FINANCIAL STATEMENTS OF TAKOMA ACADEMY
June 30, 2014, 2013, 2012, 2011, and 2010
Audited Financial Statements TAKOMA ACADEMY June 30, 2014, 2013, 2012, 2011, and 2010
TABLE OF CONTENTS
Auditor’s Opinion on the Financial Statements ........................................................................................ 1 - 2 Statements of Financial Position ................................................................................................................... 3 Statements of Changes in Net Assets .......................................................................................................... 4 Statements of Cash Flows ............................................................................................................................ 5 Notes to the Financial Statements ......................................................................................................... 6 - 14
To the Constituents Takoma Academy Takoma Park, Maryland
We have audited the accompanying financial statements of Takoma Academy (Organization), which comprise the statements of financial position as of June 30, 2014, 2013, 2012, 2011, and 2010, and the related statements of changes in net assets and statements of cash flows for the years then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America. This includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the 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 auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.
1
Basis for Qualified Opinion The Organization included in these financial statements the cost and accumulated depreciation of land improvements and buildings to which a related entity holds legal title. Accounting principles generally accepted in the United States of America require the cost and accumulated depreciation of land improvements and buildings to be included in the financial statements of the Organization that owns them. In the absence of a written agreement stating otherwise, land improvements and buildings are considered to be owned by the legal title-holder of the land upon which they are located. The effects of including this property in the financial statements of the Organization are to overstate total assets and net assets by $1,887,182, $1,736,834, $1,896,954, $1,990,528, and $1,585,943 at June 30, 2014, 2013, 2012, 2011, and 2010, respectively, and to overstate the change in net assets by $95,059, $93,526, $93,574, $47,852, and $30,060, respectively, for the years then ended. Qualified Opinion In our opinion, except for the effects of the matter discussed in the first Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of Takoma Academy as of June 30, 2014, 2013, 2012, 2011, and 2010, 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. Emphasis of Matter As discussed in Note 16, the Organization has suffered significant losses in recent years and has increasing current liabilities. Management is developing plans to address this matter. Our opinion is not modified with respect to this matter.
August 5, 2015
2
Takoma Academy Statements of Financial Position June 30, 2014, 2013, 2012, 2011, and 2010
ASSETS Current assets Cash (Note 2) Accounts receivable (Note 3) Unsecured notes receivable - CURF, 1.75% Inventories (Note 4) Prepaid expense Cash held for agency accounts (Note 2) Total current assets
2014 Total
2013 Total
2012 Total
2011 Total
2010 Total
100,892 296,976 43,304 26,081 25,416 75,960 568,629
39,439 251,183 42,766 23,532 14,352 85,533 456,805
180,209 238,133 175,533 8,332 13,977 68,806 684,990
169,203 182,162 171,846 8,332 14,905 76,983 623,431
47,058 187,489 166,681 18,785 16,293 50,212 486,518
1,854,442
1,939,748
2,075,431
2,169,956
1,821,439
$
Plant assets, net, (Note 5) Other assets Unsecured notes receivable - CURF, 1.75% Cash and investments held for unexpended plant (Note 2) Pledges receivable (Note 3) Total other assets Total assets
110,896
109,516
108,218
127,353
123,525
1,404 129,218 241,518 2,664,589
1,464 190,464 301,444 2,697,997
31,306 285,340 424,864 3,185,285
1,434 361,034 489,821 3,283,208
12,526 500,000 636,051 2,944,008
LIABILITIES Current liabilities Accounts payable (Note 6) Agency funds Total current liabilities
983,018 75,960 1,058,978
727,690 85,533 813,223
684,930 68,806 753,736
442,659 76,983 519,642
231,542 50,212 281,754
Other liabilities Long-term accrued expenses (Note 6) Note payable (Note 7) Capital lease payable (Note 7) Total other liabilities Total liabilities
22,349 129,218 22,990 174,557 1,233,535
12,579 190,464 36,302 239,345 1,052,568
7,783 285,340 53,744 346,867 1,100,603
40,412 361,034 13,246 414,692 934,334
47,829 17,984 65,813 347,567
NET ASSETS Unrestricted: unallocated Unrestricted: allocated Unrestricted: net invested in plant Quasi endowment Total unrestricted Temporarily restricted (Note 10) Total net assets Total liabilities and net assets
(826,339) 1,702,234 156,621 1,032,516 398,538 1,431,054 2,664,589
(521,080) 1,712,982 156,621 1,348,523 296,906 1,645,429 2,697,997
(210,067) 1,736,347 156,621 1,682,901 401,781 2,084,682 3,185,285
(882,458) 801,559 1,795,676 156,621 1,871,398 477,476 2,348,874 3,283,208
(571,968) 571,775 1,809,689 145,641 1,955,137 641,304 2,596,441 2,944,008
$
