HEARTLAND PRESBYTERY, INC. AND AFFILIATE. CONSOLIDATED FINANCIAL STATEMENTS (Modified Cash Basis) with INDEPENDENT AUDITORS REPORT

Transcription

1 HEARTLAND PRESBYTERY, INC. AND AFFILIATE CONSOLIDATED FINANCIAL STATEMENTS (Modified Cash Basis) with INDEPENDENT AUDITORS REPORT

2 TABLE OF CONTENTS Page INDEPENDENT AUDITORS REPORT FINANCIAL STATEMENTS: Consolidated Statement of Assets, Liabilities and Net Assets-Modified Cash Basis... 3 Consolidated Statement of Support and Revenues and Expenses and Changes in Net Assets - Modified Cash Basis... 4 NOTES TO MODIFIED CASH BASIS FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION Schedule I - Consolidating Statement of Assets, Liabilities and Net Assets-Modified Cash Basis. 15 Schedule II - Consolidating Statement of Support, Revenues and Expenses-Modified Cash Basis. 16 -i-

3

4 INDEPENDENT AUDITORS REPORT (continued) Presbytery Council Heartland Presbytery, Inc. Kansas City, Missouri Basis of Accounting We draw attention to Note 1 of the financial statements, which describes the basis of accounting. The financial statements are prepared on the modified cash basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to that matter. Other Matter Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The schedules of consolidating financial statements on pages 15 and 16 are presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Kansas City, Missouri August 22, 2013 Marr and Company, P.C. Certified Public Accountants -2-

5 CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND NET ASSETS MODIFIED CASH BASIS December 31, 2012 ASSETS Cash and Cash Equivalents $ 389,439 Investments (Note 2) 847,206 Notes Receivable (Note 3) 559,393 Property Held for Development (Note 7) 114,261 Capital Assets Used in Operations: Land 88,192 Building and Improvements 4,788,147 Furniture and Equipment 1,183,703 Horses and Related Equipment 50,858 Accumulated Depreciation (3,472,416) Net Capital Assets Used in Operations 2,638,484 TOTAL ASSETS $ 4,548,783 LIABILITIES Notes Payable (Note 4) $ 151,903 Total Liabilities 151,903 NET ASSETS Unrestricted 3,152,635 Temporarily Restricted (Note 8) 686,460 Permanently Restricted (Note 11) 557,785 Total Net Assets 4,396,880 TOTAL LIABILITIES AND NET ASSETS $ 4,548,783 See Accompanying Notes and Independent Auditors Report. -3-

6 CONSOLIDATED STATEMENT OF SUPPORT AND REVENUES, EXPENSES AND CHANGES IN NET ASSETS - MODIFIED CASH BASIS Temporarily Permanently Unrestricted Restricted Restricted Totals REVENUES Contributions $ 325,895 $ 229,259 $ 0 $ 555,154 General Mission 556, ,501 Member Assessment 716, ,996 Services Provided 449, ,025 Facility Rent 402, ,145 Investment Income 44,822 12,834 25,923 83,579 Event Income 77, ,603 Other Income 35, ,734 Net Assets Released from Restriction 387,604 (387,604) 0 0 Total Revenues 2,996,325 (145,511) 25,923 2,876,737 EXPENSES Program Services: Mission and Outreach 241, ,762 Costs of Services Provided 361, ,290 Payments to Synod of Mid-America 72, ,467 Payments to the General Assembly 347, ,274 Conferences and Events 80, ,131 Grants and Scholarships 84, ,634 Congregational Plant and Revital 59, ,221 Architectural Services 85, ,657 Other Ministry Expense 28, ,689 Total Program Services 1,361, ,361,125 Supporting Services: Administrative Salaries and Benefits 500, ,999 Administrative and Office 196, ,093 Council and Committees 5, ,536 Legal Expense 182, ,084 Property and Grounds 378, ,573 Depreciation 178, ,846 Other Expense 2, ,775 Fundraising 1, ,760 Total Supporting Services 1,446, ,446,666 Total Expenses 2,807, ,807,791 Changes in Net Assets 188,534 (145,511) 25,923 68,946 NET ASSETS-DECEMBER 31, ,964, , ,862 4,327,934 NET ASSETS-DECEMBER 31, 2012 $3,152,635 $ 686,460 $557,785 $4,396,880 See Accompanying Notes and Independent Auditors Report. -4-

