Laura A. Mitchell
LCMS FND 6 30 2020 Audited FS financial statements
2020
Financial Statements With Independent Auditor's Report - June 30, 2020
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Financial Statements with
Independent Auditor's Report
JUNE 30, 2020
TABLE OF CONTENTS
Page Independent Auditor's Report............................................................................................. 1
Financial Statements Statements of Financial Position ...................................................................................... 3 Statements of Activities .................................................................................................... 4 Statements of Functional Expenses ................................................................................. 6 Statements of Cash Flows................................................................................................ 8 Notes to Financial Statements.......................................................................................... 9
Independent Auditor's Report
Board of Trustees The Lutheran ChurchMissouri Synod Foundation St. Louis, Missouri
Report on the Financial Statements
We have audited the accompanying financial statements of The Lutheran ChurchMissouri Synod Foundation (the "Foundation") which comprise the statements of financial position as of June 30, 2020 and 2019, the related statements of activities and cash flows for the years then ended, the statements of functional expenses for the year ended June 30, 2020 and 2019, 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 controls 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. Those standards require that we plan and perform the audits 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 controls relevant to the Foundation'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 Foundation's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Lutheran ChurchMissouri Synod Foundation as of June 30, 2020 and 2019, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of a Matter As discussed in Note K to the financial statements, in March of 2020, the World Health Organization has declared COVID-19 a "Public Health Emergency of International Concern." Given the uncertainty of the situation, the duration of any organizational disruption and related financial impact cannot be reasonably estimated at this time. Our opinion is not modified with respect to this matter.
St. Louis, Missouri September 17, 2020
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Statements of Financial Position
June 30, 2020 and 2019 (See Independent Auditor's Report)
(In Thousands)
2020
2019
ASSETS Cash and cash equivalents Accrued interest and dividends receivable Investments Real estate held for sale Notes and loans receivable Land, building, and equipment, net of accumulated depreciation and amortization Real estate held in custody Beneficial interest in charitable trusts Other assets
$ 15,158 $ 1,680
865,924 1,028 543
1,125 5,829 1,170 7,649
10,951 1,539
830,769 403 592
1,207 5,829 1,266 8,350
TOTAL ASSETS
$ 900,106 $ 860,906
LIABILITIES AND NET ASSETS Liabilities
Accounts payable and accrued expenses Trust and other liabilities due to:
Life Income Gift Annuity Held in: Endowment
Custodial Agency
$
748 $
138,695 18,372
159,204 513,797
1,457
669
147,583 19,212
155,258 469,175
737
Total Trust and Other Liabilities
831,525
791,965
Total Liabilities
832,273
792,634
Net Assets Without Donor Restrictions Undesignated Foundation Designated
With Donor Restrictions Time/Event Restrictions Perpetual Funds
12,488 34,237 46,725
6,903 14,205 21,108
12,345 34,143 46,488
7,719 14,065 21,784
Total Net Assets
67,833
68,272
TOTAL LIABILITIES AND NET ASSETS
$ 900,106 $ 860,906
The accompanying notes are an integral part of these financial statements.
-3-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Statement of Activities
Year ended June 30, 2020 (See Independent Auditor's Report)
(In Thousands)
Support and Revenue: Direct gifts Gifts-new agreements Fee revenue Investment income Other income Net assets released from restrictions
Total support and revenue
Operating Expenses: President and administration Customer support Finance Planned giving Donor-advised, insurance policies and other
Total operating expenses
NET OPERATING INCOME
Other Income (Loss): Net realized and unrealized gains on investments and real estate Change in value of irrevocable deferred gifts
TOTAL OTHER INCOME (LOSS)
CHANGE IN NET ASSETS
Net assets at beginning of year
Net assets at end of year
Without Donor With Donor Restrictions Restrictions
Total
$
1,382 $
3,894
6,752
849
757
272
13,906
-$ 260 (272)
(12)
1,382 4,154 6,752
849 757 -
13,894
1,515 1,926 2,430 3,386 4,407
13,664
242
-
1,515
-
1,926
-
2,430
-
3,386
-
4,407
-
13,664
(12)
230
(201)
-
(201)
196
(664)
(468)
(5)
(664)
(669)
237
(676)
(439)
46,488
21,784
68,272
$
46,725 $
21,108 $
67,833
The accompanying notes are an integral part of these financial statements.
-4-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Statement of Activities
Year ended June 30, 2019 (See Independent Auditor's Report)
(In Thousands)
Support and Revenue: Direct gifts Gifts-new agreements Fee revenue Investment income Other income Net assets released from restrictions
Total support and revenue
Operating Expenses: President and administration Customer support Finance Planned giving Donor-advised, insurance policies and other
Total operating expenses
NET OPERATING INCOME
Other Income (Loss): Net realized and unrealized gains on investments and real estate Change in value of irrevocable deferred gifts
TOTAL OTHER INCOME (LOSS)
CHANGE IN NET ASSETS
Net assets at beginning of year
Net assets at end of year
Without Donor With Donor Restrictions Restrictions
Total
$
1,689 $
3,336
7,031
887
668
554
14,165
-$ 208 (554)
(346)
1,689 3,544 7,031
887 668 -
13,819
1,372 1,882 2,174 3,210 4,213
12,851
1,314
-
-
(346)
1,372 1,882 2,174 3,210 4,213
12,851
968
398
-
398
987
459
1,446
1,385
459
1,844
2,699
113
2,812
43,789
21,671
65,460
$
46,488 $
21,784 $
68,272
The accompanying notes are an integral part of these financial statements.
