NEW ENGLAND FORESTRY FOUNDATION, INC. FINANCIAL STATEMENTS

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1 FINANCIAL STATEMENTS Years Ended April 30, 2018 and 2017

2 TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT... 1 Page FINANCIAL STATEMENTS: Statements of Financial Position... 3 Statements of Activities... 4 Statements of Functional Expenses... 6 Statements of Cash Flows... 8 Notes to Financial Statements... 10

3 INDEPENDENT AUDITORS REPORT To the Board of Directors New England Forestry Foundation, Inc. Littleton, Massachusetts We have audited the accompanying financial statements of New England Forestry Foundation, Inc. (a nonprofit organization), which comprise the statements of financial position as of April 30, 2018 and 2017, and the related statements of activities, functional expenses and cash flows for the years 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 audits. We conducted our audits 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 New England Forestry Foundation, Inc. as of April 30, 2018 and 2017, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America Wakefield, Massachusetts September 18, 2018

5 STATEMENTS OF FINANCIAL POSITION April 30, ASSETS Cash and cash equivalents $ 362,689 $ 319,455 Investments 9,877,962 9,243,860 Accounts receivable 36 - Pledges receivable, net 12,450 27,003 Grants receivable, net 9,854 59,335 Prepaid expenses 29,944 40,922 Restricted cash and cash equivalents - 531,487 Property and equipment, net 1,399,490 1,499,165 Foundation forests, net 25,756,598 26,356,598 Deposits 252,500 43,500 Total assets $ 37,701,523 $ 38,121,325 LIABILITIES AND NET ASSETS LIABILITIES Note payable $ 34,000 $ 68,000 Charitable annuity payable, net 47,538 49,147 Accounts payable 80,900 82,632 Accrued expenses 121,357 82,307 Advance deposits 14, ,000 Deferred timber sales 26,000 3,148 Total liabilities 324,771 1,145,234 NET ASSETS Unrestricted net assets - Unrestricted 8,197,225 6,443,501 Foundation forests, net 21,674,996 22,274,996 29,872,221 28,718,497 Temporarily restricted net assets - Temporarily restricted 3,323,487 4,076,550 Foundation forests, net 1,004,689 1,004,689 4,328,176 5,081,239 Permanently restricted net assets - Permanently restricted 99,442 99,442 Foundation forests, net 3,076,913 3,076,913 3,176,355 3,176,355 Total net assets 37,376,752 36,976,091 Total liabilities and net assets $ 37,701,523 $ 38,121,325 See notes to financial statements. Page 3

6 STATEMENT OF ACTIVITIES Year Ended April 30, 2018 Temporarily Permanently Total Unrestricted Restricted Restricted REVENUES Contributions and grants $ 1,322,054 $ 637,550 $ 684,504 $ - Sale of conservation easement 945,000 95, ,000 - Timber sales 523, , Interest and dividend income 216, ,699 55,839 - Foundation forests contributions 132, , Rental income 7,106 7, Other revenue Net assets released from restriction - 2,544,237 (2,544,237) - Total revenues 3,147,232 4,101,126 (953,894) - EXPENSES Program services - Conservation and educational services 1,929,218 1,929, Supporting services - Management and general 307, , Fundraising 493, , Total supporting services 800, , Total expenses 2,729,671 2,729, GAINS (LOSSES) Net realized and unrealized gains (losses) on investments 746, , ,831 - Gain on insurance claim 6,201 6, Loss on disposal of property and equipment Impairment due to conservation easements (770,000) (770,000) - - Total gains (losses) (16,900) (217,731) 200,831 - Change in net assets 400,661 1,153,724 (753,063) - NET ASSETS - BEGINNING OF YEAR 36,976,091 28,718,497 5,081,239 3,176,355 NET ASSETS - END OF YEAR $ 37,376,752 $ 29,872,221 $ 4,328,176 $ 3,176,355 See notes to financial statements. Page 4

7 STATEMENT OF ACTIVITIES Year Ended April 30, 2017 Temporarily Permanently Total Unrestricted Restricted Restricted REVENUES Contributions and grants $ 1,331,906 $ 710,381 $ 621,525 $ - Sale of conservation easement Timber sales 420, , Interest and dividend income 218, ,854 52,457 - Foundation forests contributions 765, , Rental income 6,162 6, Other revenue Net assets released from restriction - 860,342 (860,342) - Total revenues 2,741,584 2,927,944 (186,360) - EXPENSES Program services - Conservation and educational services 1,684,019 1,684, Supporting services - Management and general 215, , Fundraising 429, , Total supporting services 644, , Total expenses 2,329,018 2,329, GAINS (LOSSES) Net realized and unrealized gains (losses) on investments 893, , ,421 - Gain on insurance claim Loss on disposal of property and equipment (254) (254) - - Impairment due to conservation easements (187,976) (187,976) - - Total gains (losses) 705, , ,421 - Change in net assets 1,117, , ,061 - NET ASSETS - BEGINNING OF YEAR 35,858,504 27,731,971 4,950,178 3,176,355 NET ASSETS - END OF YEAR $ 36,976,091 $ 28,718,497 $ 5,081,239 $ 3,176,355 See notes to financial statements. Page 5

