THE DONALD R. WATSON FOUNDATION, INC.
(A Component Unit of the University of North Carolina at Wilmington)
FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2015 AND 2014
Certified Public Accountants and Advisors Since 1947
Greensboro, NC | Raleigh, NC | Winston-Salem, NC
Member of a Global Association
of Independent Accounting
and Consultancy Firms
THE DONALD R. WATSON FOUNDATION, INC.
Table of Contents
Page No.
Independent Auditor's Report ………………………………………………………………
1
Financial Statements
Statements of Financial Position ………………………………………………………
3
Statements of Activities and Changes in Net Assets …………………………………… 4 - 5
Statements of Cash Flows ………………………………………………………………
6
Notes to Financial Statements ………………….……………………………………… 7 - 12
Certified Public Accountants and Advisors Since 1947
Greensboro, NC | Raleigh, NC | Winston-Salem, NC
Independent Auditor's Report
To the Board of Directors
The Donald R. Watson Foundation, Inc.
Wilmington, North Carolina
Report on the Financial Statements
We have audited the accompanying financial statements of The Donald R. Watson Foundation, Inc. (the
"Foundation"), (a North Carolina nonprofit corporation) which comprise the statement of financial position
as of June 30, 2015, and the related statements of activities and changes in net assets, and cash flows 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 accounting principles generally accepted in the United States of America; this includes the
design, implementation, and maintenance of internal control relevant to the preparation and fair presentation
of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our 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 Foundation's preparation and
fair presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Foundation's
internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of The Donald R. Watson Foundation, Inc. as of June 30, 2015, and the changes in its net assets
and its cash flows for the year then ended in accordance with accounting principles generally accepted in
the United States of America.
Page 1
Prior Period Financial Statements
The financial statements of The Donald R. Watson Foundation, Inc. as of June 30, 2014, were audited by
other auditors whose report dated September 16, 2014, expressed an unmodified opinion on those
statements.
Greensboro, North Carolina
September 8, 2015
Page 2
THE DONALD R. WATSON FOUNDATION, INC.
Statements of Financial Position
June 30, 2015 and 2014
Assets
2015
Cash and cash equivalents
Investments, net
Total Assets
2014
$
25,349
1,515,209
$ 1,540,558
$
29,815
1,576,581
$ 1,606,396
$
$
Net Assets
Net Assets:
Temporarily restricted
Permanently restricted
Total Net Assets
540,762
999,796
$ 1,540,558
See Notes to Financial Statements
Page 3
606,600
999,796
$ 1,606,396
THE DONALD R. WATSON FOUNDATION, INC.
Statement of Activities and Changes in Net Assets
Year Ended June 30, 2015
Revenues, Gains and Other Support
Interest and dividends
Realized gain on investments
Unrealized loss on investments
Miscellaneous other support
Total revenues, gains and
other support
Unrestricted
Temporarily
Restricted
Permanently
Restricted
$
$
$
2,629
85,789
23,396
(84,092)
-
-
Total
$
85,789
23,396
(84,092)
2,629
2,629
25,093
-
27,722
90,931
(90,931)
-
-
93,560
(65,838)
-
27,722
60,804
15,201
76,005
-
-
60,804
15,201
76,005
17,555
17,555
-
-
17,555
17,555
93,560
-
-
93,560
Changes in net assets
-
(65,838)
-
(65,838)
Net assets, beginning of year
-
606,600
999,796
1,606,396
-
$ 540,762
$ 999,796
$ 1,540,558
Net assets released from restrictions
Total revenues, gains, other
support and net assets
released from restrictions
Expenses:
Program services:
Scholarships
Contributions
Total program services
Supporting services:
Management and general
Total supporting services
Total expenses
Net assets, end of year
$
See Notes to Financial Statements
Page 4
THE DONALD R. WATSON FOUNDATION, INC.
Statement of Activities and Changes in Net Assets
Year Ended June 30, 2014
Revenues, Gains and Other Support
Interest and dividends
Realized gain on investments
Unrealized gain on investments
Total revenues, gains and
other support
Unrestricted
Temporarily
Restricted
Permanently
Restricted
$
$
$
Net assets released from restrictions
Total revenues, gains, other
support and net assets
released from restrictions
Expenses:
Program services:
Scholarships
Contributions
Total program services
Supporting services:
Management and general
Total supporting services
Total expenses
-
54,909
17,756
155,958
-
Total
$
54,909
17,756
155,958
-
228,623
-
228,623
89,034
(89,034)
-
89,034
139,589
-
228,623
-
57,465
14,366
71,831
-
-
57,465
14,366
71,831
17,203
17,203
-
-
17,203
17,203
89,034
-
-
89,034
-
139,589
Changes in net assets
-
139,589
Net assets, beginning of year
-
467,011
999,796
1,466,807
-
$ 606,600
$ 999,796
$ 1,606,396
Net assets, end of year
$
See Notes to Financial Statements
Page 5
THE DONALD R. WATSON FOUNDATION, INC.
