DALLAS CHILDREN S THEATER, INC.

Transcription

1 FINANCIAL STATEMENTS Years ended August 31, 2013 and 2012 with Report of Independent Auditors

2 FINANCIAL STATEMENTS Years Ended August 31, 2013 and 2012 Table of Contents Report of Independent Auditors... 1 Audited Financial Statements: Statements of Financial Position... 2 Statements of Activities... 4 Statements of Cash Flows... 8 Statements of Functional Expenses... 9 Notes to Financial Statements... 11

3 Dallas Offi ce 8343 Douglas Avenue Suite 400 Dallas, Texas Main REPORT OF INDEPENDENT AUDITORS whitleypenn.com To the Board of Trustees of Dallas Children s Theater, Inc. We have audited the accompanying financial statements of Dallas Children s Theater, Inc. which comprise the statements of financial position as of August 31, 2013 and 2012, and the related statements of activities, cash flows and functional expenses 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 ( GAAP ); this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dallas Children s Theater, Inc. as of August 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in conformity with GAAP. Dallas, Texas December 11, 2013 Dallas Fort Worth Houston An Independent Member of

4 Capital Operations Campaign Total Assets Current assets Cash and cash equivalents $ 289,326 $ 406,072 $ 695,398 Restricted cash and cash equivalents 13,004-13,004 Pledges receivable, net 58,939 61, ,439 Prepaid expenses and other assets 92, ,892 Total current assets 453, , ,733 Other assets Discounted pledges receivable, net 11,119 97, ,541 Investments 18, , ,701 Other assets, net amortization of $35,750-19,250 19,250 Total other assets 29, , ,492 Fixed assets Land - 2,600,000 2,600,000 Land improvements 55,700 1,346,370 1,402,070 Building and improvements 138,429 5,758,276 5,896,705 Furniture, fixtures and equipment 286, , ,456 Construction-in-progress - 14,089 14,089 Less accumulated depreciation (330,068) (2,063,738) (2,393,806) Total fixed assets 150,513 8,275,001 8,425,514 Total assets $ 633,175 $ 9,040,564 $ 9,673,739 Liabilities and Net Assets Current liabilities Accounts payable $ 40,202 $ 191 $ 40,393 Accrued expenses 84,288 4,351 88,639 Deferred revenue 252, ,653 Notes payable 7,479 55,327 62,806 Total current liabilities 384,622 59, ,491 Notes payable, net of current portion 7,843 1,081,368 1,089,211 Commitments and contingencies DALLAS CHILDREN'S THEATER, INC. STATEMENT OF FINANCIAL POSITION As of August 31, 2013 Net assets: Unrestricted 57,679 7,234,333 7,292,012 Temporarily restricted 173, , ,025 Permanently restricted 10, , ,000 Total net assets 240,710 7,899,327 8,140,037 Total liabilities and net assets $ 633,175 $ 9,040,564 $ 9,673,739 See accompanying notes to financial statements. 2

5 Capital Operations Campaign Total Assets Current assets Cash and cash equivalents $ 157,749 $ 311,553 $ 469,302 Restricted cash and cash equivalents 10,000-10,000 Pledges receivable, net 75, , ,869 Interfund receivables 1,633 (1,633) - Prepaid expenses and other assets 110, ,641 Total current assets 356, , ,812 Other assets Discounted pledges receivable, net 14, , ,846 Investments 14, , ,081 Other assets, net amortization of $30,205-24,795 24,795 Total other assets 29, , ,722 Fixed assets Land - 2,600,000 2,600,000 Land improvements 55,700 1,346,370 1,402,070 Building and improvements 138,429 5,093,352 5,231,781 Furniture, fixtures and equipment 495, ,789 1,078,451 Construction-in-progress - 235, ,073 Less accumulated depreciation (533,719) (1,798,906) (2,332,625) Total fixed assets 156,072 8,058,678 8,214,750 Total assets $ 541,197 $ 8,819,087 $ 9,360,284 Liabilities and Net Assets Current liabilities Accounts payable $ 47,650 $ 194,653 $ 242,303 Accrued expenses 76,014 20,951 96,965 Deferred revenue 257, ,971 Notes payable 7,194 10,159 17,353 Total current liabilities 388, , ,592 Note payable, net of current portion 15, , ,323 Commitments and contingencies See accompanying notes to financial statements. DALLAS CHILDREN'S THEATER, INC. STATEMENT OF FINANCIAL POSITION As of August 31, 2012 Net assets: Unrestricted (65,454) 7,467,719 7,402,265 Temporarily restricted 192, , ,104 Permanently restricted 10, , ,000 Total net assets 136,886 8,153,483 8,290,369 Total liabilities and net assets $ 541,197 $ 8,819,087 $ 9,360,284 3

