barry goldwater institute for public policy research and subsidiary
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011
CONTENTS
Page INDEPENDENT AUDITORS’ REPORT
1
CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Financial Position
2
Consolidated Statement of Activities and Changes in Net Assets
3
Consolidated Statement of Functional Expenses
4
Consolidated Statement of Cash Flows
5
Notes to Consolidated Financial Statements
6 - 16
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION December 31, 2011 (with summarized comparative totals at December 31, 2010)
ASSETS 2011 CURRENT ASSETS Cash and cash equivalents Pledges receivable, net Notes receivable Other receivables Prepaid expenses TOTAL CURRENT ASSETS
$
INVESTMENTS
2010
540,479 155,293 1,700,000 42,716 19,880 2,458,368
$
784,619
PLEDGES RECEIVABLE, net
779,575
-
TOTAL ASSETS
92,154
1,709,113
PROPERTY AND EQUIPMENT, net $
679,729 196,667 950,000 48,449 9,424 1,884,269
1,739,425
4,952,100
$
4,495,423
21,150 121,686 3,994 146,830
$
33,877 63,326 3,638 100,841
LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable Accrued liabilities Current portion of capital lease obligation TOTAL CURRENT LIABILITIES
$
CAPITAL LEASE OBLIGATION, less current portion TOTAL LIABILITIES NET ASSETS Unrestricted: Undesignated Board designated operating reserve Total unrestricted net assets Temporarily restricted Permanently restricted TOTAL NET ASSETS TOTAL LIABILITIES AND NET ASSETS
$
See Notes to Consolidated Financial Statements -2-
9,619
13,613
156,449
114,454
2,918,975 600,000 3,518,975 412,321 864,355 4,795,651
2,357,500 600,000 2,957,500 560,114 863,355 4,380,969
4,952,100
$
4,495,423
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
Unrestricted SUPPORT AND REVENUES Contributions Foundation contributions and grants Litigation cost reimbursement revenue Public policy and lecture events Interest and dividends Realized and unrealized gains (losses) Other income Total support and revenues before special events and net assets released from restrictions
$
Special events: Special events revenues Less costs of direct donor benefits Gross profit on special events
1,533,821 $ 651,550 1,395,020 816 51,683 (5,032) 3,169
238,850 298 -
3,631,027
239,148
434,362 (111,554) 322,808
Net assets released from restrictions TOTAL SUPPORT AND REVENUES EXPENSES AND LOSSES: Program services Fundraising Management and general Loss on uncollectible pledges TOTAL EXPENSES AND LOSSES CHANGE IN NET ASSETS
$
1,000 -
Totals
$
1,000
-
2011
2010
1,534,821 $ 890,400 1,395,020 816 51,981 (5,032) 3,169
1,756,106 1,108,725 68,738 53,699 30,638 -
3,871,175
3,017,906
434,362 (111,554) 322,808
416,550 (104,394) 312,156
-
-
381,041
(381,041)
-
4,334,876
(141,893)
1,000
4,193,983
3,330,062
3,065,304 425,569 282,528 -
5,900
-
3,065,304 425,569 282,528 5,900
2,728,620 464,204 246,095 67,715
3,773,401
5,900
-
3,779,301
3,506,634
(147,793)
2,957,500 $
Permanently Restricted
-
561,475
NET ASSETS, BEGINNING OF YEAR NET ASSETS, END OF YEAR
Temporarily Restricted
3,518,975
560,114 $
412,321
$
1,000
414,682
863,355
4,380,969
864,355
See Notes to Consolidated Financial Statements -3-
$
4,795,651
(176,572) 4,557,541 $
4,380,969
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
Totals Program Wages and salaries Printing Employee benefits Payroll taxes Postage and courier Depreciation and amortization Building expense Litigation fees and attorney's fees Contractual expense Advertising and public relations Website development expense Travel Gala fundraising event Dues and subscriptions Lecture series and event Audit and financial services Telephone Supplies Technology List rentals Insurance Bank and credit card fees Business meals Equipment lease and repair Legal Seminars and meetings Payroll and plan maintenance fees Book and marketing expense Licenses/fees Interest expense Research materials TOTAL EXPENSES
$
$
Services 1,865,610 172,872 131,629 116,511 91,429 86,842 83,005 81,779 47,507 74,219 44,869 53,618 13,345 33,508 34,047 20,408 17,414 17,410 18,903 16,049 14 9,870 8,122 11,026 6,741 5,339 1,151 25 1,053 989 3,065,304
Management Fundraising $ 220,789 21,119 19,826 13,789 16,738 15,174 14,504 9,233 2,564 2,811 40,034 3,310 5,012 4,277 4,276 3,336 2,804 14,498 2,785 1,995 632 3,183 2,617 263 -
and General $ 155,113 12,066 9,687 3,421 7,150 6,835 21,767 16,666 2,537 405 30,437 2,690 2,295 2,294 1,321 1,329 2,839 1,071 1,147 444 52 816 146 -
$
$
425,569
282,528
See Notes to Consolidated Financial Statements -4-
$
$
2011 2,241,512 193,991 163,521 139,987 111,588 109,166 104,344 81,779 78,507 74,219 64,099 58,966 53,379 37,223 34,047 30,437 28,110 23,986 23,980 22,239 20,174 15,841 15,494 11,188 11,026 7,888 6,415 4,386 3,458 1,462 989 3,773,401
$
$
2010 1,777,096 190,930 133,410 105,780 129,576 102,569 102,341 49,889 263,242 135,032 49,079 51,238 38,946 99,943 21,350 18,225 23,734 34,253 20,508 16,014 26,113 10,609 7,844 6,047 7,998 6,209 1,807 6,914 1,626 597 3,438,919
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31, 2011 (with summarized comparative totals at December 31, 2010) 2011 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization Donated marketable securities Donated software Change in discount on long-term pledges Loss on uncollectible pledges Realized and unrealized (gains) losses on investments Changes in operating assets and liabilities: Decrease (increase) in: Pledges receivable Other receivables Prepaid expenses Increase (decrease) in: Accounts payable Accrued liabilities Net cash provided by operating activities
$
2010
414,682
$
(176,572)
109,166 (46,775) (14,417) 5,900 5,032
102,569 (32,008) (35,934) (21,299) 67,715 (30,638)
142,045 5,733 (10,456)
242,785 1,249 (1,449)
(12,727) 58,360 656,543
(53,416) (17,704) 45,298
CASH FLOWS FROM INVESTING ACTIVITIES Payments from notes receivable Proceeds from sale of investments Cash invested in notes receivable Purchases of investments Purchases of property and equipment Net cash used in investing activities
250,000 581,810 (1,000,000) (545,111) (78,854) (792,155)
250,000 816,899 (250,000) (856,241) (56,672) (96,014)
CASH FLOWS FROM FINANCING ACTIVITIES Payments on capital lease obligation Net cash used in financing activities
(3,638) (3,638)
(3,049) (3,049)
(139,250)
(53,765)
679,729
733,494
NET CHANGE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR
$
540,479
$
679,729
$
1,462
$
1,626
Contributions of marketable securities
$
46,775
$
32,008
Contributions of software
$
-
$
35,934
Equipment acquired under capital lease obligation
$
-
$
20,300
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Cash paid for interest SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
See Notes to Consolidated Financial Statements -5-
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(1)
Company operations and summary of significant accounting policies Barry Goldwater Institute for Public Policy Research (“the Institute”) was established in 1988 as an independent, non-partisan research and educational organization dedicated to the study of public policy. Through research papers, workshops, commentaries and policy briefings, the Institute's mission is to advance the principles of limited government, economic freedom and individual responsibility - the principles championed by the late Senator Barry Goldwater during his years of public service. To promote these principles, change public opinion, and assist Arizona leaders in developing sound public policy, the Institute conducts research on timely issues. The Institute neither seeks nor accepts government funding and relies wholly on contributions from the private sector to fund its activities. In February 2001 the Institute’s Board of Directors formed Goldwater Institute Holding Company, LLC (“Holding Company”), with the Institute as the sole member. The Holding Company was formed to hold and manage the Institute's real property. The Institute transferred its real property to the Holding Company in 2002. The significant accounting