NASHVILLE PUBLIC EDUCATION FOUNDATION

Transcription

1 NASHVILLE PUBLIC EDUCATION FOUNDATION AUDITED FINANCIAL STATEMENTS

2 TABLE OF CONTENTS Page AUDITED FINANCIAL STATEMENTS Independent Auditor's Report... 1 Financial Statements Statements of Financial Position... 3 Statements of Activities... 4 Statements of Functional Expenses... 6 Statements of Cash Flows... 7 Notes to Financial Statements... 9

3 FAULKNER MACKIE & COCHRAN, P.C. CERTIFIED PUBLIC ACCOUNTANTS One American Center Telephone: (615) West End Avenue, Suite 700 Fax: (615) Nashville, Tennessee Website: INDEPENDENT AUDITOR'S REPORT To the Board of Directors Nashville Public Education Foundation Nashville, Tennessee We have audited the accompanying financial statements of Nashville Public Education Foundation (a nonprofit organization), which are comprised of the statements of financial position as of June 30, 2014 and 2013, and the related statements of activities, functional expenses, and cash flows for the fiscal 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. Management is also responsible for 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 of 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. (Continued) MEMBER: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS; TENNESSEE SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 1

4 FAULKNER MACKIE & COCHRAN, P.C. CERTIFIED PUBLIC ACCOUNTANTS (Continued) INDEPENDENT AUDITOR'S REPORT Auditor's Opinion In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Nashville Public Education Foundation as of, and the changes in its net assets and its cash flows for the fiscal years then ended, in accordance with accounting principles generally accepted in the United States of America. November 25,

5 STATEMENTS OF FINANCIAL POSITION June ASSETS Current Assets Cash and cash equivalents $ 2,267,812 $ 2,779,866 Restricted cash - conditional grant funds 13,150 18,150 Accrued interest income Donors' unconditional promises to give 35,000 22,730 Other current assets 278 1,343 Total Current Assets 2,316,472 2,822,853 Fixed assets, net 12,886 4,390 Endowment assets Cash and cash equivalents Investments, at fair value 169, ,368 Total Endowment assets (Note E) 169, ,620 TOTAL ASSETS $ 2,498,611 $ 2,992,863 LIABILITIES AND NET ASSETS Current Liabilities Accounts payable and accrued liabilities $ 6,445 $ 9,724 Salaries, benefits, and payroll taxes payable 12,896 3,152 Unconditional promises to give (Note H) 4, ,815 Conditional grant funds payable 13,150 18,150 Total Current Liabilities 36, ,841 Net Assets Unrestricted (Note B) 714, ,588 Temporarily restricted (Note C) 1,627,318 1,820,181 Permanently restricted (Note D) 120, ,253 Total Net Assets 2,461,817 2,584,022 TOTAL LIABILITIES AND NET ASSETS $ 2,498,611 $ 2,992,863 See notes to financial statements. 3

6 STATEMENT OF ACTIVITIES For the Fiscal Year Ended June 30, 2014 Temporarily Permanently Unrestricted Restricted Restricted Total SUPPORT AND REVENUES Contributions $ 234,908 $ 1,231,858 $ 0 $ 1,466,766 Hall of Fame special event Gross proceeds $ 268,907 Less: Direct cost of event (73,774) Net proceeds 195, ,133 Investment income 1,615 7, ,060 Net realized and unrealized capital gains (losses) 0 4, ,716 Net assets released from temporary restrictions (Note C) 1,436,882 (1,436,882) 0 0 TOTAL SUPPORT AND REVENUES 1,868,538 (192,863) 0 1,675,675 EXPENSES Program Services 1,545, ,545,520 Supporting Services General and administrative 221, ,687 Fund-raising 30, ,673 Total Supporting Services 252, ,360 TOTAL EXPENSES 1,797, ,797,880 INCREASE (DECREASE) FROM OPERATIONS 70,658 (192,863) 0 (122,205) Transfer of permanently restricted net assets (Note D) NET INCREASE (DECREASE) IN NET ASSETS $ 70,658 $ (192,863) $ 0 $ (122,205) Net Assets at June 30, ,588 1,820, ,253 2,584,022 NET ASSETS AT JUNE 30, 2014 $ 714,246 $ 1,627,318 $ 120,253 $ 2,461,817 See notes to financial statements. 4

