CALIFORNIA-PACIFIC ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH

Transcription

1 Financial Statements and Supplementary Information And For The Year Then Ended Together with Independent Auditor s Report

2 Table of Contents PAGE INDEPENDENT AUDITOR S REPORT 1 FINANCIAL STATEMENTS: Statement of Assets, Liabilities, and Net Assets Modified-Cash Basis 2 Statement of Revenues and Expenses Modified-Cash Basis 3 Statements of Cash Flows SUPPLEMENTARY INFORMATION: The Los Angeles Episcopal Area Office: Statement of Assets, Liabilities, and Net Assets Modified-Cash Basis 23 Statement of Revenues and Expenses Modified-Cash Basis 24 Statements of Cash Flows 25

3 Voice: Fax: N. Lake Avenue Suite 900 Pasadena, CA INDEPENDENT AUDITOR S REPORT The Council on Financial Resources California-Pacific Annual Conference of the United Methodist Church We have audited the accompanying financial statements of the California-Pacific Annual Conference of the United Methodist Church (the "Conference"), which comprise the statement of assets, liabilities, and net assets - modified cash basis as of, and the related statements of statements of revenue and expenses and cash flows modified-cash basis for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the modified-cash basis of accounting as described in Note 2; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Conference 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 Conference 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 assets, liabilities and net assets of the Conference as of, and the changes in the net assets and the cash flows for the year then ended in accordance with the modified-cash basis of accounting as described in Note 2. Member of: American Institute of Certified Public Accountants Division of CPA Firms/Private Companies Practice Section California Society of Certified Public Accountants

4 Basis of Accounting During 2013, the Conference changed from the accrual basis to the modified-cash basis of accounting (See Note 2). Accordingly, the financial statements are prepared on the modified-cash basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Other Matter Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary information as listed in the accompanying table of content is presented for purposes of additional analysis and are not required parts of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. STANISLAWSKI & HARRISON May 22, 2014

5 3 CALIFORNIA-PACIFIC ANNUAL CONFERENCE Statement of Assets, Liabilities and Net Assets- Modified-Cash Basis ASSETS Cash and cash equivalents $ 11,160,093 Accounts and other receivables, net of allowance for doubtful accounts of $90,605 (Note 3) 3,110,690 Loans receivable from local churches, net of allowance for doubtful accounts of $151,254 (Note 4) 3,404,828 Investments (Note 5) 8,729,045 Prepaid expenses and other assets 3,491 Beneficial interest in charitable trusts (Note 6) 9,983,002 Endowment investments (Note 5) 5,848,055 Property and equipment, net (Note 7) 2,516,943 Total assets $ 44,756,147 LIABILITIES Accounts payable and accrued expenses $ 1,313,980 Unearned revenue 161,855 Note payable (Note 8) 232,316 Reserve and other designated accounts (Note 9) 3,490,106 Unfunded postretirement benefit (Note 11) 27,362,000 Total liabilities 32,560,257 NET ASSETS Unrestricted net assets (deficit) (7,039,995) Restricted net assets (Note 12) 19,235,885 Total net assets 12,195,890 Total liabilities and net assets $ 44,756,147 See Independent Auditor s Report The Accompanying Notes Are An Integral Part of These Financial Statements

6 4 CALIFORNIA-PACIFIC ANNUAL CONFERENCE Statement of Revenues and Expenses Modified-Cash Basis For the Year Ended OPERATING REVENUES: Apportionment General church and Western Jurisdiction $ 2,237,523 Conference apportionment and benevolence: Ministerial support 2,669,067 World service fund 1,948,370 Administration 1,641,255 Retiree medical and other 1,191,492 Ministerial education fund 72,728 Other 30,894 Health and other welfare 11,422,996 Pension 5,644,363 Property/liability insurance premium income 5,153,496 Camp operations 2,503,444 Contributions 300,471 Other income 714,656 Total operating revenues 35,530,755 OPERATING EXPENSES: Apportionment General church and Western Jurisdiction 2,237,523 Conference apportionment and benevolence: Ministerial support 2,081,576 Administration 1,869,715 World service fund 1,593,932 Ministerial education fund 79,353 Other 30,894 Health and other welfare 12,309,673 Pension 5,610,998 Property/liability insurance premium expense 4,788,076 Camp operations 2,885,508 Other expenses 665,692 Total operating expenses 34,152,940 Operating revenues, net of operating expenses 1,377,815 NON-OPERATING REVENUES: Investment income (Note 5) 2,250,796 Change in value of charitable remainder trusts (Note 6) 417,297 Change in value of postretirement benefits 2,907,000 Total non-operating revenues 5,575,093 INCREASE IN NET ASSETS 6,952,908 NET ASSETS - Beginning of Year 5,242,982 NET ASSETS - End of Year $ 12,195,890 See Independent Auditor s Report The Accompanying Notes Are An Integral Part of These Financial Statements

