Page 1

James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Independent Auditor’s Report and Consolidated Financial Statements June 30, 2018 and 2017


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment June 30, 2018 and 2017

Contents Independent Auditor’s Report............................................................................................... 1 Consolidated Financial Statements Statements of Financial Position ........................................................................................................ 3 Statements of Activities ...................................................................................................................... 4 Statements of Cash Flows .................................................................................................................. 6 Notes to Financial Statements ............................................................................................................ 7


Independent Auditor’s Report Board of Governors James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Indianapolis, Indiana We have audited the accompanying consolidated financial statements of James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment (Endowment), which comprise the consolidated statements of financial position as of June 30, 2018 and 2017, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated 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 consolidated 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 audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Endowment as of June 30, 2018 and 2017, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Indianapolis, Indiana October 18, 2018

2


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Consolidated Statements of Financial Position June 30, 2018 and 2017

2018

2017

Assets Cash and cash equivalents Other assets Contributions receivable, net of allowance Cash surrender value of life insurance Investments Beneficial interest in charitable lead trusts Beneficial interest in perpetual trusts Property and equipment Total assets

$

8,938,634 294,852 8,464,388 980,629 352,433,833 9,346,564 26,433,424 1,457,950

$

5,008,096 224,436 13,417,263 947,758 338,560,435 10,590,870 25,751,750 1,597,330

$ 408,350,274

$ 396,097,938

$

$

Liabilities Accounts payable Other liabilities Grants payable Annuity obligations Investments held on behalf of Indiana University Total liabilities

265,625 834,758 23,632,132 25,896 8,158,916 32,917,327

441,760 514,515 26,561,831 35,841 8,803,270 36,357,217

Net Assets Unrestricted Undesignated Board-designated Total unrestricted net assets Temporarily restricted Permanently restricted Total net assets Total liabilities and net assets

See Notes to Financial Statements

106,543,238 68,137,439 174,680,677 82,258,296 118,493,974 375,432,947

93,669,080 63,655,550 157,324,630 86,247,351 116,168,740 359,740,721

$ 408,350,274

$ 396,097,938

3


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Consolidated Statements of Activities Years Ended June 30, 2018 and 2017

Unrestricted Revenues, Gains and Other Support Gift income Contributions Gifts in-kind Total gifts Other revenue and support Investment income Realized and unrealized gains on investments Gain on perpetual trusts Income from trusts Other income Net assets released from restrictions Total revenues, gains and other support

$

9,862,511 179,372 10,041,883

Temporarily Restricted

$

1,062,229 18,754,714 397,021 10,946 30,266,793 31,276,745 61,543,538

18,972,864 61,735 19,034,599 626,871 7,492,247 695,633 24,575 27,873,925 (31,845,647) (3,971,722)

2018 Permanently Restricted

$

1,072,806 1,072,806

Total

$

29,908,181 241,107 30,149,288

287 5,683 681,674 1,760,450 568,902 2,329,352

1,689,387 26,252,644 681,674 1,092,654 35,521 59,901,168 59,901,168

Expenses Program services Grants Research Clinical programs Education Patient and family services Advocacy Buildings and equipment Camp Riley Other Total grants Riley Museum Home Total program services Supporting Services Administration Finance Fundraising Communications Total supporting services Loss on uncollectible contributions receivable Total expenses

11,039,289 9,004,036 3,344,808 3,912,817 2,297,968 315,694 1,006,988 160,298 31,081,898 525,975 31,607,873

-

-

11,039,289 9,004,036 3,344,808 3,912,817 2,297,968 315,694 1,006,988 160,298 31,081,898 525,975 31,607,873

1,926,531 742,792 7,530,868 2,376,306 12,576,497 3,121 44,187,491

17,333 17,333

4,118 4,118

1,926,531 742,792 7,530,868 2,376,306 12,576,497 24,572 44,208,942

Change in Net Assets

17,356,047

(3,989,055)

2,325,234

15,692,226

157,324,630

86,247,351

116,168,740

359,740,721

82,258,296

$ 118,493,974

Net Assets, Beginning of Year Net Assets, End of Year

See Notes to Financial Statements

$ 174,680,677

$

$

375,432,947

4


2017 Temporarily Restricted

Unrestricted

$

$

9,734,439 451,072 10,185,511

$

Permanently Restricted

22,117,900 53,329 22,171,229

$

3,111,837 3,111,837

Total

$

34,964,176 504,401 35,468,577

3,522,328 18,972,955 400,730 45,403 33,126,927 33,993,008 67,119,935

1,436,700 6,574,644 515,072 106,927 30,804,572 (33,907,727) (3,103,155)

1,118 5,738 2,024,111 5,142,804 (85,281) 5,057,523

4,960,146 25,553,337 2,024,111 915,802 152,330 69,074,303 69,074,303

13,918,657 10,565,567 3,186,707 2,293,119 888,623 275,970 1,273,311 688,632 33,090,586 575,992 33,666,578

-

-

13,918,657 10,565,567 3,186,707 2,293,119 888,623 275,970 1,273,311 688,632 33,090,586 575,992 33,666,578

