Financial statements of THE KIDNEY FOUNDATION OF CANADA
Table of contents Auditors report... 1 Statement of operations... 2 Statement of changes in fund balances... 3 Balance sheet... 4 Statement of cash flows... 5... 6-17 General Fund - Revenue... Schedule
Deloitte & Touche LLP 1 Place Ville Marie Suite 3000 Montreal QC H3B 4T9 Canada Tel: 514-393-7115 Fax: 514-390-4116 www.deloitte.ca Auditors report To the Directors of The Kidney Foundation of Canada We have audited the balance sheet of The Kidney Foundation of Canada as at and the statements of operations, changes in fund balances, and cash flows for the year then ended. These financial statements are the responsibility of the Foundation s management. Our responsibility is to express an opinion on these financial statements based on our audit. Except as explained in the following paragraph, we conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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. In common with many charitable organizations, the Foundation derives most of its revenue from the general public in the form of fundraising projects and donations, the completeness of which is not susceptible to satisfactory audit verification. Accordingly, our verification of these revenues was limited to the amounts recorded in the books of the Foundation and we were unable to determine whether any adjustments might be necessary to donation revenues, excess of revenue over expenditures, assets and fund balances. In our opinion, except for the effect of any adjustments which might have been required had we been able to audit the completeness of the donation revenues received from the general public, as described in the preceding paragraph, these financial statements present fairly, in all material respects, the financial position of the Foundation as at and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles. April 12, 2010 1 Chartered accountant auditor permit no 22220
Statement of operations year ended General Fund Endowment Fund Total Revenue - Schedule Public support 15,306,377 16,290,393 - - 15,306,377 16,290,393 Corporate and individual donations 4,506,109 4,079,419 96,953 164,512 4,603,062 4,243,931 Planned giving and in memoriam 2,709,983 3,377,480 - - 2,709,983 3,377,480 Investment income (Note 9) 1,202,672 862,484 25,666 20,624 1,228,338 883,108 23,725,141 24,609,776 122,619 185,136 23,847,760 24,794,912 Fundraising expenses 9,954,481 9,903,526 - - 9,954,481 9,903,526 Net revenue 13,770,660 14,706,250 122,619 185,136 13,893,279 14,891,386 Expenditures Programs Research 4,683,212 4,944,020 - - 4,683,212 4,944,020 Patient services 2,295,578 2,464,391 - - 2,295,578 2,464,391 Organ donation 643,695 523,061 - - 643,695 523,061 Public education services and communications 3,013,524 2,967,618 - - 3,013,524 2,967,618 10,636,009 10,899,090 - - 10,636,009 10,899,090 Foundation development 1,002,181 1,149,140 - - 1,002,181 1,149,140 Management and general 2,221,945 2,407,216 - - 2,221,945 2,407,216 Restructuring costs (Note 16) 262,263 63,939 - - 262,263 63,939 Investment management fees 23,096 16,760 16,522 16,316 39,618 33,076 14,145,494 14,536,145 16,522 16,316 14,162,016 14,552,461 (Deficiency) excess of revenue over expenditures (374,834) 170,105 106,097 168,820 (268,737) 338,925 Page 2 of 17
Statement of changes in fund balances year ended General Endowment Total Fund Fund Fund balances, beginning of year, as previously reported 7,341,761 7,118,477 14,460,238 15,387,789 Restatement (Note 2) 1,738,697 (2,342,983) (604,286) (648,909) As restated 9,080,458 4,775,494 13,855,952 14,738,880 (Deficiency) excess of revenue over expenditures (374,834) 106,097 (268,737) 338,925 Reclassification of losses realized on investments to statement of operations 1,219,685 5,476 1,225,161 82,217 Unrealized (depreciation) appreciation on investments (1,184,674) 277,623 (907,051) (1,639,070) Interfund transfer or reinvested investment income (34,871) 34,871 - - Land donation - - - 335,000 Fund balances, end of year 8,705,764 5,199,561 13,905,325 13,855,952 Page 3 of 17
