ENGENDERHEALTH, INC. Financial Statements. June 30, 2012 and (With Independent Auditors Report Thereon)

Transcription

1 Financial Statements (With Independent Auditors Report Thereon)

2 KPMG LLP 345 Park Avenue New York, NY Independent Auditors Report The Board of Directors EngenderHealth, Inc.: We have audited the accompanying statements of financial position of EngenderHealth, Inc. (EngenderHealth) as of, and the related statements of activities, functional expenses, and cash flows for the years then ended. These financial statements are the responsibility of EngenderHealth s management. 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of EngenderHealth s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of EngenderHealth, Inc. as of, and the changes in its net assets and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. February 25, 2013 KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

3 Statements of Financial Position Assets Cash and cash equivalents $ 6,526,725 5,655,317 Grants and contracts receivable, net of allowance of $50,348 and $59,939 in 2012 and 2011, respectively 972,244 1,281,496 Prepaid expenses and other assets 1,608,877 1,724,813 Investments receivable 3,112,089 Investments (notes 3 and 9) 6,344,334 6,676,776 Contributions receivable, net (note 4) 8,721,695 7,231,384 Fixed assets, net (note 5) 1,612,690 1,360,432 Total assets $ 25,786,565 27,042,307 Liabilities and Net Assets Liabilities: Accounts payable and accrued expenses (note 9) $ 6,597,210 6,653,657 Advances from U.S. Agency for International Development (USAID) 2,000,060 1,167,014 Annuities payable 522, ,736 Postretirement benefit liability (note 8) 1,701, ,593 Total liabilities 10,821,409 9,104,000 Commitments and contingencies (note 9) Net assets (deficit): Unrestricted (note 7) (1,821,783) (804,355) Temporarily restricted (notes 6 and 7) 13,442,063 15,397,786 Permanently restricted (notes 6 and 7) 3,344,876 3,344,876 Total net assets 14,965,156 17,938,307 Total liabilities and net assets $ 25,786,565 27,042,307 See accompanying notes to financial statements. 2

4 Statement of Activities Year ended June 30, 2012 Temporarily Permanently Unrestricted restricted restricted Total Operating revenues and other support: Contributions and private grants (note 4) $ 2,360,338 8,603,843 10,964,181 USAID and DHHS grants (note 10) 47,301,232 47,301,232 Net assets released from restrictions 10,587,262 (10,587,262) Total operating revenues and other support 60,248,832 (1,983,419) 58,265,413 Operating expenses: Program services: Capacity building and technical assistance 30,234,789 30,234,789 Global and emerging programs 19,412,077 19,412,077 Program support 130, ,387 Total program services 49,777,253 49,777,253 Supporting services: Management and general 9,486,641 9,486,641 Fund-raising 1,020,696 1,020,696 Total supporting services 10,507,337 10,507,337 Total operating expenses 60,284,590 60,284,590 Changes in net assets from operating activities (35,758) (1,983,419) (2,019,177) Nonoperating activities: Investment return (note 3) (39,411) (32,114) (71,525) Change in value of split-interest agreements 59,810 59,810 Pension-related changes other than net periodic pension cost (note 8) (942,259) (942,259) Change in net assets (1,017,428) (1,955,723) (2,973,151) Net assets (deficit), beginning of year (804,355) 15,397,786 3,344,876 17,938,307 Net assets (deficit), end of year $ (1,821,783) 13,442,063 3,344,876 14,965,156 See accompanying notes to financial statements. 3

5 Statement of Activities Year ended June 30, 2011 Temporarily Permanently Unrestricted restricted restricted Total Operating revenues and other support: Contributions and private grants (note 4) $ 2,082,363 11,196,074 13,278,437 USAID and DHHS grants (note 10) 46,353,388 46,353,388 Net assets released from restrictions 14,016,940 (14,016,940) Total operating revenues and other support 62,452,691 (2,820,866) 59,631,825 Operating expenses: Program services: Capacity building and technical assistance 30,577,490 30,577,490 Global and emerging programs 20,925,116 20,925,116 Program support 160, ,518 Total program services 51,663,124 51,663,124 Supporting services: Management and general 10,710,004 10,710,004 Fund-raising 544, ,785 Total supporting services 11,254,789 11,254,789 Total operating expenses 62,917,913 62,917,913 Changes in net assets from operating activities (465,222) (2,820,866) (3,286,088) Nonoperating activities: Investment return (note 3) 322, ,210 1,205,770 Change in value of split-interest agreements 152, ,459 Pension-related changes other than net periodic pension cost (note 8) (442,327) (442,327) Change in net assets (584,989) (1,785,197) (2,370,186) Net assets (deficit), beginning of year (219,366) 17,182,983 3,344,876 20,308,493 Net assets (deficit), end of year $ (804,355) 15,397,786 3,344,876 17,938,307 See accompanying notes to financial statements. 4

