PKF - The Morton Arboretum

Transcription

The Morton Arboretum
Financial Statements
and
Independent Auditor's Report
For the Year Ended
December 31, 2013
Wolf & Company LLP
Certified Public Accountants
CONTENTS
Independent Auditor's Report
Financial Statements:
Statements of Financial Position
1-2
3
Statements of Activities
4
Statements of Changes in Net Assets
5
Statements of Cash Flows
6
Notes to Financial Statements
7-22
Wolf,,,,,,
Wolf 8: Company LLP
.,'
Company
/)
Oakbrook Terrace ' Chicago
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees
The Morton Arboretum
Lisle, Illinois
We have audited the accompanying financial statements of THE MORTON ARBORETUM (a nonprofit
organization), which comprise the statement of financial position as of December 31, 2013, and the related
statements of activities, changes in net assets, and cash flows for the year then ended, and the related notes to
the financial statements. The prior year summarized comparative information has been derived from The
Morton Arboretum's 2012 financial statements, and in our report dated April 19, 2013, we expressed an
unmodified opinion on those financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance
with accounting principles generally accepted in the United States of America; this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our
audit in accordance with auditing standards generally accepted in the United States of America and the
standards applicable to fmancial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor's judgment, including the assessment of
the risks of material misstatement of the financial statements, whether due to fraud or error. In making those
risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation
of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we
express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of significant accounting estimates made by management, as well as evaluating the
overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of The Morton Arboretum as of December 31, 2013, and the changes in its net assets and its cash
flows for the year then ended in accordance with accounting principles generally accepted in the United States
of America.
PKF
A PKF International Member Firm
1901 S. Meyers Road, Suite 500
Oakbrook Terrace, Illinois 60181-5209
630.545.4500 mail! ' 630.574.7818/a., • www-.wolfcpa.com
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated April 19,2013, on
our consideration of The Morton Arboretum's internal control over financial reporting and on our tests of its
compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters.
The purpose of that report is to describe the scope of our testing of internal control over financial reporting and
compliance and the results of that testing, and not to provide an opinion on internal control over financial
reporting or on compliance. That report is an integral part of an audit performed in accordance with
Government Auditing Standards and in considering The Morton Arboretum's internal control over financial
reporting and compliance.
Oakbrook Terrace, Illinois
April 15, 2014
2
THE MORTON ARBORETUM
STATEMENTS OF FINANCIAL POSITION
ASSETS
December 31,
2013
$
Cash and cash equivalents
4,075,596
2012
$
3,341,307
246,080,0 I 4
233,239,099
218,481
451,045
110,503
161,738
341,359
544,747
98,325
55,559
941,767
1,039,990
Bond issuance costs, net of accumulated amortization
of$1 09,574 and $98,678 in 2013 and 2012, respectively
271,879
282,775
Other assets
404,596
389,623
33,146,023
32,120,481
8,472,098
33,146,023
32,120,481
8,008,851
73,738,602
(34,849,403 )
73,275,355
(32,400,142)
38,889,199
40,875,213
$ 290,663,051
$279,168,007
$ 42,000,000
2,069,025
2,159,014
$ 42,000,000
2,003,152
2,825,815
46,228,039.
46,828,967
235,350,855
7,817,881
1,266,276
227,459,164
4,1 13,600
766,276
244,435,012
232,339,040
$290,663,051
$279,168,007
Investments, at fair value
Receivables:
Accrued interest and dividends
Pledges
Grants
Other
Property and equipment, at cost:
Land and improvements
Buildings and improvements
Equipment and other property
Less: accumulated depreciation and amortization
Total assets
LIABILITIES AND NET ASSETS
Liabilities:
Bonds payable
Accounts payable and other accrued liabilities
Accrued pension obligation
Total liabilities
Net assets:
Unrestricted
Temporarily restricted
Pem1anently restricted
Total net assets
Total liabilities and net assets
The accompanying notes are an integral part of these financial statements.
