The Club Foundation. Audited Financial Statements. Years ended October 31, 2009 and 2008 with Report of Independent Auditors

Transcription

1 Audited Financial Statements Years ended October 31, 2009 and 2008 with Report of Independent Auditors

2 Audited Financial Statements Years ended October 31, 2009 and 2008 Contents Report of Independent Auditors...1 Audited Financial Statements Statements of Financial Position...2 Statements of Activities...3 Statements of Cash Flows...4 Notes to Financial Statements

3 Report of Independent Auditors Board of Governors The Club Foundation Alexandria, Virginia We have audited the accompanying statements of financial position of The Club Foundation (the Foundation) as of October 31, 2009 and 2008, and the related statements of activities, and cash flows for the years then ended. These financial statements are the responsibility of the Foundation's management. 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 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 Foundation'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 financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Foundation at October 31, 2009 and 2008, and the changes in net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note B, the 2008 financial statements as presented have been restated to reflect the reclassification of permanently restricted net assets in order to conform with the original intention for these funds based on information obtained during fiscal year Falls Church, Virginia January 18, 2010

4 Statements of Financial Position October 31, (Restated) Assets Cash and cash equivalents $ 35,409 $ 7,019 Investments 2,163,202 1,799,844 Pledges receivable, net 1,244,773 1,398,983 Prepaid expenses and other assets 57, ,942 Investment in LLC 191, ,116 Total assets $ 3,692,808 $ 3,620,904 Liabilities and net assets Liabilities: Accounts payable and accrued expenses $ 512,768 $ 267,096 Loan 150,000 - Deferred revenue - 225,000 Total liabilities 662, ,096 Net assets: Unrestricted net assets 1,301,380 1,513,764 Temporarily restricted net assets 351, ,248 Permanently restricted net assets 1,376,796 1,376,796 Total net assets 3,030,040 3,128,808 Total liabilities and net assets $ 3,692,808 $ 3,620,904 See accompanying notes to the financial statements. 2

5 Statements of Activities Years ended October 31, (Restated) Change in unrestricted net assets Revenue: Campaign contributions $ 349,822 $ 564,892 Contributions, gifts and grants 265, ,580 Special events 127, ,174 CMAA grant and in-kind contributions 46,882 76,699 Club Industry Prof. & Research Fund 31,025 21,700 Interest and dividends 37,182 95,707 National Club Championship 307,430-1,165,897 1,159,752 Net assets released from restrictions 56,350 - Total revenue 1,222,247 1,159,752 Expenses: Grants and scholarships 489, ,230 National Club Championship 390,774 - Fundraising 378, ,627 Special events 186, ,842 General and administrative 111, ,363 Total expenses 1,557,368 1,250,062 Change in unrestricted net assets before non-operating items (335,121) (90,310) Net change in fair market value of investments 172,911 (660,011) Investment in LLC (loss) earnings (50,174) 2,494 Investment in LLC contribution - 239,622 Change in unrestricted net assets (212,384) (508,205) Change in temporarily restricted net assets National Club Championship contributions - 56,350 Interest and dividends 30,080 62,325 Change in fair value of investments 139,886 (429,799) Net assets released from restrictions (56,350) - Change in temporarily restricted net assets 113,616 (311,124) Change in net assets (98,768) (819,329) Net assets, beginning of year 3,128,808 3,948,137 Net assets, end of year $ 3,030,040 $ 3,128,808 See accompanying notes to the financial statements. 3

6 Statements of Cash Flows Years ended October 31, Cash flow from operating activities Change in net assets $ (98,768) $ (819,329) Adjustments to reconcile change in net assets to net cash used in operating activities: Depreciation & amortization Change in fair market value of investments (312,797) 1,089,810 Investment in LLC contribution and LLC earnings 50,174 (242,116) Changes in operating assets and liabilities: Pledges receivable 188,032 (115,390) Discount on pledges receivable (33,822) (53,892) Prepaid expenses and other assets 115,185 (106,656) Accounts payable and accrued expenses 245,672 (42,433) Deferred revenue (225,000) 225,000 Net cash used in operating activities (71,049) (64,455) Cash flow from investing activities Purchase of investments (723,086) (167,757) Proceeds from investments 672, ,294 Net cash (used in) provided by investing activities (50,561) 62,537 Cash flows from financing activities Loan 150,000 - Net cash provided by financing activities 150,000 - Net change in cash and cash equivalents 28,390 (1,918) Cash and cash equivalents, beginning of year 7,019 8,937 Cash and cash equivalents, end of year $ 35,409 $ 7,019 Supplemental disclosure of cash flow information: Interest paid $ 684 $ - See accompanying notes to the financial statements. 4

