MMC CASE SOLUTION Common Size Ratios Statements of Financial Position Major Medical Center Statements of Financial Position Common Size Ratios December 31, 2012 Percent $000s Assets Current assets: Cash and cash equivalents Assets limited as to use Short-term investments Receivables for patient care, net Pledges receivable Inventories, at average cost Due from third-party reimbursement Receivables for government grants Other Total current assets Assets limited as to use Sinking fund Collateral for standby letters of credit Long-term investments Due from affiliates, net Pledges receivable, net Property, plant, and equipment net Deferred financing costs Other Total Assets December 31, 2011 Percent $000s 4.1% 0.5% 0.7% 25.3% 0.9% 0.9% 3.3% 0.0% 1.1% 36.9% $8,065 1,000 1,387 49,719 1,814 1,690 6,539 0 2,234 $72,448 5.1% 0.0% 0.7% 27.0% 1.3% 1.3% 0.0% 0.3% 1.9% 37.6% $9,005 0 1,283 47,614 2,205 2,326 0 467 3,415 $66,315 7.4% 0.5% 7.9% $14,487 923 $15,410 7.6% 0.0% 7.6% $13,410 0 $13,410 0.6% $1,132 1.7% 3,417 1.0% 1,889 50.2% 98,555 0.7% 1,323 1.1% 2,065 100.0% $196,239 Liabilities and net assets Current liabilities: Current portion of long-term debt Accounts payable and accrued expenses Accrued salaries and related liabilities Due to third-party reimbursement Advances on government grants Total current liabilities 5.9% 15.0% 13.0% 0.0% 0.0% 34.8% Long-term debt, less current portion Accrued postretirement benefits Other noncurrent liabilities Total liabilities 28.3% $55,539 3.1% 6,023 8.4% 16,445 74.5% $146,263 $11,608 29,489 25,572 0 1.587 $68,256 0.4% $618 2.0% 3,543 0.8% 1,468 51.0% 89,777 0.0% 0 0.6% 1,043 100.0% $176,174 6.5% 14.4% 11.4% 1.1% 0.0% 33.4% $11,488 25,311 20,096 1,874 0 $58,769 27.1% $47,709 3.4% 6,017 9.7% 17,014 73.5% $129,509 Commitments and contingencies Net assets Unrestricted Temporarily restricted Permanently restricted Total net assets Total Liabilities and Net Assets 20.7% $40,582 4.2% 8,262 0.6% 1,132 25.5% 49,976 100.0% $196,239 21.6% $38,014 4.3% 7,519 0.6% 1,132 26.5% 46,665 100.0% $176,174 MMC CASE SOLUTION Common Size Ratios Operating Statements Major Medical Center Statements of Operations Common Size Ratios December 31, 2012 Percent $000s Operating revenue Net patient service revenue Other revenue (Note 12) Net assets released from restrictions Total operating revenue Operating expenses Salaries and wages Employee benefits Supplies and expenses Depreciation and amortization Research Interest Total operating expenses Operating income Net assets released from restrictions used for capital acquisitions Increase in unrestricted net assets December 31, 2011 Percent $000s 95.7% 3.2% 1.1% 100.0% $402,921 13,356 4,708 $420,985 95.7% 3.6% 0.7% 100.0% $369,512 13,850 2,863 $386,225 49.2% 10.6% 32.7% 5.4% 0.6% 1.1% 99.4% $207,141 44,456 137,505 22,541 2,457 4,456 $418,556 50.9% 11.6% 30.5% 4.9% 0.6% 1.4% 99.8% $196,453 44,860 117,838 18,856 2,214 5,253 $385,474 0.6% $2,429 0.2% $751 0.0% 0.6% 139 $2,568 0.0% 0.2% 146 $897 MMC CASE SOLUTION Cash Flow Statement 2012 2011 Operating Activities $ 2,429 743 3,172 $ 751 4,496 5,247 22,541 -774 18,856 -698 -2,105 -8,413 7,589 4,500 9,654 2,286 26,361 1,412 -8,707 28,199 -10,043 139 -618 -10,522 -12,998 146 -70 -12,922 Net payment from (to) affiliates Increase in deferred financing costs Repayments of long-term debt Deposits into sinking fund, as required by mortgage loan agreement Increase in collateral for standby letters of credit (Increase) decrease in pledges receivable Cash used in financing activities 126 -1,323 -13,326 -303 -1,923 -30 -16,779 -1,773 -3,190 -14,473 Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year -940 9,005 $ 8,065 804 8,201 $ 9,005 Operating income Change in temporarily restricted net assets Adjustments to reconcile change in net assets to cash provided by operations: Depreciation and amortization Investment income earned on assets limited as to use Changes in operating assets and liabilities: (Increase) decrease in receivables for patient care (Increase) decrease in due from third-party reimbursement programs Increase in accounts payable and accrued expenses and accrued salaries and related liabilities Net effect of increases and decreases in other assets and liabilities Cash provided by operations Investing Activities Acquisitions of property, plant, and equipment, net Less amounts provided by restricted funds Increase in investments Cash used in investing activities Financing Activities -9,510 MMC CASE SOLUTION Liquidity Ratios Liquidity Ratios The liquidity ratios for MMC can be calculated as follows: C urrent R atio = 2012 2011 $72,448 --------$68,256 $66,315 --------$58,769 1.06 1.13 $60,985 --------$68,256 $60,107 --------$58,769 0.89 1.02 C urrent A sset s C urrent Liabilitie s Current Assets Current Ratio = ------------------Current Liabilities Cash, Short-term Invest, A/R, P/R Quick Ratio = ----------------------------------------Current Liabilities = $8 , 065 + 1 , 387 = $9 , 005 + 1 , 283 MMC’s liquidity ratios are unimpressive. The current ratio is just barely 1, when a more general standard would be 2. The quick ratio for 2012 has fallen below 1. MMC has substantial accrued salaries and accounts payable. Failure to collect receivables promptly could force MMC to dip into their letters of credit. These low ratios present a warning sign. This is exacerbated by the fact that the current portion of long-term debt is listed first on the balance sheet. This implies that the current portion of long-term debt, accounts payable, and accrued salaries will all need to be paid in the very near term. These items make up 98% of current liabilities. This makes MMC’s liquidity position tenuous. Another widely used liquidity ratio is days of cash on hand. This measure compares cash and marketable securities to daily operating expenses. This is more stringent yet, trying to assess how long the organization could meet its typical daily expenses using just the cash (and near cash assets) on hand. Cash + Short-term Investments Days of Cash on Hand = ----------------------------(Op. Exp. - Deprec.)/365 2012 2011 $9,452 --------$1,085 $10,288 --------$1,004 8.7 10.2 Bad debts were not subtracted from operating expenses because that information is not available. The decreasing trend in this already low ratio represents yet another warning sign. $9 , 005 + 1 , 283 more general standard ued salaries and accounts letters of credit. These low n of long-term debt is listed ccounts payable, and accrued current liabilities. This makes s cash and marketable ow long the organization and. MMC CASE SOLUTION Asset Turnover Ratios Asset turnover ratios can help assess efficiency. C urrent R atio = Net Patient Revenues Receivables Turnover = ----------------------Accounts Receivable 365 Average Collection Period = ------------------Receivables Turnover = = 3 6 5 8 . 