3
STATEMENTS OF ACTIVITIES
For the Year Ended December 31, 2013
(With Comparative Totals for 2012)
Temporarily
Restricted
Unrestricted
Revenue and support:
Investment income
Contributions
Membership
Retail services
Admissions
Education
Visitor events
Net assets released
from restrictions
$
4,724,995
2,478,559
3,413,989
6,602,693
1,092,474
842,776
1,710,405
$
1,438,770
126,731
4,661,540
Permanently
Restricted
$
Totals
S
500,000
2012
2013
4,851,726
7,640,099
3,413,989
6,602,693
1,092,474
842,776
1,710,405
$
6,147,334
3,732,115
3,199,897
6,040,981
993,685
812,945
783,872
(1,438,770)
22,304,661
3,349,501
26,154,162
21,710,829
7,599,937
968,053
2,323,442
1,303,259
2,389,932
5,284,372
1,086,623
1,602,192
2,742,179
1,668,823
2,688,980
281,967
7,599,937
968,053
2,323,442
1,303,259
2,389,932
5,284,372
1,086,623
1,602,192
2,742,179
1,668,823
2,688,980
281,967
7,112,907
896,828
2,129,953
1,388,366
1,366,875
4,804,445
1,059,537
1,614,424
2,872,231
1,297,134
2,644,290
378,350
Total expenses
29,939,759
29,939,759
27,565,340
Change in net assets
from operations
(7,635,098)
(3,785,597)
(5,854,511 )
15,149,423
19,052,343
Total revenue and support
Expenses:
Collections and facilities
Education
Research
Public programs
Visitor services
Retail services
Membership program
Fund raising
General and administrative
Marketing
Depreciation and amortization
Interest
Net realized/unrealized gain on
securities
14,794,643
Pension related changes other
than net periodic benetit cost
732,146
fncrease in net assets
Net assets, beginning of year
Net assets, end of year
500,000
3,349,501
500,000
354,780
732,146
(l,555,667)
7,891,691
3,704,281
500,000
12,095,972
11,642,165
227,459,164
4,113,600
766,276
232,339,040
220,696,875
1,266,276
$ 244,435,0 12
$232,339,040
S 235,350,855
$
7,817,881
4
$
STATEMENTS QF CHANGES IN NET ASSET~
For the Years Ended December 31, 2013 and 20 12
Operating
Balance, January I, 2012
Revenue and support
Expenses
Net realized/unrealized loss
on securities
Pension-related changes other
than net periodic benefit cost
Assets released from restriction
$208,715.949
Unrestricted
Board Desigpated
Capital
Suzette Morton
Repair and
Davidson
Replacement
Rare Book and
Fund
Print Fund
Capital
Development
Fund
$
$
4,075,935
998,181
2,492,211
$
3,648,323
19,596,705
(27,442,896)
109,442
(122,444)
27,211
316,277
1,661,194
18,143,746
339,190
84,333
220,908
264,166
(1,555,667)
__J.::l60,083_
-_._--
-----------
218,917,920
Revenue and support
Expenses
Net realized/unrealized gain
on securities
Pension-related changes other
than net periodic benefit cost
Assets released from restriction
20,448,423
(29,650,927)
86,215
(286,747)
14,256,118
269,205
4,402,123
\,109,725
$
766,276
Total
$220,696,875
21,710,829
(27 ,565,340)
19,052,343
_(1,460,083)
3,029,396
4,113,600
766,276
232,339,040
22,445
(2,085 )
308,808
4,788,271
500,000
26,154,162
(29,939,759)
70,082
199,238
354,780
732.146
1,438,770
$226,142,450
Permanently
Restricted
(1,555,667)
Balance, December 31, 2012
Balance, December 31, 2013
$
Temporarily
Restricted
15,149,423
732,146
_(1,438,770)
$
4,470,796
$
1,200,167
The accompanying notes are an integral part ofthese financial statements.
5
$
3,537,442
$
7,817,881
$
1,266,276
$244,435,012
STA TEMENTS OF CASH FLOWS
F or the Year Ended
December 31,
2013
2012
Cash flows from operating activities:
Increase in net assets
Adjustments to reconcile increase in net assets
to net cash used in operating activities:
Depreciation and amortization
Non-cash donation of marketable securities
Net realized gain on sale of securities
Net unrealized appreciation of securities
Gain on disposal of property and equipment
(Increase) decrease in accrued interest and
dividends receivable
Increase in other receivables
Decrease (increase) in grants receivable
Decrease in pledges receivable
Increase in other assets
Increase (decrease) in accounts payable and other
accrued liabilities
Increase (decrease) in accrued pension obligation
$ 12,095,972
Net cash used in operating activities
Cash flows from investing activities:
Acquisition of property and equipment
Proceeds from sale of property and equipment
Purchases of marketable securities
Proceeds from sales and maturities of marketable securities
Net cash provided by investing activities
$ 11,642,165
2,688,980
(261,618)
(7,976,586)
(7,172,837)
(34,634)
2,644,290
(180,802)
(9,425,784)
(9,626,559)
(9,257)
122,878
(106,179)
(12,178)
93,702
(14,973)
(107,274)
(43,159)
35,982
271,314
(48,739)
65,873
(666,801)
(160,091)
1,536,226
{1,178,40l)
(3,471,688)
(725,748)
68,312
(34,647,972)
37,218,098
(477,519)
14,000
(55,598,083)
59,366,434
1,912,690
Net increase (decrease) in cash and cash equivalents
3,304,832
(166,856)
734,289
Cash and cash equivalents, beginning of year
3,341,307
3,508,163
Cash and cash equivalents, end of year
$ 4,075,596
$
3,341,307
Supplemental disclosure of cash flow information:
Cash paid for interest
$
$
416,656
6
261,161
NOTES TO FINANCIAL STATEMENTS
1.
Organization
The Morton Arboretum (the "Arboretum") is an outdoor museum of living woody plants. The
mission of the Arboretum is to collect and study trees, shrubs, and other plants from around the world,
to display them across beautiful landscapes for people to study and enjoy, and to learn how to grow
them in ways that enhance our environment. Our goal is to encourage the planting and conservation
of trees and other plants for a greener, healthier and more beautiful world.
2.
