HIGHPOINT CHURCH. Memphis, Tennessee. Financial Statements. Years Ended July 31, 2017 and 2016

Transcription

1 Memphis, Tennessee Financial Statements Years Ended July 31, 2017 and 2016

2 Financial Statements Years Ended July 31, 2017 and 2016 TABLE OF CONTENTS Page Independent Auditors' Report 1 Financial Statements Statements of Financial Position 2 Statements of Activities 3-4 Statements of Cash Flows 5 Notes to Financial Statements 6-10

3 INDEPENDENT AUDITORS REPORT To the Board of Trustees Highpoint Church Memphis, Tennessee We have audited the accompanying financial statements of Highpoint Church (the Church ), which comprise the statements of financial position as of July 31, 2017 and 2016, and the related statements of activities 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. Auditors 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 audits 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 auditors 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 auditors consider internal control relevant to the Church 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 Church 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 Highpoint Church as of July 31, 2017 and 2016, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Arlington, Texas December 1, 2017

4 Statements of Financial Position July 31, 2017 and 2016 ASSETS Page 2 Current Assets Cash $ 553,669 $ 1,281,589 Inventory 34,235 18,831 Prepaid expenses 71,412 64,226 Total current assets 659,316 1,364,646 Property and Equipment Land 2,148,625 2,148,625 Building and improvements 8,454,696 8,351,983 Furniture, fixtures and equipment 1,462,988 1,362,614 Construction in progress 1,090,802 10,436 Accumulated depreciation (2,532,715) (1,957,890) Total property and equipment 10,624,396 9,915,768 Other Assets Cash restricted for long-term purposes 1,221, ,219 Total Assets $ 12,505,705 $ 11,939,633 LIABILITIES AND NET ASSETS Current Liabilities Accounts payable $ 32,341 $ 37,794 Retainage payable 46,028 - Construction draw payable 218,808 - Current portion of note payable 201, ,951 Total current liabilities 498, ,745 Long-term Liabilities Note payable, net of current portion and unamortized loan costs 5,471,790 5,671,430 Total Liabilities 5,970,056 5,901,175 Net Assets Unrestricted 5,066,804 5,104,207 Temporarily restricted 1,468, ,251 Total net assets 6,535,649 6,038,458 Total Liabilities and Net Assets $ 12,505,705 $ 11,939,633 The accompanying notes are an integral part of these financial statements.

5 Statement of Activities Year Ended July 31, 2017 Page 3 Temporarily Unrestricted Restricted Total Revenues Tithes and offerings $ 6,390,982 $ - $ 6,390,982 Program income 311, ,306 Designated income - 771, ,988 Rental income 362, ,859 Interest income Other income 91,438-91,438 Net assets released from restrictions 237,394 (237,394) - Total revenues 7,394, ,594 7,929,042 Expenses Program expenses Global ministry 978, ,621 East Memphis campus 1,718,055-1,718,055 Arlington campus 446, ,958 Collierville campus 922, ,596 Total program expenses 4,066,230-4,066,230 Supporting services Global business 3,365,621-3,365,621 Total expenses 7,431,851-7,431,851 Change in Net Assets (37,403) 534, ,191 Net Assets at Beginning of the Year 5,104, ,251 6,038,458 Net Assets at End of the Year $ 5,066,804 $ 1,468,845 $ 6,535,649 The accompanying notes are an integral part of these financial statements.

6 Statement of Activities Year Ended July 31, 2016 Page 4 Temporarily Unrestricted Restricted Total Revenues Tithes and offerings $ 5,476,578 $ - $ 5,476,578 Program income 204, ,097 Designated income - 1,917,584 1,917,584 Rental income 363, ,967 Interest income Other income (expense) (2,785) - (2,785) Net assets released from restrictions 1,319,302 (1,319,302) - Total revenues 7,361, ,282 7,959,865 Expenses Program expenses Global ministry 473, ,616 East Memphis campus 2,425,707-2,425,707 Collierville campus 687, ,406 Total program expenses 3,586,729-3,586,729 Supporting services Global business 2,706,716-2,706,716 Total expenses 6,293,445-6,293,445 Change in Net Assets 1,068, ,282 1,666,420 Net Assets at Beginning of the Year 4,036, ,969 4,372,038 Net Assets at End of the Year $ 5,104,207 $ 934,251 $ 6,038,458 The accompanying notes are an integral part of these financial statements.

