Evangelical Christian School of Memphis, Inc. and Eagle Foundation of Memphis, Inc. Combined Financial Statements June 30, 2012 and 2011

Transcription

1 Evangelical Christian School of Memphis, Inc. and Eagle Foundation of Memphis, Inc. Combined Financial Statements June 30, 2012 and 2011

2 Table Of Contents June 30, 2012 and 2011 Page Independent Auditors Report... 2 Combined Statements of Financial Position... 3 Combined Statements of Activities Combined Statements of Cash Flows... 6 Notes to the Combined Financial Statements

3 Independent Auditors Report To the Board of Trustees Evangelical Christian School of Memphis, Inc., and Eagle Foundation of Memphis, Inc. Cordova, Tennessee We have audited the accompanying combined statements of financial position of Evangelical Christian School of Memphis, Inc., and Eagle Foundation of Memphis, Inc. as of June 30, 2012 and 2011, and the related combined statements of activities and cash flows for the years then ended. These combined financial statements are the responsibility of the Organizations management. Our responsibility is to express an opinion on these combined 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 combined financial statements referred to above present fairly, in all material respects, the financial position of Evangelical Christian School of Memphis, Inc. and Eagle Foundation of Memphis, Inc. as of June 30, 2012 and 2011, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2 to the financial statements, management has elected to change its policy regarding tuition and fees receivable in Memphis, Tennessee November 1, 2012 CANNON WRIGHT BLOUNT PLLC 756 RIDGE LAKE BLVD MEMPHIS TN PHONE FAX

4 As of June 30, 2012 with Combined Statements of Financial Position combined totals as of June 30, Eagle ECS Foundation Total Total ASSETS Current assets Cash and cash equivalents $ 2,425,790 $ 27,109 $ 2,452,899 $ 3,249,565 Contributions receivable 657, , ,106 Receivables Tuition and fees, net 5,161,534-5,161, ,705 Other 196, ,177 54,028 Prepaid expenses 91,351-91,351 98,906 Investments 1,504, ,965 1,955,397 2,013,223 Total current assets 10,036, ,074 10,514,959 6,335,533 Net property and equipment 14,070,630-14,070,630 13,360,388 Non-current assets Notes receivable, employees 41,224-41,224 16,123 Contributions receivable 498, ,280 65,352 Investments 202, , ,000 Other prepaid expenses 7,720-7,720 10,759 Total non-current assets 749, , ,234 Total assets $ 24,857,229 $ 478,074 $ 25,335,303 $ 19,988,155 LIABILITIES AND NET ASSETS Current liabilities Accounts payable and accrued liabilities $ 1,140,110 $ - $ 1,140,110 $ 741,464 Unearned tuition and fees 9,131,500-9,131,500 4,538,296 Current maturities of long term debt 36,784-36, ,000 Total current liabilities 10,308,394-10,308,394 5,759,760 Long term debt, less current maturities 1,368,016-1,368, ,000 Total liabilities 11,676,410-11,676,410 6,719,760 Net assets Unrestricted 12,080,813 (10,987) 12,069,826 12,109,244 Temporarily restricted 900,006 48, , ,743 Permanently restricted 200, , , ,408 Total net assets 13,180, ,074 13,658,893 13,268,395 Total liabilities and net assets $ 24,857,229 $ 478,074 $ 25,335,303 $ 19,988,155 See auditors report and notes to the combined financial statements 3

5 For the year ended June 30, 2012 with Combined Statements of Activities combined totals for the year ended June 30, 2011 Changes in unrestricted net assets: Revenues and support Tuition and fees, net of student aid 10,113, Eagle ECS Foundation Total Total $ $ - $ 10,113,160 $ 10,421,331 Co-curricular programs 272, , ,945 Sale of miscellaneous goods and services 264, , ,574 Fund raising activities 251, , ,779 Contributions 303,231 10, , ,610 Change in market value of investments 5,731-5,731 53,346 Investment income 37,041-37,041 62,949 Auxiliary services 48,432-48,432 54,220 Other income 251, ,390 2,657 Transfers between entities 69,930 (69,930) - - Net assets reclassified - (9,000) (9,000) - Net assets released from restriction 930, , ,620 Total revenues and support 12,547,749 (68,930) 12,478,819 12,440,031 Program services Academic programs 9,910,130-9,910,130 10,017,638 Co-curricular programs 881, , ,901 Cost of miscellaneous goods and services 205, , ,881 Auxiliary services 68,795-68,795 67,281 Other grants and contributions 49,793-49,793 42,276 Total program services expenses 11,115,828-11,115,828 11,225,977 Supporting services General and administrative 1,145,988 4,142 1,150,130 1,270,829 General fundraising and special events 252, , ,366 Total supporting services expenses 1,398,267 4,142 1,402,409 1,555,195 Total expenses 12,514,095 4,142 12,518,237 12,781,172 Changes in unrestricted net assets 33,654 (73,072) (39,418) (341,141) See auditors report and notes to the combined financial statements 4