1 4 5 . 0 2012 2011 $402,921 --------$49,719 $369,512 --------$47,614 8.10 7.76 365 --------8.1 365 --------7.8 45.0 47.0 C urrent A sset s C urrent Liabilitie s A v e ra g e d a y C o ll e c ti o n P e ri o d = s 3 6 5 R e c e iv a b le s T u rn o v e r The collection period of 45 days is reasonably good. An inventory turnover will not be calculated. Inventory is quite low relative to total assets (about 1%). Unfortunately supplies and many other expenses are lumped together. Therefore the resulting ratio, which would be nearly 100 turns, would not be meaningful and would probably be misleading. C urrent R atio = 2012 2011 $420,985 --------- $386,225 --------- $123,791 $109,859 3.4 3.5 $420,985 --------$196,239 $386,225 --------$176,174 C urrent A sset s C urrent Liabilitie s Total Op. Revenue Fixed Asset Turnover = ------------------------------Total Assets - Current Assets Total Op. Revenue Total Asset Turnover = ----------------------Total Assets 2.1 2.2 In calculating the fixed asset turnover ratio, one could certainly argue over the appropriate measure of fixed assets. Should assets limited to sinking fund and collateral be included as above or excluded? We would argue that inclusion is appropriate because they are resources that the organization requires, because of the way it is operated. However, the exact definition is not important. The key is to try to be consistent over time and across organizations. = = $ 1 9 3 . 4 $ 4 2 0 , 9 6 , 2 3 9 − 8 5 = = 7 2 , = = $ 3 8 6 , 2 2 5 $ 3 8 6 , 2 2 5 $ 1 7 6 , 1 7 4 − 6 6 , 3 1 5 4 $ 4 1 8 7 6 , 1 7 4 2 . 2 3 . 5 The fixed asset turnover indicates that $3.40 of revenue are generated for each dollar of fixed assets. The total asset turnover indicates that $2.10 of revenue are generated for each dollar invested in total assets. These ratios appear to be stable over time. They are not outlandishly high or low. It is hard to interpret them without some meaningful outside comparison. s (about 1%). ting ratio, ading. e measure of fixed ded? We would argue ause of the way it is t over time = = $420 , 985 $196 , 239 2 . 2 ixed assets. The total al assets. These ratios them without some MMC CASE SOLUTION Leverage and Coverage Ratios 2012 Total Debt Total Debt = ------------------Total Assets $146,263 --------$196,239 0.75 Total Debt Debt to Equity = --------------------Total Net Assets $146,263 --------$49,976 2.9 Op. Inc. Before Interest Exp. Times Interest Earned = ------------------------------Interest Expense $6,885 --------$4,456 1.5 Cash from Op. + Int. + Sinking Fund Cash-Flow Coverage = --------------------------------------Interest + Sinking Fund + Debt Payments $31,120 --------$18,085 1.7 The debt and debt to equity ratios are stable. They appear high, but this is typical of the health care industry. Lenders allow high debt ratios, because they know the government will be paying for approximately half of all care, and the government is likely to make its required payments. Times interest earned has improved from a dangerously low level. An eye should be kept on this ratio to see if it reverts to a low level or continues to improve. The cash flow ratio, which could have been defined a number of different ways, has decreased, warranting examination of coming debt payments. Was the increase in repayment of l $9.5 million to $13.3 million the beginning of a trend? From parts b and c of Note 5, it is apparent that debt payments are likely to rise in coming years. Therefore, management will have to carefully monitor its cash flow. 2011 $129,509 --------$176,174 0.74 $129,509 --------$46,665 2.8 $6,004 --------$5,253 1.1 $33,452 --------$14,763 2.3 al of the health care industry. ng for approximately ld be kept on this ratio to see if it d have been defined a number of s. Was the increase in repayment of long term debt from ote 5, it is apparent that debt o carefully monitor its cash flow. MMC CASE SOLUTION Profitability Ratios Increase in Unrestricted Net Assets Operating Margin = -------------------------------------Total Operating Revenue Increase in Net Assets (From Statement of Changes in Net Assets) Total Margin = ----------------------------------------Total Operating Revenue Increase in Net Assets Return on Total Assets = -----------------------Total Assets Increase in Net Assets Return on Net Assets = -------------------------Net Assets 2012 2011 $2,568 --------$420,985 $897 --------$386,225 0.6% 0.2% $3,311 --------$420,985 $5,393 --------$386,225 0.8% 1.4% $3,311 --------$196,239 $5,393 --------$176,174 1.7% 3.1% $3,311 --------$49,976 $5,393 --------$46,665 6.6% 11.6% The operating and total margins are quite slim. Although MMC is not losing money, one might question whether its surplus is adequate to allow for long-term reinvestment in plant and facilities. Return on total assets is similarly slim. The returns on net assets are higher, but one might question whether this is a reflection of a profitable organization, or just an organization with fairly low equity. NOTE: See the instructor's manual (non-Excel solutions) for an integration and discussion of MMC's overall financial health. might question whether on total assets is similarly tion of a NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION Financial Statements For the Fourteen month period ended August 31, 2014 and year ended June 30, 2013 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION TABLE OF CONTENTS PAGE NO. Independent Auditors’ Report......................................................................................... 1-2 Statements of Financial Position .................................................................................... 3 Statements of Activities .................................................................................................. 4 Statements of Cash Flows ............................................................................................. 6 Notes to Financial Statements ....................................................................................... 