COMBINED FINANCIAL STATEMENTS THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. June 30, 2010 and 2009
THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. TABLE OF CONTENTS June 30, 2010 and 2009
Page Independent Auditor's Report ................................................................................................................................ 1
Combined Financial Statements Combined Statements of Financial Position ......................................................................................................... 2 Combined Statements of Activities ....................................................................................................................... 3 Combined Statements of Cash Flows .................................................................................................................. 4 Notes to the Combined Financial Statements ...................................................................................................... 5
Supplementary Information Combined Schedules of Functional Expenses ................................................................................................... 18
INDEPENDENT AUDITOR'S REPORT To the Board of Directors The Community Foundation of Louisville, Inc. Louisville, Kentucky We have audited the accompanying combined statements of financial position of The Community Foundation of Louisville, Inc. (a nonprofit organization) as of June 30, 2010 and 2009 and the related combined statements of activities and cash flows for the years then ended. These combined financial statements are the responsibility of the organization’s management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We did not audit the financial statements of The Louisville Orchestra Foundation, Inc. which statements reflect total assets constituting 3% of combined assets at both June 30, 2010 and 2009, and revenues, gains (losses), and other support constituting 2% and 14% of combined revenues, gains (losses), and other support, respectively, for the years then ended. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for The Louisville Orchestra Foundation, Inc., is based solely on the report of the other auditors. 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 includes consideration of internal control over financial reporting as a basis for designing 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 over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of The Community Foundation of Louisville, Inc. as of June 30, 2010 and 2009, and the combined changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note P to the combined financial statements, an error resulting in the understatement of the previously reported agency endowment liabilities balance was discovered by management during the current year. Accordingly, an adjustment has been made to unrestricted net assets as of June 30, 2009 by revising the 2009 combined statement of activities as previously presented (including revising unrestricted net assets as of July 1, 2008 as previously presented). Our audits were conducted for the purpose of forming an opinion on the combined financial statements taken as a whole. The combined schedules of functional expenses on page 18 are presented for purposes of additional analysis and are not a required part of the combined financial statements. Such information has been subjected to the auditing procedures applied in the audits of the combined financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the combined financial statements taken as a whole.
Mountjoy Chilton Medley LLP Louisville, Kentucky November 21, 2010
THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. COMBINED STATEMENTS OF FINANCIAL POSITION June 30, 2010 and 2009 (restated) 2009
2010 ASSETS Cash Investments, including cash equivalents Accounts receivable Contributions receivable Other receivables Vested beneficial interests in charitable remainder trusts and other deferred funds Cash surrender value of life insurance Net fixed assets Other assets
$
1,684,596 278,706,898 98 8,780,355 205,208
$
4,049,952 311,822 107,478 350,818
Total assets
651,274 242,164,954 8,476 2,829,000 216,907 3,568,189 301,695 196,162 334,192
$
294,197,225
$
250,270,849
$
22,843 3,730,373 42,105
$
32,322 2,707,601 27,579
LIABILITIES AND NET ASSETS Liabilities Accounts payable Grants payable Accrued expenses Depository liabilities Depository Corporate Depository Agency endowment liabilities Deferred gift liabilities for split-interest agreements Other liability Total liabilities Net assets Unrestricted Operations Endowment Felix E. Martin, Jr. Foundation, Inc. Deferred funds Depositories Total unrestricted Temporarily restricted Charitable remainder trusts and other deferred funds Permanently restricted Endowment Total net assets Total liabilities and net assets
$
See accompanying notes to the combined financial statements -2-
11,008,906 7,071,114 13,915,059 7,025,813 184,083 43,000,296
10,650,975 6,705,472 12,746,465 6,732,536 171,522 39,774,472
2,041,857 184,211,992 42,679,633 880,876 350,206 230,164,564
1,890,137 148,167,919 40,137,341 798,630 (184,043) 190,809,984
10,259,191
9,099,519
10,773,174 251,196,929
10,586,874 210,496,377
294,197,225
$
250,270,849
THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. COMBINED STATEMENTS OF ACTIVITIES Years ended June 30, 2010 and 2009
2010 Temporarily restricted
Unrestricted Revenues, gains (losses), and other support Contributions and bequests Less amounts received for agency endowments Investment income Net unrealized gains (losses) on investments Net realized gains (losses) on sales of investments Administered fund fees Depository and Corporate Depository Endowment and deferred funds Other income
$
41,366,284 $ (19,683) 6,380,825 16,815,488 1,479,502
$
42,248 32,090 34,095 67,489,224
(12,403)
1,159,672
41,453,102 (19,683) 6,380,825 18,087,045 1,479,502
198,703
-
66,143,252
86,818 111,885
Total
-
1,159,672
12,403
Expenses Program services Community Foundation grants Less amounts made for agency endowments Income (loss) distributions from Depositories to donors' funds Distributions from deferred funds Other program services expenses
$