6 Statement of Functional Expenses Year ended June 30, 2012 Program services Supporting services Capacity building and Global and Total Management Total technical emerging Program program and supporting assistance programs support services general Fund-raising services Total Subawards $ 4,408,173 6,474,875 10,883,048 10,883,048 Salaries 8,323,017 6,238,380 54,765 14,616,162 5,282, ,310 5,746,916 20,363,078 Employee benefits 2,074,543 1,534,075 13,755 3,622,373 1,214, ,620 1,331,540 4,953,913 Overseas allowance 283,454 34, ,788 62,117 62, ,905 Domestic allowance 5,865 5,865 5,865 Total salaries and related expenses 10,681,014 7,812,654 68,520 18,562,188 6,559, ,930 7,140,573 25,702,761 Professional fees and contract service payments 988,884 1,072,012 34,697 2,095, , ,705 1,150,889 3,246,482 Travel, training and other activities 8,038,370 2,243,996 22,914 10,305, ,524 28, ,759 10,904,039 Rent and utilities 1,504, ,110 2,301, , ,869 1,047,564 3,349,501 Equipment purchases, rental, and supplies 2,694, ,314 2,719 3,197,019 66,106 29,297 95,403 3,292,422 Communication, printing, postage, and telephone 1,072, , ,248,116 58,646 79, ,558 1,386,674 Other expenses 509, , , ,724 11, , ,774 Depreciation 336, ,471 1, ,429 95,119 10, , ,889 Total expenses $ 30,234,789 19,412, ,387 49,777,253 9,486,641 1,020,696 10,507,337 60,284,590 See accompanying notes to financial statements. 5

7 Statement of Functional Expenses Year ended June 30, 2011 Program services Supporting services Capacity building and Global and Total Management Total technical emerging Program program and supporting assistance programs support services general Fund-raising services Total Subawards $ 5,571,036 7,903,846 13,474,882 13,474,882 Salaries 8,466,005 6,244,792 58,951 14,769,748 5,378, ,602 5,627,452 20,397,200 Employee benefits 2,237,004 1,665,682 14,770 3,917,456 1,366,955 60,803 1,427,758 5,345,214 Overseas allowance 279,906 43, ,879 58, , ,253 Domestic allowance 2,668 12, ,879 5, ,229 20,108 Total salaries and related expenses 10,985,583 7,966,551 73,828 19,025,962 6,809, ,756 7,118,813 26,144,775 Professional fees and contract service payments 1,318,338 1,545,430 42,300 2,906,068 1,263,082 28,440 1,291,522 4,197,590 Travel, training and other activities 7,603,180 1,718,055 27,365 9,348, ,127 32, ,758 9,840,358 Rent and utilities 1,577, ,429 2,397 2,384, ,077 55, ,529 3,283,146 Equipment purchases, rental, and supplies 1,646, ,689 5,850 2,155, ,445 12, ,063 2,535,706 Communication, printing, postage, and telephone 1,178, ,508 7,238 1,382,502 79, , ,995 1,562,497 Other expenses 388,548 78, , , ,107 1,239,264 Depreciation 308, ,999 1, , ,887 5, , ,695 Total expenses $ 30,577,490 20,925, ,518 51,663,124 10,710, ,785 11,254,789 62,917,913 See accompanying notes to financial statements. 6

