KAUFFMAN CENTER FOR THE PERFORMING ARTS FINANCIAL STATEMENTS For the years ended June 30, 2015 and 2014

Transcription

1 FINANCIAL STATEMENTS For the years ended June 30, 2015 and 2014

2 Mayer Hoffman Mccann P.C. An Independent CPA Firm 700 West 4 7th Street, Suite 1100 Kansas City, MO Main: Fax: INDEPENDENT AUDITORS' REPORT To the Board of Directors KAUFFMAN CENTER FOR THE PERFORMING ARTS We have audited the accompanying financial statements of the Kauffman Center for the Performing Arts (the "Center"), which comprise the statements of financial position as of June 30, 2015 and 2014, and the related statements of activities and changes in net assets, functional expenses 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Kauffman Center for the Performing Arts as of June 30, 2015 and 2014, and changes in its net assets and its cash fiows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Kansas City, Missouri September 24, 2015 <KRESTON Member of Kreston International- a global network of independent accounting firms -1-

3 STATEMENTS OF FINANCIAL POSITION June 30, 2015 and 2014 ASSETS CASH AND CASH EQUIVALENTS INVESTMENTS ACCOUNTS RECEIVABLE INVENTORY PREPAID EXPENSES AND DEPOSITS UNCONDITIONAL PROMISES TO GIVE - OTHER, net UNCONDITIONAL PROMISES TO GIVE - BOND FINANCING, net CONSTRUCTION IN PROGRESS PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation DEFERRED ISSUANCE COSTS, net TOTAL ASSETS LIABILITIES ACCOUNTS PAYABLE AND ACCRUED LIABILITIES ACCRUED INTEREST ON TAX EXEMPT BONDS CAPITAL LEASE OBLIGATIONS DEFERRED REVENUE TAX EXEMPT BONDS PAYABLE, net TOTAL LIABILITIES NET ASSETS UNRESTRICTED NET ASSETS BOARD DESIGNATED QUASI-ENDOWMENT UNDESIGNATED TOTAL UNRESTRICTED NET ASSETS TEMPORARILY RESTRICTED NET ASSETS TOTAL NET ASSETS TOTAL LIABILITIES AND NET ASSETS ,688,689 66,529, ,443 63, ,627 3,014,771 77,000, ,614,948 2,028, ,795,869 1,418, ,149 18, , ,000, ,052,297 40,912, ,572, ,485,065 80,258, , 743, ,795, ,858,507 65,322, ,430 66, ,055 6, 148,345 68,935,000 23, ,423,790 2,740, ,088,384 1,055, ,222 35, , ,747, ,454,280 41,413, ,920, ,334,004 75,300, ,634, ,088,384 See Notes to the Financial Statements -2-

4 STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS For the years ended June 30, 2015 and UNRE TRICTED NET ASSETS SUPPORT AND REVENUE Contributions 463,388 Ticket sales and surcharges 1,870,592 Facility rental and catering 2,546,419 Realized gain on investments 2,364,350 Unrealized gain (loss) on investments (3, 175,688) Other income 633,030 Net assets released from restrictions 1,448,628 TOTAL SUPPORT AND REVENUE 6,150,719 EXPENSES Program services 19,222,369 Supporting services Fundraising 649,351 Management and general 1,913,782 Total supporting services 2,563, 133 TOTAL EXPENSES 21,785,502 CHANGES IN UNRESTRICTED NET ASSETS (15,634,783) TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted contributions 8,192,879 Net assets released from restrictions (1,448,628) CHANGES IN TEMPORARILY RESTRICTED NET ASSETS 6,744,251 CHANGES IN NET ASSETS (8,890,532) NET ASSETS, BEGINNING OF YEAR 343,634, 104 NET ASSETS, END OF YEAR 334, 7 43,572 8,603,158 2,319,511 2,386,699 2,012,476 5,569, ,337 5,926,590 27,290,344 19,473, ,173 3,233,521 4,097,694 23,571,604 3,718,740 1,090,519 (5,926,590) (4,836,071) (1,117,331) 344,751, ,634, 104 See Notes to the Financial Statements -3-

