Music Concourse Community Partnership. Financial Statements

Transcription

1 Music Concourse Community Partnership Financial Statements For the Years Ended

2 TABLE OF CONTENTS Page No. Independent Auditor's Report 1-2 Statements of Financial Position 3 Statements of Activities 4 Statements of Cash Flows

3 INDEPENDENT AUDITOR'S REPORT Board of Directors Music Concourse Community Partnership San Francisco, California We have audited the accompanying financial statements of the Music Concourse Community Partnership ("MCCP") (a not-for-profit organization) which comprise the statements of financial position as of, and the related statements of activities and cash flows for the years then ended and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our 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 financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MCCP as of, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Armanino LLP San Ramon, California December 8,

5 Statements of Financial Position ASSETS Current assets Cash and cash equivalents $ 865,917 $ 602,298 Accounts receivable 3,164 1,880 Prepaid expenses and other current assets 27,911 24,064 Total current assets 896, ,242 Restricted cash and investments 2,650,000 2,650,000 Prepaid rent, net 2,610,601 2,717,156 Deferred financing costs, net 846, ,494 Property and equipment, net 37,073,615 38,292,564 Total assets $ 44,077,848 $ 45,150,456 LIABILITIES AND NET ASSETS Current liabilities Accounts payable $ 588,328 $ 807,458 Accrued interest 126, ,355 Current portion of bonds payable 540, ,000 Current portion of note payable 58,526 53,304 Total current liabilities 1,313,391 1,495,117 Long-term portion of bonds payable 28,020,000 28,560,000 Long term portion of note payable - 61,387 Retention payable 1,254,547 1,194,806 Promise to give to the City 492, ,799 Related party notes payable 1,809,284 1,706,872 Total liabilities 32,889,922 33,484,981 Net assets Unrestricted 11,187,926 11,665,475 Total net assets 11,187,926 11,665,475 Total liabilities and net assets $ 44,077,848 $ 45,150,456 The accompanying notes are an integral part of these financial statements

6 Statements of Activities For the Years Ended Revenues, support and gains Program service revenues, net $ 4,108,963 $ 4,275,620 Interest income 8,176 12,716 Total revenues, support and gains 4,117,139 4,288,336 Expenses Program services 2,704,479 2,754,877 Financing 1,790,298 1,812,160 Management and general 99, ,674 Total expenses 4,594,688 4,675,711 Change in net assets (477,549) (387,375) Net assets, unrestricted, beginning of year 11,665,475 12,052,850 Net assets, unrestricted, end of year $ 11,187,926 $ 11,665,475 The accompanying notes are an integral part of these financial statements

7 Statements of Cash Flows For the Years Ended Cash flows from operating activities Change in net assets $ (477,549) $ (387,375) Adjustments to reconcile change in net assets to net cash provided by operating activities Depreciation 1,218,949 1,218,949 Amortization and write off of deferred financing costs 15,854 14,997 Amortization of prepaid rent 106, ,555 Promise to give to the City 25,901 24,539 Related party interest added to principal 102,412 96,616 Changes in operating assets and liabilities Accounts receivable (1,284) 2,241 Prepaid expenses and other current assets (3,847) (729) Retention payable 59,741 56,895 Accounts payable (219,130) (491,670) Accrued interest 2,182 (11,083) Net cash provided by operating activities 829, ,935 Cash flows from financing activities Payments on note payable (56,165) (58,691) Payments on bond payable (510,000) (480,000) Net cash used in financing activities (566,165) (538,691) Net increase in cash and cash equivalents 263,619 91,244 Cash and cash equivalents at beginning of year 602, ,054 Cash and cash equivalents at end of year $ 865,917 $ 602,298 Supplemental disclosures of cash flow information Interest paid $ 1,609,452 $ 1,684,624 The accompanying notes are an integral part of these financial statements