Statements of Cash Flows
Years Ended June 30, 2015 and 2014
2015
Cash flows from operating activities:
Changes in net assets
Adjustments to reconcile changes in net assets to
net cash used in operating activities:
Net realized gains on investments
Net unrealized (gains) losses on investments
Donated services income
Donated services expense
Decrease (increase) in:
Prepaid expenses
Net cash used in operating activities
$
(65,838)
2014
$
139,589
(23,396)
84,092
(2,629)
2,629
(17,756)
(155,958)
-
(5,142)
1,633
(32,492)
86,338
(85,662)
676
81,934
(54,744)
27,190
Net decrease in cash and cash equivalents
(4,466)
(5,302)
Cash and cash equivalents, beginning
29,815
35,117
Cash flows from investing activities:
Proceeds from the sales or maturities of investments
Purchase of investments
Net cash provided by investing activities
Cash and cash equivalents, ending
$
See Notes to Financial Statements
Page 6
25,349
$
29,815
THE DONALD R. WATSON FOUNDATION, INC.
Notes to Financial Statements
NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The Donald R. Watson Foundation, Inc. (the "Foundation"), was organized on February 23, 1994
as a North Carolina non-profit corporation whose purpose is to support charitable, religious,
scientific and educational institutions located in the State of North Carolina provided that each
supported organization is tax exempt and eligible to receive charitable donations. The
organizations supported by the Foundation are the University of North Carolina at Wilmington
(emphasis on merit scholarships), Duke University (emphasis on medical research), and St. John's
Episcopal Church in Wilmington, NC. Funding may be provided for other similar educational,
medical research, religious or charitable organizations at the discretion of the Board of Directors.
The Foundation is entirely funded by earnings on the endowment funds of $999,796 that were
donated at the inception of the Foundation.
Although legally separate from the University of North Carolina at Wilmington (the "University"),
the Foundation is considered a component unit of the University because the University's governing
board appoints a majority of the Foundation's Board of Directors. Therefore, the Foundation’s
financial statements are blended with those of the University.
A summary of the Foundation's significant accounting policies follows:
Basis of Accounting
The Foundation uses the accrual basis of accounting; therefore, revenues are recognized when
earned and expenses are recognized when incurred. This basis of accounting conforms to
accounting principles generally accepted in the United States of America.
Basis of Presentation
Financial statement presentation follows the recommendations of the Financial Accounting
Standards Board in Accounting Standards Codification (ASC) Topic 958-205, Not-for-profit
Entities - Presentation of Financial Statements. Under ASC Topic 958-205, the Foundation is
required to report information regarding its financial position and activities according to three
classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently
restricted net assets. Net assets are defined as follows:
Unrestricted - Unrestricted net assets include resources which are available for the support of
the Foundation's operating activities.
Temporarily restricted - Temporarily restricted net assets include resources that have been
donated to the Foundation subject to restrictions as defined by the donor. Temporarily restricted
net assets are available to be used for contributions to the supported organizations and to meet
operating expenses of the Foundation.
Permanently restricted - Net assets subject to donor-imposed stipulations or interpretation of
applicable law that they be maintained permanently by the Foundation. Generally, the donors of
these assets or applicable law permit the Foundation to use the income earned on any related
investments for specific purposes.
Page 7
THE DONALD R. WATSON FOUNDATION, INC.
Notes to Financial Statements
NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Revenue Recognition
The Foundation follows ASC Topic 985-605, Revenue Recognition. In accordance with ASC 985605, contributions received are recorded as unrestricted, temporarily restricted or permanently
restricted support, depending on the existence and/or nature of any donor restrictions. All donorrestricted support is reported as an increase in temporarily or permanently restricted net assets,
depending on the nature of the restriction. When a restriction expires (that is, when a stipulated
time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are
reclassified to unrestricted net assets and reported in the statements of activities and changes in net
assets as net assets released from restrictions.
Income Tax Status
The Foundation is a not-for-profit organization that is exempt from income taxes from activities
directly related to its exempt purpose under Section 501(c)(3) of the Internal Revenue Code. The
Foundation has also been classified as an entity that is not a private foundation within the meaning
of Section 509(a) and qualifies for deductible contributions as provided in Section
170(b)(1)(A)(iv).