6 For the year ended June 30, 2012 with Combined Statements of Activities (continued) combined totals for the year ended June 30, Eagle ECS Foundation Total Total Changes in temporarily restricted net assets: Contributions 1,339,225 1,600 1,340, ,794 Investment income 4,610 13,462 18,072 22,870 Change in market value of investments 2,490 (13,085) (10,595) 29,492 Net assets released from restrictions (930,846) - (930,846) (866,620) Net assets reclassified (11,571) Changes in temporarily restricted net assets 415,479 1, ,456 (583,035) Changes in permanently restricted net assets: Contributions - 3,460 3,460 - Net assets reclassified - 9,000 9,000 11,571 Changes in permanently restricted net assets - 12,460 12,460 11,571 Changes in net assets 449,133 (58,635) 390,498 (912,605) Net assets, beginning of year 12,731, ,709 13,268,395 14,181,000 Net assets, end of year $ 13,180,819 $ 478,074 $ 13,658,893 $ 13,268,395 See auditors report and notes to the combined financial statements 5

7 For the year ended June 30, 2012 with Combined Statements of Cash Flows combined totals for the year ended June 30, Eagle ECS Foundation Total Total Cash flows from (used in) operating activities Changes in net assets $ 449,133 $ (58,635) $ 390,498 $ (912,605) Adjustments to reconcile changes in net assets to net cash provided by operating activities: Depreciation and amortization 640, , ,820 Donation of investments (12,877) - (12,877) - Change in market value of investments (5,731) 13,085 7,354 (82,838) Gain on disposal of assets (233,278) - (233,278) - Change in assets and liabilities Tuition and fees receivable (4,770,829) - (4,770,829) (36,474) Contributions receivables (561,423) - (561,423) 375,444 Other receivables (142,149) - (142,149) (1,053) Prepaid expenses 10,594-10,594 (16,033) Note receivable (25,101) - (25,101) (7,602) Accounts payable and accrued expenses 398, ,646 (133,229) Unearned tuition and fees 4,593,204-4,593,204 (14,686) Net cash provided by (used in) operating activities 341,086 (45,550) 295,536 (115,256) Cash flows from (used in) investing activities Proceeds from sales of investments 1,627,899 83,831 1,711, ,000 Purchases of investments (1,637,412) (13,459) (1,650,871) (64,795) Proceeds from disposal of asset 237, ,516 - Purchases of property and equipment (1,355,377) - (1,355,377) (670,759) Net cash from (used in) investing activities (1,127,374) 70,372 (1,057,002) (181,554) Cash flows from (used in) financing activities Principal payments on long-term debt (35,200) - (35,200) - Net change in cash and cash equivalents (821,488) 24,822 (796,666) (296,810) Cash and cash equivalents, beginning of year 3,247,278 2,287 3,249,565 3,546,375 Cash and cash equivalents, end of year $ 2,425,790 $ 27,109 $ 2,452,899 $ 3,249,565 Supplemental Disclosure of Cash Flow Information Cash paid during the year for interest $ 64,800 $ - $ 64,800 $ 64,800 See auditors report and notes to the combined financial statements 6