7 STATEMENT OF ACTIVITIES For the Fiscal Year Ended June 30, 2013 Temporarily Permanently Unrestricted Restricted Restricted Total SUPPORT AND REVENUES Contributions $ 230,931 $ 1,444,794 $ 0 $ 1,675,725 Hall of Fame special event Gross proceeds $ 184,726 Less: Direct cost of event (60,748) Net proceeds 123, ,978 Investment income 4,145 7, ,541 Net realized and unrealized capital gains (losses) 0 2, ,188 Net assets released from temporary restrictions (Note C) 2,105,738 (2,105,738) 0 0 TOTAL SUPPORT AND REVENUES 2,464,792 (651,360) 0 1,813,432 EXPENSES Program Services 2,035, ,035,880 Supporting Services General and administrative 154, ,167 Fund-raising 16, ,072 Total Supporting Services 170, ,239 TOTAL EXPENSES 2,206, ,206,119 INCREASE (DECREASE) FROM OPERATIONS 258,673 (651,360) 0 (392,687) Transfer of permanently restricted net assets (Note D) 0 0 (17,480) (17,480) NET INCREASE (DECREASE) IN NET ASSETS $ 258,673 $ (651,360) $ (17,480) $ (410,167) Net Assets at June 30, ,915 2,471, ,733 2,994,189 NET ASSETS AT JUNE 30, 2013 $ 643,588 $ 1,820,181 $ 120,253 $ 2,584,022 See notes to financial statements. 5

8 STATEMENTS OF FUNCTIONAL EXPENSES For the Fiscal Year Ended June 30, 2014 SUPPORTING SERVICES TOTAL PROGRAM General and SUPPORTING TOTAL SERVICES Administrative Fund-raising SERVICES EXPENSES Grants and school program support $ 1,336,882 $ 0 $ 0 $ 0 $ 1,336,882 Salaries, wages, and employee benefits 208,638 84,008 14,893 98, ,539 Transition and strategic planning 0 57, ,743 57,743 Public relations 0 5, ,381 5,381 Printing and publications 0 0 6,869 6,869 6,869 Professional fees 0 49, ,091 49,091 Office occupancy 0 11, ,013 11,013 Supplies 0 1, ,960 1,960 Telephone, postage, and shipping 0 2, ,476 2,476 Travel, meetings, and special events 0 5, ,746 6,746 Depreciation and amortization expense ,301 1,528 1,528 Software maintenance expense 0 0 6,015 6,015 6,015 Other miscellaneous expenses 0 3, ,637 4,637 TOTAL EXPENSES $ 1,545,520 $ 221,687 $ 30,673 $ 252,360 $ 1,797,880 For the Fiscal Year Ended June 30, 2013 SUPPORTING SERVICES TOTAL PROGRAM General and SUPPORTING TOTAL SERVICES Administrative Fund-raising SERVICES EXPENSES Grants and school program support $ 1,977,475 $ 0 $ 0 $ 0 $ 1,977,475 Salaries, wages, and employee benefits 58,405 66,185 2,358 68, ,948 Transition and strategic planning 0 20, ,000 20,000 Public relations Printing and publications 0 0 5,707 5,707 5,707 Professional fees 0 48, ,854 48,854 Office occupancy 0 10, ,386 10,386 Supplies 0 1, ,072 1,072 Telephone, postage, and shipping Travel, meetings, and special events 0 1,461 1,450 2,911 2,911 Depreciation and amortization expense ,125 2,075 2,075 Software maintenance expense 0 0 5,432 5,432 5,432 Other miscellaneous expenses 0 4, ,664 4,664 TOTAL EXPENSES $ 2,035,880 $ 154,167 $ 16,072 $ 170,239 $ 2,206,119 See notes to financial statements. 6