policies followed by the Institute and its subsidiary, the Holding Company, collectively referred to in these consolidated financial statements as the “Institute,” are summarized below: The Financial Accounting Standards Board (“FASB”) sets U.S. generally accepted accounting principles (“GAAP”) to ensure consistent reporting. References to GAAP are to the FASB Accounting Standards Codification (“FASB ASC”). Basis of presentation – The accompanying consolidated financial statements are presented in accordance with FASB ASC 958-205, Not-for-Profit Entities - Presentation of Financial Statements. Under FASB ASC 958-205, the Institute is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Prior year summarized information – The consolidated financial statements include certain prior year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with U.S. generally accepted accounting principles. Accordingly, such information should be read in conjunction with the Institute’s audited consolidated financial statements for the year ended December 31, 2010, from which the summarized information was derived. Principles of consolidation – The accompanying consolidated financial statements include the accounts of the Institute and its wholly owned subsidiary Goldwater Institute Holding Company, LLC. All significant intercompany transactions and accounts have been eliminated in consolidation. Management’s use of estimates – The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(1)
Company operations and summary of significant accounting policies (continued) Revenue recognition – The Institute recognizes amounts received from grants at the time the Institute receives notification of the award in situations where no further activities are required. Revenue from public policy and lecture events is recognized upon the occurrence of the event. Fees received prior to the occurrence of a scheduled event are deferred until the period in which the event occurs. Contributions – The Institute accounts for contributions in accordance with FASB ASC 958-605, Not-forProfit Entities - Revenue Recognition. Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statement of activities as net assets released from restrictions. Restricted support, where restrictions are met in the same period as the contribution is made, is shown as unrestricted support. In fiscal year 2011, the Institute received a conditional promise to give of up to $200,000 in matching funds. For every dollar the Institute raises from other sources for a specific project between December 1, 2012 and November 30, 2013, the donor has pledged to contribute two dollars, up to a maximum of $200,000. This pledge is also contingent on the donor’s review and approval of the Institute’s use of other contributed funds in fiscal year 2012. No amount related to this conditional promise to give has been recognized in the Institute’s consolidated financial statements as the conditions of the promise to give were not substantially met as of December 31, 2011. Special events revenue – The Institute conducts special events in which a portion of the gross proceeds paid by the participant represents payment for the direct cost of the benefits received by the participant at the event. Unless a verifiable, objective means exists to demonstrate otherwise, the fair value of meals and entertainment provided at special events is measured at the actual cost to the Institute. The direct costs of the special events which ultimately benefit the donor rather than the Institute are recorded as costs of direct donor benefits. All proceeds received in excess of the direct costs are recorded as gross profit on special events in the accompanying consolidated statement of activities. Litigation cost reimbursement revenue – The Institute engages in litigation to champion causes related to its founding principles. The Institute may be awarded reimbursement of its legal costs incurred in litigating cases if the court finds in favor of the Institute. Litigation cost reimbursement revenue awarded as a result of litigation of cases is recognized when the ruling is made by the court. Donated materials and services – Donated materials are reflected as contributions in the consolidated statement of activities at their estimated values at the date of receipt. Donated services are recognized as contributions in accordance with FASB ASC 958-605 if the services (a) create or enhance nonfinancial assets or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased. When these conditions are met, the fair value of the donated services is reflected as contributions in the consolidated statement of activities. No amounts have been reflected in the accompanying consolidated financial statements for certain donated volunteer services because they did not qualify for recording under the guidelines of FASB ASC 958-605.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(1)
Company operations and summary of significant accounting policies (continued) The Institute received the following donated materials and services: Used for Beverages Fundraising Expert witness services Programs Miscellaneous goods Programs Donated marketable securities Programs Donated software Programs
$
$
2011 11,985 8,493 5,778 46,775 73,031
$
$
2010 5,640 495 32,008 35,934 74,077
Cash – Cash consists of cash and, at times, cash equivalents consisting of highly liquid financial instruments purchased with original maturities of three months or less. Deposits at each financial institution are insured in limited amounts by the Federal Deposit Insurance Corporation (FDIC). Promises to give – Unconditional promises to give that are to be collected within one year are recorded at net realizable value. Unconditional promises to give that are expected to be collected in future years are initially recorded at the fair value of their estimated future cash flows as of the date of the promise to give through the use of a present value discount technique. In periods subsequent to initial recognition, unconditional promises to give are reported at the amount management expects to collect and are discounted over the collection period using the same discount rate as determined at the time of initial recognition. The discount rate determined at the initial recognition of the unconditional promise to give is based upon management’s assessment of many factors, including when the receivable is expected to be collected, the creditworthiness of the other parties, the Institute’s past collection experience and its policies concerning the enforcement of promises to give, expectations about possible variations in the amount or timing, or both, of the cash flows, and other factors concerning the receivable’s collectability. Amortization of the discounts is included in support from contributions. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Pledges receivable are stated at the amount management expects to collect. Management provides for uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to pledges receivable. At December 31, 2011 and 2010, pledges receivable are considered by management to be fully collectible, and, accordingly an allowance for uncollectible pledges is not considered necessary. Other receivables – Other receivables consists primarily of amounts due from attendees of the Institute’s special events. Notes receivable – Notes receivable are stated at the amount management expects to collect. Management provides for probable uncollectible amounts through a charge to earnings and a credit to the allowance for uncollectible notes receivable based on its assessment of the current status of individual balances. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for uncollectible notes receivable and a credit to notes receivable. At December 31, 2011 and 2010, notes receivable are considered by management to be fully collectible and, accordingly, an allowance for doubtful accounts is not considered necessary. Interest on notes receivable is recognized over the term of the notes receivable and is calculated using the simpleinterest method on principal amounts outstanding.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(1)
