GRACE CHURCH CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2012 AND 2011

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2012 AND 2011

2 TABLE OF CONTENTS YEARS ENDED MAY 31, 2012 AND 2011 INDEPENDENT AUDITORS REPORT 1 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 2 CONSOLIDATED STATEMENTS OF ACTIVITIES 4 CONSOLIDATED STATEMENTS OF CASH FLOWS 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION 13 SUPPLEMENTARY INFORMATION CONSOLIDATING STATEMENT OF FINANCIAL POSITION 14

3 INDEPENDENT AUDITORS REPORT Board of Elders Grace Church Eden Prairie, Minnesota We have audited the accompanying consolidated statements of financial position of Grace Church as of May 31, 2012 and 2011, and the related consolidated statements of activities and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Church's management. 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Grace Church as of May 31, 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. Minneapolis, Minnesota August 2, 2012 CliftonLarsonAllen LLP An independent member of Nexia International (1)

4 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION MAY 31, 2012 AND 2011 ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 5,140,693 $ 5,574,799 Accounts Receivable 26,724 34,589 Inventories 100, ,422 Prepaid Expenses 196, ,746 Total Current Assets 5,464,058 6,223,556 PROPERTY AND EQUIPMENT Land and Improvements 8,528,455 8,276,678 Land Held for Sale - 251,777 Buildings and Improvements 48,527,252 48,256,942 Construction in Progress 1,456,536 - Furniture and Equipment 5,036,969 5,818,899 Vehicles 283, ,666 Property and Equipment 63,832,214 62,790,962 Less: Accumulated Depreciation (16,704,737) (15,854,929) Total Property and Equipment 47,127,477 46,936,033 OTHER ASSETS Financing Costs 146,000 - Total Assets $ 52,737,535 $ 53,159,589 See accompanying Notes to Consolidated Financial Statements. (2)

5 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Long-Term Debt, Current $ 269,840 $ 831,029 Capital Lease Obligations, Current 214, ,823 Accounts Payable 885, ,441 Accrued Payroll and Vacation 411, ,296 Accrued Expenses 12,992 11,765 Total Current Liabilities 1,793,815 1,604,354 LONG-TERM LIABILITIES Long-Term Debt 10,932,464 11,382,745 Capital Lease Obligations 358, ,312 Total Long-Term Liabilities 11,290,541 11,588,057 Total Liabilities 13,084,356 13,192,411 NET ASSETS Unrestricted: Undesignated 322, ,465 Designated - Property and Equipment 35,352,287 34,399,124 Designated - Other 783,321 1,514,414 Total Unrestricted 36,458,504 36,543,003 Temporarily Restricted 3,194,675 3,424,175 Total Net Assets 39,653,179 39,967,178 Total Liabilities and Net Assets $ 52,737,535 $ 53,159,589 (3)

6 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 Loss on Sale of Capital Assets (5,925) - (5,925) Interest Income 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. (4)

7 CONSOLIDATED STATEMENT OF ACTIVITIES YEAR ENDED MAY 31, 2011 Temporarily Unrestricted Restricted Total SUPPORT AND REVENUE Local Contributions $ 7,513,580 $ - $ 7,513,580 Mission Contributions - 2,722,231 2,722,231 Land and Building Contributions - 364, ,745 Other Restricted Contributions - 3,018,771 3,018,771 Bookstore 167, ,144 Funshine Tuition Fees 125, ,909 Food Service Income 646, ,880 Retreat Center 22,805-22,805 Gain on Sale of Capital Assets 374, ,485 Interest Income 4, ,621 Other Income 26,185-26,185 Net Assets Released from Restrictions 3,003,708 (3,003,708) - Total Support and Revenue 11,885,277 3,102,079 14,987,356 EXPENSES Programs: Local Worship and Ministry 6,241,955-6,241,955 Missions 2,595,176-2,595,176 Other Program and Restricted Expenditures 539, ,770 Bookstore 195, ,491 Funshine 198, ,914 Food Service 872, ,982 Retreat Center 538, ,482 Total Programs 11,182,770-11,182,770 Support Services: General and Administrative 762, ,711 Fundraising Total Support Services 762, ,711 Total Expenses 11,945,481-11,945,481 CHANGE IN NET ASSETS (60,204) 3,102,079 3,041,875 Net Assets - Beginning 36,603, ,096 36,925,303 NET ASSETS - ENDING $ 36,543,003 $ 3,424,175 $ 39,967,178 See accompanying Notes to Consolidated Financial Statements. (5)