Summary of Significant Accounting Policies
Basis of Accounting - The financial statements have been prepared on the accrual basis of accounting
and, accordingly, reflect all significant receivables, payables and other liabilities.
Basis of Presentation - The Arboretum reports 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.
Cash and Cash Equivalents - Cash and cash equivalents consist of short-term investments and a
money market fund.
Contributions - Contributions received are recorded as unrestricted, temporarily restricted, or
permanently restricted support, depending on the existence and/or nature of any donor restrictions.
When a restriction expires (that is, when a stipulated time restriction ends or the purpose of the
restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets
and reported in the statement of activities as net assets released from restrictions.
Pledges Receivable - Pledges receivable include promises made by donors whereby the donor has
unconditionally promised to contribute funds to the Arboretum for future periods. Unconditional
promises expected to be collected within one year are recorded as support and a receivable at net
realizable value. Unconditional promises expected to be collected in future years are recorded as
support and a receivable at the present value of expected future cash tlows. Amortization of discounts
is included in contribution revenue.
Inventory - The Arboretum reports inventory within the other assets category in the financial
statements. Inventory is typically purchased and consists of various items held for sale at the
Arboretum Store. The Arboretum records inventory at cost, determined on an average current cost
basis.
Functional Allocation of Expenses - The costs of operating the Arboretum and providing various
services and activities have been summarized on a functional basis in the statement of activities.
Accordingly, certain costs have been allocated among the operational areas, services and activities
benefited.
In Kind Contributions and Donated Services - Donated services are recognized at fair value if the
services received (a) create or enhance long-lived assets or (b) require specialized skills, and would
need to be purchased if not provided by donation. Contributions of tangible assets are recognized at
fair value when received. In-kind contributions that meet the criteria for recognition are included in
the accompanying financial statements and are offset by like amounts as expenses or additions to
property and equipment. Donated services for the years ended December 31, 2013 and 2012 are
7
2.
Summary of Significant Accounting Policies (Cont.)
In Kind Contributions and Donated Services (cont.)$12,100 and $25,145, respectively. A substantial number of volunteers donated a significant amount
of time for various program assistance and in support of daily operations. These in-kind contributions
are not reflected in the financial statements because they do not meet the criteria for recognition.
Arboretum Collections - The Arboretum's rare books and print collections are not capitalized in the
accompanying financial statements. Living woody plants are also not capitalized unless they are part
of a major capital project. Purchases of collection items that are not capitalized are recorded as
decreases in unrestricted net assets.
Depreciation and Amortization - The Arboretum capitalizes additions of property and equipment in
excess of $25,000 with the exception of motor vehicles and attachments which is capitalized
regardless of cost. Annual depreciation is computed using the straight-line method over the estimated
useful lives of the related assets:
Land improvements
Buildings and improvements
Equipment and other property
20 years
30 - 45 years
5 - 10 years
Amortization of bond issuance costs is provided using the straight-line method over the life of the
bonds, which is 35 years.
Use of Estimates - The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
Comparative Information - The 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 generally accepted accounting
principles. Accordingly, such information should be read in conjunction with the Arboretum's
financial statements for the year ended December 31, 2012, from which the summarized information
was derived.
Income Taxes - The Arboretum is exempt from federal income tax under Section 501(c)(3) of the
Internal Revenue Code ("Code"). In June J 999, the Arboretum was granted public charity status
under Code Section 509. The status is effective as of January 1, 1994. The Arboretum recognizes the
financial statement impact of a tax position when it is more likely than not that the position will be
sustained upon examination. The Arboretum is no longer subject to U.S. federaL state, and local
income tax examinations by tax authorities for the years before the 2010 tax year.
8
2.
Summary of Significant Accounting Policies (Cont.)
Fair Value of Financial Instruments - The carrying amounts of financial instruments including cash,
cash equivalents, receivables, accounts payable, and accrued liabilities, approximate fair value due to
the short maturity of these instruments.
Split Interest Agreement - During 2012, the Arboretum entered into an irrevocable agreement with a
donor whereby in exchange for the gift from the donor, the Arboretum was obligated to provide an
annuity to the donor for a specific number of years. A liability was recognized at the net present value
of the annuity obligation. The liability balances for years ended December 31, 2013 and 2012 are
$29,848 and $31,651, respectively.
Pending Accounting Pronouncement: Statement of Cash Flows (Topic 230) Not for Profit Entities In October 2012, the Financial Accounting Standards Board issued Accounting Standards Update
No. 2012-05, Statement of Cash Flows (Topic 230) Not for Profit Entities: Classification of the Sale
Proceeds of Donated Financial Assets in the Statement of Cash Flows ("ASU No. 2012-05"). ASU
No. 2012-05 was issued to address the diversity in practice about how to classify cash receipts arising
from the sale of certain donated financial assets in the statement of cash flows for not-for-profit
organizations. ASU No. 2012-05 stipulates that proceeds from the sale of donated financial assets
may be classified within operating activities, financing activities or investing activities with such
determination depending on the intentions and actions of the Arboretum and/or donor imposed
restrictions. ASU No. 2012-05 is effective prospectively for fiscal years, and interim periods within
those years, beginning after June 15, 2013. The Arboretum intends to adopt ASU No. 2012-05 in
2014.