6 DALLAS CHILDREN'S THEATER, INC. STATEMENT OF ACTIVITIES Year ended August 31, 2013 Operations Temporarily Permanently Unrestricted Restricted Restricted Total Revenue, gains, and other support: Support Foundation $ 295,320 $ 50,000 $ - $ 345,320 Corporation 258,314 62, ,814 Individuals 157,927 8, ,370 Special events, net of direct expenses of $162,100 and including in-kind of $86, , ,772 In-kind contributions 40, ,041 Grants 46,994 4,205-51,199 Total support 1,047, ,148-1,172,516 Revenue Ticket sales 1,182, ,182,732 Tour presenter fees 494, ,149 Tuition 476, ,495 Rental and other 228, ,737 Net unrealized and realized gains 4, ,356 Total revenue 2,386, ,386,469 Net assets released from restriction Expiration of time and purpose restrictions 144,457 (144,457) - - Total revenue, gains, and other support 3,578,294 (19,309) - 3,558,985 Expenses: Program services 2,807, ,807,365 Management and general 372, ,692 Fundraising 275, ,104 Total expenses 3,455, ,455,161 Changes in net assets 123,133 (19,309) - 103,824 Net assets at beginning of year (65,454) 192,340 10, ,886 Net assets at end of year $ 57,679 $ 173,031 $ 10,000 $ 240,710 See accompanying notes to financial statements. 4

7 DALLAS CHILDREN'S THEATER, INC. STATEMENT OF ACTIVITIES (continued) Year ended August 31, 2013 Capital Temporarily Permanently Total Unrestricted Restricted Restricted Total Funds Revenue, gains, and other support: Support Foundation $ - $ 150,000 $ - $ 150,000 $ 495,320 Corporation ,814 Individuals - 11,450-11, ,820 Special events ,772 In-kind contributions ,041 Grants ,199 Total support - 161, ,450 1,333,966 Revenue Ticket sales ,182,732 Tour presenter fees ,149 Tuition ,495 Rental and other 4, , ,669 Net unrealized and realized gains 30, ,264 34,620 Total revenue 35, ,196 2,421,665 Net assets released from restriction Expiration of time and purpose restrictions 182,220 (182,220) Total revenue, gains, and other support 217,416 (20,770) - 196,646 3,755,631 Expenses: Program services 356, ,190 3,163,555 Management and general 19, , ,983 Fundraising 75, , ,425 Total expenses 450, ,802 3,905,963 Changes in net assets (233,386) (20,770) - (254,156) (150,332) Net assets at beginning of year 7,467, , ,000 8,153,483 8,290,369 Net assets at end of year $ 7,234,333 $ 564,994 $ 100,000 $ 7,899,327 $ 8,140,037 See accompanying notes to financial statements. 5

8 DALLAS CHILDREN'S THEATER, INC. STATEMENT OF ACTIVITIES Year ended August 31, 2012 Operations Temporarily Permanently Unrestricted Restricted Restricted Total Revenue, gains, and other support: Support Foundation $ 166,996 $ 40,000 $ - $ 206,996 Corporation 264,618 97, ,568 Individuals 63,916 41, ,916 Special events, net of direct expenses of $87,663 and including in-kind of $48, , ,029 In-kind contributions 113, ,654 Grants 14,962 40,770-55,732 Interfund transfer 100, ,000 Total support 929, ,720-1,148,895 Revenue Ticket sales 986, ,542 Tour presenter fees 465, ,665 Tuition 482, ,171 Rental and other 187, ,260 Net unrealized and realized gains 1, ,618 Total revenue 2,123, ,123,256 Net assets released from restriction Expiration of time and purpose restrictions 244,516 (244,516) - - Total revenue, gains, and other support 3,296,947 (24,796) - 3,272,151 Expenses: Program services 2,738, ,738,571 Management and general 416, ,968 Fundraising 308, ,776 Total expenses 3,464, ,464,315 Changes in net assets (167,368) (24,796) - (192,164) Net assets at beginning of year 101, ,136 10, ,050 Net assets at end of year $ (65,454) $ 192,340 $ 10,000 $ 136,886 See accompanying notes to financial statements. 6

