HomeMy WebLinkAboutCAO-15-001-Arts Culture Sustainability Fund 2015Staff Report R (M Office w mkitchenerca REPORT TO: Council DATE OF MEETING: January 5, 2015 SUBMITTED BY: Rod Regier, Executive Director, Economic Development, 519-741-2200 x7506 PREPARED BY: Silvia Di Donato, Manager, Arts & Culture, Economic Development, 519-741-2200 x7392 WARD(S) INVOLVED: ALL DATE OF REPORT: December 15, 2014 REPORT NO.: CAO -15-001 SUBJECT: ARTS & CULTURE SUSTAINABILITY FUND 2015 RECOMMENDATION: That a one-time allocation of the listed investment amounts for 2015, from the Arts and Culture Sustainability Fund, be distributed in advance of final budget approval: THEMUSEUM $120,000 Kitchener -Waterloo Art Gallery 40,000 Kitchener Waterloo Symphony 40,000 TOTAL $200,000 And further that allocation of the sustainability fund for emerging and mid -career organizations ($39,400) be subject to final 2015 budget approval BACKGROUND: The purpose of this report is to recommend pre -budget approval for the Arts and Culture Sustainability Fund to ensure that cash flow to the three pillar arts and culture organizations continues uninterrupted by the budget delays associated with the recent municipal election. Future allocations will be subject to the findings of a joint municipal review of the fund which is anticipated to be complete later in 2015. REPORT: Origin of the Arts and Culture Sustainability Fund The Arts and Culture Sustainability Fund was developed in 2010 as a result of a call to action from the community for the municipalities (local and regional) to help fund, in part, an estimated $2.5 to $5.0 million chronic shortfall for community arts organizations. Headed by the Prosperity Council, 2008 research had shown a funding shortfall of $3.0 million, based on data collected from a survey of 27 arts and 18 funding organizations. The shortfall was estimated using figures from the accumulated debt reported by organizations. Anecdotal information also indicated that significant additional funding would be needed to put these organizations' operating budgets on a sustainable footing. Further supporting the findings above, the gap suggested by the `Earned Revenue Analysis for the Performing Arts' showed that municipal and senior government funding in the area should be increased by about $4 million, with additional increases for museums, galleries and festivals. Taking the expanded cultural sector into consideration, the general magnitude of the gap in financial resources for arts, culture and heritage operating budgets was estimated between $2.5 million and $5 million. The Prosperity Council of Waterloo, through its Task Force On Creative Enterprise, proposed the following to help stabilize arts and culture in the community: 1. That there be a commitment to increase funding to arts and culture by $3 million annually in order to address the sustainability shortfall to be funded as follows: a. $ 1 million from increased private sector contributions, b. $ 1 million from increased municipal support, and c. $ 1 million increased support from provincial and federal programs (leveraging the municipal and private sector support). 2. That an "Enabling Organization" be created to support creative enterprises, the budget to be funded as follows: a. 25% by regional government b. 25% by local governments (pro -rated based on population) and c. 50% other sources (grant applications and private sector) They further suggested that the $1 million of increased municipal support could be realized by each of the municipalities, local and regional, by increasing their annual funding by $1 per capita. 2010-2014 Arts and Culture Sustainability Fund Allocations The Prosperity Council's research in 2008 identified chronic de -stabilization of the arts sector due to underfunding. Based on this research, the City's allocations were meant to assist with the stabilization of 3 pillar arts organizations: THEMUSEUM, Kitchener - Waterloo Art Gallery and Kitchener Waterloo Symphony. Further emerging and mid - career organizations were funded through CEI allocations. The history of the fund to date is as follows: Organization 2010 2011 2012 2013 2014 THEMUSEUM 120,000 120,000 120,000 120,000 120,000 Kitchener -Waterloo Art Gallery 40,000 40,000 40,000 40,000 40,000 Kitchener Waterloo Symphony 40,000 40,000 40,000 40,000 40,000 Creative Enterprise Initiative (to be invested in new mid -career organizations) 0 20,000 31,000 27,357 36,000 MTSpace (one-time allocation) 7,143 Lost & Found Theatre (one- time allocation) 1,500 Held by City of Kitchener 20,000 0 0 0 0 Total j $220,000 $220,000 $231,000 $236,000 $236,000 2015 Approach The City has received requests from pillar arts organizations to advance sustainability funding prior to final budget day, in light of the delay in the budget process resulting from the recent election. All three organizations have identified cash flow constraints which can be alleviated by providing funding in January as is typically the case. This report specifically addresses allocation of the Arts and Culture Sustainability Fund and Council's continued commitment to support the arts and culture sector at the level of $1 per capita over and above the City's pre -2010 investments. Similar requests were put forward to City of Waterloo and Region of Waterloo, where the fall 2014 election delays are mitigated by providing grant "advances" for these core cultural groups to assist their cash flow. In parallel to this commitment, staff is currently collaborating with regional partners for a review of our combined investment processes to determine future allocation of the fund in context of broader investment in the sector. In advance of that review the goal of the Arts and Culture Sustainability Fund in 2015 should be to continue to stabilize the three major cultural organizations: THE MUSEUM, The Kitchener -Waterloo Art Gallery, and the Kitchener Waterloo Symphony. The allocation for new and mid -career organizations will be brought forward in a separate report in tandem with Tier 2 Grant considerations. The total amount reflects the population growth estimates in keeping with Council's commitment to provide $1 per capita for arts and culture. THEMUSEUM, The Kitchener Waterloo Symphony and Kitchener -Waterloo Art Gallery are recommended at the same level of funding for 2015 as in previous years. THEMUSEUM $120,000 Kitchener -Waterloo Art Gallery 40,000 Kitchener Waterloo Symphony 40,000 Allocation to be invested in new to mid -career organizations 39,400 TOTAL $239,400 The following summarizes benefits as reported by the three pillar organizations, with references to financial statements as part of appendices: THEMUSEUM financial statements (draft) are attached as Appendix A, and the following impact statement is submitted by THEMUSEUM: THEMUSEUM does not receive operating funding from any of the municipalities in Waterloo Region. In recent years we have received $120,000.00 from what is referred to as the "Sustainability Fund" While it varies from year to year the total amount received from all municipalities represents less than 30% of our total budget meaning we must generate in excess of 70% annually. Other museums locally or nationally receive as much as 65% or even 100% of their funding. Our Board, however, is committed to bringing world class exhibitions, programs and events to downtown Kitchener where we are currently hosting Unwrapping Egypt which features a 3, 000 year old mummy. Close to 10, 000 school children enjoy our curriculum based school programs and tens of thousands of visitors visit the downtown core to visit THEMUSEUM each year which has a positive impact on retail and restaurant trade. Regional tourism is boosted through unique tourism packages with hotels, restaurants and other tourist attractions where hotel stays and other economic impacts are derived for the city of Kitchener. To ensure accessibility THEMUSEUM offers $5.00 Wednesdays and offers thousands of dollars worth of access passes to low income families and newcomers to the community. Kitchener -Waterloo Art Gallery financial statements are attached as Appendix B, and the following impact statement is submitted by KWAG: The City of Kitchener's Sustainability Funding Grant allowed the Kitchener -Waterloo Art Gallery to continue to feature high quality exhibitions in 2014 such as the rarely seen works of historical Canadian Art from the Hart House Collection at the University of Toronto, the Joey and Toby Tanenbaum Collection of International Naive Art, the photographic work of the late Lynne Cohen as well as artist projects by Aleesa Cohene and Benny Ramsay Nemerofsky, Jason de Haan and Tristram Lansdowne. With an increase in donations from artists and private collectors, the Gallery was able to showcase recent acquisitions as well as an ongoing series of Community Curator projects utilizing the Gallery's permanent collection that is held in public trust. Quality educational programs continue and the Gallery continues to increase student engagement with the Catholic School and Public School Boards. Public programming has been more proactive introducing new art and wellness initiatives with the resident doctors in the community and Schlegel Villages Winston Park Senior Retirement Home. The Gallery is able to continue community outreach through summer festivals. Great progress was made strengthening the funding base with membership development, corporate sponsorships and fundraising events such as the Black and Gold Gala and a new after work event series designed for Young Professionals in the downtown Kitchener area, called #Sight and Taste. Kitchener Waterloo Symphony financial statements are attached as Appendix C, and the following impact statement is submitted by KWS: The generous support we receive from the City of Kitchener through its Arts Sustainability Grant ensures that we are able to maintain a high standard of artistic excellence, diversity of programming, and continue our commitment to deliver a broad range of nationally -renowned education and community programs, while helping the KWS manage unexpected shortfalls in revenue in a difficult economic environment. The KWS is actively improving the quality of life and artistic vibrancy in our community, onstage and off. Not only is the orchestra presenting over 100 concerts per season for all ages in various venues across the Region, but it has also expanded its Youth Orchestra Program, now serves 14, 000 students through its School Concerts Program, has doubled the number of outreach concerts that take the orchestra into public spaces and workplaces, and has initiated a Health & Wellness program serving local healthcare agencies. In addition, the KWS is removing barriers to the access of live orchestral music and music education through a number of targeted subsidization and special incentive programs such as Heartstrings (donated tickets) and Bridge to Music (subsidized music lessons for low income families). The KWS is grateful for the vital funding that the Sustainability Grant provides in order that we may offer these programs at the highest quality level in the most efficient manner possible. ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN: Arts and culture make important contributions to "Quality of Life" through creativity, heritage and diversity. "Development" goals are also served through arts and culture adding to urban vitality and downtown development. The Kitchener Economic Development Strategy (KEDs) recognizes arts, cultural workers and content creators (including music, media, film and design) as a vibrant economic cluster in and of itself, comprising a significant segment of the labour force. Arts and culture industries leverage innovation throughout businesses as diverse as digital media and advanced manufacturing design. A critical component to talent attraction, retention and development, support for arts and culture activities helps to develop Kitchener's distinct identity as a desirable place to live and visit. FINANCIAL IMPLICATIONS: The $1 per capita fund of $239,400 Arts and Culture Sustainability Fund is included in the draft 2015 operating budget. COMMUNITY ENGAGEMENT: INFORM - This report is posted on the City's website as part of the Council agenda. CONSULT - The Arts and Culture Advisory Committee will be reviewing current and future allocation, and participating in stakeholder consultation of the Arts and Culture Sustainability Fund beginning in 2015. ACKNOWLEDGED BY: Jeff Willmer, CAO CAO -15-001 Arts & Culture Sustainability Fund 2015 Appendix A: THEMUSEUM financial statements for the year ended June 30, 2014 15 pages THEMUSEUM of Ideas 1 Transcending Objects Financial Statements For the year ended June 30, 2011 Independent Auditor's Report Financial Statements Balance Sheet Statement: of Fund Balances Statement of Operations Statement of Cash Hows Notes to Financial Statements 4 M 7 Cr -E; S19 5 / 6 '"1220, DDO d vimlo LU", JBDO Fo x 9 ') 76 5,17 1 lie Baw---r Mua kh rig5 uuiatiuramma vAvvbcb , ca 5() SL rI , suke 201 V,'WofIoci ON idly_ z Lanad,,,� EEL= To the Board of Directors of THEMUSEUIM of Ideas Transcending Objects We have audited the accompanying financial statements of THEMUSEUM of Ideas Transcending Objects, which comprise the balance sheet as at June 30, 2014 and the statement of operations, fund balances and cash flows for the year then ended and a SUrnmary of significant accounting, policies and other explanatory Information. Management's, Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for not-for-profit organizations, and for such internal control as management determines is necessary to enable the preparation of financial staternents that are free frorn material rriisstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opirrion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical reqUirernents and 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 arnounts arid 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 circurnstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also, includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the over-all presentation of the financial staternents. Opinion In our opinion, the financial statement,; present fairly, in all material respects, the financial position of THE, USEUM of ideas Transcending Objects as at June 30, 2014, and the results of its operations and its cash flows for the year then ended in accordance with Canadian accounting standards for not-for-profit organizations. 3DB G.vJa LL? Chartered Accountants, Licensed Public Accountants Waterloo, Ontario October 24, 2014 WT, ! 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Lyl �;i K.-., I'L tv ,Z C qA up m c c r "n L7� C) ui L2 j ft. cli - > W 10 0 uj um gall U011111111M.M111 I M ­ For the year ended June 301 2014 2013 Deficiency of revenues over expenses for the year $ (105,343) (125,644) Items not involving cash (3,249) 6,353 Amortization of property, plant and equipment 495,387 574,971 Loss on disposal of property, plant and equipment - 10,718 Amortization of deferred contributions - capital (480,455) (493,533) Gain on tong -term investrnents (232,904) (207,,641) Gift -in-kind donation of property, plant and equipment - (7,000) Write-off of building deposit and improvements 135,988 (187,327) (248,129) Changes in non-cash working capital balances Accounts receivable 23,534 (22,074) Inventory (3,249) 6,353 Prepaid expenses 27,525 68,885 Accounts payable and accrued liabilities (75,484) (28,081) Deferred contributions - operating (10,808) (240,'181) Deferred contributions - capital 50,0,00 189,815 Cash flows from investing activities Purchase of property, plant and equipment (11,469) (307,959) Deposit on future building purchase - (100,000) Net distribution from tong-tern'i investment 188,872 812,330 177,403 404,371 Cash flows from financing activities Proceeds from long-term debt 520,0100 Repayment of long term debt (570,000) (50,0,00) Increase in cash during the year 1,594 80,959 Bank indebtedness, beginning of year (73,641) (154,6,001) Bank indebtedness, end of year (72,047) (73,641) The accornpanyirip, notes are an fntegi'M part of mese finandat staten'lents. kl-d .101W.T.WMAIRTMOTAN Blom 11111 V-1 11 M M 1p; June 30, 201'4 1. Summary of Significant Accounting Policies Basis of Accounting The financial statements have been prepared using, Canadian accounting standards for not-for-profit organizations (ASNPO')'. Nature of Operations THEMUSEUM of Ideas Transcending Objects ("THEMUSEUM") works to scan the globe for fresh, CUItUrat content to offer the community of Waterloo Region and beyond. THE MUS,EUM provides engaging experiences thrOLIgh programs and exhibitions that intersect art, science and technology for audiences of all ages and interests, THF MUSEUM is incorporated Without share capital under the laws of the Province of Ontario and is a registered charitable organization. ConseClUentty, it is exempt froom income tax. Revenue Recognition THEMUSEUM follows the deferral rnethod of accounting for contributions. Unrestricted donations are recognized as revenue when received. Grants and other fundraising income are recognized as revenue when received or when they become receivable, if the amount to be received can be reasonably estirnated and collection is reasonable assured. Earned revenue from admissions, memberships and gift shop are recognized as revenue when services are rendered or goods are delivered',. Capital contributions are deferred and recognized as revenue in the year in which the expense is recognized. Investment