FINANCIAL STATEMENTS YEARS ENDED
TABLE OF CONTENTS YEARS ENDED INDEPENDENT AUDITORS REPORT 1 FINANCIAL STATEMENTS BALANCE SHEETS 2 STATEMENTS OF ACTIVITY 3 STATEMENTS OF FUNCTIONAL EXPENSE 5 STATEMENTS OF CASH FLOWS 7 8
INDEPENDENT AUDITORS REPORT Board of Directors The Schubert Club St. Paul, Minnesota We have audited the accompanying balance sheets of The Schubert Club as of June 30, 2012 and 2011, and the related statements of activity, functional expense, and cash flows for the years then ended. These financial statements are the responsibility of the Organization'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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 Schubert Club as of June 30, 2012 and 2011, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. St. Cloud, Minnesota September 11, 2012 CliftonLarsonAllen LLP An independent member of Nexia International (1)
BALANCE SHEETS ASSETS 2012 2011 CURRENT ASSETS Cash and Cash Equivalents $ 704,493 $ 849,089 Accounts and Interest Receivable 11,848 2,290 Contributions Receivable 361,368 262,942 Prepaid Expenses 17,959 25,671 Total Current Assets 1,095,668 1,139,992 EQUIPMENT AND LEASEHOLD IMPROVEMENTS, Net 578,265 656,259 COLLECTIONS OTHER LONG-TERM ASSETS Investments 11,320,486 11,527,803 Contributions Receivable, Net of Current Portion 46,711 171,964 Community Foundation Holdings 386,289 407,040 Total Other Long-Term Assets 11,753,486 12,106,807 Total Assets $ 13,427,419 $ 13,903,058 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts Payable $ 29,900 $ 19,781 Accrued Payroll and Benefits 30,642 43,937 Deferred Revenue 272,512 220,617 Total Current Liabilities 333,054 284,335 NET ASSETS Unrestricted: Undesignated 515,923 512,927 Board Designated 516,131 559,494 Total Unrestricted Net Assets 1,032,054 1,072,421 Temporarily Restricted 4,191,906 4,691,529 Permanently Restricted 7,870,405 7,854,773 Total Net Assets 13,094,365 13,618,723 Total Liabilities and Net Assets $ 13,427,419 $ 13,903,058 See accompanying Notes to Financial Statements. (2)
STATEMENT OF ACTIVITY YEAR ENDED JUNE 30, 2012 2012 Temporarily Permanently Unrestricted Restricted Restricted Total SUPPORT AND REVENUE Contributions $ 649,870 $ 97,072 $ 36,383 $ 783,325 Government Grants 78,730 - - 78,730 Concert Ticket Sales 302,354 - - 302,354 Other Sales 4,100 - - 4,100 Investment Income 505,400 - - 505,400 Miscellaneous Income 15,536 - - 15,536 Support and Revenue 1,555,990 97,072 36,383 1,689,445 Released Net Assets - Operating 208,800 (208,800) - - Total Support and Revenue 1,764,790 (111,728) 36,383 1,689,445 EXPENSE Program Services: Performance 667,121 - - 667,121 Education 241,981 - - 241,981 Museum 331,981 - - 331,981 Total Program Services 1,241,083 - - 1,241,083 Support Services: Management and General 413,341 - - 413,341 Development 107,370 - - 107,370 Total Support Services 520,711 - - 520,711 Total Expense 1,761,794 - - 1,761,794 CHANGE IN NET ASSETS - OPERATING 2,996 (111,728) 36,383 (72,349) OTHER CHANGES IN NET ASSETS Excess Endowment Investment Loss (18,481) (412,777) - (431,258) Change in Value of Community Foundation Holding - - (20,751) (20,751) Transfer of Endowment Fund Deficits (22,659) 22,659 - - Reunitize Jazz Payout (2,223) 2,223 - - CHANGE IN NET ASSETS (40,367) (499,623) 15,632 (524,358) Net Assets - Beginning 1,072,421 4,691,529 7,854,773 13,618,723 NET ASSETS - ENDING $ 1,032,054 $ 4,191,906 $ 7,870,405 $ 13,094,365 See accompanying Notes to Financial Statements. (3)
STATEMENT OF ACTIVITY YEAR ENDED JUNE 30, 2011 2011 Temporarily Permanently Unrestricted Restricted Restricted Total SUPPORT AND REVENUE Contributions $ 788,140 $ 165,330 $ 72,653 $ 1,026,123 Government Grants 135,231 - - 135,231 Concert Ticket Sales 325,571 - - 325,571 Other Sales 2,502 - - 2,502 Investment Income 519,288 - - 519,288 Miscellaneous Income 15,146 - - 15,146 Support and Revenue 1,785,878 165,330 72,653 2,023,861 Released Net Assets - Operating 158,788 (158,788) - - Total Support and Revenue 1,944,666 6,542 72,653 2,023,861 EXPENSE Program Services: Performance 721,000 - - 721,000 Education 249,143 - - 249,143 Museum 357,238 - - 357,238 Total Program Services 1,327,381 - - 1,327,381 Support Services: Management and General 420,770 - - 420,770 Development 141,369 - - 141,369 Total Support Services 562,139 - - 562,139 Total Expense 1,889,520 - - 1,889,520 CHANGE IN NET ASSETS - OPERATING 55,146 6,542 72,653 134,341 OTHER CHANGES IN NET ASSETS Excess Endowment Investment Gain 82,759 1,575,027-1,657,786 Change in Value of Community Foundation Holding - - 55,089 55,089 Transfer of Endowment Fund Deficits 147,430 (147,430) - - CHANGE IN NET ASSETS 285,335 1,434,139 127,742 1,847,216 Net Assets - Beginning 787,086 3,257,390 7,727,031 11,771,507 NET ASSETS - ENDING $ 1,072,421 $ 4,691,529 $ 7,854,773 $ 13,618,723 See accompanying Notes to Financial Statements. (4)