* Inter-fund borrowing is eliminated in the combined totals. See accompanying notes. 3
Takoma Academy Statements of Changes in Net Assets For the years ended June 30, 2014, 2013, 2012, 2011, and 2010
CHANGES IN UNRESTRICTED NET ASSETS Unrestricted revenues and support Tuition Fees Investment income Development income Benefit received from state of Maryland (Note 1) Grant income Miscellaneous income Educational and general income Contributed services (Note 11) Auxiliaries (Note 13) Total unrestricted revenues Released from restrictions (Note 10) Total unrestricted revenues and support
2014 Total $
2013 Total
2012 Total
2011 Total
2010 Total
2,488,417 238,397 1,922 17,301 173,791 106,009 3,025,837 47,052 3,072,889 182,001 3,254,890
2,376,781 300,584 3,547 56,817 20,160 258,602 65,064 3,081,555 32,842 263 3,114,660 22,884 3,137,544
2,395,512 232,933 4,060 13,433 19,613 214,908 79,428 2,959,887 48,327 1,440 3,009,654 52,253 3,061,907
2,237,735 210,297 39,180 1,314 197,763 64,861 2,751,150 32,282 4,172 2,787,604 34,946 2,822,550
2,308,257 239,415 40,194 64,982 77,269 2,730,117 27,450 4,502 2,762,069 297,205 3,059,274
1,873,080 106,512 424,697 2,404,289
2,091,928 91,278 508,443 2,691,649
2,008,996 142,401 370,858 2,522,255
1,929,544 267,702 305,592 2,502,838
2,099,034 857,793 284,593 3,241,420
1,609,759 4,014,048 2,798 4,016,846 (761,956) 386,000 (375,956)
1,258,160 3,949,809 20,718 3,970,527 (832,983) 406,000 (426,983)
1,160,628 3,682,883 25,551 3,708,434 (646,527) 381,332 (265,195)
963,827 3,466,665 56,467 3,523,132 (700,582) 376,081 (324,501)
882,192 4,123,612 49,574 4,173,186 (1,113,912) 373,998 (739,914)
(1,297) 61,246 59,949 (316,007)
(13,072) 105,677 92,605 (334,378)
2,835 (20,460) 94,323 76,698 (188,497)
11,051 (28,171) 257,882 240,762 (83,739)
14,363 572,045 586,408 (153,506)
CHANGES IN TEMPORARILY RESTRICTED NET ASSETS Restricted operating donations (Note 10) 344,879 Restricted capital donations (Note 10) Total restricted income 344,879 Released from restricted operations (Note10) (182,001) Released from restricted capital (Note10) (61,246) Increase (decrease), temp. restricted net assets 101,632
12,884 10,802 23,686 (22,884) (105,677) (104,875)
52,253 18,628 70,881 (52,253) (94,323) (75,695)
32,040 96,960 129,000 (34,946) (257,882) (163,828)
280,891 850,000 1,130,891 (869,250) 261,641
Increase (decrease) in net assets
(439,253)
(264,192)
(247,567)
108,135
Expenses and losses Educational and general program services Instructional (Note 13) Student services (Note 13) Student financial aid Total program services Supporting services Institutional support (Note 13) Total educational and general operating expense Auxiliaries (Note 13) Total operating expenses and losses Net increase (decrease) without subsidy Unrestricted subsidies received (Note 8) Net increase (decrease) from operations Nonoperating activity Nonoperating revenue (Note 9) Nonoperating expense (Note 9) Released from restrictions (Note 10) Net increase (decrease) from nonoperating activity Increase (decrease), unrestricted net assets
Net assets, beginning of year, previously stated Prior period adjustment (Note 19) Net assets, beginning of year, restated Net assets, end of year
(214,375)
$
1,645,429 1,645,429 1,431,054
See accompanying notes. 4
2,084,682 2,084,682 1,645,429
2,348,874 2,348,874 2,084,682
2,596,441 2,596,441 2,348,874
2,472,210 16,096 2,488,306 2,596,441
Takoma Academy Statements of Cash Flows For the years ended June 30, 2014, 2013, 2012, 2011, and 2010
2014 Total
2013 Total
2012 Total
2011 Total
2010 Total
(214,375)
(439,253)
(264,192)
(247,567)
108,135
146,521 100,000 (145,793) (13,613) 255,328 9,770 9,573 (9,573)
135,683 101,756 (114,806) (15,575) 55,339 (7,783) (16,727) 16,727
146,953 (11,292) (44,679) 928 242,271 (32,629) 8,177 (8,177)
104,110 116,037 (110,710) 11,841 222,867 (7,417) (26,771) 26,771
73,921 70,914 (142,854) 18,520 (83,398) 4,845 28,592 (28,592)
61,246 199,084
94,876 (10,802) (200,565)
75,694 (18,628) 94,426
138,966 (96,960) 131,167
(500,000) (850,000) (1,299,917)
CASH FLOWS FROM INVESTING ACTIVITIES New notes receivable issued Payment received on notes receivables (Increase) decrease, cash held for unexpended plant Purchases of plant assets (Note 5) Net cash provided (used) by investing activities
(1,918) 60 (61,215) (63,073)
(3,531) 135,000 29,842 161,311
(14,552) 30,000 (29,872) (52,428) (66,852)
(8,993) 11,094 (464,379) (462,278)
(13,797) 300,000 304,608 (837,265) (246,454)
CASH FLOWS FROM FINANCING ACTIVITIES Donations for plant and endowment Increase (decrease), capital lease payable Increase (decrease), notes payable Net cash provided (used) by financing activities
(13,312) (61,246) (74,558)
10,802 (17,442) (94,876) (101,516)
18,628 40,498 (75,694) (16,568)
96,960 (4,738) 361,034 453,256
850,000 850,000
Increase (decrease), cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year
61,453 39,439 100,892
(140,770) 180,209 39,439
11,006 169,203 180,209
122,145 47,058 169,203
(696,371) 743,429 47,058
CASH FLOWS FROM OPERATING ACTIVITIES Increase (decrease) in net assets
$
