Financial Statements For the years ended August 31, 2013, August 31, 2012 and as at September 1, 2013
Financial Statements For the years ended August 31, 2013 August 31, 2012 and as at September 1, 2011 Contents Independent Auditor's Report 1 Financial Statements Balance Sheets 3 Statements of Changes in Net Assets 4 Statements of Operations 5 Statements of Cash Flows 6 Summary of Significant Accounting Policies 7 Notes to Financial Statements 10 Schedule A - Salary Expenses 18 Schedule B - Academic Expenses 18 Schedule C - Administrative Expenses 18 Schedule D - Building Expenses 19
Collins Barrow Ottawa LLP 301 Moodie Drive, Suite 400 Ottawa, Ontario K2H 9C4 Canada T: 613.820.8010 F: 613.820.0465 email: ottawa@collinsbarrow.com web: www.collinsbarrowottawa.com Independent Auditor's Report To the Members of We have audited the accompanying financial statements of the which comprise the balance sheets as at August 31, 2013, August 31, 2012 and September 1, 2011 and the statements of operations, changes in net assets and cash flows for the years ended August 31, 2013 and August 31, 2012, and a summary of significant accounting policies and other explanatory information. Management's responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for not-for-profit organizations, and for such internal control as management determines is necessary to enable the preparation 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 the generally accepted auditing standards of Canada. Those standards require that we comply with ethical requirements and plan and perform an audit to obtain reasonable assurance whether the financial statements are free of 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of 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.
Collins Barrow Ottawa LLP 301 Moodie Drive, Suite 400 Ottawa, Ontario K2H 9C4 Canada T: 613.820.8010 F: 613.820.0465 email: ottawa@collinsbarrow.com web: www.collinsbarrowottawa.com Independent Auditor's Report (continued) Opinion In our opinion, these financial statements present fairly, in all material respects, the financial position of as at August 31, 2013, August 31, 2012 and September 1, 2011 and the results of its operations and its cash flows for the years ended August 31, 2013 and August 31, 2012 in accordance with Canadian accounting standards for not-for-profit organizations. Chartered Accountants, Licensed Public Accountants November 20, 2013 Ottawa, Ontario
Balance Sheets August 31 August 31 September 1 2013 2012 2011 Assets Current Cash and cash equivalents (Note 2) $ 28,684 $ 603,397 $ 1,584,836 Short-term investments (Note 3) - - 55,736 Accounts receivable (Note 4) 99,537 108,945 92,895 Inventory 1,945 1,945 1,945 Prepaid expenses 53,336 44,019 99,607 183,502 758,306 1,835,019 Tangible capital assets (Note 5) 25,763,605 26,798,271 27,881,412 $ 25,947,107 $ 27,556,577 $ 29,716,431 Liabilities and Net Assets Current Line of credit (Note 6) $ 89,606 $ - $ - Accounts payable and accrued liabilities (Note 7) 486,794 1,010,036 1,941,640 Deferred revenue (Note 8) 1,107,350 1,113,920 1,687,971 Other liability - Foyer Socio-Éducatif - - 39,314 Current portion of long-term debt (Note 10) 449,488 430,491 410,682 Current portion of obligations under capital leases (Note 11) - 9,546 10,917 2,133,238 2,563,993 4,090,524 Deferred grants (Note 9) 601,297 639,203 705,483 Long-term debt (Note 10) 16,604,208 17,052,009 17,480,892 Obligations under capital leases (Note 11) - - 8,747 19,338,743 20,255,205 22,285,646 Net assets Invested in capital assets 8,128,736 8,649,671 9,098,777 Unrestricted net assets (1,520,372) (1,348,299) (1,667,992) On behalf of the Board : 6,608,364 7,301,372 7,430,785 $ 25,947,107 $ 27,556,577 $ 29,716,431 President Treasurer The accompanying summary of significant accounting policies, notes and schedules are an integral part of these financial statements 3