8 STATEMENT OF FUNCTIONAL EXPENSES Year Ended April 30, 2018 Supporting Services Total Program Management Expenses Services and General Fundraising Salaries $ 1,218,232 $ 746,924 $ 209,385 $ 261,923 Professional fees 248, ,005 13,397 15,124 Employee benefits 200, ,427 40,097 59,917 Forest management services 144, ,488-6 Depreciation 107, , ,136 Publication and communication 104,653 62,227 1,108 41,318 Payroll taxes 93,963 47,469 19,498 26,996 Commission 89,476 89, Repairs and maintenance 82,474 46,993 6,349 29,132 Meetings and conferences 72,993 48,235 4,405 20,353 Survey and appraisal fees 68,554 68, Property taxes 58,108 58, Travel 50,809 37,515 1,009 12,285 Easement donation 47,482 47, Insurance 31,916 23,306 2,456 6,154 Timber taxes 28,081 28, General supplies and expenses 21,662 13,853 2,304 5,505 Bank and broker charges 20,759 14,365 5, Dues and subscriptions 15,276 10, ,867 Office rent and utilities 8,119 4, ,510 Grants 5,000 5, Interest 4,658 4, Education programs 3,806 1, ,329 State filing fees 3, ,015 $ 2,729,671 $ 1,929,218 $ 307,039 $ 493,414 See notes to financial statements. Page 6

9 STATEMENT OF FUNCTIONAL EXPENSES Year Ended April 30, 2017 Supporting Services Total Program Management Expenses Services and General Fundraising Salaries $ 992,590 $ 607,121 $ 143,929 $ 241,540 Professional fees 365, ,912 10,030 14,768 Employee benefits 145,419 71,309 25,868 48,242 Forest management service 107, , Depreciation 103, , ,056 Publication and communication 94,529 62, ,601 Payroll taxes 78,464 37,581 14,675 26,208 Commission 79,012 79, Repairs and maintenance 71,150 42,420 4,206 24,524 Meetings and conferences 42,418 29,010 3,076 10,332 Survey and appraisal fees 44,906 44, Property taxes 40,720 40, Travel 39,135 30, ,623 Easement donation Insurance 30,387 22,331 2,122 5,934 Timber taxes 10,477 10, General supplies and expenses 25,673 14,324 2,343 9,006 Bank and broker charges 25,451 18,550 6, Dues and subscriptions 8,608 7, Office rent and utilities 6,771 4, ,014 Grants 5,000 5, Interest 1,713 1, Education programs 6,276 3, ,876 State filing fees 2, ,846 $ 2,329,018 $ 1,684,019 $ 215,312 $ 429,687 See notes to financial statements. Page 7

10 STATEMENTS OF CASH FLOWS Years Ended April 30, CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 400,661 $ 1,117,587 Adjustments to reconcile change in net assets to net cash provided (used) by operating activities: Net realized and unrealized gains on investments (746,899) (893,251) Depreciation 107, ,958 Amortization of discount on charitable annuity payable 2, Foundation forests contributions (132,400) (765,000) Property and equipment contributions - (25,000) Gain on insurance proceeds (6,201) - Loss on disposal of fixed assets Impairment due to conservation easements 770, ,976 Discount on pledges receivable (1,597) 1,597 Discount on grants receivable (665) - (Increase) decrease in operating assets: Accounts receivable (36) 560,045 Pledges receivable 16,150 (13,600) Grants receivable 50,146 20,000 Prepaid expenses 10,978 (14,637) Deposits (209,000) 156,626 Increase (decrease) in operating liabilities: Accounts payable (1,732) 13,337 Accrued expenses 39,050 (36,993) Advance deposits (845,024) 850,000 Deferred timber sales 22,852 (5,102) Net cash provided (used) by operating activities (524,142) 1,258,603 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of investments 347,594 1,091,949 Purchase of investments (234,797) (1,013,152) Purchase of property and equipment (16,908) (89,310) Purchase of foundation forests (37,600) (1,387,990) Proceeds from insurance claim on property and equipment 15,600 - Decrease in restricted cash and cash equivalents 531,487 - Net cash provided (used) by investing activities 605,376 (1,398,503) See notes to financial statements. Page 8

