barry goldwater institute for public policy research and subsidiary
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010
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 - 17
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION December 31, 2010 (with summarized comparative totals at December 31, 2009)
ASSETS 2010 CURRENT ASSETS Cash and cash equivalents Pledges receivable, net Notes receivable Other receivables Prepaid expenses TOTAL CURRENT ASSETS
$
INVESTMENTS PLEDGES RECEIVABLE, net PROPERTY AND EQUIPMENT, net TOTAL ASSETS
$
679,729 196,667 950,000 48,449 9,424 1,884,269
2009 $
733,494 384,500 950,000 49,698 7,975 2,125,667
779,575
677,587
92,154
193,522
1,739,425
1,729,088
4,495,423
$
4,725,864
33,877 63,326 3,638 100,841
$
87,293 81,030 168,323
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-
-
13,613
$
114,454
168,323
2,357,500 600,000 2,957,500 560,114 863,355 4,380,969
2,534,189 600,000 3,134,189 623,022 800,330 4,557,541
4,495,423
$
4,725,864
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
Unrestricted SUPPORT AND REVENUES Contributions Foundation contributions and grants Public policy and lecture events Interest and dividends Realized and unrealized gains (losses)
$
Total support and revenues before special events and net assets released from restrictions
$
2,683,588
Special events: Special events revenues Less costs of direct donor benefits Gross profit on special events
EXPENSES AND LOSSES: Program services Fundraising Management and general Loss on uncollectible pledges TOTAL EXPENSES AND LOSSES CHANGE IN NET ASSETS
$
2009
1,756,106 1,108,725 68,738 53,699 30,638
$
2,268,061
3,017,906
-
416,550 (104,394) 312,156
-
1,004,301 1,174,462 76,100 45,427 (32,229)
387,390 (77,390) 310,000
-
-
3,262,230
4,807
63,025
3,330,062
2,578,061
2,728,620 464,204 246,095 -
67,715
-
2,728,620 464,204 246,095 67,715
2,185,374 292,355 225,062 -
3,438,919
67,715
-
3,506,634
2,702,791
(62,908)
63,025
623,022
800,330
3,134,189 $
63,025 -
Totals 2010
63,025
(266,486)
(176,689)
NET ASSETS, BEGINNING OF YEAR
$
-
266,486
TOTAL SUPPORT AND REVENUES
271,293 -
Permanently Restricted
271,293
416,550 (104,394) 312,156
Net assets released from restrictions
NET ASSETS, END OF YEAR
1,693,081 837,432 68,738 53,699 30,638
Temporarily Restricted
2,957,500
$
560,114
$
See Notes to Consolidated Financial Statements -3-
863,355
(124,730)
(176,572) 4,557,541 $
4,380,969
4,682,271 $
4,557,541
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
Totals Program Wages and salaries Contractual expense Printing Advertising and public relations Employee benefits Postage and courier Building expense Payroll taxes Depreciation and amortization Lecture series Gala fundraising event Litigation fees and attorney's fees Travel Dues and subscriptions Technology Bank and credit card fees Supplies Audit and financial services List rentals Telephone Insurance Business meals Seminars and meetings Equipment lease and repair Licenses/fees Payroll and plan maintenance fees Legal Book and marketing expense Interest expense Research materials Loss on disposition of fixed assets TOTAL EXPENSES
Management
Services $ 1,513,375 60,453 172,297 135,032 113,611 108,978 81,412 90,083 81,594 99,943 12,809 49,889 36,894 30,255 24,868 18,958 17,231 17,432 13,231 12,739 4,809 7,998 5,695 5,019 5,287 6,047 904 1,180 597 -
Fundraising $ 122,442 179,969 18,633 9,192 14,899 14,225 7,288 14,257 38,429 10,359 4,553 6,107 4,656 4,232 3,076 3,250 2,226 2,159 1,398 1,233 428 903 290 -
and General $ 141,279 22,820 10,607 5,699 6,704 8,409 6,718 1,826 4,138 3,278 2,499 2,271 21,350 1,744 1,049 3,641 751 662 494 156 -
$
$
$
2,728,620
464,204
246,095
See Notes to Consolidated Financial Statements -4-
$
$
2010 1,777,096 263,242 190,930 135,032 133,410 129,576 102,341 105,780 102,569 99,943 51,238 49,889 49,079 38,946 34,253 26,113 23,734 21,350 20,508 18,225 16,014 10,609 7,998 7,844 6,914 6,209 6,047 1,807 1,626 597 3,438,919
$
$
2009 1,462,787 188,609 164,784 5,934 95,984 57,258 91,026 88,838 79,548 123,160 75,660 35,684 31,844 18,079 21,820 16,401 20,393 29,350 5,676 12,189 16,920 11,275 7,032 11,548 3,817 4,741 10,779 1,124 1,918 8,613 2,702,791
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31, 2010 (with summarized comparative totals at December 31, 2009) 2010 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 Loss on disposition of fixed assets Donated marketable securities Donated software Change in discount on long-term pledges Change in allowance for 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
$
(176,572) $
79,548 8,613 (33,806) (6,500) 32,229
326,100 1,249 (1,449)
380,500 20,169 1,540
(53,416) (17,704) 45,298
3,447 11,643 372,653
250,000 816,899 (250,000) (856,241) (56,672) (96,014)
CASH FLOWS FROM FINANCING ACTIVITIES Payments on capital lease obligations Net cash used in financing activities
(3,049) (3,049)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR
(124,730)
102,569 (32,008) (35,934) (21,299) (15,600) (30,638)
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds 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