1,496,177 789,712 7,525,295 2,522,908 12,334,092 17,750 46,018,420

980,368 980,368

49,429 49,429

1,496,177 789,712 7,525,295 2,522,908 12,334,092 1,047,547 47,048,217

21,101,515

(4,083,523)

5,008,094

22,026,086

136,223,115

90,330,874

111,160,646

337,714,635

157,324,630

$

86,247,351

$

116,168,740

$

359,740,721

5


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Consolidated Statements of Cash Flows Years Ended June 30, 2018 and 2017

2018 Operating Activities Change in net assets Items not requiring (providing) cash Depreciation and amortization Loss on uncollectible contributions receivable Net realized and unrealized gains on investments Loss on sale of property and equipment

$

15,692,226

2017

$

22,026,086

159,013 24,572 (26,252,644) -

158,195 1,047,547 (25,553,337) 2,646

1,244,306 (681,674) (1,072,806)

1,196,383 (2,024,111) (3,111,837)

(70,416) 4,928,303 144,108 (2,929,699) (8,814,711)

551,830 3,044,105 435,366 1,268,149 (958,978)

(19,633) (333,041,069) 345,420,315

(23,457) (78,519,010) 74,559,270

(644,354) (32,871) 11,682,388

87,969 (47,578) (3,942,806)

Financing Activities Permanently restricted gift income Annuity gifts Annuity payments Net cash provided by financing activities

1,072,806 (9,945) 1,062,861

3,111,837 4,940 (10,812) 3,105,965

Net Increase (Decrease) in Cash and Cash Equivalents

3,930,538

(1,795,819)

Cash and Cash Equivalents, Beginning of Year

5,008,096

6,803,915

Change in value of beneficial interest in charitable lead trusts Change in value of beneficial interest in perpetual trusts Contributions restricted for long-term investment Changes in Prepaid expenses and other assets Contributions receivable Accounts payable and accrued expenses Grants payable Net cash used in operating activities Investing Activities Purchase of property and equipment Purchase of investments Proceeds from sales and maturities of investments Change in value of investment held on behalf of Indiana University Net increase in cash surrender value of life insurance Net cash provided by (used in) investing activities

Cash and Cash Equivalents, End of Year

$

8,938,634

$

5,008,096

Supplemental Cash Flows Information Stock gifts Gifts-in-kind

$

249,485 241,107

$

1,496,384 504,401

See Notes to Financial Statements

6


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Note 1:

Nature of Operations and Summary of Significant Accounting Policies

The James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment (Endowment) was organized in 1921 to commemorate the life of Indiana’s poet, James Whitcomb Riley. The Endowment provides support for Riley Hospital for Children and its research programs, Camp Riley and the Riley Museum Home. The Endowment’s primary sources of support and revenue are contributions and investment earnings. The vision of the Endowment is to ensure children have access to exceptional healthcare by funding pediatric research, education and care. The mission is to raise funds statewide and steward Endowment assets for the kids. The Endowment is committed to four core values - seek knowledge, model integrity, achieve deliverables and commit to service. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Endowment and its wholly owned subsidiary, Riley Children’s Foundation, LLC (established in 2018), for the years ended June 30, 2018 and 2017. Effective April 1, 2018, James Whitcomb Riley Memorial Association, Inc. changed its d/b/a to Riley Children’s Endowment (Endowment) and a new entity was formed, Riley Children’s Foundation, LLC (Foundation). The Endowment’s Board of Governors determined that given the challenges involved in managing both operational and investment activities and the vastly different governance needs of these distinct functions, the Endowment could most effectively and efficiently further its charitable purposes by focusing exclusively on investment and endowment management, and by transferring the charitable programming and activities function to the Foundation, which has a governance structure and organizational capacity designed specifically to advance fundraising efforts. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (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 consolidated financial statements and the reported amounts of the revenues, expenses, gains, losses and other changes in net assets during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Endowment considers all liquid investments with original maturities of three months or less that are not part of the managed portfolio to be cash equivalents. At June 30, 2018 and 2017, cash equivalents consisted primarily of a sweep account. At June 30, 2018, the Endowment’s cash accounts exceeded insured limits by approximately $9,221,000.

