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					                                   West Virginia University
                                       Annual Financial Report
                                             2003-2004

                                       TABLE OF CONTENTS


West Virginia University Overview                                                               1-21
     Mission                                                                                      1
     President’s Letter                                                                           2
     Campuses                                                                                     3
     Students                                                                                     4
     Academics                                                                                    5
     Regional Campuses                                                                           14
     Research and Sponsored Programs                                                             16
     The WVU Extension Service                                                                   19
     WVU Foundation Highlights                                                                   21

Financial Statements                                                                            22-68
     Independent Auditors’ Report                                                                22
     Management’s Discussion and Analysis                                                        23
     Combined Statement of Net Assets                                                            36
     Combined Statement of Revenues, Expenses, and Changes in Net Assets                         38
     Combined Statement of Cash Flows                                                            40
     Notes to Combined Financial Statements                                                      42
     Independent Auditors’ Report on Internal Control over Financial Reporting and Compliance    68
     and Other Matters Based Upon the Audit Performed in Accordance with Government Auditing
     Standards

West Virginia University Governance                                                             69-70
     Officers of the University                                                                  69
     West Virginia Higher Education Policy Commission                                            69
     West Virginia University Board of Governors                                                 70
     West Virginia University at Parkersburg Board of Advisors                                   70
     Potomac State College of West Virginia University Board of Advisors                         70
     West Virginia University Institute of Technology (WVUIT) Board of Advisors                  70
     The Community and Technical College at WVUIT Board of Advisors                              70
                                                        Mission

                                                         West Virginia University’s primary mission is to provide high
                                                         quality programs of instruction at the undergraduate, graduate,
                                                         and professional levels; to stimulate and foster both basic and
                                                         applied research and scholarship; to engage in and encourage
                                                         other creative and artistic work; and to bring the resources of the
                                                         University to all segments of society through continuing
                                                         education, extension, and public service activities.

                                                         Opportunities to conduct pioneering research and scholarship help
                                                         attract high quality faculty and students. Students and faculty
                                                         work together to create exciting and productive paths for
                                                         investigation and development. The University nurtures these
                                                         symbiotic interactions to build intellectual, social, and economic
                                                         development for all of West Virginia.

West Virginia University’s special responsibility is to seek out, challenge, educate, and help create opportunities for those
West Virginia citizens who can benefit from its programs, especially those who have demonstrated high achievement or
who possess excellent potential.

West Virginia University recognizes that diversity enriches the institution and the society it serves. The University is
committed to social justice and to practicing the principles of opportunity and affirmative action.




                                                              1
                                                 President’s Letter

Dear Friend of WVU:

We are pleased to report that West Virginia University continued to reach new peaks of success in teaching, research, and
service in fiscal year 2004. State appropriations to WVU declined last year and some state-related costs increased. Despite
the challenges we faced as a result, WVU is progressing as the result of the support and hard work of our faculty, staff,
administration, donors, alumni, and friends.

Fall 2003 enrollment was the highest in WVU history; and our continued development of excellent academic and student-
centered living and learning programs sets the stage for another record enrollment in Fall 2004. Preliminary figures show
enrollment on the Morgantown campus exceeding 25,000 for the first time. We have also enrolled the best qualified first-
year class in our history.

In December 2003, the WVU Foundation concluded its five-year Building
Greatness Campaign, which exceeded its goal by raising $336 million for
scholarships, faculty development, facilities, and more. Support for students was
the largest single component of this, the largest capital campaign in WVU
history. The extraordinary generosity of the donors was a clear endorsement of
WVU’s capacity to help people achieve their dreams.

Over the past 10 years, external funding for sponsored projects at WVU has
totaled nearly $1 billion. Our faculty members are rapidly advancing WVU’s
national reputation in such areas as neuroscience, nanotechnology, biometrics,
geographical information systems, energy, and cancer cell biology. Our research
program has the power to make life-changing — even life-saving — advances
for West Virginians and people around the world.

We are preparing to meet our students’ needs well into the future by creating
new degree programs in high demand disciplines—for example, our new bachelor’s degree program in criminology and
investigations. We are also constantly enhancing our learning facilities. Currently, we are designing a $10 million plant
pathology addition to the Agricultural Sciences Building, and we are in the process of planning for renovations to Brooks,
Oglebay and Colson halls on our Downtown Campus.

Since its founding in 1867, West Virginia University has been a special place, where thousands of graduates have
received the tools to fulfill their highest aspirations. WVU is one of the pillars on which our nation was built and, with
continued support, it will advance the welfare of our nation in the years to come.

Sincerely yours,




David C. Hardesty, Jr.
President




                                                              2
                                                       Campuses

West Virginia University – Main Campus

West Virginia University’s Main Campus, located in Morgantown, West Virginia, was established in 1867 as a federal
land-grant institution. WVU combines the breadth of academic opportunities offered by a major research institution with
the atmosphere of a small school; the undergraduate student/faculty ratio is 21:1. Enrollment in one of the University’s 13
colleges and schools offers students the warmth and friendliness of a small academic community. The University
encourages diversity and promotes social justice in all its activities.

A wide range of health sciences programs are taught at the Robert C. Byrd Health Sciences Center through schools of
medicine, dentistry, nursing, and pharmacy, including allied health programs and graduate programs in basic health
sciences.

Potomac State College of West Virginia University

Potomac State College of West Virginia University (PSC) traces its origin to the 1902 Act of the West Virginia
Legislature, by which it became the “Keyser Branch of West Virginia University.” As a two-year residential regional
campus of the University, Potomac State College is a great place to begin a college career. It offers 47 associate degrees
for transfer to WVU or most other four-year institutions. The College also offers 18 associates of applied science degrees
that prepare students for a career in just two years. Returning adults can also design their own WVU baccalaureate
program through the Regents Bachelor of Arts Degree Program. Nurses have an opportunity to participate in the RN to
BSN program, allowing them to earn a WVU degree through the Keyser campus.

West Virginia University at Parkersburg

West Virginia University at Parkersburg (WVUP) was founded in 1961 as the “Parkersburg Branch of West Virginia
University.” West Virginia University at Parkersburg is a separately accredited campus of West Virginia University,
dedicated primarily to anticipating and responding to the higher education needs of its service area and to facilitate access
for residents of its region. The mission of West Virginia University at Parkersburg is to provide appropriate community-
based educational programs that offer area residents opportunity in pursuing a broad range of educational goals, including
lifelong learning.

West Virginia University Institute of Technology

West Virginia University Institute of Technology (WVUIT) was established by the State Legislature in 1895 as
“Montgomery Preparatory School,” a branch of West Virginia University. The college was independent from West
Virginia University between the early 1900s and July 1996, when it became a regional campus of WVU. As West
Virginia’s only public institute of technology, the school provides degree programs with a strong engineering, scientific,
or technological emphasis and other degree programs for which there is significant need and student clientele.

The Community and Technical College at WVUIT

The Community and Technical College at WVUIT (CTC at WVUIT) has complied with all 2003-2004 legislative
mandates, and after a comprehensive self-study, was awarded independent NCA accreditation in February 2004 for the
maximum initial accreditation period of five years, with no progress reports or follow-up visits required. The CTC at
WVUIT was the third CTC in the state to gain this status and will begin its first year as a separate institution in Fall 2004.
The following mission and vision statements were adopted during the self-study process: The Community and Technical
College at WVUIT promotes excellence in teaching, learning, and service; prepares the current and future workforce; and
provides lifelong educational opportunities.

                                                              3
                                                           Students

WVU strives to be a student-centered university. In order to maintain this customer focus, it is important to understand the
composition of the student body, as well as key student related data.

Students come from all 55 counties of West Virginia, nationally from the 50 states and the District of Columbia, and more
than 90 countries. Fall 2003 enrollment for West Virginia University and its regional campuses was a record high 31,961;
of those students, over 67% were West Virginia residents. Below is a table of the student headcount enrollment for the
Fall 2003 semester for West Virginia University’s main campus and three regional campuses.

                                                                             1st                   WV             % WV
                                    Undergraduate         Graduate       Professional           Resident         Resident
              WVU-Main                 17,568              5,596            1,325                14,704            60%
                PSC                    1,329                  -               -                  1,033             78%
               WVU-P                   3,755                  -               -                   3,655            97%
               WVUIT                   2,363                 25               -                   2,163            91%

                                          West Virginia University FTE Enrollment
                                                Fall 1999 Through Fall 2003

                  30,000
                  25,000
                  20,000
                  15,000
                  10,000
                   5,000
                       0
                               Fall '99        Fall '00          Fall '01            Fall '02         Fall '03

                                                   WVU-Main      PSC     WVU-P       WVUIT


                            Degrees Conferred for Academic Years 1999-2000 Through 2003-2004

                    7,000
                    6,000
                    5,000
                    4,000
                    3,000
                    2,000
                    1,000
                      -
                              1999-2000        2000-2001         2001-2002          2002-2003        2003-2004

                                      Associates    Bachelor's   lst Professional    Master's    Doctoral

Among West Virginia University’s proudest honors are the 25 students who have been chosen to receive Rhodes
Scholarships to study at Oxford University, the 16 Truman Scholars who have been recognized for their public service
efforts, the 25 Goldwater Scholars who have demonstrated academic excellence in the sciences, the two Marshall
Scholars, funded by the British government to commemorate the humane ideals of the European Recovery Program, and
two Udall Scholars recognized for their commitment to the environment.
                                                                 4
                                                     Academics

College of Business and Economics

In the past year the College of Business and Economics
(B&E) made a number of important additions and
improvements to its facilities and programs. In Fall 2003,
through the generosity of Mylan Pharmaceuticals and the
Mylan Charitable Foundation, the new Mylan
Professional Education Center was completed as another
major upgrade in the College’s distance-education
technology. B&E also launched a graduate certificate in
Forensic Accounting and Fraud Investigation, becoming
one of only a handful of programs in the country to offer
graduate level training in this important field. To further
enhance its work in this area, B&E received a $612,000
grant from the U.S. Department of Justice to create
forensic accounting curriculum guidelines that will serve
as national pedagogical standards. This year also saw the endowment of the James Clark Coffman Chair in
Entrepreneurial Studies. The position will support the College’s focus on education, research, and services that help new
businesses and innovators.

B&E initiated the establishment of the Fred Wright Insurance Center to offer continuing education, training, and
certification programs for insurance professionals as well as B&E students. B&E recently added a new Center for Career
Development to expand the pool of employment recruiters, increase students’ awareness of career opportunities, and
improve the internship placements of students. Additionally, the Entrepreneurship Center has established a student
incubator program in which teams of students from various disciplines work with the WVU Office of Technology
Transfer to commercialize product ideas stemming from faculty research. The Center also initiated a student intern
program that places students with entrepreneurs, venture capitalists, and firms specializing in commercialization and
business plan evaluation. The Center secured a Benedum Foundation grant to enhance rural entrepreneurship in West
Virginia through development of a statewide learning network for communities looking to strengthen their entrepreneurial
assets.

This year’s B&E students looking for innovative learning experiences outside the traditional lecture format had a variety
of choices, including the Business Plan Competition, the Corporate Citizenship Project in support of nonprofits, the Case
Challenge, moot court exercises, simulated labor negotiations, and foreign study experience in Italy, Cuba, Germany, or
China. B&E faculty and staff have engaged in a wide variety of research that has direct value to policy makers in West
Virginia, including studies on state highway financing, tax incidence, migration patterns, and economic forecasting.


College of Creative Arts

The College of Creative Arts completed several years of capital improvements, expanded learning opportunities for
students, and continued wide-ranging outreach and community programming. The College reopened a fully renovated
Lyell B. Clay Concert Theatre and completed renovations to the Bloch Learning and Recital Hall, the Gladys G. Davis
Theatre, and the Vivian Davis Michael Theatre, as well as dedicated the newly renovated main lobby in memory of
Douglas O. Blaney. For the second year, the Creative Arts hosted the West Virginia Governor’s School for the Arts, a
three-week residential program for exceptional arts students entering their junior year of high school. The College’s
faculty, staff, and students were also integral in a number of community programs, including West Virginia’s annual
Snowshoe Institute, the “Blanche Lazzell: The Hoffmann Drawings” exhibition, and the “Women and Creativity 2004:
Examining the Past/Composing the Future” conference. A $92,000 grant from the Claude Worthington Benedum
                                                            5
Foundation will help the College develop and initiate Summer Institute for Teacher Education in the Arts (SITE in the
Arts) for 2004 and 2005. This summer program for arts educators will improve and enhance K-12 instruction of the
performing and visual arts. During 2003-2004, the College continued a partnership with Oglebay Institute that provides
many performing arts attractions, art exhibitions, and educational opportunities for the citizens of northern West Virginia.
Another strong partnership continued with the Pittsburgh Symphony, giving students access to concerts and backstage
tours at Pittsburgh Symphony Heinz Hall. In addition, Pittsburgh Symphony musicians visit WVU to present classes and
events in Morgantown. The College also continued its international programs in graphic design and art history in
Guanajuato, Mexico, in ceramics at the world-renowned Jingdezhen Ceramics Institute in China, in music at the
University of Havana in Cuba, and its theatre exchange program with the E.T.A. Hoffman Theater in Bamberg, Germany.


The Davis College of Agriculture, Forestry, and Consumer Sciences

The Davis College of Agriculture, Forestry, and Consumer Sciences enjoyed growth and pursued innovation in 2003-
2004, developed new academic opportunities, forged new research partnerships, and translated outreach into economic
opportunities.

A generous donation from the Bob and Jewell Evans Foundation served as the underpinning for a new academic minor in
Equine Management. The gift of $75,000 and 20 horses allows the Division of Animal and Veterinary Sciences to offer
this in-demand academic program. The Division also launched a minor in Food Science and Technology, which is
designed to introduce students to food processing, engineering, chemistry, microbiology, and marketing. The interior
design program, offered by the Division of Family and Consumer Sciences, received a six-year reaccreditation from the
Foundation for Interior Design Education and Research (FIDER).

Through the Safari Club International Foundation (SCIF) Sables, WVU became the first institution to offer the SCIF
Sables C.J. McElroy Hunting Heritage Scholarship Fund. John Edwards and James Anderson, faculty in the Wildlife
Program, received a grant from the R.K. Mellon Family Foundation to develop a course, “The Tradition of Hunting.” In
the Division’s Wood Sciences and Technology Program, the course “Forest Resources in U.S. History” became one of
WVU’s cluster courses in the Liberal Studies Program.

Davis College faculty played key roles in the annual meeting of the American Society of Mining and Reclamation
(ASMR). Jeffrey Skousen, a professor of environmental protection in the Division of Plant and Soil Sciences and WVU
Extension reclamation specialist, presided over the meeting as ASMR president. Faculty from a variety of Davis College
units made presentations at the meeting, which was held in Morgantown.

WVU joined an elite group of land-grant institutions that house Centers for Wood Utilization Research. Senator Robert C.
Byrd assisted the College’s Division of Forestry in securing $500,000 of funding to support research. The Centers for
Wood Utilization Research were established to generate the new knowledge and technologies needed to maintain a
vigorous and competitive domestic forest products industry based on sustainable use of the nation's forest resources.


Eberly College of Arts & Sciences

Growth and accolades marked this year in the Eberly College of Arts and Sciences. Thanks to the support of more than
5,700 alumni and friends through the Building Greatness Campaign, the Eberly College set a new record for private
support, raising $28,184,939. The College also experienced dramatic growth in both total enrollments by major and in
student credit hours. From the 2002 academic year to the 2003 academic year, student credit hours increased on campus
by 22,461 hours, or about 7,500 additional seats in classrooms. During the past five years, the College has seen an
increase of 950 undergraduate majors and now serves more than 6,350 majors. Several degree programs have seen
significant expansion. Psychology, the College’s largest and most popular degree program, has nearly reached 800 majors.
The International Studies Program has more than doubled, and the Forensic and Investigative Science Program has nearly
quadrupled in size since 1999. A new Criminology and Investigations major is offered through the Division of Sociology

                                                             6
and Anthropology. The Department of Foreign Languages is now offering an Italian Studies minor as an interdisciplinary
initiative focusing on the Italian language and on the rich heritage of Italian literature, art history, civilization, and history
of the Italian peninsula.

Research from the Department of Chemistry, conducted
in collaboration with GE Plastics in Parkersburg, was
highlighted on the August 15 cover of Analytical
Chemistry, the premier journal of research advances in the
field of analytical chemistry. Students from the Eberly
College of Arts and Sciences were selected for
recognition in several nationally competitive awards
including the USA Today All-USA College Academic
Team, the prestigious Harry S. Truman Scholarship
(given to only 77 students from among more than 600
candidates nominated by 300 colleges and universities),
and another Barry M. Goldwater Scholar (WVU’s 25th
since the program was established by Congress in 1986).
On campus, seven of the eight graduating seniors
recognized with the Order of Augusta award, the University’s most prestigious student honor, were students with either a
major or minor in the Eberly College.


College of Engineering and Mineral Resources

In 2003-2004 the College of Engineering and Mineral Resources (CEMR) enrolled another record freshman class and
achieved a record total enrollment of 2,796 students. The academic quality of matriculating students continues to
improve, with over 40 percent of the freshman class attending WVU on a Promise Scholarship. For those students
entering the College, a new freshman program coordinator was hired to help first-year students prepare a strong
foundation for their engineering studies. Additionally, a new Career Resource Center was opened to assist engineering
students in career planning, beginning with the freshman year and continuing through placement in the senior year.

CEMR is proud to announce that all of its undergraduate engineering programs were re-accredited by the Accreditation
Board for Engineering and Technology, Inc. (ABET).

Through the University’s Building Greatness Campaign, the College has added nine endowed laboratories, 41 new
scholarships and fellowships, and 42 new opportunity funds for various initiatives, such as improving existing curricula
and creating new courses in emerging areas.

The College further developed its K-12 initiatives and continued outreach to this group through established activities such
as Girl Scout Day, CEMR Visitation Day, TEAM+S, FIRST, and the Annual Pumpkin Drop, as well as added new
activities such as Eighth Graders’ Day and the Engineers of Tomorrow Program—made possible by generous gifts
received during the Campaign.

In the 2003 Fall semester, the Mechanical and Aerospace Department moved into the Bernard Judy Wing, a fully
renovated space consisting of ten laboratories. Similarly, the renovated Galli Laboratory Complex in the Department of
Chemical Engineering officially opened in Spring 2004. The Complex is now an area that encompasses 10,416 square feet
of renovated or new space housing modern computer-controlled experiments and data-acquisition facilities, as well as
flexible, sophisticated analytical equipment to improve laboratory experiments and simulate hardware currently used in
chemical plants.

Faculty continued to be recognized for their expertise and service to their profession by receiving national and
international awards, including selection as fellows in their professional societies, election into leadership positions in
professional governing boards, and earning prestigious research grants. In fact, sponsored research awards remained
                                                                7
strong and annual research expenditures continued to increase, with over $25 million spent in support of faculty research
last year.


Extended Learning

Instructional technology has afforded WVU with new ways to honor its land-grant mission. Distance education at WVU
has grown from a single person coordinating the delivery of three satellite and several public television courses to teams
of people managing robust networks of resources and services. Seven graduate degree programs and three certificate
programs are delivered via distance learning. In Fall 2000, 41 totally online courses were offered and by Fall 2003, more
than 100 totally online courses were offered through Extended Learning. Likewise, the Student Credit Hours (SCH) in
distance-delivered courses increased 307 percent in the period of 1998 through 2004, from 3,546 SCH in 1998 to 14,436
in 2004. Through a combination of graduate and undergraduate courses, the total number of distance-delivered courses
has grown from 41 to 265, which equates to a 546 percent increase. In 1998, distance education was only ten percent of
off-campus student credit hours, whereas today student credit hours earned through distance education are nearing half of
all off-campus programming.


College of Human Resources and Education

A number of positive changes were implemented in programs in the College of Human Resources and Education. As a
result of the College's weeklong Faculty Academy in May, more than 20 additional courses will be offered via distance
learning during the coming academic year. Twice as many faculty were involved in the Academy this year and the
follow-up support needed to sustain these efforts has been expanded. The Multicategorical Mild Disabilities special
education program leading to certification now consists of a sequence of blended distance education courses that utilize
the Web and interactive video.

The Department of Counseling, Rehabilitation Counseling, and Counseling Psychology received a $737,000 grant from
the U.S. Rehabilitation Services Administration (RSA) that will provide nearly $150,000 in annual support for students in
the rehabilitation counselor education program. The RSA Scholars Program was established to ensure that skilled
personnel are available to serve the rehabilitation needs of individuals with disabilities in employment and independent
living programs.

