NASHVILLE ALLIANCE FOR PUBLIC EDUCATION, INC. AUDITED FINANCIAL STATEMENTS WITH ADDITIONAL INFORMATION

Transcription

1 NASHVILLE ALLIANCE FOR PUBLIC EDUCATION, INC. AUDITED FINANCIAL STATEMENTS WITH ADDITIONAL INFORMATION

2 TABLE OF CONTENTS Page AUDITED FINANCIAL STATEMENTS Report of Independent Auditors... 1 Financial Statements Statements of Financial Position... 2 Statements of Activities... 3 Statements of Cash Flows... 5 Notes to Financial Statements... 7 ADDITIONAL INFORMATION Report of Independent Auditors on Additional Information Schedules of Functional Expenses... 20

3 FAULKNER MACKIE & COCHRAN, P.C. CERTIFIED PUBLIC ACCOUNTANTS One American Center Telephone: (615) West End Avenue, Suite 700 Fax: (615) Nashville, Tennessee Website: Report of Independent Auditors To the Board of Directors Nashville Alliance for Public Education, Inc. Nashville, Tennessee We have audited the accompanying statements of financial position of Nashville Alliance for Public Education, Inc. (a nonprofit organization) as of, and the related statements of activities and cash flows for the fiscal years then ended. These financial statements are the responsibility of management. 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Alliance's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nashville Alliance for Public Education, Inc. as of, and the changes in its net assets and its cash flows for the fiscal years then ended, in conformity with accounting principles generally accepted in the United States of America. December 22, 2009 MEMBER: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS; TENNESSEE SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 1

4 STATEMENTS OF FINANCIAL POSITION June ASSETS Current Assets Cash and cash equivalents $ 1,706,408 $ 2,903,151 Accrued interest income 1,662 1,728 Donors' unconditional promises to give (Note G) 172, ,750 Other current assets ,516 Total Current Assets 1,880,317 3,432,145 Donors' unconditional promises to give, less current portion (Note G) 47, ,441 Fixed assets, net 12,555 11,359 Endowment assets Cash and cash equivalents 15,443 11,636 Investments, at fair value 122, ,605 Total Endowment assets (Note E) 138, ,241 TOTAL ASSETS $ 2,079,013 $ 3,694,186 LIABILITIES AND NET ASSETS Current Liabilities Accounts payable and accrued liabilities $ 48,154 $ 80,191 Salaries, benefits and payroll taxes payable (Note L) 46,535 85,431 Unconditional promises to give (Note H) 730,684 1,035,247 Total Current Liabilities 825,373 1,200,869 Net Assets Unrestricted (Note B) 363, ,065 Temporarily restricted (Note C) 755,790 2,024,450 Permanently restricted (Note D) 134, ,802 Total Net Assets 1,253,640 2,493,317 TOTAL LIABILITIES AND NET ASSETS $ 2,079,013 $ 3,694,186 See notes to financial statements. 2

5 STATEMENT OF ACTIVITIES For the Fiscal Year Ended June 30, 2009 Temporarily Permanently Unrestricted Restricted Restricted Total SUPPORT AND REVENUES Contributions $ 296,057 $ 2,333,339 $ 2,648 $ 2,632,044 Hall of Fame special event Gross proceeds $ 191,230 Less: Direct cost of event (24,117) Net proceeds 167, ,113 Losses from uncollectible promises to give 0 (2,000) (2,000) Investment income 12,041 15, ,226 Net realized and unrealized capital gains (losses) (1,601) (6,159) 0 (7,760) Net assets released from temporary restrictions (Note C) 3,609,025 (3,609,025) 0 0 TOTAL SUPPORT AND REVENUES 4,082,635 (1,268,660) 2,648 2,816,623 EXPENSES Program Services 3,749, ,749,841 Supporting Services General and administrative 213, ,445 Fund-raising 93, ,014 Total Supporting Services 306, ,459 TOTAL EXPENSES 4,056, ,056,300 INCREASE (DECREASE) IN NET ASSETS $ 26,335 $ (1,268,660) $ 2,648 $ (1,239,677) Net Assets at June 30, ,065 2,024, ,802 2,493,317 NET ASSETS AT JUNE 30, 2009 $ 363,400 $ 755,790 $ 134,450 $ 1,253,640 See notes to financial statements. 3