7 INDEPENDENT AUDITORS' REPORT To the Board of Directors of North Carolina Performing Arts Center at Charlotte Foundation Charlotte, North Carolina We have audited the accompanying financial statements of North Carolina Performing Arts Center at Charlotte Foundation (the "BPA") which comprise the statements of financial position as of August 31, 2014 and June 30, 2013, and the related statements of activities and cash flows the fourteen month period ended August 31, 2014 and for the year ended June 30, 2013, 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. Auditors’ 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 audit 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 auditors’ 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. Page 1 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North Carolina Performing Arts Center at Charlotte Foundation as of August 31, 2014 and June 30, 2013, and the results of its operations and its cash flows for the fourteen month period ended August 31, 2014 and for the year ended June 30, 2013 in accordance with accounting principles generally accepted in the United States of America. November 26, 2014 Charlotte, North Carolina Page 2 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION STATEMENTS OF FINANCIAL POSITION August 31, 2014 and June 30, 2013 2014 2013 ASSETS Current Assets Cash and cash equivalents Receivables: Unconditional promises to give, net Operations accounts receivable, net Prepaid and other current assets Short-term investments $ TOTAL CURRENT ASSETS Non-Current Assets Investments in performances Nonqualified deferred compensation plan assets Property and equipment, net TOTAL NON-CURRENT ASSETS Restricted Assets Present value of future lease contributions Endowment investments Beneficial interest in assets held in trust TOTAL RESTRICTED ASSETS TOTAL ASSETS $ 4,181,843 $ 7,338,604 337,397 3,503,907 959,971 2,668,538 68,583 2,762,600 973,853 2,636,327 11,651,656 13,779,967 728,051 126,686 2,237,599 460,039 103,069 2,161,371 3,092,336 2,724,479 7,227,814 10,018,939 9,526,015 8,090,909 8,409,749 8,899,554 26,772,768 25,400,212 41,516,760 The accompanying notes are an integral part of these financial statements. $ 41,904,658 Page 3 2014 2013 LIABILITIES Current Liabilities Accounts payable Accrued expenses Capital lease obligations, current portion Deferred revenue $ TOTAL CURRENT LIABILITIES Capital lease obligations, less current portion Nonqualified deferred compensation liability TOTAL LIABILITIES NET ASSETS Unrestricted Undesignated Board designated Temporarily restricted Permanently restricted TOTAL NET ASSETS TOTAL LIABILITIES AND NET ASSETS $ 532,893 691,704 828 8,600,516 $ 549,114 1,142,670 27,247 10,230,037 9,825,941 11,949,068 189,803 5,369 229,303 10,015,744 12,183,740 3,820,640 235,000 13,865,174 13,580,202 3,801,789 235,000 12,103,927 13,580,202 31,501,016 29,720,918 41,516,760 $ 41,904,658 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION STATEMENTS OF ACTIVITIES Fourteen month period ended August 31, 2014 and year ended June 30, 2013 2014 2013 CHANGES IN UNRESTRICTED NET ASSETS Operating Activities Operating revenues and other support Theater event collections Contributions and grant revenues Building maintenance support Present value adjustments of future lease contributions Return on investments available for operations Other revenues Net assets released from restriction $ 24,390,280 2,607,398 1,066,947 $ 20,186,297 2,010,063 914,526 782,197 34,491 224,607 1,312,952 696,494 30,839 143,943 1,067,632 TOTAL OPERATING REVENUES AND OTHER SUPPORT 30,418,872 25,049,794 Operating Expenses Program expenses: Events Operations Donated rental expense Total program expenses Development Management and general TOTAL OPERATING EXPENSES 17,934,951 9,218,776 1,645,292 28,799,019 544,048 1,056,954 30,400,021 13,543,360 8,383,466 1,410,250 23,337,076 441,682 1,255,459 25,034,217 NET RESULTS FROM OPERATIONS 18,851 15,577 - 235,000 18,851 250,577 Nonoperating Activities Board designated funds CHANGE IN UNRESTRICTED NET ASSETS The accompanying notes are an integral part of these financial statements. Page 4 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION STATEMENTS OF ACTIVITIES (Continued) Fourteen month period ended August 31, 2014 and year ended June 30, 2013 2014 Changes in Temporarily Restricted Net Assets Contributions Return on investments Change in beneficial interest of assets held in trust Net assets released from restriction 1,000,790 1,446,948 371,340 828,898 626,461 (1,312,952) CHANGE IN TEMPORARILY RESTRICTED NET ASSETS 667,995 (1,067,632) 1,761,247 Changes in Permanently Restricted Net Assets Change in beneficial interest of assets held in trust CHANGE IN PERMANENTLY RESTRICTED NET ASSETS CHANGE IN NET ASSETS NET ASSETS, beginning of year NET ASSETS, end of year 2013 $ 800,601 - 45,176 - 45,176 1,780,098 1,096,354 29,720,918 28,624,564 31,501,016 The accompanying notes are an integral part of these financial statements. $ 29,720,918 Page 5 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION STATEMENTS OF CASH FLOWS Fourteen month period ended August 31, 2014 and year ended June 30, 2013 2014 2013 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets Adjustments to reconcile change in net assets to net cash flows provided (used) by operating activities Depreciation Realized and unrealized gains Net change in beneficial interest in assets held in trust Change in present value of future lease contributions Change in allowance for doubtful accounts Change in operating assets and liabilities: Unconditional promises to give Operations accounts receivable Prepaid and other current assets Accounts payable Accrued expenses Deferred revenues NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of short-term investments, net of sales of short-term investments Purchase of endowment investments Advances for future performances, net of royalties received Net change in nonqualified deferred compensation plan assets Net change in nonqualified deferred compensation plan liability Purchases of property and equipment 1,780,098 544,994 (661,928) (713,171) 713,756 2,744 (264,664) (737,358) 13,882 (16,221) (450,965) (1,629,522) (41,502) (1,337,549) (221,438) 6,579 56,659 5,453,924 (1,876,351) 4,899,422 CASH AND CASH EQUIVALENTS, Beginning of year $ 401,475 (50,000) (268,013) 3,555 (23,617) (64,842) (39,500) (767,492) (60,219) (872,651) (1,248,622) (642,682) (31,788) (27,247) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on capital lease obligations NET CHANGE IN CASH AND CASH EQUIVALENTS 1,096,354 691,265 (1,491,400) (626,461) 863,095 (8,100) (150,000) NET CASH USED BY INVESTING ACTIVITIES CASH AND CASH EQUIVALENTS, End of year $ (3,156,761) 4,229,493 7,338,604 3,109,111 4,181,843 The accompanying notes are an integral part of these financial statements. $ 7,338,604 Page 6 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS Fourteen Month Period Ended August 31, 2014 and Year Ended June 30, 2013 NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES North Carolina Performing Arts Center at Charlotte Foundation, a nonprofit organization incorporated on May 8, 1987, operates as Blumenthal Performing Arts (“BPA”) to present the best in the performing arts, and in partnership with others, share and employ the