7 Statements of Cash Flows Years Ended July 31, 2017 and Cash Flows from Operating Activities Change in net assets $ 497,191 $ 1,666,420 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 574, ,524 Amortization 1,449 30,511 Interest accretion on bonds payable - 19,802 Noncash interest expense - 18,350 Change in value of interest rate swap agreement - 7,157 Contributions restricted for long-term purposes (600,461) (1,492,362) (Increase) decrease in assets Inventory (15,404) (13,813) Prepaid expenses (7,186) (45,215) Increase (decrease) in liabilities Accounts payable (5,453) 17,893 Retainage payable 46,028 (28,546) Construction draw payable 218,808 (460,594) Net cash provided by operating activities 709, ,127 Cash Flows from Investing Activities Change in cash restricted for long-term purposes (562,774) (419,945) Purchases of property and equipment (1,283,453) (755,004) Proceeds from sale of investments - 12,614 Net cash used in investing activities (1,846,227) (1,162,335) Cash Flows from Financing Activities Payments on bonds payable - (421,215) Payments on note payable (191,951) (157,407) Contributions restricted for long-term purposes 600,461 1,492,362 Net cash provided by financing activities 408, ,740 Net Change in Cash (727,920) (17,468) Cash at Beginning of the Year 1,281,589 1,299,057 Cash at End of the Year $ 553,669 $ 1,281,589 Page 5 Supplemental Disclosures: Cash paid for interest $ 273,563 $ 255,950 Non-cash investing and financing activities: In 2016, the Church retired bonds payable ($1,074,367), funded the swap termination fee ($22,700), paid debt issuance costs ($14,478) and accrued interest ($18,350) by refinancing the existing mortgage. The accompanying notes are an integral part of these financial statements.

8 Notes to Financial Statements Page Organization Highpoint Community Church (the "Church") was incorporated as a nonprofit religious organization in Tennessee in The name was changed to Highpoint Church in August The Church s dream is to offer a place of worship that offers compassion without compromise. The Church strives for the relentless teaching of God's Word that makes sense for people in real life and embraces a style of worship that celebrates freedom. They endeavor to be a place where people feel a connection and move from acquaintances to deep friendships, where people are equipped to maximize their potential and a place where the Great Commandment and Great Commission come alive through acts of service and love. The Church is exempt from federal income taxes under section 501(c)(3) of the Internal Revenue Code as other than a private foundation. 2 - Significant Accounting Policies Basis of Accounting - The financial statements of the Church have been prepared on the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned, and expenses are recognized when the obligation is incurred. Basis of Presentation - As required by the Not-for-Profit Entities Classification of Net Assets topic of the Financial Accounting Standards Board Accounting Standards Codification (the FASB ASC ), the Church reports information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Revenue Recognition - Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. All donor-restricted contributions are reported as an increase in temporarily 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 purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Programs - Highpoint Church has become a multiple campus church one church in three locations. In order to provide the most useful financial information, the Church looks to each campus as an individual part of the total financial picture along with the centralized ministries of Global Business Services and Global Ministries Services. As such, each campus as well as the centralized ministries has its separate financial information for accountability and control purposes, as well as forecasting and budgeting. Global Ministry Services - Provides the preaching and teaching components for all campuses, as well as the oversight of the parallel ministries of each campus, such as Students, Highpoint Kids, Groups, and Serving. Global Business Services - Provides the centralized accounting, payroll, marketing, production, administration, and membership services for all campuses, as well as oversight on the operations for all campuses. East Memphis Campus - East Memphis is the original and largest campus of the Church, located in East Memphis, in the center of the metropolitan area. Currently the Global Ministry and Global Business Services are housed at this location. Arlington Campus - Arlington is the newest campus for Highpoint, established in October of 2015 in the northeastern part of Shelby County. Arlington accounts for about 15% of Highpoint s participants. Collierville Campus - Collierville was the first additional campus added by the Church, establish in It is located in an emerging Eastern suburb of Memphis. Collierville accounts for about 25% of Highpoint s participants.