Balance sheet as at General Endowment Total Fund Fund Assets Current Cash 1,420,955-1,420,955 2,479,063 Short-term deposits 27,889-27,889 498,201 Interest and sundry receivable 750,277-750,277 652,838 Prepaid expenses (Note 4) 665,351-665,351 899,114 2,864,472-2,864,472 4,529,216 Capital assets (Note 5) 1,805,438-1,805,438 1,844,604 Investments (Note 6) 10,464,721 5,199,561 15,664,282 14,694,835 15,134,631 5,199,561 20,334,192 21,068,655 Liabilities Current Accounts payable and accrued liabilities 1,456,429-1,456,429 1,694,309 Deferred contributions (Note 7a) 2,782,837-2,782,837 3,239,713 Deferred contributions - capital assets (Note 7b) 856,761-856,761 893,415 Deferred contributions - KRESCENT program (Note 8) 1,332,840-1,332,840 1,385,266 6,428,867-6,428,867 7,212,703 Fund balances Contributed land 335,000-335,000 335,000 Invested in capital assets 613,677-613,677 616,189 Internally restricted for endowment (Note 10) - 1,610,262 1,610,262 1,486,502 Externally restricted for endowment (Note 10) - 3,589,299 3,589,299 3,288,992 Internally restricted (Note 11) 2,860,806-2,860,806 3,178,246 Unrestricted 4,896,281-4,896,281 4,951,023 8,705,764 5,199,561 13,905,325 13,855,952 15,134,631 5,199,561 20,334,192 21,068,655 Commitments and contractual obligations (Notes 12 and 13) Approved by the Board... Director... Director Page 4 of 17
Statement of cash flows year ended Operating activities (Deficiency) excess of revenue over expenditures (268,737) 338,925 Adjustment for: Amortization of capital assets 312,754 313,852 Amortization of deferred contributions - capital assets (39,654) (40,055) Loss on redemption of investments 1,225,161 85,263 Loss on disposal of capital assets - 6,318 Deferred contributions recognized as revenue (2,455,311) (2,443,669) (1,225,787) (1,739,366) Changes in non-cash operating working capital items Interest and sundry receivable (97,439) 411,755 Prepaid expenses 233,763 33,353 Accounts payable and accrued liabilities (237,880) 189,553 (101,556) 634,661 Increase in deferred contributions 2,009,341 2,231,919 681,998 1,127,214 Investing activities Short-term deposits 470,312 (189,962) Acquisition of investments (11,294,584) (2,145,332) Proceeds on redemption of investments 9,357,754 2,107,108 Acquisition of capital assets (273,588) (423,365) Proceeds of disposal of capital assets - 12,176 (1,740,106) (639,375) Net (decrease) increase in cash (1,058,108) 487,839 Cash, beginning of year 2,479,063 1,991,224 Cash, end of year 1,420,955 2,479,063 Page 5 of 17
1. Mission of the Foundation The Kidney Foundation of Canada (the Foundation ) is the national volunteer organization committed to reducing the burden of kidney disease through: Funding and stimulating innovative research; Providing education and support; Promoting access to high quality healthcare; and Increasing public awareness and commitment to advancing kidney health and organ donation. The Foundation relies on its extensive network of qualified volunteers working in partnership with staff to deliver its programs and services throughout Canada. The Foundation is a registered charity under the Income Tax Act and is incorporated under the laws of Canada. 2. Changes in accounting policies and prior period adjustment Prior period adjustment In the course of the current year, the Foundation obtained additional information regarding the restrictions applied to certain funds and accordingly, the financial presentation of these items was changed. The results of these changes are as follows: Increase (decrease) from amount previously reported Account as at December 31, 2008 Deferred contributions 604,286 Unrestricted fund balance 2,008,487 Internally restricted fund balance (254,775) Endowment funds (2,342,983) Invested capital assets (15,015) Net earnings for the year 44,623 Adoption of accounting policies On January 1, 2009, the Foundation adopted the changes made to Sections 1540, 4400, 4460 and the new recommendations of Section 4470 of the Canadian Institute of Chartered Accountants ( CICA ) Handbook. Section 1540, Cash flow statements, has been amended to include not-for-profit organizations within its scope. As a result, investing and financing activities are now presented separately. Page 6 of 17
2. Changes in accounting policies and prior period adjustment (continued) Adoption of accounting policies (continued) Section 4400, Financial statement presentation by not-for-profit organizations, has been amended in order to eliminate the requirement to treat net assets invested in capital assets as a separate component of net assets and, instead, permit a not-for-profit organization to present such an amount as a category of internally restricted net assets when it chooses to do so. It also clarifies that revenues and expenses must be recognized and presented on a gross basis when a not-for profit organization is acting as a principal in transactions. As a result of the application of these standards, amounts previously reported at net in the statement of operations have been reclassified