Word of Life Fellowship, Inc. (Parent Organization Only)

Transcription

1 Financial Statements and Auditor s Report Year Ended

2 Table of Contents Auditor's Report 3 Financial Statements: Statement of Financial Position 5 Statement of Activities 6 Statement of Cash Flows 8 9

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

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Word of Life Fellowship, Inc. as of, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matter We also have audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated statement of financial position of Word of Life Fellowship, Inc. and Affiliate as of, and the related consolidated statement of activities and cash flows for the year then ended (none of which is presented herein), and we expressed an unmodified opinion on those financial statements. Such consolidated financial statements are the general-purpose financial statements of Word of Life Fellowship, Inc. and Affiliate, and the financial statements of the parent company presented herein are not a valid substitute for those consolidated financial statements. August 5, 2013 East Northport, New York

5 Statement of Financial Position Assets: Cash and cash equivalents $ 2,326,780 Bible Institute accounts receivable (net of allowance for doubtful accounts of $586,873) 453,621 Other accounts receivable 329,722 Contributions in transit 950,449 Pledges receivable 245,195 Prepaid expenses 163,052 Inventories 664,345 Beneficial interest in remainder trusts 47,562 Properties subject to life estates (net of accumulated depreciation of $284,984) 461,866 Land, buildings and equipment (net) 25,760,143 Long term investments 4,670,553 Total assets $ 36,073,288 Liabilitie s: Accounts payable and accrued expenses $ 1,891,774 Other payables to related entities 439,069 Accrued pension liability 89,559 Funds held for international ministry partners 1,037,890 Short-term deferred revenue 2,043,365 Notes and lines of credit payable, short-term portion 807,934 Gift annuity liability - actuarial reserve 1,370,715 Long-term deferred revenue 321,705 Notes and lines of credit payable, long-term portion 6,510,869 Use obligation on properties subject to life estates 98,739 Total liabilities 14,611,619 Net Assets: Unrestricted: Undesignated 12,962,528 Donor advised 101,193 Total unrestricted 13,063,721 Temporarily restricted 6,578,933 Permanently restricted 1,819,015 Total net assets 21,461,669 Total liabilities and net assets $ 36,073,288 See notes to financial statements

6 Statement of Activities For the Year Ended Donor Total Temporarily Permanently Undesignated Advised Unrestricted Restricted Restricted Totals Support and revenue: Contributions $ 2,937,525 $ 2,937,525 $ 18,210,868 $ 420 $ 21,148,813 Contributions to donor advised funds $ 60,000 60,000 60,000 Programs (net of student discounts of $2,234,671) 14,901,887 14,901,887 14,901,887 Bookstore and other sales (net of cost of goods sold of $414,531) 197, , ,897 Interest and dividend income 2, ,773 95,790 98,563 Other 158, , ,454 Total support and revenue 18,198,306 60,230 18,258,536 18,306, ,565,614 Net assets released: Donor advised fund distributions 172,082 (172,082) Satisfaction of program restrictions 16,687,005 16,687,005 (16,687,005) Satisfaction of fixed asset acquisition restrictions 1,397,143 1,397,143 (1,397,143) Total net assets released 18,256,230 (172,082) 18,084,148 (18,084,148) Total support, revenue and releases 36,454,536 (111,852) 36,342, , ,565,614 See notes to financial statements (Continued)

7 Statement of Activities For the Year Ended Donor Total Temporarily Permanently Undesignated Advised Unrestricted Restricted Restricted Totals Expens es : Program services: Local church ministries 5,501,125 5,501,125 5,501,125 Bible Institute 8,190,061 8,190,061 8,190,061 International ministries 12,395,143 12,395,143 12,395,143 Camps - New York 5,235,650 5,235,650 5,235,650 Camps - Florida 1,830,226 1,830,226 1,830,226 Other ministries 449, , ,851 Total program services 33,602,056 33,602,056 33,602,056 Supporting services: Management and general 1,350,356 1,350,356 1,350,356 Development 1,345,418 1,345,418 1,345,418 Total supporting services 2,695,774 2,695,774 2,695,774 Total expenses 36,297,830 36,297,830 36,297,830 Change in net assets from operating activities 156,706 (111,852) 44, , ,784 Other changes in net assets: Transfer to Word of Life Foundation, Inc. (see Note 20) (28,501,320) (28,501,320) (28,501,320) Change in value of gift annuities 341, , ,266 Change in annuity statutorily required surplus 87,328 87,328 (87,328) Change in value of beneficial interest in remainder trusts 1,410 1,410 Change in value of properties subject to life estates 33,208 33,208 Realized and unrealized gains (losses) on investments (2,002) (2,709) (4,711) 130, ,824 Total other changes in net assets 426,592 (28,504,029) (28,077,437) 77,825 (27,999,612) Change in net assets 583,298 (28,615,881) (28,032,583) 300, (27,731,828) Net assets beginning of year 12,379,230 28,717,074 41,096,304 6,278,598 1,818,595 49,193,497 Net assets end of year $ 12,962,528 $ 101,193 $ 13,063,721 $ 6,578,933 $ 1,819,015 $ 21,461,669 See notes to financial statements. (Concluded) - 7 -

