WARREN WILSON COLLEGE ASHEVILLE, NORTH CAROLINA CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2016 AND 2015 AND INDEPENDENT AUDITORS' REPORT

WARREN WILSON COLLEGE ASHEVILLE, NORTH CAROLINA CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2016 AND 2015 AND INDEPENDENT AUDITORS' REPORT

CONTENTS Exhibit Page No. INDEPENDENT AUDITORS' REPORT FINANCIAL STATEMENTS: CONSOLIDATED STATEMENTS OF FINANCIAL POSITION A 3 CONSOLIDATED STATEMENTS OF ACTIVITIES B 4 CONSOLIDATED STATEMENTS OF CASH FLOWS c 6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7 SUPPLEMENTARY INFORMATION: Schedule COMBINING SCHEDULE OF FINANCIAL POSITION (NON-GAAP) 22 COMBINING SCHEDULE OF ACTIVITIES (NON-GAAP) 2 23 COMPLIANCE SECTION: INDEPENDENT AUDITORS' 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 24 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR THE MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB UNIFORM GUIDANCE 26 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR THE MAJOR STATE PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB UNIFORM GUIDANCE 28 AND THE STATE SINGLE AUDIT IMPLEMENTATION ACT SCHEDULE OF FINDINGS AND QUESTIONED COSTS 3 30 SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS 4 32 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS 5 34

CRAWLEY, LEE & COMPANY, P.A. Certified Public Accountants and Management Consultants PO. Box 5595Asheville, NC 28813 I 828.274.5524 I FAX: 828.274.5591 Office: 59 Turtle Creek Drive Asheville, NC 28803 I crawleyleeandco.com INDEPENDENT AUDITORS' REPORT The Board of Trustees Warren Wilson College Asheville, North Carolina Report on the Financial Statements We have audited the accompanying consolidated financial statements of Warren Wilson College (a nonprofit organization), which comprise the consolidated statements of financial position as of June 30, 2016 and 2015, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Warren Wilson College as of June 30, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

The Board oftrustees Warren Wilson College Page Two Emphasis of Matter As explained in Note C, the financial statements include investments valued at $8,045,487 (1 0% of net assets), whose fair values have been estimated by management in the absence of readily determinable fair values. Management's estimates are based on information provided by the fund managers. Other Matters Report on Supplementary and Other Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying schedules 1-5, including the schedule of expenditures of federal and State awards, as required by Title 2 U.S. Code of Federal Regulations 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 ofthe consolidated 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 consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated 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 consolidated 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 September 2 2016, on our consideration of Warren Wilson College'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. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Warren Wilson College's internal control over financial reporting and compliance. Asheville, North Carolina September 2, 2016 2

Exhibit A WARREN WILSON COLLEGE CONSOLIDATED STATEMENTS OF FINANCIAL POSITION JUNE 30,2016 AND 2015 ASSETS 2016 2015 Current assets: Cash and cash equivalents $ 7,284,818 $ 9,110,023 Student accounts and student notes receivable, net 84,467 71,130 Grant receivable 9,926 Bequest receivables 192,861 558,111 Other receivables 465,104 390,635 Promises to give, net 462,999 155,372 Prepaid expenses 654,893 303,460 Inventory 152,228 311,372 Total current assets 9,307,296 10,900,103 Property and equipment, net 30,365,341 30,640,469 Other assets: Cash and cash equivalents restricted to investment in property and equipment 2,876,274 2,637,454 Cash and cash equivalents restricted for debt service 722,747 Investments 53,338,411 56,159,533 Student notes receivable, net 55,664 58,832 Other notes receivable 169,947 166,750 Property held for resale 1,153,277 257,000 Promises to give, net 85,646 71,002 Other assets 19,374 25,297 Beneficial interest in charitable remainder and perpetual trusts 5,330,544 5,745,129 Construction in progress 895,405 346,380 Total other assets 64,647,289 65,467,377 Total assets $ 104,319,926 $ 107,007,949 LIABILITIES AND NET ASSETS Current liabilities: Line of credit $ 671,935 $ Notes payable 211,174 12,237,848 Obligation under capital lease 46,906 66,582 Accounts payable, deposits and accrued expenses 3,049,069 2,981,090 Deferred revenue 1,053,918 970,508 Swap instrument 1,448,950 Annuity payable 62,638 69,541 Total current liabilities 5,095,640 17,774,519 Other liabilities: Notes payable, net of current portion 16,158,826 Obligation under capital lease, net of current portion 79,980 127,484 Annuity payable 384,115 419,315 Other liabilities 157,916 241,703 Total other liabilities 16,780,837 788,502 Total liabilities 21,876,477 18,563,021 Net assets: Unrestricted 26,407,019 29,627,136 Temporarily restricted 24,941,176 28,109,614 Permanently restricted 31,095,254 30,708,178 Total net assets 82,443,449 88,444,928 Total liabilities and net assets $ 104,319,926 $ I 07,007,949 The accompanying notes are an integral part of these financial statements. 3