9 STATEMENTS OF CASH FLOWS Fiscal Year Ended June CASH FLOWS FROM OPERATING ACTIVITIES Contributions received $ 1,406,829 $ 1,665,745 Conditional grant proceeds received 0 50,400 Conditional grant proceeds returned (Note A) 0 (447,472) Net proceeds from Hall of Fame special event 215, ,978 Investment income received 9,592 11,541 Grants and other program expenditures (1,896,365) (2,082,008) Cash paid to suppliers, consultants, and others (243,302) (190,059) Net Cash Used in Operating Activities (508,113) (887,875) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets (10,024) (5,098) Proceeds from sale of investments 52,083 18,223 Purchases of investments (51,000) (10,124) Net Cash Provided by (Used in) Investing Activities (8,941) 3,001 CASH FLOWS FROM FINANCING ACTIVITIES 0 0 NET DECREASE FROM CASH FLOWS $ (517,054) $ (884,874) Balance at beginning of fiscal year 2,798,016 3,700,370 Transfer of permanently restricted net assets (Note D) 0 (17,480) CASH AND CASH EQUIVALENTS AT END OF FISCAL YEAR $ 2,280,962 $ 2,798,016 (CONTINUED) 7

10 STATEMENTS OF CASH FLOWS (Continued) Fiscal Year Ended June RECONCILIATION OF DECREASE FROM OPERATIONS TO NET CASH USED IN OPERATING ACTIVITIES Decrease from Operations $ (122,205) $ (392,687) Reconciling Adjustments: Net realized and unrealized capital (gains) losses (4,716) (2,188) Depreciation and amortization expense 1,528 2,075 Donated property: (see below) Non-cash contributions received (27,667) 0 Non-cash expenses 27,667 0 Donated services: (Note A) Non-cash contributions received 0 (2,750) Non-cash expenses 0 2,750 Donors' unconditional promise fulfilled with donated services 5,000 0 (Increase) decrease in: Accrued interest income and other current assets 1, Donors' unconditional promises to give (17,270) 2,270 Increase (decrease) in: Accounts payable and accrued liabilities (3,279) (16,936) Salaries, benefits, and payroll taxes payable 9,744 (5,805) Unconditional promises to give (373,512) (43,895) Conditional grant funds payable (5,000) (431,555) Total Reconciling Adjustments (385,908) (495,188) NET CASH USED IN OPERATING ACTIVITIES $ (508,113) $ (887,875) SUPPLEMENTAL DISCLOSURES Gift-in-Kind Contributions: During the fiscal year ended June 30, 2014, the Foundation received a gift-in-kind contribution consisting of a vehicle, which was restricted for use in the "Keep the Music Playing" program. In accordance with the donor's intent, the Foundation subsequently transferred ownership of the vehicle to MNPS. The estimated fair value of $27,667 is included in "Contributions" and "Program Services" in the accompanying Statement of Activities for the fiscal year ended June 30, Disposal of Fully-Depreciated and Fully-Amortized Fixed Assets: During the fiscal years ended June 30, 2014 and 2013, the Foundation disposed and/or wrote-off certain computer equipment and capitalized website costs that were no longer being used in the Foundation's operations. These fully-depreciated assets had original cost bases totaling $5,725 and $8,114, respectively. See notes to financial statements. 8

11 NOTE A -- NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES Nature of Activities: On July 11, 2002, Nashville Public Education Foundation (the "Foundation") was chartered as a public benefit corporation under the Tennessee Nonprofit Corporation Act. From its inception through June 9, 2011, the Foundation operated under the name "Nashville Alliance for Public Education, Inc." The Foundation was formed by a group of corporate and civic leaders for the purpose of improving public education in Nashville, Tennessee. The Foundation works to ensure every child in Nashville has access to a great public education that prepares them fully for college, work, and life. The Foundation achieves this through raising and managing funds, making strategic investments, and bringing the community together behind needle-moving efforts to accelerate progress. Areas of principal focus include music and the coordination of private financial resources so that their collective support of the priorities of Metropolitan Nashville Public Schools ("MNPS") will yield a greater impact on student achievement and public school success. Major program services routinely conducted by the Foundation 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 ("U.S. GAAP") using the accrual method of accounting. Financial Statement Presentation: Pursuant to U.S. GAAP, the Foundation 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 donorimposed restrictions. Reclassifications: Certain prior year amounts have been reclassified to conform to the current year presentation. Subsequent Events: In preparing the accompanying financial statements, management has evaluated subsequent events through November 25, 2014, which represents the date the financial statements were available to be issued. Use of Estimates: Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net assets, support and revenues, and expenses, and the disclosure of contingent assets and liabilities. Significant estimates used by management in preparing these financial statements principally include those assumed in establishing: (1) the collectibility of donor's unconditional promises to give financial support in the future, and (2) the estimated fair values of investments held, as more fully described in Notes A, J, and K. Actual results could differ from the significant estimates used by management and such differences could be material. 9

