Ronald McDonald House of Western Michigan, Inc. Years Ended December 31, 2013 and 2012 Financial Statements
TABLE OF CONTENTS Page Independent Auditors' Report 1 Financial Statements for the Years Ended December 31, 2013 and 2012 Statements of Financial Position 3 Statements of Activities 4 Statements of Functional Expenses 6 Statements of Cash Flows 8 Notes to Financial Statements 9
2330 East Paris Ave., SE PO Box 6547 Grand Rapids, MI 49516 Ph: 616.975.4100 Fx: 616.975.4400 www.rehmann.com Board of Directors Ronald McDonald House of Western Michigan, Inc. Grand Rapids, Michigan INDEPENDENT AUDITORS' REPORT May 6, 2014 We have audited the accompanying financial statements of Ronald McDonald House of Western Michigan, Inc. (a Michigan not-for-profit corporation) (the "Organization"), which comprise the statements of financial position as of December 31, 2013 and 2012, and the related statements of activities, functional expenses, and cash flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these 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 financial statements that are free from material misstatement, whether due to fraud or error. Independent Auditors' Responsibility 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on auditor judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Organization s preparation and fair presentation of the 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 Organization 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1
Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ronald McDonald House of Western Michigan, Inc. as of December 31, 2013 and 2012, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. 2
STATEMENTS OF FINANCIAL POSITION December 31 2013 2012 ASSETS Current assets Cash and cash equivalents $ 278,851 $ 289,663 Cash and cash equivalents held for donor-restricted endowment 5,809 5,475 Investments 55,832 61,123 Receivables: Accounts, net 6,309 7,440 Contributions and grants - 5,000 Prepaid expenses 10,049 9,926 Total current assets 356,850 378,627 Noncurrent assets Cash and cash equivalents held for donor-restricted endowment 521,250 521,250 Investments 1,474,940 1,259,105 Property and equipment, net 1,212,855 1,312,563 Beneficial interest in assets held by foundation 95,910 87,911 Total noncurrent assets 3,304,955 3,180,829 Total assets $ 3,661,805 $ 3,559,456 LIABILITIES AND NET ASSETS Liabilities Accounts payable $ 12,699 $ 15,882 Accrued payroll and other liabilities 10,452 9,536 Total liabilities (all current) 23,151 25,418 Net assets Unrestricted: Board designated endowment 95,910 87,911 Board designated operating reserve 1,530,772 1,320,228 Undesignated 1,476,291 1,594,174 Temporarily restricted 14,431 10,475 Permanently restricted 521,250 521,250 Total net assets 3,638,654 3,534,038 Total liabilities and net assets $ 3,661,805 $ 3,559,456 The accompanying notes are an integral part of these financial statements. 3
STATEMENT OF ACTIVITIES For the Year Ended December 31, 2013 Temporarily Permanently Unrestricted Restricted Restricted Total Support and revenue Contributions: Cash $ 175,669 $ 34,847 $ - $ 210,516 Direct mail - True Sense 73,012 - - 73,012 In-kind 58,455 - - 58,455 Special events 92,516 - - 92,516 Grants 174,904 - - 174,904 Guest income 93,405 - - 93,405 Investment income 53,805 334-54,139 Net assets released from restrictions 31,225 (31,225) - - Total support and revenue 752,991 3,956-756,947 Expenses Program services - lodging and assistance 499,518 - - 499,518 General and administrative 114,157 - - 114,157 Fundraising 211,574 - - 211,574 Total expenses 825,249 - - 825,249 Nonoperating items Realized and unrealized gain on investments, net 165,021 - - 165,021 Change in fair value of beneficial interest in assets held by foundation 7,999 - - 7,999 Loss on disposal of property and equipment (102) - - (102) Total nonoperating items 172,918 - - 172,918 Change in net assets 100,660 3,956-104,616 Net assets - beginning of year 3,002,313 10,475 521,250 3,534,038 Net assets - end of year $ 3,102,973 $ 14,431 $ 521,250 $ 3,638,654 The accompanying notes are an integral part of these financial statements. 4
STATEMENT OF ACTIVITIES For the Year Ended December 31, 2012 Temporarily Permanently Unrestricted Restricted Restricted Total Support and revenue Contributions: Cash $ 141,401 $ 97,402 $ - $ 238,803 Direct mail - True Sense 52,900 - - 52,900 In-kind 97,429 62,491-159,920 Special events 130,863 - - 130,863 Grants 66,000 - - 66,000 Guest income 71,584 - - 71,584 Investment income 42,240 1,165-43,405 Sales of merchandise 99 - - 99 Net assets released from restrictions 209,186 (209,186) - - Total support and revenue 811,702 (48,128) - 763,574 Expenses Program services - lodging and assistance 555,667 - - 555,667 General and administrative 144,134 - - 144,134 Fundraising 181,715 - - 181,715 Total expenses 881,516 - - 881,516 Nonoperating items Realized and unrealized gain on investments, net 104,833 - - 104,833 Change in fair value of beneficial interest in assets held by foundation 9,914 - - 9,914 Gain on disposal of property and equipment 3,780 - - 3,780 Total nonoperating items 118,527 - - 118,527 Change in net assets 48,713 (48,128) - 585 Net assets - beginning of year 2,953,600 58,603 521,250 3,533,453 Net assets - end of year $ 3,002,313 $ 10,475 $ 521,250 $ 3,534,038 The accompanying notes are an integral part of these financial statements. 5