8 Statement of Cash Flows For the Year Ended Cash flows from operating activities: Change in net assets $ (27,731,828) Adjustments to reconcile change in net assets to net cash used by operating activities: Depreciation 1,478,848 Gifts in kind (350,199) Contributions restricted for: Investment in endowment (420) Land, buildings, and equipment (1,245,339) Net realized and unrealized gains on investments (238,511) Gain from the sale of land, buildings, and equipment (23,170) Actuarial change in value of annuities, net of payments (120,155) (Increase) decrease in: Bible Institute accounts receivable 142,519 Other accounts receivable 5,185 Contributions in transit 530,369 Pledges receivable (105,520) Notes receivable from related parties 14,496,161 Accrued interest receivable 353,008 Prepaid expenses (35,684) Inventories 311,025 Beneficial interest in remainder trusts (1,410) Properties subject to life estates 27,231 Increase (decrease) in: Accounts payable and accrued expenses (496,408) Other payables to related entities 439,069 Accrued pension costs 14,523 Funds held for international ministry partners 801,523 Short-term deferred revenue (220,847) Long-term deferred revenue (63,522) Use obligation on properties subject to life estates (33,208) Net cash used by operating activities (12,066,760) Cash flows from investing activities: Purchase of land, buildings and equipment (1,663,946) Proceeds from sale of land, buildings and equipment 30,166 Purchase of investments (989,359) Proceeds from sale of investments 10,643,318 Net cash provided by investing activities 8,020,179 Cash flows from financing activities: Proceeds from contributions restricted for: Investment in endowment 420 Land and building 1,245,339 Payments on annuity agreements (235,190) Face value of new annuities, net of contribution 14,078 Proceeds from new borrowing 7,252,918 Payments of principal (3,881,440) Net cash provided by financing activities 4,396,125 Net increase in cash and cash equivalents 349,544 Cash and cash equivalents at beginning of year 1,977,236 Cash and cash equivalents at end of year $ 2,326,780 Supplemental disclosure of cash flows information: Cash paid for interest $ 383,237 See notes to financial statements

9 1. Organization and Purpose: The purpose of Word of Life Fellowship (Word of Life) worldwide is evangelism and discipleship through various means, including camps, evangelistic rallies and outreach, gospel musical/drama productions, Bible Institutes, Bible clubs, and radio. Word of Life is exempt from federal income tax under Section 501(c)(3) as a nonprofit religious organization and has been classified as an organization other than a private foundation. Word of Life s primary sources of revenue are contributions and program revenue. 2. Summary of Significant Accounting Policies: The significant accounting policies followed are described below to enhance the usefulness of the financial statements to the reader. a. Accrual Basis Financial Statements The accompanying financial statements have been prepared on the accrual basis and conform to accounting principles generally accepted in the United States of America and in accordance with the principles of not-for-profit accounting. The financial statements do not include the financial position, results of activities, or cash flows of Word of Life related organizations outside of the United States, which are separate foreign corporations. b. Net Asset Classifications Word of Life reports in accordance with FASB ASC 958. FASB ASC 958 establishes standards for external financial reporting by not-for-profit organizations and requires that resources be classified for accounting and reporting purposes into three net asset categories according to externally (donor-imposed) restrictions. The net assets of Word of Life and changes therein are classified and reported as follows: Unrestricted net assets include all resources which are not subject to donor-imposed restrictions of a more specific nature than those which only obligate the organization to utilize funds in furtherance of its mission, those resources invested in property and equipment, and required annuity reserves. Temporarily restricted net assets are those contributed with donor stipulations for specific operating purposes and programs, those with time restrictions or those not currently available for use until commitments regarding their use have been fulfilled or lifetime beneficiary interest have ceased. Temporarily restricted net assets also include pledges and contributions receivable, additional annuity reserves required by state law, Word of Life's interest in charitable remainder trusts and properties subject to life estates and accumulated endowment earnings that are restricted by the donor for a particular purpose or whose use is unrestricted but have not yet been appropriated for expenditure. Permanently restricted net assets are those that are subject to donor-imposed restrictions which will never lapse, thus requiring that the funds be permanently retained. Generally, the donors of these funds permit the organization to use all or part of the income earned on related investments, and the net capital appreciation thereon, for general or specific purposes