8 Statements of Cash Flows Years ended Cash flows from operating activities: Change in net assets $ (2,973,151) (2,370,186) Adjustments to reconcile change in net assets to net cash used in operating activities: Net realized and unrealized losses (gains) on investments 215,664 (1,037,316) Depreciation expense 662, ,695 Changes in assets and liabilities: Decrease in grants and contracts receivable 309,252 50,011 Decrease in prepaid expenses and other assets 115,936 1,393,275 Increase in contributions receivable (1,490,311) (4,214,123) Increase in postretirement benefit liability 1,000, ,403 (Decrease) increase in accounts payable and accrued expenses (56,447) 1,526,677 Decrease (increase) in due to USAID 833,046 (2,296,905) Net cash used in operating activities (1,382,499) (5,898,469) Cash flows from investing activities: Purchases of investments (3,535,307) (2,078,569) Decrease (increase) in investments receivable 3,112,089 (3,112,089) Sales of investments 3,652,085 4,381,789 Purchases of fixed assets (915,147) (629,667) Net cash provided by (used in) investing activities 2,313,720 (1,438,536) Cash flows from financing activity: Decrease in annuities payable (59,813) (81,810) Net cash used in financing activity (59,813) (81,810) Net increase (decrease) in cash and cash equivalents 871,408 (7,418,815) Cash and cash equivalents, beginning of year 5,655,317 13,074,132 Cash and cash equivalents, end of year $ 6,526,725 5,655,317 See accompanying notes to financial statements. 7

9 (1) Description of Organization EngenderHealth, Inc. (EngenderHealth or the Organization), a tax-exempt organization incorporated in the state of New Jersey, is a nonprofit voluntary health and welfare agency whose purpose is to promote and support quality family planning and reproductive health services throughout the world. EngenderHealth s program service activities are as follows: (a) (b) (c) Capacity Building and Technical Assistance Orientation, training, and technical support to provider institutions, professionals, and government entities on all aspects of developing, implementing, and evaluating family planning and reproductive healthcare service delivery systems to introduce, expand, and improve services. EngenderHealth works to transfer knowledge and skills in the areas of medical and surgical services, training, counseling, evaluation, and research. These activities generally are for the benefit of specific country programs, and they may include financial support in the form of grants and medical equipment. Global and Emerging Programs Work to advance health and family planning services worldwide, principally leadership in the public and professional arenas and development of innovative approaches to service delivery and related operations. These activities include developing and disseminating client, public, and professional information and education materials, training curricula, and other technical materials; conducting and publishing clinical and practical research; assisting in the development of public policy; and convening and conducting seminars, conferences, and other professional events. Program Support Activities to guide, direct, and assess the development, implementation, and evaluation of program service activities. (2) Summary of Significant Accounting Policies (a) Basis of Presentation The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America using the accrual basis of accounting. EngenderHealth s net assets and related revenues and support are classified based on the existence or absence of donor-imposed stipulations, as follows: Unrestricted Net Assets Available for operations Includes all resources of EngenderHealth that are expendable for carrying on EngenderHealth s mission. Investment in property, plant, and equipment Includes the property, plant, and equipment owned by EngenderHealth, net of accumulated depreciation. 8 (Continued)

10 Board-designated endowment Established from funds provided by the estate of a former EngenderHealth board member, Dr. Helen W. Edey. Dr. Edey provided these funds as seed money for an endowment campaign, but specified that the board would have discretionary powers to use any portion of the fund to support innovative programmatic and operational projects to improve the Organization. Temporarily Restricted Net Assets Net assets whose use by EngenderHealth is limited by donor-imposed stipulations that either expire with the passage of time and/or can be fulfilled and removed by the actions of EngenderHealth pursuant to those stipulations. When a donor restriction expires, i.e., 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 statements of activities as net assets released from restrictions. Permanently Restricted Net Assets Net assets whose use by EngenderHealth is limited by donor-imposed stipulations requiring such resources to be maintained in perpetuity and the income therefrom to be utilized for operating or other donor-restricted purposes. (b) Fair Value Measurements EngenderHealth reports the fair value of its financial instruments using a three-level valuation hierarchy for disclosure of fair value measurements. The three levels are defined as follows: Level 1 Quoted prices in active markets for identical assets or liabilities. Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. In the case of alternative investments, net asset value is used as a practical expedient to estimate fair value and the valuation hierarchy is based on EngenderHealth s ability to redeem its interest at or near the date of the statement of financial position. If the interest can be redeemed in the near term, the investment is classified as Level 2. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. Investments in alternative investments that cannot be redeemed at or near the date of the statement of financial position are classified as Level 3. (c) Cash and Cash Equivalents EngenderHealth considers all highly liquid financial instruments having an original maturity of ninety days or less to be cash equivalents. 9 (Continued)