9 Notes to Financial Statements Page Significant Accounting Policies (continued) Use of Estimates - Management uses estimates and assumptions in preparing these financial statements. Those estimates and assumptions affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. Cash and Cash Equivalents - For purposes of the financial statements, the Church considers all short-term investments with an original maturity of three months or less to be cash equivalents. There were no cash equivalents at July 31, 2017 and Cash restricted for long-term purposes amounts to $1,221,993 and $659,219 at July 31, 2017 and 2016, respectively, and relates to contributions restricted by donors for capital expenditures or debt reduction. Derivative Instruments - The Church does not hold or issue financial instruments for speculative purposes. Derivative instruments are subject to various risks similar to non-derivative instruments, including market and credit risk. Property and Equipment - Property and equipment are recorded at cost, if purchased, and fair market value at date of donation, if contributed. Depreciation, including amortization of capitalized lease assets, is calculated using the straight-line method over the estimated useful lives of: Furniture, fixtures and equipment 3 to 7 years Building and improvements 3 to 39 years Maintenance and repairs are expensed as incurred. Additions to property and equipment of $2,000 or more, including renewals and betterments that extend the useful life of property, are capitalized. Depreciation expense for the years ended July 31, 2017 and 2016 amounted to $574,825 and $511,524 respectively. Revenues and Support - Revenues and support for the Church are primarily derived from contributions from the Church membership. Donated Services - No amounts have been reflected in the financial statements for donated services. The Church pays for most services requiring specific expertise. A large number of people have contributed significant amounts of time to the activities of the Church without compensation. The financial statements do not reflect the value of those contributed services. Donated Assets - Donated marketable securities and other noncash donations are recorded as contributions at their estimated fair values at the date of donation. Compensated Absences - Employees of the Church, administrative and ministerial, are entitled to paid time off depending upon length of service and other factors. The Church cannot reasonably estimate the amount of compensation for future absences; accordingly, no liability has been recorded in the accompanying financial statements. The Church s policy is to recognize the cost of compensated absences when paid to employees. Reclassification - Certain amounts in the 2016 financial statements have been reclassified to conform to the 2017 presentation. Income Taxes - The Church is exempt from federal income taxes under section 501(c)(3) of the Internal Revenue Code as other than a private foundation. However, income from certain activities not directly related to the Church s tax exempt purpose is subject to taxation as unrelated business income. Unrelated business income during 2017 and 2016 consisted of rental income from the Briarcrest Christian School. No amount was due to the Internal Revenue Service in 2017 or 2016 for unrelated business income taxes.

10 Notes to Financial Statements Page Significant Accounting Policies (continued) Income Taxes (continued) The Church follows the Income Taxes topic of the FASB ASC, which prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The Church is not aware of any activities that would jeopardize its tax-exempt status and is not aware of any activities that are subject to tax on unrelated business income, other than the rental income described in the previous paragraph. As of July 31, 2017 and 2016, the Church has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements and does not expect this to change in the next twelve months. The tax years from 2016 and beyond remain subject to examination by the Internal Revenue Service. 3 - Note Payable In November 2015, the Church refinanced borrowings outstanding under its first-mortgage note payable with a financial institution. The amount of the refinanced loan is $6,000,000 with an interest rate of one-month LIBOR plus 2.45%. The refinanced note, which is secured by buildings and improvements of the Church, requires monthly principal and interest payments through maturity in November Proceeds from the refinancing were used to retire bonds payable, unwind the related interest rate swap agreement and pay refinancing costs in The balance on the note was $5,684,952 and $5,876,903 as of July 31, 2017 and 2016, respectively. In 2017, the Church retrospectively adopted the requirements in the Imputation of Interest topic of the FASB ASC to present loan origination costs as a reduction of the carrying amount of the respective note payable rather than as an asset. The note payable as of July 31, 2016 was previously reported on the statement of financial position as $5,876,903 with the associated $13,522 in unamortized loan origination costs included in other assets. Amortization of loan origination costs is considered interest expense and is included in global business expenses in the statements of activities. Accordingly, the following is a summary of the components of the note payable balance as of July 31, 2017 and 2016: Outstanding principal on notes payable $ 5,684,952 $ 5,876,903 Less: unamortized loan origination costs (12,073) (13,522) $ 5,672,879 $ 5,863,381 Future principal obligations on the note payable, as of July 31, 2017, are due as follows: Year Ending July 31, 2018 $ 201, , , , ,206 Thereafter 4,579,103 $ 5,684,952

