Financial Statements Together with Report of Independent Certified Public Accountants THE EPISCOPAL CHURCH FOUNDATION
TABLE OF CONTENTS Report of Independent Certified Public Accountants 1-2 Financial Statements: Statements of Financial Position as of 3 Statement of Activities for the year ended December 31, 2012, with summarized total information for 2011 4 Statement of Activities for the year ended December 31, 2011 5 Statement of Functional Expenses for the year ended December 31, 2012, with summarized total information for 2011 6 Statement of Functional Expenses for the year ended December 31, 2011 7 Statements of Cash Flows for the years ended 8 9-21 Page
Audit Tax Advisory Grant Thornton LLP 666 Third Avenue, 13th Floor New York, NY 10017-4011 T 212.599.0100 F 212.370.4520 www.grantthornton.com REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of The Episcopal Church Foundation: Report on financial statements We have audited the accompanying financial statements of The Episcopal Church Foundation ( ECF ), a New York not-for-profit corporation, which comprise the statements of financial position as of December 31, 2012 and 2011, 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. Auditor s 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 of 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 the auditor s 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 entity 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 entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Episcopal Church Foundation as of, 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 Stated of America. New York, New York August 5, 2013-2 -
Statements of Financial Position As of ASSETS 2012 2011 Cash and cash equivalents $ 90,661 $ 1,518,740 Contribution receivables 15,868 11,650 Other assets 681,260 819,060 Investments held under split-interest agreements 34,303,149 33,821,108 Investments managed on behalf of others 113,879,865 101,977,114 Long-term investments 38,091,970 34,826,227 Property and equipment, net 90,629 145,278 Total assets $ 187,153,402 $ 173,119,177 LIABILITIES AND NET ASSETS Accounts payable and accrued expenses $ 360,709 $ 399,217 Deposits held for others 4,626 1,508,100 Liabilities under split-interest agreements and discount for future interest - pooled income fund 33,313,602 32,937,772 Funds managed on behalf of others 113,879,865 101,977,114 Total liabilities 147,558,802 136,822,203 Commitments and contingencies NET ASSETS Unrestricted (Note 5) 32,886,349 30,458,405 Temporarily restricted (Note 7) 2,567,828 1,840,475 Permanently restricted (Note 8) 4,140,423 3,998,094 Total net assets 39,594,600 36,296,974 Total liabilities and net assets $ 187,153,402 $ 173,119,177 The accompanying notes are an integral part of these financial statements. - 3 -
Statement of Activities For the year ended December 31, 2012, with summarized total information for 2011 2012 Temporarily Permanently 2011 Unrestricted Restricted Restricted Total Total OPERATING REVENUES AND SUPPORT Contributions and legacies $ 85,092 $ 562,436 $ - $ 647,528 $ 898,097 Fees for services 1,361,023 - - 1,361,023 1,297,666 Publication fees and other 37,217 - - 37,217 40,630 Donated space 172,140 - - 172,140 123,120 Investment return budgeted for operations 1,663,500 - - 1,663,500 1,836,750 Net assets released from restrictions 271,697 (271,697) - - - Total revenues and support 3,590,669 290,739-3,881,408 4,196,263 OPERATING EXPENSES Program services (Note 2): Leadership resources 853,154 - - 853,154 805,081 Financial resources 2,046,406 - - 2,046,406 1,864,937 Supporting services: Total program services 2,899,560 - - 2,899,560 2,670,018 Management and general 386,987 - - 386,987 340,572 Fundraising 322,628 - - 322,628 381,039 Total supporting services 709,615 - - 709,615 721,611 Total expenses 3,609,175 - - 3,609,175 3,391,629 (Deficiency) excess of operating revenues and support over operating expenses (18,506) 290,739-272,233 804,634 NONOPERATING REVENUES AND SUPPORT, (EXPENSES), GAINS AND (LOSSES) Dividend and interest income, net 652,171 46,688-698,859 852,046 Investment return (realized and unrealized gains (losses)) in excess of amounts budgeted for operations 1,794,279 247,536-2,041,815 (3,860,854) Change in value of split-interest agreements - 142,390-142,390 (122,683) Change in value of beneficial interest in perpetual trust - - 142,329 142,329 (143,353) Change in net assets 2,427,944 727,353 142,329 3,297,626 (2,470,210) Net assets, beginning of year 30,458,405 1,840,475 3,998,094 36,296,974 38,767,184 Net assets, end of year $ 32,886,349 $ 2,567,828 $ 4,140,423 $ 39,594,600 $ 36,296,974 The accompanying notes are an integral part of this financial statement. - 4 -
