COMBINED FINANCIAL STATEMENTS THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. June 30, 2009 and 2008

Transcription

1 COMBINED FINANCIAL STATEMENTS THE COMMUNITY FOUNDATION OF LOUISVILLE, INC.

2 TABLE OF CONTENTS Independent Auditor's Report...1 Page Combined Financial Statements Combined Statements of Financial Position...2 Combined Statements of Activities...3 Combined Statements of Cash Flows...5 Notes to Combined Financial Statements...6 Supplementary Information Combined Schedules of Functional Expenses...19

3 INDEPENDENT AUDITOR'S REPORT To the Board of Directors The Community Foundation of Louisville, Inc. Louisville, Kentucky We have audited the accompanying combined statements of financial position of The Community Foundation of Louisville, Inc. (a nonprofit organization) as of and the related combined statements of activities and cash flows for the years then ended. These combined financial statements are the responsibility of the organization s management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We did not audit the financial statements of The Louisville Orchestra Foundation, Inc. which statements reflect total assets constituting 3% and 4% of combined assets at, respectively, and revenues, gains (losses), and other support constituting 14% and 0% of combined revenues, gains (losses), and other support, respectively, for the years then ended. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for The Louisville Orchestra Foundation, Inc., is based solely on the report of the other auditors. 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 the organization'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, based on our audits and the report of the other auditors, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of The Community Foundation of Louisville, Inc. as of, and the combined changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the combined financial statements taken as a whole. The combined schedules of functional expenses on pages 18 and 19 are presented for purposes of additional analysis and are not a required part of the combined financial statements. Such information has been subjected to the auditing procedures applied in the audits of the combined financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the combined financial statements taken as a whole. Louisville, Kentucky November 18, 2009

4 COMBINED STATEMENTS OF FINANCIAL POSITION ASSETS Cash $ 651,274 $ 1,111,404 Investments, including cash equivalents 242,164, ,260,984 Accounts receivable 8,476 21,902 Contributions receivable 2,829,000 3,364,419 Other receivables 216, ,042 Vested beneficial interests in charitable remainder trusts and other deferred funds 3,568,189 3,805,825 Cash surrender value of life insurance 301, ,994 Net fixed assets 196, ,149 Other assets 334, ,016 Total assets $ 250,270,849 $ 293,915,735 LIABILITIES AND NET ASSETS Liabilities Accounts payable $ 32,322 $ 46,421 Grants payable 2,707, ,579 Accrued expenses 27,579 34,494 Depository liabilities Depository 10,650,975 16,215,644 Corporate Depository 6,705,472 7,442,421 Agency endowment liabilities 12,165,666 14,688,928 Deferred gift liabilities for split-interest agreements 6,732,536 8,370,386 Other liability 171, ,498 Total liabilities 39,193,673 47,854,371 Net assets Unrestricted Operations 1,890,137 2,373,174 Endowment 148,748, ,143,670 Felix E. Martin, Jr. Foundation, Inc. 40,137,341 44,228,486 Deferred funds 798, ,590 Depositories (184,043) (75,388) Total unrestricted 191,390, ,528,532 Temporarily restricted Charitable remainder trusts and other deferred funds 9,099,519 10,325,761 Permanently restricted Endowment 10,586,874 11,207,071 Total net assets 211,077, ,061,364 Total liabilities and net assets $ 250,270,849 $ 293,915,735 See accompanying notes to combined financial statements -2-

5 COMBINED STATEMENT OF ACTIVITIES Year ended June 30, 2009 Temporarily Permanently Unrestricted restricted restricted Total Revenues, gains (losses), and other support Contributions and bequests $ 19,410,254 $ 825,369 $ 106,990 $ 20,342,613 Less amounts received for agency endowments (29,382) - - (29,382) Investment income 7,406, ,406,719 Net unrealized gains (losses) on investments (34,161,386) (2,051,611) 174,117 (36,038,880) Net realized losses on sales of investments (4,764,125) - - (4,764,125) Administered fund fees Depository and Corporate Depository 40, ,758 Endowment and deferred funds 27, ,622 Other income 34, ,390 Total revenues and gains (losses) (12,035,150) (1,226,242) 281,107 (12,980,285) Net assets released from restrictions due to Satisfaction of time or purpose restrictions Withdrawals of restrictions by donors 901,304 - (901,304) - Total net assets released from restrictions 901,304 - (901,304) - Total revenues, gains (losses), and other support (11,133,846) (1,226,242) (620,197) (12,980,285) Expenses Program services Community Foundation grants 18,844, ,844,399 Less grants made for agency endowments (376,437) - - (376,437) Loss distributions from Depositories to donors' funds (522,447) - - (522,447) Distributions from deferred funds 901, ,304 Other program services expenses 692, ,242 Total program services 19,539, ,539,061 Management and general 2,019, ,019,079 Fundraising 445, ,763 Total expenses 22,003, ,003,903 Change in net assets (33,137,749) (1,226,242) (620,197) (34,984,188) Net assets, beginning of year 224,528,532 10,325,761 11,207, ,061,364 Net assets, end of year $191,390,783 $ 9,099,519 $ 10,586,874 $211,077,176 See accompanying notes to combined financial statements -3-