7 NOTES TO FINANCIAL STATEMENTS - MODIFIED CASH BASIS INDEX NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Organization B. Program Services C. Financial Statement Presentation D. Basis of Accounting E. Contributions F. Donated Services and Property G. Use of Estimates H. Capital Assets I. Income Taxes J. Cash and Cash Equivalents K. Advertising L. Subsequent Events NOTE 2: NOTE 3: NOTE 4: NOTE 5: NOTE 6: NOTE 7: NOTE 8: NOTE 9: INVESTMENTS NOTES RECEIVABLE NOTES PAYABLE RELATED ENTITIES PENSION PLANS LINWOOD PROPERTY, INC. TEMPORARILY RESTRICTED NET ASSETS CONTINGENT LIABILITIES NOTE 10: COMMITMENTS NOTE 11: ENDOWMENT -5-

8 NOTES TO FINANCIAL STATEMENTS - MODIFIED CASH BASIS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Organization Heartland Presbytery, Inc. (the Presbytery ) is an affiliated member of the Synod of Mid-America ( SMA ) on the regional level and the Presbyterian Church (U.S.A.) ( PCUSA ) on the national level. The Presbytery provides financial support received from member congregations to the above organizations. The Presbytery receives financial, program and administrative support and guidance from both the SMA and the PCUSA. The Presbytery has a wholly-owned subsidiary, the Heartland Presbyterian Center (the Center ), a separately incorporated nonprofit organization which operates a camp and conference center. The Presbytery and the Center are collectively referred to as the Organization. B. Program Services The Heartland Presbytery provides program services for Presbyterian churches within their Presbytery jurisdiction. Presbytery programs are provided for church members, aspiring church leaders and the surrounding community populace through Christian education and mission work. This is accomplished through funding and individual involvement of the Presbytery and church members. C. Financial Statement Presentation The financial statements present the Presbytery and Center on a consolidated basis. All inter-company accounts and transactions have been eliminated in consolidation. The Presbytery has complied with the Accounting Standards Codification ( ASC ) Topic , Notfor-Profit Entities: Presentation of Financial Statements. ASC requires classification of an organization s net assets and its revenues, expenses, gains and losses based on the existence or absence of donor-imposed restrictions. It requires that the amounts for each of three classes of net assets permanently restricted, temporarily restricted and unrestricted be displayed in a statement of financial position and that the amounts of change in each of these classes of net assets be displayed in a statement of activities. Permanently Restricted Net Assets are those restricted by donors in perpetuity as endowments or irrevocable trusts. See Note 11 for detail as of December 31, Temporarily Restricted Net Assets are those gifts of cash and other assets which are stipulated by donors for specific operating purposes, special projects or for the acquisition or construction of land, buildings and equipment. See Note 8 for detail as of December 31, Unrestricted Net Assets are those currently available at the discretion of the Board for use in the Organization s operations and those resources invested in land, buildings and equipment, net of related debt. -6-

9 NOTES TO FINANCIAL STATEMENTS - MODIFIED CASH BASIS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) D. Basis of Accounting For the year ended December 31, 2012, the consolidated financial statements have been prepared on the modified cash basis of accounting. Under this basis, certain revenue and related support are recognized when received rather than when promised or earned, with the exception of the recording of investments, investment income and notes receivable (where initiated by a cash transaction). In addition, certain expenses are recognized when the cash is disbursed rather than when the obligation is incurred, with the exception of recording of capital assets and related depreciation expense and notes payable (where initiated by a cash transaction). The modified cash basis financial statements do not purport to present fairly financial position and results of operations in accordance with accounting principles generally accepted in the United States. The exchange of cash in completing a transaction does not necessarily coincide with the economic event giving rise to the transaction. E. Contributions The Organization reports contributions in accordance with FASB ASC Accordingly, contributions received are recorded as unrestricted, temporarily restricted or permanently restricted support depending on the existence and/or nature of any donor restrictions. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires, temporarily restricted net assets are released and reclassified to unrestricted net assets. F. Donated Services and Property The Organization received donated services during the year ended December 31, 2012, however, these services did not meet the criteria for recognition in the financial statements. Property donated to the Organization is recorded at fair market value at the date of receipt. G. Use of Estimates The preparation of financial statements on the modified cash basis of accounting, which is a comprehensive basis of accounting other than generally accepted accounting principles, requires management to make estimates and assumptions that affect certain reported amounts and disclosures such as estimated useful lives in determining depreciation expense and fair market value of investments. Accordingly, results could differ from these estimates. H. Capital Assets Property, equipment and livestock are recorded at cost if acquired, or fair value if donated. The Organization s policy is to capitalize property and equipment with a cost and useful life over $1,000 and two years, respectively. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, except land which is not depreciated. -7-

