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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.
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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.
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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
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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
13