6 COMBINED STATEMENT OF ACTIVITIES Year ended June 30, 2008 Temporarily Permanently Unrestricted restricted restricted Total Revenues, gains (losses), and other support Contributions and bequests $ 71,851,298 $ 167,062 $ 61,104 $ 72,079,464 Less amounts received for agency endowments (135,496) - - (135,496) Investment income 6,541, ,541,241 Net unrealized losses on investments (22,581,729) (1,079,554) (69,811) (23,731,094) Net realized gains on sales of investments 5,139, ,139,752 Administered fund fees Depository and Corporate Depository 51, ,117 Endowment and deferred funds 34, ,392 Other income 35, ,300 Total revenues and gains (losses) 60,935,875 (912,492) (8,707) 60,014,676 Net assets released from restrictions due to Satisfaction of time or purpose restrictions 74,965 (74,965) - - Withdrawals of restrictions by donors 936,420 - (936,420) - Total net assets released from restrictions 1,011,385 (74,965) (936,420) - Total revenues, gains (losses), and other support 61,947,260 (987,457) (945,127) 60,014,676 Expenses Program services Community Foundation grants 12,551, ,551,154 Less grants made for agency endowments (795,434) - - (795,434) Loss distributions from Depositories to donors' funds (456,420) - - (456,420) Distributions from deferred funds 948, ,499 Other program services expenses 463, ,224 Total program services 12,711, ,711,023 Management and general 1,610, ,610,081 Fundraising 428, ,882 Total expenses 14,749, ,749,986 Change in net assets 47,197,274 (987,457) (945,127) 45,264,690 Net assets, beginning of year 177,331,258 11,313,218 12,152, ,796,674 Net assets, end of year $224,528,532 $ 10,325,761 $ 11,207,071 $246,061,364 See accompanying notes to combined financial statements -4-

7 COMBINED STATEMENTS OF CASH FLOWS Years ended Cash flows from operating activities Change in net assets $ (34,984,188) $ 45,264,690 Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities Depreciation and amortization 100,193 44,715 Net unrealized losses on investments 36,038,880 23,731,094 Net realized (gains) losses on sales of investments 4,764,125 (5,139,752) Changes in assets and liabilities Accounts receivable 13,426 37,195 Contributions receivable 535,419 1,101,581 Vested beneficial interests in charitable remainder trusts and other deferred funds 237, ,783 Cash surrender value of life insurance 23,299 18,839 Other assets (57,176) 728 Accounts payable (14,099) (87,465) Grants payable 1,924,022 (404,519) Accrued expenses (6,915) 9,482 Depository liabilities (6,301,618) (744,117) Agency endowment liabilities (2,523,262) (1,608,249) Deferred gift liabilities for split-interest agreements (1,637,850) (612,721) Other liability (100,976) (2,258) Contributions to permanent endowment (106,990) (61,104) Net cash provided by (used in) operating activities (2,096,074) 61,798,922 Cash flows from investing activities Proceeds from sales and maturities of investments 122,425, ,743,052 Payments collected on other receivables 258,135 4,012,272 Purchases of investments (121,131,994) (198,403,189) Additions to other receivables - (77,226) Purchases of fixed assets (22,206) (180,509) Net cash provided by (used in) investing activities 1,528,954 (60,905,600) Cash flows from financing activities Contributions to permanent endowment 106,990 61,104 Change in cash (460,130) 954,426 Cash, beginning of year 1,111, ,978 Cash, end of year $ 651,274 $ 1,111,404 See accompanying notes to combined financial statements -5-