STATEMENT OF FUNCTIONAL EXPENSES For the Year Ended December 31, 2013 Program Services - lodging and General and assistance Administrative Fundraising Total Salaries, wages and benefits $ 179,169 $ 47,851 $ 86,449 $ 313,469 Depreciation 109,831 8,737 6,240 124,808 Education 1,052 3,683 526 5,261 Food and beverage - - 18,717 18,717 Guest services 40,094 - - 40,094 Insurance 15,363 1,222 873 17,458 Direct mail - True Sense 540 18,019 42,044 60,603 Office 16,550 1,725 2,699 20,974 Occupancy 47,184 3,230 2,307 52,721 Postage, printing and shipping 3,646 290 2,513 6,449 Professional 15,184 24,215 8,183 47,582 Telephone 17,144 1,364 974 19,482 Travel 153 458 940 1,551 Utilities 24,747 1,969 1,406 28,122 Other expenses 28,861 1,394 37,703 67,958 Total expenses $ 499,518 $ 114,157 $ 211,574 $ 825,249 The accompanying notes are an integral part of these financial statements. 6
STATEMENT OF FUNCTIONAL EXPENSES For the Year Ended December 31, 2012 Program Services - lodging and General and assistance Administrative Fundraising Total Salaries, wages and benefits $ 201,285 $ 35,610 $ 62,053 $ 298,948 Depreciation 96,002 7,797 5,569 109,368 Education 273 955 136 1,364 Food and beverage 13,144 1,046 23,105 37,295 Guest services 48,043 - - 48,043 Insurance 14,540 1,157 826 16,523 Direct mail - True Sense - 15,129 35,301 50,430 Office 11,114 884 5,491 17,489 Occupancy 66,843 5,315 3,796 75,954 Postage, printing and shipping 11,574 921 1,428 13,923 Professional 45,853 70,868 14,896 131,617 Promotion 2,188 174 124 2,486 Telephone 14,006 1,114 796 15,916 Travel 1,893 865 751 3,509 Utilities 25,805 2,053 1,466 29,324 Other expenses 3,104 246 25,977 29,327 Total expenses $ 555,667 $ 144,134 $ 181,715 $ 881,516 The accompanying notes are an integral part of these financial statements. 7
STATEMENTS OF CASH FLOWS Year Ended December 31 2013 2012 Cash flows from operating activities Change in net assets $ 104,616 $ 585 Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Realized and unrealized gain on investments (165,021) (104,833) Depreciation 124,808 109,368 Contributions of property - (114,828) Loss (gain) on disposal of property and equipment 102 (3,780) Interest income earned on donor restricted endowment 334 1,165 Change in value of beneficial interest in assets held by foundation (7,999) (9,914) Changes in operating assets and liabilities that provided (used) cash: Accounts receivable, net 1,131 12,346 Contributions and grants receivable 5,000 22,000 Prepaid expenses (123) (1,934) Accounts payable (3,183) (2,985) Accrued payroll and other liabilities 916 (13,423) Net cash provided by (used in) operating activities 60,581 (106,233) Cash flows from investing activities Purchases of property and equipment (25,202) (144,971) Proceeds from sales of investments 124,193 332,871 Purchases of investments (170,050) (107,981) Net cash (used in) provided by investing activities (71,059) 79,919 Net decrease in cash and cash equivalents (10,478) (26,314) Cash and cash equivalents, beginning of year 816,388 842,702 Cash and cash equivalents, end of year $ 805,910 $ 816,388 Classified on the statement of financial position as Cash and cash equivalents $ 278,851 $ 289,663 Cash and cash equivalents held for donor-restricted endowment, current 5,809 5,475 Cash and cash equivalents held for donor-restricted endowment, noncurrent 521,250 521,250 $ 805,910 $ 816,388 The accompanying notes are an integral part of these financial statements. 8
1. NATURE OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Nature of Organization and Mission The accompanying financial statements present the financial position, results of operations and cash flows of Ronald McDonald House of Western Michigan, Inc. (the Organization ). The Organization was organized in Michigan as a not-for-profit corporation in 1987. The work of the Organization is to provide temporary lodging and assistance to families who are displaced because of their children's extended medical treatment. The financial statements of the Organization have been prepared on the accrual basis of accounting. The significant accounting policies of the Organization are described below. Use of Estimates 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 revenue and expenses during the year. Actual results could differ from those estimates. Significant