Audited Financial Statements ROMAN CATHOLIC DIOCESE OF MARQUETTE October 31, 2013
Audited Financial Statements October 31, 2013 Audited Financial Statements Independent Auditor s Report... 1 Statements of Financial Position... 2 Statements of Activities... 3 Statements of Cash Flows... 5 Notes to Financial Statements... 6
STATEMENTS OF FINANCIAL POSITION October 31 2013 2012 ASSETS Cash and cash equivalents $ 1,073,877 $ 1,001,625 Investments 29,533,624 25,801,194 Pledges receivable, net 2,761,418 4,266,346 Accounts and notes receivable, net 721,426 843,613 Other assets 11,890 9,694 Land, buildings, and equipment, net 2,539,078 2,607,724 LIABILITIES AND NET ASSETS LIABILITIES TOTAL ASSETS $ 36,641,313 $ 34,530,196 Accounts payable and accrued expenses $ 451,465 $ 266,722 Annuities payable 190,465 238,963 Amounts payable to parishes 1,152,188 2,106,311 Other liabilities 22,182 22,182 TOTAL LIABILITIES 1,816,300 2,634,178 NET ASSETS Unrestricted: Designated 11,418,674 11,194,694 Undesignated 9,764,958 7,905,904 Net investment in land, buildings, and equipment 2,539,078 2,607,724 TOTAL UNRESTRICTED NET ASSETS 23,722,710 21,708,322 Temporarily restricted 4,093,933 3,173,281 Permanently restricted 7,008,370 7,014,415 TOTAL NET ASSETS 34,825,013 31,896,018 TOTAL LIABILITIES AND NET ASSETS $ 36,641,313 $ 34,530,196 See notes to financial statements. -2-
STATEMENT OF ACTIVITIES Year Ended October 31, 2013 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES UPCSA Campaign contributions $ 1,774,582 $ 1,774,582 Catholic School Parish Assessment 268,272 268,272 Interest and dividend income $ 373,653 228,399 602,052 Net realized and unrealized gains 2,302,229 1,007,201 3,309,430 Insurance rebate 294,740 294,740 Our Faith in the Future Capital Campaign 68,568 $ 26,369 94,937 Bequests, donations, and grants 218,518 251,891 54,182 524,591 Diocesan Newspaper 205,942 205,942 Gain on sale of property 13,000 13,000 Miscellaneous 27,506 27,506 Net assets released from restrictions 2,557,261 (2,557,261) TOTAL REVENUES 5,992,849 1,041,652 80,551 7,115,052 EXPENSES Executive and support services 206,184 206,184 Ministry personnel services 800,359 800,359 Spiritual development services 32,262 32,262 Catholic education/formation services 529,837 529,837 Catholic Schools support 218,750 218,750 Communication services 392,250 392,250 Judicial services 29,473 29,473 Catholic Social Services subsidy 329,000 329,000 Diocesan donations and other services 502,953 502,953 Financial services 285,936 285,936 Development and UPCSA Campaign 190,535 190,535 Building and grounds 152,580 152,580 Depreciation 153,659 153,659 Capital campaign expense 18,615 18,615 Capital campaign--parishes and schools 16,068 16,068 Bad debt expense 120,000 120,000 TOTAL EXPENSES 3,978,461 0 0 3,978,461 CHANGE IN NET ASSETS BEFORE OTHER LOSS 2,014,388 1,041,652 80,551 3,136,591 OTHER LOSS--Bad debt loss (121,000) (86,596) (207,596) CHANGE IN NET ASSETS 2,014,388 920,652 (6,045) 2,928,995 Net assets at beginning of year 21,708,322 3,173,281 7,014,415 31,896,018 NET ASSETS AT END OF YEAR $ 23,722,710 $ 4,093,933 $ 7,008,370 $ 34,825,013 See notes to financial statements. -3-
STATEMENT OF ACTIVITIES Year Ended October 31, 2012 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES UPCSA Campaign contributions $ 1,740,498 $ 1,740,498 Catholic School Parish Assessment 173,169 173,169 Interest and dividend income $ 467,813 191,386 659,199 Net realized and unrealized gains 797,343 301,877 1,099,220 Insurance rebate 254,400 254,400 Our Faith in the Future Capital Campaign 189,986 $ 89,447 279,433 Bequests, donations, and grants 1,061,071 272,705 33,257 1,367,033 Diocesan Newspaper 219,526 219,526 Miscellaneous 12,041 12,041 Net assets released from restrictions 2,653,390 (2,653,390) TOTAL REVENUES 5,465,584 216,231 122,704 5,804,519 EXPENSES Executive and support services 187,744 187,744 Ministry personnel services 795,847 795,847 Spiritual development services 29,576 29,576 Catholic education/formation services 445,563 445,563 Catholic Schools support 222,470 222,470 Communication services 420,038 