8 NOTES TO COMBINED FINANCIAL STATEMENTS NOTE A--NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Organization The accompanying combined financial statements include the accounts of The Community Foundation of Louisville, Inc., The Community Foundation of Louisville Depository, Inc., The Community Foundation of Louisville Corporate Depository, Inc., the Felix E. Martin, Jr. Foundation, Inc., and The Louisville Orchestra Foundation, Inc. (collectively, the Foundation). The Community Foundation of Louisville, Inc. (Community Foundation) was organized in 1980 as a successor to the Louisville Foundation (which was established in 1916). The Community Foundation's primary purpose is to receive contributions and bequests, some of which are placed into permanent endowment funds. Earnings from the permanent endowment funds or otherwise unrestricted contributions or bequests are distributed as grants to meet community needs. The Community Foundation of Louisville Depository, Inc. (Depository) and The Community Foundation of Louisville Corporate Depository, Inc. (Corporate Depository) consist of pooled funds which are designed to receive assets contributed from multiple donors. Both the Depository and the Corporate Depository (collectively, the Depositories) distribute grants, in accordance with the individual or corporate depositor's direction, to taxexempt organizations throughout the United States. Distributions of depository funds can be made at any time during the depositor's lifetime. Within one year of the death of the depositor (or surviving spouse) or liquidation of the corporate depositor, any undistributed funds will be granted either to charitable organizations (if specified by the depositor agreement) or to the general endowment of the Community Foundation. The Boards of Directors of the Depositories are comprised of the members of the Executive Committee of the Community Foundation. In 2008, the Felix E. Martin, Jr. Foundation, Inc. (Martin Foundation) was established as a Type I supporting organization (as described in Section 509(a)(3) of the Internal Revenue Code) to the Community Foundation. The Martin Foundation was formed to receive and maintain the funds bequeathed by Mr. Martin, Jr., the principal and the income thereon which is to be used exclusively for charitable, scientific, literary, or educational purposes for the benefit of the residents of Muhlenberg County, Kentucky, either directly or by contributions to organizations that qualify as exempt organizations under Section 501(c)(3) of the Internal Revenue Code. As stated in the The Louisville Orchestra Foundation, Inc.'s articles of incorporation, should The Louisville Orchestra Foundation, Inc. (Orchestra Foundation) dissolve, the organization shall distribute the lesser of its net assets or an amount equal to the initial "transfer" to the Orchestra Foundation by the Community Foundation. Such amount will be deposited with the Community Foundation (or its successor organization if applicable) to be used solely to support orchestral music in Louisville, Kentucky. Additionally, the Orchestra Foundation's Board of Directors is nominated by the Community Foundation. Therefore, management has included the accounts of the Orchestra Foundation, which provides annual funding to the Louisville Orchestra, Inc., in the accompanying combined financial statements. Combined Financial Statements As indicated above, the accompanying combined financial statements include the accounts of The Community Foundation of Louisville, Inc., The Community Foundation of Louisville Depository, Inc., The Community Foundation of Louisville Corporate Depository, Inc., the Felix E. Martin, Jr. Foundation, Inc., and The Louisville Orchestra Foundation, Inc. All significant inter-organization accounts and transactions have been eliminated in combination. -6-

9 NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED Basis of Accounting The combined financial statements have been prepared on the accrual basis of accounting. Accordingly, revenues and gains are recognized when they are earned and expenses and losses are recognized when they are incurred. Basis of Presentation Financial statement presentation follows the recommendations of the Financial Accounting Standards Board (FASB) in its Statement of Financial Accounting Standards (SFAS) No. 117, Financial Statements for Not-for- Profit Organizations. Under SFAS No. 117, the Foundation is required to report information regarding its financial position and activities according to the three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. 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. Cash Cash does not include funds held in custodial investment accounts or certificates of deposit. Such cash equivalents are designated for investment. Investments (Including Cash Equivalents) Investments are stated at fair value and are generally administered as pools of commingled assets. Accordingly, investment income, and unrealized and realized gains and losses are allocated to individual funds on a pro-rata basis. Unrealized gains and losses are included in the change in net assets on the accompanying combined statements of activities. Invested funds are primarily (with the exception of certificates of deposit) held in custodial investment accounts and are managed by professional investment advisors. Contributions and Other Receivables Contributions receivable consist principally of estates which have been bequeathed to the Community Foundation. When contribution receivable amounts are expected to have collection periods in excess of a year (no such amounts as of, respectively), such amounts have been recorded after discounting them to the present value of future cash flows using a risk free interest rate relative to the expected collection period. Other receivables are stated at unpaid principal balances and are pursuant to executed agreements between the Foundation and the respective other parties. No allowance for uncollectible contributions or other receivables is currently reflected in the accompanying combined financial statements. As of year-end, management considers all such receivables to be fully collectible. Vested Beneficial Interests in Charitable Remainder Trusts and Other Deferred Funds Vested beneficial interests in charitable remainder trusts and other deferred funds are stated at the present value of the estimated future benefits to be received. Under these charitable remainder trusts, the Community Foundation is not the trustee. -7-

