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EPISCOPAL DIOCESE OF PENNSYLVANIA AND AFFILIATES CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 EPISCOPAL DIOCESE OF PENNSYLVANIA AND AFFILIATES CONTENTS INDEPENDENT AUDITOR'S REPORT 1 FINANCIAL STATEMENTS Consolidated Statement of Financial Position 2 Consolidated Statement of Activities 3 Consolidated Statement of Functional Expenses 4 Consolidated Statement of Cash Flows 5 Notes to Consolidated Financial Statements 6 ADDITIONAL INFORMATION Consolidating Statement of Financial Position 15 Consolidating Statement of Activities 16 Statement of Activities – Episcopal Diocese of Pennsylvania Only 17 Statement of Functional Expenses – Episcopal Diocese of Pennsylvania Only 18 INDEPENDENT AUDITOR'S REPORT To the Committee on Finance and Property Episcopal Diocese of Pennsylvania and Affiliates Philadelphia, Pennsylvania We have audited the accompanying consolidated statement of financial position of the Episcopal Diocese of Pennsylvania (the "Diocese") and Affiliates (nonprofit organizations) as of December 31, 2005, and the related consolidated statements of activities, functional expenses, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Diocese's management. Our responsibility is to express an ...

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EPISCOPAL DIOCESE OF PENNSYLVANIA AND AFFILIATES     CONSOLIDATED FINANCIAL STATEMENTS     YEAR ENDED DECEMBER 31, 2005

EPISCOPAL DIOCESE OF PENNSYLVANIA AND AFFILIATES         CONTENTS     INDEPENDENT AUDITOR'S REPORT       FINANCIAL STATEMENTS    Consolidated Statement of Financial Position      Consolidated Statement of Activities        Consolidated Statement of Functional Expenses      Consolidated Statement of Cash Flows      Notes to Consolidated Financial Statements       ADDITIONAL INFORMATION      Consolidating Statement of Financial Position        Consolidating Statement of Activities        Statement of Activities – Episcopal Diocese of Pennsylvania Only        Statement of Functional Expenses – Episcopal Diocese of Pennsylvania Only                                                                

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2 3 4 5 6

15 16 17 18

 

INDEPENDENT AUDITOR'S REPORT  

          To the Committee on Finance and Property Episcopal Diocese of Pennsylvania and Affiliates Philadelphia, Pennsylvania       We have audited the accompanying consolidated statement of financial position of the Episcopal Diocese of Pennsylvania (the "Diocese" ) and Affiliates (nonprofit organizations) as of December 31, 2005, and the related consolidated statements of activities, functional expenses, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Diocese's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The prior-year summarized comparative information has been derived from the Episcopal Diocese of Pennsylvania's 2004 consolidated financial statements and, in our report dated July 7, 2005, we expressed an unqualified opinion on those financial statements. However, as described below in the third paragraph and in Note 1 to the financial statements, we determined that the consolidated financial statements of the Diocese should be consolidated with the financial statements of additional affiliated nonprofit organizations. As a result, had the 2004 financial statements been reissued, our opinion on those financial statements would have contained a qualification for not consolidating certain affiliates as required by U.S. generally accepted accounting principles.   We conducted our audit in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.   As more fully described in Note 1 to the financial statements, the financial statements of the Diocese are not consolidated with the financial statements of certain affiliated organizations. In our opinion, in order to conform with U.S. generally accepting accounting principles, the Diocese's financial statements should be consolidated with the financial statements of the affiliated organizations. The effects on the financial statements of this departure are not reasonably determinable.   In our opinion, except for the effects of not consolidating certain affiliated organizations, as discussed in the preceding paragraph, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Episcopal Diocese of Pennsylvania and Affiliates as of December 31, 2005 and the changes in their net assets, and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.   Our audit was conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The additional information on Pages 15 through 18 is presented for purposes of additional analysis and are not a required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.  

