COMBINED FINANCIAL STATEMENTS CENTER FOR COMMUNITY CHANGE FUND FOR THE CENTER FOR COMMUNITY CHANGE

Transcription

1 COMBINED FINANCIAL STATEMENTS CENTER FOR COMMUNITY CHANGE FUND FOR THE CENTER FOR COMMUNITY CHANGE FOR THE YEARS ENDED

2 CONTENTS PAGE NO. INDEPENDENT AUDITORS' REPORT 2 EXHIBIT A - Combined Statements of Financial Position, as of September 30, 2011 and EXHIBIT B - Combined Statements of Activities and Changes in Net Assets, for the Years Ended September 30, 2011 and EXHIBIT C - Combined Statements of Cash Flows, for the Years Ended September 30, 2011 and

3 GELMAN, ROSENBERG & FREEDMAN CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS' REPORT To the Board of Directors Center for Community Change Fund for the Center for Community Change Washington, D.C. We have audited the accompanying combined statements of financial position of the Center for Community Change (CCC) and the Fund for the Center for Community Change (the Fund), collectively "the Center", as of September 30, 2011 and 2010, and the related combined statements of activities and changes in net assets and cash flows for the years then ended. These combined financial statements are the responsibility of the Center's 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 audits to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Center's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined 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 combined financial position of the Center as of September 30, 2011 and 2010, and its combined changes in net assets and its combined cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. March 31, MONTGOMERY AVENUE SUITE 650 NORTH BETHESDA, MARYLAND (301) FAX (301) MEMBER OF CPAMERICA INTERNATIONAL, AN AFFILIATE OF HORWATH INTERNATIONAL MEMBER OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS' PRIVATE COMPANIES PRACTICE SECTION 2

4 COMBINED STATEMENTS OF FINANCIAL POSITION AS OF ASSETS CURRENT ASSETS Cash and cash equivalents $ 4,710,946 $ 4,304,670 Grants and contributions receivable (Note 4) 1,478,467 2,434,136 Advances and miscellaneous receivables (Note 12) 278, ,823 Prepaid expenses 40, ,923 PROPERTY AND EQUIPMENT Total current assets 6,508,450 7,096,552 Land (Note 6) 922, ,000 Building and improvements (Note 6) 6,488,842 6,488,842 Furniture and equipment (Note 5) 1,263,321 1,240,022 8,674,163 8,650,864 Less: Accumulated depreciation and amortization (2,170,864) (1,917,171) NONCURRENT ASSETS Net property and equipment 6,503,299 6,733,693 Long-term investments (Notes 3 and 13) 7,635,623 8,226,299 Grants and contributions receivable, net of current portion (Note 4) 295, ,649 Loan origination fees, net of accumulated amortization of $94,570 and $81,268 in 2011 and 2010, respectively 237, ,282 Artwork 11,250 11,250 Security deposits 18,800 37,228 Total noncurrent assets 8,199,053 9,045,708 TOTAL ASSETS $ 21,210,802 $ 22,875,953 See accompanying notes to combined financial statements. 3

5 EXHIBIT A LIABILITIES AND NET ASSETS CURRENT LIABILITIES Line of credit (Note 7) $ - $ 508,000 Mortgage loans payable (Note 6) 214, ,490 Capital lease obligations (Note 5) - 16,989 Accounts payable and accrued expenses (Note 12) 404, ,352 LONG-TERM LIABILITIES Total current liabilities 618,879 1,572,831 Mortgage loans payable, noncurrent portion (Note 6) 3,020,893 3,236,636 NET ASSETS Total liabilities 3,639,772 4,809,467 Unrestricted 6,378,354 5,522,446 Temporarily restricted (Notes 8 and 14) 6,842,676 8,194,040 Permanently restricted (Note 14) 4,350,000 4,350,000 Total net assets 17,571,030 18,066,486 TOTAL LIABILITIES AND NET ASSETS $ 21,210,802 $ 22,875,953 See accompanying notes to combined financial statements. 4