-
42,248 32,090 34,095 66,130,849
Net assets released from restrictions due to the withdrawals of restrictions by donors Total revenues, gains (losses), and other support
1,159,672
Permanently restricted
-
186,300
67,489,224
22,871,094 (392,259)
-
-
22,871,094 (392,259)
Management and general Fundraising
644,643 737,262 538,282 24,399,022 1,982,629 407,021
-
-
644,643 737,262 538,282 24,399,022 1,982,629 407,021
Total expenses
26,788,672
-
-
26,788,672
Change in net assets
39,354,580
1,159,672
186,300
40,700,552
190,809,984
9,099,519
10,586,874
210,496,377
Net assets, beginning of year (as restated) Net assets, end of year
See accompanying notes to the combined financial statements
$
230,164,564
$
10,259,191
$
10,773,174
$
251,196,929
(restated) 2009 Temporarily Permanently restricted restricted
Unrestricted
$
19,410,254 $ (29,382) 7,374,162 (33,920,047) (4,694,451)
-
40,758 29,524 34,390 (11,754,792)
$
40,758 29,524 34,390 (12,699,927)
(901,304)
(1,226,242)
20,342,613 (29,382) 7,374,162 (35,797,541) (4,694,451)
281,107
-
(10,853,488)
106,990 174,117 -
(1,226,242)
901,304
$
825,369 $ (2,051,611)
Total
-
(620,197)
(12,699,927)
18,844,399 (544,083)
-
-
18,844,399 (544,083)
(522,447) 901,304 692,242 19,371,415 2,012,282 445,763
-
-
(522,447) 901,304 692,242 19,371,415 2,012,282 445,763
21,829,460
-
-
21,829,460
(32,682,948)
(1,226,242)
223,492,932
10,325,761
190,809,984
$
9,099,519
(620,197)
(34,529,387)
11,207,071 $
10,586,874
245,025,764 $
210,496,377
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THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. COMBINED STATEMENTS OF CASH FLOWS Years ended June 30, 2010 and 2009 (restated) 2009
2010 Cash flows from operating activities Change in net assets Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities Depreciation and amortization Net unrealized (gains) losses on investments Net realized (gains) losses on sales of investments Changes in assets and liabilities Accounts receivable Contributions receivable Vested beneficial interests in charitable remainder trusts and other deferred funds Cash surrender value of life insurance Other assets Accounts payable Grants payable Accrued expenses Depository liabilities Agency endowment liabilities Deferred gift liabilities for split-interest agreements Other liability Contributions to permanent endowment
$
40,700,552
$
93,494 (18,087,045) (1,479,502)
100,193 35,797,541 4,694,451
8,378 (5,951,355)
13,426 535,419
(481,763) (10,127) (16,626) (9,479) 1,022,772 14,526 723,573 1,168,594 293,277 12,561 (86,818)
Net cash provided by (used in) operating activities
237,636 23,299 (57,176) (14,099) 1,924,022 (6,915) (6,301,618) (2,978,063) (1,637,850) (100,976) (106,990)
17,915,012
Cash flows from investing activities Proceeds from sales and maturities of investments Payments collected on other receivables Purchases of investments Purchases of fixed assets
(2,407,087)
99,136,102 11,699 (116,111,499) (4,810)
Net cash provided by (used in) investing activities
122,736,032 258,135 (121,131,994) (22,206)
(16,968,508)
Cash flows from financing activities Contributions to permanent endowment
1,839,967
86,818
Change in cash and cash equivalents
106,990
1,033,322
Cash and cash equivalents, beginning of year
(460,130)
651,274
Cash and cash equivalents, end of year
$
See accompanying notes to the combined financial statements -4-
(34,529,387)
1,684,596
1,111,404 $
651,274
THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. NOTES TO THE COMBINED FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE A--NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Organization The accompanying combined financial statements include the accounts of The Community Foundation of Louisville, Inc., The Community Foundation of Louisville Depository, Inc., The Community Foundation of Louisville Corporate Depository, Inc., the Felix E. Martin, Jr. Foundation, Inc., and The Louisville Orchestra Foundation, Inc. (collectively, the Foundation). The Community Foundation of Louisville, Inc. (Community Foundation) was organized in 1980 as a successor to the Louisville Foundation (which was established in 1916). The Community Foundation's primary purpose is to receive contributions and bequests, some of which are placed into permanent endowment funds. Earnings from the permanent endowment funds or otherwise unrestricted contributions or bequests are distributed as grants to meet community needs. The Community Foundation of Louisville Depository, Inc. (Depository) and The Community Foundation of Louisville Corporate Depository, Inc. (Corporate Depository) consist of pooled funds which are designed to receive assets contributed from multiple donors. Both the Depository and the Corporate Depository (collectively, the Depositories) distribute grants, in accordance with the individual or corporate depositor's direction, to taxexempt organizations throughout the United States. Distributions of depository funds can be made at any time during the depositor's lifetime. Within one year of the death of the depositor (or surviving spouse) or liquidation of the corporate depositor, any undistributed funds will be granted either to charitable organizations (if specified by the depositor agreement) or to the general endowment of the Community Foundation. The Boards of Directors of the Depositories are comprised of the members of the Executive Committee of the Community Foundation. In 2008, the Felix E. Martin, Jr. Foundation, Inc. (Martin Foundation) was established as a Type I supporting organization (as described in Section 509(a)(3) of the Internal Revenue Code) to the Community Foundation. The Martin Foundation was formed to receive and maintain the funds bequeathed by Mr. Martin, Jr., the principal and the income thereon which is to be used exclusively for charitable, scientific, literary, or educational purposes for the benefit of the residents of Muhlenberg County, Kentucky, either directly or by contributions to organizations that qualify as exempt organizations under Section 501(c)(3) of the Internal Revenue Code. As stated in The Louisville Orchestra Foundation, Inc.'s articles of incorporation, should The Louisville Orchestra Foundation, Inc. (Orchestra