estimates include but are not limited to determining the fair value of investments and the beneficial interest in assets held by the Grand Rapids Community Foundation. Basis of Presentation The Organization has classified information regarding its financial position and activities according to three classes of net assets depending on the existence or absence of donor-imposed restrictions: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Temporarily restricted net assets result from donor-imposed restrictions that expire with the passage of time or can be removed by meeting certain purpose requirements. Permanently restricted net assets result from donor-imposed restrictions that limit the use of net assets in perpetuity. Investment income, gains and losses on restricted net assets are classified as unrestricted unless specifically restricted by the donor or by applicable state law. Fair Value Measurements Fair value refers to the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants in the market in which the reporting entity transacts such sales or transfers based on the assumptions market participants would use when pricing an asset or liability. Assumptions are developed based on prioritizing information within a fair value hierarchy that gives the highest priority to quoted prices in active markets (level 1) and the lowest priority to unobservable data (level 3). For a further discussion of Fair Value Measurements, refer to Note 2 to the financial statements. 9
Cash and Cash Equivalents Cash and cash equivalents consist of demand deposits in banks, institutional money market funds and cash on hand. For purposes of the statement of cash flows, the Organization considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents, except that such assets held in endowment are generally classified as noncurrent. The Organization maintains demand deposits in several banks, which are insured by the Federal Deposit Insurance Corporation. At times throughout the year, the cash balances may exceed insured limits. Management believes the Organization is not exposed to any significant interest rate or other financial risk on these deposits. Investments Investments held by the Organization consist of money market funds, mutual funds, and real estate investment trusts. Such investments are carried at fair value, based on quoted market prices. Investments received as donations are initially recorded at fair value on the date of receipt. Realized gains and losses on the sale of investments are determined based on the first-in, first-out method. Unrealized gains and losses are included in nonoperating income on the statement of activities. Contributions Receivable The Organization has received pledges from various donors to contribute monies in the future for various purposes. As these pledges are all due within one year, they are not discounted to the net present value. Property and Equipment and Depreciation Property and equipment is stated at cost. Donated property and equipment is recorded at fair value at the date of donation. Donations are reported as unrestricted support unless the donor has restricted the use of the donated asset to a specific purpose. Absent explicit donor stipulations about how long those long-lived assets must be maintained, the Organization reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service. Depreciation is computed using the straightline method over the estimated useful lives of the related assets, which range from 3 to 39 years. Major improvements and renewals are capitalized while ordinary maintenance and repairs are expensed. Management annually reviews these assets to determine whether carrying values have been impaired. Beneficial Interest in Assets Held by Foundation The Organization has established two funds with the Grand Rapids Community Foundation ("Foundation") with the transfer of $50,000 of board designated cash and specified itself as beneficiary (See Note 5). Annual revaluation occurs based on changes to the market value and fees charged, and this revaluation is treated as an increase or decrease to unrestricted net assets in the statement of activities. Taking into account additional transfers, investment gains/losses, and fees, the balances totaled $95,910 and $87,911 at December 31, 2013 and 2012, respectively. Variance power remains with the Organization. Distributions of unrestricted amounts will be made as the Foundation deems appropriate. There were distributions of $388 and $360 during 2013 and 2012, respectively. 10