6 COMBINED STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEARS ENDED REVENUE Unrestricted Temporarily 2011 Permanently Total Grants, contributions and project income $ 4,867,659 $ 5,943,848 $ - $ 10,811,507 Investment (loss) income (Note 3) 10,248 (340,677) - (330,429) Net assets released from donor restrictions (Note 8) 6,954,535 (6,954,535) - - EXPENSES Total revenue 11,832,442 (1,351,364) - 10,481,078 Program Services: CCC Institutional Support 1,146, ,146,219 Community Organizing 2,325, ,325,908 Democracy and Civic Participation 1,626, ,626,655 Economic Justice 1,640, ,640,116 Lobbying Special Projects 1,110, ,110,302 Total program services 7,849, ,849,200 Supporting Services: Management and General 2,157, ,157,144 Fundraising 970, ,190 Total supporting services 3,127, ,127,334 Total expenses 10,976, ,976,534 Changes in net assets 855,908 (1,351,364) - (495,456) Net assets at beginning of year 5,522,446 8,194,040 4,350,000 18,066,486 NET ASSETS AT END OF YEAR $ 6,378,354 $ 6,842,676 $ 4,350,000 $17,571,030 See accompanying notes to combined financial statements. 5

7 EXHIBIT B Unrestricted Temporarily 2010 Permanently Total $ 4,414,371 $ 8,617,763 $ - $ 13,032,134 16, , ,437 11,154,319 (11,154,319) ,584,701 (1,766,130) - 13,818,571 1,997, ,997,603 3,791, ,791,500 3,940, ,940,875 1,178, ,178,164 83, ,889 1,361, ,361,969 12,354, ,354,000 2,518, ,518, , ,729 3,419, ,419,721 15,773, ,773,721 (189,020) (1,766,130) - (1,955,150) 5,711,466 9,960,170 4,350,000 20,021,636 $ 5,522,446 $ 8,194,040 $ 4,350,000 $ 18,066,486 See accompanying notes to combined financial statements. 6

8 EXHIBIT C CENTER FOR COMMUNITY CHANGE COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED CASH FLOWS FROM OPERATING ACTIVITIES Changes in net assets $ (495,456) $ (1,955,150) Adjustments to reconcile changes in net assets to net cash provided (used) by operating activities: Loss on disposal of property and equipment - 1,983 Depreciation and amortization 253, ,527 Unrealized loss on long-term investments 447, ,694 Realized gain on sales of investments (17,330) (849,971) Amortization of loan origination fees 13,302 13,302 Decrease (increase) in: Grants and contributions receivable 1,179, ,172 Advances and miscellaneous receivables (56,785) 46,944 Prepaid expenses 95,494 (29,425) Security deposits 18,428 (1,000) (Decrease) increase in: Accounts payable and accrued expenses (434,696) 13 Net cash provided (used) by operating activities 1,004,039 (1,420,911) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (23,299) (25,674) Purchases of long-term investments (801,776) (1,769,363) Proceeds from sales of long-term investments 962,311 2,163,213 Net cash provided by investing activities 137, ,176 CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on mortgage loans (210,010) (204,951) Principal payments on capital lease obligations (16,989) (51,791) Proceeds on line of credit - 508,000 Payments on line of credit (508,000) - Net cash (used) provided by financing activities (734,999) 251,258 Net increase (decrease) in cash and cash equivalents 406,276 (801,477) Cash and cash equivalents at beginning of year 4,304,670 5,106,147 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,710,946 $ 4,304,670 See accompanying notes to combined financial statements. 7

