National Yiddish Book Center FINANCIAL STATEMENTS for the year ended August 31, 2016
STATEMENT OF FINANCIAL POSITION August 31, 2016 ASSETS Cash and cash equivalents... $ 2,472,232 Restricted cash... 208,853 Investments... 24,603,458 Pledges receivable, net... 6,560,783 Inventories... 70,144 Investment in digitized books... 1,581,268 Property and equipment, net... 8,937,346 TOTAL ASSETS... $ 44,434,084 LIABILITIES AND NET ASSETS Liabilities Charitable gift annuities... $ 45,699 Accrued expenses... 148,290 Deferred revenue... 2,600 Total liabilities... 196,589 Net Assets Unrestricted Undesignated... 15,066,293 Board designated... 12,146,654 Total unrestricted... 27,212,947 Temporarily restricted... 457,491 Permanently restricted... 16,567,057 Total net assets... 44,237,495 TOTAL LIABILITIES AND NET ASSETS... $ 44,434,084 See notes to financial statements. 3
STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS for the year ended August 31, 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Revenues Memberships... $ 1,344,255 $ 1,344,255 Program income... 217,231 217,231 Sales... 101,439 101,439 Gifts, bequests and contributions... 2,990,186 $ 895,286 $ 332,965 4,218,437 Present value discount adjustment... (10,897) 8,439 (33,075) (35,533) Dividends and interest... 171,192 339,447 510,639 Unrealized/realized gain on investments... 661,132 585,893 1,247,025 Loss on disposal of property and equipment... (49,797) (49,797) Other... 18,096 18,096 Change in split interest... (4,523) (4,523) Change in collections policy (See Note 14)... (4,100,000) (4,100,000) Net assets released from restrictions... 5,678,105 (5,678,105) Total revenues... 7,020,942 (3,853,563) 299,890 3,467,269 Expenses Salaries and wages... 2,283,726 2,283,726 Payroll taxes... 148,016 148,016 Employee benefits... 352,564 352,564 Education and training... 85,149 85,149 Direct mail... 299,632 299,632 Printing, postage and publications... 303,434 303,434 Bank charges... 46,960 46,960 Insurance... 57,881 57,881 Travel and special events... 255,088 255,088 Consulting and professional fees... 255,026 255,026 Contract services... 242,533 242,533 Supplies and equipment... 98,807 98,807 Facilities and occupancy... 237,401 237,401 Depreciation... 400,628 400,628 Grant expense... 54,144 54,144 Systems and technology expenses... 263,219 263,219 Cost of goods sold... 50,793 50,793 Miscellaneous expenses... 92,427 92,427 Total expenses... 5,527,428 5,527,428 Change in net assets... 1,493,514 (3,853,563) 299,890 (2,060,159) Net assets, beginning of year, as previously reported... 25,957,039 4,311,054 16,267,167 46,535,260 Prior period adjustment (See Note 13)... (237,606) (237,606) Net assets, beginning of year, as restated... 25,719,433 4,311,054 16,267,167 46,297,654 Net assets, end of year... $ 27,212,947 $ 457,491 $ 16,567,057 $ 44,237,495 See notes to financial statements. 4
STATEMENT OF CASH FLOWS for the year ended August 31, 2016 Cash flows from operating activities Change in net assets... $ (2,060,159) Adjustments to reconcile the change in net assets to net cash provided by operating activities: Change in collections policy... 4,100,000 Net unrealized and realized gain on investments... (1,247,025) Loss on disposal of property and equipment... 49,797 Change in present value discount... 35,533 Depreciation... 400,628 Contributions restricted for endowment... (332,965) (Increase) decrease in operating assets Pledges receivable, net... (57,955) Inventories... (6,072) Accrued liabilities... 17,813 Deferred revenue... 2,600 Net cash provided by operating activities... 902,195 Cash flows from investing activities Purchases of investments, net... (873,983) Purchases of property and equipment... (90,919) Net cash used in investing activities... (964,902) Cash flows from financing activities Contributions restricted for endowment... 332,965 Change in charitable gift annuity... (2,900) Net cash provided by financing activities... 330,065 Net change in cash and cash equivalents... 267,358 Cash and cash equivalents, beginning of year... 2,413,727 Cash and cash equivalents, end of year... $ 2,681,085 See notes to financial statements. 5
NOTES TO FINANCIAL STATEMENTS 1. Nature of Activities The National Yiddish Book Center (the Center ) is a non-profit organization working to advance a more complete understanding of modern Jewish culture by recovering Yiddish and other Jewish cultural treasures and sharing their content with the world. The primary activities include the ongoing rescue of Yiddish books and materials; the distribution of artifactual books to libraries and individuals; the posting of most Yiddish titles online through the Steven Spielberg Digital Yiddish Library; cultural preservation through the collection of oral histories; online courses and other educational programs; experiential educational opportunities for young people; teacher leadership training; an ongoing translation program; and a wide range of related programs and publications. 2. Summary of Significant Accounting Policies Basis of Accounting The financial statements of the Center have been prepared on the accrual basis of accounting under generally accepted accounting principles in the United States. Liquidity A statement of financial position that sequences assets and liabilities upon their relative liquidity is presented. Revenue Recognition The Center recognizes membership revenue when billed and direct sales revenue is recognized at the time of the sale. Classification of Revenues and Expenses Revenues are reported as increases in unrestricted net assets unless use of the related asset is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Expirations of temporary restrictions on nets assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications between the applicable classes of net assets. 6
