THE RESEARCH FOUNDATION & SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS. Year Ended December 31, 2014

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2014

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3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION December 31, 2014 A S S E T S CASH AND CASH EQUIVALENTS $ 2,259,823 ACCOUNTS RECEIVABLE 8,964 PROPERTY AND EQUIPMENT, net of accumulated depreciation 146,670 INVESTMENTS 63,751,304 TOTAL ASSETS $ 66,166,761 L I A B I L I T I E S ACCOUNTS PAYABLE $ 19,248 N E T A S S E T S UNRESTRICTED Undesignated 38,577,582 Board designated 12,752,353 TOTAL UNRESTRICTED 51,329,935 TEMPORARILY RESTRICTED 10,934,764 PERMANENTLY RESTRICTED 3,882,814 TOTAL NET ASSETS 66,147,513 TOTAL LIABILITIES AND NET ASSETS $ 66,166,761 See Notes to Consolidated Financial Statements - 2 -

4 CONSOLIDATED STATEMENT OF ACTIVITIES AND CHANGE IN NET ASSETS Year Ended December 31, 2014 Unrestricted Temporarily Restricted Permanently Restricted Total SUPPORT AND REVENUE Donations $ 371,936 $ 521,594 $ 63,105 $ 956,635 Special event income - 278, ,547 Special event expenses (77,374) - - (77,374) Harmon Diabetes Center 199, ,468 Cass County Dental Clinic 515, ,966 Other income Change in value of split-interest agreement 45, ,679 Net assets released from restrictions 472,648 (472,648) - - TOTAL SUPPORT AND REVENUE 1,528, ,493 63,105 1,919,112 EXPENSES Program service 1,457, ,457,825 Fundraising 113, ,828 Management and general 312, ,967 TOTAL EXPENSES 1,884, ,884,620 CHANGE IN NET ASSETS BEFORE INVESTMENT INCOME (356,106) 327,493 63,105 34,492 INVESTMENT INCOME, NET OF INVESTMENT FEES 3,164, ,283-3,695,617 CHANGE IN NET ASSETS 2,808, ,776 63,105 3,730,109 NET ASSETS, BEGINNING OF YEAR 48,521,707 10,655,474 3,240,223 62,417,404 TRANSFERS - (579,486) 579,486 - NET ASSETS, END OF YEAR $ 51,329,935 $ 10,934,764 $ 3,882,814 $ 66,147,513 See Notes to Consolidated Financial Statements - 3 -

5 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES Year Ended December 31, 2014 Program Management service Fundraising and general Total Salaries and benefits $ 751,288 $ 88,803 $ 219,952 $ 1,060,043 Education 37, ,346 Scholarships 172, ,068 Professional fees and other services 121,317-36, ,718 Community programs 73, ,837 Rent and office expenses 183,959 8,473 12, ,361 Promotional materials 2,951 11,228 10,134 24,313 Computer maintenance 11,374 5,312 10,020 26,706 Depreciation 27,526-19,604 47,130 Small dental/lab equipment and supplies 76, ,159 Travel ,927 3,939 TOTAL FUNCTIONAL EXPENSES $ 1,457,825 $ 113,828 $ 312,967 $ 1,884,620 See Notes to Consolidated Financial Statements - 4 -

6 CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31, 2014 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 3,730,109 Adjustments to reconcile changes in net assets to net cash flows from operating activities Depreciation 47,130 Realized / unrealized gain on investments (1,880,831) Change in value of split-interest agreements (45,679) Net change in operating assets and liabilities: Accounts receivable (5,250) Accounts payable (33,119) Annunity payable (18,000) Accrued expenses (11,436) NET CASH FLOWS FROM OPERATING ACTIVITIES 1,782,924 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (43,982,568) Purchase of property and equipment (30,621) Proceeds from sale of investments 41,735,362 NET CASH FLOWS FROM INVESTING ACTIVITIES (2,277,827) NET CHANGE IN CASH AND CASH EQUIVALENTS (494,903) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,754,726 CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,259,823 See Notes to Consolidated Financial Statements - 5 -