NET CHANGE IN CASH
2009
250,000 1,073,539 (400,000) (1,079,137) (56,293) (211,891)
-
(53,765)
160,762
733,494
572,732
$
679,729
$
733,494
$
1,626
$
-
Contributions of marketable securities
$
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, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(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 the 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 their 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, 2009, 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. 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.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(1)
Company operations and summary of significant accounting policies (continued) 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. 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. 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. 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. The Institute received the following donated materials and services: Used for Programs Programs Programs Administration
Donated marketable securities Donated software Miscellaneous goods Professional accounting services
$
$
2010 32,008 35,934 6,135 74,077
2009 $
$
12,850 12,850
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).
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(1)
Company operations and summary of significant accounting policies (continued) 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 institution’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, 2010, pledges receivable are considered by management to be fully collectible, and, accordingly an allowance for uncollectible pledges is not considered necessary. At December 31, 2009 the allowance for uncollectible pledges was $15,600. 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, 2010 and 2009, 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. 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.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(1)
Company operations and summary of significant accounting policies (continued) 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, 2010 and 2009. 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 $135,032 for 2010 and $5,934 for 2009. 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. In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), which was subsequently incorporated into FASB ASC 740, Income Taxes. FIN 48 was originally effective for fiscal years beginning after December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes. 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. The Institute’s federal Exempt Organization Business Income Tax Return (Form 990) for 2007, 2008 and 2009 are subject to examination by the IRS, generally for the three years after they were filed. Subsequent events – The Institute has evaluated subsequent events through April 13, 2011, which is the date the consolidated financial statements were available to be issued.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(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 allowance for uncollectible pledges Less discounts on long-term pledges Net pledges receivable Less current portion Noncurrent portion
$
$
2010 206,500 101,600 308,100 (19,279) 288,821 (196,667) 92,154
$
$
2009 384,500 249,700 634,200 (15,600) (40,578) 578,022 (384,500) 193,522
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, 2010 and 2009, approximately 97% and 79%, respectively, of the gross pledges are due from board members. (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. The principal is due and payable to the Institute on December 31, 2011. The balance of this note at December 31, 2010 and 2009 was $200,000. 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 2008, the corporation asked that the Institute reduce the amount to $600,000 with all other terms remaining the same. The Institute complied with the request. During 2009, the Institute requested that the revolving note receivable be increased to $1,000,000 with all other terms remaining the same. The request was approved. The note bears interest at the rate charged by Farm Credit Services Southwest (2.25% at December 31, 2010) per annum until paid. Terms of the note call for interest to be paid to the Institute monthly. The principal is due and payable to the Institute on December 31, 2011. The balance of this note at December 31, 2010 and 2009 was $750,000. For the years ended December 31, 2010 and 2009, interest earned on the notes receivable was $39,026 and $37,241, respectively.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(3)
Notes receivable (continued) The unsecured investments in these revolving notes represent a concentration of credit risk due to the fact that approximately 21% and 20% of the Institute’s assets are invested with a single borrower as of December 31, 2010 and 2009, respectively. The fact that the notes are unsecured increases the overall level of risk associated with these investments.