The WVU Speech Clinic has been remodeled and expanded to accommodate more clients and to provide enriched
learning facilities for future speech-language pathologists. The clinic, now doubled in size, has nine large therapy rooms
with adjoining private observation rooms, videotaping capacity, and wheelchair accessibility. A larger waiting room for
clients, a new classroom with seating for 25 students, a renovated preparation room, and a storage area for records,
progress reports, and videotapes are part of the remodeled clinic area.

The Benedum Collaborative has joined the National Network for Educational Renewal (NNER) as its twenty-first
member. The NNER, one of the nation's first school-university partnerships, was established in 1986 with a focus on
preparing children to assume productive roles as members of a social and political democracy, the fundamental purpose of
public education. Collaboration through the NNER is directly enhancing the five-year teacher education program at
WVU.

The P-Adult Reading Specialist Graduate Program has initiated an option for experienced certified teachers who have
already earned a graduate degree in a teaching field. This nondegree program, which leads to certification as a reading
specialist, is now offered at several off-campus locations. The program prepares teachers for a variety of school contexts,
both in the classroom, where the importance of strong teacher preparation in reading is increasingly emphasized, and
outside the classroom, where teachers are being prepared to take greater leadership roles in promoting literacy.



                                                             8
College of Law

During the 2003-2004 academic year, the College of Law successfully concluded the five-year Building Greatness
Campaign, which has resulted in a significant increase in endowments. The Campaign totals include nine new
professorships, one new chair, twelve new enhancement or opportunity endowments, and 46 new scholarships and
fellowships.

The College of Law successfully recruited two new tenure track members of the faculty, a new lecturer in the Legal
Research and Writing Program, and Professor Marion Crain as the William J. Maier, Jr. Chair of Law. The hiring of these
outstanding faculty members during the 2003-2004 academic year, combined with those in the previous two academic
years, makes a total of nine new faculty members, comprising one-third of the College of Law’s full-time teaching
faculty.

Also during the 2003-04 academic year, the College implemented the new first-year curriculum and revisions to the
second- and third-year curriculum. The curriculum revisions are designed to reduce the number of required courses in the
second and third year to allow for more choices in subject area concentrations and to provide greater options for students
to integrate practical skills with substantive law and practical applications of course work. The College also continued its
tradition of service with the hosting of an extremely successful water symposium featuring national and state authorities
on this vital resource.


The Perley Isaac Reed School of Journalism

The Perley Isaac Reed School of Journalism had an excellent and exciting academic year marked by outstanding student
achievements, innovative projects, and unique faculty and school successes. For the second year in a row, two students
were named to the prestigious Order of Augusta and recognized as Foundation Scholars. The School also boasted the first
student in the history of WVU to be given a $10,000 Scripps Howard Foundation Top Ten Scholarship, as well as the first
student to be accepted into the Scripps Howard Foundation Semester in Washington Program. The School was also
honored to have one of its own be chosen among fewer than 100 college students from across the nation to attend the
2004 Institute on Political Journalism, an institute conducted each summer by the Fund for American Studies in
partnership with Georgetown University. The School met and exceeded its Building Greatness Campaign goal,
celebrating the accomplishment in March. The five-year campaign provided the School with new scholarships, a named
                                                              professorship, and a host of new funding for curriculum
                                                              development.

                                                             The Accrediting Council on Education in Journalism and
                                                             Mass Communication (ACEJMC) accredited the P.I. Reed
                                                             School of Journalism for another six years. Being approved
                                                             by its designated accrediting body means that a professional
                                                             school has met the highest standards set for education in its
                                                             field.

                                                             The School’s computer labs were outfitted with new
                                                             equipment and furnishings during 2003, increasing
                                                             performance, stability, and consistency in the labs.

                                                            "Cancer Stories: Lessons in Love, Loss and Hope," a
documentary and book that chronicle the lives of cancer patients from diagnosis through treatment, won a Midwestern
Regional Emmy. The student- and faculty-produced one-hour documentary first aired statewide in December 2003 on
West Virginia Public Broadcasting stations. WVU Press will release the book, written and photographed entirely by
students, in October 2004. The release of the documentary and book marked the end of the two-year project that involved
more than 30 students and hundreds of hours of writing, shooting, editing, and photographing. The documentary won an

                                                             9
Award of Excellence in the 2004 Broadcast Education Association Festival of Media Arts documentary category, and the
project was featured in American Journalism Review's February/March 2004 addition.

The School launched in Fall 2003 the West Virginia Veterans History project as part of the National Veterans History
Project at the Library of Congress, which is designed to preserve the real-life experiences of American veterans and
civilians who were involved in World War I, World War II, and the Korean, Vietnam and Persian Gulf Wars. Students
collected more than 75 oral histories and taught civic organization members throughout West Virginia how to collect the
histories. Until WVU journalism students got involved, only 20 West Virginia veterans’ histories had been collected.


School of Physical Education

The School of Physical Education has expanded its educational outreach, now offering the opportunity for individuals to
obtain master’s degrees via Distance Education in Athletic Coaching Education and Physical Education Teacher
Education, and is presently in the process of developing an online Sport Management master’s degree. Additionally, the
Sport and Exercise Psychology Program established an International Center for Performance Excellence. The Center’s
mission is to promote, on a global basis, an awareness of the values of engaging in sport and health-related physical
activity to enhance the quality of life. The School is presently in the process of establishing a second technology
classroom in the Coliseum to serve students and faculty. The School’s academic quality is exemplified in the fact that
seven out of eight graduating seniors in the Athletic Training Program passed the entire NATA Board of Certification
Exam on their first attempt, which is well above the national average.


Robert C. Byrd Health Sciences Center

During 2003 and 2004, the Robert C. Byrd Health Sciences Center celebrated the first century of health professions
education at West Virginia University. Throughout the celebration, the focus remained firmly fixed on the next 100
years—how to meet the challenge of preparing new generations of physicians, nurses, dentists, pharmacists, and other
health specialists to meet the needs of the state and nation. At the same time, there was cause to reflect on all that has
been accomplished since the awarding of medical degrees to WVU graduates Emmett Corbin and Boaz Cox at the
Baltimore College of Physicians and Surgeons in 1904. Several thousand men and women have learned the healing arts at
WVU’s campuses in Morgantown and Charleston, and at teaching sites throughout West Virginia.

WVU is strongly positioned to continue its leadership role in health care. Thanks to the investments by the state and the
federal government, and the generosity of our thousands of donors, WVU has assembled the resources to leap forward in
teaching, research, and health care. Thanks to the people who have dedicated their working lives to the institution, WVU
has a team of intelligent, hardworking, and skilled faculty and staff who are committed to reaching the same goals of
excellence. Further, thanks to the reputation WVU has earned over the last century, it continues to attract the best, the
brightest, and the most eager students from West Virginia and from around the world. Most importantly, in celebrating
the achievements of the past century, WVU has renewed and reaffirmed the commitment to the basic missions of the
Robert C. Byrd Health Sciences Center: education, research, and health care.


Robert C. Byrd Health Sciences Center:
School of Dentistry

The School of Dentistry is currently renovating two of its major clinics. Work is almost completed on a dental clinic that
will be used for a variety of purposes. This clinic will provide a new home for the faculty dental practice, and will also be
utilized for hands-on continuing education programs. It will consist of nine state-of-the-art treatment rooms and will be
equipped with audiovisual equipment so that demonstrations can be broadcast to other areas of the building or even
throughout West Virginia. Funding for this clinic has been provided in part by private donors.


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                                                         The second clinic to be renovated is the main student clinic. This
                                                         area will be designed to facilitate the team concept of dental
                                                         practice, in which dental students and dental hygiene students will
                                                         practice in an integrated environment, much like private practice.
                                                         Each treatment area will be able to accommodate four-handed
                                                         dentistry, and will include capability for the use of electronic
                                                         patient records and digital radiography.

                                                         Two recent grants awarded to the WVU School of Dentistry
                                                         should lead to a reduction of oral health disparities within West
                                                         Virginia and beyond. The first is $6.3 million, seven-year grant
                                                         from the National Institutes of Health (NIH), which will fund
research in collaboration with the University of Pittsburgh School of Dental Medicine to determine factors that contribute
to oral health disparities in Appalachia. To date, over 100 families from rural communities in West Virginia have been
enrolled in the study. The second grant is from the Robert Wood Johnson Foundation and will provide $1.35 million to
the WVU School of Dentistry to strengthen its linkages with West Virginia communities in need of dental care. This five-
year initiative, the Pipeline Profession and Practice: Community-Based Dental Education Project, will help the School
expand its successful community-based dental education program and increase efforts to recruit and retain more West
Virginia students from backgrounds that are underrepresented in the dental profession, including individuals from
minority, first-generation college, and low-income groups. The project also aims to incorporate cultural sensitivity into the
program with special faculty development programs and curricular revision.


Robert C. Byrd Health Sciences Center:
WVU School of Medicine

One-hundred years have passed since WVU first began offering a two-year curriculum for a doctor of medicine degree.
Today’s students may pursue degrees not only in medicine, but also in community health promotion, exercise physiology,
graduate basic sciences, medical technology, occupational therapy, physical therapy and public health. School of
Medicine faculty, staff and students are called upon daily for their expertise in research and quality patient care. The
School of Medicine had its first home in 1916 in a three-story building on the downtown campus. In 1957 the School of
Medicine moved to the new Medical Center building a central part of today’s health sciences campus. WVU medical
education expanded again in the 1970s, with the School of Medicine’s creation of its Charleston Division in 1972 and the
Wheeling Division in 1974. In 1988 the 376-bed Ruby Memorial Hospital opened, which included Children’s Hospital
and the Jon Michael Moore Trauma Center. Chestnut Ridge Hospital also opened that year, becoming the home of the
School’s Department of Behavioral Medicine and Psychiatry. The decade ended with the School’s establishment of its
MD/PhD program, signifying the dedication to an emphasis on research. More expansion took place in 1990, with the
openings of WVU’s Mary Babb Randolph Cancer Center, the Physician Office Center, and Mountainview Rehabilitation
Hospital. The Clark Sleeth Family Medicine Clinic opened in 1996, along with the Betty Puskar Breast Care Center. The
opening of these facilities allowed School of Medicine faculty members to provide more advanced clinical care to patients
throughout West Virginia and beyond.

In 1999 and 2000 two major research initiatives began: the Blanchette Rockefeller Neurosciences Institute and the
Sensory Neuroscience Research Center. The WVU Eye institute opened in 2001, placing clinical care and research under
one roof. The John Michael Moore Trauma Center reached a special milestone that year – achieving national ACS Level 1
status for the first time – the only hospital in West Virginia ever to do so. The School also established its Eastern Division
in 2001, providing state-of-the-art care to West Virginia residents in the Eastern Panhandle. In 2002, the School of
Medicine won the largest federal research grant in its history, $11 million, to build the Center of Biomedical Research
Excellence in the Cancer Center. Upon this strong foundation, the School of Medicine is positioned to continue pushing
the frontiers in teaching, patient care, and research. Major renovation and expansion is taking place in 2004, including


                                                             11
new clinics, patient rooms, library space, and research laboratories. A new strategic plan for research is yielding
significant results, and curricular changes continue to meet changing needs in health care delivery.


Robert C. Byrd Health Sciences Center:
WVU School of Nursing

Since 1960, the West Virginia University School of Nursing has served as the premier nursing education center for West
Virginians. In May, the School marked the 40th anniversary of the first graduating class. This year, it also celebrated its
first doctor of science in nursing degree graduate who completed the program in December. As the only nursing doctorate
program in West Virginia, graduates are trained to serve as teachers, scholars, and researchers.

The Master of Science in Nursing (MSN) Program remains strong, with a webcast system for delivering courses, thus
enabling students to participate in classes from home. The MSN program tracks include family nurse practitioner,
pediatric nurse practitioner, and neonatal nurse practitioner.

The Commission on Collegiate Nursing Education has accredited the WVU School of Nursing bachelor’s and master’s
programs now offered on six campuses—the WVU main campus, WVU Parkersburg, Charleston Division, Potomac
State, Glenville State, and WVU Tech. The programs are accredited for ten years.

Keeping up with the demand for nurses statewide and nationally, the School has continued to increase undergraduate
enrollment and to offer an accelerated bachelor’s program for people who had bachelor’s degrees in other fields.


Robert C. Byrd Health Sciences Center:
WVU School of Pharmacy

Since 1914, the West Virginia University School of Pharmacy has served West Virginia. As the practice of pharmacy has
changed through the years, the School has made adjustments in the way students are educated and trained. All students
                                                        now enroll for a four-year professional curriculum, preceded by a
                                                        minimum of two years of pre-pharmacy course work. They
                                                        graduate with a doctor of pharmacy degree, which is now the only
                                                        entry-level pharmacy degree in the United States. The
                                                        curriculum provides students with an in-depth knowledge of
                                                        disease states and drug applications for the treatment, monitoring,
                                                        and prevention of disease. Graduates develop communication and
                                                        computer skills and are prepared to be lifelong learners. During
                                                        the last year of study, all students complete the experiential
                                                        program, where they work in a variety of pharmacy settings
                                                        (including hospitals, community pharmacies, and special areas
                                                        such as drug information, poison center, and outpatient clinics)
                                                        under the direct supervision of a licensed pharmacist. In response
to West Virginia’s shortage of pharmacists, the School has increased its class size from 65 to approximately 80 students.

Research remains a high priority for School of Pharmacy faculty members. They collaborate with students and other
researchers to discover new drugs, treatments, preventative methods, and the economics of drug therapy, all in hopes of
improving overall health. The School also provides various service activities throughout West Virginia, including
continuing education programs for existing licensed pharmacists. The West Virginia Center for Drug and Health
Information provides in-depth drug information, while the Poison Center serves as an important resource for state
residents. The Rational Drug Therapy Program and the Accessible Intelligent Medication Strategies project both work to
save the Medicaid and Public Employees Insurance Agency programs millions of dollars in pharmaceutical costs each
year.
                                                             12
University Libraries

In Fall 2003, the WVU Libraries were invited to membership in the Pennsylvania Academic Library Consortium, Inc.
(PALCI), a group of 57 libraries in Pennsylvania. The WVU Libraries were the second academic library accepted to
membership from outside of Pennsylvania. Other members include the University of Pittsburgh, Penn State University,
                                           Rutgers University, and the University of Pennsylvania. PALCI membership
                                           provides WVU students and faculty with access to the EZ Borrow system to
                                           search more than 26 million volumes in the combined online catalogs of
                                           member libraries and to request books, which are then delivered within a
                                           week.

                                           Improvements for WVU Libraries have not stopped with the recent
                                           completion of the Downtown Library addition, the off-site storage facility, and
                                           renovations to other campus libraries. User surveys have been conducted and
                                           as a result the Libraries have directed additional resources to the purchase and
                                           management of online full-text journals. A new software package called
                                           Article Linker seamlessly takes users from the citation in a library online
                                           index to the online journal article.

                                           Additionally, the WVU Libraries completed several major digital projects
                                           during the year, and the Libraries’ online exhibits were recognized by the
                                           Smithsonian Institution and included in the Institution’s publication Library
                                           and Archival Exhibitions on the Web. Two additions are the West Virginia
                                           History OnLine, a Web page and portal to several rare and unique collections,
and the Libraries’ online exhibit of the works of Isaac
Asimov, which has had 6,000 online visitors. Notable
acquisitions in the West Virginia Collection this year
included the papers of Lenna Lowe Yost, a leader of the
women’s suffrage movement in West Virginia. West
Virginia’s passage of the Suffrage Amendment was critical
to the Amendment’s passage nationally; these papers
document highly significant and dramatic events in
American History.

WVU librarians continue to provide leadership for all of the
State’s libraries. Penny Pugh, head of the Reference
Department in the WVU Downtown Library, was elected
president of the West Virginia Library Association for
2004-2005.




                                                               13
                                               Regional Campuses

West Virginia University at Parkersburg

In July 2004, West Virginia University at Parkersburg welcomed a new campus president and celebrated its 15th year as a
WVU regional campus. Dr. Marie Foster Gnage became the sixth president of the Parkersburg institution, following a
four-month national search. In cooperation with Potomac State College of WVU, WVU Parkersburg began offering its
Associate in Applied Science degree in Criminal Justice via the Internet for the Fall 2004 semester. It is the first degree
WVU Parkersburg is offering totally online. A new associate degree for adult learners was announced for Fall 2004. This
new statewide program is a non-traditional degree completion opportunity for adult learners, featuring a flexible design
and credit toward degree requirements for prior learning experiences such as licenses, certificates, military credit, testing,
cooperative learning and other sources. The Claude Worthington Benedum Foundation conferred an $86,000 grant for a
Multi-Craft Technician program to be developed through the College’s Caperton Center for Applied Technology. U.S.
News & World Report’s 2005 Best Colleges Guide listed WVU Parkersburg in the fourth tier of the Best Comprehensive
Colleges-Bachelor’s category, Southern region.

Potomac State College of West Virginia University

Potomac State College experienced its highest enrollment in the 102-year history of the institution during Fall 2003. It
was the third consecutive year that enrollment was up with a total of 1,365 students, a three percent increase over the
previous year. As a result, the College’s four residence halls were at capacity.

The increase equated to a 13 percent increase in first-time freshmen, a stable in-state enrollment and an increase of 18
percent in out-of-state students. Also, 109 PROMISE Scholars were on campus that semester.

                                               During FY 2004, Potomac State College continued the legislatively directed
                                               integration with West Virginia University that will be effective July 1, 2005.
                                               A transition steering committee, comprised of members from both
                                               campuses, worked to address a comprehensive list of major issues, one of
                                               which is the consolidation of student administrative information systems.
                                               The WVU Banner (STAR) Student Information System will replace the
                                               system currently used by Potomac State College. The project goal is to have
                                               Potomac State fully functional on BANNER and ancillary systems such as
                                               Mountaineer Information eXpress (MIX) by Fall 2005.

                                             Potomac State College received a grant funded by the provost’s office at
WVU and offered through Extended Learning to collaborate with WVU Parkersburg to deliver online the Associate of
Applied Science (AAS) degree in Criminal Justice. This project includes a plan for shared course development and
delivery. The program targets individuals already employed in the field of criminal justice and those attracted to the
growing array of opportunities presented by an emphasis on homeland security.

The College continues to be accredited by the Higher Learning Commission of the North Central Association (NCA) of
Colleges and Schools having undergone review in April 2004.

West Virginia University Institute of Technology

WVUIT garnered several recognitions and established partnerships reflecting its commitment to education, research, and
outreach. In the 2005 edition of the U. S. News & World Report: America’s Best Colleges, WVUIT was once again
nationally ranked among the top baccalaureate engineering programs. The Leonard C. Nelson College of Engineering
(LCNCOE) teamed with two industrial partners to secure Department of Defense funding of $4.5 million. In recognition

                                                             14
of its strength in control engineering, the College established a Research Center in Control Systems Engineering to help
contribute to research and economic development activity in West Virginia. The College also achieved its highest level in
private fundraising to date with cash, pledges, and in-kind giving totaling over $1 million for the past two years in a row.

In addition to Engineering, the College of Business, Humanities and Sciences (BHS) faculty secured $396,694 in external
funding. Through the WVUIT Research and Development Corporation, faculty and students participated in federal, state,
and privately funded research in national defense, energy conservation, E-government, and land use and business
feasibility studies.

The College of Business, Humanities and Sciences delivered approximately 120 distance education courses, including
more than two-dozen web classes. The College hosted the Fifty-Third Annual meeting of the American Association of
Physics Teachers, sponsored the Sixteenth Annual WVUIT Math and Science Bowl for high school students, hosted the
Central and Southern Regional Science and Engineering Fair and sponsored the Math Field Day for area high school
students.

WVUIT’s EDA University Center funded WVUIT Campus and Community Master Plan won an Honorable Mention at
the US Department of Commerce’s Annual Conference in 2003, and the Center is a finalist in the 2004 awards
competition for its business assistance program to a local business. The Charleston Newspapers named the WVUIT Office
of Institutional Marketing “Best in the Valley” for College/University marketing.

The Community and Technical College at West Virginia University Institute of Technology (CTC at WVUIT)

To comply with legislative mandates that all community college components located on four-year campuses attain
independent accreditation from the Higher Learning Commission of North Central Association, a two-year self-study
process culminated in achievement of accreditation in February 2004. The Community and Technical College at West
Virginia University Institute of Technology (CTC at WVUIT) met all general institutional requirements and criteria and
was awarded the maximum five-year initial accreditation with no progress reports or follow-up visits required.

A 7.37 percent increase in headcount enrollment was achieved, comparing Fall 2002 and Fall 2003 data, with a
corresponding increase of 6.5 percent in full-time equivalent (FTE) enrollment. Retention rates improved from 54.6
percent to 62 percent in that same time period. Enrollment in non-credit offerings increased to 2,235 participants.