6 STATEMENT OF ACTIVITIES For the Fiscal Year Ended June 30, 2008 Temporarily Permanently Unrestricted Restricted Restricted Total SUPPORT AND REVENUES Contributions $ 293,123 $ 3,003,923 $ 5,000 $ 3,302,046 Hall of Fame special event Gross proceeds $ 204,285 Less: Direct cost of event (18,509) Net proceeds 185, ,776 Losses from uncollectible promises to give 0 (155,000) 0 (155,000) Investment income 34,997 12, ,935 Net realized and unrealized capital gains (losses) (8,405) (6,798) 0 (15,203) Net assets released from temporary restrictions (Note C) 7,726,462 (7,726,462) 0 0 TOTAL SUPPORT AND REVENUES 8,231,953 (4,871,399) 5,000 3,365,554 EXPENSES Program Services 7,871, ,871,806 Supporting Services General and administrative 196, ,857 Fund-raising 106, ,342 Total Supporting Services 303, ,199 TOTAL EXPENSES 8,175, ,175,005 INCREASE (DECREASE) IN NET ASSETS $ 56,948 $ (4,871,399) $ 5,000 $ (4,809,451) Net Assets at June 30, ,117 6,895, ,802 7,302,768 NET ASSETS AT JUNE 30, 2008 $ 337,065 $ 2,024,450 $ 131,802 $ 2,493,317 See notes to financial statements. 4

7 STATEMENTS OF CASH FLOWS Fiscal Year Ended June CASH FLOWS FROM OPERATING ACTIVITIES Contributions received $ 3,006,699 $ 8,683,974 Net proceeds from Hall of Fame special event 167, ,776 Investment income received 27,292 48,039 Grants and other program expenditures (4,010,452) (7,141,481) Cash paid to suppliers, consultants and others (373,989) (179,127) Net Cash Provided by (Used in) Operating Activities (1,183,337) 1,597,181 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of investments 25,000 33,007 Purchases of investments (33,806) (5,110) Purchases of fixed assets (4,600) (12,741) Net Cash Provided by (Used in) Investing Activities (13,406) 15,156 CASH FLOWS FROM FINANCING ACTIVITIES 0 0 NET INCREASE (DECREASE) FROM CASH FLOWS $ (1,196,743) $ 1,612,337 Balance at beginning of fiscal year 2,903,151 1,290,814 CASH AND CASH EQUIVALENTS AT END OF FISCAL YEAR $ 1,706,408 $ 2,903,151 (CONTINUED) 5

8 STATEMENTS OF CASH FLOWS (Continued) Fiscal Year Ended June RECONCILIATION OF CHANGE IN NET ASSETS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Decrease in Net Assets $ (1,239,677) $ (4,809,451) Adjustments to reconcile the Change in Net Assets to Net Cash Provided by (Used in) Operating Activities: Depreciation and amortization expense 3,403 3,265 Non-cash contributions received (see below) (43,952) (152,813) Net realized and unrealized capital (gains) losses 7,760 15,204 Non-cash donations of contributed property and professional services (see below) 43,952 57,107 Non-cash expenses -- goods and services (see below) 0 59,668 Other, net 0 3,347 (Increase) decrease in: Accrued interest income and other current assets 19,335 (19,521) Donors' unconditional promises to give 401,338 5,709,257 Increase (decrease) in: Accounts payable and accrued liabilities (32,037) 80,191 Salaries, benefits and payroll taxes payable (38,896) (56,048) Unconditional promises to give (304,563) 706,975 Total Adjustments 56,340 6,406,632 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (1,183,337) $ 1,597,181 SUPPLEMENTAL DISCLOSURES Non-Cash Transactions: The nature and estimated fair values of non-cash contributions received by the Alliance, summarized by major category, are as follows for the fiscal years ended June 30: Category (1) Musical instruments, clothing, furniture and equipment $ 42,189 $ 7,400 (2) Professional services 1,763 49,707 (3) Public relations, printing and advertising services 0 59,668 (4) Marketable securities 0 36,038 Total Non-Cash Contributions Received $ 43,952 $ 152,813 The non-cash contributions presented above were utilized by the Alliance as follows: Category (1) - transferred to Metropolitan Nashville Public Schools and recognized as non-cash donations of contributed property; Category (2) - utilized in construction projects (Note H) and recognized as noncash donations of professional services; Category (3) - consumed in operations and recognized as operating and fundraising expenses, and Category (4) - sold to generate cash proceeds for use by the Alliance. See notes to financial statements. 6