Statement of Activities For the year ended December 31, 2011 Temporarily Permanently Unrestricted Restricted Restricted Total OPERATING REVENUES AND SUPPORT Contributions and legacies (net of direct donor benefit of $0 and $2,000 in 2011 and 2010, respectively) $ 199,286 $ 698,811 $ - $ 898,097 Fees for services 1,297,666 - - 1,297,666 Publication fees and other 40,630 - - 40,630 Donated space 123,120 - - 123,120 Investment return budgeted for operations 1,836,750 - - 1,836,750 Net assets released from restrictions 138,882 (138,882) - - Total revenues and support 3,636,334 559,929-4,196,263 OPERATING EXPENSES Program services (Note 2): Leadership resources 805,081 - - 805,081 Financial resources 1,864,937 - - 1,864,937 Total program services 2,670,018 - - 2,670,018 Supporting services: Management and general 340,572 - - 340,572 Fundraising 381,039 - - 381,039 Total supporting services 721,611 - - 721,611 Total expenses 3,391,629 - - 3,391,629 Excess of operating revenues and support over operating expenses 244,705 559,929-804,634 NONOPERATING REVENUES AND SUPPORT, (EXPENSES), GAINS AND (LOSSES) Dividend and interest income, net 783,911 68,135-852,046 Investment return (realized and unrealized gains (losses)) in excess of amounts budgeted for operations (3,699,022) (161,832) - (3,860,854) Change in value of split-interest agreements - (122,683) - (122,683) Change in value of beneficial interest in perpetual trust - - (143,353) (143,353) Change in net assets (2,670,406) 343,549 (143,353) (2,470,210) Net assets, beginning of year 33,128,811 1,496,926 4,141,447 38,767,184 Net assets, end of year $ 30,458,405 $ 1,840,475 $ 3,998,094 $ 36,296,974 The accompanying notes are an integral part of this financial statement. - 5 -
Statement of Functional Expenses For the year ended December 31, 2012, with summarized total information for 2011 Program services Supporting services Total Management Leadership Financial and resources resources Total general Fundraising Total 2012 2011 Salaries $ 428,461 $ 1,155,659 $ 1,584,120 $ 187,692 $ 101,442 $ 289,134 $ 1,873,254 $ 1,775,439 Payroll taxes 38,700 89,987 128,687 11,000 6,473 17,473 146,160 138,245 Employee benefits 45,186 157,862 203,048 37,563 20,330 57,893 260,941 274,589 512,347 1,403,508 1,915,855 236,255 128,245 364,500 2,280,355 2,188,273 Grants 25,000-25,000 - - - 25,000 50,000 Fellowships 115,000-115,000 - - - 115,000 97,000 Field representatives - 126,175 126,175 - - - 126,175 145,474 Professional fees and honoraria 64,966 71,251 136,217 48,331 76,755 125,086 261,303 250,940 Travel and conferences 19,462 110,590 130,052 3,886 6,959 10,845 140,897 116,383 Annual report and annual appeal - - - - 26,421 26,421 26,421 7,686 Office expenses 13,286 42,862 56,148 4,158 4,226 8,384 64,532 59,406 Occupancy costs 39,373 106,197 145,570 17,248 9,322 26,570 172,140 123,120 Telecom and networking 15,949 48,311 64,260 4,991 2,815 7,806 72,066 67,943 Postage 1,870 13,350 15,220 722 561 1,283 16,503 15,805 Insurance 6,961 18,774 25,735 3,049 1,648 4,697 30,432 27,002 Public relations and advertising - - - - 4,520 4,520 4,520 22,845 Printing, production and publications 25,634 69,498 95,132-58,006 58,006 153,138 158,397 Depreciation and amortization 13,306 35,890 49,196 5,829 3,150 8,979 58,175 61,355 Allowance for doubtful accounts - - - 62,518-62,518 62,518 - Total expenses $ 853,154 $ 2,046,406 $ 2,899,560 $ 386,987 $ 322,628 $ 709,615 $ 3,609,175 $ 3,391,629 The accompanying notes are an integral part of this financial statement. - 6 -
Statement of Functional Expenses For the year ended December 31, 2011 Program services Supporting services Management Leadership Financial and resources resources Total general Fundraising Total Total Salaries $ 387,186 $ 1,060,421 $ 1,447,607 $ 198,137 $ 129,695 $ 327,832 $ 1,775,439 Payroll taxes 28,645 85,593 114,238 15,024 8,983 24,007 138,245 Employee benefits 68,124 143,628 211,752 37,513 25,324 62,837 274,589 483,955 1,289,642 1,773,597 250,674 164,002 414,676 2,188,273 Grants 50,000-50,000 - - - 50,000 Fellowships 97,000-97,000 - - - 97,000 Field representatives - 145,474 145,474 - - - 145,474 Professional fees and honoraria 38,160 51,637 89,797 51,880 109,263 161,143 250,940 Travel and conferences 11,437 89,473 100,910 2,979 12,494 15,473 116,383 Annual report and annual appeal - - - - 7,686 7,686 7,686 Office expenses 16,023 37,186 53,209 3,746 2,451 6,197 59,406 Occupancy costs 27,229 72,560 99,789 14,104 9,227 23,331 123,120 Telecom and networking 14,090 44,042 58,132 5,906 3,905 9,811 67,943 Postage 2,534 11,067 13,601 1,162 1,042 2,204 15,805 Insurance 5,972 15,913 21,885 3,093 2,024 5,117 27,002 Public relations and advertising - - - - 22,845 22,845 22,845 Printing, production and publications 45,111 71,784 116,895-41,502 41,502 158,397 Depreciation and amortization 13,570 36,159 49,729 7,028 4,598 11,626 61,355 Total expenses $ 805,081 $ 1,864,937 $ 2,670,018 $ 340,572 $ 381,039 $ 721,611 $ 3,391,629 The accompanying notes are an integral part of this financial statement. - 7 -
