COMMUNITY FOUNDATION OF GREENVILLE AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2009
COMMUNITY FOUNDATION OF GREENVILLE DECEMBER 31, 2009 TABLE OF CONTENTS PAGE Independent Auditor's Report 1 Statement of Financial Position 2 Statement of Activities 3 Statement of Cash Flows 4 Notes to the Financial Statements 5-16
Independent Auditor's Report The Board of Directors Community Foundation of Greenville Greenville, South Carolina We have audited the accompanying statement of financial position of the Community Foundation of Greenville as of December 31, 2009, and the related statements of activities and cash flows for the year then ended. These financial statements are the responsibility of the Foundation's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Community Foundation of Greenville as of December 31, 2009, and the changes in its net assets and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. June 1, 2010
COMMUNITY FOUNDATION OF GREENVILLE STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2009 ASSETS Cash and cash equivalents $ 2,845,478 Other accounts receivable 167,587 Expected collection under agreement with third parties 1,260,557 Assets held - charitable remainder trusts 1,081,926 Contributions receivable - charitable remainder trusts 286,942 Investments 28,429,394 Cash surrender value life insurance 235,501 Property and equipment, net 820,748 Total assets $ 35,128,133 LIABILITIES Accounts payable $ 29,072 Obligations under agreement with third parties 1,260,557 Liability under unitrust agreements 824,067 Funds held for others 4,840,216 Total liabilities 6,953,912 NET ASSETS Unrestricted 23,015,341 Temporarily restricted 3,263,357 Permanently restricted 1,895,523 Total net assets 28,174,221 Total liabilities and net assets $ 35,128,133 The accompanying notes are an integral part of these financial statements. -2-
COMMUNITY FOUNDATION OF GREENVILLE STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2009 Changes in unrestricted net assets Unrestricted revenues and other support Contributions $ 5,206,431 Investment income 491,165 Net gain (loss) on investments 2,864,212 Management fee 257,063 Net assets released from restrictions 105,352 Reclassification based on change in law (1,279) Total unrestricted revenues and other support 8,922,944 Expenses Programs Grants and distributions 6,530,898 Supporting services Administrative expenses 974,022 Total expenses 7,504,920 Increase in unrestricted net assets 1,418,024 Changes in temporarily restricted net assets Contributions 26,050 Investment income 64,077 Net gain (loss) on investments 649,562 Change in value of charitable remainder trusts (15,026) Net assets released from restrictions (105,352) Reclassification based on change in law 1,279 Increase in temporarily restricted net assets 620,590 Changes in permanently restricted net assets Contributions 9,500 Investment income 637 Net gain (loss) on investments 7,900 Increase in permanently restricted net assets 18,037 Change in net assets 2,056,651 Net assets, beginning of year 26,117,570 Net assets, end of year $ 28,174,221 The accompanying notes are an integral part of these financial statements. -3-
COMMUNITY FOUNDATION OF GREENVILLE STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2009 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 2,056,651 Adjustments to reconcile changes in net assets to net cash provided by operating activities Depreciation 3,096 Net gain on investments 3,521,674 Change in Assets held in trust (112,063) Other accounts receivable (63,342) Contributions receivable - charitable remainder trusts (13,060) Grants and accounts payable 9,803 Liabilities under trust 140,150 Funds held for others 846,031 Net cash provided by operating activities 6,388,940 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (575,000) Increase in cash surrender value life insurance (48,284) Net increase in investments (8,618,630) Net cash used by investing activities (9,241,914) NET DECREASE IN CASH AND CASH EQUIVALENTS (2,852,974) CASH AND CASH EQUIVALENTS, beginning of year 5,698,452 CASH AND CASH EQUIVALENTS, end of year $ 2,845,478 The accompanying notes are an integral part of these financial statements. -4-
