Financial Statements
Table of Contents
Page
Independent Auditor’s Report 1 - 2
Financial Statements:
Statements of Financial Position 3
Statements of Unrestricted Activities 4
Statements of Changes in Net Assets 5
Statements of Cash Flows 6
Bellevue WA 98004 tel 425 454 4919 fax 425 454 4620 800 504 8747 clarknuber.com Certified Public Accountants and Consultants
Independent Auditor’s Report
Board of Directors
Pacific Science Center Foundation
Seattle, Washington
REPORT ON THE FINANCIAL STATEMENTS
We have audited the accompanying financial statements of Pacific Science Center Foundation (the Center), which comprise the statements of financial position as of June 30, 2014 and 2013, and the related statements of unrestricted activities, changes in net assets, and cash flows for the years then ended, and the related notes to the 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial 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 from 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.
Certified Public Accountants and Consultants
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Center as of June 30, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS
In accordance with Government Auditing Standards, we have also issued our report dated November 14, 2014, on our consideration of the Center’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 in considering the Center’s internal control over financial reporting and compliance
Statements of Financial Position
For the Years Ended June 30, 2014 and 2013
See accompanying notes.
2014 2013
Assets
Current Assets:
Cash and cash equivalents $ 85,827 $ 130,979
Investments 10,000 10,000
Accounts receivable, net 724,819 753,552
Pledges receivable, net 1,182,934 1,853,750
Prepaid expenses and inventory 631,072 420,551
Total Current Assets 2,634,652 3,168,832
Long-term pledges receivable, net 1,201,263 1,753,763
Loan fees, exhibit deposits, and other assets 426,042 437,968
Land, building and equipment, net 37,464,374 38,654,641
Restricted investments 44,449 1,280,488
Long-term receivables, net 1,145,329 1,106,335
Beneficial interest in trust 8,238,720 7,514,263
Total Assets $ 53,916,29051,154,829 $
Liabilities and Net Assets
Current Liabilities:
Accounts payable $ 1,194,992 $ 2,820,919
Accrued expenses 1,036,511 1,018,440
Lines of credit, current portion 4,869,063 4,527,563
Deferred revenue 1,716,353 1,582,008
Current portion of long-term debt and other obligations 62,733 76,222
Current portion of trademark license obligations 62,430 59,058
Total Current Liabilities 8,942,082 10,084,210
Long-term debt and other obligations, net of current portion 2,902,695 2,965,713
Lines of credit, long-term portion 800,000
Trademark license obligations, net of current portion 378,876 441,306
Total Liabilities 13,023,653 13,491,229
Net Assets:
Unrestricted 25,730,799 28,479,206
Temporarily restricted 10,233,506 9,787,075
Permanently restricted 2,166,871 2,158,780
Total Net Assets 38,131,176 40,425,061
Statements of Unrestricted Activities
For the Years Ended June 30, 2014 and 2013
See accompanying notes.
2014 2013
Revenue:
Admissions and guest services $ 7,204,349 $ 21,160,915
Government support and contracts 2,205,885 1,832,890
General and membership support 3,243,740 4,458,174
Program fee revenue 2,483,605 2,356,428
Ancillary activities 1,665,013 2,315,339
Contributions released from restriction for operating activities 751,552 745,665 Contributions released from restriction for capital campaign 2,956,598 4,339,400
Investment income 12,172 109,681
Total Revenue 20,522,914 37,318,492
Program and Operating Expenses:
Science, education and exhibits 6,311,863 18,774,640
Guest services and public programs 8,973,935 9,600,720
Fundraising and development 3,188,115 3,911,046
Administrative 2,202,211 2,359,982
Total Program and Operating Expenses 20,676,124 34,646,388
Change in Unrestricted Net Assets
Before Depreciation and Financing Costs (153,210) 2,672,104 Depreciation and Financing Costs:
Depreciation and amortization 2,108,538 1,953,006
Financing costs 486,659 432,466
Total Depreciation and Financing Costs 2,595,197 2,385,472
Statements of Changes in Net Assets
For the Years Ended June 30, 2014 and 2013
See accompanying notes.
