GRACE CHURCH CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2013 AND 2012

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2013 AND 2012

2 TABLE OF CONTENTS YEARS ENDED MAY 31, 2013 AND 2012 INDEPENDENT AUDITORS REPORT 1 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 3 CONSOLIDATED STATEMENTS OF ACTIVITIES 5 CONSOLIDATED STATEMENTS OF CASH FLOWS 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8 SUPPLEMENTARY INFORMATION CONSOLIDATING STATEMENT OF FINANCIAL POSITION 14

3 INDEPENDENT AUDITORS REPORT Board of Directors Grace Church Minneapolis, Minnesota Report on the Financial Statements We have audited the accompanying consolidated financial statements of Grace Church (the Church), which comprise the consolidated statements of financial position as of May 31, 2013 and 2012, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Church s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. An independent member of Nexia International (1)

4 Board of Directors Grace Church Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Church as of May 31, 2013 and 2012, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Report on Supplementary Information Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The Consolidating Statement of Financial Position is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. CliftonLarsonAllen LLP Minneapolis, Minnesota August 21, 2013 (2)

5 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION MAY 31, 2013 AND 2012 ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 3,374,741 $ 5,140,693 Accounts Receivable 24,877 26,724 Inventories 76, ,192 Prepaid Expenses 217, ,449 Total Current Assets 3,693,807 5,464,058 PROPERTY AND EQUIPMENT Land and Improvements 8,528,455 8,528,455 Buildings and Improvements 51,171,405 48,527,252 Construction in Progress - 1,456,536 Furniture and Equipment 5,360,491 5,036,969 Vehicles 283, ,002 Property and Equipment 65,343,353 63,832,214 Less: Accumulated Depreciation (18,290,996) (16,704,737) Total Property and Equipment 47,052,357 47,127,477 OTHER ASSETS Financing Costs 214, ,000 Total Assets $ 50,960,229 $ 52,737,535 See accompanying Notes to Consolidated Financial Statements. (3)

6 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Long-Term Debt, Current $ 372,722 $ 269,840 Capital Lease Obligations, Current 195, ,809 Accounts Payable 65, ,026 Accrued Payroll and Vacation 531, ,148 Accrued Expenses 12,965 12,992 Total Current Liabilities 1,178,237 1,793,815 LONG-TERM LIABILITIES Long-Term Debt 9,166,455 10,932,464 Capital Lease Obligations 202, ,077 Total Long-Term Liabilities 9,369,346 11,290,541 Total Liabilities 10,547,583 13,084,356 NET ASSETS Unrestricted: Undesignated 735,863 16,114 Designated - Property and Equipment 37,115,078 35,352,287 Designated - Other 1,487,810 1,090,103 Total Unrestricted 39,338,751 36,458,504 Temporarily Restricted 1,073,895 3,194,675 Total Net Assets 40,412,646 39,653,179 Total Liabilities and Net Assets $ 50,960,229 $ 52,737,535 (4)

7 CONSOLIDATED STATEMENT OF ACTIVITIES YEAR ENDED MAY 31, 2013 Temporarily Unrestricted Restricted Total SUPPORT AND REVENUE Local Contributions $ 8,620,401 $ - $ 8,620,401 Mission Contributions - 2,509,531 2,509,531 Land and Building Contributions - 1,331,360 1,331,360 Other Restricted Contributions - 131, ,602 Bookstore 180, ,856 Funshine Tuition Fees 164, ,822 Food Service Income 821, ,297 Retreat Center 24,632-24,632 Loss on Sale of Capital Assets (16,365) - (16,365) Other Income 36,657-36,657 Net Assets Released from Restrictions 6,093,273 (6,093,273) - Total Support and Revenue 15,925,573 (2,120,780) 13,804,793 EXPENSES Programs: Local Worship and Ministry 7,752,816-7,752,816 Missions 2,561,549-2,561,549 Other Program and Restricted Expenditures 293, ,192 Bookstore 200, ,221 Funshine 207, ,503 Food Service 914, ,270 Retreat Center 238, ,286 Total Programs 12,167,837-12,167,837 Support Services: General and Administrative 799, ,548 Fundraising 77,941-77,941 Total Support Services 877, ,489 Total Expenses 13,045,326-13,045,326 CHANGE IN NET ASSETS 2,880,247 (2,120,780) 759,467 Net Assets - Beginning 36,458,504 3,194,675 39,653,179 NET ASSETS - ENDING $ 39,338,751 $ 1,073,895 $ 40,412,646 See accompanying Notes to Consolidated Financial Statements. (5)