9 DALLAS CHILDREN'S THEATER, INC. STATEMENT OF ACTIVITIES (continued) Year ended August 31, 2012 Capital Temporarily Permanently Total Unrestricted Restricted Restricted Total Funds Revenue, gains, and other support: Support Foundation $ - $ 190,130 $ - $ 190,130 $ 397,126 Corporation - 21,000-21, ,568 Individuals - 78,900-78, ,816 Special events ,029 In-kind contributions ,654 Grants ,732 Interfund transfer (100,000) - - (100,000) - Total support (100,000) 290, ,030 1,338,925 Revenue Ticket sales ,542 Tour presenter fees ,665 Tuition ,171 Rental and other ,274 Net unrealized and realized gains 16, ,168 17,786 Total revenue 16, ,182 2,139,438 Net assets released from restriction Expiration of time and purpose restrictions 333,380 (333,380) Total revenue, gains, and other support 249,562 (43,350) - 206,212 3,478,363 Expenses: Program services 270, ,833 3,009,404 Management and general 13, , ,783 Fundraising 68, , ,088 Total expenses 352, ,960 3,817,275 Changes in net assets (103,398) (43,350) - (146,748) (338,912) Net assets at beginning of year 7,571, , ,000 8,300,231 8,629,281 Net assets at end of year $ 7,467,719 $ 585,764 $ 100,000 $ 8,153,483 $ 8,290,369 See accompanying notes to financial statements. 7

10 DALLAS CHILDREN'S THEATER, INC. STATEMENTS OF CASH FLOWS Year Ended August 31, Cash flows from operating activities: Change in net assets $ (150,332) $ (338,912) Adjustments to reconcile changes in net assets to net cash provided by (used in) operating activities: Depreciation 292, ,283 Amortization 5,545 30,205 Net unrealized and realized gains on investments (34,620) (17,786) Discount on pledges receivable 4,612 (369) Bad debt expense 15,225 49,393 Contributions restricted for investment in capital assets (277,225) (438,488) Changes in net assets and liabilities: Pledges receivable 54, ,773 Discounted long-term pledges receivable 62,693 51,641 Prepaid expenses and other assets 18,749 47,067 Accounts payable (201,910) 161,776 Accrued expenses (8,326) 53,834 Deferred revenue (5,318) 51,267 Net cash provided by (used in) operating activities (224,552) 46,684 Cash flows from investing activities: Change in restricted cash (3,004) 8,882 Purchases of fixed assets (502,914) (281,275) Net cash used in investing activities (505,918) (272,393) Cash flows from financing activities: Contributions restricted for investment in capital assets 277, ,488 Principal payments on notes payable (70,659) (106,742) Proceeds from notes payable 750,000 - Net cash provided by financing activities 956, ,746 Net increase in cash and cash equivalents 226, ,037 Cash and cash equivalents at beginning of year 469, ,265 Cash and cash equivalents at end year $ 695,398 $ 469,302 Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 40,175 $ 26,083 Supplemental disclosure of noncash information: Non-cash purchase of fixed asset $ - $ 29,418 See accompanying notes to financial statements. 8

