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The Florida Bar and Subsidiaries

Financial Statements

June 30, 2015 and 2014

The Florida Bar and Subsidiaries

Table of Contents June 30, 2015 and 2014

Independent Auditors’ Report

1 - 2

Management’s Discussion and Analysis

3 - 7

Consolidated Financial Statements

Consolidated Statements of Net Position

8

Consolidated Statements of Revenues, Expenses, and Changes in Net Position

9

Consolidated Statements of Cash Flows

10 - 11

Notes to Consolidated Financial Statements

12 - 28

Other Report

Independent Auditors’ Report on Internal Control Over Financial Reporting and On Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards

29- 30

Independent Auditors’ Report Board of Governors The Florida Bar Tallahassee, Florida We have audited the
Independent Auditors’ Report Board of Governors The Florida Bar Tallahassee, Florida We have audited the

Independent Auditors’ Report

Board of Governors The Florida Bar Tallahassee, Florida

We have audited the accompanying consolidated financial statements of the business-type activities of The Florida Bar and Subsidiaries (The Florida Bar), as of and for the years ended June 30, 2015 and 2014, and the related notes to the financial statements, which collectively comprise The Florida Bar’s basic consolidated financial statements as listed in the table of contents.

Management’s Responsibility for the Consolidated 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 financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ 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 auditors’ 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 respective financial position of the business-type activities of The Florida Bar, as of June 30, 2015 and 2014, and the respective changes in financial position and cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Board of Governors The Florida Bar

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 3 through 7 is presented to supplement the basic consolidated financial statements. Such information, although not a part of the basic consolidated financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic consolidated financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic consolidated financial statements, and other knowledge we obtained during our audit of the basic consolidated financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements that collectively comprise The Florida Bar’s basic consolidated financial statements. The supplementary information is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements.

The supplementary information is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare 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 certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic consolidated financial statements as a whole.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated December 4, 2015 on our consideration of The Florida Bar’s internal control over financial reporting and on our tests of its compliance with certain provisions of law, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering The Florida Bar’s internal control over financial reporting and compliance.

internal control over financial reporting and compliance. CARR, RIGGS & INGRAM, LLC Tallahassee, FL December 4,

CARR, RIGGS & INGRAM, LLC

Tallahassee, FL December 4, 2015

Management’s Discussion and Analysis

The Florida Bar and Subsidiaries

Management’s Discussion and Analysis

With more than 100,000 members, The Florida Bar is the statewide professional and regulatory organization for lawyers. Headquartered in Tallahassee, The Florida Bar is a unified state bar by rule of the Supreme Court of Florida. Membership in The Florida Bar is a necessary component of The Supreme Court of Florida’s regulation of all lawyers licensed to practice law in Florida (Article V, Section 15, Florida Constitution). The foundation for the organization is built on a philosophy of equity and ethics. Through its programs and services, the Bar supports this philosophy with four pillars that function as the mission of The Florida Bar: providing public service, protecting rights, promoting professionalism and pursuing justice. The following management’s discussion and analysis is intended to provide the readers of The Florida Bar’s financial statements a general overview of the financial activities during the last two fiscal years (FY) that ended on June 30, 2015 and 2014.

Financial Highlights

The Florida Bar’s total net position decreased approximately $1.3 million (or -2.1%) in FY15 as compared to FY14 as a result of an operating loss of almost $1.3 million and an investment loss of $183,294. In FY14, the Florida Bar’s total net position increased $6.1 million (or 10.8%) as compared to FY13 resulting from a combination of operating income of $723,880 and an investment gain of $5.4 million.

Total operating revenues for FY15 increased by $673,496 (or 1.5%) as compared to FY14 and increased $1.4 million (or 3.4%) in FY14 as compared to FY13. The increase in FY15 was comprised of an increase in membership and other fees from members as well as growth in sales of products and services. The increase in operating revenue in FY14 consisted of growth in membership supplemented by a pick-up in court ordered restitution and advertising revenue. Total operating expenses increased approximately $2.7 million (or 6.1%) in FY15 and $1.4 million (or 3.4%) in FY14. The increase in operating expenses in FY15 included a combination of a complex disciplinary case in South Florida that necessitated the use of outside counsel, an increase in claims paid by the Client Security Fund, and necessary improvements to the technology infrastructure. The increase in operating expenses in FY14 came primarily as a result of increasing health care and other employment related costs.

The resources available to spend for the General Fund of The Florida Bar were approximately $1.4 million less than budgeted for FY15 and were approximately $2.6 million more than budgeted for FY14. These results were primarily attributable to the actual gains and losses incurred by the General Fund’s share of The Florida Bar’s investment income which was budgeted at $1.5 million for both years and experienced an actual loss for the General Fund of $127,560 for FY15 and an actual gain of $3.9 million for FY14. The Florida Bar was able to keep expenses within budgeted limits in both years.

Overview of the Financial Statements

This annual report consists of three parts – management’s discussion and analysis, the basic consolidated financial statements, and an optional section that presents supplementary information. The supplementary information includes consolidating schedules and comparisons of actual results to budgeted results. The basic consolidated financial statements present the consolidated financial position, results of operations, and cash flows of the Florida Bar and its subsidiaries. The Florida Bar performs two overall activities which are to serve as the statewide regulator of the practice of law and the professional association of lawyers. Its activities are accounted for as a proprietary type enterprise fund because it charges fees to provide its services similar to a business enterprise.

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The Florida Bar and Subsidiaries

Management’s Discussion and Analysis

The Consolidated Statement of Net Position includes all of The Florida Bar’s assets and liabilities. The net position is the difference between The Florida Bar’s assets and liabilities. The Consolidated Statement of Revenues, Expenses, and Changes in Net Position include all of The Florida Bar’s revenues and expenses regardless of when the cash is received or paid. A Consolidated Statement of Cash Flows provides additional information regarding the change in The Florida Bar’s cash position. The notes (beginning on page 12) are an integral part in providing a full understanding of The Florida Bar’s financial statements.