9 NOTES TO FINANCIAL STATEMENTS NOTE A -- NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES Nature of Activities: On July 11, 2002, Nashville Alliance for Public Education, Inc. (the "Alliance") was chartered as a public benefit corporation under the Tennessee Nonprofit Corporation Act. The Alliance was organized by a group of corporate and civic leaders for the purpose of improving public education in Nashville, Tennessee. Working in partnership with the Metropolitan Nashville Public School Board and the Director of Schools, the Alliance identifies areas of need and impact and channels private community resources toward programs that accelerate progress in the Metropolitan Nashville Public Schools ("MNPS"). Areas of principal focus include music, reading, science, and the coordination of private financial resources so that their collective support of MNPS priorities will yield a greater impact on student achievement and public school success. Major program services routinely conducted by the Alliance include the provision of monetary grants directly to MNPS and the donation of equipment and supplies for use by MNPS, in conjunction with specific programs designated by the Director of Schools or as specified by donors. Basis of Accounting: The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) using the accrual method of accounting. Financial Statement Presentation: The Alliance reports information regarding its financial position and activities according to three classes of net assets (unrestricted, temporarily restricted and permanently restricted), based on the existence or absence of donor-imposed restrictions. Use of Estimates: Preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the financial statement date, and the reported amounts of support, revenues and expenses during the reporting period. Significant estimates used in preparing these financial statements principally include those assumed in establishing the present value of unconditional promises to give to be received in the future and the fair value of investments. It is at least reasonably possible that these significant estimates will change within the next year. Contribution Support and Promises to Give: A donor's promise to give is recognized as support if the donor communicates an unconditional promise to the Alliance. Conditional promises to give are not recognized as support until the donor's conditions are substantially met. Contributions that are restricted by the donor (e.g., as to specific purpose or passage of time), are reported as increases in temporarily restricted net assets or permanently restricted net assets, depending on the nature of the restriction. Upon satisfaction or expiration of a temporary restriction, the applicable amounts are reclassified to unrestricted net assets. Contributions are recorded at fair value on the date received. The fair value of an unconditional promise to give within the next twelve months is deemed to be equal to the net settlement value of the amount to be received. The fair value of an unconditional promise to give after twelve months is deemed to be equal to the estimated present value of the amount to be received, discounted using a risk-free interest rate such as the rate available on zero-coupon U.S. government issues with a similar maturity. 7

10 NOTES TO FINANCIAL STATEMENTS Endowment contributions and the related assets acquired are permanently restricted by the donor. Investment earnings subject to donor restrictions are recorded as either temporarily restricted or permanently restricted net assets, based on the nature of the restrictions. All other investment earnings are recognized as unrestricted net assets. The Alliance serves as the primary fund-raising organization for MNPS. In this role, the Alliance receives contributions from the general public, some of which may be temporarily or permanently restricted as presented in the accompanying financial statements. Because of the unique relationship between the Alliance and MNPS, these organizations are considered to be financially interrelated and all net assets of the Alliance are held for the benefit of MNPS. Donated Services: Under GAAP, donated services are recognized as support (along with a corresponding asset or expense) only if the services create or enhance a non-financial asset (e.g., property or equipment), or such services require specialized skills that would typically need to be purchased by the organization had they not been donated. With respect to the fiscal years ended, the Alliance recognized $1,763 and $49,707 for donated services. In addition, the Alliance acknowledges that many individuals routinely volunteer their time and efforts to perform a variety of beneficial tasks that greatly promote the Alliance's programs and services. Reclassifications: Certain prior year amounts have been reclassified to conform to the current year presentation. Cash and Cash Equivalents: Cash consists of amounts on deposit in financial institutions. Generally, the Federal Deposit Insurance Corporation ("FDIC") insures the total amount deposited by each customer in a participating bank up to its basic limit of $100,000. Effective October 3, 2008, the FDIC's basic limit was temporarily increased from $100,000 to $250,000 per depositor. Effective May 20, 2009, this temporary increase was extended through December 31, At June 30, 2009, the Alliance had no deposits that exceeded the FDIC insurance limits. Cash equivalents include all highly-liquid investments that have a maturity of three months or less at the time of purchase. At, the Alliance held cash equivalents of approximately $1,662,200 and $2,546,700, respectively, which were comprised of money market funds. These investments earn interest at variable short-term market rates and are presented at cost, which approximates fair value. Cash equivalents held by the Alliance are considered to be Level 1 securities within the investment fair value hierarchy described in Note K. Receivables and Allowance for Uncollectible Amounts: Receivables are recorded for amounts due from various parties in conjunction with financial transactions. An allowance is provided when deemed necessary to recognize potentially uncollectible receivables. Provision of an allowance was considered unnecessary at. Amounts deemed worthless by management are written off. Temporarily restricted unconditional promises to give which are deemed uncollectible are reported as "losses" in the Statements of Activities. Investments: Investments are presented at estimated fair value in accordance with prescribed measurement principles, which are described in Note K. Unrealized gains and losses are recorded for changes in the estimated fair value of investments during the reporting period. Realized gains and losses, if any, are recognized when investments are sold. Realized and unrealized gains and losses during each reporting period are combined and presented as a net amount in the Statement of Activities. Investment income includes interest income from bonds, certain cash deposits, and cash equivalents. 8