10 2. Summary of Significant Accounting Policies: (Continued) c. Support and Revenue Contributions are recorded when made, which may be when cash is received, or when unconditional promises are made. Contributions restricted by the donor for a specific purpose are recorded as support in the temporarily restricted class of net assets until funds have been expended by Word of Life for the purposes specified. Upon satisfaction of the restriction, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Donated assets are recorded at their fair market value on the date of donation. Unconditional promises to give are reported at net realizable value if, at the time the promise is made, payment is expected to be received in one year or less. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The discounts on those amounts are computed, when appropriate, using interest rates commensurate with the risks involved. Amortization of the discount is included in contribution revenue. Conditional promises to give are not included as support until the conditions are substantially met. It is the policy of Word of Life to record for the period contributions considered to be in transit at the close of the period, that is, those dated in December and received during January, as contributions in transit. Program income is recorded when earned, which is when the product or service has been provided. Sales are recorded when the good has been provided to the customer. Investment income is recorded in the month it is earned. Other income is recorded when earned. d. Cash and Cash Equivalents Word of Life considers all highly liquid instruments with maturities less than three months to be cash and cash equivalents. Certain items meet the definition of cash equivalents but are part of a larger pool of investments and are classified as long-term investments in the statement of financial position. From time to time, these balances may exceed federal deposit insurance limits; however, Word of Life has not experienced any losses on these accounts and management does not believe it is exposed to any significant risk. The amount on deposit in one institution exceeds the federally insured limit by $2,180,508. e. Accounts Receivable Bible Institute accounts receivable and other accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a provision for bad debt expense and an adjustment to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. The allowance for uncollectible accounts as of was $586,873 for Bible Institute accounts receivable and $-0- for other accounts receivable

11 2. Summary of Significant Accounting Policies: (Continued) f. Inventory Inventory is stated at the lower of cost or market using the first-in first-out method and consists of various literature, media, food and other items held for sale and distribution. No reserve for obsolescence is recorded because items that are subject to obsolescence are not included in the inventory valuation. g. Land, Buildings, and Equipment Land, buildings and equipment are capitalized at cost at the date of purchase if that cost is in excess of $10,000. Donated fixed assets are capitalized at fair value on the date of the gift if that value is in excess of $10,000. Contributions of cash that must be used to acquire land, buildings and equipment are reported as temporarily restricted net assets. Release from temporarily restricted net assets occurs when the land, buildings and equipment are placed into service. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are: Buildings and improvements Furniture and equipment Vehicles and boats years 5-20 years 3-10 years h. Long Term Investments Investments consist of equity and debt securities and are stated at fair value. Realized and unrealized gains and losses are included as either unrestricted or temporarily restricted revenue in other changes in net assets in the statement of activities. Donated securities are recorded at the fair value on the date of donation and thereafter carried in accordance with the above provisions. i. Annuities Payable Word of Life has established a gift annuity plan whereby donors may contribute assets to the organization, in exchange for the right to receive a fixed dollar annual return during their lifetimes. These transactions provide for a portion of the transfer to be considered a charitable contribution for income tax purposes at the date of the gift. The difference between the amount of the annuity and the liability for future payments, determined on an actuarial basis, is recognized as a contribution at the date of the gift. Upon the death of the annuitant (or the last joint annuitant) income distributions cease. The annuity liability is revalued annually using a discount rate established at the inception of the agreement and appropriate actuarial assumptions. The resulting actuarial gain or loss is recorded as change in value in the statement of activities. Word of Life is required to maintain legally-mandated reserves and investment guidelines for the States of New York and New Jersey. At December 31, 2012, Word of Life was in compliance with each of these requirements