and revenues and fundraising expenses have been increased from the amounts previously reported in 2008 by $6,450,739. Section 4460, Disclosure of related party transactions by not-for-profit organizations, has been amended to make the language in Section 4460 consistent with Section 3840, Related party transactions. Section 4470, Disclosure of allocated expenses by not-for-profit organizations, establishes disclosure standards for a not-for-profit organization that classifies its expenses by function and allocates its expenses to a number of functions to which the expenses relate. As a result of the application of these new standards, additional disclosures were made regarding allocation of expenses in Notes 3 and 15, and the following reclassifications of amounts on 2008 figures were made to amounts previously reported in the statement of operations: fundraising expenses decreased by $421,572, public education services and communications expenditures increased by $394,623, organ donation expenditures increased by $27,491, Foundation development expenditures decreased by $246,398 and management and general expenditures increased by $245,856. 3. Significant accounting policies These financial statements reflect the combined activities of the national programs and operations of the Foundation and of all the Branches. They have been prepared in accordance with Canadian generally accepted accounting principles ( GAAP ), and include the following significant accounting policies: Fund accounting The Foundation follows the Restricted Fund method of accounting for contributions. Under the Restricted Fund Method, restricted contributions for which no separate restricted fund exists are reported in the General Fund and are accounted for using the deferral method of accounting for contributions. Page 7 of 17
3. Significant accounting policies (continued) Fund accounting (continued) The General Fund accounts for and reports all unrestricted and restricted operating activities of the Foundation. The activities include program delivery, administrative and general operations, as well as research, both internally and externally funded, and other restricted activities. The Endowment Fund accounts for gifts received for which the Foundation is required to maintain the capital amount of the gift or for amounts approved as internal endowments by the National Board of Directors. Investment income earned on Endowment Fund capital is used to support Foundation programs or is reinvested in the Endowment capital if so directed by the donor. Revenue recognition Contributions are recognized in the year received or receivable if the amount to be received can be reasonably estimated and collection is reasonably assured. Pledged contributions not received are not recorded. Unrestricted contributions are recognized as revenue of the General Fund. Restricted contributions are recorded as deferred contributions in the General Fund and recognized as revenue when the related expense is incurred. The Foundation has complied with the restrictions of such contributions. Contributions for endowments are recognized as revenue in the Endowment Fund. Investment income is recorded using the accrual method. Unrestricted investment income earned on Endowment Fund capital is recognized as revenue of the General Fund when it is earned. Investment income earned on Endowment Fund capital, which by donor restriction must be spent on specified restricted activities, is recorded as a deferred contribution in the General Fund and is recognized as revenue of the General Fund when the related expense is incurred. Endowment income earned on Endowment Fund capital, which by donor restriction must stay in the Endowment Fund and be added to the original endowment, is recognized as revenue of the Endowment Fund. Donated services The Foundation derives significant benefit from time and services donated by volunteers. These valuable contributions are not recorded in the financial statements. Page 8 of 17