Summary of Operations and Condensed Consolidated Financial Information CONDENSED CONSOLIDATED STATEMENTS OF NET POSITION

 

% Change

% Change

June 30,

2015

2014

2013

2014-2015 2013-2014

Assets Current assets Capital assets, net Other non-current assets

$

70,770,430

$

73,302,786

$

66,124,233

-3.5%

10.9%

10,239,598

10,363,930

10,734,193

-1.2%

-3.4%

3,000,000

-

-

100.0%

0.0%

Total assets

84,010,028

83,666,716

76,858,426

0.4%

8.9%

Liabilities Current liabilities Non-current liabilities

 

20,112,428

18,549,400

17,771,868

8.4%

4.4%

2,565,462

2,439,156

2,519,415

5.2%

-3.2%

Total liabilities

22,677,890

20,988,556

20,291,283

8.0%

3.4%

Net position Invested in capital assets, net of related debt Restricted for permanent endowment Restricted for expendable scholarships Unrestricted

 

10,239,598

10,363,930

10,734,193

-1.2%

-3.4%

99,978

-

-

100.0%

0.0%

63,803

58,967

50,008

8.2%

17.9%

50,928,759

52,255,263

45,782,942

-2.5%

14.1%

Total net position

$

61,332,138

$

62,678,160

$

56,567,143

-2.1%

10.8%

The Florida Bar’s cash and investments decreased to $68.8 million in FY15 from $71.8 million in FY14 and increased to $71.8 million in FY14 from $64.4 million in FY13. The decrease in cash and investments in FY15 was largely due to a $3.0 million loan to the Florida Bar Foundation to assist with programs to improve access to justice for all Florida citizens. The increase in FY14 reflected the addition of cash provided by operations of $2.8 million and the cash earnings on the investment portfolio of $4.4 million. The decrease in capital assets to June 30, 2015 from June 30, 2013 has been a function of the aging of The Florida Bar’s investment in its building, improvements, and internally developed software which is reflected as depreciation and amortization.

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The Florida Bar and Subsidiaries

Management’s Discussion and Analysis

Total net position of the Florida Bar decreased to $61.3 million in FY15 from $62.7 million in FY14, a decrease of $1.4 million or 2.1%. The largest portion of the Florida Bar’s net position reflects its substantial investment portfolio of $54.6 million. This portfolio allows the Florida Bar to continue to delay increasing the required annual fees charged to its members to regulate the practice of law in Florida. The last membership fee increase was over 14 years ago.

The remaining balance of net position reflects the Florida Bar’s investment in capital assets (e.g. land, buildings, and equipment) as well as assets restricted by donors. The Florida Bar uses the capital assets to provide services to its members, and the restricted assets may only be used for the donor-specified purposes; consequently these assets are unavailable for future operational spending.

For more detailed information, see the accompanying Consolidated Statements of Net Position.

CONDENSED CONSOLIDATED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION

 

% Change

% Change

June 30,

2015

2014

2013

2014-2015 2013-2014

Operating revenues

$

44,849,107

$

44,175,611

$

42,708,054

1.5%

3.4%

Operating expenses

(46,110,311)

(43,451,727)

(42,032,019)

6.1%

3.4%

Net operating income

(1,261,204)

723,884

676,035

-274.2%

7.1%

Non-operating revenues Non-operating expenses

 

100,000

5,394,950

2,528,194

-98.1%

113.4%

(184,818)

(7,817)

(5,778)

2264.3%

35.3%

Net non-operating revenues

(84,818)

5,387,133

2,522,416

-101.6%

113.6%

Change in net position Net position, beginning

 

(1,346,022)

6,111,017

3,198,451

-122.0%

91.1%

62,678,160

56,567,143

53,368,692

10.8%

6.0%

Net position, ending

$

61,332,138

$

62,678,160

$

56,567,143

-2.1%

10.8%

While the Florida Bar has not increased the annual fee required by its members, the revenue from annual fees received by The Florida Bar have consistently increased by approximately 2% per year, commensurate with the membership growth rate. This was supplemented by additional collections for court ordered disciplinary costs as well as sales of continuing education products and other membership services. The growth in fees in FY15 was offset by reductions in other revenue sources such as income from advertising in The Bar News and Journal and proceeds from events and programs sponsored by the Young Lawyers division.

Operating expenses increased 6.1% in FY15 which reflects the addition of several new programs such as Vision 2016, the Access to Justice Commission, and continuing upgrades to The Florida Bar’s technology infrastructure. The 3.4% increase in operating expenses in FY14 was related in part to the start-up of the Vision 2016 program, the Leadership Academy program, and required repairs on the headquarters building.

Non-operating revenues decreased in FY15 because of the unfavorable investment climate.

For more detailed information, see the accompanying Consolidated Statements of Revenues, Expenses, and Changes in Net Position.

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The Florida Bar and Subsidiaries

Management’s Discussion and Analysis

Budgetary Highlights

For the years ended June 30, 2015 and 2014, The Florida Bar’s budget funded most departments at a continuation level. The original operating budgets for the General Fund (excluding the wholly- owned subsidiary and controlled entities) approved by the Florida Supreme Court, planned on a decrease in net assets of ($852,388) and an increase of $1,910,380 for FY15 and FY14, respectively before transfers to other funds. After Board of Governor amendments, the planned decrease for FY15 became ($1,743,752) and the planned increase for FY14 became $1,445,714.

For FY15, significant budget amendments included funding for hiring outside counsel to assist with a complicated multi-attorney discipline case, hiring a consultant to assist with the new commission on Access to Justice and hiring a consultant to assist with an IT strategic plan. For FY14, significant budget amendments included the creation of a new program to study the future of the practice of law, special funding to educate the general public about law related topics, and the implementation of a new website platform and layout.

Included in the supplemental information is an actual to budget comparison for each department for

FY15.

CAPITAL ASSETS

The Florida Bar invested the following in Capital Assets:

 

% Change

% Change

June 30,

2015

2014

2013

2014-2015 2013-2014

Land Building and improvements Landscaping and parking Equipment and furnishings Software Software in development Construction in progress

$

1,306,690

$

1,306,690

$

1,306,690

0.0%

0.0%

11,433,722

11,346,008

11,349,427

0.8%

0.0%

120,318

120,318

120,318

0.0%

0.0%

4,948,878

4,874,529

4,831,457

1.5%

0.9%

5,497,229

5,108,938

4,431,345

7.6%

15.3%

923,303

393,822

280,310

134.4%

40.5%

-

-

11,220

0.0%

-100.0%

Total, prior to depreciation and amortization

24,230,140

23,150,305

22,330,767

4.7%

3.7%

Accumulated depreciation

and amortization

(13,990,542)

(12,786,375)

(11,596,574)

9.4%

10.3%

Net capital assets

$

10,239,598

$

10,363,930

$

10,734,193

-1.2%

-3.4%

Additions to software and software in development account for the majority of the increases in capital assets and included costs of developing new programs or significantly updating ones already in use. For FY15, this was largely due to continued work to update and improve The Florida Bar’s website. Presently, The Florida Bar has no plans to significantly alter its investment in capital assets other than to redesign the IT infrastructure and replace old legacy systems.

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The Florida Bar and Subsidiaries

Management’s Discussion and Analysis

Future Financial Plan

The Florida Bar was created by the Supreme Court of Florida to assist the Supreme Court in regulating the practice of law in Florida. The Florida Bar is primarily funded through required annual fee payments by lawyers, sales of continuing education programs to lawyers, and other fees for the regulation of attorneys or sales of legal related products and services. There is no plan to materially change these revenue streams for the next two years. Accordingly, there are no present plans to materially increase the scope or nature of the services provided to the citizens of Florida and the lawyers authorized to serve them.