12 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 $250,000. At June 30, 2014, the Foundation had deposits in one bank for which the aggregate total exceeded the basic FDIC insurance limits by approximately $2,113,000. Cash equivalents include all highly-liquid investments, such as money market mutual funds, that have a maturity of three months or less as of the acquisition date. These investments earn interest at variable short-term market rates and are presented at estimated fair value, based on readily available quoted market prices (i.e., categorized as Level 1 securities, in accordance with the U.S. GAAP fair value hierarchy described in Note K). No cash equivalents were held by the Foundation at June 30, 2014 or Restricted Cash Conditional Grant Funds: During the fiscal year ended June 30, 2011, the Foundation was awarded a grant which required that the grant proceeds and related interest earnings be deposited in a separate account pending disbursement for purposes authorized under the grant. (Refer to the "Conditional Grant Funds Payable" section herein for additional information.) Receivables and Allowance for Uncollectible Amounts: Receivables are recorded at each reporting date for amounts due from various parties in conjunction with financial transactions. An allowance for potentially uncollectible receivables is provided when necessary and amounts deemed worthless are written off as determined. Recognition of an allowance was deemed unnecessary by management at both. Temporarily restricted unconditional promises to give that are written off are reported as "losses" in the Statement of Activities. Contribution Support and Promises to Give: Contributions are recorded at fair value on the date received. A donor's promise to give is recognized as support if the donor communicates an unconditional promise to the Foundation. 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. 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 zerocoupon U.S. government issues with a similar maturity. Endowment contributions and the related assets acquired are permanently restricted by the donor. Investment income subject to a donor-imposed restriction is recorded as either temporarily restricted or permanently restricted net assets, based on the nature of the restriction. All other investment income is recognized as a component of unrestricted net assets. 10

13 The Foundation serves as the primary fund-raising organization for MNPS. In this role, the Foundation receives contributions from the general public, some of which may be temporarily restricted or permanently restricted as presented in the accompanying financial statements. Because of the unique relationship between the Foundation and MNPS, these organizations are considered to be financially interrelated and all net assets of the Foundation are deemed held for the benefit of MNPS. Donated Services: In accordance with U.S. 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 be purchased by the organization had they not been donated. With respect to the fiscal years ended, the Foundation recognized $5,000 and $2,750, respectively, for donated services, such as professional fees, venue rental fees, and other items provided at no charge by vendors. In addition to donated services, the Foundation acknowledges that many individuals routinely volunteer their time and efforts to perform a variety of beneficial tasks that greatly promote the Foundation's programs and services. 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. Investments: The Foundation's investment portfolio is typically comprised of publicly-traded bonds and mutual funds. These investments are presented at estimated fair value in accordance with prescribed measurement principles, which are described in Note K. Unrealized capital gains and losses are recorded for changes in the estimated fair values of investments during the reporting period. Realized capital gains and losses are recognized when investments are sold. Realized and unrealized capital gains and losses during each reporting period are combined and presented as a net amount in the Statement of Activities. Investment income typically includes interest income from bonds, cash deposits, and cash equivalents, as well as dividend income from mutual funds. 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 Foundation, 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 10. (Refer to Note H for additional information.) Conditional Grant Funds Payable: During the fiscal year ended June 30, 2011, the Foundation was awarded a grant, which required that the grant proceeds ($499,800) and related interest earnings be utilized directly for purposes authorized under the grant or via agreements with grant subcontractors. The grant agreement specified that program activities were subject to periodic reporting to the grantor's program coordinator and any funds not expended under the terms of the grant were to be returned to the grantor. 11