Adjustments to reconcile change in net assets to net cash provided Depreciation expense (Note 5) Provision for uncollectable accounts receivable (Increase) decrease, accounts receivable (Increase) decrease, inventories and prepaid Increase (decrease), accounts payable Increase (decrease), accrued expenses (Increase) decrease, agency fund cash Increase (decrease), agency fund liability Adjustments to reclassify non-operating items (Increase) decrease in pledges receivable (Note 3) Nonoperating donations Net cash provided (used) by operating activities
$
Supplemental cash flow data: Cash paid for interest during 2014, 2013, 2012, 2011, and 2010 was $1,297, $2,270, $1,832, $1,046, and $0, respectively.
See accompanying notes. 5
Takoma Academy Notes to the Financial Statements For the years ended June 30, 2014, 2013, 2012, 2011, and 2010 Note 1 – Organization description and summary of significant accounting policies Takoma Academy (Organization) is operated by the Potomac Conference Corporation of Seventh-day Adventists (Conference) to provide a Christian education to secondary level students within its territory. The Organization receives most of its revenue in the form of tuition and other charges from the parents or guardians of its students. It also receives operating and capital subsidies from the Conference. The Organization is a religious not-for-profit organization, and is exempt from federal, state, and local income taxes under provisions of section 501(c)(3) of the Internal Revenue Code, and corresponding sections of applicable state and local codes; except for taxes on unrelated business income as described in sections 511-514 of the Internal Revenue Code. Summary of significant accounting policies (a) Basis of accounting: The significant accounting policies of the Organization are essentially the same as generally accepted accounting principles for not-for-profit organizations as promulgated by the Financial Accounting Standards Board. The significant policies are described below to enhance the usefulness of the financial statements. The financial statements of the Organization have been prepared on the accrual basis of accounting. The Organization evaluates subsequent events and transactions that occur after year end for potential recognition or disclosure in the financial statements. These subsequent events have been considered through the auditors' opinion date August 5, 2015, which was the date the financial statements were available to be issued. (b) Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles 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. (c) Restricted resources: 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. The Organization reports gifts of land, buildings, and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about how long those long-lived assets must be maintained, the Organization reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service. (d) Plant assets and depreciation: Resources used for plant acquisitions and debt service payments are recorded as non-operating activity. Restricted proceeds from sale of assets and restricted income from plant-related investments are recorded as restricted gains. Interest payments on plant-related debt are recorded as non-operating expense. Plant assets are recorded at cost when purchased or at fair market value at date of gift. Plant assets that cost less than $1,000 are not capitalized but are charged to expense. Depreciation of land improvements, buildings, and equipment is provided over the estimated useful lives of the respective assets on a straight-line basis. The following ranges of useful lives are assigned to plant assets: buildings, 20 - 75 years; land improvements, 10 - 20 years; equipment, 3 - 20 years; library books, 10 years; textbooks, 3 years. Depreciation expense is distributed among the various instructional, auxiliary, and administrative expense functions that benefit from the respective assets. (e) Cash and equivalents: Cash equivalents are highly-liquid assets held for operating purposes, which are readily convertible to cash and have a maturity date of less than three months from date of acquisition. Cash equivalents held for other than operating purposes are classified as other assets. The increase or decrease in non-operating cash and investments is reported in the statement of cash flows as investment activities. (f) Fair value of financial instruments: Following are the major methods and assumptions used to estimate fair values. Short-term financial instruments are valued at their carrying amounts included in the statement of financial position, which are reasonable estimates of fair value due to the relatively short period to maturity of the instruments. This applies to cash, cash equivalents, accounts receivable, and certain current liabilities. (g) Current assets and liabilities: Assets and liabilities are classified as current or long-term, depending on their characteristics. This excludes from current assets, cash and claims to cash that are: restricted to use for other than current operations or committee allocated for the acquisition or construction of plant assets or for the liquidation of plant-related debt. This excludes from current liabilities: long-term portion of all debt or plant-related debt payable within the next fiscal year to the extent covered by designated plant-related liquid assets. Working capital is calculated as current assets minus current liabilities.