Foundation) dissolve, the organization shall distribute the lesser of its net assets or an amount equal to the initial "transfer" to the Orchestra Foundation by the Community Foundation. Such amount will be deposited with the Community Foundation (or its successor organization if applicable) to be used solely to support orchestral music in Louisville, Kentucky. Additionally, the Orchestra Foundation's Board of Directors is nominated by the Community Foundation. Therefore, management has included the accounts of the Orchestra Foundation, which provides annual funding to the Louisville Orchestra, Inc., in the accompanying combined financial statements. Combined Financial Statements As indicated above, the accompanying combined financial statements include the accounts of The Community Foundation of Louisville, Inc., The Community Foundation of Louisville Depository, Inc., The Community Foundation of Louisville Corporate Depository, Inc., the Felix E. Martin, Jr. Foundation, Inc., and The Louisville Orchestra Foundation, Inc. All significant inter-organization accounts and transactions have been eliminated in combination.
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THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 and 2009
NOTE A--NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Basis of Accounting The combined financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Accounting Standards Codification In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. In substance, SFAS No. 168 makes the FASB Accounting Standards Codification (ASC) the sole source of authoritative accounting technical literature for nongovernmental entities. All accounting guidance that is not included in the ASC is now considered to be non-authoritative. The ASC was first effective for annual reporting periods ending after September 15, 2009. The Foundation adopted the ASC upon issuance, with no significant impact to the accompanying combined financial statements. Basis of Presentation Financial statement presentation follows the recommendations of the FASB specifically as it pertains to financial statements of not-for-profit organizations. As such, the Foundation is required to report information regarding its financial position and activities according to the three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. 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 Cash does not include funds held in custodial investment accounts or certificates of deposit. Such cash equivalents are designated for investment. Investments (Including Cash Equivalents) Investments are stated at fair value and are generally administered as pools of commingled assets. Accordingly, investment income, and unrealized and realized gains and losses are allocated to individual funds on a pro-rata basis. Unrealized gains and losses are included in the change in net assets on the accompanying combined statements of activities. Invested funds are primarily (with the exception of certificates of deposit) held in custodial investment accounts and are managed by professional investment advisors. Contributions and Other Receivables Contributions receivable consist principally of estates which have been bequeathed to the Community Foundation. When contribution receivable amounts are expected to have collection periods in excess of a year (no such amounts as of June 30, 2010 and 2009, respectively), such amounts have been recorded after discounting them to the present value of future cash flows using a risk free interest rate relative to the expected collection period. -6-
THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 and 2009
NOTE A--NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Contributions and Other Receivables (Continued) Other receivables are stated at unpaid principal balances and are pursuant to executed agreements between the Foundation and the respective other parties. No allowance for uncollectible contributions or other receivables is currently reflected in the accompanying combined financial statements. As of year-end, management considers all such receivables to be fully collectible. Vested Beneficial Interests in Charitable Remainder Trusts and Other Deferred Funds Vested beneficial interests in charitable remainder trusts and other deferred funds are stated at the present value (estimated fair value) of the estimated future benefits to be received. The estimated future benefits are calculated using Level 3 inputs (see the definition of Level 3 per the Fair Value Measurements significant accounting policy). Under these charitable remainder trusts, the Community Foundation is not the trustee. Net Fixed Assets Fixed assets are stated at cost at the date of acquisition or fair value at the date of donation in the case of gifts or bequests. Fixed assets are presented on the accompanying combined statements of financial position net of accumulated depreciation (amortization). Depreciation (and amortization) is computed using the straight-line method over the estimated useful lives of the assets. The Community Foundation capitalizes all expenditures for fixed assets which are in excess of $1,000. Repairs and maintenance that do not improve or extend the useful lives of the respective assets are expensed as incurred. Depository Liabilities Depository liabilities represent the unexpended portion of funds on deposit from depositors (individual or corporate) who control the distribution of such funds for specified charitable purposes. Agency Endowment Liabilities Agency endowment liabilities represent the unexpended portion of funds received from various organizations for which the Community Foundation has contractual payment obligations. Deferred Gift Liabilities for Split-Interest Agreements The carrying amount (estimated fair value) for deferred gift liabilities (split-interest annuity and trust agreements) is the calculated present value of the income distributions or other payments to the donor or other designated beneficiaries during the term of the split-interest agreement. The estimated fair value is calculated using Level 3 inputs (see the definition of Level 3 per the Fair Value Measurements significant accounting policy).