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Consolidated Financial Statements

The Florida Bar and Subsidiaries

Consolidated Statements of Net Position

June 30,

2015

2014

Assets Current assets Cash and cash equivalents Short-term investments Accounts receivable, net Prepaid expenses and other assets

$

14,186,122

$

18,517,501

54,646,328

53,331,083

953,486

731,293

984,494

722,909

Total current assets

70,770,430

73,302,786

Noncurrent assets Capital assets, net:

Land and improvements Software and software development in process Accumulated depreciation and amortization

 

17,809,608

17,647,545

6,420,532

5,502,760

(13,990,542)

(12,786,375)

Total capital assets, net

10,239,598

10,363,930

Other non-current assets Note receivable due in more than one year

3,000,000

-

Total other non-current assets

3,000,000

-

Total assets

84,010,028

83,666,716

Liabilities Current liabilities Accounts payable Client Security Fund claims payable Accrued expenses Unearned revenues Security deposits

 

2,049,500

1,806,666

1,001,043

1,332,838

1,278,010

1,263,803

15,734,941

14,097,164

48,934

48,929

Total current liabilities

20,112,428

18,549,400

Non-current liabilities Compensated absences payable

2,565,462

2,439,156

Total non-current liabilities

2,565,462

2,439,156

Total liabilities

22,677,890

20,988,556

Net Position Net investment in capital assets Restricted for permanent endowment Restricted for expendable scholarships Unrestricted

 

10,239,598

10,363,930

99,978

-

63,803

58,967

50,928,759

52,255,263

Total net position

$

61,332,138

$

62,678,160

See accompanying notes to the consolidated financial statements.

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The Florida Bar and Subsidiaries

Consolidated Statements of Revenues, Expenses and Changes in Net Position

Years ended June 30,

2015

2014

Operating revenues Annual fees Other fees from members Sales of products and services Communication with members and the public Young lawyers Other revenue

$

25,586,032

$

25,061,587

7,024,507

6,817,452

9,240,309

9,166,020

1,435,030

1,523,156

1,010,177

1,058,690

553,052

548,706

Total operating revenues

44,849,107

44,175,611

Operating expenses Regulation of the practice of law Cost of products and services provided to members Unauthorized practice of law Public service programs Communications with members and the public Administration Legislation Young lawyers Depreciation and amortization Other programs and costs

 

18,657,818

17,758,333

10,333,661

10,578,827

1,684,219

1,671,903

3,306,055

2,261,160

4,081,577

3,982,243

3,324,911

2,666,458

581,926

571,916

961,875

832,757

1,409,854

1,324,280

1,768,415

1,803,850

Total operating expenses

46,110,311

43,451,727

Operating (loss) income

(1,261,204)

723,884

Non-operating (expenses) revenues Investment (loss) earnings Additions to permanent endowment Loss on disposal of capital assets

 

(183,294)

5,394,950

100,000

-

(1,524)

(7,817)

Total non-operating (expenses) revenues

(84,818)

5,387,133

Change in net position

(1,346,022)

6,111,017

Total net position, beginning of year

62,678,160

56,567,143

Total net position, end of year

$

61,332,138

$

62,678,160

See accompanying notes to the consolidated financial statements.

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The Florida Bar and Subsidiaries

Consolidated Statements of Cash Flows

Years ended June 30,

2015

2014

Cash flows from operating activities:

Receipts from members, customers and other sources Payments to employees, suppliers and other vendors

$

47,590,060

$

48,371,137

(46,235,876)

(45,604,319)

Net cash flows from operating activities

1,354,184

2,766,818

Cash flows from non-capital financing activities:

Permanent endowment donations

100,000

-

Net cash flows from non-capital financing activities

100,000

-

Cash flows from capital financing activities:

Acquisition of capital assets

(1,287,046)

(925,180)

Net cash flows from capital and related financing activities

(1,287,046)

(925,180)

Cash flows from investing activities:

Redemption of investments Purchase of investments Payments to make loan Investment (loss) income, net

 

28,731,385

25,870,733

(28,381,357)

(32,679,170)

(3,000,000)

-

(1,848,545)

4,430,859

Net cash flows from investing activities

(4,498,517)

(2,377,578)

Net decrease in cash and cash equivalents

(4,331,379)

(535,940)

Cash and cash equivalents, beginning of year

18,517,501

19,053,441

Cash and cash equivalents, end of year

$

14,186,122

$

18,517,501

See accompanying notes to the consolidated financial statements.

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The Florida Bar and Subsidiaries

Consolidated Statements of Cash Flows (Continued)

Years ended June 30,

2015

2014

Reconciliation of operating (loss) income to net cash flows from operating activities:

Operating (loss) income Adjustments to reconcile operating (loss) income to net cash provided by operating activities:

$

(1,261,204)

$

723,884

Depreciation and amortization (Increase) decrease in:

1,409,854

1,324,280

Accounts receivable, net Prepaid expenses and other assets Increase (decrease) in:

 

(222,193)

(87,190)

(261,585)

145,225

Accounts payable Claims payable Accrued expenses Unearned revenues Security deposits Compensated absences payable

242,834

27,522

(331,795)

(735,509)

14,207

47,916

1,637,755

1,400,946

5

3

126,306

(80,259)

Net cash flows from operating activities

$

1,354,184

$

2,766,818

Non-cash investing, capital, and other financing acitivities Change in the fair value of investments

$

(2,266,294)

$

3,739,662

Loss on disposal of assets

$

(1,524)

$

(7,817)

See accompanying notes to the consolidated financial statements.

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The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 1 – NATURE OF BUSINESS

The Florida Bar and Subsidiaries (The Florida Bar) is the statewide professional organization of lawyers. It serves as an advocate and intermediary for attorneys, the court and the public. The Florida Bar was established as a unified state bar by rule of the Supreme Court of Florida. The Florida Bar regulates lawyers in Florida, investigates the unauthorized practice of law, offers continuing legal education, publishes law journals and offers other member services.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reporting Entity

The Florida Bar is a unified state bar organized as an arm of the Supreme Court of the State of Florida. It is considered a governmental entity because it was established by, and has the potential to be dissolved by, the Supreme Court of Florida. Therefore, The Florida Bar adopted the provisions of Statement No. 34 (“Statement No. 34”) of the Governmental Accounting Standards Board (GASB) “Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments,” as amended by Statement No. 37.

In evaluating The Florida Bar as a reporting entity, management has considered all potential component units for which The Florida Bar may be financially accountable and if found to be financially accountable, be required to be included in The Florida Bar’s financial statements. The Florida Bar is financially accountable if it appoints a voting majority of an organization’s governing board and (1) it is able to impose its will on an organization or (2) there is a potential for an organization to provide specific financial benefit to or impose specific financial burden on The Florida Bar. Additionally, The Florida Bar is required to consider other organizations for which the nature and significance of their relationship with The Florida Bar are such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete. Management’s analysis has disclosed no component units that should be included in The Florida Bar’s financial statements.