Company operations and summary of significant accounting policies (continued) Investments – The Institute accounts for its investments in accordance with FASB ASC 958-320, Not-forProfit Entities - Investments-Debt and Equity Securities. Under FASB ASC 958-320, the Institute reports investments in equity securities that have readily determinable fair values, and all investments in debt securities at fair value. The fair values of investments are based on quoted market prices. Investments are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in risks in the near term would materially affect account balances and the amounts reported in the accompanying consolidated financial statements. Property and equipment and related depreciation and amortization – Purchased property and equipment is valued at cost, and donated property and equipment is recorded at fair value at the date of gift to the Institute. Maintenance and repairs are charged to operations when incurred. Betterments and renewals in excess of $500 are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations. Depreciation and amortization of property and equipment is computed on a straightline basis over the following estimated useful lives: Buildings and improvements Furniture and equipment
39 years 3 - 15 years
Impairment of long-lived assets – The Institute accounts for long-lived assets in accordance with the provisions of FASB ASC 360, Property, Plant, and Equipment. FASB ASC 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. No impairment charges were recorded for the years ended December 31, 2011 and 2010. Functional expenses – Expenses are charged to program services, management and general, and fundraising categories based on direct expenditures incurred. Any expenditures not directly chargeable are allocated based on personnel activity and other appropriate allocation methods. Advertising expense – Advertising costs are charged to operations when incurred. Advertising expense charged to operations was $74,219 for 2011 and $135,032 for 2010. Income tax status – The Institute qualifies as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code (IRC) and, accordingly, there is no provision for income taxes. Income determined to be unrelated business taxable income (UBTI) would be taxable. Goldwater Institute Holding Company, LLC is a disregarded entity for income tax purposes.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(1)
Company operations and summary of significant accounting policies (continued) The Institute evaluates its uncertain tax positions, if any, on a continual basis through review of its policies and procedures, review of its regular tax filings, and discussions with outside experts. At December 31, 2011 and 2010, the Institute did not have any uncertain tax positions. The Institute’s federal Return of Organization Exempt from Income Tax (Form 990) for 2008, 2009 and 2010 are subject to examination by the IRS, generally for the three years after they were filed. The return for the year ended December 31, 2011 has not yet been filed as of the date of this report. Subsequent events – The Institute has evaluated subsequent events through May 9, 2012, which is the date the consolidated financial statements were available to be issued.
(2)
Pledges receivable Pledges receivable consist of the following unconditional promises to give:
Receivable in less than one year Receivable in one to five years Total gross pledges receivable Less discounts pledges Net pledges receivable Less current portion Noncurrent portion
$
$
2011 160,155 160,155 (4,862) 155,293 (155,293) -
$
$
2010 206,500 101,600 308,100 (19,279) 288,821 (196,667) 92,154
The estimated cash flows for pledges receivable are discounted over the collection period using a discount rate as determined by management of 5%. At December 31, 2011 and 2010, approximately 94% and 97%, respectively, of the gross pledges are due from board members. Contributions from board members represented approximately 17% and 16% of contributions for the years ended December 31, 2011 and 2010, respectively. (3)
Notes receivable The Institute has elected to invest its excess cash in two promissory notes with a privately held corporation controlled by a board member. These revolving notes provide the Institute with the ability to request payments of the principal balances prior to their maturity dates. The Institute may reinvest funds into the notes up to the maximum amount provided in the note agreements. On January 1, 2002, the Institute obtained an unsecured revolving promissory note from a privately held corporation controlled by a board member for the sum of $200,000. The note bears interest at 10% per annum until paid. Terms of the note call for interest to be paid to the Institute monthly. During the year, the maturity of the note was extended from December 31, 2011 to December 31, 2015. The balance of this note at December 31, 2011 and 2010 was $200,000.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(3)
Notes receivable (continued) During the year ended December 31, 2005, the Institute obtained another unsecured revolving promissory note from the same corporation as above for the purpose of investing the Institute's excess cash with a maximum amount of $1,000,000. During 2011, the maximum amount was increased to $1,700,000 and the maturity date was extended from December 31, 2011 to December 31, 2015. The note bears interest at the rate charged by Farm Credit Services Southwest (2.25% at December 31, 2011). The terms of the note call for interest to be paid to the Institute monthly. The balance of this note at December 31, 2011 and 2010 was $1,500,000 and $750,000, respectively. For the years ended December 31, 2011 and 2010, interest earned on the notes receivable was $34,376 and $39,026, respectively. The unsecured investments in these revolving notes represent a concentration of credit risk due to the fact that approximately 34% and 21% of the Institute’s assets are invested with a single borrower as of December 31, 2011 and 2010, respectively. The fact that the notes are unsecured increases the overall level of risk associated with these investments.
(4)
Investments 2011
Investments consist of: U.S. fixed income U.S. equity mutual funds Global commodity equities International equity mutual funds Alternative real estate equities Cash and money market funds International fixed income International currency funds Total investments
$
$
286,278 183,474 101,033 92,678 51,678 24,299 22,791 22,388 784,619
2010 $
$
181,686 163,643 88,585 184,724 51,217 88,966 20,754 779,575
Expenses relating to investment revenues, including custodial fees and investment advisory fees of $8,537 for 2011 and $7,528 for 2010 were charged to operations. (5)
Property and equipment 2011
Property and equipment consist of: Cost and donated value: Land Buildings and improvements Furniture and equipment Total cost and donated value Accumulated depreciation and amortization Property and equipment, net
$
$
358,480 1,768,348 693,681 2,820,509 (1,111,396) 1,709,113
2010
$
$
358,480 1,768,348 614,827 2,741,655 (1,002,230) 1,739,425
Depreciation and amortization expense charged to operations was $109,166 and $102,569, respectively, for the years ended December 31, 2011 and 2010.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(5)
Property and equipment (continued) In January 2010, the Institute entered into a capital lease agreement for equipment. The cost of the asset held under capital lease agreement totaled $20,300 at December 31, 2011 and 2010. Accumulated amortization on the asset held under capital lease agreement included in accumulated depreciation and amortization above is $7,782 as of December 31, 2011 and $3,722 as of December 31, 2010.