14 During the fiscal years ended June 30, 2011, 2012, and 2013, interest earnings and qualified program expenditures totaled approximately $2,200 and $54,500, respectively, on a cumulative basis. The grant program was discontinued during the fiscal year ended June 30, 2013, based on mutual agreement with the grantor, and the Foundation returned approximately $447,500 of unexpended funds to the grantor, pursuant to the terms of the agreement. Also, during the fiscal year ended June 30, 2013, the Foundation was awarded a second grant by the same grantor with similar terms and conditions as the original grant. Conditional grant proceeds received totaled $0 and $50,400 and qualified grant expenditures totaled $5,000 and $32,250, during the fiscal years ended, respectively, resulting in a contingent grant funds payable balance of $13,150 and $18,150 at, respectively. Advertising Costs: Advertising costs are expensed as incurred. During the fiscal years ended June 30, 2014 and 2013, the Foundation incurred advertising costs of $8,485 and $7,795, respectively, in conjunction with the Hall of Fame special event. Advertising costs incurred during the fiscal year ended June 30, 2014, includes $5,000 of gift-in-kind advertising. There was no gift-in-kind advertising during the fiscal year ended June 30, Income Taxes: Based on an Internal Revenue Service ("IRS") determination letter dated October 31, 2007, the Foundation 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 the IRS determination, the Foundation is generally exempt from Tennessee franchise and excise taxes that are applicable to "for-profit" corporations. Management is not aware of any event or activity that has occurred since the latest determination date that might adversely affect the Foundation's tax exempt status. In accordance with U.S. GAAP, management evaluates the Foundation's federal and state regulatory filing positions to identify uncertain tax positions for consideration of whether to record an estimated liability or disclose a potential liability, including applicable interest and penalties. Management has not identified any material uncertain tax positions that require financial statement recognition as of June 30, 2014 or The Foundation's information returns are subject to examination by the applicable regulatory authorities, generally for a period of three years after a return is filed. As of June 30, 2014, management considers the Foundation's open tax years to include the returns filed for the fiscal years ended June 30, 2011, 2012, and 2013, as well as the returns that will be filed for NOTE B -- UNRESTRICTED NET ASSETS During the fiscal year ended June 30, 2007, the Foundation's Board of Directors elected to designate $25,000 of unrestricted net assets for use in conjunction with certain endowment assets, which are permanently restricted by donors to fund travel expenses of MNPS debate teams (refer to Note D). Although the Board-designated assets remain unrestricted, the underlying investments purchased with the designated funds are 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.) 12

15 NOTE C -- TEMPORARILY RESTRICTED NET ASSETS Activity involving temporarily restricted net assets is summarized as follows: Fiscal Year Ended June 30, 2014 June 30, Release of June 30, Temporarily restricted for or due to: 2013 Additions Restrictions 2014 "Specific purpose use" Musical instruments and programs $ 1,442,545 $ 1,041,525 $ (1,124,530) $ 1,359,540 Nashville's Agenda 0 47,000 (47,000) 0 Science labs and supplies 80, ,910 Reading supplies and programs 18, (4,117) 14,108 Academies of Nashville Professional development center Professional development of teachers 101,492 0 (100,000) 1,492 Scholar's Academy 33,111 0 (841) 32,270 Specific school designations and other specific purposes 143, ,407 (160,394) 103,998 Total for Specific Purpose Use 1,820,181 1,209,019 (1,436,882) 1,592,318 "Passage of time" Donors' unconditional promises to give 0 35, ,000 Net assets released upon satisfaction of dual restrictions TOTAL TEMPORARILY RESTRICTED NET ASSETS $ 1,820,181 $ 1,244,019 $ (1,436,882) $ 1,627,318 June 30, Release of June 30, Temporarily restricted for or due to: 2012 Additions Restrictions 2013 "Specific purpose use" Musical instruments and programs $ 1,943,163 $ 1,240,300 $ (1,740,918) $ 1,442,545 Nashville's Agenda Science labs and supplies 80, ,895 Reading supplies and programs 12,290 6,000 (137) 18,153 Academies of Nashville 0 41,200 (41,200) 0 Professional development center 35,125 2,099 (37,224) 0 Professional development of teachers 181,492 0 (80,000) 101,492 Scholar's Academy 33,685 0 (574) 33,111 Specific school designations and other specific purposes 159, ,779 (205,685) 143,985 Total for Specific Purpose Use 2,446,541 1,479,378 (2,105,738) 1,820,181 "Passage of time" Donors' unconditional promises to give 25,000 2,280 (27,280) 0 Net assets released upon satisfaction of dual restrictions 0 (27,280) 27,280 0 TOTAL TEMPORARILY RESTRICTED NET ASSETS $ 2,471,541 $ 1,454,378 $ (2,105,738) $ 1,820, Fiscal Year Ended June 30, 2013