7


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Investments Investments are carried at fair value. The Endowment’s alternative investments (including private equity, hedge funds, etc.) are recorded at net asset value (NAV), as a practical expedient, to determine fair value of the investments. Investment return includes dividend, interest and other investment income; realized and unrealized gains and losses on investments carried at fair value; and realized gains and losses on other investments. The Endowment maintains pooled investment accounts for its endowments. Investment income and realized and unrealized gains and losses from securities in the pooled investment accounts are allocated monthly to the individual endowments based on the relationship of the fair value of the interest of each endowment to the total fair value of the pooled investment accounts, as adjusted for additions to or deductions from those accounts. At June 30, 2018, approximately 99% of the Endowment’s investments are invested in the Riley Children’s Endowment Unitized Fund (the “Fund”) coordinated through Northern Trust. The Endowment treats the application of its investment in the Fund as a mutual fund with shares as the common unit. The custodian-held assets in the Fund are managed by professional investment firms in accordance with Board approved investment and spending policies. Net earnings of the Fund are allocated to investing participants on a pro-rata basis. The fair value of the Fund’s investments in equities, fixed income securities and commodities are based on quoted market prices, if available, or estimated using quoted market prices for similar securities. Alternative investments, principally private equity, real estate, hedge funds and similar interests are valued using the most recent valuation available by the respective external fund manager, adjusted for cash receipts and cash disbursements. Property and Equipment Property and equipment is stated at cost, less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful life of each asset. Assets under capital lease obligations and leasehold improvements are depreciated over the shorter of the lease term or their respective estimated useful lives. The estimated useful lives for each major depreciable classification of property and equipment are as follows: Furniture and equipment Leasehold improvements Riley Museum Home Visitors Center

3 - 7 years 5 years 30 years

8


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Long-Lived Asset Impairment The Endowment evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. No asset impairment was recognized during the years ended June 30, 2018 and 2017. Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are those whose use by the Endowment has been limited by donors to a specific time period or purpose. Permanently restricted net assets have been restricted by donors to be maintained by the Endowment in perpetuity. Contributions Gifts of cash and other assets received without donor stipulations are reported as unrestricted revenue and net assets. Gifts received with a donor stipulation that limits their use are reported as temporarily or permanently restricted revenue and net assets. When a donor stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statements of activities as net assets released from restrictions. Gifts and investment income that are originally restricted by the donor and for which the restriction is met in the same time period are recorded as temporarily restricted and then released from restriction. Gifts of land, buildings, equipment and other long-lived assets are reported as unrestricted revenue and net assets unless explicit donor stipulations specify how such assets must be used, in which case the gifts are reported as temporarily or permanently restricted revenue and net assets. Absent explicit donor stipulations for the time long-lived assets must be held, expirations of restrictions resulting in reclassification of temporarily restricted net assets as unrestricted net assets are reported when the long-lived assets are placed in service. Unconditional gifts expected to be collected within one year are reported at their net realizable value. Unconditional gifts expected to be collected in future years are reported at the present value of estimated future cash flows. The resulting discount is amortized using the level-yield method and is reported as contribution revenue. Income Taxes The Endowment is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code and a similar provision of state law. However, the Organization is subject to federal income tax on any unrelated business taxable income. The Endowment files tax returns in the U.S. federal jurisdiction.

9


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Functional Allocation of Expenses The costs of supporting the various programs and other activities have been summarized on a functional basis in the consolidated statements of activities. Certain costs have been allocated among the program, administration, finance, fund raising and communications categories based on time studies, space allocations, and other methods. Reclassifications Certain reclassifications have been made to the 2017 financial statements to conform to the 2018 consolidated financial statement presentation. These reclassifications had no effect on the change in net assets. Subsequent Events Subsequent events have been evaluated through October 18, 2018, which is the date the consolidated financial statements were available to be issued.

Note 2:

Contributions Receivable 2018

Due within one year Due in one to five years Due in more than five years

Unrestricted

Temporarily Restricted

Permanently Restricted

$

450,430 450,430 450,430 -

$

2,589,459 3,802,745 3,233,568 9,625,772 (258,000) 9,367,772 (2,067,086)

$

192,792 465,733 75,000 733,525 733,525 (20,253)

$

3,232,681 4,268,478 3,308,568 10,809,727 (258,000) 10,551,727 (2,087,339)

$

450,430

$

7,300,686

$

713,272

$

8,464,388

Allowance for uncollectible contributions Discount for time value of money

Total

10


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

2017

Due within one year Due in one to five years Due in more than five years

Unrestricted

Temporarily Restricted

Permanently Restricted

$

352,353 352,353 352,353 -

$

5,685,976 5,236,005 3,642,442 14,564,423 (258,000) 14,306,423 (2,310,855)

$

199,183 834,540 75,000 1,108,723 1,108,723 (39,381)

$

$

352,353

$ 11,995,568

$

1,069,342

$ 13,417,263

Allowance for uncollectible contributions Discount for time value of money

Total 6,237,512 6,070,545 3,717,442 16,025,499 (258,000) 15,767,499 (2,350,236)

Discount rates ranged from 0.86 % to 3.28% and from 0.62% to 3.91% for 2018 and 2017, respectively.