11 (d) Investments Investments in equity securities with readily determinable fair values and all investments in debt securities are reported at fair value, based on quoted market prices. Investments in alternative investments are reported based on the underlying net asset value, which is estimated at fair value by management of the investment vehicle. EngenderHealth reviews and evaluates the value provided by the investment vehicle s management and agrees with the valuation methodology and assumptions used in determining the fair value of the underlying net assets. The Organization records investment transactions based on the trade date. Investments are exposed to various risks, such as interest rate, market, credit, and other risks. Due to such risks and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in the values of investment securities could occur in the near term and such changes could materially affect the amounts reported in the accompanying financial statements. (e) Grants and Contributions Cooperative agreements with the U.S. Agency for International Development (USAID) and other grants and contracts are recognized as revenue and a receivable is recorded when EngenderHealth incurs expenses reimbursable under the terms of the agreements. An allowance for uncollectible grants and contracts receivable is estimated based upon such factors as prior collection history, potential cost disallowances, and other factors. Cash received under grants and contracts in advance of incurring the related expenses is reported as a liability until spent. Contributions, including unconditional promises to give, are reported as revenues, at fair value, in the year received or pledged. Conditional promises to give are not recognized until they become unconditional, that is, when the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value at the date of the gift. Contributions that are expected to be collected after one year are recorded at their discounted net present value, using risk-adjusted rates of return. Amortization of the discount is recorded as additional contribution revenue in accordance with the donor-imposed restrictions, if any, on the contribution. (f) Split-Interest Agreements EngenderHealth s split-interest agreements with donors consist primarily of irrevocable charitable gift annuities and pooled life income funds for which EngenderHealth serves as trustee. Assets held in these instruments are included in investments. Contribution revenue is recognized on the date the instruments are established, after recording liabilities for the present value of the estimated future payments to be made to the donors and/or other beneficiaries. The liabilities are adjusted during the term of the instruments for changes in the value of the assets, accretion of the discount, and other changes in the estimates of future benefits. 10 (Continued)

12 (g) (h) (i) (j) (k) (l) Fixed Assets EngenderHealth capitalizes fixed assets with a unit cost in excess of $5,000. All office furniture and fixtures, computers, and equipment purchased under USAID grants are subject to return to USAID, upon request. Depreciation of office furniture and fixtures, computers, and equipment is computed using the straight-line method based on estimated useful lives of three to five years. Leasehold improvements are amortized over the life of the office lease or the estimated life of the leasehold improvement, whichever is shorter. Subagreements Payable Grants awarded to subrecipients by EngenderHealth are recorded as an expense and a liability at the time the expenses are incurred. Subagreements payable are included in accounts payable and accrued expenses. Nonoperating Activities EngenderHealth reports investment return, losses on contributions receivable, change in the value of split-interest agreements, and pension-related changes other than net periodic benefit cost/credit as nonoperating activities in the accompanying statements of activities. Income Taxes EngenderHealth is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code and has been classified as an organization that is not a private foundation under Section 509(a). Income generated from activities unrelated to EngenderHealth s exempt purpose is subject to tax under Internal Revenue Code Section 511. EngenderHealth accounts for uncertainties in income taxes recognized in the financial statements using a threshold of more likely than not of being sustained. EngenderHealth did not have any material unrelated business income tax liability for the years ended June 30, 2012 or Use of Estimates The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Foreign Currency Translation EngenderHealth has determined that the functional currency of its foreign offices is the U.S. dollar. Accordingly, assets and liabilities are translated using the current exchange rates in effect on the statement of financial position date. Revenue and expense accounts are translated at the average rate in effect during the year. 11 (Continued)