The Printing Technology program was awarded the “Program of Excellence” distinction by the WVU Board of Governors
during 2003-2004, joining two other associate degree programs, Office Technology Management (2002) and Electrical
Engineering Technology (2003). All associate degree engineering technology programs (Civil, Electrical, Mechanical,
and Drafting) were re-accredited by TAC-ABET, and the Respiratory Therapy program was re-accredited by CoARC.
Graduates of the Dental Hygiene and Respiratory Therapy programs achieved a 100 percent passage rate on licensure
examinations.

Initiating efforts to increase external resources, faculty and staff were awarded grants and donations totaling over
$675,000. Grant awards totaling $294,000 were received for the Women in Technology program, Flexography
Workforce Training, the Middle College program, Tobacco Cessation, and Tech Prep grants for robotics and business
education competitions. Donations from major newspaper companies provided $360,000 in start-up money for the
Publishing Innovation Center project. Additionally, funding was received for equipment and other academic
enhancements in engineering technology, office technology, and dental hygiene.




                                                            15
                                   Research and Sponsored Programs

West Virginia University is designated as a Carnegie Doctoral/Research-University-Extensive. Only 3-4% of the colleges
and universities in the country share this designation. WVU has completed another successful fiscal year in research,
technology transfer, and economic development. It continues to exceed funding expectations, develop interdisciplinary
programs, form strategic partnerships, and build technology transfer and economic development infrastructure. For the
sixth consecutive year, funding from external sources for total sponsored programs has exceeded that for the previous year
and reached the highest amount in the history of the University. A few examples of the many research activities at WVU
are outlined below.

Advanced Materials

The efforts of a chemistry research team at WVU, in collaboration with researchers at GE Plastics, used the glow
discharge mass spectrometry (GDMS) technique to study additives used in commercial polymer products. The technique,
developed at WVU, is being used to determine trace elements in plastics and plastic additives. Monitoring the
composition of the plastics ensures their physical and mechanical properties. The determination of a range of trace
elements is important in the plastic recycling industry as well. The technique assists in maintaining the high quality of
manufactured plastics and affords speed and simplicity of analysis that translate into cost savings for batch analysis in
industry.

Fluidization technology under development by WVU National Research Center for Coal and Energy researchers is
moving toward affordable methods for separating coal from sulfur-containing pyrite, which can lead to acid rain.

Economic Development

The West Virginia University Business Incubator has been established to provide the environment and resources required
to support entrepreneurship, and for start-up businesses to be successful. A cooperative effort through the Research
Office, the Incubator offers consultation services to developing businesses, while providing practical internship
opportunities for students. Plans are progressing for the WVU Research and Technology Park. It is anticipated that the
first building constructed will house the WVU Business Incubator and established companies partnering on WVU
research projects.

WVU continues its efforts to support diversification of the economic climate in West Virginia through its academic
programs. One example is the WVU Aquaculture Program. An interdisciplinary team of scientists and scholars from the
Davis College of Agriculture, Forestry, and Consumer Sciences, the College of Business and Economics, and the College
of Engineering and Mineral Resources approaches the aquaculture equation from a number of angles. Using mine water
for the commercial production of cold-water fish like trout and arctic char is one area of focus. A second target for
economic development is the use of farm-raised fish for recreation.

Efforts of members of the WVU Regional Research Institute (RRI) have established new methods for assessing the
socioeconomic impact of natural disasters. The approach is outlined in “Modeling Spatial and Economic Impacts of
Disasters” (2004), coedited by WVU research associate Yasuhide Okuyama. The RRI expects to extend this approach to
assess the impacts of man-made disasters, including those associated with terrorism.

Energy and Environment

The Appalachian Oil and Natural Gas Research Consortium (AONGRC), a program of the WVU National Research
Center for Coal and Energy, was awarded $1 million by the US Department of Energy to create a Trenton-Black River
geologic "playbook." The AONGRC is heading an integrated multidisciplinary research team that includes structural
geologists, stratigraphers, petrographers, geochemists, and geologists who will conduct seismic analyses for structural

                                                            16
mapping and detection of reservoirs. This effort is supported by a consortium of 17 independent oil and natural gas
companies, and industry confidence is high that the work will lead to more development of the Appalachian reservoirs.

Activities within the Davis College of Agriculture, Forestry, and Consumer Sciences seek to support production efforts in
the farming industry. WVU's Reymann Memorial Farm in Wardensville is now home to one of the most advanced pieces
of feed efficiency technology in the nation, the GrowSafe 4000E. Early results suggest that producers can select for
improved feed efficiency without negatively impacting other desirable production traits in cattle. In addition, the Organic
Farming Research Foundation, in its assessment of land-grant institutions for 2001-2003, ranked WVU’s Organic
Research Project as one of the top five programs nationally for organic farming systems research.

Human Development and Culture

The renewal of teaching and learning in public schools and teacher preparation are the cornerstones of the Benedum
Collaborative at WVU. The collaborative has focused on the redesign of the WVU Teacher Education Program, the
establishment of professional development schools (PDS), and the creation of relations to secure these changes. The PDS
ventures integrate real-world public school practices with college and university preparation programs to enhance the
quality of both. In his 2003 report to Congress regarding state teacher quality efforts under the No Child Left Behind
criteria, US Secretary of Education Rod Paige highlighted efforts of the Benedum Collaborative at WVU as a “bold
reform in traditional teacher preparation programs.”

                                                     The WVU Center for Health Communities conducts research aimed
                                                     at helping people make healthier choices regarding weight
                                                     management. From the family dynamic to public policy, an
                                                     interdisciplinary group of researchers at the University is providing
                                                     the tools for change. Through the Family Fitness Program, a family
                                                     education and demonstration program, changes in participant habits
                                                     and measurable weight loss have been documented. Software
                                                     developed by the Department of Community Medicine, the Office
                                                     System Intervention or Prevent Obesity Program, helps health care
                                                     professionals objectively monitor patient body mass index, physical
                                                     activity, and nutrition, and reminds providers to counsel patients on
                                                     community resources for dietary information and/or exercise. The
                                                     Health Sciences and Technology Academy (HSTA) is increasing
                                                     opportunities for physical activities in communities. By examining
geographic differences in obesity frequency and factors, sound scientific data for public health policy-making and
practices is being developed.

Information Technology

WVU is leading a project with partner institutions to develop an analytical framework for modeling and predicting the
performance of biometric systems, as well as to study the relationships among biometric applications, privacy, security,
and user acceptance that are essential for both informed public policy and system design. A three-year, $3.1 million
Information Technology Research (ITR) grant from the National Science Foundation, with financial support provided by
the US Department of Homeland Security, provides the funding for this most comprehensive collaborative biometrics
research to date. In related research, the WVU Radiant Trust Center of Excellence (RTCE) is researching various aspects
of multiorganizational information sharing, including taxonomy development and applications, policy compliance, risk
assessment effectiveness, and auditing to improve public trust relative to private and secure data use.


The National Geospatial Development Center, a national geographic research facility at WVU, is scheduled to open in the
coming academic year. The facility is a partnership between the WVU Department of Geology and Geography and the US


                                                            17
Department of Agriculture Natural Resources Conservation Service; it was made possible by a $4.34 million
appropriation secured by US Sen. Robert C. Byrd.

Molecular and Biomedical Sciences

WVU is focusing on detecting and identifying the molecular evidence of disease. Researchers at the Mary Babb
Randolph Cancer Center and the WVU Schools of Pharmacy and Medicine are collaborating with investigators at Duke
University on an NIH grant that identified associations between breast cancer patient survival following chemotherapy
and genetic variations in the drug metabolism enzyme CYP 3A4/5. The group has determined that it is feasible to
individualize chemotherapy doses by monitoring the drug levels from blood.

West Virginia University and BrainLAB, Inc., of Munich, Germany, have formed a partnership that will allow WVU
physicians and scientists to be among the first in the United States to receive the most advanced image-guided surgery
technology and software. The partnership will provide WVU with access to BrainLAB's technology and software, as it is
developed. WVU Hospitals will serve as a test site, helping to validate the technology for use in operating rooms. The
Department of Neurosurgery faculty includes highly trained, skilled surgeons who are at the forefront of the development
and practices of new techniques in neurosurgery. The WVU Center for Advanced Imaging is a 12,000 square foot
research and clinical imaging facility that includes the latest in MRI, PET, and other technologies. Research spans basic
science and clinical applications. Areas of interest to the basic researchers include development of new imaging
instrumentation, human brain mapping, and projects quantifying alteration of brain neurochemistry by chronic diseases
such as Parkinson's disease.




                                                           18
                                        The WVU Extension Service

The West Virginia University Extension Service provides educational programs to help West Virginians help themselves.
WVU Extension began in 1914 as part of the Cooperative Extension System, which has been taking the people’s
universities into communities for nearly 100 years. Extension partners with individuals, families, and business in each of
West Virginia’s 55 counties. Each year, Extension directly serves more than 132,000 West Virginia youth, families,
workers, firefighters and first-responders, farmers, business owners, and citizens in general. The breadth of Extension’s
work is best reflected through examples of projects and initiatives.

Adding Value for Farmers

Five years ago, WVU Extension partnered with Gourmet Central in Hampshire County to help farmers package and
market specialty food products to state and regional customers, including some of the nation’s top resorts. Today, Petite
Beef means even bigger profits for farmers. A harvested 750-pound calf—cut, wrapped, and frozen—sells to the
consumer for $1,456.

In another initiative, the faculty of the WVU Extension Service and the Davis College of Agriculture, Forestry, and
Consumer Sciences apply the latest research and technology to improve the quality, safety, and taste of the beef
consumers want. Their teamwork generates millions of dollars for West Virginia. The annual bull sale at the Reymann
Memorial Farm in Wardensville is one of many WVU programs helping farmers keep their businesses productive to
benefit their families, communities, and consumers. Through WVU, superior technology generates superior genetic
material, which produces superior bulls. At this year’s Wardensville bull sale, Jim Kinsey of Taylor County explained:
“All the information gathered here is a tool for our producers to produce the kind of beef that the consumer demands . . . .
It’s been a profitable year for me and profitable for the people who buy these bulls.”

Master Gardeners: Serving, Saving

Many local community budgets can’t afford to pay for
landscaping and beautification services that contribute
to tourism. WVU Extension trains the Master Gardeners
who “pay” for the training by serving in the community.

Volunteer Network—Worth Millions

WVU Extension partners with a network of community
clubs known as the Community Educational Outreach
Service (CEOS). CEOS volunteers read to students in
schools, raise funds for libraries, serve on community
boards, organize health fairs, volunteer at Head Start
programs, organize family-focused educational
programs, and support their neighbors in many other
ways. Last year, in 17 counties that tabulated their hours, CEOS members delivered thousands of hours in service.

Biosecurity: Protecting the Poultry Business

In 2003 and into 2004, WVU Extension continued to work with other agriculture experts to secure the State’s valuable
poultry business. Protecting poultry—and the economy— from Avian Influenza (AI) and other viruses requires ongoing
education. In farming communities, the public—not just farm families—needs to be aware of the role anyone could play
in spreading the disease. WVU Extension continues to provide a range of biosecurity information to consumers and


                                                             19
producers via fact sheets, newsletters, bulletins, consultations, and mass media reports. Extension’s educational outreach
increases when outbreaks occur in other states, such as the recent AI alert issued in Pennsylvania.

Reading Skills

Energy Express, a six-week summer reading and nutrition program, works with West Virginia’s limited-resource children
in their local schools to help them build and improve their reading skills and comprehension skills. In June and July 2004,
more than 3,000 children maintained or improved their reading skills and were served nutritious meals at 87 sites in 44
counties. The innovative Extension program is a collaborative effort that meshes the strengths of VISTA, AmeriCorps,
and many state and local partners.

4-H’ers Learn, Earn

When 4-H youths work with animals they learn about science, math, biology and money. In 2003, Extension educators
provided education and opportunity for 4-H and FFA youths to learn and earn. 4-H youth generated a total of $2,194,880
from 4-H and FFA livestock sale proceeds. WVU takes 4-H’s many benefits to youths in each of the State’s 55 counties.
More than 56,000 youths see a bigger world with many possibilities because 4-H is not only in their communities but in
their lives.


                                        Discover West Virginia 4-H
                                     Don't miss the friends! Don't miss the fun!




                                                            20
                                       WVU Foundation Highlights

Total assets under Foundation management were $672.0 million as of June 30, 2004—a 12% increase as compared to
$599.3 million at the close of the previous fiscal year. Included in the total assets is $214.9 million held by the
Foundation for the WVU Hospitals.

The Foundation’s annual operating and campaign expenses of $6 million represent 0.9% of total assets under
management. No operating expenses are deducted from gifts given by donors— 100% of each donor’s gift is made
available for the intended purpose.

$41.5 million—the highest total ever—in funds were disbursed on behalf of the University during the year to support a
myriad of purposes, including scholarships and fellowships; academic program development; chairs, professorships and
lectureships; faculty development and research; equipment and facilities; and libraries.

$8.6 million (or 20.7%) of the total disbursements on behalf of the University were directed toward student scholarship
support, which made attendance at WVU a reality for many students—primarily state residents—and eased the financial
burden for others.

$12.4 million (or 29.9%) of the total disbursements for the University were directed toward salaries, professional
development grants, and awards—which enabled the University to attract and retain the highest caliber of faculty for
teaching, research, and public service.




                                                           21
                                                                                          Deloitte & Touche LLP
                                                                                          2500 One PPG Place
                                                                                          Pittsburgh, PA 15222-5401
                                                                                          USA
                                                                                          Tel: 412-338-7200
                                                                                          Fax: 412-338-7380
                                                                                          www.deloitte.com




INDEPENDENT AUDITORS’ REPORT


West Virginia University Board of Governors

We have audited the accompanying combined financial statements of West Virginia University (the
“University”) as of June 30, 2004 and 2003, and for the years then ended, listed in the foregoing Table of
Contents. These financial statements are the responsibility of the management of the University. Our
responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such combined financial statements present fairly, in all material respects, the financial
position of the University at June 30, 2004 and 2003, and the combined changes in net assets and cash
flows for the years then ended in conformity with accounting principles generally accepted in the United
States of America.

The Management’s Discussion and Analysis on pages 23 to 35 is not a required part of the basic
combined financial statements, but is supplementary information required by the Governmental
Accounting Standards Board. This supplementary information is the responsibility of the University’s
management. We have applied certain limited procedures, which consisted principally of inquiries of
management regarding the methods of measurement and presentation of the supplementary information.
However, we did not audit such information and we do not express an opinion on it.

In accordance with Government Auditing Standards, we have also issued our report dated October 12,
2004, on our consideration of the University’s internal control over financial reporting and our tests of its
compliance and other matters. The purpose of that report is to describe the scope of our testing, and not to
provide an opinion on the internal control over financial reporting or on compliance. That report is an
integral part of an audit performed in accordance with Government Auditing Standards and should be
read in conjunction with this report in considering the results of our audit.




October 12, 2004
                                                                                          Member of
                                                                                          Deloitte Touche Tohmatsu


                                                     22
WEST VIRGINIA UNIVERSITY


Management's Discussion and Analysis
Year Ended June 30, 2004


Overview

The Management's Discussion and Analysis is required supplementary information and has been prepared in
accordance with the requirements of Governmental Accounting Standards Board (GASB) Statements No. 34 and
No. 35. This section of West Virginia University’s (the “University” or WVU) annual financial report provides an
overview of the University’s financial performance during the fiscal year ended June 30, 2004 as compared to the
previous fiscal year. Comparative analysis is also presented for fiscal year 2003 compared to fiscal year 2002.

The University's annual report consists of three basic financial statements: the combined statement of net assets,
the combined statement of revenues, expenses and changes in net assets, and the combined statement of cash
flows. These statements focus on the financial condition of the University, the results of operations, and cash
flows of the University as a whole. Each of these statements is discussed below.


Financial Highlights

At June 30, 2004, the University’s total net assets increased from the previous year-end by $21.7 million,
primarily due to increases in capital assets, net of depreciation and cash and cash equivalents and a decrease in
debt service assessment payable to the Higher Education Policy Commission (the “Commission”). These
increases in net assets were partially offset by increases in accounts payable and leases payable. Total revenues
grew by 4.1%, mainly due to an increase in revenues from tuition and fees, auxiliary enterprises and grants and
contracts. Total expenses decreased from prior year mainly because of decreased supplies and other services,
other operating expenses and assessments by the Commission for debt service.

This increase is in contrast to a decrease in total net assets from fiscal year 2002 to fiscal year 2003 which was
mainly due to an increase in the debt service assessment payable to the Commission and an increase in liability
for compensated absences. There has been a steady reduction in state appropriations over the past two years,
which has been partially offset by a growth in tuition and fee revenues and revenues from auxiliary enterprises.


Net Assets

The statements of net assets present the assets (current and noncurrent), liabilities (current and noncurrent), and
net assets (assets minus liabilities) of the University as of the end of the fiscal years. Assets denote the resources
available to continue the operations of the University. Liabilities indicate how much the University owes vendors,
employees and lenders. Net assets measure the equity or the availability of funds of the University for future
periods.

Net Assets are displayed in three major categories:

Invested in capital assets, net of related debt. This category represents the University’s total investment in capital
assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but
not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net
of related debt.

                                                         23
Restricted net assets. This category includes net assets, the use of which is restricted, either due to externally
imposed constraints or because of restrictions imposed by law. They are further divided into two additional
components - nonexpendable and expendable. Nonexpendable restricted net assets include endowment and
similar type funds for which donors or other outside sources have stipulated, as a condition of the gift instrument,
that the principal is to be maintained inviolate and in perpetuity and invested for the purpose of producing present
and future income, which may either be expended or added to principal. Expendable restricted net assets
include resources for which the University is legally or contractually obligated to spend resources in accordance
with restrictions imposed by external third parties.

Unrestricted net assets. This category includes resources that are not subject to externally imposed stipulations.
Such resources are derived primarily from tuition and fees (not restricted as to use), state appropriations, sales and
services of educational activities, and auxiliary enterprises. Unrestricted net assets are used for transactions
related to the educational and general operations of the University and may be designated for specific purposes by
action of the University’s management or the Board of Governors.

Net Assets (in thousands)

                                                                            As of June 30

                                                              2004               2003              2002
Assets
 Current Assets                                           $   138,548        $   125,816       $   124,337
 Noncurrent Assets                                            671,969            657,378           642,286
Total Assets                                              $   810,517        $   783,194       $   766,623

Liabilities
 Current Liabilities                                      $    85,345        $    76,125       $    76,448
 Noncurrent Liabilities                                       252,933            256,493           233,741
Total Liabilities                                         $   338,278        $   332,618       $   310,189

Net Assets
 Invested in Capital Assets, Net of Related Debt          $   410,980        $   392,976       $   408,834
 Restricted for:
   Nonexpendable                                                3,220              2,934             2,699
   Expendable                                                  29,917             31,741            24,179
 Unrestricted                                                  28,122             22,925            20,722
Total Net Assets                                          $   472,239        $   450,576       $   456,434




                                                         24
Total assets of the University increased by $27.3 million to a total of $810.5 million as of June 30, 2004. The
increase was primarily due to an increase in capital assets, net, cash and cash equivalents, prepaid expenses,
investments and loans receivable, net. These increases were partially offset by a decrease in accounts receivable,
net. Cash and capital assets followed an upward trend and accounts receivable balances followed a downward
trend from prior years.

    •   Capital assets, net increased by $14.0 million primarily due to significant additions of construction-in-
        progress during fiscal year 2004, including stadium suites construction, Coliseum upgrade, soccer
        stadium construction, and final costs related to the Life Sciences Building and Wise Library addition. In
        contrast, the increase in capital assets, net from fiscal year 2002 to fiscal year 2003 was primarily due to
        additions of equipment, library books and land.

    •   Cash and cash equivalents increased by $12.7 million primarily due to an increase in grants activity and a
        corresponding increase in facilities and administrative earnings. Cash also increased due to improved
        collection of accounts receivable. A significant increase in grants activity and faster collection of
        outstanding accounts receivable resulted in an increase in cash balances from fiscal year 2002 to fiscal
        year 2003.

    •   Prepaid expenses increased by $1.1 million due to payments made in fiscal year 2004, for maintenance
        services and for provision of high speed data access services to be rendered in future periods. No such
        increase occurred from fiscal year 2002 to fiscal year 2003.

    •   Investments increased by $880,000 primarily due to purchase of equity and debt securities and changes in
        the market value of endowed investments. The change in the fair value of investments from fiscal year
        2002 to fiscal year 2003 was not significant.

    •   Loans receivable, net increased by $610,000 attributable to increased activity in the Perkins loan program.
        This increase in disbursement of student loan funds is due to a federal requirement to deplete the excess
        cash in the Perkins loan fund. The increased activity in the Perkins loan program has occurred over the
        past few years, causing an increase in loans receivable balances from fiscal year 2002 to fiscal year 2003.