420,038 Judicial services 33,230 33,230 Catholic Social Services subsidy 329,004 329,004 Diocesan donations and other services 530,514 530,514 Financial services 277,778 277,778 Development and UPCSA Campaign 156,259 156,259 Building and grounds 135,955 135,955 Depreciation 142,907 142,907 Capital campaign expense 22,674 22,674 Capital campaign--parishes and schools 91,360 91,360 TOTAL EXPENSES 3,820,919 0 0 3,820,919 CHANGE IN NET ASSETS 1,644,665 216,231 122,704 1,983,600 Net assets at beginning of year 20,063,657 2,957,050 6,891,711 29,912,418 NET ASSETS AT END OF YEAR $ 21,708,322 $ 3,173,281 $ 7,014,415 $ 31,896,018 See notes to financial statements. -4-
STATEMENTS OF CASH FLOWS Year Ended October 31 2013 2012 CASH FLOWS FROM (USED BY) OPERATING ACTIVITIES Change in net assets $ 2,928,995 $ 1,983,600 Adjustments to reconcile change in net assets to net cash and cash equivalents from operating activities: Depreciation 153,659 142,907 Provision for uncollectible pledges receivable 207,596 Provision for uncollectible accounts and notes receivable 120,000 Realized and unrealized gains on investment securities (3,309,430) (1,099,220) Gain on asset disposal (13,000) Contributions restricted for long-term purposes (80,551) (122,704) Present value adjustment on pledges receivable (86,000) (131,500) (Increase) Decrease in: Pledges receivable 1,021,372 1,033,130 Accounts and notes receivable 52,187 23,314 Other assets (2,196) 122,700 Increase (Decrease) in: Accounts payable and accrued expenses 184,743 (98,242) Amounts payable to parishes (954,123) (802,099) Annuities payable (48,498) (128,393) Other liabilities (552,290) NET CASH AND CASH EQUIVALENTS FROM OPERATING ACTIVITIES 174,754 371,203 INVESTING ACTIVITIES Purchases of land, buildings, and equipment (85,013) (11,591) Proceeds from sale of fixed assets 13,000 Net deposits to investment pool (423,000) (893,923) NET CASH AND CASH EQUIVALENTS USED BY INVESTING ACTIVITIES (495,013) (905,514) FINANCING ACTIVITIES--Proceeds from contributions restricted for long-term purposes 392,511 300,799 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 72,252 (233,512) Cash and cash equivalents at beginning of year 1,001,625 1,235,137 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,073,877 $ 1,001,625 See notes to financial statements. -5-
NOTES TO FINANCIAL STATEMENTS October 31, 2013 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General The Roman Catholic Diocese of Marquette (Diocese) was established in 1857. The Diocese consists of 72 parishes, 22 missions, and nine schools located in the Upper Peninsula of Michigan. The Diocesan administrative office is located in Marquette, Michigan. The accompanying financial statements include only those funds for which the Diocese retains operational control and exclude the accounts of parishes, schools, other institutions, or agencies of the Diocese. Under Michigan law, all assets and liabilities of the parishes, schools, other institutions, or agencies are in the name of the Bishop. All borrowings by parishes, schools, other institutions, or agencies in the Diocese are made on the credit rating of the Diocese. Promissory notes signed by the Bishop for the above are the primary responsibility of the entity receiving the loan and are not included in these financial statements. The main sources of income are the annual Upper Peninsula Catholic Services Appeal Drive and investment income. Basis of Accounting The financial statements of the Diocese have been prepared on the accrual basis of accounting. Financial Statement Presentation The financial statement presentation follows the recommendations of the Financial Accounting Standards Board (FASB) in its Accounting Standards Codification (ASC) 958-310, Not-for-Profit Organizations Receivables, FASB ASC 958-320, Investments-Debt and Equity Securities and FASB ASC 958, Financial Statements of Not-for-Profit Organizations. In accordance with FASB ASC 958, the Diocese is required to report information regarding its financial position and activities according to three classes of net assets (i.e., unrestricted, temporarily restricted, and permanently restricted) based on the existence or nature of any donor-imposed restrictions. Descriptions of the asset classes are as follows: Unrestricted Net Assets--Represent funds available for support of current Diocesan operations. -6-