contributions are recognized as direct increases in the Restricted Fund. Investment income earned and realized gains and losses are recognized in the Operating Fund when earned. Unrealized gains and tosses are recognized as reverlUe, in the Restricted Fund. M a V ME,", V I =1 June 30, 2014 Fund Accounting The organization LJSeS the principles Of fund accounting. gp,gwrwat �n Fund The operating fund accounts for administrative and operational costs and is financed by earned income, fundraising and sponsorships, gifts in kind, government funding, grants and other miscellaneous income. It also records, the Current assets, liabilities and deficit relating to ongoing programs and administrative operations. Restricted Fund The restricted fund reports contributions received and internally restricted for use at the boards discretion. Net assets held in the restricted fund are invested in a variety of investment vehicles. !�pjtat Fund The capital fund reports the assets, Uabitities, revenues and expenses related to the organization's property, plant and equipment. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated amortization. ContribUted property, plant and equipment are recorded at fair value, when fair value can be reasonably estimated, at the date of contribution. Amortization based on the estimated useful life of the asset is calculated as follows: Computer equipment 2.25 years straight -tine basis Computer software I year straight-line basis Exhibits 5 years straight-line basis Furniture and equipment - 5 years straight-line basis Leasehold improvements -5 to 15 years straight -tine basis Website design 5 years straight-line basis, Artwork is not amortized given the nature of the asset. Amortization is provided at 50% in the year of acquisition and no amortization is provided in the year of disposition. a [It ra 1][411Nil Wair-A �Jkergl 1DUIR41 June 30, 2014 Services Volunteers contribute many hours per year to assist the organization in carrying out its activities. Because of the difficulty of determining their fair value, contributed services are not recognized in the financial statements. Contributed materials are not recognized in the financial statements unless they would normally be pUrChased by the organization andl their fair n�iarket value can be ascertained. Inventory Inventory is stated at the tower of cost and net realizable value. Cost is generally determined on the first -in, first -out basis. Use of Estimates The preparation of financial statements in accordance with ASNPO requires management to mane estimates and assumptions that affect the reported amounts of 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 management's best estimates as additional information becomes available in the future. lifts -in -Kind The organization benefits from SUbstantiat gifts -in-kind. These financial statements do not reftect any revenue or expenditures related to gifts -in-kind for which fair value cannot be reasonably estimated, Financial Instruments Financial instruments are recorded at fair value when acquired or issued. In subsequent periods, equities traded in arm active market and derivatives are reported at fair value, with any unrealized, gains and losses reported in operations, All other financial instruments are reported at cost or amortized cost less impairment, if applicable. Financial assets, are tested for impairment when changes in circumstances indicate the asset could be impaired. Transaction costs on the acquisition, sate or issue of financial instruments are expensed for those items remeasured at fair value at each batance sheet date and charged to the financial instrument fora those measured at amortized cost. 91 0 June 30, 2014 Impairment of Long -Lived Assets In the event that facts or circumstances indicate that the organizations tong -lived assets may be impaired, an evaluation of recoverability would be performed. Such an, evaluation entails comparing the estimated future undiSCOUnted cash Rows associated with the asset to, the asset's carrying arnount to determine if a write down, to market value or discounted cash flow value is required. During the year property, plant and equipment were written off as described in Note 3. Leased Assets Lease agreements that transfer substantially all the benefits and risks associated with ownership are recorded as the acquisition of a tangible property, plant and equipment and the incurrence of an obligation. All other leases are accounted for as operating leases, and the rental costs are expensed as incurred, 2. Long Term investments Long terns investments are held under a pooled fund agreement with the tile Kitchener and Waterloo Community Foundation ("the Foundation"),. The funds are held under a format agreement whereby the Foundation manages the funds for a monthly fee, which, does, not have a fixed term. IN June 30, 2014 OU 713111ill "EXTIMM MI!IIII! � MIM-Ifflrt =11111 - 115111"IMM M= 20,14 2013 In December 2011 THE MUSEUM entered into a purchase agreeirient to buy the building located at 8 Queen Street North, Kitchener for $2,400,000. The purchase was not completed as the board thought it was too great of a financial risk. Therefore deposits of $240,00101 and building improvements consisting of $90,988 were written off during the year. The total write off in the Statement of Operations is shown net of capital donations received of $195,000. The building, improvements have not been amortized since they are not available for use. The organization's batik accounts are held at two chartered banks. The batik accounts earn nominal interest. The organization has an operating facility available to a maximurn of $350,000 at the Bank's prime rate plus 0.5%, as well as a $25,000 Mastercard limit. At June 30, 2014, the organization had $,274,153 (2013 - $260,,350) of unused credit capacity. The operating facility