Statements of Changes in Net Assets For the year ended August 31 Invested in Capital Unrestricted Total Assets Net Assets 2013 Balance, beginning of 2013 $ 8,649,671 $ (1,348,299) $ 7,301,372 Deficiency of revenues over expenses - (693,008) (693,008) Purchase of tangible capital assets 79,200 (79,200) - Amortization of tangible capital assets (1,113,867) 1,113,867 - Amortization of deferred grants 58,029 (58,029) - Repayments of accounts payable related to construction in progress, obligation under capital leases and long-term debt 455,703 (455,703) - Balance, end of 2013 $ 8,128,736 $ (1,520,372) $ 6,608,364 Invested in Capital Unrestricted Total Assets Net Assets 2012 Adjusted balance, beginning of 2012 $ 9,098,777 $ (1,667,992) $ 7,430,785 Deficiency of revenues over expenses - (129,413) (129,413) Purchase of tangible capital assets 78,439 (78,439) - Amortization of tangible capital assets (1,161,580) 1,161,580 - Amortization of deferred grants 66,280 (66,280) - Repayments of accounts payable related to construction in progress, obligation under capital leases and long-term debt 567,755 (567,755) - Balance, end of 2012 $ 8,649,671 $ (1,348,299) $ 7,301,372 The accompanying summary of significant accounting policies, notes and schedules are an integral part of these financial statements 4
Statements of Operations For the year ended August 31 2013 2012 Revenue Tuition $ 8,856,561 $ 8,849,915 Exemption from tuition fees (90,340) (93,142) Registration and examination 154,835 130,570 Nursery 304,498 300,740 Foyer Socio-Éducatif - 39,314 Miscellaneous revenue 354,493 314,436 9,580,047 9,541,833 Expenses Salary expenses (Schedule A) 6,266,788 5,775,409 Academic expenses (Schedule B) 563,085 503,054 Administrative expenses (Schedule C) 785,114 845,926 Building expenses (Schedule D) 2,623,024 2,706,269 10,238,011 9,830,658 Deficiency from operations before other revenue (657,964) (288,825) Other revenue Interest income on investments 10,011 16,577 Foreign exchange gain (loss) (45,055) 142,835 (35,044) 159,412 Deficiency of revenue over expenses for the year $ (693,008) $ (129,413) The accompanying summary of significant accounting policies, notes and schedules are an integral part of these financial statements 5
Statements of Cash Flows For the year ended August 31 2013 2012 Cash flows from operating activities Deficiency of revenue over expenses for the year $ (693,008) $ (129,413) Adjustments for amortization of tangible capital assets 1,113,867 1,161,580 Amortization of deferred grants (58,029) (66,280) 362,830 965,887 Changes in non-cash working capital items: Accounts receivable 9,408 (16,050) Prepaid expenses (9,317) 55,588 Accounts payable and accrued liabilities (523,243) (931,604) Deferred revenue (6,570) (574,051) Other liability - Foyer Socio-Éducatif - (39,314) (166,892) (539,544) Cash flows from investing activities Sale of short-term investments - 55,736 Purchase of tangible capital assets (79,200) (78,439) (79,200) (22,703) Cash flows from financing activities Increase of line of credit 89,606 - Proceeds from grants 20,123 - Repayment of obligations under capital leases (9,546) (10,119) Repayment of long-term debt (428,804) (409,073) (328,621) (419,192) Decrease in cash and cash equivalents during the year (574,713) (981,439) Cash and cash equivalents, beginning of year 603,397 1,584,836 Cash and cash equivalents, end of year $ 28,684 $ 603,397 The accompanying summary of significant accounting policies, notes and schedules are an integral part of these financial statements 6
Summary of Significant Accounting Policies Governing Statute and Nature of Activities Basis of Presentation Use of Estimates Aid from the French Government for the Functioning of the Organization The organization is incorporated without share capital under the laws of Ontario. The organization operates as a private educational institution and is exempt from tax on its operations. The organization is also a registered charity. The financial statements were prepared in accordance with Canadian Accounting Standards for Not-for-Profit Organizations and are in accordance Canadian generally accepted accounting principles. The financial statements of the organization are produced by management in accordance with Canadian Accounting Standards for Not-for-Profit Organizations. Production of periodic financial statements necessarily involves the use of estimates and assumptions. The main areas of the financial statements that require us to do so are: 1) the amount salaries payable to the Agency for French