    •   Accounts receivable, net decreased by $1.9 million primarily attributable to improvement in management
        and collectibility of balances due from sponsors. Accounts receivable balances had also experienced a
        decrease from fiscal year 2002 to fiscal 2003; however, such balances were partially offset by an increase
        in accounts receivable from the West Virginia University Hospital, Inc. for residents’ salaries paid by the
        University. During fiscal year 2004 such receivables were collected in a timely manner resulting in a
        further decrease in accounts receivable.

Total liabilities for the year increased by $5.7 million. This increase is primarily attributable to an increase in
accounts payable, leases payable, accrued payroll, advances from federal government and deferred revenue. These
increases were partially offset by a decrease in the reported debt service assessment payable to the Commission,
bonds payable, other liabilities and accrued liabilities.

    •   Accounts payable increased by $5.6 million primarily due to several construction and major repairs
        related invoices payable at the end of fiscal year 2004 compared to the previous year end. A very small
        increase was noted in accounts payable balances from fiscal year 2002 to fiscal year 2003.

    •   Leases payable increased by $4.4 million primarily due to a capital lease agreement entered into during
        fiscal year 2004 with Wesbanco Bank, Inc. for refinancing of a residence hall (Madison House/Fieldcrest
        Hall) lease and for equipment upgrade and replacement. The University has experienced an increase in
        leases payable over the last two years due to various capital lease and financing agreements to finance
        equipment and capital projects.
                                                         25
    •   Accrued payroll increased by $1.9 million mainly due to an increase in number of employees paid in
        arrears. West Virginia State Legislature requires that employees hired after July 1, 2002 be paid in
        arrears. This increase was expected and is comparable to the increase in accrued payroll from fiscal year
        2002 to fiscal year 2003.

    •   Advances from federal government increased by $600,000 primarily due to increased federal
        contributions to Perkins and School of Medicine loan programs. This increase is comparable to the
        increase in such balances from fiscal year 2002 to fiscal year 2003.

    •   Deferred revenue increased by $560,000 primarily because of timing of receipt of payments on sponsored
        awards. Deferred revenue had decreased from fiscal year 2002 to fiscal year 2003 mainly because cash
        for several scheduled or advance payment sponsored awards was received in fiscal year 2002 but the
        expenses on such awards were incurred, and the corresponding revenue recognized, mostly in fiscal year
        2003.

    •   Debt service assessment payable to the Commission decreased by $5.2 million due to debt service
        payments in fiscal year 2004. There was a $14.9 million increase in this liability from fiscal year 2002 to
        fiscal year 2003 due to additional bond proceeds received from the Commission during fiscal year 2003.

    •   Bonds payable decreased by $1.1 million due to debt service payments on the 1997 auxiliary bonds
        shown below. This decrease is consistent with decreases in prior years.
        - Dormitory Refunding Revenue and Revenue Bonds                  $600,000
        - Student Union Refunding Revenue and Revenue Bonds              $445,000
        - Athletic Facilities Refunding Revenue and Revenue Bonds $150,000

    •   Other noncurrent liabilities decreased by $770,000 mainly due to severance payments made to employees
        under the voluntary classified staff severance plan, offered by the University during fiscal year 2003. The
        accrual of liability for severance pay under such plan had caused this liability to increase from fiscal year
        2002 to fiscal year 2003.

    •   Accrued liabilities decreased by $720,000 mainly because no arbitrage rebate was owed and recorded in
        fiscal year 2004. In fiscal year 2003, a liability in the amount of $621,000 was recorded for arbitrage
        rebate on the 1998 Series A University System revenue bonds.

The University’s current assets of $138.5 million were sufficient to cover current liabilities of $85.3 million
indicating that the University has sufficient available resources to meet its current obligations.




                                                         26
The following is a comparative illustration of net assets.


                                         COMPARISON OF NET ASSETS
                                           June 30, 2004, 2003 and 2002



                                  410,980             408,834
                      460,000               392,976

                      370,000
                      280,000
       In Thousands
                      190,000
                                                         33,137            26,878 28,122             20,722
                      100,000                                     34,675                   22,925
                       10,000
                                 Invested in Capital        Restricted                Unrestricted
                                Assets, Net of Related
                                         Debt

                                                          2004       2003      2002



Invested in capital assets, net of related debt increased by $18 million primarily due to an increase in capital
assets, net, and a decrease in debt assessment payable to the Commission. This increase was partially offset by an
increase in leases payable. An increase in debt assessment payable to the Commission had caused a decrease in
this net asset category from fiscal year 2002 to fiscal year 2003.

Unrestricted net assets increased by $5.2 million mainly due to an increase in cash balances and facilities and
administrative earnings. This increase is higher than but consistent with the increase noted in this net asset
category from fiscal year 2002 to fiscal year 2003.

Restricted net assets decreased by $1.5 million mainly due to a decrease in restricted net assets expendable for
capital projects. This decrease was partially offset by additional funding made available to the Perkins and School
of Medicine loan programs. Restricted net assets experienced an increase from fiscal year 2002 to fiscal year 2003
due to an increase in transfers of restricted funds budgeted for construction activity during fiscal year 2003 and
because of increased activity in the Perkins and School of Medicine loan programs.


Revenues, Expenses and Changes in Net Assets

The statements of revenues, expenses and changes in net assets present the operating revenues, operating
expenses, nonoperating revenues and expenses and other revenues, expenses, gains or losses of the University for
the fiscal years.

State appropriations, while budgeted for operations, are considered and reported as non-operating revenues. This
is because state appropriations are provided by the West Virginia Legislature (the “Legislature”) to the University
without the Legislature directly receiving commensurate goods and services for those revenues. Student tuition
and fees are reported net of scholarship discounts and allowances. Financial aid to students is reported using the
alternative method. Under this method certain aid, such as loans and federal direct lending, is accounted for as a
third party payment, while all other aid is reflected either as operating expenses or scholarship allowances, which
reduce revenues. The utilization of capital assets is reflected in the financial statements as depreciation, which
amortizes the cost of an asset over its expected useful life.

                                                                    27
Revenues, Expenses and Changes in Net Assets (in thousands)
                                                                                                Years Ended June 30

                                                                                      2004                   2003                    2002

Operating Revenues                                                              $      405,659           $    368,077           $     320,667
Operating Expenses                                                                     590,101                592,616                 533,652
 Operating Loss                                                                       (184,442)              (224,539)               (212,985)

Net Nonoperating Revenues                                                             199,163                214,917                 212,583
 Income (Loss) before Other Revenues, Expenses, Gains or
 Losses                                                                                14,721                  (9,622)                   (402)

Capital grants and gifts                                                                6,942                   3,658                   4,054
Bond proceeds/capital projects proceeds from the Commission                                 -                     106                  47,514
 Increase (Decrease) in Net Assets Before Transfers                                    21,663                  (5,858)                 51,166
Transfer of Liability from the Commission                                                   -                       -                (107,036)
 Decrease in Net Assets                                                                21,663                  (5,858)                (55,870)

Net Assets at Beginning of Year                                                       450,576                456,434                  790,810
Restatement of Beginning Net Assets                                                         -                      -                 (278,506)
 Net Assets at Beginning of Year - Restated                                           450,576                456,434                  512,304

    Net Assets at End of Year                                                   $     472,239            $   450,576            $    456,434


Revenues:
The following charts illustrate the composition of revenues by source for 2004 and 2003.


                                2004                                                              2003


                                                                                Auxiliary    Other
                Auxiliary    Other
               Enterprises                          State                      Enterprises    7%
                              7%                                                                                        State
                  12%                           Appropriations                    11%                               Appropriations
                                                    32%                                                                 36%
                                                                      Net Tuition &
       Net Tuition &                                                      Fees
           Fees                                                           22%
           25%
                                       Gifts, Grants &                                               Gifts, Grants &
                                          Contracts                                                     Contracts
                                             24%                                                           24%




The total revenues for fiscal year 2004 were $621.9 million, an increase of $24.6 million over prior year. The
most significant sources of revenue for the University are state appropriations, tuition and fees and grants and
contracts. Some highlights of the information presented on the statement of revenues, expenses, and changes in
net assets are as follows:

•    Tuition and fees increased by $23.4 million primarily due to an increase in the fee rate and an overall increase
     in enrollment. This increase is consistent with increases in prior years.

                                                                 28
•   Auxiliary revenue increased by $9.5 million primarily due to an increase in student room and dining services
    revenue, athletics revenue and auxiliary fee revenue. Student room and dining services revenue increased due
    to increased meal plan rates, additional students and increased food sales at the Student Union restaurants.
    Athletics revenue increased due to the University’s participation in the Gator Bowl and higher ticket sales and
    correspondingly higher surcharge and concession receipts. Auxiliary fee revenue increased due to an increase
    in the fee rate and number of students. Revenues from auxiliary enterprises grew comparably from fiscal year
    2002 to fiscal year 2003.

•   Grants and contracts revenue increased by $5.5 million, a lower increase compared to the increase from fiscal
    year 2002 to fiscal year 2003. The increase is primarily because of revenues from new sponsored awards
    received during fiscal year 2004 and increase in revenues from existing sponsored awards. Contractual
    payments from University Health Associates to the WVU School of Medicine increased during fiscal year
    2004. Student financial aid received and disbursed under the Pell Grant, Federal Work-Study, and the
    Supplemental Educational Opportunity Grant programs remained relatively constant with the prior year as
    opposed to an increase in such aid from fiscal year 2002 to fiscal year 2003.

•   Capital grants & gifts increased by $3.3 million because of funds received during fiscal year 2004 from the
    WVU Foundation for Athletics construction projects.

•   State appropriations decreased by $13.8 million primarily due to a mandated reduction in base budget
    allocations from the State and a mid year rescission of state funds. This decrease is considerably higher than
    the decrease in state appropriations from fiscal year 2002 to fiscal year 2003.

•   Gift income decreased by $1.9 million primarily due to a decrease in funds requested and received from the
    WVU Foundation for operating expenditures and building improvements. This decrease is in contrast to an
    increase in gift income from fiscal year 2002 to fiscal year 2003 caused by increase in reimbursements, by the
    Foundation, of operating expenditures initially incurred by the University and additional Foundation funds
    received during fiscal year 2003 for various projects.

•   Federal appropriations decreased by $580,000 primarily due to a reduction in appropriations from the United
    States Department of Agriculture and timing of expenditures and recognition of corresponding revenue.
    During fiscal year 2004 the University achieved its goal of expending federal funds within the annual
    allocation. In comparison, during fiscal year 2003, carryover balances from fiscal year 2002 were used in
    addition to annual appropriations for expenditures.

•   Investment income decreased by $550,000 primarily due to a decrease in interest receipts and dividend
    income. Investment income declined in fiscal year 2003 compared to fiscal year 2002 due to a decrease in
    cash held on deposit with the trustee and lower overall earnings resulting from declining interest rates and
    markets.




                                                        29
Expenses:
The following is a graphic comparison of total expenses by category between 2004 and 2003.


                                           2004                                                        2003



                                      Salaries &                                                   Salaries &
                                        Wages                                                        Wages
                                         49%                                                          47%


                  Other                                                              Other
                   2%                                                                 3%
                                                                                                                          Benefits
                                                              Benefits
                                                                                                                           15%
   Depreciation                                                15%
       8%                                                                     Depreciation
                                                                                  8%
                                                    Utilities &                                                  Utilities &
                           Supplies &                                                         Supplies &
                                                   Scholarships                                                 Scholarships
                          Other Services                                                     Other Services
                                                       7%                                                           7%
                              19%                                                                20%



Total expenses for fiscal year 2004 were $600.2 million, a decrease of $3.0 million from prior year. This is in
direct contrast to an increase in total expenses from fiscal year 2002 to fiscal year 2003. The decrease in total
expenses underscores the University’s commitment towards cost control. This decrease is primarily due to a
decrease in several categories of expenses as detailed below.

    •    Supplies and other services decreased by $6.9 million mainly because expenses were capitalized to
         construction-in-progress as a result of major construction activity during fiscal year 2004, whereas, during
         fiscal year 2003 expenses were incurred mainly for large repairs and maintenance projects and were not
         capitalized. The reduction in supplies expense during fiscal year 2004 is also a result of reduction in base
         budgets for University departments and indicates conservative spending across the University. This
         expense category had experienced an increase from fiscal year 2002 to fiscal year 2003 due to increased
         contractual and professional services, telecommunications, repairs and maintenance and travel costs and
         increase in off-campus facilities rentals due to increased demand for student housing.

    •    Other operating expenses decreased by $3.3 million from fiscal year 2003 to fiscal year 2004. This is
         because the net present value of future severance payments, under the voluntary classified staff severance
         plan offered by the University, was recorded as an expense during fiscal year 2003. The expense in fiscal
         year 2004 reflects the difference between the net present value recorded in the prior year and benefit
         payments made to severed employees in fiscal year 2004.

    •    Assessments by the Commission for debt service decreased by $1.9 million in fiscal year 2004.
         Assessments decreased from fiscal year 2002 to fiscal year 2003 as well due to principal payments being
         recorded as assessments in fiscal year 2002.

    •    Benefits expense decreased by $700,000 primarily due to the voluntary classified staff severance plan
         offered by the University in fiscal year 2003 that reduced the number of employees eligible for
         postemployment health or life insurance benefits. An increase in health insurance premiums caused the
         benefits expense to increase from fiscal year 2002 to fiscal year 2003, whereas, there was no significant
         increase for fiscal year 2004.

    •    Salaries and wages increased by $7.4 million from the prior year mainly due to a pay raise, for all
         University employees, instituted in October 2002 (fiscal year 2003). As a result, salary expense for fiscal
         year 2004 included twelve months of such salary increase compared to only nine months in fiscal year
         2003. Additionally, an increase in the number of students on payroll and upgrades for nonclassified and
                                                                         30
        faculty non-tenure track employees contributed to the increase. Salary expense increased from fiscal year
        2002 to fiscal year 2003 also primarily due to the pay raise effective October 2002.

    •   Other nonoperating income (expenses) - net changed by $1.5 million from prior year. This is because no
        capital gains were recorded during fiscal year 2004, whereas, fiscal year 2003 recorded a gain on sale of
        University’s old poultry farm under a land swap agreement with the Monongalia Health Systems, Inc.

    •   Scholarship and fellowship expenses increased by $1.3 million over the prior year. This increase is related
        to an increase in student enrollment and a corresponding increase in tuition and fees.


Cash Flows

The statements of cash flows provide information about the cash receipts, cash payments, and net change in cash
resulting from the operating, investing, and financing activities (capital and noncapital) of the University during
the year. This statement helps users assess the University’s ability to generate net cash flows, its ability to meet
obligations as they come due, and its need for external financing.

The statement of cash flows is divided into five sections:

Cash flows from operating activities. This section shows the net cash used by the operating activities of the
University.

Cash flows from noncapital financing activities. This section reflects the cash received and paid for nonoperating,
noninvesting, and noncapital financing purposes.

Cash flows from capital financing activities. This section includes cash used for the acquisition and construction
of capital and related items.

Cash flows from investing activities. This section shows the purchases, proceeds, and interest received from
investing activities.

Reconciliation of operating loss to net cash used in operating activities. This section provides a schedule that
reconciles the accrual-based operating income loss and net cash used in operating activities.




                                                         31
Cash Flows (in thousands)
                                                                            Years Ended June 30

                                                                  2004              2003              2002
Cash Provided (Used) By:
   Operating Activities                                       $ (132,539)       $ (166,971)       $ (168,536)
   Noncapital Financing Activities                               200,392           215,414           212,384
   Capital Financing Activities                                  (55,521)          (41,674)          (43,706)
   Investing Activities                                              347             1,714             2,879
Increase in Cash and Cash Equivalents                             12,679             8,483             3,021

Cash and Cash Equivalents, Beginning of Year                       90,906            82,423            79,402

Cash and Cash Equivalents, End of Year                        $   103,585       $    90,906       $    82,423


Total cash and cash equivalents increased by $12.7 million during fiscal year 2004 to $103.6 million.

    •   Net cash used in operating activities decreased by $34.4 million primarily due to increases in cash inflows
        from tuition and fees, grants and contracts and auxiliary activities. These increases were partially offset
        by higher salaries and wages, benefits, and payments for scholarships and fellowships. This decrease in
        net cash used in operating activities is higher than but consistent with the decrease of $1.6 million from
        fiscal year 2002 to fiscal year 2003.

    •   Net cash provided by noncapital financing activities decreased by $15.0 million primarily due to a
        decrease in cash inflows from state appropriations. Net cash provided by noncapital financing activities
        had increased from fiscal year 2002 to fiscal year 2003 primarily due to an increase in gifts and a decrease
        in assessments by the Commission for operations.

    •   Net cash used in capital financing activities increased by $13.9 million mainly due to a decrease in
        proceeds from capital debt. From fiscal year 2002 to fiscal year 2003, net cash used in capital financing
        activities had decreased mainly due to a decrease in purchases of capital assets.

    •   Net cash provided by investing activities decreased by $1.4 million primarily due to a decrease in
        investment income and an increase in investments purchased. This decrease in net cash provided by
        investing activities is consistent with the $1.2 million decrease from fiscal year 2002 to fiscal year 2003.




                                                         32
The following graphs illustrate the sources and uses of cash -



                                                  SOURCES OF CASH


                                                                2004      2003         2002



                           300
                                                                                                    220
                           250                                                                214
                                                                                       198
                           200         155                                                                     166
                                               132    152                                               144
                                                          135 121                                    141
               In Millions 150                    113
                           100                                         78 69
                                                                                  62
                            50
                             0
                                           s           s                 e                s               r
                                       f ee        act               ris              ion            Ot
                                                                                                       he
                                an
                                   d           ntr             terp            pr iat
                                            co              en
                            ion          nd              ry                pro
                       T uit         tsa           xilia             te
                                                                        ap
                                  an           Au                Sta
                                Gr




                                                          USES OF CASH


                                                                2004        2003        2002



                              350              294 288
                              300                        277
                              250
                              200
                  In Millions                                                          116                     123
                              150                                                         115                     108 104
                                                           90                                   101
                              100                               82 75 41                             52 86
                                                                         40 36                    47
                               50
                                -
                                         s               ts             s            es           ts               r
                                       ge           ef i            hip          pli           sse               he
                                     wa          en            lars           up             la               Ot
                                   &          B             ho              S             ta
                               ies                      Sc                            api
                            lar                     &                           o fc
                         Sa                     ies
                                           tilt                            ase
                                        U                              r ch
                                                                    Pu




                                                                       33
Capital Asset and Long Term Debt Activity

The University had significant construction activity in fiscal year 2004.

    •   Several Athletics projects were undertaken including construction of Stadium suites, club seats, sound
        system and scoreboard for $7.3 million; Coliseum roof replacement, locker room renovations and life
        safety improvements for $2.5 million; and construction of soccer stadium for $1.4 million.

    •   Final costs were incurred associated with the completion of the Life Sciences Building for $3.2 million
        and Wise Library addition for $1.1 million.

    •   Other activity included renovation of the Mountainlair parking garage, upgrade of Boreman Hall
        sprinklers, and Sunnyside land purchase. Grant funds were used for the construction of the Blanchette
        Rockefeller Neurosciences Institute building, the Health Sciences Center Eastern Panhandle Clinical
        Campus and the National Education and Technology Center.

    •   The University capitalized final costs associated with the upgrade of its Oracle Financial and Human
        Resources systems to Oracle version 11i and ongoing costs associated with the implementation of
        KRONOS, a leave tracking system.

    •   The University entered into a lease purchase agreement for $8.6 million with Wesbanco Bank, Inc. during
        fiscal year 2004. The total lease amount consists of $3.9 million real property lease purchase agreement
        and $4.7 million personal property lease purchase agreement. The real property lease refinanced the
        Madison House (Fieldcrest Hall) lease. Projects financed by the personal property lease include telephone
        system/equipment upgrade and electrical equipment upgrade at the Health Sciences Center, dental
        equipment upgrade at the WVU School of Dentistry and network services equipment upgrade at WVU.

The University has committed approximately $211.6 million for capital projects. The capital plan includes various
capital projects to construct, renovate and/or upgrade academic and auxiliary facilities on the Downtown,
Evansdale and Potomac State College campuses. These capital projects will be financed through bond proceeds
and other sources of revenues available to the University including internal financing, operational revenue and
other financing sources. The bond proceeds will be generated through the issuance of revenue bonds by the
University and the Higher Education Facilities 2004 Series B bonds issued by the Commission (HEPC revenue
bonds).