Basis of Presentation

The Florida Bar is accounted for as a proprietary type enterprise fund. Enterprise funds are used to account for activities that are financed and operated in a manner similar to private business enterprises: (1) where the costs of providing goods and services to the general public on a continuing basis are to be financed through user charges; or (2) where the periodic determination of net income is considered appropriate. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing goods and services in connection with a proprietary fund’s ongoing operations. Operating expenses for The Florida Bar include the costs of personnel, contractual services, supplies, utilities, repairs and maintenance, and depreciation and amortization of capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses.

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The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Basis of Accounting

Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. These consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Under this method, revenues are recognized when they are earned and expenses are recognized when they are incurred. The measurement focus of proprietary fund types is on a flow of economic resources method, which emphasizes the determination of net income, financial position, and cash flow. All assets and liabilities, current and non-current, are accounted for in the Consolidated Statements of Net Position.

Cash and Cash Equivalents

All demand deposit accounts and short-term highly liquid investments with original maturities of three months or less are reported as cash equivalents.

Investments

Investments are reported at fair values. Fair values for securities traded on national or international exchanges or over-the-counter are valued at quoted market prices. Fair values of securities not traded on an exchange or over-the-counter are estimated based on the net asset values provided by the investee calculated in accordance with FASB Topic 946.

Capital Assets

Capital assets are stated at cost less accumulated depreciation and amortization. The value of software developed for The Florida Bar’s use includes all direct and indirect costs that are related to development activities. The costs of capital assets are depreciated or amortized over the estimated useful lives of the related assets, ranging from 3 to 40 years, using the straight-line method. When capital assets are retired or otherwise disposed of, the costs and related accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is reflected in the Consolidated Statements of Revenues, Expenses and Changes in Net Position, in the period of disposal.

Claims Payable

The Florida Bar voluntarily created the Clients’ Security Fund (the Fund) to provide possible compensation to people who have suffered financial losses due to misappropriation of funds by errant Florida Bar members. The Fund is financed by $25 of the annual fees due from each Florida Bar member who is in good-standing (including inactive members). Claims payable represent amounts that have been approved for payment from the Fund.

Unearned Revenues

Unearned revenues consist primarily of membership fees collected in advance, prepaid advertising and prepaid legal education courses.

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The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Allocation of Expenses

The costs of providing the various programs, services, and other activities have been summarized on a functional basis in the Consolidated Statement of Revenues, Expenses and Changes in Net Position. Accordingly, certain costs have been allocated among the programs and supporting services benefited.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of The Florida Bar and its wholly-owned subsidiary, The Florida Bar Building Corporation, and its other controlled entities, Florida Lawyers Association for the Maintenance of Excellence, Inc. and The Florida Attorneys Charitable Trust. All significant intercompany transactions and accounts have been eliminated in consolidation.

Income Taxes

The Florida Bar is an administrative agency of the Supreme Court of Florida and is not subject to federal or state income tax. The Florida Bar Building Corporation, Florida Lawyers Association for the Maintenance of Excellence, Inc. and The Florida Attorneys Charitable Trust have been granted exemption from federal and state income taxes except on unrelated business income under Sections 501(c)(25), 501(c)(6), and 501(c)(3), respectively, of the Internal Revenue Code.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

Concentration

The Florida Bar receives the majority of its revenue from lawyers licensed to practice in the State of Florida.

Net Position

Net position is categorized as invested in capital assets, restricted for permanent endowments, restricted for expendable scholarships, and unrestricted. Invested in capital assets represents the cost of capital assets net of accumulated depreciation and amortization and is unavailable for future spending. Restricted for permanent endowment includes donations in which the donor has stipulated, as a condition of the gift, that the principal be held and invested and only the investment earnings may be spent. Restricted for expendable scholarships consists of donations received that must be used to fund the annual G. Kirk Haas scholarships. Unrestricted assets consist of all other assets not included in the previous categories and are available for any lawful purpose.

Subsequent Events

Subsequent events have been evaluated through the date of the independent auditors’ report, which is the date the financial statements were available to be issued.

- 14 -

The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Reclassifications

Certain revenue and expense categories for the year ended June 30, 2014 were reclassified to conform to the current year presentation.

NOTE 3 – CASH AND CASH EQUIVALENTS

Cash and cash equivalents are subject to custodial credit risk. Custodial credit risk is the risk that in the event of a bank or other counterparty failure, The Florida Bar’s cash and cash equivalents may not be returned. The Florida Bar’s policy with respect to custodial credit risk is that The Florida Bar will only maintain demand deposit accounts with financial institutions in which management believes the risk to be limited because the financial institutions are large with strong financial positions.

Cash and cash equivalents are held at three financial institutions. The cash held in demand deposit accounts was $7,728,154 and additional cash and money market funds was $6,457,968 at June 30, 2015. Cash in the amount of $1,247,152 was insured by the Federal Deposit Insurance Corporation (FDIC) as of June 30, 2015. The additional cash and money market funds are held at a financial institution insured by the Securities Investor Protection Corporation (SIPC). As of June 30, 2015, the SIPC provides up to $250,000 in coverage for uninvested cash and money market funds not otherwise covered by the FDIC.

NOTE 4 – INVESTMENTS

Investment Objectives and Policies

Investments are made for the sole interest and exclusive purpose of providing investment returns for The Florida Bar. The Florida Bar’s investment objectives and policies are achieved through a short-term account portfolio and a long-term account portfolio, however, all investments are available for sale if necessary and are classified as a current asset in the consolidated statements of net position.

Investment guidelines are defined by a written Investment Policy (the Policy) approved by the Florida Bar’s Board of Governors. The Policy establishes diversified investment strategies, both by types of investment and by manager, minimum credit qualities, and duration limits. An Investment Committee has oversight, within Policy limits, to implement and direct the investment strategies. The policies are reviewed at least annually for any adjustments required due to changes or developments within the investment markets that may provide enhanced investment and/or risk management opportunities, and recommendations for changes are submitted for approval by the Board of Governors.

The purpose of the short-term portfolio is to provide for The Florida Bar’s short-term working capital needs. The short-term portfolio possesses a short-term time horizon (one to three years) and within this horizon, the primary objectives are to preserve capital and provide liquidity for short-term cash flow needs and to achieve attractive short-term yields consistent with preservation of capital.

- 15 -

The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 4 – INVESTMENTS (CONTINUED)

Investment Objectives and Policies (Continued)

The purpose of the long-term investment portfolio is to provide for The Florida Bar’s operating needs and to fund The Florida Bar’s programs both today and into the future. The long-term portfolio possesses an intermediate to long-term horizon (five to seven years) that correlates to the primary objectives of providing long-term growth of capital and income. The secondary objectives are high current income and liquidity.

