Read the Financial Statements Ewing Marion Kauffman by alicejenny

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									EWING MARION KAUFFMAN FOUNDATION AND SUBSIDIARIES

       CONSOLIDATED FINANCIAL STATEMENTS

           For the Year Ended December 31,2011

         (With Independent Auditors' Report Thereon)
                Mayer Hoffmar McCann P.C.
    MHM         An Independent CPA Firm

    §2)         11440 Tomahawk Creek Parkway
                Leawood, Kansas 66211
@   11111       913-234-1900 ph
                913·234·1100 Ix
                www,mh m-pc.com




                                                   Independent Auditors' Report



            The Board of Directors
            Ewing Marion Kauffman Foundation:

            We have audited the accompanying consolidated balance sheet - modified cas h basis of the Ewing Marion
            Kauffman Foundation and Subsidiaries (the Foundation) as of December 3 1, 20 11 , and the related
            consolidated statement of income, grants and expenses, and change in net assets - modified cash basis for
            the year then ended. These consolidated financial statements are the responsibility of the Foundation's
            management. OUf responsibility is to express an opinion on these consolidated financial statements based
            on our audit.

            We conducted our audit in accordance with auditing standards generally accepted in the United States of
            America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
            whether the consolidated financial statements are free of material misstatement. An audit includes
            exam ining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial
            statements. An audit also includes assessing the accounting principles used and significant estimates made
            by management, as well as evaluating the overall financial statement presentation. We believe that our
            audit prov ides a reasonable basis for our opinion.

            As described in Note 2, these consolidated financial statements were prepared on the modified cash basis
            of accounting, which is a comprehensive basis of accounting other than accounting principles generally
            accepted in the United States of America.

            In our opinion, the consolidated financial statements referred to above present fairl y, in all material
            respects, the consolidated financial position of the Ewing Marion Kauffman Foundation and Subsidiaries
            as of December 31, 2011, and its consolidated income, grants and expenses, and change in net assets for
            the year then ended, on the basis of accounting described in Note 2.



            Mi~ ~~~
            Leawood, Kansas
                                                                                me
            June 5, 20 12




                               Member of Kreston International a global network of independent accounting firms
           EWING MARION KAUFFMAN FOUNDATION AND SUBSIDIARIES
                        Consolidated Balance Sheet - Modified Cash Basis
                                        December 3 I, 2011
                                           (In thousands)




Assets:
   Cash and short-term investments                                         $    287,451
   [nvestments:
      Fixed income                                                                 4,139
     Equities:
          Domestic                                                              346,136
          Foreign                                                               322,384
              Total equities                                                    668,520
     Private equity/alternative assets/real assets                              789,004
              Total investments                                                1,461,663
              Total assets                                                 $   1,749,114
Net assets:
  Unrestricted                                                             $   1,749,114
              Total net assets                                             $   1,749,114


See accompanying notes to the consolidated financial statements.




                                                 2
       EWING MARION KAUFFMAN FOUNDATION AND SUBSIDIARIES
             Consolidated Statement of Income, Grants and Expenses,
                and Change in Net Assets - Modified Cash Basis
                         Year ended December 31, 2011
                                 (In thousands)




Income:
   Investment income (loss):
     Interest                                                      $      19,730
     Dividends                                                            17,491
     Loss on currency conversion                                          (5,009)
     Realized gains on investments                                       115,297
     Unrealized loss on investments                                     (170,410)
              Total investment loss                                      (22,901)


   Grants received and other income                                        2,801
              Total loss                                                 (20,100)
Grants and expenses:
  Grants paid to organizations                                            42, 117
  Program operations and support                                          21 ,002
  General and administrative                                              20,805
  Investment manager, custodian, and other expenses                       21 ,113
  Bank interest/fees                                                           14
  Bond interest expense (note 5)                                           2,683
  Excise taxes net of refund (note 2)                                      4,427
              Total grants and expenses                                  112,161
              Deficiency of income over grants and expenses            (132,261)
Net assets, beginning of year                                          1,881 ,375
Net assets, end of year                                            $   1,749,114


See accompanying notes to the consolidated financial statements.