3.
Investments
Investment securities are reported at fair value using quoted market prices where available. The
investments in partnerships and hedge funds are reported at fair value, as determined by the respective
investment manager of the fund. In determining the fair value, the investment manager utilizes the
valuation reflected within the financial statements and other financial information of the underlying
investments. Realized gains and losses from security transactions are reflected in the statements of
activities and are computed on a first-in, first-out basis. The net annual change in the fair value of
investments (net appreciation (depreciation) in fair value of investments) is included in the
accompanying statements of activities and is determined as the difference between fair value at the
beginning of the year (or date purchased during the year) and year-end fair value. Donated marketable
securities are recorded at their fair value at the date of donation. The fair value of the investment
portfolio was $32,724,221 and $25,572,384 greater than its cost at December 31, 2013 and 2012,
respectively.
9
3.
Investments (Cont.)
The fair value of securities as of December 31, 2013 and 2012 is as follows:
2013
2012
$ 55,286,666
Common stock
Northern Trust Stock Index Fund
Fixed income mutual funds
Real estate limited partnership
Commodities fund
International equities
Partnerships, other
Hedge fund
27,545,206
68,030,181
7,757,966
22,778,239
27,925,282
8,436,682
28319,792
$
44,458,796
31,692,401
73,047,468
6,890,299
20,881,679
26,049,550
5,264,870
24,954,036
$ 246,080,014
$ 233,239,099
The composition of investment income and net realized/unrealized gain (loss) on securities for the
years ended December 31, 2013 and 2012 is as follows:
Unrestricted
Investment income (loss):
Interest
Dividends
Other investment loss
Investment expense
28,248
102,629
(115)
(4,031 )
$
$ 4,724,995
$
126,731
$ 4,85 J ,726
$ 7,789,784
$
186,802
$ 7,976,586
167,978
7,172,837
354,780
$ 15,149,423
618,152
4,279,733
(4,788)
(168,102)
.'
7,004,859
$ 14,794,643
10
Total
$
$
Net realized/unrealized gain
on securities:
Net realized gain on sales
of securities
Net unrealized appreciation
of securities
2013
Temporarily
Restricted
$
646,400
4,382,362
(4,903)
(172,133)
3.
Investments (Cont.)
Unrestricted
Investment income (loss):
Interest
Dividends
Other investment loss
Investment expense
Net realized/unrealized
gain (loss) on securities:
Net realized gain on sale
of securities
Net unrealized appreciation
of securities
2012
Temporarily
Restricted
Total
$
688,460
5,590,687
(9,564)
(215,859)
$
18,174
78,606
(135)
(3,035)
$
706,634
5,669,293
(9,699)
(218,894)
$
6,053,724
$
93,610
$
6,147,334
$
9,295,093
$
130,691
$
9,425,784
9,493,084
$
18,788,177
133,475
$
264,166
9,626,559
$
19,052,343
The Arboretum has various commitments related to investments, as summarized in Note 13 to the
financial statements.
4.
Bonds Payable
The Arboretum is obligated to the County of DuPage, Illinois, under a loan agreement for the issuance
of$42,000,000 in demand revenue bonds issued by the County for the Arboretum's expansion project.
The bonds were issued on December 17, 2003 and are due on demand. Interest, at a variable rate, is
payable monthly. The bonds mature on October 15, 2038. The Arboretum is subject to certain
covenants including the maintenance of a minimum liquidity ratio. The bond is supported by an
irrevocable letter of credit issued on November 1,2012, by PNC Bank N.A., which replaced a similar
irrevocable letter of credit which was not renewed as of that date.
5.
Postretirement Benefits
Effective October 1, 1976, with the adoption of a formal pension plan, the Arboretum purchased
annuity contracts for all retired and fully vested employees eligible for benefits. For those employees
who were employed prior to but not fully vested at October 1, 1976, the Arboretum will purchase
annuity contracts when they retire at age 60 or later. The related liability has been accrued in the
financial statements.
In addition to pension benefits, through 1994 the Arboretum provided certain health care benefits to
retired employees. The cost of retiree health care benefits has been accrued in the financial
statements.
11
5.
Postretirement Benefits (Cont.)
Prior to December 31,2008, eligible employees earned benefits under the Arboretum's defined benefit
plan, which became effective October I, 1976, and those benefits are being funded currently. The
plan is noncontributory. Effective December 31, 2008, all benefits under the plan were frozen. The
Arboretum is in the process of terminating the pension plan. Due to large lump-sum distribution
amounts, the plan years ending December 31, 2013 and 2012 have reflected plan settlements.
The projected unit credit cost method is used to calculate the plan's net pension cost. The benefits
under the plan are based primarily on years of service and compensation levels.