(4)
Investments 2010
Investments consist of: U.S. equity mutual funds International equity mutual funds U.S. fixed income Cash and money market funds Global commodity equities Alternative real estate equities International fixed income International currency funds Total investments
$
$
163,643 184,724 181,686 88,966 88,585 51,217 20,754 779,575
2009 $
$
89,171 71,776 351,256 37,912 32,944 74,288 20,240 677,587
Expenses relating to investment revenues, including custodial fees and investment advisory fees of $7,528 for 2010 and $4,464 for 2009 were charged to operations. (5)
Property and equipment 2010
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 1,768,348 614,827 2,741,655 (1,002,230) 1,739,425
2009
$
$
358,480 1,756,043 514,226 2,628,749 (899,661) 1,729,088
Depreciation and amortization expense charged to operations was $102,569 and $79,548, respectively, for the years ended December 31, 2010 and 2009. 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, 2010. Accumulated amortization on the asset held under capital lease agreement included in accumulated depreciation and amortization above is $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.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(6)
Capital lease obligation (continued) The obligation under the capital lease reflects the present value of future rental payments, discounted at the Institutes incremental borrowing rate. The future minimum lease payments and capital lease obligation under this capital lease are as follows: Years Ending December 31, 2011 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 8,100 675 33,075 (12,250) 20,825 (3,574) 17,251 (3,638) 13,613
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 2010
Temporarily restricted net assets consist of: Constitutional Litigation Center pledges Constitutional Litigation Center Reagan Fellows Healthcare Litigation Online fundraising Time restricted promise to give Total temporarily restricted net assets (9)
$
$
288,821 81,521 13,800 175,972 560,114
2009 $
$
483,557 54,465 50,000 35,000 623,022
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 and $8,842 for 2010 and 2009, respectively. 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.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(10) Contingency On March 5, 2011, the Institute learned through a national media outlet that the City of Glendale (the "City") was planning to sue the Institute. Management's understanding is that the City's lawsuit would be premised on the assertion that the Institute had tortuously interfered with the City's proposal to provide $100 million to a businessman (which management believes was without the benefit of any competitive bidding) to defray the cost of purchasing the Phoenix Coyotes from the National Hockey League, and an additional $97 million over five years to operate the Jobing.com hockey arena. The Institute's in-house legal counsel researched potential claims, and the Institute retained an outside law firm to conduct an independent review. Both the Institute and the outside law firm believe that a lawsuit against the Institute would be groundless. Management believes the Institute is fully protected from a lawsuit under the First Amendment of the U.S. Constitution. Management also believes legal action by the City would threaten core political speech about a matter of acute public interest and would therefore be unjustified. Additionally, management believes that the City could not maintain a legal action against the Institute for publishing truthful information about matters of public concern. Finally, management believes the Institute is protected under Arizona's strategic lawsuits against public participation (“SLAPP”) statute, which prohibits lawsuits that involve a party's exercise of the right of petition. While there can be no assurance that the City will not file a lawsuit against the Institute, the Institute's management believes that any legal action taken against it by the City of Glendale or related parties for the Institute's involvement in the proposal with the Phoenix Coyotes would be promptly dismissed. (11) 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.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(11) 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. equity mutual funds International equity mutual funds U.S. fixed income Global commodity equities Alternative real estate equities International fixed income