7 (1) Summary of significant accounting policies Nature of operations - The Foundation is a Missouri nonprofit public benefit corporation which is governed by a self-perpetuating board of directors. The purposes of the Foundation include the promotion, sponsorship, and conduct of research and scientific investigation, the application of scientific knowledge in the provision of health care, the assistance, sponsorship, and encouragement of individuals pursuing an education in health careers and the promotion of programs to provide healthcare to the indigent in the community. Principles of consolidation - The Harmon Diabetes Center, LLC ( HDC ) was incorporated in the State of Missouri, and the Foundation is the sole member of the HDC. Effective November 2014, the HDC ceased operations. In addition, the consolidated financial statements include the activity of the Cass Community Health Foundation (effective 10/1/12) ( CCHF ), a separate 501(c)(3) organization. Effective November 2010, the Cass County Dental Clinic, LLC ( CCDC ) was incorporated in the State of Missouri. CCHF is the sole member of the CCDC. The accounts of the Foundation, the CCHF, the HDC, and the CCDC are included in these consolidated financial statements. All significant inter-company balances and transactions have been eliminated. Basis of accounting - The Foundation prepares its consolidated financial statements on the accrual basis of accounting. Income taxes - The Foundation and CCHF are exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code and exempt from state income taxes under the laws of the state of Missouri. HDC and CCDC are single member limited liability companies and are considered disregarded entities for federal income tax purposes. Accordingly, no provision has been made for federal and state income taxes. The Foundation assesses uncertain tax positions on an annual basis. There has not been interest or penalties recognized in either the statement of activities and changes in net assets or in the statements of financial position related to uncertain tax positions. In addition, no tax positions exist for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months. The Foundation is no longer subject to federal or state income tax examinations by tax authorities before Use of estimates - Management uses estimates and assumptions in preparing these financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could vary from the estimates that were used. Management s estimates and assumptions are derived from and are continually evaluated based upon available information, judgment, and experience. Cash and cash equivalents - The Foundation considers cash and cash equivalents to be cash on hand, bank checking accounts, and money market accounts

8 (1) Summary of significant accounting policies (continued) Investments - Investments are reflected on the consolidated financial statements at fair value. Changes in unrealized gains and losses resulting from changes in fair value are reflected in the consolidated statement of activities and change in net assets. Dividends and interest are recognized as they are earned. Property and equipment - Purchases of property and equipment having a unit cost of $1,000 or more and an estimated useful life of more than one year are capitalized at cost. Donated assets are capitalized at the estimated fair value at the time of receipt. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Computer equipment is depreciated over three years, office furniture and various equipment is depreciated over five to ten years, and leasehold improvements are depreciated over the shorter of the life of the lease or the useful life of the improvement. Net assets - Unrestricted net assets are net assets that are not subject to donorimposed restrictions. Changes to this category of net assets include certain types of philanthropic support - namely, unrestricted contributions whose donor-imposed restrictions were met during the fiscal year, and income from investments. Temporarily restricted net assets are net assets subject to donor-imposed restrictions that may or will be met either by actions of the Foundation and/or the passage of time. Items that affect this net asset category are restricted contributions. Contributions received with donor-imposed restrictions are reported as support in the temporarily restricted net assets class unless the restrictions are both imposed and met in the same year (in which case they are reported as support in the unrestricted net assets class). These amounts are reclassified to unrestricted net assets when such restrictions are met or have expired. All temporarily restricted net assets are restricted due to purpose. Permanently restricted net assets must be maintained permanently. The income derived from these assets is subject to donor-imposed restrictions that may or will be met either by actions of the Foundation and/or the passage of time. Contributions - Donations, including unconditional promises to give, are recognized in the period the commitment is made. Conditional pledges are not recognized until the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded as estimated fair value at the date of gift. Functional expenses - The Foundation allocates expenses on a functional basis among various programs and support services. Expenses that can be identified with a specific program and support service are allocated directly according to their natural expenditure classification. Other expenses that are common to several functions are allocated by management's estimate of resources devoted. Donated services - No amounts are reflected in the consolidated financial statements for donated services. The Foundation pays for most services requiring specific expertise; however, a substantial number of volunteers have donated significant amounts of their time to the Foundation s programs

9 (1) Summary of significant accounting policies (continued) Charity care - The Foundation provides care without charge or at amounts less than its established rates, to patients who meet certain criteria. Because the Foundation does not pursue collection of amounts determined to qualify as charity care, such amounts are not reported as revenue in the accompanying consolidated statement of activities and change in net assets. The Foundation provided diabetes education services to approximately 55 patients that totaled approximately $27,000 for the year ended December 31, The CCHF also subsidized dental services to approximately 2,158 patients that totaled approximately $523,000 for the year ended December 31, (2) Conditional promises to give The CCHF has received conditional promises to give from two organizations totaling $170,650 at December 31, (3) Investments The Foundation utilizes ASC 820, Fair Value Measurement, to record investments. ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows: Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 - Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The fair value of Level 2 investments are valued using proprietary valuation models incorporating live data from active market makers and inter-dealer brokers as reported on electronic communication networks. The valuation models incorporate benchmark yields, reported trades, broker/dealer quotes, bids, offers, discounted cash flow models, and other relevant data

10 (3) Investments (continued) THE RESEARCH FOUNDATION & SUBSIDIARIES Fair Value Level 1 Level 2 Level 3 Fixed income securities Government and agency bonds $ 7,643,265 $ - $ 7,643,265 $ - Corporate bonds 8,394,905-8,394,905 - Mutual funds 3,479,857-3,479,857 - Equity securities Retail 6,026,654 6,026, Energy 711, , Finance 3,034,470 3,034, Healthcare 3,232,515 3,232, Industrials 4,618,789 4,618, Technology 4,101,103 4,101, Equity funds 20,911,618 20,911, Master Limited Partnerships 1,596,511 1,596, Total investments $ 63,751,304 $ 44,233,277 $ 19,518,027 $ - Investment income is comprised of the following: Interest earned $ 2,020,244 Realized gains 4,430,306 Unrealized losses (2,549,475) Total investment gains 3,901,075 Less investment fees (205,458) Total investment gains, net of investment fees $ 3,695,617 (4) Property and equipment Cost Computer equipment $ 42,772 Office furniture and equipment 195,289 Leasehold improvements 153,430 Total cost 391,491 Accumulated depreciation (244,821) Net property and equipment $ 146,670 Depreciation expense charged to operations was $47,130 for the year ended December 31,

