FRANKFORD VALLEY FOUNDATION FOR LITERACY II (COMPONENT UNIT OF TACONY ACADEMY CHARTER SCHOOL)

Transcription

1 (COMPONENT UNIT OF TACONY ACADEMY CHARTER SCHOOL) FINANCIAL STATEMENTS YEAR ENDED

2 (COMPONENT UNIT OF TACONY ACADEMY CHARTER SCHOOL) YEAR ENDED CONTENTS Independent Auditor s Report 1-2 Financial Statements Statement of Financial Position 3 Statement of Activities 4 Statement of Cash Flows 5 Page Notes to Financial Statements 6-14

3 INDEPENDENT AUDITOR S REPORT To the Board of Trustees of Frankford Valley Foundation for Literacy II Philadelphia, Pennsylvania We have audited the accompanying financial statements of Frankford Valley Foundation for Literacy II (a nonprofit organization and a component unit of Tacony Academy Charter School), which comprise the statement of financial position as of June 30, 2014, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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.

4 To the Board of Trustees of Frankford Valley Foundation for Literacy II Philadelphia, Pennsylvania Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Frankford Valley Foundation for Literacy II as of June 30, 2014, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Jamison, Pennsylvania December 15, 2014 ZELENKOFSKE AXELROD LLC

5 STATEMENT OF FINANCIAL POSITION Assets Page 3 Current Assets Cash $ 15,905 Total Current Assets 15,905 Property Land 1,360,712 Construction in Progress 1,016,444 Property and Equipment, Net of Accumulated Depreciation 13,736,492 Total Property 16,113,648 Other Assets Restricted Escrow Deposits 15,257,628 Bond Issuance Costs, Net of Accumulated Amortization 836,364 Total Other Assets 16,093,992 Total Assets $ 32,223,545 Liabilities and Net Assets Current Liabilities Accounts Payable and Accrued Expenses $ 201,458 Current Portion of Bonds Payable - Current Portion of Deferred Revenue 120,000 Total Current Liabilities 321,458 Long-Term Debt Bonds Payable, Net of Current Portion 31,240,000 Deferred Revenue, Net of Current Portion 728,890 Total Long-Term Debt 31,968,890 Total Liabilities 32,290,348 Net Assets Unrestricted (50,821) Temporarily Restricted (15,982) Total Net Assets (66,803) Total Liabilities and Net Assets $ 32,223,545 The accompanying notes are an integral part of the financial statements.

6 STATEMENT OF ACTIVITIES YEAR ENDED Temporarily Unrestricted Restricted Total Revenue Rental Income $ - $ 1,438,053 $ 1,438,053 Contributions 250, ,442 Interest and Dividends 1,579 1,579 Satisfaction of Bond Escrow Restrictions 1,454,035 (1,454,035) - Total Revenues 1,706,056 (15,982) 1,690,074 Expenses Amortization 9,397-9,397 Depreciation 178, ,396 Interest 1,394,035-1,394,035 Professional Fees 44,228-44,228 Legal 1,590-1,590 Audit 9,705-9,705 Travel and Conference Other 52,127-52,127 Total Expenses 1,689,489-1,689,489 Changes in Net Assets 16,567 (15,982) 585 Net Assets, Beginning of Year (67,388) - (67,388) Net Assets, End of Year $ (50,821) $ (15,982) $ (66,803) Page 4 The accompaning notes are an integral part of the financial statements.

7 STATEMENT OF CASH FLOWS YEAR ENDED Page 5 Cash Flows From Operating Activities Change in Net Assets $ 16,567 Adjustments to Reconcile Change in Net Assets to Net Cash Provided by (Used in) Operating Activities: Depreciation 178,396 Bond Issuance Cost Amortization 9,397 Decrease in Assets Prepaid Expenses 89,245 Increase (Decrease) in Liabilities Accounts Payable and Accrued Expenses 105,405 Deferred Revenue 848,890 Due to Related Party (1,388,036) Total Adjustments (156,703) Net Cash Used In Operating Activities (140,136) Cash Flows From Investing Activities Outlays for Capital Assets (9,040,950) Net Cash Used in Investing Activities (9,040,950) Cash Flows From Financing Activities Debt Proceeds 31,300,000 Increase in Escrow Deposits (15,257,628) Increase in Bond Issue Costs (845,761) Repayment of Loans Payable (5,975,475) Repayment of Bonds Payable (60,000) Net Cash Provided by Financing Activities 9,161,136 Net Increase in Cash (19,950) Cash, Beginning of Year 35,855 Cash, Ending of Year $ 15,905 Supplemental Disclosure of Cash Flow Information Cash paid for interest $ 1,303,172 Noncash Investing Activities Transfer of Capital Assets from Tacony Academy Charter School to Foundation (See Note 3) $ (6,208,404) Equity Contribution from Tacony Academy Charter School $ 248,911 The accompanying notes are an integral part of the financial statements.