10 NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED Net Fixed Assets Fixed assets are stated at cost at the date of acquisition or fair value at the date of donation in the case of gifts or bequests. Fixed assets are presented on the accompanying combined statements of financial position net of accumulated depreciation (amortization). Depreciation (and amortization) is computed using the straight-line method over the estimated useful lives of the assets. The Community Foundation capitalizes all expenditures for fixed assets which are in excess of $1,000. Repairs and maintenance that do not improve or extend the useful lives of the respective assets are expensed as incurred. Depository Liabilities Depository liabilities represent the unexpended portion of funds on deposit from depositors (individual or corporate) who control the distribution of such funds for specified charitable purposes. Agency Endowment Liabilities Agency endowment liabilities represent the unexpended portion of funds received from various organizations for which the Community Foundation has contractual payment obligations. Deferred Gift Liabilities for Split-Interest Agreements The carrying amount for deferred gift liabilities is the calculated present value of the income distributions or other payments to the donor or other designated beneficiaries during the term of the split-interest agreement. Contributions and Bequests Contributions and bequests, including, when applicable, unconditional promises to give (contributions receivable), are recognized as revenue in the period when they are received or unconditionally pledged and are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and nature of any donor restrictions. Restricted net assets are reclassified to unrestricted net assets upon satisfaction of the time or purpose restriction. Endowment Investment and Spending Policies The Community Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to support programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. The Community Foundation s spending and investment policies work together to achieve this objective through diversification of asset classes. The current long-term objective is to return 8% net of related investment management fees. Actual investment returns in any given fiscal year may vary from this objective. To satisfy its long-term rate of return objectives, the Community Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation (unrealized and realized) and current yield (interest and dividend income). The Community Foundation targets a diversified asset allocation that places a greater emphasis on equity based investments to achieve its long-term objectives within prudent risk parameters. -8-

11 NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED The spending policy determines the amount of money in a given year that may be distributed from the Community Foundation s various endowment funds, which include designated funds, donor advised funds, field of interest funds, scholarship funds, and Board designated unrestricted funds. The current spending policy allows for distributions equal to 5% of an endowment fund s moving twelve calendar quarter average. Accordingly, over the long-term, the Community Foundation expects its current spending policy to allow for growth at an average rate of 3% annually. This is consistent with the Community Foundation s objective to maintain the purchasing power of endowment assets, as well as to provide additional real growth through new contributions and investment returns. Functional Allocation of Expenses The costs of providing the various programs and other activities are summarized on a functional basis (program services, management and general, and fundraising) in the supplemental combined schedules of functional expenses. Directly identifiable expenses are charged to the applicable program and supporting services. Expenses related to more than one function are allocated among the programs and supporting services benefited based on management's time and service estimates. Management and general expenses include those expenses that are not directly identifiable with any other specific function, but provide for the overall support and direction of the Foundation. Income Taxes The Foundation is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code (the Code). Additionally, the Community Foundation has been determined by the Internal Revenue Service not to be a private foundation within the context of Section 509(a) of the Code. In December 2008, the FASB issued Staff Position (FSP) FIN 48-3, Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises. FSP FIN 48-3 permits an entity within its scope to defer the effective date of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, to its annual financial statements for fiscal years beginning after December 15, The Foundation has elected to defer the application of FASB Interpretation No. 48 for the year ending June 30, The Foundation evaluates its uncertain tax positions using the provisions of FASB Statement of Financial Accounting Standards No. 5, Accounting for Contingencies. Accordingly, a loss contingency is recognized when it is probable that a liability has been incurred as of the date of the financial statements and the amount of the loss can be reasonably estimated. The amount recognized is subject to estimate and management's judgment with respect to the likely outcome for each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. Subsequent Events The Foundation has evaluated events occurring between the end of its most recent fiscal year (June 30, 2009) and November 18, 2009, the date these financial statements were available to be issued. Reclassifications Certain amounts for 2008 have been reclassified to conform with the 2009 presentation. These reclassifications had no effect on the previously reported change in net assets. -9-