11 STATEMENTS OF CASH FLOWS Years Ended April 30, CASH FLOWS FROM FINANCING ACTIVITIES Payments on charitable annuity payable (4,000) (4,000) Principal payments on note payable (34,000) - Net cash used by financing activities (38,000) (4,000) Net increase (decrease) in cash and cash equivalents 43,234 (143,900) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 319, ,355 CASH AND CASH EQUIVALENTS - END OF YEAR $ 362,689 $ 319,455 SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITY Impairment of foundation forests due to conversation easements $ 770,000 $ 187,976 Acquisition of foundation forests through donation 132, ,000 Acquisition of foundation forests through issuance of charitable annuity payable - 80,000 Acquisition of foundation forests through issuance of note payable - 68,000 Acquisition of property and equipment through donation - 25,000 Discount on charitable annuity payable - (27,659) See notes to financial statements. Page 9

12 1. STATEMENT OF PURPOSE New England Forestry Foundation, Inc. (the Foundation) is a nonprofit organization incorporated in Massachusetts in accordance with Internal Revenue Code Section 501(c)(3). The Foundation s purpose is to promote and provide for the conservation and sustainable management of privately-owned forestlands through assistance to landowners, promoting and actively managing its community forests as demonstration and educational forests, permanently protecting working forests through gifts and acquisitions of land and easements, and promoting and developing sustainable forest practices and policies. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Method of Accounting The Foundation reports information regarding its financial position and activities according to the following three classes of net assets: i. Unrestricted Net Assets - use of resources is not limited or restricted by donors. ii. Temporarily Restricted Net Assets - use of resources is limited by donors for a specified purpose and/or time period. iii. Permanently Restricted Net Assets - resources must be maintained in accordance with permanent restrictions imposed by donors. The Foundation reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. The Foundation records all pledges as temporarily restricted until payment is received. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. The Foundation reports gifts of land, buildings, and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire longlived assets are reported as restricted support. Absent explicit donor stipulations about how long those longlived assets must be maintained, the Foundation reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service. Page 10

13 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Functional Expenses The Foundation allocates expenses on a functional basis among its programs and supporting services. Supporting services are those related to operating and managing the Foundation and its programs on a day-today basis and are composed of the following: Management and general includes all activities related to the Foundation s internal management and accounting for program services. Fundraising includes all activities related to maintaining contributor information, writing grant proposals, distribution of materials and other similar projects related to the procurement of funds for the Foundation s programs. Expenses that can be identified with a specific program or supporting service are allocated directly to those classifications. Other expenses that are common to several functions are allocated in accordance with the Foundation s indirect costs allocation plan. Allocations of functional expenses are based on management s discretion and estimates. These variables may change from year to year. As a result, there may be fluctuations in the comparative presentation of data from year to year. 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 certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Date of Management s Review Subsequent events have been evaluated by management through September 18, 2018, the date the financial statements were available to be issued. Cash and Cash Equivalents Investments with a maturity of three months or less when purchased are considered to be cash equivalents for financial statement purposes. Cash and cash equivalents for purposes of the statement of cash flows exclude restricted cash and cash equivalents. Cash and cash equivalents designated for investment purposes are categorized as investments for financial statement purposes. Investments Investments are carried at fair market value based on quoted market prices. Changes in fair market value are reflected in the statement of activities. Page 11

14 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounts Receivable Accounts receivable are recorded at the invoiced amount and do not bear interest. Accounts receivable are presented in the statements of financial position net of estimated uncollectible amounts. The Foundation establishes an allowance for estimated uncollectible amounts sufficient to cover anticipated credit losses. The Foundation determines its allowance based on management s evaluation of outstanding accounts receivable at the end of the year. Adjustments are made in periods any excess or shortfall is identified. Individual uncollectible accounts are written off against the allowance when collection of the individual accounts appears doubtful. Management believes that all receivables are fully collectible. Therefore, no allowance for uncollectible amounts was recorded at April 30, 2018 and Pledges and Grants Receivable Pledges and grants receivable are presented in the statements of financial position net of estimated uncollectible amounts. The Foundation establishes an allowance for estimated uncollectible amounts sufficient to cover anticipated losses. The Foundation determines its allowance based upon an analysis of the collectability of specific pledges, historical experience and the aging of the pledges and grants receivable. Adjustments are made in periods any excess or shortfall is identified. Individual uncollectible accounts are written off against the allowance when collection of the individual accounts appears doubtful. Based on the Foundation s assessment, management has determined that all pledges and grants receivable are fully collectible. Therefore, no allowance for uncollectible amounts was recorded at April 30, 2018 and The Foundation discounts pledges and grants that are not fully collectible within one year to their present value using an effective interest rate of 3.5%. Discounts are ratably amortized over the life of the pledge or grant and are recorded as contributions in the statement of activities. Conditional Pledges Pledges are considered to be conditional if they depend on the occurrence of a specified future and uncertain event that is outside of the Foundation s control. Conditional pledges are not recognized as management and general expenses in the statement of activities until the specified conditions are met. Charitable Annuity Payable A charitable annuity payable is presented in the statements of financial position at its present value using an effective interest rate of 5%. Discounts are ratably amortized over the life of the annuity and are recorded as program service expenses in the statement of activities. Page 12

