarily restricted net assets at June 30, 2016 consisted of: Permanently restricted net assets, portion of perpetual endowment funds required to be retained by explicit donor stipulation or Ohio UPMIFA $ 78,700,586 Temporarily restricted net assets, portion of endowment funds subject to a time restriction under Ohio UPMIFA: With purpose restrictions $ 7,307,030 Without purpose restrictions 7,848,094 $ 15,155,124 From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level the University is required to retain as a fund of perpetual duration pursuant to donor restriction or Ohio UPMIFA. In accordance with GAAP, deficiencies of this nature are reported in unrestricted net assets and aggregated $5,938,840 at June 30, These deficiencies resulted from unfavorable market fluctuations that occurred shortly after investment of new permanently restricted contributions and continued appropriation for certain purposes that was deemed prudent by the governing body. The University has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs and other items supported by its endowment while seeking to maintain the purchasing power of the endowment. Endowment assets include those assets of donor-restricted endowment funds the University must hold in perpetuity or for donor-specified periods, as well as those of board-designated endowment funds. 18

21 Notes to Financial Statements Note 12. Endowment (Continued) To satisfy its long-term rate of return objectives, the University relies on a total return strategy in which investment returns are achieved through both current yield (investment income such as dividends and interest) and capital appreciation (both realized and unrealized). The University targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. The University has a policy (the spending policy) of appropriating for expenditure each year 5.5% of its endowment fund's average fair value over the three years up to and including the year in which expenditure is planned. The policy allows for appropriations in excess of 5.5% based upon approval by the board of directors. In establishing this policy, the University considered the long-term expected return on its endowment. Accordingly, over the long-term, the University expects the current spending policy to allow its endowment to grow at an acceptable level. This is consistent with the University's objective to maintain the purchasing power of endowment assets held in perpetuity or for a specified term, as well as to provide additional real growth through new gifts and investment return. In fiscal years 2010 through 2014, the University appropriated amounts from its endowment in excess of its budgeted spend of 5.5%, $6,006,861 of which was drawn from temporarily restricted funds. On December 14, 2015, the Board approved a resolution to spend solely from its unrestricted endowment, beginning in fiscal year 2015, until such time as its restricted endowment funds have been replenished. As of June 30, 2016, all amounts appropriated in excess had been restored to the endowment. Note 13. Functional Expenses The following is a list of expenses, by program, for the year ended June 30, 2016 is as follows: Instruction $ 19,122,383 Research 336,642 Academic support 3,131,193 Student services 9,634,492 Institutional support 3,221,297 Auxiliary enterprise expense 8,727,081 Total program activities 44,173,088 Management and general 5,537,477 Fundraising 2,286,163 Total $ 51,996,728 19