arts as a major catalyst to strengthen education, build community cohesiveness, and advance economic growth. BPA manages the operation of three performance spaces located in the Blumenthal Performing Arts Center (the “Center”): the 2,097-seat Belk Theater, the 444-seat Booth Playhouse, and the Stage Door Theater which seats 170. A fourth performance space, the 1,193-seat Knight Theater, was completed in the Fall of 2009. BPA also manages the operation of Spirit Square Center for Arts and Education (“Spirit Square”), a community center focusing on arts education and community theater, which includes the 730-seat McGlohon Theater and the Duke Energy Theater which seats 182. BPA presents national touring Broadway productions and a wide range of special attractions. Additionally, BPA’s Education Institute and its Community Programs Division develop innovative partnerships with schools and community organizations to bring the performing arts to life for people throughout the region. BPA is home to eleven resident arts organizations including Charlotte Symphony, Opera Carolina, Charlotte Ballet, Jazz Arts Initiative, Community School of the Arts, The Light Factory, Queen City Theater Company, Charlotte Shakespeare, On Q Productions, Starving Artist Productions, Caroline Calouche & Co., and Studio 345. The Center and the Knight Theaters are owned by the City of Charlotte, North Carolina (the “City”) and Spirit Square Center is owned by Mecklenburg County, North Carolina (the “County”) (see Note I). In 2014, the Board of Trustees approved the change of BPA’s year end to August 31, 2014. As a result, the current year financial statements report a fourteen month period. Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified and reported as follows: Unrestricted net assets – Net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets – Net assets subject to donor-imposed stipulations that may or will be met, either by specific actions of BPA and/or the passage of time. When a 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 Statements of Activities as net assets released from restrictions. Permanently restricted net assets – Net assets subject to donor-imposed stipulations that they be maintained permanently by BPA. Generally, the donors of these assets permit BPA to use all or part of the income earned on any related investments for general or specific purposes. Page 7 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS Fourteen Month Period Ended August 31, 2014 and Year Ended June 30, 2013 NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash and Cash Equivalents For the Statement of Financial Position and Statement of Cash Flows, BPA considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents unless held by investment managers as part of the investment portfolio. Accounts Receivable Accounts receivable are stated at unpaid balances, less an allowance for doubtful accounts of approximately $2,200 and $10,300 at August 31, 2014 and June 30, 2013, respectively. BPA provides for losses on accounts receivable using the allowance method. The allowance is based on experience and other circumstances which may affect the ability of customers to meet their obligations. Receivables are considered impaired if full principal payments are not received in accordance with the contractual terms. It is BPA’s policy to charge off uncollectible accounts receivable when management determines the receivable will not be collected. Investments Investments are valued at fair value. Fair value is determined by reference to exchange or dealer-quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar investment securities. Changes in the fair value of securities are reflected in return on investments in the accompanying Statement of Activities. See Note C for discussion of fair value measurements. Investments in Performances BPA is a limited partner in several limited liability partnerships that invest in theatrical stage productions. BPA’s ownership percentage in each limited liability partnership is less than 5%. The investment in these limited liability partnerships is accounted for using the cost method, and income recognized is limited to distributions received from the partnerships in excess of BPA’s original investment. Annually, Management reviews the investments and determines, at that time, if a portion of the investment is considered impaired and writes it down to the net realizable value. As of August 31, 2014 and June 30, 2013, BPA had an investment of approximately $6,700 and $120,000, respectively, in one of the productions whose general partner is also an officer of BPA. Property and Equipment All acquisitions of property and equipment in excess of $2,500 and all expenditures for repairs, maintenance, renewals, and betterments in excess of $2,500 that materially prolong the useful lives of assets are capitalized. Property and equipment is stated at cost when purchased, and at estimated market value when donated. BPA records depreciation of its property and equipment using the straightline method over the estimated useful life of the asset. The estimated useful lives of BPA’s assets are twenty years for the organ façade and building improvements and three to ten years for all other assets. Page 8 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS Fourteen Month Period Ended August 31, 2014 and Year Ended June 30, 2013 NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Beneficial Interest of Assets Held in Trust BPA recognizes contribution revenue from assets donated to a recipient organization for the sole benefit of BPA. Donated Services BPA records the value of donated services and equipment in its financial statements if a basis is available to measure the value of such services and equipment. Donated services are generally recognized if such services enhance nonfinancial assets and require a specialized skill. The amounts are included in contributions and grant revenues on the accompanying Statement of Activities. BPA generally pays for services requiring specific expertise. In 2014, BPA received $6,972 in donated legal services. No amounts have been reflected in the 2013 financial statements for donated services. Community members volunteer as ushers, tour guides, administrative assistants, and advisors. A dollar valuation of their efforts is not reflected in the financial statements, however, the estimated volunteer hours for the fourteen month period ended August 31, 2014 and year ended June 30, 2013 were approximately 63,000 and 42,000 hours, respectively. Revenue Recognition In the absence of donor restrictions, contributions are considered to be available for unrestricted use. All income is recognized in the