12 2. Summary of Significant Accounting Policies: (Continued) j. Properties Subject to Life Estates Life estate agreements exist between Word of Life and two of its donors. These agreements give Word of Life a one-third and one hundred percent interest in the personal residences of the donors, respectively. The donors have the sole right to occupy the premises as a life tenant with Word of Life being the remainder beneficiary of one-third and one hundred percent interest in the properties, respectively. On an annual basis, Word of Life revalues the present value of the remaining future liability based upon appropriate assumptions. k. Expense Allocations The costs of providing various program services and supporting activities have been summarized on a functional basis in the statement of activities. Accordingly, costs related to more than one function have been allocated between program services and supporting activities benefited. l. Uncertain Tax Positions The financial statement effects of a tax position taken or expected to be taken are recognized in the financial statements when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. Interest and penalties, if any, are included in expenses in the statement of activities. As of, Word of Life had no uncertain tax positions that qualify for recognition or disclosure in the financial statements. Word of Life files information tax returns in the United States and various states. Word of Life is generally no longer subject to U.S. federal and state income tax examinations by tax authorities for years before m. Use of Estimates 3. Liquidity: Word of Life uses estimates and assumptions in preparing the financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of any contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing the financial statements. Word of Life has not consistently maintained the necessary amounts of cash or investments to fund all donor-restricted projects. Projects are generally funded promptly as the funds are requested. 4. Other Receivables: Other receivables at consist of the following: Conference room contract fees $ 65,727 Conference center and RV Park 90,110 Permanent advances 47,050 Temporary advances 42,938 Other receivables 83,897 Total $329,

13 5. Pledges Receivable: Pledges receivable consist of unconditional promises to give and are expected to be received in less than one year, and amounted to $245,195 at. 6. Inventories: Inventories are maintained for the following purposes and consist of: Publications and curriculum for resale $136,199 Maintenance and housekeeping supplies 162,930 Bookstore 297,381 Food supplies 67,835 Total $664, Land, Buildings and Equipment: Land, buildings and equipment consist of: Land $ 3,148,828 Buildings and improvements 33,818,716 Furniture and equipment 2,483,954 Vehicles and boats 1,513,891 Construction in process 1,281,549 42,246,938 Less accumulated depreciation (16,486,795) Total $25,760,143 Depreciation expense for the year ending amounted to $1,478, Long-term Investments: Long-term investments are recorded at fair market value and are composed of the following: Corporate bonds $ 3,272,089 Common stocks 120,909 Inter-Mission gift annuity investment 99,231 Mutual funds 615,289 Money market funds 563,035 Total $ 4,670,

14 8. Long-term Investments: (Continued) Word of Life Fellowship, Inc. Investment income is reflected in the statement of activities as follows: Temporarily Unrestricted Restricted Totals Interest and dividend income $ 2,773 $ 95,790 $ 98,563 Subtotal 2,773 95,790 98,563 Realized gain on sale of investments 82,994 8,151 91,145 Unrealized gain (loss) on investments (87,705) 122,384 34,679 Subtotal (4,711) 130, ,824 Total $ (1,938) $226,325 $224,387 In addition to the investment income above, the annuity investments earned $79,278 in interest and dividends and $122,677 in realized and unrealized gains for a total of $201,955. This is reflected on the Statement of Activities as a component of the change in value of gift annuities. A substantial portion of investments are related to Word of Life s gift annuity program, endowment fund, and donor advised funds, $1,868,696, $2,270,102 and $90,252 respectively. (See footnote 2i and footnote 15 for a discussion of the gift annuity program.) The endowment fund is focused on securing, from a human perspective, Word of Life s ability to provide scholarships for Bible Institute students and campers in the future. The funds for the endowment are invested, and the investment income can be used to provide scholarships. Risks and Uncertainties Related to Investments Investment securities are exposed to various risks, such as changes in interest rates or credit ratings and market fluctuations. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is possible that the value of Word of Life s investments and total net assets balance could fluctuate materially. Word of Life maintains custody accounts with various custodians. Although Word of Life monitors the custodians and believes that they are appropriate custodians, there is no guarantee that the custodians, or any other custodians that Word of Life may use from time to time, will not become insolvent. Word of Life believes that, in the event of the insolvency of one of its custodians, some of Word of Life's assets may be unavailable for a period of time, but that it would ultimately have full recovery of its assets. 9. Pension Plan: Defined Contribution Plan: Effective January 1, 1995, Word of Life established a Defined Contribution Retirement Plan for the benefit of all eligible employees and their beneficiaries. To be eligible, an employee must be 21 years of age, employed by Word of Life for one year, and be full-time status. Word of Life provides a matching contribution of 25 percent of the employee contribution, up to 6 percent of compensation. Employees are allowed to contribute to the plan through 401(k) salary deferrals. The employer s portion expensed for 2012 was $89,559, which is due to the plan as of