Statements of Cash Flows For the years ended 2012 2011 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 3,297,626 $ (2,470,210) Adjustments to reconcile change in net assets to net cash used in operating activities: Depreciation and amortization 58,175 61,355 Loss on disposals of property and equipment 1,340 - Change in value of split-interest agreements (142,390) 122,683 Change in value of beneficial interest in perpetual trusts (142,329) 143,353 Contribution income from split-interest agreements (37,219) (155,570) Allowance for doubtful accounts 62,518 - Net realized and unrealized (gains) losses in investments (3,705,315) 2,024,194 Changes in operating assets and liabilities: Contributions receivable (4,218) 5,955 Other assets 75,282 240 Accounts payable and accrued expenses (38,508) (129,854) Net cash used in operating activities (575,038) (397,854) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (4,866) (33,000) Proceeds from sales of investments 7,892,920 7,608,939 Purchases of investments (4,535,606) (7,645,820) Net cash provided by (used in) investing activities 3,352,448 (69,881) CASH FLOWS FROM FINANCING ACTIVITIES Payments of annuity obligations (3,540,191) (3,641,893) Deposits held for others (1,503,474) 1,361,130 Proceeds from contributions and transfers restricted for investment subject to annuity obligations 838,176 4,144,531 Net cash (used in) provided by financing activities (4,205,489) 1,863,768 Net (decrease) increase in cash and cash equivalents (1,428,079) 1,396,033 Cash and cash equivalents, beginning of year 1,518,740 122,707 Cash and cash equivalents, end of year $ 90,661 $ 1,518,740 The accompanying notes are an integral part of these financial statements. - 8 -
1. NATURE OF OPERATION The Episcopal Church Foundation ( ECF ) is an independent, lay-led organization that helps congregations and other Episcopal groups develop leadership and raise financial resources for ministry. ECF s practical, innovative and spiritually-grounded programs, products and services include leadership training and development, the Fellowship Partners Program, publications and web-based resources, annual stewardship support, planned giving, capital campaigns and endowment management services. ECF is also involved in a variety of collaborative projects and partnerships to provide new kinds of solutions to help address the changing needs of the Episcopal Church (the Church ). ECF is classified as a publicly supported 501(c)(3) organization under Section 170(b)(1)(a)(vi) of the Internal Revenue Code (the Code ) and is exempt from federal income tax under Section 501(a) of the Code. ECF is also exempt from New York State and New York City income and sales taxes. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ( US GAAP ). ECF s net assets, revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of ECF and changes therein are classified and reported as follows: Unrestricted - resources which are available for carrying out ECF s operations and that are not subject to donor-imposed stipulations. Unrestricted net assets may be designated for specific purposes by ECF s Board of Directors or may be limited by contractual agreements with outside parties. At December 31, 2012 and 2011, ECF had no Board-designated net assets. Temporarily Restricted - net assets which have been limited by donor-imposed stipulations that either expire with the passage of time or can be fulfilled by the actions of ECF pursuant to those stipulations (Note 7). Permanently Restricted Net Assets - include resources whereby the donors have stipulated that the principal contributed be invested and maintained permanently, with investment return available for expenditure according to restrictions, if any, imposed by those donors (Note 8). Cash and Cash Equivalents ECF considers all highly liquid investments with an original maturity of three months or less, other than those held in the investment portfolio and under split-interest agreements, to be cash equivalents. Contributions Contributions are recognized in the year an unconditional promise to give is received from a donor. Conditional promises to give are not recognized until they become unconditional, that is, when the conditions on which they depend are substantially met. Contributions of assets, other than cash, are recorded at their estimated fair value at date of gift. - 9 -