-5-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Statement of Functional Expenses Year ended June 30, 2020 (See Independent Auditor's Report)
(In Thousands)
Planned Giving
Trust Services
Program Services
Donor-Advised/
Insurance
Marketing &
Services Communication
Investment Services
Total Program Expense
Supporting Services
Management & General
Total Expenses
Salaries and Wages
$
Employee benefits
Payroll Taxes
Travel and Meeting
Staff Development/Resources
Professional Services
Information Technology
Business Services
Equipment
Depreciation
Supplies, Repairs & Maintenance
Insurance
Advertising and Promotion
Telephone
Other
Distributions
Total Functional Expenses
$
2,085 $ 645 122 139 28 66 9 88 25 21 94 6 58 -
3,386 $
1,245 $ 355 89 3 11 30 11 23 2 2 61 5 89 -
1,926 $
-$ 4,407 4,407 $
358 $ 96 26 8 2
167 32 43 11 1 12 82 1 28 -
867 $
582 $ 143
42 17 27 136 21 -
2 30 1,000 $
4,270 $ 1,239
279 167
68 399
52 154
13 25 24 188 82 14 205 4,407 11,586 $
890 $ 179
54 59
8 173 271
44 34 102
4 30
2 3 225 2,078 $
5,160 1,418
333 226
76 572 323 198
47 127
28 218
84 17 430 4,407 13,664
The accompanying notes are an integral part of these financial statements. -6-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Statement of Functional Expenses Year ended June 30, 2019 (See Independent Auditor's Report)
(In Thousands)
Planned Giving
Trust Services
Program Services
Donor-Advised/
Insurance
Marketing &
Services Communication
Investment Services
Total Program Expense
Supporting Services
Management & General
Total Expenses
Salaries and Wages
$
Employee benefits
Payroll Taxes
Travel and Meeting
Staff Development/Resources
Professional Services
Information Technology
Business Services
Equipment
Depreciation
Supplies, Repairs & Maintenance
Insurance
Advertising and Promotion
Telephone
Other
Distributions
Total Functional Expenses
$
1,904 $ 598 117 186 20 75 110 21 28 87 5 57 -
3,208 $
1,203 $ 348 86 7 14 28 13 22 3 58 5 96 -
1,883 $
-$ 4,212 4,212 $
302 $ 82 22 2 1 38 2 52 11 2 11
110 1
18 654 $
541 $ 130
41 23 26 138 -
1 20 -
2 32 954 $
3,950 $ 1,158
266 218
61 279
15 184
11 21 34 176 110 13 203 4,212 10,911 $
851 $ 170
50 68 19 192 315 42 29 113 13 25 -
4 49 1,940 $
4,801 1,328
316 286
80 471 330 226
40 134
47 201 110
17 252 4,212 12,851
The accompanying notes are an integral part of these financial statements. -7-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Statements of Cash Flows
Years ended June 30, 2020 and 2019 (See Independent Auditor's Report)
(In Thousands)
Cash flows from operating activities: Change in net assets Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization Net realized and unrealized gains on investments Changes in assets and liabilities: Accrued interest and dividends receivable Investments Real estate held for sale Real estate held in custody Notes and loans receivable Beneficial interest in charitable trusts Other assets Accounts payable and accrued expenses Trust and other liabilities due to: Life income and gift annuities Endowment, custodial, and agency accounts
Net cash provided by operating activities
Cash flows from investing activities: Net additions to capital assets Proceeds from the disposal of land, building and equipment Decrease to notes and loans receivable Purchase of investment securities Proceeds from the sale or maturities of investment securities
Net cash used in investing activities
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
2020
2019
$
(439) $
2,812
128 197
(141) (34,603)
(625) 7 96 702 79
(9,728) 49,288
4,961
(57) 11 42 (3,489) 2,739
(754)
134 (398)
100 (37,588)
285 (1,168)
(17) (85) (279)
(9)
(8,659) 45,724
852
(49) 13 (4,558) 2,675
(1,919)
4,207
10,951
$
15,158 $
(1,067) 12,018 10,951
The accompanying notes are an integral part of these financial statements. -8-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements
June 30, 2020
Note A - Summary of Organization and Significant Accounting Policies
The Lutheran ChurchMissouri Synod Foundation (the "Foundation") assists individuals and church ministries by raising and managing gifts and assets to support Christ's mission through The Lutheran ChurchMissouri Synod (the "Synod") and to accomplish personal and corporate stewardship goals. The Foundation is administered by a Board of Trustees that are elected by the members of the Foundation.
Within the Foundation Organization, trust services, investment services, and gift planning services are provided to the Synod and related agencies and entities. Within customer support, trust services generate trustee fees. Investment services within the Finance Department generate management fees. Gift planning services operate on a partial cost reimbursement basis.
The Foundation carries out its investment management services through various common funds to invest the assets entrusted to the Foundation. A common fund pools the assets of numerous smaller accounts to provide for greater diversification and ease of investment management. Holders of a common fund are called participants. Participants buy and sell units of the common fund asset. In order to determine the price per unit of a common fund, all assets held by the common fund (which can include individual securities or units of other common funds) are valued as of the end of the month (the valuation date). This value is divided by the total number of units held by the participants in the common fund to determine the per unit value. Transactions in the common fund (either purchases or redemptions) are calculated based on the per unit value on the valuation date.
During the valuation process, the common funds accrue income and expenses for the valuation period. The net income to the funds is divided by the total number of units held by participants for the valuation period to establish the income per unit factor. Each participant receives an allocation of the net income determined by multiplying the income per unit factor times the number of units held by the participant of the common fund. Net realized and termination gains in Foundation common funds are also calculated and distributed annually to the participants.
