Consolidated Financial Report 12.31.2009 McGladrey & Pullen, LLP is a member firm of RSM International, an affiliation of separate and independent legal entities.
Officers Alfred W. Gwinn, Jr. Resident Bishop James L. Bryan Secretary Christine Dodson Treasurer Council on Finance and Administration Danny Allen President Sheila Ahler Vice President Sylvia Harriss Secretary
Contents Independent Auditor's Report on the Financial Statements and Supplementary Information 1 Financial Statements Consolidated statements of financial position 2 Consolidated statements of activities Consolidated statements of cash flows 5 Notes to consolidated financial statements Supplementary Information Consolidating statement of financial position 21 Statement of financial position, Conference 22 Statement of activities, Conference 23 Statement of financial position, District Superintendent Offices 24 Statement of activities, District Superintendent Offices 25 Statement of financial position, Board of Missions, Inc. 26 Statement of activities, Board of Missions, Inc. 27 Statement of financial position detail, Conference Statement of activities detail, Conference Statement of financial position detail, summary of investments, Conference 52 Detail schedules of central and special fund activities, Conference: Schedules 1. Equitable Compensation 2. Emerging Church Support 3. Joint Committee on Incapacity 57 4. Annual Conference Expense 58 5. Conference Treasurer's Office Expense 59 6. Staff Parsonage Maintenance 60 7. Connectional Ministries Office, Meetings and Programs 61 8. Connectional Ministries, Staff Salaries 62 9. Connectional Ministries, Task Forces 63 10. Commission on Education 64 11. Commission on Laity 65 12. Commission on Evangelism 66 13. Commission on Church and Society 67 14. Golden Cross Fund 68 15. Commission on Missions and Outreach Ministries 69 (Continued)
Contents Schedules (Continued) 16. Chaplaincy Support Program 70 17. Board of Ordained Ministry 71 18. Commission on Communications 72 19. Media Center 73 20. Central Supplies 74 21. Youth Activities 75 22. Ten Dollar Club 76 23. Board of Pensions 77 24. Insurance 78 25. Ministerial Education Fund 79 26. Ministers' Transition Fund 80 27. Board of Trustees Fund 81 28. New Faith Communities 82 29. Contingency Reserve 83
Independent Auditor's Report To the Council on Finance and Administration North Carolina Conference, Southeastern Jurisdiction, of The United Methodist Church, Inc. Raleigh, North Carolina We have audited the accompanying consolidated statements of financial position of North Carolina Conference, Southeastern Jurisdiction, of The United Methodist Church, Inc. and affiliates as of December 31, 2009 and 2008, and the related consolidated statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the Conference's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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 audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of North Carolina Conference, Southeastern Jurisdiction, of The United Methodist Church, Inc. and affiliates as of December 31, 2009 and 2008, and the changes in their net assets and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidating and other supplementary information is presented for purposes of additional analysis of the basic consolidated financial statements rather than to present the financial position and changes in net assets of the individual entities. The consolidating and other supplementary information has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. Raleigh, North Carolina August 27, 2010 McGladrey & Pullen, LLP is a member firm of RSM International, an affiliation of separate and independent legal entities. 1
Consolidated Statements of Financial Position December 31, 2009 and 2008 Assets 2009 2008 Cash and cash equivalents $ 6,389,791 $ 6,817,395 Accounts receivable (Note 7) 3,002,940 3,121,731 Investments (Notes 2 and 12) 77,450,531 65,016,923 Mortgage loans receivable from local churches, less allowance for doubtful loans 2009 $600,000; 2008 $6,000 3,027,346 2,601,326 Other assets (Note 3) 797,520 762,066 Property and equipment, net (Notes 4 and 8) 7,714,406 4,869,772 Total assets $ 98,382,534 $ 83,189,213 Liabilities and Net Assets Liabilities: Accounts payable and accrued expenses (Notes 7 and 13) $ 3,868,959 $ 5,098,968 Agency payables 447,394 384,423 Mortgages payable (Note 8) 340,339 296,767 Accumulated postretirement benefit liability (Note 6) 43,310,544 37,798,785 Total liabilities 47,967,236 43,578,943 Commitments and Contingencies (Notes 4, 5, 6 and 9) Net assets: Unrestricted: Designated, next year's approved budget 11,670,800 11,864,166 Undesignated 31,874,606 21,606,621 Temporarily restricted (Note 10) 6,869,892 6,139,483 Total net assets 50,415,298 39,610,270 Total liabilities and net assets $ 98,382,534 $ 83,189,213 See Notes to Consolidated Financial Statements. 2
Consolidated Statement of Activities Year Ended December 31, 2009 Temporarily Unrestricted Restricted Total Revenues, gains and other support: Apportionments $ 15,174,106 $ - $ 15,174,106 Other church remittances 1,560,819-1,560,819 Restricted contributions - 2,212,664 2,212,664 Insurance premiums 7,612,744-7,612,744 Registration fees 330,630-330,630 Investment income 1,095,303 64,827 1,160,130 Unrealized appreciation on investments 10,198,490 285,534 10,484,024 Pension plan funding 6,876,267-6,876,267 Gains from sale of property (Note 13) 3,171,050-3,171,050 Grants - 2,147,348 2,147,348 Other 1,526,155 1,160 1,527,315 Total revenues, gains, and other support 47,545,564 4,711,533 52,257,097 Net assets released from donor restrictions (Note 11) 3,981,124 (3,981,124) - Expenses and distributions: Program: Mission development / spiritual formation 2,515,782-2,515,782 Episcopal 2,954,634-2,954,634 Benefit and welfare (Notes 5 and 6) 17,103,792-17,103,792 General church distributions 3,349,885-3,349,885 Disaster response and recovery 466,537-466,537 Other 7,836,525-7,836,525 Administrative 1,744,826-1,744,826 Fund raising 296,962-296,962 Total expenses and distributions 36,268,943-36,268,943 Increase in net assets from operating activities 15,257,745 730,409 15,988,154 Nonoperating: Postretirement-related changes other than net periodic postretirement cost (Note 6) (5,183,126) - (5,183,126) Change in net assets 10,074,619 730,409 10,805,028 Net assets at beginning of year 33,470,787 6,139,483 39,610,270 Net assets at end of year $ 43,545,406 $ 6,869,892 $ 50,415,298 See Notes to Consolidated Financial Statements. 3