7 5 CALIFORNIA-PACIFIC ANNUAL CONFERENCE Statement of Cash Flows For the Year Ended Cash flows from operating activities Increase in net assets $ 6,952,908 Adjustments to reconcile increase in net assets to net cash provided by (used in) operating activities: Depreciation 200,864 Realized and unrealized gains on investments, net (1,826,388) Accounts and other receivables, net (1,605,711) Loans receivable from local churches, net 2,101,744 Prepaid expenses and other assets 5,988 Beneficial interest in charitable trusts (417,297) Accounts payable and accrued expenses 510,083 Unearned revenue (118,024) Reserve and designated accounts 1,805,443 Unfunded postretirement benefit (2,907,000) Total adjustments (2,250,298) Net cash provided by operating activities 4,702,610 Cash flows from investing activities Proceeds from sale of investments 110,460 Purchases of investments (812,603) Purchases of property and equipment (88,628) Net cash used in investing activities (790,771) Cash flows from financing activities Principal payments on note payable (80,018) Net increase in cash and cash equivalents 3,831,821 Cash and cash equivalents, beginning of year 7,328,272 Cash and cash equivalents, end of year $ 11,160,093 Supplemental Cash Flow Information: Cash paid during the year for interest $ 6,403 See Independent Auditor s Report The Accompanying Notes Are An Integral Part of These Financial Statements

8 6 (1) ORGANIZATION The California-Pacific Annual Conference of the United Methodist Church (Conference) is a regional body of the United Methodist Church, made up of some 80,000 members in almost 400 local churches throughout Southern California, parts of Central California, Hawaii, the Pacific Islands, Guam and Saipan. The Conference, a California nonprofit, religious corporation, provides programs and support services to, and on behalf of, the member churches. The mission of the United Methodist Church is to make disciples of Jesus Christ for the transformation of the world. Following the Book of Discipline and the connectional structure of the United Methodist Church, all assets and equity of the Conference are held in trust, such that they shall be kept, maintained, and disposed of for the benefit of The United Methodist Church and subject to the usages and the Discipline of The United Methodist Church. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Change in Accounting Method During 2013, the Conference changed from the accrual-basis to the modified-cash basis of accounting. The Conference believes, at this time, the modified-cash basis of accounting more accurately reflects its financial position and activities. The effect of this change did not impact beginning net assets or the year ended. Financial Statement Presentation The accompanying financial statements are presented using the modified-cash basis of accounting. Generally, revenue is recognized when received (rather than earned) and expenses are recognized when paid (rather than incurred). The cash basis accounting is modified by the recognition of certain receivables, liabilities and depreciation. The financial statements of the Conference include the accounts of the funds of its Essential Ministry Teams that provide programs and supporting services to, and on behalf of, the member churches of the Conference. These programs and supporting services are considered Conference activities by the Book of Discipline. Unrestricted net assets Net assets not subject to donor-imposed stipulations; donor-restricted contributions whose restrictions are met in the same reporting period; and net assets designated by the Council on Financial Resources or management for specific purposes. Restricted net assets Net assets subject to donor-imposed stipulations that may or will be met by actions of the Conference and/or the passage of time or net assets subject to donor-imposed stipulations that they be maintained permanently by the Conference. Generally, the donors of these assets permit the Conference to use all or part of the income earned on related investments for general or specific purposes.