6
Takoma Academy Notes to the Financial Statements For the years ended June 30, 2014, 2013, 2012, 2011, and 2010
Note 1 – Organization description and summary of significant accounting policies (continued) (h) Investment income: Unrestricted income from operating investments, loans, and the like is accounted for as investment income. Unrestricted income from non-operating investments is accounted for as non-operating revenue. (i) Inventories: Inventories are valued at lower of cost (first-in, first out) or market. Operating and office supplies are expensed when received. (j) Functional allocation of expenses: The costs of providing various programs and other activities have been summarized on a functional basis in the statements of activities. Accordingly, depreciation and plant maintenance expenses have been allocated among program services and management and general based upon square footage. (k) Related organizations: Takoma Academy is an affiliate of the Potomac Conference Corporation of Seventh-day Adventists by reason of the following circumstances: 1. The officers of the Conference, and certain other members of the Conference staff, are members of the Board of Trustees of the Organization. 2. Legal title to all real property of the Organization is vested in the Conference. Asset values and related depreciation accounts are maintained on the Organization's records. 3. A significant degree of financial support for operating purposes is received by appropriation from the Conference. Details of amounts payable to the Conference, and financial transactions, other than those in the ordinary course of business, between the Organization and Conference, are set forth in Note 3, 6, and 8. (l) Concentrations of risk: The Organization receives most of its revenue from student-related activity. Budget and staff employment decisions each year typically must be made before actual enrollment is known. There is a risk that enrollment will be less than anticipated, which would reduce the ability of the Organization to finance its budgeted level of operations. (m) Provision for uncollectable accounts: An estimated allowance for uncollectable accounts is provided through routine additions based on charges, historical collection experience, and aging of receivables. Accounts deemed to be uncollectable are charged to the allowance. (n) Classification of net assets: To ensure observance of limitations and restrictions placed on the use of resources available to the Organization, the net asset accounts are classified for accounting and reporting purposes into components that reflect the presence or absence of donor restrictions or committee designations. Unrestricted net assets are separated into unallocated and allocated amounts. Restricted net assets are separated into temporarily restricted and permanently restricted amounts. (o) State of Maryland funding program: The Organization participates in a program sponsored by the State of Maryland in which the Organization has certain materials provided for them at no cost to the Organization. These materials include textbooks and certain types of equipment. The value of the program benefits received by the Organization was $0 and $20,160 for the years ended June 30, 2014 and 2013, respectively. This amount is reflected in the financial statements as donated income with an offsetting expense for the materials received.
Note 2 – Cash Operating cash Imprest cash Checking accounts State Employees Credit Union Total cash Less: cash held for agency accounts Total operating cash Other than operating Checking account Total other than operating cash
2014 Total $
$
$ $
195 173,332 3,325 176,852 (75,960) 100,892
2013 Total 1,592 120,056 3,324 124,972 (85,533) 39,439
1,404 1,404
1,464 1,464
7
2012 Total 1,592 244,106 3,317 249,015 (68,806) 180,209
31,306 31,306
2011 Total 2,550 240,327 3,309 246,186 (76,983) 169,203
1,434 1,434
2010 Total 2,700 91,270 3,300 97,270 (50,212) 47,058
12,526 12,526
Takoma Academy Notes to the Financial Statements For the years ended June 30, 2014, 2013, 2012, 2011, and 2010
Note 3 – Accounts and pledges receivable Operating accounts receivables Current students Non-current students Total student accounts Allowance for doubtful accounts Net student accounts Faculty and staff accounts Commonweal Foundation Trust fund accounts Potomac Conference SDA institutions Miscellaneous Total accounts receivable, current Plant-related receivables Pledges receivable Less discount Net pledges receivable Current portion Long-term portion