9 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION Organization - The Center for Community Change (CCC) is a not-for-profit organization, based in Washington, D.C. CCC's mission is to help low-income people, especially low-income people of color, develop the power and capacity to improve their communities and change policies and institutions that affect their lives. CCC does this primarily by helping them develop strong organizations controlled by community people. CCC also works to help low-income people have a voice on national policies that affect their communities. All projects of CCC support this mission. The Fund for the Center for Community Change (the Fund), was established to hold and invest CCC's endowment fund assets. Combined financial statements - The accompanying combined financial statements include all accounts and transactions of CCC and the Fund, collectively the "Center". All significant transactions between CCC and the Fund have been eliminated in combination. Basis of presentation - The accompanying combined financial statements are presented on the accrual basis of accounting, and in accordance with FASB ASC , Not-for-Profit Entities, Consolidation. Cash and cash equivalents - The Center considers all cash and other highly liquid investments with initial maturities of three months or less to be cash equivalents. Advances and miscellaneous receivables - Advances and miscellaneous receivables are stated at their unpaid balances which approximate fair value. No interest or late fees accrue on unpaid receivables. Receivables are considered impaired if full principal payments are not received in accordance with contract terms. It is the Center's policy to charge off uncollectible accounts receivable when management determines the receivable will not be collected. In making that determination, management evaluates the financial condition of the customer, historic experience, and current economic conditions. At September 30, 2011 and September 30, 2010, management considers all amounts to be fully collectible. Accordingly, an allowance for doubtful accounts has not been established. Property and equipment - Property and equipment in excess of $1,000 are capitalized and stated at cost. Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the related assets, generally three years for computer equipment, five years for furniture and other equipment, and 40 years for the building. Building improvements are amortized over the remaining estimated useful life of the building. The cost of maintenance and repairs is recorded as expenses are incurred. 8

10 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION (Continued) Loan origination fees - During 2004, the Center paid $332,550 of loan origination fees; the fees have been amortized over 25.5 years (Note 6). Investments - Investments are recorded at their readily determinable fair value. Realized and unrealized gains and losses are included in investment income in the Combined Statements of Activities and Changes in Net Assets. Income taxes - CCC is exempt from Federal income taxes under Section 501(c)(3) of the Internal Revenue Code. The Fund is a non-profit, public, charitable organization and is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code. CCC and the Fund are also exempt from District of Columbia franchise, sales, and personal property taxes. Accordingly, no provision for income taxes has been made in the accompanying combined financial statements. CCC and the Fund are not private foundations. Uncertain tax positions - In June 2006, the Financial Accounting Standards Board (FASB) released FASB ASC , Income Taxes, that provides guidance for reporting uncertainty in income taxes. For the years ended September 30, 2011 and 2010, the Center has documented its consideration of FASB ASC and determined that no material uncertain tax positions qualify for either recognition or disclosure in the combined financial statements. The Federal Form 990, Return of Organization Exempt from Income Tax, is subject to examination by the Internal Revenue Service, generally for three years after it is filed. Net asset classification - The net assets are reported in three self-balancing groups as follows: Unrestricted net assets include unrestricted revenue and contributions received without donor-imposed restrictions. These net assets are available for the operation of the Center and include both internally designated and undesignated resources. Temporarily restricted net assets include revenue and contributions subject to donorimposed stipulations that will be met by the actions of the Center and/or the passage of time. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the Combined Statements of Activities and Changes in Net Assets as net assets released from restrictions. Permanently restricted net assets represent funds restricted by the donor to be maintained in-perpetuity by the Center. There are restrictions placed on the use of investment earnings from these endowment funds. 9

11 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION (Continued) Grants and contributions - Unrestricted and temporarily restricted grants and contributions are recorded as revenue in the year notification is received from the donor. Temporarily restricted grants and contributions are recognized as unrestricted support only to the extent of actual expenses incurred in compliance with the donor-imposed restrictions and satisfaction of time restrictions. Temporarily restricted grants and contributions received in excess of expenses incurred are shown as temporarily restricted net assets in the accompanying combined financial statements. Grants and contributions receivable approximate fair value. Management considers all amounts to be fully collectible. Accordingly, an allowance for doubtful accounts has not been established. Use of estimates - The preparation of combined 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 at the date of the combined financial statements and the reported amounts of revenue and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Functional allocation of expenses - The costs of providing the various programs and other activities have been summarized on a functional basis in the accompanying Combined Statements of Activities and Changes in Net Assets. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Risks and uncertainties - The Center invests in various investment securities. Investment securities are exposed to various risks such as interest rates, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the accompanying combined financial statements. Fair value measurements - The Center adopted the provisions of FASB ASC 820, Fair Value Measurements and Disclosures. FASB ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs (assumptions that market participants would use in pricing assets and liabilities, including assumptions about risk) used to measure fair value, and enhances disclosure requirements for fair value measurements. The Center accounts for a significant portion of its financial instruments at fair value or considers fair value in their measurement. 10

