KIPP NEW YORK, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2015 AND 2014

2 TABLE OF CONTENTS YEARS ENDED JUNE 30, 2015 AND 2014 INDEPENDENT AUDITORS REPORT 1 FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 3 CONSOLIDATED STATEMENTS OF ACTIVITIES 4 CONSOLIDATED STATEMENTS OF FUNCTIONAL EXPENSES 5 CONSOLIDATED STATEMENTS OF CASH FLOWS 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8

3 INDEPENDENT AUDITORS REPORT Board of Trustees KIPP New York, Inc. and Subsidiaries New York, New York We have audited the accompanying consolidated financial statements of KIPP New York, Inc. and Subsidiaries (a nonprofit organization) which comprise the consolidated statements of financial position as of June 30, 2015 and 2014, and the related consolidated statements of activities, functional expenses, 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 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 consolidated 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 entity 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 Trustees KIPP New York, Inc. and Subsidiaries Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of KIPP New York, Inc. and Subsidiaries as of June 30, 2015 and 2014, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. CliftonLarsonAllen LLP Plymouth Meeting, Pennsylvania October 26, 2015 (2)

5 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION JUNE 30, 2015 AND 2014 ASSETS Cash $ 16,069,146 $ 13,526,434 Restricted Cash 2,049,421 1,931,648 Contributions Receivable, Net 12,647,211 18,386,793 Other Receivables 586,414 1,875,007 Notes Receivable 15,820,000 15,820,000 Equipment and Improvements 889, ,933 Prepaid Expenses and Other Assets 400, ,044 Due from Related Parties 1,769, ,388 Total Assets $ 50,230,998 $ 53,873,247 LIABILITIES AND NET ASSETS LIABILITIES Accounts Payable and Accrued Expenses $ 872,745 $ 4,378,368 Deferred Rent Liability 163, ,336 Deferred Revenue 15,096 Loans Payable 7,411,031 9,220,444 Total Liabilities 8,462,779 13,751,148 NET ASSETS Unrestricted Unrestricted 26,884,652 19,786,221 Board Designated 4,000,000 4,000,000 Total Unrestricted Net Assets 30,884,652 23,786,221 Temporarily Restricted 10,883,567 16,335,878 Total Net Assets 41,768,219 40,122,099 Total Liabilities and Net Assets $ 50,230,998 $ 53,873,247 See accompanying Notes to Consolidated Financial Statements. (3)

6 CONSOLIDATED STATEMENTS OF ACTIVITIES YEARS ENDED JUNE 30, 2015 AND Temporarily Temporarily Unrestricted Restricted Total Unrestricted Restricted Total OPERATING REVENUE Contributions: Foundations $ 3,600,740 $ 303,455 $ 3,904,195 $ 3,890,902 $ 1,047,565 $ 4,938,467 Corporations 742,388 20, , , , ,181 Individuals 405, , ,839 43, ,409 Other 80,353 80,353 39,064 39,064 Total Contributions 4,828, ,455 5,152,335 4,729,951 1,662,170 6,392,121 Revenue from Services Rendered 7,778,396 7,778,396 6,307,477 6,307,477 Federal Grants and Contracts 36,894 36, , ,717 Special Events 3,953,645 3,953,645 2,021,342 2,021,342 Donated Services 94,442 94, , ,599 Interest and Other Income Net 489, ,123 2,883,667 2,883,667 Net Assets Released from Restrictions 5,775,766 (5,775,766) 5,306,945 (5,306,945) Total Operating Revenue 22,957,146 (5,452,311) 17,504,835 21,663,698 (3,644,775) 18,018,923 EXPENSES Program Services 14,119,350 14,119,350 13,954,645 13,954,645 Supporting Services Management and General 797, ,682 1,536,353 1,536,353 Fundraising 941, , , ,011 Total Supporting Services 1,739,365 1,739,365 2,353,364 2,353,364 Total Expenses 15,858,715 15,858,715 16,308,009 16,308,009 CHANGE IN NET ASSETS 7,098,431 (5,452,311) 1,646,120 5,355,689 (3,644,775) 1,710,914 Net Assets Beginning of Year 23,786,221 16,335,878 40,122,099 18,430,532 19,980,653 38,411,185 NET ASSETS END OF YEAR $ 30,884,652 $ 10,883,567 $ 41,768,219 $ 23,786,221 $ 16,335,878 $ 40,122,099 See accompanying Notes to Consolidated Financial Statements. (4)