Consolidated Statement of Activities Year Ended December 31, 2008 Temporarily Unrestricted Restricted Total Revenues, gains and other support: Apportionments $ 15,647,076 $ - $ 15,647,076 Other church remittances 1,603,719-1,603,719 Restricted contributions - 1,664,337 1,664,337 Insurance premiums 7,596,294-7,596,294 Registration fees 304,045-304,045 Investment income 1,271,934 51,807 1,323,741 Unrealized depreciation on investments (15,205,864) (499,753) (15,705,617) Pension plan funding 6,894,507-6,894,507 Gains from sale of property (Note 13) 2,062,562 805,646 2,868,208 Grants 5,000 2,330,824 2,335,824 Other 1,013,970 158,752 1,172,722 Total revenues, gains, and other support 21,193,243 4,511,613 25,704,856 Net assets released from donor restrictions (Note 11) 3,469,341 (3,469,341) - Expenses and distributions: Program: Mission development / spiritual formation 2,935,943-2,935,943 Episcopal 3,008,242-3,008,242 Benefit and welfare (Notes 5 and 6) 18,079,525-18,079,525 General church distributions 3,373,879-3,373,879 Disaster response and recovery 638,361-638,361 Other 6,908,074-6,908,074 Administrative 1,316,155-1,316,155 Fund raising 60,968-60,968 Total expenses and distributions 36,321,147-36,321,147 Increase (decrease) in net assets from operating activities (11,658,563) 1,042,272 (10,616,291) Nonoperating: Postretirement-related changes other than net periodic postretirement cost (Note 6) 13,860,743-13,860,743 Change in net assets 2,202,180 1,042,272 3,244,452 Net assets at beginning of year 31,268,607 5,097,211 36,365,818 Net assets at end of year $ 33,470,787 $ 6,139,483 $ 39,610,270 See Notes to Consolidated Financial Statements. 4
Consolidated Statements of Cash Flows Years Ended December 31, 2009 and 2008 2009 2008 Cash Flows From Operating Activities Change in net assets $ 10,805,028 $ 3,244,452 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 283,981 306,906 Provision for loans receivable 594,000 - Unrealized (appreciation) depreciation of investments (10,484,024) 15,705,617 Loss on sale of investments 8,462 19,690 (Gain) loss on disposal of property and equipment (3,171,050) (2,868,208) Changes in assets and liabilities: (Increase) decrease in accounts receivable 118,791 (394,805) (Increase) decrease in other assets (35,454) 1,010,213 Increase (decrease) in accounts payable and accrued expenses (1,230,009) 1,471,078 Increase in agency payables 62,971 26,902 Increase (decrease) in accumulated postretirement benefit liability 5,511,759 (11,768,552) Net cash provided by operating activities 2,464,455 6,753,293 Cash Flows From Investing Activities Investment in United Methodist Foundation (1,109,161) (4,601,513) Withdrawals from United Methodist Foundation 1,191,224 468,337 Purchase of other investments (12,209,468) (18,363,864) Sale of other investments 10,169,359 11,839,323 Mortgage loans originated (1,520,486) (531,223) Principal payments on mortgage loans 500,466 519,624 Acquisition of property and equipment (3,218,835) (202,374) Proceeds from sale of property and equipment 3,261,270 5,215,732 Net cash used in investing activities (2,935,631) (5,655,958) Cash Flows From Financing Activities Payments on note payable - (342,350) Net originations (payments) on mortgages payable 43,572 (14,881) Net cash provided by (used in) financing activities 43,572 (357,231) Net increase (decrease) in cash and cash equivalents (427,604) 740,104 Cash and cash equivalents: Beginning 6,817,395 6,077,291 Ending $ 6,389,791 $ 6,817,395 See Notes to Consolidated Financial Statements. 5
Notes to Consolidated Financial Statements Note 1. Nature of Business and Significant Accounting Policies The North Carolina Conference, Southeastern Jurisdiction, of The United Methodist Church, Inc. and affiliates (the Conference are incorporated in the State of North Carolina and together constitute the fundamental body of The United Methodist Church in eastern North Carolina, which under Episcopal leadership provides the mechanism for admitting and ordaining clergy, appointing itinerant pastors to churches, and supplying them with mutual support. The Conference is composed of ministerial and lay members and other individuals as required in The Book of Discipline of The United Methodist Church, which, in an annual meeting, defines the programs and responsibilities of the Church as a whole. A summary of the Conference's significant accounting policies follows: Principles of consolidation: As a result of formal affiliations and economic interdependency between the Conference and Division of Missions, Incorporated, North Carolina Annual Conference, The United Methodist Church (d/b/a Board of Missions, Inc.) and the twelve District Superintendent Offices of the Conference, the financial statements of these organizations are presented on a consolidated basis and include the accounts of all entities. All significant intercompany accounts and transactions have been eliminated in the consolidation. Basis of presentation: In preparing its financial statements, the Conference classifies net assets and revenues, expenses, gains, and losses based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the