is secured by funds lietcl as described in Note 2. IF Accumulated Accumulated Cost Amortization Cost Amortization Artwork $ 7,000 $ $ 7,000 $ Building improvements 81,966 170,414 - Computer equipment 107,295 106,045 105,688 102,474 Computer software 37,565 37,222 36,879 36,254 Exhibits 1,963,128 1,869,089 1,963,128 1,837,114 Furniture and equipment 356,145 314,299 349, 510 295,481 Leasehold improvements 6,335,400 4,,362,314 6,335,400 3,924,060 Website design 174,026 173,126 174,026 171,326 $ 9,062,525, $ 6,862,095 $ 9,11142,045 $ 6,366,7019 Net book value $ 2,200,430 $ 2,775,336 In December 2011 THE MUSEUM entered into a purchase agreeirient to buy the building located at 8 Queen Street North, Kitchener for $2,400,000. The purchase was not completed as the board thought it was too great of a financial risk. Therefore deposits of $240,00101 and building improvements consisting of $90,988 were written off during the year. The total write off in the Statement of Operations is shown net of capital donations received of $195,000. The building, improvements have not been amortized since they are not available for use. The organization's batik accounts are held at two chartered banks. The batik accounts earn nominal interest. The organization has an operating facility available to a maximurn of $350,000 at the Bank's prime rate plus 0.5%, as well as a $25,000 Mastercard limit. At June 30, 2014, the organization had $,274,153 (2013 - $260,,350) of unused credit capacity. The operating facility is secured by funds lietcl as described in Note 2. IF IIII'MIS I I a 15-11141 R1 an nmiilizim June 30, 2014 Mor-20FRIPM iligilliljiilillll!!���!, 111111111111111m�� included in aCCOUnts payabte is $4,331 denorninated in US dollars translated to $4,624 Canadian. I Balance, beginning of year Contributions received Recognized during the year Balance, end of year M= Batance, beginning of year Contributions received for capital put -poses Amortization of deferred capital contributions Write off of contributions towards 8 Queen St building purchase Current portion Balance, end of year it ti �..r. �,� 2014 2013 $ 380,924 621 105 370,116, 380,924 (380,924)� 21,105) $ 370,116 $ 380,924 The tong -term debt represents an interest free loan payable, due February 2015, w $ 2,629,364 $ 2,93308 50,000 189,81 1- (480,455) (49;3,5i3, (195,000) 2,,003,909 2,629,36 (463,2-59) 0, 1,540,650]48,85 The tong -term debt represents an interest free loan payable, due February 2015, w PER June 30, 20'14 9. Commitments THE USED leases their premises 'for a nominal charge from the City of Kitchener under a tease agreement entered into on December 13, 1999. The term of the lease is 49 years commencing upon the substantial completion of the leasehold improvements. Tile lease is to cornn'-sence upon receipt of written notice of substantial completion frorn the consultant hired to oversee the construction. As at June 30, 2014, no formal notice had been received. THEMUSEUM has also entered into contracts totaUng $36,804 to be paid for exhibits taking place in the 2015 fiscal year. 10. Investment Income, Net Operating Fund Investment income Realized gain on investments investment management fees Restricted Fund' Unrealized gain on irivestments Inter -farad Transfers 2014 2013 70,929 59,29 11,683 99,67 13,800) (23,211 $ $ 221,220 107,967 During the year, the Board of Directors approved an inter -fund transfer of investment income from the Restricted Fund to the Operating Fund, to cover the cost of operations, and a transfer to the Capital Fund. M i1m.1 IIIIIIJIM11 am., I June 30, 2014 11. Government Funding The Regionat Municipality of Watertoo Province of Ontario The City of Kitchener - cash The City of Kitchener- gift in kind The City of Water -too Government of Canada The City of Cambridge 2014 2013 $ 400,9010 370,900 45,803 250,762 120,000 125,000 65,978 64,395 37,5100 40,000 8,855 6,255 3,750 M00 ..... . . . . ..... 14 June 30, 2014 12. Financial Instrument Risks AMAKERM Credit risk is the risk that one party to a financiat illStrUrnent will Cause a financial toss for the other party by failing to discharge an obligation, Financial instrUments which potentially subject the organization to concentrations of credit risk consist of cash and tong -terns investments. The organization has deposited the cash and investments With reputable financial institutions, from which management believes the risk of loss, to be remote, The credit risk on accounts receivable arises from organizations in a similar not-for-profit sector. EMMAM Liquidity risk is the risk that the organization encounters difficulty in meeting its obligations associated with financial liabitities. Liquidity risk includes the risk that, as a result of Operational liquidity requirements, the organization will not have sufficient funds to settle a transaction on the due date; will be forced to sell financiat assets at a value, which is less than what they are worth; or may be unable to settle or recover a financial asset. Liquidity risk arises from bank indebtedness, accounts payable and accrued liabilities and long-term debt. Market risk is the risk that the fair value Of future cash flows of a financial instrument will fluctuate as a result of market factors. Market factors include two types of risk: interest rate risk and equity risk, Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial iristrument Witt fluctuate because of changes in market interest rates. The Organization is exposed to interest rate risk arising frorn the possibility that changes in interest rates wilt affect the value of fixed income denominated investments. The interest rate charged on bank indebtedness RUCtUates With the bank prince rate. Equity risk is the uncertainty associated with the valuation of assets arising from changes, in equity rnarkets. The organization is exposed to this risk