15 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and Equipment Property and equipment are recorded at cost if purchased or fair value if contributed. Routine maintenance and repairs are expensed as incurred. The Foundation provides for depreciation of property and equipment using the straight-line method over the estimated useful lives of the related assets, which range from three to thirty-nine years. Upon retirement or disposition, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in the statement of activities. Non-Cash Donations The Foundation s non-cash donations consist primarily of donated foundation forests, conservation easements, investments, and professional services. Donations of investments are recorded at fair market value based on quoted market prices at the date of donation. When significant, donations of professional services are recorded at their estimated fair market value based on the current fee schedule of the donor at the date of receipt and are reflected as both a contribution and expense in the statement of activities. Foundation Forests and Easements The Foundation records land and land interests at cost if purchased or at fair value at the date of acquisition, if all or part of the land was received as a donation. Fair value is generally determined by appraisal at the time of acquisition and is not subsequently adjusted. Upon sale or gift, the proceeds are reported net of the book value of the land or land interest sold or gifted as a gain or loss in the statement of activities. Conservation easements are comprised of listed rights and/or restrictions over the owned property that are conveyed by a property owner to the Foundation, almost always in perpetuity, in order to protect the owned property as a significant natural area, as defined in federal tax regulations. These easements may be sold or transferred to others so long as the assignee agrees to carry out, in perpetuity, the conservation purposes intended by the original grantor. Donations of conservation easements are not valued due to the nature of the restrictions they place on property. The Foundation reports write-downs of forests encumbered with conservation easements as an impairment charge in the period in which the easement is purchased or placed. Impairments on foundation forests totaling $770,000 and $187,976 were recorded during the years ended April 30, 2018 and 2017, respectively. Timber Sales Revenue Revenue from the sale of timber is recognized when the harvesting of timber is substantially complete in order to properly match timber sale revenue with the related harvesting expenses. Carbon Credit Sales Revenue Revenue from the sale of carbon credits is recognized when persuasive evidence of an arrangement exists, the sales price is fixed and determinable, and transfer of credits has occurred. Page 13

16 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes The Foundation is organized and operated exclusively for charitable and educational purposes. Income related to these purposes is exempt from federal and state income taxes under the provisions of Section 501(c)(3) of the Internal Revenue Code. Unrelated business income would be taxable according to applicable Internal Revenue Code sections. The Foundation regularly reviews and evaluates its tax positions taken in its filed returns and recognizes the benefit from a tax position only if it is more likely than not that the position would be sustained upon audit based solely on the technical merits of the tax position. The Foundation accrues interest and penalties on uncertain tax positions as a component of the provision for income taxes. The Foundation files federal and Massachusetts tax returns. The statute of limitations for these jurisdictions is generally three years. The Foundation had no returns under examination as of April 30, Advertising The Foundation follows the policy of expensing advertising costs as incurred. Advertising expense totaled $16,313 and $2,452 for the years ended April 30, 2018 and 2017, respectively. Joint Costs The Foundation s policy is to allocate clearly identifiable management and general and program services costs of multi-purpose materials that include fundraising appeals to these functions. The remainder of the cost is allocated to fundraising. The Foundation s newsletter is considered a joint cost, and management determines the extent of the fundraising allocation. Joint costs totaled $51,854 and $35,358 for the years ended April 30, 2018 and 2017, respectively. These costs were not specifically identifiable to either the program component or the fundraising component of the activities. Joint costs, totaling $9,862 and $6,288 were allocated to fundraising for the years ended April 30, 2018 and 2017, respectively. The balance was allocated to program activities. Reclassifications Certain amounts in the prior year s financial statements have been reclassified for comparative purposes to conform to the presentation in the current year s financial statements. These reclassifications have no effect on the previously reported change to net assets. Page 14