Conference and changes therein are classified and reported as follows: Unrestricted net assets Net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets Net assets subject to donor-imposed stipulations that may or will be met either by actions of the Conference and/or by the passage of time. Permanently restricted net assets Net assets subject to donor-imposed stipulations that they be maintained permanently by the Conference. At December 31, 2009 and 2008 there were no permanently restricted net assets. Revenue and support: The principal source of revenue and support is apportionments received from the local churches. Apportionments are the recommended levels of support assigned to local churches. Apportionments expire at the end of each calendar year. Local churches do not have any commitment on any underpayment of their apportionments. Cash and cash equivalents: The Conference deposits its cash in large commercial financial institutions. At times such balances may exceed the Federal depository insurance limits but the Conference believes such amounts do not represent a significant credit risk. Cash equivalents include certificates of deposit with an original maturity date of three months or less. 6
Notes to Consolidated Financial Statements Note 1. Nature of Business and Significant Accounting Policies (Continued) Accounts receivable: Since a significant dollar amount of member church support is received close to the -end, the Conference provides the member churches with a cut-off date subsequent to year-end in order for churches to fulfill their annual apportionments. Thus, the Conference recognizes accounts receivable at the dollar amount of apportionments received by the cut-off date related to the prior year. Mortgage loans receivable represent loans to local churches and are reported net of an allowance for doubtful loans. Investments: Investments in equity securities with readily determinable fair values and all investments in debt securities are stated at fair value. Changes in the fair value of investments, including both realized and unrealized gains and losses, are included in the accompanying consolidated statements of activities. In determining realized gains and losses, the cost of investments is determined using the specific-identification method. Property and equipment: Purchased land, buildings and equipment are recorded at cost, less accumulated depreciation, since 1983. Prior to 1983, if historical costs were unavailable, estimated historical costs were used. Church properties assumed by the Conference, as well as land donated to the Conference, are initially recorded at their estimated fair value at the time of receipt. Depreciation is computed using the straight-line method over the following estimated useful lives: Years Buildings 30-40 Improvements to buildings 10-40 Improvements to land 10-40 Furniture and equipment 5-15 Impairment of long-lived assets: The Conference reviews its long-lived assets, including equipment and buildings, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine the recoverability of its long-lived assets, the Conference evaluates the probability that future estimated undiscounted net cash flows will be less than the carrying amount of the assets. If such estimated cash flows are less than the carrying amount of the long-lived assets, then such assets are written down to their fair value. There has been no impairment of long-lived assets during 2009 or 2008. Postretirement benefits other than pensions: The Conference recognizes net periodic postretirement benefit cost and the accumulation of such costs as plan participants render the services necessary to earn their postretirement benefits. Plan participants include clergy members and lay staff of the Annual Conference who meet eligibility guidelines for each postretirement plan. The Conference uses an actuary to determine the actuarial present value of accumulated postretirement plan benefits. A change in plan provisions and/or the actuarial assumptions used could significantly change the amount of the accumulated postretirement benefit liability reported in the accompanying financial statements. 7
Notes to Consolidated Financial Statements Note 1. Nature of Business and Significant Accounting Policies (Continued) Estimates: In preparing its financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the statement of financial position and the reported amounts of revenues and expenses in the statement of activities for the reporting period. Actual results could differ from those estimates. Other accounting policies: The expenditures for each year are financed principally by funds received from revenue from unrestricted apportionments of the previous year. Accordingly, the revenue from apportionments shown in the accompanying statement of activities will be available for operations budgeted for the ensuing year. Insurance premiums: The Conference administers a self funded insurance program under which health benefits are provided for clergy and selected lay employees of the Conference. Insurance premium revenue and related expenses are recorded in the period for which the premium relates. Program expenses: Mission development/spiritual formation Funding is used for the work of lay and ordained Christians carrying forward the work of Christian nurture and spiritual formation, including the work of the United Methodist Youth. It also provides funding for the work of witness, outreach/missions and social justice, including the work on the United Methodist Men and United Methodist Women. Episcopal Funding is used for the work of the Bishop and Cabinet, Annual Conference program, ecumenism, Christian unity, congregational development, monitoring and accountability, and nominations. Benefit and welfare Funding is provided for pension, health insurance, disability and other benefit plans for clergy and lay employees. In addition, funding is provided for grant programs for benefit and welfare assistance for both clergy and laity within the Conference. General Church distributions Payments are made to the General Church for funding received from local churches for General Church apportionments and advance specials. Disaster response and recovery Conference. Funding is provided for disaster response and recovery efforts out of the Other Program expenses are recorded for various programs of the Annual Conference including, but not limited to, property management, accounting support for local congregations and districts, and appointive system support. Income taxes: The Conference is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code. 8