    •   This capital plan includes the following significant projects –

        Renovation of Brooks Hall for $32 million, downtown infrastructure upgrade for $12.5 million, and
        replacement of brick facade at the Engineering building for $5.5 million to be financed primarily by the
        HEPC revenue bonds.

        Oglebay Hall renovation for $19 million, acquisition of St. Francis real property for $11 million,
        construction of plant pathology building for $9.5 million, and Colson Hall upgrade for $8 million to be
        funded primarily by University’s revenue bond proceeds.

        Such bond proceeds will also finance several athletic projects including construction or renovation of the
        football stadium, the Coliseum and the soccer stadium; housing projects including construction of
        residence halls at the Morgantown campus and Potomac State College; and Student Union and parking
        projects.

    •   The University has committed approximately $3.0 million each year from fiscal year 2004 for repairs and
        deferred maintenance.
                                                         34
The Commission assesses each public institution of higher education for funds to meet the payment of debt
service on various revenue bonds that were issued for the financing of academic and other facilities of the State’s
universities and colleges, including certain facilities of the University. The bonds remain as a capital obligation of
the Commission; however $116.7 million is reported as debt service assessment payable to the Commission by
the University.

During fiscal year 2004, the University received an A+ and A1 credit ratings from Standard and Poor’s and
Moody’s respectively. The University plans to issue approximately $225 million of revenue bonds in fiscal year
2005, including refunding of outstanding 1997 Series A and B revenue bonds.


Economic Outlook

The University’s financial position is closely tied to that of the State of West Virginia. The University is feeling
the impact of not only a weakening West Virginia economy but also of reallocations of State appropriations away
from higher education and WVU and its regional campuses. The level of State support is one of the key factors
influencing the University's financial condition. State appropriations contribute approximately 32% of all
revenues, down from 36% in fiscal year 2003. Current guidance from the Governor’s Office projects a reduction
of $7.4 million in fiscal year 2005.

The University also anticipates an increase of approximately $4.8 million in fiscal year 2005 for approved faculty
and staff promotions. The commitment of operating funds to fund capital expenditures has an ongoing impact on
the overall financial picture of the University.

A steady decline in State appropriations has necessitated the University to focus on cost control and revenue
generation through both enrollment growth and tuition increases. The University has addressed the increased need
for funding and maintaining quality academic programs and student services by approving tuition and fees
increases for fiscal year 2005. The University is also pursuing other revenue enhancement and cost containment
strategies to mitigate the budget shortfall. Despite the reductions in State appropriations and the necessity to cut
costs, the University is committed to investing in the future and continues to offer an exceptional educational
value. The University is looking at banner enrollment of more than 32,000 students for fiscal year 2005.

The University is faced with several challenges in light of the predicted State budget cuts. The University needs to
continue to address priority requirements for investments in employees, in capital projects and in technology, as
well as to make investments to generate resources. The University’s senior leadership is actively engaged in
developing processes to generate additional revenues, reduce expenditures and achieve efficiencies.




                                                          35
WEST VIRGINIA UNIVERSITY

COMBINED STATEMENTS OF NET ASSETS
AS OF JUNE 30, 2004 AND 2003
(Dollars in Thousands)
                                                                                          2004                2003
ASSETS
 Current Assets:
  Cash and cash equivalents                                                           $          97,089   $          82,240
  Accounts receivable, net of allowances for doubtful accounts of $3,667 and $3,032              34,832              36,763
  Loans receivable, current portion                                                               3,935               5,237
  Inventories                                                                                     1,522               1,543
  Prepaid expenses                                                                                1,170                  33
    Total current assets                                                                     138,548             125,816

 Noncurrent Assets:
  Restricted cash and cash equivalents                                                         6,496               8,666
  Investments                                                                                  8,392               7,515
  Loans receivable, net of allowances for doubtful accounts of $5,702 and $5,344              29,797              27,888
  Bond issuance cost, net                                                                        682                 721
  Capital assets, net                                                                        626,602             612,588

    Total noncurrent assets                                                                  671,969             657,378
TOTAL ASSETS                                                                          $      810,517      $      783,194


                                                                                                                 (continued)




                                                              36
WEST VIRGINIA UNIVERSITY

COMBINED STATEMENTS OF NET ASSETS (CONTINUED)
AS OF JUNE 30, 2004 AND 2003
(Dollars in Thousands)
                                                                           2004                2003
LIABILITIES
 Current Liabilities:
  Accounts payable                                                     $          24,490   $          18,878
  Accrued liabilities                                                              1,556               2,272
  Accrued payroll                                                                  7,273               5,426
  Deposits                                                                         2,106               1,675
  Deferred revenue                                                                21,901              21,345
  Due to the Commission                                                               53                  46
  Compensated absences, current portion                                           18,484              17,584
  College system debt owed to the Commission, current portion                        213                 199
  Debt service assessment payable to the Commission, current portion               4,308               4,216
  Leases payable, current portion                                                  3,475               3,358
  Bonds payable, current portion                                                   1,391               1,126
  Notes payable, current portion                                                      95                   -
     Total current liabilities                                                    85,345              76,125

 Noncurrent Liabilities:
  Compensated absences                                                         34,487              35,614
  College system debt owed to the Commission                                    1,995               2,208
  Advances from federal government                                             26,860              26,260
  Debt service assessment payable to the Commission                           112,422             117,675
  Leases payable                                                               11,169               6,913
  Bonds payable                                                                63,573              64,964
  Notes payable                                                                   333                   -
  Other noncurrent liabilities                                                  2,094               2,859
     Total noncurrent liabilities                                             252,933             256,493
TOTAL LIABILITIES                                                      $      338,278      $      332,618

NET ASSETS
 Invested in capital assets, net of related debt                       $      410,980      $      392,976
 Restricted for:
   Nonexpendable:
    Scholarships and fellowships                                                   1,569               1,415
    Loans                                                                          1,126                 994
    Other                                                                            525                 525
   Total nonexpendable                                                             3,220               2,934
   Expendable:
    Scholarships and fellowships                                                      95                 175
    Sponsored programs                                                             2,025               1,629
    Loans                                                                         14,355              13,424
    Capital projects                                                              13,347              16,505
    Debt service                                                                       8                   8
    Other                                                                             87                   -
   Total expendable                                                               29,917              31,741
 Unrestricted                                                                     28,122              22,925
TOTAL NET ASSETS                                                       $      472,239      $      450,576

See notes to combined financial statements.


                                                              37
WEST VIRGINIA UNIVERSITY

COMBINED STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS
YEARS ENDED JUNE 30, 2004 AND 2003
(Dollars in Thousands)
                                                                                         2004               2003
OPERATING REVENUES
  Student tuition and fees, net of scholarship allowances of $19,924 and $17,315     $      156,157     $      132,791
  Federal appropriations                                                                      7,218              7,795
  Local appropriations                                                                          661                631
  Federal grants and contracts                                                               90,419             94,930
  State grants and contracts                                                                 29,212             29,296
  Local grants and contracts                                                                    401                462
  Nongovernmental grants and contracts                                                       27,011             16,898
  Sales and services of educational departments                                               8,623              8,737
  Auxiliary enterprises, net of scholarship allowances of $2,521 and $2,076                  76,999             67,538
  Interest on student loans receivable                                                          670                688
  Other operating revenues (including revenue from outsourced enterprise of $1,550
   and $1,711)                                                                                  8,288              8,311
      Total operating revenues                                                              405,659            368,077

OPERATING EXPENSES
  Salaries and wages                                                                        296,374            289,018
  Benefits                                                                                   89,131             89,829
  Scholarships and fellowships                                                               19,441             18,135
  Utilities                                                                                  21,226             21,115
  Supplies and other services                                                               114,765            121,730
  Depreciation                                                                               45,755             45,936
  Loan cancellations and write-offs                                                             658                767
  Assessments by the Commission for operations                                                2,194              2,194
  Waivers in support of other State institutions                                                367                386
  Other operating expenses                                                                      190              3,506
      Total operating expenses                                                              590,101            592,616
OPERATING LOSS                                                                             (184,442)          (224,539)


                                                                                                              (continued)




                                                                     38
WEST VIRGINIA UNIVERSITY

COMBINED STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
(Dollars in Thousands)
                                                                      2004                2003
NONOPERATING REVENUES (EXPENSES)
  State appropriations                                            $      200,708      $      214,477
  Gifts                                                                    7,366               9,321
  Investment income                                                        1,224               1,773
  Interest on capital asset-related debt                                  (4,007)             (4,077)
  Assessments by the Commission for debt service                          (5,543)             (7,477)
  Other nonoperating income (expenses) - net                                (585)                900
      Net nonoperating revenues                                          199,163             214,917
INCOME (LOSS) BEFORE OTHER REVENUES, EXPENSES, GAINS, OR LOSSES              14,721              (9,622)
   Capital grants and gifts                                                   6,942              3,658
   Bond/capital projects proceeds from the Commission                             -                106
INCREASE (DECREASE) IN NET ASSETS                                            21,663              (5,858)
NET ASSETS--BEGINNING OF YEAR                                            450,576             456,434
NET ASSETS--END OF YEAR                                           $      472,239      $      450,576


See notes to combined financial statements.




                                                        39
WEST VIRGINIA UNIVERSITY

COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2004 AND 2003
(Dollars in Thousands)
                                                                       2004                 2003
CASH FLOWS FROM OPERATING ACTIVITIES
  Tuition and fees                                                 $      154,928       $      131,990
  Federal and local appropriations                                          7,879                8,426
  Grants and contracts                                                    151,569              134,636
  Payments to suppliers                                                  (115,698)            (114,836)
  Payments to employees                                                  (294,237)            (288,131)
  Payments for benefits                                                   (89,634)             (82,481)
  Payments to utilities                                                   (21,101)             (22,224)
  Payments for scholarships and fellowships                               (19,453)             (18,118)
  Loan advances from federal government                                       623                  646
  Disbursements of loans to students                                       (1,265)              (1,974)
  Interest earned on loans to students                                        669                  688
  Auxiliary enterprise charges                                             77,839               68,687
  Sales and service of educational departments                              8,566                8,677
  Other receipts - net                                                      6,776                7,043
    Net cash used in operating activities                                (132,539)            (166,971)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
  State appropriations                                                    197,708              214,477
  Gifts                                                                     7,366                9,321
  Assessments by the Commission for operations                             (5,823)              (7,477)
  William D. Ford direct lending receipts                                 105,435               89,491
  William D. Ford direct lending payments                                (105,201)             (89,756)
  Other nonoperating receipts (payments) - net                                907                 (642)
    Net cash provided by noncapital financing activities                  200,392              215,414

CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES
  Proceeds from (payments on) Commission debt assessment payable           (4,936)              14,855
  Capital gifts and grants received                                         6,935                3,369
  Purchases of capital assets                                             (47,166)             (51,917)
  Principal paid on capital debt and leases                                (5,566)              (4,622)
  Interest paid on capital debt and leases                                 (4,788)              (3,359)
    Net cash used in capital financing activities                         (55,521)             (41,674)

CASH FLOWS FROM INVESTING ACTIVITIES
  Investment income                                                            1,224                1,774
  Purchase of investments                                                       (877)                 (60)
    Net cash provided by investing activities                                   347                 1,714

INCREASE IN CASH AND CASH EQUIVALENTS                                         12,679                8,483
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR                                 90,906               82,423
CASH AND CASH EQUIVALENTS - END OF YEAR                            $      103,585       $          90,906

                                                                                              (continued)




                                                             40
WEST VIRGINIA UNIVERSITY

COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
(Dollars in Thousands)
                                                                        2004                 2003
Reconciliation of operating loss to net cash
 used in operating activities:

 Operating loss                                                     $     (184,442)      $     (224,539)

 Adjustments to reconcile operating loss to net cash
  used in operating activities:
  Depreciation expense                                                         45,755               45,936
  Changes in assets and liabilities:
     Accounts receivable, net                                                   1,963               (2,608)
     Loans receivable, net                                                       (607)              (1,198)
     Prepaid expenses                                                          (1,137)                  80
     Inventories                                                                   21                  (89)
     Accounts payable                                                           3,255                5,230
     Accrued liabilities                                                        1,145                3,600
     Deposits                                                                     431                  484
     Deferred revenue                                                             556               (3,905)
     Due to the Commission                                                        148                2,422
     Compensated absences                                                        (227)               6,969
     Advances from federal government                                             600                  647
 Net cash used in operating activities                              $     (132,539)      $     (166,971)

 Noncash Transactions:
  Equipment purchased on capital lease                              $           8,703    $           3,807
   Donated capital assets                                           $           5,297    $           2,995
   Gain on investments                                              $            301     $            105
   Bond discount amortization                                       $            108     $            108
   Loss on dispositions                                             $           1,092    $           1,003

Reconciliation of cash and cash equivalents
 to the statements of net assets:
   Cash and cash equivalents classified as current assets           $       97,089       $          82,240
   Cash and cash equivalents classified as noncurrent assets                 6,496                   8,666
                                                                    $      103,585       $          90,906

See notes to combined financial statements.




                                                               41
WEST VIRGINIA UNIVERSITY

NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004 AND 2003


1.   ORGANIZATION

     West Virginia University (the “University”) is governed by the West Virginia University
     Board of Governors (the “Board”). The Board was established by Senate Bill 653 (“S.B.
     653”).

     Powers and duties of the Board include, but are not limited to, the power to determine,
     control, supervise and manage the financial, business and educational policies and affairs of
     the institution(s) under its jurisdiction, the duty to develop a master plan for the institution,
     the power to prescribe the specific functions and institution’s budget request, the duty to
     review at least every five years all academic programs offered at the institution, and the
     power to fix tuition and other fees for the different classes or categories of students enrolled
     at its institution.

     S.B. 653 also created the West Virginia Higher Education Policy Commission (the
     “Commission”), which is responsible for developing, gaining consensus around and
     overseeing the implementation and development of a higher education public policy agenda.

     During fiscal year 2004, Senate Bill 448 (“S.B. 448”) was passed. Beginning for fiscal
     years ending June 30, 2005, S.B. 448 requires the transfer of certain net assets from West
     Virginia University Institute of Technology to its related community and technical college.
     The exact amounts to be transferred have not yet been determined.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The combined financial statements of the University have been prepared in accordance with
     generally accepted accounting principles as prescribed by the Governmental Accounting
     Standards Board (GASB), including Statement No. 34, Basic Financial Statements – and
     Management’s Discussion and Analysis – for State and Local Governments, and Statement
     No. 35, Basic Financial Statements – and Management’s Discussion and Analysis – for
     Public Colleges and Universities, as amended by GASB Statement No. 37, Basic Financial
     Statements – and Management’s Discussion and Analysis – for State and Local
     Governments: Omnibus, and No. 38, Certain Financial Statement Note Disclosures. The
     financial statement presentation required by GASB Statements No. 34 and No. 35 provides
     a comprehensive, entity-wide perspective of the University’s assets, liabilities, net assets,
     revenues, expenses, changes in net assets and cash flows.

     The University follows all GASB pronouncements as well as Financial Accounting
     Standards Board (FASB) Statements and Interpretations, Accounting Principles Board
     Opinions and Accounting Research Bulletins issued on or before November 30, 1989 and
     amendments thereof, and has elected not to apply the FASB Statements and Interpretations
     issued after November 30, 1989 to its combined financial statements.




                                                 42
a. Reporting Entity – The University is an operating unit of the West Virginia Higher
   Education Fund and represents separate funds of the State that are not included in the
   State’s general fund. The University is a separate entity, which, along with all State
   institutions of higher education and the Commission (which includes West Virginia
   Network for Educational Telecomputing (WVNET)), form the Higher Education Fund of
   the State. The Higher Education Fund is considered a component unit of the State, and
   its financial statements are discretely presented in the State’s comprehensive annual
   financial report.

   The accompanying combined financial statements present all funds under the authority of
   West Virginia University, including Potomac State College, West Virginia University
   Institute of Technology (including the Community and Technical College at West
   Virginia University Institute of Technology) and West Virginia University at Parkersburg
   (the “Regional Campuses”) and the Tech Research and Development Corporation and the
   West Virginia University Research Corporation (the “Corporations”). The basic criteria
   for inclusion in the accompanying combined financial statements is the exercise of
   oversight responsibility derived from the ability of the University to significantly
   influence operations and accountability for fiscal matters of related entities. Related
   foundations and other affiliates of the University (see Notes 14 and 15) are not part of the
   University reporting entity and are not included in the accompanying combined financial
   statements as the University has no ability to designate management, cannot significantly
   influence operations of these entities and is not accountable for the fiscal matters of these
   entities under GASB Statement No. 14, The Financial Reporting Entity.

   As of July 1, 2003, the University adopted GASB Statement No. 39, Determining
   Whether Certain Organizations are Component Units, as an amendment to GASB
   Statement No. 14. Related foundations and other affiliates of the University (see Notes
   14 and 15) do not meet the criteria for determination as component units of the
   University as described in GASB Statement No. 39.

b. Basis of Accounting – For financial reporting purposes, the University is considered a
   special-purpose government engaged only in business-type activities. Accordingly, the
   combined financial statements of the University have been prepared on the accrual basis
   of accounting with a flow of economic resources measurement focus. Revenues are
   reported when earned and expenses when materials or services are received. All accounts
   and transactions between the University, the Regional Campuses and the Corporations
   have been eliminated.

c. Cash and Cash Equivalents – For purposes of the statement of net assets, the University
   considers all highly liquid investments with an original maturity of three months or less
   to be cash equivalents.

   Cash and cash equivalents on deposit with the West Virginia Treasurer’s Office (the
   “Treasurer”) are pooled by the Treasurer with other available funds of the State for
   investment by the West Virginia Investment Management Board (the IMB). These funds
   are transferred to the IMB and the IMB is directed by the Treasurer to invest these funds
   in specific external investment pools. Investment income from the investment pools is
   allocated by the Treasurer to the various participants in the investment pools based on the
   balances of the various participants and their deposits with the Treasurer in the month in
   which the income was earned. Balances in the investment pools are recorded at fair
   value, which is determined by a third party pricing service based on asset portfolio
   pricing models and other sources, in accordance with GASB Statement No. 31,

                                            43
   Accounting and Financial Reporting for Certain Investments and for External Investment
   Pools. The IMB was established by the State Legislature and is subject to oversight by
   the State Legislature. Fair value and investment income are allocated to participants in
   the pools based upon the funds that have been invested. The amounts on deposit with the
   Treasurer are available for immediate withdrawal and, accordingly, are presented as cash
   and cash equivalents in the accompanying combined financial statements.

d. Investments – Investments are presented at fair value, based upon quoted market values.
   The University’s investments include investments pooled with other State funds in a cash
   liquidity pool to maximize investment income. Income on these investments is allocated
   as described above. Regulatory oversight for investments on deposit with the Treasurer
   is provided by the State’s Investment Management Board in accordance with statutory
   guidelines. These investments are non-categorized with respect to risk and collateral
   disclosure. Investments also include U.S. Government securities, municipal obligations,
   high-grade corporate obligations, and equity securities. The University’s other
   investments are categorized as to credit risk as insured and registered.

e. Allowance for Doubtful Accounts – It is the University’s policy to provide for future
   losses on uncollectible accounts and loans receivable based on an evaluation of the
   underlying account and loan balances, the historical collectibility experienced by the
   University on such balances and such other factors which, in management’s judgment,
   require consideration in estimating doubtful accounts.

f. Inventories – Inventories are stated at the lower-of-cost or market, cost being determined
   on the first-in, first-out method.

g. Noncurrent Cash, Cash Equivalents, and Investments – Cash and investments that are (1)
   externally restricted to make debt service payments or long-term loans to students,
   maintain sinking fund or reserve funds, (2) to purchase capital or other noncurrent assets,
   and (3) permanently restricted net assets are classified as a noncurrent asset on the
   statement of net assets.

h. Capital Assets – Capital assets include property, plant and equipment, books and
   materials that are part of a catalogued library, and infrastructure assets. Capital assets are
   stated at cost at the date of acquisition or construction, or fair market value at the date of
   donation in the case of gifts. Depreciation is computed using the straight-line method
   over the estimated useful lives of the assets, generally 15 to 50 years for buildings,
   infrastructure and land improvements, and 3 to 15 years for furniture, equipment, and
   library books. As of August 1, 2002, the University changed its capitalization threshold
   from $1,000 to $5,000.

i. Deferred Revenue – Revenues for programs or activities to be conducted primarily in the
   next fiscal year are classified as deferred revenue, including items such as football ticket
   sales, orientation fees, room and board, financial aid deposits, and advance payments on
   sponsored awards. Financial aid deposits are separately classified.

j. Compensated Absences – The University accounts for compensated absences in
   accordance with the provisions of GASB Statement No. 16, Accounting for Compensated
   Absences. This statement requires entities to accrue for employees’ rights to receive
   compensation for vacation leave or payments in lieu of accrued vacation or sick leave as
   such benefits are earned and payment becomes probable.