$
Total 163,643 184,724 181,686 88,585 51,217 20,754
Unadjusted Quoted Market Prices (Level 1) $ 163,643 184,724 181,686 88,585 51,217 20,754
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, 2009:
U.S. equity mutual funds International equity mutual funds U.S. fixed income Global commodity equities International fixed income International currency funds
$
Total 89,171 71,776 351,256 32,944 74,288 20,240
Unadjusted Quoted Market Prices (Level 1) $ 89,171 71,776 351,256 32,944 74,288 20,240
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. (12) 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.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(12) Endowments (continued) In September 2008, the State of Arizona enacted ARS§10-11801 et seq Investments for Eleemosynary Purposes (IFEP). The Board of Directors of the Institute has interpreted IFEP 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 IFEP. In accordance with IFEP, 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 2010
Endowment net assets consist of the following endowments: Duncan Endowment McClelland Fellowship Norton Fellowship Total endowment net assets
$
$
2009
700,000 100,330 63,025 863,355
$
$
700,000 100,330 800,330
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) $
- 15 -
-
$
863,355
$
808,726
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(12) Endowments (continued) The changes in endowment net assets for the year ended December 31, 2009 are as follows:
Unrestricted Endowment net assets, January 1, 2009 Contributions Reclassification of donor intent Investment Return: Interest and dividends Realized and unrealized losses Appropriation of endowment assets for expenditure Endowment net assets, December 31, 2009
$
$
(75,180) $ -
Temporarily Restricted -
Permanently Restricted $
Total
805,830 $ 1,000 (6,500)
730,650 1,000 (6,500)
8,186
-
-
8,186
(32,229)
-
-
(32,229)
-
-
-
-
(99,223) $
-
$
800,330
$
701,107
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 IFEP 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 $54,629 and $99,223 as of December 31, 2010 and 2009, respectively. These deficiencies resulted primarily from unfavorable market fluctuations. 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.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(13) 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 $11,252 and $10,078 for the years ended December 31, 2010 and 2009, 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, 2010
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 - 17
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION December 31, 2010 (with summarized comparative totals at December 31, 2009)
ASSETS 2010 CURRENT ASSETS Cash and cash equivalents Pledges receivable, net Notes receivable Other receivables Prepaid expenses TOTAL CURRENT ASSETS
$
INVESTMENTS PLEDGES RECEIVABLE, net PROPERTY AND EQUIPMENT, net TOTAL ASSETS
$
679,729 196,667 950,000 48,449 9,424 1,884,269
2009 $
733,494 384,500 950,000 49,698 7,975 2,125,667
779,575
677,587
92,154
193,522
1,739,425
1,729,088
4,495,423
$
4,725,864
33,877 63,326 3,638 100,841
$
87,293 81,030 168,323
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-
-
13,613
$
114,454
168,323
2,357,500 600,000 2,957,500 560,114 863,355 4,380,969
2,534,189 600,000 3,134,189 623,022 800,330 4,557,541
4,495,423
$
4,725,864
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
Unrestricted SUPPORT AND REVENUES Contributions Foundation contributions and grants Public policy and lecture events Interest and dividends Realized and unrealized gains (losses)
$
Total support and revenues before special events and net assets released from restrictions
$
2,683,588
Special events: Special events revenues Less costs of direct donor benefits Gross profit on special events
EXPENSES AND LOSSES: Program services Fundraising Management and general Loss on uncollectible pledges TOTAL EXPENSES AND LOSSES CHANGE IN NET ASSETS
$
2009
1,756,106 1,108,725 68,738 53,699 30,638
$
2,268,061
3,017,906
-
416,550 (104,394) 312,156
-
1,004,301 1,174,462 76,100 45,427 (32,229)
387,390 (77,390) 310,000
-
-
3,262,230
4,807
63,025
3,330,062
2,578,061
2,728,620 464,204 246,095 -
67,715
-
2,728,620 464,204 246,095 67,715
2,185,374 292,355 225,062 -
3,438,919
67,715
-
3,506,634
2,702,791
(62,908)
63,025
623,022
800,330
3,134,189 $