16 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 $ 1,568,318 $ 1,799,814 Donors' unconditional promises to give 35,000 0 Total Current Assets 1,603,318 1,799,814 Endowment assets Investments, at fair value 24,000 20,367 TOTAL TEMPORARILY RESTRICTED NET ASSETS $ 1,627,318 $ 1,820,181 NOTE D -- PERMANENTLY RESTRICTED NET ASSETS Periodically, the Foundation will receive contributions of "endowment assets" that are permanently restricted by the donor. The investment income earned on these assets is also restricted for use as financial support for donor-specified purposes. Permanently restricted net assets of $120,253 at, are comprised of an endowment to fund travel expenses of MNPS debate teams. At June 30, 2012, the Foundation held certain endowment assets totaling $17,480, which were permanently restricted by a donor group for the purpose of benefitting a designated school upon their expenditure notification to the Foundation. As a result of minimal activity in this endowment and the narrow beneficiary restriction, the Foundation's Board of Directors determined that continued management of this endowment in accordance with the stated intent of the donor group would be more appropriately handled by a Nashville-based public charity that operates as a community foundation to meet the needs of various special interest groups. Accordingly, the Foundation transferred the $17,480 fund balance to the public charity with the express condition that such funds will be permanently held and used solely in accordance with the original donors' stated intent. This transfer is reported in the accompanying Statement of Activities for the year ended June 30, 2013, under the caption "Transfer of permanently restricted net assets". The Foundation 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 income is recognized as a component of unrestricted net assets or temporarily restricted net assets, respectively, based on the use or appropriation of the funds for qualifying program expenditures. (Refer to Note E for additional information.) 14

17 The foregoing practices regarding net asset classification of endowment assets and related investment income reflects the Foundation'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 $ 252 $ 252 Investments (excludes net unrealized capital gain or loss, Board-designated endowment investment of $25,000, and reinvested earnings; reported as a component of unrestricted or temporarily restricted net assets) 120, ,001 TOTAL PERMANENTLY RESTRICTED NET ASSETS $ 120,253 $ 120,253 NOTE E -- ENDOWMENT ASSETS As discussed in Notes B and D, endowment assets include permanently restricted assets, temporarily restricted assets, Board-designated amounts, plus related investment income. A summary of activity involving endowment assets during the fiscal year ended June 30, 2014, is as follows: Net Asset Class Temporarily Permanently Unrestricted Restricted Restricted Total Endowment Assets at June 30, 2013 $ 25,000 $ 20,367 $ 120,253 $ 165,620 Transfer from endowment account pending distribution of income for debate team travel (8,528) (8,528) Investment income 7,445 7,445 Reinvestment of temporarily restricted earnings 0 Transfer of endowment assets 0 Net realized capital gains (losses) 1,582 1,582 Net unrealized capital gains (losses) 3,134 3,134 Endowment Assets at June 30, 2014 $ 25,000 $ 24,000 $ 120,253 $ 169,253 15

18 A summary of activity involving endowment assets during the fiscal year ended June 30, 2013, is as follows: Net Asset Class Temporarily Permanently Unrestricted Restricted Restricted Total Endowment Assets at June 30, 2012 $ 25,000 $ 8,799 $ 137,733 $ 171,532 Transfer from endowment account pending distribution of income for debate team travel (8,021) (8,021) Investment income 7,396 7,396 Reinvestment of temporarily restricted earnings 10,005 10,005 Transfer of endowment assets (17,480) (17,480) Net realized capital gains (losses) Net unrealized capital gains (losses) 1,894 1,894 Endowment Assets at June 30, 2013 $ 25,000 $ 20,367 $ 120,253 $ 165,620 NOTE F -- FAIR VALUE OF FINANCIAL INSTRUMENTS Fair values of the Foundation'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 Foundation 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 year ended June 30, 2013, the Foundation received notifications from donors of their unconditional promises to give financial support totaling $22,730, which included unrestricted support of $20,000 received in conjunction with the 2013 Hall of Fame special event and $2,730 in conjunction with an MNPS program. Each of these promises were fulfilled during the fiscal year ended June 30, During the fiscal year ended June 30, 2014, the Foundation received notification from a donor who communicated an unconditional promise to give $35,000 that was restricted for "specific purpose use" in conjunction with the "Music Makes Us" program. Accordingly, this support has been recorded as an increase in temporarily restricted net assets and the proceeds receivable are reported as a component of current assets at June 30,