2014 2013
Unrestricted Net Assets:
Total unrestricted revenue $ 16,814,764 $ 32,233,427
Contributions released from restriction for operating activities 751,552 745,665
Contributions released from restriction for capital campaign 2,956,598 4,339,400
Total unrestricted expenses (23,271,321) (37,031,860)
Change in Unrestricted Net Assets (2,748,407) 286,632 Temporarily Restricted Net Assets:
Contributions for operating activities 764,524 509,743
Contributions for capital campaign 2,651,639 3,943,809
Contributions released from restriction for operating activities (751,552) (745,665)
Contributions released from restriction for capital campaign (2,956,598) (4,339,400)
Change in value of beneficial interest in trust 724,457 311,173
Investment gain, net of appropriation on endowment 13,961 146,247
Change in Temporarily Restricted Net Assets 446,431 (174,093) Permanently Restricted Net Assets:
Contributions 8,091 21,737
Change in Permanently Restricted Net Assets 8,091 21,737
Total Change in Net Assets (2,293,885) 134,276
Net assets, beginning of year 40,425,061 40,290,785
Statements of Cash Flows
For the Years Ended June 30, 2014 and 2013
See accompanying notes.
2014 2013
Cash Flows From Operating Activities:
Change in net assets $ (2,293,885) $ 134,276
Adjustments to reconcile change in net assets to net cash used by operating
activities-Depreciation and amortization 2,108,538 1,953,006
Contributions restricted for capital projects and endowment (1,765,992) (3,965,546)
Contribution of beneficial interest in trust
Change in value of beneficial interest in trust (724,457) (311,172)
Unrealized and realized gains on investments (22,030) (200,529)
Changes in operating assets and liabilities:
Accounts receivable 28,733 1,237,651
Pledges receivable 2,989,308 36,198
Prepaid expenses and other assets (272,565) (157,025)
Accounts payable and accrued expenses (1,058,037) 14,378
Deferred revenue 134,345 (1,093,274)
Net Cash Used by Operating Activities (876,042) (2,352,037) Cash Flows From Investing Activities:
Purchase of building improvements and equipment (1,433,114) (4,051,632)
Purchase of investments (2,046,968) (47,320)
Proceeds from sales of investments 3,305,037 1,055,578
Net Cash Used by Investing Activities (175,045) (3,043,374) Cash Flows From Financing Activities:
Proceeds from contributions restricted to endowment
and capital projects 4,764,187
Net borrowings on lines of credit 1,141,500 921,156
Repayments on long-term debt
and capital lease obligations (135,565) (329,041)
Net Cash Provided by Financing Activities 1,005,935 5,356,302 Net Change in Cash and Cash Equivalents (45,152) (39,109)
Cash and cash equivalents, beginning of year 130,979 170,088
Cash and Cash Equivalents, End of Year $ 85,827 $ 130,979 Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 486,659 $ 432,466
Supplemental Disclosure of Noncash Investing Activities: Purchases of building improvements and
Notes to Financial Statements
For the Years Ended June 30, 2014 and 2013
Note 1 - Description of the Center and Summary of Significant Accounting Policies
Description of the Center - The Pacific Science Center Foundation (the Center) is an independent, not-for-profit educational organization. The Center’s mission is to inspire a lifelong interest in science, mathematics, and technology by engaging diverse communities through interactive and innovative exhibits and programs.
The Center operates a Science Center and an environmental education center, and provides educational programs and outreach van programs. The Center’s programs are targeted towards education of students, families and adults in the Pacific Northwest and Washington State. The Center also develops and leases interactive science exhibits to museums, science centers, and other venues nationwide.
Basis of Presentation - The financial statements of the Center have been prepared on the accrual basis of accounting. The Center 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.
Unrestricted Net Assets - Net assets that are not subject to donor-imposed stipulations.