Note 3:

Investments

The Endowment participates in an investment pool with Indiana University. This investment pool is under the control of the Endowment, as it is held in the Endowment’s name and is subject to the Endowment’s investment policy. Current fair value is used to determine the number of units allocated to additional assets placed in the pool and to value withdrawals from the pool. Investment income and realized and unrealized gains and losses are allocated equitably based on the number of units assigned to each participant. Details of the pool’s participant accounts at June 30 are as follows: No. of Units Riley Children’s Endowment Indiana University Total

18,548,432 454,983

2018

Fair Value

2017

$ 341,994,060 8,158,916

$ 327,129,224 8,803,270

$ 350,152,976

$ 335,932,494

11


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

The Endowment’s investments (including those investments held in the pool) as of June 30 are as follows: 2018 Cash equivalents Equities: Common stocks International equities Common trust/mutual funds Commingled funds Fixed income: U.S. Government and Government Agency securities Corporate bonds Municipal bonds International obligations Common trust/mutual funds Other fixed income Commingled funds Hedge funds Private equity Real assets: Partnerships Commingled funds Total

$

10,540,229

2017 $

9,867,873

31,095,022 798,891 28,341,262 91,845,984

37,873,291 75,141,548 86,515,187 -

19,375,345 12,721,006 1,257,924 375,028 19,381,143 5,947,233 6,005,994 85,281,695 11,837,521

12,971,508 8,646,598 1,277,127 686,314 77,032,901 14,658,662 9,955,848

7,743,712 19,885,844

3,933,578 -

$ 352,433,833

$ 338,560,435

12


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017 Alternative Investments Alternative investments held at June 30 consist of the following: Fair Value

Equities: International equities Commingled funds

Total commingled equity funds Fixed income: Commingled funds Hedge funds

Total hedge funds Private equity Real assets: Partnerships Commingled funds Total real assets

$

798,891

June 30, 2018 Unfunded Redemption Commitments Frequency

Redemption Notice Period

$

-

None

Not applicable

59,901,368 11,838,452 10,834,544 9,271,620

-

Monthly Quarterly Annually Triennially

10 - 90 Days 30 - 365 Days 60 Days 90 Days

91,845,984

-

6,005,994

-

Daily

2 Days

52,344,965 32,098,760 837,970 85,281,695 11,837,521

5,569,309

Quarterly Annually None

45 - 90 Days 60 - 80 Days Not applicable

None

Not applicable

7,743,712 19,885,844 27,629,556

11,015,979 11,015,979

None Monthly

Not applicable 15 - 30 Days

Fair Value

June 30, 2017 Unfunded Redemption Commitments Frequency

Redemption Notice Period

International equities

Total international equities Hedge funds

Total hedge funds Private equity Real assets

$ 19,083,098 6,659,961 25,743,059 4,519,602 7,814,527 2,324,533 14,658,662 9,955,848 3,933,578

$

-

Monthly Semi-annually

30 Days 90 Days

Monthly Quarterly Annually

30 Days 0-105 Days 60 Days

None None

Not applicable Not applicable

7,370,629 3,830,488

13


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Equity Commingled Funds: Equity commingled funds include investments in commingled fund vehicles that include a limited liability company, limited partnerships, a common trust fund, and Cayman Islands exempt companies, which invest in U.S., non-U.S., and emerging markets marketable equity securities. These commingled funds have monthly to triennial liquidity subject to certain notice requirements. The fair values of the investments in this category have been estimated using the net asset value per share of the fund, which reflects the fair value of the underlying publicly traded securities. International Equities: International equities include an investment in a limited liability company that invests in publicly traded securities of companies located in frontier markets. The fair value of this investment has been estimated using the net asset value per share of the fund, which reflects the fair value of the underlying publicly traded securities. This investment is pending final liquidation at June 30, 2018, with the remaining proceeds expected within three months. Fixed Income Commingled Funds: Fixed income commingled funds include a limited liability company with a 1-3 year US investment grade fixed income strategy. This commingled fund has daily liquidity with two business days’ notice. The fair value of this investment has been estimated using the net asset value per share of the fund, which reflects the fair value of the underlying bonds. Hedge Funds: Hedge funds include investments in commingled fund vehicles including a Cayman Islands limited partnership and Cayman Islands exempt companies, which implement a range of alternative investment strategies such as long/short equity, credit, managers investing opportunistically across the capital structure, and other strategies. These funds are open-ended in duration and generally offer quarterly to annual liquidity subject to certain notice requirements and gate provisions, with the expectation that investments will be held for the long-term unless liquidity, rebalancing, or other needs of the Endowment necessitate redemption. The fair values of the investments in this category have been estimated using the net asset value per share of the fund, which reflects the fair value of the underlying publicly traded securities. Private Equity: Private equity includes investments in limited partnerships, a Cayman Islands exempt company, and a British Virgin Islands limited company that consist of direct and fund-of-funds structures, including private equity buyout, venture capital, direct financing (debt), and secondary private equity funds. These private equity funds typically have investment terms greater than ten years. The fair values of these investments have been estimated using the net asset value of the Endowment’s ownership interest in partners’ capital. The investments cannot be redeemed during the term of the fund. Distributions from each fund are received as the underlying investments of the funds are liquidated, which is expected to occur over the next 5 to 10 years. Real Asset Partnerships: Real asset partnerships include investments in limited partnerships, which invest in a variety of energy and natural resources related infrastructure, property or companies. These real asset partnerships typically have investment terms greater than 10 years. The fair values of these investments have been estimated using the net asset value of the Endowment’s ownership interest in partners’ capital. The investments cannot be redeemed during the term of the fund. Distributions from each fund are received as the underlying investments of the funds are liquidated, which is expected to occur over the next 5 to 10 years.