Exhibit B WARREN WILSON COLLEGE CONSOLIDATED STATEMENTS OF ACTIVITIES YEARS ENDED JUNE 30,2016 AND 2015 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Revenues: Tuition and fees $ 24,096,553 $ $ $ 24,096,553 Less: Scholarships and fellowships 12,706,429 12,706,429 Net tuition and fees 11,390,124 11,390,124 Sales and services of auxiliary enterprises 6,371,813 6,371,813 Swannanoa Gathering 1,016,165 1,016,165 Investment income (loss), net 132,265 132,265 Endowment income (loss) appropriated for operations 847,854 2,889,931 3,737,785 Other income 856,585 856,585 Total revenues 20,614,806 2,889,931 23,504,737 Public support: Contributions 781,676 1,205,785 1,987,461 Federal grants 2,662,767 2,662,767 State grants 581.756 581,756 Total public support 781,676 4,450,308 5,231,984 Net assets released from restriction for operating purposes 7,490,556 (7,490,306) (250) Total revenues, gains and other support 28,887,038 (150,067) (250) 28,736,721 Expenses: Educational and program services: Instruction 10,545,549 10,545,549 Public service 955,973 955,973 Student services 5,051,852 5,051,852 Auxiliary enterprises 6,013,541 6,013,541 Supporting services: Academic support 2,495,057 2,495,057 Institutional support 6,773,051 6,773,051 Total expenses 31,835,023 31,835,023 Change in net assets from operating activities (2,947,985) (150,067) (250) (3,098,302) Nonoperating activities: Contributions 174,666 603,463 778,129 Investment income (loss), net 144,589 694,844 676 840,109 Realized and unrealized gains (losses) on investments (138,251) (570,744) (708,995) Endowment income (loss) appropriated for operations (847,854) (2,889,931) (3,737,785) Loss on sale of assets (33,993) (33,993) Change in interest rate swap agreement (6,550) (6,550) Change in split-interest agreements (9,806) (159,355) (216,813) (385,974) Gain from unusual item 351,882 351,882 Net assets released from restriction for capital purposes 267,851 (267,851) Change in net assets from nonoperating activities (272,132) (3,018,371) 387,326 (2,903, 177) Change in net assets (3,220, 117) (3, 168,438) 387,076 ( 6,00 I,4 79) Net assets at beginning of year 29,627,136 28, I 09,614 30,708,178 88,444,928 Net assets at end of year $ 26,407,019 $24,941,176 $ 31,095,254 $ 82,443,449 The accompanying notes are an integral part of these financial statements. 4

Exhibit B WARREN WILSON COLLEGE CONSOLIDATED STATEMENTS OF ACTIVITIES- CONTINUED YEARS ENDED JUNE 30,2016 AND 2015 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Revenues: Tuition and fees $ 25,767,828 $ $ $ 25,767,828 Less: Scholarships and fellowships 13,173,280 13,173,280 Net tuition and fees 12,594,548 12,594,548 Sales and services of auxiliary enterprises 6,921,687 6,921,687 Swannanoa Gathering 1,021,801 1,021,801 Investment income (loss), net 126,672 126,672 Endowment income (loss) appropriated for operations 890,188 2,972,849 3,863,037 Other income 869,355 24,677 894,032 Total revenues 22,424,251 2,997,526 25,421,777 Public support: Contributions 915,397 510,402 1,425,799 Federal grants 2,665,125 2,665,125 State grants 618,000 618,000 Total public support 915,397 3,793,527 4,708,924 Net assets released from restriction for operating purposes 9,095,158 (9,094,658) (500) Total revenues, gains and other support 32,434,806 (2,303,605) (500) 30,130,701 Expenses: Educational and program services: Instruction 10,631,220 10,631,220 Public service 969,925 969,925 Student services 5,480,610 5,480,610 Auxiliary enterprises 6,222,715 6,222,715 Supporting services: Academic support 2,214,295 2,214,295 Institutional support 6,524,260 6,524,260 Total expenses 32,043,025 32,043,025 Change in net assets from operating activities 391,781 (2,303,605) (500) (1,912,324) Nonoperating activities: Contributions 1,526,959 510,319 2,037,278 Investment income (loss), net 43,016 271,773 209 314,998 Realized and unrealized gains (losses) on investments 847,191 3,407,130 4,254,321 Endowment income (loss) appropriated for operations (890,188) (2,972,849) (3,863,037) Loss on sale of assets (27) (27) Loss on property held for resale (3,998) (3,998) Change in interest rate swap agreement 70,301 70,301 Change in split-interest agreements (38,689) (47,737) (179,834) (266,260) Gain from unusual item 426,103 426,103 Change in net assets from nonoperating activities 453,709 2,185,276 330,694 2,969,679 Change in net assets 845,490 (118,329) 330,194 1,057,355 Net assets at beginning of year 28,781,646 28,227,943 30,377,984 87,387,573 Net assets at end of year $ 29,627,136 $ 28,109,614 $ 30,708,178 $ 88,444,928 The accompanying notes are an integral part ofthese financial statements.