7 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES YEAR ENDED JUNE 30, 2015 Supporting Services Program Management Fund Total Services & General Raising Total Expenses Grants Other $ 1,001,000 $ $ $ $ 1,001,000 Salaries 7,643, , ,179 1,051,076 8,694,461 Payroll Taxes and Employee Benefits 1,568,559 72, , ,937 1,763,496 Alumni Programming 596, ,727 Occupancy 378, ,624 Other Professional Fees 540,573 5,616 1,467 7, ,656 Contracted Services Other 266,768 3,914 3, ,682 Events 38, , , ,609 Equipment and Maintenance 30, ,424 Candidate Recruiting 280,381 4,990 4, ,371 Professional Development 535,867 36,752 37,208 73, ,827 Academic Materials 16, ,900 3,044 19,469 Depreciation and Amortization 246, ,109 Litigation and Legal Fees , , ,298 Telephone and Internet 143, ,034 Technology 230,412 7,596 4,624 12, ,632 Donated Materials and Services 94,442 94,442 Supplies and Materials 49, ,692 51,199 Postage and Printing 42,551 3,238 15,306 18,544 61,095 Insurance 54,829 28,881 28,881 83,710 Miscellaneous Expenses 1, ,605 Interest Expenses 296, ,141 Accounting Fees 1,898 31,450 31,450 33,348 Bank and Other Fees 38,727 38,727 Membership and Subscription Fees 17, ,218 1,715 18,933 Travel 4,096 4,096 Total Functional Expenses $ 14,119,350 $ 797,682 $ 941,683 $ 1,739,365 $ 15,858, See accompanying Notes to Consolidated Financial Statements. (5)

8 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES YEAR ENDED JUNE 30, 2014 Supporting Services Program Management Fund Total Services & General Raising Total Expenses Grants Other $ 2,604,000 $ $ $ $ 2,604,000 Salaries 6,208, , , ,551 7,144,315 Payroll Taxes and Employee Benefits 1,238,688 89, , ,392 1,431,080 Alumni Programming 572, ,449 Occupancy 404, , , ,305 Other Professional Fees 941,935 25,561 25, ,496 Contracted Services Other 134,616 10,037 2,000 12, ,653 Events 39, , , ,705 Equipment and Maintenance 22, ,298 Candidate Recruiting 44, , , ,089 Professional Development 382,527 28,778 28, ,305 Academic Materials 104, ,378 Depreciation and Amortization 220, ,638 Litigation and Legal Fees 34,096 34,096 34,096 Telephone and Internet 94,313 65,250 5,975 71, ,538 Donated Materials and Services 134, ,099 Supplies and Materials 18,879 35,638 35,638 54,517 Postage and Printing 71,365 3,113 3,113 74,478 Insurance 36,106 77,827 77, ,933 Miscellaneous Expenses 43,049 6,944 (30,000) (23,056) 19,993 Bad Debt Expense 162, ,686 Interest Expenses 167, ,791 Accounting Fees ,389 23,389 23,896 Bank and Other Fees 24, , , ,937 Membership and Subscription Fees 23,150 1, ,893 25,043 Travel 30,029 2,582 2,582 32,611 Total Functional Expenses $ 13,954,645 $ 1,536,353 $ 817,011 $ 2,353,364 $ 16,308, See accompanying Notes to Consolidated Financial Statements. (6)