STATEMENT OF FUNCTIONAL EXPENSE YEAR ENDED JUNE 30, 2012 Program Services Support Services Total Total Total Program Management Support All Performance Education Museum Services and General Development Services Services Salaries $ 189,693 $ 98,671 $ 71,615 $ 359,979 $ 161,167 $ 63,661 $ 224,828 $ 584,807 Payroll Taxes 13,765 7,160 5,197 26,122 11,695 4,620 16,315 42,437 Employee Benefits 32,775 12,803 12,712 58,290 26,836 21,361 48,197 106,487 Total Personnel Costs 236,233 118,634 89,524 444,391 199,698 89,642 289,340 733,731 Museum Expense - - 19,327 19,327 - - - 19,327 Guest Artists 279,541 - - 279,541 - - - 279,541 Production Costs 106,554 - - 106,554 - - - 106,554 Rent 18,992 15,577 90,076 124,645 16,859 7,207 24,066 148,711 Scholarship and Grants - 57,065-57,065 - - - 57,065 Advertising - - - - 74,621-74,621 74,621 Commissions 3,313 - - 3,313 - - - 3,313 Student Section - 24,133-24,133 - - - 24,133 Professional Fees - - - - 47,569-47,569 47,569 Strategic Planning - - - - 11,254-11,254 11,254 Office Supplies 4,137 2,087 1,568 7,792 3,497 1,570 5,067 12,859 Educational Projects - 17,508-17,508 - - - 17,508 Printing and Duplication 1,052 528 399 1,979 889 399 1,288 3,267 Recording Expense 3,663 - - 3,663 - - - 3,663 Telephone 2,537 1,274 961 4,772 2,144 963 3,107 7,879 Travel and Conferences 1,799-2,750 4,549 5,322 2,560 7,882 12,431 Insurance 6,725 3,377 2,549 12,651 5,685 2,552 8,237 20,888 Service Charges - - - - 8,457-8,457 8,457 Postage 1,615 811 612 3,038 1,365 613 1,978 5,016 Dues, Subscriptions and Memberships 275-576 851 2,290 407 2,697 3,548 Publications - - 47,512 47,512 - - - 47,512 Miscellaneous - 643-643 33,113 1,197 34,310 34,953 Total Expense Before Depreciation 666,436 241,637 255,854 1,163,927 412,763 107,110 519,873 1,683,800 Depreciation Expense 685 344 76,127 77,156 578 260 838 77,994 Total Expense $ 667,121 $ 241,981 $ 331,981 $ 1,241,083 $ 413,341 $ 107,370 $ 520,711 $ 1,761,794 See accompanying Notes to Financial Statements. (5)
STATEMENT OF FUNCTIONAL EXPENSE YEAR ENDED JUNE 30, 2011 Program Services Support Services Total Total Total Program Management Support All Performance Education Museum Services and General Development Services Services Salaries $ 217,228 $ 108,559 $ 80,150 $ 405,937 $ 177,764 $ 98,232 $ 275,996 $ 681,933 Payroll Taxes 15,559 7,776 5,741 29,076 12,733 7,036 19,769 48,845 Employee Benefits 50,391 13,878 14,258 78,527 50,678 18,533 69,211 147,738 Total Personnel Costs 283,178 130,213 100,149 513,540 241,175 123,801 364,976 878,516 Museum Expense - - 73,640 73,640 - - - 73,640 Guest Artists 272,524 - - 272,524 - - - 272,524 Production Costs 110,358 - - 110,358 - - - 110,358 Rent 18,808 14,688 94,946 128,442 16,019 8,222 24,241 152,683 Scholarship and Grants - 61,000-61,000 - - - 61,000 Advertising - - - - 64,868-64,868 64,868 Commissions 12,000 - - 12,000 - - - 12,000 Student Section - 30,397-30,397 - - - 30,397 Professional Fees - - 5,600 5,600 45,743-45,743 51,343 Office Supplies 3,685 2,649 1,303 7,637 3,139 1,611 4,750 12,387 Educational Projects - 3,300-3,300 - - - 3,300 Printing and Duplication 1,934 889 684 3,507 1,647 845 2,492 5,999 Recording Expense 1,166 - - 1,166 - - - 1,166 Telephone 2,692 1,238 952 4,882 2,293 1,177 3,470 8,352 Travel and Conferences 3,951 - - 3,951 6,126-6,126 10,077 Insurance 6,768 3,112 2,394 12,274 5,764 2,959 8,723 20,997 Service Charges - - - - 7,585-7,585 7,585 Postage 1,919 882 679 3,480 1,634 839 2,473 5,953 Dues, Subscriptions and Memberships 1,125 125 709 1,959 2,349-2,349 4,308 Miscellaneous - - - - 21,669 1,525 23,194 23,194 Total Expense Before Depreciation 720,108 248,493 281,056 1,249,657 420,011 140,979 560,990 1,810,647 Depreciation Expense 892 650 76,182 77,724 759 390 1,149 78,873 Total Expense $ 721,000 $ 249,143 $ 357,238 $ 1,327,381 $ 420,770 $ 141,369 $ 562,139 $ 1,889,520 See accompanying Notes to Financial Statements. (6)
STATEMENTS OF CASH FLOWS YEARS ENDED 2012 2011 CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets $ (524,358) $ 1,847,216 Adjustments to Reconcile Change in Net Assets to Net Cash Provided (Used) by Operating Activities: Noncash Contribution of Certificate of Deposit - (53,074) Unrealized (Gain) Loss on Investments 696,112 (1,818,819) Realized Gains on Investments (360,151) (60,546) Change in Value of Community Foundation Holdings 20,751 (55,089) Depreciation 77,994 78,873 Change in Allowance for Pledge Discount (5,683) 5,782 Contributions Restricted for Endowment (36,383) (72,653) (Increases) Decreases in Current Assets: Accounts and Interest Receivable (9,558) (823) Contributions Receivable (44,842) 44,084 Prepaid Expenses 7,712 (12,546) Increases (Decreases) in Current Liabilities: Accounts Payable 10,119 (3,992) Accrued Payroll (13,295) 21,560 Deferred Revenue 51,895 14,682 Net Cash Used by Operating Activities (129,687) (65,345) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Equipment and Leasehold Improvements - (6,089) Purchases of Investments (3,729,647) (1,210,577) Proceeds from Sale of Investments 3,601,003 1,194,594 Net Cash Used by Investing Activities (128,644) (22,072) CASH FLOWS FROM FINANCING ACTIVITIES Contributions Restricted for Endowment 113,735 434,820 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (144,596) 347,403 Cash and Cash Equivalents - Beginning of Year 849,089 501,686 CASH AND CASH EQUIVALENTS - END OF YEAR $ 704,493 $ 849,089 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITY Contributions of Investment Securities $ 13,328 $ 245,150 See accompanying Notes to Financial Statements. (7)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organizational Purpose The mission of The Schubert Club (the Organization) is to promote the art of music, particularly recital music, through performance, education, and museum programs, and to maintain a high standard of excellence. The Schubert Club serves over 25,000 people annually and millions hear Schubert Club performances through national radio broadcasts. Effective July 1, 2010, The Schubert Club merged with Music in the Park Series. This was accounted for as an acquisition as required by generally accepted accounting standards. This merger was approved by the constituent corporations and became effective July 1, 2010. The board of directors formed an exploration committee to evaluate the acquisition from an artistic, financial and community perspective. Over the course of six months, representatives from The Schubert Club met with representatives from Music in the Park Series, and the two Boards agreed that two healthy organizations would be even stronger as one. The Schubert Club recorded a contribution of approximately $185,000 for the fair value of the assets and liabilities of Music in the Park Series. The assets consisted of checking and savings accounts totaling approximately $185,000. Performance For 130 years, The Schubert Club has presented the world s most prestigious performers in recital for Minnesota audiences, reaching 20,000 annually. Our International Artist Series is held at the Ordway Center for the Performing Arts and is over 80% sold on subscription with 10,000 audience members annually. Music in the Park Series chamber music series is held at the Saint Anthony Park United Church of Christ in Saint Paul. Music in the Park Series has been a celebrated organization since 1979, and merged with The Schubert Club in 2010. Weekly noontime Courtroom Concerts at the Landmark Center are offered on Thursdays from October through April and are free to the public. Other concerts throughout the year are presented at the SPCO Center, Ted Mann Concert Hall, J. J. Hill House, Sundin Hall at Hamline University, Saint Anthony Park Home and United Hospitals. Education Our Education Programs offer free learning opportunities for over 2,000 students of all ages. For 44 years, Project CHEER has educated 100 students annually with free piano and guitar lessons at the Martin Luther King Center in St. Paul. The Schubert Club annually awards $70,000 in scholarships to young musicians, including $50,000 to winners of the Bruce P. Carlson Student Scholarship Competition. Our Music in the Park Series Family Concerts reach toddlers to mature adults where the audience is up close and personal with the artists, learning about the art of chamber music while experiencing a professional concert. Other educational offerings include master classes with leading artists, a composer mentorship program, and student concert discounts. (8)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Museum The Schubert Club Museum holds an outstanding collection of historic instruments and manuscripts in one of the premier music museums in the country. Completely renovated and expanded in 2009, the new space accommodates larger school group tours and is housed on the second floor of the Landmark Center. The facility is state-of-the-art with proper humidification, temperature, lighting, and security for the artifacts, and free openaccess to all sectors of the public. The integrity of the collection centers around three areas: keyboard collection consisting of more than 100 instruments dating from 1542 to the present; the Kugler Collection of instruments from around the world; the Gilman Ordway Manuscript Collection, which includes original documents written by great composers including Beethoven, Mozart, Haydn and Schubert. Approximately 1,000 people visit our museum of eight galleries each month. Financial Statement Presentation Net assets, revenues, expenses, gains and losses are classified based on the existence or absence of donor imposed restrictions. Accordingly, net assets of the Organization and changes therein are classified and reported as follows: Unrestricted Net Assets Resources over which the board of directors has discretionary control. These net assets include both board designated and undesignated amounts. Temporarily Restricted