through its equity holdings within its investment portfolio. The organization's exposure to the above risks is unchanged from the prior year. 15 CAO -15-001 Arts & Culture Sustainability Fund 2015 Appendix B: Kitchener -Waterloo Art Gallery financial statements for the year ended December 31, 2013 13 pages THE KITCHENER-WATERLOO ART GALLERY FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2013 THE KITCHENER-WATERLOO ART GALLERY DECEMBER 31, 2013 CONTENTS Page Management Responsibility for Financial Reporting I Independent Auditors' Report 2 Financial Statements Statement of Revenue and Expenditure 3 Statement of Changes in Net Assets 3 Financial Position 4 Statement of Cash Flows 5 Explanatory Financial Notes 6- 10 Schedule Revenue 11 THE HITCHENER-WATERLOO ART GALLERY MANAGEMENT RESPONSIBILITY FOR FINANCIAL REPORTING DECEMBER 31, 20.13 The accompanying financial statements and all other information contained in this annual report are the responsibility of the management of The Kitchener -Waterloo Art Gallery. The financial statements have been prepared by management in accordance with Canadian accounting standards for not-for-profit organizations and have been approved by the Board of Directors. Preparation of financial information is an integral part of management's broader responsibilities for the ongoing operations of The Kitchener -Waterloo Art Gallery. Management maintains a system of internal accounting and administration controls which are designed to provide reasonable assurance that _ transactions are accurately recorded on a timely basis, are properly approved and result in reliable financial information. Such information also includes data based on management's best estimates and judgments. Management has determined that the enclosed financial statements are presented fairly and on a consistent basis with prior years, in all material respects. The Finance Committee of the Board of Directors meets with the Executive Director and Director of Finance and Administration of The Kitchener -Waterloo Art Gallery on a monthly basis and reports to the Board of Directors thereon. In addition, the Finance Committee and Board of Directors review and approve the annual financial statements. The Finance Committee has conducted an audit of the permanent collection of the Kitchener -Waterloo Art Gallery. The financial statements have been audited by the external auditors, Graham Mathew Professional Corporation, authorized to practise public accounting by the Chartered Professional Accountants of Ontario, in accordance with Canadian generally accepted auditing standards. The external auditors have full and free access to management, the Finance Committee and Board of Directors. The Independent Auditors' Report, dated March 18, 2014, expresses their opinion on the 2013 financial statements. Shirley Madill Executive Director Shelly Mitchell Director of Finance and Administration 150 Pinebush Road, P.O. Box 880, Cambridge, Ontario NIR 5X9�� �r► p:519.623.1870 f:5€9.623,9490 . l ca- 1 cim Mathew INDEPENDENT AUDITORS' REPORT To the Members of The Kitchener -Waterloo Art Gallery We have audited the accompanying financial statements of The Kitel►ener-Waterloo Art Gallery (the "Gallery"), which comprise the statement of financial position as at December 31, 2013, and the statements of revenue and expenditure, changes in net assets and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for not-for-profit organizations, and for such internal control as management determines is necessary to enable the preparation 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 audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and 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 our 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, we consider the 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of 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. Basis for Qualified Opinion In common with many non-profit organizations, the Gallery derived revenue from fundraising and other sources, the completeness of which is not susceptible to satisfactory audit verification. Accordingly, our verification of these revenues was limited to the amounts recorded in the records of the Gallery and we were not able to determine whether any adjustments might be necessary to fundraising revenues, excess of revenue over expenditure and net assets. Qualified Opinion In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, the financial position of the Gallery as at December 31, 2013, and the results of its operations and its cash flows for the year then ended in accordance with Canadian accounting standards for not-for-profit organizations. 6�0_� � 9 � If Cambridge, Ontario March 18, 2014 CHARTERED ACCOUNTANTS, authorized to practise public accounting by the Chartered Professional Accountants of Ontario grnpica.com r THE KITCHENER-WATERLOO ART GALLERY STATEMENT OF REVENUE AND EXPENDITURE YEAR ENDED DECEMBER 31, 2013 2013 2012 $ $ Revenue (page 11) 28,374 11,940 384,134 ( 328,147) 96,301 233,137 Government grants 368,998 365,603 Arts agencies 196,032 208,065 Project grants 17,495 69,248 Exhibitions 254,459 146,319 Public programs 100,421 109,795 Public support 250,809 193,555 Foundations 31,768 20,934 Investments note 10 21,439 20,441 1,24L4 1 133,960 Expenditure Curatorial and exhibition 301,649 268,005 Development and fundraising 150,424 147,763 Public programs 183,193 196,880 Marketing and communications 177,654 179,803 Administration 241,537 256,823 Depreciation and amortization 11,228 8,124 Building and occupancy 111,176 110,460 Special projects 9,559 46,886 Visitor Services and Volunteer Pro rams 59,772 56 052 1,246,192 1,270,796 Deficiency of revenue over expenditure for year before undernoted item { 4,771) ( 136,836) Bequest income Excess deficient of revenue over expenditure for year 229 136,836) STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 2013 Invested in Capital Internally Endowment Assets Restricted Funds Unrestricted 2013 2012 $ $ $ $ $ $ Net assets (deficiency), beginning of year 28,374 11,940 384,134 ( 328,147) 96,301 233,137 Excess (deficiency) of revenue over expenditure ( 7,194) 7,423 229 ( 136,836) Invested in capital assets 2,960 { 2,960) Interfund transfer ( 11,940) 11,940. Net assets (deficiency), end of year 24,140 NIL 384,134 ( 311,744) 96,530 96,301 The explanatory financial notes form an integral part of these financial statements. 