8 NOTES TO FINANCIAL STATEMENTS Page 6 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Activities Frankford Valley Foundation for Literacy (the Foundation ), formed in 2003, is a nonprofit corporation established under the laws of the Commonwealth of Pennsylvania, The Foundation is considered to be a component unit of Tacony Academy Charter School (the School ), an exempt organization under Section 501(c)(3) of the Internal Revenue Service Code, that operates a public charter school for children in grades kindergarten through 12. As a component unit, the Foundation, although a legally separate entity is in substance, part of the School s operations. The Foundation has no component units for which it is considered to be financially accountable. The Foundation s mission is to support the health, welfare and educational interests of the School, and is organized and operated under the provisions of Section 501(c)(3) of the Internal Revenue Service Code. Basis of Accounting The financial statements of the Foundation have been prepared using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recognized when incurred. Financial Statement Presentation Financial statement presentation follows the recommendations of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic , Financial Statements of Not-for-Profit Organizations. Under FASB ASC , 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. As of June 30, 2014, the Foundation s net assets were unrestricted and temporarily restricted. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Cash and Cash Equivalents For the purpose of the statement of financial position and statement of cash flows, the Organization considers all demand deposits at a financial institution to be considered cash equivalents.

9 NOTES TO FINANCIAL STATEMENTS (CONTINUED) Page 7 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Expenditures for additions and betterments are capitalized and maintenance and repairs are charged to current operations as incurred. The Foundation maintains a threshold level of $2,500 or more for capitalizing assets. The cost of assets retired or otherwise disposed of and the related accumulated depreciation are removed from the accounts and the gain or loss on such dispositions is included in current operations. Depreciation is provided using the straight-line method over the estimated useful life of the respective assets as follows. Years Building and Improvements 39 Furniture and Equipment 7 Bond Issuance Costs Issuance costs incurred by the Foundation in connection with the issuance of revenue bonds, discussed in Note 5, are amortized over the 30 year life of the bonds using the straight line basis. Amortization of bond issuance costs for the year ended June 30, 2014 was $9,397. Future amortization of bond issuance costs amount to $28,192 annually for 2015 through 2043 and $18,795 in Net Assets Unrestricted Net Assets The Foundation reports assets whose use is not restricted by donors as unrestricted net assets. Contributions are available for unrestricted use unless specifically restricted by the donor. Unrestricted net assets may be designated for specific purposes or locations by action of the Board of Trustees. Temporarily Restricted Net Assets The Foundation reports gifts of cash and other assets as temporarily restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are classified to unrestricted net assets and reported in the Statement of Activities as net assets released from restrictions. Rental income, investment earnings and contributions restricted for debt service and capital improvements are released to unrestricted revenue at the time the funds are expended for the specified purpose. Permanently Restricted Net Assets Permanently restricted net assets are those which are subject to the restrictions of gift instruments requiring that the principal be invested in perpetuity and the income only be utilized for purposes specified by the donor.