period when the contribution, pledge, or unconditional promise to give is received. Government funding and grants are recorded as unrestricted revenue funds and are reimbursements for expenditures made by BPA. Unconditional promises to give due in the next year are recorded at their net realizable value. Unconditional promises to give due in subsequent years are recorded at the present value of their net realizable value, using risk-free interest rates applicable to the years in which the pledges are received. Amortization of the resulting discount is taken into income as a contribution in subsequent years. Deferred revenue represents cash received from advance ticket sales and season sponsorships. Ticket sale revenue is recorded after the related performances are completed and associated cost settlements are calculated. Sponsorship revenue is recognized in the fiscal year specified in the sponsorship contract. Advertising Costs Advertising costs related to specific events are deferred and amortized in the period of the event. BPA charges advertising costs to events as incurred on the accompanying Statements of Activities. Advertising expense for the fourteen month period ended August 31, 2014 and year ended June 30, 2013 was approximately $1,969,000 and $1,329,000, respectively. Page 9 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS Fourteen Month Period Ended August 31, 2014 and Year Ended June 30, 2013 NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Tax Status In the United States Treasury Department determination letter dated October 15, 1992, BPA was determined to be tax exempt under Section 501(c)(3) of the Internal Revenue Code. Accordingly, there are no income taxes provided for in the accompanying financial statements. BPA has accrued $22,700 in estimated federal and state taxes for Unrelated Business Income for the fourteen months ended August 31, 2014. Fiscal years ending after June 30, 2012 remain subject to examination by federal and state tax authorities. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Subsequent Events BPA evaluated the effect subsequent events would have on the financial statements through November 26, 2014, which is the date the financial statements were available to be issued. NOTE B – UNCONDITIONAL PROMISES TO GIVE Unconditional promises to give represent all outstanding commitments for contributions to BPA. Pledges are recorded as a receivable at the time a written pledge is received. Pledges receivable are as follows: August 31, 2014 Receivable in less than one year Less: Allowance for uncollectible pledges Total pledges receivable, net $ $ 337,447 50 337,397 June 30, 2013 $ $ 72,783 4,200 68,583 NOTE C – FAIR VALUE MEASUREMENTS GAAP establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:  Level 1: Observable inputs such as quoted prices in active markets. Page 10 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS Fourteen Month Period Ended August 31, 2014 and Year Ended June 30, 2013 NOTE C – FAIR VALUE MEASUREMENTS (Continued)  Level 2: Inputs other than quoted prices in active markets that are either directly or indirectly observable. Money market funds are valued using $1 for the unit value using the market approach. Fixed income securities are valued on the basis of valuations provided by pricing services, which determines valuations using methods based upon market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders.  Level 3: Prices or valuations that require using significant unobservable inputs in determining fair value. The inputs into the determination of fair value require significant judgment or estimation by the investment manager. The investment manager uses either the market approach, which generally consists of using comparable market transactions, or the income approach which general consists of net present value of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors. The inputs used by the investment manager in estimating the value of Level 3 investments include NAV and capital account values provided by the managers for investment fund positions, original transaction price, recent transactions in the same or similar instruments for private equity positions, original transaction price for the common stock position and a single broker quote for the corporate bond position. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Plan’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. Following is a description of the valuation methodologies used for the underlying assets measured at fair value. There have been no changes in the methodologies used at August 31, 2014 and June 30, 2013. The following tables set forth by level, within the fair value hierarchy, BPA investments at fair value as of August 31, 2014 and June 30, 2013: August 31, 2014 Level 1 Level 2 Level 3 Fair Value Short-term investments: Cash and cash equivalents Fixed income $ --- $ 770,070 1,898,468 $ --- $ 770,070 1,898,468 Total short-term investments $ -- $ 2,668,538 $ -- $ 2,668,538 -- $ -- $ 10,018,939 $ 10,018,939 -- 9,526,015 9,526,015 -- $ 19,544,954 $ 19,544,954 Restricted investments: Endowment investments $ Beneficial interest in assets held in trust -- Total restricted investments -- $ $ Page 11 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS Fourteen Month Period Ended August 31, 2014 and Year Ended June 30, 2013 NOTE C – FAIR VALUE MEASUREMENTS (Continued) June 30, 2013 Level 2 Level 3 Level 1 Short-term investments: Cash and cash equivalents Fixed income Fair Value $ --- $ 584,164 2,052,163 $ --- $ 584,164 2,052,163 Total short-term investments $ -- $ 2,636,327 $ -- $ 2,636,327 -- $ -- $ 8,409,749 $ 8,409,749 Restricted investments: Endowment investments $ Beneficial interest in assets held in trust -- Total restricted investments -- $ $ -- 8,899,554 8,899,554 -- $ 17,309,303 $ 17,309,303 The investment portion of the beneficial interest in assets held in trust and endowment investments are considered by BPA to be Level 3 assets because they represent interests held in pooled investment funds, which include private investment funds. As discussed in Notes D and E, the Foundation for the Carolinas (“FFTC”) manages the administration of these investments. For the assets measured at fair value on a recurring basis using Level 3 valuations during the period, the following tables provide a reconciliation of beginning and ending balances for the fourteen month period ended August 31, 2014 and year ended June 30, 2013: Beneficial Interest in Endowment Assets Held Investments In Trust Balance, July 1, 2013 Investment return: Interest and dividends Admin fees Investment fees Unrealized gains Realized gains Capital gain distributions Contributions Withdrawals Change