12 2. PROGRAM SERVICES CCC Institutional Support - Departments under this area include Communications, including New Media activities, as well as Policy staff, New Program Development, and the Taproots Project. The projects oversee the strategic direction of the organization's communications and media relations efforts. The unit is responsible for articulating the organization's mission, heightening its visibility and positioning the organization to the broader public. Work is also conducted to support the incubation and development of new projects for the organization. The goal of the Taproots Project is to bring partners in social movement together and create a common vision for economic and social justice. Departments under this area include Communications, including New Media activities, as well as policy staff, new program development, and leadership development. Work is also conducted to support the incubation and development of new projects for the organization. Community Organizing - The Organizing teams of the Center for Community Change are comprised of field organizers, policy researchers/analysts and support. It is responsible for devising strategies for and implementing technical assistance provided to groups working on a variety of issues that affect low-income people and minority communities. The teams also provide technical assistance on organizational development including Board and leadership development, strategic planning, communications training and implementation of strategic issue campaigns. Also within this category is Generation Change, a project that identifies, recruits, and trains rising community leaders and grassroots organizers through a summer internship, year long mentorship, and year long fellowship program. This program matches community organizations and experienced organizers with new and emerging leaders to develop their skills and maintain their interest and success in organizing. Democracy and Civic Participation - The immigration work at the Center consists of FIRM, youth organizing, and multiracial/multi- ethnic alliance building. FIRM is a national coalition of grassroots multi-racial immigrant rights groups. The youth organizing branch of the FIRM engages young people in high school and middle school to identify and address issues surrounding immigration reform that directly affect their lives and their future. The objective of FIRM's youth organizing efforts is to train, support, and connect youth leaders from around the country. The multiracial/ multi-ethnic alliance building work of the immigration project seeks to establish communication and alliances building across cultural, ethnic, racial, and social divides. The Community Voting Project (CVP) is an initiative to address the lack of electoral participation by low-income communities and communities of color. This is accomplished by frequent face-to-face meetings between organizers and community members. CVP provides technical assistance to community groups that are focused on building capacity and skill sets in electoral mobilization year to year. Economic Justice - The Retirement Security Project brings together organizations from the community organizing field that are working to protect Social Security and Medicare. The Jobs and Economy Team works to create, implement, and/or support job creation at the local, state, and national levels. The Housing Trust Fund Project (HTF) is a technical assistance program that helps organizations develop and implement housing trust fund campaigns. The HTF program provides on-site training, strategy development, legislative and campaign models, public speaking/testimony exposure, and connects group with large networks and coalitions of organizations working on housing issues. 11

13 2. PROGRAM SERVICES (Continued) Special Projects - Special Projects of the Center of Community Change includes the California Partnership, Young Invincibles, and the Linchpin Project. The California Partnership is a statewide coalition of community based organizations that fights poverty in California by organizing and advocating at the local, state and national levels for appropriate programs and policies. The Young Invincibles Project seeks to bring the voices of young American's forward in the comprehensive healthcare debate. The Linchpin Campaign assists community organizing groups in communicating the impact of organizing effectively and broadens the audience of donors and funders interested in organizing. Management and General - Management and General activities include the administrative functions of human resources, administration, facilities management, finance, information technology, executive management and the Board of Directors. Fundraising - Development and Fundraising is responsible for researching and cultivating funding prospects for the organization. The department works to raise the organization s annual operating budget including project restricted funding and general support. 3. INVESTMENTS Investments consisted of the following at September 30, 2011 and 2010: Market Value Money market $ 135,383 $ 127,703 Corporate bonds 2,070, ,620 Mutual funds 1,313,240 3,135,386 Equities 3,050,830 3,146,283 Hedge funds 988,083 1,154,301 Real estate investment trusts 77,914 87,006 TOTAL LONG-TERM INVESTMENTS $ 7,635,623 $ 8,226,299 Included in investment (loss) income are the following at September 30, 2011 and 2010: Interest and dividends $ 143,046 $ 76,435 Unrealized loss on long-term investments (447,471) (100,694) Realized gain on sales of investments 17, ,971 Management fees (43,334) (39,275) TOTAL INVESTMENT (LOSS) INCOME $ (330,429) $ 786,437 12