7 Notes to Financial Statements Years ended October 31, 2009 and 2008 Note A - Nature of Activities and Summary of Significant Accounting Policies Nature of Activities and Mission The Club Foundation (the Foundation) is an affiliate of the Club Managers Association of America (CMAA), a professional association for managers of membership clubs. CMAA has more than 6,000 members who manage more than 3,000 country, city, athletic, faculty, yacht, town and military clubs. The Foundation was formed for charitable and educational purposes to foster intellectual excellence in the field of club management. This purpose is achieved by awarding scholarships or research grants to individuals and by making gifts or contributions. The mission of the Foundation is to raise funds to financially support the professional development of club managers through education, training, and research initiatives. Basis of Accounting The Foundation presents its financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (U.S. GAAP). Consequently, revenue is recognized when earned, and expense is recognized when the obligation is incurred. Subsequent Events The Foundation has performed an evaluation of subsequent events through January 18, 2010, which is the date the financial statements were available to be issued, and has considered any relevant matters in the preparation of the financial statements and footnotes. Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For financial statement purposes, the Foundation considers highly liquid investments with original maturity of 90 days or less to be cash equivalents. During the year, the Foundation may have deposits in financial institutions that are in excess of the Federal Deposit Insurance Corporation (FDIC) coverage. Management does not consider such deposits above the FDIC insured limit to be a significant credit risk. 5

8 Note A - Nature of Activities and Summary of Significant Accounting Policies (Continued) Investments and Investment in LLC The Foundation reports its investments in equity securities with readily determinable market values and all debt securities at fair market value. Changes in the fair value of investments (consisting of realized and unrealized gains or losses) are recognized in the statements of activities. During 2008, the Foundation received a one time contribution for an investment in 1733 CMAA, LLC (the LLC), representing a 30% membership interest which is reported at cost. The Foundation will also participate in the allocation of profits and losses in accordance with the LLC operating agreement, which generally will be equal to its interest in the LLC. Deferred Revenue Deferred revenue represents amounts collected in advance for the Foundation's special events, including the National Club Championship, to be held in the subsequent fiscal year. Net Assets In accordance with generally accepted accounting principles, the Foundation reports information regarding its financial position and activities using three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. Temporarily restricted net assets consist of contributions received during the current year for the National Club Championship that will take place in the subsequent fiscal year and investment earnings on the endowment funds that have not yet been appropriated for expenditure. Permanently restricted net assets consist of endowment funds received from donors who have stipulated that the principal amounts are to be maintained in perpetuity, with the related investment earnings being available to support activities of the Foundation consistent with its mission. Endowments In August 2008, the Endowments of Not-for-Profit Organizations accounting guidance was issued which provides guidance on the net asset classification of donor-restricted endowment funds for a not for-profit organization that is subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA). The guidance also improves disclosures about an organization s endowed funds whether or not the organization is subject to UPMIFA. The Foundation has made the required disclosures in Note I, Endowment Funds. 6

9 Note A - Nature of Activities and Summary of Significant Accounting Policies (Continued) Contributions The Foundation recognizes contributions received, including unconditional promises to give (pledges), as revenue in the period received at their estimated present value. Contributions received are reported as unrestricted support, temporarily restricted support or permanently restricted support. Temporarily restricted net assets become unrestricted when the time restrictions expire or when the contributions are used for their restricted purpose, at which time they are reported in the statement of activities as satisfaction of program restrictions. Permanently restricted support represents resources subject to donor-imposed stipulations requiring that the Foundation maintain the principal in perpetuity. Unconditional promises to give, due in the next year, are recorded at their net realizable value. Unconditional promises to give, due in subsequent years, are reported at the present value of their net realizable value, using the IRS discount rate. Promises to contribute that stipulate conditions to be met before the contribution is made are not recognized until the conditions are met. Income Taxes The Foundation is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. Management has concluded that the Foundation has properly maintained its exempt status. In accordance with U.S. GAAP, the Foundation has concluded there are no uncertain tax positions and further concluded that revenue within the statement of activities has been properly classified as exempt for the year ended October 31, Fair Value Measurements Recent changes in accounting standards in line with U.S. GAAP have refined the definition of fair value, established a framework and hierarchy for measuring fair value, and expanded disclosures about fair value measurements. The new standard established a three-level hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. 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). Level 1 Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets. Level 2 Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs. 7