ECF reports gifts of cash and other assets as 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 and presented in the accompanying statements of activities as net assets released from restrictions. ECF reports pledges expected to be collected within one year at the estimated amount to be ultimately realized. Pledges to be paid to ECF over a period of years, when received, are recorded at the present value of their estimated future cash flows using credit-adjusted rates of return. Investments ECF carries investments in equity and debt securities with readily determinable market values, at fair value, with any related realized and unrealized gains or losses reported in the accompanying statements of activities. Fair Value Measurements ECF measures fair value as the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. ECF also prioritizes, within the measurement of fair value, the use of market based information over entity-specific information and establishes a three-level hierarchy for fair value measurements based on the transparency of information used in the valuation of an asset or liability as of the measurement date. The three levels of the fair value hierarchy follow: Level 1 - Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that ECF has the ability to access at the measurement date. Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active. Also included in Level 2 are investments measured using a net asset value ( NAV ) per share, or its equivalent, that may be redeemed at that NAV at the date of the statements of financial position or in the near term, which is generally considered to be within 90 days. Level 3 - Inputs that are unobservable. Also included in Level 3 are investments measured using a NAV per share, or its equivalent, that can never be redeemed at the NAV or for which redemption at NAV is uncertain due to lockup periods or other investment restrictions. Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes observable requires significant judgment by ECF s management. ECF considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to ECF s perceived risk of that instrument. - 10 -
Property and Equipment Property and equipment are carried at their acquisition cost or, if received as a gift, at fair market value at the date of contribution. ECF capitalizes fixed assets that have a useful life of more than three years. Depreciation of property and equipment is provided using the straight-line method over the estimated useful lives of five to seven years. Donated Space ECF occupies certain facilities at no cost under a rental arrangement with The Domestic and Foreign Missionary Society of the Protestant Episcopal Church in the United States of America and Affiliates ( DFMS ). The cost savings associated with such arrangements are recorded as donated services and are recognized as revenues and expense in the accompanying financial statements based on the fair value of the premises, which totaled approximately $172,000 and $123,000 for each of the years ended December 31, 2012 and 2011. Leadership Resources To lead effectively, church leaders must be fully equipped. ECF s comprehensive leadership resources help empower lay and ordained leaders with the tools they need to strengthen and grow their congregations. ECF provided $25,000 and $50,000 in 2012 and 2011, respectively, to support the collaborative initiatives of the CREDO Institute, Inc. ( CREDO ), a subsidiary of the Church Pension Fund, specifically the College of Bishops in 2012 and 2011, and Fresh Start in 2011. The College for Bishops provides leadership development and continuing education for bishops in the Episcopal Church. Fresh Start provides diocesanbased training for clergy and congregations in transition. The President of ECF serves on the Board of Directors of the CREDO Institute, as well as, the College for Bishops. Financial Resources ECF provides a holistic approach to financial resource development for Episcopal organizations and a continuum of services and support including annual giving, planned giving, capital campaign consultation