                                            44
   The University’s full-time employees earn up to two vacation leave days for each month
   of service and are entitled to compensation for accumulated, unpaid vacation leave upon
   termination. Full-time employees also earn 1-1/2 sick leave days for each month of
   service and are entitled to extend their health or life insurance coverage upon retirement
   in lieu of accumulated, unpaid sick leave. Generally, two days of accrued sick leave
   extend health insurance for one month of single coverage and three days extend health
   insurance for one month of family coverage. For employees hired after 1988, the
   employee shares in the cost of the extended benefit coverage to the extent of 50% of the
   premium required for the extended coverage. Employees hired on or after July 1, 2001
   will no longer receive sick leave credit toward insurance premiums when they retire.

   Certain faculty employees (generally those with less than a 12-month contract) earn a
   similar extended health or life insurance coverage retirement benefit based on years of
   service. Generally 3-1/3 years of teaching service extend health insurance for one year of
   single coverage and 5 years extend health insurance for one year of family coverage.

   The estimate of the liability for the extended health or life insurance benefit has been
   made on the vesting method in accordance with the provisions of GASB Statement
   No.16. Under that method, the University has identified the accrued sick leave benefit
   earned to date by each employee, has determined the cost of that benefit by reference to
   the benefit provisions and the current cost experienced by the University for such
   coverage and estimated the probability of the payment of that benefit to employees upon
   retirement.

   The estimated expense and expense incurred for the vacation leave, sick leave or
   extended health or life insurance benefits are recorded as a component of benefits
   expense on the statement of revenues, expenses, and changes in net assets.

k. Severance Plan – Effective April 4, 2003, the University adopted the Classified Staff
   Severance Plan (the “Severance Plan”) to provide incentives for the voluntary severance
   of the University’s classified staff. During the period from April 22 to June 17, 2003, full
   time benefits eligible classified staff who had fifteen or more years of full time active
   service with the University as of June 30, 2003 were eligible to elect to participate in the
   Severance Plan. Participants could elect an exit date for the Severance Plan of either
   June 30, 2003 or January 15, 2004. Participants electing the June 30, 2003 exit date will
   receive 100% of their fiscal year 2003 base salary not to exceed $45,000. Participants
   electing the January 15, 2004 exit date will receive their fiscal year 2003 base salary less
   $5,000 not to exceed $40,000. The total payment for either exit date will be divided into
   96 equal consecutive monthly payments. If the employee is over age 59 at the time his or
   her payments begin, the number of monthly installments are reduced so that all payments
   will be completed prior to the employees 67th birthday. Any employee age 66 or older at
   the time his or her benefits begin will receive his or her payment in a lump sum. The
   University’s total liability as of June 30, 2004 and 2003 was $3.0 million and $3.8
   million, respectively, which includes approximately $217,000 and $268,000 for
   employee benefits as of June 30, 2004 and 2003, respectively.

l. Noncurrent Liabilities – Noncurrent liabilities include (1) principal amounts of revenue
   bonds payable, notes payable, and capital lease obligations with contractual maturities
   greater than one year; and (2) estimated amounts for accrued compensated absences and
   other liabilities that will not be paid within the next fiscal year.



                                           45
m. Net Assets – GASB Statements No. 34 and No. 35 report equity as “net assets” rather
   than “fund balance”. Net assets are classified according to external donor restrictions or
   availability of assets for satisfaction of University obligations. The University’s net
   assets are classified as follows:

   Invested in capital assets, net of related debt: This represents the University’s total
   investment in capital assets, net of outstanding debt obligations related to those capital
   assets. To the extent debt has been incurred but not yet expended for capital assets, such
   amounts are not included as a component of invested in capital assets, net of related debt.

   Restricted net assets – expendable: This includes resources which the University is
   legally or contractually obligated to spend in accordance with restrictions imposed by
   external third parties.

   The West Virginia State Legislature, as a regulatory body outside the reporting entity, has
   restricted the use of certain funds by Article 10, “Fees and Other Money Collected at
   State Institutions of Higher Education” of the West Virginia Code. House Bill 101,
   passed in March 2004, simplified the tuition and fee restrictions. For 2004, these
   restrictions are for auxiliaries and capital items. For 2003, these restrictions were for the
   following: off campus instruction; public interest research group; libraries; library
   supplies; and improvement in student services; faculty improvement; health education
   student loan fund; health sciences education; student activities; auxiliary operations;
   bookstore operations; and special programs. These activities are fundamental to the
   normal ongoing operations of the institution. These restrictions are subject to change by
   future actions of the West Virginia State Legislature. At June 30, 2004 and 2003, the
   University had no restricted balances remaining in these funds.

   Restricted net assets – nonexpendable: This includes endowment and similar type funds
   which donors or other outside sources have stipulated, as a condition of the gift
   instrument, that the principal is to be maintained inviolate and in perpetuity, and invested
   for the purpose of producing present and future income, which may either be expended or
   added to principal.

   Unrestricted net assets: Unrestricted net assets include resources that are not subject to
   externally imposed stipulations. Such resources are derived from tuition and fees (not
   restricted as to use), state appropriations, sales and services of educational activities, and
   auxiliary enterprises. Unrestricted net assets are used for transactions related to the
   educational and general operations of the University and may be designated for specific
   purposes by action of the Board of Governors.

n. Classification of Revenue – The University has classified its revenues as either operating
   or nonoperating revenues according to the following criteria:

   Operating Revenues: Operating revenues include activities that have the characteristics of
   exchange transactions, such as (1) student tuition and fees, net of scholarship discounts
   and allowances, (2) sales and services of auxiliary enterprises, net of scholarship
   discounts and allowances, (3) most federal, state, local and nongovernmental grants and
   contracts, and (4) federal appropriations, and (5) sales and services of educational
   activities. Other operating revenues include revenue from leasing of the University’s
   academic bookstores and retail stores to Barnes & Noble College Bookstores, Inc.



                                             46
   Nonoperating Revenues: Nonoperating revenues include activities that have the
   characteristics of non-exchange transactions, such as gifts and contributions, and other
   revenues that are defined as nonoperating revenues by GASB Statement No. 9, Reporting
   Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities
   That Use Proprietary Fund Accounting and GASB Statements No. 34 and No. 35, such
   as state appropriations and investment income.

o. Use of Restricted Net Assets – The University has adopted a formal policy regarding
   whether to first apply restricted or unrestricted resources when an expense is incurred for
   purposes for which both restricted and unrestricted net assets are available. The
   University attempts to utilize restricted net assets first when practicable.

p. Scholarship Discounts and Allowances – Student tuition and fee revenues are reported
   net of scholarship discounts and allowances on the statement of revenues, expenses, and
   changes in net assets. Scholarship discounts and allowances are the difference between
   the stated charge for goods and services provided by the University, and the amount that
   is paid by students and/or third parties making payments on the students’ behalf.

   Financial aid to students is reported in the financial statements under the alternative
   method as prescribed by the National Association of College and University Business
   Officers (NACUBO). Certain aid such as loans, funds provided to students as awarded
   by third parties, and Federal Direct Lending is accounted for as a third party payment
   (credited to the student’s account as if the student made the payment). All other aid is
   reflected in the financial statements as operating expenses, or scholarship allowances,
   which reduce revenues. The amount reported as operating expense represents the portion
   of aid that was provided to the student in the form of cash. Scholarship allowances
   represent the portion of aid provided to the student in the form of reduced tuition. Under
   the alternative method, these amounts are computed on a University basis by allocating
   the cash payments to students, excluding payments for services, on the ratio of total aid to
   the aid not considered to be third party aid.

q. Federal Financial Assistance Programs – The University makes loans to students under
   the Federal Direct Student Loan Program. Under this program, the U.S. Department of
   Education makes interest subsidized and nonsubsidized loans directly to students,
   through universities. Direct student loan receivables are not included in the University’s
   statement of net assets, as the loans are repayable directly to the U.S. Department of
   Education. The University received and disbursed $105.5 million in fiscal year 2004 and
   $89.5 million in fiscal year 2003 under the Direct Loan Program on behalf of the U.S.
   Department of Education; these amounts are not included as revenues and expenses on
   the statement of revenues, expenses, and changes in net assets.

   The University also distributes other student financial assistance funds on behalf of the
   federal government to students under the Pell Grant, Supplemental Educational
   Opportunity Grant and Federal Work Study Programs. The activity of these programs is
   recorded in the accompanying combined financial statements. In fiscal years 2004 and
   2003, the University received and disbursed $23.0 million and $22.3 million,
   respectively, under these other federal student aid programs.




                                           47
r. Government Grants and Contracts – Government grants and contracts normally provide
   for the recovery of direct and indirect costs, subject to audit. The University recognizes
   revenue associated with direct costs as the related costs are incurred. Recovery of related
   indirect costs is generally recorded at fixed rates negotiated for a period of one to three
   years.

s. Interest Expense – The University accounts for interest on debt as an expense of the
   period in which it is incurred. The University does not capitalize interest on debt as part
   of the cost of the asset.

t. Income Taxes – The University is exempt from income taxes, except for unrelated
   business income, as a nonprofit organization under federal income tax laws and
   regulations of the Internal Revenue Service.

u. Cash Flows – Any cash and cash equivalents escrowed, restricted for noncurrent assets,
   or in funded reserves are included as cash and cash equivalents for the purpose of the
   statement of cash flows.

v. Risk Management – The State’s Board of Risk and Insurance Management (BRIM)
   provides general, property, casualty and medical malpractice liability coverage to the
   University and its employees, including those physicians employed by the University and
   related to the University’s academic medical center hospital. Such coverage may be
   provided to the University by BRIM through self-insurance programs maintained by
   BRIM or policies underwritten by BRIM that may involve experience related premiums
   or adjustments to BRIM.

   BRIM engages an independent actuary to assist in the determination of its premiums so
   as to minimize the likelihood of future premium adjustments to the University or other
   participants in BRIM’s insurance programs. As a result, management does not expect
   significant differences between the premiums the University is currently charged by
   BRIM and the ultimate cost of that insurance based on the University’s actual loss
   experience. In the event such differences arise between estimated premiums currently
   charged by BRIM to the University and the University’s ultimate actual loss experience,
   the difference will be recorded, as the change in estimate becomes known.

w. 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 and expenses during the reporting period. Actual
   results could differ from those estimates.

x. Reclassifications – Certain reclassifications have been made to the 2003 combined
   financial statements to conform to the current year presentation.

y. Recent Statements Issued By GASB – The GASB issued Statement No. 40, Deposit and
   Investment Risk Disclosures. This statement is effective for periods beginning after June
   15, 2004. The University has not completed the process of evaluating the impact, if any,
   that will result from adopting GASB Statement No. 40. The statement, when adopted,
   could result in additional disclosure in the University’s financial statements regarding
   custodial credit risk, concentration of credit risk, and interest rate risk related to deposits
   and investments.

                                             48
       The GASB has also issued Statement No. 42, Accounting and Financial Reporting for
       Impairment of Capital Assets and for Insurance Recoveries, effective for fiscal years
       beginning after December 15, 2004. This statement requires the University to evaluate
       prominent events or changes in circumstances affecting capital assets to determine
       whether impairment of a capital asset has occurred and record impaired assets and
       impairment losses accordingly. This statement also addresses the appropriate recording
       of an insurance recovery associated with events or changes in circumstances resulting in
       impairment of capital asset. The University has not yet determined the effect that the
       adoption of GASB Statement No. 42 may have on the financial statements.

       The GASB has also issued Statement No. 45, Accounting and Financial Reporting by
       Employers for Postemployment Benefits Other Than Pensions, effective for fiscal years
       beginning after December 15, 2006. This statement provides standards for the
       measurement, recognition and display of other postemployment benefit expenditures,
       assets, and liabilities, including applicable note disclosures and required supplementary
       information. The University has not yet determined the effect that the adoption of GASB
       Statement No. 45 may have on the financial statements.

3.   CASH AND CASH EQUIVALENTS

     The composition of cash and cash equivalents was as follows at June 30 (dollars in
     thousands):

     2004
                                                             Current    Noncurrent            Total
       Cash on deposit with the Treasurer:
        West Virginia University - Nonauxiliaries        $     44,139    $     1,722      $  45,861
        West Virginia University - Auxiliaries                 19,835              -         19,835
       Cash on deposit with Trustee or MBC                          -          4,774          4,774
       Cash in Bank                                            32,472              -         32,472
       Cash on Hand                                                41              -             41
       Cash in Money Market                                       602              -            602
                                                         $     97,089    $     6,496      $ 103,585

     2003
                                                             Current    Noncurrent            Total
       Cash on deposit with the Treasurer:
        West Virginia University - Nonauxiliaries        $     30,948    $     8,580      $    39,528
        West Virginia University - Auxiliaries                 26,509              -           26,509
       Cash on deposit with Trustee or MBC                          -             86               86
       Cash in Bank                                            23,854              -           23,854
       Cash on Hand                                                42              -               42
       Cash in Money Market                                       887              -              887
                                                         $     82,240    $     8,666      $    90,906

     Cash on deposit with Trustee or Municipal Bond Commission (MBC) represents various
     project revenue, repair and replacement and debt service accounts held by the Trustee or the
     State’s MBC and related to various University specific bond issues (see Note 9).




                                               49
     The combined carrying amount of cash in bank at June 30, 2004 and 2003 was $32.5 million
     and $23.9 million, respectively, as compared with combined bank balances of $35.6 million
     and $26.5 million, respectively. The difference was primarily caused by items in transit and
     outstanding checks. All bank balances and cash in money market were covered by federal
     depository insurance or were secured by securities held as collateral by the State’s agent.

     Cash on deposit with the Treasurer is a non-categorized deposit with respect to risk and
     collateral disclosure in accordance with GASB Statement No. 3, Deposits with Financial
     Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase
     Agreements.

4.   ACCOUNTS RECEIVABLE

     Accounts receivable were as follows at June 30 (dollars in thousands):

                                                                                2004          2003

     Student tuition and fees, net of allowances for doubtful accounts of
     $1,950 and $1,744                                                      $     2,561   $     1,782
     Grants and contracts receivable, net of allowances for doubtful
     accounts of $749 and $642                                                   24,067        26,955
     Due from West Virginia University Hospitals, Incorporated                    2,469         4,237
     Auxiliary Services, net of allowances for doubtful accounts of $596
     and $573                                                                       865           923
     Other, net of allowances for doubtful accounts of $372 and $73               4,723         2,693
     Due from the Commission                                                        143            58
     Due from other State agencies                                                    4           115
                                                                            $    34,832   $    36,763


     All accounts receivable are classified as current on the combined statement of net assets.
     West Virginia University Hospitals, Incorporated receivables represent various
     administrative expenses incurred by the University on behalf of West Virginia University
     Hospitals, Incorporated for which reimbursement has not yet been received.




                                                  50
5.   CAPITAL ASSETS

     Balances and changes in capital assets were as follows June 30 (dollars in thousands):

     2004                                                           Beginning                                                    Ending
                                                                    Balance            Additions            Reductions           Balance
     Capital assets not being depreciated:
            Land                                                $        11,436    $           730      $           -        $       12,166
            Construction in progress                                     18,563             41,660              (14,395)             45,828
              Total capital assets not being depreciated        $        29,999    $        42,390      $       (14,395)     $       57,994
     Other capital assets:
            Land improvements                                   $         9,953    $               91   $           -        $       10,044
            Buildings                                                   604,693             11,975                 (467)            616,201
            Equipment                                                   130,564             13,924               (8,823)            135,665
            Library books                                                69,616              5,143                 (502)             74,257
            Software                                                     40,381              1,519                  (60)             41,840
            Infrastructure                                              213,025              1,462                  (27)            214,460
              Total other capital assets                              1,068,232             34,114               (9,879)          1,092,467
     Less accumulated depreciation for:
            Land improvements                                            (4,531)              (652)                 -                (5,183)
            Buildings                                                  (163,758)           (11,926)                297             (175,387)
            Equipment                                                   (79,523)           (13,380)               7,142             (85,761)
            Library books                                               (54,045)            (4,138)                261              (57,922)
            Software                                                    (26,499)            (7,661)                      1          (34,159)
            Infrastructure                                             (157,287)            (7,998)                (162)           (165,447)
              Total accumulated depreciation                           (485,643)           (45,755)               7,539            (523,859)
     Other capital assets, net                                  $       582,589    $       (11,641)     $        (2,340)     $      568,608


     Capital Assets Summary:
            Capital assets not being depreciated                $        29,999    $        42,390      $       (14,395)     $       57,994
            Other capital assets                                      1,068,232             34,114               (9,879)          1,092,467
              Total cost of capital assets                            1,098,231             76,504              (24,274)          1,150,461
            Less accumulated depreciation                              (485,643)           (45,755)               7,539            (523,859)
              Capital assets, net                               $       612,588    $        30,749      $       (16,735)     $      626,602




                                                           51
2003                                                           Beginning                                                   Ending
                                                               Balance            Additions          Reductions            Balance
Capital assets not being depreciated:
       Land                                                $        11,167    $           272    $               (3)   $       11,436
       Construction in progress                                     68,267             32,708            (82,412)              18,563
         Total capital assets not being depreciated        $        79,434    $        32,980    $       (82,415)      $       29,999
Other capital assets:
       Land improvements                                   $         9,672    $           281    $           -         $        9,953
       Buildings                                                   538,705             70,631             (4,643)             604,693
       Equipment                                                   146,728             18,627            (34,791)             130,564
       Library books                                                65,081              4,990               (455)              69,616
       Software                                                     33,944              6,437                -                 40,381
       Infrastructure                                              200,035             12,992                    (2)          213,025
         Total other capital assets                                994,165            113,958            (39,891)           1,068,232
Less accumulated depreciation for:
       Land improvements                                            (3,891)              (640)               -                 (4,531)
       Buildings                                                  (152,324)           (11,447)               13              (163,758)
       Equipment                                                   (93,952)           (14,996)            29,425              (79,523)
       Library books                                               (50,561)            (3,765)              281               (54,045)
       Software                                                    (19,208)            (7,291)               -                (26,499)
       Infrastructure                                             (149,195)            (7,797)              (295)            (157,287)
         Total accumulated depreciation                           (469,131)           (45,936)            29,424             (485,643)
Other capital assets, net                                  $       525,034    $        68,022    $       (10,467)      $      582,589


Capital Assets Summary:
       Capital assets not being depreciated                $        79,434    $        32,980    $       (82,415)      $       29,999
       Other capital assets                                        994,165            113,958            (39,891)           1,068,232
         Total cost of capital assets                            1,073,599            146,938           (122,306)           1,098,231
       Less accumulated depreciation                              (469,131)           (45,936)            29,424             (485,643)
         Capital assets, net                               $       604,468    $       101,002    $       (92,882)      $      612,588


The University maintains various collections of inexhaustible assets for which no value can
be practically determined. Accordingly, such collections are not capitalized or recognized
for financial statement purposes. Such collections include contributed works of art,
historical treasures and literature that are held for exhibition, education, research and public
service. These collections are neither disposed of for financial gain nor encumbered in any
means.




                                                      52
6.   LONG-TERM LIABILITIES

     Balances and changes in long-term liabilities were as follows at June 30 (dollars in
     thousands):

     2004                                  Beginning                                      Ending      Due within
                                            Balance       Additions      Reductions       Balance      One Year
     Compensated absences                  $ 53,198       $     -        $    (227)     $    52,971   $ 18,484
     College system debt owed to
      the Commission                            2,407              -           (199)          2,208         213
     Advances from federal government          26,260            600              -          26,860           -
     Debt service assessment payable
      to the Commission                      121,891               -        (5,161)         116,730        4,308
     Leases payable                           10,271           8,694        (4,321)          14,644        3,475
     Bonds payable                            66,090               -        (1,126)          64,964        1,391
     Notes payable                                 -             428             -              428           95
     Other noncurrent liabilities              3,774               -          (786)           2,988          894
        Total long-term liabilities        $ 283,891      $    9,722     $ (11,820)     $   281,793   $   28,860

     2003                                  Beginning                                      Ending      Due within
                                            Balance       Additions      Reductions       Balance      One Year
     Compensated absences                  $ 46,229       $   6,969      $      -       $    53,198   $ 17,584
     College system debt owed to
      the Commission                            2,593              -           (186)          2,407         199
     Advances from federal government          25,613            647              -          26,260           -
     Debt service assessment payable
      to the Commission                      107,036          19,048          (4,193)       121,891        4,216
     Leases payable                            9,774           3,857          (3,360)        10,271        3,358
     Bonds payable                            67,166               -          (1,076)        66,090        1,126
     Other noncurrent liabilities                  -           3,774               -          3,774          915
        Total long-term liabilities        $ 258,411      $   34,295     $    (8,815)   $   283,891   $   27,398




                                                53
7.   COMPENSATED ABSENCES

     The composition of the compensated absence liability was as follows at June 30 (dollars in
     thousands):

     2004
                                                         Current       Noncurrent         Total
     Health or life insurance benefits                 $    1,521      $ 34,487         $ 36,008
     Vacation leave                                        16,963            -             16,963
                                                       $ 18,484        $ 34,487         $ 52,971

     2003
                                                         Current       Noncurrent         Total
     Health or life insurance benefits                 $    1,386      $ 35,614         $ 37,000
     Vacation leave                                        16,198            -             16,198
                                                       $ 17,584        $ 35,614         $ 53,198



     The cost of health and life insurance benefits paid by the University is based on a
     combination of years of service and age. For the years ended June 30, 2004 and 2003, the
     amount paid by the University for extended health or life insurance coverage retirement
     benefits totaled $1,448,664 and $1,309,000, respectively. As of June 30, 2004 and 2003,
     there were 645 and 529 retirees currently receiving these benefits, respectively. As of June
     30, 2004 and 2003, there were an additional 698 and 740 active employees eligible to
     receive these benefits in the future, respectively.