8 CONSOLIDATED STATEMENT OF ACTIVITIES YEAR ENDED MAY 31, 2012 Temporarily Unrestricted Restricted Total SUPPORT AND REVENUE Local Contributions $ 7,929,018 $ - $ 7,929,018 Mission Contributions - 2,524,958 2,524,958 Land and Building Contributions - 401, ,787 Other Restricted Contributions - 224, ,142 Bookstore 200, ,158 Funshine Tuition Fees 153, ,707 Food Service Income 693, ,375 Retreat Center 33,614-33,614 Gain on Sale of Capital Assets (5,925) - (5,925) Other Income 34,747-34,747 Net Assets Released from Restrictions 3,380,387 (3,380,387) - Total Support and Revenue 12,419,081 (229,500) 12,189,581 EXPENSES Programs: Local Worship and Ministry 7,098,171-7,098,171 Missions 2,427,243-2,427,243 Other Program and Restricted Expenditures 904, ,644 Bookstore 232, ,761 Funshine 220, ,545 Food Service 628, ,248 Retreat Center 356, ,851 Total Programs 11,868,463-11,868,463 Support Services: General and Administrative 621, ,117 Fundraising 14,000-14,000 Total Support Services 635, ,117 Total Expenses 12,503,580-12,503,580 CHANGE IN NET ASSETS (84,499) (229,500) (313,999) Net Assets - Beginning 36,543,003 3,424,175 39,967,178 NET ASSETS - ENDING $ 36,458,504 $ 3,194,675 $ 39,653,179 See accompanying Notes to Consolidated Financial Statements. (6)

9 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MAY 31, 2013 AND CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets $ 759,467 $ (313,999) Adjustments to Reconcile Change in Net Assets to Net Cash and Cash Equivalents Provided by Operating Activities: Depreciation and Amortization 1,650,192 1,867,601 Contributions Restricted for Capital Expenditures and Financing (1,331,360) (401,787) Loss on Sale of Assets 16,365 5,925 (Increase) Decrease in Current Assets: Accounts and Contract Receivable 1,847 7,865 Inventories 23,883 7,230 Prepaid Expenses (21,431) 310,297 Increase in Current Liabilities: Accounts Payable (819,365) 573,585 Accrued Expenses 120,503 80,079 Net Cash and Cash Equivalents Provided by Operating Activities 400,101 2,136,796 CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures (1,565,692) (1,643,861) Proceeds from Sale of Assets - 37,470 Net Cash and Cash Equivalents Used by Investing Activities (1,565,692) (1,606,391) CASH FLOWS FROM FINANCING ACTIVITIES Contributions Restricted for Capital Expenditures and Financing 1,331, ,787 Payments on Long-Term Debt and Capital Leases (1,863,656) (1,220,298) Payment of Financing Costs (68,065) (146,000) Net Cash and Cash Equivalents Used by Financing Activities (600,361) (964,511) NET DECREASE IN CASH AND CASH EQUIVALENTS (1,765,952) (434,106) Cash and Cash Equivalents - Beginning 5,140,693 5,574,799 CASH AND CASH EQUIVALENTS - ENDING $ 3,374,741 $ 5,140,693 SUPPLEMENTAL INFORMATION Cash Paid for Interest During the Period $ 422,706 $ 886,516 Equipment Financed with Capital Leases $ 25,745 $ 458,579 See accompanying Notes to Consolidated Financial Statements. (7)

10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 2013 AND 2012 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operation Grace Church in Eden Prairie, Minnesota was established in 1942, and incorporated in The Church is incorporated under the laws of the State of Minnesota. The Church is a non-profit organization dedicated to spreading the gospel through the establishment, development, and promotion of all aspects of church ministry and missionary activity. Financial Statement Presentation Net assets, revenues, gains and losses are classified based on donor imposed restrictions. Accordingly, net assets of the Church and changes therein are classified and reported as: Unrestricted Resources over which the board of elders have discretionary control. Designated amounts represent those revenues which the board has set aside for a particular purpose. Temporarily Restricted Those resources subject to donor imposed restrictions which will be satisfied by actions of the Church or passage of time. Permanently Restricted - Those resources subject to a donor imposed restriction that they be maintained permanently by the Church. The Church has no permanently restricted net assets. Principles of Consolidation The consolidated financial statements include the accounts of Grace Church and its wholly owned limited liability company organized in 2010, Grace Church Retreat Center, LLC. All material intercompany transactions have been eliminated. Estimates Management uses estimates and assumptions in preparing consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. 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. Cash and Cash Equivalents Cash and cash equivalents include all cash and money market funds with original maturities of less than three months. The Church maintains its accounts primarily at two financial institutions. At times throughout the year, the Church s cash deposited in financial institutions may exceed FDIC insurance limits. Accounts and Contract Receivable Accounts receivable balance includes amounts due from food service and facility rental activities. Payments are due 30 days after receipt of the invoice. Amounts are recorded at their net realizable value. As of May 31, 2013 and 2012, management s evaluation of outstanding accounts receivable concluded that no allowance for bad debts is required. (8)

