FISHER HOUSE FOUNDATION, INC. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION DECEMBER 31, 2013

Transcription

1 FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION DECEMBER 31, 2013

2 INDEX DECEMBER 31, 2013 INDEPENDENT AUDITORS' REPORT 1-2 Pages STATEMENT OF FINANCIAL POSITION - DECEMBER 31, 2013 EXHIBIT A 3 STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 2013 EXHIBIT B 4 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2013 EXHIBIT C SUPPLEMENTARY FINANCIAL INFORMATION: Schedule of Functional Expenses for the Year Ended December 31, 2013 Schedule 1 18

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5 EXHIBIT A STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2013 ASSETS Cash and cash equivalents $ 38,961,773 Contributions receivable 3,857,968 Construction-in-progress 9,867,896 Assets temporarily restricted in use 10,942,666 Prepaid expenses and other assets 124,731 Office equipment (net of accumulated depreciation of $110,576) 74,790 Leasehold improvements (net of accumulated amortization of $28,625) 1,975 Restricted investment 750,000 TOTAL ASSETS $ 64,581,799 LIABILITIES AND NET ASSETS LIABILITIES: Accounts payable and accrued expenses $ 4,032,950 Retainage payable 703,967 Deferred revenue 210,500 Deferred rent 45,490 4,992,907 COMMITMENTS AND CONTINGENCIES NET ASSETS: Unrestricted 47,896,226 Temporarily restricted 10,942,666 Permanently restricted 750,000 TOTAL NET ASSETS 59,588,892 TOTAL LIABILITIES AND NET ASSETS $ 64,581,799 The accompanying notes to financial statements are an integral part of this statement. -3-

6 EXHIBIT B STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 2013 UNRESTRICTED TEMPORARILY RESTRICTED PERMANENTLY RESTRICTED TOTAL SUPPORT AND REVENUE: Support: Contributions $ 34,805,570 $ 6,494,611 $ - $ 41,300,181 Special events (net of costs of direct benefits to donors of $349,321) 1,105, ,540-1,936,492 Donated goods, services and media time 20,430, ,430,769 Net assets released from restrictions 4,897,422 (4,897,422) - - Revenue: Total support 61,239,713 2,427,729-63,667,442 Interest and dividend income 73, ,299 Realized (loss) on sale of donated securities (3,305) - - (3,305) EXPENSES: TOTAL SUPPORT AND REVENUE 61,309,707 2,427,729-63,737,436 Program services 45,806, ,806,138 Management and general 1,532, ,532,022 Fund-raising 2,752, ,752,412 TOTAL EXPENSES 50,090, ,090,572 CHANGE IN NET ASSETS 11,219,135 2,427,729-13,646,864 NET ASSETS - BEGINNING OF YEAR 36,677,091 8,514, ,000 45,942,028 NET ASSETS - END OF YEAR $ 47,896,226 $ 10,942,666 $ 750,000 $ 59,588,892 The accompanying notes to financial statements are an integral part of this statement. -4-

7 EXHIBIT C STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2013 CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets $ 13,646,864 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 30,277 Value of donated securities (499,168) Realized loss on sale of donated securities 3,305 Cost of houses donated 18,140,591 Straight-lining of rent 3,325 Changes in assets and liabilities: (Increase) decrease in: Contributions receivable 776,617 Additions to construction-in-progress (18,064,658) Assets temporarily restricted in use (2,427,729) Prepaid expenses and other assets 1,536,472 Increase (decrease): Accounts payable and accrued expenses 1,264,210 Retainage payable 703,967 Grant payable (1,419,300) Deferred revenue (7,000) Total adjustments 40,909 NET CASH PROVIDED BY OPERATING ACTIVITIES 13,687,773 CASH FLOWS FROM INVESTING ACTIVITIES: Payments for office equipment (26,428) Proceeds from sale of donated securities 495,867 NET CASH PROVIDED BY INVESTING ACTIVITIES 469,439 NET INCREASE IN CASH AND CASH EQUIVALENTS 14,157,212 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 24,804,561 CASH AND CASH EQUIVALENTS - END OF YEAR $ 38,961,773 The accompanying notes to financial statements are an integral part of this statement. -5-

