MARYLAND ZOOLOGICAL SOCIETY, INC. AND SUBSIDIARY Baltimore, Maryland CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT... 1 PAGE CONSOLIDATED FINANCIAL STATEMENTS... 3 Consolidated Statements of Financial Position... 4 Consolidated Statements of Activities... 5 Consolidated Statements of Cash Flows... 6 Notes to Consolidated Financial Statements... 7
CliftonLarsonAllen LLP www.cliftonlarsonallen.com Independent Auditors Report Board of Directors Maryland Zoological Society, Inc. and Subsidiary Baltimore, Maryland We have audited the accompanying consolidated financial statements of Maryland Zoological Society, Inc. and its subsidiary, which comprise the consolidated statements of financial position as of June 30, 2014 and 2013, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. An independent member of Nexia International 1
Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Maryland Zoological Society, Inc. and its Subsidiary as of June 30, 2014 and 2013, and the changes in its net assets and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. a CliftonLarsonAllen LLP Baltimore, Maryland October 10, 2014 2
CONSOLIDATED FINANCIAL STATEMENTS 3
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,140,246 $ 3,066,501 Grants and contributions receivable 1,299,036 310,844 Pledge receivables 313,595 223,467 Other receivable 91,851 123,705 Inventory 82,204 71,495 Prepaid expenses 98,826 92,642 Total current assets 5,025,758 3,888,654 PROPERTY AND EQUIPMENT, NET 56,326,901 46,693,101 NON CURRENT ASSETS Pledge receivables, net of discount of $23,891 and $33,226 for 2014 and2013, respectively 298,609 356,774 Investments, at fair value 156,557 137,655 TOTAL ASSETS $ 61,807,825 $ 51,076,184 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Line of credit $ 200,000 $ 200,000 Current maturities of long term debt 73,412 112,886 Accounts payable 2,458,884 931,229 Accrued expenses 172,938 187,851 Accrued vacation 547,829 557,388 Deferred revenue 919,975 1,334,454 Total current liabilities 4,373,038 3,323,808 LONG TERM DEBT, LESS CURRENT MATURITIES 79,780 45,426 TOTAL LIABILITIES 4,452,818 3,369,234 NET ASSETS Unrestricted 55,316,549 46,213,092 Temporarily restricted 1,907,958 1,363,358 Permanently restricted 130,500 130,500 Total net assets 57,355,007 47,706,950 TOTAL LIABILITIES AND NET ASSETS $ 61,807,825 $ 51,076,184 The accompanying notes are an integral part of the consolidated financial statements. 4
CONSOLIDATED STATEMENTS OF ACTIVITIES Year Ended Temporarily Permanently Temporarily Permanently Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total REVENUE, GAINS, AND OTHER SUPPORT Support: Grants and awards $ 18,202,031 $ 91,087 $ $ 18,293,118 $ 10,488,454 $ 154,640 $ $ 10,643,094 Contributions 618,363 530,210 1,148,573 882,130 876,545 1,758,675 In kind donations 831,463 831,463 809,567 809,567 Total support 19,651,857 621,297 20,273,154 12,180,151 1,031,185 13,211,336 Revenue and gains: Visitor revenue 3,124,269 3,124,269 2,693,401 2,693,401 Education programs 262,342 262,342 248,083 248,083 Investment income 5,540 18,902 24,442 8,160 7,155 15,315 Membership dues 1,372,583 1,372,583 1,374,096 1,374,096 Special events, net of direct benefit donor costs of $185,721 and $194,679, respectively 419,522 419,522 437,851 437,851 Insurance recoveries 1,388,978 1,388,978 27,798 27,798 Other revenue 10,061 10,061 19,410 19,410 Total revenue and gains 6,583,295 18,902 6,602,197 4,808,799 7,155 4,815,954 Net assets released from restrictions 95,599 (95,599) 545,306 (545,306) Total revenue, gains, and other support 26,330,751 544,600 26,875,351 17,534,256 493,034 18,027,290 EXPENSES AND LOSSES Program services 13,523,737 13,523,737 12,896,782 12,896,782 Supporting services 2,854,408 2,854,408 2,802,541 2,802,541 Fundraising 849,149 849,149 532,203 532,203 Total expenses 17,227,294 17,227,294 16,231,526 16,231,526 CHANGES IN NET ASSETS 9,103,457 544,600 9,648,057 1,302,730 493,034 1,795,764 NET ASSETS, BEGINNING OF YEAR 46,213,092 1,363,358 130,500 47,706,950 44,910,362 870,324 130,500 45,911,186 NET ASSETS, END OF YEAR $ 55,316,549 $ 1,907,958 $ 130,500 $ 57,355,007 $ 46,213,092 $ 1,363,358 $ 130,500 $ 47,706,950 The accompanying notes are an integral part of the consolidated financial statements. 5
CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended CASH FLOWS FROM OPERATING ACTIVITIES Changes in net assets $ 9,648,057 $ 1,795,764 Adjustments to reconcile changes in net assets to net cash provided by operating activities: Change in discount on promises to give (9,335) 33,226 Depreciation 3,089,306 2,943,138 Loss on disposal of property and equipment 359,541 Gain on investments (18,902) (10,869) Effects of changes in operating assets and liabilities: Pledge receivable (22,628) (613,467) Grants receivable (988,192) 590,033 Other receivables 31,854 165,926 Inventory (10,709) 968 Prepaid expenses (6,184) 24,337 Accounts payable 1,527,655 (1,522,006) Accrued expenses (14,913) 51,464 Accrued vacation (9,559) 52,391 Deferred revenue (414,479) 649,753 Net cash provided by operating activities 13,161,512 4,160,658 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (12,947,273) (3,736,945) Net cash used in investing activities (12,947,273) (3,736,945) CASH FLOWS FROM FINANCING ACTIVITIES Net payments on line of credit (200,000) Principal payments on notes payable (82,597) (287,158) Payments on capital lease obligations (57,897) (4,736) Net cash used in financing activities (140,494) (491,894) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 73,745 (68,181) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,066,501 3,134,682 CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,140,246 $ 3,066,501 NON CASH FINANCING ACTIVITIES Capital lease obligation incurred for use of equipment $ 135,374 $ 66,001 SUPPLEMENTAL DATA Interest paid $ 11,082 $ 26,827 The accompanying notes are an integral part of the consolidated financial statements. 6
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Maryland Zoological Society, Inc. (the Organization) is a non profit organization established for scientific, charitable and education purposes, chiefly in the fields of zoology, zoo operations and other related endeavors. The main purpose of the Organization is to assist the State of Maryland and the City of Baltimore in the development and conduct of The Maryland Zoo in Baltimore (the Zoo). The Organization manages the daily operations of the Zoo. The title to the Zoo facilities and the animal and horticultural collection remains with the City of Baltimore. Consolidated Financial Statements The consolidated financial statements include the accounts of the Organization and its wholly owned subsidiary, MZIB Hospital, LLC (MZIB), which was formed for the purpose of owning and managing the animal hospital building located within the Zoo s campus. All significant intercompany transactions and accounts have been eliminated in consolidation. Basis of Presentation The Organization is required to report 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. In addition, the Organization is required to present a Statement of Cash Flows. Unrestricted net assets are the net assets that are neither permanently restricted nor temporarily restricted by donor imposed stipulations. Temporarily restricted net assets result from contributions whose use is limited by donor imposed stipulations that either expire by the passage of time or can be fulfilled and removed by actions of the Organization pursuant to those stipulations. When a donor restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. This net asset group is restricted for the following purposes: June 30, June 30, Penguin exhibit $ 1,273,562 $ 839,942 Flamingo exhibit 60,000 Education 80,983 31,949 Animal exhibits and hospital equipment 47,279 64,182 Capital projects 446,134 427,285 Total $ 1,907,958 1,363,358 7
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Basis of Presentation (Continued) Permanently restricted net assets result from contributions whose use is limited by donor imposed stipulations that neither expire by the passage of time nor can be fulfilled or otherwise removed by Organization s actions. Donor stipulations specify that the principal be maintained intact in perpetuity with only the income to be utilized. Income earned, including interest, dividends, realized and unrealized gains and losses, is recorded as temporarily restricted revenue until appropriated. This net asset group is restricted for the following purposes: June 30, June 30, Endowment $ 130,500 $ 130,500 Net Assets Released from Restrictions Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by the donor during the year ended June 30, as follows: Penguin exhibit $ 23,430 $ 27,454 Education 42,106 60,012 Animal exhibits and hospital equipment 30,063 331,999 Capital projects 125,841 Total net assets released from restrictions $ 95,599 $ 545,306 Use of Estimates in Preparing Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles 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. Animal and Horticultural Collections In accordance with industry practice, additions to the animal and horticultural collection are expensed as incurred. In an ongoing commitment to enhance the worldwide reproduction and preservation of animals, the Organization shares animals with other organizations. Consistent with industry practice, the Organization does not record any liability for such sharing arrangements, as generally these arrangements are without monetary consideration. 8