3. Significant accounting policies (continued) Financial instruments The Foundation has elected to use the exemption provided by the Canadian Institute of Chartered Accountants ( CICA ) permitting-not-for profit organizations not to apply the following Sections of the CICA Handbook: 3862 and 3863, which would otherwise have applied to the financial statements of the Foundation for the years ended December 31, 2008 and 2009. The Foundation applies the requirements of Section 3861 of the CICA Handbook. Financial assets and liabilities are initially recognized at fair value and their subsequent measurement is dependent on their classification described below. Cash is classified as held for trading and is measured at fair value. Short-term deposits and investments are classified as available for sale and are carried at fair value. Short-term deposits comprise Canadian mutual funds. The change in fair value of these investments is recognized in the statement of changes in fund balances. When gains and losses are realized, the cumulative change in fair value is transferred to investment income. Interest and sundry receivable are classified as loans and receivables and accounts payable and accrued liabilities are classified as other financial liabilities. Financial instruments classified as loans and receivables and as other financial liabilities are carried at amortized cost using the effective interest rate method. Capital assets Capital assets are recorded at cost and amortized on a straight-line basis over their estimated useful lives. Furniture, fixtures and other are amortized over five years. Leasehold improvements are amortized over the remaining term of the lease. Computer equipment is amortized over three years. The building was donated and recorded at its appraised fair value and is being amortized over 25 years. Allocations The Foundation classifies its activities between its four principal program-related activities of research, patient services, organ donation and public education services and communications, and Foundation development, management and administration and investing activities. The costs of each activity include the direct costs associated with those activities, including personnel costs and other direct expenses. In addition, the Foundation incurs a certain number of common operating expenses in connection with these activities. Page 9 of 17
3. Significant accounting policies (continued) Allocations (continued) Where shared or indirect costs relate to more than one activity, such as the management and administration of these activities, the Foundation allocates these costs to all of the activities. These costs include the cost of administrative personnel, occupancy costs and other operating expenses not directly attributable to specific activities. These expenses are allocated by applying a percentage to direct costs of each activity. The percentages are based on averages established from historical analysis of the level of activity or support applicable to each area. As part of its activities that are primarily fundraising, most significantly the Door-to-Door and National Direct Mail campaigns, the Foundation incurs costs related to these activities that achieve both an education and communication component. Many of these costs, including personnel costs and educational materials such as brochures and other information sources, are also applicable to educating members of the community about kidney disease, research and services available to support individuals affected by kidney disease. Accordingly, some of these costs are allocated to the public education services and communications and organ donation activities. The costs are allocated based on management s best estimate of the portion of the direct costs of these activities and the portion of time or educational materials that apply to the non-fundraising activity. Use of estimates The preparation of financial statements, in conformity with Canadian generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. 4. Prepaid expenses Door-to-Door Campaign 297,371 423,094 Inventory of kits, brochures and manuals 93,915 171,363 Other 274,065 304,657 665,351 899,114 Page 10 of 17
5. Capital assets Accumulated Net book Net book Cost amortization value value Furniture and fixtures 413,028 307,290 105,738 116,447 Leasehold improvements 330,596 215,432 115,164 157,993 Computer equipment 1,159,801 767,942 391,859 336,832 Building 915,000 73,200 841,800 878,400 Land 335,000-335,000 335,000 Other 20,269 4,392 15,877 19,932 3,173,694 1,368,256 1,805,438 1,844,604 Amortization expense of $312,754 was recorded in the year (2008 - $313,852). 6. Investments Investments consist of the following: Fair value Cost Fair value Cost Money Market Fund 5,441,364 5,442,225 192,219 196,037 Bond Funds 3,839,938 4,555,507 10,152,308 10,366,101 Canadian Equity Funds 2,154,621 2,253,229 1,402,613 2,050,602 US Equity Funds 2,130,801 2,502,102 1,555,744 2,018,611 International Equity Funds 2,097,558 2,214,363 1,391,951 1,644,469 15,664,282 16,967,426 14,694,835 16,275,820 Page 11 of 17