Exhibit C WARREN WILSON COLLEGE CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30,2016 AND 2015 2016 2015 Cash flows from operating activities: Change in net assets $ (6,001,479) $ 1,057,355 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 2,167,385 2,091,420 Loss on disposition of assets 33,993 27 Realized and unrealized losses (gains) on investments 716,759 (4,226,585) Present value adjustment on unconditional promises to give 1,253 (8,328) Noncash contributions (478,647) Bad debt provision 71,508 25,519 Change in beneficial interest in charitable remainder and perpetual trusts 414,585 234,291 Change in swap instrument 6,550 (70,301) Contributions restricted for long-term purposes: Unconditional promises to give (494,205) (29, 160) Contribution revenue restricted for endowment (603,463) (510,319) Investment earnings restricted for long-term purposes (676) (209) (Increase) decrease in operating assets: Grant receivable and other receivables (84,395) (154,731) Inventory 159,144 (30,587) Prepaid expenses (351,433) 17,991 Bequest receivables and other assets 371,173 (101,647) Increase (decrease) in operating liabilities: Accounts payable, deposits and accrued expenses 67,979 651,864 Deferred revenues 83,410 27,040 Other liabilities (125,890) (10,270) Net cash used by operating activities (3,567,802) (1,515,277) Cash flows from investing activities: Construction in progress (717,319) (150,376) Purchase of property and equipment (1,547,534) (1,276,662) Purchase of property held for resale (223,843) (257,000) Net change in student notes receivable (59,032) (37,386) Net change in other notes receivable (3, 197) (3, 196) Purchase of investments (29,524,850) (100,149,017) Proceeds from sale of assets 1,450 Proceeds from sale of investments 31,629,213 103,441,725 Purchases from assets restricted for long-term purposes (961,567) (1,066,145) Net cash provided (used) by investing activities ( 1,406,6791 501,943 Cash flows from financing activities: Proceeds from contributions restricted for: Investment in art department enhancements 684,072 Investment in property and equipment and other purposes 116,036 250,173 Investment in endowment 635,463 511,819 Payments on notes payable and capital leases (493,265) (793,928) Proceeds from issuance of debt 2,890,366 Collection of investment earnings restricted for long-term purposes 676 209 Net cash provided by financing activities 3,149,276 652,345 Decrease in cash and cash equivalents (1,825,205) (360,989) Cash and cash equivalents at beginning of year 9,110,023 9,471,012 Cash and cash equivalents at end of year $ 7,284,818 $ 9,110,023 The accompanying notes are an integral part of these financial statements. 6

WARREN WILSON COLLEGE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30,2016 AND 2015 Note A- Organization and funding: Warren Wilson College is an independent, fully accredited, four-year, liberal arts, primarily residential college located just outside Asheville, N011h Carolina. The mission of Warren Wilson College is to provide an education combining liberal arts study, work, and service with a strong commitment to environmental responsibility and experiential opportunities for international and cross-cultural understanding in a setting that promotes wisdom, spiritual growth, and contribution to the common good. The College is funded primarily by tuition from student enrollment, alumni and other contributions, federal and state grants, and investment income. On June 18, 2015, the College formed Warren Wilson College Foundation, LLC (a limited liability company) of which the College is the sole member. On January 7, 2016, the College sold land and buildings to the Warren Wilson College Foundation, LLC for $16,158,129 and leases the property from the LLC for the College's use. Note B- Summary of significant accounting policies: Basis of accounting: The consolidated financial statements of the College have been prepared utilizing the accrual basis of accounting and in accordance with accounting principles generally accepted in the United States of America. Principles of consolidation: The consolidated financial statements are comprised of the College's activities and the activities of its affiliated organization, Warren Wilson College Foundation, LLC, which is wholly-owned and operated by the College. All material intercompany accounts and transactions have been eliminated in consolidation. Financial statement presentation: The College has presented its consolidated financial statements in accordance with generally accepted accounting principles for not-for-profit organizations. Under this guidance, the College is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Contributions: Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and/or nature of any donor restrictions. Donor restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or the purpose of the restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated Statements of Activities as net assets released from restrictions. Receivables: Receivables are stated at unpaid balances less an allowance for doubtful accounts. The College employs two methods of valuing receivables, the direct write-off and the allowance method. The direct write-off method recognizes a bad debt expense only when a specific account is determined to be uncollectible. The allowance method provides for estimation of a percentage of each period's ending accounts receivable, which will prove uncollectible based on prior experience. The amount determined is recognized as a period cost. The College employs the direct write-off method for College loan funds and the allowance method for the Perkins Loan Fund, student accounts receivable, and the unconditional promises to give. An allowance for uncollectible accounts for student accounts receivable and unconditional promises to give is provided based on historical bad debt experience and evaluation of the age of the accounts. The allowance for the Perkins Loan Fund is estimated at 3% of the outstanding balance. Interest income on student notes receivable is accrued based on 1.5% of the unpaid balance of the note receivable. Interest income on the Perkins Loan Fund is accrued from the beginning of the repayment period on 5% ofthe unpaid balance. 7