10 NOTES TO FINANCIAL STATEMENTS (CONTINUED) Page 8 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fundraising Costs of special events are recorded as an expense in fundraising expenses, and the related revenue is included as contributions or other income in the Statements of Activities. Advertising Costs All costs associated with advertising and promotions are recorded as expenditures in the year incurred. Tax Status The Foundation is a Pennsylvania not-for-profit corporation. The Internal Revenue Service has issued a determination letter that the Foundation is a nonprofit organization, as defined under Section 501(c)(3) of the Internal Revenue Code. As such, the Foundation is generally exempt from income taxes. It is however, required to file Federal form 990 Return of Organization Exempt from Income Tax. This is an informational return only. The Foundation would be taxed on unrelated business income which does not fall under 501(c)(3) exemption. Management believes that the Foundation has received no unrelated business income and accordingly, there was no income tax on unrelated business income. Tax years which remain subject to examination as of June 30, 2014 are 2008 through Fair Value Measurements The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value, sets out a framework for measuring fair value, which refers to certain valuation concepts and requires certain disclosures about fair value measurements. Under this standard, fair value is defined 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. This topic establishes a hierarchy for reporting the reliability of input measurements used to assess fair value for all assets and liabilities. The hierarchy established prioritizes fair value measurements based on the types of inputs used in the valuation technique. The Foundation uses the following hierarchical disclosure framework: Level 1 Measurement based upon inputs such as quoted prices in active markets for identical assets and liabilities in an active market as of the reporting date; Level 2 Measurement based upon marketplace inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3 Measurement based on the Foundation s assumptions about a hypothetical marketplace because observable market inputs are not available as of the reporting date.

11 NOTES TO FINANCIAL STATEMENTS (CONTINUED) Page 9 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value Measurements (Continued) Accordingly, all short-term financial instruments are carried at cost on the balance sheet, which approximate fair value due to their short-term, highly liquid nature. At June 30, 2014, the Foundation s balances recorded as escrow deposits, as discussed in Note 2, consist of cash equivalents. The valuations of these deposits according to the fair value hierarchy are all Level 1. NOTE 2: ESCROW DEPOSITS The Foundation maintains various escrow deposit accounts required pursuant to the bond issuance agreement. Amounts maintained in the accounts include highly liquid investments with an initial maturity of three months or less at a financial institution. These restricted balances are limited in use, and are reported as escrow deposits because the Foundation holds those funds for specific purposes as discussed below. All escrow deposits are considered temporarily restricted. Project Funds The Project Fund Escrow was funded with $20,983,850 from two bond issuances (See Note 5) and is to be used to pay costs directly associated with acquisition, construction, or improvement of the new school facilities, or any such capital addition. This also includes fees and expenses of the Trustee and other applicable or necessary costs prior to completion of the project. No additional funds are required to be deposited in this escrow. Subsequent to final reconciliation of construction costs associated with the new school facility, any shortfall will be required to be funded by the Foundation, and any surplus will be transferred first to the Debt Service Reserve Fund, and second to the Debt Service Fund as a credit against future deposits. During the year ended June 30, 2014, $8,792,039 was incurred for capital costs related these bond issues. Revenue Funds The Revenue Fund Escrow was set up to directly receive the portion of the School s monthly lease payments, which are used to fund the escrow accounts pursuant to the bond settlement agreement. The receipts are transferred from this account to the other funds as detailed under each respective fund s description. Debt Service Reserve Funds The Debt Service Reserve Fund Escrow accounts were funded with $1,229,650 from the 2013 Series Bonds and $1,363,444 from the 2014 Series Bonds and are to be used only in the event that the monies in the Debt Service Fund are insufficient to make the necessary principal and interest bond payments on the 2013 Bonds or the 2014 Bonds.

12 NOTES TO FINANCIAL STATEMENTS (CONTINUED) Page 10 NOTE 2: ESCROW DEPOSITS (CONTINUED) Repair and Replacement Funds Two Repair and Replacement Fund Escrow accounts are required the 2013 Bond Series and for the 2014 Bond. The Foundation is required to deposit $5,000 monthly into these funds commencing in July 2014 until such time that the Repair and Replacement Fund requirement of $300,000 has been satisfied for each fund. The funds in this escrow are to be used only in association with costs of improvements to the School facility, repairs or replacement parts of the school facility, and to purchase equipment needed for the School. Rebate Funds The Rebate Fund Escrow has been established to reimburse the US Treasury to the extent any excessive investment income is generated from the proceeds of tax free bonds. There was no activity in this account during the year ended June 30, Debt Service Funds The Debt Service Fund Escrows are used solely for the payment of the principal of and premium, if any, and interest on the bonds as due. They were set up to directly receive loan payments each month from the borrower, equal to the basic rentals under the lease agreement, and for payment of interest and principal payments on the bonds. Also, retained in this fund is the interest or other income received on investment of monies in these funds. Any additional funds needed will first be drawn from the Debt Service Reserve Funds and paid in the order of maturity, interest due first including interest on overdue principal, and then principal. Amounts remaining in the funds after all requirements are met will be paid to the borrower upon expiration of the agreement. A summary of the principal escrow accounts held by the Foundation as of June 30, 2014 is as follows: Project Fund, 2014 Bonds $ 12,664,189 Revenue Fund 17 Debt Service Reserve Fund, 2013 Bonds 1,229,650 Debt Service Reserve Fund, 2014 Bonds 1,363,444 Debt Service Fund 328 $ 15,257,628 The balances recorded as escrow deposits are presented in the financial statements at their fair value using level 1 fair value measures (quoted prices in active markets). At June 30, 2014, these deposits consisted of the following: Cash Equivalents: Money Market Funds $ 15,257,628 $ 15,257,628