The Foundation maintains a Statement of Investment Policies and Objectives that governs the overall investment policy, objectives, structure, and guidelines for the Foundation's investments. Included in the guidelines are restrictions governing the management of all investments held in separate accounts specifically for the benefit of the Foundation. All investment managers are monitored for adherence to the Statement of Investment Policies and Objectives by the Foundation with the assistance of its investment consultant.
-9-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note A - Summary of Organization and Significant Accounting Policies (Continued)
Basis of Accounting and Presentation The financial statements have been prepared using the accrual basis of accounting. Additionally, the financial statement presentation follows the requirements of Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") 958-205-05. As such, the Foundation is required to report information regarding its financial position and activities as net assets without donor restrictions or net assets with donor restrictions.
Net Assets Without Donor Restrictions Net assets available for use in the general operations and not subject to donor (or certain grantor) restrictions. Net assets include revenue from fees, certain investment income and all gifts, grants and contributions not restricted by the donor. At the discretion of the Board, net assets without donor restrictions are available for use in the Foundation's operations.
Net Assets With Donor Restrictions Net assets subject to donor-imposed restrictions are either temporary or perpetual in nature. Temporary donor-imposed restrictions will be met by events specified by the donor or the passage of time. Perpetual donor-imposed restrictions are indefinite, with the income from the contribution being available for expenditure, as defined by the donor. Donor-imposed restrictions are released when a restriction expires, that is, when the stipulated purpose for which the resource was restricted has been fulfilled.
Donor-restricted contributions are reported as increases in net assets with donor restrictions. When a restriction expires, net assets with donor restrictions are reclassified to net assets without donor restrictions and reported in the statement of activities as net assets released from restrictions. Donor-restricted contributions received and satisfied in the same year are reported as increases in contributions without donor restrictions. Such net assets consist of trusts valued at the present value (discounted at 3.5% and 3.5% at June 30, 2020 and 2019, respectively) of future gifts from irrevocable trusts held by the Foundation which name the Foundation as beneficiary.
Net assets with donor restrictions include the current value of a perpetual trust from which the Foundation is to receive the income in perpetuity. The principal is held in trust by a third party and will never revert to the Foundation.
The perpetual stream of income is viewed by the Foundation as a promise to give by the individual who established the trust and has been recorded at the fair value of the trust at June 30, 2020 and 2019, which closely approximates the net present value of the income stream, in perpetuity. Given the nature of the promise, the Foundation recorded this contribution as net assets with perpetual donor restrictions.
Income received is recorded based on the presence or absence of donor restrictions.
-10-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note A - Summary of Organization and Significant Accounting Policies (Continued)
Expenses related to the daily administration and operations of the Foundation are recorded in net assets without donor restrictions. The proceeds from matured trust agreements that are held for the benefit of the Foundation or that are undesignated as to a specific beneficiary are transferred to net assets without donor restrictions. The Foundation also receives gifts and other undesignated income. After providing for operating expenses, the remainder is available for distribution at the direction of the Board of Trustees of the Foundation.
Other Accounting Policies Cash and Cash Equivalents For financial statement purposes, the Foundation considers currency, demand deposits, and liquid investments with a maturity of three months or less to be cash equivalents. The Foundation maintains cash balances at various major domestic financial institutions in amounts that at times may exceed federally insured limits. The Foundation has not incurred any losses as a result of the excess balances.
Investments Investments of the Foundation are held at a custodial bank. Investments include marketable fixed income and equity securities, as well as units in assorted mutual funds and/or commingled investment vehicles. All investments are stated at fair market value as determined by authorized pricing sources for the custodial bank. The custodial bank records transactions involving the Foundation's investments on the date the securities are purchased or sold. Income is accrued as earned and posted as collected by the custodial bank. Realized gains and losses on the sale of investments are the differences between the proceeds received and the cost of the securities sold. Gains and losses, both realized and unrealized, are recognized in the statement of activities for those assets owned by the Foundation.
Real Estate Held Real estate is initially recorded at its appraised value at the date of the gift. Real estate is carried at the lower of appraised or market value. Real estate can be held for immediate sale, or in custody for longer periods per a managed gift agreement.
Property and Equipment Property and equipment is carried at cost. Major renewals and betterments over $5,000 are capitalized, and maintenance and repairs which do not improve or extend the life of the respective assets are charged against operations in the current period.
-11-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note A - Summary of Organization and Significant Accounting Policies (Continued)
Other Assets
The Foundation is the owner and beneficiary of certain insurance policies that have been gifted over a number of years. The policies are carried at fair value, which equates to current cash surrender value. The insurance policies are unrestricted gifts to the Foundation. They are accompanied by "letters of request" from the donors who request that the proceeds from the insurance policies go to specific ministries. The "letters of request" are not binding on the Foundation for the purpose of financial reporting. The insurance policies are reflected in the financial statements under other assets (Note E).
Financial Instruments
FASB ASC 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial position, for which it is practicable to estimate fair value. Financial instruments consisting of cash and cash equivalents, accrued interest and dividends receivable, investments, real estate held for sale, notes and loans receivable, real estate held for investment, and accounts payable are reported in the statements of financial position at carrying amounts which approximate fair value. Investments are reported at fair value as determined by authorized pricing sources for the custodial bank.
Functional Expense Allocation The Foundation allocates expenses on a functional basis among various programs and supporting activities. Expenses that can be identified with a specific program and supporting activities are allocated directly according to their natural expenditure classifications. The nature of the organization precludes the Foundation from incurring significant fundraising expenses.