Teaching Abroad; and 2) the estimated useful life of tangible capital assets. Actual results could differ from management's best estimates and assumptions as more information becomes available. These estimates and assumptions are reviewed periodically and, as adjustments become necessary, it is reported during the period which they become known. The salaries of the Principal, the Assistant Principal, the Director of Finance, the Director of Primary and of 3 expatriated teachers are supported directly by the French government. Such remuneration and social charges are not included in the financial statements of Lycée Claudel. The French government is also supporting the salaries and benefits of 28 resident teachers and 7 expatriate staff (3 teachers and 4 management staff) representing a total cost of $3,718,378 in 2012-2013 ($3,527,488 in 2011-2012) for the French government. The has repaid a portion of the salaries and benefits. The amount repaid in 2012-2013 is $1,423,207 (in 2011-12 is $1,000,979). The effective participation of the French government for the 28 resident teachers and 7 expatriate staff is $2,526,509 in 2012-2013 ($2,525,509 in 2011-12). Revenue Recognition Cash and Cash Equivalents Inventory Revenue for tuition, registration, examination and the nursery are recognized in the fiscal year to which the school year relates. Revenues from other government agencies are recognized when earned. Interest income on investments and other income are recognized when earned. The organization's policy is to present in cash and cash equivalents, bank balances including bank overdrafts whose balances often fluctuate between overdraft and positive balances and temporary investments with maturities not exceeding three months after the balance sheet date. The inventory is valued at the lower of cost or net realized value. The cost is determined on a first in, first out basis. 7
Summary of Significant Accounting Policies Financial Instruments Measurement of financial instruments Financial instruments are financial assets or liabilities of the organization where, in general, the organization has the right to receive cash or another financial asset from another party or the organization has the obligation to pay another party cash or other financial assets. The organization initially measures its financial assets and liabilities at fair value, except for certain non-arm s length transactions that are measured at the exchange amount. The organization subsequently measures all its financial assets and financial liabilities at amortized cost, except for investments in equity instruments that are quoted in an active market, which are measured at fair value. Changes in fair value are recognized in excess (deficiency) of revenues over expenses. The organization's financial instruments measured at amortized cost include cash and cash equivalents, short-term investments, accounts receivable, line of credit, accounts payable and accrued liabilities, obligations under capital leases and long-term debt. Impairment Financial assets measured at amortized cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized in excess of revenue over expenses. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in excess (deficiency) of revenue over expenses. Transaction costs The organization recognizes its transaction costs in excess (deficiency) of revenue over expenses in the period incurred. However, the financial instruments that will not be subsequently measured at fair value are adjusted by the transaction costs that are directly attributable to their origination, issuance or assumption. Derivative Financial Instruments The organization has entered into an interest rate swap contract in order to minimize its exposure to variable interest rates on its long-term debt. The company does not utilize derivative financial instruments for trading or speculative purposes. The company formally documents all derivative financial instruments designated as hedges, including the risk management objective and strategy. Changes in the fair value of interest rate swap contracts used to hedge against interest rate risk are not recognized and interest expense is recorded at the effective interest rate of the interest rate swap contracts. 8