63,025 -
Totals 2010
63,025
(266,486)
(176,689)
NET ASSETS, BEGINNING OF YEAR
$
-
266,486
TOTAL SUPPORT AND REVENUES
271,293 -
Permanently Restricted
271,293
416,550 (104,394) 312,156
Net assets released from restrictions
NET ASSETS, END OF YEAR
1,693,081 837,432 68,738 53,699 30,638
Temporarily Restricted
2,957,500
$
560,114
$
See Notes to Consolidated Financial Statements -3-
863,355
(124,730)
(176,572) 4,557,541 $
4,380,969
4,682,271 $
4,557,541
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
Totals Program Wages and salaries Contractual expense Printing Advertising and public relations Employee benefits Postage and courier Building expense Payroll taxes Depreciation and amortization Lecture series Gala fundraising event Litigation fees and attorney's fees Travel Dues and subscriptions Technology Bank and credit card fees Supplies Audit and financial services List rentals Telephone Insurance Business meals Seminars and meetings Equipment lease and repair Licenses/fees Payroll and plan maintenance fees Legal Book and marketing expense Interest expense Research materials Loss on disposition of fixed assets TOTAL EXPENSES
Management
Services $ 1,513,375 60,453 172,297 135,032 113,611 108,978 81,412 90,083 81,594 99,943 12,809 49,889 36,894 30,255 24,868 18,958 17,231 17,432 13,231 12,739 4,809 7,998 5,695 5,019 5,287 6,047 904 1,180 597 -
Fundraising $ 122,442 179,969 18,633 9,192 14,899 14,225 7,288 14,257 38,429 10,359 4,553 6,107 4,656 4,232 3,076 3,250 2,226 2,159 1,398 1,233 428 903 290 -
and General $ 141,279 22,820 10,607 5,699 6,704 8,409 6,718 1,826 4,138 3,278 2,499 2,271 21,350 1,744 1,049 3,641 751 662 494 156 -
$
$
$
2,728,620
464,204
246,095
See Notes to Consolidated Financial Statements -4-
$
$
2010 1,777,096 263,242 190,930 135,032 133,410 129,576 102,341 105,780 102,569 99,943 51,238 49,889 49,079 38,946 34,253 26,113 23,734 21,350 20,508 18,225 16,014 10,609 7,998 7,844 6,914 6,209 6,047 1,807 1,626 597 3,438,919
$
$
2009 1,462,787 188,609 164,784 5,934 95,984 57,258 91,026 88,838 79,548 123,160 75,660 35,684 31,844 18,079 21,820 16,401 20,393 29,350 5,676 12,189 16,920 11,275 7,032 11,548 3,817 4,741 10,779 1,124 1,918 8,613 2,702,791
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31, 2010 (with summarized comparative totals at December 31, 2009) 2010 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 Loss on disposition of fixed assets Donated marketable securities Donated software Change in discount on long-term pledges Change in allowance for 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
$
(176,572) $
79,548 8,613 (33,806) (6,500) 32,229
326,100 1,249 (1,449)
380,500 20,169 1,540
(53,416) (17,704) 45,298
3,447 11,643 372,653
250,000 816,899 (250,000) (856,241) (56,672) (96,014)
CASH FLOWS FROM FINANCING ACTIVITIES Payments on capital lease obligations Net cash used in financing activities
(3,049) (3,049)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR
(124,730)
102,569 (32,008) (35,934) (21,299) (15,600) (30,638)
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds 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
NET CHANGE IN CASH
2009
250,000 1,073,539 (400,000) (1,079,137) (56,293) (211,891)
-
(53,765)
160,762
733,494
572,732
$
679,729
$
733,494
$
1,626
$
-
Contributions of marketable securities
$
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, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(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 the 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 their 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, 2009, 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. 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.
-6-
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(1)
Company operations and summary of significant accounting policies (continued) 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. 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. 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. 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. The Institute received the following donated materials and services: Used for Programs Programs Programs Administration
Donated marketable securities Donated software Miscellaneous goods Professional accounting services
$
$
2010 32,008 35,934 6,135 74,077
2009 $
$
12,850 12,850
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).