Certain categories of expenses are attributable to more than one program or supporting function and are allocated on a reasonable basis that is consistently applied. The expenses allocated are human resources, payroll, building services, and insurance. The allocable expenses are allocated based the number of staff members in each department in relation to total staff. Salary expense for executives is allocated based on estimated time and effort.
Trust and Other Liabilities
The trust and other liabilities due to donors and beneficiaries represents the liabilities necessary to meet agreed payments. The trust and other liabilities due to endowment, custodial, and agency accounts represents the liability for gifts received based on the original contribution plus earnings less reductions in the liability necessary to meet agreed payments.
Direct costs associated with the establishment of trust agreements are recognized as an expense of the trust as incurred.
Trustee fees to cover continuing administrative expenses are charged to the trusts and recognized as revenue by the Foundation on a current basis.
-12-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note A - Summary of Organization and Significant Accounting Policies (Continued)
Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Tax Status The Foundation follows accounting rules for uncertain tax positions. Those rules require financial statement recognition of the impact of a tax position if a position is more likely than not of being sustained on audit, based on the technical merits of the position. These rules also provide guidance on measurement, recognition, classification, interest and penalties, transition, and disclosure requirements for uncertain tax positions.
Adoption of New Accounting Standard In June 2018, the FASB issued Accounting Standards Update ("ASU") 2018-08, Not-for-Profit Entities (Topic 948), Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. The ASU clarified and improved guidance for contributions received and contributions made and provided guidance to the Foundation on how to account for certain exchange transactions. This change is preferable in that it clarifies whether to account for transactions as contributions or as exchange transactions. In addition, it clarifies whether a contribution is conditional. As a result, the change enhances comparability of financial information of not-for-profit entities. The Foundation has evaluated the reporting requirements of ASU 2018-08 and determined that implementation would not result in an adjustment to the prior period financial statements.
In June 2020, the FASB issued ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, permitting private entities that have not yet issued their financial statements as of June 3, 2020, to defer adopting ASU 201409, Revenue from Contracts with Customers, for annual reporting periods beginning after December 15, 2019. The Foundation has chosen to adopt and implement ASU 2020-05 for the year ended June 30, 2020, permitting deferral of adoption of ASU 2014-09, Revenue from Contracts with Customers, until June 30, 2021.
Subsequent Events Management has evaluated all subsequent events and transactions through September 17, 2020.
-13-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note B - Investments
The Foundation's investments at fair value were as follows (in thousands):
June 30, 2020
Common funds of the Foundation LCEF notes Corporate stock
Other
Operating
Life Income
Gift Annuity
Endowment
Agency and
Custodial
$ 22,413 $ 139,136 $
-
1
-
-
-
-
-
$ 181,242 $ 496,847 $
2,007
4,198
-
-
4
1,866
18,143
-
67
Total
839,638 6,206 -
20,080
$ 22,418 $ 141,002 $
18,143 $ 183,249 $ 501,112 $ 865,924
June 30, 2019
Operating
Common funds of the
Foundation
$ 21,860 $
LCEF notes
1
Corporate stock
-
Other
4
Life Income
147,152 $ 1,827
Gift Annuity
Endowment
Agency and
Custodial
-
$
-
-
19,323
177,083 $ 457,368 $
1,967
4,171
-
-
-
13
Total
803,463 6,139 -
21,167
$ 21,865 $ 148,979 $
19,323 $ 179,050 $ 461,552 $ 830,769
Investment income consists of the following (in thousands):
June 30, 2020
Operating
Life Income
Gift Annuity Endowment
Agency and
Custodial
Interest and dividends $ Capital gains distributed Net realized/unrealized
losses
531 $ 318
(201)
4,024 $ 1,481
(1,938)
416 $ -
903
3,823 $ 2,711
(3,298)
11,444 $ 8,016
(7,112)
Total 20,238 12,526
(11,646)
$
648 $
3,567 $
1,319 $
3,236 $ 12,348 $ 21,118
June 30, 2019
Interest and dividends Capital gains distributed Net realized/unrealized
losses
Operating
Life Income
Gift Annuity
Endowment
Agency and
Custodial
$
561 $
4,665 $
326
1,556
508 $ 16
3,840 $ 3,105
11,104 $ 7,599
398
2,485
839
2,204
7,637
Total 20,678 12,602
13,563
$ 1,285 $
8,706 $
1,363 $
9,149 $ 26,340 $ 46,843
-14-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note B - Investments (Continued)
The common funds of the Foundation are as follows (in thousands):
Cash Cash Equivalents Corporate Bonds Foreign Issues Domestic Common Stocks Foreign Stocks Commingled Funds
June 30,
2020
2019
$ 10,971 5,667
38,795 7,598
80,812 3,945
691,850
$ 22,259 3,546
31,013 7,544
77,375 4,045
657,681
$ 839,638 $ 803,463
The Foundation's assets are invested primarily in four asset classes, called Preference Funds. These funds are managed by 16 professional fund managers, with asset-class specific strategies. These Preference funds are included in the Foundation's Standard and Trust Funds, shown in the following schedule.
-15-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION Notes to Financial Statements - Continued
June 30, 2020
Note B - Investments (Continued)
-16-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note C - Land, Building, and Equipment
Depreciation and amortization included in operating expenses was computed under the methods previously described and amounted to $127,000 and $134,000 for the years ended June 30, 2020 and 2019, respectively.