5 STATEMENT OF FUNCTIONAL EXPENSES For the year ended June 30, 2015 Pro9ram Fundraisin9 Salaries 1, 150, ,090 Concessions 88,380 Gift Shop 50,202 Professional fees 129,336 64,290 Supplies 60,401 20,134 Occupancy 399,102 5,143 Security 272,769 3,515 Repairs, maintenance and custodial 1,181,660 13,353 Programming, production and artist fees 1,291,499 15,009 Computer 204,385 34,064 Postage 13,691 4,009 Insurance 253,774 14,463 Marketing and advertising 329,559 66,064 Professional development 22,860 2,092 Travel, Lodging, Meals & Entertainment 58,237 35,563 Management & General 969, ,555 20,134 7,200 4,921 18, ,193 1,559 39,659 1,465 3,771 21,062 Total 2,463,588 88,380 50, , , , ,205 1,213,708 1,306, ,642 19, , ,088 28, ,862 Miscellaneous Depreciation Interest Amortization 10,064,728 20,231 2,961,015 5, ,746 1,379 5,345 30,346 8,928 2,067 5,345 10,115,305 2,975, ,192 Bank fees Bad debts 500, ,409 TOTAL FUNCTIONAL EXPENSES 19,222, ,351 1,913,782 21,785,502 Percentage of Total Expenses 88.24% 2.98% 8.78% % See Notes to the Financial Statements -4-

6 STATEMENT OF FUNCTIONAL EXPENSES For the year ended June 30, 2014 Program Fundraising Salaries 1,016, ,521 Concessions 295,005 Gift Shop 37,152 Professional fees 211, ,942 Supplies 53,286 17,762 Occupancy 407,909 5,257 Security 265,862 3,426 Repairs, maintenance and custodial 1,090,837 12,656 Programming, production and artist fees 1,414,498 39,846 Computer 190,765 31,794 Postage 13,039 3,619 Insurance 219,374 12,026 Marketing and advertising 431,189 23,646 Professional development 16,583 2,701 Travel, Lodging, Meals & Entertainment 55, , 112 Management & General 1,080,862 62,292 17,762 7,359 4,796 17,719 95,383 1,245 32, ,163 19,170 Total 2,399, ,005 37, ,059 88, , ,084 1,121,212 1,454, ,942 17, , ,133 23, ,589 Miscellaneous Depreciation Interest Amortization 96,266 1,412 10,169,639 20,441 3,369,887 6, , ,828 30,662 10, ,506 10,220,742 3,386, ,196 Bank fees Bad debts 554,139 1,243, ,139 1,243,535 TOTAL FUNCTIONAL EXPENSES 19,473, ,173 3,233,521 23,571,604 Percentage of Total Expenses 82.62% 3.67% 13.71% % See Notes to the Financial Statements -5-

7 STATEMENTS OF CASH FLOWS For the years ended June 30, 2015 and CASH FLOWS FROM OPERATING ACTIVITIES Changes in net assets Adjustments to reconcile changes in net assets to net cash flows from operating activities: Depreciation Amortization Realized gain on investments Unrealized (gain) loss on investments Changes in unconditional promises to give, capital campaign Decrease (increase) in operating assets Inventory Prepaid expenses and deposits Accounts receivable Increase (decrease) in operating liabilities Accounts payable and accrued liabilities Accrued interest on tax exempt bonds Deferred revenue (8,890,532) 10,115, ,192 (2,364,350) 3,175,688 (1,606,566) 3,249 (10,572) (276,013) 362,986 (144,073) 143,913 (1, 117,331) 10,220, ,196 (2,012,476) (5,569,573) (190,119) (10,011) 67,785 (162,807) 222,093 (381) (47,090) NET CASH FLOWS FROM OPERATING ACTIVITIES 1,203,227 1,520,028 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investments Sales of investments Investment in property, plant and equipment (2, 198,962) 181,140 (283, 184) (13,776,521) 13,919,798 (826,403) NET CASH FLOWS FROM INVESTING ACTIVITIES (2,301,006) (683, 126) CASH FLOWS FROM FINANCING ACTIVITIES Net change in premium and discount on bonds Bond repayments Principal payments on capital lease obligations Capital campaign receipts on prior years' promises to give (5,000,000) (17,131) 3,945,092 (35,462) (5,000,000) (78,983) 5,078,993 NET CASH FLOWS FROM FINANCING ACTIVITIES (1,072,039) (35,452) NET CHANGE IN CASH AND CASH EQUIVALENTS (2, 169,818) 801,450 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,858,507 4,057,057 CASH AND CASH EQUIVALENTS, END OF YEAR 2,688,689 4,858,507 NONCASH INVESTING AND FINANCING ACTIVITIES Bond proceeds placed in an irrevocable trust, net of issuance costs of 703, 157 (see Note 10) 76,296,843 OTHER CASH DISCLOSURES Cash paid for interest 2,173,163 3,421,131 See Notes to the Financial Statements -6-