15 10. Funds Held for International Ministry Partners: Word of Life is currently holding funds totaling $1,037,890 for several of its international ministry partners. These amounts represent funds that Word of Life has segmented for to its international ministry partners, and are held in accounts that these ministries have access to but are in Word of Life s name. The international ministry partners have full access to the funds and can withdraw them at any time as the funds are considered theirs for use. The related assets are included in cash and cash equivalents on the statement of financial position. 11. Deferred Revenue: Deferred revenue at consists of the following: Short-term deferred revenue: Bible Institute tuition, student activities, and room and board $1,249,620 Advance seasonal reservations 683,552 Multi-year advance conference reservations 110,193 Total short-term deferred revenue 2,043,365 Long-term deferred revenue: Advance seasonal reservations 264,160 Multi-year advance conference reservations 57,545 Total long-term deferred revenue 321,705 Total deferred revenue $2,365, Notes and Lines of Credit Payable: Notes and lines of credit payable consist of: Promissory notes from individuals with interest rates from 3.25% to 5.0%, maturing in years 2013 to $ 718,803 Line of credit payable to a bank ($2,000,000 limit) secured by Word of Life properties and due on demand with an interest rate of prime plus.25% adjusted monthly (interest rate at December 31 was 3.50%). -0- Note payable to a board member, unsecured, with an interest rate of 5%, maturing in Principal and interest are due annually on December 31. 1,650,000 Note payable to a related entity, unsecured, with an interest rate of 5%, maturing in Principal and interest are due annually on December 31. 4,950,000 Total notes and lines of credit payable $7,318,

16 12. Notes and Lines of Credit Payable: (Continued) Principal payments on the notes and lines of credit payable for the succeeding six years are as follows: Year ending December 31, Notes and Promissory Lines of Credit Notes Totals 13. Donor Advised Funds: 2013 $ 600,000 $207,934 $ 807, ,000 47, , ,000, ,110 1,250, ,200,000 79,859 1,279, ,400, ,282 1,533, ,600,000 1,600,000 $6,600,000 $718,803 $7,318,803 Word of Life maintains certain donor advised funds which are funds that are separately identified on the books and records of Word of Life by reference to contributions by a donor or donors. These funds are owned and controlled by Word of Life, with respect to which such donor (or other persons appointed or designated by such donor) has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts held in such funds. At, net assets related to donor advised funds totaled $101,

17 14. Fair Value Measurements: Word of Life Fellowship, Inc. Word of Life uses appropriate valuation techniques to determine fair value based on inputs available. When available, Word of Life measures fair value using Level 1 inputs because they generally provide the most reliable evidence of fair value. Level 3 inputs are only used when Level 1 or Level 2 inputs were not available. Fair values of assets measured on a recurring basis at are as follows: Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Fair Value Assets (Level 1) Inputs (Level 2) Inputs (Level 3) Long-term Investments Corporate bonds: Aaa credit rating $ 60,674 $ 60,674 Aa2 credit rating 262, ,139 Aa3 credit rating 363, ,068 A1 credit rating 628, ,339 A2 credit rating 801, ,808 A3 credit rating 829, ,745 Baa1 credit rating 130, ,207 Baa2 credit rating 172, ,346 Baa3 credit rating 23,763 23,763 Total corporate bonds 3,272,089 3,272,089 Common stocks: Consumer goods 1,011 $ 1,011 Insurance 10,127 10,127 Services 95,616 95,616 Oil and gas 14,155 14,155 Total common stocks 120, ,909 Inter-mission gift annuity investment 99,231 99,231 Mutual funds: Balanced funds 44,093 44,093 Growth funds 57,407 57,407 Fixed income funds 134, ,808 Index funds 377, ,586 Sector funds 1,395 1,395 Total mutual funds 615, ,289 Money market funds 563, ,035 Total long-term investments 4,670,553 1,299,233 3,371,320 Beneficial interest in trust 47,562 47,562 Total $ 4,718,115 $ 1,299,233 $ 3,418,