Land, building and equipment consists of the following at June 30: (in thousands):
Land Building and improvements Office equipment Computer equipment Automobiles
Less accumulated depreciation and amortization Total
2020
$ 140 2,201 56 343 211
2,951 1,826
$ 1,125
2019
$ 140 2,179 56 343 212
2,930 1,723
$ 1,207
Note D - Beneficial Interest in Charitable Trusts
The Foundation is a named beneficiary of an irrevocable perpetual trust valued at $1,170,000 and $1,266,000 as of June 30, 2020 and 2019, respectively. This account is held by the Foundation and is included in net assets with donor restrictions by the Foundation.
Note E - Other Assets
Other assets consist of the following at:
(In Thousands)
Insurance policies at cash surrender value Prepaid insurance Other assets Accounts receivable
Total
June 30,
2020
2019
$ 7,384 $ 168 23 74
8,124 146 21 59
$ 7,649 $ 8,350
-17-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION Notes to Financial Statements - Continued
June 30, 2020
Note F - Trust and Other Liabilities Trusts and other instruments are established by donors, beneficiaries, and related entities for the benefit of the Foundation, the Synod, related agencies, and donors. By donor or depositor type, trust and other liabilities represent the following: Donors and Beneficiaries These accounts are comprised of trusts and gift annuities. The Foundation is the issuer of gift annuity agreements under which the Foundation, in exchange for a transfer of cash or other property, is obligated to pay an annuity to one or two individuals (annuitants) for their remaining lives. The Foundation recognizes the assets transferred upon issuance of the gift annuity at their fair value. The contribution is decreased by a fixed dollar amount paid to the annuitant(s) throughout their lifetime and increased annually by earnings at a fixed rate of return based on the account balance. When the agreement terminates the account balance is distributed to ministry. Trust accounts receive gifts of cash, securities, and real estate where the income earned is to be paid to the donor or a designee(s). At the death of the donor or successor(s), the remaining liability is paid in accordance with the trust agreement. Endowment This account receives endowment gifts that are held by the Foundation primarily for other ministries of the Synod. Income is distributed to beneficiaries in accordance with donor instructions. Custodial and Agency These agency and custodial accounts are held by the Foundation for other ministries and organizations of the Synod. Refer to Note L for additional information on the entities with amounts held by the Foundation.
-18-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note F - Trust and Other Liabilities (Continued)
The details of activity in these donor trust and other liabilities for the year ended June 30, 2020, are as follows (in thousands):
ADDITIONS AND REALIZED REVENUES: New agreements/deposits Interest and dividends Capital gains Other
Total support and revenues
Life Income
Fund
Gift Annuity
Fund
Endowment Fund
Custodial Fund
Agency Fund
Total
$
5,426 $
4,024
1,481
449
11,380
2,117 $ 1,724
175 4,016
10,634 $ 3,823 2,710 45
17,212
69,562 $ 11,434
8,012 -
89,008
10,306 26 5 1
10,338
$ 98,045 21,031 12,208 670
131,954
LESS: DISTRIBUTIONS AND EXPENSES Distributions Operating expenses
Total distributions and expenses Revenues over (under) expenses
15,545 2,373
17,918 (6,538)
4,196 1,560 5,756 (1,740)
8,797 1,811 10,608 6,604
35,781 1,580
37,361 51,647
8,929 603
9,532 806
73,248 7,927
81,175 50,779
Change in value of deferred gifts Net realized/unrealized gains
(losses)
Net additions (deductions)
(412)
(1,938) (8,888)
(2) 902
(840)
640
(3,298) 3,946
-
(7,025) 44,622
-
(86) 720
226
(11,445) 39,560
TOTAL LIABILITY JUNE 30, 2019 TOTAL LIABILITY JUNE 30, 2020
147,583 $ 138,695 $
19,212 18,372 $
155,258
469,175
159,204 $ 513,797 $
737
791,965
1,457 $ 831,525
The details of activity in these donor trust and other liabilities for the year ended June 30, 2019, are as follows (in thousands):
ADDITIONS AND REALIZED REVENUES: New agreements/deposits Interest and dividends Capital gains Other
Total support and revenues
Life Income
Fund
Gift Annuity
Fund
Endowment Fund
Custodial Fund
Agency Fund
Total
$
5,250 $
4,665
1,556
42
11,513
1,507 $ 1,883
16 128 3,534
18,373 $ 3,840 3,105 43
25,361
36,580 $ 11,091
7,594 -
55,265
11,612 32 5 3
11,652
$ 73,322 21,511 12,276 216
107,325
LESS: DISTRIBUTIONS AND EXPENSES Distributions Operating expenses
Total distributions and expenses Revenues over (under) expenses
16,778 2,540
19,318 (7,805)
6,183 1,882 8,065 (4,531)
10,257 1,677
11,934 13,427
29,579 1,501
31,080 24,185
12,188 851
13,039 (1,387)
74,985 8,451
83,436 23,889
Change in value of deferred gifts Net realized/unrealized gains
(losses)
Net additions (deductions)
2,485
314 (5,006)
839 39
(3,653)
2,204
(342) 15,289
7,596
31,781
41
(1,346)
13,165
11 37,065
TOTAL LIABILITY JUNE 30, 2018 TOTAL LIABILITY JUNE 30, 2019
152,589 $ 147,583 $
22,865 19,212 $
139,969
437,394
155,258 $ 469,175 $
2,083
754,900
737 $ 791,965
-19-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note G - Gift Annuities
The Foundation maintains a segregated gift annuity reserve fund (the "Gift Annuity Fund") consisting of assets set aside for the payment of annuity obligations to annuitants under charitable gift annuity agreements issued by the Foundation. Each year, the Gift Annuity Fund recognizes new agreements and deposits, the net gains or losses on gift values based on the investment income and market appreciation of invested assets, distributions to annuitants, releases of gift annuities and trustee fees to cover continuing investment, and administrative expenses of the Gift Annuity Fund.