11 (5) Endowments THE RESEARCH FOUNDATION & SUBSIDIARIES The Foundation s endowment consists of 15 permanently restricted funds and 17 boarddesignated funds established for a variety of purposes. The fund only includes donorrestricted funds. In accordance with ASC 958, Endowments of Not-for-Profit Organizations, net assets associated with endowment funds and funds designated by the Board of Directors are classified and reported based on the existence or absence of donor-imposed restrictions. The endowment balance is included in investments in the statements of financial position. In August 2009, the State of Missouri enacted a version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA). The Board of Directors of the Foundation has interpreted 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 this interpretation, the Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, and (b) the original value of subsequent gifts to the permanent endowment. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Foundation in a manner consistent with the standard of prudence prescribed by UPMIFA. For the year ended December 31, 2014, the Foundation had the following endowmentrelated activities: Donor- Restricted Permanenly Restricted Board- Designated Unrestricted Beginning balance, January 1, 2014 $ 3,240,223 $ 11,954,914 $ 15,195,137 Investment gain Investment income - 356, ,598 Net appreciation, realized and unrealized - 367, ,139 Total investment gain - 723, ,737 Contributions to perpetual endowment 63, , ,200 Amounts appropriated for expenditure - (74,393) (74,393) Transfers 579, ,486 Total change in endowment funds 642, ,439 1,440,030 Ending balance, December 31, 2014 $ 3,882,814 $ 12,752,353 $ 16,635,167 Total The Foundation was the trustee for two donor charitable annuity trusts which were previously classified as temporarily restricted net assets. Upon the deaths of the donors and per their requests, the remaining balances in these trusts were distributed to the Foundation s endowment funds from which the income can be used for scholarships. The total amount transferred to the endowment from temporarily restricted net assets was $579,486 during the year ended December 31,

12 (5) Endowments (continued) THE RESEARCH FOUNDATION & SUBSIDIARIES Return objectives and risk parameters The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowments while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds. In order to obtain maximum benefits from the assets of the Foundation, the investment goals include achieving long-term growth of capital within specified risk constraints, production of a reasonable rate of return on the investment assets, consistent with the assumption of a prudent level of risk, and protection of the Foundation s assets from inflation, so that they will be available for the long-term use. Strategies employed for achieving objectives To satisfy its long-term rate-of-return objectives, the Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Foundation s risk tolerance is low. The Foundation targets a diversified asset allocation that places a greater emphasis on equity-based and fixed-income investments, selection of quality securities, and seeking lower volatility to achieve its long-term return objectives within prudent risk constraints. Spending policy One of the purposes of the Foundation s investment assets is to provide funds to cover the portion of the Foundation s program costs and organizational expenses that are not covered by fees for services or by donations and grants. The Foundation s annual budget for each calendar year will allow for spending up to a maximum of 5% of the rolling threeyear average of the market value of the Foundation s assets, using market values as of December 31 of each year. Distributions will be made at the discretion of the Board of Directors, taking into account the investment performance results and the annual budget needs. (6) Leases The Foundation currently leases space for the CCDC under an operating lease. Monthly payments of $1,400 are due through December 31, 2015 at which time the lease can be extended for another year term. Total rent expense for this lease was $16,800 for the year ended December 31, The Foundation has also entered into lease agreements with stated arrangements below market value. As a result, the Foundation has recorded lease expense and the related contribution revenue in the amount of $136,356 for the year ended December 31, Of this amount, $98,267 is related to office space used by HDC, and $38,089 is related to office space used by the Foundation

13 (7) Concentration THE RESEARCH FOUNDATION & SUBSIDIARIES The Foundation maintains cash balances in financial institutions in excess of FDIC insurance limits. Management monitors the soundness of these financial institutions and believes the Foundation s risk of loss is negligible. (8) Retirement plan The Foundation has a 401(k) plan covering all of the Foundation s employees and HDC employees. The Foundation matches 100% of each employee s contribution up to 3% of the individual s salary, and matches 50% of each employee s contribution on the next 2% of the individual s salary. This results in an effective total match of 4%. Employee retirement expense totaled $28,501 for the year ended December 31, (9) Subsequent events The Foundation has evaluated subsequent events through August 26, 2015, which is the date the consolidated financial statements were available to be issued. No material subsequent events have occurred that require adjustment or disclosure in the consolidated financial statements or accompanying notes