8 NOTE 1 - ORGANIZATION Fisher House Foundation, Inc. (the "Foundation") is a not-for-profit organization incorporated under the laws of the State of Delaware on March 31, 1993, as amended on October 27, Fisher Houses are facilities constructed for the purpose of providing temporary lodging for members of the armed services and their families receiving care in military and veterans hospitals. The Foundation was formed for, and program services consist of, constructing and donating Fisher Houses to various branches of the U.S. armed services and the Department of Veterans Affairs ("Donees"), providing gratuitous guidance and supervisory, as well as monetary, assistance in connection with the Donees' management and operation of the Fisher Houses. The Foundation also funds the scholarship program described in Note 10, and provides military personnel and their families with free air travel and hotel rooms as described in Notes 11 and 12. In addition, the Foundation's objectives are: (a) (b) (c) To promote and enhance the public perception and image of the Fisher Houses and the U.S. armed forces, and to provide financial assistance to current members of the U.S. armed services, veterans and their families. To promote, encourage and provide support to enhance the communication and cooperation among the military and federal, state and local governments, and private organizations involved or associated with Fisher Houses through publications and support programs. To support and encourage programs designed to maintain the high-quality standards of care and management associated with Fisher Houses. NOTE 2 - (a) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Financial Statements The financial statements of the Foundation have been prepared on the accrual basis of accounting. Net assets and activities of the Foundation are classified into three categories, consisting of unrestricted net assets, temporarily restricted net assets and permanently restricted net assets, based upon the existence or absence of donor-imposed restrictions. (b) Support and Expenses Contributions received, unconditional promises to give, and donated goods are measured at their fair values on the date of donation. Unless explicit donor stipulations specify how the donated assets must be used, contributions are reported as increases in unrestricted net assets. If explicit donor stipulations are met in the same year as the restricted contributions are received or earned, such are reported as unrestricted support. Generally, services provided free of charge to the Foundation by board members and their affiliates, for management and general functions, are not reflected in the accompanying financial statements unless they meet certain criteria for recognition. (continued) -6-

9 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue from various grants is recognized at the time expenditures are made in accordance with the agreement. Any grant funds received in advance of expenditure are recorded as refundable advances. Contributions for scholarships are recorded when pledged or received and are temporarily restricted until the scholarships are awarded. (c) Cash Equivalents For purposes of the statement of cash flows, the Foundation considers all highly liquid investments with original maturities of three months or less when purchased, other than those which have been donor restricted, to be cash equivalents. (d) Concentrations of Credit Risk Financial instruments which potentially subject the Foundation to concentrations of credit risk consist of cash, certificates of deposit, and money market funds on deposit with major financial institutions, which at times exceeded federally insured limits. (e) Donated Securities Donated securities are reported at their fair value as of the date of donation. Sales are reflected on a trade-date basis. (f) Donated Goods, Services and Media Time Donated goods consist of contributed merchandise, phone cards with stored value and gift certificates, and are reported at their fair value as of the date of donation. Donated air miles and hotel rewards points are not valued until they are redeemed by the Foundation and used in the Hero Miles or Hotels for Heroes Programs described in Notes 11 and 12. Magazine consulting services donated as part of program services, fund-raising or management and general expenses are recorded in the accompanying financial statements at their fair value on date of receipt to the extent that such amounts can be reasonably estimated. Donated media time used for public service announcements is reported at its fair value as estimated by management as of the date of donation. During 2013, the Foundation received donated media time which was valued at $3,713,413 and is included in donated goods, services and media time and was charged in equal amounts to program services and fundraising for the year ended December 31, (continued) -7-

10 NOTE 2 - (g) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Impairment of Long-Lived Assets The Foundation reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then assets are written down first, followed by other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. As of December 31, 2013, management determined there were no impairment losses for long-lived assets. (h) Depreciation and Amortization Office equipment is stated at cost. Acquisitions and betterments are capitalized, while repairs and maintenance are expensed as incurred. Depreciation is computed on a straightline basis over the estimated useful lives, which range from three to five years. Amortization of leasehold improvements is provided on the straight-line method over the term of the lease. (i) Split-Interest Agreement The Foundation is one of the beneficiaries of a certain Charitable Lead Annuity Trust (the "Trust"). Under this agreement, the Foundation recorded a temporarily restricted contribution at the present value of the estimated future benefits to be received. Subsequent changes in fair value are recorded as changes in value of the agreement in the temporarily restricted net asset class. Distributions from the Trust are reflected as reductions in the assets temporarily restricted in use and reclassifications from temporarily restricted to unrestricted net assets. (j) Deferred Revenue Deferred revenue consists of cash collected for a certain special event that will take place in the next year. (k) Income Taxes The Foundation is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code, and is classified as a publicly supported organization, which allows for the maximum charitable contribution deduction by donors. Management has determined that the Foundation does not have any uncertain tax positions and associated unrecognized benefits or liabilities that may materially affect the financial statements or required disclosures. Since tax matters are subject to some degree of uncertainty, there can be no assurance that the Foundation's tax positions will not be challenged by taxing authorities and the Foundation will not be subject to additional tax penalties, and interest, as a result of such challenge. (continued) -8-