14 4. GRANTS AND CONTRIBUTIONS RECEIVABLE As of September 30, 2011 and 2010, contributors to the Center have made written promises to give totaling $1,773,867 and $2,953,785, respectively. Grants due in more than one year have been recorded at their present value using the interest rate in effect at the time of original award. Following is a schedule of estimated amounts due at September 30, 2011 and 2010: Less than one year $ 1,478,467 $ 2,434,136 One to five years 305, ,010 Total 1,783,467 2,975,146 Less: Present value discount (9,600) (21,361) GRANTS RECEIVABLE, NET $ 1,773,867 $ 2,953, CAPITAL LEASE OBLIGATION During the fiscal year ended September 30, 2006, the Center entered into a 60-month capital lease obligation for a phone system at the Center's headquarters. The equipment has been capitalized at $105,779. Also during 2006, the Center entered into a 60-month lease for a phone system at the New York office, which is also accounted for as a capital lease. This phone system has been capitalized at $65,026. During the fiscal year ended September 30, 2005, the Center entered into a 66-month lease for postage equipment, which is accounted for as a capital lease. The equipment has been capitalized at $65,129. As of September 30, 2011 and 2010, the related accumulated depreciation of the leased assets were $344,079 (depreciated in full) and $319,665, respectively. Future minimum lease payments at September 30, 2011 and 2010 are as follows: Year Ended December 31, $ - $ 17,299 Less: Interest - (310) Total - 16,989 Less: Current portion - (16,989) LONG-TERM PORTION $ - $ - 13

15 6. MORTGAGE LOANS PAYABLE On July 1, 2004, the Center entered into a loan agreement with the District of Columbia (the District) and executed a $4,000,000 promissory note covered by the loan agreement on August 20, The District also executed a Trust Indenture on July 1, 2004, with United Bank (the Bank), to act as Trustee for the District. The District authorized the issuance and sale of $4,000,000 of its variable rate revenue bonds, Series 2004, the proceeds of which were used to finance the acquisition and renovation of a new Headquarters facility located at 1536 U Street, N.W., Washington, D.C. On August 20, 2004, the District of Columbia issued $4,000,000 of District of Columbia Variable Rate Revenue Bonds (Center for Community Change Issue), Series The interest rate will be fixed for the first five years at a tax-exempt rate of 4.25%. The interest rate will be subject to adjustment every five years, to the tax-exempt equivalent of the average yield on U.S. Treasury securities, maturing in five years then prevailing (the index ), plus 2.50% (the spread ). The Bank s prevailing tax rate will be used to discount the prevailing taxable equivalent of the index plus the spread, using the following formula: (prevailing index + 2.5%) x (1-Bank s current tax rate). The interest rate will have a tax-exempt floor of 4.25% for the term. The term is 25.5 years, callable every fifth anniversary of the bond issue date, beginning with the tenth anniversary of the bond issue date. Thus, the bond will be callable after 10, 15, and 20 years. The Bank will provide a twelve-month advance notice of its intent to exercise this call provision every fifth anniversary, beginning with the tenth anniversary. The bonds are secured by a first deed of trust on the new Headquarters facility, to include a first lien on personal property attached to the real estate and an assignment of leases and rents. Under the terms of the Loan Agreement (between the Center and the Bank), monthly interest-only payments were due through March 1, As of April 1, 2005, the Center began remitting monthly interest plus a fixed principal amount of $13,333. On May 22, 2006, the Center entered into a loan agreement with the Bank for $500,000, to cover the costs of additional equipment and improvements to the new Headquarters facility not funded by the tax-exempt bonds issued to purchase and renovate the facility. The term of the loan is 10 years, with monthly principal and interest payments of $5,965, due beginning June 22, 2006 and ending May 22, The interest rate is variable and based on the weekly average yield on U.S. Treasury securities, adjusted to a constant maturity of five years, plus a margin of 2.50%. The interest rate at September 30, 2011 was 4.375%. As of September 30, 2011 and 2010, the outstanding principal of the loans payable were $3,235,116 and $3,445,126, respectively. Principal payments are due as follows: Year Ended September 30, 2012 $ 214, , , , , and Thereafter 2,159,069 $ 3,235,116 14