Notes to Consolidated Financial Statements Note 1. Nature of Business and Significant Accounting Policies (Continued) The Financial Accounting Standards Board has issued new guidance on accounting for uncertainty in income taxes. The Conference adopted this new guidance during the year ended December 31, 2009 with no significant impact on the consolidated financial statements. Management evaluated the concluded that the Conference had taken no uncertain tax positions that require adjustment to the consolidated financial statements to comply with the provisions of this guidance. The Conference has not been subject to income tax examinations by the U.S. federal, state or local tax authorities for any years before 2007. Reclassifications: Certain amounts in the consolidated financial statements for 2008 have been reclassified to conform to the 2009 presentation with no effect on the previously reported consolidated change in net assets or total net assets; however, there was a reclassification of $3,779,880 for the year ended December 31, 2008 that did have an effect on amounts previously reported as net periodic postretirement cost reflected in operating activities and postretirement-related changes other than net periodic postretirement cost reflected in non-operating activities. Subsequent events: The Conference has evaluated its subsequent events (events occurring after December 31, 2009) through August 27, 2010, which represents the date the financial statements were available to be issued. Recent accounting pronouncements: The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (the issuance of the Codification, the FASB is not issuing new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it is issuing Accounting Standards Updates, which are not authoritative in their own right but serve to update the Codification, provide background information about the guidance, and provide the bases for conclusions on the changes to the Codification. On the effective date of the Codification, the FASB Accounting Standards Codification became the single source of authoritative U.S. accounting and reporting standards applied by nongovernmental entities, except for rules and interpretive releases which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-sec accounting literature not included in the Codification became non-authoritative. The Codification is effective for financial statements issued for periods ended after September 15, 2009. The Conference adopted the Codification in its 2009 consolidated financial statements. In May 2009, the FASB issued guidance under Subsequent Events (formerly referenced as Statement of Financial Accounting Standards 165, Subsequent Events). ASC 855 establishes general standards of accounting for and disclosure of events that occur after the statement of net assets date but before financial statements are issued or are available to be issued. Specifically, ASC 855 provides clarity around the period after the statement of net assets date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the statement of net assets date in its financial statements, and the disclosure that an entity should make about events or transactions that occurred after the statement of net asset date. ASC 855 is effective for financial reporting periods ended after June 15, 2009. The Conference has adopted the new pronouncement and made the necessary disclosures relating to subsequent events. 9
Notes to Consolidated Financial Statements Note 1. Nature of Business and Significant Accounting Policies (Continued) In September 2006, the FASB issued guidance under ASC 820, Fair Value Measurements and Disclosures (formerly referenced as SFAS No. 157, Fair Value Measurements). ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures for measuring fair value. In February 2008, the FASB issued FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157, which permits a one-year deferral for the implementation of SFAS No. 157 with regard to nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. The Conference adopted SFAS No. 157 for the fiscal year beginning January 1, 2008, except for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis for which delayed application was permitted until the fiscal year beginning January 1, 2009. The Conference adopted the remaining provisions of this standard in 2009 with no effect on its consolidated financial statements. Note 2. Investments Investments at December 31, 2009 and 2008 are comprised of the following: 2009 2008 Certificates of deposit $ 5,904,744 $ 4,389,638 Money market funds 183,872 401,350 GBOP superannuate endowment fund 344,592 273,922 National United Methodist Foundation 1,237,399 935,942 United Methodist Development Fund 1,000,000 1,000,000 GBOP pension billing account 784,364 519,296 GBOP deposit account 12,257,130 9,526,080 Investment in United Methodist Foundation, Inc. 55,330,653 47,687,825 Other 407,777 282,870 $ 77,450,531 $ 65,016,923 The Conference's investment in United Methodist Foundation, Inc. represents approximately 57 and 58 percent of the unitholder equity of the Foundation at December 31, 2009 and 2008, respectively. The Foundation's net assets were approximately $97,081,000 and $82,556,000 at December 31, 2009 and 2008, respectively, and consisted of common stocks (59%), fixed income securities (35%), and short-term investments (6%). st Foundation consists of common stocks. The Conference s investments in the GBOP superannuate endowment, GBOP pension billing account, and GBOP deposit account consist of common stocks (59%), fixed income securities (29%), cash equivalents (11%), and other securities (1%). Fund account consists of certificates of deposit. 10