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued Temporarily Restricted Net Assets--Represent funds whose use is limited by donorimposed stipulations that expire either by passage of time or fulfillment of the stipulations. The funds are reported as temporarily restricted revenues upon receipt and are transferred to unrestricted net assets when the time or purpose restrictions have been met. Permanently Restricted Net Assets--Represent funds subject to donor-imposed stipulations requiring that the principal be permanently invested. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include checking, savings, and money market funds which are principally invested in short-term U.S. Government Securities. Investments Investments are carried at fair value. The majority of Diocesan investments are deposited with the Michigan Catholic Conference Socially Responsible Investment Pool (MCC Investment Pool) along with the investments of other dioceses, parishes, schools, and other institutions. Accounts and Notes Receivable The Diocese has long-term notes receivable from parishes, institutions, and individuals with varying maturities that do not bear interest. These notes are subject to repayment under various terms. Notes receivable are stated at the amount Diocese expects to collect from outstanding balances. Allowance for Doubtful Accounts and Notes Receivable Bad debts are provided on the allowance method based on historical experience and management's evaluation of outstanding accounts and notes receivable at the end of each year. Losses are charged against the allowance when management determines that further collection efforts will not produce additional recoveries. METHOD -7-
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued Promises to Give Unconditional promises to give are recognized as receivables and as revenue in the period in which the Diocese is notified by the donor of his or her commitment to make a contribution. The Diocese uses the allowance method to estimate uncollectible pledges receivable based on management s analysis of specific pledges made. Property and Equipment Assets are stated at cost, if purchased, or at market value on date of acquisition, if donated. Capital items costing in excess of $1,000 are capitalized. Depreciation is provided by the straight-line method over the following estimated useful lives: Buildings Building improvements Land improvements Vehicles Equipment and furnishings Computer equipment 50 years 20 years 15 years 5 years 6 years 3 years Contributions Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and/or nature of any donor restrictions. The Diocese reports gifts of cash and other assets as temporarily or permanently restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, 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. Contributed Services Support arising from contributed services of certain religious personnel has not been recorded in the financial statements, as the rendering of such services does not involve creation of nonfinancial assets, and such services would not typically need to be procured if not provided by donation. -8-
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued Functional Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the statement of activities. These expenses are accounted for by directly charging such costs to the specific programs and activities to which they relate. Upper Peninsula Catholic Services Appeal Collections from the Upper Peninsula Catholic Services Appeal (UPCSA) fund drive are allocated to Diocesan operations and programs to provide for local and national charitable contributions. The targeted amounts of UPCSA donations for the following year s appeal are recorded as temporarily restricted support. The targeted amount of the UPCSA appeal