8 Note 1 Organization and business activity Evangelical Christian School of Memphis, Inc. (ECS) is a private school for boys and girls in grades junior kindergarten through twelve. ECS mission is to provide the Christian family a Christ-centered, biblically-directed education that challenges students to know the Lord Jesus Christ and to develop the vision and practice of excellence in academics, character, leadership and service to others. ECS operates from three campuses in the Memphis, Tennessee, area and has approximately 1,000 students. The accompanying combined financial statements include the accounts of ECS and its affiliated support organization, the Eagle Foundation of Memphis, Inc. (Eagle Foundation), collectively referred to herein as the School. Investment income and contributions from the Eagle Foundation are used to fund program and administrative expenses of ECS in accordance with the restrictions of the original donor. All significant intercompany transactions have been eliminated in combination. ECS and the Eagle Foundation are separate legal entities, each with an independent board of trustees. Note 2 Summary of significant accounting policies Basis of accounting and presentation The School prepares its financial statements in accordance with accounting principles generally accepted in the United States, which involves the application of accrual accounting; consequently, revenues and gains are recognized when earned and expenses and losses when incurred. Under generally accepted accounting principles, the School is required to report information regarding its financial position and activities according to three classes of net assets as follows: Unrestricted Net Assets Net assets that are not subject to donor-imposed stipulations. Unrestricted net assets may be designated for specific purposes by action of the Board of Trustees or may otherwise be limited by contractual agreements with outside parties. Temporarily Restricted Net Assets Net assets whose use by the School is subject to donor-imposed stipulations that can be fulfilled by actions of the School pursuant to those stipulations or that expire by the passage of time. Permanently Restricted Net Assets Net assets subject to donor-imposed stipulations that they be maintained permanently by the School. Generally, the donors of these assets permit the School to use all or part of the investment return on these assets. Such assets primarily include the School s permanent endowment funds. Revenues are reported as increases in unrestricted net assets unless they are restricted by donor-imposed stipulations. Expenses are generally reported as decreases in unrestricted net assets. Satisfaction of donor imposed stipulations that simultaneously increase unrestricted net assets and decrease temporarily restricted assets are reported as reclassifications. Cash equivalents Cash equivalents are defined as short term, highly liquid investments that are both readily convertible to known amounts of cash and are so near maturity that they present insignificant risk of changes in value because of changes in interest rates. 7

9 Note 2 Summary of significant accounting policies (continued) Contributions Annual campaign contributions are generally available for unrestricted use in the related campaign year unless specifically restricted by the donor. Contributions receivable are recorded as revenue. Contributions receivable that are expected to be collected within one year are recorded at net realizable value. Contributions receivable that are expected to be collected in future years are recorded at fair value, which is calculated as the present value of their estimated future cash flows. Discounts are computed using risk-adjusted interest rates applicable to the years in which the contributions are received. Discount amortization is included in contribution revenue. Conditional contributions are not included as support until the conditions are substantially met. Contributions received are recorded as unrestricted, temporarily restricted or permanently restricted support depending on the existence and nature of any donor restrictions. Contributions are recognized as an increase to unrestricted net assets when the donor makes a promise to give to the organization that is, in substance, unconditional. All donor-restricted support is reported as an increase in temporarily restricted or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or the purpose is accomplished), temporarily or permanently restricted net assets are reclassified to unrestricted net assets. Bequests are recorded as revenue at the time an unassailable right to the gift as been established and the proceeds are measurable. Endowment contributions are permanently restricted by the donor. Investment earnings available for distribution are recorded in unrestricted net assets. Investments Investment in debt securities and equity securities with readily determinable fair values are carried at fair value based on quoted prices in active markets. Donated investments are recorded at the average fair market value at the date of transfer. Unrealized holding gains and losses are included in current year revenue and support as a component of investment income. Realized gains and losses are computed using the specific identification method. Tuition and fees receivable and unearned tuition and fees The School s tuition payment policy requires that a nonrefundable registration deposit and an initial tuition payment be received prior to June 30 of each year to secure enrollment for the subsequent school year. The deposit and any tuition prepayments are recognized as revenue during the period in which the related educational instruction is performed. Before the school year begins, an enrollment contract is signed by the family of the student obligating them for the entire amount of tuition. In prior years, the nonrefundable tuition deposit and the initial tuition payment for the upcoming school year that was due prior to June 30 was recorded as unearned tuition when paid, but the remaining balance was not recorded as a receivable. In the current year, the entire tuition amount is recorded as a receivable when the contract is signed and the entire amount is offset to unearned tuition. Since the June 30, 2011 tuition and fees receivable has not been restated to reflect this change in the current year, the balances in these accounts are not comparable between June 30, 2012 and June 30, Tuition deposits are non-refundable as of May 1 prior to the upcoming school years, and the student contracts are fully enforceable as of June 1 prior to the upcoming school year. Once the school year begins, unearned tuition is transferred to revenue on a monthly basis. The allowance for doubtful accounts was $8,954 and $22,665 as of June 30, 2012 and 2011, respectively. 8