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THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 and 2009
NOTE A--NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value Measurements The Foundation has adopted the fair value provisions of the ASC. These provisions define fair value as the price that would be received by the Foundation to sell an asset or be paid by the Foundation to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. These provisions also expand disclosures about fair value measurements and establish a framework for measuring fair value, a threelevel hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The hierarchy prioritizes the inputs (from the most objective to the most subjective) to the valuation techniques used to measure fair value into the three broad levels described as follows:
Level 1--Quoted prices in active markets for identical assets or liabilities. Level 2--Observable inputs such as quoted prices in active markets for similar assets or liabilities or quoted prices for identical or similar assets or liabilities in markets that are not active, or unobservable inputs that are derived principally from or corroborated by observable market data. Level 3--Unobservable inputs that are based on the Foundation’s own assumptions as to how knowledgeable parties would price assets or liabilities that are not corroborated by market data.
At June 30, 2010 and 2009, items carried at fair value on a recurring basis consist principally of investments for which the fair values are generally determined by referring to quoted market prices and other relevant information generated by market transactions (see also Note C), vested beneficial interests in charitable remainder trusts and other deferred funds for which fair value is the present value of the estimated future benefits to be received (see also the respective significant accounting policy, as well as Note F), and deferred gift liabilities for split-interest agreements for which fair value is the estimated present value of the future obligations calculated using the appropriate discount rates (see also the respective significant accounting policy, as well as Note I). The Foundation has made the determination that the accompanying combined statements of financial position do not reflect any non-financial assets or non-financial liabilities to which additional disclosure requirements would apply. Contributions and Bequests Contributions and bequests, including, when applicable, unconditional promises to give (contributions receivable), are recognized as revenue in the period when they are received or unconditionally pledged and are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and nature of any donor restrictions. Restricted net assets are reclassified to unrestricted net assets upon satisfaction of the time or purpose restriction. Endowment Investment and Spending Policies The Community Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to support programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. The Community Foundation’s spending and investment policies work together to achieve this objective through diversification of asset classes. The current long-term objective is to return 8.00% net of related investment management fees. Actual investment returns in any given fiscal year may vary from this objective. To satisfy its long-term rate of return objectives, the Community Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation (unrealized and realized) and current yield (interest and dividend income). The Community Foundation targets a diversified asset allocation that places a greater emphasis on equity based investments to achieve its long-term objectives within prudent risk parameters. -8-
THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 and 2009
NOTE A--NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Endowment Investment and Spending Policies (Continued) The spending policy determines the amount of money in a given year that may be distributed from the Community Foundation’s various endowment funds, which include designated funds, donor advised funds, field of interest funds, scholarship funds, and Board designated unrestricted funds. The current spending policy allows for distributions equal to 5.00% of an endowment fund’s moving twelve calendar quarter average. Accordingly, over the long-term, the Community Foundation expects its current spending policy to allow for growth at an average rate of 3.00% annually. This is consistent with the Community Foundation’s objective to maintain the purchasing power of endowment assets, as well as to provide additional real growth through new contributions and investment returns. Functional Allocation of Expenses The costs of providing the various programs and other activities are summarized on a functional basis (program services, management and general, and fundraising) in the supplemental combined schedules of functional expenses. Directly identifiable expenses are charged to the applicable program and supporting services. Expenses related to more than one function are allocated among the programs and supporting services benefited based on management's time and service estimates. Management and general expenses include those expenses that are not directly identifiable with any other specific function, but provide for the overall support and direction of the Foundation. Income Taxes The Foundation is exempt from federal income taxes (for all function income) under Section 501(c)(3) of the Internal Revenue Code (the Code). Additionally, the Community Foundation has been determined by the Internal Revenue Service not to be a private foundation within the context of Section 509(a) of the Code. The FASB issued new standards, contained in the ASC, clarifying the accounting for uncertainty in taxes recognized in annual financial statements for fiscal years beginning after December 15, 2008. These standards require recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The Foundation adopted these standards, believing there is no significant impact to the accompanying combined financial statements. Subsequent Events The Foundation has evaluated events occurring between the end of its most recent fiscal year (June 30, 2010) and November 21, 2010, the date these combined financial statements were available to be issued.
NOTE B--CONCENTRATION OF CREDIT RISK In October 2008, the federal deposit insurance coverage provided by the Federal Deposit Insurance Corporation (FDIC) temporarily increased from $100,000 to $250,000. In October 2008, the FDIC also enacted the Transaction Account Guarantee Program (Program) which fully guarantees any non-interest bearing account for the account’s entire balance. The Program was to terminate on January 1, 2010, however the FDIC extended the Program through December 31, 2010 to the extent the financial institution had not opted-out of participating in the Program effective with the January 1, 2010 extension period. In July 2010, the federal deposit insurance coverage was permanently increased to $250,000.