COMMUNITY FOUNDATION OF GREENVILLE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2009 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The Community Foundation of Greenville (the Foundation ) was established in 1956 as a charitable trust and changed to corporate form in 1971 to benefit Greenville County and the Greater Greenville Area. The Foundation manages and administers charitable funds and makes distributions to nonprofit organizations through a volunteer self-perpetuating Board of Directors. Based on the by-laws of the Foundation, the Board of Directors has the power to modify any condition or restriction on the distribution of funds for any specified charitable purpose or to any specified organization if in its sole judgment such condition or restriction becomes incapable of fulfillment, inconsistent with the charitable needs of the community, or unnecessary. Basis of Accounting and Presentation The Foundation reports information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Net assets, including endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions. The bylaws of the Foundation include a variance provision that allows the Board of Directors of the Foundation to vary the use of substantially all contributions received. Income Tax Status The Foundation has obtained exemption from federal income taxes under Section 501(c)(3) of the Internal Revenue Code as an organization which is not a private foundation as well as eleemosynary corporation recognized in South Carolina. Therefore, no provision for income taxes has been included in the financial statements. In June 2006, the Financial Accounting Standards Board (FASB) issued FASB ASC 740-10, which prescribed a comprehensive model for how an organization should measure, recognize, present, and disclose in its financial statements uncertain tax positions that the Foundation has taken or expects to take on a tax return. The Foundation adopted ASC 740-10 as of January 1, 2009 and, thereafter, recognizes the tax benefits from uncertain tax positions only if it is morelikely-than-not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Foundation s income tax filings are subject to audit by various taxing authorities. The Foundation s open audit periods are 2006-2009. Management believes the adoption of ASC 740-10 resulted in no significant impact to the Foundation s financial statements. Cash and Cash Equivalents Cash and cash equivalents presented in the statement of cash flows represent cash on hand and demand deposits at financial institutions with a maturity of three months or less when purchased. Investments Investments consist primarily of assets invested in marketable equity and debt securities, alternative investments, commodities, and money-market accounts. The Foundation accounts for investments in accordance with FASB ASC 958-320 and subsections (formerly SFAS No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations [ SFAS 124 ]). This -5-
standard requires that investments in equity securities with readily determinable fair values and all investments in debt securities be measured at fair value in the statement of financial position. Fair value of marketable equity and debt securities is based on quoted market prices. Alternative investments are stated at the fair value of their underlying assets and allocated to the investors in proportion to the investor s ownership percentage. The realized and unrealized gain or loss on investments is reflected in the statement of activities. Investments are exposed to various risks such as significant world events, interest rate, credit, and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the fair value of investments will occur in the near term and that such changes could materially affect the amounts reported in the statement of financial position. Fair Value of Financial Instruments The carrying values of cash and cash equivalents, accounts receivable, investments, assets held for others, contributions receivable, and accounts payable approximate fair value because of the terms and relative short maturity of financial instruments. The carrying values, which are the fair value of investments, are based on values provided by an external investment manager or comparison to quoted market values. Property and Equipment Property and equipment are reported at cost, if purchased, or fair value at the date of donation. Depreciation is computed on a straight-line basis over the estimated useful life of the assets, primarily five years. Donated Assets Donated marketable securities and other noncash donations are recorded as contributions at their estimated fair values at the date of donation. Net Asset Classifications The Financial Accounting Standards Board s ( FASB ) Codification Section 958-205 Endowments of Not-for-Profit Organizations: Net Assets Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for All Endowment Funds (FASB Codification Section 258-205) 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 (UPMIFA). FASB Codification Section 958-205 also improved disclosures about an organization s endowment funds (both donor-restricted and board-designated endowment funds) whether or not the Organization is subject to UPMIFA. The State of South Carolina enacted UPMIFA on July 1, 2008. The Foundation has adopted FASB Codification Section 958-205 for the year ended December 31, 2009. The Board of Directors has determined that the majority of the Foundation s net assets do not meet the definition of endowment under UPMIFA. The Foundation is governed subject to the Governing Documents for the Foundation and most contributions are subject to the terms of the Governing Documents and the related Fund and Gift Agreements. Certain contributions are received subject to other gift or grant instruments, or are subject to specific agreements with the Foundation, and may be recorded as permanently restricted, temporarily restricted, or unrestricted, depending on the specific terms of the agreements. Under the terms of the Governing Documents and the Fund or Gift Agreements, the Board of Directors has the ability to modify any restrictions or condition on the distribution of funds that -6-