9 7 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Contributions All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Amounts received that are designated for future periods or restricted by the donor for specific purposes are reported as restricted support that increases that net asset class. When a donor restriction expires, restricted net assets are reclassified to unrestricted net assets. Expiring donor restrictions can be donor-imposed stipulations that either expire by the passage of time or purpose, or can be fulfilled and removed by actions of the Conference pursuant to those stipulations. Unconditional promises to give that are expected to be collected within one year are recorded at net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at amounts approximating fair value, and measured using the present value of future cash flows. The discounts on those amounts are computed using risk-adjusted interest rates applicable to the years in which the promises are received. Amortization of the discounts is included in contribution revenue. The Conference recognizes conditional promises to give when the conditions stipulated by the donor are substantially met. A conditional promise to give is considered unconditional if the possibility that the condition will not be met is remote. Cash and Cash Equivalents For the purpose of the statement of cash flows, the Conference considers short-term investments with original maturities of less than three months to be cash equivalents. Accounts Receivable The Conference periodically reviews its accounts receivable for uncollectible amounts. At, management believes the allowances provided are sufficient. Assets Held in Investment Pool and Other Funds The Conference reports its assets held in investment pools and other funds at fair value, when available, or at estimates of fair value. Gains and losses are included in the accompanying statements of activities. Endowment Investments Investments restricted for long-term purposes consist of endowment funds with donorimposed restrictions that limit their use on retiree benefits and other donor-restricted purposes.

10 8 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Endowment - Return Objectives, Risk Parameters, and Spending Policy The Conference s Endowment consists of assets restricted for permanent endowment and related endowment earnings. The Conference s endowment assets and certain other assets are held by the California-Pacific United Methodist Foundation (Foundation), a California nonprofit organization. The executive director of the Foundation is a member of the Conference s Board of Trustees and the Conference s Council on Financial Resources as an ex-officio member without voting rights. The Foundation charges a management fee for managing the investments. Investments held by the Foundation consist of equity securities, debt securities, mutual funds, money market funds and cash equivalents. Overall, the investment policy of the Foundation seeks to invest the Foundation s assets in accordance with sound investment practices that emphasize long-term investment fundamentals. Consistent with this, the investment of the assets is guided by the following underlying principles: To achieve a positive rate of return over the long-term that would significantly contribute to the cash flow needs of the California-Pacific United Methodist Foundation for on-going operations and capital projects. To provide for asset growth at a rate in excess of the rate of inflation. To diversify the assets in order to reduce the risk of wide swings in market value from year-to-year, or of incurring large losses that could occur from concentrated positions. To achieve investment results over the long-term that compare favorably with those of other endowments and foundations, professionally managed portfolios and of appropriate market indexes. On an annual basis, the Foundation plans to make available for spending an amount equal to approximately 5% of the ending market value of the Fund. The distributions may come from any combination of income, earnings or principal at the end of the previous fiscal year. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and deferred revenue approximate fair value due to the short-term nature of the items. The carrying amount of the beneficial interest in charitable trusts is based on the discounted net present value of the expected future cash receipts, and approximates fair value. Loans receivable approximate the fair value based on interest rates and terms. The carrying amount of bank loan payable approximates fair value based on rates currently available to the Conference for debt with similar terms and maturities. Credit Concentration Financial instruments that potentially subject the Conference to concentration of credit risk are cash, investments, and receivables.

11 9 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash is held by recognized financial institutions and investment assets by the Foundation. The Federal Deposit Insurance Corporation insures accounts held in banks up to statutory limits. At times, such cash may be in excess of the insured limit. At, cash held in one financial institution totaled $9,647,042. The Conference s investments are principally comprised of equity and fixed-income instruments held by others (see Note 5). Investment holdings are not insured. Concentration of credit risk for accounts receivable and other receivables are generally limited due to the dispersion of these items over several hundred churches and other payees. The Conference continually monitors its receivables and establishes valuation reserves as considered appropriate. Fair Value Measurements Fair Value Standards (ASC ) establish a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring fair value. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 Quoted market prices are available in active market for identical assets or liabilities as of the reporting date. Level 2 Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. A significant adjustment to a Level 2 input could result in the Level 2 measurement becoming a Level 3 measurement. Level 3 Pricing inputs are unobservable and are used to measure fair value to the extent that observable inputs are not available. The inputs into the determination of fair value are based upon the best information available and require significant management judgment or estimation. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Beneficial Interest in Charitable Trusts The Conference has a beneficial interest in two charitable remainder trusts, which have third-party trustees. As the Conference is not the trustee on these split-interest agreements, its interest in the net assets of the trusts is reported at fair value of the beneficial interest. Income distributions and changes in the fair value of the beneficial interests are reported in the statement of activities. Upon demise of the last living primary beneficiary, the assets of the trusts will be distributed to the Conference.