Notes to Consolidated Financial Statements Note 2. Investments (Continued) The Conference invests in a combination of equity securities, fixed income securities, money market funds and other investment securities. Investment securities are exposed to various risks such as interest rate, credit and market volatility. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that statements of financial position. Note 3. Other Assets Other assets at December 31, 2009 and 2008 consist of the following: 2009 2008 Inventory $ 123,108 $ 47,007 Church properties and donated land held for resale 228,748 238,528 Note receivable from Camps 333,101 333,101 Other 112,563 143,430 $ 797,520 $ 762,066 Note 4. Property and Equipment Property and equipment at December 31, 2009 and 2008 is comprised of the following: 2009 2008 Land and land improvements $ 2,091,411 $ 2,122,913 Buildings and building improvements 3,521,497 3,435,627 Furniture and equipment 1,581,972 1,436,890 Construction in progress 2,940,420 55,798 10,135,300 7,051,228 Less accumulated depreciation 2,420,894 2,181,456 $ 7,714,406 $ 4,869,772 Depreciation expense for the years ended December 31, 2009 and 2008 was $283,981 and $306,906, respectively. The Conference is currently constructing a new building for which the approximate cost is $5,000,000. The completion date of the building was June 2010. 11
Notes to Consolidated Financial Statements Note 5. Pensions In 1981, the Conference began participating in multiemployer pension and benefit plans provided by the General Board of Pension and Health Benefits ( GBOPHB ). Six pension and benefit plans provided benefits for clergy and lay staff as follows for all service after December 31, 1981. The Ministerial Pension Plan ( MPP ) provided retirement benefits for bishops of The United Methodist Church ( UMC ) elected by a Jurisdictional Conference, clergy members of an Annual Conference and local pastors of and Annual Conference under Episcopal appointment or those eligible for appointment to a charge through December 31, 2006. compensation. The MPP was frozen as of December 31, 2006 (except for bishops for whom the plan was frozen as of August 31, 2008). The MPP was replaced by the Clergy Retirement Security Program ( CRSP ) beginning January 1, 2007. The CRSP has both defined benefit and defined contribution components. The defined benefit component of the CRSP is a multiemployer plan through the GBOPHB. The annual contributions for the year ended December 31, 2009 and 2008 were $3,548,193 and $3,229,941, respectively, and represents the contribution for all plan participants including those from local churches, the Annual Conference and participating extension ministries. The defined benefit component of the plan is billed to local churches for participants at 10.4% of plan compensation. The defined contribution component of the CRSP is based on 3% of plan compensation and is billed to local churches for plan participants. Under the CRSP, the expense for 2009 and 2008 totaled $278,508 and $271,178 for the defined benefit and $80,338 and $78,225 for the defined contribution components, respectively, for plan participants for whom the salary-paying unit is the Annual Conference. Supplements to the MPP and the CRSP also provide defined benefits in accordance with their predecessor plan, the Ministers Reserve Pension Fund (subsequently named Supplement One to the MPP and Supplement One to the CRSP). All plan participants as of December 31, 1981 entitled to receive benefits through Supplement One to MPP or CRSP will receive upon retirement a monthly benefit, disability, surviving spouse and surviving children benefits. Benefits are based on years of service and an approved pension rate per year of service. The pension rate is based on a percent of the Conference average salary. Benefits are subject to certain reductions if the participant retires before reaching the age of 65. This plan is a multi-employer plan whose cost is shared by all plan sponsors within the plan (plan sponsors include annual conferences and general boards and agencies within the UMC). As a multiemployer plan, the portion of the liability attributed to the service years for plan participants within the North Carolina Conference is not recognized by the Conference. The Conference voluntarily agreed to fund the prior service liability for service years prior to 1982 and approves this payment annually by Annual Conference approval of the recommendation of the Conference Board of Pension. On January 1, 2007, the net unfunded liability based on a pension rate of $572 per service year was $32,927,070. The contributions to the plan for the prior service liability were $2,491,386 and $2,501,141 for 2009 and 2008, respectively, and are reflected on the Statement of Activities. The amount paid to fund the unfunded prior service liability is determined annually by the GBOPHB. The Conference amortizes prior service cost over a 30 year period. Funding for these prior service liability contributions for the Supplement One to the CRSP are raised through a special apportionment as part of a funding plan approved by the 1991 session of the North Carolina Annual Conference. 12