becomes, in effect, unnecessary, incapable of fulfillment, or inconsistent with the charitable needs of the community of area service. The Board of Directors also has the ability to distribute so much of the corpus of any trust or separate gift, devise, bequest, or fund as the board in its sole discretion shall determine. As a result of the ability to distribute corpus, all contributions not classified as temporarily restricted or permanently restricted are classified as unrestricted net assets for financial statement purposes. The Foundation classifies as permanently restricted net assets a) the original value of the gifts and grants to permanent endowments, b) the original value of subsequent gifts to the permanent endowments, and c) accumulations to the permanent endowments in accordance with the applicable donor or grantor gift instrument. The remaining portion of endowment fund investments that is not classified as permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure for the intended purpose or, when unrestricted, reported as unrestricted and designated by management for specific purposes. Temporarily restricted net assets consist of contributions received under split-interest agreements wherein the Foundation or a third party serves as trustee and the remaining portion of donorrestricted endowment funds that are not classified as permanently restricted. When a restriction expires, that is, when a stipulated time restriction ends or a purpose restriction is fulfilled, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activity as net assets released from restrictions. Investment Policy The Foundation has adopted a policy whereby it limits the amount of income that may be utilized for operating or grant purposes to five percent of the trailing three-year average of the endowment s market value. This policy enables the Foundation to preserve and strengthen its endowment for the future. Grants Policy Grants authorized but unpaid at yearend are reported as liabilities. Donated Services No amounts have been reflected in the financial statements for donated services. The Foundation pays for most services requiring specific expertise. However, many individuals volunteer their time and perform a variety of tasks that assist the Foundation with specific programs and various committee assignments. 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 the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 NEW ACCOUNTING PRONOUNCEMENTS Effective January 1, 2009, the Foundation adopted FASB-issued SFAS No. 168, the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. SFAS No. 168 establishes the FASB Accounting Standards Codification (ASC) as the sole source of authoritative accounting principles recognized by the FASB to be applied by nonpublic entities in the preparation of financial statements in conformity with GAAP (the GAAP hierarchy). -7-
Effective January 1, 2009, the Foundation adopted FASB ASC 820, Fair Value Measurements and Disclosures (precodification FASB SFAS No. 157, Fair Value Measurements, as amended). FASB ASC 820 defines fair value, establishes a consistent framework for measuring fair value in accordance with GAAP, and expands disclosure requirements about fair value measurements. FASB ASC 820 also requires that valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs in accordance with the following fair value: quoted prices in active markets for identical assets or liabilities (Level 1 measurements), significant other observable inputs (Level 2 measurements), and significant unobservable inputs (Level 3 measurements). The fair value measurement is assigned an overall input level based on the lowest level input that is significant to the fair value measurement in its entirety. The optional provisions of FASB ASC 825, Financial Instruments, (precodification FASB SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities) became effective for fiscal year 2009. These optional provisions give the Foundation the irrevocable option to report most financial assets and liabilities at fair value on an instrument-by-instrument basis, with changes in fair value reported in earnings. Effective January 1, 2009, the Foundation adopted the provisions of FASB ASC 958-205-50-1A, Reporting Endowment Funds (precodification FASB Staff Position No. 117-1, Endowments of Notfor-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for All Endowment Funds). FASB ASC 958-205-50-1A 