13 NOTES TO FINANCIAL STATEMENTS (CONTINUED) Page 11 NOTE 3: CAPITAL ASSETS For the year ended June 30, 2014, changes in property and equipment were as follows: July 1, 2013 Additions Disposals June 30, 2014 Land $ - $ 1,360,712 $ - $ 1,360,712 Construction in Progress 1,291,601 (275,157) 1,016,444 Buildings and Improvements - 13,914,888-13,914,888 Less: Accumulated Depreciation - (178,396) - (178,396) Capital Assets, Net $ 1,291,601 $ 15,097,204 $ (275,157) $ 16,113,648 Depreciation expense for the year ended June 30, 2014 was $178,396 The Boards of Tacony Academy Charter School and the Foundation determined that the Foundation would issue debt and fund the capital costs associated with the acquisition and renovations of the elementary school and high school. Therefore, during the fiscal year ended June 30, 2014, Tacony Academy Charter School transferred the following capital assets to the Foundation associated with the Tacony School Properties. In conjunction with the transfer of the capital assets, the Foundation paid the loans payable associated with the properties as further disclosed in Note 5.. Land $ 360,712 Buildings and Improvements 5,847,692 $ 6,208,404 NOTE 4: DEFERRED REVENUE The Foundation entered into a lease agreement with the School. From time to time, predominantly during construction periods, the School has advanced funds to the Foundation as prepaid rent, which has been recorded as deferred revenue. Accordingly, these payments are recorded as an asset to the School and a liability of the Foundation. During the year ended June 30, The School advanced $848,890 for an additional property. Pursuant to the current agreement, these funds will be credited to income at a rate of $120,000 per month. This monthly amortization of the prepaid rent is in addition to the future minimum rentals discussed in Note 10.

14 NOTES TO FINANCIAL STATEMENTS (CONTINUED) Page 12 NOTE 4: DEFERRED REVENUE (CONTINUED) Future amortization of deferred revenue is as follows: Years Ending June 30, Amounts 2015 $ 120, , , , , , , ,890 $ 848,890 NOTE 5: BONDS PAYABLE During the fiscal year, the Foundation issued $14,820,000 in Revenue Bonds (Series A-1 of 2013) and $180,000 in Taxable Revenue Bonds (Series A-2 of 2013). Debt service payments are to be made semi-annually. The 2013 Series A-1 Revenue Bonds will mature on June 15 th in the following principal amounts, percentages and years: $1,460,000 at 6.250% in 2023, $4,120,000 at 6.70% in 2033 and $9,240,000 at 7.0% in The 2013 Series A-2 Taxable Revenue bonds will mature on June 15 th at an interest rate of 6.250% in The bonds were issued for the expansion and renovation of the school facility, for use by the School. In addition $4,800,000 of the bond proceeds was used to refinance a short term loan which was transferred from Tacony Academy Charter School in conjunction with the transfer of assets described in Note 3. Other uses of the bond proceeds include payments of approximately $484,140 for costs of issuance, including fees, discounts, and title insurance. A deposit was made into a Debt Service Reserve Fund in the amount of $1,229,650 for the 2013 Revenue Series Bonds. In addition $7,337,848 of the bond proceeds was deposited into a project fund (see Note 2 for escrow deposits). On February 20, 2014 the Foundation issued $16,300, Series Revenue Bonds. Debt service payments are to be made semi-annually. The bonds will mature on June 15 th in the following principal amounts, percentages and years: $1,855,000 at 6.125% in 2023, $4,375,000 at 6.875% in 2033 and $10,070,000 at 7.375% in The bonds were issued to acquire a property and for the construction, renovation, furnishing and equipping of the High School facility. In addition $1,175,475 of the bond proceeds was used to refinance a short term loan which was transferred from Tacony Academy Charter School in conjunction with the transfer of assets described in Note 3. Other uses of the bond proceeds include payments of approximately $368,978 for costs of issuance, including fees, discounts, and title insurance. A deposit was made into a Debt Service Reserve Fund in the amount of $1,363,444 for the 2014 Series Revenue Bonds. In addition $13,646,002 of the bond proceeds was deposited into a project fund (see Note 2 for escrow deposits).