Notes to Consolidated Financial Statements Note 5. Pensions (Continued) The Cumulative Pension and Benefit Fund ( CPBF ) provided retirement benefits for lay staff of the Annual Conference through December 31, 2006. The CPBF was a defined contribution plan and was based on 12% of plan compensation. The CPBF was replaced beginning January 1, 2007 for lay staff of the Annual Conference with the United Methodist Personal Investment Plan ( UMPIP ). Like the CPBF, the UMPIP is a defined contribution plan and is based on 12% of plan compensation. The expenses for the UMPIP for 2009 and 2008 were $199,530 and $202,898, respectively. Eligibility for the CPBF and UMPIP is defined as lay staff working 25 or more hours per week who have been employed for longer than one year. The Comprehensive Protection Plan ( CPP ) provides death, disability and educational benefits for all individuals eligible to participate in the CRSP (clergy members actively serving under Episcopal appointment). The Basic Protection Plan ( BPP ) provides death and disability benefits for lay staff under active employment who participate in the UMPIP. The expense for these two plans was $71,506 and $79,393 for 2009 and 2008, respectively. Note 6. Postretirement Benefits Other Than Pensions The Conference has an unfunded postretirement benefits plan that provides medical, dental, and life insurance benefits to current and future retirees of the pension plans summarized in Note 5. Benefits under the plan are based primarily on the participants December 31 as its measurement date for the plan. The following table provides a reconciliation of the changes in the p obligation for the years ended December 31, 2009 and 2008: 2009 2008 Reconciliation of accumulated postretirement benefit obligation: Accumulated postretirement benefit obligation, beginning $ 37,798,785 $ 49,567,337 Service costs for benefits earned during the year 622,992 1,100,796 Interest cost on accumulated postretirement benefit obligation 2,257,106 2,914,616 Actuarial (gains) losses 4,238,356 (5,073,303) Benefit payments (1,936,941) (2,258,912) Plan participant contributions 330,246 278,131 Plan amendments - (8,729,880) Accumulated postretirement benefit obligation, ending 43,310,544 37,798,785 Reconciliation of fair value of plan assets: Fair value of plan assets, beginning - - Benefit payments (1,936,941) (2,258,912) Employer contributions 1,606,695 1,980,781 Plan participant contributions 330,246 278,131 Fair value of plan assets, ending - - Funded status, accumulated postretirement benefit obligation in excess of plan assets $ (43,310,544) $ (37,798,785) 13
Notes to Consolidated Financial Statements Note 6. Postretirement Benefits Other Than Pensions (Continued) The components of the net periodic postretirement cost charged to benefit and welfare expense for the years ended December 31, 2009 and 2008 consisted of the following: 2009 2008 Service cost for benefits earned during the year $ 622,992 $ 1,100,796 Interest cost on projected benefit obligation 2,257,106 2,914,616 Amortization of unrecognized prior service cost 57,560 57,560 Amortization of prior service credit (872,988) - Amortization of unrecognized actuarial gains (129,342) - $ 1,935,328 $ 4,072,972 Amounts recognized in postretirement changes other than net periodic post retirement costs: 2009 2008 Plan amendments $ - $ (8,729,880) Amortization of unrecognized actuarial gains 129,342 - Amortization of prior service credit 872,988 - Actuarial (gains) losses 4,238,356 (5,073,303) Amortization of unrecognized prior service cost (57,560) (57,560) $ 5,183,126 $ (13,860,743) Amounts recognized in unrestricted net assets but not yet recognized as components of net periodic cost at December 31, 2009 and 2008: 2009 2008 Unrecognized actuarial (gains) losses $ (705,605) $ (5,073,303) Unamortized prior service credit (7,856,892) (8,729,880) Unamortized prior service cost 402,917 460,477 $ (8,159,580) $ (13,342,706) Amount in unrestricted net assets expected to be recognized net postretirement cost in 2010 and 2009: 2010 2009 Amortization of unrecognized actuarial (gains) $ - $ (129,342) Amortization of unrecognized prior service cost 57,560 57,560 Amortization of unrecognized prior service credit (872,988) (872,988) $ (815,428) $ (944,770) 14
Notes to Consolidated Financial Statements Note 6. Postretirement Benefits Other Than Pensions (Continued) Weighted-average assumptions used to determine benefit obligations and net periodic benefit cost for years ended December 31 are: 2009 2008 Discount rate 6.00% 6.00% Expected return on plan assets (unfunded) 0% 0% The health care trend rate was assumed to be 11.0% for 2009. For 2010, the trend of health care costs used to determine the benefit obligation and net periodic postretirement benefit cost is 10.0% with such rates declining gradually to 5.0%. Assumed health care rates have a significant effect on the amounts reported for the plan. A one percent change in assumed health care costs trend rates would have the following effect: 1% Increase 1% Decrease Effect on total service and interest cost components $ 611,544 $ (485,338) Effect on the accumulated postretirement benefit obligation 6,300,715 (5,143,390) The Conference is on an unfunded basis regarding the plan; therefore, there are no assets in the plan. However, $1,000,000 has been internally designated, which is held by a related party, for purposes of future obligations related to the plan. The Conference has not increased the internal designation in the past two years, but expects to do so in 2010. The benefits expected to be paid by Conference contributions of the same amount in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter are as follows: Year Amount 2010 $ 1,927,805 2011 2,057,600 2012 2,173,833 2013 2,275,506 2014 2,365,753 2015-2019 $ 13,040,920 23,841,417 15