                                           3
                   EWING MARION KAUFFMAN FOUNDATION AND SUBSIDIARIES
                                     Notes to Consolidated Financial Statements
                                                 December 31, 201 I



(1)   Description ofthe Foundation
      The Ewing Marion Kauffman Foundation (the Foundation) is a private foundation established in the
      mid-1960s by Ewing Marion Kauffman. The Foundation focuses its operations and grant making on two
      areas: entrepreneurship and education.

      The Foundation's efforts involve fostering an environment nationwide in which entrepreneurs have the
      information and tools they need to succeed. The Foundation promotes entrepreneurial success at all levels.
      It works with leading educators and researchers nationwide to create awareness of the powerful economic
      impact of entrepreneurship, to develop and disseminate proven programs that enhance entrepreneurial
      skills and abilities, and to improve the environment in which entrepreneurs start and grow businesses.

      In education, the Foundation focuses its programming efforts on raising academic achievement of children,
      placing a special emphasis on investments that lead students on a path to self-sufficiency, preparing them
      to hold good-paying jobs, raise their families, and become productive citizens. Toward that end, the
      Foundation's education team focuses on providing high-quality educational opportunities that prepare
      urban students for success in college and life beyond; and, advancing student achievement in science,
      technology, engineering and math.

      During the year ended December 31, 2011 , the Foundation entered into LLC agreements with the
      following controlled entities: Startup America Partnership LLC, 6301KCMO, LLC, and KLP Properties,
      LLC. These are single member limited liability companies and are considered disregarded entities for
      federal income tax purposes. The financial effect of these entities on the consolidated financial statements
      is detailed in the supplementary infonnation.

(2)   Summary of Significant Accounting Policies
      The accompanying consolidated financial statements of the Foundation have been prepared on the
      modified cash basis of accounting. The key provisions of the Foundation's modified cash basis of
      accounting include:

      Cash and Short-term Investments - Cash and short-term investments primarily include cash held by
      investment managers for investment purposes, which is swept daily into a U.S. Treasury money market
      fund . Management monitors the soundness of these investment managers and feels the Foundation ' s risk
      is negligible.

      Income-Interest and dividend income is recognized when received. Unrealized appreciation or
      depreciation is recognized in the period incurred.

      Grants and '&penses-Grants and expenses are recognized when paid.

      Investments-In accordance with FASB Accounting Standards Codification 820 ("ASC 820"), Fair Value
      Measurements , the Foundation records investments at fair value. Fair value is the amount that would be
      received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants
      at the measurement date, i.e. the exit price. See Note 3, Fair Value Measurements , for further discussion
      relating to FASB ASC 820.



                                                          4
                  EWING MARION KAUFFMAN FOUNDATION AND SUBSIDIARIES
                                   Notes to Consolidated Financial Statements
                                               December 31, 2011



      Investments are recorded on a trade-date basis at fair value. The fair value of fixed income and equity
      securities is based primarily on quoted market prices. The fair value of investments in private
      equity/alternative assets/real assets is estimated by management based on estimates provided by the
      general partner. Private equity investment strategies employed include venture capital, mezzanine, and
      buyout funds. Alternative investment strategies incl ude hedge funds. Real assets include investments in
      commodities, energy partnerships, real estate investment trusts (REITs), and real property.

      Fixed Assets and Related Debt-The Foundation does not include its land, building, other fixed assets, or
      the corresponding bonds payable used to construct the building in the accompanying consolidated financial
      statements. Additionally, no asset or liahility has been recorded related to the value of the swap
      agreements entered into to effectively fix the interest rate on bonds payable as discussed in Note 5.

      Taxes-The Foundation is a private foundation and is subject to an excise tax of 1% - 2% on its net
      investment income. Included in the current year amount is estimated tax payments (in thousands) of
      $4,425. In addition, the Foundation has investments that may produce unrelated business income, which is
      subject to Federal and state income tax at a combined 38% effective rate. Income tax (in thousands) of $3
      was refunded on unrelated business income for the year ended December 31, 20 II .

      Retiree Healthcare Plan--Contributions, expenses, and other obligations associated with the plan are
      recorded on a cash basis.