10 Note A - Nature of Activities and Summary of Significant Accounting Policies (Continued) Fair Value Measurements (continued) Level 3 Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value measurement. Note B - Restatement and Release of Permanently Restricted Net Assets During 2009, the Foundation received the authorization from certain donors to release the restrictions on permanently restricted funds in order to conform with the original intention for these funds. In accordance with U.S. GAAP, restatement of the previously issued financial statements to reflect the correction of the misclassification is appropriate. Accordingly, these financial statements reflect the adjustment to reflect the change in classification based upon the new information and authorization in accordance with donor stipulations. The effect of this reclassification on the statement of financial position as of October 31, 2008 is as follows: As previously Financial statement line reported Reclassification As restated Unrestricted net assets, beginning $ 1,396,562 $ 1,174,779 $ 2,571,341 Permanently restricted net assets, beginning 2,551,575 (1,174,779) 1,376,796 Total net assets, beginning $ 3,948,137 $ - $ 3,948,137 Note C - Investments Investments, at market value, consisted of the following as of October 31: Cash and cash equivalents $ 7,490 $ 60,872 Fixed income 850, ,248 Equities 1,304,769 1,009,724 Total investments $ 2,163,202 $ 1,799,844 8

11 Note C - Investments (Continued) Investment earnings consists of the following for the years ended October 31, 2009 and 2008: Interest and dividends $ 67,262 $ 158,032 Realized losses, net (156,398) (96,701) (89,136) 61,331 Unrealized gains (losses), net 469,195 (993,109) Gross investment earnings (losses) 380,059 (931,778) Investment management fees (16,834) (19,847) Investment earnings (losses), net $ 363,225 $ (951,625) The following table shows how the Foundation's investments are categorized in accordance with U.S. GAAP, as of October 31, 2009: Class of Security Level 1 Level 2 Total Cash and cash equivalents $ 7,490 $ - $ 7,490 Fixed income - 850, ,943 Equities 1,304,769-1,304,769 Total $ 1,312,259 $ 850,943 $ 2,163,202 During the year ending October 31, 2009, the Foundation obtained a $150,000 margin loan with their investment custodian. This loan was obtained for the purpose of purchasing additional investments at a reduced cost for the Foundation. The investments of the Foundation are pledged as collateral under this loan. The custodian would be able to sell and recover damages using the collateral because total exposure is less than 10% of the current investment portfolio value. The maximum exposure is the outstanding balance on the loan plus interest which is the Fed Fund Rate (.25 as of January 10, 2010) plus 2%. Management does not anticipate this item to be a significant risk at this time. 9

12 Note D - Pledges Receivable Pledges receivable at October 31 consist of promises to give as follows: Receivable in less than one year $ 508,379 $ 505,436 Receivable in one to five years 842,594 1,017,995 Receivable in more than five years ,524 Total pledges receivable 1,351,923 1,539,955 Discount to present value (68,150) (101,972) Allowance for uncollectible pledges (39,000) (39,000) Net pledges receivable $ 1,244,773 $ 1,398,983 Pledges receivable in excess of one year maturity were discounted to net present value using 3.2% and 3.6% for 2009 and 2008, respectively. In accordance with U.S. GAAP, the pledges receivable above are classified as level 3 assets as certain inputs to the valuation metholodogy are unobservable. Pledges from companies related to members of the Board of Governors comprised 25% and 42% of gross pledge receivables at October 31, 2009 and 2008, respectively. Note E - Related Party Transactions Operating Transactions with CMAA CMAA receives and disburses cash on behalf of the Foundation whose accounts are not included with those of CMAA. The total amounts due to CMAA, as of October 31, 2009 and 2008 was $499,357 and $246,343, respectively, and are included in the accounts payable and accrued expenses line. For the years ended October 31, 2009 and 2008, CMAA contributed grants consisting of supporting services totaling $0 and $30,000, respectively, for education, training, and research initiatives for the professional development of club managers. The Foundation also provided grants to CMAA totaling $283,950 and $301,000 in 2009 and 2008, respectively, for professional development. Additionally, CMAA provides at no cost, certain administrative services (including information systems and technologies, graphics and production, and accounting) to the Foundation. These inkind services were estimated to be $46,882 and $46,699 for the years ended October 31, 2009 and 2008, respectively, and have been reported in the statement of activities. 10