Notes to Consolidated Financial Statements Note 7. Related Party Transactions United Methodist Foundation, Inc. and affiliate was established primarily as an investment pool available for organizations, churches and agencies related to the North Carolina Conference, Southeastern Jurisdiction, of The United Methodist Church, Inc. The Conference and the Foundation share certain board representation. Net amounts of accounts payable due to the Foundation were $2,127 and accounts receivable due from the Foundation were $65,559 at December 31, 2009 and 2008, respectively. Certain accounting functions are performed by the Conference on behalf of the Foundation. The revenue associated with these accounting functions is not material. As discussed in Note 2 the Conference is a significant unitholder of the Foundation. Note 8. Mortgages Payable Some ave outstanding mortgages payable related to their parsonages. At December 31, 2009 and 2008, the outstanding amounts due were $340,339 and $296,767, respectively. Maturities of the mortgages payable due in future years are as follows: Year Ending December 31, Amount 2010 $ 17,017 2011 17,017 2012 17,017 2013 17,017 2014 17,017 Thereafter $ 255,254 340,339 Note 9. Operating Lease Obligation The Conference leases office space under a noncancelable operating lease commencing August 8, 2008 through August 31, 2010. This lease requires that the Conference pay property taxes, insurance and specified maintenance plus minimum monthly rentals. Future minimum rental payments consist of $25,000 for the each full calendar month commencing on the commencement date through the end of the first lease year and $25,750 for each full calendar month during the second lease year. Rent expense charged to operations was $303,000 in 2009. See Note 13 for details surrounding the sale and leaseback transaction. 16
Notes to Consolidated Financial Statements Note 10. Temporarily Restricted Net Assets Temporarily restricted net assets as of December 31, 2009 and 2008 are available for the following purposes: 2009 2008 Disaster relief and preparedness $ 465,722 $ 565,572 Establishment of new churches 2,198,259 2,030,121 Zimbabwe Orphan Endeavor program 783,124 901,195 Other 3,422,787 2,642,595 $ 6,869,892 $ 6,139,483 Note 11. Net Assets Released From Restrictions During the years ended December 31, 2009 and 2008, net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by the donors as follows: 2009 2008 Disaster relief and preparedness $ 378,555 $ 393,500 Establishment of new churches 347,748 333,239 Duke Endowment retiree benefit supplement 800,873 792,764 Zimbabwe Orphan Endeavor program 1,742,117 1,378,939 Other 711,831 570,899 $ 3,981,124 $ 3,469,341 17
Notes to Consolidated Financial Statements Note 12. Fair Value Measurements ASC 820 Fair Value Measurements established a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. The fair value hierarchy is as follows: Level 1 inputs unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs inputs other than quoted prices in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, discount values, volatilities, prepayment speeds, credit risk, etc.), or inputs that are derived principally from or corroborated by market data correlation or other means. Level 3 inputs - unobservable inputs for determining the fair values of assets or liabilities that would reflect an en own determination about the assumptions that market participants would use in pricing the assets or liabilities. In determining fair value, the Conference uses various valuation approaches within the ASC 820 fair value measurement framework. The following is a description of the valuation methodologies used for instruments measured at fair value and their classification within the hierarchy: Certificates of deposit: Certificates of deposit represent funds held in active markets and are classified within Level 2 of the valuation hierarchy. Money market funds: Money market funds represent funds held in active markets and are classified within Level 1 of the valuation hierarchy. Mutual funds, General Church: Investments within mutual funds at the General Church represent units pooled within the GBOP Superannuate Endowment, GBOP Pension Billing, GBOP Deposit and National UMF accounts and are valued using the Net Asset Value ( NAV ) provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares or units outstanding. These investments are classified within level 2 of the valuation hierarchy. Mutual funds, Conference related entity: Investments within mutual funds at the related entity are valued using the NAV provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares or units outstanding. These investments are classified within level 2 of the valuation hierarchy. The Conference can make withdrawals from this investment within two weeks of each calendar quarter end as long as notice has been given prior to quarter end. 18
Notes to Consolidated Financial Statements Note 12. Fair Value Measurements (Continued) The tables below present the balances of financial assets measured at fair value on a recurring basis by level at December 31, 2009 and 2008. Financial assets Investments: Total December 31, 2009 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Certificates of deposit $ 6,904,744 $ - $ 6,904,744 $ - Money market funds 183,872 183,872 - - Mutual funds, General Church 14,623,485-14,623,485 - Mutual funds, Conference related entity 55,738,430-55,738,430 - $ 77,450,531 $ 183,872 $ 77,266,659 $ - Financial assets Investments: Total December 31, 2008 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Certificates of deposit $ 5,389,638 $ - $ 5,389,638 $ - Money market funds 401,350 401,350 - - Mutual funds, General Church 11,255,240-11,255,240 - Mutual funds, Conference related entity 47,970,695-47,970,695 - $ 65,016,923 $ 401,350 $ 64,615,573 $ - 19