Temporarily Restricted Net Assets - Net assets subject to donor-imposed stipulations that may or will be met either by actions of the Center and/or the passage of time.
Permanently Restricted Net Assets - Net assets subject to donor-imposed stipulations that require the Center to maintain the assets in perpetuity.
Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. Expirations of temporary restrictions on the net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications between the applicable classes of net assets. Contributions that the donor requires to be used to acquire long-lived assets (e.g., building improvements, furniture, fixtures and equipment) are reported as temporarily restricted. When the long-lived assets are acquired, the Center reflects the release of the donor-imposed restriction as a reclassification included in contributions released from restrictions.
Contributions, including unconditional promises to give, are recognized as revenues in the period received. Conditional promises to give are not recognized until they become unconditional, that is when the conditions on which they depend are substantially met. Contributions to be received after one year are discounted at an appropriate discount rate commensurate with the risks involved. Amortization of discounts is recorded as additional contribution revenue in accordance with donor-imposed restrictions, if any, on the contributions.
Cash and Cash Equivalents - The Center considers all short-term investments with an original maturity of three months or less to be cash equivalents, except for cash balances held for investment purposes. At times the Center holds cash in a bank in excess of the available federal deposit insurance.
Notes to Financial Statements
For the Years Ended June 30, 2014 and 2013
Note 1 - Continued
Receivables - Accounts and pledges receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts or pledges receivable. Changes in the valuation allowance have not been material to the financial statements.
Inventory - Inventory consisted primarily of retail goods and is valued at the lower of cost (first-in, first-out) or market value.
Land, Building, and Equipment - Purchased assets are recorded at cost and donated assets are recorded at fair market value when received. Depreciation is computed on a straight-line basis over the estimated useful life of the asset, which is 10 to 40 years for buildings and improvements, 7 years for vehicles and 3 to 10 years for furniture and equipment except the IMAX projection systems, which is 20 years. The Center capitalizes assets of $5,000 or more with useful lives over one year.
Deferred Revenue - Deferred revenue consists of payments received in advance for admissions, educational programs, events, and exhibit rentals.
Loan Fees - The costs incurred to obtain financing have been capitalized and are amortized using the straight-line basis over the life of the related loan.
Noncash Donations - A substantial number of volunteers donate significant amounts of time to support the Center’s objectives. However, the value of these services is not recognized in these financial statements as the services do not meet the recognition criteria under accounting principles generally accepted in the United States of America (U.S. GAAP). The Center also received donated goods and services, which are included in the statement of unrestricted activities at the estimated fair market value of $83,630 and $94,276, for the years ended June 30, 2014 and 2013, respectively.
Functional Allocation of Expenses - The costs of providing the various programs and other activities have been summarized on a functional basis in the statements of unrestricted activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited.
Notes to Financial Statements
For the Years Ended June 30, 2014 and 2013
Note 1 - Continued
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) 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.
Income Tax Status - The Center has been notified by the Internal Revenue Service that it is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code with the exception of income from any activities that are not related to the Center’s tax-exempt purpose. The Center is further classified as an organization that is not a private foundation under Section 509(a)(1) of the Code. No provision for income taxes has been recorded. The Center files income tax returns with the U.S. government. The Center is subject to income tax examinations for the current year and certain prior years based on the applicable laws and regulations.
Subsequent Events - The Center has evaluated subsequent events through November 14, 2014, the date on which the financial statements were available to be issued.
Note 2 - Pledges Receivable
Pledges receivable at June 30 are expected to be received as follows:
2014 2013
Due in less than one year $ 1,228,933 $ 1,899,750
Due in one to five years 1,174,518 1,706,288
Thereafter 80,436 168,876
2,483,887
3,774,914
Less present value discount (2014 and 2013 - 4.5%) (89,688) (157,401)
Less allowance for uncollectible balances (10,002) (10,000)
Less current portion of pledges receivable (1,182,934) (1,853,750)
1,201,263
$ $ 1,753,763
Notes to Financial Statements
For the Years Ended June 30, 2014 and 2013
Note 3 - Investments and Restricted Investments
Investments and restricted investments consisted of the following at June 30:
2014 2013
Cash equivalents $ 12,024 $ 21,725
Mutual funds - fixed income 28,115 414,321
Mutual funds - equities 14,310 472,104
Equities 382,338
54,449
$ $ 1,290,488 Restricted investments reported on the statements of financial position are for the endowment funds.