13 Note E - Related Parties (Continued) The Foundation contributed $17,095 and $21,734 for the years ended October 31, 2009 and 2008, respectively, to the defined contribution 401(k) plan of CMAA relating to CMAA employees who spent time on the Foundation. Investment in LLC and Related Transactions During 2008, 1733 CMAA, LLC (the LLC) was formed as a limited liability company. The Foundation holds a 30% membership interest, along with two other members, CMAA and Premier Club Services, Inc. An asset of $239,622 was recorded on the Foundation's books to reflect the investment, a result of a contribution from CMAA. The Foundation's share in the LLC's net (loss) earnings for the years ended October 31, 2009 and 2008 was $(50,174) and $2,494, respectively. The LLC also provided office space to the Foundation at a cost of $35,356 and $17,678 for the years ended October 31, 2009 and 2008, respectively. The Foundation serves as a limited guarantor for the LLC's commercial loan on their building. The future amount of payments that the Foundation would owe is limited to 30% of the principal indebtedness along with all accrued unpaid interest. At October 31, 2009 and 2008, the principal and accrued interest outstanding for the LLC was $1,921,836 and $1,973,180, respectively, of which the Foundation's guarantee covers 30%. The current fair market value of the building and land is approximately $5.2 million according to the most recent tax assessment provided by the City of Alexandria, Virginia. Note F - Commitments During January 2008, the Foundation entered into a 12 year lease for office space in Alexandria, Virginia with the LLC that expires in January Rent expense for the years ended October 31, 2009 and 2008 was $35,356 and $17,678, respectively. Future minimum lease payments under the lease for office space at 1733 King Street are as follows: Fiscal year 2010 $ 36, , , , ,602 Thereafter 239,733 $ 435,974 11

14 Note G - Net Assets Released From Temporary Restriction Net assets were released from restrictions by incurring expenses for activities in accordance with the restricted purposes specified by the donors for the years ended October 31, 2009 and Net assets released from temporary restriction for the year ended October 31, 2009 were $56,350 related to the National Club Championship. There was no release of net assets for the year ended October 31, Note H - Temporarily Restricted Net Assets Temporarily restricted net assets at October 31 were available for the following purposes: National Club Championship $ - $ 56,350 Investment earnings on endowment (Note I) 351, ,898 $ 351,864 $ 238,248 Note I - Endowment Funds At October 31, 2009 and 2008, the Foundation s endowment consists of multiple donorrestricted funds established for Foundation programs. As required by U.S. GAAP, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law The Board of Governors of the Foundation has interpreted 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 Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment and the original value of subsequent gifts to the permanent endowment. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets (consisting of earnings on the permanently restricted amounts) is classified as temporarily restricted net assets until those amounts are approved for expenditure by the Foundation in a manner consistent with its spending policy. 12

15 Note I - Endowment Funds (Continued) Changes in Endowment Funds The changes in the endowment funds are as follows for the years ended October 31, 2009 and 2008, respectively: Unrestricted Temporarily Restricted Permanently Restricted Total Endowment Net assets, November 1, 2007 $ 549,372 $ - $ 1,376,796 $ 1,926,168 Net assets reclassified based on change of law (549,372) 549, Endowment net assets after reclassification - 549,372 1,376,796 1,926,168 Interest and dividends - 62,325-62,325 Change in fair market value - (429,799) - (429,799) Net assets, October 31, ,898 1,376,796 1,558,694 Interest and dividends - 30,080-30,080 Change in fair market value - 139, ,886 Net assets, October 31, 2009 $ - $ 351,864 $ 1,376,796 $ 1,728,660 Investment and Spending Policies The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor restricted funds that the organization must hold in perpetuity. Under this policy, as approved by the Board of Governors, the endowment assets are invested so as to achieve a reasonable rate of return relative to the broad equity and fixed income markets across the full business cycle. To satisfy its long-term rate-of-return objectives, the Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The goal of the Foundation s spending policy is to provide a reasonable, predictable, and sustainable structure that supports the intentions of the original endowment. Total investment earnings, to the extent available, are approved for expenditure as part of the Foundation's annual budgetary process. 13