8 (1) Summary of significant accounting policies Nature of operations - The Kauffman Center for the Performing Arts {the "Center'') is a Missouri nonprofit corporation formed in 1999 to construct and operate a performing arts center for the Kansas City metropolitan area (the "Project"). Design plans for the Project were announced in The Project consists of a 1,600 seat hall for musical concerts and a 1,800 seat hall for opera, ballet and theater performances. In addition to serving as the performance space of the Kansas City Symphony, the Kansas City Ballet and the Lyric Opera of Kansas City, the facility also hosts other artistic, musical and cultural events, and serves as a location for arts in education programs and provides banquet, party and meeting space to the community. The facility opened in September 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Recognition of donor restricted contributions - All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Investments - The Center reports its investments at fair value. The Center's management is responsible for the fair value measurement of investments reported in the financial statements and believes that the reported values are reasonable. Unrealized and realized gains or losses have been recorded as such in the statement of activities. Unconditional promises to give - Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The discounts on those amounts are computed using interest rates applicable to the years in which the promises are received. The discount rate used in valuing.unconditional promises to give ranges from 3.5% to 5%. Amortization of the discount is included in contribution revenue. Property, plant, and equipment - Property, plant, and equipment are stated on the basis of cost or fair value on the date of donation. Depreciation is computed over 3 to 35 years using the straight-line method as described in Note 6. Impairment of long-lived assets and long-lived assets to be disposed of - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. As of June 30, 2015, the Center does not consider any assets to be impaired. Cost of issuance - Legal counsel, guaranty fees, and other costs associated with the issuance of the tax exempt cultural facilities revenue bonds are stated on the basis of cost on the date of issuance. These accumulated costs have been capitalized and are being amortized to expense. The amortization is computed using the straight-line method over the life of the bonds, which is 30 years for the Series A Bonds and 10 years for the 2015 Series Bonds, which management believes approximates the interest method. Deferred revenue - Box office receipts of ticket sales and related surcharges as well as theater rental income attributable to future activities are included in cash and cash equivalents or investments and reflected as deferred revenue until earned. -7-

9 (1) Summary of significant accounting policies (continued) Taxes - The Center has been granted exemption from income taxes by the Internal Revenue Service under the provisions of Section 501 (c)(3) of the Internal Revenue Code. The Center is not considered to be a private foundation. Management believes that the unrelated business income generated by the Center is not material to the financial statements. ASC Topic 740, Income Taxes, prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, disclosure, and transition. Management believes that no material uncertain tax positions exist for the Center as of June 30, Unrestricted net assets - Unrestricted net assets consist of unrestricted amounts that are available for use in carrying out the operations of the Center. These include those expendable resources which have been designated for capital expenditures and business continuity purposes. Temporarily restricted net assets - Temporarily restricted net assets consist of time restrictions and purpose restrictions on unconditional promises to give and other contributions as detailed in Note 11. When donor restrictions expire, temporarily restricted net assets are reclassified to unrestricted net assets and are reported in the statement of activities as net assets released from restrictions. Temporarily restricted gifts that are received and expended in the same fiscal year are classified as unrestricted revenue. Contributions - Contributions, including unconditional promises to give, are reported as revenue at the date the contribution is received or pledged. Contributions with purpose or time restrictions are reported as increases in temporarily restricted net assets and are reclassified to unrestricted net assets when the purpose or time restrictions are met. Conditional promises to give are not recognized until the conditions on which they depend are substantially met. Contributions or assets other than cash are recorded at their estimated fair value. Contributed goods are recognized as revenue at their estimated fair value at the date of receipt and expensed when used. Contributed services and gifts in-kind - Contributed services are recognized if the services (a) create or enhance long-lived assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. A substantial number of volunteers have donated significant amounts of their time and services. to the Center's fund-raising campaigns and other activities. Only those amounts that meet the criteria above are recorded in the accompanying financial statements. The Center also has received donations of various noncash assets, such as catering and floral arrangements, that were used for purposes of fundraising activities. All contributed services and in-kind contributions were recorded as contribution revenue and fundraising expense in the statements of activities and changes in net assets and totaled 198,066 and 113,789 for the years ended June 30, 2015 and 2014, respectively. Functional expenses - The Center allocates its expenses on a functional basis among its various programs and support services. Expenses that can be identified with a specific program and support service are allocated directly according to their natural expenditure classification. Other expenses that are common to several functions are allocated by management's estimate of resources devoted to the program or support service. Collaborative agreements - In accordance with ASC Topic 808, Collaborative Agreements, the Center records the net amount of revenues and expenses earned through collaborative agreements to co-produce musical performances with other organizations as the Center is not the primary participant in such agreements. -8-