8 1. Description of the Organization's Business Music Concourse Community Partnership, a California Non Profit Public Benefit Corporation ("MCCP" or the "Organization") was incorporated on August 14, 2001 in the State of California. In 1998, San Francisco voters passed Proposition J, the "Golden Gate Park Revitalization Act of 1998," ("Proposition J") authorizing: (i) the construction of an underground parking facility beneath the Music Concourse within Golden Gate Park (the "Park"), accessible via tunnel from city streets outside the Park; (ii) the replacement of hundreds of above-ground parking spaces; (iii) the reduction of traffic in and around the Park; (iv) the addition of acres of new recreational space; and (v) the restoration of the Music Concourse to a green pedestrian oasis. Proposition J also stipulated that only private philanthropic financing, and no City of San Francisco funds, could be used for the construction of the parking facility. MCCP was formed to raise the necessary private philanthropic funds, and to act in the capacity of a project developer, providing or arranging for project management services and administration for the construction of the parking facility, access tunnels, and associated surface improvements. Prior to the Organization's inception, the operations of MCCP were performed by the Music Concourse and Garage Fund of the San Francisco Foundation Community Initiative Funds ("MCGF"). The operations performed by MCGF were primarily related to raising private philanthropic funds, expenditures related to developing and assessing the feasibility of the construction plan for the parking facility, and expenditures related to reduction of traffic in and around the park. MCGF was also an organization exempt from Federal income tax under Internal Revenue Code Section 501(c)(3). In conjunction with the formation of MCCP, MCGF was dissolved and all assets, liabilities and operations of MCGF were assumed by MCCP. 2. Summary of Significant Accounting Policies Basis of presentation The financial statements of the Organization have been prepared on the accrual basis of accounting. Net assets and changes therein are classified as follows: Permanently restricted net assets - net assets subject to donor-imposed stipulations that they be maintained permanently by the Organization. The Organization has no permanently restricted net assets at. Temporarily restricted net assets - net assets subject to donor-imposed stipulations that may or will be met by actions of the Organization and/or the passage of time. The Organization has no temporarily restricted net assets at. Unrestricted net assets - net assets not subject to donor-imposed stipulations

9 2. Summary of Significant Accounting Policies (continued) Basis of presentation (continued) Board designated net assets - unrestricted net assets designated by the Board for specific purposes. The Organization has no board designated net assets at. Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Gains and losses on assets and liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor restriction or by law. Expirations of temporary restrictions on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications between the applicable classes of net assets. Program service revenues Program service revenues are generated through daily transient parking charges, special event charges, monthly parking fees and validation stamp sales. MCCP recognizes program service revenues from the operation of the parking facility in the period in which the service has been provided, net of parking taxes imposed by the City and County of San Francisco (the "City"). Parking taxes imposed by the City were $1,027,115 and $1,070,705 for the years ended June 30, 2014 and 2013, respectively. Cash and cash equivalents MCCP considers all highly liquid investments with maturities of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents consist principally of short-term certificates of deposits at institutions that management has deemed of high credit quality. Restricted cash and investments Pursuant to the long-term debt financing in December 2010 (see Note 7), MCCP is required to maintain a minimum of $2.65 million as a reserve fund for the security of the long-term debt financing. As of June 30, 2014, MCCP had $2,650,000 of cash equivalents and investments satisfying these required amounts, which was comprised of $877,836 in cash and $1,772,164 in certificates of deposit with original maturities greater than 90 days. As of June 30, 2013, MCCP had $2,650,000 of cash equivalents and investments satisfying these required amounts, which was comprised of $224,863 in cash and $2,425,137 in certificates of deposit with original maturities greater than 90 days