7. Deferred contributions a) Deferred contributions Deferred contributions consist of contributions which the donor has restricted to a specific purpose, plus investment income on restricted endowments. These amounts are only recognized in income when expenditures meeting the restriction are made. The Foundation complies with these external restrictions. Balance, beginning of year 3,239,713 3,298,230 Plus: contributions received 1,478,380 1,633,450 Plus: restricted investment income 69,976 41,788 (Less) plus: unrealized change in fair value (40,269) 2,273 Less: amount recognized as revenue during the year (1,964,963) (1,736,028) Balance, end of year 2,782,837 3,239,713 b) Deferred contributions - capital assets On January 15, 2009, the building that houses the Foundation s Southern Alberta Branch office in Calgary was donated to the Foundation. The total gift was appraised at $1,250,000, with the building and land valued at $915,000 and $335,000, respectively. The building is being depreciated over 25 years and the related contribution revenue is being recognized over the same period. This balance also includes other donated capital assets and capital assets purchased with funds restricted for that purpose. Balance, beginning of year 893,415 3,201 Plus: contributions received 3,000 930,269 Less: amount recognized as revenue during the year (39,654) (40,055) Balance, end of year 856,761 893,415 Page 12 of 17
8. Deferred contributions - KRESCENT program The Foundation is responsible for the Kidney Research Scientist Core Education and National Training Program ( KRESCENT ) secretariat that manages the overall program and raises and administers funds for the initiative. The funds raised by the Foundation, and dedicated to the program, are subject to the normal accounting policies and practices of the Foundation s research program. Balance, beginning of year 1,385,266 1,551,795 Plus: sponsorships and donations received 437,922 541,112 Less: amount recognized as revenue during the year (490,348) (707,641) Balance, end of year 1,332,840 1,385,266 9. Endowment Fund investment income During the year, realized investment income earned on endowment funds comprised the following: Investment income 630,041 203,269 Capital losses (134,423) (3,104) 495,618 200,165 Endowment Fund investment income was reported in the following funds: General Fund 469,952 179,541 Endowment Fund 25,666 20,624 495,618 200,165 Page 13 of 17
10. Restricted for endowment fund balance The Endowment Fund balance includes funds which have been designated as endowments by the National Board of Directors and classified as Internally Restricted. The total endowment funds consist of the following: Internally Restricted Endowments Allocation Original of change in Fair endowment fair value Fair value Value Undesignated 190,548 (18,343) 172,205 162,143 Research 1,371,236 (132,001) 1,239,235 1,137,154 Other designated activities 220,000 (21,178) 198,822 187,205 1,781,784 (171,522) 1,610,262 1,486,502 Externally Restricted Endowments Undesignated 365,234 (35,159) 330,075 285,016 Research 2,299,491 (221,359) 2,078,132 1,946,132 Other designated activities 1,306,898 (125,806) 1,181,092 1,057,844 3,971,623 (382,324) 3,589,299 3,288,992 Total 5,753,407 (553,846) 5,199,561 4,775,494 The Foundation expects to recuperate the deficiency of the fair value from the original endowment over the long-term of its investment strategy. 11. Internally restricted fund balance The internally restricted fund balance consists of resources designated by the National Board of Directors for specific activities. These funds are not available for unrestricted purposes without approval of the National Board of Directors and are comprised of: General Fund Commitments for Research (including the KRESCENT program) 2,708,595 3,056,668 Reserve for future capital expenditures and other 152,211 121,578 2,860,806 3,178,246 Page 14 of 17