-7-
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(1)
Company operations and summary of significant accounting policies (continued) 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 institution’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, 2010, pledges receivable are considered by management to be fully collectible, and, accordingly an allowance for uncollectible pledges is not considered necessary. At December 31, 2009 the allowance for uncollectible pledges was $15,600. 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, 2010 and 2009, 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. 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.
-8-
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(1)
Company operations and summary of significant accounting policies (continued) 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, 2010 and 2009. 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 $135,032 for 2010 and $5,934 for 2009. 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. In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), which was subsequently incorporated into FASB ASC 740, Income Taxes. FIN 48 was originally effective for fiscal years beginning after December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes. 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. The Institute’s federal Exempt Organization Business Income Tax Return (Form 990) for 2007, 2008 and 2009 are subject to examination by the IRS, generally for the three years after they were filed. Subsequent events – The Institute has evaluated subsequent events through April 13, 2011, which is the date the consolidated financial statements were available to be issued.
-9-
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(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 allowance for uncollectible pledges Less discounts on long-term pledges Net pledges receivable Less current portion Noncurrent portion
$
$
2010 206,500 101,600 308,100 (19,279) 288,821 (196,667) 92,154
$
$
2009 384,500 249,700 634,200 (15,600) (40,578) 578,022 (384,500) 193,522
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, 2010 and 2009, approximately 97% and 79%, respectively, of the gross pledges are due from board members. (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. The principal is due and payable to the Institute on December 31, 2011. The balance of this note at December 31, 2010 and 2009 was $200,000. 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 2008, the corporation asked that the Institute reduce the amount to $600,000 with all other terms remaining the same. The Institute complied with the request. During 2009, the Institute requested that the revolving note receivable be increased to $1,000,000 with all other terms remaining the same. The request was approved. The note bears interest at the rate charged by Farm Credit Services Southwest (2.25% at December 31, 2010) per annum until paid. Terms of the note call for interest to be paid to the Institute monthly. The principal is due and payable to the Institute on December 31, 2011. The balance of this note at December 31, 2010 and 2009 was $750,000. For the years ended December 31, 2010 and 2009, interest earned on the notes receivable was $39,026 and $37,241, respectively.
- 10 -
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(3)
Notes receivable (continued) The unsecured investments in these revolving notes represent a concentration of credit risk due to the fact that approximately 21% and 20% of the Institute’s assets are invested with a single borrower as of December 31, 2010 and 2009, respectively. The fact that the notes are unsecured increases the overall level of risk associated with these investments.
(4)
Investments 2010
Investments consist of: U.S. equity mutual funds International equity mutual funds U.S. fixed income Cash and money market funds Global commodity equities Alternative real estate equities International fixed income International currency funds Total investments
$
$
163,643 184,724 181,686 88,966 88,585 51,217 20,754 779,575
2009 $
$
89,171 71,776 351,256 37,912 32,944 74,288 20,240 677,587
Expenses relating to investment revenues, including custodial fees and investment advisory fees of $7,528 for 2010 and $4,464 for 2009 were charged to operations. (5)
Property and equipment 2010
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 1,768,348 614,827 2,741,655 (1,002,230) 1,739,425
2009
$
$
358,480 1,756,043 514,226 2,628,749 (899,661) 1,729,088
Depreciation and amortization expense charged to operations was $102,569 and $79,548, respectively, for the years ended December 31, 2010 and 2009. 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, 2010. Accumulated amortization on the asset held under capital lease agreement included in accumulated depreciation and amortization above is $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.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(6)
Capital lease obligation (continued) The obligation under the capital lease reflects the present value of future rental payments, discounted at the Institutes incremental borrowing rate. The future minimum lease payments and capital lease obligation under this capital lease are as follows: Years Ending December 31, 2011 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 8,100 675 33,075 (12,250) 20,825 (3,574) 17,251 (3,638) 13,613
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 2010