19 NOTE H -- PROMISES TO GIVE TO NONPROFIT ORGANIZATION (MNPS) MNPS Music Program: Pursuant to a funding agreement between the Foundation and MNPS, MNPS directly purchases musical instruments for its music program and then provides supporting documentation to the Foundation to receive reimbursement in the form of grants. The Foundation's liability to MNPS to reimburse for musical instruments and other music-related expenses ($4,303 and $272,586 at, respectively) is reported as a component of current "unconditional promises to give" in the respective Statement of Financial Position. MNPS Program Grants: During the fiscal year ended June 30, 2011, the Foundation's Board of Directors approved a multi-year grant totaling $300,000 to MNPS for the MNPS Urban Masters Program. This grant was paid in $100,000 installments in each of the fiscal years ended June 30, 2012, 2013, and Other MNPS Grants: At June 30, 2013, the Foundation had communicated its unconditional promise to give financial support of $5,229 to various MNPS programs, in addition to those specifically described herein. This amount was paid as scheduled during the fiscal year ended June 30, NOTE I -- FIXED ASSETS The components of fixed assets held by the Foundation are as follows: June Furniture and equipment (including computer software) $ 10,319 $ 13,320 Website design 11,204 3,904 21,523 17,224 Less: Accumulated depreciation and amortization (8,637) (12,834) TOTAL FIXED ASSETS, net $ 12,886 $ 4,390 As of June 30, 2014, the total capitalized cost includes office furniture of $2,725 and website design of $7,300 that had not been placed in service as of that date. All capitalized costs as of June 30, 2013 represent fixed assets that had been placed in service as of that date. Depreciation and amortization expense totaled $1,528 and $2,075 for the fiscal years ended June 30, 2014 and 2013, respectively. 17

20 NOTE J -- INVESTMENTS Components of Major Investment Categories: Investments held by the Foundation are summarized as follows: June INVESTMENTS, at fair value Endowment investments Publicly-traded corporate bonds (aggregate par value of $61,000 at each date) $ 60,624 $ 62,719 Publicly-traded mutual funds 108, ,649 TOTAL INVESTMENTS, at fair value $ 169,001 $ 165,368 At June 30, 2014, the stated maturity dates and par values of the publicly-traded bonds held by the Foundation are as follows: March $10,000 and May $51,000. The Foundation has the intent and ability to hold these bonds to maturity. Unrealized Capital Gains and Losses: determined as follows: The Foundation's net unrealized capital gains (losses) are June Aggregate estimated fair value of investments $ 169,001 $ 165,368 Less: Aggregate cost basis of investments (155,174) (154,675) NET UNREALIZED CAPITAL GAINS (LOSSES) $ 13,827 $ 10,693 The net unrealized capital gains (losses) are summarized by investment category as follows: June Publicly-traded corporate bonds $ (205) $ 2,400 Publicly-traded mutual funds 14,032 8,293 NET UNREALIZED CAPITAL GAINS (LOSSES) $ 13,827 $ 10,693 Realized Capital Gains and Losses: During the fiscal years ended, certain donors contributed publicly-traded securities to the Foundation. These donated securities were sold upon receipt resulting in proceeds of $1,989 and $3,723 during these two fiscal years, respectively. In accordance with U.S. GAAP, the donated securities were recorded as contributions at their net settlement value, resulting in no recognition of gain or loss. 18

21 The Foundation's net realized capital gains (losses) are determined as follows: Fiscal Year Ended June Proceeds from sales or maturity of investments $ 52,083 $ 18,223 Less: Cost basis of investments sold or matured (50,501) (17,929) NET REALIZED CAPITAL GAINS (LOSSES) $ 1,582 $ 294 Investment Income: Major categories of investment income are summarized as follows: Fiscal Year Ended June Interest income $ 4,163 $ 7,055 Dividend income 4,897 4,486 TOTAL INVESTMENT INCOME $ 9,060 $ 11,541 NOTE K -- FAIR VALUE MEASUREMENTS INVESTMENTS DEFINITION AND HIERARCHY As prescribed by U.S. GAAP, provisions relating to fair value measurements define fair value, establish a framework for measuring fair value, establish a fair value hierarchy based on the quality of inputs used to measure fair value, and provide disclosure requirements. 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. U.S. GAAP 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 Foundation. 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. 19