Notes to Consolidated Financial Statements Note 13. Gains From Sale of Property During 2008, the Conference sold the Methodist Building for $3,353,748 and leased back a portion of the office space. The sale resulted in a gain on the disposal of the building of $2,530,562. The current lease agreement is for two years. in on the sale equal to the present value of the minimum lease payments over the term of the leaseback and elected to recognize the gain over and above the present value of the lease payments immediately. The deferred portion of the gain will be recognized in proportion to the related gross rental charged to expense over the lease term. Management does not expect to renew their lease which expires on August 31, 2010. Details about the 2008 sale and leaseback transaction are as follows: Methodist Building sales price (net of expenses) $ 3,353,748 Less carrying value of the Methodist Building 823,186 Gain on sale 2,530,562 Net present value of rent payments (recognize over lease term) 593,000 Excess gain (recognized immediately) $ 1,937,562 The deferred portion of the gain is being amortized over the life of the lease as follows: Year Ending December 31, Amount 2008 $ 125,000 2009 293,000 2010 175,000 593,000 The Conference recognized gains of $293,000 and $2,062,562 during 2009 and 2008, respectively, related to the sale and leaseback transaction. The deferred portion of the gain is $175,000 and $468,000 at December 31, 2009 and 2008, respectively, and is included in accounts payable in the consolidated statements of financial position. During 2009, the Conference also sold the Raleigh Towne Apartments land for $3,075,000. The sale resulted in a gain of $2,878,050 net of expenses. $ 20
Consolidating Statement of Financial Position December 31, 2009 District Superintendent Board of Assets Conference Offices Missions, Inc. Eliminations * Total Cash and cash equivalents $ 3,769,049 $ 2,301,373 $ 791,104 $ (471,735) $ 6,389,791 Accounts receivable 2,979,661-23,279-3,002,940 Investments 76,905,295 407,777 137,459-77,450,531 Mortgage loans receivable - - 3,027,346-3,027,346 Other assets 722,728 74,792 - - 797,520 Property and equipment 5,323,618 1,980,588 410,200-7,714,406 Total assets $ 89,700,351 $ 4,764,530 $ 4,389,388 $ (471,735) $ 98,382,534 Liabilities and Net Assets Accounts payable and accrued expenses $ 4,326,003 $ 14,691 $ - $ (471,735) $ 3,868,959 Agency payables 447,394 - - - 447,394 Mortgages payable - 340,339 - - 340,339 Postretirement benefit liability 43,310,544 - - - 43,310,544 Total liabilities 48,083,941 355,030 - (471,735) 47,967,236 Net assets: Unrestricted: Designated, next year's approved budget 11,670,800 - - - 11,670,800 Undesignated 24,872,290 2,612,928 4,389,388-31,874,606 Temporarily restricted 5,073,320 1,796,572 - - 6,869,892 Total net assets 41,616,410 4,409,500 4,389,388-50,415,298 Total liabilities and net assets $ 89,700,351 $ 4,764,530 $ 4,389,388 $ (471,735) $ 98,382,534 *Eliminations consist of intercompany receivables and payables between the Conference, the Board of Missions, Inc. and District Superintendent Offices that must be eliminated in the consolidation process to avoid overstating these accounts. 21
Statement of Financial Position, Conference December 31, 2009 Assets Cash and cash equivalents $ 3,769,049 Accounts receivable 2,979,661 Investments 76,905,295 Other assets 722,728 Property and equipment 5,323,618 Total assets $ 89,700,351 Liabilities and Net Assets Liabilities: Accounts payable $ 4,326,003 Agency payables 447,394 Accumulated postretirement benefit liability 43,310,544 Total liabilities 48,083,941 Net assets: Unrestricted: Designated, next year's approved budget 11,670,800 Undesignated 24,872,290 Temporarily restricted 5,073,320 Total net assets 41,616,410 Total liabilities and net assets $ 89,700,351 22
Statement of Activities, Conference Year Ended December 31, 2009 Temporarily Unrestricted Restricted Total Revenues, gains and other support: Apportionments $ 15,174,106 $ - $ 15,174,106 Other church remittances 127,757-127,757 Restricted contributions - 2,212,664 2,212,664 Insurance premiums 7,612,744-7,612,744 Registration fees 330,630-330,630 Investment income 931,341 64,827 996,168 Unrealized appreciation on investments 10,163,142 285,534 10,448,676 Pension plan funding 6,876,267-6,876,267 Gains from sale of property 3,171,050-3,171,050 Grants - 1,262,509 1,262,509 Other 1,072,754-1,072,754 Total revenues, gains, and other support 45,459,791 3,825,534 49,285,325 Net assets released from donor restrictions 3,846,505 (3,846,505) - Expense or distribution: Program: Mission development/spiritual formation 2,515,782-2,515,782 Episcopal 2,954,634-2,954,634 Benefit and welfare 17,103,792-17,103,792 General church distributions 3,349,885-3,349,885 Disaster response and recovery 466,537-466,537 Other 5,290,313-5,290,313 Administrative 1,150,826-1,150,826 Fund raising 296,962-296,962 Total expenses 33,128,731-33,128,731 Increase (decrease) in net assets from operating activities 16,177,565 (20,971) 16,156,594 Nonoperating: Postretirement-related changes other than net periodic postretirement cost (5,183,126) - (5,183,126) Change in net assets 10,994,439 (20,971) 10,973,468 Net assets at beginning of year 25,548,651 5,094,291 30,642,942 Net assets at end of year $ 36,543,090 $ 5,073,320 $ 41,616,410 23
Statement of Financial Position, District Superintendent Offices December 31, 2009 Assets Cash $ 2,301,373 Investments 407,777 Other assets 74,792 Property and equipment 1,980,588 Total assets $ 4,764,530 Liabilities and Net Assets Liabilities: Accounts payable $ 14,691 Mortgages payable 340,339 Total liabilities 355,030 Net assets: Unrestricted: Undesignated 2,612,928 Temporarily restricted 1,796,572 Total net assets 4,409,500 Total liabilities and net assets $ 4,764,530 24