17 3. CONCENTRATION OF RISK Financial instruments that potentially subject the Foundation to concentrations of risk consist of cash and cash equivalents and investments. Cash and Cash Equivalents The Foundation maintains cash and cash equivalents in bank deposit and money market accounts which, at times, may exceed federally insured limits. The Foundation has not experienced any losses in such accounts and believes it is not exposed to any significant credit risks on cash and cash equivalents. Investments The Foundation maintains investments in accounts that are not federally insured. Because the Foundation s investments are not insured, there is risk that future changes in market prices may affect the value of marketable securities. 4. RESTRICTED CASH AND CASH EQUIVALENTS In August 2007, the Foundation, as the easement holder on a tract of land, agreed to participate in a costsharing agreement through the Wetlands Reserve Program, which is administered by the National Resources Conservation Service, U.S. Department of Agriculture. Under this agreement, the Foundation received $531,487 and agreed to preserve a riparian buffer zone on the land for a period of ten years. Pursuant to a contract with the land owner allowing the Foundation s participation in the program, the Foundation agreed to restrict the use of the monies to expenses incurred for repairing or defending the buffer during the ten-year period of the contract. Since the restriction resulted from a contract with the land owner and not a donor restriction, it is classified as and reported in unrestricted net assets. Upon the expiration of the agreement in September 2017, the funds received were available to the Foundation for any purpose deemed appropriate by the Board of Directors. 5. PLEDGES RECEIVABLE Pledges receivable are due to be collected as follows: April 30, Amounts due in Less than one year $ 12,450 $ 19,300 One to five years - 9,300 12,450 28,600 Less: Unamortized discount - 1,597 $ 12,450 $ 27,003 Page 15

18 6. GRANTS RECEIVABLE Grants receivable, which consist of amounts due from government agencies and private foundations, are related to conservation easements and programs of the Foundation. All of the grants receivable at April 30, 2017 were received during fiscal year Grants receivable are due to be collected as follows: April 30, Amounts due in Less than one year $ 9,854 $ 50,000 One to five years - 10,000 9,854 60,000 Less: Unamortized discount $ 9,854 $ 59, INVESTMENTS Investments are carried at fair market value and are summarized as follows: April 30, Mutual funds $ 9,285,643 $ 8,896,660 Cash and cash equivalents 592, ,200 $ 9,877,962 $ 9,243,860 Investment advisory fees totaled $18,978 and $24,826 for the years ended April 30, 2018 and 2017, respectively. Investments restricted by the donor for endowment purposes are recorded as permanently restricted net assets based on the original amount of the gift. Dividends and interest on such endowed assets are reflected as an increase in unrestricted or temporarily restricted net assets based on the intention stipulated by the donor. Page 16

19 8. FAIR VALUE MEASUREMENTS The following tables present the Foundation s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of April 30, 2018 and 2017, using quoted prices in active market for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3). Assets at Fair Value as of April 30, 2018 Description of Assets Level 1 Level 2 Level 3 Total Mutual funds Domestic equity $ 3,771,721 $ - $ - $ 3,771,721 International equity 3,395, ,395,722 Bonds 2,118, ,118,200 9,285, ,285,643 Cash and cash equivalents 592, ,319 Total assets measured at fair value $ 9,877,962 $ - $ - $ 9,877,962 Assets at Fair Value as of April 30, 2017 Description of Assets Level 1 Level 2 Level 3 Total Mutual funds Domestic equity $ 4,095,022 $ - $ - $ 4,095,022 International equity 2,693, ,693,501 Bonds 2,108, ,108,137 8,896, ,896,660 Cash and cash equivalents 347, ,200 Total assets measured at fair value $ 9,243,860 $ - $ - $ 9,243,860 Page 17

20 9. PROPERTY AND EQUIPMENT, NET Property and equipment, net is summarized as follows: April 30, Buildings and building improvements $ 2,199,338 $ 2,207,263 Office and computer equipment 156, ,844 Field equipment 5,838 5,838 Rice Sanctuary ,362,149 2,363,775 Less: Accumulated depreciation 962, ,610 $ 1,399,490 $ 1,499,165 During the year ended April 30, 2018, an asset included in buildings and building improvements incurred water damage. As a result of this incident, the Foundation wrote off $9,399, which was the net book value of the asset at the time of the water damage. The Foundation received insurance proceeds to remove the old asset and build a new asset. The result of this transaction, net of expenses, was a gain on insurance claim of $6, CONSERVATION EASEMENTS As of April 30, 2018 and 2017, the Foundation held 148 conservation easements on 1,147,984 acres of land and 145 conservation easements on 1,147,643 acres of land, respectively, including 762,192 acres in the Pingree project and 335,204 acres in the Downeast Lakes project. During the year ended April 30, 2018, the Foundation received three donations totaling 341 acres. During the year ended April 30, 2017, the Foundation received four donations totaling 1,164 acres. The Foundation records purchases of conservation easements as program expenses in the statement of activities during the period of purchase. Page 18