$
$
$
$
Note 4 – Inventory Bookstore Auto donations Total inventory
$ $
2014 Total 232,875 557,831 790,706 (635,312) 155,394 10,981 52,050 73,415 5,136 296,976
2013 Total 260,945 363,743 624,688 (535,312) 89,376 9,681 125,859 24,045 2,222 251,183
2012 Total 313,117 299,932 613,049 (433,556) 179,493 3,323 41,721 6,605 6,991 238,133
2011 Total 199,186 356,751 555,937 (444,848) 111,089 691 44,435 15,822 2,538 7,587 182,162
2010 Total 101,604 325,570 427,174 (328,811) 98,363 18,706 33,230 34,196 2,994 187,489
135,001 (5,783) 129,218 63,865 65,353
203,125 (12,661) 190,464 61,213 129,251
318,787 (33,447) 285,340 41,566 243,774
439,652 (78,618) 361,034 38,957 322,077
681,288 (181,288) 500,000 33,974 466,026
2014 Total 26,081 26,081
2013 Total 14,459 9,073 23,532
Note 5 – Plant assets Educational, general, and auxiliaries Land improvements Buildings Equipment Leased equipment Library books Textbooks Total plant assets Educational, general, and auxiliaries Land improvements Buildings Equipment Leased equipment Library books Textbooks Total plant assets Educational, general, and auxiliaries Land improvements Buildings Equipment Leased equipment Library books Textbooks Total plant assets
$
$
$
$
$
$
Total Cost 347,355 3,182,333 1,762,307 70,412 17,772 48,537 5,428,716
2012 Total 8,332 8,332
2011 Total 8,332 8,332
2010 Total 18,385 400 18,785
2014 Accumulated Depreciation Net Value 328,908 18,447 1,463,946 1,718,387 1,661,390 100,917 58,004 12,408 15,689 2,083 46,337 2,200 3,574,274 1,854,442
Depreciation Expense 113,506 15,959 16,052 1,004 146,521
328,908 3,182,333 1,721,739 70,412 17,772 46,337 5,367,501
2013 328,908 1,350,440 1,645,431 41,952 14,685 46,337 3,427,753
1,831,893 76,308 28,460 3,087 1,939,748
93,526 23,532 4,496 1,252 12,877 135,683
328,908 3,182,333 1,721,739 70,412 17,772 46,337 5,367,501
2012 328,908 1,285,379 1,621,898 8,992 13,433 33,460 3,292,070
1,896,954 99,841 61,420 4,339 12,877 2,075,431
93,574 31,929 4,496 1,508 15,446 146,953
8
Takoma Academy Notes to the Financial Statements For the years ended June 30, 2014, 2013, 2012, 2011, and 2010
Note 5 – Plant assets (continued) Educational, general, and auxiliaries Land improvements Buildings Equipment Leased equipment Library books Textbooks Total plant assets
$
$
Educational, general, and auxiliaries Land improvements Buildings Equipment Leased equipment Library books Textbooks Total plant assets
$
$
Note 6 – Accounts payable Commercial Potomac Conference Student credit balances Deferred income Taxes Accrued vacation payable Accrued employee expenses Plant fund payable Other Retirement allowance accrual Current accounts payable
$
$
2014 Total 70,596 837,056 38,733 2,950 2,614 6,728 3,735 20,606 983,018
Long-term retirement allowance accrual
$
22,349
Total Cost 328,908 3,182,333 1,721,739 17,984 17,772 46,337 5,315,073
328,907 2,218,960 1,739,723 20,471 51,030 510,937 4,870,028
2011 Accumulated Depreciation Net Value 328,908 1,191,805 1,990,528 1,589,969 131,770 4,496 13,488 11,925 5,847 18,014 28,323 3,145,117 2,169,956
Depreciation Expense 2,495 40,861 39,090 4,496 1,722 15,446 104,110
2010 326,413 1,146,448 1,555,375 13,093 7,260 3,048,589
2,494 1,072,512 184,348 7,378 43,770 510,937 1,821,439
2,495 27,565 37,718 2,011 4,132 73,921
2013 Total 4,033 543,576 121,177 2,950 9,896 25,383 235 20,440 727,690
2012 Total 53,721 471,755 65,165 2,950 15,644 29,474 46,221 684,930
2011 Total 34,369 344,237 46,947 700 11,165 5,241 442,659
2010 Total 66,654 47,740 14,675 28 15,783 2,189 11,750 72,723 231,542
12,579
7,783
40,412
47,829
Note 7 – Notes payable and capital lease liability In July 2010, the Organization obtained a loan from the Columbia Union Revolving Fund for $500,000. The Potomac Conference Corporation of Seventh-day Adventists has guaranteed the loan and is paying both the principal and interest directly to the Columbia Union Revolving Fund of behalf of the Organization. A pledge receivable was also set up at the time the loan proceeds were received by the Organization for $500,000. As payments are made by the Conference, both the loan balance and pledge receivable balance are reduced by the same amounts. Interest expense is paid by the Potomac Conference and is offset in the financial statements by restricted subsidy income. Payments of $5,677 per month are being made by the Potomac Conference over a ten year period (120 total payments) ranging from 6.5% to 4.75%. During the year ended June 30, 2011, a one-time additional principal payment of $105,407 was made by the Potomac Conference. The outstanding balance of both the note payable and pledge receivable was $129,218, $190,464, $285,340, and $361,034 at June 30, 2014, 2013, 2012, and 2011, respectively. Future minimum debt payments: 2015 2016 2017 2018 2019 Future Total future minimum debt payments