10 Note 2 Summary of significant accounting policies (continued) Property and equipment Property and equipment are stated at cost, if purchased, or fair market value at the date of donation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset. Depreciation ranges from five to ten years for furniture and equipment. Building and improvements amortization ranges from five to thirty-nine years. Expenditures for normal maintenance and repairs are charged to operations. Expenditures for major renewals and betterments of at least $5,000 that materially extend the life of assets are capitalized. Endowments The School classifies net assets of donor-restricted endowment funds in accordance with FASB Accounting Standard Codification (ASC) 205, Presentation of Financial Statements. ASC 205 provides guidance on net asset classification of donor-restricted endowment funds and improves disclosures on both an organization s donorrestricted endowment funds and board-designated endowment funds. The Uniform Prudent Management of Institutional Funds Act (UPMIFA) establishes guidelines for prudent management of costs and expenditures of funds in relation to the whole economic situation of the charitable institution and was enacted by the State of Tennessee effective July 1, An organization, whether or not it is subject to an enacted version of UPMIFA, shall disclose information to enable users of financial statements to understand net asset classification, net asset composition, and changes in net asset composition, spending policies, and related investment policies of its endowment funds (see note 10). Advertising Advertising costs are expensed in the year incurred. Total advertising expense for the fiscal years ended June 30, 2012 and 2011 was $84,023 and $98,288, respectively. Income taxes ECS and Eagle Foundation are separate not-for-profit organizations that are exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code. Accordingly, no provision has been reflected in the financial statements. Management of the School considers the likelihood of changes by taxing authorities in its exempt organization returns and discloses potential significant changes that management believes are more likely than not to occur upon examination by tax authorities. Management has not identified any uncertain tax positions in filed returns that require disclosure in the accompanying financial statements. The School s tax returns for the past three years are subject to examination by tax authorities, and may change upon examination. Events occurring after reporting date Management has evaluated events and transactions that have occurred through November 1, 2012, which is the date that the financial statements were available to be issued, for possible recognition or disclosure in the financial statements. No subsequent events have been recognized or disclosed. Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 9

11 Note 3 - Cash and cash equivalents Cash and cash equivalents consisted of the following as of June 30, 2012 and 2011: Eagle June 30, 2012 ECS Foundation Total Cash in bank $ 2,406,581 $ - $ 2,406,581 Cash in short-term highly liquid investments, including money-market mutual funds 19,209 27,109 46,318 June 30, 2011 $ 2,425,790 $ 27,109 $ 2,452,899 Cash in bank $ 354,103 $ - $ 354,103 Cash in short-term highly liquid investments, including money-market mutual funds 2,893,175 2,287 2,895,462 Note 4 - Notes receivable, employees $ 3,247,278 $ 2,287 $ 3,249,565 ECS has unsecured, non-interest and interest-bearing promissory notes with employees with scheduled repayment terms of up to three years. The maturity date of these notes range from August 2012 to February The note maturing August 2012 has continued to be paid according to the terms of the agreement since August 31, The note agreement has been extended by ECS to the borrower with a maturity date of August 31, It is currently awaiting signature by the borrower. Monthly payments vary with each employee promissory note and will be repaid no later than the last day of employment. The balances as of June 30, 2012 and 2011 were $41,224 and $16,123, respectively. Note 5 - Investments Investment securities consist of the following as of June 30, 2012 and 2011: Fair Fair Cost Value Cost Value ECS Bond mutual funds $ 1,501,636 $ 1,504,432 $ 1,464,286 $ 1,478,801 Certificates of deposit, non-current 200, , , ,000 1,701,636 1,706,922 1,664,286 1,678,801 Eagle Foundation Stock and bond mutual funds 445, , , ,422 Total combined investments $ 2,147,217 $ 2,157,887 $ 2,185,757 $ 2,213,223 The non-current certificate of deposit is part of the endowment investments, which are categorized as permanently restricted. 10