11 NOTES TO FINANCIAL STATEMENTS Fixed Assets: Fixed assets are initially recorded at cost if purchased or at estimated fair value if contributed. Depreciation and amortization expense is calculated using the straight-line method over the estimated service lives of the assets, principally 3 to 7 years for furniture and equipment. Significant additions and improvements are capitalized. Normal repairs and maintenance are charged to expense as incurred. Fixed assets are reported net of accumulated depreciation and amortization in the accompanying Statements of Financial Position. Unconditional Promises to Give to Nonprofit Organizations: A promise to give to a qualifying nonprofit organization (principally MNPS) is recognized as a liability by the Alliance, at fair value, on the date the grant obligation is deemed to be unconditional. A conditional grant is not recorded until the contingent condition is effectively satisfied. Grants scheduled to be paid in less than one year are recorded at net settlement value. Grants scheduled for payment in excess of one year are recorded at estimated present value in a manner similar to the valuation of unconditional promises to be received, as described on page 7. (Refer to Note H for additional information.) Advertising Costs: The Alliance expenses all advertising costs as incurred. There were no advertising costs incurred in the fiscal year ended June 30, During the fiscal year ended June 30, 2008, advertising costs totaled approximately $21,000. All of these costs were recognized in conjunction with non-cash "gift-in-kind" contributions received by the Alliance. Income Taxes: Based on an Internal Revenue Service ("IRS") determination letter dated October 31, 2007, the Alliance is recognized as exempt from federal income taxes under Internal Revenue Code 501(c)(3) and is not deemed to be a "private foundation". However, continued compliance with the prescribed "public support test", and other rules and regulations, is required to maintain this exemption. As a result of this determination, the Alliance is generally exempt from Tennessee franchise and excise taxes. Management is not aware of any event or activity that has occurred since the latest determination date that might adversely affect the Alliance's tax exempt status. In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"). FIN 48 clarified the accounting for uncertainty in income taxes recognized in an organization's financial statements in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. The required implementation date of FIN 48 has been deferred for most nonpublic entities to fiscal years beginning after December 15, The Alliance has elected to defer implementation of FIN 48, and does not expect that its implementation will have a material effect on the organization's financial statements for the fiscal year ending June 30, Until FIN 48 is implemented, the Alliance will continue to evaluate uncertainties in income taxes under SFAS No. 5, Accounting for Contingencies. NOTE B -- UNRESTRICTED NET ASSETS During the fiscal year ended June 30, 2007, the Alliance's Board of Directors elected to designate $25,000 of unrestricted net assets for use in conjunction with certain endowment assets that are permanently restricted by donors to fund travel expenses of MNPS debate teams (refer to Note D). Although the designated assets remain unrestricted, the underlying investment purchased with the designated funds is presented in the accompanying Statements of Financial Position as a component of the non-current asset titled "Endowment assets". (Refer to Note E for additional information.) 9