11 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The Foundation's federal and state tax returns for the years after 2009 remain subject to examination by the relevant taxing authorities. (l) Accounting 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 the disclosure of contingencies, if any, at the date of the financial statements, and revenue and expenses during the reporting period. Actual results could differ from those estimates. (m) Subsequent Events The Foundation has evaluated subsequent events after December 31, 2013 through July 24, 2014, the date that the financial statements were available to be issued. NOTE 3 - CONSTRUCTION-IN-PROGRESS Costs of construction of Fisher Houses to be donated are capitalized as incurred and amounted to $9,867,896 as of December 31, All costs incurred in connection with the construction of a Fisher House are expensed when the house is donated. The costs of Fisher Houses donated during the year ended December 31, 2013 totaled $18,140,591. Subsequent to December 31, 2013, the Foundation incurred additional construction costs of approximately $4,327,000, and completed and donated two Fisher Houses which cost in total approximately $13,610,000. As of July 24, 2014, proffers have been issued by the Foundation and accepted by the Donees for three Fisher Houses The total cost of these three Houses is estimated to be approximately $18,450,000, of which approximately $151,000 has been incurred through July 24,

12 NOTE 4 - (a) (b) (c) (d) RELATED PARTY TRANSACTIONS For the year ended December 31, 2013, certain officers and trustees made contributions to the Foundation totaling $98,817, and affiliates of certain trustees made contributions of $160,381. For the year ended December 31, 2013, payments totaling $29,360 were made to The Henry M. Jackson Foundation, the president of which, John Lowe, is a member of the Board of Trustees of the Foundation, and has been charged to expense as follows: program services, $16,441; management and general, $8,808; and fund-raising, $4,110. For the year ended December 31, 2013, payments totaling $121,130, of which $36,130 was for advertising and $85,000 was to sponsor an award, were made to Gannett Government Media, the president of which, Elaine Howard, is a member of the Board of Trustees of the Foundation. Such amounts have been charged to expense as follows: program services, $105,233; management and general, $10,839; and fund-raising, $5,058. For the year ended December 31, 2013, the Foundation compensated James Weiskopf, an officer of the Foundation, $71,675 for his services in connection with the scholarship (Note 10) and other programs, publishing and consulting. Such amount has been charged to expense as program services. NOTE 5 - ASSETS TEMPORARILY RESTRICTED IN USE Assets temporarily restricted in use as of December 31, 2013 consisted of the following: Cash and cash equivalents $ 8,691,638 Contributions receivable 1,619,440 Pledge receivable 49,023 Split-interest agreement 582,565 $ 10,942,666 As of December 31, 2013, such restrictions included amounts designated for the scholarship program of $2,769,489, for specific completed Houses totaling $1,048,450, construction of future Houses totaling $6,257,651, repair and enhancement of completed Houses totaling $78,449, Fisher House nightly fees totaling $206,062, and time restrictions of $582,565. (continued) -10-

13 NOTE 5 - ASSETS TEMPORARILY RESTRICTED IN USE (Continued) The pledge receivable is due as follows: Year Ending December 31, 2014 $ 24, ,818 49,636 Less, discount for present value (613) $ 49,023 The Foundation used a discount rate of.4% in determining the present value of a certain pledge receivable to be collected at the time the pledge was made. The Foundation is one of the beneficiaries of a certain Charitable Lead Annuity Trust that is controlled by a third-party trustee. Under the agreement, the Foundation receives fixed annual distributions from the trust through January Annual distributions under the terms of this agreement as of December 31, 2013 are as follows: Year Ending December 31, 2014 $ 48, , , , ,145 Thereafter 431, ,444 Less, discount for present value (89,879) $ 582,565 The Foundation used a discount rate of 2.0% in determining the present value of the annual distributions to be collected at the time the Charitable Lead Annuity Trust was established. (continued) -11-