11 DALLAS CHILDREN'S THEATER, INC. STATEMENT OF FUNCTIONAL EXPENSES Year ended August 31, 2013 Management Program and Services General Fundraising Total Operations Salaries - staff $ 540,287 $ 235,629 $ 174,445 $ 950,361 Professional services - artistic 530, ,794 Salaries - artistic 302, ,591 Repair and maintenance 168,235 29,985 19, ,765 Royalties and commissions 192, ,958 Advertising 192, ,456 Travel 168,370 4,119 2, ,464 Legal and professional 144,943 15,117 4, ,420 Payroll taxes 102,127 24,056 16, ,123 Supplies and materials 108,661 10,298 4, ,701 Fringe benefits 78,953 20,377 13, ,199 Utilities 90,239 4,904 2,943 98,086 Printing and publications 57, ,792 65,987 Bank and credit card charges 17,336 2,559 17,500 37,395 Insurance 31,154 1, ,506 Store 32, ,782 Postage and shipping 17,122 6,708 2,977 26,807 Depreciation 17, ,044 Dues and subscriptions 2,498 9,306 3,480 15,284 Telephone 7,522 6,018 1,505 15,045 Rents 2, ,553 Miscellaneous - 1,399-1,399 Donor recognition Interest Total functional expense for Operations 2,807, , ,104 3,455,161 Capital Depreciation 252,178 13,705 8, ,106 Maintenance and Repairs 63,102 3,430 2,058 68,590 Salaries - staff ,000 45,000 Interest 38,845 2,111 1,267 42,223 Provision for uncollectible accounts ,225 15,225 Amortization 3,327-2,218 5,545 Supplies Donor recognition Bank and credit card charges Miscellaneous (1,262) - - (1,262) Total functional expense for Capital 356,190 19,291 75, ,802 Total functional expenses $ 3,163,555 $ 391,983 $ 350,425 $ 3,905,963 See accompanying notes to financial statements. 9

12 DALLAS CHILDREN'S THEATER, INC. STATEMENT OF FUNCTIONAL EXPENSES Year ended August 31, 2012 Management Program and Services General Fundraising Total Operations Salaries - staff $ 482,658 $ 224,640 $ 202,425 $ 909,723 Professional services - artistic 477, ,579 Salaries - artistic 311, ,893 Advertising 290,815-3, ,735 Repair and maintenance 146,776 22,078 14, ,407 Travel 161,576 3,091 1, ,538 Legal and professional 132,174 19,322 3, ,134 Payroll taxes 104,331 23,385 26, ,281 Royalties and commissions 151, ,092 Fringe benefits 82,444 31,326 17, ,301 Utilities 109,589 5,956 3, ,118 Supplies and materials 87,100 10,265 4, ,708 Printing and publications 73, ,572 78,647 Provision for uncollectible accounts - 52,500-52,500 Postage and shipping 24,206 5,427 3,099 32,732 Bank and credit card charges 13,920 4,772 14,000 32,692 Insurance 29,843 1, ,048 Depreciation 26,586 1, ,258 Store 17, ,584 Telephone 7,107 5,685 1,421 14,213 Dues and subscriptions 2,257 5,689 3,990 11,936 Rents 3, ,874 Donor recognition - - 1,821 1,821 Miscellaneous Interest Total functional expense for Operations 2,738, , ,776 3,464,315 Capital Depreciation 230,023 12,501 7, ,025 Salaries - staff ,000 45,000 Amortization 18,123-12,082 30,205 Interest 22,687 1, ,660 Donor recognition - - 4,986 4,986 Supplies Legal and professional Miscellaneous Bank and credit card charges Provision for uncollectible accounts - - (3,107) (3,107) Total functional expense for Capital 270,833 13,815 68, ,960 Total functional expenses $ 3,009,404 $ 430,783 $ 377,088 $ 3,817,275 See accompanying notes to financial statements. 10

13 NOTES TO FINANCIAL STATEMENTS August 31, 2013 and 2012 A. Nature of Activities Dallas Children s Theater, Inc. (the Organization ), is a nonprofit organization incorporated under the laws of the State of Texas in The Organization is dedicated to providing professional quality theater to children and their families, especially to those who would not otherwise have an opportunity to experience live theater. The Organization s principal activities include theater season productions, operation of a theatrical school, performances for children with special needs, and several educational extension programs in Dallas, Texas. The Organization also tours nationally, performing in community facilities. The Organization s support comes from tuition and ticket sales as well as contributions from individuals, foundations, and corporations. The Organization owns the land and building upon which the theater is located. It is also responsible for and has consistently funded through donations and grants all improvements and other related land and building expenditures. In addition, the theater property is located in an increasingly developing area which has changed the neighborhood positively since the theater s inception. B. Summary of Significant Accounting Policies A summary of the Organization s significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ( GAAP ) requires management to make estimates and assumptions that affect certain reported amounts in the financial statements and accompanying notes. Actual results could differ from these estimates and assumptions. Basis of Accounting The Organization s financial statements are presented on the accrual basis of accounting in accordance with GAAP. In accordance with Financial Accounting Standards Board Accounting Standards Codification ( FASB ASC ) Topic , the Organization is required to report 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. 11