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THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 and 2009
NOTE B--CONCENTRATION OF CREDIT RISK (CONTINUED) All but one of the financial institutions (of the six in total) at which the Foundation maintains its cash deposits (including invested certificates of deposit) are no longer participating in the Program. Therefore not all deposits (to the extent such deposits are in excess of $250,000) are fully insured at June 30, 2010. At June 30, 2010, such uninsured deposits total approximately $3,447,000. At June 30, 2010, the balances of the Foundation’s money market funds (invested cash equivalents) are uninsured. The Temporary Guarantee Program (enacted in September 2008), which guaranteed that investors would receive one dollar for each money market fund share held in a participating fund (all taxable and taxexempt money market funds) as of the close of business on September 19, 2008, terminated in September 2009. NOTE C--INVESTMENTS The Community Foundation invests endowed assets in a combination of equity and fixed income securities. The investment objective is to provide sufficient earnings to support the Foundation's charitable grant commitments while protecting original principal to ensure sufficient growth to sustain its purchasing power against the rate of inflation. Depository funds, which are fully expendable as grants, are invested primarily in pools of cash equivalents, common investment funds, mutual funds, and short-term bonds. The Depositories offer depositors with balances in excess of $100,000 an option to place funds in investment pools of long-term investments such as corporate and government bonds and common and preferred stocks. At June 30, 2010, investments consist of the following: Community Foundation Cash equivalents U.S. government and government agency obligations Corporate bonds and notes Common investment and mutual funds Common stock Other
Martin Foundation
$ 11,484,904 $ 4,185,421 3,545,098
Depository
1,164,633 $
2,397,579 $
6,902,716 6,150,833
3,008,684 1,983,756
151,691,947 21,874,276 3,584,879 31,649,022 7,883,885 130,580 14,473,566 $ 217,029,958 $ 43,976,343 $ 11,105,478 $
Corporate Depository
Combined
1,907,298 $ 16,954,414 504,226 329,982
14,601,047 12,009,669
1,715,233 178,866,335 2,138,380 41,801,867 14,473,566 6,595,119 $ 278,706,898
At June 30, 2009, investments consist of the following: Community Foundation Cash equivalents U.S. government and government agency obligations Corporate bonds and notes Common investment and mutual funds Common stock Other
Martin Foundation
$ 16,573,097 $ 2,394,590 5,001,917
1,017,383 $ 6,319,569 6,389,733
Depository 265,964 $ 3,326,261 2,199,898
130,106,830 19,501,527 4,291,025 16,910,289 6,863,812 144,554 14,254,138 $ 185,240,861 $ 40,092,024 $ 10,227,702 $
-10-
Corporate Depository
Combined
2,267,949 $ 20,124,393 576,013 359,928
12,616,433 13,951,476
1,514,872 155,414,254 1,885,605 25,804,260 14,254,138 6,604,367 $ 242,164,954
THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 and 2009
NOTE C--INVESTMENTS (CONTINUED) As indicated above, the Foundation is invested in various types of investment securities. Investments are exposed to various risks such as interest rate risk, credit risk, and market risk. Due to the level of risk associated with certain investments, it is at least reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect the amounts reported in the accompanying combined statements of financial position. At June 30, 2010 and 2009, assets carried at fair value on a recurring basis consist principally of investments as follows (see also the Fair Value Measurements significant accounting policy per Note A): Fair value
Level 1
Level 2
Level 3
June 30, 2010
$ 278,706,898 $ 237,622,616 $ 26,610,716 $ 14,473,566
June 30, 2009
$ 242,164,954 $ 201,342,907 $ 26,567,909 $ 14,254,138
At June 30, 2010 and 2009, investments included above under Level 2 and Level 3 principally represent investments in fixed income securities (U.S. government/government agency obligations and corporate bonds/notes) and in five pass-through entities (two limited partnerships and three limited liability companies), respectively. The years ended June 30, 2010 and 2009 activity of the investments measured at fair value on a recurring basis using significant unobservable inputs (Level 3 investments per the above table) is as follows: 2010 Beginning of the year Purchases Sales Net unrealized and realized appreciation (depreciation) Transfers in/out of Level 3 End of the year
2009
$ 14,254,138 $ 16,809,146 1,509,131 6,119,173 (3,070,448) (4,474,335) 1,780,745 (4,199,846) $ 14,473,566 $ 14,254,138
NOTE D--CONTRIBUTIONS RECEIVABLE At June 30, 2010 and 2009, contributions receivable consist of the following:
Estimated to be collected in less than one year Estimated to be collected in one to five years Estimated to be collected thereafter
$
Less discounts to net present value $
-11-
2010
2009
8,780,355 $ 8,780,355 8,780,355 $
2,829,000 2,829,000 2,829,000
THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 and 2009
NOTE E--OTHER RECEIVABLES During 2006, shares of stock of a privately owned company were donated to the Foundation by one of the company's principal owners. Subsequently, the shares were purchased from the Foundation under the terms of a promissory note. The note's interest rate changes annually based on the "federal mid-term rate." However, if the "federal mid-term rate" is less than or equal to 4.75% (2.72% and 2.25% at June 30, 2010 and 2009, respectively), the note receivable shall bear interest at 7.50%. The note is payable in monthly payments of principal and interest totaling approximately $2,300 through the note's May 2021 maturity date. The amount due to the Foundation under this note receivable at June 30, 2010 and 2009 totals $205,208 and $216,907, respectively. As of June 30, 2010, the required principal payments due during 2011 total approximately $12,000.