21 11. FOUNDATION FORESTS, NET Foundation forests, net is summarized as follows: April 30, 2018 Acres Amount Donated Land At appraised value at date of contribution 21,899 $ 21,415,333 Purchased Land At cost 6,090 4,341,265 27,989 $ 25,756,598 April 30, 2017 Acres Amount Donated Land At appraised value at date of contribution 21,899 $ 21,377,933 Purchased Land At cost 5,918 4,978,665 27,817 $ 26,356,598 Foundation forest acreage by state was as follows: April 30, 2018 Acres Amount Massachusetts 8,045 $ 12,104,567 New Hampshire 11,884 7,597,045 Vermont 4,284 2,976,020 Maine 2,928 1,874,203 Connecticut 850 1,204,763 27,991 $ 25,756,598 Page 19

22 11. FOUNDATION FORESTS, NET (Continued) The following table presents the foundation forests activities: Acres Amount Total foundation forests at April 30, ,868 $ 24,271,243 Donation of foundation forests - Bravmann Lucky Dog 33 4,878 Purchase/Donation of foundation forests - Niantic - Phase ,232,490 Whitten Woods ,188 Huntress ,275 Sumner-Mack ,000 Pedersen Tract 78 54,000 Crandall 26 52,500 Reserve for conservation easement - Whitten Woods - (187,976) Total foundation forests at April 30, ,817 $ 26,356,598 Purchase/Donation of foundation forests - Glass Woodland ,000 Riggan-Katz 90 70,000 Reserve for conservation easement - Niantic - Phase 1 - (675,000) Bravmann Lucky Dog - (95,000) Total foundation forests at April 30, ,989 $ 25,756, LINE OF CREDIT The Foundation maintains a demand bank line of credit totaling $150,000 under which the Foundation may borrow on an unsecured basis at the bank s prime rate less.25% (4.50% at April 30, 2018). There were no amounts outstanding under this line of credit at April 30, 2018 and The credit agreement is available in perpetuity until the bank calls it. Page 20

23 13. NOTE PAYABLE The Foundation has a note payable to an individual of which the proceeds were used to acquire 75 acres of foundation forests. The balance outstanding on the note is $34,000 and $68,000 at April 30, 2018 and 2017, respectively. Per the agreement, the note is payable in two installments of $36,720 and $35,360, inclusive of interest, in December 2017 and 2018, respectively. The note bears interest at 4.0% annually and is secured by a statutory mortgage on the land. 14. CHARITABLE ANNUITY PAYABLE, NET An $80,000 annuity for land acquired through a bargain purchase is noninterest bearing. However, to reflect the time value of money, the liability recorded in the financial statements reflects future payments discounted at an imputed interest rate of 5%, which was the Foundation s long-term borrowing rate in December Charitable annuity payable, net is summarized as follows: April 30, Annuity payable $ 72,000 $ 76,000 Less: Unamortized discount 24,462 26,853 $ 47,538 $ 49,147 Page 21

24 15. RESTRICTED NET ASSETS Temporarily restricted net assets were available for the following purposes: April 30, Conservation easement monitoring $ 1,540,410 $ 2,366,029 Foundation forests 1,004,689 1,004,689 Warren Property 545, ,241 Groton Place and Weld 505, ,590 Unrealized appreciation on permanently restricted investments 218, ,039 Education projects 154, ,564 Land purchases and maintenance 141, ,039 Planned giving research 99,570 61,856 Conservation easement purchases 73,431 6,497 Maine land projects 32,561 32,522 Hemenway Conservation Fund 11,768 19,173 $ 4,328,176 $ 5,081,239 Certain temporarily restricted assets were released from restriction during the years ended April 30, 2018 and 2017 by satisfaction of the restricted purpose specified by the donor, and were reclassified as unrestricted net assets as follows: Years Ended April 30, Conservation easement monitoring $ 1,010,580 $ 16,446 Conservation easement purchases 937,449 9,108 Education projects 284, ,421 Land purchases and maintenance 147, ,515 Maine land projects 97,461 90,923 Planned giving research 35,881 79,231 Groton Place and Weld 18,285 20,177 Hemenway Conservation Fund 7, Warren Property 3, Unrealized appreciation on permanently restricted investments 1, $ 2,544,237 $ 860,342 Page 22