12 10 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The Conference has interpreted the income received from the trust agreements to be restricted for retiree health care. (See Note 10) Also, the Conference has interpreted the future final distribution of the net assets of the trust to be unrestricted net assets, but it intends to treat the funds as board-designated for retiree health care. Property and Equipment Property and equipment purchases are stated at cost. Major additions and improvements are capitalized; maintenance and repairs are charged to expense as incurred. The cost of property and equipment is depreciated over the estimated useful lives of the related assets using the straight-line method over the estimated useful lives of the assets. The following represents the estimated useful lives: Buildings and improvements 7 to 20 years Furniture and fixture 7 years Vehicles 3 years Equipment 5 years Impairment of Long-Lived Assets The Conference reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Impairment losses, if any, are recognized when estimated future cash flows (undiscounted and without interest charges) derived from such assets are less than their carrying values. Reserve and Other Designated Accounts Reserves and other designated accounts consist of funds that are held for the benefit of third-parties or affiliates, or for specific spending purposes established by the Council on Financial Resources. Apportionment Revenue As part of its connectional ministry and mission, The United Methodist Church follows an apportionment process that is based on financial abilities and involves members and congregations in mission at every level. Unearned Revenue Dues billed or received in one year, which are applicable to the following year, are reflected as deferred revenue.

13 11 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Postretirement Health Care Benefits The funded status of the Conference s postretirement health benefit plan is measured as the difference between the fair value of plan assets and the accumulated postretirement benefit obligation. The overfunded or underfunded status of the plan is fully recognized as an asset or liability in the accompanying statement of financial position. Changes in the funded status of the plans are recognized in the year they occur as changes in unrestricted net assets. Income Taxes The Conference is a California nonprofit organization, exempt from federal income tax under Section 501(c)(3) of the United States Internal Revenue Code and exempt from California state income tax under Section 23701(d) of the California Revenue and Taxation Code. However, the Conference is subject to unrelated business income taxes on any net income that is derived from a trade or business regularly carried on, and not in furtherance of the purpose for which it was granted exemption. Generally accepted accounting principles provide accounting and disclosure guidance about positions taken by an organization in its tax returns that might be uncertain. Management has considered its tax positions and believes all of the positions taken by the Conference are more likely than not to be sustained upon examination. Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Subsequent Events Subsequent events have been evaluated through May 22, 2014, the date that these financial statements were available to be issued. There were no subsequent events that would require adjustments or disclosures in these financial statements.

14 12 (3) ACCOUNTS AND OTHER RECEIVABLES At, accounts and other receivables are as follows: Apportionment receivables from local churches $ 1,272,943 Receivables from local churches (insurance premiums) 1,592,300 Other receivables 336,052 Less: allowance for uncollectible accounts (90,605) $ 3,110,690 Apportionment receivables from local churches were subsequently collected in January (4) LOANS RECEIVABLE FROM LOCAL CHURCHES The Conference has nine loans receivable due from member churches under a Church Facility Loans process. The loans are generally collateralized by trust deeds on real property and bear interest at rates ranging from 2-7%. At, loans receivable are as follows: Loans receivable $ 3,556,082 Less: allowance for uncollectible loans (151,254) Total $ 3,404,828 Future collections of loans receivable at, are expected as follows: Year Ending December $ 289, , , , ,565 Thereafter 2,092,274 $ 3,556,082

15 13 (4) ASSETS HELD IN INVESTMENT POOL AND OTHER FUNDS Investments held by the Foundation The Conference has placed most of its investible assets in an investment pool with the California-Pacific United Methodist Foundation (the Foundation). The Foundation operates under an Investment Policy Statement and provides a variety of investment instruments that offer optimum management, protection and enhancement of financial assets. The Foundation follows socially responsible investment practices, following the guidelines set forth in the Social Principles of the United Methodist Church. The Conference s ownership interest in the common equity investment pool (Pool) is based on its percentage of the fair value of the Pool s assets, recalculated each time a contribution or withdrawl is made. The marketable securities in the Pool are managed by outside investment counselors and the securities are held be a third-party custodian. The funds invested with the Foundation are considered Level 3 assets under the fair value hierarchy explained at Note 2, and at, were invested in a balanced portfolio of domestic equity, fixed-income securities, international equity, and cash and cash equivalents, as follows: Domestic Equity International Equity Fixed Income Alternative Investments 55% 20% 20% 5% Term Investments The Conference has additional funds held by the United Methodist Development Fund (UMDF). Under its arrangement with the UMDF, the Conference s funds are handled like money market funds and certificates of deposit. As of, the funds bear interest at rates ranging from 0.75% to 3.50% and the certificates mature at various maturities through March 13, Investments held by the General Board of Pension and Health Benefits At, the Conference has investments held by the General Board of Pension and Health Benefits of the United Methodist Church ("GBOP").