Summary of Significant Accounting Policies Tangible Capital Assets Tangible capital assets are recorded at cost. Amortization is based on the estimated useful life of the asset on a declining balance. It is calculated as follows: Buildings 4 % declining balance Furniture and fixtures 20 % declining balance Teaching equipment and electronics 20 % declining balance Tools 10 % declining balance Vehicles 30 % declining balance The half year rule is used the year of acquisition. Foreign Currency Monetary assets and liabilities are converted at the exchange rate at year end. Account balances, appearing in the statement of operations are converted at average exchange rates for the year. 9
Notes to Financial Statements 1. Impact of the Change in the Basis of Accounting The organization has elected to apply the Canadian Accounting Standards for Not-for-Profit Organizations of Part III of the CICA Accounting Handbook. These financial statements are the first financial statements for which the organization has applied Canadian accounting standards for not-for-profit organizations, hereafter referred to as "ASNPO". The financial statements for the year ended August 31, 2013 were prepared in accordance with ASNPO and provisions set out in FIRST TIME ADOPTION, Section 1501, for first time adopters of this basis of accounting. The organization has elected to use none of the exemptions relating to the initial application of ASNPO under Section 1501. The impact of adopting this standard was accounted for in net assets at the date of transition, i.e. September 1, 2011 The adoption of ASNPO resulted in the following changes to net assets at the date of transition (September 1, 2011) and the previously issued financial statements for the year ended August 31, 2012. A - Effective Cash Flow Hedges Under Canadian GAAP, Interest rate swap contracts used to hedge against interest rate risk are recorded on the balance sheet as an asset or liability at fair value as provided by the lender. Changes in fair value of the derivative are recognized directly in net assets until the resulting asset or liability affects the statement of operations or statements of change in net assets, if any. Under ASNPO, Interest rate swap contracts used to hedge against interest rate risk are not recorded on the balance sheet as an asset or liability. Changes in the fair value are not recognized and interest expense is recorded at the effective interest rate of the interest rate swap contracts. B - Reconciliation of the Balance Sheet as at September 1, 2011 Canadian Changes Due ASNPO GAAP to Adoption of Balance Balance Sheet Standards Sheet Current liabilities Accounts payable and accrued liabilities $ 3,115,451 $ (1,173,811) $ 1,941,640 Net assets Accumulated losses on cash flow hedge $ (1,173,811) $ 1,173,811 $ - 10
Notes to Financial Statements 1. Impact of the Change in the Basis of Accounting (continued) C - Reconciliation of Net Assets as at September 1, 2011 Accumulated losses on cash flow hedge as at September 1, 2011, according to previously issued financial statements $ (1,173,811) Change in net assets - remeasurement of interest rate swap contract 1,173,811 Accumulated losses on cash flow hedge as at September 1, 2011, according to ASNPO $ - D - Reconciliation of the Balance Sheet as at August 31, 2012 Canadian Changes Due ASNPO GAAP to Adoption of Balance Balance Sheet Standards Sheet Current liabilities Accounts payable and accrued liabilities $ 2,615,116 $ (1,605,080) $ 1,010,036 Net assets Accumulated losses on cash flow hedge $ (1,605,080) $ 1,605,080 $ - E - Reconciliation of Net Assets as at August 31, 2012 Accumulated losses on cash flow hedge as at August 31, 2012, according to previously issued financial statements $ (1,605,080) Change in net assets - remeasurement of interest rate swap contract 1,605,080 Accumulated losses on cash flow hedge as at August 31, 2012, according to ASNPO $ - 2. Cash and Cash Equivalents The bank accounts of the organization are held with three chartered banks and earn nominal interest. The amount includes $7,320 invested in a money market fund bearing interest at a rate of 1.25% (2012 - $176,226 invested in a money market fund bearing interest at a rate of 1.25%, 2011 - $436,460 invested in a money market fund bearing interest at a rate of 1.20%). 11