16 6. MORTGAGE LOANS PAYABLE (Continued) For the years ended September 30, 2011 and 2010, interest paid was $154,590 and $165,729, respectively. The loan agreements contain various covenants which, among other things, place restrictions on the Center's ability to incur additional indebtedness and require the Center to maintain certain financial ratios. As of the date of this report, the Center was in compliance with all loan covenants. 7. LINE OF CREDIT The Center has established a line of credit with United Bank. The maximum amount available under the line of credit is $1,000,000, and any borrowings bear interest of 6.63%. As of September 30, 2011 and 2010, outstanding borrowings on the line of credit totaled $0 and $508,000, respectively. On November 2, 2010, the outstanding balance due on the line of credit was paid in full. 8. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets consisted of the following at September 30, 2011 and 2010: CCC Institutional Support $ 73,766 $ - Community Organizing 699, ,387 Democracy and Civic Participation 1,264,980 1,711,076 Economic Justice 676, ,695 Special Projects 281, ,366 General Support/Time 560,900 1,022,216 Accumulated Net Earnings on Permanently Net Assets 3,285,623 3,876,300 $ 6,842,676 $ 8,194,040 The following temporarily restricted net assets were released from donor restrictions by incurring expenses (or through the passage of time), which satisfied the restricted purposes specified by the donors: CCC Institutional Support $ 290,822 $ 382,250 Community Organizing 1,633,205 2,865,545 Democracy and Civic Participation 1,272,280 3,704,789 Economic Justice 1,425,423 1,216,555 Special Projects 1,111,487 1,426,430 General Support/Passage of Time 971,318 1,143,750 Appropriated for Expenditures from Endowment 250, ,000 $ 6,954,535 $ 11,154,319 15

17 9. OPERATING LEASES On June 17, 2011, the Center entered into an operating lease for office space in Manhattan, New York. The lease term began on June 17, 2011 and expires June 30, This lease carries a one year renewal option, with the extended term expiring June 30, The lease requires monthly payments of $4,000. On October 1, 2010, the Center entered into an operating lease for office space in Los Angeles, CA. The lease term began on December 1, 2010 and expired September 1, The lease requires monthly payments of $1,170 and was terminated September 1, On January 28, 2010, the Center entered into an operating lease for office space in Cincinnati, Ohio. The lease term began January 1, 2011 and expires December 31, The lease required monthly payments of $210. On December 23, 2008, the Center entered into an operating lease for office space in Los Angeles, California. The lease requires monthly payments of $1,136. The initial term of the lease is January 1 through December 31, At the expiration of the initial lease term, the agreement may be renewed on a month-to-month basis, with a three percent annual increase in rental payments. The following is a schedule of the future minimum lease payments required on these operating leases: Year Ended September 30, 2012 $ 36,630 Rent expense for the years ended September 30, 2011 and 2010 was approximately $156,000 and $148,000, respectively. The Center subleases a portion of its office space under various leases expiring through January Rental income for the years ended September 30, 2011 and 2010 totaled $7,662 and $11,559, respectively. 10. PENSION PLAN The Center has a defined-contribution pension plan covering substantially all employees. For the periods ending September 30, 2011 and 2010 contributions were made by the Center to the plan at the rate of 5% and 8%, respectively, of an employee s salary. The employee obtains an immediate vested interest in the amount contributed to his or her pension account. Upon retirement, the employee has several options for payment of the balance in his/her pension account. Pension plan expense during the years ended September 30, 2011 and 2010 totaled $322,909 and $457,680, respectively. 16