in beneficial interest of assets held in trust Balance, August 31, 2014 $ 8,409,749 $ 8,899,554 103,580 (43,241) (17,881) 1,061,325 343,168 -1,446,951 -------- 312,239 (150,000) --- -$ 10,018,939 626,461 $ 9,526,015 Page 12 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS Fourteen Month Period Ended August 31, 2014 and Year Ended June 30, 2013 NOTE C – FAIR VALUE MEASUREMENTS (Continued) Beneficial Interest in Assets Held In Trust Endowment Investments Balance, July 1, 2012 $ Investment return: Interest and dividends Admin fees Investment fees Unrealized gains Realized gains Capital gain distributions Contributions Withdrawals 8,117,095 -------- 50,000 (586,244) --- -$ 8,186,383 88,568 (32,274) (22,500) 679,840 52,938 62,326 828,898 Change in beneficial interest of assets held in trust Balance, June 30, 2013 $ 8,409,749 713,171 $ 8,899,554 NOTE D –SHORT-TERM INVESTMENTS AND ENDOWMENT INVESTMENTS Investments are carried at fair value and realized and unrealized gains and losses are reflected in the Statements of Activities. The fair value of investments at August 31, 2014 and June 30, 2013 is summarized below: August 31, 2014 Short-term investments Cash and cash equivalents Bonds Total short-term investments $ $ 770,070 1,898,468 2,668,538 June 30, 2013 $ $ August 31, 2014 Endowment investments Cash/fixed income Hedge funds Alternative investments Equities Total Endowment $ 1,497,765 2,156,467 1,380,954 4,983,753 $ 10,018,939 584,164 2,052,163 2,636,327 June 30, 2013 $ $ 1,251,083 1,512,564 1,207,707 4,438,395 8,409,749 Page 13 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS Fourteen Month Period Ended August 31, 2014 and Year Ended June 30, 2013 NOTE D –SHORT-TERM INVESTMENTS AND ENDOWMENT INVESTMENTS (Continued) BPA’s endowment investments are held by the Greater Charlotte Cultural Trust (the “Trust”). The Trust, which is a supporting foundation of the FFTC, is a separate legal entity with its own board of directors which oversees endowment administration, evaluates planned giving opportunities, and makes investment decisions. FFTC, a nonprofit organization that serves donors, communities, and a broad range of charitable purposes in North and South Carolina, provides investment and administrative services for the Trust. The Trust invests in a variety of investments, which are subject to fluctuations in market values and expose the Trust to a certain degree of interest and credit risk. The Trust has investments with fund managers who invest in private investment funds as part of the Trust’s asset allocation. The investment in the private investment funds is an alternative investment strategy with the purpose of increasing the diversity of the Trust’s holdings and is consistent with the Trust’s overall investment objectives. The private investment funds are not traded on an exchange, and accordingly, investments in such funds may not be as liquid as investments in marketable equity or debt securities. The private investment funds may invest in other private investment funds, equity or debt securities, which may or may not have readily available fair values, and foreign exchange or commodity forward contracts. Management of the Trust relies on various factors to estimate the fair value of these investments and believes its processes and procedures for valuing investments are effective and that its estimate of value is reasonable. However, the factors used are subject to change in the near term, and, accordingly, investment values and performance can be affected. The effect of these changes could be material to the financial statements. The following summarizes the investment return and classification in the Statements of Activities for the fourteen month period ended August 31, 2014 and year ended June 30, 2013: August 31, 2014 Interest and dividend income Realized and unrealized gains on investments Return on investments Less: Return on investments available for operations Return on investments, net of return on investments available for operations $ 103,581 1,404,492 June 30, 2013 $ 1,508,073 (61,125) $ 1,446,948 197,809 661,928 859,737 (30,839) $ 828,898 Page 14 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS Fourteen Month Period Ended August 31, 2014 and Year Ended June 30, 2013 NOTE E – BENEFICIAL INTEREST IN THE CAMPAIGN FOR CULTURAL FACILITIES BPA has a beneficial interest in assets held in trust by the Trust. In 2004, the Trust completed the Cultural Organizations Endowment Agreement related to the Campaign for Cultural Facilities. The agreement outlines the approximately $82.3 million campaign to fund facility endowments to support the operation of new or remodeled facilities as well as other endowment and capital needs in the cultural community. BPA is party to this agreement and is budgeted to be allocated $8 million because the campaign reached its fundraising goal. In accordance with the agreement, the funds will be used to create an endowment, with the earnings to be distributed annually to fund operating costs of the facilities. Although BPA has no control over the disbursement of these funds, BPA is a named beneficiary of a portion of these funds. Accordingly, a beneficial interest has been included in the BPA’s assets totaling $9,526,015 and $8,899,554 as of August 31, 2014 and June 30, 2013, respectively, representing BPA’s interest in funds raised to date. NOTE F – ENDOWMENT FUNDS BPA’s endowment consists of six individual funds established for a variety of purposes that are invested at the Trust (see Note D). The endowment consists of donor-restricted endowment funds. As required by GAAP, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. GAAP also provides guidance on the net asset classification of donor restricted endowment funds for a not-for-profit organization that is subject to an enacted version of Uniform Prudent Management Institutional Fund Act (“UPMIFA”). Endowment net asset composition by type of fund for the investment portion of the endowment as of August 31, 2014 and June 30, 2013 is listed below: Temporarily Restricted Unrestricted Permanently Restricted Total August 31, 2014: Donor-restricted endowment funds $ -- $ 5,964,752 $ 13,580,202 $ 19,544,954 June 30, 2013: Donor-restricted endowment funds $ -- $ 3,729,101 $ 13,580,202 $ 17,309,303 Page 15 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS Fourteen Month Period Ended August 31, 2014 and Year Ended June 30, 2013 NOTE F – ENDOWMENT FUNDS (Continued) The Board of Directors of BPA has interpreted UPMIFA as requiring, absent explicit donor stipulations to the contrary, that the following amounts included in the endowment be classified as permanently restricted: (a) the original value of gifts donated to the permanent endowment and (b) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund be classified as permanently restricted. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by BPA in a manner consistent with the standard of prudence prescribed by UPMIFA or spent in accordance with the purpose restrictions established by the donor. In accordance with UPMIFA, BPA considered the following factors in making a determination to appropriate or accumulate donor-restricted endowments funds: 1. 2. 3. 4. 5. 6. 7. The duration and preservation of the fund The purposes of BPA and the donor-restricted endowment fund General economic conditions The possible effect of inflation and deflation The expected total return from income and the appreciation of investments Other resources of BPA The investment policies of BPA FFTC administers the endowed funds of the Trust. The Board of Directors of the Trust and ultimately BPA have adopted investment and spending policies for endowment assets that attempt to provide for a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Under this policy, the endowment assets are invested in a manner that is intended to produce results that provide an average annual real rate of return, net of fees, equal to or greater than spending, administrative fees, and inflation (Consumer Price Index). Actual returns in any given year may vary from this amount. To satisfy its long-term rate-of-return objectives, the Trust relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). Accordingly, the Trust has adopted the following investment allocation guidelines: Equities – large cap Equities – small cap Equities – emerging market Equities – international Bonds Alternative investments 40% - 80% 10% - 30% 7.5% - 22.5% 2.5% - 7.5% 20% - 30% 8% - 32% Page 16 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS Fourteen Month Period Ended August 31, 2014 and Year Ended June 30, 2013 NOTE F – ENDOWMENT FUNDS (Continued) The Trust had a policy of appropriating for distribution each year 5% of the endowment funds’ average fair value using the prior 3 years’ value at the calendar year-end preceding the fiscal year in which the distribution is planned. For the year ending June 30, 2011, the spending policy was amended to spend up to a maximum of 4.5% of the average fair value over the prior twelve quarters through the calendar year preceding the fiscal year in which the distribution is planned. The amended policy will be evaluated on an annual basis for prudence. In establishing the spending policy, the expected return on the endowment was taken into consideration. Accordingly, the spending policy is expected to allow the endowment to maintain its purchasing power by growing at a rate equal to planned payouts. Additional real growth will be provided through new gifts and any excess investment return. Changes in the investment portion of the endowment net assets for the fourteen month period ended August 31, 2014 and the year ended June 30, 2013 are as follows: Temporarily Restricted Permanently Restricted Total $ 13,580,202 $ 17,309,303 -- (535,880) 2,332,828 1,796,948 --- 2,332,828 1,796,948 Contributions 312,239 -- 312,239 Withdrawals (500,000) -- (500,000) 626,461 -- 626,461 5,964,752 $ 13,580,202 $ 19,544,954 Endowment net assets, July 1, 2013 $ Investment return: Investment income, net of expenses Realized and unrealized gains Total investment losses (535,880) Change in beneficial interest of assets held in trust Endowment net assets, August 31, 2014 3,729,101 $ Page 17 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS Fourteen Month Period Ended August 31, 2014 and Year Ended June 30, 2013 NOTE F – ENDOWMENT FUNDS (Continued) Temporarily Restricted Permanently Restricted Total 2,768,452 $ 13,535,026 $ 16,303,478 33,794 -- 33,794 795,104 828,898 --- 795,104 828,898 Contributions 50,000 -- 50,000 Withdrawals (586,244) -- (586,244) Endowment net assets, July 1, 2012 $ Investment return: Investment income, net of expenses Realized and unrealized gains Total investment losses Change in beneficial interest of assets held in trust Endowment net assets, June 30, 2013 $ 667,995 45,176 713,171 3,729,101 $ 13,580,202 $ 17,309,303 From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the amount recorded by BPA as permanently restricted net assets (corpus). At June 30, 2013 and 2012, the fair value of each individual fund exceeded corpus. NOTE G – PROPERTY AND EQUIPMENT At August 31, 2014 and June 30, 2013 property and equipment consisted of the following: August 31, 2014 Leasehold improvements Computer equipment Building equipment Organ façade Furniture and office equipment Construction in process Total property and equipment Less: accumulated depreciation Net property and equipment $ $ 2,926,796 2,637,429 1,465,169 182,601 848,976 103,726 8,164,697 (5,927,098) 2,237,599 June 30, 2013 $ $ 2,493,138 2,517,378 1,391,136 182,601 700,747 112,207 7,397,207 (5,235,836) 2,161,371 BPA leases its facilities from the City of Charlotte, North Carolina (the “City”) and Mecklenburg County, North Carolina and Bank of America, N.A. (the “County”). See Note I. Page 18 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS Fourteen Month Period Ended August 31, 2014 and Year Ended June 30, 2013 NOTE H – CAPITAL LEASE BPA leases certain office equipment which are recorded as capital leases in accordance with GAAP, with related assets and liabilities recorded. Cost of equipment of $7,927 and accumulated amortization of $5,615, are included in property and equipment and accumulated depreciation as of and for the fourteen month period ended August 31, 2014. Future minimum lease payments under the capital leases are as follows: Year ended August 31, 2015 $ 828 NOTE I – FACILITIES LEASES During the year ended June 30, 2011, BPA entered into an agreement with Bank of America, N.A. to lease office space in one of its buildings. BPA leases this space for $10 per year. The lease agreement expires on March 31, 2021. During the year ended June 30, 2010, BPA entered into agreements with the City to lease and operate the Center and Knight Theater. BPA also has an agreement with the County to lease and operate Spirit Square. BPA leases each facility for $1 per year. The agreement to lease the Center expires on October 2, 2019, the agreement to lease the Knight Theater expires on June 30, 2039, and the agreement to lease Spirit Square expired on June 30, 2007 at which time it converted to a month to month agreement. In accordance with GAAP, BPA records the fair market value of the leases each year. In addition, BPA records the present value of the future leasehold benefits of the City leases for the remaining life of the current lease obligations. The present