In addition, the Organization maintains a separate account with the Foundation to allow for direct contributions on the Organization s behalf. While such contributions are earmarked for the Organization, the variance power held by the Foundation precludes their recognition in the accompanying financial statements in accordance with generally accepted accounting principles. The total held in this separate account amounted to $7,168 and $5,813 at December 31, 2013 and 2012, respectively. Contributions and Other Revenue Contributions or other revenue received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and/or nature of any donor restrictions. Contributions, special event, and grant revenue are recognized when the donor makes a promise to give that is, in substance, unconditional. Contributions, special event revenue, and grants that are restricted by the donor is reported as increases in unrestricted, temporarily restricted or permanently restricted net assets depending on the nature of the restrictions. When a restriction has been satisfied (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Room rental revenue is recognized when service is provided and is unrestricted. Room rental revenue contains amounts both paid and payable by the Federal Government from the Medicaid program. Amounts receivable from Medicaid at December 31, 2013 and 2012 are reported as accounts receivable, net of the amount that management expects to collect in the next year. Donated Services and Goods Volunteers have donated time to the Organization s operations during the year; however, these donated services are not reflected in the financial statements to the extent that the services do not require specialized skills. Donated goods, which includes an immaterial amount of related donated services, are recorded as revenue on the date of the receipt at estimated fair market value. Donated materials of $58,455 and $159,920 were included in support and revenue during 2013 and 2012, respectively. This revenue was offset by expenses shown on the statements of activities and functional expenses according to the nature of the donation. 11
Income Taxes The Organization is a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code and is exempt from similar state and local taxes. Although the Organization was granted an income tax exemption by the Internal Revenue Service, such exemption does not apply to unrelated business taxable income. Such income, pursuant to the Internal Revenue Code and related regulations, includes investment income, such as interest received from sources other than directly from contributions. The Organization has been classified as not a private foundation. The Organization has evaluated its income tax filing positions for fiscal years 2010 through 2013, the years which remain subject to examination as of December 31, 2013. The Organization concluded that there are no significant uncertain tax positions requiring recognition in the Organization s financial statements. The Organization does not expect the total amount of unrecognized tax benefits ( UTB ) (e.g. tax deductions, exclusions, or credits claimed or expected to be claimed) to significantly change in the next twelve months. The Organization does not have any amounts accrued for interest and penalties related to UTBs at December 31, 2013 or 2012, and is not aware of any claims for such amounts by federal or state income tax authorities. Reclassifications Certain amounts in the 2012 financial statements have been reclassified to conform with the 2013 presentation. Functional Allocation of Expenses The costs of providing the program services have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited as detailed in the statement of functional expenses. Subsequent Events In preparing these financial statements, management has evaluated, for potential recognition or disclosure, significant events or transactions that occurred during the period subsequent to December 31, 2013, the most recent statement of financial position presented herein, through May 6, 2014, the date these financial statements were available to be issued. No such significant events or transactions were identified, other than the matter disclosed in Note 8. 2. FAIR VALUE MEASUREMENTS AND INVESTMENTS The Organization utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Investments and beneficial interest in assets held by the Foundation are recorded at fair value on a recurring basis. Following is a description of the valuation methodologies and key inputs used to measure assets recorded at fair value. 12