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 ) and also required disclosures about endowment funds, both donor-restricted endowment funds and board-designated endowment funds. South Carolina enacted a version of UPMIFA into the Code of Laws effective July 1, 2008. NOTE 3 CONCENTRATIONS OF CREDIT RISK ARISING FROM CASH DEPOSITS IN EXCESS OF INSURED LIMITS The Foundation maintains cash balances at a financial institution in excess of FDIC insured limits. Based on the credit rating of this institution, management believes there is no significant credit risk related to deposits. NOTE 4 INVESTMENTS Investments are comprised of the following at December 31, 2009. Investments are stated at fair value. Cost Fair Value Cash and cash equivalents $ 2,035,595 $ 2,035,595 Certificates of deposit 41,188 42,005 U.S. Government obligations 25,505 26,318 Common and preferred stock 3,906,466 3,974,050 Corporate bonds and notes 1,459,237 1,538,998 Mutual and equity funds: Equities 20,016,104 18,713,465 Fixed income 96,141 100,746 Exchange traded funds 16,179 18,361 Real estate investment trust 44,118 56,055 Hedge funds 2,000,000 1,923,801 $ 29,640,533 $ 28,429,394-8-
The Foundation s investment income, net of investment income and gains allocated to funds held for others, consist of the following for the year ended December 31, 2009: 2009 Interest and dividend income $ 555,879 Net realized gain (loss) on investments (886,454) Net unrealized gain (loss) on investments 4,408,128 $ 4,077,553 The Foundation paid investment fees of approximately $42,425 in 2009. NOTE 5 FAIR VALUE MEASUREMENTS The accounting standards establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1 financial instruments with quoted prices in active markets for identical assets or liabilities. Level 2 financial instruments with valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 3 financial instruments that are not actively traded on a market exchange and require using significant unobservable inputs in determining fair value. The inputs into the determination of fair value require significant judgment or estimation by the investment manager. The following tables summarize the valuation of the Foundation s financial assets and liabilities measured at fair value as of December 31, 2009, based on the level of input utilized to measure fair value: Fair value measurements at December 31, 2009 using Quoted prices in active markets for Quoted prices Significant identical assets for similar assets unobservable Fair value at and liabilities and liabilities inputs Assets measured at fair value December 31, 2009 (Level 1 inputs) (Level 2 inputs) (Level 3 inputs) Cash and cash equivalents $ 2,035,595 $ 2,035,595 $ - $ - Certificates of deposit 42,005 42,005 - - U.S. Government obligations 26,318 26,318 - - Common and preferred stock 3,974,050 3,851,950-122,100 Corporate bonds and notes 1,538,998 1,538,998 - - Mutual and equity funds Equities 18,713,465 18,713,465 - - Fixed income 100,746 100,746 - - Exchange traded funds 18,361 18,361 - - Real estate investment trust 56,055 56,055 - - Hedge funds 1,923,801 - - 1,923,801 Total investments 28,429,394 26,383,493-2,045,901 Interest held in charitable remainder trust 1,081,926 - - 1,081,926 Total assets at fair value $ 29,511,320 $ 26,383,493 $ - $ 3,127,827 Liabilities measured at fair value Funds held for others $ 4,840,216 $ 4,840,216 $ - $ - Total liabilities at fair value $ 4,840,216 $ 4,840,216 $ - $ - -9-
The table below sets forth a summary of changes in the fair value of the Foundation s Level 3 assets for the year ended December 31, 2009: Common and Preferred Stock Hedge Funds Charitable Remainder Trust Total Beginning balance at January 1, 2009 $ 66,160 $ 1,706,068 $ 969,863 $ 2,742,091 Total gains or losses (realized and unrealized) 51,655 217,733 183,011 452,399 Purchases, sales, issuances and settlements 4,285 - - 4,285 Transfers in/out of Level 3 - - (70,948) (70,948) Ending balance at December 31, 2009 $ 122,100 $ 1,923,801 $ 1,081,926 $ 3,127,827 NOTE 6 WALTER D. JOHNSON, JR. TRUST The Foundation is the trustee for the Walter D. Johnson, Jr. Trust. This trust, which has assets of $166,289, was established in order to make grants for education in the field of social services. In 2009, grants totaling $8,055 were made. The assets of the Walter D. Johnson, Jr. Trust are not included in these financial statements. NOTE 7 BENEFICIAL INTEREST TRUST The Foundation is the beneficiary of a trust administered by a bank. The assets of the trust are not included in the Statement of Financial Position of the Foundation since the Foundation does not exercise any control over those funds. The income from the trust is distributed to the donor annually. The market value of the trust s assets at December 31, 2009 was $142,304. NOTE 8 PROPERTY AND EQUIPMENT Property and equipment at December 31, 2009 are summarized below: Land $ 818,000 Equipment 51,748 869,748 Less: accumulated depreciation 49,000 $ 820,748 NOTE 9 OPERATING LEASES The Foundation has noncancelable operating leases for equipment that expire in 2009 and 2012. Rental expense for those leases was approximately $8,359 for the year ended December 31, 2009. Also, the Foundation has an agreement to lease office space through May 2012. Rental expense under this lease was $33,302 in 2009. Future minimum lease payments under operating leases that have remaining terms in excess of one year as of December 31, 2009 are: 2010 $ 39,116 2011 39,900 2012 17,636 $ 96,652-10-