12 NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED NOTE B--CONCENTRATION OF CREDIT RISK Effective October 3, 2008, the federal deposit insurance coverage provided by the Federal Deposit Insurance Corporation (FDIC) temporarily increased from $100,000 to $250,000 per depositor. Effective December 19, 2008, the FDIC enacted the Transaction Account Guarantee Program. Under the Transaction Account Guarantee Program, any non-interest bearing account at a participating bank is fully guaranteed by the FDIC for the account s entire balance. The federal deposit insurance coverage is scheduled to revert to $100,000 effective January 1, The banks at which the Foundation maintains its cash deposits participate in the Transaction Account Guarantee Program. Accordingly, at June 30, 2009, the Foundation's applicable cash balances are thus fully insured under the Transaction Account Guarantee Program. In September 2008, the U.S. Treasury Department established a Temporary Guarantee Program (Program) for all taxable and tax-exempt money market funds. Under the Program, the U.S. Treasury Department guarantees that investors will receive one dollar for each money market fund share held in a participating fund as of the close of business on September 19, Accordingly, if the number of shares held by the investor fluctuates, the investor is covered for the number of shares held as of the close of business on September 19, 2008, or the current number of shares held, whichever is less. The Program was scheduled to end on April 30, 2009, however in March 2009 the U.S. Treasury Department extended the Program through September 18, As of June 30, 2009, the Foundation's money market funds are eligible under the Program (including as extended). From time to time throughout the year, the balance of the Foundation's money market funds may have exceeded what was insured as of the close of business on September 19, 2008, as the number of shares held increased. NOTE C--INVESTMENTS The Community Foundation invests endowed assets in a combination of equity and fixed income securities. The investment objective is to provide sufficient earnings to support the Foundation's charitable grant commitments while protecting original principal to ensure sufficient growth to sustain its purchasing power against the rate of inflation. Depository funds, which are fully expendable as grants, are invested primarily in pools of cash equivalents, common investment funds, mutual funds, and short-term bonds. The Depositories offer depositors with balances in excess of $100,000 an option to place funds in investment pools of long-term investments such as corporate and government bonds and common and preferred stocks. At June 30, 2009, investments consist of the following: Community Martin Corporate Foundation Foundation Depository Depository Combined Cash equivalents $ 16,573,097 $ 1,017,383 $ 265,964 $ 2,267,949 $ 20,124,393 U.S. government and government agency obligations 2,394,590 6,319,569 3,326, ,013 12,616,433 Corporate bonds and notes 5,001,917 6,389,733 2,199, ,928 13,951,476 Common investment and mutual funds 130,106,830 19,501,527 4,291,025 1,514, ,414,254 Common stock 16,910,289 6,863, ,554 1,885,605 25,804,260 Other 14,254, ,254,138 $185,240,861 $ 40,092,024 $ 10,227,702 $ 6,604,367 $242,164,

13 NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED At June 30, 2008, investments consist of the following: Community Martin Corporate Foundation Foundation Depository Depository Combined Cash equivalents $ 15,827,149 $ 692,872 $ 5,141,426 $ 2,282,930 $ 23,944,377 U.S. government and government agency obligations 2,077,401 7,026,579 3,150, ,181 12,815,701 Corporate bonds and notes 5,388,960 5,895,429 2,334, ,301 14,033,213 Common investment and mutual funds 150,194,223 20,329,063 4,947,181 1,595, ,065,626 Common stock 27,465,001 9,354, ,728 2,592,032 39,592,921 Other 16,809, ,809,146 $217,761,880 $ 43,298,103 $ 15,755,398 $ 7,445,603 $ 284,260,984 As indicated above, at year-end, the Foundation is invested in various types of investment securities. Investments are exposed to various risks such as interest rate risk, credit risk, and market risk. Due to the level of risk associated with certain investments, it is at least reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect the amounts reported in the accompanying combined statement of financial position. NOTE D--FAIR VALUE MEASUREMENTS In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, in order to establish a single definition of fair value and a framework for measuring fair value in generally accepted accounting principles that is intended to result in increased consistency and comparability in fair value measurements. SFAS No. 157 also expands disclosures about fair value measurements. SFAS No. 157 applies whenever other authoritative literature requires (or permits) certain assets or liabilities to be measured at fair value, but does not expand the use of fair value. SFAS No. 157 was originally effective for financial statements issued for fiscal years beginning after November 15, In early 2008, the FASB issued Staff Position (FSP) FAS-157-2, Effective Date of FASB Statement No. 157, which delays by one year the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The delay pertains to items including, but not limited to, non-financial assets recorded at fair value at the time of donation and long-lived assets measured at fair value relative to assessing impairment under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Effective July 1, 2008, the Foundation adopted the portion of SFAS No. 157 that has not been delayed by FSP FAS Items carried at fair value on a recurring basis (to which SFAS No. 157 applies for 2009) consist principally of investments for which the fair values are determined by referring to quoted market prices and other relevant information generated by market transactions. Items carried at fair value on a non-recurring basis (to which SFAS No. 157 will apply in 2010) consist principally of contributions receivable, vested beneficial interests in charitable remainder trusts/other deferred funds, and deferred gift liabilities for split-interest agreements. The Foundation has not yet evaluated the subsequent impact (subsequent to the fiscal year-ended June 30, 2009) that SFAS No. 157 will have on the determination of fair value related to non-financial assets and non-financial liabilities. -11-