The Policy requires the risk adjusted returns of an investment over a full market cycle to rank in the top 50% of universal comparisons with similar objectives and the investment should outperform the target policy index. The Policy establishes asset allocation guidelines with regard to acceptable asset classes and prohibited investments, the overall targeted asset mix, and the representative indices for each asset class. The asset allocation guidelines as compared to actual investment balances were as follows as of June 30, 2015:

Short-Term

Target

Representative

Asset Classes

Minimum

Mix

Maximum

Actual

Index

Short-Term Fixed income

35.0%

50.0%

65.0%

35.0%

Index

Cash and Equivalents

35.0%

50.0%

65.0%

65.0%

Citigroup U.S. 90-Day Treasury Bills Index

Long-Term

 

Target

Representative

Asset Classes

Minimum

Mix

Maximum

Actual

Index

U.S. Large Cap Equity

12.0%

17.0%

22.0%

15.8%

Standard & Poor's 500 Index

U.S. Mid Cap Equity

0.0%

4.0%

9.0%

4.5%

Russell Mid Cap Index

U.S. Small Cap Equity

0.0%

2.0%

7.0%

2.2%

Russell 2000 Index

International Equity

10.0%

15.0%

20.0%

19.0%

MSCI EAFE Index MSCI EAFE Small Cap Index or MSCI EAFE Small/Mid Cap Index

Int'l Small/Mid Cap Equity

0.0%

2.0%

7.0%

2.0%

Emerging Markets Equity

0.0%

5.0%

10.0%

5.1%

MSCI Emerging Markets Index

Commodities

1.0%

6.0%

11.0%

6.1%

Dow Jones UBS Commodity Index

REITs

0.0%

3.0%

8.0%

0.9%

NAREIT Equity Index or Dow Jones Global Select REIT

Inflation-linked Securities

0.0%

2.0%

7.0%

1.0%

Barclays Capital U.S. TIPS Index JP Morgan Emerging Markets Bond Index or JP Morgan Emerging Market Bond Index (unhedged)

Emerging Market Fixed Income

0.0%

2.0%

7.0%

0.0%

U.S. Fixed Income

15.0%

22.0%

29.0%

18.3%

Barclay's Capital Intermediate Gov't/Credit Bond Index

U.S. High Yield Fixed Income

0.0%

4.0%

9.0%

3.9%

Barclay's Capital U.S. Corporate High Yield Index HFRI Conservative Index or Hedge Fund of Funds Composite Index 60% MSCI ACWI/40% Barclays Capital Global Aggregate

Hedged Funds

0.0%

6.0%

9.0%

9.3%

Liquid Alternatives

0.0%

3.0%

8.0%

7.2%

Managed Futures

0.0%

2.0%

5.0%

2.4%

Barclay's CTA Index

Cash & Equivalents

0.0%

5.0%

10.0%

2.3%

Citigroup U.S. 90-Day Treasury Bills

Performance and compliance reports are submitted to the Investment Committee quarterly. The Florida Bar employs an investment consultant who provides performance and compliance reporting at both the portfolio level and by individual investment manager.

- 16 -

The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 4 – INVESTMENTS (CONTINUED)

Investments

At June 30, The Florida Bar’s investment balances were as follows:

June 30,

2015

2014

U.S. Treasuries Federal Agencies Municipal Bonds Corporate Bonds & Other Fixed Income Mutual Funds - debt securities (ST) Mutual Funds - equity securities Mutual Funds - commodities Inflation-linked securities Equities Managed Futures Liquid Alternatives Hedge Funds

$

1,036,636

$

438,980

2,327,071

2,828,060

731,414

651,546

4,803,960

4,807,847

8,378,474

7,549,186

3,122,439

1,521,635

2,474,214

3,938,845

500,889

-

21,702,544

23,551,459

1,285,044

946,113

3,608,559

2,967,934

4,675,084

4,129,478

Total investments

$

54,646,328

$

53,331,083

The Florida Bar’s investment securities are exposed to various risks, such as custodial credit risk, interest rate risk, credit quality risk, foreign currency risk, concentration of credit risk, and market conditions. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the value of investment securities will occur in the near term and those changes could materially affect investment balances.

Custodial Credit Risk

Custodial credit risk is the risk that in the event of the failure of the custodial entity, The Florida Bar’s deposits may not be returned to it. The Policies state that The Florida Bar will only hold investment securities that are insured or registered and held by The Florida Bar, or its designated agent, in the name of The Florida Bar. Investments held through its agent, Morgan Stanley Smith Barney, LLC have Securities Investor Protection Corporation (SIPC) coverage up to $500,000 per customer for cash and securities as of June 30, 2015 of which $250,000 may be in uninvested cash. Morgan Stanley Smith Barney, LLC also has purchased “Excess SIPC” protection above the SIPC limits. This excess coverage is subject to a firmwide cap for Morgan Stanley of $1 billion with no per-client limit for securities and a $1.9 million per-client limit for the cash portion of any remaining shortfall.

Interest Rate Risk

Interest rate risk arises from investments in debt instruments and is defined as the risk that changes in interest rates will adversely affect the fair value of an investment. The Florida Bar’s investments in U.S. Treasuries, federal agencies, municipal bonds, corporate bonds, and other

- 17 -

The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 4 – INVESTMENTS (CONTINUED)

Interest Rate Risk (Continued)

bonds are directly subject to interest rate risk. The interest rate risk is managed by requiring the duration of the fixed income portfolio to average between plus or minus 20% of the duration of the representative benchmark for the investment.

As of June 30, 2015, The Florida Bar’s debt investments had the following maturities:

Investment Maturities (In Years)

June 30,

Fair Value

Less than 1 Year

1 - 5 Years

6 - 10 Years

Over 10 Years

U.S. Treasuries Federal Agencies Municipal Bonds Corporate Bonds & Other Fixed

$ 1,036,636

$

-

$

621,715

$

414,921

$

-

2,327,071

-

635,925

301,506

1,389,640

731,414

25,000

356,158

287,916

62,340

Income

4,803,960

141,053

2,056,777

1,376,223

1,229,907

Total investments

$ 8,899,081

$

166,053

$ 3,670,575

$

2,380,566

$

2,681,887

The Florida Bar is not directly subject to interest rate risk for its investment in mutual funds that purchase debt instruments, as The Florida Bar is able to sell their interest in these mutual funds at will (subject to potential redemption fees). At June 30, 2015, the weighted average life reported by the mutual fund managers for the mutual funds invested in debt instruments was 2.51 to 2.8 years.

Credit Quality Risk

The Policy requires investments in fixed income debt securities to meet an average quality rating of A or higher for the long-term portfolio and AA or higher for the short-term portfolio by either Standard & Poor’s, Moody’s or Fitch Investors Service at the time of purchase. Investments in corporate holdings must be rated investment grade or better by either Standard & Poor’s, Moody’s or Fitch Investors Service at the time of purchase. In the event a bond’s credit rating is downgraded to a level below investment grade by two of the three ratings agencies, the Investment Manager must notify the Investment Committee and provide the Committee with the Manager’s outlook on the investment. The Investment Committee must approve continuing to hold the downgraded investment. The Manager must regularly update the committee on the downgraded investment’s status.