Investments: Marketable equity securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices. Level 1 securities include mutual funds and real estate investment trusts traded on an active exchange, such as the New York Stock Exchange, that are traded by dealers or brokers in active over-the-counter markets and money market funds. Beneficial interest in assets held by Foundation: Fair value measurements of the underlying investments in the Foundation are based upon quoted prices. The underlying Foundation assets cannot be liquidated or redeemed by the Organization. As such, no quoted prices or active market are available for this asset (Level 3). As a practical expedient, the carrying value of this asset is equal to the allocated portion of the total fair values of the underlying investments held by the Foundation. The Organization groups its investments and beneficial interest in assets held by Foundation at fair value into three levels (termed the fair value hierarchy), based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are: Level 1: Valuation is based upon quoted prices for identical instruments traded in active markets. The Organization considers its investment securities to be Level 1 assets. Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 3: Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. The Organization considers the beneficial interest in assets held by Foundation as Level 3. The following tables set forth by level, within the fair value hierarchy, the Organization s assets measured at fair value on a recurring basis as of December 31: 2013 Total Level 1 Level 2 Level 3 Investment securities Money market and savings certificates $ 55,832 $ 55,832 $ - $ - Mutual bond funds, limited duration 543,410 543,410 - - Mutual equity funds, index 114,175 114,175 - - Mutual equity funds, value 126,896 126,896 - - Mutual equity funds, growth 633,366 633,366 - - Real estate investment trusts 57,093 57,093 - - Total investment securities 1,530,772 1,530,772 - - Beneficial interest in assets held by Foundation Total assets at fair value 95,910 - - 95,910 $ 1,626,682 $ 1,530,772 $ - $ 95,910 13
2012 Total Level 1 Level 2 Level 3 Investment securities Money market and savings certificates $ 61,123 $ 61,123 $ - $ - Mutual bond funds, US Treasury 15,176 15,176 - - Mutual bond funds, limited duration 531,592 531,592 - - Mutual equity funds, index 99,482 99,482 - - Mutual equity funds, value 100,406 100,406 - - Mutual equity funds, growth 436,420 436,420 - - Real estate investment trusts 76,029 76,090 - - Total investment securities 1,320,228 1,320,289 - - Beneficial interest in assets held by Foundation Total assets at fair value 87,911 - - 87,911 $ 1,408,139 $ 1,320,289 $ - $ 87,911 The activity of the Level 3 assets (beneficial interest in assets held by Foundation) was as follows for the years ended December 31: 2013 2012 Beginning balance $ 87,911 $ 77,997 Deposits - 500 Withdrawals (768) (1,171) Change in fair value 8,767 10,585 Ending balance $ 95,910 $ 87,911 Net realized and unrealized gain on investments is summarized as follows for the years ended December 31: 2013 2012 Net realized gains on investments $ 22,762 $ 2,076 Net unrealized gains on investments 142,259 102,757 Total $ 165,021 $ 104,833 14
3. PROPERTY AND EQUIPMENT Net property and equipment consists of the following at December 31: 2013 2012 Land $ 201,450 $ 201,450 Buildings and improvements 2,301,059 2,295,320 Office equipment 68,475 63,477 Equipment, furniture, and fixtures 185,500 186,516 Motor vehicles 32,366 32,366 Total 2,788,850 2,779,129 Less accumulated depreciation 1,575,995 1,466,566 Property and equipment, net $ 1,212,855 $ 1,312,563 4. RESTRICTIONS ON NET ASSETS Temporarily restricted net assets consist of the following at December 31: 2013 2012 Time restricted $ - $ 5,000 Portion of the donor restricted endowment not permanently restricted 5,809 5,475 Restricted for purpose: Technology 6,747 - Kitchen improvements 861 - Other 1,014 - Total temporarily restricted net assets $ 14,431 $ 10,475 The Organization's permanently restricted net assets totaled $521,250 at December 31, 2013 and 2012 and relate to the Organization's permanent endowment fund. 15
5. ENDOWMENT FUNDS The Organization's endowment fund includes one donor-restricted fund, as well as a board-designated endowment fund. As required by generally accepted accounting principles, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. The principal amount of the donor-restricted endowment fund has been permanently restricted by the original donor, whereas the investment income earned on the assets of this fund is temporarily restricted for the stated purpose of the fund until such time as the Board of Directors appropriates the income for expenditure. The Organization's separate fund held at the local community foundation, has been designated by the Board of Directors as a quasi-endowment fund. Net assets associated with this fund are classified as unrestricted in the accompanying financial statements. Interpretation of Relevant Law The Organization's Board of Directors has interpreted the State of Michigan Prudent Management of Institutional Funds Act (SMPMIFA) as requiring the preservation of fair value of the original gift as of the gift date for donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Organization classifies as permanently restricted net assets (a) the historical dollar value of gifts donated to the permanent