Investment income consisted of the following for the years ended June 30:
2014 2013
Interest and dividends $ 4,103 $ 55,399
Realized and unrealized gains 22,030 200,529
26,133
$ $ 255,928
Note 4 - Beneficial Interest in Trust
Notes to Financial Statements
For the Years Ended June 30, 2014 and 2013
Note 5 - Fair Value Measurements
U.S. GAAP defines fair value and establishes a framework for measuring fair value. To increase consistency and comparability in fair value measurements, U.S. GAAP uses a fair value hierarchy that prioritizes the inputs to valuation approaches into three broad levels. The hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3).
Assets and liabilities valued using Level 1 inputs are based on unadjusted quoted market prices within active markets. Assets and liabilities valued using Level 2 inputs are based primarily on quoted prices for similar assets or liabilities in active or inactive markets. Assets and liabilities using Level 3 inputs were primarily valued using management’s assumptions about the assumptions market participants would utilize in pricing the asset or liability. Valuation techniques utilized to determine fair value are consistently applied.
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value. There have been no changes in the methodologies used as of June 30, 2014 and 2013.
Cash Equivalents - Includes money market funds valued at cost plus accrued interest, which approximates fair value.
Mutual Funds - Valued at quoted market prices in active markets, which represent the net asset value (NAV) of shares held by the Center at year-end.
Equities - Valued at the closing price reported in the active market that the securities are traded.
Notes to Financial Statements
For the Years Ended June 30, 2014 and 2013
Note 5 - Continued
Fair values of assets measured on a recurring basis at June 30, 2014 and 2013, were as follows:
Level 1 Level 2 Level 3
Cash equivalents $ 12,024 $ - $
-Mutual funds - fixed income 28,115
Mutual funds - equities 14,310
Beneficial interest in trust 8,238,720
Total $ 54,449 $ - $ 8,238,720 Fair Value Measurements as of June 30, 2014
Level 1 Level 2 Level 3
Cash equivalents $ 21,725 $ - $
-Mutual funds - fixed income 414,321
Mutual funds - equities 472,104
Equities 382,338
Beneficial interest in trust 7,514,263
Total $ 1,290,488 $ - $ 7,514,263
Fair Value Measurements as of June 30, 2013
A reconciliation of the beginning and ending balances, by each major category of assets and liabilities, for fair value measurements made using significant unobservable inputs (Level 3) is presented below:
Beneficial Interest in Trust
Balance at June 30, 2012 $ 7,203,090
Net gain in value 311,173
Balance at June 30, 2013 7,514,263
Net gain in value 724,457
Notes to Financial Statements
For the Years Ended June 30, 2014 and 2013
Note 6 - Land, Building, and Equipment
Land, building, and equipment at June 30 was as follows:
2014 2013
Building and improvements $ 46,236,634 $ 45,544,526
Land 4,230,000 4,230,000
Furniture, equipment and vehicles 11,127,477 11,008,615
Construction in progress 110,053 37,727 61,704,164 60,820,868 Accumulated depreciation (24,239,790) (22,166,227) 37,464,374 $ 38,654,641$
The Center’s Seattle campus is designated as a City of Seattle landmark. As a result of this designation, changes to the exterior of the Center’s facility, and certain parts of the facility’s interior, must be approved by the City of Seattle’s Landmarks Preservation Board.
Note 7 - Lines of Credit
The Center has a line of credit agreement with a bank with a maximum limit of $2,500,000 at June 30, 2014 and 2013 (referred to as “General Line”). Additionally, the Center has another line of credit under the same agreement, with a maximum limit of $5,500,000 or 85% of the capital campaign pledges receivable balance, whichever is less (referred to as “Pledge Line”), at June 30, 2014 and 2013.