      Significant Estimates-In preparation of the consolidated financial statements, management was required
      to make significant estimates and judgments that affect the value of investments, specifically private
      equity/ alternative assets/real assets. Because of the inherent uncertainty in valuing these types of
      investments, these estimates may differ significantly from the values that would have been used had a
      ready market for the investments existed, and the differences could be material.

      Net Asset Classification - Contributions and grants received are recorded as unrestricted, temporarily
      restricted, or permanently restricted support depending on the existence or nature of any donor restrictions
      or time restrictions. Contributions with donor restrictions are reported as increases in unrestricted net
      assets if the restrictions are met within the same reporting period that the contribution was received. At
      December 31,2011, all of the net assets of the Foundation were unrestricted in nature.

      Principles of Consolidation - During the year ended December 31, 2011, the Foundation entered into
      agreements with the following controlled entities: Startup America Partnership LLC, 630IKCMO, LLC,
      and KLP Properties, LLC. The accounts of the Foundation and these controlled entities are included in the
      consolidated financial statements. All significant inter-company balances and transactions have been
      eliminated.

(3)   Fair Value Measurements
      In September 2006, the FASB issued SFAS 157, subsequently changed to FASB ASC 820. The
      Foundation adopted FASB ASC 820 as of January 1,2008, which among other matters, requires enhanced
      disclosures about investments that are measured and reported at fair value. FASB ASC 820 establishes a
      hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in
      measuring investments at fair value. Market price observability is affected by a number of factors,
      including the type of investment and the characteristics specific to the investment. Investments with

                                                       5
              EWING MARION KAUFFMAN FOUNDATION AND SUBSIDIARIES
                                Notes to Consolidated Financial Statements
                                            December 31 , 2011



readily available quoted prices or for which fair value can be measured for actively quoted prices generally
will have a higher degree of market price observability and a lesser degree of judgment in measuring fair
value.

Investments measured and reported at fair value are classified and disclosed in one of the following
categories:

  Levell - Quoted prices are available in active markets for identical investments as of the reporting date.
  Investments in Level I include listed equities, options and U.S. government obligations.

  Level II - Pricing inputs are other than quoted prices in active markets, which are either directly or
  indirectly observable as of the reporting date, and fair value is determined through the use of models or
  other valuation methodologies. Investments which are generally included in this category are securities
  such as infrequently traded corporate bonds, certain municipal bonds, commercial loans, less liquid and
  restricted equity securities and certain over-the-counter derivatives.

  Level III - Pricing inputs are unobservable for the investment and include situations where there is little,
  if any, market activity for the investment. The inputs into determination of fair value require significant
  management judgment or estimation. Management utilizes the best available information in measuring
  fair value. As a practical expedient, management generally uses the Net Asset Value provided by the
  general partners as its estimate of fair value. Investments in this category generally include private
  equity investments, long-tenn over-the-counter options, certain over-the-counter derivatives and certain
  bonds for which there is not an actively trading market.

There have been no changes in the valuation techniques utilized by the Foundation.

The following table summarizes the valuation of the Foundation's investments by the above FASB ASC
820 fair value hierarchy levels as of years ended December 31 , 2011 (in thousands):

                                  Assets at Fair Value as of December 31, 20ll
                      Level I               Level II          Level III              Total

  Fixed Inc:      $             641     $        3,498      $                   $        4,139
  Equities:
   Domestic             333,959                  6,087              6,090             346,136
   Foreign              322,384                                                       322,384
  PE/ALTS:                3,576                                   785,428             789,004
  Total          $      660,560         $        9,585      $     791,518       $    1,461,663




                                                    6
                  EWING MARION KAUFFMAN FOUNDATION AND SUBSIDIARIES
                                   Notes to Consolidated Financial Statements
                                               December 3 1,20 11



        The changes in investments measured at fair value for which the Foundati on has used Levellll inputs to
        detenm ine fair value are as follo ws (in thousands):

          Balance at December 3 I, 20 10          $           870,39 1
            Purchases                                         262,865
            Sales                                           (285,439)
            Unreali zed gai ns (losses)                      (3 1,786)
            Realized gains (losses)                          (24,5 13)
          Balance at December 3 1, 20 11          $           79 1,5 18


      Total reali zed and unrealized gains and losses recorded for Level III in vestments have been included in the
      accompanying consolidated statement of income, grants, and expenses, and change in net assets.