18 11. SIGNIFICANT CONCENTRATION The Center maintains its cash and cash equivalents at several financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC), in an amount up to $250,000 per institution. Although the Center takes appropriate steps to limit the amounts on deposit at any one financial institution, such amounts exceeded the FDIC insurance limits by approximately $2,541,000 and $3,407,000 at September 30, 2011 and 2010 respectively. The Center does not believe it is subject to any significant risk with respect to its cash balances. 12. RELATED PARTY The Campaign for Community Change (the Campaign ) is a related, tax-exempt organization, whose purpose is to increase the profile of policy issues that matter to low-income people and people of color, as well as educate and empower low-income people and people of color to act on those issues. Several members of the Campaign's Board of Directors also serve as Board members of the Center. The Campaign reimburses the Center for salaries, facility costs, and other administrative costs. During the years ended September 30, 2011 and 2010, the Center billed the Campaign for expenses totaling $1,761,966 and $640,167 respectively, and the Campaign billed the Center for expenses totaling $84,682 and $0, respectively. As of September 30, 2011 and 2010, $250,358 and $205,183, respectively, was due to the Center from the Campaign, and $8,168 and $0, respectively, was due to the Campaign from the Center. These amounts are categorized as program services and miscellaneous receivables and accounts payable and accrued expenses in the accompanying Combined Statements of Financial Position. The Center also received $790,000 and $1,412,000 in contributions from the Campaign during the years ended September 30, 2011 and 2010, respectively. Of these contributions, $0 and $642,000 were due to the Center from the Campaign at September 30, 2011 and 2010, respectively. 13. FAIR VALUE MEASUREMENTS In accordance with FASB ASC 820, Fair Value Measurements and Disclosures, the Center has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Investments recorded in the Combined Statements of Financial Position are categorized based on the inputs to valuation techniques as follows: Level 1. These are investments where values are based on unadjusted quoted prices for identical assets in an active market the Center has the ability to access. Level 2. These are investments where values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full-term of the investments. 17

19 13. FAIR VALUE MEASUREMENTS (Continued) Level 3. These are investments where values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect assumptions of management about assumptions market participants would use in pricing the investments. These investments include non-readily marketable securities that do not have an active market. Financial assets recorded in the Combined Statements of Financial Position are categorized based on the inputs to the valuation technique as follows for the year ended September 30, 2011: Level 1 Level 2 Level 3 Total Asset Category: Money Market $ 135,383 $ - $ - $ 135,383 Corporate Bonds 2,070, ,070,173 Mutual Funds 1,313, ,313,240 Equities 3,050, ,050,830 Hedge Funds , ,083 Real Estate Investment Trusts ,914 77,914 TOTAL $ 6,569,626 $ - $ 1,065,997 $ 7,635,623 Financial assets recorded in the Combined Statements of Financial Position are categorized based on the inputs to the valuation technique as follows for the year ended September 30, 2010: Level 1 Level 2 Level 3 Total Asset Category: Money Market $ 127,703 $ - $ - $ 127,703 Corporate Bonds 575, ,620 Mutual Funds 3,135, ,135,386 Equities 3,146, ,146,283 Hedge Funds - - 1,154,301 1,154,301 Real Estate Investment Trusts ,006 87,006 TOTAL $ 6,984,992 $ - $ 1,241,307 $ 8,226,299 Level 3 Financial Assets The following table provides a summary of changes in fair value of the Center's financial assets for the year ended September 30, 2011: Real Estate Investment Trusts Hedge Funds Total Beginning balance as of October 1, 2010 $ 87,006 $ 1,154,301 $ 1,241,307 Unrealized and realized losses - (166,218) (166,218) Purchases/Distributions (9,092) - (9,092) BALANCE AS OF SEPTEMBER 30, 2011 $ 77,914 $ 988,083 $ 1,065,997 18

20 13. FAIR VALUE MEASUREMENTS (Continued) The following table provides a summary of changes in fair value of the Center's financial assets for the year ended September 30, 2010: Real Estate Investment Trusts Hedge Funds Total Beginning balance as of October 1, 2009 $ - $ 1,188,304 $ 1,188,304 Unrealized and realized losses - (34,003) (34,003) Revaluation 87,006-87,006 BALANCE AS OF SEPTEMBER 30, 2010 $ 87,006 $ 1,154,301 $ 1,241, ENDOWMENT In April of 1985, the Fund for the Center for Community Change (the Fund) was organized and incorporated to operate exclusively for the benefit of CCC. The Fund received an initial contribution from a donor who stipulated that the contribution of $2,850,000 be used to establish a permanent endowment fund. The donor also required the Fund to raise additional matching funds. The initial contribution and required matching contributions are reported in the permanently restricted net asset class, along with a contribution in the amount of $500,000, which was received during the year ended September 30, Earnings and appreciation of the fund principal are reported as temporarily restricted net assets until spent. The Board of Directors 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 Center 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 donor-restricted 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 organization in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Center considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: The duration and preservation of the fund; The purpose of the organization and the donor-restricted endowment fund; General economic conditions and the possible effect of inflation and deflation; The expected total return from income and the appreciation of investments; and Investment policies of the organization. 19

