CORE KNOWLEDGE FOUNDATION

Transcription

1 FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES As of and for the Years Ended December 31, 2015 and 2014 And Report of Independent Auditor

2 TABLE OF CONTENTS REPORT OF INDEPENDENT AUDITOR FINANCIAL STATEMENTS Statements of Financial Position... 3 Statements of Activities... 4 Statements of Cash Flows... 5 Notes to the Financial Statements SUPPLEMENTAL SCHEDULES Schedules of Functional Expenses

3 Report of Independent Auditor To the Board of Directors Core Knowledge Foundation Charlottesville, Virginia We have audited the accompanying financial statements of Core Knowledge Foundation (the Foundation ), which comprise the statements of financial position as of December 31, 2015 and 2014, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Core Knowledge Foundation as of December 31, 2015 and 2014, 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.

4 Other Matter Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The schedules of functional expenses on pages are presented for purposes of additional analysis and are not a required part of the 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 financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the 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 financial statements as a whole. Virginia Beach, Virginia May 12,

5 STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2015 AND 2014 ASSETS Current Assets: Unrestricted cash and cash equivalents $ 832,841 $ 873,525 Restricted cash and cash equivalents 55,592 87,321 Accounts receivable, net of allowance for doubtful accounts 23, ,217 Inventory 322, ,754 Prepaid expenses and other current assets 59,605 47,631 Total Current Assets 1,293,597 2,088,448 Investments 4,725,367 5,315,130 Property and equipment, net 584, ,492 Intangible assets, net 14,830 2,860 Total Assets $ 6,617,878 $ 8,033,930 LIABILITIES Current Liabilities: Accounts payable $ 65,900 $ 53,888 Accrued expenses 361,483 22,476 Deferred revenue 16,212 7,018 Total Current Liabilities 443,595 83,382 Net Assets: Unrestricted: Undesignated 4,075,960 5,805,514 Board designated 2,042,732 2,057,713 Total Unrestricted Net Assets 6,118,692 7,863,227 Temporarily Restricted 55,591 87,321 Total Net Assets 6,174,283 7,950,548 Total Liabilities and Net Assets $ 6,617,878 $ 8,033,930 The accompanying notes to the financial statements are an integral part of these statements. 3

6 STATEMENTS OF ACTIVITIES YEARS ENDED DECEMBER 31, 2015 AND Temporarily Temporarily Unrestricted Restricted Total Unrestricted Restricted Total Support and Revenue Contributions and grants: Grants $ - $ 20,000 $ 20,000 $ 18,349 $ - $ 18,349 Contributions 33,615 41,921 75,536 39,380 42,200 81,580 Total Contributions and Grants 33,615 61,921 95,536 57,729 42,200 99, Revenue: Book and publication sales, net 540, , , ,968 Contract revenue 1,059,688-1,059,688 3,460,274-3,460,274 Consulting fees 39,000-39,000 50,000-50,000 Royalty income 90,854-90, , ,446 Conference income ,120-95,120 Workshop fees 271, , , ,301 Interest and dividend income 160, , , ,837 Miscellaneous income 246, , , ,272 Realized and unrealized gain (loss) on investments, net (178,649) - (178,649) 112, ,445 Total Revenue 2,230,503-2,230,503 5,581,663-5,581,663 Net assets released from restrictions 93,651 (93,651) - 93,767 (93,767) - Total Support and Revenue 2,357,769 (31,730) 2,326,039 5,733,159 (51,567) 5,681,592 Expenses Program services 3,284,543-3,284,543 3,704,725-3,704,725 Support services 817, , , ,194 Total Expenses 4,102,304-4,102,304 4,643,919-4,643,919 Change in net assets (1,744,535) (31,730) (1,776,265) 1,089,240 (51,567) 1,037,673 Net assets, beginning of year 7,863,227 87,321 7,950,548 6,773, ,888 6,912,875 Net assets, end of year $ 6,118,692 $ 55,591 $ 6,174,283 $ 7,863,227 $ 87,321 $ 7,950,548 The accompanying notes to the financial statements are an integral part of these statements. 4