10 NOTES TO FINANCIAL STATEMENTS - MODIFIED CASH BASIS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) H. Capital Assets (continued) Building and Improvements Furniture and Equipment Horses and Equipment 7-40 years 3-10 years 3-10 years I. Income Taxes The Presbytery and the Center are nonprofit organizations exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. The organizations have been classified as publiclysupported entities which are not private foundations under Section 509(a) of the Code. The Organization has adopted the provisions of FASB ASC as it might apply to the Organizations financial transactions. The Organization s policy is to record a liability for any tax position that is beneficial to the Organization, including any related interest and penalties, when it is more likely than not the position taken by management with respect to the transaction or class of transactions will be overturned by a taxing authority upon examination. Management believes there are no such positions as of December 31, 2012 and, accordingly, no liability has been accrued. However, the three previous tax years through December 31, 2012 remain subject to Internal Revenue Service examination. J. Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand, interest-bearing checking, savings, money market and certificates of deposit with original maturity less than three months. K. Advertising The Organization s advertising costs are expensed as they are incurred. L. Subsequent Events Management has evaluated events and transactions that have occurred since December 31, 2012 and reflected their effects, if any, in these financial statements through August 22, 2013, the date the financial statements were available to be issued. NOTE 2: INVESTMENTS The Organization has adopted ASC 820, Fair Value Measurements and Disclosures. The objective of a fair value measurement is to determine the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Accordingly, the fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The threetier hierarchy of inputs is summarized in the following three broad levels. -8-

11 NOTES TO FINANCIAL STATEMENTS - MODIFIED CASH BASIS NOTE 2: INVESTMENTS (continued) Level 1 - Inputs are unadjusted quoted market prices in active independent markets for identical assets and liabilities. Level 2 - Inputs are directly or indirectly observable estimates from quotes or similar but not identical assets and liabilities, market trades for identical assets not actively traded or other external independent means. Level 3 - Inputs are unobservable and reflect assumptions on the part of the reporting entity. The following table sets forth information about the level within the fair value hierarchy at which the Organization s financial assets and liabilities are measured on a recurring basis at December 31, Quoted Prices in Significant Active Markets for Significant Other Unobservable Identical Assets Observable Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) Financial Assets Mutual Funds: New Covenant $ 92,084 $92,084 $ 0 $0 Mutual Funds: Presbytery Foundation 559, ,624 0 Certificates of Deposit: CDC 194, ,926 0 Charitable Gift Annuity $847,206 $92,084 $755,122 $0 The Level 2 mutual funds are not actively traded in the open market but some of the funds components are and include investments in debt and equity stocks, hedge funds and fixed income funds. The fair value of the funds (Level 2) are based on quoted market prices of similar assets. The fair value of the certificates of deposit and the charitable gift annuity are based on the terms of the agreements and prevailing interest rates. NOTE 3: NOTES RECEIVABLE An unused boiler at the Harold Thomas Center was given to the St. Paul s Church in Kansas City, Missouri. The cost of removal, transport and installation was paid for by the Presbytery. A noninterest bearing note was made with St. Paul s for the cost incurred. The balance at December 31, 2012, was $5,505. In November 2008, the Presbytery purchased the loan from the Church Development Corporation (the CDC ) for the New Horizon Church property in Odessa for $600,000. A note with the Church was transacted at an interest rate of 3 percent over a period of thirty years. The note requires principal and interest payments of $2,530 per month and is secured by real estate. During 2012, the Presbytery recognized interest income of $16,807 related to this note which is included in investment income on the consolidated statement of support and revenue, expenses and change in net assets-modified cash basis. The Church is current on all payments. The note balance at December 31, 2012 was $553,