16 14 (5) ASSETS HELD IN INVESTMENT POOL AND OTHER FUNDS (Continued) At, investible assets are classified based on the hierachy of fair valuation inputs explained in Note 2 and consisted of the following: Level 1 Level 2 Level 3 Total Investments held by the Foundation $ - $ - $ 8,693,320 $ 8,693,320 Investments held by GBOP 3,585,644 3,585,644 Term investments - 2,295,505-2,295,505 Other 2, ,631 Total $ 2,631 $ 2,295,505 $ 12,278,964 $ 14,577,100 At, investible assets are reported as follows: Investments $ 8,729,045 Endowment investments 5,848,055 Total $ 14,577,100 The following is the activity for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended : Investments held by the Foundation Investments held by GBOP Total Beginning balance $ 6,991,341 $ 2,759,242 $ 9,750,583 Purchases 812, ,453 Withdrawals (110,460) - (110,460) Total realized and unrealized gains 999, ,402 1,826,388 Ending balance $ 8,693,320 $ 3,585,644 $ 12,278,964 Total investment income for the year ended, is as follows: Interest and dividends $ 180,448 Realized gains 1,006,985 Unrealized gains 1,063,363 Total $ 2,250,796

17 15 (6) BENEFICIAL INTEREST IN CHARITABLE TRUSTS The Conference has a beneficial interest in two charitable remainder trusts established by a husband and wife in the 1930s. Upon the demise of the last living primary beneficiary, now in his 90s, a portion of the remaining net assets will distributed to the Conference and the other income beneficiaries. The Conference has a % and a % beneficial interest in the two trusts, respectively. The composition of beneficiary interest in split-interest agreements, stated at fair value at, is as follows: Frank Lynch Trust Georgia Lynch Trust Total Estimated future cash flows from trustee $ 11,001,473 $ 1,930,847 $ 12,932,320 Less: Discount to present value at 6% (2,489,007) (460,311) (2,949,318) Total $ 8,512,466 $ 1,470,536 $ 9,983,002 The beneficial interests of the Conference in the charitable trusts are considered to be Level 2 assets under the fair value hierarchy disclosed in Note 2. At, future annual collections are anticipated as follows: Year Ending December 31 Frank Lynch Trust Georgia Lynch Trust Total 2014 $ 400,000 $ 38,000 $ 438, ,000 38, , ,000 38, , ,000 38, , ,000 38, ,000 Thereafter 9,001,473 1,740,847 10,742,320 $ 11,001,473 $ 1,930,847 $ 12,932,320 During the year ended, the change in valuations was as follows: Frank Lynch Trust Georgia Lynch Trust Total Gain (loss) on beneficial interest in the charitable trust $ 512,466 $ (95,169) $ 417,297

18 16 (7) PROPERTY AND EQUIPMENT Property and equipment at, consisted of the following: Land $ 1,151,262 Buildings and improvements 8,284,717 Furniture and fixtures 1,239,260 Vehicles 335,193 Equipment 6,790 11,017,222 Less: accumulated depreciation (8,850,279) 2,166,943 Property held for development 350,000 Total $ 2,516,943 Depreciation expense for the year ended, was $200,864. (8) NOTE PAYABLE The Conference has a variable-rate note payable to a bank, which is payable in monthly installments of $7,394 and secured by deed of trust. At, the variable rate was 2.265%. At, future principal payments on the note payable to bank are due as follows: Year Ending December $ 77, , ,316 $ 232,316