NOTE F--VESTED BENEFICIAL INTERESTS IN CHARITABLE REMAINDER TRUSTS AND OTHER DEFERRED FUNDS The carrying amount (estimated fair value) for vested beneficial interests in charitable remainder trusts and other deferred funds is calculated using Level 3 inputs (see the definition of Level 3 per the Fair Value Measurements significant accounting policy). The actuarial related assumptions used in calculating the respective present values of the estimated future benefits to be received, include the beneficiary’s age, the date of the gift, the market value of the amount gifted, the rate of return, the payout rate, the payment schedule, and the discount rate. The years ended June 30, 2010 and 2009 activity with respect to these beneficial interests is as follows: 2010 Beginning of the year New gifts Actuarial change Transfers in/out of Level 3 End of the year
$
$
2009
3,568,189 $ 3,805,825 821,142 481,763 (1,058,778) 4,049,952 $ 3,568,189
NOTE G--NET FIXED ASSETS At June 30, 2010 and 2009, net fixed assets consist of the following: 2010 Leasehold improvements Office furniture and equipment Computer hardware and software
$
Less accumulated depreciation and amortization $
59,840 $ 139,734 236,616 436,190 328,712 107,478 $
2009 59,840 138,517 233,023 431,380 235,218 196,162
Depreciation and amortization expense totals $93,494 and $100,193 for the years ended June 30, 2010 and 2009, respectively.
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THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 and 2009
NOTE H--DEPOSITORY LIABILITIES A progression of depository liabilities for the years ended June 30, 2010 and 2009 is as follows: 2010 Depository Beginning of the year Additions Net investment income retained Net unrealized and realized appreciation (depreciation) Distributions End of the year
$ 10,650,975 $ 8,080,712 (2,927)
2009
Corporate Depository 6,705,472 5,343,730 56,164
27,310 495,973 (7,747,164) (5,530,225) $ 11,008,906 $ 7,071,114
Depository $ 16,215,644 $ 4,516,516 21,773
Corporate Depository 7,442,421 3,587,914 93,057
(61,764) (631,682) (10,041,194) (3,786,238) $ 10,650,975 $ 6,705,472
NOTE I--SPLIT-INTEREST AGREEMENTS The Community Foundation is party to various irrevocable split-interest agreements. A split-interest agreement is a gift that is partially for the Community Foundation's benefit and partially for an individual's benefit. Upon acceptance of a split-interest agreement, the Community Foundation records the contributed asset and the present value of the liability payable to the beneficiary. These agreements include charitable remainder trusts, pooled income funds, and charitable gift annuities. Charitable remainder trusts are arrangements in which a donor establishes and funds a trust with specified distributions to be made to designated beneficiaries over the trust's term. Upon termination of the trust, the Community Foundation receives the assets remaining in the trust. Obligations to the beneficiaries are limited to the trust's assets. The Community Foundation also manages a pooled income fund in which contributions of multiple donors' life income gifts are pooled and invested as a group. Each donor is assigned a specific number of units based on the proportion of the fair value of the contributions to the total fair value of the pooled income fund on the date of the donor's gift. Until a beneficiary's death, the donor (or the donor's designated beneficiary) is paid the actual income earned on the donor's assigned units. Upon the beneficiary's death, the value of these assigned units reverts to the Community Foundation. Obligations to the beneficiaries are limited to the income earned by the pooled income fund. A charitable gift annuity is an arrangement between a donor and the Community Foundation in which the donor contributes assets to the Community Foundation in exchange for a promise by the Community Foundation to pay a fixed amount to the donor or to others designated by the donor for a specified period of time. Obligations continue until the death of the beneficiary. Trust assets are reported at fair value in the same manner as all Foundation investments. The income or loss recognized under these trusts is included in temporarily restricted net assets. Discount rates are determined in accordance with the Internal Revenue Code and represent the rate at the date of the contribution. Actuarial related assumptions used in calculating present values include the beneficiary's age, the date of the gift, the market value of the principal donated, the rate of return, the payout rate, the payment schedule, and the discount rate.