10 2. Summary of Significant Accounting Policies (continued) Prepaid rent In connection with the ground lease, MCCP was required to make certain payments prior to the commencement of the lease totaling $3,786,625 (see Note 4). These payments were utilized for the design and construction of public transit improvements, environmental improvements to the Park facilities and for the restoration and improvement of the surface area of the Music Concourse following completion of construction of the parking facility and constitute additional rent due under the terms of the ground lease. These payments are being amortized over the expected life of the ground lease using the straight-line method. MCCP amortized rent expense of $106,555 during each of the years ended. Financing costs In connection with the long-term debt financing in December 2010, MCCP incurred debt issuance costs totaling $898,573. The financing costs are being amortized over the life of the long-term debt using the effective interest method. MCCP amortized debt issuance costs of $15,854 and $14,997 for the years ending, respectively. Property and equipment MCCP capitalizes all property and equipment with a cost or fair value in excess of $1,000 and an estimated useful life in excess of one year. Property and equipment is stated at cost, less accumulated depreciation. Property is depreciated using the straight-line method over the estimated useful life of the parking facility. Equipment and software is depreciated using the straight-line method over the estimated useful lives of the assets. Estimated lives of property and equipment are as follows: Parking facility Parking facility equipment Computer equipment and software 40 years 5 years 3 years Long-lived assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of assets is measured by comparison of the carrying amount of the asset to the net undiscounted future cash flows expected to be generated from the asset. If the future undiscounted cash flows are not sufficient to recover the carrying value of the assets, the assets' carrying value is adjusted to fair value

11 2. Summary of Significant Accounting Policies (continued) Allocation to functional expenses Expenses that apply to more than one functional category have been allocated between program and management and general, based on the time spent on these functions by specific employees as estimated by management. The remaining costs are charged directly to the appropriate functional category. Income taxes In October 2006, MCCP received a final ruling from the Internal Revenue Service that it is an organization exempt from Federal income tax under Internal Revenue Code Section 501(c)(3). MCCP has also received notice from the California Franchise Tax Board that it is an organization exempt from California income tax under Revenue and Taxation Code Section 23701(d). MCCP has evaluated its current tax positions and has concluded that as of June 30, 2014, MCCP does not have any significant uncertain tax positions for which a reserve would be necessary. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates include accounting for long-lived assets, depreciation and amortization, and the contribution of the parking facility (see Note 8). Because of the inherent uncertainties in estimating, it is at least reasonably possible that there will be significant changes in MCCP's estimates related to the contribution of the parking facility in the near term. Subsequent events The Organization has evaluated subsequent events through December 8, 2014, the date the financial statements were available to be issued. No subsequent events have occurred that would have a material impact on the presentation of the MCCP's financial statements

12 3. Property and Equipment Property and equipment was comprised of the following at June 30: Parking facility $47,009,656 $47,009,656 Parking facility equipment 218, ,537 Computer equipment 6,388 6,388 Software ,235,255 47,235,255 Accumulated depreciation (10,161,640) (8,942,691) Property and equipment, net $37,073,615 $38,292,564 The base costs of the parking facility were allocated between the north and south pods, and are depreciated over the estimated economic life of the parking facility commencing in October 2005 and March 2006, which represents the beginning of operations in the north and south pods, respectively. MCCP recognized depreciation expense of $1,218,949 during the years ended. 4. Lease Commitments Effective February 27, 2004, MCCP entered into a ground lease (the "Agreement") with the City of San Francisco (the "City") and the Golden Gate Park Concourse Authority (the "Authority") (together the "Landlord") under which MCCP leases premises in the vicinity of the Music Concourse in Golden Gate Park for a term of occupancy of the lesser of 35 years or the term of any financing, for a minimum annual base rent of $100,000 per annum. MCCP's best current estimate of the repayment completion date for the borrowed funds is December Under the provisions of the Agreement, MCCP retains ownership of the parking facility until the lease is terminated at which time ownership will transfer to the City (see Note 8). In exchange for the use of the land at an annual base rent below fair market value, the ground lease includes the following additional provisions: i. MCCP also has an obligation to make payments of additional rent equal to "excess net revenues". The lease defines "excess net revenues" as revenues remaining after MCCP has paid all expenses and debt service, and funded such reserves as required or allowed under the lease and Bond Indenture or as MCCP's Board of Directors deems reasonable and prudent to meet the Organization's obligations for debt service and maintenance and repair of the structure in the case of a catastrophic event. To the extent that excess net revenues are paid by MCCP to the Landlord in any year, MCCP will receive a credit against its obligation to pay the $100,000 minimum annual base rent. For the years ended, there was no obligation to pay excess rent related to excess net revenues. Rent expense charged to operations was $100,000 for the years ended