Net Assets Net assets of the Organization resulting from contributions and other inflows of assets whose use is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions pursuant to those stipulations. Permanently Restricted Net Assets Net assets resulting from contributions with donorimposed stipulations that they be maintained permanently by the Organization. The contributors of these resources permit the Organization to use all of the income earned, including capital appreciation for unrestricted or temporarily restricted purposes such as performances, museum, education and scholarships. Cash and Cash Equivalents For purposes of the statement of cash flows, the Organization considers all highly liquid securities purchased with an original maturity of 90 days or less to be cash equivalents, except for those cash reserves which are included with the endowment funds. Promises to Give (Contributions Receivable) Unconditional promises to give are recognized in the period the promises are made. Conditional promises to give are recognized when the conditions on which they depend are substantially met. (9)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Receivables Contributions and accounts receivable that are expected to be collected within one year are recorded at their net realizable value. Receivables that are expected to be collected in future years are recorded at the present value of the amount expected to be collected. The discounts on those amounts are computed using an imputed interest rate applicable to the year in which the pledge is received. Accounts are individually analyzed for collectability. Write-off of accounts receivable occurs when all collection efforts have been exhausted or certain conditions or forgiveness have been reached. No allowance for doubtful accounts has been provided as all accounts and grants receivable are considered collectible. Dividend income is recorded on the ex-dividend date. Equipment and Leasehold Improvements Expenditures of $2,500 or more for equipment are capitalized at cost while contributions of equipment are recorded at fair market value at date of donation. If donors stipulate how long the assets must be used, the contributions are recorded as restricted support. These restrictions are released over the useful life of the asset. Depreciation of equipment is provided through the use of the straight-line method. Leasehold improvements are depreciated by the straight-line method using estimated useful lives, or they are amortized over the remaining term of the lease, whichever is shorter. Collections The Schubert Club's collections, which were acquired through purchases and contributions since the Organization's inception, are not recognized as assets on the balance sheet. Purchases of collection items are recorded as decreases in unrestricted net assets in the year in which the items are acquired or as temporarily restricted net assets if the assets used to purchase the items are restricted by donors. Contributed collection items are not reflected on the financial statements. Proceeds from de-accessions or insurance recoveries are reflected as increases in the appropriate net asset classes. The Organization's collections are made up of historical musical instruments, manuscripts, and related materials that are held for educational and performance purposes. Each of the items is cataloged, preserved and cared for, and activities verifying their existence and assessing their condition are performed continuously. The collections are subject to a policy that requires proceeds from their sales to be used to acquire other items for collections. Investments The Schubert Club carries all investments at fair market value. The Organization provides for investments in a variety of investment funds. In general, investments are exposed to various risks, such as interest rate, credit and overall market volatility risk. Due to the level of risk associated with certain investments, it is reasonably possible that changes in the values of the investments will occur in the near term and that such changes could materially affect the investment balances and the amounts reported in the balance sheets. (10)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Contributions Unconditional contributions are recorded as support when received or pledged. If donorimposed restrictions accompany the contribution, the amount is recorded as temporarily or permanently restricted until the donor-imposed restrictions expire or are fulfilled. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire in the same reporting period in which the revenue is recognized. Temporarily restricted net assets are reclassified to unrestricted net assets in the period the donor-imposed restrictions expire or are fulfilled, and are reported in the Statements of Activities under the Support and Revenue Category - Released Net Assets. Government Grants Government grants are recorded as revenue when earned. Revenue is earned when the terms of each grant are met. Funds received but not yet earned are shown as refundable advances. Expenditures under government contracts are subject to review by the granting authority. To the extent, if any, that such a review reduces expenditures allowable under these contracts, The Schubert Club will record such disallowance at the time of the final assessment. Ticket Sales Revenue is recognized when a performance occurs. Tickets paid in advance of a performance are recorded as deferred revenue. Functional Allocation of Expense Salaries and related expenses are allocated based on job descriptions and the best estimate of management. Expenses, other than salaries and related expenses, which are not directly identifiable by program or support service, are allocated based on the best estimates of management. Development Costs incurred in conjunction with fundraising are shown in the financial statements under development. Advertising Advertising costs are expensed when incurred. Expense was $74,621 and $64,868 for the years ended June 30, 2012 and 2011, respectively. Income Tax The Organization has a tax exempt status under Section 501(c)(3) of the Internal Revenue Code and Minnesota Statute. It has been classified as an organization that is not a private foundation under the Internal Revenue Code and charitable contributions by donors are tax deductible. The Organization is liable for federal and state income tax on any unrelated business income. (11)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income Tax (Continued) The Organization has adopted the provisions of Accounting for Uncertainty in Income Taxes. This standard clarifies the accounting for uncertainty in income taxes recognized in an entity s financial statements and prescribes a recognition threshold for the financial statement recognition of tax positions taken or expected to be taken on a tax return that are not certain to be realized. The implementation of this standard had no impact on the Organization s financial statements. The Organization s tax returns are open to examinations for the years ending June 30, 2009 through 2011. Use of Estimates Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. Concentrations of Credit Risk Financial instruments which potentially subject the Organization to concentrations of credit risk consist primarily of cash, program service fees, and grants and contributions. The Organization maintains its cash reserves and cash balances in two financial institutions. At times, the amounts on deposit may exceed federally insured limits. The Schubert Club provides services within the Twin Cities area. The amounts due for services provided are from local residents and institutions. Contributions receivable are from a limited number of local residents and institutions. As of June 30, 2012, 81% of the pledge receivable balance was from 2 contributors and 58% of the balance was from 1 prior Board members. As of June 30, 2011, 77% of the pledge receivable balance was from 3 contributors and 63% of the balance was from 3 Board members. No concentration of contribution revenue existed as of June 30, 2012 and 2011. Fair Value Measurements The Organization follows the accounting standard on fair value. This standard defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and requires expanded disclosures about fair value measurements. The Organization accounts for a significant portion of its financial instruments at fair value or considers fair value in their measurement. In accordance with this standard, the Organization has categorized its financial instruments based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. (12)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value Measurements (Continued) The standard describes three levels of inputs that may be used to measure fair value. Level 1 Inputs: quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 Inputs: financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 3 Inputs: unobservable inputs for the asset or liability, that is, inputs that reflect the reporting entity s own assumptions about the assumptions market participants would use in pricing asset or liability (including risk assumptions) developed based on the best information available in the circumstances. Uniform Prudent Management of Institutional Funds Act In 2008, the Uniform Prudent Management of Institutional Funds Act (UPMIFA) became effective in the State of Minnesota. Accounting guidance was released which provides guidance on the classification of endowment fund net assets for states that have enacted versions of the Uniform Prudent Management of Institutional Funds Act (UPMIFA), and enhances disclosures for endowment funds. Under UPMIFA all unappropriated endowment fund assets are considered restricted. Subsequent Events In preparing these financial statements, the Organization has evaluated events and transactions for potential recognition or disclosure through September 11, 2012, the date the financial statements were available to be issued. NOTE 2 EQUIPMENT AND LEASEHOLD IMPROVEMENTS The Schubert Club owned the following at June 30: Estimated 2012 2011 Useful Lives Equipment $ 29,231 $ 33,392 5-10 Years Leasehold Improvements 766,357 770,114 5-10 Years 795,588 803,506 Less: Accumulated Depreciation 217,323 147,247 $ 578,265 $ 656,259 The leasehold improvements are being amortized over the life of the Museum lease (10 years). (13)