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THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 and 2009
NOTE I--SPLIT-INTEREST AGREEMENTS (CONTINUED) Amounts subject to split-interest agreements include the following as of June 30, 2010 and 2009: 2010 Charitable remainder trusts Assets Liabilities
Pooled income funds
$ 12,020,643 $ 5,903,047
Charitable gift annuities
580,246 $ 487,274
Total
1,197,336 $ 13,798,225 635,492 7,025,813
2009 Charitable remainder trusts Assets Liabilities
Pooled income funds
$ 11,033,867 $ 5,586,949
Charitable gift annuities
575,019 $ 490,608
Total
1,141,914 $ 12,750,800 654,979 6,732,536
The carrying amount (estimated fair value) for deferred gift liabilities for split-interest agreements is calculated using Level 3 inputs (see the definition of Level 3 per the Fair Value Measurements significant accounting policy). The years ended June 30, 2010 and 2009 activity with respect to deferred gift liabilities is as follows: 2010 Beginning of the year New gifts Actuarial change Payment obligations Transfers in/out of Level 3 End of the year
$
$
6,732,536 $ 1,037,730 (744,453) 7,025,813 $
2009 8,370,386 154,127 (929,007) (862,970) 6,732,536
NOTE J--NET ASSETS The Foundation classifies its net assets as unrestricted, temporarily restricted, and permanently restricted based on the donor's intent at the time the contribution (or bequest) is made. Within each of the three classifications the Foundation further distinguishes its net assets according to the purpose of the underlying component fund. Under the terms of the Community Foundation's governing documents, the Board of Directors has the ability to distribute as much of the corpus of any trust or separate contribution, bequest, devise, or fund, as the Board, in its sole discretion, may determine. Accordingly, contributions and bequests are classified as unrestricted net assets when made without donor restrictions or where the Community Foundation has full variance power over both principal and income (endowment funds). Such endowment funds (for which the Community Foundation has full variance power) are classified as unrestricted, but as donor designated for purposes of Note K (see below).
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THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 and 2009
NOTE J--NET ASSETS (CONTINUED) Contributions and bequests are classified as temporarily restricted if the donor places a time or purpose restriction upon the contribution or bequest. As the time restriction expires or the purpose restriction is satisfied, the net assets are then reclassified as unrestricted net assets and are reported in the accompanying combined statements of activities as net assets released from restrictions. Temporarily restricted net assets of $10,259,191 and $9,099,519 at June 30, 2010 and 2009, respectively, represent various irrevocable split-interest agreements. All contributions and bequests for which the donor restricts use of the funds to part or all of the income thereon are classified as permanently restricted net assets. Permanently restricted net assets total $10,773,174 and $10,586,874 at June 30, 2010 and 2009, respectively. For the years ended June 30, 2010 and 2009, no temporarily restricted net assets were released from restrictions due to the satisfaction of time or purpose restrictions or to meet unitrust and pooled income fund restrictions. Additionally, during the years ended June 30, 2010 and 2009, donors withdrew the restrictions associated with permanently restricted funds in the amount of $12,403 and $901,304, respectively.
NOTE K--ENDOWMENT FUNDS In August 2008, the FASB issued new standards relative to the net asset classification of donor restricted endowment funds for a not-for-profit organization that is subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA). UPMIFA is a model act approved by the Uniform Law Commission that serves as a guideline for states to use in enacting legislation. The new standards also improve disclosures about an organization’s endowment funds (both donor-restricted and board designated endowment funds), whether or not the not-for-profit organization is subject to UPMIFA. In March 2010, the state of Kentucky enacted UPMIFA legislation, the effective date of which is July 15, 2010. The Foundation has not yet completed its evaluation of the impact that such legislation will have on its combined financial statements as of and for the year ended June 30, 2011. At June 30, 2010, endowment net assets consist of the following:
Unrestricted Board designated Donor designated Donor restricted
Temporarily restricted
Permanently restricted
Total
$ 13,064,433 $ $ $ 13,064,433 216,034,508 216,034,508 10,259,191 10,773,174 21,032,365 $ 229,098,941 $ 10,259,191 $ 10,773,174 $ 250,131,306
At June 30, 2009, endowment net assets (as restated) consist of the following:
Unrestricted Board designated Donor designated Donor restricted
Temporarily restricted
$ 11,667,531 $ 178,766,687 $ 190,434,218 $
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Permanently restricted
Total
$ $ 11,667,531 178,766,687 9,099,519 10,586,874 19,686,393 9,099,519 $ 10,586,874 $ 210,120,611
THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 and 2009
NOTE K--ENDOWMENT FUNDS (CONTINUED) Changes in endowment net assets during the year ended June 30, 2010 are as follows:
Unrestricted Beginning of the year (as restated) Contributions Investment return Net investment income Net unrealized and realized appreciation Appropriation of endowment assets for expenditure End of the year
Temporarily restricted
$ 190,434,218 $ 41,343,795 3,685,931
Permanently restricted
9,099,519 $ 10,586,874 $ 210,120,611 86,818 41,430,613 -
17,220,091
Total
-
1,159,672
111,885
3,685,931 18,491,648
(23,585,094) (12,403) (23,597,497) $ 229,098,941 $ 10,259,191 $ 10,773,174 $ 250,131,306
NOTE L--OFFICE SPACE LEASE The Community Foundation currently rents its office space under an operating lease with a term through April 2012. The monthly rent payment was $6,266 through April 2009, after which the monthly rent payment increased to $6,995. The lease also requires the Community Foundation to pay its pro-rata share of utilities (a specified monthly amount for electric). Rent expense (not including amounts paid to the lessor for utilities) totals approximately $84,000 and $77,000 for 2010 and 2009, respectively. At June 30, 2010, the future minimum lease payments under the operating lease are as follows: Year Ending June 30 2011 2012
$ $
83,940 69,950 153,890
NOTE M--INVESTMENT MANAGEMENT FEES As previously indicated, invested funds are primarily held in custodial investment accounts and are managed by professional investment advisors. Accordingly, the Foundation has entered into agreements with several professional investment advisors. Generally, such agreements are cancelable by either party upon written notice. For the years ended June 30, 2010 and 2009, investment management and other fees include approximately $688,000 and $711,000, respectively, of investment management (and custodial) fees.