7 STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2015 AND 2014 Cash provided (used) by operations: Change in net assets $ (1,776,265) $ 1,037,673 Adjustments to reconcile change in net assets to net cash provided (used) by operating activities: Depreciation and amortization 57,728 72,745 Realized gain on sale of marketable equity securities (1,408) (127,212) Unrealized gain (loss) on marketable equity securities 180,057 14,767 Provision for uncollectible accounts (1,671) 3,269 Changes in assets and liabilities: Accounts receivable 595, ,673 Inventory 140,236 (56,449) Prepaid expenses and other current assets (11,974) (4,398) Accounts payable 12,012 (42,817) Accrued expenses 339,007 (52,513) Deferred revenue 9,194 2,023 Cash from operations (457,237) 1,005,761 Cash provided (used) by investing activities: Acquisition of marketable equity securities (19,443) (3,075,682) Proceeds from sale of marketable equity securities 430, ,530 Acquisition of property and equipment (14,190) (28,048) Acquisition of copyright (12,100) (2,860) Cash from investing activities 384,824 (2,483,060) Net decrease in cash and cash equivalents (72,413) (1,477,299) Cash and cash equivalents, beginning of year 960,846 2,438,145 Cash and cash equivalents, end of year $ 888,433 $ 960,846 Cash and cash equivalents reflected on the statements of financial position: Unrestricted $ 832,841 $ 873,525 Restricted 55,592 87,321 $ 888,433 $ 960,846 The accompanying notes to the financial statements are an integral part of these statements. 5

8 NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 AND 2014 Note 1 Nature of operations and summary of significant accounting policies Nature of Organization Core Knowledge Foundation (the Foundation ) was incorporated as a Virginia nonstock corporation in 1986 for the purpose of improving the quality of elementary education through the developed The Core Knowledge Sequence. The Foundation s three major activities and sources of revenue all further this purpose, and include conferences, periodic workshops, and the writing and publishing of various educational books and materials. Financial Statement Presentation The Foundation presents its financial statements in accordance with accounting standards for not-for-profit organizations. The Foundation is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. In addition, the Foundation is required to present statements of cash flow. Recognition of Support and Revenue Contributions and grants are recognized when the donor makes a promise to give to the Foundation that is, in substance, unconditional. Contributions and grants that are restricted by the donor are reported as an increase in unrestricted net assets if the restriction expires in the fiscal year in which the contribution or grant is recognized. All other donor-restricted contributions and grants are reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires, temporarily restricted net assets are reclassified as unrestricted. Revenue from services is recorded as the service is rendered. The Board of Directors has designated a portion of unrestricted net assets as an endowment fund. Investment income earned on these assets is reinvested in this fund. The endowment fund can be used to finance unrestricted operations as necessary. The Foundation is unable to reasonably estimate royalty revenues earned; therefore, royalty revenues are recognized when received. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions which affect reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents For purposes of the statement of cash flows, the Foundation considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Restricted cash and cash equivalents are limited for use in the preschool and reading programs. Accounts Receivable The Foundation s accounts receivable are due from public and private preschools and elementary schools throughout the United States that purchase the Foundation s various educational books and materials. The allowance for doubtful accounts is based upon historical losses experienced by the Foundation. Management closely monitors outstanding receivables and adjusts the allowance account as needed. The allowance for doubtful accounts on December 31, 2015 and 2014, was $2,241 and $3,912, respectively. The Foundation considers accounts receivable past due after 30 days. The Foundation does not charge interest on delinquent receivables. Inventory Inventory is comprised primarily of Core Knowledge publications and is stated at the lower of cost or market and is charged to cost of sales using the weighted average cost method. Shipping and Handling Costs Freight billed to customers is considered sales revenue and the related freight costs as cost of sales. 6