Cash and Cash Equivalents The Center considers all highly liquid investments with maturities of three months or less to be cash equivalents, except those that are purchased within the Center s investment accounts. The Center maintains its cash balances in financial institutions. These balances are insured by the Federal Deposit Insurance Corporation ( FDIC ) up to $250,000. The Center has not experienced any losses on these accounts. The Center believes it is not exposed to any significant credit risk on cash. Classification of Revenues and Expenses Contributions, including unconditional promises to give, are recognized as revenues in the period received. Promises to give that are scheduled to be received after the statement of financial position date, or are restricted by the donor to a specific purpose which has not been met as of the statement of financial position date, are shown as increases in temporarily restricted net assets. This revenue is reclassified to unrestricted net assets when the time or purpose of the restrictions are met. Promises to give which are restricted for endowments by the donor are recorded as increases in permanently restricted net assets. The Center reports gifts of land, buildings, and equipment as unrestricted support unless explicit donor stipulation defines how the assets must be used. Gifts of long-lived assets with explicit restrictions that specify how assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about how these assets must be maintained, the Center reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service. Dividends, interest and net gains or losses on investments of endowments and similar funds are reported as follows: i. as increases in permanently restricted net assets if the terms of the gift or the Center s interpretation of relevant state law requires that they be added to the principal of a permanent endowment fund; ii. as increases in temporarily restricted net assets if the terms of the gift or the Center s interpretation of relevant state law imposes restrictions on the current use of the income or net gains; and iii. as increases in unrestricted net assets in all other cases 7
Investments including endowments Investments are stated at fair value using methodologies as discussed in Fair Value Measurements (Note 5). Gains and losses that result from market fluctuations are recognized in the period such fluctuations occur. Realized gains and losses resulting from sales or maturities are calculated on a specific identification basis. Dividend and interest income are accrued when earned. Investment activity is reported as increases and decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. Investment securities are exposed to various risks, such as interest rate, market and credit. Due to the level of uncertainty related to changes in interest rates, market volatility and credit risks, it is at least reasonably possible that changes in these risks could materially affect the fair value of investments and related activity reported on the financial statements. The Center s investments consist of donor restricted endowment funds and funds functioning as quasi-endowment funds (Note 4). Donor restricted endowments consist of gifts received with a donor stipulation that require the funds to be invested in perpetuity. Quasi-endowment funds consist of board designated funds which are internally designated. Professional accounting standards provide 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 Massachusetts Uniform Prudent Management of Institutional Funds Act statute ( UPMIFA ), which serves as a model act for states to modernize their laws governing donor restricted endowment funds. The Board has interpreted UPMIFA, as adopted by the Commonwealth of Massachusetts, 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 Center classifies as permanently restricted net assets, the original value of gifts donated 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 Center in a manner consistent with the standard of prudence prescribed by UPMIFA. The Center considers the following factors in making a determination to appropriate or accumulate donor restricted endowment funds; the duration and preservation of the funds, the purpose of the Center and 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 Center, and the investment policies of the Center. 8