22 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 adjustments and block discounts are not applied to Level 1 securities, and 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. Debt and equity securities, such as corporate bonds, common stocks, and mutual funds that are listed on one or more securities exchanges, will generally be classified as Level 1 securities and valued on the basis of market quotations. Various conditions and changing circumstances can cause a security to be reclassified to a higher or lower level within the fair value hierarchy. The Foundation reports any such reclassifications among fair value hierarchy levels as of the date of the triggering event, if known, or at the end of the applicable reporting period if a single date is not identifiable. Information regarding fair values of the Foundation's investments, categorized in accordance with the fair value hierarchy prescribed by U.S. GAAP, is summarized in the following tables: INVESTMENTS, at fair value June 30, 2014 Level 1 Level 2 Level 3 Total Publicly-traded corporate bonds $ 60,624 $ 0 $ 0 $ 60,624 Publicly-traded mutual funds 108, ,377 TOTAL INVESTMENTS, at fair value $ 169,001 $ 0 $ 0 $ 169,001 INVESTMENTS, at fair value June 30, 2013 Level 1 Level 2 Level 3 Total Publicly-traded corporate bonds $ 62,719 $ 0 $ 0 $ 62,719 Publicly-traded mutual funds 102, ,649 TOTAL INVESTMENTS, at fair value $ 165,368 $ 0 $ 0 $ 165,368 20

23 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 Foundation. These MNPS employees are allowed to participate in discussions with the Board but do not have voting privileges on matters of Foundation governance. Office Lease: Effective August 1, 2008, the Foundation entered into a five-year lease for office space in a facility owned by MNPS. This lease, which included the use of certain computer equipment and software on MNPS platforms, specified annual rent of $2,959 that was subject to increases for allocated costs of building maintenance, telephone service, and other items specified in the lease agreement. The Foundation incurred rent expense of approximately $3,300 and $3,000, respectively, in each of the fiscal years ended. Effective August 1, 2013, the Foundation extended its lease agreement with MNPS for an additional five years. In June 2014, the Foundation communicated its intent to vacate the office space owned by MNPS. MNPS agreed to terminate the lease upon the Foundation's relocation to other office space. Beginning July 1, 2014, monthly rental payments of $283 are scheduled to be invoiced by MNPS to the Foundation until it vacates the space. Subsequent to June 30, 2014, the Foundation entered into a three-year lease for office space in a facility owned by an unrelated nonprofit organization. Rent payments are scheduled to commence on September 1, 2014, and minimum annual base rental payments are scheduled as follows: Fiscal Year ending June 30: 2015 $ 25, , , ,378 Total $ 94,452 NOTE M -- COMMITMENTS Accounting Services Outsourced to PENCIL Foundation: Effective March 1, 2008, the Foundation outsourced its routine accounting functions to an unrelated non-profit organization under a contractual agreement that may be cancelled by either party upon thirty days written notice. Fees are adjustable annually and were set at $2,000 per month for the fiscal year ended June 30, Effective May 1, 2013, the Foundation renewed this agreement under generally similar terms and conditions. The renewal agreement requires monthly payments of $2,083 and specifies a service period that extends from July 1, 2013 through June 30, Effective July 1, 2014, the Foundation renewed this agreement for a service period from July 1, 2014 through June 30, 2015, with monthly payments set at $2,

24 Copier Lease: Effective September 2011, the Foundation entered into a 48-month copier lease agreement that requires monthly payments of $223. This lease replaced a similar lease agreement that had expired and includes customary charges for copies in excess of a specified monthly allowance. NOTE N -- CONCENTRATIONS During the fiscal years ended, the Foundation received approximately 59% and 66%, respectively, of its total support and revenues from one donor, whose support was restricted for "specific purpose use" in connection with "Musical instruments and programs". As a result, these donations are deemed to represent significant concentrations within the Foundation's total support and revenue in each fiscal year. 22