12 NOTES TO FINANCIAL STATEMENTS NOTE C -- TEMPORARILY RESTRICTED NET ASSETS Activity involving temporarily restricted net assets is summarized as follows: Fiscal Year Ended June 30, 2009 June 30, Release of June 30, Temporarily restricted for or due to: 2008 Additions Restrictions 2009 "Specific purpose use" Musical instruments and programs $ 114,156 $ 1,050,984 $ (1,006,428) $ 158,712 Science labs and supplies 249,818 64,500 (82,689) 231,629 Reading supplies and programs 72,072 70,600 (51,910) 90,762 Professional development center 0 340,687 (301,327) 39,360 Julia Green Elementary renovation 889, ,037 (997,969) 12,273 Specific school designations and other specific purposes 115,285 1,099,619 (1,136,703) 78,201 Total for Specific Purpose Use 1,440,536 2,747,427 (3,577,026) 610,937 "Passage of time" Donors' unconditional promises to give 583,914 4,412 (443,473) 144,853 Net assets released upon satisfaction of dual restrictions 0 (411,474) 411,474 0 TOTAL TEMPORARILY RESTRICTED NET ASSETS $ 2,024,450 $ 2,340,365 $ (3,609,025) $ 755,790 Fiscal Year Ended June 30, 2008 June 30, Release of June 30, Temporarily restricted for or due to: 2007 Additions Restrictions 2008 "Specific purpose use" Musical instruments and programs $ 102,576 $ 704,026 $ (692,446) $ 114,156 Science labs and supplies 245, ,446 (119,539) 249,818 Reading supplies and programs 39,515 37,221 (4,664) 72,072 Professional development center 0 2,242,297 (2,242,297) 0 Julia Green Elementary renovation 80,260 4,066,134 (3,257,189) 889,205 Specific school designations and other specific purposes 97,139 1,391,473 (1,373,327) 115,285 Total for Specific Purpose Use 565,401 8,564,597 (7,689,462) 1,440,536 "Passage of time" Donors' unconditional promises to give 6,330, ,987 (6,223,521) 583,914 Net assets released upon satisfaction of dual restrictions 0 (6,186,521) 6,186,521 0 TOTAL TEMPORARILY RESTRICTED NET ASSETS $ 6,895,849 $ 2,855,063 $ (7,726,462) $ 2,024,450 10

13 NOTES TO FINANCIAL STATEMENTS Temporarily restricted net assets are included as components of the following asset captions in the accompanying Statements of Financial Position: June Current Assets Cash and cash equivalents $ 610,937 $ 1,440,536 Donors' unconditional promises to give 97, ,473 Total Current Assets 707,937 1,911,009 Donors' unconditional promises to give 47, ,441 TOTAL TEMPORARILY RESTRICTED NET ASSETS $ 755,790 $ 2,024,450 NOTE D -- PERMANENTLY RESTRICTED NET ASSETS Periodically, the Alliance receives contributions that are permanently restricted by donors as endowment assets, with the investment income to be used as financial support for donor-specified purposes. At June 30, 2009, the Alliance held permanently restricted net assets as follows: (1) $14,450 endowment to benefit a designated school upon notification from the respective donor group, and (2) $120,000 endowment to fund travel expenses of MNPS debate teams. The Alliance generally follows a conservative investment policy with respect to its endowment assets. Investment income earned on endowment assets typically includes dividends, interest, and realized and unrealized capital gains and losses. Investment earnings are recognized as a component of unrestricted or temporarily restricted net assets based on the use or appropriation of the funds, respectively, for qualifying program expenditures. (Refer to Note E for additional information.) The foregoing practices regarding the net asset classification of endowment assets and related investment income reflects the Alliance s interpretation of applicable provisions of the Uniform Prudent Management of Institutional Funds Act of 2006, which has been adopted by the state of Tennessee. Permanently restricted net assets are included as components of the following asset captions in the accompanying Statements of Financial Position: June Endowment assets Cash and cash equivalents $ 9,284 $ 11,636 Investments (excludes net unrealized capital loss and Board-designated endowment investment of $25,000; reported as a component of unrestricted net assets) 125, ,166 TOTAL PERMANENTLY RESTRICTED NET ASSETS $ 134,450 $ 131,802 11

14 NOTES TO FINANCIAL STATEMENTS NOTE E -- ENDOWMENT ASSETS As discussed in Notes B and D, endowment assets include both permanently restricted assets and board designated amounts, plus related investment income. A summary of activity involving endowment assets during the fiscal year ended June 30, 2009, is as follows: Net Asset Class Temporarily Permanently Unrestricted Restricted Restricted Total Endowment Assets at June 30, 2008 $ 5,439 $ 0 $ 131,802 $ 137,241 Contributions 2,648 2,648 Investment income 6,159 6,159 Net unrealized capital losses (1,601) (6,159) (7,760) Endowment Assets at June 30, 2009 $ 3,838 $ 0 $ 134,450 $ 138,288 NOTE F -- FAIR VALUE OF FINANCIAL INSTRUMENTS Fair values of the Alliance s financial instruments (principally cash, cash equivalents, investments, and unconditional promises to give) are summarized in the accompanying Statements of Financial Position. Significant fair value measurement principles and assumptions used by the Alliance are described in Note A and supplemented by information presented in Notes G, H, J and K. NOTE G -- DONORS' UNCONDITIONAL PROMISES TO GIVE During the fiscal years ended, the Alliance received notifications from several donors communicating their unconditional promises to give financial support over specified future periods. As a result of the "passage of time" restrictions imposed by donors, each of these unconditional promises to give was recorded as an increase in temporarily restricted net assets. In addition, each long-term portion was discounted to its estimated present value. At June 30, 2009, proceeds receivable under donors' unconditional promises to give are scheduled to be received as follows: Current portion due in fiscal year ending June 30, 2010 $ 172,000 Long-term portion due in fiscal year ending June 30, 2011, net of an allowance of $0 for possible uncollectible amounts $ 50,000 Less: Unamortized discount to net present value using a discount rate of 2.9% (2,147) NET LONG-TERM PROCEEDS RECEIVABLE FROM DONORS' UNCONDITIONAL PROMISES TO GIVE $ 47,853 12