Investments including endowments, Continued UPMIFA allows prudent appropriation of the total return on donor restricted endowment funds taking into consideration the Center s long and short-term needs, present and anticipated financial requirements, expected future total return on its investments, price level trends and general economic conditions. The Board has authorized a spending policy for its endowment where the Center may avail up to 4% of the endowments average market value for the sixteen preceding quarters. This policy is designed to preserve the value of donor restricted endowment funds in real terms (after inflation) and to provide a predictable flow of funds to support operations. Total return utilized under this policy was $791,846 for the year ended August 31, 2016. Charitable gift annuities The Center has irrevocable agreements with donors whereby in exchange for the gift from the donor, the Center is obligated to provide an annuity to the donor for the remainder of their life with any remainder at death reverting to the Center. The liability is recognized for the estimated present value of the annuity obligation at the time of the gift and the investment is recorded at market value. The portion attributable to the present value of the future benefits to be received by the Center is recorded in the Statement of Activities as a temporarily restricted contribution in the period the obligation is established. Assets held in restricted investments or cash totaled $87,178 as of August 31, 2016, and are reported at fair market value in the Center s Statement of Financial Position. The present value of the estimated future payments ($45,699 at August 31, 2016) is calculated using a discount rate ranging from 4.90% - 9.00% and applicable mortality tables. Circumstances affecting these estimates can change the estimate of the liability in future periods. At August 31, 2016, the Center had $113,464 set aside to comply with various state requirements for a minimum reserve. The assets were held in separate and distinct funds. This amount is included in investments as of August 31, 2016. Pledges Receivable Pledges receivable are recorded at the aggregate unpaid amount less any allowance for doubtful accounts and present value discount. The allowance is based on prior years experience and management s analysis of the accounts. Contributions to be received after one year are discounted. Inventories Inventory consisting of books and merchandise are stated at the lower of cost (determined on an average cost bassis) or market. Gross revenues from sales of inventory was $101,439 and total cost of sales was $50,793 for 2016. 9
Investments in digitized books Digitization of books are stated at cost, including capitalization of certain expenses directly related to the program. Property and Equipment Property and equipment are carried at cost less accumulated depreciation. Additions, renewals, and replacements over $2,000 for computers and over $5,000 for all other assets are capitalized. Maintenance and repairs are expensed as incurred. The Center evaluated the carrying value of its long-lived assets and no impairment was recorded. Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives of the assets as follow: Buildings Land improvements Furniture and equipment Computer equipment and software 40 years 20 years 7 years 3-5 years Net Assets In order to ensure observance of limitations and restrictions placed on the use of the resources available to the Center, the accompanying financial statements are classified for accounting and reporting purposes into classes of net assets in accordance with the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified as follows: Unrestricted net assets Net assets not subject to donor-imposed stipulations and include the Center s operating and property and equipment accounts. The Board of Directors has designated funds to be used for general operations. Temporarily restricted net assets Net assets subject to donor-imposed stipulations that may or will be met by actions of the Center pursuant to those stipulations or that expire by the passage of time. Realized and unrealized gains and losses on permanently restricted assets are reported as temporarily restricted net assets in accordance with donor stipulations and Massachusetts law. 10
Net Assets, Continued Permanently restricted net assets Net assets subject to donor-imposed stipulations that they be maintained permanently by the Center. Generally, the donors of these assets permit the Center to use all or part of the income earned on related investments for specific purposes or operations. Permanently restricted net assets are primarily composed of the Center s permanent endowment funds. Contributed materials, equipment, and services Donated materials, equipment, and services are recorded as contributions in the year received at their estimated fair values at date of receipt if an objective basis is available to measure such values. Such donations are reported as unrestricted support unless the donor had restricted the donated assets to a specific purpose. The Center pays for most services requiring specific expertise. However, various individuals have chosen to volunteer their time and perform a variety of tasks to assist the Center. The value of this contributed time and service is not reflected on these statements since it is not susceptible to objective measurement or valuation. There was $500 of donated services received for the year ended August 31, 2016. Collections