3. THE KITCHENER-WATERLOO ART GALLERY FINANCIAL POSITION DECEMBER 31, 2013 Investments Allan MacKay Curatorial Fund (note 8) 175,570 187,726 Endowment 462,440 443,664 Capital assets (note 4) 111:,940 30,500 Grant receivable 15,000 812,389 710,072 LIABILITIES Bank indebtedness 2013 2012 Bank advances (note I4) S $ Accounts payable and accrued liabilities (note 5) ASSETS 78,800 Cash 882 16,260 Accounts receivable 17,356 18,603 Prepaid expenses 24,201. 13,319 Grant receivable 5,000 Current assets 47,439 48,182 Investments Allan MacKay Curatorial Fund (note 8) 175,570 187,726 Endowment 462,440 443,664 Capital assets (note 4) 111:,940 30,500 Grant receivable 15,000 812,389 710,072 LIABILITIES Bank indebtedness 6,982 Bank advances (note I4) 70,000 26,000 Accounts payable and accrued liabilities (note 5) 60;563. 78,800 Deferred revenue 237,208 277,316 Long-term debt (note 6) 5,000 Current liabilities 379,7$3 382,116 Deferred revenue, Endowment 78,306 59,529 Deferred capital contributions (note 7) 87,800 2,126 Deferred revenue, Allan MacKay Curatorial Fund 160,000 170,000 Long-term debt note b 101000- 715,859 0 000 715859 613,771 NET ASSETS Invested in capital assets (note 9) 24,140. 28,374 Internally restricted 11,940 Endowment funds 384,134 384,134 Unrestricted ( 311,744) ( _ 328,147) 96,530 96,301 812,389 710 072 APPROVED BY THE BOARD rn . President Treasurer The explanatory financial notes form an integral part of these financial statements. 4 THE KITCHENER-WATERLOO ART GALLERY S'T'ATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2013 2013 2012 ` Cash flows from operating activities: Deficiency of revenue over expenditure for year 229 ( 136,836) Items not involving cash: .;. Amortization of capital assets 11,228 8,124 Amortization of deferred capital contributions _ ( 4,034) { 1,_024) 7,423 ( 129,736) Net change in non-cash working capital balances relating to operations: Accounts receivable 11,247 ( 14,334) Prepaid expenses ( 10,882) 17,244 Accounts payable and accrued liabilities ( 18;237), 8,352 Deferred revenue ( 40,108) 46,632 Grant receivable _20,000) 80,557) 71,842) Cash flows from investment activities: Change in investments { 6,620) ( 1,619) Change in deferred revenue, investments 8,777 ( 5,198) Purchase of capital assets 9Z,668) 25,633) 90 511 32,450) Cash flows from financing activities: Capital contributions received 89;708 Increase in long-term debt 15,000 104,708 Net decrease in cash ( 66,360) ( 104,292) Cash (bank advances), beginning of year ( 9,740) 94,552 Bank advances, end of year -(_;_ 76,100) (nmm9,740) Cash position includes: Cash 882 16,260 Bank indebtedness ( 6,982) i1 Bank advances ( 70,000) (_ 26,000) i< { 76,100) ( 9 74D The explanatory financial notes form an integral part of these financial statements. 5. THE KITCHENER-WATERLOO ART GALLERY EXPLANATORY FINANCJAL NOTES YEAR ENDED DECEMBER 31, 2013 I. Basis of Presentation of Financial Statements These financial statements have been prepared by management on a going concern basis, which presumes that The Kitchener -Waterloo Art Gallery (the "Gallery") will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Gallery has a working capital deficiency at the end of the year and a deficiency in its unrestricted fund. 2. Nature of Business The Gallery enhances interest and builds understanding of the visual arts among the public, gallery members and the arts community in the surrounding area. This is accomplished by providing accessible public exhibitions, sustaining a significant permanent collection of artworks, delivering intriguing special events and tours and stimulating creativity in generations of children and adults, through studio workshops, lectures and seminars. The Gallery is incorporated as a non-profit organization without share capital. As the Gallery is a registered charity under the Income Tax Act, its income is not taxable and it is eligible to issue official income tax receipts for charitable donations. 3. Summary of Significant Accounting Policies The financial statements were prepared in accordance with Canadian accounting standards for not-for-profit organizations and include the following significant accounting policies: (a) Amortization of capital assets The Gallery amortizes capital assets on a straight-line basis over their estimated useful lives: Computer equipment 5 years Computer software 2 years Furniture, fixtures and equipment 5 years Collection management equipment 5 years Building improvements 10 - 20 years (b) Works of art Acquisitions of works of art and related costs are reflected through unrestricted net assets in the year they are incurred. Donations of works of art are not recorded in the accounts. The permanent art collection is presently insured for $6,710,607. (c) Financial instruments Investments are shown on the statement of financial position at their fair values at the yearend date, with changes in fair value recognized in the statement of operations. All other financial assets and liabilities are recorded at amortized cost less any discovered impairment. (d) Deferred revenue Deferred revenue represents revenue received for which the related expenditures have not been made. (e) Deferred capital contributions Capital contributions for the purposes of acquiring amortizable capital assets or reducing debt applicable to capital assets are deferred and amortized on the same basis as the related capital assets. 