14


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Real Assets Commingled Funds: Real assets commingled funds include investments in limited partnership commingled fund vehicles, which invest in a concentrated portfolio of real estate and global natural resources marketable equity securities. These commingled funds have monthly liquidity subject to certain notice requirements. The fair values of the investments in this category have been estimated using the net asset value per share of the fund, which reflects the fair value of the underlying publicly traded securities.

Note 4:

Property and Equipment

The Endowment’s property and equipment as of June 30 is comprised of the following: 2018 Riley Museum Home Riley Museum Home Visitors Center Furniture and equipment Leasehold improvements Automobile

$

43,189 1,311,143 526,095 256,048 39,617 2,176,092 (718,142)

$

43,189 1,311,143 506,462 256,048 39,617 2,156,459 (559,129)

$

1,457,950

$

1,597,330

Accumulated depreciation

Note 5:

2017

Split-Interest Agreements

Charitable Gift Annuities The Endowment has executed charitable annuity agreements with various donors. Under the terms of the annuity agreements, the donors contribute assets to the Endowment in exchange for the right to receive a fixed payment for a specified period of time. Upon receiving the annuity gift, the Endowment records a liability based on the present value of the estimated payments to the donor. The remainder of the gift is recorded as revenue in the period received. Annuity liabilities were $25,896 and $35,841 at June 30, 2018 and 2017, respectively. Beneficial Interest Charitable Lead Trust The Endowment is the beneficiary of three charitable lead annuity trusts. The trusts provide for annual variable annuity payments through 2031. Based on the lives of the trust and applicable discount rates, the present value of future benefits expected to be received by the Endowment was estimated to be $9,346,564 and $10,590,870 at June 30, 2018 and 2017, respectively. The Endowment received $1,670,727 and $1,652,661 from the trusts in 2018 and 2017, which was recorded as a reduction in the receivable. Discount rates ranged from 2.04% to 4.39% for 2018 and 2017.

15


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Beneficial Interest in Perpetual Trusts The Endowment is also the beneficiary under various perpetual trusts administered by outside parties. Under the terms of the trusts, the Endowment has the irrevocable right to receive income earned on the trusts’ assets in perpetuity, but never receives the assets held in trusts. The estimated value of the expected future cash flows is $26,433,424 and $25,751,750, which represents the fair value of the trusts’ assets at June 30, 2018 and 2017, respectively. Income from these trusts was $1,092,654 and $915,802 for the years ended 2018 and 2017, respectively.

Note 6:

Grants Payable

Grants and projects approved by the Endowment, but unpaid at year end are recorded as a liability. The following is a summary of projects authorized and payable at June 30, 2018 and 2017: 2018 Due within one year Due in one to five years

Note 7:

2017

$

23,632,132 -

$

25,801,831 760,000

$

23,632,132

$

26,561,831

Leases

The Endowment leases office space under a lease agreement that expires on September 30, 2020. The lease was amended in December 2014 to include additional space adjacent to the current office space, with rent beginning on April 1, 2015. Annual minimum lease payments of $256,248 began on October 1, 2015. In addition to the minimum rent, the Endowment is required to pay additional rent based on a portion of the increase in the landlord’s operating expenses and real estate taxes. Total rent expense for the years ended June 30, 2018 and 2017 was $276,125 and $279,556, respectively. Future minimum lease payments are as follows: 2019 2020 2021

$

256,248 256,248 64,062

16


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Note 8:

Net Assets

Temporarily Restricted Net Assets Temporarily restricted net assets at June 30 are available for the following purposes or periods: 2018 Purpose restrictions Research Clinical programs Education Patient and family services Advocacy Buildings and equipment Camp Riley General program support - Riley Hospital for Children and other Museum Home Other Unrestricted, but due in future years

$

15,687,898 10,879,676 4,073,710 11,022,978 1,243,999 10,438,330 1,540,640

2017

$

25,819,389 260,635 369,743 921,298 $

82,258,296

15,705,862 10,373,275 4,542,785 10,902,583 1,334,422 9,757,104 1,054,137 30,878,495 181,239 429,392 1,088,057

$

86,247,351

Permanently Restricted Net Assets Permanently restricted net assets at June 30 are restricted to: 2018 Investment in perpetuity, the income of which is expendable to support: Research Clinical programs Education Patient and family services Buildings and equipment Camp Riley General program support Museum Home Foundation operations Other

$

2017

24,217,030 15,109,911 41,107,677 9,839,347 254,987 2,265,678 11,728,275 1,110,790 12,337,499 522,780

$

23,922,482 15,043,302 40,049,840 9,533,497 249,017 2,179,289 11,514,968 1,110,790 12,044,169 521,386

$ 118,493,974

$

116,168,740

17


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Net Assets Released From Restrictions Net assets were released from donor restrictions during the year ended June 30 by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by donors.