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Disclosures About Fair Value of Financial Instruments The Organization s financial instruments consist principally of cash and cash equivalents, investments, trade receivables and payables, and notes payable. There are no significant differences between the carrying value and fair value of any of these financial instruments. Cash and Cash Equivalents The Organization considers all liquid investments which are to be used for operations and have a maturity of three months or less when purchased to be cash equivalents. Other highly liquid investments held for investment are recorded and classified as investments. For the years ended, $0 and $486,274, respectively, of cash proceeds received from insurance recoveries have been set aside to pay for future capital expenditures. Grants Receivable Grants receivable are stated at unpaid balances, less an allowance for doubtful accounts. The Organization provides for losses on grants receivable using the allowance method. The allowance is based on experience and other circumstances which may affect the ability of grantors to meet their obligation. It is the Organization s policy to charge off grants receivable when any portion of the balance is deemed to be uncollectible based on the contractual terms. No allowance was considered necessary at June 30, 2014 and 2013. Pledge Receivables Pledge receivables represent unconditional promises to give that are acknowledged in writing by donating parties prior to June 30 but not transmitted to the Organization until after that date. Conditional promises to give are recognized when the conditions on which the pledges depend are substantially met. Unconditional promises to give that are to be collected within one year are recorded at net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The discounts on those amounts are computed using risk free interest rates determined by management, applicable to the years in which the promises are received. Amortization of the discounts is included in contribution support. Management believes that as of June 30, 2014 and 2013, all pledge receivables are fully collectible. Other Receivable Other receivables are stated at unpaid balances, less an allowance for doubtful accounts if deemed necessary. Other receivables represent amounts due to the Organization within one year or less. The allowance is based on experience and other circumstances which may affect the ability of debtors to meet their obligation. It is the Organization s policy to charge off other receivables when any portion of the balance is deemed to be uncollectible based on the contractual terms. No allowance was considered necessary at. 9
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Inventory Inventory consists mainly of animal food, valued at lower of cost or market, using the first in first out method. Donated materials are valued at net realizable value. Property and Equipment All individual acquisitions of property and equipment in excess of $1,000 and all expenditures for repairs, maintenance, renewals and betterments that materially prolong the useful lives of assets are capitalized. Purchased property and equipment are recorded at cost. Donated property and equipment are recorded at fair value at the date of donation. Leasehold improvements in progress are not depreciated until construction is complete. Depreciation is recorded using the straight line method over the estimated useful lives of the assets which range from 3 to 40 years. Impairment of Long Lived Assets The Organization reviews long lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of carrying amount of fair value less costs to sell. Equity and Mutual Fund Investments in the Baltimore Community Foundation Pool The Organization entered into an agreement to establish a permanently restricted endowment fund within the Baltimore Community Foundation (the Foundation) to be used for support of the charitable purposes of the Organization. The investment of the Pool is a unitized investment maintained by the Foundation. The investments in the Baltimore Community Foundation Pool (the Pool) consist of mutual funds and alternative investments. The mutual fund investments in the Pool are listed or traded on a national market or exchange and are valued at the last sales prices, or if there is no sale and the market is still considered active, at the mean of the last bid and asked prices on such exchange. The fair value of the Pool itself is provided by the Foundation. Realized and unrealized gains and losses are included in the change in net assets in the accompanying consolidated Statements of Activities. Investment income and gains restricted by donors are reported as increases in unrestricted net assets if the restrictions are met (either a stipulated time period ends or a purpose restriction is accomplished) in the reporting period in which the income and gains are earned. Revenue Recognition Visitor revenue and other revenue are recognized when services are rendered. Revenues from memberships are deferred and recognized over the period to which they relate. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire (that is, when a stipulated time restriction ends or purpose restriction is accomplished) in the reporting period in which the revenue is recognized. All other donor restricted contributions are reported as increases in temporarily or permanently restricted net assets, depending on the nature of the restrictions. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated Statements of Activities as net assets released from restrictions. 10