The following amounts relate to the Arboretum's defined benefit plan for the years ended
December 31, 2013 and 2012:
2012
2013
7,276,056
$
Accumulated benefit obligation
$
Pension benefit obligation
Fair value of plan assets
$ (7,276,056)
5,117,042
$ (8,099.089)
5,273,274
Excess of benefit obligation over plan assets
(funded status)
$ (2,159,014)
$ (2,825,815)
Employer contributions
$
25,000
$
58,110
Benefits paid
$
106,996
$
409,569
Amounts recognized in the statements of
financial position:
Accrued pension obligation
$ (2,159,014)
Amounts recognized in the statements of activities:
Pension related changes other than net
periodic benefit cost:
Net (gain) loss
Amortization of net loss
Amortization of prior service credit
Amount recognized due to lump-sum settlements
$
(601,294)
(152,787)
21,935
$ (2,825,815)
$
(732,146)
Net periodic benefit cost:
Interest cost
Expected return on plan assets
Amortization of prior service credit
Effect of settlements
$
12
(641,801)
1,665,577
( 11,685)
21,935
(120,160)
1,555,667
309,931
(381,172)
1 J ,685
(21,935)
120,160
326,895
(367,402)
J 52,787
(21,935)
___~ 90,345
8,099,089
____18,6§2
$
] ,594,336
5.
Postretirement Benefits (Cant.)
Other changes in plan assets and benefit obligations
previously recognized in changes in unrestricted
net assets not yet recognized as periodic benefit cost,
as of December 31 :
Net loss
Prior service credit
2013
2012
$ 1,573,006
$ 2,327,087
(178,555)
(156,620)
$ 1,416,386
$ 2,148,532
Items included in December 31, 2013 net assets expected to be recognized as components of net
periodic pension costs in the year ending December 31, 2014:
2013
Amortization of prior service cost (credit)
Total
2013
Assumptions used in accounting for the plan:
Weighted-average assumptions used to determine
pension benefit obligation:
Discount rate
Rate of compensation increase
Weighted-average assumptions used to determine
net periodic benetit cost:
Discount rate
Expected return on plan assets
Rate of compensation increase
$
87,245
(21,935)
$
65,310
2012
4.86%
4.06%
N/A
N/A
4.06%
7.00%
4.62%
7.00%
N/A
N/A
The expected return on plan assets is determined by those assets' historical long-term investment
performance, current asset allocation, and estimates of future long-term returns by asset class. The
Arboretum's investment strategy is to provide enough short-term income to meet current liabilities
while maintaining a moderate risk tolerance to provide growth to achieve the expected long-term rate
of return on the plan's assets. The plan assets are 100% invested in a fixed dollar account with
Prudential Insurance Company of America. The fair value of assets is determined by applying a
Market Value Adjustment percentage to the book value of assets reported by Prudential. For
December 31,2013, the estimated Market Value Adjustment is 9.8%. For December 31,2012, the
amount was 14.5%. The fixed dollar account consists of public and private fixed maturity securities,
commercial mortgage and other loans, equity securities, and other investment assets. The composition
of the general account reflects, within the discipline provided by its risk management approach, the
need for competitive results and the selection of diverse investment alternatives.
13
5.
Postretirement Benefits (Cont.)
The fair value (See Note 15) of the plan's fixed dollar account has been estimated utilizing current
rates of return available for similar contracts, with comparative credit risk and liquidity, as of the
respective financial statement date (Level 2 inputs).
Fair Value Measurement at
Reporting Date Using
Fair Value
Prudential fixed dollar account:
December 31,2013
$ 5,117,042
Quoted
Prices
In Active
Markets for
Identical
AssetslLiabilities
Levell
$
Significant
Other
Observable
Inputs
Level 2
$ 5,117,042
Significant
Unobservable
Inputs
Level 3
$
The Arboretum expects to contribute approximately $36,380 to the plan in 2014. Subject to approval
of the plan termination discussed above, future expected benefits to be paid would be approximately
as follows:
2014
2015
2016
2017
2018
2019-2023
$
130,000
150,000
210,000
230,000
270,000
1,950,000
Effective July 1, 2005, the Arboretum established a defined contribution retirement plan operated
under Section 401(k) of the Internal Revenue Code. The plan covers all employees who have attained
the age of 21. Participants with one year of service are eligible for a matching contribution equal to
100% of elective deferrals, up to a maximum of 6% of compensation. The Arboretum shall also make
a non-elective contribution on behalf of each participant who has attained age 50 and has completed
10 or more years of service on or before January 1, 2009 in the amount of 2% of the participant's
contributions. In addition, the Arboretum at its discretion may make a qualified non-elective
contribution. Contributions to the plan of $519,394 and $476,273 were charged against operations in
2013 and 2012, respectively.
6.
Endowments
The Arboretum's endowment consists of individual funds established for a variety of purposes and
includes both donor-restricted and Board-designated funds. As required by generally accepted
accounting principles, net assets are classified and reported based on the existence or absence of
donor-imposed restrictions.
14
6.
Endowments (Cont.)
The Board of Trustees of The Arboretum has interpreted the Uniform Prudent Management of
Institutional Funds Act ("UPMIFA") as requiring the preservation of the fair value of the original gift
as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the
contrary. As a result of this interpretation, the Arboretum 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. The Board of Trustees annually approves
the amounts to be paid from invested endowment funds. Consistent with UPMIFA, when determining
the appropriate payout, the Board of Trustees considers the purposes of the Arboretum and the
endowment funds, the duration and preservation of the various funds, 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 Arboretum, and the Arboretum's investment
policy.