19 17 (9) RESERVE AND OTHER DESIGNATED ACCOUNTS At, the reserve and other designated accounts consist of the following: New Ministries Essential Ministry Team $ 1,171,936 Resource Essential Ministry Team 34,742 Due to Congregational Loan * 371,548 Camping 179,276 Youth and Young Adults Essential Ministry Team 10,282 Justice and Compassion Essential Ministry Team 38,554 Other Reserve Funds: Latino/Hispanic Staffing and Programming 300,275 Centro Hispano de Recursos para la Excelencia Ministerial Project 18,392 One Great Hour of Sharing 40,806 Youth Ministry Sunday Fund 38,115 Clergy Convocation 11,397 Christian Education 29,403 Aids Ministry 7,158 Pacific Islanders National Caucus of United Methodist Fund 12,279 Missionary Support 42,730 United Methodist Committee on Relief 256,666 Sonora Baja / Joint Commission 23,602 Imagine No Malaria 9,403 Ministerial Education Fund 25,381 Conditional Donations 725,841 Miscellaneous 142,320 Total $ 3,490,106 * During the year ended, the Loan Department had congregational loan revenues totaling $273,735 and related expenses totaling $131,780. At December 31, 2013, due to congregational loan reserve has a cumulative balance of $371,548.

20 18 (10) RETIREMENT PLANS The 2004 General Conference of the United Methodist Church adopted the Clergy Retirement Security Program (CRSP) consisting of a multi-employer defined benefit plan and a defined contribution plan covering eligible clergy and administered by the GBOP. CRSP is intended to meet the requirements of a "church plan" as defined and to be exempt from ERISA regulations. Under the defined benefit component of the CRSP, retired clergy receive benefits based on a formula using the Denominational Average Compensation, as defined, and years of credited service. The actuarially-determined liability for this benefit is the responsibility of the GBOP. The Conference makes annual contributions to the CRSP defined benefit component based on the Conference's share of the overall annual obligation for the denomination as determined by GBOP actuaries. In order to fund the Conference's share of the annual obligation, each church is billed on a pro-rata basis, using a formula relating to the plan compensation of their current pastor. The income from these billings is sent on a monthly basis to the Conference's deposit account at the GBOP, where it earns interest and is used to pay the entire obligation on the last day of the year. Actuarial information for the CRSP defined benefit plan as of, indicates that it is in compliance with ERISA regulations regarding funding. The CRSP defined benefit plan contribution expense for the year ended December 31, 2013 was $2,852,523. Under the defined contribution plan of the CRSP, the Conference remits 3% of each minister s eligible compensation to the GBOP. These remittances are placed in the respective minister s pension account. The CRSP defined contribution plan expense for the year ended was $630,000. All lay employees of the Conference are eligible to participate in the United Methodist Personal Investment Plan (UMPIP). UMPIP is a defined contribution plan administered by the General Board. Under the UMPIP, the Conference contributes 7% of each participant s compensation. For 2013, the Conference contributed $118,139 to the UMPIP.

21 19 (11) POSTRETIREMENT HEALTHCARE BENEFITS The Conference provides postretirement healthcare coverage to retired clergy, surviving spouses of clergy and retired lay employees under a defined benefit plan. To be eligible, employees must have at least ten years of service with the Conference during the last 15 years prior to retirement and are eligible to receive the healthcare subsidy after twenty years of service or upon attainment of age 62. The following table sets forth the postretirement plan's funded status that is reported in the statement of financial position as of : Change in benefit obligation: Benefit obligation, beginning of year $ 30,269,000 Service cost, excluding assumed administration expenses 843,000 Interest cost 1,185,000 Benefit payments (1,301,000) Actuarial loss (gain) (3,634,000) Assumption changes - Amendments - Benefit obligation, end of year $ 27,362,000 Change in plan assets: Fair value, beginning of year $ - Actual return on plan assets - Employer contributions 1,301,000 Plan participants' contributions 612,000 Benefits paid (1,913,000) Fair value, end of year $ - Unfunded status $ (27,362,000) The benefit obligation represents the actuarial present value of future payments to plan participants for services rendered prior to that date, based on the health benefit formula.