12 Note 6 Contributions receivable Contributions receivable consist of the following as of June 30, 2012 and 2011: Receivable due: Less than one year $ 697,601 $ 596,473 One to five years 498,280 65,352 Contributions receivable, at fair value 1,195, ,825 Allowance for uncollectible amounts (40,000) (67,367) Net contributions receivable $ 1,155,881 $ 594,458 Current $ 657,601 $ 529,106 Non-current 498,280 65,352 Net contributions receivable $ 1,155,881 $ 594,458 Note 7 - Property and equipment Property and equipment consists of the following as of June 30, 2012 and 2011: Land $ 2,828,586 2,828,586 Building and improvements 19,778,924 19,565,703 Furniture and equipment 3,992,215 3,953,567 Construction in progress 976,310 24,310 Total property and equipment 27,576,035 26,372,166 Accumulated depreciation and amortization (13,505,405) (13,011,778) Net property and equipment $ 14,070,630 $ 13,360,388 Depreciation and amortization expense for the years ended June 30, 2012 and 2011 is as follows: Depreciation and amortization $ 640,897 $ 713,820 11

13 Note 8 Long term debt During the year ended June 30, 2012, ECS renegotiated its installment note. The note bears interest at 4.5% with annual principal and interest payments of $100,000. The note is secured by land purchased for future use and matures in March The balance of the installment note as of June 30, 2012 and 2011 totaled $1,404,800 and $1,440,000, respectively. Future maturities for the above note are as follows: Year ending June 30, 2013 $ 36, , , , ,247,431 1,404,800 Less current maturities (36,784) Note 9 Fair market measurements Long term debt, less current maturities $ 1,368,016 The School utilizes fair value measurements to record certain assets and to determine fair value disclosures. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. ASC 820 establishes a three-tier fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, as follows: Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities that the School has the ability to access. Level 2 Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data. Level 3 Significant unobservable inputs that reflect an entity s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. 12

14 Note 9 Fair market measurements (continued) Following is a description of the valuation methodologies used to measure fair value. There have been no changes in the methodologies used as of June 30, 2012 and Cash and cash equivalents, money market accounts, and certificates of deposit: The carrying amount is a reasonable estimate of fair value. Contributions receivable: For contributions receivable that are due within one year, carrying amount is a reasonable estimate of fair value. For contributions receivable that are due in more than one year, fair value is estimated at the present value of estimated future cash flows, using a discount rate reflective of current interest rates. Stock and bond mutual funds: Valued at the net asset value of shares held by the School at yearend. The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the School believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The tables below present the recorded amount of assets measured at fair value on a recurring basis in the statements of financial position as of June 30, 2012 and 2011: Balance as of Level 1 Level 2 Level 3 June 30, 2012 ECS Bond mutual funds Short term mutual bond fund $ 1,504,432 $ - $ - $ 1,504,432 Certificates of deposit - 202, ,490 1,504, ,490-1,706,922 Eagle Foundation Stock and bond mutual funds Domestic bond fund 98, ,564 Foreign bond funds 37, ,465 Domestic stock funds 207, ,906 Foreign stock funds 74, ,791 Real Estate stock funds 32, , , ,965 Total assets recognized at fair value $ 1,955,397 $ 202,490 $ - $ 2,157,887 13

15 Note 9 Fair market measurements (continued) Balance as of Level 1 Level 2 Level 3 June 30, 2011 ECS Bond mutual funds Short term mutual bond fund $ 1,478,801 $ - $ - $ 1,478,801 Certificates of deposit - 200, ,000 1,478, ,000-1,678,801 Eagle Foundation Stock and bond mutual funds Domestic bond fund 92, ,153 Foreign bond funds 88, ,386 Domestic stock funds 226, ,602 Foreign stock funds 90, ,996 Real Estate stock funds 36, , , ,422 Total assets recognized at fair value $ 2,013,223 $ 200,000 $ - $ 2,213,223 Note 10 Endowment funds ECS endowment ECS endowment consists of a single fund, the Priscilla Wheeler Frazee Scholarship Fund. In accordance with the donor s gift instrument, the principal of this endowment is invested in certificates of deposit and the interest earned in one fiscal year is appropriated to provide scholarships in the next fiscal year to students wishing to attend ECS, whose enrollment would otherwise be jeopardized by their financial circumstances. The Eagle Foundation endowment The Eagle Foundation s endowments consist of approximately eleven (11) individual funds established for a variety of purposes. Its endowments are all donor-restricted funds. There are presently no unrestricted funds designated by the Eagle Foundation s Board of Directors to function as endowments. As required by generally accepted accounting principles, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. 14