endowment, (b) the historical dollar value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument, if any, at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Organization in a manner consistent with the standard of prudence prescribed by SMPMIFA. For board-designated endowment funds, the entire balances are classified as unrestricted. In accordance with SMPMIFA, the Organization considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: The The General The The Other The duration and preservation of the fund; purposes of the Organization and the donor-restricted endowment fund; economic conditions; possible effect of inflation and deflation; expected total return from income and the appreciation of investments; resources of the Organization; and investment policies of the Organization. Endowment Net Asset Composition by Type of Fund December 31, 2013 Unrestricted Temporarily Restricted Permanently Restricted Total Board-designated endowment fund $ 95,910 $ - $ - $ 95,910 Donor-restricted endowment fund - 5,809 521,250 527,059 Endowment net assets December 31, 2013 $ 95,910 $ 5,809 $ 521,250 $ 622,969 16
December 31, 2012 Unrestricted Temporarily Restricted Permanently Restricted Total Board-designated endowment fund $ 87,911 $ - $ - $ 87,911 Donor-restricted endowment fund - 5,475 521,250 526,725 Endowment net assets December 31, 2012 $ 87,911 $ 5,475 $ 521,250 $ 614,636 Changes in Endowment Net Assets Unrestricted Temporarily Restricted Permanently Restricted Total Endowment net assets, January 1, 2013 $ 87,911 $ 5,475 $ 521,250 $ 614,636 Investment income, net of expense - 334-334 Change in value of beneficial interest in assets held by Foundation 7,999 - - 7,999 Endowment net assets, December 31, 2013 $ 95,910 $ 5,809 $ 521,250 $ 622,969 Unrestricted Temporarily Restricted Permanently Restricted Total Endowment net assets, January 1, 2012 $ 77,997 $ 4,310 $ 521,250 $ 603,557 Investment income, net of expense - 1,165-1,165 Change in value of beneficial interest in assets held by Foundation 9,914 - - 9,914 Endowment net assets, December 31, 2012 $ 87,911 $ 5,475 $ 521,250 $ 614,636 17
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 program supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Under this policy, as approved by the Board of Directors, the endowment assets should be invested in a manner that no more than 45% will be in bonds and at least 5% will be in cash, money market funds, and certificate of deposits, and no more than 50% will be in common stocks. The total net return based on the policy shall be deemed to be acceptable under the risk/return objectives. Actual returns in any given year may vary from this amount. Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, the Organization relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Organization targets a diversified asset allocation that places a greater emphasis on conservative investments to achieve its long-term return objectives within prudent risk constraints. Spending Policy and How the Investment Objectives Relate to Spending Policy Over the long term, the Organization expects the current spending policy to allow its endowment to grow at an average rate equal to or greater than the consumer price index. This is consistent with the Organization s objective to maintain the purchasing power of the endowment assets as well as to provide additional real growth through new gifts and investment return. 6. RETIREMENT PLAN The Organization maintains a deferred compensation plan qualified under Section 401(k) of the Internal Revenue Code. Under this plan, eligible employees are permitted to contribute up to 10% of gross compensation into the retirement plan up to a maximum determined by the Internal Revenue Code. The Organization does not contribute to the plan. 7. RELATED PARTIES The Organization receives grants and contributions from Ronald McDonald House Charities of Outstate Michigan, Inc. An affiliation agreement exists between the two entities and dictates that they share at least two board members. As an affiliate of Ronald McDonald House Charities of Outstate Michigan, Inc., the Organization has historically received grant funding each year, however such funding is not guaranteed. Grant revenue received during 2013 and 2012 was $121,055 and $66,000, respectively. In 2012, the Organization also awarded a construction project to a company who employs one of the Organization's board members. Payments during 2012 totaled approximately $35,700 and the amount owed to the company at December 31, 2012 was $1,267. Payments during 2013 totaled $4,235 and the amount owed to the company at December 31, 2013 was $859. 18
8. SUBSEQUENT EVENT In January 2014, the Organization moved its permanent endowment from a checking account to an investment account to better maximize the earning potential for the endowment. 19