- 18 -

The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 4 – INVESTMENTS (CONTINUED)

Credit Quality Risk (continued)

The Florida Bar’s debt investments by rating at June 30, 2015 are presented below:

 

U.S.

Municipal

Corporate Bonds & Other Fixed Income

Mutual Funds - Debt Securities

 

Quality Rating

Treasuries

Federal Agencies

Bonds

Total

Agencies

$

-

$

2,327,071

$

-

$

573,800

$

-

$

2,900,871

Aaa

1,036,636

-

333,221

1,779,654

-

3,149,511

Aa1

-

-

221,024

127,548

-

348,572

Aa2

-

-

141,770

3,344

-

145,114

Aa3

-

-

30,430

143,626

-

174,056

A1

-

-

-

301,525

-

301,525

A2

-

-

4,969

401,427

-

406,396

A3

-

-

-

403,203

-

403,203

Baa1

-

-

-

590,766

-

590,766

Baa2

-

-

-

428,896

-

428,896

Baa3

-

-

-

50,171

-

50,171

Unrated

-

-

-

-

8,378,474

8,378,474

Total investments

$ 1,036,636

$

2,327,071

$

731,414

$

4,803,960

$

8,378,474

$

17,277,555

Because mutual funds are listed and valued as a whole, not individual holdings, information about specific ratings cannot be obtained however the mutual funds do have exposure to non- investment grade securities. Investments in mutual funds are with the understanding that the investment policies stated in the mutual fund’s prospectus supersedes the guidelines established by The Florida Bar.

Foreign Currency Risk

Investments in international equity securities are limited to SEC-Registered, U.S. exchange listed, U.S. dollar-denominated securities in foreign domiciled issuers. Investments in international debt securities are limited to SEC-registered, U.S. dollar-denominated, U.S. government backed securities issued by foreign governments. The Florida Bar invests in international securities through American Depository Receipts (ADRs). ADRs represent investments in shares of foreign companies traded on the U.S. financial markets and are denominated in U.S. dollars and, thus, are not exposed to foreign currency risk. Investments in foreign currency-denominated government bonds, any type of foreign corporate bond, or any

- 19 -

The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 4 – INVESTMENTS (CONTINUED)

Foreign Currency Risk (continued)

other type of foreign currency are not allowed. Securities of foreign companies traded on foreign stock exchanges may be purchased only with the written permission of The Florida Bar’s Investment Committee. Additionally, the investment policies approve the use of mutual funds, which may include foreign securities, with the understanding that the investment policies stated in the mutual fund’s prospectus supersede the guidelines set forth in The Florida Bar’s investment policy.

Concentration of Credit Risk

The Policy requires investments to be diversified such that there is not an undue concentration in a single industry sector except for its Concentrated Portfolios. Investments in equity securities are subject to a maximum 5% commitment at cost and 10% weighting at market of the account’s total market value for any individual security or single issuer.

Investments in fixed income securities are subject to no more than 5% of the account’s market value invested in a single issue (at cost) or in direct obligations of a single issuer (at market) with the exception of the U.S. Government and its agencies so long as any such government or agency issue shall be backed with the full faith and credit of the U.S. Government. In addition, no more than 15% of the fixed income securities may be invested in mortgage backed or asset backed securities of a single issuer, with the exception of those issued by the U.S. Government, its agencies, or its sponsored agencies.

Investments in cash and cash equivalents are limited to no more than 10% of the account’s market value in a single issue (at cost), with the exception of issues backed by the U.S. Government and its agencies and diversified money market funds.

Derivative Instruments

As of June 30, 2015, the Florida Bar’s investment policy states that investments in options, derivatives and financial futures are prohibited in separately managed accounts other than its Alternative Investment assets. Additionally, the investment policy approves the use of mutual funds, which may include derivative instruments, with the understanding that the investment policies stated in the mutual fund’s prospectus supersede the guidelines set forth in The Florida Bar’s investment policy.

NOTE 5 – ACCOUNTS RECEIVABLE, NET

The following is a summary of accounts receivable, net:

June 30,

2015

2014

Accounts receivable Allowance for doubtful accounts

$

968,486

$

746,293

(15,000)

(15,000)

Accounts receivable, net

$

953,486

$

731,293

- 20 -

The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 6 – CAPITAL ASSETS, NET

 

July 1, 2014

 

Additions

Deletions

 

Transfers

June 30, 2015

Capital assets not being depreciated or amortized:

Land Software development in progress Construction in progress

$

1,306,690

$

-

$

-

$

-

$

1,306,690

393,822

898,244

-

(368,763)

923,303

-

-

-

-

-

Total capital assets not depreciated or amortized

1,700,512

898,244

-

(368,763)

2,229,993

Capital assets being depreciated or amortized:

Buildings and improvements Landscaping and parking Equipment and furnishings Software

 

11,346,008

87,714

-

11,433,722

120,318

-

-

-

120,318

4,874,528

281,383

(207,033)

-

4,948,878

5,108,939

79,679

-

308,611

5,497,229

Total capital assets being depreciated or amortized

21,449,793

448,776

(207,033)

308,611

22,000,147

Less accumulated depreciation or amortization for:

Buildings and improvements Landscaping and parking Equipment and furnishings Software

 

(6,916,811)

(371,944)

-

-

(7,288,755)

(120,318)

-

-

(120,318)

(3,927,795)

(296,112)

205,509

-

(4,018,398)

(1,821,451)

(741,620)

-

-

(2,563,071)

Total accumulated depreciation or amortization

(12,786,375)

(1,409,676)

205,509

-

(13,990,542)

Total capital assets being depreciated or amortized, net

8,663,418

(960,900)

(1,524)

308,611

8,009,605

Total capital assets, net

$ 10,363,930

$

(62,656)

$

(1,524)

$

(60,152)

$

10,239,598

 

July 1, 2013

 

Additions

Deletions

 

Transfers

June 30, 2014

Capital assets not being depreciated or amortized:

Land Software development in progress Construction in progress

$

1,306,690

$

-

$

-

$

-

$

1,306,690

280,310

798,454

-

(684,942)

393,822

11,220

-

(11,220)

-

-

Total capital assets not depreciated or amortized

1,598,220

798,454

(11,220)

(684,942)

1,700,512

Capital assets being depreciated or amortized:

Buildings and improvements Landscaping and parking Equipment and furnishings Software

 

11,349,427

53,694

(57,113)

11,346,008

120,318

-

-

-

120,318

4,831,457

127,685

(99,425)

14,811

4,874,528

4,431,345

7,463

670,131

5,108,939

Total capital assets being depreciated or amortized

20,732,547

188,842

(156,538)

684,942

21,449,793

Less accumulated depreciation or amortization for:

Buildings and improvements Landscaping and parking Equipment and furnishings Software

 

(6,576,525)

(384,787)

44,501

-

(6,916,811)

(120,318)

-

-

(120,318)

(3,662,297)

(344,641)

85,217

(6,074)

(3,927,795)

(1,237,434)

(594,852)

4,761

6,074

(1,821,451)

Total accumulated depreciation or amortization

(11,596,574)

(1,324,280)

134,479

-

(12,786,375)

Total capital assets being depreciated or amortized, net

9,135,973

(1,135,438)

(22,059)

684,942

8,663,418

Total capital assets, net

$ 10,734,193

$

(336,984)

$

(33,279)

$

-

$

10,363,930

Depreciation and amortization expense for the years ended June 30, 2015 and 2014 was $1,409,854 and $1,324,280, respectively.