Purpose restrictions accomplished Program related Research Clinical programs Education Patient and family services Advocacy Buildings and equipment Camp Riley General program support Museum Home Other Time restriction met Net restrictions released

Purpose restrictions accomplished Program related Research Clinical programs Education Patient and family services Advocacy Buildings and equipment Camp Riley General program support Museum Home Other Time restriction met Net restrictions released

Temporarily Restricted

2018 Permanently Restricted

$

9,056,296 4,718,509 3,579,185 2,171,547 557,884 4,850 874,799 10,315,507 53,591 189,884 323,595

$

(9,038) (559,864) -

$

9,047,258 4,158,645 3,579,185 2,171,547 557,884 4,850 874,799 10,315,507 53,591 189,884 323,595

$

31,845,647

$

(568,902)

$

31,276,745

Total

Temporarily Restricted

2017 Permanently Restricted

$

5,195,436 3,866,643 3,541,988 1,430,743 518,371 54,595 1,219,672 16,965,665 46,771 758,356 309,487

$

(100,000) (6,456) 191,737 -

$

5,195,436 3,866,643 3,541,988 1,330,743 518,371 54,595 1,213,216 17,157,402 46,771 758,356 309,487

$

33,907,727

$

85,281

$

33,993,008

Total

18


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Note 9:

Endowment

The Endowment’s endowment consists of approximately 150 individual funds established to support a variety of purposes, including:   

Clinical care Pediatric research Education

  

Family Support Programs The Riley Museum Home Operations of the Endowment

The endowment includes both donor-restricted endowment funds and funds designated by the Board of Governors to function as endowments (board-designated endowment funds). As required by accounting principles generally accepted in the United States of America (GAAP), net assets associated with endowment funds, including board-designated endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions. The Endowment’s Board of Governors has interpreted the State of Indiana Prudent Management of Institutional Funds Act (SPMIFA) as requiring 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 Endowment classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of donor-restricted endowment funds is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Endowment in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with SPMIFA, the Endowment considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 1. 2. 3. 4. 5.

Duration and preservation of the fund Purposes of the Endowment and the fund General economic conditions Possible effect of inflation and deflation Expected total return from investment income and appreciation or depreciation of investments 6. Other resources of the Endowment 7. Investment policies of the Endowment

19


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

The composition of net assets by type of endowment fund at June 30, 2018 and 2017 was: 2018 Temporarily Restricted

Unrestricted

Permanently Restricted

Total

Donor-restricted endowment funds Board-designated endowment funds

$

(1,577,537) 69,218,339

$

16,203,692 -

$

89,460,280 -

$

104,086,435 69,218,339

Total endowment funds

$

67,640,802

$

16,203,692

$

89,460,280

$

173,304,774

2017 Temporarily Restricted

Unrestricted

Permanently Restricted

Total

Donor-restricted endowment funds Board-designated endowment funds

$

(2,345,974) 65,535,062

$

13,331,523 -

$

87,704,567 -

$

98,690,116 65,535,062

Total endowment funds

$

63,189,088

$

13,331,523

$

87,704,567

$

164,225,178

Changes in endowment net assets for the years ended June 30, 2018 and 2017 were: Temporarily Restricted

Unrestricted Endowment net assets, June 30, 2016

$

58,863,062

$

10,296,446

Permanently Restricted $

81,407,887

Total $

150,567,395

Investment return Investment income Net appreciation Contributions Administrative expenses Appropriation of endowment assets for expenditure

1,027,036 6,224,826 200,000 (644,012)

1,430,445 6,571,193 (807,857)

1,118 5,738 6,289,824 -

2,458,599 12,801,757 6,489,824 (1,451,869)

(2,481,824)

(4,158,704)

-

(6,640,528)

Endowment net assets, June 30, 2017

63,189,088

13,331,523

Investment return Investment income Net appreciation Contributions Administrative expenses Appropriation of endowment assets for expenditure Transfers Endowment net assets, June 30, 2018

$

87,704,567

164,225,178

540,789 6,566,309 817,756 (655,310)

791,712 7,492,246 (881,864)

286 5,684 1,749,743 -

1,332,787 14,064,239 2,567,499 (1,537,174)

(2,736,864) (80,966)

(4,610,891) 80,966

-

(7,347,755) -

67,640,802

$

16,203,692

$

89,460,280

$

173,304,774

20


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Amounts of donor-restricted endowment funds classified as permanently and temporarily restricted net assets at June 30, 2018 and 2017 consisted of: 2018

2017

Permanently restricted net assets - portion of perpetual endowment funds required to be retained permanently by explicit donor stipulation or UPMIFA

$

89,460,280

$

87,704,567

Temporarily restricted net assets Portion of perpetual endowment funds subject to a time restriction under UPMIFA with purpose restrictions