It is the Foundation's policy to evaluate all tax positions to identify any that may be considered
uncertain. All identified material tax positions are assessed and measured by a "more-likely-thannot" threshold to determine if the tax position is uncertain and what, if any, the effect of the
uncertain tax position may have on the financial statements. No material uncertain tax positions
were identified for 2015.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Foundation considers cash and cash equivalents to
include cash on hand, amounts held by banks and certificates of deposit with a maturity date of six
months or less and investments in shares of money market funds.
Investments
The Foundation reports marketable securities in accordance with Financial Accounting
Standards Board ASC Topic 958-320, Not-for-Profit Entities - Investments - Debt and Equity
Securities. ASC 958-320 requires investments in equity securities with readily determinable fair
values and all investments in debt securities to be measured at fair value at the statement of
financial position date. The fair value of the Foundation's investments is disclosed in Note 3.
Gains and losses on investments are reported in the statements of activities and changes in net
assets as increases or decreases in unrestricted net assets unless their use is temporarily or
permanently restricted by explicit donor stipulations. The Foundation reports gains and losses on
investments restricted for scholarships and grants in the statements of activities and changes in net
assets as increases or decreases in temporarily restricted net assets. The stated fair value of
investments at June 30, 2015 and 2014 was $1,515,209 and $1,576,581, respectively.
Page 8
THE DONALD R. WATSON FOUNDATION, INC.
Notes to Financial Statements
NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly, actual results could differ from those
estimates.
Contributions
Contributions are recognized as revenues in the period received. Contributions of assets other than
cash are recorded at their estimated fair value at the date of the gift.
Subsequent Events
Management has evaluated events and transactions for potential recognition or disclosure through
September 8, 2015, which is the date the financial statements were available to be issued.
NOTE 2 - CONCENTRATION OF CREDIT RISK
Cash is on deposit with the North Carolina State Treasurer and is pooled with state agencies and
similar institutions in the State Treasurer's short-term investment fund (STIF). These monies are
invested in accordance with G.S. 147-69.1 and as required by law are "readily convertible into
cash".
All investments of the fund are held either by the Department of State Treasurer or its agent in the
State's name. Any cash not invested by the fund is either covered by the Federal Deposit Insurance
Corporation or, pursuant to 20 NCAC 7, is collateralized to secure all deposits in excess of the
federal depository insurance coverage of $250,000. Money market funds held by brokerage firms
are secured by the Securities Investor Protection Corporation ("SIPC"). The SIPC insures the
assets held in member institutions up to $500,000 (including $250,000 for cash). The brokerage
firm also insures its accounts with an additional insurance policy for coverage beyond the SIPC
limits. This additional insurance covers any losses above the SIPC limit up to a firm aggregate
limit of $1 billion (including $1.9 million for cash per client).
NOTE 3 - FAIR VALUE MEASUREMENTS
Investments are recorded at fair value as required by FASB ASC 820-10, Fair Value
Measurements and Disclosures. ASC 820-10 provides a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities (level 1
measurements) and the lowest priority to unobservable inputs (level 3 measurements).
Page 9
THE DONALD R. WATSON FOUNDATION, INC.
Notes to Financial Statements
NOTE 3 - FAIR VALUE MEASUREMENTS (Continued)
The three levels of the fair value hierarchy are described below:
Level 1 Quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted
prices in active markets for similar assets or liabilities, quoted prices for identical or
similar assets or liabilities 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; or
Level 3 Unobservable inputs that are supported by little or no market activity and that reflect the
Foundation's own assumptions about market participants prices.
The following table sets forth by level, within the fair value hierarchy, the Foundation's investments
at fair value as of June 30, 2015 and 2014:
Fair Value Measurements at June 30, 2015
Total Fair
Value
Level 1
Level 2
Level 3
Mutual funds:
International funds
Commodity funds
Real estate funds
Equity funds
Fixed income funds:
Bond funds
Total
$
482,142
28,839
62,112
546,226
395,890
$ 1,515,209
$
482,142
28,839
62,112
546,226
395,890
$ 1,515,209
$
$
-
$
$
-
Fair Value Measurements at June 30, 2014
Total Fair
Value
Level 1
Level 2
Level 3
Mutual funds:
International funds
Commodity funds
Real estate funds
Equity funds
Fixed income funds:
Bond funds
Total
$
500,825
38,771
64,175
582,272
390,538
$ 1,576,581
$
500,825
38,771
64,175
582,272
390,538
$ 1,576,581
$
$
-
$
$
-
At June 30, 2015 and 2014, the net unrealized gains and market values of investments were as
follows:
2015
$ 1,515,209
1,382,158
$ 133,051
Aggregate fair value
Aggregate amortized cost
Net unrealized gain
Page 10
2014
$ 1,576,581
1,359,438
$ 217,143
THE DONALD R. WATSON FOUNDATION, INC.