15 NOTES TO FINANCIAL STATEMENTS Included in the current and long-term proceeds receivable amounts are unconditional promises totaling approximately $127,000 (estimated present value of approximately $125,000) that are subject to "specific purpose use" restrictions for construction-related expenditures associated with the Professional Development Center and the Julia Green Elementary renovation projects (refer to Note H). The remaining unconditional promises to give are not subject to specific purpose restrictions. NOTE H -- PROMISES TO GIVE TO NONPROFIT ORGANZATION (MNPS) MNPS Construction Projects: During the fiscal year ended June 30, 2007, the Alliance agreed to sponsor two major construction-related projects for the benefit of MNPS, as follows: (1) Construction and remodeling of a "Professional Development Center" on the campus of Eakin Elementary School, and (2) Renovation of Julia Green Elementary School. Under the terms of a written "Agreement" with MNPS, dated May 30, 2007, the Alliance agreed to contract directly with architects, general contractors, and others to obtain the construction-related services necessary to complete these two projects and to be responsible for the payment of substantially all costs, fees and expenses related thereto other than amounts funded directly by MNPS during the course of the projects. MNPS retained responsibility for approving all contractors and service providers, all construction plans and specifications including change orders, and all applications for construction progress payments and final payments. Payments to vendors for MNPS-approved construction-related expenditures are recorded by the Alliance as "Program services expense" (i.e., grant expense). Amounts approved for payment by MNPS, but unpaid by the Alliance as of a reporting date, are also recorded as program services expense, along with a corresponding liability reported as a component of "unconditional promises to give" in the Statement of Financial Position ($0 and $1,035,247 at, respectively). The Alliance remitted final payments of its construction-related liabilities during the fiscal year ended June 30, 2009, and comprehensive lien waivers were received from the principal contractors. Upon completion of each project, the improved property was "assigned" to MNPS and the Alliance retained no rights or interest in such property. Financial support provided by the Alliance to MNPS, as sponsor of the construction-related projects described above, is summarized as follows: Estimated aggregate contract costs, fees and expenses at June 30, 2007 (architects, general contractors and other service providers) $ 5,522,546 Additional contract costs and change orders during the fiscal year ended June 30, ,851,251 Amounts paid by MNPS, net of additional contract costs and change orders, during fiscal year ended June 30, 2009 (1,429,710) Total Contract Costs of the Alliance 7,944,087 Less: Amounts paid by the Alliance in the fiscal year ended June 30: 2007 (963,802) 2008 (4,795,742) 2009 (2,184,543) Total Paid to-date (7,944,087) Residual Amount of Financial Commitment at June 30, 2009 $ 0 13

16 NOTES TO FINANCIAL STATEMENTS MNPS Music Program: At June 30, 2009, the Alliance had placed orders with a vendor for the purchase of musical instruments to be donated to MNPS in accordance with the specific purpose use of certain donors contributions. The Alliance s liability to the vendor ($730,684) has been reported as a component of "unconditional promises to give" in the 2009 Statement of Financial Position. NOTE I -- FIXED ASSETS The components of fixed assets held by the Alliance are as follows: June Furniture and equipment (including computer software) $ 12,741 $ 12,741 Website design 4, ,341 12,741 Less: Accumulated depreciation and amortization (4,786) (1,382) TOTAL FIXED ASSETS, net $ 12,555 $ 11,359 Website design was on-going as of June 30, 2009 and was not completed until the fall of Accordingly, no amortization has been recognized on this asset in the fiscal year ended June 30, Depreciation and amortization expense for assets that have been placed in service totaled $3,403 and $3,265 for the fiscal years ended, respectively. NOTE J -- INVESTMENTS Components of Major Investment Categories: endowment assets) are summarized as follows: Investments held by the Alliance (all classified as June INVESTMENTS, at fair value Bank certificates of deposit - respective maturity dates: August 2009 $ 5,000 $ 5,000 September ,847 6,847 Total certificates of deposit 11,847 11,847 Publicly-traded corporate bonds (aggregate par values of $109,000 and $134,000, respectively) 82, ,758 Publicly-traded mutual fund 28,779 0 TOTAL INVESTMENTS, at fair value $ 122,845 $ 125,605 At June 30, 2009, the stated maturity dates and par values of the publicly-traded bonds held by the Alliance are as follows: April $51,000; February $48,000; and March $10,000. The Alliance has the intent and ability to hold the bonds to maturity, however, certain of these bonds are callable by the issuers at par value in advance of their stated maturity dates. Investment income, which is comprised solely of interest income, totaled $27,226 and $47,935 during the fiscal years ended, respectively. 14