12. Commitments As at, the Foundation has commitments for research (including the KRESCENT program). These commitments, less deferred contributions for research, amount to $2,659,325 and are expected to be disbursed in the forthcoming years as follows: 13. Contractual obligations 2010 1,957,583 2011 676,742 2012 25,000 The minimum rental obligations for the forthcoming years under existing long-term operating leases, exclusive of certain operating costs for which the Foundation is responsible, are approximately as follows: 14. Capital disclosures 2010 791,195 2011 720,383 2012 614,172 2013 564,721 2014 and thereafter 1,535,728 The Foundation s objective when managing capital is to ensure it has adequate cash flow to maintain its operations and to meet its obligations with respect to externally restricted contributions. The Foundation includes both fund balances and deferred contributions in its definition of capital. The Foundation manages its capital through appropriate investment strategies and safeguarding of assets. External capital requirements consist of restrictions on contributions made by the donors. Depending on the nature of the contribution, the capital may be included in fund balance as an endowment, or in deferred contributions. The Foundation is in compliance with all externally imposed capital requirements and restrictions placed by donors. In order to maintain its registered charity status, the Foundation must meet certain spending requirements ( disbursement quota ) according to the Income Tax Act. The disbursement quota is a minimum amount that the registered charity must spend on charitable programs or as gifts to qualified donees in order to maintain its registered charity status. As at, the Foundation complies with the requirement. $ $ Page 15 of 17
15. Allocations As described in the significant accounting policies note, management and administration expenses have been allocated as follows: Fundraising expenses 764,705 883,997 Research 489,477 535,142 Patient services 395,006 416,651 Organ donation 150,657 128,231 Public education services and communications 461,190 450,248 Foundation development 284,678 318,912 As described in the significant accounting policies note, certain expenses related to activities that are primarily fundraising have been allocated to other activities as follows: Public education services and communications 751,103 892,935 Organ donation 30,698 27,490 16. Restructuring charge In 2009, the Foundation incurred restructuring costs in order to maximize operational efficiencies. The Foundation expects to incur charges of $177,060 for termination benefits, $70,272 for lease termination costs net of expected sublease revenues from the closure of offices, and $40,199 of legal and other charges in connection with these activities. Of these amounts, $262,263 has been expensed in 2009, and the remainder will be expensed in 2010. As of, a total of $107,763 was paid and $179,768 remains payable. In 2008, the Foundation expensed $63,939 related to termination benefits. 17. Financial instruments Fair value The carrying values of short-term financial assets and liabilities approximate their fair values due to their short-term maturities. The Foundation does not enter into any derivative financial instrument arrangements. Page 16 of 17
17. Financial instruments (continued) Credit risk The Foundation is exposed to credit risk to the extent that its donors and debtors may experience financial difficulty and would be unable to meet their obligations. However, the Foundation has a large number of diverse donors and debtors which minimizes concentration of credit risk. Market risks The Foundation is subject to market risk, which is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices whether those changes are caused by factors specific to the individual security or its issuer or factors affecting all securities traded in the market. These risks include exposure to fluctuations in interest rates and in foreign currencies. The concentration of risk is minimized because of the Foundation s diversification of its investment portfolio. 18. Comparative figures Certain comparative figures have been reclassified to conform to the current year s presentation. Page 17 of 17
General Fund - Revenue year ended Schedule Public support Door to Door campaign 3,362,509 3,497,702 Direct mail 2,009,765 2,215,105 Other fundraising activities* 9,934,103 10,577,586 Public support 15,306,377 16,290,393 Corporate and individual donations 4,506,109 4,079,419 Planned giving and in memoriam 2,709,983 3,377,480 Investment income 1,202,672 862,484 23,725,141 24,609,776 * Gaming activities Included in the other fundraising activities are gaming activities such as break-open tickets, raffles and bingos. These activities are regulated by provincial and municipal government bodies and higher fundraising costs as a percentage of revenues are attributed to them than for non-gaming related fundraising activities. The Canada Revenue Agency reporting requirements do not readily distinguish these cost relationships which may result in misinterpretation of fundraising costs as a percentage of revenues by some readers.