Note B- Summary of significant accounting policies- continued: Split-interest agreements: Gift annuity trusts: The College administers various gift annuity trusts. A gift annuity trust provides for the payment of a prescribed amount 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 College's use. Upon termination, the principal of each annuity is transferred to the net asset group designated by the grantor or, in absence of such a designation, to the unrestricted net assets designated for endowment. In the period the trust is established, the portion of the trust attributable to the future interest of the College is recorded in the consolidated Statements of Activities as contributions in the net assets class in which the assets will be placed at the end of the trust. Assets held in the gift annuity trusts are recorded at fair market value in the College's consolidated Statements of Financial Position. On an annual basis, the College revalues the liability based on actuarial assumptions. The present value of the estimated future payments is calculated using a discount rate based on the annuity interest rate for all annuities prior to 1991 and the prevailing federal midterm rate for all annuities after 1991 and applicable mortality tables. Charitable remainder trusts: The College is also the beneficiary of various charitable remainder trusts of which it is not the trustee. Upon the College's notification of such a trust, a beneficial interest in charitable remainder trust and temporarily or permanently restricted contribution revenue is recorded at the present value of the expected future benefits to be received from the College's share of the trust's assets. The College recognized no contribution revenue from charitable remainder trusts in 2016 and 2015. The change in the value ofthe split-interest agreements is $(143,100) and $(52,801) in 2016 and 2015, respectively. Beneficial interest in perpetual trusts: The College is the beneficiary of perpetual trusts. The assets are to be held indefinitely in trust. Upon the College's notification of such a trust, permanently restricted contribution revenue is recorded at the present value of the estimated future cash receipts from the College's share of the trust's assets. The College recognized no revenue for perpetual trusts for 2016 and 2015. The gain (loss) on the trusts is $(271,485) and $(181,490) in 2016 and 2015, respectively. Investments: Investments in certificates of deposit and time deposits are stated at cost. Investments in equity securities that have readily determinable fair values and all debt securities are stated at fair value as provided by external investment managers based on quoted market values. Investments in alternative investments, which do not have readily determinable fair values, are valued at the net asset value per share provided by the fund managers. Donated marketable securities are recorded as contributions at their market values at date of receipt. Fair value measurements: Fair value represents the price that would be received upon the sale of an asset or paid upon the transfer of a liability in an orderly transaction between market participants as of the measurement date. Generally accepted accounting principles establishes a fair value hierarchy that prioritizes inputs used to measure fair value into three levels: Level 1 -quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 - observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 -unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the College utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. Levels are determined based on the aforementioned hierarchy. Inventories: Farm animals are valued by the unit-livestock price method of valuing raised livestock. Under this method, raised livestock, depending on age and kind, is valued at market. 8

Note B - Summary of significant accounting policies- continued: Prope11y and equipment: Expenditures for equipment having a unit cost of $1,500 and building improvements having a cost of $25,000 or more are capitalized. Property and equipment are stated at cost or amounts assigned at date of gift, less accumulated depreciation, computed on a straight-line basis over the estimated useful life. Inexhaustible collections are not depreciated. The estimated useful lives are as follows: Buildings and improvements Equipment 5-30 years 3-7 years During the year ended June 30, I 991, the College inventoried its buildings and corrected their recording to approximate historical cost. Likewise, during the year ended June 30, 1992, equipment was recorded in the same manner. Intangible assets: The College amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives. Intangible assets include those costs incurred by the College that were directly associated with the negotiation and consummation of the note payable with the United States Department of Agriculture (USDA). These costs include the commissions, legal fees, and other costs associated with negotiating this loan. Intangible assets are being amortized using the straight-line method over 40 years, the life of the loan. Donated services and materials: Through June 30, 1994 the College recorded all donated materials at $0.50. Beginning July I, 1994 all donated materials with an appraisal value of at least $5,000 are recorded at fair market value and the donations of lesser value are recorded at $0.50. Donated services are considered immaterial and are not recorded. Income taxes: Warren Wilson College is a nonprofit corporation under the laws of the State of North Carolina. It has qualified for exemption from federal income taxes under Section 50l(c)(3) of the Internal Revenue Code. Accordingly, no provision for income taxes has been made in the financial statements. In addition, the College qualifies for the charitable contribution deduction under Section 170(b )(I )(A) and has been classified as an organization that is not a private foundation under Section 509(a)(2). Tax positions: The College's policy is to evaluate all tax positions and to consult with experts to identify those that may be considered uncertain. All identified material tax positions will be assessed and measured by a reasonably possible threshold to determine if the benefit of an uncertain tax position should be recognized in the financial statements. Any changes in the amount of a tax position will be recognized in the period the change occurs. The College is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code, except on income derived from unrelated business activities. The College's federal Returns of Organization Exempt from Income Tax (Form 990) for 2015, 2014, and 2013 are subject to examination by the IRS, generally for three years after they are filed. The College's federal Exempt Organization Business Income Tax Returns (Form 990T) for 2015,2014, and 2013 are subject to examination by the IRS, generally for three years after they are filed. Promises to give: Unconditional promises to give are recognized as revenues or gains in the period received and as assets, decreases of liabilities, or expenses depending on the form of the benefits received. Unconditional promises to give to be received in more than one year are estimated based on future cash flows discounted at 5% for both 2016 and 2015. Conditional promises to give are not recognized, as they do not meet the criteria for recognition. Cash and cash equivalents: For the purpose of the Consolidated Statements of Cash Flows, the College considers all ready asset and money market account balances with an initial maturity of three months or less to be cash equivalents, except those that are part of an investment portfolio. Cash and cash equivalents received with donorimposed restrictions limiting their use to long-term purposes are not considered cash and cash equivalents for purposes of the Consolidated Statements of Cash Flows. 9