13 (m) Reclassifications Certain reclassifications have been made to the 2011 financial statements in order to conform to the 2012 presentation. (3) Investments At, investments, as well as their respective fair value hierarchal classification, comprised the following: 2012 Level 1 Level 2 Total Mutual funds consisting principally of: Common stocks $ 2,533,276 2,533,276 Corporate debt securities 1,610,922 1,610,922 U.S. Treasury securities 239, ,320 Real estate and other 400, ,970 Alternative investment 1,427,846 1,427,846 Other 132, ,000 Total investments $ 4,784,488 1,559,846 6,344, Level 1 Level 2 Total Mutual funds consisting principally of: Common stocks $ 3,165,232 3,165,232 Corporate debt securities 1,046,904 1,046,904 U.S. Treasury securities 513, ,749 Real estate and other 524, ,412 Alternative investment 1,426,479 1,426,479 Total investments $ 5,250,297 1,426,479 6,676,776 The Organization recognizes transfers between levels in the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers between levels for the years ended. The alternative investment s objective is to attain a growing stream of current income and appreciation of principal that at least offsets inflation in order to achieve a total return (price appreciation plus dividends and interest income) net of expenses that, over a majority of market cycles, exceeds inflation, as measured by the consumer price index, plus 5% per annum. To achieve this objective, the fund is invested in a globally diversified portfolio of equity and fixed income securities. The alternative investment is redeemable daily with one day s notice. Included in investments are those assets held by EngenderHealth relating to certain split-interest agreements, totaling $941,418 and $1,100,893, at, respectively. 12 (Continued)

14 The following table presents the total investment return, reported in the accompanying statements of activities under nonoperating activities, for the years ended : Interest and dividends $ 144, ,454 Unrealized (losses) gains (226,857) 1,179,845 Realized gains (losses) 11,193 (142,529) Total investment return $ (71,525) 1,205,770 For the years ended, investment fees totaled approximately $57,000 and $51,000, respectively, and are included in expenses in the accompanying statements of activities. (4) Contributions Receivable, Net Contributions receivable are due as follows: Less than one year $ 7,496,975 3,062,426 One to five years 1,237,501 4,218,814 Total contributions receivable 8,734,476 7,281,240 Less discount to present value (1.00% to 1.25%) (12,781) (49,856) Total contributions receivable, net $ 8,721,695 7,231,384 During 2012 and 2011, 65% and 76%, respectively, of total contributions and private grants revenue was received from one donor. At, two contributions aggregating to 88% and 99%, respectively, were included in contributions receivable. (5) Fixed Assets, Net At, fixed assets, net consisted of the following: Furniture and fixtures $ 1,133,467 1,113,067 Computers and equipment 8,281,028 7,776,215 Leasehold improvements 3,177,006 2,787,072 12,591,501 11,676,354 Accumulated depreciation (10,978,811) (10,315,922) Total fixed assets, net $ 1,612,690 1,360, (Continued)

15 (6) Temporarily and Permanently Restricted Net Assets At, temporarily restricted net assets were available for the following purposes: Capacity building and technical assistance $ 9,483,573 9,695,948 Global and emerging programs 2,066,038 3,630,788 Program support 20,124 32,828 Split-interest agreements 844, ,435 Unappropriated earnings on endowment fund 1,028,080 1,253,787 Total $ 13,442,063 15,397,786 At, permanently restricted net assets total $3,344,876 and provide investment income to support operations. (7) Endowment Fund (a) History of the Endowment Fund In 2001, the officers and the Board of Directors of EngenderHealth approved a five-year endowment campaign. The officers and the members of the Board of Directors were the main contributors to the endowment fund. The income generated from the endowment fund is intended to be used to provide EngenderHealth with the resources to ensure the continuity of its ongoing programs around the world, thereby allowing the Organization to bridge funding gaps and to meet other emergent needs when funding is not available. The Board of Directors also established a quasi-endowment with unrestricted net assets. The net assets of the endowment and quasi-endowment funds are commingled in the same investment portfolio, and accordingly, the investment return on the endowment is allocated in the same proportions as the initially invested corpus. (b) Investment Objectives and Guidelines EngenderHealth s primary investment objective is to maximize total return through income and capital appreciation while investing in a prudent manner by avoiding high-risk investments. The Organization has adopted the following investment policy guidelines as approved by the Finance Committee of the Board of Directors. The policy provides for diversification in both equity and fixed income securities so as to provide a balance to the investment portfolio thereby avoiding undue risk concentration in any single asset class or investment category. The preferred long-term mix is 55% 60% equities and 40% 45% fixed income. The Finance Committee of the Board of Directors has the authority to make adjustments to the asset allocations in order to maintain target ranges in the endowment fund and any permanent changes in policy. 14 (Continued)