$

16,203,692

$

13,331,523

From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level the Endowment is required to retain as a fund of perpetual duration pursuant to donor stipulation or SPMIFA. In accordance with GAAP, deficiencies of this nature are reported in unrestricted net assets and aggregated $1,577,537 and $2,345,974 at June 30, 2018 and 2017, respectively. These deficiencies resulted from unfavorable market fluctuations. The Endowment has adopted investment and spending policies, approved by the Board of Governors, for endowment assets that attempt to provide a predictable stream of funding to programs and other items supported by its endowment while seeking to maintain the purchasing power of the endowment. Endowment assets include those assets of donor-restricted endowment funds the Endowment must hold in perpetuity or for donor-specified periods, as well as those of board-designated endowment funds. Under the Endowment’s policies, endowment assets are invested in a manner that is intended to produce results that exceed the annual distribution while assuming an acceptable level of investment risk. The Endowment expects its endowment funds to provide an average rate of return of approximately 8% annually over time. Actual returns in any given year may vary from this amount. To satisfy its long-term rate of return objectives, the Endowment relies on a total return strategy in which investment returns are achieved through both current yield (investment income such as dividends and interest) and capital appreciation (both realized and unrealized). The Endowment 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. The Endowment has a policy (the spending policy) of appropriating for expenditure each year 5% of its endowment fund’s average fair value over the prior 12 quarters through the calendar year end preceding the year in which expenditure is planned. In establishing this policy, the Endowment considered the long-term expected return on its investment assets, the nature and duration of the individual endowment funds, many of which must be maintained in perpetuity because of donor restrictions, and the possible effect of inflation. Accordingly, over the long-term, the Endowment expects the current spending policy to allow its endowment to grow at an average of the long-term rate of inflation. This is consistent with the Endowment’s objective to maintain the purchasing power of endowment assets held in perpetuity or for a specified term, as well as to provide additional real growth through new gifts and investment return.

21


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Note 10: Employee Benefits The Endowment has established a 401(k) retirement plan for employees who meet certain eligibility requirements. The Endowment contributes 5% of each employee’s salary or wages. Participants may elect to defer a portion of their regular salary or wages and the Endowment has agreed to match the salary deferral, not to exceed 2.5% of compensation. Total retirement plan costs for 2018 and 2017 were $341,987 and $335,527, respectively.

Note 11: Related Party Transactions The following products and services were purchased from businesses in which a member of the Board of Governors held an ownership interest: 2018 Legal fees Parking rentals Investment management fees

$

241,211 6,860 39,396

2017 $

31,682 6,605 31,192

Amounts due on promises to give from members of the Board of Governors were $5,530,655 and $5,930,901 at June 30, 2018 and 2017, respectively.

Note 12: Disclosures About Fair Value of Assets and Liabilities Fair value is the price 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. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value: Level 1

Quoted prices in active markets for identical assets or liabilities

Level 2

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3

Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities

22


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Recurring Measurements The following tables present the fair value measurements of assets recognized in the accompanying statements of financial position measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2018 and 2017: 2018 Fair Value Measurements Using

Fair Value Investments Cash equivalents Equities: Common stocks International equities Common trust/mutual funds Commingled funds Fixed income: U.S. Government and Government Agency securities Corporate bonds Municipal bonds International obligations Common trust/mutual funds Other fixed income Commingled funds Hedge funds Private equity Real assets: Partnerships Commingled funds Total investments Beneficial interest in charitable lead trusts Beneficial interest in perpetual trusts

$ 10,540,229

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Investments Measured (A) at NAV

$

$

$

$

10,540,229

-

-

-

31,095,022 798,891 28,341,262 91,845,984

31,095,022 447,404 28,341,262 -

351,487 -

-

91,845,984

19,375,345 12,721,006 1,257,924 375,028 19,381,143 5,947,233 6,005,994 85,281,695 11,837,521

19,375,345 12,721,006 1,257,924 375,028 1,356,115 5,947,233 -

18,025,028 837,970 -

10,421,742

6,005,994 84,443,725 1,415,779

7,743,712 19,885,844 352,433,833 9,346,564 26,433,424

111,456,568 -

19,214,485 -

4,344,327 14,766,069 9,346,564 26,433,424

3,399,385 19,885,844 206,996,711 -

111,456,568

$ 19,214,485

50,546,057

$ 206,996,711

$ 388,213,821

$

$

23


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

2017 Fair Value Measurements Using

Investments Cash equivalents Equities: Common stocks International equities Common trust/mutual funds Fixed income: U.S. Government and Government Agency securities Corporate bonds Municipal bonds International obligations Common trust/mutual funds Hedge funds Private equity Real assets: Partnerships Total investments Beneficial interest in charitable lead trusts Beneficial interest in perpetual trusts

$

Fair Value

Quoted Prices in Active Markets for Identical Assets (Level 1)

Significant Other Observable Inputs (Level 2)

Significant Unobservable Inputs (Level 3)

Investments Measured (A) at NAV

9,867,873

$

$

$

$

9,867,873

-

-

-

37,873,291 75,141,548 86,515,187

37,873,291 49,398,489 86,515,187

6,659,961 -

-

19,083,098 -

12,971,508 8,646,598 1,277,127 686,314 77,032,901 14,658,662 9,955,848

12,971,508 8,646,598 1,277,127 686,314 55,692,924 -

21,339,977 12,334,129 -

9,955,848

2,324,533 -

3,933,578 338,560,435 10,590,870 25,751,750

262,929,311 -

40,334,067 -

3,933,578 13,889,426 10,590,870 25,751,750

21,407,631 -

262,929,311

$ 40,334,067

50,232,046

$ 21,407,631

$ 374,903,055

$

$

(A) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts included above are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. Transfers Between Fair Value Hierarchy Levels Transfers in and out of Level 1 (quoted market prices), Level 2 (other significant observable inputs) and Level 3 (significant unobservable inputs) are recognized on the period ending date.