14 NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED SFAS No. 157 utilizes a fair value hierarchy that prioritizes the inputs (from the most objective to the most subjective) to the valuation techniques used to measure fair value into the three broad levels described as follows: Level 1--Quoted prices in active markets for identical assets or liabilities. Level 2--Observable inputs such as quoted prices in active markets for similar assets or liabilities or quoted prices for identical or similar assets or liabilities in markets that are not active, or unobservable inputs that are derived principally from or corroborated by observable market data. Level 3--Unobservable inputs that are based on the Foundation's own assumptions as to how knowledgeable parties would price assets or liabilities that are not corroborated by market data. Fair values of assets measured on a recurring basis at June 30, 2009 are as follows: Fair value Level 1 Level 2 Level 3 Investments (See Note C) $242,164,954 $201,342,907 $ 26,567,909 $ 14,254,138 At June 30, 2009, investments included above under Level 2 and Level 3 principally represent investments in fixed income securities (U.S. government/government agency obligations and corporate bonds/notes) and in two pass-through entities (a limited partnership and a limited liability company), respectively. The year ended June 30, 2009 activity of the investments measured at fair value on a recurring basis using significant unobservable inputs (Level 3 investments per the above table) is as follows: Beginning of the year $ 16,809,146 Purchases 6,119,173 Sales (4,474,335) Net unrealized and realized depreciation (4,199,846) Transfers in/out of Level 3 - End of the year $ 14,254,138 NOTE E--CONTRIBUTIONS RECEIVABLE At, contributions receivable consist of the following: Estimated to be collected in less than one year $ 2,829,000 $ 3,364,419 Estimated to be collected in one to five years - - Estimated to be collected thereafter - - 2,829,000 3,364,419 Less discounts to net present value - - $ 2,829,000 $ 3,364,

15 NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED NOTE F--OTHER RECEIVABLES During 2007, shares of stock of a privately owned company were donated to the Foundation by three of the company's principal owners. The shares were subsequently sold pursuant to an executed "Agreement and Plan of Merger" (agreement). The outstanding receivable balance is non-interest bearing. Under the terms of the agreement, the Foundation received 90% of the outstanding receivable balance in July 2007 and 5% of the remaining outstanding balance in September The Foundation received the remaining 5% (the outstanding receivable balance at June 30, 2008 totaling $247,265) in July During 2006, shares of stock of another privately owned company were donated to the Foundation by one of the company's principal owners. Subsequently, the shares were purchased from the Foundation under the terms of a promissory note. The note's interest rate changes annually based on the "federal mid-term rate." However, if the "federal mid-term rate" is less than or equal to 4.75% (2.25% and 3.20% at, respectively), the note receivable shall bear interest at 7.50%. The note is payable in monthly payments of principal and interest totaling approximately $2,300 through the note's May 2021 maturity date. The amount due to the Foundation under this note receivable at totals $216,907 and $227,777, respectively. As of June 30, 2009, the required principal payments due during 2010 total approximately $12,000. NOTE G--NET FIXED ASSETS At, net fixed assets consist of the following: Leasehold improvements 59,840 59,840 Office furniture and equipment 138, ,277 Computer hardware and software 233, , , ,192 Accumulated depreciation and amortization 235, ,043 $ 196,162 $ 274,149 Depreciation and amortization expense totals $100,193 and $44,715 for the years ended, respectively. -13-

16 NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED NOTE H--DEPOSITORY LIABILITIES A progression of depository liabilities as of and for the years ended is as follows: Corporate Corporate Depository Depository Depository Depository Balances, beginning of year $ 16,215,644 $ 7,442,421 $ 16,951,654 $ 7,450,528 Contributions received 4,516,516 3,587,914 9,885,675 3,402,219 Income retained in funds 21,773 93,057 28,118 90,567 Net unrealized and realized gains (losses) on investments (61,764) (631,682) 6,090 (655,317) Distributions from funds (10,041,194) (3,786,238) (10,655,893) (2,845,576) Balances, end of year $ 10,650,975 $ 6,705,472 $ 16,215,644 $ 7,442,421 NOTE I--SPLIT-INTEREST AGREEMENTS The Community Foundation is party to various irrevocable split-interest agreements. A split-interest agreement is a gift that is partially for the Community Foundation's benefit and partially for an individual's benefit. Upon acceptance of a split-interest agreement, the Community Foundation records the contributed asset and the present value of the liability payable to the beneficiary. These agreements include charitable remainder trusts, pooled income funds, and charitable gift annuities. Charitable remainder trusts are arrangements in which a donor establishes and funds a trust with specified distributions to be made to designated beneficiaries over the trust's term. Upon termination of the trust, the Community Foundation receives the assets remaining in the trust. Obligations to the beneficiaries are limited to the trust's assets. The Community Foundation also manages a pooled income fund in which contributions of multiple donors' life income gifts are pooled and invested as a group. Each donor is assigned a specific number of units based on the proportion of the fair value of the contributions to the total fair value of the pooled income fund on the date of the donor's gift. Until a beneficiary's death, the donor (or the donor's designated beneficiary) is paid the actual income earned on the donor's assigned units. Upon the beneficiary's death, the value of these assigned units reverts to the Community Foundation. Obligations to the beneficiaries are limited to the income earned by the pooled income fund. A charitable gift annuity is an arrangement between a donor and the Community Foundation in which the donor contributes assets to the Community Foundation in exchange for a promise by the Community Foundation to pay a fixed amount to the donor or to others designated by the donor for a specified period of time. Obligations continue until the death of the beneficiary. Trust assets are reported at fair value in the same manner as all Foundation investments. The income or loss recognized under these trusts is included in temporarily restricted net assets. Discount rates are determined in accordance with the Internal Revenue Code and represent the rate at the date of the contribution. Actuarial related assumptions used in calculating present values include the beneficiary's age, the date of the gift, the market value of the principal donated, the rate of return, the payout rate, the payment schedule, and the discount rate, as applicable. -14-