16 (c) (d) Spending Policy The Organization has a policy whereby 5.5% of the total fair value of the endowment fund s assets is calculated annually as a spending rate using the rolling three-year average of the fair value at the close of each fiscal year. This method is designed to protect the endowment fund from extreme market value fluctuations while improving the consistency in level of available spending. This spending policy is reviewed annually by the Finance Committee of the Board of Directors. Classification of Endowment Net Assets Based on interpretation by the Board of Directors of EngenderHealth as it relates to relevant laws, including the Uniform Prudent Management of Institutional Funds Act (UPMIFA), as enacted by the State of New Jersey, and accounting guidance surrounding the management of endowment funds, and absent explicit donor stipulations to the contrary, EngenderHealth 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 Organization in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, EngenderHealth considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) The duration and preservation of the fund (2) The purposes of the Organization 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 the Organization 15 (Continued)

17 The following is the endowment net asset composition (excluding a third-party perpetual trust and contribution receivables totaling $25,220 for both years): Temporarily Permanently Unrestricted restricted restricted Total June 30, 2012: Board-designated quasi-endowment $ 1,147,259 1,147,259 Donor-restricted endowment 1,028,080 3,319,656 4,347,736 Total endowment $ 1,147,259 1,028,080 3,319,656 5,494,995 June 30, 2011: Board-designated quasi-endowment $ 1,206,817 1,206,817 Donor-restricted endowment 1,253,787 3,319,656 4,573,443 Total endowment $ 1,206,817 1,253,787 3,319,656 5,780,260 Changes in endowment net assets for the years ended are as follows: Temporarily Permanently Unrestricted restricted restricted Total Endowment net assets, July 1, 2011 $ 1,206,817 1,253,787 3,319,656 5,780,260 Investment income 23,570 89, ,893 Net depreciation in fair value of investments (32,044) (121,437) (153,481) Endowment utilized in operations (51,084) (193,593) (244,677) Endowment net assets, June 30, 2012 $ 1,147,259 1,028,080 3,319,656 5,494, (Continued)

18 Temporarily Permanently Unrestricted restricted restricted Total Endowment net assets, July 1, 2010 $ 1,024, ,341 3,319,656 4,907,623 Investment income 32, , ,687 Net appreciation in fair value of investments 200, , ,580 Endowment utilized in operations (50,866) (192,764) (243,630) Endowment net assets, June 30, 2011 $ 1,206,817 1,253,787 3,319,656 5,780,260 (8) Benefit Plans (a) Retirement EngenderHealth has a defined contribution retirement plan, which covers substantially all employees. Pension expense for the years ended was $1,774,480 and $2,020,671, respectively. Under the terms of the plan, employer contributions are fully vested upon participation in the plan. Effective July 1, 2011, EngenderHealth contributes 10.0% of employee compensation as the employer contribution in compliance with EngenderHealth s personnel policies and negotiated agreements. Prior to July 1, 2011, contributions were equal to 12.5% of employee compensation. (b) Postretirement Healthcare Benefits EngenderHealth s benefit policy provides for contributions of healthcare benefits, including dental and vision care coverage, for employees who retire after completing 15 years of service and reaching retirement age as defined in the plan agreement. Benefits are reduced by Medicare benefits after age 65. Employees of EngenderHealth who joined the Organization after January 1, 2001 are not eligible for coverage under this plan. The plan is being funded by an irrevocable Voluntary Employees Beneficiary Association (VEBA) trust. EngenderHealth records annual amounts relating to the plan based on calculations that incorporate various actuarial and other assumptions including discount rates, mortality, assumed rates of return, and healthcare cost trend rates. EngenderHealth reviews its assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. The effect of modifications to these assumptions is recorded as a charge to unrestricted net assets and amortized to net periodic cost over future periods using the corridor method. EngenderHealth believes that the assumptions utilized in recording its obligation under its plan are reasonable based on its experience and market conditions. The net periodic cost is recognized as employees render the services necessary to earn the postretirement benefits. 17 (Continued)