Notes to Financial Statements
For the Years Ended June 30, 2014 and 2013
Note 7 - Continued
The Center has a line of credit agreement with a bank with a maximum limit of $2,000,000 (referred to as “Bridge Line”). Outstanding borrowings on the line carry interest at the bank’s prime rate (with a floor of 4%) plus .5%, which was 4.5% at June 30, 2014. The agreement expires July 15, 2014. Total borrowings on the Bridge Line were $1,000,000 at June 30, 2014. Subsequent to year end, $800,000 of the outstanding line balance was repaid using refinanced debt as discussed in Note 8.
The Center has a nightly sweep of its cash balance, which is held by the same bank that issued the lines of credit, against its General Line balance in an effort to reduce interest charges. As a result, there were checks issued in excess of cash of $132,149 and $227,970 reported on the statements of financial position as a component of accounts payable as of June 30, 2014 and 2013, respectively.
Note 8 - Long-Term Debt and Other Obligations
Long-term debt and other obligations at June 30 were as follows:
2014 2013
Term loan bearing interest at 5.95%; monthly payments of principal and interest of $19,679 with balloon payment due August 1, 2014; secured by deed of trust on the Center's parking garage and underlying land plus assignment of rents and other fees collected from the operation of the parking garage.
Refinanced subsequent to year end as described below. $ 2,965,428 $ 3,023,255 Scheduled payments on IMAX theatre system equipment; 24
monthly payments of $18,750 through July 1, 2013, with imputed
interest of 4.5%; secured by IMAX theatre system equipment. 18,680
Long-term debt and other obligations 2,965,428 3,041,935
Less current portion (62,733) (76,222)
Notes to Financial Statements
For the Years Ended June 30, 2014 and 2013
Note 8 - Continued
The following is a schedule of debt maturities for the next five years that reflects the debt refinance described in the prior paragraph:
For the Year Ending June 30,
2015 $ 62,733 2016 62,924 2017 66,758 2018 70,222 2019 73,866 Due Thereafter 3,823,497 4,160,000 $
Interest expense incurred on long-term debt and other obligations, the trademark license obligations discussed in Note 9, and the lines of credit described in Note 7 totaled $486,659 and $432,466 for the years ended June 30, 2014 and 2013, respectively.
Note 9 - Trademark License Obligations
Notes to Financial Statements
For the Years Ended June 30, 2014 and 2013
Note 9 - Continued
Equipment for the PACCAR IMAX Theater was purchased from IMAX Corporation. The Center entered into an agreement with IMAX Corporation to purchase an upgraded IMAX digital theater system for the PACCAR IMAX Theater. Under the terms of the agreement the Center purchased a new upgraded digital IMAX Theater system for a total of $750,000, of which $0 and $18,680 was payable at June 30, 2014 and 2013, respectively (see Note 8). The purchase agreement also grants the Center a license to use the IMAX trademark for a term of ten years expiring in 2021, plus two potential five year renewals. Under the terms of the lease agreement, the Center must have the trademark license in order to operate the IMAX theater system equipment. The agreement requires the Center to pay annual royalty fees for the license equal to the greater of a percentage of net theater admissions or a minimum base amount of $50,000. A liability was recorded during fiscal year 2012 upon the final installation of the theater system equipment by IMAX which equaled the minimum base trademark license payments to be paid during the term of the agreement. As of June 30, 2014 and 2013, respectively, the trademark license obligation was $314,800 and $349,776. The lease agreement also requires the Center to make annual maintenance payments of $40,000 through the end of the lease term.
Note 10 - Employee Benefit Plans
The Center’s employees are eligible to participate in a tax-deferred salary plan under Internal Revenue Code section 403(b). Employees may elect to defer a portion of their salary under this plan and are immediately vested in such deferrals. The Center provides a discretionary employer match. During the years ended June 30, 2014 and 2013, the Center elected to not match employee contributions.