12 NOTES TO FINANCIAL STATEMENTS - MODIFIED CASH BASIS NOTE 4: NOTES PAYABLE Notes payable at December 31, 2012, consisted of the following. Note payable with CDC was initiated to fund repair to the Center s pool and buildings. Monthly payments of $1,394, including interest at 5.50%, through maturity in Loan review performed every five years with the next review date on January 1, Interest expense for the year ended December 31, 2012, was $9,560 related to this note. In December 2008, the Presbytery borrowed $50,000 from the Synod of Mid-America to support the purchase of the Odessa, Missouri note from Church Development Corporation. The loan was at 0% interest with monthly payments of $1, for 48 months. If the Odessa property is sold before the note is fully paid, the balance becomes due upon fulfillment of the sales transaction. $146,695 5,208 $151,903 At December 31, 2012, the Organization is obligated as follows. Totals Presbytery Center 2013 $ 14,088 $5,208 $ 8, , , , , , , , , , ,158 $151,903 $5,208 $146,695 NOTE 5: RELATED ENTITIES The Presbytery is a branch of its national parent organization, the Presbyterian Church, U.S.A. (PCUSA). As such, the Presbytery is responsible to the PCUSA and the Synod of Mid-America for financial, program and administrative support. During 2012, the Presbytery contributed $349,571 and $83,957, respectively, to the PCUSA and Synod of Mid-America. NOTE 6: PENSION PLANS The Organization participates in a defined-contribution pension plan sponsored by the PCUSA. All full time employees of the Organization are covered under this plan. The total pension expense for the year was based on contributions made on behalf of participating employees. The contribution is equal to 11% of the participating employees salaries and amounted to $57,982 for the year ended December 31,

13 NOTES TO FINANCIAL STATEMENTS - MODIFIED CASH BASIS NOTE 7: LINWOOD PROPERTY, INC. In 1996, Linwood Property, Inc., a 501(c)(3) nonprofit corporation commonly known as the Linwood Area Ministry Place (L.A.M.P.), was established. The primary purpose of the corporation is to develop, oversee, manage and operate the property or properties identified as the former Linwood Presbyterian Church and such other properties as may from time to time be acquired and to plan, finance and accomplish the redevelopment of the property, to maintain the properties when developed and fulfill the mission to which the properties are dedicated. In 1996, Heartland Presbytery purchased the building and grounds of the former Linwood Presbyterian Church for $52,325. In 1999, L.A.M.P. determined that the building needed to be stabilized before renovation could begin. A portion of the costs to stabilize the building were capitalized and included with the original cost on the consolidated statement of assets, liabilities and net assets-modified cash basis, as property held for development in the amount of $114,261. The building is not currently being used in operations and accordingly, is not being depreciated. The asset is stated at the lower of cost or fair market value. NOTE 8: TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted assets consist of cash and investments and are held for the following purposes as of December 31, Building and improvements $286,052 Church development 68,416 Events 4,155 Ministry 226,744 Mission and Outreach 52,996 Scholarships 48,097 Total Temporarily Restricted Net Assets $686,460 The following are sources of net assets released from temporary donor restriction by incurring expenses satisfying the restricted purpose or by occurrence of events specified by the donors. Building and improvements $ 92,154 Events 63,353 Ministry 24,282 Mission and Outreach 112,149 Scholarships 95,666 Total Assets Released from Restricted $387,

14 NOTES TO FINANCIAL STATEMENTS - MODIFIED CASH BASIS NOTE 9: CONTINGENT LIABILITIES The Presbytery is contingently obligated to repay mortgage notes of its member churches. These mortgages are with the Presbyterian Church (U.S.A.), Church Development Corporation and other lending institutions. The mortgages are collateralized by the churches real property. As discussed in Note 7, the former Linwood Presbyterian Church, which is being overseen by L.A.M.P., is still the property of the Presbytery and as such, has a potential obligation of maintenance or possible demolition, which could be a material cost. NOTE 10: COMMITMENTS The Presbytery has entered into a non-cancelable agreement with an organization to provide training and support for the Presbytery s member congregations. The agreement requires quarterly payments of $4,320 through June of During 2012, the Presbytery incurred and paid $17,280 related to this agreement. The following is a schedule by year of the future minimum payments under this agreement. Year ending December 31, 2013 $17,280 Year ending December 31, ,640 $25,920 NOTE 11: ENDOWMENT The state of Missouri adopted the Uniform Prudent Management of Institutional Funds Act (UPMIFA). The Council of the Organization has interpreted the UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of the interpretation, the Organization classifies as permanently restricted net assets (1) the original value of gifts donated to the permanent endowment, (2) subsequent gifts to the endowment, and (3) 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 duration and preservation of the fund the purposes of the donor-restricted endowment funds general economic conditions the possible effect of inflation and deflation the expected total return from income and the appreciation of investments other resources of the Organization the investment policies of the Organization The Organization has adopted endowment investment and spending policies that attempt to provide a predictable stream of funding to programs supported by its endowment while ensuring that the purchasing powers of the endowment assets do not decline over time. To satisfy its long-term rate of return objective, the Organization relies on a total return strategy in which investment returns are achieved through both capital appreciation and current yield. -12-