18 14. Fair Value Measurements: (Continued) Word of Life Fellowship, Inc. Valuation techniques: Fair values for money market funds, corporate bonds and debentures, common stocks and mutual funds are determined by reference to quoted market prices and other relevant information generated by market transactions. The fair value of the beneficial interest in trust is based upon the underlying assets in the trust, which consist of publicly traded securities whose fair values are determined by reference to quoted market prices and other relevant information generated by market transactions. 15. Change in Value of Gift Annuities: Interest and dividend income $ 79,278 Investment fees (8,146) Subtotal 71,132 Realized gain on sale of investments 22,735 Unrealized gain on investments 99,942 Subtotal 122,677 New annuities whole amount 30,000 New annuities gift portion (15,922) Payments to annuitants (235,189) Change in actuarial reserve (313,964) Subtotal (535,075) Total $(341,266) During 2012, Word of Life received $30,000 from new gift annuity agreements, of which $15,922 is recorded as a contribution and $14,078 was added to gift annuity liabilities actuarial reserve. Additionally, the statutorily required surplus decreased by $87,328 (see footnote 16) in

19 16. Temporarily Restricted Net Assets: Temporarily restricted net assets are for the following purposes: Additions 12/31/2011 Balance and Other Changes Releases 12/31/2012 Balance Purpose restricted: International ministries missions support $ 1,160,589 $ 10,072,692 $ 9,811,500 $ 1,421,781 Local church ministries missions support 645,790 2,999,394 3,023, ,498 Evangelism and short term missions 199, , , ,577 Bible Institute scholarships 314, , , ,393 Needy camper aid 607, , , ,075 Fellowship projects 538,268 1,245,339 1,188, ,560 International ministries projects 1,690,687 3,049,265 3,041,813 1,698,139 Local church ministries projects 132,485 88, ,340 75,353 Total purpose restricted 5,289,620 18,331,673 18,056,917 5,564,376 Time restricted: Beneficial interest in remainder trusts 46,152 1,410 47,562 Properties subject to life estates 357,150 33,208 27, ,127 Gift annuity statutorily required surplus 446,001 (87,328) 358,673 Pledges receivable 139, , ,195 Total time restricted 988,978 52,810 27,231 1,014,557 Total $ 6,278,598 $ 18,384,483 $ 18,084,148 $ 6,578, Endowment Funds: Word of Life s endowments include donor-restricted funds and consist of individual funds established for the Bible Institute scholarships and Needy Camper aid. As required by generally accepted accounting principles (GAAP), net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions as specified in the Summary of Significant Accounting Policies outlined in these notes. Word of Life classifies as permanently restricted net assets (a) the original value of gifts and subsequent gifts donated to the donor-restricted permanent endowment, and (b) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by Word of Life. Word of Life considers the following factors in making a determination to appropriate accumulated donorrestricted endowment funds: (1) The duration and preservation of the fund (2) The purposes of Word of Life and the donor-restricted endowment fund (3) General economic conditions (4) The possible effect of inflation and deflation (5) The expected total return from income and the appreciation of investments (6) Other resources of the organization (7) The investment policies of Word of Life