Note B- Summary of significant accounting policies- continued: Derivatives: Derivative instruments are recorded on the Consolidated Statements of Financial Position at their fair value. The gain or loss resulting from changes in the fair value is reported in the Consolidated Statements of Activities in the period of change. The College's interest rate risk management strategy is to stabilize cash flow requirements by maintaining interest rate swap contracts to convert variable-rate debt to a fixed rate. Tuition, scholarships, and financial aid: Gross tuition and fees reflect the College's normal tuition rates for all students. Scholarships given on the basis of financial need are netted against gross tuition and fees to the extent they exceed incremental costs incurred. Employees and dependents of employees who attend the College are not required to pay tuition. The amount is included in gross tuition and in the same functional expense category as the employee's compensation in the Consolidated Statements of Activities. Functional expenses: The College allocates its expenses on a functional basis among its various programs and support services. Expenses that can be identified with a specific program or support service are allocated directly according to their nature and expenditure classification. Other expenses that are common to two or more functions are allocated based on management's estimate of the program activities benefited. Academic and institutional support expenses include those expenses that are not directly identifiable with any other specific function but provide for the overall support and direction of the College. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles 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 and expenses during the reporting period. Actual results could differ from those estimates. Subsequent events: Subsequent events have been evaluated through September 2, 2016, the date the consolidated financial statements were available to be issued. Note C- Investments: The College's investments and unrealized gains (losses) on investments at June 30 are as follows: 2016 Fair Unrealized Cost Value Gains (Losses) Cash equivalents $ 4,065,768 $ 4,065,768 $ Corporate bonds/notes 14,390,430 14,628,815 238,385 Corporate stocks 482,441 467,940 (14,501) Mutual funds 26,866,025 26,130,401 (735,624) Alternative investments 8,500,000 8,045,487 (454,513) $ 54,304,664 $ 53,338,411 $ (966,253) 2015 Fair Unrealized Cost Value Gains (Losses) Cash equivalents $ 1,729,946 $ 1,729,946 $ Corporate bonds 417,350 407,235 (10,115) Corporate stocks 271,630 274,206 2,576 Mutual funds 50,098,331 49,548,146 (550, 185) Alternative investments 4,200,000 4,200,000 $ 56,717,257 $ 56,159,533 $ (557,724) 10

Note C- Investments- continued: The following schedule summarizes the investment return and its classification in the consolidated statements of activities for the years ended June 30: Investment earnings, net Realized gains (losses) Unrealized losses Investments with Readily Determinable Fair Values $ 972,374 (307,289) 52,807 717,892 2016 Alternative Investments $ (454,513) (454,513) $ Total 972,374 (307,289) (401,706) 263,379 Annuity investments included in change in split-interest agreements: Investment earnings, net Realized gains Unrealized losses $ 15,786 (942) (6,822) 8,022 725,914 $ (454,513) $ 15,786 (942) (6,822) 8,022 271,401 Investment earnings, net Realized gains (losses) Unrealized losses Investments with Readily Determinable Fair Values $ 441,670 (1,231,155) (758,353) (1,547,838) 2015 Alternative Investments $ 6,243,829 6,243,829 Total $ 441,670 5,012,674 (758,353) 4,695,991 Annuity investments included in change in split-interest agreements: Investment earnings, net Realized gains Unrealized losses $ 46,367 9,242 (36,978) 18,631 (1,529,207) $ 6,243,829 $ 46,367 9,242 (36,978) 18,631 4,714,622 Expenses relating to investment revenues, including custodial fees and investment advisory fees, amounted to $294,067 and $1,436,769 for the years ending June 30, 2016 and 2015, respectively. Of these fees $173,866 and $272,092 were paid directly as advisory fees, for the years ending June 30,2016 and 2015, respectively. Management fees paid to US Trust totaled $1,642 and $1,449 for the years ending June 30, 2016 and 2015, respectively. Management fees paid to the Presbyterian Foundation totaled $6,501 and $53,128 for the years ending June 30,2016, and 2015, respectively. The balance ofthe fees totaling $112,058 and $1,110,100 were paid through fund activity to individual fund managers for alternative investments for the years ending June 30,2016 and 2015, respectively. 11