policy In accordance with the practice usually followed by organizations that maintain collections, the Center does not carry its collections on the statement of financial position. Since items acquired for collections by purchase are not capitalized, the cost of those acquisitions are reported as decreases in the net assets in the statement of activities. The proceeds from items disposed of are reported as increases in the appropriate class of net assets in the statement of activities. Tax-exempt status The Center is a nonprofit organization exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code and it qualifies for the charitable contribution deduction under Section 170 (b)(1)(a) and has been classified as an organization that is not a private foundation under Section 509(a)(2). Accordingly, no provision for income taxes is made in the accompanying financial statements. Uncertain tax positions Management has evaluated significant tax positions against the criteria established by professional standards and believes there are no tax positions requiring accounting recognition. The Center s tax returns are subject to examination by taxing authorities for all years ending after August 31, 2013. 11
Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimated and assumptions that affect certain reporting amounts and disclosures. Accordingly, actual results could differ from those estimates. Subsequent Events The Center has evaluated subsequent events through November 15, 2016, which is the date the financial statements were available to be issued. There were no material subsequent events which required recognition or disclosure. 3. Investments The Board of Directors of the Center, as the governing authority, is responsible for oversight of the Center s investments. Establishment and implementation of investment policy, including the establishment of investment guidelines and the selection of investment managers, has been delegated by the Board of Directors to its Investment Committee. Investments authorized by the Investment Committee include marketable equity and fixed income securities and other types of investments that may be made with the prior approval of the Investment Committee. The Center s investment portfolio consists of an investment pool in which a number of individual funds participate in order to benefit from the diversification and economies of scale. Funds added or withdrawn from the pool are recorded at their share of the then current value of the pool. Investment income is recognized and posted on a monthly basis. From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the level the donor requires to be retained for perpetual funds. The historic gift value of donor restricted endowment funds cannot be reduced for any excess losses. Any excess losses shall reduce temporarily restricted net assets to the extent there is net appreciation on the related funds. Any remaining excess losses shall reduce unrestricted net assets. At August 31, 2016, there were no cumulative losses on the investments of donor restricted endowment funds. Investments, at August 31, 2016 are stated at market value as follows: Cost Market Donor restricted $ 12,256,162 $ 16,365,953 Board designated 6,002,261 8,036,863 Charitable gift annuities 198,516 200,642 $ 18,456,939 $ 24,603,458 12
Investments, Continued Total investment income for the year ended August 31, 2016 is as follows: Interest and dividend income $ 510,639 Realized and unrealized gain on investment 1,247,025 Total investment income $ 1,757,664 Investment management and broker fees were $5,822 for the year ended August 31, 2016. 4. Endowment Endowments by net asset class and type at August 31, 2016 consist of: Temporarily Permanently Unrestricted Restricted Restricted Total Board designated funds $ 8,036,863 $ 8,036,863 Donor restricted endowment funds $ 4,109,791 $ 12,256,162 16,365,953 Balance, August 31, 2016 $ 8,036,863 $ 4,109,791 $ 12,256,162 $ 24,402,816 The following schedule reconciles the change in endowments by net asset class for the year ended August 31, 2016: Temporarily Permanently Unrestricted Restricted Restricted Total Endowments, August 31, 2015 $ 7,418,429 $ 3,480,351 $ 11,378,953 $ 22,277,733 Investment income 167,419 337,534 504,953 Realized and unrealized gains 408,300 828,410 1,236,710 Contributions - cash received 298,057 877,209 1,175,266 Spending policy - operations (255,342) (245,851) (501,193) Spending policy - programs (290,653) (290,653) Endowments, August 31, 2016 $ 8,036,863 $ 4,109,791 $ 12,256,162 $ 24,402,816 13
5. Fair Value Measurements The Center follows established guidelines for a fair value hierarchy that prioritizes the inputs used to measure their value. An asset or liability s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 Level 2 Quoted prices (unadjusted) in active markets for identical assets or liabilities. Market price is generally obtained from exchange or dealer markets. Inputs to the valuation methodology include: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets; Inputs other than quoted prices that are observable for the asset or liability; Inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at August 31, 2016. 14