(6)
Capital lease obligation Capital lease obligation consists of a non-cancelable equipment lease agreement, payable in monthly installments totaling $675, maturing in January 2015. The obligation under the capital lease reflects the present value of future rental payments, discounted at the Institute’s incremental borrowing rate. The future minimum lease payments and capital lease obligation under this capital lease are as follows: Years Ending December 31, 2012 2013 2014 2015 Total minimum lease payments Less executory costs Net minimum lease payments Less amount representing interest Present value of minimum lease payments Less current portion of capital lease obligation Capital lease obligation, long-term portion
(7)
$
$
8,100 8,100 8,100 675 24,975 (9,250) 15,725 (2,112) 13,613 (3,994) 9,619
Board designated operating reserve In September 2007, the board of directors approved a motion, subject to available funds, to establish an operating reserve of $600,000. The board of directors must approve the use of any funds held within the operating reserve.
(8)
Temporarily restricted net assets 2011
Temporarily restricted net assets consist of: Education Litigation Constitutional Litigation Center pledges Healthcare Litigation Reagan Fellows Constitutional Litigation Center Other Total temporarily restricted net assets
$
$
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222,500 97,238 70,968 4,867 16,748 412,321
2010 $
$
288,821 175,972 13,800 81,521 560,114
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(9)
Commitments The Institute had a lease commitment under a non-cancelable operating lease agreement for copier equipment that expired November 2010. Total rental expense for the operating lease with terms in excess of one month was $777 for 2010. In the normal course of business, operating leases are generally renewed or replaced by other leases. During 2010, the operating lease was replaced with the capital lease as discussed in Note 6.
(10) Fair value measurements FASB ASC 820, Fair Value Measurements and Disclosures, establishes a common definition for fair value to be applied to U.S. generally accepted accounting principles requiring use of fair value, establishes a framework for measuring fair value, and expands disclosures about such fair value measurements. FASB ASC 820 also establishes a hierarchy for ranking the quality and reliability of the information used to determine fair values. FASB ASC 820 also requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories: Level 1:
Unadjusted quoted market prices in active markets for identical assets or liabilities.
Level 2:
Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3:
Unobservable inputs for the asset or liability.
The following table summarizes the valuation of the Institute’s assets and liabilities subject to fair value measurement other than at initial recognition by the above categories as of December 31, 2011:
U.S. fixed income U.S. equity mutual funds Global commodity equities International equity mutual funds Alternative real estate equities International fixed income International currency funds
$
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Total 286,278 183,474 101,033 92,678 51,678 22,791 22,388
Unadjusted Quoted Market Prices (Level 1) $ 286,278 183,474 101,033 92,678 51,678 22,791 22,388
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(10) Fair value measurements (continued) The following table summarizes the valuation of the Institute’s assets and liabilities subject to fair value measurement other than at initial recognition by the above categories as of December 31, 2010:
U.S. fixed income U.S. equity mutual funds Global commodity equities International equity mutual funds Alternative real estate equities International fixed income
$
Total 181,686 163,643 88,585 184,724 51,217 20,754
Unadjusted Quoted Market Prices (Level 1) $ 181,686 163,643 88,585 184,724 51,217 20,754
The assets above were valued utilizing quoted market prices. The Institute currently has no other assets and liabilities subject to fair value measurement other than at initial recognition. (11) Endowments The Institute’s endowments consist of three individual funds established for a variety of purposes. The Institute’s endowments include only donor-restricted endowment funds. As required by GAAP, net assets associated with endowment funds, are classified and reported based on the existence or absence of donorimposed restrictions. In September 2008, the State of Arizona enacted ARS§10-11801 et seq Management of Charitable Funds Act (MCFA). The Board of Directors of the Institute has interpreted MCFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Institute 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) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Institute in a manner consistent with the standard of prudence prescribed by MCFA. In accordance with MCFA, the Institute considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) (2) (3) (4) (5) (6) (7)
The duration and preservation of the fund The purposes of the Institute and the donor-restricted endowment fund General economic conditions The possible effect of inflation and deflation The expected total return from income and the appreciation of investments Other resources of the Institute The investment policies of the Institute
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(11) Endowments (continued)
2011
Endowment net assets consist of the following endowments: Duncan Endowment McClelland Fellowship Norton Fellowship Total endowment net assets
$
$
2010
700,000 100,330 64,025 864,355
$
$
700,000 100,330 63,025 863,355
The changes in endowment net assets for the year ended December 31, 2011 are as follows:
Unrestricted Endowment net assets, January 1, 2011 Contributions Investment Return: Interest and dividends Realized and unrealized losses Appropriation of endowment assets for expenditure Endowment net assets, December 31, 2011
$
(54,629) $ 8,783
$
Temporarily Restricted -
Permanently Restricted $
863,355 1,000
Total $
808,726 1,000
298
-
9,081
(5,032)
-
-
(5,032)
-
-
-
-
(50,878) $
298
$
864,355
$
813,775
The changes in endowment net assets for the year ended December 31, 2010 are as follows:
Unrestricted Endowment net assets, January 1, 2010 Contributions Investment Return: Interest and dividends Realized and unrealized gains Appropriation of endowment assets for expenditure Endowment net assets, December 31, 2010
$
$
(99,223) $ -
Temporarily Restricted -
Permanently Restricted $
800,330 63,025
Total $
701,107 63,025
13,956
-
-
13,956
30,638
-
-
30,638
-
-
-
-
(54,629) $
-
$
863,355
$
808,726
From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or MCFA requires the Institute to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature that are reported in unrestricted net assets were $50,878 and $54,629 as of December 31, 2011 and 2010, respectively. These deficiencies resulted primarily from unfavorable market fluctuations. Included in endowments is cash and cash equivalents totaling $29,156 and $29,151 as of December 31, 2011 and 2010, respectively.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(11) Endowments (continued) The Institute has adopted investment and spending policies to support current operations through a total return investment strategy and a spending policy to maintain, and ideally increase, the purchasing power of the endowment, without putting the principal value of these funds at prudent risk. Endowment assets include those assets of donor-restricted funds that the Institute must hold in perpetuity. Under this policy, as approved by the board of directors, the endowment assets are invested in a manner that is intended to produce sufficient liquidity to meet distribution requirements, earn a total return of 3% in excess of inflation as measured by the Consumer Price Index over a five-year time horizon, earn competitive returns relative to capital market measures, including broad market indices, as well as funds with similar objectives. The Institute expects its endowment funds, over time, to provide an average rate of return of approximately 7% annually. Actual returns in any given year may vary from this amount. To satisfy its long-term rate-of-return objectives, the Institute relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Institute targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. The endowments allow for annual distributions of five percent each of the endowment fund balance to be used to support program activities. (12) Retirement plan As of January 1, 2009, the Institute implemented a 403(b) matching plan. The plan is a non-safe harbor plan with the employer matching contributions subject to a 6 year graded vesting schedule. The amount of the Institute’s match is discretionary and will be determined by the Institute on an annual basis. Contributions totaling $12,694 and $11,252 for the years ended December 31, 2011 and 2010, respectively, were made by the Institute, in addition to the elective deferrals made by employees.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011