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 2013 AND 2012 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Inventories Inventories consist primarily of books, brochures and food service items. Inventories are stated at the lower of cost or market with cost determined by the first-in, first-out or specific identification method. Loan Financing Costs During the year ended May 31, 2012, the Church paid a financing fee in order to lock a fixed interest rate for a ten-year period. Loan financing costs of $146,000 that will be amortized on a straight-line method over the ten-year term of the rate lock agreement. The rate lock and debt agreements became effective during the year ending May 31, 2013 when the Church began amortization. There was $82,665 of additional financing costs that occurred during the year ended May 31, 2013 that will be amortized over a straight-line method over the tenyear term of the rate lock agreement. Property and Equipment Property and equipment purchases are stated at cost for purchased items and at fair market value at date of donation for contributed items. If donors stipulate how long the assets must be used, the contributions are recorded as restricted support. In the absence of such stipulation, contributions of property and equipment are recorded as unrestricted. The Church uses the straight-line method of depreciation over the estimated useful lives of the asset. The present values of capital lease obligations are classified as long-term debt and the related assets are included in equipment. Amortization of equipment under capital leases is included in depreciation expense. Construction in progress represents costs incurred related to current renovations at the Church and Retreat Center. Upon completion of the renovations, the total capitalized costs will be depreciated over respective estimated useful lives using the straight-line method of depreciation. As of May 31, 2013, the total capitalized construction in progress is $-0-. The $1,456,536 of capitalized construction in progress from the year ended May 31, 2012, was transferred into fixed assets upon completion. Fair Value Measurements The Church follows a standard on fair value measurements that 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 Church has no assets or liabilities valued at fair value on a recurring basis at May 31, 2013 and (9)

12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 2013 AND 2012 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Functional Allocation of Expense The Church s expenses are presented on a functional basis, showing basic program activities and supporting services. The Church allocates expenses to program activities and supporting services based on the organizational cost centers (functional units) in which the expenses are incurred. Tax Exempt Status The Church is incorporated under the laws of the State of Minnesota as a nonprofit corporation and is exempt from Federal and Minnesota income taxes under Section 501(c)(3) of the Internal Revenue Code and under Section , Subdivision 1(i) of Minnesota Statutes. Charitable contributions are, therefore, deductible. Grace Church Retreat Center, LLC is a wholly owned subsidiary of the Church and its activities are included with the activities of the Church. The Church follows the provisions of Accounting for Uncertainty in Income Taxes. The Church is not aware of any activities that would jeopardize its tax exempt status. However, should that status be challenged in the future, all years since inception would be subject to review and examination by federal and state authorities. Reclassifications Certain reclassifications have been made to the May 31, 2012 financial statements in order to present them in conformity with the May 31, 2013 balances. These reclassifications had no impact on the change of net assets previously reported at May 31, Subsequent Events In preparing these consolidated financial statements, the Church has evaluated events and transactions for potential recognition or disclosure through August 21, 2013, the date the consolidated financial statements were available to be issued. NOTE 2 LINE OF CREDIT BANK In 2012, the Church entered into a revolving line of credit agreement with Bremer Bank. The line permits for total advances of $1,000,000 through maturity on July 31, Interest on the line is calculated at 3% over the 30-day LIBOR rate paid monthly, with principal paid on maturity. The line is subject certain reporting and financial covenants and is secured by the Church s Eden Prairie property and equipment. (10)

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 2013 AND 2012 NOTE 3 LONG-TERM DEBT In 2012, the Church refinanced $11,200,000 with Bremer Bank of its then existing outstanding balances on notes payable with US Bank. The refinance agreement adjusted the interest rate and extended the maturity date. The refinance agreement is subject to certain reporting and financial covenants. The long-term debt future maturities and terms disclosed have been adjusted for this subsequent refinance. Long-term debt consists of the following at May 31, 2013 and 2012: Description Note Payable - Bremer Bank, fixed interest rate at 4.44% with monthly principal and interest payments of $70,883 through July 31, Interest rate to be reset to 5-Year LIBOR % on July 31, 2022, adjusting monthly payments and balloon payment due on maturity date of July 31, Balance secured by the Eden Prairie property and equipment. $ 9,539,177 $ 11,202,304 Less: Current Maturities 372, ,840 Long-Term Debt $ 9,166,455 $ 10,932,464 Scheduled maturities of long-term debt are as follows: Year Ending May 31, Amount 2014 $ 372, , , , ,013 Thereafter 7,498,842 Total $ 9,539,177 (11)