24


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying statements of financial position, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the year ended June 30, 2018. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below. Level 3 Valuation Process Fair value determinations for Level 3 measurements of securities are the responsibility of the Accounting Department in conjunction with the investment advisor and fund managers. The Accounting Department challenges the reasonableness of the assumptions used and reviews the methodology to ensure the estimated fair value complies with accounting standards generally accepted in the United States. Beneficial Interest in Charitable Lead Trusts Fair value is estimated by calculating the present value of the annuity over the term of the trusts using discount rates. Beneficial Interest in Perpetual Trust Fair value is estimated at the present value of the future distributions expected to be received over the term of the agreement. Due to the nature of the valuation inputs, the interest is classified within Level 3 of the hierarchy.

25


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Level 3 Reconciliation The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying statements of financial position using significant unobservable (Level 3) inputs: Beneficial Interest in Charitable Lead Trusts

Investments Private Real Assets Equity Partnerships Balance, July 1, 2016

$

Purchases Distributions Unrealized gains Payments received Change in discount to present value Unrealized loss on perpetual trusts

7,399,333

$

2,829,720 (1,511,063) 1,237,858 -

Balance, June 30, 2017 Purchases Distributions Unrealized gains Payments received Change in discount to present value Unrealized gain on perpetual trusts Balance, June 30, 2018

$

2,413,074

$

729,284 (148,829) 940,049 -

11,787,253

3,933,578

10,590,870

607,572 (1,858,874) 1,717,196 -

1,538,656 (1,472,651) 344,744 -

(1,670,727) 426,421 -

$

4,344,327

$

(1,652,661) 456,278 -

9,955,848

10,421,742

Beneficial Interest in Perpetual Trusts

$

9,346,564

23,727,639 2,024,111 25,751,750 681,674

$

26,433,424

Unobservable (Level 3) Inputs The following tables present quantitative information about unobservable inputs used in recurring Level 3 fair value measurements at June 30, 2018 and 2017. Fair Value at June 30, 2018 Private equity investments Real asset investments Beneficial interest in charitable lead trusts Beneficial interest in perpetual trusts

$

10,421,742 4,344,327 9,346,564 26,433,424

Valuation Technique

Unobservable Inputs

Range

Net asset value equivalent (NAV) Net asset value equivalent Discounted cash flow Discounted cash flow

Adjustments to NAV Adjustments to NAV Discount rate (1)

None None 2.04% - 4.39% None

26


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Fair Value at June 30, 2017 Private equity investments Real asset investments Beneficial interest in charitable lead trusts Beneficial interest in perpetual trusts

$

9,955,848 3,933,578 10,590,870 25,751,750

Valuation Technique

Unobservable Inputs

Range

Net asset value equivalent Net asset value equivalent Discounted cash flow Discounted cash flow

Adjustments to NAV Adjustments to NAV Discount rate (1)

None None 2.04% - 4.39% None

(1) Fair value has been determined utilizing the fair value of the underlying assets of the trust.

Note 13: Commitments As of June 30, 2018, the Endowment has outstanding commitments of $22,052,725 for research, education, patient and family services and programs for Riley Hospital for Children. The commitments are expected to be paid in one year.

Note 14: Significant Estimates and Concentrations Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following: Investments The Endowment has significant investments in equity and debt securities and is therefore subject to concentrations of credit risk. Investments are managed by investment advisors who are supervised by the Finance Committee of the Board of Governors. Though the market value of investments is subject to fluctuations on a year to year basis, the Committee members believe that the investment policy is prudent for the long-term welfare of the Endowment. Contributions Receivable At June 30, 2018 and 2017, 39% and 37% of the total contributions receivable were from one extended family, through their respective foundations and individual donations. Other concentrations of credit risk with respect to contributions receivable are limited due to the large number of contributors comprising the Endowment’s contributor base and their dispersion across different industries and geographic areas.

27


James Whitcomb Riley Memorial Association, Inc., d/b/a Riley Children’s Endowment Notes to Consolidated Financial Statements June 30, 2018 and 2017

Note 15: Future Change in Accounting Principle The Financial Accounting Standards Board recently issued Accounting Standards Update (ASU) No. 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, which requires various changes to the current reporting model applied by not-for-profit entities, including the introduction of two new net asset classes (net assets without donor restrictions and net assets with donor restrictions) and the requirement to present additional information about the liquidity. The Endowment expects to first apply the ASU during its fiscal year ending June 30, 2019, through retrospective application to previous years’ statements for comparative purposes. The financial impact of applying the ASU has not yet been determined.

28

Audited Financials 2017-2018  
Audited Financials 2017-2018