                                               54
8.   LEASES PAYABLE

     a. Operating – Future annual minimum lease payments on operating leases for years
        subsequent to June 30, 2004 are as follows:

                      Fiscal Year Ended
                           June 30,

                            2005                         $        8,033
                            2006                                  6,962
                            2007                                  2,864
                            2008                                  2,536
                            2009                                  2,437
                          2010-2031                              43,987

                              Total                      $       66,819


         Total rental expense for the years ended June 30, 2004 and 2003 was $9.9 million and
         $6.2 million, respectively. The University leases 6 floors of a seven floor office
         building from the West Virginia University Foundation, Incorporated. Rental expense
         under the operating lease is $1,975,000 per year through 2031. The University has no
         non-cancelable leases.



     b. Capital – The University leases certain property, plant and equipment under capital
        leases. Leased assets totaled $23.7 million and $16.3 million at June 30, 2004 and 2003,
        respectively. Future annual minimum lease payments and the present value of minimum
        lease payments on capital leases are as follows (dollars in thousands):

                         Fiscal Year
                       Ending June 30,

                              2005                         $       3,976
                              2006                                 3,818
                              2007                                 3,357
                              2008                                 3,019
                              2009                                 1,582
                           2010-2014                                 194
         Minimum lease payments                                   15,946
         Less amount representing interest                        (1,302)
         Present value of minimum lease payments                  14,644

         Current Portion                                           3,475
         Noncurrent Portion                                $      11,169




                                              55
9.   BONDS PAYABLE

     Bonds payable consisted of the following at June 30 (dollars in thousands):

                                                                Annual                 2004            2003
                                               Original        Principal            Principal       Principal
                                               Interest       Installment           Amount          Amount
                                                Rate              Due              Outstanding     Outstanding
     Dormitory Refunding Revenue                             $           555
      Bonds 1997, Series A, due through                            to
      2017                                     3.95-5.30%               1,070   $        10,105    $     10,705

     Dormitory Revenue                                                  1,480
      Bonds 1997, Series B, due through                            to
      2022                                       5.00%                  2,035            10,735          10,735

     Athletic Facilities Refunding Revenue                               135
      Bonds 1997, Series A, due through                            to
      2016                                     4.00-5.20%                255              2,305           2,455

     Athletic Facilities Revenue                                         265
      Bonds 1997, Series B, due through                            to
      2027                                       5.00%                   455              4,250           4,250

     Student Union Refunding                                             180
       Bonds 1997, Series A, due through                           to
       2011                                    3.95-4.95%                280              1,725           1,930

     Student Union Revenue                                               220
       Bonds 1997, Series B, due through                           to
       2027                                    4.20-5.00%               2,970            37,310          37,550

     Bonds Payable                                                                       66,430          67,625

     Unamortized Bond Discount                                                           (1,466)         (1,535)

     Bonds Payable Less Unamortized Discount                                             64,964          66,090

     Curent Portion                                                                       1,391           1,126
     Noncurrent Portion                                                         $        63,573    $     64,964



     The 1997 Dormitory Series A Bonds were issued to advance refund the University’s Dormitory
     Revenue Bonds (West Virginia University Project), 1992 Series A, dated May 1, 1992, and to
     pay a portion of the costs of issuance of the 1997 Series A Bonds. The 1997 Dormitory Series B
     Bonds were issued to finance improvements to certain dormitories at West Virginia University
     and to reimburse the University for certain prior capital expenses made for such purpose, and to
     pay a portion of the costs of issuance of the Bonds. The University plans to refinance these
     bonds during fiscal year 2005 (see Notes 17 and 18).


                                               56
The 1997 Athletic Facilities Series A Bonds were issued to advance refund the 1985 Series A
Annual Tender Revenue Bonds, and to pay a portion of the costs of issuance of the 1997
Athletic Facilities Series A Bonds. The 1997 Athletic Facilities Series B Bonds were issued to
finance a portion of the costs of acquisition, construction and equipping of an indoor football
practice facility at West Virginia University and to reimburse the University for certain prior
capital expenditures made for such purpose, and to pay a portion of the costs of issuance of the
1997 Athletic Facilities Series B Bonds.

The 1997 Student Union Series A Bonds were used to advance refund the 1986 Student Union
Fee Revenue Bonds. The 1997 Student Union Series B Bonds were issued to finance a portion
of the costs of acquisition, construction and equipping of a new student union and related capital
improvements, and to pay a portion of the costs of issuance and interest on the 1997 Series A
Bonds.

Each of the above bond issues is specific to the University, although some of the bonds were
also issued in the name of the State or the State’s former Boards, previously responsible for the
governance of the State’s higher education system. As debt service is required on these bond
issues, the University remits the funds to either the Commission (as successor to the former
Boards) or the State’s Municipal Bond Commission for payment to the trustee of the bond issue
and the bond holders. The mandatory debt service transfers are recorded as the funds are so
remitted. The Commission and the Municipal Bond Commission may hold certain cash and
cash equivalents (see Note 3) for debt service or other bond issue purposes on behalf of the
University.

The scheduled maturities of the revenue bonds are as follows (dollars in thousands):

                 Fiscal Year                                                         Total
               Ending June 30,                     Principal           Interest     Payments

                    2005                          $     1,460      $      3,298    $   4,758
                    2006                                1,525             3,229        4,754
                    2007                                1,595             3,160        4,755
                    2008                                1,670             3,086        4,756
                    2009                                1,845             3,008        4,853
                  2010-2014                            11,535            13,563       25,098
                  2015-2019                            17,740            10,079       27,819
                  2020-2024                            19,270             5,122       24,392
                  2025-2027                             9,790               995       10,785
Bonds Payable                                          66,430      $     45,540    $ 111,970
Unamortized Bond Discount                              (1,466)
Bonds Payable Less Unamortized Discount                64,964

Current Portion                                         1,391
Noncurrent Portion                                $    63,573




                                           57
10. STATE SYSTEM OF HIGHER EDUCATION INDEBTEDNESS

   The University is a State institution of higher education. It receives a State appropriation in
   partial support of its operations. In addition, the University is subject to the legislative and
   administrative mandates of State government. Those mandates affect all aspects of the
   University’s operations, its tuition and fee structure, its personnel policies and its
   administrative practices.

   The State has chartered the Commission with the responsibility to construct or renovate,
   finance and maintain various academic and other facilities of the State’s universities and
   colleges, including certain facilities of the University. Financing for these facilities was
   provided through revenue bonds issued by either the former Board of Regents, the former
   University System of West Virginia, the former State College System of West Virginia or
   the former Interim Governing Board (collectively, the “Boards”). These obligations
   administered by the Commission are the direct and total responsibility of the Commission,
   as successor to the former boards.

   The Commission assesses each public institution of higher education for funds to meet the
   payment of debt service on these various bonds. Certain tuition and registration fees
   (referred to as system fees) of the members of the former State University System are
   generally pledged as collateral for the Commission’s bond indebtedness. Student fees
   collected by the institution in excess of the debt service allocation are retained by the
   institution for internal funding of capital projects and maintenance. The bonds remain as a
   capital obligation of the Commission; however, effective June 30, 2002, an amount of
   principal related to each institution was reported as debt service assessment payable to the
   Commission by each institution and as a receivable by the Commission.

   With the transfer of WVUIT from the State College System to the University System of
   West Virginia effective July 1, 1997, in accordance with the provisions of Senate Bill 591,
   WVUIT is required to make an annual payment of $373,089 per year through 2012 to the
   Policy Commission for purposes of the State College System’s debt service. The college
   system debt owed to the Commission as of June 30, 2004 and 2003 was $2.2 million and
   $2.4 million, respectively.


11. RETIREMENT PLANS

   Substantially all eligible employees of the University participate in either the West Virginia
   State Teachers Retirement System (STRS) or the Teachers Insurance and Annuities
   Association - College Retirement Equities Fund (TIAA-CREF). Previously, upon full-time
   employment, all employees were required to make an irrevocable election between the
   STRS and TIAA-CREF. Effective July 1, 1991, the STRS was closed to new participants.
   Current participants in the STRS are permitted to make a one-time election to cease their
   participation in that plan and commence contributions to the West Virginia Teachers’
   Defined Contribution Plan. Contributions to and participation in the West Virginia
   Teachers’ Defined Contribution Plan by University employees have not been significant to
   date.

   Effective January 1, 2003, higher education employees enrolled in the basic 401(a)
   retirement plan with TIAA-CREF have an option to switch to the Educators Money 401(a)




                                               58
basic retirement plan. New hires have the choice of either plan. As of June 30, 2004, 14
employees were enrolled in the Educators Money 401(a) basic retirement plan.

The STRS is a cost-sharing, defined benefit public employee retirement system. Employer
and employee contribution rates are established annually by the State Legislature. The
University’s contributions to the STRS were at the rate of 15% of each enrolled employee’s
total annual salaries in both 2004 and 2003. Required employee contributions were at the
rate of 6% of total annual salaries in both 2004 and 2003. Participants in the STRS may
retire with full benefits upon reaching age 60 with 5 years of service, age 55 with 30 years
of service or any age with 35 years of service. Lump sum withdrawal of employee
contributions is available upon termination of employment. Pension benefits are based upon
2% of final average salary (the highest 5 years of salary out of the last 15) multiplied by the
number of years of service.

The contribution rate is set by the State Legislature on an overall basis and the STRS does
not perform a calculation of the contribution requirement for individual employers, such as
the University. Historical trend and net pension obligation information is available from the
annual financial report of the Consolidated Public Retirement Board. A copy of the report
may be obtained by writing to the Consolidated Public Retirement Board, Building 5, Room
1000, Charleston, WV 25305.

Contributions to the STRS for each of the last three fiscal years were approximately as
follows (dollars in thousands):

           Fiscal Year Ending
                June 30,                WVU        Employees           Total

                   2004             $    3,000      $    1,000     $    4,000
                   2003                  3,000           1,000          4,000
                   2002                  3,000           1,000          4,000

The TIAA-CREF and Great-West are defined-contribution benefit plans in which benefits
are based upon amounts contributed plus investment earnings. Each employee who elects to
participate in these plans is required to make a contribution equal to 6% of their total annual
compensation. The University simultaneously matches the employees’ 6% contribution.
Contributions are immediately and fully vested.

Contributions to the TIAA-CREF for each of the last three fiscal years were approximately
as follows (dollars in thousands):

           Fiscal Year Ending
                June 30,                WVU        Employees           Total

                   2004             $ 15,000        $ 15,000       $ 30,000
                   2003               15,000          15,000         30,000
                   2002               14,000          14,000         28,000

The University’s total payroll for fiscal years 2004 and 2003 was $296.4 million and $289.0
million, respectively; total covered employees’ salaries in the STRS and TIAA-CREF were
$15.7 million and $253.0 million in fiscal year 2004 and $16.6 million and $252.3 million in
fiscal year 2003, respectively.


                                           59
12. NONMONETARY TRANSACTIONS

   During fiscal year 2003, the University entered into a land swap agreement with
   Monongalia Health System, Incorporated (MHS) that involved a transfer of a 13.36 acre
   portion of the University’s Old Poultry Farm to MHS in exchange for a $2 million payment
   and a 13.36 acre parcel of MHS land. The Monongalia County Development Authority
   facilitated the property transfer. Accounting for the land exchange was based on the
   recorded amount of the University’s property.

13. COMMITMENTS

   a. Purchase Commitment – The University has signed an agreement providing for the
      purchase of steam through the year 2030 from a nearby facility that commenced
      operations in late 1992. Under the agreement, the University has an annual minimum
      steam purchase requirement, purchased at an operating rate calculated in accordance
      with the agreement. This operating rate is adjusted quarterly based on actual production
      costs and other cost indices. Management believes that the rate is comparable to market
      rates. The University’s total payments for steam purchased under the agreement were
      $9.1 million and $8.1 million in fiscal years 2004 and 2003, respectively. The
      University anticipates meeting the minimum steam purchase requirement for the
      remaining term of its commitment; however, payments in future years will be dependent
      on actual operating costs and other cost indices in those years.

   b. Construction Commitments – The University has entered into contracts for the
      construction and improvement of various facilities. These outstanding contractual
      commitments totaled approximately $25.4 million at June 30, 2004.

   c. Loan Guarantees - At June 30, 2004, the West Virginia University Research
      Corporation was contingently liable for guarantee of indebtedness of Mannette Steel
      Drums, Ltd. in the amount of $170,000. In the opinion of management, any future
      requirement to satisfy this guarantee will not have a material negative impact on the
      Corporation's financial statements.

14. AFFILIATED ORGANIZATIONS (Unaudited)

   The University has affiliations with separately incorporated organizations including West
   Virginia University Hospitals, Incorporated; Blanchette Rockefeller Neurosciences Institute;
   West Virginia University Alumni Association, Incorporated; University Health Associates;
   Potomac State College Alumni Association; Tech Alumni Association; West Virginia
   University at Parkersburg Foundation, Incorporated; and Tech Foundation, Incorporated.
   Oversight responsibility for these entities rests with independent Boards and management
   not otherwise affiliated with the University. These organizations do not meet the criteria for
   determination as component units of the University as described in GASB Statement No.
   39. Accordingly, the financial statements of all such organizations are not included in the
   accompanying combined financial statements.

   The National Aeronautics and Space Administration Independent Verification and
   Validation facility was established in Fairmont, West Virginia in 1993 in partnership with
   the University. Under a cooperative agreement with the University, verification and
   validation research programs are conducted at the facility. The facility is operated and
   maintained by the University’s Facility and Services Division.


                                              60
Related Party Transactions

 a. University Health Associates - University Health Associates (UHA) is a West Virginia
    not-for-profit corporation and serves as the faculty practice plan of West Virginia
    University School of Medicine (WVUSOM) and West Virginia University School of
    Dentistry (WVUSOD). The membership of UHA consists of physicians who are faculty
    members of the WVUSOM and WVUSOD. UHA coordinates its activities with these
    schools by operating outpatient clinics staffed by such faculty, billing and collecting for
    professional medical services furnished by UHA’s membership, appropriately
    distributing receipts generated by billings, providing educationally oriented clinical
    practice settings and opportunities, and providing other clinical practice management
    services.

    The University is reimbursed by UHA for the use of certain facilities, Physician Office
    Center (POC) utility costs and other costs of the WVUSOM, including medical
    malpractice insurance premiums. The University reimburses UHA for costs associated
    with the services it provides to the University. During fiscal year 2004, the State
    Legislature reallocated West Virginia University Health Sciences Center state
    appropriations to the Medicaid program in Health and Human Services. The University
    Health Sciences Center currently receives some state appropriations through the
    Medicaid program from UHA.

    Total funds disbursed to UHA and total funds collected from UHA totaled $1.5 million
    and $19.6 million in fiscal year 2004 and $2.1 million and $6.7 million in fiscal year
    2003, respectively. There was $3.1 million and $83,000 due from UHA at June 30,
    2004 and 2003, respectively, for facility rental fees, utility cost reimbursement, and
    Medicaid appropriation funding. There were no amounts due to UHA at June 30, 2004
    and 2003.

 b. West Virginia University Hospitals, Incorporated - West Virginia University Hospitals,
    Incorporated (WVUH or the “Hospital”) is a not-for-profit corporation, established in
    West Virginia, to facilitate clinical education and research of the University’s Health
    Sciences Center (HSC). The Hospital’s tertiary care teaching facility-Ruby Memorial,
    serves as the primary teaching hospital for the faculty and residents of the HSC and
    operates graduate medical education programs. The Hospital has entered into a Resident
    Support agreement with the University, under which the Hospital reimburses the
    WVUSOM for resident salaries and fringes support and for the cost of malpractice
    insurance for the residents. The Hospital also compensates the WVUSOM for a range of
    services via the Clinical Teaching Support agreement, Medical Direction and Support
    agreement, Mission Support agreement and Faculty Physician Support agreement.
    During fiscal year 2004, the State Legislature reallocated West Virginia University
    Health Sciences Center state appropriations to the Medicaid program in Health and
    Human Services. The University Health Sciences Center currently receives some state
    appropriations through the Medicaid program from the Hospital.

    During fiscal year 2004 and 2003, $33.3 million and $11.6 million, respectively, was
    received from WVUH for residents’ support, radiation safety support, reimbursement
    for medical malpractice insurance for the residents, reimbursement for steam costs, and
    Medicaid appropriation funding. Accounts receivable at June 30, 2004 and 2003 include
    $1.6 million and $4.2 million, respectively, due from WVUH for such items and rental



                                            61
      fees. During fiscal year 2004 and 2003, $137,300 and $139,700, respectively, was paid
      to WVUH for nursing services in conducting clinical trials, facilities support services,
      autopsy services, and family practice residents’ salaries under the Community
      Residency Support Program. Accounts payable at June 30, 2004 and 2003 include
      $665,800 and $1.1 million, respectively, due to WVUH for such items.


15. WEST VIRGINIA UNIVERSITY FOUNDATION, INCORPORATED (Unaudited)

   The West Virginia University Foundation, Incorporated (the “Foundation”) is a separate
   non-profit organization incorporated in the State of West Virginia that has as its purpose “to
   aid, strengthen and further in every proper and useful way the work and services of West
   Virginia University . . . and its affiliated non-profit organizations . . .” Oversight of the
   Foundation is the responsibility of an independently elected Board of Directors. In carrying
   out its responsibilities, the Board of Directors of the Foundation employs management,
   forms policy and maintains fiscal accountability over funds administered by the Foundation.
   The Foundation does not meet the criteria for determination as a component unit of the
   University as described in GASB Statement No. 39. The economic resources held by the
   Foundation do not entirely or almost entirely benefit the University. Most of the
   University’s endowments are under the control and management of the Foundation.

   The Foundation’s assets totaled $672.0 million and $599.3 million at June 30, 2004 and
   2003, respectively, with net assets of $391.4 million ($378.8 million temporarily and
   permanently restricted) and $344.0 million ($328.6 million temporarily and permanently
   restricted), respectively. The restricted net assets include amounts restricted by donors for
   specific projects or departments of the University and its affiliated organizations. The net
   assets related to endowments (permanently restricted) totaled $326.1 million and $277.8
   million at June 30, 2004 and 2003, respectively. Gifts, grants, pledges and bequests to the
   Foundation totaled $57.5 million and $27.6 million in fiscal years 2004 and 2003,
   respectively, with endowment revenue comprising $25.4 million and $9.5 million of such
   totals, respectively.

   Total funds expended by the Foundation in support of University activities totaled $41.5
   million and $39.7 million in fiscal years 2004 and 2003, respectively. This support and the
   related expenditures are primarily recorded in the University’s combined financial
   statements.

16. CONTINGENCIES

   The nature of the educational industry is such that, from time to time, claims will be
   presented against universities on account of alleged negligence, acts of discrimination,
   breach of contract or disagreements arising from the interpretation of laws or regulations.
   While some of these claims may be for substantial amounts, they are not unusual in the
   ordinary course of providing educational services in a higher education system. In the
   opinion of management, all known claims are covered by insurance or are such that an
   award against the University would not have a material effect on the financial position of
   the University.

   Under the terms of federal grants, periodic audits are required and certain costs may be
   questioned as not being appropriate expenditures under the terms of the grants. Such audits
   could lead to reimbursement to the grantor agencies. The University management believes


                                              62
   disallowances, if any, will not have a material financial impact on the University’s financial
   position.