14 NOTES TO FINANCIAL STATEMENTS (continued) B. Summary of Significant Accounting Policies continued Basis of Accounting continued Accordingly, net assets of the Organization and changes therein are classified and reported 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. Temporarily restricted net assets net assets subject to donor-imposed stipulations that may or will be met either by actions of the Organization and/or the passage of time. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Permanently restricted net assets net assets subject to donor-imposed stipulations that they be maintained in perpetuity by the Organization. The Organization uses fund accounting to keep track of certain types of activities. Two funds are currently employed: Operations and Capital Campaign. The Operations fund represents the normal operating activity of the Organization. The Capital Campaign fund represents the amounts for capital development, including exterior enhancements, interior enhancements, property, and organizational capacity. Gifts of long lived assets with explicit restrictions and gifts of cash that must be used to acquire longlived assets are reported as temporarily restricted support. The Organization reports expirations of such donor restrictions when the donated assets are placed in service, unless donor restrictions indicate otherwise. Income from permanently restricted net assets is recorded as temporarily restricted until appropriated for expenditure unless otherwise restricted by the donor. Cash and Cash Equivalents The Organization considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At August 31, 2013 and 2012, the Organization had no such investments. The Organization maintains deposits primarily in two financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation ( FDIC ). The Organization has not experienced any losses related to amounts in excess of FDIC limits. 12

15 NOTES TO FINANCIAL STATEMENTS (continued) B. Summary of Significant Accounting Policies continued Contributions and Pledges Receivable Unconditional promises to give or pledges receivables that are expected to be collected within one year are recorded at net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The discount on those amounts is computed using risk-free interest rates applicable to the years in which the promises are expected to be received. Amortization of the discount is included in contribution revenue. Contributions are recorded as revenue at the time an unconditional right to the gift has been established and the proceeds are measurable in amount. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Investments The Organization follows the provisions of FASB ASC and FASB ASC , Accounting for Certain Investments Held by Not-for-Profit Organizations. This statement requires investments with readily determinable fair values to be stated at fair value with unrealized gains and losses from fluctuations in market value included in the statement of activities. FASB ASC , Fair Value Measurements, defines fair value, establishes a framework for measuring fair value, and expands disclosures about assets and liabilities measured at fair value. FASB ASC defines fair value as 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 and establishes a three-tier hierarchy that is used to identify assets and liabilities measured at fair value. The hierarchy focuses on the inputs used to measure fair value and requires that the lowest level input be used. The three levels of the fair value hierarchy under FASB ASC are described below: Level 1 observable inputs that are based upon quoted market prices for identical assets or liabilities within active markets. Level 2 observable inputs other than Level 1 that are based upon quoted market prices for similar assets or liabilities, quoted prices within inactive markets, or inputs other than quoted market prices that are observable through market data for substantially the full term of the asset or liability. Level 3 inputs that are unobservable for the particular asset or liability due to little or no market activity and are significant to the fair value of the asset or liability. These inputs reflect assumptions that market participants would use when valuing the particular asset or liability. The asset s or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. 13