     Philadelphia, Pennsylvania July 11, 2006    

 

$ 41,955

-       97,138

     -  11,000       -  6,826,175       -       - $6,976,268

$ - $ 1,111,322 $ 1,452,044

 - 149,115 120,355  30,122 127,260 88,085

 16,512 16,911 - - 909,250 898,383      - 326,312 274 500  ,  27,181,928 52,150,633 54,167,286  650,000 14,317,749 14,237,884  13,139,900 13,139,900 12,932,537 $41,001,950 $82,248,053 $84,187,985

EPISCOPAL DIOCESE OF PENNSYLVANIA AND AFFILIATES     CONSOLIDATED STATEMENT OF FINANCIAL POSITION     December 31, 2005 with comparative totals for 2004      Temporarily Permanently Totals  Unrestricted Restricted Restricted 2005 2004 ASSETS    Cash $ 1,069,367  Contributions receivable  Pledges (net of allowance of  $221,000 in 2005 and  $380,000 in 2004) 149,115  Other -  Assessments receivable  (net of allowance of  $177,000 in 2005 and  $170,000 in 2004) 16,512  Other receivables (net of allowance of  $275,000 in 2005 and  $280,000 in 2004) 898,250  Prepaid expenses 326,312  Investments 18,142,530  Property and equipment, net 13,667,749  Beneficial interest in perpetual trusts -    Total assets  $34,269,835       LIABILITIES AND NET ASSETS   LIABILITIES    Mortgage note payable $ 1,550,000  Accounts payable 922,428  Grants payable 194,278  Postretirement benefit obligation 2,328,000  Total liabilities  4,994,706   NET ASSETS  Unrestricted 29,275,129  Temporarily restricted -  Permanently restricted -       Total net assets  29,275,129    Total liabilities and net assets  $34,269,835                             See accompanying notes

$ - -       -       -       -      

     -  6,976,268       -  6,976,268 $6,976,268

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$ - $ 1,550,000 $ 1,550,000 - 922,428 824,139      - 194,278 1,068,791  - 2,328,000 2,096,000  - 4,994,706 5,538,930

 - 29,275,129 31,955,757 - 6,976,268 6,472,587    41,001,950 41,001,950 40,220,711  41,001,950 77,253,347 78,649,055 $41,001,950 $82,248,053 $84,187,985

EPISCOPAL DIOCESE OF PENNSYLVANIA AND AFFILIATES     CONSOLIDATED STATEMENT OF ACTIVITIES     Year ended December 31, 2005 with comparative totals for 2004      Temporarily Permanently Totals  Unrestricted Restricted Restricted 2005 2004 REVENUE  Contributions  Congregation pledges $ 1,409,959 $ - $ - $ 1,409,959 $ 1,608,940  Other contributions 1,234,439 458,495 280,234 1,973,168 1,476,175  Congregation assessments 1,188,849 - - 1,188,849 1,177,857  Investment income 2,856,771 74,814 293,642 3,225,227 5,931,609  Change in value of beneficial interest  in perpetual trusts - - 207,363 207,363 620,283  Medical insurance premiums 2,636,430 - - 2,636,430 2,047,268  Other income 916,749 - - 916,749 799,144  Net assets released from restrictions 29,628 (29,628) - - -  Total revenue  10,272,825 503,681 781,239 11,557,745 13,661,276   EXPENSES     Program services  Grants and scholarships 874,400 - - 874,400 2,643,766  Health insurance program 2,665,098 - - 2,665,098 2,121,310  Financially assisted congregations 1,063,123 - - 1,063,123 1,206,462  Episcopal function 1,469,217 - - 1,469,217 1,085,889  Diocesan meetings  and communications 749,297 - - 749,297 889,981  Cathedral ministry 705,681 - - 705,681 866,130  Investment management expenses 398,700 - - 398,700 342,053  Apartment operations 396,788 - - 396,788 330,745  Retreat center operations 669,723 - 669,723 224,177 -  Other Diocesan programs 1,031,635 - - 1,031,635 1,690,545  Total program services  10,023,662 - - 10,023,662 11,401,058   Supporting services    Management and general 1,331,240 - - 1,331,240 1,199,842 Fundraising 848,551 - - 848,551 318,785            Unallocated national apportionment 750,000 - - 750,000 750,000     Total expenses  12,953,453 - - 12,953,453 13,669,685        CHANGE IN NET ASSETS  (2,680,628) 503,681 781,239 (1,395,708) (8,409)   NET ASSETS  Beginning of year,  as previously reported  Prior period adjustments  Beginning of year, as restated  End of year                          See accompanying notes

 31,955,757 6,472,587 40,220,711 78,649,055 81,444,261  - - - - (2,786,797)                    31,955,757 6,472,587 40,220,711 78,649,055 78,657,464 $29,275,129 $6,976,268 $41,001,950 $77,253,347 $78,649,055