9 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 2015 AND CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets $ 1,646,120 $ 1,710,914 Adjustments to Reconcile Change in Net Assets to Net Cash Provided (Used) by Operating Activities: Depreciation and Amortization 246, ,638 (Increase) Decrease in Assets: Restricted Cash (117,773) (1,931,648) Grants and Pledges Receivable 5,739,582 1,245,435 Other Receivables 1,288,593 (1,600,620) Prepaid Expenses and Other Assets 192,951 (201,573) Due From Related Parties (1,004,909) (422,152) Increase (Decrease) in Liabilities: Accounts Payable and Accrued Expenses (3,505,623) 3,997,704 Deferred Rent 11,571 34,547 Deferred Revenue 15,096 (4,399) Due to Related Parties (3,180,329) Net Cash Provided (Used) by Operating Activities 4,511,717 (131,483) CASH FLOWS FROM INVESTING ACTIVITIES Deposit for Building 500,000 Purchases of Equipment and Improvements (159,592) (110,797) Net Cash Provided (Used) by Investing Activities (159,592) 389,203 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Issuance of Bridge Loans 9,250,000 Principal Payments on Bridge Loans (1,809,413) (29,556) Leverage Note Receivable (15,820,000) Net Cash Used by Financing Activities (1,809,413) (6,599,556) NET INCREASE (DECREASE) IN CASH 2,542,712 (6,341,836) Cash Beginning of Year 13,526,434 19,868,270 CASH END OF YEAR $ 16,069,146 $ 13,526,434 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash Paid for Interest $ 298,493 $ 167,791 See accompanying Notes to Consolidated Financial Statements. (7)

10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations KIPP New York, Inc. (the Organization ) is a nonprofit, nonstock corporation organized under the laws of the State of Delaware, exclusively for charitable purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code. The Organization shall primarily serve for the benefit of existing schools operating under the name Knowledge is Power Program ( KIPP ) located within the five boroughs of the City of New York, in the State of New York. Such charitable purposes shall include, but not be limited to, the following: (a) to provide support to KIPP NYC schools; (b) to solicit, raise, receive, hold, invest and expend funds for the advancement and furtherance of such purposes; and (c) to engage in any and all lawful activities in the furtherance of the foregoing purposes. KIPP NYC, LLC ( LLC ) was established as a New York Limited Liability Corporation in November 2008 and began providing services to the schools in April The Organization is the sole member of the LLC. The LLC is a non profit corporation. KTC NYC LLC ( KTC ) was established as a New York Limited Liability Corporation in June 2012 and began providing services to the schools in July The Organization is the sole member of the KTC. The KTC is a non profit corporation. Basis of Accounting The financial statements of the Organization have been prepared on the accrual basis of accounting in accordance with established accounting standards for not for profit entities. Accordingly, net assets are classified as unrestricted, temporarily restricted or permanently restricted based on the absence or existence and nature of donor imposed restrictions. Principles of Consolidation The consolidated financial statements include the accounts of the Organization and its two wholly owned subsidiaries, KIPP NYC, LLC and KTC NYC LLC. Significant intercompany accounts and transactions have been eliminated in consolidation. Financial Statement Presentation Contributions are recognized as revenue in the year the pledge is received and documented. Contributions and unconditional promises to give are considered to be available for unrestricted use unless specifically restricted by the donor. The Organization reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Contributions of assets other than cash are recorded at their estimated fair value. Unrestricted net assets are not restricted by donors or the donor imposed restrictions have been satisfied or expired. (8)

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Financial Statement Presentation (Continued) Temporarily restricted net assets contain donor imposed restrictions that permit the Organization to use or expend the assets as specified. The restrictions are satisfied either by the passage of time or by action of the organization. Permanently restricted net assets contain donor imposed restrictions that stipulate the resources be maintained permanently but permit the Organization to use, or expend, part or all of the income derived from the donated assets for either specified or unspecified purposes. There are no permanently restricted net assets at June 30, 2015 and Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities, disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Contributed Services The Organization recognizes contributed services in accordance with accounting standards for contributions. Accordingly, contributed services are recognized as revenue and assets or expenses as fair value if those services (a) create or enhance nonfinancial assets, and (b) would typically need to be purchased by the Organization if they had not been provided by contribution, or (c) require specialized skills and are provided by individuals with those skills. A number of volunteers have made a contribution of their time to the Organization. These inkind contributions have not been reflected in the financial statements since they do not meet the criteria for recognition. Concentration of Credit Risk The Organizations maintain cash in bank deposit accounts which, at times, may exceed federally insured limits. All of the Organizations cash at June 30, 2015 and 2014 is held by one financial institution. Equipment, Improvements, Depreciation and Amortization Equipment and improvements are recorded at cost. The Organization capitalizes purchases of equipment and improvements in excess of $2,500. Depreciation is computed using the straightline method over the estimated useful lives of the respective assets. Leasehold improvements are depreciated over the lesser of the remaining lease agreement or useful life of the improvements. Deferred Income Deferred income represents funds received in advance of the service performed are recorded as deferred revenue in the statement of financial position. (9)