17 NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED Amounts subject to split-interest agreements include the following as of and for the years ended : 2009 Charitable Pooled Charitable remainder income gift trusts funds annuities Assets $ 11,033,867 $ 575,019 $ 1,141,914 Liabilities 5,586, , ,979 Income (loss) 1,702,790 (8,109) 97, Charitable Pooled Charitable remainder income gift trusts funds annuities Assets $ 13,727,005 $ 561,042 $ 1,135,850 Liabilities 7,285, , ,275 Income (loss) 623,381 (28,351) 17,692 NOTE J--NET ASSETS The Foundation classifies its net assets as unrestricted, temporarily restricted, and permanently restricted based on the donor's intent at the time the contribution (or bequest) is made. Within each of the three classifications the Foundation further distinguishes its net assets according to the purpose of the underlying component fund. Under the terms of the Community Foundation's governing documents, the Board of Directors has the ability to distribute as much of the corpus of any trust or separate contribution, bequest, devise, or fund, as the Board, in its sole discretion, may determine. Accordingly, contributions and bequests are classified as unrestricted net assets when made without donor restrictions or where the Community Foundation has full variance power over both principal and income (endowment funds). Such endowment funds (for which the Community Foundation has full variance power) are classified as unrestricted, but as donor designated for purposes of FASB Staff Position (see Note K below). Contributions and bequests are classified as temporarily restricted if the donor places a time or purpose restriction upon the contribution or bequest. As the time restriction expires or the purpose restriction is satisfied, the net assets are then reclassified as unrestricted net assets and are reported in the accompanying combined statements of activities as net assets released from restrictions. Temporarily restricted net assets of $9,099,519 and $10,325,761 at, respectively, represent various irrevocable split-interest agreements. All contributions and bequests for which the donor restricts use of the funds to part or all of the income thereon are classified as permanently restricted net assets. Permanently restricted net assets total $10,586,874 and $11,207,071 at, respectively. Net assets of $74,965 for the year ended June 30, 2008 have been released from temporarily restricted net assets due to the satisfaction of time or purpose restrictions or to meet unitrust and pooled income fund restrictions. No such temporarily restricted net assets were released from restriction during the year ended June 30, Additionally, during the year ended, donors withdrew the restrictions associated with permanently restricted funds in the amount of $901,304 and $936,420, respectively. -15-

18 NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED NOTE K--FASB STAFF POSITION In August 2008, the FASB issued FASB Staff Position 117-1, Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures of All Endowment Funds. FASB Staff Position provides guidance on the net asset classification of donor restricted endowment funds for a not-for-profit organization that is subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA). UPMIFA is a model act approved by the Uniform Law Commission that serves as a guideline for states to use in enacting legislation. To-date, the state of Kentucky has not enacted a version of UPMIFA legislation. FASB Staff Position also improves disclosures about an organization s endowment funds (both donorrestricted and board-designated endowment funds), whether or not the organization is subject to UPMIFA. At June 30, 2009, endowment net assets consist of the following: Temporarily Permanently Unrestricted restricted restricted Total Board designated $ 1,331,880 $ - $ - $ 1,331,880 Donor designated 189,683, ,683,137 Donor restricted - 9,099,519 10,586,874 19,686,393 $191,015,017 $ 9,099,519 $ 10,586,874 $210,701,410 Changes in endowment net assets during the year ended June 30, 2009 are as follows: Temporarily Permanently Unrestricted restricted restricted Total Beginning of the year $223,906,694 $ 10,325,761 $ 11,207,071 $245,439,526 Contributions 19,358, , ,990 20,290,928 Investment return Net investment income 4,598, ,598,555 Net unrealized and realized appreciation (depreciation) (38,111,831) (2,051,611) 174,117 (39,989,325) Appropriation of endowment assets for expenditure (18,736,970) - (901,304) (19,638,274) End of the year $191,015,017 $ 9,099,519 $ 10,586,874 $210,701,