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THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 and 2009
NOTE N--PENSION PLAN The Community Foundation has a defined contribution pension plan covering all employees who are at least twenty-one years old and have at least one year of service. Participants become fully vested upon completion of two years of service. Currently, the monthly employer contributions are based on 6.50% of the participant's compensation (effective August 2009, the monthly employer contribution percentage was decreased from 8.00% to 5.00%, but was subsequently increased back up to 6.50% effective July 2010). Pension plan expense for the years ended June 30, 2010 and 2009 totals approximately $59,000 and $85,000, respectively.
NOTE O--REVOCABLE BENEFICIARY During 2006, the Community Foundation was notified that it was the revocable beneficiary of a charitable lead trust. During 2010 and 2009, the Community Foundation received distributions from the trust in the amount of approximately $7,200,000 each year. The Community Foundation may continue to receive such significant distributions over an extended period of time. The donor has the right to change the beneficiary of the trust at any time.
NOTE P--PRIOR PERIOD ADJUSTMENT During 2010, management was made aware of additional information that ultimately lead to the conclusion that agency endowment liabilities had been misstated as previously reported (with respect to one specific agency endowment fund). Accordingly, unrestricted net assets as previously reported as of July 1, 2008 (beginning of the year unrestricted net assets per the combined statement of activities for the year ended June 30, 2009) decreased from $224,528,532 to $223,492,932. This $1,035,600 adjustment represents the amount by which agency endowment liabilities were understated as of June 30, 2008. The 2009 combined statement of activities has been revised to correct the effect of this misstatement, thus as a result, the net decrease in unrestricted net assets changed from $33,137,749 to $32,682,948. This $454,801 adjustment is the amount by which the respective agency endowment liability decreased from 2008 to 2009. The $580,799 net adjustment (the net of the above indicated $1,035,600 and $454,801 amounts) to unrestricted endowment net assets as of June 30, 2009 represents the amount by which agency endowment liabilities were understated as of June 30, 2009.
NOTE Q--NEW FAIR VALUE MEASUREMENTS PRONOUNCEMENT In January 2010, the FASB issued guidance which expands the required disclosures about fair value measurements (see also the Fair Value Measurements significant accounting policy per Note A). In particular, this guidance requires (i) separate disclosure of the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements along with the reasons for such transfers, (ii) information about purchases, sales, issuances, and settlements to be presented separately in the reconciliation for Level 3 fair value measurements, (iii) disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for fair value measurements that fall in either Level 2 or Level 3, and (iv) fair value measurement disclosures for each class of assets and liabilities. This guidance is effective for annual reporting periods beginning after December 15, 2009 (the year ended June 30, 2011) except for (ii) above which is effective for annual reporting periods beginning after December 15, 2010 (the year ended June 30, 2012). The Foundation has not yet completed its evaluation of the impact this guidance will have on its combined financial statements.
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SUPPLEMENTARY INFORMATION
THE COMMUNITY FOUNDATION OF LOUISVILLE, INC. COMBINED SCHEDULES OF FUNCTIONAL EXPENSES Years ended June 30, 2010 and 2009
2010 Program services Grants Income (loss) distributions from Depositories to donors' funds Distributions from deferred funds Investment management and other fees Salaries, payroll taxes, and benefits Rent, utilities, and office expenses Marketing and communications and planned giving design center Legal, audit, and other professional services Travel, entertainment, and conference expenses Software maintenance contracts and upgrades Memberships and reference materials and continuing education Postage, printing, and publications Miscellaneous expenses Depreciation and amortization Totals
See accompanying independent auditor's report
$
22,478,835
Management and general $
644,643 737,262 397,415 40,442
$
722,359 796,700 85,295
5,369
$
-
Fundraising
-
-
Total $
22,478,835
256,209 19,625
644,643 737,262 722,359 1,450,324 145,362
90,295
95,664
38,947
213,922
8,110
260,979
10,409
26,325
3,354
40,088
12,124
26,491
6,287
44,902
1,572 6,296 465 25,243
38,820 13,756 3,799 55,162
6,546 3,265 241 13,089
46,938 23,317 4,505 93,494
24,399,022
$
1,982,629
$
407,021
$
26,788,672
(restated) 2009 Management and general Fundraising
Program services $
18,300,316
$
(522,447) 901,304 402,606 39,462 54,769
$
-
$
-
Total $
18,300,316
723,717 854,354 82,437
259,555 18,802
(522,447) 901,304 723,717 1,516,515 140,701
-
121,443
176,212
135,144
149,572
9,503
294,219
12,097
51,299
4,228
67,624
11,435
24,985
5,929
42,349
1,221 7,915 541 27,052
47,424 17,296 2,084 59,114
7,890 4,105 281 14,027
56,535 29,316 2,906 100,193
19,371,415
$
2,012,282
$
445,763
$
21,829,460
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