- 21 -

The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 7 – NOTE RECEIVABLE

On November 6, 2014, The Florida Bar executed an agreement to provide a $6.0 million loan to The Florida Bar Foundation (the Foundation) for the purpose of accomplishing The Foundation’s mission of either improving or reengineering access to justice for all Florida citizens. The first installment of $3.0 million was made on December 3, 2014. The second installment may be made no earlier than December 3, 2015. The loan bears interest at a rate equal to the Annual Mid-Term Applicable Federal Rate (1.6% at June 30, 2015), as adjusted monthly, but no less than .75% per annum. Interest will be paid annually on the anniversary date of the loan and principal repayment will be made quarterly beginning January 2, 2018, with all principal and interest required to be repaid by December 3, 2021.

NOTE 8 – NON-CURRENT LIABILITIES

Compensated Absences Payable & Changes in Non-Current Liabilities

The non-current liabilities are the compensated absences payable.

Compensated absences payable consisted of the following:

June 30,

2015

2014

Accrued vacation Accrued sick leave

$

1,494,388

$

1,417,274

1,071,074

1,021,882

Total compensated absences

$

2,565,462

$

2,439,156

Changes in non-current liabilities are summarized as follows:

 

Balance July 1, 2014

Additions

Reductions

Balance June 30, 2015

Accrued vacation Accrued sick leave

$1,417,274

$1,174,704

$ (1,097,590)

$

1,494,388

1,021,882

258,280

(209,088)

1,071,074

Total long-term liabilities

$2,439,156

$1,432,984

$ (1,306,678)

$

2,565,462

 

Balance July 1, 2013

Additions

Reductions

Balance June 30, 2014

Accrued vacation Accrued sick leave

$1,476,155

$1,111,685

$

(1,170,566)

$

1,417,274

1,043,260

220,933

(242,311)

1,021,882

Total long-term liabilities

$2,519,415

$1,332,618

$

(1,412,877)

$

2,439,156

- 22 -

The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 9 – REVENUE AND EXPENSE CLASSIFICATION

The significant revenue and expense accounts presented in the consolidated financial statements are described as follows:

Annual Fees

Annual fees include fees for active and inactive memberships in The Florida Bar.

Other Fees from Members

Includes revenues from members other than annual fees such as advertising approval fees, certification fees and section dues.

Sales of Products and Services

Includes revenues from sources such as Continuing Legal Education (CLE) registrations, and meeting revenues.

Other Revenue

Includes cost recoveries from discipline cases, rents received in The Bar Center Building Fund and other sources of revenue.

Regulation of the Practice of Law

Includes expenses incurred for Lawyer Regulation, Lawyer Advertising, Ethics, Continuing Legal Education Rules (CLER), Membership Records and Certification.

Cost of Products and Services Provided to Members

Includes expenses such as the cost of CLE courses and publications, the Practice Resource Institute, voluntary member assistance programs, meetings, committee activity and section activity.

Communication with Members and the Public

Includes the revenue and expenses of the Public Information Department and The Florida Bar Journal and News.

Administration

Includes board and officer expenses, the cost of the Executive Director’s office, General Counsel, Research, Planning and Evaluation, as well as liability and property insurance.

- 23 -

The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 10 – RETIREMENT PLANS

The Florida Bar sponsors a defined contribution pension plan, The Florida Bar Employees’ Pension Plan (the Plan), which is available to all salaried personnel having completed six months of service. The Plan is administered by The Florida Bar Retirement Committee. The Plan may be amended at any time by The Florida Bar. Employer contributions are discretionary and are currently made for all eligible employees employed on December 31 based on a formula which was 15% of covered compensation for the years ended June 30, 2015 and 2014, respectively, and 4.3% on covered compensation exceeding 80% of the Social Security wage base. The employer contributions are allocated to separate participant accounts and invested by the Trustee in the funds selected by the employee from those offered by the Plan Administrator. Participant accounts vest based on the following schedule:

Less than 3 years

0%

3 – 4 years

40%

4 – 5 years

60%

5 – 6 years

80%

Greater than 6 years

100%

Forfeited contributions are held in a separate account and are used to reduce future employer contributions. The plan has been amended to comply with all applicable Federal tax laws. The pension contribution made equaled the contribution required during the years ended June 30, 2015 and 2014 for the Plan years ended December 31, 2014 and 2013 and was $2,354,344 and $ 2,300,355, respectively. The Florida Bar also has a deferred compensation plan. The plan is for the benefit of all employees who elect to participate.

NOTE 11 – RETIREE POSTEMPLOYMENT HEALTH BENEFITS

Plan Description. The Florida Bar Retiree Health Plan (TFBRHP) is a single-employer defined benefit healthcare plan administered by The Florida Bar. TFBRHP provides health insurance benefits to eligible employees at early retirement, disability or full retirement. The Florida Bar has the authority to establish and amend benefit provisions of TFBRHP. TFBRHP issues a stand-alone financial report that includes the financial statements and required disclosures.

This report may be obtained by writing to The Florida Bar, 651 East Jefferson Street, Tallahassee, Florida 32399-2300.

Funding Policy. TFBRHP is funded through contributions made by The Florida Bar. The contribution requirements are established and may be amended by The Florida Bar. Currently, there are no required contributions by active or retired employees. The required contribution from The Florida Bar is based on an actuarially determined percentage of total active payroll. For fiscal years ended June 30, 2015 and 2014, The Florida Bar contributed $78,550 and $87,269, respectively, to the plan for the annual required contributions.

Annual OPEB Cost and Net OPEB Obligation. The Florida Bar’s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB

- 24 -

The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 11 – RETIREE POSTEMPLOYMENT HEALTH BENEFITS (CONTINUED)

Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. Based on the January 1, 2014, actuarial valuation, the ARC is .53% of active payroll payable for the calendar years 2014 through 2015. The following table shows the components of The Florida Bar’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in The Florida Bar’s net OPEB obligation to TFBRHP:

Annual required contribution

$ 78,550

Interest on net OPEB obligation Adjustments to annual required contribution

-

-

Annual OPEB cost (expense)

$ 78,550

Net OPEB obligation - July 1, 2014

$

-

Annual OPEB cost (expense) for 2015 Contributions made during FY 2015

(78,550)

78,550

Net OPEB obligation - June 30, 2015

$

-

The Florida Bar’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2015 and the preceding three years were as follows:

Fiscal Year

Annual

Percentage of Annual

Net OPEB

Ended

OPEB Cost

OPEB Cost Contributed

Obligation

June 30, 2013

$

90,190

100%

-

June 30, 2014

87,269

100%

-

June 30, 2015

78,550

100%

-

Funded Status and Funding Progress. As of January 1, 2014, the most recent actuarial valuation date, the plan was 100% funded. The actuarial accrued liability for benefits was calculated to be $2,448,563 and the actuarial value of the assets was $2,455,763, resulting in a funding overage of ($7,200). The covered payroll (annual payroll of active employees covered by the plan) was $15,749,749, and the ratio of the unfunded actuarial accrued liability (UAAL) to the covered payroll was (0.05) %.