NOTE 3 INVESTMENTS Investments were comprised of the following at June 30: 2012 2011 CDs $ 105,250 $ 104,003 Money Market Funds 8,186 - Mutual Funds: Fixed Income 3,423,243 3,309,215 Equity 4,688,442 5,784,433 REITs 563,256 578,962 Real Assets 557,334 560,327 Exchange Traded Funds 1,146,727 1,190,863 Common Stocks 828,048 - Total $ 11,320,486 $ 11,527,803 In 2012 and 2011, the target asset allocation is 30% in fixed income, 60% in equities, 5% in real estate investment trusts, and 5% in real assets. Investment income consisted of the following at June 30: 2012 2011 Interest and Dividends $ 410,103 $ 297,709 Change in Unrealized Market Appreciation (Loss) (696,112) 1,818,819 Realized Gain on Sale of Investments 360,151 60,546 Total Investment Gain 74,142 2,177,074 Spending Rate Allocation - Operating (503,532) (515,352) Interest - Operating (1,868) (3,936) Endowment Investment Gain $ (431,258) $ 1,657,786 Endowment fund investment income is recorded in current operations under the "spending rate" method. Under this method, the Board determines an income level based on a moving average of endowment principal which will be available to operations each year. The "spending rate" percent was 4.70% and 4.75% for June 30, 2012 and 2011, respectively. In 2012, the spending rate exceeded the investment gains by $431,258. In 2011, investment gains exceeded the spending rate by $1,657,786. (14)
NOTE 4 FAIR VALUE MEASUREMENTS The following table presents the fair value hierarchy for the balances of the assets of the Organization measured at fair value on a recurring basis as of June 30, 2012 and 2011: 2012 Level 1 Level 2 Level 3 Total Investments: Mutual Funds: Money Market Funds $ 8,186 $ - $ - $ 8,186 Fixed Income 3,423,243 - - 3,423,243 Equity 4,688,442 - - 4,688,442 REITs 563,256 - - 563,256 Real Assets 557,334 - - 557,334 Exchange Traded Funds 1,146,727 - - 1,146,727 Common Stocks 828,048 - - 828,048 Total 11,215,236 - - 11,215,236 Certificate of Deposit 105,250 - - 105,250 Investments Total 11,320,486 - - 11,320,486 Community Foundation Holdings - - 386,289 386,289 Total $ 11,320,486 $ - $ 386,289 $ 11,706,775 2011 Level 1 Level 2 Level 3 Total Investments: Mutual Funds: Fixed Income $ 3,309,215 $ - $ - $ 3,309,215 Equity 5,784,433 - - 5,784,433 REITs 578,962 - - 578,962 Real Assets 560,327 - - 560,327 Exchange Traded Funds 1,190,863 - - 1,190,863 Total 11,423,800 - - 11,423,800 Certificate of Deposit 104,003 - - 104,003 Investments Total 11,527,803 - - 11,527,803 Community Foundation Holdings - - 407,040 407,040 Total $ 23,055,606 $ - $ 407,040 $ 11,934,843 (15)
NOTE 4 FAIR VALUE MEASUREMENTS (CONTINUED) The following table provides a summary of changes in fair value of the Organization s Level 3 financial assets for the years ended June 30, 2012 and 2011: 2012 2011 Beginning Balance $ 407,040 $ 351,951 Change in Value of Foundation Holdings (20,751) 55,089 Ending Balance $ 386,289 $ 407,040 Following is a description of the valuation methodologies used for assets measured at fair value: Money Market Funds: Valued at the net asset value (NAV) of shares held. Exchange Traded Funds: Valued at the closing price reported on the active market on which the individual securities are traded. Common Stock Funds: Valued at the closing price reported on the active market on which the individual securities are traded. Mutual Funds: Valued at the net asset value (NAV) of shares held. Community Foundation Holdings: Valued by inputs that are determined by the foundation. NOTE 5 CONTRIBUTIONS RECEIVABLE The balance of grants receivable included the following at June 30: 2012 2011 Total Contributions Receivable $ 409,810 $ 442,320 Discount to Present Value (1,731) (7,414) Net Contributions Receivable 408,079 434,906 Current Portion 361,368 262,942 Long-Term Portion $ 46,711 $ 171,964 Gross Amount Due in: Less than One Year $ 361,368 $ 262,942 One to Five Years 48,442 179,378 $ 409,810 $ 442,320 NOTE 6 UNRESTRICTED DESIGNATED NET ASSETS The Schubert Club board has designated endowment funds for scholarships, concerts, and other future activities. (16)