16 Note 10 Endowment funds (continued) Interpretation of relevant law The Board of Directors of the Eagle Foundation has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds, absent explicit donor stipulations to the contrary. As a result of this interpretation, the Eagle Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donorrestricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Eagle Foundation in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Eagle Foundation considers the following factors in making a determination to appropriate or accumulate donorrestricted endowment funds: (1) the duration and preservation of the various funds, (2) the purposes of the donorrestricted endowment funds, (3) general economic conditions, (4) the possible effect of inflation and deflation, (5) the expected total return from income and the appreciation of investments, (6) other resources of ECS and the Eagle Foundation, and (7) the Eagle Foundation s investment policies. Combined endowment net asset composition by type of fund as of June 30, 2012 is as follows: Temporarily Permanently 2012 Unrestricted Restricted Restricted Total ECS Donor restricted $ - $ 2,490 $ 200,000 $ 202,490 Eagle Foundation Board designated 47, ,272 Donor restricted (58,405) 47, , ,802 (10,987) 48, , ,074 Total endowment funds $ (10,987) $ 50,683 $ 640,868 $ 680,564 Changes in combined endowment net assets for the year ended June 30, 2012 are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 62,085 $ 51,010 $ 628,408 $ 741,503 Investment return: Interest and dividends - 18,072-18,072 Realized/unrealized gain - (13,085) - (13,085) Administrative fees (4,142) - - (4,142) Total investment return (4,142) 4, Contributions 10,000 1,600 3,460 15,060 Transfers between funds (69,930) - - (69,930) Reclassified net assets (9,000) - 9,000 - Amounts appropriated for expenditure 6,914 (6,914) - - Grants (6,914) - - (6,914) Endowment net assets, end of year $ (10,987) $ 50,683 $ 640,868 $ 680,564 15

17 Note 10 Endowment funds (continued) Combined endowment net asset composition by type of fund as of June 30, 2011 is as follows: Temporarily Permanently 2011 Unrestricted Restricted Restricted Total ECS Donor restricted $ - $ 4,794 $ 200,000 $ 204,794 Eagle Foundation Board designated 74, ,513 Donor restricted (12,428) 46, , ,196 62,085 46, , ,709 Total endowment funds $ 62,085 $ 51,010 $ 628,408 $ 741,503 Changes in endowment net assets for the year ended June 30, 2011 are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 18,012 $ 17,275 $ 616,837 $ 652,124 Investment return: Interest and dividends - 22,870-22,870 Realized/unrealized gain 50,937 29,492-80,429 Investment fees Administrative fees (4,364) - - (4,364) Total investment return 46,573 52,362-98,935 Transfers between entities (2,500) - - (2,500) Reclassified to preserve purchasing power - (11,571) 11,571 - Amounts appropriated for expenditure 7,056 (7,056) - - Grants (7,056) - - (7,056) Endowment net assets, end of year $ 62,085 $ 51,010 $ 628,408 $ 741,503 Funds with deficiencies From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the level that the donor or SPMIFA requires the School to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature that are reported in unrestricted net assets were ($58,405) and ($12,428) as of June 30, 2012 and 2011, respectively. These deficiencies resulted from unfavorable market fluctuations and continued appropriation for certain programs that were deemed prudent by the Board of Directors. Investment Return Objectives, Risk Parameters The Eagle Foundation has adopted investment and spending policies, approved by the Board of Directors, for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment funds while also maintaining the purchasing power of those endowment assets over the long-term. 16