CONTENTS
Page INDEPENDENT AUDITORS’ REPORT
1
CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Financial Position
2
Consolidated Statement of Activities and Changes in Net Assets
3
Consolidated Statement of Functional Expenses
4
Consolidated Statement of Cash Flows
5
Notes to Consolidated Financial Statements
6 - 16
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION December 31, 2011 (with summarized comparative totals at December 31, 2010)
ASSETS 2011 CURRENT ASSETS Cash and cash equivalents Pledges receivable, net Notes receivable Other receivables Prepaid expenses TOTAL CURRENT ASSETS
$
INVESTMENTS
2010
540,479 155,293 1,700,000 42,716 19,880 2,458,368
$
784,619
PLEDGES RECEIVABLE, net
779,575
-
TOTAL ASSETS
92,154
1,709,113
PROPERTY AND EQUIPMENT, net $
679,729 196,667 950,000 48,449 9,424 1,884,269
1,739,425
4,952,100
$
4,495,423
21,150 121,686 3,994 146,830
$
33,877 63,326 3,638 100,841
LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable Accrued liabilities Current portion of capital lease obligation TOTAL CURRENT LIABILITIES
$
CAPITAL LEASE OBLIGATION, less current portion TOTAL LIABILITIES NET ASSETS Unrestricted: Undesignated Board designated operating reserve Total unrestricted net assets Temporarily restricted Permanently restricted TOTAL NET ASSETS TOTAL LIABILITIES AND NET ASSETS
$
See Notes to Consolidated Financial Statements -2-
9,619
13,613
156,449
114,454
2,918,975 600,000 3,518,975 412,321 864,355 4,795,651
2,357,500 600,000 2,957,500 560,114 863,355 4,380,969
4,952,100
$
4,495,423
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
Unrestricted SUPPORT AND REVENUES Contributions Foundation contributions and grants Litigation cost reimbursement revenue Public policy and lecture events Interest and dividends Realized and unrealized gains (losses) Other income Total support and revenues before special events and net assets released from restrictions
$
Special events: Special events revenues Less costs of direct donor benefits Gross profit on special events
1,533,821 $ 651,550 1,395,020 816 51,683 (5,032) 3,169
238,850 298 -
3,631,027
239,148
434,362 (111,554) 322,808
Net assets released from restrictions TOTAL SUPPORT AND REVENUES EXPENSES AND LOSSES: Program services Fundraising Management and general Loss on uncollectible pledges TOTAL EXPENSES AND LOSSES CHANGE IN NET ASSETS
$
1,000 -
Totals
$
1,000
-
2011
2010
1,534,821 $ 890,400 1,395,020 816 51,981 (5,032) 3,169
1,756,106 1,108,725 68,738 53,699 30,638 -
3,871,175
3,017,906
434,362 (111,554) 322,808
416,550 (104,394) 312,156
-
-
381,041
(381,041)
-
4,334,876
(141,893)
1,000
4,193,983
3,330,062
3,065,304 425,569 282,528 -
5,900
-
3,065,304 425,569 282,528 5,900
2,728,620 464,204 246,095 67,715
3,773,401
5,900
-
3,779,301
3,506,634
(147,793)
2,957,500 $
Permanently Restricted
-
561,475
NET ASSETS, BEGINNING OF YEAR NET ASSETS, END OF YEAR
Temporarily Restricted
3,518,975
560,114 $
412,321
$
1,000
414,682
863,355
4,380,969
864,355
See Notes to Consolidated Financial Statements -3-
$
4,795,651
(176,572) 4,557,541 $
4,380,969
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
Totals Program Wages and salaries Printing Employee benefits Payroll taxes Postage and courier Depreciation and amortization Building expense Litigation fees and attorney's fees Contractual expense Advertising and public relations Website development expense Travel Gala fundraising event Dues and subscriptions Lecture series and event Audit and financial services Telephone Supplies Technology List rentals Insurance Bank and credit card fees Business meals Equipment lease and repair Legal Seminars and meetings Payroll and plan maintenance fees Book and marketing expense Licenses/fees Interest expense Research materials TOTAL EXPENSES
$
$
Services 1,865,610 172,872 131,629 116,511 91,429 86,842 83,005 81,779 47,507 74,219 44,869 53,618 13,345 33,508 34,047 20,408 17,414 17,410 18,903 16,049 14 9,870 8,122 11,026 6,741 5,339 1,151 25 1,053 989 3,065,304
Management Fundraising $ 220,789 21,119 19,826 13,789 16,738 15,174 14,504 9,233 2,564 2,811 40,034 3,310 5,012 4,277 4,276 3,336 2,804 14,498 2,785 1,995 632 3,183 2,617 263 -
and General $ 155,113 12,066 9,687 3,421 7,150 6,835 21,767 16,666 2,537 405 30,437 2,690 2,295 2,294 1,321 1,329 2,839 1,071 1,147 444 52 816 146 -
$
$
425,569
282,528
See Notes to Consolidated Financial Statements -4-
$
$
2011 2,241,512 193,991 163,521 139,987 111,588 109,166 104,344 81,779 78,507 74,219 64,099 58,966 53,379 37,223 34,047 30,437 28,110 23,986 23,980 22,239 20,174 15,841 15,494 11,188 11,026 7,888 6,415 4,386 3,458 1,462 989 3,773,401
$
$
2010 1,777,096 190,930 133,410 105,780 129,576 102,569 102,341 49,889 263,242 135,032 49,079 51,238 38,946 99,943 21,350 18,225 23,734 34,253 20,508 16,014 26,113 10,609 7,844 6,047 7,998 6,209 1,807 6,914 1,626 597 3,438,919
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31, 2011 (with summarized comparative totals at December 31, 2010) 2011 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization Donated marketable securities Donated software Change in discount on long-term pledges Loss on uncollectible pledges Realized and unrealized (gains) losses on investments Changes in operating assets and liabilities: Decrease (increase) in: Pledges receivable Other receivables Prepaid expenses Increase (decrease) in: Accounts payable Accrued liabilities Net cash provided by operating activities
$
2010
414,682
$
(176,572)
109,166 (46,775) (14,417) 5,900 5,032
102,569 (32,008) (35,934) (21,299) 67,715 (30,638)
142,045 5,733 (10,456)
242,785 1,249 (1,449)
(12,727) 58,360 656,543
(53,416) (17,704) 45,298
CASH FLOWS FROM INVESTING ACTIVITIES Payments from notes receivable Proceeds from sale of investments Cash invested in notes receivable Purchases of investments Purchases of property and equipment Net cash used in investing activities
250,000 581,810 (1,000,000) (545,111) (78,854) (792,155)
250,000 816,899 (250,000) (856,241) (56,672) (96,014)
CASH FLOWS FROM FINANCING ACTIVITIES Payments on capital lease obligation Net cash used in financing activities
(3,638) (3,638)
(3,049) (3,049)
(139,250)
(53,765)
679,729
733,494
NET CHANGE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR
$
540,479
$
679,729
$
1,462
$
1,626
Contributions of marketable securities
$
46,775
$
32,008
Contributions of software
$
-
$
35,934
Equipment acquired under capital lease obligation
$
-
$
20,300
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Cash paid for interest SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
See Notes to Consolidated Financial Statements -5-
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(1)