NOTE 7 COMMUNITY FOUNDATION HOLDINGS The Saint Paul Foundation maintains five (5) separate trust funds on behalf of The Schubert Club. The final interpretation of the accounting standard, Transfers of Assets to a Not-for Profit Organization or Charitable Trust that Raises Or Holds Contributions for Others, requires the Schubert Club to record a portion of one trust in its financial statements at fair market value. This trust has an aggregate market value of $386,289 and $407,040 as of June 30, 2012 and 2011, respectively. The remaining trusts are not recorded on the Organization s financial statements because the Saint Paul Foundation retains variance powers over these trusts. The trusts have an aggregate market value of $914,978 and $964,571 as of June 30, 2012 and 2011, respectively. Included in contributions is $44,367 and $47,236 of distributions from the Saint Paul Foundation, received by The Schubert Club during the years ended June 30, 2012 and 2011, respectively. NOTE 8 IN-KIND CONTRIBUTIONS The Schubert Club records donated material and professional services as contributions at their fair market value when received, if significant and measurable. The Organization received donated space in the years ended June 30, 2012 and 2011. The fair market value was $76,605 and $75,301, respectively. The Organization received donated services in the amount of $10,922 and $21,392 for the years ended June 30, 2012 and 2011, respectively. NOTE 9 RESTRICTED NET ASSETS Temporarily restricted net assets included the following at June 30: 2012 2011 Future Year Program Funding $ 556,312 $ 656,961 Excess Restricted Endowment Earnings 3,505,946 3,893,841 Program Restrictions 93,072 106,739 Future Year Donated Rent 36,576 33,988 Total Temporarily Restricted Net Assets $ 4,191,906 $ 4,691,529 (17)
NOTE 9 RESTRICTED NET ASSETS (CONTINUED) Permanently restricted net assets consists of the following categories at June 30: 2012 2011 General Endowment $ 2,113,690 $ 2,102,950 Performance 2,211,069 2,208,177 Museum 1,679,776 1,679,777 Education 499,424 499,425 Scholarship 1,366,446 1,364,444 Total Permanently Restricted Net Assets $ 7,870,405 $ 7,854,773 NOTE 10 NET ASSETS RELEASED FROM RESTRICTIONS Net assets were released from operating and other donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by donors: 2012 2011 Time Restrictions Elapsed - Operating $ 143,755 $ 157,910 Program Restrictions Met 65,045 878 $ 208,800 $ 158,788 NOTE 11 ENDOWMENT Board Designated and Donor Restricted Endowments The Organization has board designated and donor restricted endowment funds established to provide resources for its own operations and grants to the music community. As required by U.S. generally accepted accounting principles, net assets of the endowment fund are classified and reported based on the existence or absence of donor-imposed restrictions. The Board of Directors of the Organization has interpreted the state s Uniform Prudent Management of Institutional Funds Act (UPMIFA) as maintaining 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 Organization classifies as permanently restricted net assets the original value of the gifts to the permanent endowment and the 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 is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Organization in a manner consistent with the standard of prudence prescribed by UPMIFA. (18)
NOTE 11 ENDOWMENT (CONTINUED) Board Designated and Donor Restricted Endowments (Continued) From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the level the donor or UPMIFA requires the Organization to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature that are reported in unrestricted net assets were $(22,659) and $-0- as of June 30, 2012 and 2011, respectively. These deficiencies resulted from unfavorable market fluctuations in the endowment fund s investments and continued appropriations that were deemed prudent by the board of directors. The Organization 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 or for a donor-specified period as well as board-designated funds. Under this policy, as approved by the board of directors in 2009, the endowment assets are invested in the following classes: 60% equities, 30% fixed income, 5% real estate investment trusts, and 5% real assets. The Organization expects its endowment funds, over a 3-5 year business cycle, to provide a total annual return of 5% more than the consumer price index. Actual returns in any given year may vary from this amount. To satisfy its long-term rate-of-return objectives, the Organization 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 Organization targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. The Organization has a policy of targeting for distribution each year a declining percentage with a floor of 4.50% (4.70% and 4.75% for June 30, 2012 and 2011, respectively) of the endowment s 16 quarter moving average unit value calculated as of the calendar year-end preceding the fiscal year in which the distribution is planned. In establishing this policy, the Organization considered the long-term expected return on its endowment. Accordingly, over the long term, the Organization expects the current spending policy to allow its endowment to grow at the rate of inflation. This is consistent with the Organization s objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return. (19)