10 (2) Investments and fair value measurements KAUFFMAN CENTER FOR THE PERFORMING ARTS The Center measures financial assets and liabilities at fair value in accordance with ASC Topic Fair value measurements involve various valuation techniques and assume that the transaction would occur between market participants in the most advantageous market for the Center. ASC establishes a fair value hierarchy and prioritizes the valuation techniques used to measure fair value into three tiers and gives the highest priority to observable inputs such as quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The maximization of observable inputs and the minimization of the use of unobservable inputs are required. Classification within the fair value hierarchy is based upon the objectivity of the inputs that are significant to the valuation of an asset or liability as of the measurement date. The three levels within the fair value hierarchy are characterized as follows: Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Center has the ability to access at the measurement date. Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 - Unobservable inputs for the asset or liability for which there is little, if any, market activity for the asset or liability at the measurement date. Unobservable inputs reflect the Center's own assumptions about what market participants would use to price the asset or liability. These inputs may include internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment. Investments are comprised of the quasi-endowment discussed in Note 9, a fund invested in fixed income (short-term bond) mutual funds and money market funds. The table below presents the balances of assets measured at fair value on a recurring basis as of June 30, Level1 Level2 Levell Total Money Market Funds 2,104,983 2,104,983 Equity Mutual Funds 27,542,004 27,542,004 Fixed Income Mutual Funds 33,856,368 33,856,368 Limited Partnership Investment 3,026,055 3,026,055 Total 63,503,355 3,026,055 66,529,410 The table below presents the balances of assets measured at fair value on a recurring basis as of June 30, Level1 Level2 Levell Total Money Market Funds 385, ,623 Equity Mutual Funds 29,598,404 29,598,404 Fixed Income Mutual Funds 31,926,981 31,926,981 Limited Partnership Investment 3,411,917 3,411,917 Total 61,911,008 3,411,917 65,322,925 Eguit~ Mutual Funds and Fixed Income Mutual Funds Equity mutual funds and fixed income mutual funds consist of a diversified portfolio principally consisting of domestic securities, managed by growth, value, and quantitative disciplines. -9-

11 (2) Investments and fair value measurements (continued) Limited Partnership Investment The Limited Partnership Investment is comprised of an investment in the Oaktree Value Opportunities Feeder Fund, LP (the "Fund"). The Center owned 0.18% and 0.17% of the total fund capital as of June 30, 2015 and This investment is reported using the net asset value per share as determined by investment managers under the so called "practical expedient." The practical expedient allows net asset value per share to represent fair value for reporting purposes when the criteria for using this method are met. It's reasonably possible that a change in the value of the Fund will occur in the near term and that such changes could materially affect amounts reported in the Center's financial statements. (3) Unconditional promises to give - other Unconditional promises to give that are expected to be collected within one year are recorded at their estimated net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of the estimated future cash flows as shown below. The discounts on those amounts are computed using interest rates applicable to the years in which the promises are received. The discount rate used in valuing unconditional promises to give ranges from 3.5% to 5.0%. Amortization of the discount is included in contributions revenue on the statement of activities. June 30, Unconditional promises to give - other 3,575,705 8, 171,331 Less: Unamortized discount (336,047) (735,898) Less: Allowance for uncollectibles (224,887) (1,287,088) Net unconditional promises to give 3,014,771 6,148,345 Amounts due in: Years Ending June Thereafter Total unconditional promises to give - other 1, 141, , , , , ,740 3,575,705 Included above are combined pledges totaling 340,000 and 460,000 as of June 30, 2015 and 2014, respectively, from members of the Board of Directors of the Center. -10-