donations for each parish is computed based on the following two factors: a. The parishes ordinary income which consists of Sunday and Holy Day offerings, loose collections, children s offerings, fuel collections, is reduced by 100 percent of any subsidies paid to schools for parishes supporting Catholic schools b. The number of parish contributing envelope holders The individual parish goals are based on the average of factors (a) and (b) described above. Catholic Schools Support The accompanying statements of activities include support provided to the nine Catholic schools within the Diocese from 1) a specific assessment from each parish that is collected by the Diocese and remitted to the schools and 2) earnings distributed to the schools from board designated endowment funds. Reclassifications Certain amounts as of and for the year ended October 31, 2012, have been reclassified to conform to the current year s presentation. Subsequent Events Subsequent events were evaluated through February 18, 2014, which is the date the financial statements were available to be issued. -9-
NOTE B--CONCENTRATION OF CREDIT RISK At times, the Diocese maintains deposits with a financial institution that are either not insured by the Federal Deposit Insurance Corporation (FDIC) or exceed FDIC insurance limits. The total amount of such deposits as of October 31, 2013, approximated $1,060,000. Management does not believe that it is subject to any significant custodial credit risk in connection with these deposits. NOTE C--ACCOUNTS AND NOTES RECEIVABLE The components of accounts and notes receivable are as follows: October 31 2013 2012 Accounts receivable from the following organizations: Diocesan Catholic Cemeteries $ 310,666 $ 288,377 Catholic Social Services of the Upper Peninsula 19,147 Needy Parish Loans receivable 502,316 512,994 Other accounts receivable 59,162 53,967 TOTAL ACCOUNTS AND NOTES RECEIVABLE 872,144 874,485 Allowance for uncollectible accounts and notes receivable (150,718) (30,872) NET ACCOUNTS AND NOTES RECEIVABLE $ 721,426 $ 843,613 NOTE D--INVESTMENTS The vast majority of the Diocesan investments represent participation in the Michigan Catholic Conference Socially Responsible Investment Pool (MCC Investment Pool). The following represents a summary of Diocesan investments: October 31 2013 2012 MCC Investment Pool (60% equities / 40% fixed income) $ 29,533,624 $ 25,801,194 Interest and dividend income is reported net of fees, which approximated $92,000 and $90,000 for the years ended October 31, 2013 and 2012, respectively. The following table presents information about the Diocesan investments measured at fair value on a recurring basis at October 31, 2013, and the valuation techniques used by the Diocese to determine those fair values. The FASB ASC 820 Fair Value Measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. -10-
NOTE D--INVESTMENTS--Continued The hierarchy consists of three broad levels: Level 1 inputs consist of unadjusted quoted prices in active markets for identical assets and have the highest priority; Level 2 inputs consist of observable inputs other than quoted prices for identical assets; Level 3 inputs consist of unobservable inputs and have the lowest priority. The Diocese uses appropriate valuation techniques based on the available inputs to measure the fair value of its investments. October 31, 2013 Quoted Prices Significant in Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs (Level 1) (Level 2) (Level 3) Total MCC Investment Pool $ 0 $ 29,533,624 $ 0 $ 29,533,624 October 31, 2012 MCC Investment Pool $ 0 $ 25,801,194 $ 0 $ 25,801,194 The Diocese administers parish, mission, school and other religious organization s participation in the MCC Investment Pool. The amounts deposited with the MCC Investment Pool, on behalf of these other organizations, approximated $18,163,228 and $16,332,617 as of October 31, 2013 and 2012, respectively. These amounts have been excluded from the financial statements because these funds are not within the operational control of the Diocese. NOTE E--LAND, BUILDINGS, AND EQUIPMENT The composition of the land, buildings, and equipment is as follows: October 31 2013 2012 Land $ 462,035 $ 462,035 Land improvements 71,490 71,490 Buildings 1,325,472 1,325,472 Building improvements 1,930,238 1,916,658 Vehicles 79,700 85,800 Furnishings and equipment 199,413 338,393 4,068,348 4,199,848 Less accumulated depreciation 1,529,270 1,592,124-11- TOTAL $ 2,539,078 $ 2,607,724