NOTE 11 ENDOWMENT (CONTINUED) Board Designated and Donor Restricted Endowments (Continued) The composition of endowment funds by type of fund are as follows for the years ended June 30: 2012 Temporarily Permanently Unrestricted Restricted Restricted Total Donor Restricted Endowment Funds $ - $ 3,505,946 $ 7,484,116 $ 10,990,062 Board Designated Endowment Funds 516,131 - - 516,131 Total Endowment Funds $ 516,131 $ 3,505,946 $ 7,484,116 $ 11,506,193 2011 Temporarily Permanently Unrestricted Restricted Restricted Total Donor Restricted Endowment Funds $ - $ 3,893,841 $ 7,447,733 $ 11,341,574 Board Designated Endowment Funds 559,495 - - 559,495 Total Endowment Funds $ 559,495 $ 3,893,841 $ 7,447,733 $ 11,901,069 The summary of changes in endowment net assets are as follows for the years ended June 30: 2012 Temporarily Permanently Unrestricted Restricted Restricted Total Endowment Fund Balance, June 30, 2011 $ 559,495 $ 3,893,841 $ 7,447,733 $ 11,901,069 Contributions - - 36,383 36,383 Investment Earnings (Losses) 3,471 68,803-72,274 Reunitization of Jazz Competition 227 2,223-2,450 Appropriations (24,403) (481,580) - (505,983) Transfers to Temporarily Restricted Due to Deficiencies in Endowment Funds (22,659) 22,659 - - Endowment Fund Balance, June 30, 2012 $ 516,131 $ 3,505,946 $ 7,484,116 $ 11,506,193 (20)
NOTE 11 ENDOWMENT (CONTINUED) 2011 Temporarily Permanently Unrestricted Restricted Restricted Total Endowment Fund Balance, June 30, 2010 $ 329,306 $ 2,466,244 $ 7,375,080 $ 10,170,630 Contributions - - 72,653 72,653 Investment Earnings (Losses) 108,258 2,064,880-2,173,138 Transfer of Unappropriated Amounts to Temporary Restricted - - - - Appropriations (25,499) (489,853) - (515,352) Transfers from Temporarily Restricted Due to Deficiencies in Endowment Funds 147,430 (147,430) - - Endowment Fund Balance, June 30, 2011 $ 559,495 $ 3,893,841 $ 7,447,733 $ 11,901,069 NOTE 12 TAX DEFERRED ANNUITY The Schubert Club contributes to a tax deferred annuity for eligible employees up to 10% of the eligible employees' salaries annually. Tax sheltered annuity expense was $45,055 and $50,816 for the years ended June 30, 2012 and 2011, respectively. NOTE 13 LEASES The Organization rents office and warehouse space under various lease agreements. The future annual rent commitments are as follows: Year Ending June 30, Amount 2013 $ 67,670 2014 67,670 2015 67,670 2016 67,670 2017 67,670 Thereafter 172,491 Total $ 510,841 Rental expense was $148,711 and $152,683 for the years ended June 30, 2012 and 2011, respectively, which includes rent paid and in-kind rent. (21)
NOTE 14 COMMITMENTS The Organization routinely enters into contracts for future guest artists and related hall rentals. As of June 30, 2012, contracts have been entered into with total potential expenditures of $286,500. NOTE 15 ARTS PARTNERSHIP AGREEMENT In 2007, the Arts Partnership, a distinct 501c(3) organization, was formed for the purpose of collaborating on activities related to the Ordway Center for the Arts. The Arts Partnership is exempt from income taxes as a nonprofit organization under the applicable federal and Minnesota income tax regulations and is governed by a board of directors. The board of directors consists of the CEOs and board representatives of the Minnesota Opera Company, Ordway Center for the Performing Arts (Ordway), The St. Paul Chamber Orchestra (SPCO) and The Schubert Club. The Ordway has three representatives, and the other organizations each have two representatives. The partnership is built on a Master Agreement, which addresses scheduling, rental rates, and other operating and financial issues with respect to the Ordway building on a long-term basis. The Minnesota Opera Company, Ordway, SPCO and The Schubert Club are Arts Partners as defined in the Master Agreement. The Organization can withdraw from the agreement with future notice specifying a withdrawal effective date as of June 30. Such notice can be no fewer than five years in the future. Under the terms of the agreement, the Organization has committed to a rental rate structure based on utilization. One of the initiatives of the Arts Partnership is to commence an Arts Partnership Campaign. The purpose of this campaign is to seek funding for renovations and enhancements to the Ordway building as well as to support partner utilization of the Ordway building through a subsidy of annual rental charges. The Organization receives revenue from the Arts Partnership Fund at the Saint Paul Foundation based on usage of the Ordway. The Organization received $20,885 and $18,657 for the years ended June 30, 2012 and 2011, respectively. (22)