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EPISCOPAL DIOCESE OF PENNSYLVANIA AND AFFILIATES     CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES     Year ended December 31, 2005 with comparative totals for 2004      Program Services          Health Financially Diocesan         Grants and Insurance Assisted Episcopal Meetings and Cathedral         Scholarships Program Congregations Function Communications Ministry   1.   Salaries 41 219 1,455 459 997 428 909 169 278 299 536 2.   Employee benefits 31 729 1,120 354 091 330 161 130 305 55 666 3. Bad debt expense - - - - - -                                4.   Depreciation - - - 98 476 29 841 111,517 5.   Facilities rental - - - - - - 6.   Grants and scholarships 764 212 - 249 035 - - 38,444 7.   Health insurance –  congregations - 2 607 209 - - - - 8.   Honoraria - - - 13 228 - - 9.   Insurance - - - 9 066 2 747 521 10. Interest - - - - - - 11. Meeting expense 3 034 106 - 31 572 29 812 - 12. National apportionment - - - - - - 13. Postage 1 036 37 - 10 776 4 253 3 465 14. Printing 209 8 - 2 181 230 554 - 15. Professional fees 13 779 54,487 - 143 372 56 585 25 815 16. Repairs and maintenance - 33 212 10 064 45,624 - - 17. Supplies 3 755 133 39 073 15 421 17 368 - 18. Telecommunications 1 142 40 - 11 882 4 689 5 974 19. Travel 3 399 120 - 120 580 13 957 -   20. Utilities - - - 13 198 4 000 50,641 21. Miscellaneous 10,886 383 - 183,531 47,791 51,110    $ 874,400 $2,665,098 $1,063,123 $1,469,217 $749,297 $ 705,681                                                             See accompanying notes

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             Supporting Services Totals  Investment Retreat Other Unallocated  Management Apartment Center Diocesan Management National  Expenses Operations Operations Programs and General Fundraising Apportionment 2005 2004   1. 60 603 11 617 331 555 281 959 479 727 274 345 2 840 200 2 467,018 - 2. 19 601 8 942 77 503 217 043 288 733 197 015 - 1 711 909 1 603,621 3. - - - - 35 452 - - 35 452 997 676 4. - 43 464 7 091 83 556 68 390 33 165 - 475 500 342,758 5. - - 76 400 - - - - 76 400 -     6. 53 564 - - - 5 712 - - 1 110 967 2 611,646    7. - - - - - - - 2 607 209 2 022 675                                   8. - - - 14 800 - - - 28 028 34 596 9. 13 386 13 510 3 379 7 692 9 093 3 279 - 62 673 127,677 10. - 110 402 - - - - - 110 402 106 369 11. - 855 949 26 684 24 476 19 608 - 137 096 212,132 12. - - - - - - 750 000 750 000 750 000 13. - 292 1 440 7 084 9 261 6 340 - 43 984 49,153 14. 7 015 59 913 1 433 1 915 1 335 - 245 622 186,232 15. 236 793 22 951 4 466 149 825 177 775 174 541 - 1 060 389 1 024,636 16. 525 72 234 32 682 28 180 32 315 13 689 - 268 525 260,830 17. 5 819 1 058 33 275 25 686 34 114 22 654 - 198 356 185,348 18. - 322 14 995 7 811 13 992 8 099 - 68 946 52,159 19. - 957 1 061 84 431 27 421 20 505 - 272 431 216,688 20. - 88 875 14 630 11 199 18 109 5 575 - 206 227 161,045 21. 1,394 21,250 69,384 84,252 104,755 68,401 - 643,137 257,426    $ 398,700 $ 396,788 $ 669,723 $1,031,635 $ 1,331,240 $ 848,551 $ 750,000 $ 12,953,453 $ 13,669,685                                                            

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EPISCOPAL DIOCESE OF PENNSYLVANIA AND AFFILIATES     CONSOLIDATED STATEMENT OF CASH FLOWS     Year ended December 31, 2005 with comparative totals for 2004          CASH FLOWS FROM OPERATING ACTIVITIES   Change in net assets     Adjustments to reconcile change in net assets to net cash  provided by (used for) operating activities    Realized and unrealized gain on investments  Depreciation  Increase in value of beneficial interest in perpetual trusts  (Increase) decrease in  Contributions and accounts receivable  Prepaid expenses  Increase (decrease) in  Accounts payable  Grants payable  Postretirement benefit obligation  Net cash used for operating activities     CASH FLOWS FROM INVESTING ACTIVITIES  Purchase of investments  Proceeds from sale of investments   Purchase of property and equipment    Net cash provided by investing activities         Decrease in cash     CASH   Beginning of year    End of year       SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION  Interest paid                                     See accompanying notes  