9
$
$
63,865 65,353 129,218
Takoma Academy Notes to the Financial Statements For the years ended June 30, 2014, 2013, 2012, 2011, and 2010
Note 7 – Notes payable and capital lease liability (continued) The Organization leases four copiers. The obligation is recorded at the present value of lease payments. The asset is depreciated over the lower of the related lease term or the estimated productive life. 2014 Total Xerox copiers @ 6.5%, $482 per month $ Xerox copiers @ 4.75%, $537 per month Xerox copiers @ 4.75%, $652 per month Total capital lease - net present value $
4,985 18,005 22,990
2013 Total 3,101 11,035 22,166 36,302
2012 Total 8,174 16,805 28,765 53,744
2011 Total 13,246 13,246
2010 Total 17,984 17,984
Future minimum lease payments: 2015 2016 2017 2018 2019 Future
$
Total
$
Total future minimum lease payments Less: amount representing interest
Note 8 – Subsidies received General operating - Potomac Conference $ Total unrestricted subsidies received $
12,913 7,824 3,141 23,878 (888) 22,990
2014 Total 386,000 386,000
2013 Total 406,000 406,000
2012 Total 381,332 381,332
2011 Total 376,081 376,081
2010 Total 373,998 373,998
2014 Total
2013 Total
2012 Total
2011 Total
2010 Total
Note 9 – Nonoperating activity
Nonoperating revenue Endowment additions Interest income Total nonoperating revenue Nonoperating expense Plant-related interest expense Miscellaneous expense Total nonoperating expense
$ $ $
$ $
-
-
(1,297) (1,297)
(13,072) (13,072)
2,835 2,835
7,152 3,899 11,051
(20,460) (20,460)
(28,006) (165) (28,171)
7,891 6,472 14,363
-
Note 10 – Temporarily restricted net assets Operating Student aid (scholarship) Art - Halstead Development Total operating
$
Plant-related Renovation projects Pledge receivable Total plant-related Total temporarily restricted net assets
$
2014 Balance 170,777 2,659 95,884 269,320
2013 Balance 12,884 2,659 90,899 106,442
129,218 129,218 398,538
10
2012 Balance
2011 Balance
2,659 113,783 116,442
2,659 113,783 116,442
2010 Balance 9,931 2,659 106,758 119,348
190,464 190,464
285,339 285,339
361,034 361,034
21,956 500,000 521,956
296,906
401,781
477,476
641,304
Takoma Academy Notes to the Financial Statements For the years ended June 30, 2014, 2013, 2012, 2011, and 2010
Note 11 – Contributed services Under provisions of Financial Accounting Standards Board's Accounting Standards Codification Section 958-605-25-16, contributions of services shall be recognized if the services received (a) create or enhance nonfinancial assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. The Organization has received the services of the General Conference Auditing Service during the years ended June 30, 2014, 2013, 2012, 2011, and 2010. The amount of contributed services recognized as revenues for the periods are $39,052, $32,842, $48,327, $32,282, and $27,450 for the years then ended, respectively. These amounts are product of the number of person-hours spent in performing the audit and the cost-recovery rate established by the General Conference of Seventh-day Adventists. The cost of these services is paid 50% by General Conference of Seventh-day Adventists, North American Division and 50% by Columbia Union Conference of Seventh-day Adventists. The Organization has received the services of Bouland & Brush, LLC during the year ended June 30, 2014. The amount of contributed services recognized as revenues for the period is $8,000 for the year then ended. These amounts are product of the number of person-hours spent and then forgiven by Bouland & Brush, LLC.
Note 12 – Pension and other post-retirement benefits Defined benefit plans The Organization participates in the following non-contributory, defined benefit plans: 1.
The defined benefit pension plan known as the Seventh-day Adventist Retirement Plan of the North American Division (NADRP). This plan, which covers substantially all employees of the Organizations, is administered by the General Conference of Seventhday Adventists, North American Division (NAD), in Silver Spring, Maryland, and is exempt from the Employee Retirement Income Security Act of 1974 as a "multiple-employer" plan of a church-related agency. This plan provides primarily monthly pension benefits based on years of service and other factors.