18 Note 10 Endowment funds (continued) Investment Return Objectives, Risk Parameters (continued) Endowment assets include those assets of donor-restricted funds that the Eagle Foundation must hold in perpetuity or for a donor-specified period(s) as well as board-designated funds. Accordingly, the investment process seeks to achieve an after-cost total real rate of return, including investment income as well as capital appreciation, which exceeds the annual distribution with acceptable levels of risk. Strategies employed for achieving objectives Endowment assets are invested in a well diversified asset mix, which includes equity and debt mutual funds, that is intended to result in a consistent inflation-protected rate of return that has sufficient liquidity to make an annual distribution of 5%, while growing the funds if possible. Therefore, the Eagle Foundation expects its endowment assets, over time, to produce an average rate of return of approximately 8% annually. Actual returns in any given year may vary from this amount. Investment risk is measured in terms of the total endowment fund; investment assets and allocation between asset classes and strategies are managed to not expose the fund to unacceptable levels of risk. The Eagle Foundation has a policy of appropriating for distribution each year 5% of its endowment fund s average fair value of the prior twelve (12) quarters through the calendar year-end proceeding the fiscal year in which the distribution is planned. In establishing this policy, the Eagle Foundation considered the long-term expected return on its investment assets, the nature and duration of the individual endowment funds, many of which must be maintained in perpetuity because of donor-restrictions, and the possible effects of inflation. The Eagle Foundation expects the current spending policy to allow its endowment funds to grow at a nominal average rate of 3% annually, which is consistent with the Eagle Foundation s objective to maintain the purchasing power of the endowment assets as well as to provide additional real growth through investment return. Note 11 Net assets Unrestricted net assets consist of the following as of June 30, 2012 and 2011: ECS Designated for operations $ 12,080,813 $ 12,047,159 Eagle Foundation Endowments for scholarships (10,987) 62,085 Total unrestricted net assets $ 12,069,826 $ 12,109,244 17

19 Note 11 Net assets (continued) Temporarily restricted net assets consist of the following as of June 30, 2012 and 2011: ECS Capital Campaign $ 872,787 $ 369,291 Annual Fund Campaign 24, ,442 Endowment for scholarships 2,490 4, , ,527 Eagle Foundation Endowments for school operations 854 4,431 Endowments for scholarships 47,339 41,785 48,193 46,216 Total temporarily restricted net assets $ 948,199 $ 530,743 Permanently restricted net assets consist of the following as of June 30, 2012 and 2011: ECS Endowments for scholarships $ 200,000 $ 200,000 Note 12 Tuition and fees Eagle Foundation Endowments for school operations 41,974 32,374 Endowments for scholarships 398, ,034 Total permanently restricted net assets $ 640,868 $ 628,408 Tuition and fees consist of the following for the years ended June 30, 2012 and 2011: Tuition and fees $ 12,073,796 $ 12,264,649 Less: Financial aid (1,831,636) (1,796,866) Discounts (129,000) (46,452) Net tuition and fees $ 10,113,160 $ 10,421,331 18

20 Note 13 - Benefit plan Retirement plan ECS sponsors a qualified 403(b) retirement plan for eligible employees. Employees who normally work at least 20 hours per week and who are 21 years of age or older are eligible to participate. Each participant in the plan may make voluntary contributions to the plan of up to the maximum allowed by IRS guidelines. ECS may make discretionary contributions to the plan. All contributions by ECS are subject to a five-year vesting period. ECS made contributions to the plan of $28,176 and $-0- for the years ended June 30, 2012 and 2011, respectively. Note 14 Commitments and contingencies Operating leases ECS leases a facility under an operating lease, requiring monthly payments of $10,437 through July 31, The lease requires ten monthly payments annually. The lease contains extension provisions at ECS option. ECS also leases four copiers under an operating lease, requiring monthly payments of $1,533 through June 30, Future minimum lease payments for each fiscal year are as follows: Year ending June 30, Amount 2013 $ 122, , , ,396 Total future minimum lease payments $ 386,700 Rent expense for the years ended June 30, 2012 and 2011 totaled $168,026 and $164,472, respectively. Note 15 Concentrations of credit risks Cash and cash equivalents The School maintains its cash in bank deposit accounts with federally insured financial institutions which are insured by the Federal Deposit Insurance Corporation up to $250,000. At times, the School s deposits exceed the federally insured limits. The School also maintains its cash equivalents in money market accounts which are insured up to $500,000 under Securities Investors Protection Corp (SIPC). At times, these balances exceed the SIPC insured limits. Contributions receivable Contributions receivable are principally from donors in the Memphis, Tennessee area. The concentration of credit risk is partially mitigated by the large number of donors. However, as of June 30, 2012, approximately 42% of contributions receivable were concentrated with one major contributor targeted for the A new look..a new approach fund and as of June 30, 2011 approximately 35% of contributions receivable were concentrated with two major contributors targeted for the Promise for Tomorrow fund. The School does not require collateral in relation to these receivables. 19