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue Recognition (Continued) When grants are exchange transactions, wherein the Organization has to perform services in order to earn the income, revenue is recognized when the services are performed. Accordingly, deferred revenue is recorded on these types of grants for advance payments when applicable. Donated Services Donated services are recognized as contributions in accordance with ASC 958, Accounting for Contributions Received and Contributions Made, if the services (a) create or enhance nonfinancial assets or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased by the Organization. Donated services received are recorded at fair value. Donated legal services amounted to $7,442 and $9,763 for the years ended, respectively. Volunteers donate significant amounts of time to the Organization. However, no amounts have been included in the consolidated financial statements for such services since they do not meet the criteria for recognition. Advertising The Organization uses advertising to promote its programs among the audiences it serves. The production costs of advertising are expensed as incurred. Advertising and promotion costs totaled $476,181 and $489,749 for the years ended, respectively. Functional Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the Consolidated Statements of Activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Supporting services expenses include those that are not directly identifiable with any other specific function, but provide the overall support and direction of the Organization. Income Taxes The Organization is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. However, income from activities not directly related to the Organization s tax exempt purpose is subject to taxation as unrelated business income. In addition, the Organization qualifies for the charitable contribution deduction under Section 170(b), and has been classified as an organization other than a private foundation under Section 509(a). The Organization had no unrelated business income for the years ended June 30, 2014 and 2013. Endowment Fund Management Policy The Organization follows the guidance, 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. 11
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Endowment Fund Management Policy (Continued) This guidance requires that the amount classified as permanently restricted shall be the amount of the fund, (a) that must be retained permanently in accordance with explicit donor stipulations, or (b) that in the absence of such stipulations, determined by the Organization s governing board, must be retained permanently consistent with the relevant law. It also expands the disclosures required for both donorrestricted and board designated endowment funds. Reclassifications Certain amounts in the 2013 consolidated financial statements have been reclassified to conform to the 2014 presentation. The reclassification had no effect on the consolidated financial position, results of operations, or cash flows as of and for the year ended June 30, 2014. NOTE 2 CONDITIONAL GRANTS The Organization has the following approved cost reimbursement grants as of June 30, 2014. No revenue has been recorded for available grant amounts detailed below. For the year ended June 30, 2014, grant revenue of $10,822,133 was recorded as a result of conditions being met on cost reimbursement grants. Deferred revenue in the amount of $0 and $509,237 was recorded as a result of funds being received for which conditions had not yet been met for the years ended June 30, 2014 and June 30, 2013, respectively. The remaining amounts of available grants are as follows at June 30, 2014: Available Amount State of Maryland Board of Public Works Infrastructure improvements $ 4,246,428 Total grants available $ 4,246,428 NOTE 3 PROPERTY AND EQUIPMENT Property and equipment consist of the following: Building animal hospital $ 2,162,814 $ 2,162,814 Leasehold improvements 56,210,471 55,494,752 Automobiles and trucks 521,303 495,656 Furniture and fixtures 4,439,621 4,363,428 Leasehold improvements in progress 14,172,107 2,644,928 77,506,316 65,161,578 Accumulated depreciation 21,179,415 18,468,477 Total $ 56,326,901 $ 46,693,101 12