and endowment management services. In conjunction with ECF s leadership initiatives, these programs help congregations raise resources to enhance and grow their local ministries and their broader mission. Functional Allocation of Expenses The costs of providing programs and related activities have been summarized on a functional basis in the accompanying statements of activities. Accordingly, certain costs have been allocated among the respective programs and supporting services using methodologies developed and consistently applied by management. Income Taxes ECF follows guidance that clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return, including issues relating to financial statement recognition and measurement. This guidance provides that the tax effects from an uncertain tax position can only be recognized in the financial statements if the position is more-likely-than-not to be sustained if the position were to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. - 11 -
ECF is exempt from income tax under IRC section 501(c)(3), though it is subject to tax on income unrelated to its exempt purpose, if any, unless that income is otherwise excluded by the Code. ECF has processes presently in place to ensure the maintenance of its tax-exempt status; identify and report unrelated income; determine its filing and tax obligations in jurisdictions for which it was nexus; and identify and evaluate other matters that may be considered tax positions. The tax years ended 2009, 2010, 2011 and 2012 are still open to audit for both federal and state purposes. ECF has determined that there are no material uncertain tax positions that require recognition or disclosure in the accompanying financial statements. Use of Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Operating Measure The accompanying statements of activities distinguish between operating and nonoperating activities. The Foundation has defined operating activities to include contributions, donated space and other support; fees for services, publication and other fees; and investment returns budgeted for operations. All other investment activities, including changes in split interest agreements, as well as other non-recurring items, if any, are presented as nonoperating activities. Subsequent Events ECF evaluated its December 31, 2012 financial statements for subsequent events through August 5, 2013, the date the financial statements were available to be issued. 3. LONG-TERM INVESTMENTS Long-term investments are comprised of the following: 2012 2011 Equity unit investment trusts $ 13,719,608 $ 13,073,256 Mutual funds: Equity 8,399,160 6,887,402 Fixed income 6,366,010 5,977,169 Hedge funds 6,926,266 7,079,649 Beneficial interest in perpetual trusts 1,607,853 1,465,524 Money market funds 323,073 343,227 Total 37,341,970 34,826,227 Plus: Redemption receivable due from broker 750,000 - Total $ 38,091,970 $ 34,826,227-12 -
During fiscal 2012, ECF redeemed $750,000 and received the funds in January 2013. Investment management fees for the years ended, approximated $160,800 and $159,000, respectively, and were netted against dividend and interest income in the accompanying statements of activities. Since hedge fund investments may not be readily marketable, the estimated fair value is subject to uncertainty and, therefore, may differ from the value that would have been used had a ready market for such investments existed. The values assigned to these holdings do not necessarily represent amounts which might ultimately be realized upon sale or other disposition since such amounts depend on future circumstances and cannot reasonably be determined until the actual liquidation occurs. Because of the inherent uncertainty of such valuations, those estimated fair values may differ significantly from the values that would have been used had a ready market for such investments existed and the differences could be material. Hedge fund investments at consisted of investments in fund of funds of approximately $6.9 million and $7.1 million, respectively. Investments at fair value presented by level of input used to measure fair value consisted of the following at December 31, 2012: Level 1 Level 2 Level 3 Total Equity unit investment trusts $ - $ 13,719,608 $ - $ 13,719,608 Mutual Funds: Equity 8,399,160 - - 8,399,160 Fixed income 6,366,010 - - 6,366,010 Hedge funds - 4,749,824 2,176,442 6,926,266 Beneficial interest in perpetual - - 1,607,853 1,607,853 trusts Money market funds 323,073 - - 323,073 $ 15,088,243 $ 18,469,432 $ 3,784,295 $ 37,341,970 Plus: Receivable due from broker 750,000 $ 38,091,970 Investments valued at NAV as of December 31, 2012, consisted of the following: Redemption Redemption Fair Value Commitments Frequency Notice Period Level Hedge funds: Long-term growth $ 4,749,824 $ - Quarterly 90 days 2 Long-term growth 2,176,442 - Annually 90 days 3 $ 6,926,266-13 -