25 15. RESTRICTED NET ASSETS (Continued) The following table presents the permanently restricted net assets: April 30, Investments in perpetuity, the income from which is expendable to support operations after donor restricted costs are funded $ 99,442 $ 99,442 Foundation forests 3,076,913 3,076,913 $ 3,176,355 $ 3,176, ENDOWMENT FUNDS Board-designated As of April 30, 2018, the Board of Directors had designated $125,513 of unrestricted net assets to support the acquisition, conservation, monitoring, and defense of the Foundation s easements and forests. Since that amount resulted from an internal designation and is not donor-restricted, it is classified as and reported in unrestricted net assets. Composition of and changes in Board-designated net assets were as follows: April 30, Board-designated net assets - beginning of year $ 127,900 $ 321,658 Net realized and unrealized gains (losses) on investments 6,344 13,816 Investment income, net 1,945 6,920 Reclassification of net assets (7,389) - Released from restriction (3,287) (214,494) Board-designated net assets - end of year $ 125,513 $ 127,900 Page 23

26 16. ENDOWMENT FUNDS (Continued) Donor-designated Endowment The Board of Directors has determined that the majority of the Foundation s contributions are subject to the terms of its governing documents. Certain contributions are received subject to other gift instruments, or are subject to specific agreements with the Foundation. Under the terms of the Foundation s governing documents, the Board of Directors has the ability to distribute so much of the original principal of any Foundation or separate gift, devise, bequest, or fund as the Board in its sole discretion shall determine. As a result of the ability to distribute the original principal, all contributions not classified as temporarily restricted or permanently restricted are classified as unrestricted net assets for financial statement purposes. Endowment net asset composition, excluding foundation forests, by type of fund and changes in endowment net assets were as follows: April 30, 2018 Total Temporarily Permanently Endowment Unrestricted Restricted Restricted Net Assets Endowment net assets, beginning of year $ - $ 672,631 $ 99,442 $ 772,073 Net realized and unrealized gains (losses) on investments - 71,508-71,508 Reclassification of net assets - (2,349) - (2,349) Amounts appropriated for expenditure - (17,443) - (17,443) Endowment net assets, end of year $ - $ 724,347 $ 99,442 $ 823,789 Page 24

27 16. ENDOWMENT FUNDS (Continued) Donor-designated Endowment (Continued) April 30, 2017 Total Temporarily Permanently Endowment Unrestricted Restricted Restricted Net Assets Endowment net assets, beginning of year $ - $ 616,985 $ 99,442 $ 716,427 Net realized and unrealized gains (losses) on investments - 76,765-76,765 Reclassification of net assets Amounts appropriated for expenditure - (21,119) - (21,119) Endowment net assets, end of year $ - $ 672,631 $ 99,442 $ 772,073 Endowment Investment and Spending Policies The Board of Directors of the Foundation has interpreted the Massachusetts Uniform Prudent Management of Institutional Funds Act (MA UPMIFA) as requiring the preservation of the fair value of the original gift of the donor-restricted endowment funds as of the gift date absent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Foundation in a manner consistent with the standard of prudence prescribed by MA UPMIFA. In accordance with MA UPMIFA, the Foundation considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) the duration and preservation of the various funds, (2) the purposes of the donor-restricted endowment funds, (3) general economic conditions, (4) the possible effect of inflation and deflation, (5) the expected total return from income and the appreciation of investments, (6) other resources of the Foundation, and (7) the Foundation s investment policies. The Foundation has adopted investment and spending polices, approved by the Board of Directors, for Boarddesignated and endowment assets that support the acquisition, conservation, monitoring and defense of the Foundation s easements and forests. The Foundation s spending and investment policies work together to achieve this objective. The investment policy establishes an achievable return objective through diversification of asset classes. To satisfy its long-term rate-of-return objectives, the Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). Page 25

28 16. ENDOWMENT FUNDS (Continued) Endowment Investment and Spending Policies (Continued) The Foundation targets a diversified asset allocation that places an emphasis on U.S. Treasury securities, corporate and federal bonds, and equity-based investments to achieve its long-term return objectives within prudent risk parameters. The spending policy defines the amount to be distributed from the fund to support the acquisition, conservation, monitoring, and defense of the Foundation s easements and forests. The current spending policy is to distribute an amount each year of 3% of its endowment fund s market value. Accordingly, the Foundation expects its endowment assets, over time, to grow in line with the Foundation s objectives. 17. IN-KIND CONTRIBUTIONS The fair value of donated services included as contributions in the financial statements and the corresponding program expenses and assets were as follows: April 30, 2018 Forest Outreach and Stewardship Administration Communications Total Forest management service $ 3,675 $ - $ - $ 3,675 Publication and communication - 2,954-2,954 Property and equipment Professional fees Office supplies $ 3,675 $ 2,954 $ - $ 6,629 April 30, 2017 Forest Outreach and Stewardship Administration Communications Total Forest management service $ 1,450 $ - $ - $ 1,450 Publication and communication - 3,577-3,577 Property and equipment ,000 25,000 Professional fees ,000 10,000 Office supplies $ 1,450 $ 3,589 $ 35,000 $ 40,039 Page 26