15 NOTES TO FINANCIAL STATEMENTS (CONTINUED) Page 13 NOTE 5: BONDS PAYABLE (CONTINUED) During , the Foundation repaid two loans associated with the capital asset transferred from the Tacony Academy Charter School (See Note 3). A summary of changes in long-term debt obligations as of June 30, 2014 are as follows: June 30, 2013 June 30, 2014 Balance Additions Reductions Balance One Year Loans Payable $ - $ 4,800,000 $ (4,800,000) $ - $ - Loans Payable - 1,175,475 (1,175,475) Series A-1 Revenue Bonds - 14,820,000-14,820, Series A-2 Taxable Revenue Bonds - 180,000 (60,000) 120, , Bonds - 16,300,000-16,300,000 - $ - $ 37,275,475 $ (6,035,475) $ 31,240,000 $ 120,000 Future principal and interest payments of bonds payable are as follows: Year Ending June 30, Principal Interest Total 2015 $ 120,000 $ 2,180,713 $ 2,300, ,000 2,176,963 2,326, ,000 2,164,025 2,334, ,000 2,153,613 2,553, ,000 2,128,869 2,588, ,755,000 10,182,256 12,937, ,800,000 9,146,319 12,946, ,275,000 7,664,869 12,939, ,420,000 5,522,156 12,942, ,690,000 2,253,256 12,943,256 $ 31,240,000 $ 45,573,039 $ 76,813,039 NOTE 7: SUPPORT AND REVENUE The Foundation receives substantially all of its revenue from rental activities, which are available for payment of debt service and payment of operating costs of the Foundation. Fundraising activities are also generally available for unrestricted use unless specifically restricted by the donor. The Foundation has not received any contributions from fundraising with donor imposed restrictions that would result in temporarily restricted net assets. A certain portion of the rental payments that have been set aside for the payment of debt service are reported as Temporarily Restricted.

16 NOTES TO FINANCIAL STATEMENTS (CONTINUED) Page 14 NOTE 10: RELATED PARTY TRANSACTIONS The Foundation s goal is to financially support the School through fundraising and charitable gifts. The School guaranteed certain debt of the Foundation. The Foundation leases 100% of its rental facility to the School under a long-term operating lease. Rent under the lease and for the year ended June 30, 2014, was $1,438,053, which includes $120,000 of amortized prepaid rent as discussed in Note 4. The balance of deferred revenue was $848,890 at June 30, The lease agreement includes a provision that minimum rentals may be increased as needed based on debt service requirements of the Foundation, which are typically in excess of the minimum rental amounts. Approximate future minimum rentals are as follows: Years Ending June 30, 2015 $ 2,375, ,401, ,409, ,628, ,663, ,312, ,321, ,314, ,317, ,243,256 $ 78,988,029 NOTE 11: CONCENTRATION OF CREDIT RISK The Foundation maintains its cash and cash equivalents at two financial institutions, which, at times, may exceed federally insured limits. Cash deposit accounts are guaranteed by the Federal Deposit Insurance Corporation ( FDIC ) up to certain limits. At June 30, 2014, the Foundation had no cash balances in excess of FDIC insured limits. Cash equivalent amounts, reported as escrow deposits, and invested in money market funds and government obligations are not insured nor guaranteed by the FDIC. The Foundation has not experienced any losses in such accounts. NOTE 12: SUBSEQUENT EVENTS Subsequent events have been evaluated for Frankford Valley Foundation for Literacy through the date of the report, December 15, The financial statements of Frankford Valley Foundation for Literacy for the year ended June 30, 2014 were issued as of December 15, 2014.