Company operations and summary of significant accounting policies Barry Goldwater Institute for Public Policy Research (“the Institute”) was established in 1988 as an independent, non-partisan research and educational organization dedicated to the study of public policy. Through research papers, workshops, commentaries and policy briefings, the Institute's mission is to advance the principles of limited government, economic freedom and individual responsibility - the principles championed by the late Senator Barry Goldwater during his years of public service. To promote these principles, change public opinion, and assist Arizona leaders in developing sound public policy, the Institute conducts research on timely issues. The Institute neither seeks nor accepts government funding and relies wholly on contributions from the private sector to fund its activities. In February 2001 the Institute’s Board of Directors formed Goldwater Institute Holding Company, LLC (“Holding Company”), with the Institute as the sole member. The Holding Company was formed to hold and manage the Institute's real property. The Institute transferred its real property to the Holding Company in 2002. The significant accounting policies followed by the Institute and its subsidiary, the Holding Company, collectively referred to in these consolidated financial statements as the “Institute,” are summarized below: The Financial Accounting Standards Board (“FASB”) sets U.S. generally accepted accounting principles (“GAAP”) to ensure consistent reporting. References to GAAP are to the FASB Accounting Standards Codification (“FASB ASC”). Basis of presentation – The accompanying consolidated financial statements are presented in accordance with FASB ASC 958-205, Not-for-Profit Entities - Presentation of Financial Statements. Under FASB ASC 958-205, the Institute is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Prior year summarized information – The consolidated financial statements include certain prior year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with U.S. generally accepted accounting principles. Accordingly, such information should be read in conjunction with the Institute’s audited consolidated financial statements for the year ended December 31, 2010, from which the summarized information was derived. Principles of consolidation – The accompanying consolidated financial statements include the accounts of the Institute and its wholly owned subsidiary Goldwater Institute Holding Company, LLC. All significant intercompany transactions and accounts have been eliminated in consolidation. Management’s use of estimates – The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(1)
Company operations and summary of significant accounting policies (continued) Revenue recognition – The Institute recognizes amounts received from grants at the time the Institute receives notification of the award in situations where no further activities are required. Revenue from public policy and lecture events is recognized upon the occurrence of the event. Fees received prior to the occurrence of a scheduled event are deferred until the period in which the event occurs. Contributions – The Institute accounts for contributions in accordance with FASB ASC 958-605, Not-forProfit Entities - Revenue Recognition. Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statement of activities as net assets released from restrictions. Restricted support, where restrictions are met in the same period as the contribution is made, is shown as unrestricted support. In fiscal year 2011, the Institute received a conditional promise to give of up to $200,000 in matching funds. For every dollar the Institute raises from other sources for a specific project between December 1, 2012 and November 30, 2013, the donor has pledged to contribute two dollars, up to a maximum of $200,000. This pledge is also contingent on the donor’s review and approval of the Institute’s use of other contributed funds in fiscal year 2012. No amount related to this conditional promise to give has been recognized in the Institute’s consolidated financial statements as the conditions of the promise to give were not substantially met as of December 31, 2011. Special events revenue – The Institute conducts special events in which a portion of the gross proceeds paid by the participant represents payment for the direct cost of the benefits received by the participant at the event. Unless a verifiable, objective means exists to demonstrate otherwise, the fair value of meals and entertainment provided at special events is measured at the actual cost to the Institute. The direct costs of the special events which ultimately benefit the donor rather than the Institute are recorded as costs of direct donor benefits. All proceeds received in excess of the direct costs are recorded as gross profit on special events in the accompanying consolidated statement of activities. Litigation cost reimbursement revenue – The Institute engages in litigation to champion causes related to its founding principles. The Institute may be awarded reimbursement of its legal costs incurred in litigating cases if the court finds in favor of the Institute. Litigation cost reimbursement revenue awarded as a result of litigation of cases is recognized when the ruling is made by the court. Donated materials and services – Donated materials are reflected as contributions in the consolidated statement of activities at their estimated values at the date of receipt. Donated services are recognized as contributions in accordance with FASB ASC 958-605 if the services (a) create or enhance nonfinancial assets or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased. When these conditions are met, the fair value of the donated services is reflected as contributions in the consolidated statement of activities. No amounts have been reflected in the accompanying consolidated financial statements for certain donated volunteer services because they did not qualify for recording under the guidelines of FASB ASC 958-605.
-7-
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(1)
Company operations and summary of significant accounting policies (continued) The Institute received the following donated materials and services: Used for Beverages Fundraising Expert witness services Programs Miscellaneous goods Programs Donated marketable securities Programs Donated software Programs
$
$
2011 11,985 8,493 5,778 46,775 73,031
$
$
2010 5,640 495 32,008 35,934 74,077
Cash – Cash consists of cash and, at times, cash equivalents consisting of highly liquid financial instruments purchased with original maturities of three months or less. Deposits at each financial institution are insured in limited amounts by the Federal Deposit Insurance Corporation (FDIC). Promises to give – Unconditional promises to give that are to be collected within one year are recorded at net realizable value. Unconditional promises to give that are expected to be collected in future years are initially recorded at the fair value of their estimated future cash flows as of the date of the promise to give through the use of a present value discount technique. In periods subsequent to initial recognition, unconditional promises to give are reported at the amount management expects to collect and are discounted over the collection period using the same discount rate as determined at the time of initial recognition. The discount rate determined at the initial recognition of the unconditional promise to give is based upon management’s assessment of many factors, including when the receivable is expected to be collected, the creditworthiness of the other parties, the Institute’s past collection experience and its policies concerning the enforcement of promises to give, expectations about possible variations in the amount or timing, or both, of the cash flows, and other factors concerning the receivable’s collectability. Amortization of the discounts is included in support from contributions. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Pledges receivable are stated at the amount management expects to collect. Management provides for uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to pledges receivable. At December 31, 2011 and 2010, pledges receivable are considered by management to be fully collectible, and, accordingly an allowance for uncollectible pledges is not considered necessary. Other receivables – Other receivables consists primarily of amounts due from attendees of the Institute’s special events. Notes receivable – Notes receivable are stated at the amount management expects to collect. Management provides for probable uncollectible amounts through a charge to earnings and a credit to the allowance for uncollectible notes receivable based on its assessment of the current status of individual balances. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for uncollectible notes receivable and a credit to notes receivable. At December 31, 2011 and 2010, notes receivable are considered by management to be fully collectible and, accordingly, an allowance for doubtful accounts is not considered necessary. Interest on notes receivable is recognized over the term of the notes receivable and is calculated using the simpleinterest method on principal amounts outstanding.