21 14. ENDOWMENT (Continued) Endowment net asset composition by type of fund as of September 30, 2011: Temporarily Permanently Total Donor Endowment Funds $ 3,285,623 $ 4,350,000 $7,635,623 Changes in endowment net assets for the year ended September 30, 2011: Temporarily Permanently Total Endowment net assets, beginning of year $ 3,876,300 $ 4,350,000 $8,226,300 Investment return: Investment income 89,464-89,464 Net appreciation (realized and unrealized) (430,141) - (430,141) Total investment return (340,677) - (340,677) Appropriation of endowment assets for expenditure (250,000) - (250,000) ENDOWMENT NET ASSETS, END OF YEAR $ 3,285,623 $ 4,350,000 $7,635,623 Endowment net asset composition by type of fund as of September 30, 2010: Temporarily Permanently Total Donor Endowment Funds $ 3,876,300 $ 4,350,000 $ 8,226,300 Changes in endowment net assets for the year ended September 30, 2010: Temporarily Permanently Total Endowment net assets, beginning of year $ 3,520,873 $ 4,350,000 $ 7,870,873 Investment return: Investment income 21,150-21,150 Net depreciation (realized and unrealized) 749, ,277 Total investment return 770, ,427 Appropriation of endowment assets for expenditure (415,000) - (415,000) ENDOWMENT NET ASSETS, END OF YEAR $ 3,876,300 $ 4,350,000 $ 8,226,300 20

22 14. ENDOWMENT (Continued) Description of amounts classified as permanently restricted net assets and temporarily restricted net assets (Endowment only): Permanently Net Assets: The portion of perpetual endowment funds that is required to be retained permanently either by explicit donor stipulation or by UPMIFA $ 4,350,000 $ 4,350,000 Total Endowment Funds Classified as Permanently Net Assets $ 4,350,000 $ 4,350,000 Temporarily Net Assets: The portion of perpetual endowment funds subject to a time restriction under UPMIFA: With purpose restrictions $ 3,285,623 $ 3,876,300 Total Endowment Funds Classified as Temporarily Net Assets $ 3,285,623 $ 3,876,300 Investment Return Objectives, Risk Parameters and Strategies - The Fund s Investment Policy reflects the Center s long-term sustainability approach. It includes an investment time horizon of 10 years and goals to: (1) grow the Fund and increase the real (inflation adjusted) value of its assets over time; (2) generate gains to provide predictable supplemental support for the Center s operations; (3) preserve permanently restricted assets; (4) avoid investing in companies whose environmental or social impacts contribute to problems and issues that the Center addresses and; (5) aim for a minimum five percent (5%) annual return. The Fund accepts market fluctuations and volatility as an unavoidable reality, given its desire to achieve average or above market rates of return. Funds are managed to ensure preservation and safety for permanently restricted assets, and with generally accepted and prudent asset diversification and allocation strategies to minimize losses during difficult economic circumstances. The Fund s risk tolerance may be considered moderate. Within the Fund s portfolio, assets are diversified both by asset class (U.S. and global equities, fixed income, alternative and community investments, and cash) and within each asset class. The Fund Board recommends rebalancing of assets, annually or as needed, to align the portfolio with asset allocation targets, and address the Center s liquidity needs. Spending Policy and How the Investment Objectives Relate to Spending Policy - The Center's annual budget and revenue planning does not typically include assumptions for support from the Endowment. When deemed prudent, draws are generally limited to three to five percent (3-5%) of the Endowment s fair market valuation. If two draws are taken in the same fiscal year, both calculations are averaged and the total may not exceed seven percent (7%) (as recommended by the Uniform Prudent Management of Institutional Funds Act (UPMIFA). 21

23 15. SUBSEQUENT EVENTS In preparing these combined financial statements, the Center has evaluated events and transactions for potential recognition or disclosure through March 31, 2012, the date the combined financial statements were issued. 22