9 NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 AND 2014 Note 1 Nature of operations and summary of significant accounting policies (continued) Property and Equipment Property and equipment are reported at cost. Depreciation and amortization are computed using the straight-line method over an asset s estimated life, which range from three to ten years. Building and improvements are depreciated over 39 years. Expenditures for maintenance and repairs are expensed as incurred. The Foundation capitalizes property and equipment purchases greater than $500. Intangible Assets The Foundation amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives. Investments The Foundation follows the provisions of generally accepted accounting principles where investments in equity securities with readily determinable fair values and all investments in debt securities are reported at their fair values in the statements of financial position. Realized and unrealized gains or losses are reported in the statements of activities. Donated assets are recorded at fair value at the date of donation, or, if sold immediately after receipt, at the amount of sales proceeds received. Income Taxes The Foundation is an organization described in Section 501(c)(3) of the Internal Revenue Code and, accordingly, is exempt from federal and state income taxes under IRC 501(a). The Foundation has also been classified as an organization which is not a private foundation under IRC 509(a)(2). Therefore, no provision or liability for federal or state income taxes has been included in these financial statements. Management believes that the Foundation continues to satisfy the requirements of a tax-exempt organization and, therefore, has no uncertain income tax positions at December 31, 2015 and The Foundation is no longer subject to U.S. federal, state, and local income tax examinations by tax authorities for years before Advertising Advertising costs are expensed as incurred. These costs include advertising in educational magazines and publications and totaled $30,000 and $89,920 for December 31, 2015 and 2014, respectively. Functional Expenses Functional expenses are apportioned between program and support services based on personnel time and space utilized for the related activities. Some expense apportionments are estimates because of the overlap of activities and the difficulty of record keeping for usage. Specifically identifiable expenses are directly allocated. Fair Value The Foundation determines the fair market value of its financial instruments based on the fair value hierarchy established in accounting standards which require an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Accounting standards define fair value as the exchange price that would be received for an asset or liability in the most advantageous markets for the asset or liability in an orderly transaction between market participants on the measurement date. Accounting standards describe three levels of inputs that may be used to measure fair value: Level 1 Inputs are based on unadjusted quoted market prices within active markets. All of the Foundation s investments in mutual funds and common stocks are valued based on quoted market prices. Level 2 Inputs are based primarily on quoted prices for similar assets or liabilities in active or inactive markets. Level 3 Inputs are primarily valued using management s assumptions about the assumptions market participants would utilize in pricing the asset or liabilities. The Foundation also carries their cash and cash equivalents, accounts receivable, other receivables, accounts payable, and accrued expenses at fair value, which approximate cost. 7

10 NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 AND 2014 Note 2 Investments Investment activity for the years ended December 31, 2015 and 2014 is shown in the table below: Investments, beginning of year $ 5,315,130 $ 2,750,533 Acquisition of marketable equity securities 19,443 3,075,682 Sales of marketable equity securities (430,557) (612,478) Realized gains 1, ,160 Unrealized losses (180,057) (14,767) Investments, end of year $ 4,725,367 $ 5,315,130 Investments in marketable equity securities as of December 31, 2015 and 2014 are summarized as follows: Fair Fair Market Unrealized Market Unrealized Cost Value Appreciation Cost Value Appreciation Mutual funds $ 4,228,188 $ 4,725,367 $ 497,179 $ 4,637,894 $ 5,315,130 $ 677,236 Note 3 Property and equipment Property and equipment at year end consisted of: Building and improvements $ 608,273 $ 608,273 Computer hardware 434, ,104 Equipment 186, ,325 Furniture and fixtures 80,705 80,705 Land 186, ,662 Website and software 212, ,705 1,708,965 1,694,774 Less accumulated depreciation (1,124,881) (1,067,282) Property and equipment, net $ 584,084 $ 627,492 Depreciation expense for the years ended December 31, 2015 and 2014 amounted to $57,598 and $72,745, respectively. 8

11 NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 AND 2014 Note 4 Intangible assets Intangible assets at year end consisted of: Copyrights $ 14,960 $ 2,860 Less accumulated amortization (130) - Intangible assets, net $ 14,830 $ 2,860 Amortization expense for the years ended December 31, 2015 and 2014 amounted to $130 and $-0-, respectively. Amortization expense for the next five years is $157. Note 5 Line of credit The Foundation has a line of credit with Bank of America with a maximum availability of $1,000,000 and a variable interest rate equal to the daily LIBOR rate plus 2%. The interest rate in effect at December 31, 2015 was 2.42%. The line of credit is collateralized by equipment, inventory, and receivables of the Foundation plus the Foundation s real property located in Charlottesville, Virginia. The expiration date of the line is July 31, At December 31, 2015 and 2014, there were no amounts outstanding. Note 6 Temporarily restricted net assets Temporarily restricted net assets have donor-imposed restrictions which expire upon the passage of time or once the Foundation undertakes specific actions. At December 31, 2015 and 2014, temporarily restricted net assets are available for the following purposes: Preschool programs $ 55,591 $ 45,121 Other programs - 42,200 $ 55,591 $ 87,321 Net assets were released from donor restrictions by incurring expenses satisfying the specified purpose or time restrictions specified by donor as follows: Reading program $ - $ 352 Preschool programs 20,530 93,415 Other programs 73,121 - $ 93,651 $ 93,767 9