Notes to Financial Statements 3. Short-Term Investment August 31 August 31 September 1 2013 2012 2011 Guaranteed investment certificate bearing interest at prime rate less 2.05%, maturing in May 2012 $ - $ - $ 55,736 4. Accounts Receivable August 31 August 31 September 1 2013 2012 2011 Accounts receivable $ 41,239 $ 46,025 $ 6,286 Sales tax receivable 58,298 62,920 86,609 $ 99,537 $ 108,945 $ 92,895 5. Tangible Capital Assets August 31, 2013 Accumulated Net Book Cost Amortization Value Land $ 1,508,114 $ - $ 1,508,114 Building 29,843,408 6,116,457 23,726,951 Furniture and fixtures 1,256,763 1,097,750 159,013 Teaching equipment 1,585,373 1,222,763 362,610 Tools 43,605 38,834 4,771 Vehicles 12,768 10,622 2,146 $ 34,250,031 $ 8,486,426 $ 25,763,605 12
Notes to Financial Statements 5. Tangible Capital Assets (continued) August 31, 2012 Accumulated Net Book Cost Amortization Value Land $ 1,508,114 $ - $ 1,508,114 Building 29,839,182 5,128,284 24,710,898 Furniture and fixtures 1,256,763 1,054,787 201,976 Teaching equipment 1,461,793 1,114,271 347,522 Tools 43,605 38,304 5,301 Vehicles 12,768 9,703 3,065 Equipment leases under capital lease agreements 48,606 27,211 21,395 $ 34,170,831 $ 7,372,560 $ 26,798,271 September 1, 2011 Accumulated Net Book Cost Amortization Value Land $ 1,508,114 $ - $ 1,508,114 Building 29,870,481 4,102,844 25,767,637 Furniture and fixtures 1,240,598 1,001,082 239,516 Teaching equipment 1,368,220 1,039,087 329,133 Tools 43,605 37,715 5,890 Vehicles 12,768 8,389 4,379 Equipment leases under capital lease agreements 48,606 21,863 26,743 $ 34,092,392 $ 6,210,980 $ 27,881,412 6. Credit Facilities The has a line of credit with a total limit of $200,000 to fund its daily operations at prime plus 0.50% repayable on demand and a business credit card with a total limit of $25,000 to finance business expenses incurred by senior management at the standard interest rate as prescribed by MasterCard of a chartered bank. As at August 31, 2013, $89,606 (2012 - $nil; 2011 - $nil) of the authorized credit amount is used by the. Subsequent to year end, the line of credit was increased to $450,000. 13
Notes to Financial Statements 7. Accounts Payable and Accrued Liabilities August 31 August 31 September 1 2013 2012 2011 Agency for French Teaching Abroad $ 236,475 $ 854,501 $ 1,534,162 Accounts payable 147,439 57,669 97,776 Accounts payable related to construction in progress - 17,351 165,915 Accrued liabilities 102,880 80,515 143,787 $ 486,794 $ 1,010,036 $ 1,941,640 8. Deferred Revenue August 31 August 31 September 1 2013 2012 2011 Tuition $ 1,107,350 $ 1,113,920 $ 1,433,680 AEFE - - 254,291 $ 1,107,350 $ 1,113,920 $ 1,687,971 9. Deferred Grants August 31 August 31 September 1 2013 2012 2011 Balance at beginning of year $ 639,203 $ 705,483 $ 714,841 Grant received during the year 20,123-64,919 659,326 705,483 779,760 Amortization to revenue (58,029) (66,280) (74,277) Balance at the end of year $ 601,297 $ 639,203 $ 705,483 14
Notes to Financial Statements 10. Long-Term Debt August 31 August 31 September 1 2013 2012 2011 Loan payable to BMO, bearing interest at variable prime rate plus 1.53%, repayable in blended monthly payments of $103,732, due in September 2020, guaranteed by the land and building and a guarantee of $10,000,000 by the French government (Association National French Schools Abroad). $ 17,053,696 $ 17,482,500 $ 17,891,574 Less: Current portion 449,488 430,491 410,682 $ 16,604,208 $ 17,052,009 $ 17,480,892 The organization entered into an interest rate swap to manage the cash flow risk associated with variable rate debt. The interest swap on the loan payable to the Bank of Montreal changed the variable rate to a fixed rate of 4.72% until September 2020. The specific criteria for hedge accounting for the interest rate swap have been met, therefore, the interest rate swap contract has been recorded using hedge accounting. The repayments of principal due during the next five years and thereafter are as follows: 2014 $ 449,488 2015 471,169 2016 493,895 2017 517,718 2018 542,690 Thereafter 14,578,736 $ 17,053,696 15