13 5. Tolling Agreement Pursuant to the terms of the construction contract for construction of the parking facility, MCCP retained approximately 5% of each progressive application for payment to ensure ongoing compliance with contract terms. This retention amount was paid as various milestones were met and subcontractors completed their work. On March 10, 2009, MCCP entered into a Tolling Agreement with Swinerton Builders (the "general contractor") in order to defer the statute of limitations on the remaining unpaid portion of the original contract agreement. The Tolling Agreement deferred the statute of limitations on the payable until the earlier of December 1, 2010 or termination of the Tolling Agreement. The Tolling Agreement included a provision such that the remaining amount outstanding accrues interest at 3% annually, retroactive to September 1, On December 30, 2010, a Letter Agreement was signed extending the Tolling Agreement until the date of the final repayment, setting forth the Repayment Mechanism (see Note 7), increasing the interest rate to 5%, and providing that unpaid interest at each fiscal-year end will be added to the principal balance. On June 4, 2014, an Amended Tolling Agreement was entered into extending the agreement through December 1, The remaining principal and accrued interest payable to Swinerton Builders totaled $1,254,547 and $1,194,806 as of, respectively, and is included in retention payable in the accompanying financial statements. 6. Note Payable During 2012, MCCP entered into a financing agreement with City Park for the purchase of new revenue control equipment. The agreement bears interest at a rate of 4.50% with a maturity date of April Future minimum payments under this agreement are as follows: Year Ending June $ 58,526 MCCP recorded interest expense of $3,905 and $6,602 related to the financing agreement for the year ended, respectively

14 7. Long-Term Debt On June 16, 2005, MCCP completed a long-term debt financing by borrowing $26.5 million in conjunction with tax-exempt bonds issued by the California Statewide Community Development Authority ("CSCDA"), designated "California Statewide Communities Development Authority Revenue Bond Anticipation Notes (Golden Gate Park Parking Facility Project) Series 2005". In December 2010, MCCP completed a new long-term debt financing by borrowing $30 million in conjunction with tax-exempt bonds issued by the California Enterprise Development Authority ("CEDA") and purchased by First Republic Bank. The debt has a coupon rate of 5.5% with interest and principal payable monthly, a maturity date of December 1, 2038, and an effective interest rate of 5.72%. The proceeds of the financing were used to repay the 2005 bond anticipation notes, to make a principal and interest payment to Swinerton Builders (see Note 5), and to repay a First Republic term loan. The debt is collateralized by a Leasehold Deed of Trust, Assignment of Rents and Security Agreement, which lists the collateral as the parking facility. A summary of the principal amounts payable as of June 30, 2013 is as follows: Year Ending June 30, 2015 $ 540, , , , ,000 Thereafter 25,530,000 Total $28,560,000 While the CEDA is technically responsible for the bonds, MCCP has entered into a Loan Agreement with CEDA on terms virtually identical to the obligations CEDA has under the bond financing, and has entered into a Supplemental Agreement with First Republic Bank. Significant covenants and restrictions imposed on MCCP by the Loan Agreement and the Supplemental Agreement include the following: i. MCCP has pledged gross parking revenues for repayment of the loan from CEDA. However, as long as MCCP is not in default, this pledge does not inhibit the use of gross parking revenues for any proper corporate purpose. ii. iii. MCCP is required to hold $2,650,000 of proceeds in a segregated reserve account. Beginning in the fiscal year ending June 30, 2012, MCCP is required to produce Net Income Available for Debt Service equal to 1.10 times Aggregate Debt Service. Beginning in the fiscal year ending June 30, 2018, MCCP is required to produce Net Income Available for Debt Service equal to at least 1.20 times Aggregate Debt Service