12 NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 AND 2014 Note 7 Book and publication sales Book and publication sales at December 31, 2015 and 2014 consisted of the following: Book and publication sales $ 769,887 $ 911,023 Shipping and handling revenue 46,557 61,652 Cost of sales (267,246) (295,268) Sales discounts (8,321) (10,439) $ 540,877 $ 666,968 Note 8 Royalty income The Foundation has granted licenses to certain publishers to publish and sell specified educational materials developed by the Foundation. The Foundation receives royalties based upon net retail sales of licensed materials less a reasonable reserve for returnable copies. The Foundation received royalties of $90,854 and $557,446 during 2015 and 2014, respectively. Note 9 Retirement plans The Foundation sponsors a Simplified Employee Pension ( SEP ) plan. This plan was amended in 2006 to increase the eligibility requirement for length of service to two years. The Board of Directors determines the SEP contribution each year which was $-0- for 2015 and The Foundation also maintains a plan described in IRC 403(b) under which employees may contribute funds within specified limits. The Foundation does not match employees discretionary contributions. Note 10 Operating leases The Foundation leases office facilities, equipment, and parking spaces under long-term leases. Rental expense under long-term lease obligations amounts to $93,035 and $109,045 for 2015 and 2014, respectively. Future minimum lease payments under operating leases at December 31, 2015 are: Note 11 Concentrations 2016 $ 68, , ,727 The Foundation places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation covers $250,000 for substantially all depository accounts. The Foundation from time to time may have amounts on deposit in excess of the insured limits. As of December 31, 2015, the Foundation had $67,679 which exceeded these insured amounts. Approximately 44% of the Foundation s contract revenue was derived from two customers for the year ended December 31, 2015 and 52% of the Foundation s contract revenue was derived from one customer for the year ended December 31, Approximately 68% of accounts receivable is due from two customers at December 31, 2015 and 97% of accounts receivable is due from one customer at December 31,

13 NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 AND 2014 Note 12 Board designated endowment fund The Foundation s Board-designated endowment consists of a SunTrust Investment Services fund. As required by generally accepted accounting principles in the United States of America, net assets associated with endowment funds, including funds designated by the Board to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. Changes in unrestricted, Board-designated endowment net assets for the years ended December 31, 2015 and 2014 are as follows: Endowment net assets, beginning of year $ 2,057,713 $ 1,911,822 Investment return: Investment income, net of expense 42,629 42,713 Net unrealized appreciation (depreciation) (57,610) 103,178 Total investment return (14,981) 145,891 Endowment net assets, end of year $ 2,042,732 $ 2,057,713 Return Objectives and Risk Parameters The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets as recommended by the Board of Directors. Endowment assets include Board-designated funds. Because of its long-term investment perspective, the Foundation believes that its overall risk posture is above average relative to many other taxexempt entities which may be more risk averse and more oriented toward fixed income investments, and that, consequently, a higher than average equity exposure is appropriate for the invested assets. Actual returns in any given year may vary from expected amounts. The Foundation is willing to withstand short-term volatility associated with investment in mutual funds and/or indices to achieve a higher expected long-term rate of return. Strategies Employed for Achieving Objectives Diversification across equity investments can best be achieved through investments in mutual funds and/or indices. Similarly, diversification among asset classes will be limited until significant capital appreciation is achieved. The Board of Directors will routinely evaluate the various investment options available by considering the historical rates of return and the level of risk associated with each. It has been determined that, over the long term, the allocation among various asset classes might be the most important determinant of investment performance and that an allocation among them is appropriate. Establishment of Endowment and Withdrawal Policy The Board of Directors designated the initial amount of corpus of the endowment. Subsequent contributions and capital appreciation (or losses) also become corpus. The initial designation of the amount of corpus, subsequent contributions, and any withdrawals must be approved by the Board of Directors. Withdrawals are not contemplated until such time, in the judgment of the Board of Directors, the endowment has grown sufficiently that it can reasonably accommodate withdrawals or that organizational priorities have changed. Note 13 Subsequent events In connection with the preparation of these financial statements the Foundation has evaluated subsequent events through May 12, 2016, which is the date the financial statements were available to be issued. 11