   The University owns various buildings that are known to contain asbestos. The University
   is not required by Federal, State or Local law to remove the asbestos from its buildings. The
   University is required under Federal Environmental, Health and Safety regulations to
   manage the presence of asbestos in its buildings in a safe condition. The University
   addresses its responsibility to manage the presence of asbestos in its buildings on a case by
   case basis. Significant problems of dangerous asbestos conditions are abated, as the
   condition becomes known. The University also addresses the presence of asbestos as
   building renovation or demolition projects are undertaken and through asbestos operation
   and maintenance programs directed at containing, managing or operating with the asbestos
   in a safe condition.

17. SUBSEQUENT EVENTS

   During August 2004, the Commission issued the 2004 Series B Revenue Bonds (Higher
   Education Facilities) in the amount of $167,260,000. The University is to receive
   approximately $57 million of the proceeds to finance capital projects. Proceeds of the 2004
   B Bonds will be applied to provide funds to (1) finance capital improvements at institutions
   of higher education located throughout the State, (2) advance refund the 1996 University
   System Bonds, and (3) finance the costs associated with the issuance of the 2004 B Bonds.

   On September 28, 2004, the Board approved a resolution authorizing the issuance of West
   Virginia University revenue bonds in the amount of approximately $225 million. The bonds
   will include tax-exempt insured fixed rate bonds and taxable insured variable rate weekly
   auction rate certificates, with a level debt service. The purpose of the bonds is to finance
   various authorized projects to construct, renovate and upgrade academic and auxiliary
   facilities on the University campuses, to refund outstanding 1997 Series A and B revenue
   bonds (see Notes 9 and 18) and related expenses, and to finance the costs associated with
   the bond issuance. The last maturity date of the bonds is October 1, 2035.

18. SEGMENT INFORMATION

   Under the auspices of the State and former Boards governing the State’s higher education
   system, the University issued revenue bonds to finance certain of its auxiliary enterprise
   activities. Investors in those bonds rely solely on the revenues generated by the activities of
   the auxiliaries for repayment. The University plans to refinance these bonds during fiscal
   year 2005 (see Notes 9 and 17).

   Descriptive information for each of the University’s segments is shown below:

   State of West Virginia, University of West Virginia Board of Trustees, Dormitory
   Refunding Revenue and Revenue Bonds (West Virginia University Project), 1997
   Series A&B

   In October 1997, the Board sold $13,710,000 of Dormitory Refunding Revenue Bonds, 1997
   Series A and $10,735,000 of Dormitory Revenue Bond, 1997 Series B (collectively the
   “Bonds”). The Bonds were issued under the authority contained in Chapter 18 of the State
   Code of West Virginia, 1931. The proceeds of the 1997 Series A Bonds were used to (1)
   advance refund the Prior Bonds and (2) to pay a portion of costs of issuance of the Bonds.
   The proceeds of the 1997 Series B Bonds are being used to (1) finance a portion of the costs

                                               63
of construction of improvement to certain dormitories at the University and reimburse the
University for certain prior capital expenses made for such purpose and (2) pay a portion of
costs of issuance of the Bonds.

The Board must fix and establish rents, charges, and fees which shall at all times be adequate to
produce revenue from the dormitories sufficient to pay operating expenses and to make the
prescribed payment into the funds and accounts created under the Bond Indenture; such schedule
of rents, charges, and fees shall be revised from time to time to provide for all reasonable
operating expenses and leave net revenues, when combined with other monies legally available.

State of West Virginia, University of West Virginia Board of Trustees Refunding
Revenue and Revenue Bonds (West Virginia University Projects) 1997 Athletic
Facilities Series A&B

In December 1997, the Board sold $3,250,000 of Refunding Revenue Bond, 1997 Athletic
Facilities Series A and $4,250,000 of Revenue Bonds, 1997 Athletic Facilities Series B
(collectively the “Bonds”). The Bonds were part of a single issue with $3,000,000 of
Refunding Revenue Bonds, 1997 Student Union Series A and with $38,000,000 of Revenue
Bonds, 1997 Student Union Series B. The Bonds were issued under the authority contained
in Chapter 18 of the State Code of West Virginia, 1931. The proceeds of the 1997 Series A
Bonds were used (1) together with other funds, to refund the Prior Bonds and (2) to pay a
portion of the cost of issuance of the Bonds. The proceeds of the 1997 Series B Bonds were
used (1) to pay a portion of the cost of acquisition, construction and equipping of an indoor
football practice center at the University, and reimburse the West Virginia University’s
Athletic Department Operating Fund for certain prior capital expenses made for such
purpose and (2) to pay a portion of the cost of issuance of the Bonds.

The Athletic Facilities Bonds are special obligations of the State and are payable from and
secured by a first lien on the net revenue derived from the collection of the special gate
receipts and the student activity fees and certain funds held under the Athletic Facilities
Indenture. The Board must fix and collect special gate receipts and student athletic activity
fees at rates so as to provide pledged revenues, when combined with other monies legally
available.




                                           64
State of West Virginia, University of West Virginia Board of Trustees Refunding
Revenue and Revenue Bonds, 1997 Student Union Series A and B

In December 1997, the Board sold $3,000,000 of Refunding Revenue Bonds, 1997 Student
Union Series A and $38,000,000 of Revenue Bonds, 1997 Student Union Series B
(collectively the “Bonds”). The Bonds were part of a single issue with $3,250,000 of
Refunding Revenue Bonds, 1997 Athletic Facilities Series A and with $4,250,000 of
Revenue Bonds, 1997 Athletic Facilities Series B. The Bonds were issued under the
authority contained in Chapter 18, of the State Code of West Virginia, 1931. The proceeds
of the 1997 Series A Bonds were used, together with other funds, to refund the Prior Bonds.
The proceeds of the 1997 Series B Bonds are being used (1) to pay a portion of the cost of
acquisition, construction and equipping of a new student union and related capital
improvements at the University; (2) to pay interest on the 1997 Series B Bonds through May
1, 2001; and (3) to pay a portion of the costs of issuance of 1997 Series B Bonds.

The Student Union Bonds are a special obligation of the State and are payable from and
secured by a first lien on the net revenue derived from the student union’s building fees and
other revenue derived from the operation of the existing student union facility, the
Mountainlair, and the new student union facility at the Evansdale Campus and certain funds
held under the Student Union Trust Indenture. The Board must fix and collect student union
building fees at rates so as to provide pledged revenues, when combined with other monies
legally available.




                                           65
Condensed financial information for each of the University’s segments follow:
(Dollars in Thousands)


                                                DORMITORY REVENUE                   ATHLETIC FACILITIES                   STUDENT UNION
                                                          BONDS 1997,                     BONDS 1997,                       BONDS 1997,
                                                         SERIES A & B                     SERIES A & B                      SERIES A & B
                                                         As of/Year Ended                As of/Year Ended                  As of/Year Ended
                                                     2004              2003             2004             2003             2004             2003
CONDENSED STATEMENTS OF NET ASSETS (DEFICIT)
Assets:
  Current Assets                                $         8,191    $        7,870   $          824   $          648   $     2,969      $      2,271
  Noncurrent and Capital Assets                          20,061         20,533            8,624             8,864          33,019           33,824
     Total Assets                                        28,252         28,403            9,448             9,512          35,988           36,095


Liabilities:
  Current Liabilities                                     3,653             3,211              827              754         1,713             1,259
  Long-Term Liabilities                                  20,205         20,859            6,395             6,561          38,370           39,079
     Total Liabilities                                   23,858         24,070            7,222             7,315          40,083           40,338


Net Assets:
  Invested in Capital Assets,
     net of related debt                                  4,394             4,331         2,226             2,197          (4,095)          (4,243)
  Restricted                                                  -                2                 -                -                -                -
     Total Net Assets (Deficit)                 $         4,394    $        4,333   $     2,226      $      2,197     $    (4,095)     $    (4,243)


CONDENSED STATEMENTS OF REVENUES,
  EXPENSES, AND CHANGES IN NET ASSETS (DEFICIT)
Operating Revenues                              $        29,849    $    24,575      $     3,620      $      2,948     $    13,142      $    12,412
Operating Expenses                                   (28,808)          (25,066)          (3,265)          (3,065)         (11,074)         (11,062)
  Net Operating Income (Loss)                             1,041             (491)              355          (117)           2,068             1,350
Nonoperating Revenues/Expenses:
  Investment Income                                         86                153               8               22               36               133
  Interest Expense                                       (1,066)        (1,326)            (334)            (340)          (1,956)          (2,103)
     Increase (Decrease) in Net Assets                      61          (1,664)                29           (435)                148          (620)
Net Assets (Deficit) - Beginning of Year                  4,333             5,997         2,197             2,632          (4,243)          (3,623)
Net Assets (Deficit) - End of Year              $         4,394    $        4,333   $     2,226      $      2,197     $    (4,095)     $    (4,243)


CONDENSED STATEMENTS OF CASH FLOWS
  Net Cash Provided by Operating Activities     $         1,809    $        4,434   $          539   $          838   $     3,098      $      4,286
  Net Cash Flows Used in
     Capital and Related Financing Activities            (1,666)        (5,104)            (483)            (827)          (2,400)          (5,989)
  Net Cash Flows Provided by
     Investing Activites                                    86                154               8               22               36               132
     Increase (Decrease) in Cash                            229             (516)              64               33               734        (1,571)
Cash - Beginning of Year                                  7,178             7,694              648              615         2,124             3,695
Cash - End of Year                              $         7,407    $        7,178   $          712   $          648   $     2,858      $      2,124


Reconcilation of cash
  Cash classified as current assets             $         7,407    $        7,178   $          712   $          648   $     2,858      $      2,091
  Cash classified as noncurrent assets                        -                 -                -                -                -              33
                                                $         7,407    $        7,178   $          712   $          648   $     2,858      $      2,124




                                                    66
     19. FUNCTIONAL CLASSIFICATION OF EXPENSES
     (Dollars in Thousands)

     The University's operating expenses by functional and natural classification are as follows:

                                                                                                                                          Year Ended June 30, 2004
                                                                                                                                            Natural Classification
                                                        Salaries &                    Scholarships &                     Supplies &                          Loan Cancellations     Assessments by     Waivers           Other
     Functional Classification                            Wages     Benefits           Fellowships       Utilities      Other Services     Depreciation         & Write Offs        the Commission   in Support    Operating Expenses     Total
     Instruction                                        $ 112,079 $ 35,454        $                 -   $      232     $        13,839    $            - $                      - $                - $         - $                    - $ 161,604
     Research                                               46,795    16,940                        -          180              21,318                 -                        -                  -           -                      -    85,233
     Public Service                                         33,245     8,500                        -           40              11,436                 -                        -                  -           -                      -    53,221
     Academic Support                                       18,550     4,846                        -           62               4,904                 -                        -                  -           -                      -    28,362
     Student Services                                       12,725     3,292                        -           45               4,211                 -                        -                  -           -                      -    20,273
     Operation and Maintenance of Plant                     16,023     4,719                        -      15,578               13,292                 -                        -                  -           -                      -    49,612
     General Institutional Support                          30,468     8,320                        -           24              15,245                 -                        -                  -           -                    190    54,247
     Student Financial Aid                                        -         -                  19,441              -                  -                -                        -                  -           -                      -    19,441
     Auxiliary Enterprises                                  26,489     7,060                        -       5,065               30,520                 -                        -                  -           -                      -    69,134
     Depreciation                                                 -         -                       -              -                  -          45,755                         -                  -           -                      -    45,755
     Assessments by Commission for Operations                     -         -                       -              -                  -                -                        -             2,194            -                      -     2,194
     Waivers in Support of Other State Institutions               -         -                       -              -                  -                -                        -                  -        367                       -       367
     Loan Cancellations and Write Offs                            -         -                       -              -                  -                -                     658                   -           -                      -       658
       Total Expenses                                   $ 296,374 $ 89,131        $            19,441   $ 21,226       $       114,765    $      45,755 $                    658 $            2,194 $       367 $                   190 $ 590,101




67
                                                                                                                                        Year Ended June 30, 2003
                                                                                                                                          Natural Classification
                                                        Salaries &                    Scholarships &                     Supplies &                        Loan Cancellations     Assessments by     Waivers           Other
     Functional Classification                            Wages     Benefits           Fellowships     Utilities        Other Services   Depreciation         & Write Offs        the Commission   in Support    Operating Expenses     Total
     Instruction                                        $ 109,520 $ 32,896        $                 - $      215       $        13,621 $             - $                      - $                - $         - $                    - $ 156,252
     Research                                               41,777    14,879                        -        394                24,391               -                        -                  -           -                      -    81,441
     Public Service                                         33,611     9,565                        -        268                12,758               -                        -                  -           -                      -    56,202
     Academic Support                                       19,670     5,954                        -         67                 5,233               -                        -                  -           -                      -    30,924
     Student Services                                       13,804     4,501                        -         35                 4,520               -                        -                  -           -                      -    22,860
     Operation and Maintenance of Plant                     15,956     5,995                        -    12,905                 18,731               -                        -                  -           -                      -    53,587
     General Institutional Support                          30,780     8,199                        -     2,394                 15,468               -                        -                  -           -                  3,506    60,347
     Student Financial Aid                                        -         -                  18,135            -                    -              -                        -                  -           -                      -    18,135
     Auxiliary Enterprises                                  23,900     7,840                        -     4,836                 27,008               -                        -                  -           -                      -    63,584
     Depreciation                                                 -         -                       -            -                    -        45,936                         -                  -           -                      -    45,936
     Assessments by Commission for Operations                     -         -                       -            -                    -              -                        -             2,194            -                      -     2,194
     Waivers in Support of Other State Institutions               -         -                       -            -                    -              -                        -                  -        386                       -       386
     Loan Cancellations and Write Offs                            -         -                       -            -                    -              -                     767                   -           -                      -       767
       Total Expenses                                   $ 289,018 $ 89,829        $            18,135 $ 21,114         $       121,730 $       45,936 $                    767 $            2,194 $       386 $                 3,506 $ 592,615
                                                                                         Deloitte & Touche LLP
                                                                                         2500 One PPG Place
                                                                                         Pittsburgh, PA 15222-5401
                                                                                         USA
                                                                                         Tel: 412-338-7200
                                                                                         Fax: 412-338-7380
                                                                                         www.deloitte.com



INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL
  REPORTING AND COMPLIANCE AND OTHER MATTERS BASED UPON THE AUDIT
  PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

West Virginia University Board of Governors
We have audited the accompanying combined financial statements of West Virginia University (the
“University”) as of June 30, 2004, and have issued our report thereon dated October 12, 2004. 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.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the University’s internal control over financial
reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the
financial statements and not to provide assurance on the internal control over financial reporting. Our
consideration of the internal control over financial reporting would not necessarily disclose all matters in
the internal control over financial reporting that might be material weaknesses. A material weakness is a
condition in which the design or operation of one or more of the internal control components does not
reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to
the financial statements being audited may occur and not be detected within a timely period by employees
in the normal course of performing their assigned functions. We noted no matters involving the
University’s internal control over financial reporting and its operation that we consider to be material
weaknesses. However, we noted other matters involving the internal control over financial reporting that
we will report to the management of the University in a separate letter dated October 12, 2004.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the University’s financial statements are free of
material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
contracts and grants, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on compliance with those
provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The
results of our tests disclosed no instances of noncompliance or other matters that are required to be
reported under Government Auditing Standards.
This report is intended solely for the information and use of the West Virginia University Board of
Governors, managements of the University and the West Virginia Higher Education Policy Commission,
federal and state awarding agencies, and pass-through entities and is not intended to be and should not be
used by anyone other than the specified parties.




October 12, 2004
                                                                                         Member of
                                                                                         Deloitte Touche Tohmatsu


                                                     68
                                                           Officers of the University


  David C. Hardesty, Jr.            President
  Gerald E. Lang                    Provost and Vice President for Academic Affairs and Research
  Scott C. Kelley                   Vice President, Administration, Finance and Human Resources
  Robert M. D’Alessandri            Vice President, Health Sciences and Dean, School of Medicine
  Kenneth D. Gray                   Vice President, Student Affairs
  Carolyn A. Curry                  Vice President for Institutional Advancement & Executive Officer for Communications
  John D. Weete                     Vice President for Research and Economic Development
  Margaret Phillips                 Chief of Staff
  Thomas Dorer                      General Counsel
  Jennifer A. McIntosh              Executive Officer for Social Justice
  Russell K. Dean                   Senior Associate Provost
  Cheryl Torsney                    Associate Provost for Academic Programs
  C. B. Wilson                      Associate Provost for Academic Personnel
  Lawrence S. Cote                  Associate Provost for Extension and Public Service
  Sydney Morrison                   Associate Provost for Information Technology
  Gary W. Rogers                    Associate Vice President for Finance
  David Stewart                     Dean of Student Affairs
  Fred R. Butcher                   Senior Associate Vice President for Health Sciences
  James K. Hackett                  Associate Vice President for Finance-Health Sciences
  W. Robert Biddington              Associate Vice President for Health Sciences
  Hilda R. Heady                    Associate Vice President for Rural Health
  Clark Hansbarger                  Associate Vice President for Health Sciences – Charleston Division
  Beverly Jo Harris                 President of the Community and Technical College of West Virginia University Institute of
                                    Technology
  Karen R. LaRoe                    Regional Vice President and President of WVUIT
  Kerry Odell                       Interim Regional Vice President and President of Potomac State College
  Joseph Badgley                    Interim Regional Vice President and President of WVU – Parkersburg
  Stephen A. Douglas                Director, West Virginia University Alumni Association
  Bruce McClymonds                  President, West Virginia University Hospitals, Inc.
  Christopher Wilkinson             Chair, West Virginia University Faculty Senate
  Terry A. Nebel                    President, West Virginia University Staff Council
  Charles Battleson                 President, West Virginia University Student Body
  David E. Miller                   Special Assistant to the President for External Affairs
  Virginia J. Peterson              Special Assistant to the President and Provost
  Sara A. Master                    Executive Assistant to the President


                                        West Virginia Higher Education Policy Commission

                          J. Thomas Jones, Chair                                      David L. Stewart, Ex-officio
                          Mary Clare Eros, Vice Chair                                 Kay H. Goodwin, Ex-officio
                          Elliot J. Hicks, Secretary                                  Nelson Robinson, Ex-officio
                          Michael Garrison                                            R. Ken Hall
                          John R. Hoblitzell                                          Terry R. Sammons

West Virginia University is an equal opportunity/affirmative action institution. The University does not discriminate on the basis of race, sex, age,
handicap, veteran status, religion, sexual orientation, color, or national origin, as defined by the applicable laws and regulations. Further, faculty,
staff, students, and applicants are protected from retaliation for filing complaints or assisting in an investigation under the University's Equal
Opportunity Policy/Affirmative Action Plan. Inquires regarding the University's nondiscrimination policy may be directed to the Executive Officer
for Social Justice, West Virginia University – Office of the President.
                                                                           69
                    West Virginia University Board of Governors

Curtis H. (Hank) Barnette, Chair                 Vaughn L. Kiger
Stephen P. Goodwin                               Elizabeth E. (Betty) Chilton
Paul E. Gates                                    Terry T. Jones
Douglas J. Leech                                 T. Joseph Lopez
Paul R. Martinelli                               Christopher Wilkinson
Parry G. Petroplus                               Charles Battleson
Russell L. Isaacs                                Rodney K. Thorn
Michael J. Vetere, Jr.


            West Virginia University at Parkersburg Board of Advisors

Joe Campbell, Chair                             Joyce Okes
Jim Mylott                                      Gregory K. Smith
George Kellenberger                             Robert J. D’Avria
Trudy Seita                                     Tony Playtis
James B. Hayhurst, Jr.                          Mike Howerton
Michael Hastings                                Cindy Kelley
Linda Dickirson                                 Violet Mosser
William Niday


       Potomac State College of West Virginia University Board of Advisors

John A. Canfield, Chair                        Honorable C. Reeves Taylor
Carl D. Avers, Vice Chair                      Kris E. Warner
W. Robert Grafton, Secretary                   Truman R. Wolfe
Lyle A. Cox, Jr.                               Dr. Glenn O. Workman, Jr.
Linda J. Hicks                                 James M. Hoey
Charles B. Kalbaugh                            Ryen Blizzard
S. Diane Kradel                                Rebecca E. Wilkins


  West Virginia University Institute of Technology (WVUIT) Board of Advisors

Edward L. Robinson, Chair                      Elaine D. Chiles
Mike P. Miller                                 Sally E. Smith
Nancy M. Thomas                                Ralph H. Goolsby
Patsy Hardy                                    Homer E. Taylor


       The Community and Technical College at WVUIT Board of Advisors

Ralph Sevy, Chair                             Charles Garvin, II
Sam Davis                                     Talmadge Hager
Jane Diggs                                    Janna Hanson
Phillip Dobbins                               Wetzel Harvey
Thomas Dover                                  Nancy Keatley
Keith Spangler                                Sally E. Smith


                                        70

				
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