NOTE 3 PROPERTY AND EQUIPMENT (CONTINUED) Improvements to property not owned by the Organization are classified as leasehold improvements and leasehold improvements in progress. Depreciation expense totaled $3,089,306 and $2,943,138 for the years ended, respectively. NOTE 4 PLEDGE RECEIVABLES Unconditional promises to give that are expected to be collected more than one year after the date of the pledge are recorded at the present value of estimated future cash flows. The discounts on those amounts are computed using a rate of 3.25%, applicable to the year in which the promise was received. Included in contributions and grants receivable are the following unconditional promises to give: Penguin Exhibit Restricted to Future Periods $ 576,095 $ 613,467 Flamingo Exhibit Restricted to Future Periods 60,000 Unconditional promises to give before unamortized discount 636,095 613,467 Less: Unamortized discount (23,891) (33,226) Net unconditional promises to give $ 612,204 $ 580,241 Amounts due in: Less than one year $ 313,595 $ 223,467 One to five years 322,500 390,000 Total $ 636,095 $ 613,467 NOTE 5 FAIR VALUE MEASUREMENTS In determining fair value, the Organization uses various valuation approaches within the FASB ASC 820 fair value measurement framework. Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. FASB ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. FASB ASC 820 defines levels within the hierarchy based on the reliability of inputs as follows: Level 1 Valuations based on unadjusted quoted prices for identical assets or liabilities in active markets; Level 2 Valuations based on quoted prices for similar assets or liabilities or identical assets or liabilities in less active markets, such as dealer or broker markets; and Level 3 Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable, such as pricing models, discounted cash flow models and similar techniques not based on market, exchange, dealer or broker traded transactions. 13
NOTE 5 FAIR VALUE MEASUREMENTS (CONTINUED) Following is a description of the valuation methodologies used for instruments measured at fair value and their classification in the valuation hierarchy. Baltimore Community Foundation Investment Pool All investments held by the Organization represent units owned in the Baltimore Community Foundation Investment Pool. The Investment Committee of the Foundation regularly reviews and adjusts asset allocation. The current target allocation is 70 percent equities and 30 percent fixed income, but it may be adjusted within the ranges set forth in the Investment Policy Statement. The fair value of all of these units is determined by the Foundation through a net asset value calculation, and is classified within Level 3 of the valuation hierarchy. Investments in the Pool are not subject to any capital calls or specific redemption terms. The following is a reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using significant unobservable (Level 3) inputs during the years ended June 30, 2014 and 2013: Level 3 Beginning Balance July 1, 2013 Realized and Unrealized Gains (Losses) Purchases Sales Net Transfer In and/or Out Level 3 Level 3 Ending Balance June 30, 2014 Baltimore Community Foundation Investment Pool $ 137,655 $ 18,902 $ $ $ $ 156,557 Level 3 Beginning Balance July 1, 2012 Realized and Unrealized Gains (Losses) Purchases Sales Net Transfer In and/or Out Level 3 Level 3 Ending Balance June 30, 2013 Baltimore Community Foundation Investment Pool $ 126,786 $ 10,869 $ $ $ $ 137,655 Gains and losses included in changes in net assets are presented in investment income (loss) on the consolidated Statement of Activities. NOTE 6 ENDOWMENTS The Organization s endowments consist of funds established to support educational and other purposes. Its endowments consist of donor restricted endowment funds. As required by generally accepted accounting principles, net assets associated with endowment funds, including funds designated by the Board to function as endowments, are classified and reported based on the existence or absence of donor imposed restrictions. 2014 2013 14
NOTE 6 ENDOWMENTS (CONTINUED) Interpretation of Relevant Law The Board of the Organization has interpreted the Maryland Uniform Prudent Management of Institutional Funds Act (MUPMIFA) 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. Consequently, the Organization classifies permanently restricted net assets as: The original value of gifts donated to the permanent endowment, and The original value of subsequent gifts to the permanent endowment. The remaining portion of the donor restricted endowment fund not classified as permanently restricted is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Organization s Board. In accordance with MUPMIFA, the Organization considers the following factors in making a determination to appropriate or accumulate donor restricted endowment funds: 1. The duration and