12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Expense Allocation The costs of providing services have been summarized on a functional basis in the consolidated statements of activities and functional expenses. Accordingly, certain costs have been allocated to the program and support services benefited. Income Taxes The Organization is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Service Code and applicable income tax regulations of the state of New York. No provision for income taxes has been established, as the Organization has no unrelated business activity. Because the Organization is the sole member of the LLC and KTC, the LLC and KTC will be treated as disregarded entities for tax purposes and therefore their activities are combined with the Organization and reported as one. The Organization follows the guidance in the income tax standard regarding the recognition and measurement of uncertain tax positions. The guidance clarifies the accounting for uncertainty in income taxes recognized in an entity s financial statements. The guidance further prescribes recognition and measurement of tax provisions taken or expected to be taken on a tax return that are not certain to be realized. The application of this standard had no impact on the Organization s financial statements. Financial Statement Reclassification The 2014 financial statements have been reclassified to conform with the current year presentation. Subsequent Events In preparing these financial statements, the Organization has evaluated events and transactions for potential recognition or disclosure through October 26, 2015, the date the financial statements were available to be issued. NOTE 2 CONTRIBUTION RECEIVABLE Contribution receivable for the Organization includes the following: Receivable Due Within One Year $ 8,970,299 $ 4,658,333 Receivable Due Within One to Four Years 3,747,416 13,812,593 12,717,715 18,470,926 Less: Present Value Discount 70,504 84,133 Net Pledge Receivable $ 12,647,211 $ 18,386,793 (10)

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 2 CONTRIBUTION RECEIVABLE (CONTINUED) The Organization was a recipient of several multi year contributions which were recorded as contributions receivable and have been adjusted for imputed interest ranging from 0.95% to 2.27% as of June 30, 2015 and 2014, respectively. Management believes the entire amounts of the contributions receivable from these donors are fully collectible and, accordingly, has not provided an allowance on such receivables. NOTE 3 EQUIPMENT AND IMPROVEMENTS Equipment and improvements consist of the following: Technology $ 1,124,635 $ 1,039,037 Leasehold Improvements 340, ,885 Furniture and Fixtures 87,225 87,225 Total 1,552,739 1,393,147 Less: Accumulated Depreciation and Amortization (663,323) (417,214) Total Equipment and Improvements $ 889,416 $ 975,933 NOTE 4 TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets for the Organization are available for the following purposes or periods: Time Restricted for Future Periods $ 10,883,567 $ 13,139,400 Facilities Expenses 3,196,478 Total Temporarily Restricted Net Assets $ 10,883,567 $ 16,335,878 NOTE 5 PENSION EXPENSE The Organization is part of the KIPP NYC 403(b) Retirement Plan, a multiple employer defined contribution plan, under Section 403(b) of the Internal Revenue Code which employees of the Organization can elect to contribute. Employees, who choose this plan, can contribute up to the level set by the IRS. The employer match is a discretionary contribution. Plan participants who are eligible for the Teachers Retirement System of the City of New York are not eligible for the Organization contribution. The employer contributions to this Plan amounted $234,126 and $224,343, for the years ended June 30, 2015 and 2014, respectively. (11)