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future.

Actuarial Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern

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The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 11 – RETIREE POSTEMPLOYMENT HEALTH BENEFITS (CONTINUED)

of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

The projected unit credit actuarial cost method was used for the January 1, 2014 actuarial valuation. The actuarial assumptions included a 7.0% investment rate of return, which is the rate of the expected long-term investment returns on plan assets and an annual healthcare cost trend rate of 7.5% initially, reduced by decrements to an ultimate rate of 5.0% in the year 2018 and beyond. Both rates included a 3.0% inflation assumption. TFBRHP holds plan assets in trust solely to provide benefits to retirees and their beneficiaries. The UAAL is being amortized as a level percentage of projected payroll on a closed basis. The remaining amortization period at January 1, 2014 was 28 years.

The schedule of funding progress follows:

 

Actuarial

Accrued

Liability

UAAL as a Percentage of Covered Payroll (b - a) / c)

 

Actuarial

(AAL)-

Unfunded AAL (UAAL) (b - a)

 

Actuarial

Value

Projected

Funded

Covered

Valuation

of Assets

Unit Credit

Ratio

Payroll

Date

(a)

(b)

(a/b)

(c)

1/1/10

$ 1,293,906

$

1,584,797

$

290,891

81.64% $

14,557,008

2.00%

1/1/12

1,712,944

1,886,227

173,283

90.81%

14,402,420

1.20%

1/1/14

2,455,763

2,448,563

(7,200)

100.29%

15,749,749

-0.05%

NOTE 12 – LEASES

The Florida Bar is the lessee of office space under operating leases expiring in various years through the year 2020, with escalation clauses.

The Florida Bar also leases office space from its wholly-owned subsidiary, The Florida Bar Building Corporation. The intercompany rental income and rental expense have been eliminated in consolidation.

Future minimum rental payments to unrelated entities are as follows:

Years ending June 30,

Amount

2016

$

810,407

2017

798,855

2018

370,938

2019

178,515

2020

183,870

Thereafter

93,294

Total minimum future rental payments

$

2,435,879

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The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 12 – LEASES (CONTINUED)

Total rental expense for the fiscal years ended June 30, 2015 and 2014 was $787,276 and $779,485, respectively.

The Florida Bar is also the lessor of certain office space in a building owned by The Florida Bar. The space is rented to unrelated entities under operating leases expiring in various years through the year 2018. Rental income for the fiscal years ended June 30, 2015 and 2014 was $295,576 for both years.

Future minimum rental receipts are as follows:

Years ending June 30,

Amount

2016

$

295,576

2017

295,576

2018

295,576

2019

73,894

 

Total minimum future rental receipts

$

960,622

NOTE 13 – CONTINGENCIES

The Florida Bar is involved in several actions as defendant and/or co-defendant. The majority of the actions are expected to be settled with little or no financial impact to The Florida Bar. An accurate assessment of any significant liability is not determinable although management of The Florida Bar believes that the possibility of any significant liability arising from current litigation is extremely remote.

NOTE 14 – COMMITMENTS

The Florida Bar has contracted with various hotels or convention centers to reserve facilities, rooms, and food and beverage services for various meetings and seminars to be held through fiscal year 2020. If The Florida Bar should choose to cancel the contracts, liquidating damages would be due to the hotels or convention centers. Generally, liquidating damages are graduated based on the time between cancellation and the scheduled arrival date of the meeting and are calculated based on a percentage of anticipated revenues by the particular hotel or convention center.

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The Florida Bar and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 14 – COMMITMENTS (CONTINUED)

The following is a schedule of estimated liquidating damages that The Florida Bar would incur should they cancel all the contracts as of June 30, 2015:

 

Estimated

liquidating

Event

damages

Annual Meeting Board of Governors Meetings Winter Meeting Fall Meeting Section and Division Meetings Continuing Legal Education Seminars and Other Meetings

$

695,508

228,920

76,700

35,112

989,609

166,591

Total commitment

$

2,192,440

NOTE 15 – DESIGNATED NET POSITION

The Florida Bar has designated certain components of net position to be used for specific program purposes. As of June 30, 2015 and 2014, the designated components of unrestricted net position were $20,650,772 and $20,188,679 respectively.

NOTE 16 – RISK MANAGEMENT PROGRAMS

The Florida Bar is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. Workers’ compensation, property, and general liability coverage are provided through commercial insurance carriers. Management continuously reviews the limits of coverage and believes that current coverage is adequate. There were no significant reductions in insurance coverage from the previous year.

NOTE 17 – PERMANENT ENDOWMENT

On May 28, 2015, The Florida Bar entered into an agreement with Florida Lawyer’s Mutual Insurance Company (FLMIC) to establish an endowment fund for the purpose of defraying the costs of any and all programs and activities that promote the professionalism, civility, ethical conduct, and legal practice competency of Florida lawyers. The initial gift of $100,000 and any additional gifts must be held for growth for ten years. After the first ten years, The Florida Bar with the approval of FLMIC may direct distributions of the earnings for the purpose for which the endowment was established. However, at no time, may the distributions be allowed to reduce the principal to an amount lower than the initial gift and any additional gifts received. Should the purpose for which the endowment was created cease to exist or the endowment become too impractical to administer, The Florida Bar and FLMIC have the power to redirect the funds for a purpose as similar as possible to the original intent.

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Other Report

INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS
INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS

INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

Board of Governors The Florida Bar Tallahassee, Florida

We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the business-type activities of The Florida Bar and Subsidiaries, as of and for the year ended June 30, 2015 and 2014, and the related notes to the financial statements, which collectively comprise The Florida Bar and Subsidiaries’ basic financial statements, and have issued our report thereon dated December 4, 2015.

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered The Florida Bar and Subsidiaries’ internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of The Florida Bar and Subsidiaries’ internal control. Accordingly, we do not express an opinion on the effectiveness of The Florida Bar and Subsidiaries’ internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

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Board of Governors The Florida Bar

Compliance and Other Matters

As part of obtaining reasonable assurance about whether The Florida Bar and Subsidiaries’ financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

this communication is not suitable for any other purpose. CARR, RIGGS & INGRAM, LLC Tallahassee, FL

CARR, RIGGS & INGRAM, LLC

Tallahassee, FL

December 4, 2015

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