14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 2013 AND 2012 NOTE 4 LEASE OBLIGATIONS Capital Lease Obligations The Church leases various items of equipment and vehicles under long-term lease agreements. The leases, which are accounted for as capital leases, expire at various dates. The cost of equipment recorded under capital leases is $1,793,129 and $1,767,384 and accumulated depreciation of $1,221,521 and $1,064,222 at May 31, 2013 and 2012, respectively. Future minimum lease payments are as follows: Year Ending May 31, Amount 2014 $ 176, , , ,194 Subtotal 373,338 Less: Amount Representing Interest 24,764 Total 398,102 Less: Current Maturities 195,211 Long-Term Capital Leases $ 202,891 Operating Lease Obligations The Church leases equipment under long-term operating lease agreements. Future minimum rental payments under these operating leases are as follows: Year Ending May 31, Amount 2014 $ 6, , ,500 Total $ 13,500 Rent expense for the years ended May 31, 2013 and 2012 was $16,615 and $31,714, respectively. (12)

15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 2013 AND 2012 NOTE 5 NET ASSETS Temporarily Restricted Temporarily restricted net assets consist of the following at May 31, 2013 and 2012: Missions $ 385,310 $ 437,328 Church Programs 688,585 2,757,347 Total $ 1,073,895 $ 3,194,675 Net Assets Released Net assets released consist of the following at May 31, 2013 and 2012: Missions $ 3,531,724 $ 2,427,243 Church Programs 2,561, ,144 Total $ 6,093,273 $ 3,380,387 Unrestricted - Designated Unrestricted- Designated net assets consist of the following at May 31, 2013 and 2012: Missions $ 192,241 $ 204,531 Church Programs 1,295, ,572 Total $ 1,487,810 $ 1,090,103 NOTE 6 INTEREST EXPENSE The Church recorded interest expense in the amount of $422,706 and $886,516 for the years ended May 31, 2013 and 2012, respectively. NOTE 7 EMPLOYEE TAX SHELTERED ANNUITY PROGRAM The Church makes discretionary contributions up to 8% of eligible full-time employees salaries to a 403(b) type of retirement plan. Contributions totaled $91,846 and $92,047 for the years ended May 31, 2013 and 2012, respectively. (13)

16 CONSOLIDATING STATEMENT OF FINANCIAL POSITION MAY 31, 2013 (WITH COMBINED COMPARATIVE TOTALS AS OF MAY 31, 2012) ASSETS Grace Church Grace Retreat Church Center, LLC Eliminations Consolidated Consolidated CURRENT ASSETS Cash and Cash Equivalents $ 3,374,741 $ - $ - $ 3,374,741 $ 5,140,693 Accounts Receivable 24, ,877 26,724 Due from Retreat Center 1,102,570 - (1,102,570) - - Inventories 76, , ,192 Prepaid Expenses 217, , ,449 Total Current Assets 4,796,377 - (1,102,570) 3,693,807 5,464,058 PROPERTY AND EQUIPMENT Land and Improvements 7,518,455 1,010,000-8,528,455 8,528,455 Buildings and Improvements 47,556,352 3,615,053-51,171,405 48,527,252 Construction in Progress ,456,536 Furniture and Equipment 4,993, ,534-5,360,491 5,036,969 Vehicles 283, , ,002 Property and Equipment 60,351,766 4,991,587-65,343,353 63,832,214 Less: Accumulated Depreciation (17,599,231) (691,765) - (18,290,996) (16,704,737) Total Property and Equipment 42,752,535 4,299,822-47,052,357 47,127,477 OTHER ASSETS Financing Costs 214, , ,000 Total Assets $ 47,762,977 $ 4,299,822 $ (1,102,570) $ 50,960,229 $ 52,737,535 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Long-Term Debt, Current $ 372,722 $ - $ - $ 372,722 $ 269,840 Capital Lease Obligations, Current 195, , ,809 Accounts Payable 65, , ,026 Due to Church - 1,102,570 (1,102,570) - - Accrued Payroll and Vacation 531, , ,148 Accrued Expenses 12, ,965 12,992 Total Current Liabilities 1,178,237 1,102,570 (1,102,570) 1,178,237 1,793,815 LONG-TERM LIABILITIES Long-Term Debt 9,166, ,166,455 10,932,464 Capital Lease Obligations 202, , ,077 Total Long-Term Liabilities 9,369, ,369,346 11,290,541 Total Liabilities 10,547,583 1,102,570 (1,102,570) 10,547,583 13,084,356 NET ASSETS Unrestricted: Undesignated 1,838,433 (1,102,570) - 735,863 16,114 Designated - Property and Equipment 32,815,256 4,299,822-37,115,078 35,352,287 Designated - Other 1,487, ,487,810 1,090,103 Total Unrestricted 36,141,499 3,197,252-39,338,751 36,458,504 Temporarily Restricted 1,073, ,073,895 3,194,675 Total Net Assets 37,215,394 3,197,252-40,412,646 39,653,179 Total Liabilities and Net Assets $ 47,762,977 $ 4,299,822 $ (1,102,570) $ 50,960,229 $ 52,737,535 (14)