Investment Return Objectives, Risk Parameters and Strategies. The return objective is to generate
optimal total return while maintaining an appropriate level of risk for the Arboretum. Investment
returns are achieved through both capital appreciation (realized and unrealized gains) and current yield
(interest and dividends). Portfolio asset allocation targets as well as expected risk, return and
correlation among the asset classes are reevaluated annually.
Spending Policy. Through the combination of investment strategy and payout policy, the Arboretum
is striving to provide a reasonably consistent payout from endowment funds to support operations,
while preserving the purchasing power of the endowment adjusted for inflation. For 2013 and 2012,
the Board approved a spending rate of5.0%.
Endowment net asset composition by type of donor-restricted and Board-designated fund as of
December 31, 2013 and 2012 is as follows:
Unrestricted
December 3 1, 2013:
Donor-restricted
endowment funds
Board-designated
endowment funds
Total funds
December 31, 2012:
Donor-restricted
endowment funds
Board-designated
endowment funds
Total funds
$
$
6,711,335
Total
Endowment
Net Assets
Permanently
Restricted
Temporarily
Restricted
$
1,266,276
$
9,208,405
$
9,208,405
9,208,405
$
_
8,541,244
$
8,541,244
7,977,611
$
6,711,335
$
1,266,276
$
2,658,148
$
766,276
$ 17,186,016
$
3,424,424
8.541,244
$
15
2,658,148
$
766,276
$ 11,965,668
6.
Endowments (Cont.)
Changes in endowment net assets for the years ended December 3 1, 2013 and 2012, respectively, are
as follows:
Temporarily
Restricted
Unrestri cted
January 1, 2012
Contributions
Capital development
Investment income
Net appreciation
Amounts appropriated
for expenditure
$
7.
$
245,000
207,929
644,432
$
766,276
$
245,000
172,467
538,527
2,658,148
4,000,000
(102,908)
87,986
274,736
(288,832)
(206,627)
9,208,404
$
6,711,335
10,173,314
500,000
245,000
285,787
885,737
(124,172)
(J,726)
8,541,242
$
1,840,711
500,000
Permanently
Restricted
77,858
241,305
~22,446)
December 3 1, 2012
Contributions
Transfers
Investment income
Net appreciation
Amounts appropriated
for expenditure
December 31, 2013
7,566,327
Total
Endowment
Net Assets
11,965,666
4,000,000
536,413
286,088
893,307
766,276
394,321
25,635
80,044
(495,459)
$
1,266,276
$
17,186,015
Net Assets
Net assets consist of unrestricted operating and Board-designated funds as well as temporarily and
permanently restricted donor funds.
Board-designated funds include the Capital Repair and Replacement Fund, Suzette Morton Davidson
Rare Book and Print Fund, and the Capital Development Fund. The Capital Repair and Replacement
Fund is intended to support the repair and replacement of significant buildings or site facilities. The
Suzette Morton Davidson Rare Book and Print Fund supports the acquisition and maintenance of the
Arboretum's rare books and prints. The Capital Development Fund finances major additions and
renovations to the Arboretum's facilities. Temporarily restricted funds include pledges receivable,
income and appreciation from the Davis Chair, as well as other amounts with purpose or time
restrictions.
Permanently restricted net assets consist of the two endowments recorded as separate, permanently
restricted funds. The income generated from these endowments is allocated to temporarily restricted
funds in support of research, education, and infomlation systems. See Note 9 below.
16
8.
Temporarily Restricted Net Assets
Temporarily restricted net assets at December 31, 2013 and 20 I 2 are available for the following
purposes:
2013
Pledges receivable
Davis Chair program
Estate gifts
Program grants
$
451,045
1,887,548
4,595,431
883,857
$ 7,817,881
9.
2012
$
544,747
1,761,533
896,615
910,705
$ 4,113,600
Permanently Restricted Net Assets
Permanently restricted net assets at December 3 J, 2013 and 2012 are restricted to the following:
2013
766,276
500,000
$
766,276
$ J ,266,276
$
766,276
$
Davis Chair program
Charles C. Haffner Trust
2012
The Arboretum has identified research projects to be performed within the original Davis Chair
program guidelines. The Haffner Trust specifically provides funding for the purpose of purchasing
books and prints for the Suzette Morton Davidson collection of rare and botanical prints. Income
generated from the permanently restricted fund is allocated to temporarily restricted funds in support
of these projects.
10.
Net Assets Released from Restrictions
Net assets of $1,438,770 and $1,460,083 for the years ended December 31, 2013 and 2012,
respectively, were released from donor restrictions by incurring expenses satisfying the restricted
purposes or by occurrence of other events specified by donors.
1 I.
Pledges Receivable
Pledges in excess of one year are adjusted to present value using an average risk-free market rate. [n
accordance with generally accepted accounting principles in the United States of America, the
discount rate is determined when the pledge is initially recognized. All pledges receivable in the
amount of $451 ,045 are due in 2014; thus, there were no pledges discounted as of December 31,2013.