19 EngenderHealth recognizes the funded status of its defined benefit postretirement plan on a net basis as an asset or liability and recognizes changes in that funded status in the year in which the changes occur through a charge to unrestricted net assets to the extent those changes are not included in net periodic benefit cost. The funded status is reported on the statement of financial position as the difference between the fair value of plan assets and the benefit obligation. Information with respect to this plan as of and for the years ended is as follows: Change in benefit obligation: Benefit obligation at beginning of year $ 2,074,405 1,431,026 Service cost 79,644 64,750 Interest cost 116,206 63,317 Amendments 182,877 Actuarial loss 667, ,773 Benefits paid (43,583) (42,461) Benefit obligation at end of year 3,076,670 2,074,405 Change in plan assets: Fair value of plan assets at beginning of year 1,373,812 1,140,836 Actual return on plan assets 1, ,976 Employer contributions 43,583 42,461 Benefits paid (43,583) (42,461) Fair value of plan assets at end of year 1,375,454 1,373,812 Funded status at end of year $ (1,701,216) (700,593) During fiscal 2012, the plan was amended to change the provider of health care benefits to the Aetna EPO Plan (previously Oxford Liberty Plan). At, amounts recognized as changes in unrestricted net assets but not yet reclassified as a component of net periodic benefit cost/credit are as follows: Net prior service cost (credit) $ 93,212 (119,554) Net actuarial loss 943, ,566 $ 1,036,271 94, (Continued)

20 Net periodic cost: Service cost $ 79,644 64,750 Interest cost 116,206 63,317 Expected return on plan assets (82,429) (68,450) Amortization of prior service credit (29,889) (29,889) Amortization of net loss (gain) 18,415 (19,191) Net periodic cost $ 101,947 10,537 Other changes in plan assets and benefit obligation recognized in changes in unrestricted net assets are as follows: Net loss $ 747, ,247 Prior service cost 182,877 Amortization of prior service credit 29,889 29,889 Amortization of net actuarial (loss) gain (18,415) 19,191 Total recognized in changes in unrestricted net assets $ 942, ,327 Total recognized in net periodic benefit cost and changes in unrestricted net assets $ 1,044, ,864 The estimated service cost, interest cost, expected return on assets, and prior service and experience loss that will be amortized from unrestricted net assets into net periodic benefit cost over the next fiscal year are as follows: Service cost $ 124,331 Interest cost 123,795 Expected return on plan assets (82,527) Amortization of prior service cost (7,743) Amortization of net loss 87,598 $ 245, (Continued)

21 Weighted average assumptions as of the measurement date (June 30): Discount rate benefit obligation 4.06% 5.67% Discount rate net periodic benefit cost Expected long-term return on plan assets Assumed healthcare cost trend rates: Healthcare cost trend rate assumed for next year 7.80% 8.15% Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) Year that the rate reaches the ultimate trend Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plan. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects: One- percentage- point decrease Onepercentagepoint increase Effect on total service and interest cost components $ 38,737 (32,137) Effect on postretirement benefit obligation 619,218 (490,144) EngenderHealth s overall expected long-term rate of return is 6%. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The return is based on historical returns as well as investment objectives, the desired outcomes of which are to provide capital appreciation and current income through investment in a blend of securities expected to grow in value over the long term and those expected to produce income. EngenderHealth s primary investment objective is to maximize total return through income and capital appreciation while investing in a prudent manner by avoiding high-risk investments. The Organization s plan asset allocation strategy provides for diversification in both equity and fixed income securities so as to provide a balance to the investment portfolio, thereby avoiding undue risk concentration in any single asset class or investment category. The Finance Committee of the Board of Directors has the authority to make adjustments to the asset allocations in order to maintain target ranges in the postretirement fund and any permanent changes in policy. 20 (Continued)