15 NOTES TO FINANCIAL STATEMENTS - MODIFIED CASH BASIS NOTE 11: ENDOWMENT (continued) The Organization targets low-risk asset allocation. The Organization s spending policy is established based on the donor agreement which specifies a payout of interest and dividends for scholarships and ministry support. These earnings are classified as temporarily restricted net assets until exported for their intended use. All donor-restricted endowment funds are classified as permanently restricted net assets on the statement of assets, liabilities and net assets-modified cash basis. The Organization s changes in endowment net assets for the year ended December 31, 2012, are as follows. Endowment net assets, beginning of year $531,862 Contributions 0 Interest and dividends 24,704 Net appreciation 25,923 Amounts expended (24,704) Endowment net assets, end of year $557,

16 SUPPLEMENTAL INFORMATION

17 SCHEDULE I CONSOLIDATING STATEMENT OF ASSETS, LIABILITIES AND NET ASSETS - MODIFIED CASH BASIS December 31, 2012 Presbytery Center Eliminations Total ASSETS Cash and Cash Equivalents $ 346,019 $ 43,420 $ 0 $ 389,439 Investments 682, , ,206 Notes Receivable 559, ,393 Due from Center 461,332 0 (461,332) 0 Property Held for Development 114, ,261 Capital Assets Used in Operations: Land 88, ,192 Building & Improvements 2,798,313 1,989, ,788,147 Furniture & Equipment 333, , ,183,703 Horses & Related Equipment 0 50, ,858 Accumulated Depreciation (2,357,381) (1,115,035) 0 (3,472,416) Net Capital Assets Used in Operations 862,467 1,776, ,638,484 TOTAL ASSETS $ 3,026,260 $ 1,983,855 $(461,332) $ 4,548,783 LIABILITIES Notes Payable $ 5,208 $ 146,695 $ 0 $ 151,903 Due to Presbytery 0 461,332 (461,332) 0 Total Liabilities 5, ,027 (461,332) 151,903 NET ASSETS Unrestricted 2,056,752 1,095, ,152,635 Temporarily Restricted 563, , ,460 Permanently Restricted 400, , ,785 Total Net Assets 3,021,052 1,375, ,396,880 TOTAL LIABILITIES & NET ASSETS $ 3,026,260 $1,983,855 $(461,332) $ 4,548,783 See Independent Auditors Report. -15-

18 SCHEDULE II CONSOLIDATING STATEMENT OF SUPPORT & REVENUES, EXPENSES AND CHANGE IN NET ASSETS MODIFIED CASH BASIS Unrestricted Temporarily Restricted Permanently Restricted Presbytery Center Presbytery Center Presbytery Center Eliminations Total REVENUES Contributions $ 181,845 $ 181,950 $ 163,716 $ 65,543 $ 0 $ 0 $(37,900) $ 555,154 General Mission 556, ,501 Member Assessment 716, ,996 Services Provided 0 449, ,025 Facility Rent 34, , ,145 Investment Income 43,318 1,504 8,687 4,147 17,902 8, ,579 Event Income 77, ,603 Other Income 29,006 6, ,734 Net Assets Released from Restriction 289,915 97,689 (289,915) (97,689) Total Revenues 1,929,729 1,104,496 (117,512) (27,999) 17,902 8,021 (37,900) 2,876,737 EXPENSES Program Services: Mission & Outreach 241, ,762 Costs of Services Provided 0 361, ,290 Payments to Synod of Mid-America 72, ,467 Payments to General Assembly 347, ,274 Conferences & Events 80, ,131 Grants & Scholarships 122, (37,900) 84,634 Congregational Plant & Revital 59, ,221 Architectural Services 85, ,657 Other Ministry Expense 28, ,689 Total Program Expenses 1,037, , (37,900) 1,361,125 Supporting Services: Administrative Salaries & Benefits 301, , ,999 Administrative & Office 44, , ,093 Council & Committees 5, ,536 Legal Expense 182, ,084 Property & Grounds 78, , ,573 Depreciation 88,187 90, ,846 Other Expense 2, ,775 Fundraising 0 1, ,760 Total Supporting Services 703, , ,446,666 Total Expenses 1,740,792 1,104, (37,900) 2,807,791 Changes in Net Assets 188,937 (403) (117,512) (27,999) 17,902 8, ,946 NET ASSETS - December 31, ,867,815 1,096, , , , , ,327,934 NET ASSETS - December 31, 2012 $2,056,752 $1,095,883 $ 563,443 $123,017 $400,857 $156,928 $ 0 $4,396,880 See Independent Auditors Report. -16-