22 20 (11) POSTRETIREMENT HEALTHCARE BENEFITS (Continued) Net periodic benefit cost for the postretirement healthcare plan includes the following components: Service cost $ 843,000 Interest cost 1,185,000 Expected return on plan assets - Amortization of transition obligation 2,451,000 Net loss (1,898,000) Net periodic benefit cost $ 2,581,000 Assumptions used in determining the net periodic benefit cost of the postretirement plan are: Weighted-average discount rate 4% Expected long-term rate of return 4% Retirement age 65 Health care cost increase % Ultimate trend rate 5% Year ultimate trend rate is achieved 2018 Mortality RP-2000 Mortality Table (12) RESTRICTED NET ASSETS At, the Conference has an endowment fund and other restricted net assets per the tables below. Endowment funds Conference Endowment $ 5,347,972 Hough Fund 429,611 The D.A. Crowell Fund 70,472 5,848,055 Beneficial Interest in Charitable Remainder Trusts 9,983,002 Time restrictions: Loans receivable due from local churches 3,404,828 Total restricted net assets $ 19,235,885

23 21 (12) RESTRICTED NET ASSETS (Continued) Conference Endowment Fund - Although the Endowment Fund predates available records, it is considered to be a true endowment restricted to benefit the retired clergy of the Conference. Distributions are used to fund the pension program and pay health care premiums for retired clergy. The Hough Fund - Dating from the 1800s, the Hough Fund is considered a true endowment restricted for the use of superannuated preachers of the Conference and the widows and children of the deceased preachers of the Conference. The D.A. Crowell Fund The fund is considered to be a true endowment for the widows of clergy of the Conference. Loans Receivable due from Local Churches This represents net assets restricted for the purpose of providing loans to local churches. Interpretation of Relevant Law The Conference s Council for Financial Resources has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA), as adopted by the State of California, 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 Conference 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 the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Conference in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Conference considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) The duration and preservation of the fund (2) The purposes of the Conference and the donor-restricted endowment fund (3) General economic conditions (4) The possible effect of inflation and deflation (5) The expected total return from income and the appreciation of investments (6) Other resources of the Conference (7) The investment policies of the Conference

24 22 (12) RESTRICTED NET ASSETS (Continued) The Conference s endowment by net asset class and changes in endowment assets at and for the year then ended, are as follows: Unrestricted Temporarily Restricted Permanently Restricted Total Endowment net assets, January 1, 2013 $ - $ 2,132,034 $ 2,956,018 $ 5,088,052 Investment Return (during the year): Investment Income - 124, ,510 Net Gain (Realized and Unrealized) - 684, ,788 Total Investment Return - 809, ,298 Appropriation of endowment assets for expenditure - (49,295) - (49,295) Re-designations * - (262,688) 262,688 - Endowment net assets, $ - $ 2,629,349 $ 3,218,706 $ 5,848,055 * During the year ended, the Conference redesignated previously reported temporarily restricted net assets totaling $262,688 to permanently restricted net assets based on donor information received from the Foundation.

25 THE LOS ANGELES EPISCOPAL AREA OFFICE- UNITED METHODIST CHURCH Statement of Assets, Liabilities, and Net Assets Modified-Cash Basis 23 ASSETS: Assets: Due from General Council on Finance and Administration $ - LIABILITIES: Liabilities: Due to Conference $ 619 Net Assets: Net deficit, unrestricted (619) Total liabilities and net assets $ - See Independent Auditor s Report The Accompanying Notes Are An Integral Part of These Financial Statements

26 THE LOS ANGELES EPISCOPAL AREA OFFICE- UNITED METHODIST CHURCH Statement of Revenues and Expenses Modified-Cash Basis Year Ended 24 REVENUE: Apportionment $ 156,561 GCFA grant 78,600 Total revenue 235,161 EXPENSES: Support staff salaries and benefits 126,325 Staff development 882 Travel 2,239 Consultant - computer 638 Office expenses 5,204 Cell phone expenses 2,081 Equipment and software 159 Annual conference events 1,787 Hospitality and other expenses 1,291 Total expenses 140,606 Increase in net assets 94,555 NET DEFICIT - Beginning of Year (carry-forward from 2012) (95,174) NET DEFICIT - End of Year $ (619) See Independent Auditor s Report The Accompanying Notes Are An Integral Part of These Financial Statements

27 THE LOS ANGELES EPISCOPAL AREA OFFICE- UNITED METHODIST CHURCH Statement of Cash Flows Year Ended 25 Cash flows from operating activities: Increase in net assets $ 94,555 Cash flows from financing activities Due to Conference (94,555) Net change in cash and cash equivalents - Cash, beginning of year (carry-forward from 2012) - Cash, end of year $ - See Independent Auditor s Report The Accompanying Notes Are An Integral Part of These Financial Statements