16 NOTES TO FINANCIAL STATEMENTS (continued) B. Summary of Significant Accounting Policies continued Investments continued Following is a description of the valuation methodologies used for assets measured at fair value. Annuity Contract: Valued based on generally observable inputs including yield curves, externally sourced credit spreads, and last trading prices. The annuity contract is classified within Level 2 of the valuation hierarchy. The preceding methods described may produce fair value measurements that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Organization 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. Fair Value of Financial Instruments The Organization calculates the fair value of its assets and liabilities which qualify as financial instruments and includes this information in the notes to financial statements when the fair value is different than the carrying value of those financial instruments. The estimated fair value of cash equivalents, prepaid expenses, accounts payable, and accrued liabilities approximate the carrying amounts due to the relatively short-term maturity of these instruments. The carrying value of the notes payable also approximate fair value since they bear market interest rates. None of these instruments are held for trading purposes. Fixed Assets Fixed assets, other than land, are stated at cost less accumulated depreciation. Land is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets for financial reporting purposes. The Organization capitalizes expenditures for fixed assets in excess of $1,000 and with an estimated useful life greater than one year. The policy was amended effective August 2013 to capitalize expenditures for fixed assets in excess of $5,000. Expenditures for major renewals and betterments that extend the useful lives are capitalized. Expenditures for normal maintenance and repairs are expensed as incurred. The cost of assets sold or abandoned and the related accumulated depreciation are eliminated from the accounts and any gains or losses are reflected in the accompanying statement of activities of the respective period. The estimated useful lives of land improvements range from 5 to 20 years, the estimated useful lives of building and improvements range from 5 to 40 years, and the estimated useful lives of furniture, fixtures, and equipment range from 3 to 10 years. 14

17 NOTES TO FINANCIAL STATEMENTS (continued) B. Summary of Significant Accounting Policies continued Contributed Assets and Services Contributed assets are reflected as contributions in the accompanying financial statements at their estimated value at date of receipt. Contributed services are reflected in the financial statements at the fair value of the services received if the services received (a) create or enhance nonfinancial assets or (b) require specialized skills that are provided by individuals possessing those skills and would typically need to be purchased if not provided by donation. Many individuals volunteer their time and perform a variety of tasks that help the Organization s programs. The value of this contributed time is not reflected in the accompanying financial statements because it does not meet the above criteria. Bad Debts Management periodically reviews pledges receivable on an account by account basis. Management considers the Organization s past history with the contributor and the size of the account in evaluating the reserve requirements for potentially uncollectible amounts. Accounts are written off when management determines that collection efforts will not be successful. Deferred Revenue Revenue from pre-sold season tickets, tuition and tours is deferred and recognized in the year in which the performance or event to which they relate occurs. Functional Allocation of Expenses The costs of providing the various programs and supporting services have been summarized on a functional basis in the statements of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Advertising The Organization expenses advertising costs as they are incurred. Advertising costs for the years ended August 31, 2013 and 2012, consist of $192,456 and $294,735, respectively. Endowment Funds The Organization follows FASB ASC , Endowments of Not-for-Profit Organizations: Net Asset Classification of Fund Subject to an Enacted Version of the Uniform Prudent Management of Institutional fund Act ( UPMIFA ), and Enhanced Disclosures for all Endowment Funds, for the net asset classification of donor-restricted and board-designated endowment funds. The Organization has various endowments which provide for operations of the Organization. As required by GAAP, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. 15

18 NOTES TO FINANCIAL STATEMENTS (continued) B. Summary of Significant Accounting Policies continued Endowment Funds continued The Organization s management has interpreted the UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of donor-restricted endowment funds absent explicit donor stipulations to the contrary. Accordingly, the Organization classifies the original value of all endowment gifts as permanently restricted net assets. Accumulated net earnings on endowment funds are classified as temporarily restricted net assets until those amounts are appropriated for expenditure in accordance with any applicable donor designations and in a manner consistent with the standard of prudence prescribed by the UPMIFA. The Organization had no accumulated earnings on endowment funds for the years ended August 31, 2013 and In accordance with UPMIFA, the Organization considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: The duration and preservation of the fund, The purposes of the organization and the donor-restricted endowment fund, General economic conditions, The possible effect of inflation and deflation, The expected total return from income and the appreciation of investments, Other resources of the Organization, and The investment policies of the Organization. The Organization s primary investment objectives are growth with income and preservation of capital. Management defines risk as the probability of not meeting these objectives. Accordingly, endowment assets are invested in a manner that is intended to minimize risk. Federal Income Taxes The Organization is recognized by the Internal Revenue Service as tax-exempt under Section 501(c) (3) of the Internal Revenue Code, except to the extent it has unrelated business income. For the years ended August 31, 2013 and 2012, the Organization had no material net unrelated business income. Accordingly, no provision for income taxes has been provided in the accompanying financial statements. The Organization follows the guidance under FASB ASC Topic No. 740, Income Taxes, which prescribes a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure of uncertain in tax positions taken or expected to be taken in income tax returns. Management believes that it has not taken a tax position that, if challenged, would have a material effect on the Organization s financial statements. The Organization files Form 990 in the United States federal jurisdiction within the United States and no tax returns are currently under examination by any tax authorities. Management believes the Organization is no longer subject to income tax examinations for years prior to