11 Notes to Financial Statements Page Interest Rate Swap Agreement In conjunction with the refinance of the note payable described in Note 3, the Church entered into a new interest rate swap agreement with a financial institution which matures in November The agreement relates to declining notional amounts with the Church being the fixed-rate payer (4.66%) and the financial institution the floating rate payer (one-month LIBOR plus 2.45%). The agreement essentially provides the Church with a fixed interest rate of 4.66% on the note payable. If the Church chooses to refinance its existing debt, there is no assurance that the lending institution would relieve the Church of its obligations under the interest rate swap agreement; however, the Church does not anticipate terminating the agreement in advance of maturity, so no liability has been recorded for this contingency. The estimated fair value of the interest rate swap agreement favors the financial institution in the amount of $85,815 as of July 31, Line of Credit The Church has a line of credit with a financial institution with a variable interest rate of Prime Rate, with a 3% floor. Total available credit is $200,000 and the agreement matures in February There was no outstanding balance at July 31, 2017 and Commitments and Contingencies During 2017, the Church entered into a contingent rental agreement for real estate, whereby, the Church pays a percentage of contributions or operation expenses to the owner of the property. The calculation for rent payments varies from year to year. There was no rent expense under this agreement for the year ended July 31, At July 31, 2017, the Church was a party to a construction contract with a general contractor in the amount of $946,431 for the renovation of facilities. The contractor submits requests for payment on the contract as construction progresses. As of July 31, 2017, $920,567 had been billed related to this contract and has been properly capitalized on the Church s statement of financial position. Included in this amount is $46,028 of retainage on the contract that has been accrued and capitalized on the Church s statement of financial position. The remaining $25,864 will be billed as construction progresses; accordingly, this amount is not recorded as a liability on the Church s financial statements. 7 - Temporarily Restricted Net Assets The balance of temporarily restricted net assets as of July 31, 2017 and 2016 relates to certain contributions for which the donor has imposed restrictions. Temporarily restricted contributions in the amounts of $237,394 and $1,319,302 for the years ended July 31, 2017 and 2016, respectively, have been expended in accordance with donor restrictions and have been reclassified to unrestricted net assets. 8 - Retirement Plan The Church maintains a 403(b) retirement program for the benefit of its employees, whereby eligible employees make elective contributions to the plan. Each year the Church may, at its sole discretion, contribute to the retirement program. For the years ended July 31, 2017 and 2016, employee contributions were matched up to 3% of compensation by the employer. Contributions are fully vested after twelve months of employment. Plan assets were held in fully funded, participant directed, separate accounts. Contributions made by the Church amounted to $43,906 and $38,833 for the years ended July 31, 2017 and 2016, respectively.

12 Notes to Financial Statements Page Subsequent Events Subsequent events have been evaluated through December 1, 2017, which was the date the financial statements were available to be issued. In August 2017, the Church entered into an agreement with The Church at Schilling Farms ( Schilling Farms ), whereby, the Church acquired all of the assets of Schilling Farms in exchange for assuming its liabilities (which primarily included a note payable). This acquisition includes the real property that serves as the Collierville campus. In conjuction with this agreement, the debt of Schilling Farms was refinanced into a new note payable with a financial institution. The new note has an original principal balance of $1,550,000 with a fixed interest rate of 4.10% and a maturity date in November 2025.