8 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MAY 31, 2012 AND CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets $ (313,999) $ 3,041,875 Adjustments to Reconcile Change in Net Assets to Net Cash and Cash Equivalents Provided by Operating Activities: Depreciation and Amortization 1,867,601 1,885,199 Contributions Restricted for Long-Term Purposes (401,787) (364,745) Loss (Gain) on Sale of Assets 5,925 (374,485) (Increase) Decrease in Current Assets: Accounts and Contract Receivable 7,865 6,661 Inventories 7,230 (27,544) Prepaid Expenses 310,297 (407,057) Increase in Current Liabilities: Accounts Payable 573, ,495 Accrued Expenses 80, ,557 Net Cash and Cash Equivalents Provided by Operating Activities 2,136,796 4,144,956 CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures (1,643,861) (340,708) Proceeds from Sale of Investments - 200,000 Proceeds from Sale of Assets 37, ,000 Net Cash and Cash Equivalents Provided (Used) by Investing Activities (1,606,391) 489,292 CASH FLOWS FROM FINANCING ACTIVITIES Contributions Restricted for Long-Term Purposes 401, ,745 Payments on Long-Term Debt and Capital Leases (1,220,298) (1,841,980) Payment of Financing Costs (146,000) - Net Cash and Cash Equivalents Used by Financing Activities (964,511) (1,477,235) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (434,106) 3,157,013 Cash and Cash Equivalents - Beginning 5,574,799 2,417,786 CASH AND CASH EQUIVALENTS - ENDING $ 5,140,693 $ 5,574,799 SUPPLEMENTAL INFORMATION Cash Paid for Interest During the Period $ 886,516 $ 990,387 Equipment Financed with Capital Leases $ 458,579 $ 95,238 See accompanying Notes to Consolidated Financial Statements. (6)

9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 2012 AND 2011 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. (7)

10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 2012 AND 2011 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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, 2012, management s evaluation of outstanding accounts receivable concluded that no allowance for bad debts is required. 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 will become effective during the year ending May 31, 2013 when the Church will begin amortization. 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, 2012, the total capitalized construction in progress is $1,456,536. The total contracted amount related to the renovations as of May 31, 2012 is approximately $2,060,000. It is the Church s intention that the cost of these renovations will be financed using internal funds. 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, 2012 and (8)

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 2012 AND 2011 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. Subsequent Events In preparing these consolidated financial statements, the Church has evaluated events and transactions for potential recognition or disclosure through August 2, 2012, the date the consolidated financial statements were available to be issued. NOTE 2 LINE OF CREDIT BANK Subsequent to year-end, 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 starting in the year ended May 31, 2013 and is secured by the Church s Eden Prairie property and equipment. (9)

12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 2012 AND 2011 NOTE 3 LONG-TERM DEBT Subsequent to year-end, 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 starting in the year ending May 31, 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, 2012 and 2011: Description Note Payable - Bremer Bank, fixed interest rate at 4.44% with monthly principal and interest payments of $70,883 through 7/31/2022. Interest rate to be reset to 5- Year LIBOR % on 7/31/2022, adjusting monthly payments and balloon payment due on maturity date of 7/31/2027. Balance secured by the Eden Prairie property and equipment. $ 11,202,304 $ - Debt Refinanced Subsequent to Year-End - 12,213,774 Total 11,202,304 12,213,774 Less: Current Maturities 269, ,029 Long-Term Debt $ 10,932,464 $ 11,382,745 Scheduled maturities of long-term debt are as follows: Year Ending May 31, Amount 2013 $ 269, , , , ,722 Thereafter 9,337,142 Total $ 11,202,304 (10)

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 2012 AND 2011 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 $1,767,384 and $1,442,792 and accumulated depreciation of $1,064,222 and $1,012,119 at May 31, 2012 and 2011, respectively. Future minimum lease payments are as follows: Year Ending May 31, Amount 2013 $ 231, , , , ,042 Subtotal 603,869 Less: Amount Representing Interest (30,983) Total 572,886 Less: Current Maturities 214,809 Long-Term Capital Leases $ 358,077 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 2013 $ 32, , , ,500 Total $ 46,018 Rent expense for the years ended May 31, 2012 and 2011 was $31,714 and $47,609, respectively. (11)