14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 6 RELATED PARTY TRANSACTIONS AND FINANCING ACTIVITIES KIPP Academy Charter School, KIPP AMP Academy Charter School, KIPP Infinity Charter School, KIPP NYC Public Charter Schools (formerly KIPP NYC Washington Heights Academy Charter School and KIPP STAR College Prep Charter School) and KIPP NYC Facility Holdings, Inc. are considered related parties due to common membership of the boards. The back office functions for this Organization, the schools and Facility Holdings, Inc. are handled by KIPP NYC s Shared Services Team. For the years ended June 30, 2015 and 2014, the Shared Services Team was run through KIPP NYC, LLC. Each school pays a management fee to LLC. The total management fee received for the years ended June 30, 2015 and 2014 was $7,778,396 and $6,307,477, respectively (net of the Organization s management fee expense of $308,811 and $365,260, respectively). During the years ended June 30, 2015 and 2014, the Organization granted $1,001,000 and $2,604,000, respectively, to the KIPP NYC Charter Schools which have been reflected in the Organization s accompanying statements of functional expenses. The Organization provided an interest free advance to KIPP NYC Public Charter Schools for the start up costs in the amount of $250,000. This amount is included in the Due from Related Parties balance at June 30, On December 27, 2013 KIPP New York, Inc. and KIPP NYC Facilities II, LLC, a wholly owned subsidiary of KIPP NYC Facility Holdings, Inc., entered into several transactions to finance the Mott Haven Facility, which currently houses KIPP Academy Elementary School. KIPP New York, Inc. served as a leveraged investor in the transactions, which were structured to utilize the federal New Markets Tax Credit Program (NMTC Program). As part of the deal structure, KIPP New York, Inc. received two separate bridge loans which totaled $9,250,000 and were guaranteed by existing donor pledge receivables. The first bridge loan for $7,862,500 matures in December, 2016 and requires interest to be paid at the 30 Libor rate plus 325 basis points (3.44% at June 30, 2015) and is secured is by the pledges, grant agreements and deposit accounts. The second bridge loan for $1,387,500 matures in December, 2028 and requires interest to be at 5.75% and is also secured similarly to the first bridge loan. Both loans require principal payments that coincide with expected pledge payments. In addition, the Organization maintains certain cash reserves as required by the loan agreements. (12)

15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 6 RELATED PARTY TRANSACTIONS AND FINANCING ACTIVITIES (CONTINUED) The following represents the future payments for the bridge loans: Year Ending June 30, Principal Interest Total 2016 $ 1,815,444 $ 254,956 $ 2,070, ,431, ,810 4,576, ,399 64, , ,733 60, , ,322 55, ,263 Thereafter 930, ,333 1,177,658 Total $ 7,411,031 $ 828,434 $ 8,239,465 The Organization then combined its own funds with proceeds from the bridge loans to issue two leveraged notes to tax credit investors totaling $15,820,000. The leveraged notes receivable require interest only payments at % until they mature in The leveraged notes are guaranteed by an affiliate of the tax credit investors, who is unrelated to the Organization. NOTE 7 LEASING ARRANGEMENTS On January 29, 2012, the Organization entered into a new lease agreement with Kaufwein 470 Associates, LLC for the lease of office space for the ten year period from March 1, 2012 to February 28, The annual fixed rental payments are due based on the rental payment schedule indicated in the lease agreement. In addition, the Organization has two other leases for additional space which began in 2014 and expire in 2015 and 2017, respectively. Minimum annual rentals for each year subsequent to June 30, 2015 are as follows: Year Ending June 30, Amount 2016 $ 292, , , , ,982 Thereafter 467,707 Total $ 1,861,638 The office rent expense for the years ended June 30, 2015 and 2014 was $236,297 and $236,297, respectively. (13)

16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND 2014 NOTE 8 OPERATING EXPENSES Program Services Represents work (time and materials) that is specifically related to/or necessary for the Organization to grant funds to the various KIPP NYC schools and related ancillary programs. Management and General Represents work (time and materials) that is specifically related to running the nonprogrammatic/back end operational functions of the Organization. Fundraising Represents work (time and materials) associated with the Organization s fundraising program including but not limited to annual mailings, donor meetings and events. (14)