20 17. Endowment Funds: (Continued) Word of Life Fellowship, Inc. Changes in endowment net assets for the year ended : Temporarily Permanently Unrestricted Restricted Restricted Totals Endowment net assets, 1/1/2012 $ (27,365) $ 264,013 $ 1,818,595 $ 2,055,243 Investment return: Interest and dividends, net of fees 86,802 86,802 Realized gains 8,151 8,151 Unrealized gains 122, ,384 Total investment return 217, ,337 Contributions Amounts appropriated for expenditure 87,465 (87,465) Endowment net assets, 12/31/2012 $ 60,100 $ 393,885 $ 1,819,015 $ 2,273,000 Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or endowment agreement requires Word of Life to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature are reported in unrestricted net assets. There were no such deficiencies as of. Return Objectives and Risk Parameters Word of Life has adopted investment and spending policies for endowment assets that attempt to (a) maintain the historical value of the endowment fund assets and (b) provide a predictable stream of funding to programs supported by its endowment. Endowment assets include those assets of donorrestricted funds that Word of Life must hold in perpetuity, or for donor-specified periods. The investment policy also attempts to maximize the stream of funding within the boundaries of conservative parameters. The current long term return objective is 4.5%. Actual returns in any given year may vary from this amount. Strategies Employed for Achieving Objectives To satisfy its long term return objectives, Word of Life relies on a total return strategy in which investment returns are achieved through current yield and capital appreciation. To assure a more predictable stream of funding, assets are invested heavily in individual, investment grade fixedincome vehicles. However, there is an allocation of assets in diversified, equity-based investments to help maximize the long-term rate of return and maintain the purchasing power of the endowment assets. Spending Policy and How the Investment Objectives Relate to Spending Policy The spending policy calculates the amount of money available to be distributed annually from the endowment funds. The current spending policy is to make available for grant making interest and dividends and net realized appreciation amounts in excess of the endowment corpus. Amounts not distributed will be invested and available in future distributions

21 18. Other Transactions with Related Parties: Word of Life Fellowship, Inc. During the year ended, Word of Life conducted transactions with related parties in addition to those items disclosed elsewhere in the footnotes: - services and related expenses for fundraising letters totaling $128,808 were provided to Word of Life by a company controlled by a close relative of two board members; - Word of Life purchased vehicles totaling $106,880 from a company controlled by a board member; - consulting services totaling $24,209 and $84,437 were provided to Word of Life by a former board member and a former executive director, respectively, as independent contractors; - supplemental retirement plan payments were provided for the benefit of one current and one former board member totaling $40,000 and $36,000 respectively; - In addition to the initial transfer of assets from Word of Life to a related entity, Word of Life Foundation, Inc. (the Foundation) ( see footnote 20), transactions between Word of Life and the Foundation at and during the year ended consisted of: (1) outstanding note payable to the Foundation of $4,950,000; (2) outstanding other payables totaling $439,069; (3) contributions received from the Foundation totaling $2,973,767; and (4) management fees received from the Foundation totaling $101, Contingent Liability: During 2009, a lone swimmer, snorkeling with no safety buoys or accompanying safety boat, was hit and injured by a boat owned and operated by Word of Life. Litigation against Word of Life related to this accident was initiated in 2010 and is currently ongoing. Word of Life will vigorously maintain that it is not in any way culpable, but there is a reasonable possibility that some liability could be apportioned to Word of Life. However a reasonable estimate of damages, if any, that could be apportioned to Word of Life cannot be made at this time. Furthermore, while the range of damages cannot be reasonably estimated at this time, in all probability apportioned damages, if any, would be within the limit of Word of Life s insurance policy. 20. Word of Life Foundation, Inc.: The Word of Life Foundation, Inc. (the Foundation) was organized as a New York non-profit corporation and recognized as an organization exempt from federal income tax under Section 501(c)(3). The Foundation is organized and operated exclusively to support the overall mission and vision of Word of Life Fellowship, Inc. (Word of Life). Word of Life will oversee the affairs of the Foundation and ensure that all actions of the Foundation are consistent with the mission, vision, values and purposes of Word of Life. Word of Life will have the following powers with respect to the Foundation: (1) to elect and remove all Directors of the Foundation; filling vacancies at any time; (2) to appoint the President of the Board of the Foundation; (3) to select independent auditors, legal counsel and other major consultants for the Foundation; and (4) to approve the Foundation s investment policy, fundraising policy, gifts receipts policy, any major agreements, and annual budgets

22 20. Word of Life Foundation, Inc.: (Continued) Word of Life Fellowship, Inc. The Foundation became operational in 2012 and the following initial transactions were made between the Foundation and Word of Life: Loan receivable from Word of Life $ 3,500,000 Other receivables from Word of Life 490,069 Notes receivable, including accrued interest from an organization controlled by related parties transferred from Word of Life 14,849,169 Long-term investments transferred from Word of Life 9,662,082 Total $28,501, Subsequent Events: Management of Word of Life evaluated subsequent events through August 5, 2013, which is the date the financial statements were available to be issued. Subsequent events after that date have not been evaluated