Investments Except for cash values of certain insurance policies of which the Foundation is both the owner and beneficiary and which have been designated by the Foundation as being held as part of the Gift Annuity Fund, the investments of the Gift Annuity Fund are mutual funds and are held at a custodial bank. All investments are stated at fair market value as determined by authorized pricing sources for the custodial bank based on quoted market prices. The custodial bank records transactions involving the Gift Annuity Fund's investments on the date the securities are purchased or sold. Income is accrued as earned and posted as collected by the custodial bank. Realized gains and losses on the sale of investments are the differences between the proceeds received and the cost of the securities sold. Gains and losses, both realized and unrealized, are recognized as changes in liability of the Gift Annuity Fund.
Restrictions on Assets In accordance with the laws of California, the Gift Annuity Fund is required to maintain a reserve within investments sufficient enough to make payments to all outstanding annuitants residing in California. This reserve is equal to or greater than the reserve required by state law in California. In addition, although not required by law, separate investments are maintained for all outstanding annuitants in the state of Washington. The reserves held are sufficient to make payments to all annuitants.
Gift Annuity Liability to Donors Liabilities for annuity obligations represent the actuarial present value of annuity payments that are expected to be paid to donors over the life of the annuity. These amounts are reviewed periodically by an actuary to determine their overall adequacy. Liabilities for future payments to donor-specified individuals are recorded using published actuarial life expectancies and interest rates credited to the individual accounts. These rates range from 3.25% to 6.5% for each of the years ended June 30, 2020 and 2019. At June 30, 2020 and 2019, the gift annuity liability to donors totaled $20,525,720 and $21,083,440, respectively.
-20-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note G - Gift Annuities (Continued)
The following is a summary of total assets in excess of accounts payable and accrued expenses and the annuity liability to donors at June 30, 2020:
Total Assets Less: Accounts payable and accrued expenses Annuity liability to donors
Excess of Assets
$ 25,666,403 (15,485)
(20,525,720)
$ 5,125,198
The following is a summary of total assets in excess of accounts payable and accrued expenses and the annuity liability to donors at June 30, 2019:
Total Assets Less: Accounts payable and accrued expenses Annuity liability to donors
Excess of Assets
$ 26,421,522 (16,203)
(21,083,440)
$ 5,321,879
Note H - Net Assets
Net assets with donor restrictions were restricted for the following at June 30:
(In Thousands)
Timing Restriction Life income Endowment Total net assets with timing restrictions
Purpose Restriction Endowment
Total net assets with donor restrictions, temporary
Net assets subject to spending and distribution policy Endowments to be held in perpetuity Beneficial interest in trust
Total net assets with donor restrictions
2020
$
2,710 $
2,556
5,266
1,637
$
6,903 $
13,035 1,170
$
21,108 $
2019
2,901 3,018 5,919
1,800 7,719
12,799 1,266
21,784
-21-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note H - Net Assets (Continued)
Net assets released for the years ended June 30 for:
(In Thousands)
Life income Endowment Non-Foundation managed
Total net assets released
2020
2019
$
200 $
457
72
97
-
-
$
272 $
554
Net assets without donor restrictions that were board designated at June 30 include:
(In Thousands)
Endowments Gifted insurance policies Gift annuity split interest agreements Donor advised funds
Total Foundation designated net assets
2020
2019
$
11,885 $
12,260
7,044
6,874
516
514
14,792
14,495
$
34,237 $
34,143
Note I - Liquidity and Availability of Resources
Financial assets available for general expenditure, that is, without donor or management restrictions limiting their use, within one year of the statement of financial position date, comprise the following:
(In Thousands)
Cash and cash equivalents Other assets Operating investments Distributions from assets held under split-interest agreements Distributions from beneficial interest in assets held by others Endowment spending-rate distributions and appropriations
Total net assets released
2020
$ 1,578 77
6,156 250 49 125
$ 8,235
2019
$ 1,542 62
5,881 250 49 125
$ 7,909
Our board designated fund of $5,400,000 is subject to an annual spending rate of 4.5 percent as determined by the Foundation's Board of Trustees. Although we do not intend to spend from this board-designated fund, these amounts can be made available if necessary.
The Foundation has a credit line of $1,500,000 with the Lutheran Church Extension Fund. Although, the credit line has never been used, and the intention is not to use the available credit, these funds can be made available if necessary.
-22-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note J - Intentions to Give
At June 30, 2020 and 2019, the Foundation is a named beneficiary of revocable deferred gifts totaling $2,240,000 and $2,223,000, respectively. In accordance with the trust agreements, the donor has retained the option to change the named beneficiary. Therefore, no amounts have been recognized within these financial statements for the potential future benefits.
Note K - Risks and Uncertainties
Credit Risks
The Foundation invests in various investment securities. Investment securities are exposed to risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statement of financial position.
Global Pandemic
The Foundation's financial performance, estimates, contracts and operations in the next 12 months may be affected by the ongoing outbreak of COVID-19, which was declared a global pandemic by the World Health Organization in March of 2020. The full extent and duration of the impact of COVID-19 on the Foundation's operations and financial performance is currently unknown and depends on uncertain and unpredictable developments.