12 (4) Unconditional promises to give - bond financing The Center receives periodic payments from the Muriel McBrien Kauffman Foundation ("MMKF") to pay for interest on both series of bonds as required in the Donation Agreement by and between the Center and the MMKF, dated June 1, 2007, which became effective on the closing date of the bonds. MMKF has committed through the relevant agreements to make payments of interest and principal on the 2015 Series bonds when due for the life of that series. Interest I Principal Payments - Fixed Rate Unconditional promises to give - current portion Unconditional promises to give - non-current portion Subtotal Less: Unamortized discount 2015 Series 2015 June 30 1,678,600 91,687,750 93,366,350 (16,366,350) Series B 3,396, ,663, ,060,250 (78, 125,250) Net unconditional promises to give 77,000,000 68,935,000 (5) Conditional promises to give The Center had 7,499,083 and 9,741,427 at June 30, 2015 and 2014, respectively, in total conditional promises to give which are not recorded in the Center's financial statements. These promises to give are conditional based on the availability of funds on hand in donor advised funds of the respective donors. The receipt of these funds is contingent upon both availability of the funds in the donor advised funds and authorization to release those funds by the fund custodians. (6) Propetll, plant and eguipment Asset Life June 30, In Years Land 539, ,801 Building ,029, ,951,886 Organ 35 2,878,098 2,878,098 Furniture, Fixtures, and Equipment 3-7 5,011,628 4,792,968 Audio, Visual, and Information Technology , ,596 Musical Instruments , , ,974, ,668,254 Less: Accumulated depreciation (39,359,769) (29,244,464) Net property, plant and equipment 296,614, ,423, 790 (7) Deferred issuance costs June 30, Underwriters discount 229, ,647 Guaranty fee 1,289,929 2,484,075 Bond closing issuance costs 1,009, ,179 Deferred issuance costs, at cost 2,528,446 3,575,901 Accumulated amortization (500,035) (835,669) Net deferred issuance costs 2,028,411 2,740,

13 (8) Capital lease obligations KAUFFMAN CENTER FOR THE PERFORMING ARTS The Center has entered into capital leases for certain office equipment. Future minimum lease payments under capital leases with the present value of the net minimum lease payments are as follows: Year Ended June 30, Total minimum lease payments Less amount representing interest Present value of net minimum lease payments 13,924 4,728 18,652 (344) 18,308 (9) Board designated quasi-endowment funds The Center's Board of Directors has invested funds to establish a quasi-endowment to provide a stream of income to support operations. In accordance with ASC 958, Endowments of Not-for-Profit Organizations, net assets associated with quasi-endowment funds and funds designated by the Board of Directors are classified and reported based on the'existence or absence of donor-imposed restrictions. The quasi-endowment balance is included in investments in the statement of financial position. There are no donor-restricted funds in the quasi-endowment fund. For the years ended June 30, 2015 and 2014, the Center had the following quasi-endowment related activities: Years ended June 30, Beginning balance Net investment gains (losses) Additions to quasi-endowment Withdrawals from quasi-endowment Administrative expenses Total change in quasi-endowment funds Ending balance 41,413,522 (1,508,423) 1, 157,752 (149,983) (500,654) 40,912,868 35,002,483 6,492,054 1,681,715 (1,600,000) (162,730) 6,411,039 41,413,522 Return objectives and risk parameters The Center has adopted investment and spending policies for quasi-endowment assets that attempt to provide a predictable stream of funding to programs while seeking to maintain the principal of the quasi-endowment assets. Under this policy, as approved by the Board of Directors, the goal is to earn the highest possible total rate of return without the assumption of undue investment risk which is consistent with prudent standards for preservation of capital and maintenance of liquidity. The Center expects a return consistent with the current and forecasted market, which is generally regarded as a reasonable, achievable, and conservative target for investment performance annually. Actual returns in any given year may vary from this amount. -12-