17 NOTES TO FINANCIAL STATEMENTS Summarized information regarding the cost basis and fair value of the Alliance s investment holdings is as follows: June Cost basis $ 150,166 $ 145,166 Net unrealized capital loss (27,321) (19,561) TOTAL INVESTMENTS, at fair value $ 122,845 $ 125,605 During the fiscal year ended June 30, 2008, certain donors contributed publicly-traded securities to the Alliance. Consistent with its policy for contributions, the Alliance recorded each donation of securities at fair value on the date received, which established the respective cost basis. The donated securities were generally sold upon receipt yielding the results shown below. During the fiscal year ended June 30, 2009, the Alliance recognized the maturity of a bond at par value, which equaled its cost basis, as shown below. Fiscal Year Ended June Proceeds $ 25,000 $ 33,007 Less: Cost basis 25,000 36,038 NET REALIZED CAPITAL GAIN (LOSS) $ 0 $ (3,031) NOTE K -- VALUATION OF INVESTMENTS AT FAIR VALUE DEFINITIONS AND HIERARCHY The Alliance adopted the provisions of Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS No. 157"), effective July 1, SFAS No. 157 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements. Under SFAS No. 157, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. SFAS No. 157 establishes a fair value hierarchy for inputs used in measuring fair value that gives the highest priority to observable inputs (Level 1) and the lowest priority to unobservable inputs (Level 3). Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Alliance. Unobservable inputs reflect management's assumptions about the inputs market participants would use in pricing the asset or liability based on the best information available in the circumstances. 15

18 NOTES TO FINANCIAL STATEMENTS The fair value hierarchy is categorized into three levels, based on the inputs as follows: Level 1: Fair values are based on unadjusted quoted prices in active markets for identical assets or liabilities. (Valuation of these securities does not entail a significant degree of judgment). Level 2: Fair values are based on quoted prices in markets that are not active or models in which all significant inputs are observable either directly or indirectly. Level 3: Fair values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Bank certificates of deposit will generally be classified as Level 1 securities and valued at the deposit value. Debt and equity securities, such as publicly-traded corporate bonds and mutual funds listed on one or more securities exchanges, will generally be classified as Level 1 securities and valued on the basis of market quotations. The following table presents information about fair value of the Alliance s investments at June 30, 2009, categorized in accordance with the fair value hierarchy prescribed by SFAS No INVESTMENTS, at fair value Level 1 Level 2 Level 3 Total Bank certificates of deposit $ 11,847 $ 0 $ 0 $ 11,847 Publicly-traded corporate bonds 82, ,219 Publicly-traded mutual fund 28, ,779 TOTAL INVESTMENTS, at fair value $ 122,845 $ 0 $ 0 $ 122,845 NOTE L -- RELATED PARTY TRANSACTIONS Affiliation with Metropolitan Nashville Public Schools: Certain employees of MNPS also serve in an ex-officio capacity as advisors to the Board of Directors of the Alliance. These MNPS employees are allowed to participate in discussions with the Board but do not have voting privileges on matters of Alliance governance. From its inception through June 30, 2007, the Alliance was party to a contract with MNPS whereby the Alliance's Executive Director and staff associates were employed by MNPS and made available on either a full time or part time basis to the Alliance. Reimbursement of their salaries, benefits and payroll taxes was provided to MNPS on an annual basis. As of, the Alliance reported current liabilities of $40,778 and $80,778, respectively, for amounts accrued but unpaid under this contract. Effective with the cancelation of this contract with MNPS, the Alliance entered into an employee leasing agreement with an unrelated third party. Payment of salaries, benefits and payroll taxes under the new agreement is due on a bi-weekly basis. 16