Note L - Pension Expense
The Foundation participates in the worker benefit plans of the Synod. Substantially all fulltime employees are covered by these plans. The Foundation contributes a fixed percentage of each participant's salary to defined benefit plans known as Concordia Retirement Plan and the Concordia Disability and Survivorship Plan. Retirement program expense was $414,000 and $384,000, and disability program expense was $97,000 and $89,000 for the years ended June 30, 2020 and 2019, respectively.
Note M - Related Party Transactions
Funds Held for Related Entities
The Foundation provides investment services to various Synodical entities. Included in the trust and other liabilities of the Foundation are the following (in thousands):
Lutheran Church Extension Fund The Lutheran ChurchMissouri Synod Colleges and seminaries Districts, auxiliaries, related service organizations,
congregations, and other
June 30,
2020
2019
$ 1,386 62,982
238,602
$ 1,382 42,844
232,166
209,949
192,068
$ 512,919 $ 468,460
-23-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION Notes to Financial Statements - Continued
June 30, 2020
Note N - Fair Value Measurements
The Foundation follows FASB ASC 820-10, Fair Value Measurements and Disclosures, which establishes a framework for measuring fair value and expands disclosures about fair value measurements.
FASB ASC 820-10 defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The standard also establishes a fair value hierarchy used to disclose the measurement of fair value based on levels of observable or unobservable inputs.
Level 1 Observable inputs that are derived from quoted prices (unadjusted) for identical assets or liabilities in an active market.
Level 2 Observable inputs based on quoted prices in non-active markets or in active markets for similar assets or liabilities. Inputs other than quoted prices that are observable, or inputs that are not directly observable, but are corroborated by observable market data.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and reflect substantial management judgement or estimation utilizing available market data. Level 3 is comprised of real estate and LCEF notes.
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 at June 30, 2020 and 2019.
Mutual Funds: Valued at the daily closing price as reported by the fund. Mutual funds held by the Foundation are open-end mutual funds that are registered with the U.S. Securities and Exchange Commission. These funds are required to publish their daily net asset value and to transact at that price.
Domestic Common Stocks, Foreign Stocks: Valued at the closing price reported on the active market on which the individual securities are traded.
-24-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION Notes to Financial Statements - Continued
June 30, 2020
Note N - Fair Value Measurements (Continued) Corporate Issues, Foreign Issues, Convertible Bonds, Municipal Bonds, Mortgage Pass Through Securities, Collateralized Mortgage Obligations: Valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available on identical or similar bonds, the securities are submitted for brokers to obtain quotes. As part of the pricing process, the appropriateness of each quote (i.e., as to whether the quote is based on observable market transactions or not) is assessed to determine the most appropriate estimate of fair value. Lastly, securities are priced using internal cash flow modeling techniques. These valuation methodologies commonly use the following inputs: reported trades, bids, offers, issuer spreads, benchmark yields, estimated prepayment speeds, and/or estimated cash flows. Commingled Funds: Valued using the net asset value (NAV) per share, or its equivalent, as a practical expedient for fair value. Real Estate: Valued using current appraised values and other market data for similar properties. LCEF Notes: Valued using deposited account balances. The Board of Trustees and their related committees, along with Management, determines the fair value measurement valuation policies and procedures, including those for Level 3 recurring and nonrecurring measurements. The Board of Trustees assesses and approves these policies and procedures. At least annually, the Board of Trustees: (1) determines if the current valuation techniques used in fair value measurements are still appropriate and (2) evaluates and adjusts the unobservable inputs used in the fair value measurements based on current market conditions and third-party information.
-25-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note N - Fair Value Measurements (Continued)
The Foundation recognizes transfers between levels in the fair value hierarchy at the end of the reporting period.
Fair values of assets measured on a recurring basis at June 30, 2020, are as follows (in thousands):
Other assets Beneficial interest in charitable trusts Real estate held
Total other assets
Investments Common funds Cash equivalents Corporate issues Foreign issues Domestic common stocks Foreign stocks Total common funds
Other investments Domestic common stocks LCEF notes Mutual funds-equity Mutual funds-fixed income Mutual funds-tax exempt Exchange traded funds-equity Other Total other investments
Total other assets and investments required to be disclosed in the fair value hierarchy Common funds cash Commingled funds
Total other assets and investments
Beneficial interest in charitable trusts Real estate held for sale Real estate held in custody Investments Total
Fair Value
$
1,170
6,857
$
8,027
Quoted Prices In Active
Markets for Identical Assets
(Level 1)
$
-
-
$
-
Significant Other
Observable Inputs
(Level 2)
Significant Unobservable
Inputs (Level 3)
$
1,170 $
-
$
1,170 $
6,857 6,857
$
5,667 $
38,795
7,598
80,812
3,945
136,817
6,206 10,532 9,128
7 413 26,286
163,103 $
10,971 691,850 $ 873,951
$
1,170
1,028
5,829
865,924
$ 873,951
- $ 80,812 3,945 84,757
-
84,757 $
5,667 $ 38,795
7,598 -
52,060
10,532 9,128 7 19,667
71,727 $
-
6,206
413 6,619
6,619
-26-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note N - Fair Value Measurements (Continued)