NOTE F--PENSION PLANS The Diocese participates in the Michigan Catholic Conference Lay Employees Retirement Plan (Lay Plan), a multi-employer defined benefit pension plan. The Lay Plan number and employer identification number is 38-1971920. Contributions to the Lay Plan were $61,906 and $58,120 for the years ended October 31, 2013 and 2012, respectively. The amount of contributions to the Lay Plan remained at 6.6 percent until June 30, 2013. Effective July 1, 2013, the contribution to the Lay Plan was increased to 7.1 percent of wages of all covered employees. Based on information as of June 30, 2013, the year end of the Lay Plan, the Diocesan contributions to the Lay Plan did not represent more than 5 percent of the total contributions received by the Lay Plan. Specific Lay Plan information for the Diocese is not available from the Plan s administrator. If the Diocese terminates its participation in the Lay Plan, the Diocese would be responsible to make a contribution for its proportional share of any unfunded liability. The terminated liability would be calculated by the actuaries as outlined in the Lay Plan document at the time of withdrawal. The Diocese also contributes to the Michigan Catholic Conference Priests' Retirement Plan (Priests Plan), a defined benefit pension plan established for the benefit of priests ordained or incardinated in the Diocese. The Priests Plan number and employer identification number is 32-0119531. Contributions to the Priests Plan were $39,000 and $45,055 for the years ended October 31, 2013 and 2012, respectively. Based on information as of June 30, 2013, the Diocesan contributions to the Priests Plan did not represent more than 5 percent of the total contributions received by the Priests Plan. Specific plan information for the Diocese is not available from the Priests Plan s administrator. In the event of termination of the Priests Plan, assets would be allocated in the following order of preference: 1) to provide for continuance of pension payments to retirees; 2) to provide for payment of pension benefits to all other priest participants based on their accrued benefits as of the termination date; and 3) to the Diocese if any assets remained. No retiree, participant or other person has any rights or claims under the Priests Plan in excess of the assets available to pay benefits. Michigan Catholic Conference Lay Employees' Retirement Plan Michigan Catholic Conference Priests' Retirement Plan Total plan assets at June 30, 2013 $ 1,200,845,031 $ 8,000,702 Actuarial present value of accumulated plan benefits as of June 30, 2013 $ 1,342,726,447 $ 10,381,569 Total contributions received by the Plan for the year ended June 30, 2013 $ 20,523,895 $ 260,318 Indicated funding level 89.4% 77.1% -12-
NOTE G--DESIGNATED NET ASSETS The unrestricted net assets have been designated by the Bishop of the Diocese for the following purposes: October 31 2013 2012 Charitable gift annuities $ 190,465 $ 238,963 Equipment and improvements 500,000 500,000 Native American and Outreach to the Poor 115,575 121,296 Seminarians and vocations 5,600,000 5,600,000 Parish and school promissory notes 1,000,000 1,000,000 Needy Parish Fund 1,140,923 1,140,923 Catholic schools 1,683,803 1,507,763 Divine Worship Initiative 597,241 555,436 Hospitality Lecture Fund 57,793 52,114 Diocesan Endowment Foundation--available for granting 532,874 478,199 TOTAL $ 11,418,674 $ 11,194,694 NOTE H--TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes: October 31 2013 2012 Sabbaticals $ 206,438 $ 161,285 Campaign for Human Development--local needs 18,302 23,994 Poverty Program (Rice Bowl) 111,330 111,295 Parish Charitable Gift Annuities 21,471 21,471 Catholic Services Appeal--program and services 1,773,072 1,738,306 Catholic School Parish Assessment 268,272 173,169 Mahoney Carmelite Fund 258,173 250,420 Undistributed endowment earnings 1,436,875 693,341 TOTAL $ 4,093,933 $ 3,173,281-13-