preservation of the fund 2. The purpose of the Organization and the donor restricted endowment fund 3. General economic conditions 4. The possible effects of inflation and deflation 5. The expected total return from income and the appreciation of investments 6. Other resources of the Organization 7. The investment policies of the Organization Return Objectives and Risk Parameters The Organization has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to the programs supported by the endowments while assuming a moderate level of investment risk. Spending Policy The Organization has a policy of appropriating for distribution an amount that will allow its endowment to retain the original fair value of the gift over the long term. Strategies Employed for Achieving Objectives The Organization relies on a total return strategy in which investment returns are achieved through capital appreciation and current yield (interest and dividends). The Organization targets a diversified asset allocation to achieve its long term objectives within prudent risk constraints. 15
NOTE 6 ENDOWMENTS (CONTINUED) Endowment net asset composition by type of fund as of June 30: 2014 Temporarily Permanently Unrestricted Restricted Restricted Total Donor restricted funds $ $ 26,057 $ 130,500 $ 156,557 Temporarily Permanently Unrestricted Restricted Restricted Total Donor restricted funds $ $ 7,155 $ 130,500 $ 137,655 2013 Changes in endowment net assets for the fiscal year ended June 30, 2014: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ $ 7,155 $ 130,500 $ 137,655 Investment income (including realized gains) 18,902 18,902 Endowment net asset, end of year $ $ 26,057 $ 130,500 $ 156,557 Changes in endowment net assets for the fiscal year ended June 30, 2013: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ (3,714) $ $ 130,500 $ 126,786 Investment loss, including realized gains 3,714 7,155 10,869 Endowment net asset, end of year $ $ 7,155 $ 130,500 $ 137,655 NOTE 7 LINES OF CREDIT The Organization has a $1,000,000 revolving line of credit with a national bank. Advances on the credit line are payable on demand and carry interest at the bank s Prime Rate (3.25% at both ). The line expires December 31, 2014 and is collateralized by substantially all the assets of the Organization. Balances outstanding on the line totaled $200,000 and $200,000 at, respectively. 16
NOTE 8 NOTES PAYABLE On July 1, 2014 the Organization repaid their note with the City of Baltimore that was used to fund the acquisition of the building that MZIB previously rented. The note was payable in monthly installments of principal plus interest at a variable rate as determined by the City (approximately 4.1% at June 30, 2013). Principal payments ranged from $4,226 to $4,685 through maturity on July 1, 2014. The balances outstanding on the note totaled $0 and $56,223 at, respectively, and was collateralized by the building. The Subsidiary maintained a loan on the animal hospital building which was repaid on July 1, 2014. The note bore interest at 8.75% and was payable in monthly installments of $26,565 through July 1, 2014. The monthly payments were reimbursed by the City of Baltimore and were included in grants and awards in the accompanying consolidated Statements of Activities. The balance outstanding on the note totaled $0 and $26,374 at, respectively, and was collateralized by the building. Total interest expense on all indebtedness was $11,082 and $26,827 for the years ended June 30, 2014 and 2013, respectively. NOTE 9 CAPITAL LEASE OBLIGATION The Organization has financed the purchase of certain equipment under capital lease agreements expiring in 2018. The liability recorded represents the present value of future minimum lease payments. The leased assets are amortized over their estimated productive lives. Amortization of assets under capital lease is included in depreciation expense. The net amount of equipment held under capital lease was $147,400, net of accumulated depreciation of $67,866. Depreciation expense at June 30, 2014 was $37,322. Aggregate future minimum lease payments under capital lease obligations as of June 30, 2014 are approximated as follows: Years Ending June 30, FY2015 $ 77,333 FY2016 59,397 FY2017 17,550 FY2018 3,375 Total future minimum lease payments 157,655 Less amount representing interest (4,463) Present value of future minimum lease payments $ 153,192 NOTE 10 RETIREMENT PLAN The Organization has a 401(k) retirement plan, which covers all full time, non seasonal employees who have completed one year of service. Participants may contribute up to the maximum percentage of compensation and dollar amount permissible under the Internal Revenue Code. The Organization makes a 100% matching contribution for the first 3% of a participant s deferral and a 50% matching contribution for deferrals exceeding 3%, but not more than 5% per pay period. Both participants and employers matching contributions are vested immediately. The Organization s contributions to the Plan totaled $139,305 and $137,836 for the years ended, respectively. 17