Temporarily restricted net assets consist of: Constitutional Litigation Center pledges Constitutional Litigation Center Reagan Fellows Healthcare Litigation Online fundraising Time restricted promise to give Total temporarily restricted net assets (9)
$
$
288,821 81,521 13,800 175,972 560,114
2009 $
$
483,557 54,465 50,000 35,000 623,022
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 and $8,842 for 2010 and 2009, respectively. 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.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(10) Contingency On March 5, 2011, the Institute learned through a national media outlet that the City of Glendale (the "City") was planning to sue the Institute. Management's understanding is that the City's lawsuit would be premised on the assertion that the Institute had tortuously interfered with the City's proposal to provide $100 million to a businessman (which management believes was without the benefit of any competitive bidding) to defray the cost of purchasing the Phoenix Coyotes from the National Hockey League, and an additional $97 million over five years to operate the Jobing.com hockey arena. The Institute's in-house legal counsel researched potential claims, and the Institute retained an outside law firm to conduct an independent review. Both the Institute and the outside law firm believe that a lawsuit against the Institute would be groundless. Management believes the Institute is fully protected from a lawsuit under the First Amendment of the U.S. Constitution. Management also believes legal action by the City would threaten core political speech about a matter of acute public interest and would therefore be unjustified. Additionally, management believes that the City could not maintain a legal action against the Institute for publishing truthful information about matters of public concern. Finally, management believes the Institute is protected under Arizona's strategic lawsuits against public participation (“SLAPP”) statute, which prohibits lawsuits that involve a party's exercise of the right of petition. While there can be no assurance that the City will not file a lawsuit against the Institute, the Institute's management believes that any legal action taken against it by the City of Glendale or related parties for the Institute's involvement in the proposal with the Phoenix Coyotes would be promptly dismissed. (11) 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.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(11) 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. equity mutual funds International equity mutual funds U.S. fixed income Global commodity equities Alternative real estate equities International fixed income
$
Total 163,643 184,724 181,686 88,585 51,217 20,754
Unadjusted Quoted Market Prices (Level 1) $ 163,643 184,724 181,686 88,585 51,217 20,754
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, 2009:
U.S. equity mutual funds International equity mutual funds U.S. fixed income Global commodity equities International fixed income International currency funds
$
Total 89,171 71,776 351,256 32,944 74,288 20,240
Unadjusted Quoted Market Prices (Level 1) $ 89,171 71,776 351,256 32,944 74,288 20,240
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. (12) 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.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(12) Endowments (continued) In September 2008, the State of Arizona enacted ARS§10-11801 et seq Investments for Eleemosynary Purposes (IFEP). The Board of Directors of the Institute has interpreted IFEP 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 IFEP. In accordance with IFEP, 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 2010
Endowment net assets consist of the following endowments: Duncan Endowment McClelland Fellowship Norton Fellowship Total endowment net assets
$
$
2009
700,000 100,330 63,025 863,355
$
$
700,000 100,330 800,330
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) $
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-
$
863,355
$
808,726
BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(12) Endowments (continued) The changes in endowment net assets for the year ended December 31, 2009 are as follows:
Unrestricted Endowment net assets, January 1, 2009 Contributions Reclassification of donor intent Investment Return: Interest and dividends Realized and unrealized losses Appropriation of endowment assets for expenditure Endowment net assets, December 31, 2009
$
$
(75,180) $ -
Temporarily Restricted -
Permanently Restricted $
Total
805,830 $ 1,000 (6,500)
730,650 1,000 (6,500)
8,186
-
-
8,186
(32,229)
-
-
(32,229)
-
-
-
-
(99,223) $
-
$
800,330
$
701,107
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 IFEP 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 $54,629 and $99,223 as of December 31, 2010 and 2009, respectively. These deficiencies resulted primarily from unfavorable market fluctuations. 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.
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BARRY GOLDWATER INSTITUTE FOR PUBLIC POLICY RESEARCH AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (with summarized comparative totals for the year ended December 31, 2009)
(13) 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 $11,252 and $10,078 for the years ended December 31, 2010 and 2009, respectively, were made by the Institute, in addition to the elective deferrals made by employees.
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