NOTE I--PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets are comprised of the following: October 31 2013 2012 Anderson Cathedral Trust $ 53,147 $ 53,147 Anderson Memorial Masses 83,358 83,358 Seminary Fund 100,000 100,000 Poor Parish Fund 50,000 50,000 Retired and Active Priest Mass Stipend Fund 100,000 100,000 Lay Ministry Fund 45,277 45,277 Vignetto Seminary Trust 258,255 258,255 Diocesan Endowment Foundation 5,944,245 5,950,290 Peter Vukelich Trust 93,427 93,427 Bessette Seminary Fund 79,515 79,515 Menze Scholarship Fund 201,146 201,146 TOTAL $ 7,008,370 $ 7,014,415 NOTE J--ENDOWMENTS The Diocesan endowments consist of approximately eleven funds established for a variety of purposes. Its endowments include both donor-restricted endowment funds and funds designated by the Bishop and the Diocesan Finance Council to function as an endowment. Net assets associated with endowment funds, including funds designated by the Bishop and the Diocesan Finance Council to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. On September 15, 2009, the Uniform Prudent Management of Institutional Funds Act (UPMIFA) was signed into law in the State of Michigan. The Bishop and Diocesan Finance Council have interpreted UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Diocese classifies as permanently restricted net assets (a) the original value of gifts to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the applicable donor gift instrument, if applicable. -14-
NOTE J--ENDOWMENTS--Continued 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 Diocese in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Diocese considers the following factors in making a determination to appropriate or accumulate donorrestricted endowment funds: The duration and preservation of the endowment fund The purposes of the Diocese and the endowment fund General economic factors The possible effect of inflation or deflation The expected total return from income and appreciation of investments Other resources of the Diocese The investment policy of the Diocese The following represents the endowment fund net assets composition by type of fund: Temporarily Permanently Unrestricted Restricted Restricted Total October 31, 2013: Donor-restricted endowment funds $ 1,436,875 $ 7,008,370 $ 8,445,245 Board-designated endowment funds $ 532,874 532,874 TOTAL ENDOWMENT FUNDS $ 532,874 $ 1,436,875 $ 7,008,370 $ 8,978,119 October 31, 2012: Donor-restricted endowment funds $ 693,341 $ 7,014,415 $ 7,707,756 Board-designated endowment funds $ 478,199 478,199 TOTAL ENDOWMENT FUNDS $ 478,199 $ 693,341 $ 7,014,415 $ 8,185,955-15-
NOTE J--ENDOWMENTS--Continued The following represents the changes in endowment fund net assets: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets at October 31, 2011 $ 474,634 $ 583,103 $ 6,891,711 $ 7,949,448 Investment return: Investment income 10,046 169,081 179,127 Net appreciation (realized and unrealized) 16,193 268,103 284,296 Total investment return 26,239 437,184 0 463,423 Contributions 2,446 122,704 125,150 Appropriation of endowment assets for expenditure (22,674) (329,392) (352,066) Endowment net assets at October 31, 2012 478,199 693,341 7,014,415 8,185,955 Investment return: Investment income 9,762 164,664 174,426 Net appreciation (realized and unrealized) 63,238 888,899 952,137 Total investment return 73,000 1,053,563 0 1,126,563 Contributions 80,551 80,551 Appropriation of endowment assets for expenditure (18,615) (310,028) (86,596) (415,239) Endowment net assets at October 31, 2013 $ 532,584 $ 1,436,876 $ 7,008,370 $ 8,977,830 The Diocesan Finance Council makes recommendations to the Bishop of the Diocese annually at its February meeting regarding annual spending from any endowment funds. Annual spending may not exceed seven percent (7%) of the permanently restricted net assets, using a five-year rolling