(4)   Distributions
      T he Tax Reform Act of 1969 requires that certain minimum distributions be made in accordance with a
      specified formula. At December 31, 2011, the Foundation was in compliance with this requirement.

(5)   Bonds Payable
      During 1997, the Industri al Development Authority of the City of Kansas City , Missouri issued
      $50 million of tax-exempt bonds with a final maturi ty of April 1,2027. The proceeds of the bond issuance
      were used to make a loan to the Foundation to provide funds to purchase land and construct a building to
      house the headquarters of the Foundation. T he issuance co nsisted of $20 milli on principal amount of
      Variable Rate Demand Revenue Bonds with interest payab le monthly and $30 million principal amount of
      Fixed Rate Revenue Bonds with interest payable semiannuall y. The variable interest rate on the Variab le
      Rate Demand Revenue Bonds was adj usted daily based upon the bond market, and the in terest rate on the
      Fixed Rate Revenue Bonds was 5.7%.

      In December 200 1, the Foundation refinanced the $30 million Fixed Rate Revenue Bonds. The Industrial
      Development Authority of the City of Kansas City, Missouri issued $32.8 milli on principal amount of
      Variable Rate Demand Revenue Bonds with interest payable monthly and a final maturity of Apri l I, 2027.
      Simultaneous with the iss uance of the 2001 Variab le Rate Demand Revenue Bonds, the Foundation
      entered into a swap agreement with JP Morgan Chase Bank (JPM Chase) whereby JPM Chase agreed to
      pay the Foundation an amount approximate ly equal to the variable rate due on the bonds in return for the
      Foundation's agreement to pay JPM Chase a fixed rate of 4.18% on the outstanding balance of the bonds.
      As a result of this agreement, the Foundation has effectively locked in a fi xed rate of 4.18% on the 200 1
      bond issue.

      In February 2003, the Foundation refinanced the $20 million Variable Rate Demand Revenue Bonds by
      entering into a swap agreement with JPM Chase whereby JPM Chase agreed to pay the Foundation an
      amount approximate ly equal to the variable rate due on the bonds in return for the Foundation's agreement
      to pay JPM Chase a fixed rate of 3.58% on the outstanding balance of the bonds. As a resu lt of this
      agreement, the Foundati on has effectively locked in a fixed rate of 3.58% on the 1997 $20 million Variable
      Rate Demand Revenue Bonds.


                                                        7
                  EWING MARION KAUFFMAN FOUNDATION AND SUBSIDIARIES
                                   Notes to Consolidated Financial Statements
                                               December 31, 2011



In June 2007, the Missouri Development Finance Board issued $13 million in Variable Rate Demand Revenue
Bonds with interest payable monthly and a final maturity date of June 1,2037. The proceeds of the bond issuance
were used to make a loan to the Foundation to provide funds to finance and reimburse the costs of certa in
improvements to the Foundation's headquarters bui lding. Simultaneous with the issuance of the 2007 Variable
Rate Demand Revenue Bonds, the Foundation entered into a swap agreement with JPM Chase whereby JPM
Chase agreed to pay the Foundation an amount approximately equal to the variable rate due on the bonds in
return for the Foundation's agreement to pay JPM Chase a fixed rate of3.831% on the outstanding balance of the
bonds. As a result of this agreement, the Foundation has effectively locked in a fixed rate of3.83 1% on the 2007
bond issue.

In accordance with the Foundation's basis of accounting, the fair val ue of these swap agreements have not been
recorded in the consolidated financial statements.