NOTE 11 INCOME TAXES The Organization files information returns in the U.S. federal jurisdiction and is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. The Organization follows the requirements for accounting for uncertain tax positions. The Organization determined it was not required to record a liability related to uncertain tax positions. The federal information returns of the Organization for tax years 2010, 2011 and 2012 are subject to examination by the IRS, generally for three years after they were filed. NOTE 12 NON CASH DONATIONS The Organization received donated facilities, waste removal services, and electricity from the City of Baltimore as follows: Rent $ 188,168 $ 183,043 Waste removal 128,785 125,399 Electricity 507,068 491,362 Total donated facilities and utilities $ 824,021 $ 799,804 The Organization also received donated services and materials from other sources consisting of the following: Legal services $ 7,442 $ 9,763 Total donated services and materials $ 7,442 $ 9,763 Donated facilities are recorded at the fair rental value of the Organization s facility over the lease amount. Donated electricity and other services are recorded at fair value at the date of the gift. The contributions have been recorded both as income and expense in the accompanying consolidated Statements of Activities and are reflected at fair market value. NOTE 13 COMMITMENTS AND CONTINGENCIES The City of Baltimore leases the Zoo facilities, real property and animals to the State of Maryland under a 40 year lease expiring June 30, 2032. The State of Maryland and the Organization entered into an agreement effective October 1992 whereby the Organization assumed the entire management responsibility for the Zoo. The agreement is renewable for successive five year periods and will continue unless notice of termination has been given by either party. The agreement was renewed through September 2017. Rent expense for the years ended 2014 and 2013 totaled $188,168 and $183,043, respectively. 18
NOTE 14 REVENUE CONCENTRATION The Organization relies on the State of Maryland, City of Baltimore, Baltimore County, and other municipalities for the majority of its operating and capital improvement funds. The Organization has recorded the following grants and in kind contributions during the years ended June 30: State of Maryland Board of Public Works Operating $ 5,175,218 $ 5,175,218 State of Maryland Board of Public Works Capital 10,822,133 2,982,283 Maryland State Department of Education Free admissions and special programming for Maryland school children 812,171 601,975 City of Baltimore Operating 531,372 524,416 City of Baltimore Capital 100,000 21,240 City of Baltimore Mortgage 56,223 475,220 City of Baltimore In Kind 824,021 799,804 Howard County Operating 18,557 14,679 Carroll County Operating 1,800 1,800 Baltimore County Commission on Arts and Sciences Operating 400,000 375,000 Baltimore County Commission on Arts and Sciences Capital 25,000 Total $ 18,741,495 $ 10,996,635 NOTE 15 RELATED PARTY TRANSACTIONS For the year ended June 30, 2013, the Organization paid $778,240 to an insurance brokerage firm where the Chief Executive Officer of this firm served as a Board member for the Organization during the year. This firm retains a portion of those fees as a commission, and the remainder is remitted to the insurance company. There were no related party transactions for the year ended June 30, 2014. NOTE 16 CONCENTRATIONS OF CREDIT RISK The Organization maintains all of its cash and temporary investments in two commercial banks located in Baltimore, Maryland. Balances on deposit are insured by the Federal Deposit Insurance Corporation (FDIC) up to specified limits. Balances in excess of FDIC limits are uninsured. Total cash and temporary investments held by the banks were $3,172,563 and $3,298,666 at, respectively. NOTE 17 SUBSEQUENT EVENTS Management evaluated subsequent events through October 10, 2014, 2014, the date the financial statements were available to be issued. Events or transactions occurring after June 30, 2014, but prior to October 10, 2014, 2014 that provided additional evidence about conditions that existed at June 30, 2014, have been recognized in the consolidated financial statements for the year ended June 30, 2014. Events or transactions that provided evidence about conditions that did not exist at June 30, 2014, but arose before the consolidated financial statements were available to be issued, have not been recognized in the consolidated financial statements for the year ended June 30, 2014. This information is an integral part of the accompanying consolidated financial statements. 19