29 18. RETIREMENT PLAN The Foundation sponsors a retirement plan pursuant to Section 401(k) of the Internal Revenue Code. Under the plan, eligible employees may defer a portion of their compensation on a pre-tax basis. The Foundation matches employee contributions up to 50% of the first 6% deferred. The Foundation made matching contributions of $24,381 and $23,039 for the years ended April 30, 2018 and 2017, respectively. Prior to the adoption of the 401(k) plan, the Foundation sponsored a Section 403(b) plan to which employees could contribute on a pre-tax basis. No matching contributions were made to this plan, and the plan was frozen with the adoption of the 401(k) plan. 19. RELATED PARTY TRANSACTIONS During fiscal year 2018, the Foundation made payments totaling $11,718 to a real estate company with two common board members for consulting and geographic information systems work performed. During fiscal year 2017, the Foundation made payments totaling $10,000 to a real estate company with two common board members for a deposit for the purchase of a property as well as for a map design project. 20. AGENCY FUND AGREEMENTS In 2000 an agency fund was established at the Maine Community Foundation (MCF) through contributions designated to provide current income and long-term protection for the stewardship, monitoring, and enforcement of the Foundation s conservation easements. Under the terms of the agreement, the Foundation receives annual distributions equal to a percentage of the market value of the fund s assets, as determined by the MCF s spending policy for the fund. In accordance with accounting principles generally accepted in the United States of America, the Foundation has determined that it does not have variance power over the assets of the fund and, accordingly, it does not recognize them as assets of the Foundation. MCF investments designated for the Foundation s easement programs were valued at $1,087,233 and $1,041,242, at April 30, 2018 and 2017, respectively. In 2007 an agency fund was established at the MCF through contributions designated to provide current income and long-term protection for the stewardship, monitoring, and enforcement of the Foundation s Sabbath day Lake Shaker Village, Forest and Farm conservation easement. Under the terms of the agreement, the Foundation receives annual distributions equal to a percentage of the market value of the fund s assets, as determined by the MCF s spending policy for the fund. In accordance with accounting principles generally accepted in the United States of America, the Foundation has determined that it does not have variance power over the assets of the fund and, accordingly, it does not recognize them as assets of the Foundation. MCF investments designated for the Foundation s easement programs were valued at $92,202 and $88,255, at April 30, 2018 and 2017, respectively. Page 27

30 21. SPLIT INTEREST AGREEMENTS In 2008 a charitable lead unitrust was established. Under the terms of the trust, the Foundation receives annual distributions equal to 7% of the market value of the trust s assets. Distributions received by the Foundation totaled $47,216 and $45,852 for the years ended April 30, 2018 and 2017, respectively. Beginning in calendar year 2009, the distributions must be temporarily restricted for the purpose of protecting land, by purchase or easement, in New Hampshire or Maine. In accordance with accounting principles generally accepted in the United States of America, the Foundation has determined that it does not have variance power over the assets of the fund and, accordingly, it does not recognize them as assets of the Foundation. The value of the investments in the unitrust was estimated at $676,400 and $674,000 at April 30, 2018 and 2017 respectively. The value of the unitrust increased $2,400 and $25,000 during the years ended April 30, 2018 and 2017, respectively. In 2007 a charitable trust was established with the purpose of supporting the activities and purpose of the Foundation. Under the terms of an agreement with the trust, the Foundation should receive annual distributions of $5,000. In accordance with accounting principles generally accepted in the United States of America, the Foundation has determined that it does not have variance power over the assets of the trust and, accordingly, it does not recognize them as assets of the Foundation. The assets of the unitrust were estimated at $1,747,747 and $1,767,391, at April 30, 2018 and 2017 respectively. The value of the unitrust decreased $19,644 and $960,475 for the years ended April 30, 2018 and 2017, respectively. 22. MAJOR CONTRIBUTORS During the year ended April 30, 2018, there was no concentration of contributors. During the year ended April 30, 2017, the Foundation received contributions in the amount of $540,000 from one donor. This amount represents approximately 26% of the total contributions and grants received during the year. 23. COMMITMENTS During the year ended April 30, 2018, the Foundation entered into an operating lease for a vehicle which expires in March Monthly payments for this lease are $294. Total rent expense during the year ended April 30, 2018 was $294. Future minimum lease payments under this lease agreement are as follows: Years Ending April 30, 2019 $ 3, ,232 $ 6,758 Page 28

31 101 Edgewater Drive Suite 210 Wakefield, MA T (781)