-8-
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(1)
Company operations and summary of significant accounting policies (continued) Investments – The Institute accounts for its investments in accordance with FASB ASC 958-320, Not-forProfit Entities - Investments-Debt and Equity Securities. Under FASB ASC 958-320, the Institute reports investments in equity securities that have readily determinable fair values, and all investments in debt securities at fair value. The fair values of investments are based on quoted market prices. Investments are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in risks in the near term would materially affect account balances and the amounts reported in the accompanying consolidated financial statements. Property and equipment and related depreciation and amortization – Purchased property and equipment is valued at cost, and donated property and equipment is recorded at fair value at the date of gift to the Institute. Maintenance and repairs are charged to operations when incurred. Betterments and renewals in excess of $500 are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations. Depreciation and amortization of property and equipment is computed on a straightline basis over the following estimated useful lives: Buildings and improvements Furniture and equipment
39 years 3 - 15 years
Impairment of long-lived assets – The Institute accounts for long-lived assets in accordance with the provisions of FASB ASC 360, Property, Plant, and Equipment. FASB ASC 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. No impairment charges were recorded for the years ended December 31, 2011 and 2010. Functional expenses – Expenses are charged to program services, management and general, and fundraising categories based on direct expenditures incurred. Any expenditures not directly chargeable are allocated based on personnel activity and other appropriate allocation methods. Advertising expense – Advertising costs are charged to operations when incurred. Advertising expense charged to operations was $74,219 for 2011 and $135,032 for 2010. Income tax status – The Institute qualifies as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code (IRC) and, accordingly, there is no provision for income taxes. Income determined to be unrelated business taxable income (UBTI) would be taxable. Goldwater Institute Holding Company, LLC is a disregarded entity for income tax purposes.
-9-
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(1)
Company operations and summary of significant accounting policies (continued) The Institute evaluates its uncertain tax positions, if any, on a continual basis through review of its policies and procedures, review of its regular tax filings, and discussions with outside experts. At December 31, 2011 and 2010, the Institute did not have any uncertain tax positions. The Institute’s federal Return of Organization Exempt from Income Tax (Form 990) for 2008, 2009 and 2010 are subject to examination by the IRS, generally for the three years after they were filed. The return for the year ended December 31, 2011 has not yet been filed as of the date of this report. Subsequent events – The Institute has evaluated subsequent events through May 9, 2012, which is the date the consolidated financial statements were available to be issued.
(2)
Pledges receivable Pledges receivable consist of the following unconditional promises to give:
Receivable in less than one year Receivable in one to five years Total gross pledges receivable Less discounts pledges Net pledges receivable Less current portion Noncurrent portion
$
$
2011 160,155 160,155 (4,862) 155,293 (155,293) -
$
$
2010 206,500 101,600 308,100 (19,279) 288,821 (196,667) 92,154
The estimated cash flows for pledges receivable are discounted over the collection period using a discount rate as determined by management of 5%. At December 31, 2011 and 2010, approximately 94% and 97%, respectively, of the gross pledges are due from board members. Contributions from board members represented approximately 17% and 16% of contributions for the years ended December 31, 2011 and 2010, respectively. (3)
Notes receivable The Institute has elected to invest its excess cash in two promissory notes with a privately held corporation controlled by a board member. These revolving notes provide the Institute with the ability to request payments of the principal balances prior to their maturity dates. The Institute may reinvest funds into the notes up to the maximum amount provided in the note agreements. On January 1, 2002, the Institute obtained an unsecured revolving promissory note from a privately held corporation controlled by a board member for the sum of $200,000. The note bears interest at 10% per annum until paid. Terms of the note call for interest to be paid to the Institute monthly. During the year, the maturity of the note was extended from December 31, 2011 to December 31, 2015. The balance of this note at December 31, 2011 and 2010 was $200,000.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(3)
Notes receivable (continued) During the year ended December 31, 2005, the Institute obtained another unsecured revolving promissory note from the same corporation as above for the purpose of investing the Institute's excess cash with a maximum amount of $1,000,000. During 2011, the maximum amount was increased to $1,700,000 and the maturity date was extended from December 31, 2011 to December 31, 2015. The note bears interest at the rate charged by Farm Credit Services Southwest (2.25% at December 31, 2011). The terms of the note call for interest to be paid to the Institute monthly. The balance of this note at December 31, 2011 and 2010 was $1,500,000 and $750,000, respectively. For the years ended December 31, 2011 and 2010, interest earned on the notes receivable was $34,376 and $39,026, respectively. The unsecured investments in these revolving notes represent a concentration of credit risk due to the fact that approximately 34% and 21% of the Institute’s assets are invested with a single borrower as of December 31, 2011 and 2010, respectively. The fact that the notes are unsecured increases the overall level of risk associated with these investments.
(4)
Investments 2011
Investments consist of: U.S. fixed income U.S. equity mutual funds Global commodity equities International equity mutual funds Alternative real estate equities Cash and money market funds International fixed income International currency funds Total investments
$
$
286,278 183,474 101,033 92,678 51,678 24,299 22,791 22,388 784,619
2010 $
$
181,686 163,643 88,585 184,724 51,217 88,966 20,754 779,575
Expenses relating to investment revenues, including custodial fees and investment advisory fees of $8,537 for 2011 and $7,528 for 2010 were charged to operations. (5)
Property and equipment 2011
Property and equipment consist of: Cost and donated value: Land Buildings and improvements Furniture and equipment Total cost and donated value Accumulated depreciation and amortization Property and equipment, net
$
$
358,480 1,768,348 693,681 2,820,509 (1,111,396) 1,709,113
2010
$
$
358,480 1,768,348 614,827 2,741,655 (1,002,230) 1,739,425
Depreciation and amortization expense charged to operations was $109,166 and $102,569, respectively, for the years ended December 31, 2011 and 2010.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(5)
Property and equipment (continued) In January 2010, the Institute entered into a capital lease agreement for equipment. The cost of the asset held under capital lease agreement totaled $20,300 at December 31, 2011 and 2010. Accumulated amortization on the asset held under capital lease agreement included in accumulated depreciation and amortization above is $7,782 as of December 31, 2011 and $3,722 as of December 31, 2010.