The Center has agreements with certain current and former employees to purchase life insurance for the employees. Under the arrangements, the Center paid the premiums of the life insurance and, upon the employees’ deaths, will receive repayment of all premiums paid. These expected repayments are recorded as a noninterest bearing receivables totaling $1,145,329 and $1,106,335, net of a discount of $1,393,828 and $1,432,822, and are included in long-term receivables on the statement of financial position at June 30, 2014 and 2013, respectively. The receivables are secured by the respective insurance policies, are due upon the individuals’ deaths and are discounted at 5% over the expected lives of the individuals.
Notes to Financial Statements
For the Years Ended June 30, 2014 and 2013
Note 11 - Commitments and Contingencies
Contingencies - The Center’s performance under grants and contracts with federal agencies and other grantors is subject to audit by those entities. If it is determined that the Center’s performance under any of these grants and contracts was not in accordance with such agreements, the granting entities may require refunds of a portion or all of such amounts. As of June 30, 2014 and 2013, the Center’s management knew of no such determinations and believes it has complied with all grants and contracts.
Future Exhibit Commitments - The Center has entered into an agreement with Premier Exhibition Management, LLC to host Pompeii: The Exhibit. The exhibit will open in fiscal year 2015. Under this agreement, the Center is obligated to pay fees for use of the exhibit and will pay exhibit related expenses such as shipping and insurance. Contract Commitments - As of June 30, 2014, the Center is committed under contracts for IMAX equipment upgrades, database upgrades, and customer relationship management projects totaling approximately $1,178,910. Total expenditures through June 30, 2014, on these contracts were approximately $80,000.
Note 12 - Unrestricted Net Assets
As of June 30, unrestricted net assets consisted of the following:
2014 2013
Investment in property, plant and equipment, net of related debt $ 33,955,344 $ 34,985,374
Undesignated (8,224,545) (6,506,168)
25,730,799
$ 28,479,206$
Note 13 - Temporarily Restricted Net Assets
Temporarily restricted net assets were available for the following purposes at June 30:
2014 2013
Capital campaign $ 1,163,863 $ 1,468,820
Program restricted grants 455,860 442,890
Beneficial interest in trust 8,238,720 7,514,263
Facility improvements 113,483 113,483
Unappropriated endowment earnings 261,580 247,619
10,233,506
Notes to Financial Statements
For the Years Ended June 30, 2014 and 2013
Note 13 - Continued
As the Center approached its 50th Anniversary on October 22, 2012, the Board of Directors launched a $50 million capital campaign to refresh the institution by renovating the PACCAR IMAX Theater, enhance guest comfort, safety and accessibility, and increase energy efficiency. Funds raised from the campaign will improve the guest experience, and inspire the next generation to pursue STEM careers and provide scientists with an opportunity to present new science research to the Community. The Campaign funded the new 7,000 square foot permanent exhibit, Professor Wellbody’s Health and Wellness Academy, designed to educate, encourage and empower visitors to take control of their own health and wellness. The Campaign will also replenish working capital, build the Endowment, and retire historic debt.
Note 14 - Permanently Restricted Net Assets
Permanently restricted net assets were held for the following purposes at June 30:
2014 2013
Income to support science education and leadership training $ 1,590,544 $ 1,582,453 Income to support repair and maintenance of fixed assets 576,327 576,327
2,166,871
$ $ 2,158,780
The Center’s endowment consists of donor-restricted endowment funds. As required by U.S. GAAP, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions.
Interpretation of Relevant Law - The Board of Directors of the Center has interpreted the Washington Prudent Management of Institutional Funds Act (PMIFA) as making it advisable for the Center to track 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 Center 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.