22 The target and current asset allocation of the plan at were as follows: Target Equity securities 25% 65% 55% 56% Debt securities Cash and cash equivalents Other Plan assets consist of the following types of mutual funds at (Level 1 in the fair value hierarchy): Equity domestic common stock $ 489, ,448 Equity international and emerging markets 260, ,614 Fixed income government agencies 81, ,259 Fixed income corporate bonds 288, ,419 U.S. Treasury securities 46,991 Short-term investments 106, ,377 Real estate and other 101, ,695 $ 1,375,454 1,373,812 Projected payments to retired participants, which reflect expected future service, are as follows: 2013 $ 55, , , , , ,191 Total $ 1,131,399 The expected benefits are based on the same assumptions used to measure EngenderHealth s benefit obligation at June 30 and include estimated future employee service. Retired participants contribute 50% of the premium cost of their benefits. EngenderHealth contributes the remainder. 21 (Continued)

23 In 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively, the Health Care Acts) were signed into law by President Obama. The Health Care Acts include several provisions that may affect a company s postretirement benefit plans, including imposing an excise tax on high cost coverage, eliminating lifetime and annual coverage limits, reducing subsidies to Medicare Advantage plans, and imposing inflation-adjusted fees of $2 ($1 in fiscal year 2013) for each person covered by a health insurance policy for each policy plan year ending after September 30, 2012 through September 30, The Organization has evaluated the effects of the Health Care Acts and concluded that there is no material impact on the Organization s measurement of its postretirement healthcare benefit obligation as of June 30, Management will continue to monitor developments, interpretations, and evidence relating to the law and incorporate the latest thinking in future measurements. (9) Commitments and Contingencies (a) EngenderHealth maintains its headquarters in the 440 Ninth Avenue building in New York City. In July 2011, EngenderHealth agreed to an amendment of the New York City lease. The lease amendment was effective March 1, 2012 and expires on February 28, Aggregate minimum rental payments under this lease and leases maintained at various foreign office locations are as follows: 2013 $ 482, , ,655, ,543, ,605,504 Thereafter through ,919,616 Total $ 25,796,339 Minimum rental commitments do not include utility or annual escalation charges, which are also payable under the office leases. Accounts payable and accrued expenses include $519,480 and $30,788 as of, respectively, in deferred rent related to the amount of straight-lined rent expensed in advance of rental payments made. Rent expense was $2,199,164 and $1,938,926 for the years ended, respectively. In conjunction with the New York City lease, EngenderHealth has a letter of credit (LOC) with Northern Trust in the amount of $511,488 to be held and used under the security provisions of the lease. The LOC is secured by EngenderHealth s investments. (b) EngenderHealth receives funding from U.S. government agencies, primarily USAID, and other organizations for various activities, which are subject to audit. Although such audits may result in disallowance of certain expenditures, which would be absorbed by EngenderHealth, in management s opinion, the ultimate outcome of such audits would not have a material effect on the financial position, changes in net assets, or cash flows of EngenderHealth. 22 (Continued)

24 At June 30, 2012, accounts payable and accrued expenses in the accompanying financial statements include reserves totaling $691,110, which represent management s estimate of amounts related to ongoing audits and notices of disallowances on its Kenya/APHIA and Bolivia/ACQUIRE projects. In January 2013, USAID Washington issued a decision related to the September 23, 2010 appeal by EngenderHealth of an earlier disallowance by USAID Bolivia of certain program costs under the Bolivia/ACQUIRE project. In May 2012, an audit report commissioned by USAID Kenya regarding the Kenya/APHIA project indicated questioned costs totaling $2,360,009. EngenderHealth submitted a formal response on August 3, 2012, agreeing that while $73,066 of the questioned costs were disallowable, the remainder were allowable. As of February 25, 2013, EngenderHealth continues to believe that it has made adequate provisions for the liabilities likely to arise although the ultimate liability is dependent upon the outcome of agreement with the relevant authority or litigation where appropriate. (10) Significant Funders During the years ended, 81% and 78%, respectively, of operating revenues and other support were received from the U.S. government, either directly or through pass-through agencies. In 2012 and 2011, 98% and 99%, respectively, of such amounts were received from USAID. The operations of EngenderHealth s programs at present levels are dependent upon continued funding from the U.S. government, primarily USAID. (11) Subsequent Events In connection with the preparation of the financial statements, EngenderHealth evaluated subsequent events from the date of the statement of financial position through February 25, 2013, the date at which the financial statements were available to be issued, and determined that no additional disclosures were required. 23