The NAD Committee voted to freeze accrual of service credit in NADRP effective December 31, 1999, except for employees who chose the career completion option, and to start a new defined contribution plan effective January 1, 2000. Certain employees will continue to be eligible for future benefits under this plan. The Organizations continue to make contributions to this plan, at rates determined annually by the plan. 2.
The defined benefit health care plan known as the General Conference of Seventh-day Adventist North American Division Retiree Auxiliary Healthcare Assistance and Death Benefit Plan (RAHAP). This plan, which covers substantially all employees of the Organization, is administered by NAD in Silver Spring, Maryland, and is exempt from the Employee Retirement Income Security Act of 1974 as a “multiple-employer” plan of a church-related agency. This plan provides primarily health-care benefits which supplement Medicare benefits. The extent of these benefits is based on years of service and the beneficiary’s monthly contribution.
Accounting standards define these plans as “multiemployer” plans. As such, it is not required, nor is it possible, to determine the actuarial value of accumulated benefits or plan net assets for employees of the Organization apart from other plan participants. Information about the required contributions to these plans, the actuarial obligation for future benefits, and the funded status of these plans, is presented in the tables below.
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Takoma Academy Notes to the Financial Statements For the years ended June 30, 2014, 2013, 2012, 2011, and 2010
Note 12 – Pension and other post-retirement benefits (continued) Required contributions from the Organization: For the year ended June 30, 2014 For the year ended June 30, 2013 For the year ended June 30, 2012 For the year ended June 30, 2011 For the year ended June 30, 2010
$ $ $ $ $ $
Because the following information is not publicly available, it is required to be disclosed on the basis of information received from each plan. Total contributions received from all employers: For the plan year ended December 31, 2014 For the plan year ended December 31, 2013 For the plan year ended December 31, 2012 For the planyear ended December 31, 2011 For the planyear ended December 31, 2010
$ $ $ $ $
Whether the Organization’s contributions were more than or less than 5% of the total contributions received by each plan: For the plan year ended December 31, 2014 For the plan year ended December 31, 2013 For the plan year ended December 31, 2012 For the planyear ended December 31, 2011 For the planyear ended December 31, 2010
NADRP 49,745 43,979 50,833 54,513 64,171
RAHAP 47,054 41,599 48,840 52,375 61,655
101,806,557 91,820,841 88,114,315 88,687,413 86,381,495
37,344,915 35,959,775 32,072,730 32,212,355 31,037,165
less than less than less than less than less than
Plan net assets available for benefits: For the plan year ended December 31, 2014 For the plan year ended December 31, 2013 For the plan year ended December 31, 2012 For the planyear ended December 31, 2011 For the planyear ended December 31, 2010
$ $ $ $ $
Actuarial obligation and funded status Because the following information is not publicly available, it is required to be Date of plan year-end for latest actuarial information Actuarial liability for future benefits Value of net assets available for benefits Plan funded status as of date of last actuarial data
12/31/2013 $ 1,481,982,124 $ 209,924,999 Less than 65%
218,023,700 209,924,999 193,148,475 185,118,134 198,283,923
TOTAL 96,799 85,578 99,673 106,888 125,826
less than less than less than less than less than
66,446,449 71,035,285 62,771,811 59,165,497 62,164,536
12/31/2012 1,013,326,701 62,771,811 Less than 65%
Risks and other information The risks of participating in multiemployer plans are different from single-employer plans, in the following aspects: ● Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating ● If a participating employer stops contributing to a plan, the unfunded obligations of the plan may be borne by the remaining participating employers. ● If the Organization chooses to stop participating in a multiemployer plan, the Organization may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability. Other information about risks and contingencies related to these plans are as follows: ● Information about the plans is not publicly available, so no “certified zone status” has been determined. ● The Organization's required contributions are not the subject of any collective bargaining agreement. ● No funding improvement plans or rehabilitation plans had been implemented or were pending. ● The Organization has not paid any “surcharge” to either of the plans. ● No minimum contribution for future periods has been determined or required of the Organization.