Pledges receivable at December 31, 2012 were reported net of discounts of $1 ,298.
17
12.
Concentrations
The Arboretum routinely maintains balances in financial institutions in excess of the federally insured
amounts.
13.
Commitments
The Arboretum has entered into various limited partnership arrangements which require capital
commitments. The investment commitments at December 3], 2013 and 2012 were $8,692,072 and
$6,585,268, respectively.
14.
Contingencv
Amounts received or receivable from governmental agencies may be subject to agency audits.
Management does not anticipate any material adverse adjustments as a result of such governmental
agency audits.
15.
Fair Value Measurements
Generally accepted accounting principles provide a uniform framework for the definition,
mea<;urement and disclosure of fair value measurements. Fair value is defined as the exchange price
that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on
the measurement date. Such accounting guidance also establishes a fair value hierarchy which
requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The standard describes three levels of inputs that may be used to
measure fair value:
Levell:
Quoted market prices (unadjusted) for identical assets or liabilities in active markets that
the entity has the ability to access as of the measurement date.
Level 2:
Significant other observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities, quoted prices in markets that are not active, and other inputs
that are observable or can be corroborated by observable market data.
Level 3:
Significant unobservable inputs that reflect an entity's O\vn assumptions about the
assumptions that market participants would use in pricing an asset or liability.
The asset's fair value measurement level within the fair value hierarchy is based on the lowest level of
any input that is significant to the fair value measurement. Valuation techniques used need to
maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for a'>Sets measured at fair value.
Except as noted below, there have been no changes in the methodologies used at December 31, 2013
and 2012.
The fair value of shares of common stock, the Northern Trust stock index fund, fixed income mutual
funds, international equities, and commodities funds is determined by obtaining quoted prices on
nationally recognized securities exchanges (Levell inputs).
18
15.
Fair Value Measurements (Cont.)
The fair value of units held in the hedge fund is based on its net asset values, as reported by Northern
Trust and as supported by the unit prices of actual purchase and sale transactions occurring as of or
close to the financial statement date. The fair value of the hedge fund that invests in private
placements and other securities, for which values are not readily available, is determined in good faith
by the investment advisors to the respective portfolio funds and is classified within Level 2 of the fair
value hierarchy.
The fair value of shares of real estate limited partnerships is based on the net asset value of the
Guggenheim REIT reported by the Trust Company as the manager of the Guggenheim REIT. The fair
value of shares of other partnerships is based on the underlying partnership value. The fair values of
the real estate limited partnerships (Level 3) include a member interest in an affiliated real estate
operating company which invests in privately owned domestic commercial real estate investments, a
limited partnership interest in an affiliated real estate partnership that invests in mezzanine financings
and real estate properties, and all of the partnership interests in a private real estate partnership that
invest in net leased commercial real properties. The fair values of the other partnerships that invest in
nonmarketable privately held equity investments, common and preferred equity securities, partnership
interests, corporate debt, warrants, escrow and earn-out receivables and other privately issued
securities require significant judgment by fund management due to the absence of quoted market
values, inherent lack of liquidity, changes in market conditions and the long-term nature of such
assets. In determining valuation adjustments, emphasis is placed on market participants' assumptions
and market-based information over entity specific information; therefore, other partnerships are
classified within Level 3 of the fair value hierarchy.
The preceding methods described may produce a fair value calculation that may not be indicative of
net realizable value or reflective of future fair values. Furthermore, although the Arboretum believes
its valuation methods are appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result
in a different fair value measurement at the reporting date.
19
15.
Fair values of assets and liabilities measured on a recurring basis at December 31, 2013 and 20] 2 are
as follows:
Fair Value Measurement at
Quoted
Prices
In Active
Markets for
Identical
Assets/Liabilities
Fair Value
Levell
December 31,2013:
Common stock
Northern Trust Stock
Index Fund
Fixed income mutual funds:
Government bonds
Government agencies
Corporate bonds
Other fixed income
Real estate limited
partnership
Commodities fund
Partnerships, other
Hedge fund
December 31. 2012:
Common stock
Northern Trust stock
index fund
Fixed income mutual funds:
Government bonds
Government agencies
Corporate bonds
Other fixed income
Real estate limited
partnership
Commodities fund
Partnerships, other
Hedge fund
$
55,286,666
$
55,286,666
27,545,206
27,545,206
6,717,190
10,671,983
39,006,564
11,634,444
6,717,190
10,671,983
39,006,564
11,634,444
$
$
8,436,682
201,565,574
$
$
44,458,796
31,692,401
31.692,401
14,050,156
8,423,554
33,986,334
16,587,424
14,050,156
8,423,554
33,986334
16,587,424
$ 28,319,792
$
$
$
16,194,648
6,890,299
6,890,299
20.881,679
26,049,550
5,264,870
24.954,036
20
Significant
Unobservable
Inputs
Level 3
28,319,792
$
$ 233,239,099
Significant
Other
Observable
Inputs
Level 2
Usin~
22,778,239
27,925,282
$ 246,080,014
-~------
Date
7,757,966
7,757,966
22,778,239
27,925,282
8,436,682
28,319,792
44,458,796
ReE0rtin~
20,881,679
26,049,550
5264,870
24,924,036
-----.~---.--~-
$
196,129,894
$ 24,954,036
------~-.