value of these benefits has been computed using discount rates of 3.2%, 3.5% and 4.3%. BPA recorded the fair value of the leases of $1,645,292 and $1,410,250 as donated rental expense and a corresponding release from restricted net assets, net of amortization of the discount, in the accompanying Statements of Activities for the fourteen month period ended August 31, 2014 and year ended June 30, 2013, respectively. NOTE J – DEFERRED REVENUES AND PREPAID EVENT EXPENSES BPA recognizes revenues and expenses related to an event at the time of the performance. At August 31, 2014 and June 30, 2013, the Center had received approximately $8.7 million and $10.2 million, respectively, in advance ticket sales and advertising revenue which have been deferred to the succeeding fiscal year. Related prepaid event expenses were approximately $355,000 and $427,000 for the fourteen month period ended August 31, 2014 and year ended June 30, 2013, respectively. In addition, BPA has deferred advertising revenue of approximately $160,000 and $95,000 for the fourteen month period ended August 31, 2014 and year ended June 30, 2013, respectively, related to performances that occur in the succeeding fiscal year. Page 19 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS Fourteen Month Period Ended August 31, 2014 and Year Ended June 30, 2013 NOTE K – EMPLOYEE BENEFIT PLANS BPA sponsors a 403(b) defined contribution pension plan for full-time employees with a minimum of one year of service who are not covered by a collective bargaining agreement. BPA contributes 2% of each participant’s compensation to the plan, and matches up to 3% of a participant’s compensation. For the fourteen month period ended August 31, 2014 and year ended June 30, 2013, BPA’s contribution to the plan was approximately $187,000 and $153,000, respectively. BPA provides separate supplemental employee retirement plans for its president and former president. The former president is covered under an annuity contract which, beginning in fiscal 1998, was partially funded by investing in a trust which BPA is the owner of the trust assets. The current president is covered under a defined contribution plan. BPA recorded no expenses related to the plans for the fourteen month period ended August 31, 2014 and year ended June 30, 2013. The trust assets are recorded as an asset in BPA’s financial statements and the corresponding liability has also been recorded. NOTE L – CONCENTRATION OF SOURCE OF SUPPLY OF LABOR Some of BPA’s employees (representing approximately 16% and 18% of payroll expense for the years ended for the fourteen month period ended August 31, 2014 and year ended June 30, 2013, respectively) are members of the International Alliance of Theatrical Stage Employees Local #322. BPA’s contract with the union expired on June 30, 2012, at which time a new four year contract was negotiated through June 30, 2016. BPA’s other employees are not represented by a union. NOTE M – TEMPORARILY/PERMANENTLY RESTRICTED NET ASSETS BPA’s temporarily restricted net assets released from restriction were as follows for the fourteen month period ended August 31, 2014 and year ended June 30, 2013: August 31, 2014 Donated rental expense, net of amortization of discount Donor designated gifts released Total Temporarily Restricted Net Assets Released From Restriction June 30, 2013 $ 863,095 449,857 $ 713,756 353,876 $ 1,312,952 $ 1,067,632 Page 20 NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS Fourteen Month Period Ended August 31, 2014 and Year Ended June 30, 2013 NOTE M – TEMPORARILY/PERMANENTLY RESTRICTED NET ASSETS (Continued) BPA’s temporarily restricted net assets are for the following purposes: Gross value of leaseholds with City, County and Bank of America, N.A. Less: net rental expense recognized to date Present value of leaseholds with City and County Booth Playhouse endowment Performing arts scholarship fund Investment gains: Endowment funds Organ fund Beneficial interest in assets held in trust Other temporarily restricted net assets Total temporarily restricted net assets August 31, 2014 June 30, 2013 $ 10,634,833 (3,407,019) 7,227,814 226,410 493,357 3,093,821 139,152 2,025,698 657,922 $ 13,864,174 $ 10,634,833 (2,543,924) 8,090,909 226,410 323,000 1,646,873 139,152 1,399,237 278,346 $ 12,103,927 BPA’s permanently restricted net assets are for the following purposes: August 31, 2014 Operating endowment for the Center Beneficial interest in assets held in trust Education institute endowment Seats endowment Total permanently restricted net assets $ 5,564,662 7,500,317 513,966 1,257 $ 13,580,202 June 30, 2013 $ 5,564,662 7,500,317 513,966 1,257 $ 13,580,202 Page 21 Financial Management Fall 2015 1.) (7 points) Against the odds, you won the New York State Lottery. The jackpot was advertised as $40 million. As the winner, you are entitled to payments of $2 million at the beginning of each year for 20 years ($2 million x 20 years = $40 million). a. If you know that you can earn 5% on your savings per year, how much is the lottery prize worth to you? b. They offer you $25 million to take the prize now. Do you take the $25 million one-time payout? NC PERFORMING ARTS CENTER FINANCIAL STATEMENTS ANSWER ALL QUESTIONS Using the provided NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION (referred to as NCPAC) Financial Statements for the Years Ended August 31, 2014 and June 30, 2013 answer the following questions: 2.) (4 points) Who performed the audit? What was their opinion? What does this type of opinion mean? 3.) (2 points) For which revenue or support line item, would a 10% decline create the greatest financial problem for NCPAC? Why? 4.) (3 points) Calculate the ratio of program expenses to total expenses for 2014 and 2013. Does this seem reasonable? 5.) (1 point) In 2014 NCPAC shows a substantial increase in operating revenue. Does this nearly 20% increase in revenue and support translate into substantially better financial results? Why? 6.) (10 points) Create a table of common sized assets and liabilities for the statement of financial position. 7.) (14 points) Calculate the following ratios: current, quick, days of cash on hand, receivables turnover, average collection period, fixed asset turnover, total asset turnover, debt, debt to equity, times-interest earned, operating margin, total margin, ROA, RONA 8.) (3 points) Is there anything that you see in the other portions of the financial statements (Notes, Statement of Cash Flows, etc.) that may be of concern? 9.) (8 points) Write a memo that reflects your evaluation of the financial status of NCPAC. In the conclusion, please provide a recommendation to management on the next steps.
Purchase answer to see full attachment