Notes to Financial Statements 11. Obligations Under Capital Leases August 31 August 31 September 1 2013 2012 2011 Obligation for equipment leased, without interest, payable in quarterly installments of $ 1,985, maturing in July 2013 $ - $ 9,546 $ 16,668 Obligation for equipment leased, without interest, payable in annual installments of $2,976, maturing in November 2012 - - 2,996-9,546 19,664 Less: Current portion - 9,546 10,917 $ - $ - $ 8,747 12. Contractual Commitment The has signed a housekeeping contract expiring in August 2016. Payments over the next three years are as follows: 2014 $ 194,173 2015 $ 199,810 2016 $ 169,869 13. Contingency An action against the before the Superior Court by a parent alleging assault suffered by a kindergarten student in an altercation with another student in kindergarten. The request is for approximately $275,000 plus expenses and interest. An action against the before the Superior Court by the same parent alleging discrimination and other complaints regarding the treatment by the for the claim described above. The request is for an amount of $525,000 in addition to monetary damages to be determined, expenses, and interest. The amount of the final settlement cannot currently be estimated. When the loss, if any, is known, the amount will be recorded as an operating expense in the year of settlement. 16
Notes to Financial Statements 14. Financial Risks and Concentrations The organization is exposed to various risks through its financial instruments. The following analysis provides a measure of the organization's risk exposure and concentration as at August 31, 2013. Liquidity risk Liquidity risk is the risk that an organization will encounter difficulty in meeting obligations associated with financial liabilities. The organization is exposed to this risk mainly in respect of its line of credit, accounts payable and accrued liabilities, deferred revenue and long-term debt. Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The organization's main credit risks relate to its accounts receivable. Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk. The organization is mainly exposed to interest rate risk and currency risk. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in market interest rates. The organization is exposed to interest rate risk on its fixed interest investments and long term debt. Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The company is exposed to cash flow risk on its floating interest rate financial instruments. The cash flow risk is mitigated using interest rate swap contracts as described in Note 10. Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The organization receives grants and must make a contribution to the Agency for French Teaching Abroad in Euro. Therefore, certain assets and liabilities are exposed to currency fluctuations. 17
Schedule A - Salary Expenses August 31 2013 2012 Teaching staff $ 2,676,156 $ 2,669,701 Non-teaching staff 975,083 873,071 Administrative staff 282,330 251,521 Maintenance staff 75,769 114,782 Benefits 575,637 550,353 Pension fund 268,317 262,708 Agency for French Teaching Abroad - Wages 1,413,496 1,053,273 $ 6,266,788 $ 5,775,409 Schedule B - Academic Expenses For the year ended August 31 2013 2012 School supplies $ 21,071 $ 21,349 Teaching materials 153,032 155,754 Training 68,394 66,335 Foyer Socio-Éducatif 243,586 184,432 Amortization - Teaching equipment 77,002 75,184 $ 563,085 $ 503,054 Schedule C - Administrative Expenses For the year ended August 31 2013 2012 Office $ 21,583 $ 20,732 Administration 21,309 37,981 Computer services 85,935 86,031 Telephone and alarm 7,765 9,099 Bank charges 8,163 6,956 Professional fees 51,243 46,994 Social events 21,748 16,168 Advertising 7,978 9,915 Various 48,384 102,242 AEFE fee (under the 6% contribution to education fee in mutual funds of AEFE) 511,006 509,808 $ 785,114 $ 845,926 18
Schedule D - Building Expenses For the year ended August 31 2013 2012 Interest on financing $ 844,286 $ 864,099 Heating 31,511 33,718 Lighting 142,634 145,254 Water 15,599 25,909 Insurance 128,226 128,697 Maintenance and repairs 423,903 422,196 Amortization 1,036,865 1,086,396 $ 2,623,024 $ 2,706,269 19