Notes to Financial Statements
For the Years Ended June 30, 2014 and 2013
Note 14 - Continued
Endowment Fund Activity - Changes to endowment funds by net asset category for the years ended June 30, 2014 and 2013, were as follows:
Temporarily Permanently
Unrestricted Restricted Restricted Total
Endowment funds, June 30, 2012 $ - $ 101,372 $ 1,986,845 $ 2,088,217 Contributions and collections
on outstanding endowment
pledges receivable 46,024 46,024
Endowment investment return-
Interest and dividends, net of fees 31,996 31,996
Realized and unrealized losses 197,302 197,302
Appropriations (83,051) (83,051)
Loan to operations (1,000,000) (1,000,000)
Endowment Funds, June 30, 2013 (1,000,000) 247,619 2,032,869 1,280,488
Endowment investment return-
Interest and dividends, net of fees 9 9
Realized and unrealized losses 13,952 13,952
Loan to operations (1,250,000) (1,250,000)
Endowment Funds, June 30, 2014 $ (2,250,000) $ 261,580 $ 2,032,869 $ 44,449 A reconciliation of endowment funds to permanently restricted net assets is as follows at June 30, 2014:
2014 2013
Endowment funds $ 2,032,869 $ 2,032,869
Outstanding endowment pledges receivable 134,002 125,911
Notes to Financial Statements
For the Years Ended June 30, 2014 and 2013
Note 14 - Continued
Funds with Deficiencies - The Center’s Board approved a resolution to access short term operating cash, and borrow up to $2.5 million from the endowment fund to fund operating costs. Interest will be paid back to the endowment fund at prime plus 1%. As of the year ended June 30, 2013, $1 million had been borrowed from the endowment. During fiscal year 2014, the Board approved an additional draw of $1.25 million from the endowment fund. Subsequent repayments will be classified as an increase in unrestricted endowment funds until such time as the loan is fully repaid.
Return Objectives and Risk Parameters - The Center has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the Center must hold in perpetuity or for a donor-specified period as well as board-designated funds. Under this policy, as approved by the Board of Directors, the endowment assets are invested in a manner that results in a reasonable “real” rate of return, consistent with risk levels established by the Investment Committee. The minimum target Total Return over a full market cycle (3 to 7 years) is that which equals or exceeds the assumed spending rate plus the rate of inflation as measured by the national Consumer Price Index. The endowment fund should also be invested to minimize the likelihood of low or negative total returns, defined as a one year nominal return no worse than negative 10%. The endowment fund should experience risk, as measured by volatility and variability of return, consistent with that of a custom index designed to match the asset allocation strategy then in effect.
Strategies Employed for Achieving Objectives - To satisfy its long-term rate-of-return objectives, the Center relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Center targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints.
Spending Policy and How the Investment Objectives Relate to Spending Policy - The Center has a policy of appropriating for distribution each year up to 4% of the average principal balance of the endowment fund for the prior three years and may be used for any portion of its annual budget including operating or capital. For purposes of these guidelines, the principal balance of the funds is defined as its fair market value. The Board may, by two-thirds majority vote, exceed the spending policy guidelines to the extent of accumulated earnings.
Note 15 - Functional Expenses
Expenses allocated on a functional basis were as follows for the years ended June 30:
2014 2013
Science, education and exhibits $ 7,102,354 $ 20,067,311
Guest services and public programs 10,097,820 10,261,749
Fundraising and development 3,587,391 4,180,329
Administrative 2,483,756 2,522,471
23,271,321
Notes to Financial Statements
For the Years Ended June 30, 2014 and 2013
Note 16 - Other Matters
As shown in the Statement of Unrestricted Activities, the Center had a reduction in unrestricted net assets of approximately $2.7 million for the year ended June 30, 2014. This deficit resulted from unusually low attendance, which negatively impacted admissions and ancillary revenue, combined with a shortfall in contributions and grant revenue.
The Board of Directors and management believe that the financial situation will be improved through the implementation of a conservative fiscal year 2015 budget. In addition, the Center has experienced a significant increase in contributed revenue in the first quarter of fiscal year 2015, as a result of a dedicated Board of Directors and steady fundraising activities. This fundraising success, combined with a conservative operating plan, has already begun to positively impact the Organization’s financial condition.