A reconciliation of investments utilizing Level 3 inputs for the year ended December 31, 2012, follows: Balance at December 31, 2011 $ 3,476,299 Purchases - Unrealized losses 307,996 Balance at December 31, 2012 $ 3,784,295 Investments at fair market value presented by level of input used to measure fair value consisted of the following at December 31, 2011: Level 1 Level 2 Level 3 Total Equity unit investment trusts $ - $ 13,073,256 $ - $ 13,073,256 Mutual Funds: Equity 6,887,402 - - 6,887,402 Fixed income 5,977,169 - - 5,977,169 Hedge funds - 5,068,874 2,010,775 7,079,649 Beneficial interest in perpetual trusts - - 1,465,524 1,465,524 Money market funds 343,227 - - 343,227 $ 13,207,798 $ 18,142,130 $ 3,476,299 $ 34,826,227 Investments valued at NAV as of December 31, 2011, consisted of the following: Redemption Redemption Fair Value Commitments Frequency Notice Period Level Hedge funds: Long-term growth $ 5,068,874 $ - Quarterly 90 days 2 Long-term growth 2,010,775 - Annually 90 days 3 $ 7,079,649 A reconciliation of investments utilizing Level 3 inputs for the year ended December 31, 2011, follows: Balance at December 31, 2010 $ 3,170,224 Purchases 500,000 Unrealized losses (193,925) Balance at December 31, 2011 $ 3,476,299-14 -
4. PROPERTY AND EQUIPMENT, NET Property and equipment, net, consisted of the following at, respectively: Beginning Ending Balance Additions Disposals Balance Computer and equipment $ 368,709 $ 4,866 $ (3,103) $ 370,472 Furniture and fixtures 132,568 - - 132,568 501,277 4,866 (3,103) 503,040 Less: accumulated depreciation and amortization (355,999) (58,175) 1,763 (412,411) Total property and equipment $ 145,278 $ (53,309) $ (1,340) $ 90,629 5. INVESTMENTS HELD UNDER SPLIT-INTEREST AGREEMENTS AND INVESTMENTS MANAGED ON BEHALF OF OTHERS ECF is the beneficiary or agent for third-party beneficiaries of a number of split-interest agreements. Under these agreements, ECF controls the donated assets and distributes to the donor or donor s designee a predetermined amount or percentage or, in the case of pooled income funds, all of the income generated from those assets until such time as stated in the agreement (usually upon the death of the donor or donor s designee). ECF will be able to utilize that portion of the gifts in which it has an interest upon the death of the respective life income beneficiary and will distribute to any third-party beneficiaries their respective remainder interests. At the time of the gift and adjusted annually, ECF records contribution income, if any, and a liability for amounts payable to annuitants and third-party beneficiaries using an actuarial calculation based upon estimated mortality rates and other assumptions that could change in the near term. The discount rates used in the calculations at, ranged from 1.2% to 8.2%. State-mandated insurance reserves related to these arrangements are maintained at $16.4 million and $17.1 million at December 31, 2012 and 2011, respectively, and are included as a component of unrestricted net assets. Investments, at fair value, held under split-interest agreements consisted of the following categories: December 31, 2012 2011 Pooled income fund $ 2,070,210 $ 2,115,559 Charitable remainder trusts 13,840,022 13,209,732 Charitable gift annuities 18,392,917 18,495,817 $ 34,303,149 $ 33,821,108-15 -
The type of investments held under split-interest agreements were comprised of the following: December 31, 2012 2011 U.S. government and corporate obligations $ 3,295,978 $ 4,201,149 Mutual funds 28,901,846 26,410,912 Mortgage-backed securities 1,811,114 1,860,396 Cash and cash equivalents 294,211 1,348,651 Total $ 34,303,149 $ 33,821,108 Investments held under split-interest agreements presented at fair value by level of input used to measure fair value consisted of the following at December 31, 2012: Level 1 Level 2 Level 3 Total U.S. government and corporate obligations $ 3,295,978 $ - $ - $ 3,295,978 Mutual funds 15,186,892 13,714,954-28,901,846 Mortgage-backed securities 1,811,114 - - 1,811,114 Cash and cash equivalents 294,211 - - 294,211 $ 20,588,195 $ 13,714,954 $ - $ 34,303,149 Investments held under split-interest agreements presented at fair value by level of