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Takoma Academy Notes to the Financial Statements For the years ended June 30, 2014, 2013, 2012, 2011, and 2010
Note 13 – Summary of operating income and expense by function
Auxiliaries income Auto mechanics income Bookstore sales Concession sales Food purchases Total auxiliary income Instructional expense Instructional Athletics Library Total instructional expense Student services Student services Computer Total student services expense Institutional support expense Institutional support School vehicles Development Total institutional support expense Auxiliaries expense Bookstore Cafeteria Total auxiliary expense
2014 Total $
$
$
$
$ $
$
$
$ $
2013 Total
2012 Total
2011 Total 1,700 2,996 1,107 (1,631) 4,172
2010 Total
-
263 263
1,440 1,440
216 4,286 4,502
1,872,833 247 1,873,080
2,065,642 25,967 319 2,091,928
1,952,464 54,767 1,765 2,008,996
1,862,245 38,397 28,902 1,929,544
2,034,816 39,502 24,716 2,099,034
106,512 106,512
91,278 91,278
142,401 142,401
235,124 32,578 267,702
448,512 409,281 857,793
1,591,216 9,936 8,607 1,609,759
1,225,929 7,139 25,092 1,258,160
1,126,327 18,968 15,333 1,160,628
880,374 22,572 60,881 963,827
734,039 31,951 116,202 882,192
587 2,211 2,798
5,629 15,089 20,718
5,614 19,937 25,551
49,776 6,691 56,467
20,122 29,452 49,574
Note 14 – Uncertain tax positions In preparation of tax returns, tax positions are taken based on interpretation of federal, state and local income tax laws. Management periodically reviews and evaluates the status of uncertain tax positions and makes estimates of amounts, including interest and penalties, ultimately due or owed. No amounts have been identified, or recorded, as uncertain tax positions. Federal, state, and local tax returns generally remain open for examination by the various taxing authorities for a period of four to five years.
Note 15 – Concentration of risk Approximately 16% of enrolled students receive financial aid from an external third party. There is a risk that this third party may not continue to provide funds in the future, which may negatively impact either student enrollment or student account balances.
Note 16 – Financial condition The Organization has experienced recurring losses, increasing current liabilities which continue to exceed current assets, and declines in the current ratio. The decrease to net assets was $193,523, $439,253, $264,192, $247,567, and $0 for the years ended June 30, 2014, 2013, 2012, 2011, and 2010 respectively. Current liabilities exceeded current assets by $490,349, $356,418, and $68,746 at June 30, 2014, 2013, and 2012, respectively. Current liabilities did not exceed current assets in 2011 and 2010. Unrestricted unallocated net assets were ($826,339), ($521,080), ($210,067), ($882,458), and ($571,968) at June 30, 2014, 2013, 2012, 2011, and 2010 respectively. Management is developing plans to address this matter.
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Takoma Academy Notes to the Financial Statements For the years ended June 30, 2014, 2013, 2012, 2011, and 2010
Note 17 – Working capital and liquidity - operating fund Working capital Total current assets Total current liabilities
$
Actual working capital Recommended working capital* Working capital excess (deficit)
$
Percent of recommended working capital Current ratio Liquidity Cash and investments Columbia Union Revolving Fund, 90-day demand note Total liquid assets
$
Current liabilities Total commitments Liquid assets surplus (deficit)
$
Percent liquid assets to commitments *Calculation of recommended working capital 15% of operating expense $ Long-term payables Temporarily restricted net assets - operating Total recommended working capital $
2014 568,629 1,058,978
2013 456,805 813,223
2012 684,990 753,736
2011 623,431 519,642
2010 486,518 281,754
(490,349) 894,196
(356,418) 714,600
(68,746) 680,490
103,789 685,324
204,764 793,155
(1,384,545)
(1,071,018)
(749,236)
(581,535)
(588,391)
-54.84%
-49.88%
-10.10%
15.14%
25.82%
0.54:1
0.56:1
0.91:1
1.2:1
1.73:1
100,892
39,439
180,209
169,203
47,058
43,304 144,196
42,766 82,205
175,533 355,742
171,846 341,049
166,681 246,969
1,058,978 1,058,978
813,223 813,223
753,736 753,736
519,642 519,642
281,754 281,754
(914,782)
(731,018)
(397,994)
(178,593)
(34,785)
13.62%
10.11%
47.20%
65.63%
87.65%
602,527 22,349 269,320 894,196
595,579 12,579 106,442 714,600
556,265 7,783 116,442 680,490
528,470 40,412 116,442 685,324
625,978 47,829 119,348 793,155
Note 19 – Endowments The Organization is not subject to the provisions of the Maryland Prudent Management of Institutional Funds Act (MPMIFA) because it does not have any donor-restricted endowment funds. Endowment investment policies - return objectives, risk parameters, and strategies: The Organization has not yet formulated its endowment investment policies. Endowment spending policies and relation to investment objectives: The Organization has not yet formulated its endowment spending policies. Endowment net asset composition Endowments by type Board-designated endowments, June 30, 2014 Board-designated endowments, June 30, 2013 Board-designated endowments, June 30, 2012 Board-designated endowments, June 30, 2011 Board-designated endowments, June 30, 2010
$ $ $ $ $
Unrestricted 156,621 156,621 156,621 156,621 145,641
Temporarily Restricted -
Permanently Restricted -
Total 156,621 156,621 156,621 156,621 145,641
Note 20 - Prior period adjustments Net assets have been restated as of July 1, 2009 to correct an understatement of cash. The effect of the restatement was an increase in unrestricted net assets of $16,096.
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