19 NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED NOTE L--OFFICE SPACE LEASE The Community Foundation currently rents its office space under an operating lease with a term through April The monthly rent payment was $6,266 through April 2009, after which the monthly rent payment increased to $6,995. The lease also requires the Community Foundation to pay its pro-rata share of utilities (a specified monthly amount for electric). Rent expense (not including amounts paid to the lessor for utilities) totals approximately $76,700 and $75,200 for 2009 and 2008, respectively. At June 30, 2009, the future minimum lease payments under the operating lease are as follows: Year ending June $ 83, , ,950 $ 237,830 NOTE M--INVESTMENT MANAGEMENT FEES As previously indicated, invested funds are primarily held in custodial investment accounts and are managed by professional investment advisors. Accordingly, the Foundation has entered into agreements with several professional investment advisors. Generally, such agreements are cancelable by either party upon written notice. For the years ended, investment management and other fees include approximately $718,000 and $648,000, respectively, of investment management (and custodial) fees. NOTE N--PENSION PLAN The Community Foundation has a defined contribution pension plan covering all employees who are at least twenty-one years old and have at least one year of service. Participants become fully vested upon completion of two years of service. The monthly employer contributions are based on 8% of the participant's compensation. Pension plan expense for the years ended totals approximately $84,600 and $70,200, respectively. Effective August 2009, the monthly employer contribution percentage was decreased from 8% to 5%. NOTE O--REVOCABLE BENEFICIARY During 2006, the Community Foundation was notified that it was the revocable beneficiary of a charitable lead trust. During 2009 and 2008, the Community Foundation received distributions from the trust in the amounts of approximately $7,200,000 and $7,400,000, respectively. The Community Foundation may continue to receive such significant distributions over an extended period of time. The donor has the right to change the beneficiary of the trust at any time. -17-

20 SUPPLEMENTARY INFORMATION

21 COMBINED SCHEDULE OF FUNCTIONAL EXPENSES Year ended June 30, 2009 Program Management services and general Fundraising Total Grants $ 18,467,962 $ - $ - $ 18,467,962 Loss distributions from Depositories to donors' funds (522,447) - - (522,447) Distributions from deferred funds 901, ,304 Investment management and other fees - 730, ,514 Salaries, payroll taxes, and benefits 402, , ,555 1,516,515 Rent, utilities, and office expenses 39,462 82,437 18, ,701 Marketing and communications and planned giving design center 54, , ,212 Legal, audit, and other professional services 135, ,572 9, ,219 Travel, entertainment, and conference expenses 12,097 51,299 4,228 67,624 Software maintenance contracts and upgrades 11,435 24,985 5,929 42,349 Memberships and reference materials and continuing education 1,221 47,424 7,890 56,535 Postage, printing, and publications 7,915 17,296 4,105 29,316 Miscellaneous expenses 541 2, ,906 Depreciation and amortization 27,052 59,114 14, ,193 Totals $ 19,539,061 $ 2,019,079 $ 445,763 $ 22,003,903 See accompanying independent auditor's report -18-

22 COMBINED SCHEDULE OF FUNCTIONAL EXPENSES Year ended June 30, 2008 Program Management services and general Fundraising Total Grants $ 11,755,720 $ - $ - $ 11,755,720 Loss distributions from Depositories to donors' funds (456,420) - - (456,420) Distributions from deferred funds 948, ,499 Investment management and other fees - 664, ,983 Salaries, payroll taxes, and benefits 360, , ,550 1,267,307 Rent, utilities, and office expenses 33,335 73,651 17, ,272 Marketing and communications and planned giving design center - 1, , ,126 Legal, audit, and other professional services 26,836 56,494 7,932 91,262 Travel, entertainment, and conference expenses 9,322 20,948 4,834 35,104 Software maintenance contracts and upgrades 12,385 27,062 6,422 45,869 Memberships and reference materials and continuing education 1,025 48,556 8,066 57,647 Postage, printing, and publications 6,652 14,539 3,449 24,640 Miscellaneous expenses 881 1, ,262 Depreciation and amortization 12,073 26,382 6,260 44,715 Totals $ 12,711,023 $ 1,610,081 $ 428,882 $ 14,749,986 See accompanying independent auditor's report -19-