14 (9) Board designated quasi-endowment funds (continued) Strategies employed for achieving objectives To satisfy its long-term rate-of-return objectives, the Center relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Center targets a diversified asset allocation that places an emphasis on fixed-income and equity investments to achieve its long-term return objectives within prudent risk constraints. Spending policies The purpose of the quasi-endowment fund is to provide assurance that the Center will have a funding base to augment earned income. The Center has utilized 0 and 1,600,000 of these funds during the years ended June 30, 2015 and (10) Tax exempt bonds payable The Center originally received proceeds from the issuance of two series of tax exempt bonds authorized and issued on June 27, 2007 by the Missouri Development Finance Board (MDFB) totaling 158,935,000. The original bond proceeds were issued in the following two series: Series A Variable Rate Demand Cultural Facilities Revenue Bonds, face amount of 90,000,000, interest only payable at variable rates as defined in Article II, Section 202 of the bond trust indenture dated June 1, All principal is due in Unconditional promises to give related to the Series A bond interest payments have been recorded using an interest rate of 3.5%. In management's judgment this rate was an appropriate estimate of long-term variable rates to use for computing pledge receipts for the five-year period covered by the donation agreement at the time the pledge was made. At June 30, 2015, the actual interest rate on the Series A bonds was 0.04%, substantially decreasing both interest expense on the bonds and the corresponding receipts from the donor. In light of the current and expected volatility in variable rates, management has chosen not to adjust the balance of unconditional promises to give for the Series A bonds to reflect current rates. Differences between the 3.5% rate at which the asset is recorded and actual receipts are instead recorded against contribution revenue. Series B Fixed Rate Cultural Facilities Revenue Bonds (Series B bonds), face amount of 68,935,000. During 2015, the Center defeased the Series B bonds as described below. Accordingly, the trust account assets and defeased bonds are not included in the Center's financial statements. At June 30, 2015, 68,935,000 of bonds outstanding are considered defeased. During 2015, the Center received proceeds of 77,000,000 from the issuance of Series 2015 Fixed Rate Cultural Facilities Revenue Bonds as authorized and issued on March 1, 2015 by the MDFB. Interest only payments are due monthly at 2.18%, with all principal due in The proceeds of these bonds were placed in an irrevocable trust to provide for all future debt service payments of the Series B bonds. The bonds and interest thereon, are special, limited obligations of the Missouri Development Finance Board payable solely from certain payments made under a Loan Agreement between the MDFB and the Center. The regularly scheduled payment of principal and interest on both series of bonds has been guaranteed under the terms of an agreement between the bond Trustee, Commerce Trust Company, and the Ewing Marion Kauffman Foundation. -13-

15 (10) Tax exempt bonds payable (continued) KAUFFMAN CENTER FOR THE PERFORMING ARTS The repurchase agreement was structured in a manner designed to protect both the balance of, and income from, the proceeds. June Bonds payable - Series A 35,000,000 40,000,000 Bonds payable - Series B 68,935,000 Bonds payable Series 77,000,000 Premium on bonds payable 1,029,470 Discount on bonds payable (216,792) Net tax exempt bonds payable 112,000, ,747,678 The fair value of the Series A bonds payable was approximately 20,000,000 and 26,000,000 as of June 30, 2015 and 2014, respectively. The fair value of the 2015 bonds payable was approximately 76,000,000 as of June 30, The fair value of the Series B bonds payable was approximately 97,000,000 as of June 30, (11) Temporarily restricted net assets As of June 30, 2015 and 2014, the Center had temporarily restricted net assets consisting of the following: June 30, Pledges receivable - other Pledges receivable - bond financing Restricted purpose: Open Doors Fund Annual Sustainers Total temporarily restricted net assets 3,014,771 6, 148,345 77,000,000 68,935, , ,705 15,050 80,258,507 75,300,100 ( 12) Related parties The Center has conducted transactions during the years ended June 30, 2015 and 2014 with certain entities that are either directly controlled or managed by members of the Board or whose management is related to members of its Board. Included in these transactions were payments approximating 81,320 and 12,139 for the years ended June 30, 2015 and 2014 made to a general contractor related to the Center through a familial relationship with a Board member. (13) Cash flow disclosures Cash and cash equivalents consist of cash on hand, demand deposits and highly liquid investment instruments with financial institutions with original maturities of 90 days or less. At times, cash balances held at financial institutions may be in excess of FDIC insurance limits. The Center has not experienced any losses in such cash accounts and management believes that the risk of loss is negligible. In addition, management periodically evaluates the financial institutions and believes that the financial institutions are financially viable. -14-

16 (14) Collaborative arrangements KAUFFMAN CENTER FOR THE PERFORMING ARTS The Center has entered into collaborative arrangements with various third parties from time to time in order to co-produce musical concerts and other events. The Center has determined that there is not a principal participant in these agreements as defined by ASC Topic 808, Collaborative Arrangements. Accordingly, the Center has recorded the net revenues and expenses attributable to these performances within the statements of activities and changes in net assets and the statements of functional expenses. For the year ended June 30, 2015 and 2014, the Center recognized no revenues or expenses related to these collaborative arrangements with third parties. (15) Subsequent events The Center has evaluated subsequent events through September 24, 2015, which is the date the financial statements were available to be issued. No events were considered significant enough to warrant disclosure in the financial statements or accompanying notes. -15-