Changes in assets measured on a recurring basis using significant unobservable inputs (Level 3 inputs) (in thousands):
Level 3 inputs by category
June 30, 2019 Additions Change in value Sales or pay down of principal June 30, 2020
Real Estate
$
6,232
$
1,723
-
(1,098)
$
6,857
$
LCEF
6,139 $ 67
6,206 $
Other
210 $ 951 - (701) - (47) 413 $
Total
12,581 2,741 (701) (1,145)
13,476
Fair values of assets measured on a recurring basis at June 30, 2019, are as follows (in thousands):
Other assets Beneficial interest in charitable trusts Real estate held
Total other assets
Investments Common funds Cash equivalents Corporate issues Foreign issues Domestic common stocks Foreign stocks Total common funds
Other investments Domestic common stocks LCEF notes Mutual funds-equity Mutual funds-fixed income Mutual funds-tax exempt Exchange traded funds-equity Other Total other investments
Total other assets and investments required to be disclosed in the fair value hierarchy Common funds cash Commingled funds
Total other assets and investments
Beneficial interest in charitable trusts Real estate held for sale Real estate held in custody Investments Total
Fair Value
Quoted Prices In Active
Markets for Identical Assets
(Level 1)
$
1,266 $
-
6,232
-
$
7,498 $
-
Significant Other
Observable Inputs
(Level 2)
Significant Unobservable
Inputs (Level 3)
$
1,266 $
-
$
1,266 $
6,232 6,232
$
3,546 $
31,013
7,544
77,375
4,045
123,523
6,139 10,775 10,169
11 2
210 27,306
158,327 $
22,259
657,681
$
838,267
$
1,266
403
5,829
830,769
$
838,267
- $ 77,375 4,045 81,420
2 2
81,422 $
3,546 $ 31,013
7,544 -
42,103
10,775 10,169 11 20,955
64,324 $
-
6,139
210 6,349
12,581
-27-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note N - Fair Value Measurements (Continued)
Changes in assets measured on a recurring basis using significant unobservable inputs (Level 3 inputs) (in thousands):
Level 3 inputs by category
June 30, 2018 Additions Change in value Sales or pay down of principal June 30, 2019
Real Estate
$
5,349
1,216
-
(333)
$
6,232
LCEF
Other
$ 5,877 $ 2,208 -
(1,946) $ 6,139 $
245 $ 252 - - (287) 210 $
Total
11,471 3,676 -
(2,566) 12,581
The following tables summarize investments measured at fair value based on NAV per share as of June 30:
Investment Name Commingled funds
Fair Value $ 691,850
2020
Unfunded Commitments
-
Redemption Frequency
Daily to Monthly
Redemption Notice Period
Daily
Investment Name Commingled funds
Fair Value $ 657,681
2019
Unfunded Redemption
Commitments Frequency
Daily to
-
Monthly
Redemption Notice Period
Daily
Note O - Endowments
The Foundation's endowments include both donor-restricted and board designated endowments. As required by accounting principles generally accepted in the United States of America, net assets associated with endowment funds, including funds designated by the Board of Trustees, are classified and reported based on the existence or absence of donor-imposed restrictions.
Net Asset Classifications and Interpretation of Relevant Law
The Foundation is governed subject to its By-Laws. The Board of Trustees of the Foundation has interpreted the relevant Missouri state law as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds, absent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundation classifies as net assets with perpetual donor restrictions at (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.
-28-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note O - Endowments (Continued)
Endowment Investment and Spending Policies
The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a stable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment account. The Foundation's spending and investment policies work together to achieve this stated objective. The Foundation's established investment objectives are (a) to preserve the purchasing power of the endowment assets and the related revenue stream over time, (b) to manage the endowment assets in a single investment pool with equities being the dominant asset class, (c) to employ multiple funds to gain the diversification benefits of different asset classes, and (d) to earn an average annual real total return, after inflation and expenses, of at least 4.00% per year.
Change in Endowment Net Asset (in thousands):
June 30, 2020
Endowment net assets, beginning of year Interest and dividends, net of investment expenses Net appreciation (depreciation) Contributions Amounts appropriated for expenditure Change in endowment net assets Endowment net assets, end of year
Without Donor Restrictions
With Donor Restrictions
Total
$
12,260 $
17,617 $ 29,877
432
621
1,053
(214)
(318)
(532)
9
236
245
(602)
(928)
(1,530)
(375)
389
(764)
$
11,885 $
17,228 $ 29,113
Change in Endowment Net Asset (in thousands):
June 30, 2019
Endowment net assets, beginning of year Interest and dividends, net of investment expenses Net appreciation (depreciation) Contributions Amounts appropriated for expenditure Change in endowment net assets Endowment net assets, end of year
Without Donor Restrictions
With Donor Restrictions
$
12,266 $
17,276 $
Total 29,542
499
166
41
(712)
(6)
$
12,260 $
711 544
18 (932)
341 17,617 $
1,210 710 59
(1,644) 335
29,877
-29-
THE LUTHERAN CHURCHMISSOURI SYNOD FOUNDATION
Notes to Financial Statements - Continued
June 30, 2020
Note O - Endowments (Continued)
Endowment Asset Composition by Type of Fund as of June 30, 2020 and 2019 (in thousands):
June 30, 2020
Board-designated endowment funds Donor-restricted endowment funds
Original donor-restricted gift amount and amounts required to be maintained in perpetuity by donor Accumulated investment earnings Endowment net assets, end of year
Without Donor Restrictions
With Donor Restrictions
Total
$
11,885 $
-
$ 11,885
-
14,922
14,922
-
2,306
2,306
$
11,885 $
17,228 $ 29,113
June 30, 2019
Board-designated endowment funds Donor-restricted endowment funds Original donor-restricted gift amount and amounts required to be maintained in perpetuity by donor
Accumulated investment earnings Endowment net assets, end of year
Without
Donor Restrictions
With Donor Restrictions
Total
$
12,260 $
-
$
12,260
-
13,609
13,609
-
4,008
4,008
$
12,260 $
17,617 $
29,877
-30-
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