      The following is a schedule of debt service requirements (in thousands):

      Calendar Year:                                       Principal due         Interest due         Total due

         2012                                         $                     $         2,585       $     2,585
         2013                                                                         2,585             2,585
         2014                                                                         2,585             2,585
         2015                                                                         2,585             2,585
         20 16                                                                        2,585             2,585
         20 17 - 2037                                           65,810               3 1,560           97,370
                                                      $         65,810      $        44,485      $    110,295


(6)   Commitments
      Grants-As of December 31, 2011, commitments for grants aggregating approximately $55 million had
      been authorized for payment in calendar years subsequent to the year ended December 31, 20 11. Payment
      of future grants is expressly contingent upon the performance of the recipient organizations, and the
      Foundation may subsequently determine not to continue the payments. The commitments outstand ing at
      December 31,2011 are scheduled for payment as fo llows (in thousands):
                         Calendar year:
                           2012                                        $          24,532
                           2013                                                   22,378
                           20 14                                                   1,916
                           20 15                                                   2,800
                           20 16-20 18                                             3,400
                                                                       $          55,026




                                                       8
                  EWING MARION KAUFFMAN FOUNDATION AND SUBSIDIARIES
                                  Notes to Consolidated Financial Statements
                                              December 31, 20 II



(7)   Retirement Plans
      The Foundation has a defined contribution retirement plan and a tax-deferred savings (403(b)) plan that
      provide benefits to associates who meet the plan:s eligibility requirements. In April 2002, the Foundation
      adopted two deferred compensation plans (457(b) and 457(1)) that provide additional benefits to associates
      who meet the plans' eligibility requirements. Contributions to the plans (in thousands) were $1,428 during
      the year ended December 31, 2011.

      The Foundation has a retiree healthcare plan. Associates who are age 55 and have at least 5 years of
      Foundation service are eligible to participate in the Foundation's retiree healthcare plan. At present, the
      Foundation subsidizes an average of 58% of the total cost of retiree healthcare coverage. Contributions to
      the plan (in thousands) were $195 for the year ended December 31, 2011.

(8)   Lease Commitment
      The Foundation entered into a ground lease with the Missouri Department of Conservation, commencing
      on November I, 1999 and expiring on October 31,2049. The leased property consists of approximately
      10 acres located in Kansas City, Missouri between 47th Street and Troost Avenue. The annual base rent
      payable by the Missouri Department of Conservation is one dollar.

(9) Bond Guaranty

      The Foundation has committed to unconditionally guaranty the payment of principal and interest on Series
      2007 A and 2007B variable and fixed rate revenue bonds issued on June 27, 2007 by the Missouri
      Development Finance Board for the Kauffman Center for the Perforrring Arts Project. Muriel McBrien
      Kauffman Foundation (MMKF) redeemed $20 million of the Series 2007A variable rate bonds in July
      2010 and entered into a swap to hedge against the variable rate on the Series A bonds. As a result of
      interest rates on those bonds being at record low rates, MMKF elected to terminate the swap arrangement
      in February 20 II. At December 31, 20 II, the outstanding principal on the bonds is approximately $140
      million bearing interest rates of 0.20%-2.28%. A reimbursement and indemnity agreement exists between
      the Foundation and MMKF, which obligates MMKF to reimburse and indemnify the Foundation for any
      payment made under the guaranty, including payments for principal and interest.

(10) Subsequent events

      The Foundation has evaluated subsequent events through June 5, 2012, which is the date the consolidated
      financial statements were available to be issued. No events were considered significant enough to warrant
      disclosure in the consolidated financial statements or accompanying notes.




                                                      9
SUPPLEMENTARY INFORMATION




           10
                   Mayer Hoffman McCann P.C.
    MHM           An Independent CPA Fi rm

    ~              11440 Toma haw k Creek Parkway
                   Leawood, Ka nsas 66211
m   11111          913-234-1900 ph
                   913-234-1100 fx
                   www .mhm-pc.com