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2005 $(1,395,708)  (220,875)  475,500  (207,363)  (78,403)  (51,812)  98,289  (874,513)  232,000  (2,022,885)  (3,015,288)  5,252,816  (555,365)  1,682,163  (340,722)  1,452,044 $ 1,111,322 $ 110,402

2004 $ (8,409)  (3,049,101)  342,758  (620,283)  (95,673)  (53,514)  653,177  834,413  168,000  (1,828,632)  (537,214)  5,738,786  (3,676,320)  1,525,252  (303,380)  1,755,424 $ 1,452,044 $ 106,369

EPISCOPAL DIOCESE OF PENNSYLVANIA AND AFFILIATES     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     December 31, 2005     (1) NATURE OF OPERATIONS      Principles of Consolidation U.S. generally accepted accounting principles require a not-for-profit organization to consolidate the financial statements of affiliated not-for-profit organizations when it has (a) certain kinds of control, or (b) other kinds of control coupled with an economic interest.   The consolidated financial statements include the accounts of the Episcopal Diocese of Pennsylvania (the "Diocese" ), and the following affiliates - the Cathedral Church of the Saviour, also known as The Philadelphia Cathedral (the "Cathedral" ), the Church Foundation (the "Foundation" ), Wapiti: The Wilderness Retreat ( "Wapiti" ) and 3719 Chestnut Corporation. All significant inter-organization balances and transactions have been eliminated.   A review of the control and financial structures of Episcopal Community Services ( "ECS" ) and Cathedral Village ( "CV" ) resulted in a conclusion that the Diocese is required by U.S. generally accepted accounting principles to include these nonprofit entities in the Diocesan consolidated financial statements. However, because the Diocese exercises no direct control over either entity other than approval of directors by the Bishop and Standing Committee, and because the financial affairs of each are entirely separate and the Diocese is not responsible for the obligations of either, the Diocese has concluded that it would be misleading to consolidate with these entities and has not done so.      Diocese of Pennsylvania The Diocese is an unincorporated association of churches formed by an act of association of May 1, 1784. The Diocese exists and operates pursuant to a Constitution (the "Diocesan Constitution" ) adopted in 1814, and subsequently amended from time to time. The Diocese is governed pursuant to certain Canons (the "Diocesan Canons" ) adopted in 1829 and subsequently amended from time to time.   Article I of the Diocesan Constitution provides that the Diocese "accedes to, recognizes and adopts" the Constitution and Canons of the Protestant Episcopal Church in the United States of America (the "National Constitution and Canons" ), and "acknowledges its authority accordingly."    Canon I.7.4 of the National Constitution and Canons states: "All real and personal property held by or for the benefit of any Parish, Mission or Congregation is held in trust for this [National] Church and the Diocese thereof in which such Parish, Mission or Congregation is located. The existence of this trust, however, shall in no way limit the power and authority of the Parish, Mission or Congregation otherwise existing over such property as long as the particular Parish, Mission or Congregation remains a part of, and subject to, this Church and its Constitution and Canons " .   Although Canon I.7.4, as well as certain elements of the Diocesan Canons with parallel effect, provide that all property in the Diocese, both real and personal, is held in trust for the National Church and the Diocese, the Diocese has elected not to include all of its interest in such real and personal property in the accompanying financial statements. Solely for purposes of convenience, the accompanying financial statements include only real and personal property that is under the current active supervision of the Diocese.      The Cathedral Church of the Saviou r The Cathedral, located in West Philadelphia, is designated in the Diocesan Canons as the Cathedral of the Diocese, the site of the Bishop's cathedra and an active parish of the Diocese. The Cathedral is organized as a Pennsylvania nonprofit corporation. It serves as the site of many diocesan-wide functions as well as being the diocesan center for a ministry of education and its facilities are also used by other community organizations.        