Notes to Financial Statements
NOTE 3 - FAIR VALUE MEASUREMENTS (Continued)
For the years ended June 30, 2015 and 2014, the change in investments carried at market value was
a net unrealized gain (loss) of $(84,092) and $155,958, respectively.
For the years ended June 30, 2015 and 2014, brokerage fees included in management and general
expenses were $10,332 and $10,103, respectively.
NOTE 4 - TEMPORARILY RESTRICTED NET ASSETS
Temporarily restricted net assets are available for scholarships and related management and general
expenses of the Foundation. Temporarily restricted net assets of $540,762 and $606,600 were
available at June 30, 2015 and 2014, respectively.
NOTE 5 - ENDOWMENT FUND
The Foundation's endowment consists of one fund established to provide contributions to the
University of North Carolina at Wilmington (emphasis on merit scholarships), Duke University
(emphasis on medical research), and St. John's Episcopal Church. Funding may be provided for
other similar educational, medical research, religious, or charitable organizations at the discretion of
the Board of Directors. As required by generally accepted accounting principles, net assets
associated with the endowment fund are classified and reported based on the existence or absence
of donor restrictions.
The Foundation's Board of Directors interprets the North Carolina enacted version of the Uniform
Prudent Management of Institutional Funds Act ("NCUPMIFA") as requiring the presentation 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. They classify as permanently restricted net assets the
original value of the gift donated to the permanent endowment, including any subsequent gifts and
any accumulations to donor-restricted endowments made in accordance with the direction of
applicable gift instruments. The remaining portion of the endowment fund that is not classified as
permanently restricted net assets is classified as temporarily restricted net assets until those amounts
are appropriated by the Foundation in a manner consistent with standard of prudence prescribed by
NCUPMIFA.
The Foundation considers the following when making determination to appropriate endowment
funds:
•
Duration and preservation of the endowment fund.
•
The purpose of the Foundation and the endowment fund.
•
General economic conditions.
•
Possible effect of inflation or deflation.
•
Expected total return from the investment activity.
•
Other resources of the nonprofit.
•
The Foundation's investment policy.
Page 11
THE DONALD R. WATSON FOUNDATION, INC.
Notes to Financial Statements
NOTE 5 - ENDOWMENT FUND (Continued)
The Foundation's investment policy calls for a well diversified mix of investments consisting of
approximately 70% equity and 30% debt securities.
The Foundation's spending policy calculates the average market value of the investment fund as of
September 30 for the preceding three years and appropriates a 5% spending amount to be
distributed as follows: 80% to the University of North Carolina at Wilmington, 10% to Duke
University and 10% to St. John's Episcopal Church. The Board reviews and votes on the proposed
distribution at the annual meeting in December. During the years ended June 30, 2015 and 2014,
the Board voted to award a total of $76,005 and $71,831, respectively, from the temporarily
restricted fund for scholarships and contributions.
The following schedule summarizes the endowment fund activity:
Balance, June 30, 2013
Interest and other income, gross
Realized and unrealized gains
Released from restrictions
Permanently
Restricted
Investments
$ 999,796
-
Balance, June 30, 2014
Interest and other income, gross
Realized and unrealized gains
Released from restrictions
999,796
-
Balance, June 30, 2015
$
999,796
Temporarily Restricted
Investments
Cash
$ 431,894
$
35,117
54,744
165
173,714
(83,567)
(5,467)
576,785
85,662
(60,696)
(90,931)
$
510,820
29,815
127
$
29,942
Total
$ 1,466,807
54,909
173,714
(89,034)
1,606,396
85,789
(60,696)
(90,931)
$ 1,540,558
NOTE 6 - RELATED PARTY TRANSACTIONS
The University of North Carolina at Wilmington (the "University") is affiliated with The Donald R.
Watson Foundation, Inc. During the years ended June 30, 2015 and 2014, the University provided
facilities and support staff to the Foundation without charge. For the year ended June 30, 2015,
$2,629 of revenue and expense were recorded for these donated services. For the year ended June
30, 2014, the amounts of donated services was not significant and accordingly was not recorded.
The following schedule summarizes the Foundation's expenses associated with related party
scholarships for the years ended June 30, 2015 and 2014:
Scholarships
$
Page 12
2015
60,804
$
2014
57,465
THE DONALD R. WATSON FOUNDATION, INC.
Time and Costs for the Audit
Year Ended June 30, 2015
The Donald R. Watson Foundation, Inc.'s audit was conducted in approximately 30 hours at a total
cost of $5,500.