14 NOTE 5 - ASSETS TEMPORARILY RESTRICTED IN USE (Continued) During the year ended December 31, 2013, $4,897,422 of restricted funds was released, based on the Foundation's satisfaction of donor stipulations, as follows: Scholarship program $ 1,177,545 Designated houses 1,205,096 Construction of Fisher Houses 2,166,039 Repair and enhancement of designated houses 182,469 Time restrictions 166,273 $ 4,897,422 NOTE 6 - RESTRICTED INVESTMENT In 2008, the Foundation received a donation of $750,000 which was permanently restricted in use by the donor. The earnings thereon may be used only for the scholarship program (Note 10). For the year ended December 31, 2013, the restricted investment earned $151 in interest income, all of which was utilized for its intended purpose. The Board of Trustees of the Foundation has interpreted the State Prudent Management Institutional Funds Act (SPMIFA) to require the preservation of the fair value of the original gift as of the gift date of the donor-restricted funds unless the donor has made explicit stipulations to the contrary. Accordingly, the Foundation classifies as permanently restricted net assets the original value of the restricted investment. The remaining portion of the investment that is not classified as permanently restricted net assets is classified as temporarily restricted net assets, until those amounts are appropriated for expenditures by the Foundation in a manner consistent with the standard of prudence prescribed by SPMIFA. The Foundation has adopted investment and spending policies in the attempt to provide a predictable stream of funding with the best possible return and a low level of investment risk while seeking to maintain the fair value of the original gift. These assets include restricted investments that the Foundation must hold in perpetuity. Under this policy, as approved by the Board of Trustees, the restricted investments are invested in a separate money market account with a major financial institution. -12-

15 NOTE 7 - FAIR VALUE MEASUREMENTS The Foundation follows the authoritative guidance for accounting for certain assets and liabilities that are required to be measured at fair value under GAAP. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an "exit price") on the measurement date in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants (with no compulsion to buy or sell). The guidance outlines a valuation framework that provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The levels of the fair value hierarchy are as follows: Level 1 Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 Inputs to the valuation methodology include: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets; Inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.); and Inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. For assets and liabilities measured at fair value on a recurring basis, the fair value hierarchy requires the use of observable market data when available. In instances where inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based upon the lowest level input that is significant to the fair value measurement in its entirety. (continued) -13-

16 NOTE 7 - FAIR VALUE MEASUREMENTS (Continued) Following is a description of the valuation methodology used for assets measured at fair value: Split-interest agreement: Valued based upon the methodology described in Note 5. The following table sets forth, by level within the fair value hierarchy, the Foundation's assets that are measured at fair value as of December 31, 2013: Level 1 Level 2 Level 3 Total Split-interest agreement $ - $ - $ 582,565 $ 582,565 The asset measured at fair value on a recurring basis using level 3 inputs at December 31, 2013 was donated in December As such, there were no distributions or gains/losses, either realized or unrealized, to report for the period ended December 31, 2013, other than the initial donation. The preceding method described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair value. Furthermore, although the Foundation believes that its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value could result in a different fair value measurement at the reporting date. NOTE 8 - FEDERAL AWARD In 2012, the Foundation was awarded a $4,000,000 federal grant by the United States Army Medical Research Acquisition Activity (USAMRAA) to be used to construct and furnish Fisher Houses throughout the world during the grant term of September 30, 2012 through September 29, The funds were available to the Foundation upon written request and submission of interim federal cash transaction requests to USAMRAA. During 2012, the Foundation had not requested any funds from USAMRAA. In August 2013, the grant for 2013 was modified, increasing the total award to $7,994,721. During 2013, the entire balance was received and expended in accordance with the terms of the grant, and is included in support in the accompanying statement of activities and changes in net assets. Under the terms of the grant, the Foundation is subject to certain federal regulations and guidelines common to most federal grant recipients. NOTE 9 - GRANT FROM DONOR In December 2013, a grant of $2,650,000 was awarded by a certain foundation ("Donor") to be used to construct and furnish a Fisher House and provide a support program to the facility at Camp Pendleton. The grant term is from December 1, 2013 through December 1, In January 2014, the Foundation received an advance of $1,000,000 from the Donor. -14-