Note C- Investments- continued: The College's holdings in alternative investments at June 30 are as follows: 2016 Redemption Frequency Unfunded (if currently Redemption Fair Value Commitments eligible) Notice Period Alternative investments: Limited liability corporation (a) $ 1,500,923 $ quarterly 60 days Limited liability corporation (b) 968,628 quarterly 65 days Limited liability corporation (c) 1,313,568 monthly 30 days Limited liability corporation (d) 1,440,833 quarterly 90 days Limited liability corporation (e) 1,405,926 monthly 14 days Limited liability corporation (f) 1,415,609 quarterly 90 days $ 8,045,487 $ 2015 Redemption Frequency Unfunded (if currently Redemption Fair Value Commitments eligible) Notice Period Alternative investments: Limited liability corporation (a) $ 1,800,000 $ quarterly 60 days Limited liability corporation (b) 1,000,000 quarterly 65 days Limited liability corporation (c) 1,400,000 monthly 30 days $ 4,200,000 $ (a) This category includes investments in long and short positions in individual equity securities in the healthcare sector. The fair values of the investments in this category have been estimated using the net asset value per share of the investments. The investments in this category may be redeemed quarterly with 60 days written notice. (b) This category includes investments in a variety of equity, debt and derivatives. The fair value of the investments in this category have been estimated using the net asset value per unit of the investments. The investments in this category may be redeemed quarterly with at least 65 days written notice and is subject to a 25% investor level gate. (c) This category includes investments in derivatives. The fair value of the investments in this category have been estimated using the net asset value per unit of the investments. The investments in this category may be redeemed monthly with 30 days written notice to the fund as of the last day of any month. (d) This category includes investments in a variety of secured corporate loans and DIP loans, second lien loans, floating rate notes, high yield bonds, and short-term bonds. The fair value of the investments in this category have been estimated using the net asset value per unit of the investments. The investments in this category may be redeemed quarterly with 90 days written notice to the fund. 12

Note C- Investments- continued: (e) This category includes investments in high yield bonds with the largest component of high yield bond returns from coupon return. The fair values of the investments in this category have been estimated using the net asset value per share of the investments. The investments in this category may be redeemed monthly with 14 days written notice to the fund. (f) This category includes investments in a variety of equities, currencies, commodities, credit and fixed income instruments including: spot and forward contracts, currency and interest rate futures contracts, swaps, exchange-listed options, and options on futures contracts. The fair value of the investments in this category have been estimated using the net asset value per unit of the investments. The investments in this category may be redeemed quarterly with 90 days written notice to the fund. Note D- Endowment funds: The Board of Trustees of the College 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 donor restricted 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 College in a manner consistent with the standard of prudence prescribed by UPMIF A. In accordance with UPMIF A, the College considers the following factors in making a determination to appropriate or accumulate donor restricted endowment funds: (1) the duration and preservation of the various funds, (2) the purposes of the donor restricted endowment funds, (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 ofthe College, and (7) the College's investment policies. Endowment investment and spending policies. The College has adopted investment and spending policies, approved by the Board of Trustees, 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 these endowment assets over the long-term. The College's spending and investment policies work together to achieve this objective. This investment policy establishes an achievable return objective through diversification of asset classes. The College adopted an environmental, social and governance investment (ESG) policy in October 20 I 5. The current long-term return objective is to protect the corpus of assets in real terms and to achieve the highest, prudent real return possible. Actual returns in any given year may vary from this amount. 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. As of June 30,2016 and 2015, $3,646,107 and $3,906,228 respectively, of the endowment funds are held in perpetual trusts, the investment of which is determined by the trustee rather than the College. In 2016 and 2015, the spending policy calculates the disbursements from the endowment funds based on 7.3% of the average fair value ofthe prior 12 quarters. The increased endowment draw above 5% was used to offset expenditures as appropriate within the operating budget, with the funds thus displaced used to create the Strategic Investment Fund. The spending rate for restricted funds that did not displace other funds within the operating budget remained at 5%. This spending policy allows for preservation of principal as well as capital appreciation. This is consistent with the College's objective to maintain the purchasing power of endowment assets as well as to provide additional real growth through investment return. 13