NOTE 10 EMPLOYEES RETIREMENT SAVINGS PLAN The Foundation has a defined contribution retirement savings plan for all regular full-time employees who are a minimum of twenty-one years of age. Under the plan, employees may contribute up to 15% of their annual compensation. The Foundation also contributes 10% of the participants compensation. The Foundation contributed $31,537 to the Plan during the year ended December 31, 2009. NOTE 11 CHARITABLE REMAINDER TRUSTS The Foundation administers various charitable remainder trusts which provide for the payment of distributions to designated beneficiaries over the trusts term (usually the designated beneficiary s lifetime). At the end of the trusts term, the remaining assets are available for the Foundation s use. The portion of the trust attributable to the present value of the future benefits to be received by the Foundation is recorded in the Statement of Activities as a temporarily restricted contribution in the period the trusts are established. Assets held in the charitable remainder trusts totaled $1,081,926 at December 31, 2009. On an annual basis, the Foundation revalues the liability to make distributions to the designated beneficiaries based on actuarial assumptions. The present value of the estimated future payments ($824,067 at December 31, 2009) is calculated using a discount rate of 7% and applicable mortality tables. Also, various donors have established trusts with local financial institutions, naming the Foundation as the beneficiary of charitable remainder trusts. Under the terms of the splitinterest agreement, at the time of the donor s death, the trusts terminate and trust assets are distributed to the Foundation. Based on donor life expectancy and the use of a 7% discount rate, the present value of future benefits expected to be received by the Foundation is estimated to be $286,942, which is reported as temporarily restricted net assets and a contribution receivable from charitable remainder trusts in 2009. The Foundation also recorded amortization of the discount on the estimated present value of future benefits of $13,061 in 2009. NOTE 12 FUNDS HELD FOR OTHERS The Foundation receives and distributes assets under certain agency and intermediary agreements. Amounts received and distributed under these agreements for 2009 totaled $64,963 and $49,593, respectively. Additionally, investment gains and expense for 2009 allocated to agency funds totaled $877,945 and $39,535, respectively. The related amounts received but not yet distributed totaled $4,840,216 for 2009, and are included in funds held for others. NOTE 13 COMMITMENTS The Foundation has granted conditional scholarships to thirteen students through 2010. The aggregate commitment under these agreements is approximately $129,000 at December 31, 2009. The Foundation made a conditional promise to give a not-for-profit organization up to $100,000 per year for five years, 2006 through 2010. The Foundation s board must approve the gift each year. The recipient organization must submit each year detailed information on the governance, facility, operation, and budget. This conditional promise will be recorded annually when approved by the Foundation s board. -11-
NOTE 14 OBLIGATION UNDER AGREEMENT WITH THIRD PARTY During 2004, County Council of Greenville, South Carolina (the County ) requested that the Foundation s Board of Directors authorize the Foundation to enter into an arrangement, with a commercial bank serving the Greenville market, for the purpose of expediting the transfer of funds to several charitable organizations for use by the beneficiary organizations to enhance their charitable activities in the Greenville community. In conjunction with the County s request to the Foundation, the County approved certain appropriations of the County s local accommodations tax revenues to repay the debt which was expected to arise from the arrangement. As a result of the above noted request from the County, the Foundation executed a loan agreement and a nonrecourse promissory note repayable to the bank bearing interest at the annual rate of 5.2% and repayable in quarterly payments of $36,580 including interest through 2021. After the related documents were executed, the proceeds of the bank loan were disbursed by the Foundation to the beneficiary organizations in accordance with the request from the County. As also