19 NOTES TO FINANCIAL STATEMENTS (continued) B. Summary of Significant Accounting Policies continued Recently Issued Accounting Standards In October 2012 the FASB issued Accounting Standards Updates ( ASU ) No , Statement of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows, to address diversity in practice for presenting the proceeds from sales of certain donated financial assets in the statement of cash flows. The new guidance describes the conditions that require the cash received from the sale of donated financial assets (for example, debt or equity securities) to be classified as an operating or a financing activity in the statement of cash flows, depending on whether the donor restricts use of the contribution to longterm purposes. ASU No is effective for interim and annual periods beginning after June 15, The Organization does not anticipate adoption of this new guidance to have significant impact on the financial statements. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. C. Cash and Cash Equivalents Cash and cash equivalents consisted of the following as of August 31: Capital Campaign $ 406,072 $ 311,553 Operating 186,352 55,279 Opera Fund 17,974 17,970 Purpose Restricted 85,000 84,500 $ 695,398 $ 469,302 Restricted cash and cash equivalents consisted of the following as of August 31: Actor's Equity Association Bond $ 13,004 $ 10,000 $ 13,004 $ 10,000 Some of the Organization s actors are members of the Actors Equity Association. The Organization is required to maintain a separate account for the Actors Equity Association Bond. Periodically, the amount required to be maintained is re-determined by the Association. 17

20 NOTES TO FINANCIAL STATEMENTS (continued) D. Pledges Receivable, Net Discounted pledges receivable are amounts that comprise the following unconditional promises to give at August 31: Less than 1 year $ 144,215 $ 208, years 113, ,459 Total pledges receivable 257, ,629 Allowance for uncollectible pledges (23,776) (18,301) Unamortized discount to adjust pledges to net present value (5,001) (9,613) Net pledges receivable $ 228,980 $ 365,715 The pledge discount was computed using risk-free treasury interest rates of 0.79% for the year ended August 31, This range was 0.33% to 4.85% for the year ended August 31, Pledges receivable at August 31, 2013 and 2012, consist of $150,000 and $240,000 due from one donor and two donors, respectively, and approximately $12,000 and $70,000 in pledges receivable from board members, respectively. Other pledges receivable are from donors located primarily in the Dallas area. Therefore, collection of pledges is subject to economic conditions in the area. Pledges restricted by time or donor purposes are reported as temporarily restricted in the financial statements. E. Investments The majority of the Organization s investments are in an annuity contract held by a master custodian and managed by Merrill Lynch. Investments consist of the following at August 31: Unrealized Fair Value Cost Gain (Loss) (Level 2) 2013 Endowment - investment in annuity $ 110,000 $ 88,701 $ 198, Endowment - investment in annuity $ 110,000 $ 54,081 $ 164,081 Investment income for the years ended August 31, 2013 and 2012, consists of unrealized gains of $34,620 and $17,786, respectively. 18

21 NOTES TO FINANCIAL STATEMENTS (continued) F. Contributed Assets and Services The Organization receives in-kind contributions from various donors. The estimated values of such in-kind contributions are as follows for the years ended August 31: Advertising $ 29,400 $ 82,400 Special events 86,794 48,245 Supplies 641 4,867 Travel - 26,387 Sponsorships 10,000 - $ 126,835 $ 161,899 The Organization has recognized the amounts indicated above as in-kind or special events contributions and expenses, as appropriate, in the accompanying financial statements. G. Endowments Donor-restricted endowment activity is as follows for the years ended August 31: Operating Endowments beginning of year $ 10,000 $ 10,000 Transfers to (from) endowment funds - - Contributions to endowment funds - - Endowments end of year $ 10,000 $ 10,000 Capital Endowments beginning of year $ 100,000 $ 100,000 Transfers to (from) endowment funds - - Contributions to endowment funds - - Endowments end of year $ 100,000 $ 100,000 19