(6)
Capital lease obligation Capital lease obligation consists of a non-cancelable equipment lease agreement, payable in monthly installments totaling $675, maturing in January 2015. The obligation under the capital lease reflects the present value of future rental payments, discounted at the Institute’s incremental borrowing rate. The future minimum lease payments and capital lease obligation under this capital lease are as follows: Years Ending December 31, 2012 2013 2014 2015 Total minimum lease payments Less executory costs Net minimum lease payments Less amount representing interest Present value of minimum lease payments Less current portion of capital lease obligation Capital lease obligation, long-term portion
(7)
$
$
8,100 8,100 8,100 675 24,975 (9,250) 15,725 (2,112) 13,613 (3,994) 9,619
Board designated operating reserve In September 2007, the board of directors approved a motion, subject to available funds, to establish an operating reserve of $600,000. The board of directors must approve the use of any funds held within the operating reserve.
(8)
Temporarily restricted net assets 2011
Temporarily restricted net assets consist of: Education Litigation Constitutional Litigation Center pledges Healthcare Litigation Reagan Fellows Constitutional Litigation Center Other Total temporarily restricted net assets
$
$
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222,500 97,238 70,968 4,867 16,748 412,321
2010 $
$
288,821 175,972 13,800 81,521 560,114
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(9)
Commitments The Institute had a lease commitment under a non-cancelable operating lease agreement for copier equipment that expired November 2010. Total rental expense for the operating lease with terms in excess of one month was $777 for 2010. In the normal course of business, operating leases are generally renewed or replaced by other leases. During 2010, the operating lease was replaced with the capital lease as discussed in Note 6.
(10) Fair value measurements FASB ASC 820, Fair Value Measurements and Disclosures, establishes a common definition for fair value to be applied to U.S. generally accepted accounting principles requiring use of fair value, establishes a framework for measuring fair value, and expands disclosures about such fair value measurements. FASB ASC 820 also establishes a hierarchy for ranking the quality and reliability of the information used to determine fair values. FASB ASC 820 also requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories: Level 1:
Unadjusted quoted market prices in active markets for identical assets or liabilities.
Level 2:
Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3:
Unobservable inputs for the asset or liability.
The following table summarizes the valuation of the Institute’s assets and liabilities subject to fair value measurement other than at initial recognition by the above categories as of December 31, 2011:
U.S. fixed income U.S. equity mutual funds Global commodity equities International equity mutual funds Alternative real estate equities International fixed income International currency funds
$
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Total 286,278 183,474 101,033 92,678 51,678 22,791 22,388
Unadjusted Quoted Market Prices (Level 1) $ 286,278 183,474 101,033 92,678 51,678 22,791 22,388
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(10) Fair value measurements (continued) The following table summarizes the valuation of the Institute’s assets and liabilities subject to fair value measurement other than at initial recognition by the above categories as of December 31, 2010:
U.S. fixed income U.S. equity mutual funds Global commodity equities International equity mutual funds Alternative real estate equities International fixed income
$
Total 181,686 163,643 88,585 184,724 51,217 20,754
Unadjusted Quoted Market Prices (Level 1) $ 181,686 163,643 88,585 184,724 51,217 20,754
The assets above were valued utilizing quoted market prices. The Institute currently has no other assets and liabilities subject to fair value measurement other than at initial recognition. (11) Endowments The Institute’s endowments consist of three individual funds established for a variety of purposes. The Institute’s endowments include only donor-restricted endowment funds. As required by GAAP, net assets associated with endowment funds, are classified and reported based on the existence or absence of donorimposed restrictions. In September 2008, the State of Arizona enacted ARS§10-11801 et seq Management of Charitable Funds Act (MCFA). The Board of Directors of the Institute has interpreted MCFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Institute 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) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Institute in a manner consistent with the standard of prudence prescribed by MCFA. In accordance with MCFA, the Institute considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) (2) (3) (4) (5) (6) (7)
The duration and preservation of the fund The purposes of the Institute and the donor-restricted endowment fund General economic conditions The possible effect of inflation and deflation The expected total return from income and the appreciation of investments Other resources of the Institute The investment policies of the Institute
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(11) Endowments (continued)
2011
Endowment net assets consist of the following endowments: Duncan Endowment McClelland Fellowship Norton Fellowship Total endowment net assets
$
$
2010
700,000 100,330 64,025 864,355
$
$
700,000 100,330 63,025 863,355
The changes in endowment net assets for the year ended December 31, 2011 are as follows:
Unrestricted Endowment net assets, January 1, 2011 Contributions Investment Return: Interest and dividends Realized and unrealized losses Appropriation of endowment assets for expenditure Endowment net assets, December 31, 2011
$
(54,629) $ 8,783
$
Temporarily Restricted -
Permanently Restricted $
863,355 1,000
Total $
808,726 1,000
298
-
9,081
(5,032)
-
-
(5,032)
-
-
-
-
(50,878) $
298
$
864,355
$
813,775
The changes in endowment net assets for the year ended December 31, 2010 are as follows:
Unrestricted Endowment net assets, January 1, 2010 Contributions Investment Return: Interest and dividends Realized and unrealized gains Appropriation of endowment assets for expenditure Endowment net assets, December 31, 2010
$
$
(99,223) $ -
Temporarily Restricted -
Permanently Restricted $
800,330 63,025
Total $
701,107 63,025
13,956
-
-
13,956
30,638
-
-
30,638
-
-
-
-
(54,629) $
-
$
863,355
$
808,726
From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or MCFA requires the Institute to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature that are reported in unrestricted net assets were $50,878 and $54,629 as of December 31, 2011 and 2010, respectively. These deficiencies resulted primarily from unfavorable market fluctuations. Included in endowments is cash and cash equivalents totaling $29,156 and $29,151 as of December 31, 2011 and 2010, respectively.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (with summarized comparative totals for the year ended December 31, 2010)
(11) Endowments (continued) The Institute has adopted investment and spending policies to support current operations through a total return investment strategy and a spending policy to maintain, and ideally increase, the purchasing power of the endowment, without putting the principal value of these funds at prudent risk. Endowment assets include those assets of donor-restricted funds that the Institute must hold in perpetuity. Under this policy, as approved by the board of directors, the endowment assets are invested in a manner that is intended to produce sufficient liquidity to meet distribution requirements, earn a total return of 3% in excess of inflation as measured by the Consumer Price Index over a five-year time horizon, earn competitive returns relative to capital market measures, including broad market indices, as well as funds with similar objectives. The Institute expects its endowment funds, over time, to provide an average rate of return of approximately 7% annually. Actual returns in any given year may vary from this amount. To satisfy its long-term rate-of-return objectives, the Institute relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Institute targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. The endowments allow for annual distributions of five percent each of the endowment fund balance to be used to support program activities. (12) Retirement plan As of January 1, 2009, the Institute implemented a 403(b) matching plan. The plan is a non-safe harbor plan with the employer matching contributions subject to a 6 year graded vesting schedule. The amount of the Institute’s match is discretionary and will be determined by the Institute on an annual basis. Contributions totaling $12,694 and $11,252 for the years ended December 31, 2011 and 2010, respectively, were made by the Institute, in addition to the elective deferrals made by employees.
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