evidenced by the loan agreement and the promissory note, the bank and the Foundation have agreed and each has acknowledged that the Foundation is obligated to repay the promissory note balance and accrued interest thereon only to the extent that the Foundation has received the necessary appropriation of local accommodations tax revenues therefore from the County. The beneficiary organizations have executed agreements whereby the beneficiary organizations individually will indemnify and hold harmless the Foundation with respect to this arrangement and each beneficiary organization has represented and warranted to the Foundation that it is a qualified public charity under the Internal Revenue Code. The Foundation has included the unpaid balance of the promissory note in the Foundation s liabilities in the accompanying statements of financial position under Obligations under agreement with third parties. Further, to give effect to the amounts expected to be funded by the County to repay the unpaid principal, a corresponding asset in an amount equal to the unpaid principal balance of the promissory note is also included in the Foundation s assets and reported in the accompanying statements of financial position under Expected collection under agreement with third parties. In the event, expected to be unlikely, that the County does not appropriate sufficient funds to repay the contractual principal and interest payment as such become due, the loan agreement and promissory note shall immediately terminate without penalty or expense to the Foundation of any kind whatsoever. Future maturities of the promissory note are as follows: 2010 $ 82,367 2011 86,735 2012 91,290 2013 96,212 2014 101,278 Thereafter 802,676 $ 1,260,558 NOTE 15 CASH SURRENDER VALUE LIFE INSURANCE The Foundation is the owner and beneficiary of insurance policies on the lives of certain supporters of the Foundation with face amounts totaling $2,175,000 at December 31, 2009. The cash surrender value of these policies amounted to $235,501 at December 31, 2009. -12-
NOTE 16 FUNCTIONAL ALLOCATION OF EXPENSES The costs of providing the various programs and activities have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. NOTE 17 ENDOWMENT ASSETS See Adoption of New Accounting Standard in Note 2 for discussions of the methodologies and assumptions used to determine the fair value of the Foundation s investments. The Foundation s endowment consists of approximately 34 individual funds established for a variety of purposes including both donor-restricted endowment funds and funds designated by the Board of Directors to function as endowments. Net assets associated with endowment funds, including funds designated by the Board of Directors to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law The Board of Directors of the Foundation has interpreted the Uniform Prudent Management of Institutional Funds Act ( UPMIFA ) enacted July 1, 2008 in the State of South Carolina as requiring the preservation of the fair value of the original gift as of the date of the donorrestricted 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 the gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulation of earnings required to be added to the permanent endowment as stipulated by the donor-applicable donor gift instrument. 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 the Act. In accordance with the Act, the Foundation considers the following factors in making a determination to appropriate or accumulate donorrestricted endowment funds: 1. The duration and preservation of the fund. 2. The purposes of the Foundation and the donor-restricted endowment fund. 3. General economic conditions. 4. The possible effect of inflation and deflation. 5. The expected total return from income and the appreciation of investments. 6. Other resources of the Foundation. 7. The investment policies of the Foundation. Endowment net assets consist of the following at December 31, 2009: Unrestricted Temporarily Restricted Permanently Restricted Donor-restricted endowment funds $ - $ 2,718,556 $ 1,895,523 Board-designated endowment funds 2,693,166 - - Total endowed net assets $ 2,693,166 $ 2,718,556 $ 1,895,523-13-
Changes in endowment net assets for the year ending December 31, 2009 are as follows: Temporarily Permanently Unrestricted Restricted Restricted Donor-restricted endowment funds $ - $ 2,082,940 $ 1,877,486 Board-designated endowment funds 2,315,035 - - Total endowed net assets 2,315,035 2,082,940 1,877,486 Net asset reclassification based on change in law (1,279) 1,279 - Endowment net assets after reclassification 2,313,756 2,084,219 1,877,486 Investment return: Investment income 52,235 64,077 637 Realized losses (78,517) (149,132) (1,814) Net appreciation (depreciation) 420,506 798,694 9,714 394,224 713,639 8,537 Contributions 128,908 26,050 9,500 Appropriation of endowment assets for expenditure (143,722) (105,352) - Endowment net