NoteD- Endowment funds- continued: Endowment net asset composition by type of fund as of June 30 is as follows: 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Donor restricted endowed funds $ $ 16,554,135 $ 31,095,254 $ 47,649,389 Board designated endowed funds 8,541,656 8,541,656 $ 8,541,656 $ 16,554,135 $ 31,095,254 $ 56 19 1,045 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Donor restricted endowed funds $ $ 19,481,284 $ 30,708,178 $ 50,189,462 Board designated endowed funds 9,387,011 9,387,011 $ 9,387,011 $ 19,481,284 $ 30,708,178 $ 59,576,473 Changes in endowment net assets as of June 30 are as follows: 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 9,387,011 $ 19,481,284 $ 30,708,178 $ 59,576,473 Contributions 603,463 603,463 Investment income, net 79,420 323,424 676 403,520 Net appreciation (depreciation) (76,921) (324,773) (401,694) Promises to give written off (250) (250) Change in value of split-interest agreements (216,813) (216,813) Amounts appropriated for expenditure - Cargill (35,869) (35,869) Amounts appropriated for expenditure (847,854) (2,889,931) (3,737,785) Endowment net assets, end of year $ 8,541,656 $ 16,554,135 $ 31,095,254 $ 56,191,045 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 9,391,340 $ 18,652,661 $ 30,377,984 $ 58,421,985 Contributions 510,319 510,319 Investment income, net 1,049,109 4,152,788 209 5,202,106 Net appreciation (depreciation) (163,250) (595, 103) (758,353) Promises to give written off (500) (500) Transfer to create endowment fund 243,787 243,787 Change in value of split-interest agreements (179,834) (179,834) Amounts appropriated for expenditure (890,188) (2,972,849) (3,863,037) Endowment net assets, end of year $ 9,387,011 $ 19,481,284 $ 30,708,178 $ 59,576,473 14

Note E- Student accounts and student notes receivable: Student accounts and student notes receivable at June 30 consist of the following: Student Accounts Gross $ 274,137 $ Less allowance for doubtful accounts 189,670 84,467 Less current portion 84,467 $ $ 2016 Student Notes 69,487 13,823 55,664 55,664 Total $ 343,624 203,493 140,131 84,467 $ 55,664 Student Accounts Gross $ 236,913 $ Less allowance for doubtful accounts 165,783 71 '130 Less current portion 71,130 $ $ 2015 Student Notes 70,673 11,841 58,832 58,832 Total $ 307,586 177,624 129,962 71,130 $ 58,832 Note F- Promises to give: The unconditional promises to give at June 30 are as follows: Receivable in less than one year $ Receivable in one to five years Total uncollected promises to give Less allowance for uncollectible promises Less unamortized discounts to net present value $ 2016 462,999 107,033 570,032 15,691 554,341 5,696 548,645 2015 $ 155,372 82,483 237,855 7,038 230,817 4,443 $ 226,374 Conditional promises to give: Conditional promises to give have also been received. At June 30, the conditional promises to give consist of the following, of which the College has been designated as the beneficiary: 2016 2015 IRA/retirement plan $ 192,493 $ 192,493 Wills/bequests 1,205,000 955,000 Charitable remainder trusts (revocable) 896,465 891,465 Life insurance 307,750 160,000 $ 2,601,708 $ 2,198,958 Note G -Inventories: Inventories at June 30 consist of the following: 2016 2015 Farm animals $ 152,22 8 $ 311,372 15

Note H- Property and equipment: Property and equipment at June 30 consist of the following: 2016 2015 Land $ 2,964,494 $ 2,964,494 Land improvements 580,892 580,892 Buildings 56,755,146 55,704,649 Equipment 12,490,322 12,094,385 Collectibles 55,788 55,788 Loan costs 338,445 73,185,087 71,400,208 Less accumulated depreciation and amortization 42,819,746 40,759,739 $ 30,365,341 $ 30,640,469 Depreciation expense was $2,163,154 and $2,091,420 for 2016 and 2015, respectively. Amortization expense was $4,231 and $0 for 2016 and 2015, respectively. Note I-Notes payable: In January 2016, the Warren Wilson College Foundation, LLC, wholly-owned by the College, borrowed $16,370,000 from USDA to purchase existing property ofthe College. The loan is due January 7, 2056. The loan requires annual principal and interest payments and bears interest at 3.125% annually. The loan is secured by land and buildings owned by the LLC and the income derived from the College related to the use of these facilities. The term loan requires that the College hold one year's debt service in reserve. At June 30,2016, $722,747 is shown as cash restricted for debt service. In 2012, the College borrowed $14,255,000. This note was due November 1, 2015 but was extended to February 1, 2016. This loan was paid off in January of2016. The term loan bears a rate of interest equal to the London Interbank Offered Rate (adjusted periodically) plus 1.25%. The loan is secured by all tuition fees, receipts, revenues, rentals, income, insurance funds including, but not limited to, all accounts, contract rights, chattel paper, instruments, deposit accounts, letter of credit rights, payment intangibles, and general intangibles. The term loan agreement requires the College to maintain a debt service coverage ratio of not less than 1.10 to 1.00 and a liquidity ratio of 1.10 to 1.25. The College did not meet the debt service coverage ratio and met the liquidity ratio for the year ending June 30, 2015. Principal requirements for the next five years are as follows: Year Ended June 30 2017 2018 2019 2020 2021 Thereafter $ $ 211,174 217,773 224,578 231,596 238,834 15,246,045 16,370,000 Interest expense for the loans totaled $442,721 and $180,646 for the years ending June 30, 2016 and 2015, respectively. Note J- Capital leases: The College has acquired equipment, vehicles and software under the provisions of long-term leases. For financial reporting purposes, the present value of the minimum lease payments have been capitalized. Amortization of assets under capital leases is included in depreciation expense. As of June 30, 2016, the equipment, vehicles and software under these leases had a total cost of$368,739, accumulated depreciation of $209,075, and a net book value of $159,664. As of June 30, 2015, the equipment, vehicles and software under these leases had a total cost of $368,739, accumulated depreciation of $148,681, and a net book value of $227,058. 16