19 NOTES TO FINANCIAL STATEMENTS Office Lease: Effective August 1, 2008, the Alliance entered into a five year lease for office space in a facility owned by MNPS. The lease requires monthly rental payments of approximately $247. The Alliance incurred rent expense totaling $2,713 during the fiscal year ended June 30, Prior to inception of this lease, the Alliance utilized office space provided by MNPS at no cost. NOTE M -- COMMITMENTS Outsourced Accounting Services to PENCIL Foundation: Effective March 1, 2008, the Alliance outsourced its routine accounting functions to an unrelated non-profit organization under a contractual agreement, which may be cancelled by either party upon thirty days written notice. Fees are adjustable annually and were initially set at $1,750 per month. The fee was increased by mutual agreement to $2,000 per month, effective July 1, Outsourced Public Relations Services: Effective July 1, 2007, the Alliance contracted with an unrelated public relations firm to obtain various public outreach and communication services for a monthly retainer fee of $3,000. The initial term of the agreement extended through fiscal year ended June 30, 2008, and has been renewed under substantially similar terms through June 30, However, the agreement may be terminated by either party upon thirty days advance written notice. Copier Lease: Effective in June 2008, the Alliance entered into a 48-month copier lease agreement, which requires monthly payments of $206. This lease includes customary charges for copies in excess of a specified monthly allowance. NOTE N -- SUBSEQUENT EVENTS In preparing the accompanying financial statements, management has evaluated subsequent events through December 22, 2009, which represents the date the financial statements were available to be issued. 17

20 ADDITIONAL INFORMATION 18

21 FAULKNER MACKIE & COCHRAN, P.C. CERTIFIED PUBLIC ACCOUNTANTS One American Center Telephone: (615) West End Avenue, Suite 700 Fax: (615) Nashville, Tennessee Website: Report of Independent Auditors On Additional Information To the Board of Directors Nashville Alliance for Public Education, Inc. Nashville, Tennessee Our report on our audits of the basic financial statements of Nashville Alliance for Public Education, Inc. (a nonprofit organization) for the fiscal years ended, appears on page 1 of this document. We conducted our audits in accordance with auditing standards generally accepted in the United States of America for the purpose of forming an opinion on the basic financial statements taken as a whole. The Schedules of Functional Expenses presented on page 20, for the fiscal years ended June 30, 2009 and 2008, are presented for purposes of additional analysis and are not a required part of the basic financial statements. This information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. December 22, 2009 MEMBER: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS; TENNESSEE SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 19

22 SCHEDULES OF FUNCTIONAL EXPENSES For the Fiscal Year Ended June 30, 2009 SUPPORTING SERVICES TOTAL PROGRAM General and SUPPORTING TOTAL SERVICES Administrative Fund-raising SERVICES EXPENSES Grants and school program support $ 2,472,828 $ 0 $ 0 $ 0 $ 2,472,828 Grants - MNPS construction projects 1,149, ,149,296 Salaries, wages and employee benefits 127,717 64,503 70, , ,987 Public relations 0 47, ,958 47,958 Printing and publications 0 5,456 10,408 15,864 15,864 Professional fees 0 66, ,535 66,535 Office occupancy 0 7, ,710 7,710 Supplies 0 3, ,580 3,580 Telephone, postage and shipping ,706 2,455 2,455 Travel, meetings and special events 0 5,433 6,259 11,692 11,692 Depreciation and amortization expense 0 1,269 2,134 3,403 3,403 Other miscellaneous expenses 0 10,252 1,740 11,992 11,992 TOTAL EXPENSES $ 3,749,841 $ 213,445 $ 93,014 $ 306,459 $ 4,056,300 For the Fiscal Year Ended June 30, 2008 SUPPORTING SERVICES TOTAL PROGRAM General and SUPPORTING TOTAL SERVICES Administrative Fund-raising SERVICES EXPENSES Grants and school program support $ 2,270,627 $ 0 $ 0 $ 0 $ 2,270,627 Grants - MNPS construction projects 5,497, ,497,605 Salaries, wages and employee benefits 99,667 54,762 69, , ,829 Public relations 0 74,864 20,709 95,573 95,573 Printing and publications 0 8,948 11,306 20,254 20,254 Professional fees 0 39, ,541 39,541 Office occupancy 0 1, ,362 1,362 Supplies 0 3, ,258 4,258 Telephone, postage and shipping 0 3, ,011 4,011 Travel, meetings and special events 3, ,190 1,343 5,250 Depreciation and amortization expense 0 1,817 1,448 3,265 3,265 Other miscellaneous expenses 0 7,705 1,725 9,430 9,430 TOTAL EXPENSES $ 7,871,806 $ 196,857 $ 106,342 $ 303,199 $ 8,175,005 See report of independent auditors on additional information. 20