average. The Diocese has adopted an investment policy for endowment assets. The investment objectives are to preserve capital, to achieve long-term growth of assets without undue exposure to risk through prudent diversification measures, and to achieve and maintain total asset levels that meet the needs of the participants. The Diocesan Finance Council uses the services of a third-party to select investment managers and evaluate performance objectives. A specific investment benchmark index for evaluation is determined for all investment managers hired by the third party and used to evaluate the manager s performance on a one, three, and five year time horizon each quarter. -16-
NOTE K--INCOME TAXES In a determination letter dated March 25, 1946, and updated annually since that time, the Internal Revenue Service has ruled that all organizations listed in The Official Catholic Directory are exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. The Diocese of Marquette is listed in the 2013 edition of The Official Catholic Directory (OCD) and, therefore, is exempt from federal income taxes. A determination letter issued December 11, 1970, also affirmed the non-private foundation status of organizations listed in the OCD. NOTE L--FUNCTIONAL EXPENSES The functional presentation of Diocesan expenses is as follows: Year Ended October 31 2013 2012 Program services $ 2,850,952 $ 2,897,602 Management and general 918,359 744,384 Fundraising 209,150 178,933 NOTE M--DIOCESAN COLLECTIONS $ 3,978,461 $ 3,820,919 The Diocese collects and remits contributions from individuals and affiliated organizations for various charitable beneficiaries. In accordance with FASB ASC 958-605 Revenue Recognition, these amounts have been excluded from the Diocesan statement of activities. Amounts remitted approximate the amounts collected for both years. Year Ended October 31 2013 2012 Collection Receipts: Bishops' Relief--Rice Bowl $ 70,763 $ 76,004 Holy Land and Communications 37,746 38,208 Campaign for Human Development 22,499 23,045 Peter's Pence 35,169 31,531 Black and Native American 22,004 22,001 Religious Retirement Collection 50,094 49,231 Propagation of the Faith 124,103 58,524 Holy Childhood 88 213 Catholic Home Mission Appeal 24,195 24,431 Diocesan Catholic Schools 59,124 42,091 Diocesan Priests' Retirement 84,916 74,099 Church in Africa 8,357 15,079 Other national collection 16,648 220 TOTAL COLLECTIONS $ 555,706 $ 454,677-17-
NOTE N--CONTINGENT LIABILITIES As indicated in Note A, the accounts of parishes, schools, other institutions, or agencies of the Diocese have been excluded from the accompanying financial statements. The Diocese is contingently liable for all liabilities of the parishes, schools, and other entities within the Diocese. Promissory notes totaling approximately $1,000,000 at October 31, 2013, have been signed by the Bishop for these parishes, schools, and other entities. NOTE O--SPLIT-INTEREST AGREEMENTS The Diocese administers various charitable gift annuities. A charitable gift annuity provides for the payment of distributions to the grantor or other designated beneficiaries over the annuity term (usually the designated beneficiary s lifetime). At the end of the annuity s term, the remaining assets are available for the Diocese or other designated beneficiary s use. The portion of the annuity attributable to the present value of the future benefits to be received by the Diocese is recorded in the statement of activities as a contribution in the period the annuity is established. Such contributions totaled $13,526 and $17,279 for the years ended October 31, 2013 and 2012, respectively. The present value of the estimated future payments, reported as annuities payable on the statements of financial position, is calculated using discount rates ranging between 1.0 percent and 7.2 percent and applicable mortality tables. NOTE P--REAL PROPERTY REPLACEMENT VALUE The replacement value of the real property (buildings) of parishes, schools, and institutions owned by the Diocese of Marquette is in excess of $20,000,000 as determined by Marshall Swift