15 7. Long-Term Debt (continued) iv. If MCCP has less than $350,000 of unrestricted cash and equivalents, it is prohibited from making payments of certain past-due vendor balances or payments to Swinerton Builders, the California Academy of Sciences, or the Fine Arts Museums Foundation without the permission of First Republic Bank ("Bank"). The following Repayment Mechanism is set forth in the Supplemental Agreement: i. If, in any fiscal year, the ratio of Net Income Available for Debt Service to Aggregate Debt service is less than 1.10, MCCP shall not make any installment payment of past due rent, any payment of the past due balance owed to Latham & Watkins ("the Latham amount"), or any payment to Swinerton Builders, the California Academy of Sciences, or the Fine Arts Museums Foundation. ii. If, in any fiscal year, the ratio of Net Income Available for Debt Service to Aggregate Debt service is greater than 1.10 and the cash and cash equivalents at June 30 of such fiscal year: a. are less than $350,000, MCCP may make the next required and unpaid installment of past due rent and may pay such portion of the Latham amount as is approved by the Bank, or b. are greater than $350,000, MCCP may make the following payments in the following order: (A) all past due installments of past due rent, (B) any unpaid balance of the Latham amount and (C) any amounts due to Swinerton Builders, the California Academy of Sciences, or the Fine Arts Museum Foundation, but only to the extent that making such payments will not reduce MCCP's cash and cash equivalents balance below $350,000 at the time of such payment, unless the Bank consents to such payment. As of June 30, 2014, MCCP was in compliance with all its bond financial covenants. 8. Promise to Give to the City As discussed in Note 4, the parking facility will be contributed to the City at the termination of the ground lease. MCCP's best current estimate as to the termination of the ground lease is December 2038 when the long-term debt matures. Additionally, MCCP remits "excess net revenues" to the City pursuant to provisions contained in the Agreement. MCCP has recognized a liability representing its estimate of the fair value of its net contribution to the City. The calculation of the net contribution to the City includes the estimated fair value of the parking facility at the date of contribution, estimated excess net revenues to be contributed over the life of the lease, and prepaid rent less the estimated value in contributed ground lease rents received by MCCP from the City over the term of the ground lease. Liabilities reflected in the accompanying financial statements relating to this obligation totaled $492,700 and $466,799 at, respectively. Contribution expense recorded in the accompanying financial statements related to this obligation was $25,901 and $24,539 for the years ended, respectively

16 8. Promise to Give to the City (continued) MCCP estimates the net contribution to the City at the termination of the ground lease will be approximately $1,850, Related Party Transactions The Organization obtained financing of $1.35 million from the California Academy of Sciences and the Fine Arts Museums Foundation during 2008 in the form of notes bearing interest at 8% and due on December 31, These notes were amended in December 2010, extending the due date until the date of final repayment, setting forth the Repayment Mechanism (see Note 7), reducing the interest rate to 6%, and providing that unpaid interest at each fiscal-year end will be added to the principal balance. The principal balance of the notes including unpaid interest was $1,809,284 and $1,706,872 as of, respectively. MCCP is provided facilities and office services for the Organization's use at no charge from a related party. For the years ended, the fair value of the use of the facilities and office services is deemed by management to be immaterial. 10. Liquidity MCCP depends heavily on parking charges, special event charges, and monthly parking fees for its revenue. MCCP's ability to recognize support and revenues that are comparable to prior years' is dependent upon current and future overall economic conditions and event attendance at the California Academy of Sciences and the de Young Museum. The Organization monitors parking trends to determine the most profitable open and close times and continues to monitor costs. While MCCP's Board of Directors believes the Organization has the resources to continue its programs, its ability to do so and the extent to which it continues, is dependent on the above factors