22 NOTES TO FINANCIAL STATEMENTS (continued) H. Temporarily Restricted Net Assets Temporarily restricted net assets are available for the following purposes at August 31: Operations (time restricted) $ 70,057 $ 89,870 Operations (purpose restricted) 85,000 84,500 Opera Fund 17,974 17,970 Capital Fund (net of discount) 564, ,764 $ 738,025 $ 778,104 I. Permanently Restricted Net Assets Permanently restricted net assets are restricted for the following purposes at August 31: Endowments - Capital Campaign $ 100,000 $ 100,000 Endowment - Operations 10,000 10,000 $ 110,000 $ 110,000 Investment income and capital appreciation may be used at the direction of the Finance Committee and the Executive Board. 20

23 NOTES TO FINANCIAL STATEMENTS (continued) J. Notes Payable The Organization has the following notes payable at August 31: Note payable to a bank with a line-of-credit up to $1,200,000, collateralized by building and assignment of all rents, interest rate at 4.50%, interest payable monthly beginning June 2012 with principal and interest payments payable monthly beginning June 2013 and final payment due May $ 1,136,695 $ 450,000 Note payable to a bank with a line-of-credit up to $300,000, collateralized by building and assignment of all rents, interest rate at the prime rate plus 1.00% (4.25% at August 31, 2013), interest payable monthly beginning June 2012 with outstanding principal due May Note payable to a lender in the original amount of $29,418, collateralized by vehicle, interest rate at 3.90%, interest and principal payments payable monthly with final payment due August ,322 22,676 Total notes payable 1,152, ,676 Less current portion (62,806) (17,353) Total long-term notes payable $ 1,089,211 $ 455,323 Maturities of long-term notes payable are as follows for the year ended August 31: 2014 $ 62, , , , ,374 Thereafter 833,200 $ 1,152,017 21

24 NOTES TO FINANCIAL STATEMENTS (continued) J. Notes Payable continued Interest expense was $42,836 and $25,222 for the years ended August 31, 2013 and 2012, respectively. K. Rental Agreements The Organization rented its facilities to a local church for a period of one year commencing on September 14, 2008, with an automatic renewal for an additional one year period unless the Organization receives at least a 30 day notice of non-renewal. Lease agreement ended February 2013 and was not renewed by the local church. The Organization also rented its facilities to another local church for a period of three years commencing on August 1, 2013, with automatic renewal for an additional one year periods unless the Organization receives at least a 60 day notice of non-renewal. The Organization rents land usage for a cell tower under a five year cancelable agreement dated May 2002, renewable for five additional five year terms and cancellable by either party with sixty days notice prior to the renewal date. The Organization also rents the facility to various other entities. Rental income for the various activities is reflected in rental and other income in the accompanying financial statements. At August 31, 2013, estimated future minimum payments to be received under non-cancelable operating leases with initial term of one year or more consisted of the following: Year ending August 31: 2014 $ 76, , , ,000 $ 237,000 L. Risks and Economic Outlook The Organization operates in Dallas and, as such, is dependent upon the community s interest in children s theater and the willingness and ability of donors in the area to continue supporting the Organization. The ability of the Organization s donors to continue giving amounts comparable with prior years may be dependent, among other things, upon current and future overall economic conditions and the continued deductibility for income tax purposes of donations to the Organization. Management has responded strategically to the economic downturn of the periods with reductions in staff and other cost reductions, increases in prices, reducing the number of productions and continuing their major gifts program to support production. 22

25 NOTES TO FINANCIAL STATEMENTS (continued) M. Related Party Transactions A member that serves on the Organization s board of trustees is an officer for a service company that provides maintenance services to the Organization. The Organization incurred approximately $37,000 with the company for each of the years ended August 31, 2013 and At August 31, 2013 and 2012, approximately $200 and $3,000, respectively, was payable to the company. The Organization contracted an architectural firm, who employs a member from the Organization s board of trustees, to provide mechanical engineering services. The Organization incurred approximately $14,000 and $24,000, respectively, with the firm for each of the years ended August 31, 2013 and At August 31, 2013 and 2012, approximately $0 and $21,000, respectively, was payable to the firm. N. Subsequent Events In preparing the financial statements, the Organization has evaluated all subsequent events and transactions for potential recognition or disclosure through December 11, 2013, the date the financial statements were available for issuance. 23