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EPISCOPAL DIOCESE OF PENNSYLVANIA AND AFFILIATES     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     December 31, 2005        The Church Foundation The Foundation is a Pennsylvania nonprofit corporation that was created as a service organization for the Diocese. The Foundation serves as trustee, custodian and investment advisor for certain assets owned by the Diocese and churches, chapels, missions and other institutions within the Diocese and provides ministerial services with respect to real estate as directed by the Diocese.   The Foundation's primary activity is managing the Consolidated Fund, a balanced co-mingled fund of stocks and fixed income securities providing a diversified investment medium for the Diocese, its parishes and other related institutions. In general, the Foundation holds title to real property of the Diocese, including the Church House and any improvements made thereto. In addition, the Foundation holds title to many, but not all, real property of parishes and missions of the Diocese.   The Foundation does not reflect in its statement of financial position any of the real property to which it holds title.      Wapiti: The Wilderness Retreat Wapiti is a Pennsylvania nonprofit corporation that was created as a service organization for the Diocese to manage and operate a retreat and camp facility. The retreat and camp facility is located on 618 acres of waterfront property on the Elk River in the state of Maryland held by the Diocese under an agreement with The Conservation Fund. Wapiti was incorporated in May 2004 and began operations in January 2005.      3719 Chestnut Corporation 3719 Chestnut Corporation is a Pennsylvania nonprofit corporation that was created for the purpose of owning and operating a 27-unit apartment building that is contiguous with the Cathedral. The apartment business is managed by a commercial property manager. It is expected that the existing building will eventually be replaced by new facilities that will contribute to the ministry of the Cathedral.     (2) SIGNIFICANT ACCOUNTING POLICIES     Basis of Accounting    The financial statements have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables, payables and other liabilities.      Basis of Presentation The Diocese and Affiliates classify their net assets, revenues, expenses, gains and losses based upon the existence or absence of donor-imposed restrictions as follows:       Unrestricted net assets   Net assets that are not subject to donor-imposed restrictions.       Temporarily restricted net assets   Net assets that are subject to donor-imposed restrictions that will be satisfied by actions of the Diocese and Affiliates and/or the passage of time. When a restriction is satisfied, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as "net assets released from restrictions."       Permanently restricted net assets   Net assets that are subject to donor-imposed restrictions that such assets be maintained indefinitely.    

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EPISCOPAL DIOCESE OF PENNSYLVANIA AND AFFILIATES     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     December 31, 2005        Summarized Prior-Year Information   The financial statements include certain prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the financial statements for the year ended December 31, 2004, from which the summarized information was derived.      Estimates Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.    Investments Investments in equity securities with readily determinable fair values and all investments in debt securities are reported at fair value, as determined by quoted market prices, with gains and losses included in the statement of activities. Gain or loss on sale of securities is determined on the basis of average cost. Investment income is recorded as earned.   The Diocese and Affiliates invest in a professionally-managed portfolio that contains various types of securities (See Note 4) . Such investments are exposed to market and credit risk. Due to the level of risk associated with such investments, and the level of uncertainty related to changes in the value of such investments, it is at least reasonably possible that changes in the near term would materially affect investment balances and the amounts reported in the financial statements.      Property and Equipment   The Diocese and Affiliates capitalize all expenditures for property and equipment in excess of $1,000. Property and equipment is carried at cost if purchased and at fair value at the date of donation if contributed. Depreciation is computed using the straight-line method over the estimated lives of the assets.      Beneficial Interest in Perpetual Trusts The beneficial interest in perpetual trusts is reported at fair market value and is equal to the Diocese and Affiliates' share of the assets in the trusts.      Contributions Contributions received are recorded as unrestricted, temporarily restricted or permanently restricted net assets depending on the absence or existence and nature of any donor restrictions. Donor-restricted contributions whose restrictions are satisfied in the same period are reported as unrestricted.   Unconditional contributions are recognized as revenue when the related promise to give is received. Conditional contributions are recognized as revenue when the conditions are satisfied.      Intentions to Give Congregation pledges for future periods are considered to be intentions to give. Intentions to give are not recognized as contributions until they become unconditional promises to give. At December 31, 2005 the Diocese had received congregation pledges for its 2006 program budget of approximately $1,400,000.      Congregation Assessments Congregation assessments are recognized as revenue in the period that the Diocese provides services to the Congregations. Congregation assessments collected in advance of the services being performed are presented as deferred revenue.    

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