17 NOTE 10 - SCHOLARSHIP PROGRAM The Foundation collects funds for a scholarship program created to recognize the contributions of military families to the readiness of the fighting force and to celebrate the role of the commissary in the military community. The funds collected for the scholarship program are maintained in a separate cash account. During the year ended December 31, 2013, contributions to the scholarship program totaled $1,374,848; interest earned on the restricted investment amounted to $151 (Note 6); and $999,432 was expended in accordance with scholarship guidelines. The Foundation's scholarship program also provides for children of service members who have died or become disabled, as defined, as a result of their service. The funds collected for this purpose are maintained in an account separate from the remaining scholarship funds. During the year ended December 31, 2013, contributions and expenditures solely for this purpose totaled $332,249 and $320,000, respectively. During the year ended December 31, 2013, the Foundation collected additional contributions of $188,615 which can be used for either purpose. NOTE 11 - HERO MILES PROGRAM The Foundation is part of a program to provide servicemen and their families who meet certain criteria free round-trip tickets using donated frequent flyer miles. During 2013, the Foundation provided a total of 10,744 tickets which were valued at approximately $16,237,000, which is included in donated goods, services and media time and charged to program services for the year ended December 31, NOTE 12 - HOTELS FOR HEROES PROGRAM In 2013, the Foundation participated in a program to provide qualified servicemen and their families free hotel rooms, using donated hotel reward points, when rooms at a Fisher House are not available. During 2013, the Foundation provided a total of 2,566 nights of lodging which were valued at approximately $361,000, which is included in donated goods, services and media time and charged to program services for the year ended December 31, NOTE 13 - COMMITMENTS AND CONTINGENCIES (a) The Foundation is committed under a noncancellable operating lease of office facilities through December 2017, as extended. Approximate minimum annual rental payments under the terms of this lease as of December 31, 2013 are as follows: 2014 $ 196, , , ,000 $ 820,000 (continued) -15-

18 NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued) The accompanying statement of activities and changes in net assets reflects rent expense on a straight-line basis over the term of the lease. At December 31, 2013, the deferred liability resulting from the above accounting treatment amounted to approximately $45,500. For the year ended December 31, 2013, rent expense on such lease totaled approximately $193,000. The lease also provides for additional rent based on the Foundation's defined share of increases in operating expenses and real estate taxes. (b) The Foundation's 401(k) plan (the "Plan") covers all employees, as defined in the agreement. Active participants may elect to have the Foundation make annual salary reduction contributions on their behalf, not to exceed the lesser of 100% of eligible compensation, or $17,500 for the 2013 calendar year. Individuals who are age 50 and over are able to make an additional catch-up contribution of $5,500 in the 2013 calendar year. In addition, the Plan provides for discretionary employer matching contributions. The Foundation's matching contribution amounted to approximately $68,000 for the year ended December 31, 2013 and is included in payroll taxes and employee benefits. -16-

19 SUPPLEMENTARY FINANCIAL INFORMATION

20 Schedule 1 SCHEDULE OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2013 TOTAL PROGRAM SERVICES MANAGEMENT AND GENERAL FUND- RAISING Director's compensation $ 443,556 $ 310,489 $ 88,711 $ 44,356 Other payroll 1,541, , , ,876 Payroll taxes and employee benefits 413, , ,688 59,374 Printing and publications 232, ,536 7,233 21,410 Grants and awards 41,026,787 41,025,412-1,375 Dedication expense 121, , Office expenses 386, , ,517 52,478 Consulting fees 209, ,210 8,318 46,912 Rent expense 208, ,792 61,963 29,987 Travel 300, ,611 34,942 23,295 Postage 56,612 28,306 14,153 14,153 Miscellaneous 24,520-24,520 - Bank and credit card fees 273, ,773 - Conferences 83,654 83, Event costs 197, ,322 Professional fees 265, , ,922 - Insurance 12,506 7,361 2,950 2,195 Education and promotion expenses 504, ,592 80, ,750 Public service announcements - donated 3,713,443 1,856,721-1,856,722 Telephone 43,216 24,180 12,829 6,207 TOTAL EXPENSES BEFORE DEPRECIATION AND AMORTIZATION 50,060,295 45,806,138 1,501,745 2,752,412 Depreciation and amortization 30,277-30,277 - TOTAL EXPENSES $ 50,090,572 $ 45,806,138 $ 1,532,022 $ 2,752,412 The accompanying notes to financial statements and independent auditors' report should be read in conjunction with this supplementary schedule. -18-