$
12,155,169
NOTES TO FrNANCIAL STATEMENTS
15.
Changes in fair value of assets and liabilities measured on a recurring basis using significant
unobservable inputs (Level 3) for the years ended December 31, 2013 and 2012 are as follows:
Fair Value Measurements Using Significant
Unobservable InEuts (Level 3l
Real Estate
Limited
Partnership
January 1,2012
Contributions
Settlements
Realized gain
Unrealized gain (loss)
Investment loss (net of fees)
Transfers out of level 3
$
$
365,542
(29,390)
4,557,134
2,908,553
(2,515,741)
1,048,333
(543,204)
(190,205)
Hedge
Fund
$ 23,462,089
1,491,947
(24,954,036)
December 31, 2012
Contributions
Settlements
Realized gain
Unrealized gain
Investment income (toss)
(net of fees)
December 31, 2013
2,625,701
3,928,446
Partnerships,
Other
6,890,299
$
Total
$ 30,644,924
6,836,999
(2,515,741)
1,048,333
1,314,285
(219,595)
(24,954,036)
193,317
483,189
5,264,870
2,175,732
(60,480)
272,211
990,990
12,155,169
2,175,732
(60,480)
465,528
1.474,179
191,161
(206,641)
(15,480)
7,757,966
$
8,436,682
$
$ 16,194,648
During 2012, certain redemption rules for the hedge fund became less restrictive, which caused the
investment advisor to modify the valuation of this investment from input Level 3 to input Level 2.
The following sets forth additional hedge fund disclosures whose fair value is estimated using net
asset value per share at December 31,2013. The total value of this investment is $28,319,792 and
$24,954,036 at December 31,2013 and 2012, respectively.
Investment
Weatherlow Offshore Fund I, L.P.:
Long-Short Equity Portfolio
Funds (a)
Event Driven Portfolio Funds (b)
Fair Value as of December 31.
2013
2012
$ 9,974,362
$ 4,373,787
2,875,090
6,710,837
Relative Value Portfolio Funds (c)
4,827380
4.680,784
Global Asset Allocation Portfolio
Funds (d)
Multi-Strategy Portfolio Funds (e)
2.011,920
8,631,040
21
9,188,628
Redemption
Frequency
(as of2013)
Quarterly to
Semi-Annual
AnnuaIlyRolling 2 Year
MonthlyQuarterly
MonthlyQuarterly
MonthlyAnnual
Redemption
Notice Period
(as of2013)
30-90 days
90 days
30-90 days
5-90 days
30-180 days
15.
(a) Long-short equity strategies seek to profit by taking positions in equities and generally involve
fundamental analysis in the investment decision process. Managers in these strategies tend to be
"stock pickers" and typically manage market exposure by shifting allocations between long and
short investments depending on market conditions and outlook. Long-short equity strategies may
comprise investments in one or multiple countries, including emerging markets and one or
multiple sectors.
(b) Event driven strategies involve investing in opportunities created by significant transaction
events, such as spin-offs, mergers and acquisitions, and reorganizations. These strategies include
Risk Arbitrage, Distressed Situations Investing, Special Situations, and Opportunistic Investing.
(c) Relative value strategies seek to profit by exploiting pricing inefficiencies between related
instruments while remaining long-term neutral to directional price movements in anyone market.
These strategies include, but are not limited to: Convertible Bond Arbitrage, Fixed Income
Arbitrage, Options Arbitrage, Pairs Trading, Managed Futures, Statistical Arbitrage, Commodity
Trading Advisors (CTAs), and multiple "Market Neutral" strategies.
(d) Global asset allocation strategies seek to exploit opportunities in various global markets.
Portfolio managers employing these strategies have a broad mandate to invest in those markets
and instruments which they believe provide the best opportunity. A portfolio manager employing
a global macro strategy may take positions in currencies, sovereign bonds, global equities and
equity indices or commodities.
(e) Multi-strategy managers employ a combination of any of the above mentioned strategies.
At December 31,2013 and 2012, the Arboretum owned 3,794.812 of 273,762 shares (1.39%) and
3,839.171 of319,197 shares (1.20%), respectively, ofa real estate limited partnership. The fair value
of this investment is derived by applying the Arboretum's percentage of ownership to the total net
assets as shown on the December 31, 2013 and 2012 internal financial statements of the real estate
limited partnership.
At December 31, 2013 and 2012, the Arboretum owned 0.99% and 0.88% of the hedge fund, and
0.42% and 0.26% of various limited partnerships, respectively. The fair value of these investments
was derived from quarterly investment statements distributed to investors.
16.
Reclassifications
Certain amounts in the 2012 financial statements have been reclassified to agree with the 2013
presentation with no effect on net assets.
17.
Subsequent Events
The Arboretum has evaluated subsequent events through April 15,2014, the date which the financial
statements were available to be issued.
22

PKF - The Morton Arboretum

Transcription

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