assets, December 31, 2009 $ 2,693,166 $ 2,718,556 $ 1,895,523 Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or UPMIFA requires the Foundation to retain as a fund of perpetual duration. In accordance with accounting principles generally accepted in the United States of America, deficiencies of this nature are reported in unrestricted net assets. The aggregated deficiencies of this nature for all donor-restricted endowment funds totaled $192,959 as of December 31, 2009. Return Objectives and Risk Parameters The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a relatively predictable, stable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the Foundation must hold in perpetuity or for a donor-specified period as well as board-designated funds. As authorized by Board-approved policies, these assets are invested to maximize long-term returns, while simultaneously mitigating risk through maintaining a diversified portfolio. A multi-generational window not only allows for the typical diversification across asset classes, but also for time diversification across both up and down markets. The assets are invested in a manner that is intended to produce results that meet or exceed the composite return and are within the risk parameters of an appropriate benchmark that corresponds to each fund goal. The long-term objective is to attain, within acceptable risk parameters, an average annual total return that exceeds the sum of the Foundation s approved payout rate plus inflation, plus investment management and related fees. The objective is expected to be obtained over time but not in each and every reporting period. Strategies Employed for Achieving Objectives To address 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 targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term objectives within prudent risk constraints. -14-
Spending Policy and How the Investment Objectives Relate to Spending Policy The Foundation s spending policy appropriates for distribution each year a certain percentage of its endowment funds average fair value for the prior three years through the fiscal yearend preceding the fiscal year in which the distribution is planned. In establishing this policy, the Foundation considered the expected return on its endowment. The goal of such spending policy is to allow the endowment to maintain its purchasing power, achieve a reasonable degree of stability and predictability in income availability for operations and to achieve a balance between present and future needs. Real growth is achieved through new gifts and any excess investment return. NOTE 18 NET ASSETS Description of amounts classified as permanently restricted net assets and temporarily restricted net assets: 2009 Permanently restricted net assets: The portion of endowment funds that is required to be retained permanently either by explicit donor stipulation or by UPMIFA $ 1,895,523 Total permanently restricted net assets $ 1,895,523 Temporarily restricted net assets: The portion of endowment funds subject to a time restriction under UPMIFA: Without purpose restrictions for spending $ 224,039 With purpose restrictions for spending 2,494,517 Total endowment funds classified as temporarily restricted net assets 2,718,556 Net split-interest agreements and contributions receivable 544,801 Total temporarily restricted net assets $ 3,263,357 NOTE 19 CHANGE IN ACCOUNTING PRINCIPLE As disclosed in Note 2, adoption of new accounting standards, the Foundation adopted the provisions of FASB ASC 958-205-50-1A, Reporting Endowment Funds (precodification, FASB Staff FSP 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 for All Endowment Funds. ) This standard requires gifts and accumulated appreciation with a donor-imposed restriction and functioning as board-designated endowments to be classified as temporarily or permanently restricted net assets effective July 1, 2008. The cumulative effect of this change reclassifies unrestricted net assets of $1,279 to temporarily restricted net assets. NOTE 20 RECLASSIFICATIONS During the year ended December 31, 2009, the Foundation determined that only a portion of the funds previously reported as permanently restricted are subject to UPMIFA. As a result, the Foundation transferred the remaining portion, $7,696,221, of these accounts to unrestricted net assets. -15-
The Foundation previously recorded contributions to donor advised, field of interest, and scholarship funds as temporarily restricted net assets, however, U.S. generally accepted accounting principles require that these funds, whereby the Board has variance power over the corpus, be recorded as unrestricted net assets. Accordingly, the Foundation reclassified these funds, totaling $9,061,823, to unrestricted net assets as of December 31, 2009. NOTE 21 SUBSEQUENT EVENTS Subsequent events have been evaluated through September 1, 2010, which is the date the financial statements were available to be issued. -16-