Note J- Capital leases- continued: Minimum future lease payments under capital leases are as follows: Year Ended June 30 2017 2018 2019 2020 2021 Total minimum lease payments Less amount representing interest Present value of net minimum capital lease payments $ $ 47,342 43,296 35,163 1,610 127,411 525 126,886 Interest expense for the leases was $1,169 and $3,314 for the years ended June 30, 2016 and 2015, respectively. Note K-Line of credit: The College has a $7 50,000 unsecured revolving I ine of credit with a bank dated December 12, 2014. The proceeds are to be used by the College for expansion of current assets. The revolving period on this line will end December 15, 2016 unless renewed or extended. The interest rate is calculated at the one month LIBOR plus 2.75% per annum. Advances of$672,434 and repayments of$499 were made in 2016. No advances were made in 2015. Interest of$11,661 was incurred in 2016. No interest expense was incurred in 2015. Note L- Accounts payable, deposits and accrued expenses: Accounts payable, deposits and accrued expenses at June 30 consist of the following: 2016 2015 Accounts payable $ 435,854 $ 529,485 Accrued expenses 533,186 328,668 Student tuition and room deposits 2,080,029 2,122,937 $ 3,049,069 $ 2,981,090 Note M- Deferred revenue: Deferred revenue at June 30 consists of the following: 2016 2015 Swannanoa Gathering: Advance tuition $ 896,440 $ 817,689 Advance room and board 111 '146 117,875 Other 46,332 34,944 $ 1,053,918 $ 970,508 Note N- Restrictions on net assets: Temporarily restricted net assets consist of contributions restricted by the donor for a particular purpose, splitinterest agreements, and restricted earnings from endowment assets. Permanently restricted net assets consist of endowment assets to be held in perpetuity and split-interest agreements. 17

Note 0- Unrestricted net assets: Unrestricted net assets at June 30 are as follows: Undesignated Board designated for Financial Stabilization Fund Board designated for endowment Board designated for Strategic Investments Board designated Executive Committee discretion Board designated for operations Board designated for scholarships Board designated for debt service, betterments and other capital needs Total unrestricted net assets Beginning of year $ 18,608,053 362,122 9,387,011 1,069,211 8,573 49,090 143,076 $ 29 627,136 2016 Change in unrestricted net assets $ (2,165,874) (845,355) (72,389) 8,931 74 (4,265) (141,239) $ (3,220, 117) End ofyear $ 16,442,179 362,122 8,541,656 996,822 8,931 8,647 44,825 1,837 $ 26,407,019 Undesignated Board designated for Financial Stabilization Fund Board designated for endowment Board designated for Strategic Investments Board designated for operations Board designated for scholarships Board designated for debt service, betterments and other capital needs Total unrestricted net assets Beginning ofyear $ 17,755,896 362,122 9,391,340 579,486 26,082 89,853 576,870 $ 28,781,649 2015 Change in unrestricted net assets $ 852,157 (4,329) 489,725 (17,509) (40,763) (433,794) $ 845,487 End ofyear $ 18,608,053 362,122 9,387,011 1,069,211 8,573 49,090 143,076 $ 29,627,136 Note P- Pension plans: The College maintains a tax sheltered annuity plan for academic and non-academic personnel. Employees contribute 3% and the College contributes 7% of salary for the years ended June 30, 2016 and 2015, respectively. Employees are eligible to participate from date of employment and all contributions are fully vested when contributed. Total annuity expense was $740,600 and $784,249 for 2016 and 2015, respectively. Note Q- Split-interest trusts: Gifts of$33,698 were contributed in 2016. No gifts were received in 2015. At June 30, assets of$673,209 and $692,085 belonging to gift annuity trusts along with the actual liabilities of$446,753 and $488,856 were included on the Consolidated Statements of Financial Position for 2016 and 2015, respectively. The change in value of the annuity trusts was $28,611 and $(31,970) in 2016 and 2015, respectively. Note R- Fundraising expense: The College incurred expenses amounting to $1,287,489 and $1,080,409 in 2016 and 20 15, respectively, related to fundraising. These amounts are included in Institutional Support in the accompanying Consolidated Statements of Activities. 18