input used to measure fair value consisted of the following at December 31, 2011: Level 1 Level 2 Level 3 Total U.S. government and corporate obligations $ 4,201,149 $ - $ - $ 4,201,149 Mutual funds 11,790,587 14,620,325-26,410,912 Mortgage-backed securities 1,860,396 - - 1,860,396 Cash and cash equivalents 1,348,651 - - 1,348,651 $ 19,200,783 $ 14,620,325 $ - $ 33,821,108 In addition, ECF manages certain investments on behalf of parishes and other Episcopal entities. Such investments, which are reported at fair value, approximated $113,880,000 and $101,977,000 at December 31, 2012 and 2011, respectively, and are reflected in the accompanying statements of financial position as investments managed on behalf of others. ECF has no ownership of or residual interest in these investments and as such, a liability equal to the fair value of the investments is reflected in the accompanying statements of financial position as funds managed on behalf of others. - 16 -
In April 2004, ECF entered into an agreement with DFMS whereby DFMS appointed ECF as its agent to act as manager of DFMS s planned giving assets underlying its split-interest trusts and pooled income funds and to manage all future additions to such trusts or funds. At, the fair value of such funds was approximately $9.1 million for both years, respectively, and was included within investments managed on behalf of others, with a corresponding liability reflected in funds managed on behalf of others in the accompanying statements of financial position. In situations where ECF acts as an agent on behalf of others, the related investments are included in investments managed on behalf of others, with a related liability reflected in the accompanying statements of financial position. The composition of investments, at fair value, managed on behalf of others follows: 2012 2011 U.S. government and corporate obligations $ 13,362,432 $ 8,963,103 Mutual funds 93,604,846 86,960,932 Mortgage-backed securities 3,380,877 2,895,593 Cash and cash equivalents 3,531,710 3,157,486 Total $ 113,879,865 $ 101,977,114 Investments managed on behalf of others presented at fair value by level of input used to measure fair value consisted of the following at December 31, 2012: Level 1 Level 2 Level 3 Total U.S. government and corporate obligations $ 13,362,432 $ - $ - $ 13,362,432 Mutual funds 23,847,999 69,756,847-93,604,846 Mortgage-backed securities 3,380,877 - - 3,380,877 Cash and cash equivalents 3,531,710 - - 3,531,710 $ 44,123,018 $ 69,756,847 $ - $ 113,879,865 Investments managed on behalf of others presented at fair value by level of input used to measure fair value consisted of the following at December 31, 2011: Level 1 Level 2 Level 3 Total U.S. government and corporate obligations $ 8,963,103 $ - $ - $ 8,963,103 Mutual funds 25,604,248 61,356,684-86,960,932 Mortgage-backed securities 2,895,593 - - 2,895,593 Cash and cash equivalents 3,157,486 - - 3,157,486 $ 40,620,430 $ 61,356,684 $ - $ 101,977,114-17 -
6. CONTRIBUTIONS RECEIVABLE ECF reports pledges expected to be collected within one year at the estimated amount to be ultimately realized. At, pledges receivable totaled $15,868 and $11,650, respectively. Pledges to be paid to ECF over a period of years, when received, are recorded at the present value of their estimated future cash flows using credit-adjusted rates of return. At, ECF did not have any multi-year pledges. 7. TEMPORARILY RESTRICTED NET ASSETS At, temporarily restricted net assets were available for the following purposes: 2012 2011 Leadership resources $ 1,578,282 $ 957,140 Charitable gift annuities 657,436 601,706 Pooled income funds 68,406 67,794 Charitable annuity trusts 263,704 213,835 $ 2,567,828 $ 1,840,475 Net assets were released from donor restrictions by incurring expenses, satisfying the purpose of the restriction, the passage of time or by the occurrence of other specific events, as follows, for the years ended : 2012 2011 Fellowships $ 42,540 $ 29,256 Leadership resources 155,760 21,235 Charitable gift annuities matured 62,553 78,669 Pooled income funds matured 5,170 9,722 Charitable annuity trusts matured 5,674 - $ 271,697 $ 138,882-18 -
8. PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets represent contributions made for the following purposes and are restricted to investment in perpetuity. Income from these funds is available for unrestricted use, except with respect to the Graduate Fellowship Fund, the Bromwell-Ault-Burchenal Fellowship Fund and the George Allen Fowlkes Intern program: 2012 2011 General endowment $ 1,828,040 $ 1,828,040 Third-party perpetual trusts 1,607,853 1,465,524 R.G. Curtis Memorial 5,575 5,575 L.B. Moorman 5,000 5,000 Bromwell-Ault-Burchenal Fellowship Fund 39,075 39,075 Graduate Fellowship Fund 315,669 315,669 Revolving loan 315,443 315,443 George Allen Fowlkes Intern program 23,768 23,768 $ 4,140,423 $ 3,998,094 Included in permanently restricted net assets is the change in value for ECF s beneficial interest in perpetual trusts of $142,329 and ($143,353) for the years ended, respectively, that are not part of ECF s endowment. During the year ended December 31, 2009, ECF adopted the disclosure provisions of, Endowments of Not-for-Profit Organizations, as the state of New York had not yet enacted a version of UPMIFA. Among other things, this guidance addressed the net asset classification of donor-restricted endowment funds for organizations subject to an enacted version of the 2006 Uniform Prudent Management of Institutional Funds Act ( UPMIFA ). In September 2010, New York State passed its own version of UPMIFA ( NYPMIFA ) which was applied to ECF s 2010 financial statements. Effective in 2010, ECF adopted the provisions of the new accounting guidance related to the implementation of UPMIFA that was enacted by the State of New York. ECF has interpreted NYPMIFA 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, ECF classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) the accumulations to the permanent endowment made in accordance with the directions of the applicable donor gift instrument. A key component of this guidance is a requirement to classify the remaining accumulations related to the donor-restricted endowment fund that are not classified in permanently restricted net asset as temporarily restricted net assets until those amounts are appropriated for expenditure by ECF in a manner consistent with the standard of prudence prescribed by NYPMIFA. ECF recorded the cumulative effect of the adoption as a reclassification of unrestricted net assets to temporarily restricted net assets in the amount of approximately $166,000 in 2010. - 19 -
Since ECF does not have board-designated endowment funds, the following presents information relative to donor restricted endowments. Temporarily Permanently 2012 Endowment Compostion by Net Asset Category Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ - $ 391,836 $ 2,532,570 $ 2,924,406 Changes in Endowment Net Assets Endowment net assets, beginning of year $ - $ 218,290 $ 2,532,570 $ 2,750,860 Investment return: Investment income - 39,710-39,710 Net appreciation realized and unrealized - 247,536-247,536 Contributions - - - - Appropriation of endowment assets for expenditure - (113,700) - (113,700) Endowment net assets, end of year $ - $ 391,836 $ 2,532,570 $ 2,924,406 Endowment Composition by Net Asset Category Temporarily Permanently 2011 Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ - $ 218,290 $ 2,532,570 $ 2,750,860 Changes in Endowment Net Assets Endowment net assets, beginning of year $ - $ 320,463 $ 2,532,570 $ 2,853,033 Investment return: Investment income - 59,659-59,659 Net depreciation realized and unrealized - (161,832) - (161,832) Contributions - - - - Appropriation of endowment assets for expenditure - - - - Endowment net assets, end of year $ - $ 218,290 $ 2,532,570 $ 2,750,860 9. EMPLOYEE BENEFIT PLANS The lay employees of ECF are covered under a multi-employer 403(b) plan (the Plan ) sponsored by DFMS. The Plan permits eligible employees to make contributions through salary deductions. ECF contributes a discretionary percentage of each covered employee s salary to be determined by ECF each year. Contributions to the Plan are based on 7% of each covered employee s salary, with additional contributions up to 2% to match employee voluntary contributions. Ordained clergy of ECF are covered under a multi-employer pension plan (the Pension Plan ) sponsored by the Church. Contributions to the Pension Plan are based on 18% of each covered clergy s compensation in 2012 and 2011. For the years ended, ECF contributed approximately $112,000 and $116,000, respectively, to these plans. - 20 -
10. CONTINGENT AND FUTURE PAYMENTS UNDER ACQUISITON AGREEMENT In 2005, ECF acquired a consulting business, Holliman Associates, for its expertise in assisting Episcopal churches conduct capital campaigns and related services. The acquisition agreement with Holliman Associates provides guaranteed annual payments of $9,000 to the two principals of that business for the remainder of their respective lives. - 21 -