Valuation Services cost indices as of October 31, 2013. The buildings included in this valuation are comprised substantially of buildings excluded from plant assets in the accompanying financial statements as discussed in Note A. NOTE Q--CAPITAL CAMPAIGN AND PLEDGES RECEIVABLE The Diocesan Our Faith in the Future Capital Campaign (Campaign) began in the fiscal year ended 2010 and concluded in fiscal year 2010. The Campaign goal was to raise $10.0 million, including the 43 rd Upper Peninsula Catholic Services Appeal and the corresponding Catholic School Assessment with the balance going towards parishes, Catholic schools, and the Diocesan Endowment Foundation's Legacy of Faith (LOF). Pledges are to be paid over a fouryear period. Six parishes were approved to delay participation in the Campaign or to conduct a separate campaign. For these six parishes, the financial statements include only the amounts relating to the 43 rd UPCSA appeal and any applicable corresponding Catholic School Assessment and LOF goal. Pledges and payments are sent to the Diocese. Campaign income is to be distributed on a quarterly basis between the Diocesan parishes, missions, schools, and LOF endowment fund beginning in fiscal year 2011. The LOF paid the fees and expenses related to conducting the Campaign, which to date, has totaled $1,197,883. Approximately $600,000 of the Campaign fees and expenses are to be reimbursed by the parishes and schools. -18-
NOTE Q--CAPITAL CAMPAIGN AND PLEDGES RECEIVABLE--Continued The following presents the Campaign results for the fiscal years ending October 31: 2013 2012 2011 2010 Total Capital Campaign pledges received $ 24,937 $ 147,933 $ 5,057,239 $ 3,932,700 $ 9,162,809 Recognize allowance for estimated uncollectible pledges (161,500) (108,500) (270,000) Adjustment for discount to present value 70,000 131,500 (22,980) (187,520) (9,000) OUR FAITH IN THE FUTURE CAPITAL CAMPAIGN REVENUE, NET $ 94,937 $ 279,433 $ 4,872,759 $ 3,636,680 $ 8,883,809 The following represents how the Campaign results have been reflected in the statement of activities for the years ending October 31: 2013 2012 2011 2010 Total Upper Peninsula Catholic Services Appeal $ 1,637,485 $ 1,637,485 Catholic School Parish Assessment 264,178 264,178 Legacy of Faith $ 26,369 $ 89,447 $ 1,180,495 464,435 1,760,746 Parishes, missions, and Catholic schools 68,568 189,986 3,692,264 1,270,582 5,221,400 OUR FAITH IN THE FUTURE CAPITAL CAMPAIGN REVENUE, NET $ 94,937 $ 279,433 $ 4,872,759 $ 3,636,680 $ 8,883,809 Pledges receivable as of October 31, 2013, primarily represent outstanding pledges relating to the Our Faith in the Future Capital Campaign and 46 th Upper Peninsula Catholic Services Appeal. Pledges receivable as of October 31, 2012, primarily represent outstanding pledges relating to the Our Faith in the Future Capital Campaign and the related 45 th Upper Peninsula Catholic Services Appeal. Pledges receivable due after one year are discounted at four percent. October 31 2013 2012 Receivable in less than one year $ 2,832,573 $ 3,223,332 Receivable in one to five years 137,213 1,238,496 Receivable in more than five years 10,000 66,000 Total unconditional pledges receivable 2,979,786 4,527,828 Less discounts to net present value (13,000) (99,000) Less allowance for uncollectible pledges receivable (205,368) (162,482) NET UNCONDITIONAL PLEDGES RECEIVABLE $ 2,761,418 $ 4,266,346-19-
NOTE R--MICHIGAN NO-FAULT SELF-INSURANCE LOSS RESERVE The Diocese is authorized by the Michigan Department of Insurance and Financial Services to self-insure no-fault risk for its vehicles for the 12 month certification period ending June 30, 2014. An authorized self-insurer is required to establish a fully funded loss reserve to pay claims which are anticipated in, and/or submitted for payment during, the certification period, as well as to pay claims which have been incurred and submitted before then but have not yet been paid. The loss reserve for the Diocese has been determined by a qualified actuary and fully funded as of the commencement of the current certification period. -20-