Fair Value Measurements, Continued Assets and liabilities measured at fair value on a recurring basis at August 31, 2016 were as follows: Description Level 1 Level 2 Level 3 Total Mutual Funds Index fund $ 17,230,221 $ 17,230,221 Bond fund 7,373,237 7,373,237 $ 24,603,458 $ $ $ 24,603,458 Mutual funds are reported at fair value based on quoted market prices. 6. Pledges Receivable A summary of unconditional promises to give at August 31, 2016 is as follows: Due within one year $ 151,080 Due between one and five years 2,227,856 Due after five years 5,106,947 7,485,883 Present value discount (925,100) Pledge receivable, net $ 6,560,783 The discount rate used on long-term pledges ranged from 1.75% - 2.65%. 15
7. Property and Equipment A summary of property and equipment at August 31, 2016 is as follows: Land $ 200,000 Land improvements 270,730 Building 10,735,500 Furniture and equipment 732,597 Website 266,905 Computer equipment 69,125 12,274,857 Accumulated depreciation (3,937,147) 8,337,710 Exhibits 599,636 $ 8,937,346 8. Borrowings under line of credit The Center has a $1,500,000 line of credit which is due on demand and bears interest at the prime rate. The line of credit is collateralized by all assets of the Center and is subject to annual renewal every January. As of August 31, 2016, there were no borrowings against the line of credit. The prime rate at August 31, 2016 was 3.50%. 9. Lease commitments The Center leases warehouse space for the storage of books through December 2022. Rent expense was $27,404. Future minimum rental commitments are as follows: 2017 $ 21,600 2018 25,920 2019 31,104 2020 37,320 2021 44,784 Thereafter 53,736 $ 214,464 16
10. Restrictions and Limitations of Net Assets Details of net assets at August 31, 2016 are as follows: Temporarily restricted Translation project $ 125,000 Tent program 82,160 Great Jewish Books 139,147 Yiddish text 69,706 Charitable gift annuities $ 41,478 457,491 Permanently restricted Operational support $ 8,103,752 Programming 259,749 Education/Translation 384,940 Cultural fellows 750,452 Oral history 499,994 Virtual Yiddish Library 200,000 NEH - operations 2,000,000 Steiner program 2,827,737 Pakn Treger endowment 1,540,433 $ 16,567,057 Temporarily restricted net assets released from restrictions for the Center s activities were for the following purposes: Translation program $ 131,582 Wexler Oral History Project 443,064 Steiner Program 199,021 Fellows 152,712 Great Jewish Books 325,741 Yiddish Text 91,652 Teacher Workshops 96,025 NEH Grant 99,442 Virtual Yiddish Library 10,285 Charitable gift annuities 18,790 Accumulated endowment earnings $ 4,109,791 5,678,105 17
11. Retirement Plans A defined contribution retirement plan is provided by the Center through the Teachers Insurance and Annuity Association-College Retirement Equities Fund ( TIAA-CREF ). All employees are eligible to participate in the plan after completion of one year of service, which requires at least 1,000 hours of service. Each eligible participant will receive a contribution equal to 5% of their compensation. In addition, the Center will match 100% of a participant s contribution up to 2%. The cost to the Center for the year ended August 31, 2016 was $127,351. The Center also offers a tax-deferred annuity plan through TIAA-CREF. All employees can participate in the plan immediately following employment at the Center. Participation is voluntary and the employee s contributions are subject to the limits imposed by Section 415 and Section 403(b) of the Internal Revenue Code. 12. Related Party Transactions Several members of the Board of Directors made contributions during the year. In 2016, the contributions from these members totaled $172,379. Pledge receivable balances from Board members were $7,016,777. Certain members of the Board of Directors provided services to the Center. The center paid a member $3,683 for the year ended August 31, 2016. 13. Prior period adjustment Beginning net assets for the year ended August 31, 2016 has been restated by $237,606 to properly account for the accumulated depreciation on property and equipment as of August 31, 2015. 14. Change in collections policy At its August 16, 2016 Board of Directors meeting, the Board of Directors unanimously approved the Center change its accounting practice regarding the capitalization of its book collection as of September 1, 2015. The Financial Standards Accounting Board Accounting Standards Codification topic 958-360-25-3 provides for the accounting treatment of historical treasures and works of art which meet the definition of a collection. Under this standard both accounting methods (capitalization or non capitalization) are considered acceptable generally accepted accounting principles. 18
Change in collections policy, Continued As of August 31, 2015, the collections balance recognized on the statement of financial position was $4,100,000. Accordingly, as of September 1, 2015, Management changed its practice of capitalized book collection and recognized a cumulative effect accounting change of $4,100,000. As a cumulative effect accounting change between two acceptable accounting methods, the Center s collections account have been reduced to zero and net assets were reduced correspondingly. 19