14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 2012 AND 2011 NOTE 5 NET ASSETS Temporarily Restricted Temporarily restricted net assets consist of the following at May 31, 2012 and 2011: Missions $ 437,328 $ 339,613 Church Programs 2,757,347 3,084,562 Total $ 3,194,675 $ 3,424,175 $2,688,217 of the amount included in Church Programs carries a donor restriction that the funds cannot be used for operations. Net Assets Released Net assets released consist of the following at May 31, 2012 and 2011: Eden Prairie Campus Development $ 916,800 $ 364,745 Missions 2,427,243 2,595,176 Church Programs 36,344 43,787 Total $ 3,380,387 $ 3,003,708 Unrestricted - Designated Unrestricted- Designated net assets consist of the following at May 31, 2012 and 2011: Missions $ 226,752 $ 392,447 Church Programs 556,569 1,121,967 Total $ 783,321 $ 1,514,414 NOTE 6 INTEREST EXPENSE The Church recorded interest expense in the amount of $886,516 and $986,861 for the years ended May 31, 2012 and 2011, 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 $92,047 and $97,741 for the years ended May 31, 2012 and 2011, respectively. (12)

15 INDEPENDENT AUDITORS REPORT ON SUPPLEMENTARY INFORMATION Board of Elders Grace Church Eden Prairie, Minnesota We have audited the consolidated financial statements of Grace Church as of and for the years ended May 31, 2012 and 2011, and our report thereon dated August 2, 2012 appears on page 1. Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The supplementary information on page 14 is presented for the 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 audits of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly 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 taken as a whole. Minneapolis, Minnesota August 2, 2012 CliftonLarsonAllen LLP An independent member of Nexia International (13)

16 CONSOLIDATING STATEMENT OF FINANCIAL POSITION AS OF MAY 31, 2012 WITH COMBINED COMPARATIVE TOTALS AS OF MAY 31, 2011 ASSETS Grace Church Grace Retreat Church Center, LLC Eliminations Consolidated Consolidated CURRENT ASSETS Cash and Cash Equivalents $ 5,140,693 $ - $ - $ 5,140,693 $ 5,574,799 Accounts Receivable 26, ,724 34,589 Due from Retreat Center 805,782 - (805,782) - - Inventories 100, , ,422 Prepaid Expenses 196, , ,746 Total Current Assets 6,269,840 - (805,782) 5,464,058 6,223,556 PROPERTY AND EQUIPMENT Land and Improvements 7,518,455 1,010,000-8,528,455 8,528,455 Buildings and Improvements 45,231,952 3,295,300-48,527,252 48,256,942 Construction in Progress 1,284, ,562-1,456,536 - Furniture and Equipment 4,670, ,534-5,036,969 5,818,899 Vehicles 283, , ,666 Property and Equipment 58,988,818 4,843,396-63,832,214 62,790,962 Less: Accumulated Depreciation (16,098,197) (606,540) - (16,704,737) (15,854,929) Total Property and Equipment 42,890,621 4,236,856-47,127,477 46,936,033 OTHER ASSETS Financing Costs 146, ,000 - Total Assets $ 49,306,461 $ 4,236,856 $ (805,782) $ 52,737,535 $ 53,159,589 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Long-Term Debt, Current $ 269,840 $ - $ - $ 269,840 $ 831,029 Capital Lease Obligations, Current 214, , ,823 Accounts Payable 885, , ,441 Due to Church - 805,782 (805,782) - - Accrued Payroll and Vacation 411, , ,296 Accrued Expenses 12, ,992 11,765 Total Current Liabilities 1,793, ,782 (805,782) 1,793,815 1,604,354 LONG-TERM LIABILITIES Long-Term Debt 10,932, ,932,464 11,382,745 Capital Lease Obligations 358, , ,312 Total Long-Term Liabilities 11,290, ,290,541 11,588,057 Total Liabilities 13,084, ,782 (805,782) 13,084,356 13,192,411 NET ASSETS Unrestricted: Undesignated 1,128,678 (805,782) - 322, ,465 Designated - Property and Equipment 31,115,431 4,236,856-35,352,287 34,399,124 Designated - Other 783, ,321 1,514,414 Total Unrestricted 33,027,430 3,431,074-36,458,504 36,543,003 Temporarily Restricted 3,194, ,194,675 3,424,175 Total Net Assets 36,222,105 3,431,074-39,653,179 39,967,178 Total Liabilities and Net Assets $ 49,306,461 $ 4,236,856 $ (805,782) $ 52,737,535 $ 53,159,589 (14)