                     INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION



            To the Board of Directors

            EWING MARION KAUFFMAN FOUNDATION

            We have audited the consolidated balance sheet - modified cash basis of the Ewing Marion Kauffman
            Foundation and Subsidiaries as of December 31, 2011, and the related consolidated statements of income,
            grants and expenses, and changes in net assets - modified cash basis for the year then ended. OUf report
            thereon dated June 5, 2012, which expressed an unqualified opinion on those consolidated financial
            statements, appears on page 2. OUf audits were conducted for the purpose of forming an opinion on the
            consolidated financial statements as a whole. The accompanying SUPPLEMENTARY INFORMATION
            is presented for purposes of additional analys is and is not a required part of the consolidated financial
            statements. Such information is the responsibility of management and was derived from and relates directly
            to the underlying accounting and other records used to prepare the consolidated financial statements. The
            information has been subjected to the aUditing procedures applied in the audits of the consolidated financial
            statements and certain additional procedures, including comparing and reconciling such infonnation directly
            to the underlying accounting and other records used to prepare the consolidated fmancial statements or to
            the consolidated financial statements themselves, and other additional procedures in accordance with the
            auditing standards generally accepted in the United States of America. In our opinion, the accompanying
            SUPPLEMENTARY INFORMATION is fairly stated in all material respects in relation to the consolidated
            financial statements taken as a whole.


             ifV\ {{,l~ ~(/0,
            Leawood, Kansas
            June 5, 2012




                                  Member of Kreston International a global network of independent accounting firms

                                                                   11
              EWING MARION KAUFFMAN FOUNDATION AND SUBSIDIARIES
                      Consolidating Balance Sheet - Modified Cash Basis
                                     December 31, 2011
                                       (In Thousands)


                                                               Startup
                                        Ewing Marion          America                      KLP
                                         Kauffman            Partnership   6301 KCMO,   Properties,
                                         Foundation             LLC            LLC         LLC        Consolidated
ASSETS:

  Cash and   short~tenn   investments   $    286,323         $      887         $ 185         $ 56    $   287,451
  Investments:
   Fixed income                                4,139                                                        4,139
   Equities:
     Domestic                                 346,136                                                     346,136
     Foreign                                  322,384                                                     322,384
       Total equities                         668,520                                                     668,520
   Private equity/alternative assets          789,004                                                     789,004
    Total investments                       1,461,663                                                   1,461,663
        Total assets                    $   1,747,986        $      887    $     185    $       56    $ 1,749,114

NET ASSETS:
 Unrestricted                           $   1,747,986        $      887    $     185    $       56    $ 1,749,1 14
       Total net assets                 $   1,747,986        $      887    $     185    $       56    $ 1,749,114




                                                        12
                                         EWING MARION KAUFFMAN FOUNDATION AND SUBSIDIARIES
                                                     Consolidating Statement of Revenue, Grants and Expenses
                                                         and Change in Net Assets -Modified Cash Basis
                                                              For the year ended December 3 t, 2011
                                                                              (In Thousands)

                                                              Ewing Marion                               6301        KLP
                                                                Kauffman         Startup America        KCMO,     Properties.
                                                               Foundation        Partnership LLC         LLC         LLC             Eliminations     Consolidated
Income:
    Inveshncnt income (loss):
     Interest                                             S            19,730    $                  S                            $                    S      19.730
     Dividends                                                        17,491                                                                                 17,491
     Loss on currency conversion                                       (5,009)                                                                               (5,009)
     Realized gain on investments                                    Il5,297                                                                                115,297
     Unrealized loss on investments                                 {l70,410)                                                                              (170,410)
      Total investment loss                                        . (22,901)                                                                               (22,901)

   Grants received and other income                                      939                2,350         3,225            198             (3,911)            2801
        Total income (loss)                                          (21,962)               2,350         3,225            198             (3,911)          (20,100)

Grants and expenses:
   Grants paid to organizations                                       42,6 17                                                                (500)          42,117
   Program operations and support                                     19,724                1,463         3,040                            (3,225)          21,002
   General and administrative                                         20,850                                               141               (186)          20,805
   Investment manager, custodian, and other expenses                  21,113                                                                                21,113
   Bank interest/fees                                                     14                                                                                     14
   Bond interest expense                                              2,683                                                                                  2,683
   Excise tax expense net of refund                                   4,427                                                                                  4,427
         Total gran ts and expenses                                 111,428                 1,463         3,040            141             (3,9 11)        112,161

Exce~sI(deficicncy)  of income over grants and expenses             (\33,390)                887           185             57                              (132,261)
Net assets, beginning of year                                      1,881375                                                                               1,881,375
Ne! assets, end of year                                   $        1,747,985                 887    S      185             57    S                        1,749,114




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