14 SUPPLEMENTAL SCHEDULES

15 SCHEDULE OF FUNCTIONAL EXPENSES YEAR ENDED DECEMBER 31, 2015 Supporting Services Program Management Total Services and General Fundraising Total Expenses Advertising $ 30,000 $ - $ - $ - $ 30,000 Bad debt recoveries - (1,676) - (1,676) (1,676) Bank and merchant fees 22 13,104-13,104 13,126 Consultants 137, ,581 Contract labor 20, ,580 Copying and printing 40, ,184 Depreciation and amortization 5,576 52,152-52,152 57,728 Donations 247, ,686 Dues and subscriptions 21,371 20,688-20,688 42,059 Employee benefits 119,120 23,332-23, ,452 Equipment rental and maintenance 359 1,424-1,424 1,783 Facility and hotel rental Fees for use of copyright materials 5, ,488 Food and beverage 3,527 1,024-1,024 4,551 Insurance - 27,654-27,654 27,654 Licenses and permits 7,777 2,315-2,315 10,092 Maintenance and repair 2,602 18,326-18,326 20,928 Miscellaneous 16,828 3,868-3,868 20,696 Payroll taxes 176,160 22, , ,334 Postage and shipping 41,672 3,847-3,847 45,519 Professional development 1,585 2,602-2,602 4,187 Professional fees 17, , , ,397 Publications development 21, ,147 Real and personal property taxes - 14,559-14,559 14,559 Rent - 93,035-93,035 93,035 Royalty expense 1, ,651 Salaries 2,280, ,736 3, ,734 2,587,035 Supplies and materials 4,897 7,315-7,315 12,212 Telephone ,346-28,346 28,540 Travel and transportation 79,810 28,811-28, ,621 Utilities - 10,624-10,624 10,624 $ 3,284,543 $ 813,457 $ 4,304 $ 817,761 $ 4,102,304 12

16 SCHEDULE OF FUNCTIONAL EXPENSES YEAR ENDED DECEMBER 31, 2014 Supporting Services Program Management Total Services and General Fundraising Total Expenses Advertising $ 58,891 $ 31,029 $ - $ 31,029 $ 89,920 Bad debt expense - 5,780-5,780 5,780 Bank and merchant fees 7 15,508-15,508 15,515 Consultants 233, ,348 Copying and printing 96,184 2,174-2,174 98,358 Depreciation and amortization 14,822 57,923-57,923 72,745 Dues and subscriptions 15,464 29,871-29,871 45,335 Employee benefits 174,636 38,113 4,086 42, ,835 Equipment rental and maintenance 1,942 3,016-3,016 4,958 Facility and hotel rental 44, ,245 Fees for use of copyright materials 122, ,762 Food and beverage 5,224 1,273-1,273 6,497 Insurance - 29,603-29,603 29,603 Licenses and permits 2,552 2,409-2,409 4,961 Maintenance and repair 1,800 21,356-21,356 23,156 Miscellaneous 8,668 7,534-7,534 16,202 Payroll taxes 166,961 43,151 2,084 45, ,196 Postage and shipping 58,009 3,768-3,768 61,777 Professional development 27,313 2,019-2,019 29,332 Professional fees 54, , , ,717 Publications development 165, ,471 Real and personal property taxes - 14,507-14,507 14,507 Rent 19,840 89,205-89, ,045 Royalty expense 1, ,998 Salaries 2,243, ,049 27, ,289 2,582,604 Speaker fees 7, ,950 Supplies and materials 39,349 8,590-8,590 47,939 Telephone ,274-27,274 27,582 Travel and transportation 138,675 13,180-13, ,855 Utilities - 9,726-9,726 9,726 $ 3,704,725 $ 905,784 $ 33,410 $ 939,194 $ 4,643,919 13