11 THE KITCHENER-WATERLOO ART GALLERY EXPLANATORY FINANCIAL NOTES YEAR ENDED DECEMBER 31, 2013 3. Summary of Significant Accounting Policies (Continued) (f) Fund accounting To ensure observation of restrictions placed on the use of resources available to The Kitchener -Waterloo Art Gallery, the accounts are maintained in accordance with the principles of fund accounting. The resources are classified for accounting and reporting purposes into the following funds which have been established according to their nature and purpose: The Invested in Capital Assets fund reports the assets, liabilities, revenue and expenditures related to the capital assets acquired by the Gallery. The .Internally restricted fund accounts for funds that have been restricted for use by the board of directors. During the year the Internally restricted fund was eliminated as directed by the board of directors and its balance was transferred to the Unrestricted fund. The Endowment fund, the endowment consists of restricted donations received by the Gallery and have been allocated for specific use by the funder. The Unrestricted fund accounts for the organization's program delivery and administrative activities. (g) Revenue recognition The Gallery follows the deferral method of accounting for contributions. Restricted contributions are recognized as revenue in the year in which the related expenses are incurred. Unrestricted contributions are recognized as revenue when received or receivable, if the amount to be received can be reasonably estimated and collection is reasonably assured. Endowment fund contributions are recognized as direct increases in net assets. Income earned on resources held for endowment and realized and unrealized gains are deferred and recognized as income of the operating fund when used in accordance with the restrictions of the endowment fund. (h) Contributed services and materials Donations of materials and services are not reflected in these financial statements because of the impracticality of the record keeping and valuation of them. (i) Use of estimates The preparation of these financial statements in conformity with Canadian accounting standards for not-for- profit organizations requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the current period. These estimates are reviewed periodically and adjustments are made to income as appropriate in the year they become known. 7. THE K.ITCHENER-WATERLOO ART GALLERY EXPLANATORY FINANCIAL NOTES YEAR ENDED DECEMBER 31, 20.13 5. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities 51,961. 66,657 Government remittances payable 8,602 12,143 60,563 78,800 6. Long -Terni Debt City of Kitchener interest-free loan, repayable in annual installments of $5,000, maturing May 2016 15,000 Current portion due within one year 5,000 10.000 Principal repayments for the next three years are approximately as follows: 2014 5,000 2015 5,000 2016 5,000 15,0.00 8. 2013 2012 4. Capital Assets Cost Computer equipment 76,666 76,666 Computer software 12,436 12,436 Furniture, fixtures and equipment 71.,637 64,834 Collection management equipment 41,122 41,122 Building improvements 501,950 416,085 _ _. _.,-_-.• -- 703,811 611,143 - Accumulated amortization Computer equipment 56,235.. 49,354 Computer software 12,436 12,436 Furniture, fixtures and equipment 63,131 61,646 Collection management equipment 41,122 41,122 Building improvements 418,947 416,085 591,871 580,643 Net Book Value 111,940 30 500 5. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities 51,961. 66,657 Government remittances payable 8,602 12,143 60,563 78,800 6. Long -Terni Debt City of Kitchener interest-free loan, repayable in annual installments of $5,000, maturing May 2016 15,000 Current portion due within one year 5,000 10.000 Principal repayments for the next three years are approximately as follows: 2014 5,000 2015 5,000 2016 5,000 15,0.00 8. THE KITCHENER-WATERLOO ART GALLERY EXPLANATORY FINANCIAL NOTES YEAR ENDED DECEMBER 31, 2013 2013 2012 7. Deferred Capital Contributions Balance, beginning of year 2,126 3,150 Grants received for purchase of equipment and building improvements 89,708 91,834 3,150 Amortization { 4,034) ( 1,024) 87,800 2,126 la S. Allan MacKay Curatorial Fund During fiscal 2010, the Gallery received a grant in the amount of $200,000 from the City of Kitchener Musagetes Arts & Culture Fund established in the name of Allan MacKay to cover the cost of special exhibits to be held at the Gallery. Beginning in 2011, the Allan MacKay Curatorial Fund will be disbursed at a rate not to exceed $10,000 per year plus any income earned on the invested funds. Any amount not spent in a given year may be spent in any subsequent year. Income earned on the grant monies invested by the Gallery is deferred. 9. Net Assets Invested in Capital Assets (a) Net assets invested in capital assets are calculated as follows: Capital assets 111,940 30,500 Deduct Amounts financed by deferred capital contributions ( 872800) { 2,126) 24,140 28,374 (b) Change in net assets invested in capital assets is calculated as follows: Amortization of capital assets ( 11,228) ( 8,124) Amortization of deferred capital contributions 4,034_ 1,024 7 194 7, -100) - Purchase 100 Purchase of capital assets, net of disposals 92,668 25,633 Amounts funded by contributions ( 89,708) _ a - --- 2,960 25,633 Change in net assets invested in capital assets ( 4,234) 18,533 10. Investment Income Investment income earned is reported as follows: Unrestricted resources 3 239 Ontario Arts Council Endowment (note 12) 3,689 2,648 Income earned on resources held for endowment: Unrestricted 17,747 17,554 Total investment income recognized as revenue 21,439 20,441 V] THE KITCHENER-WATERLOO ART GALLERY EXPLANATORY FINANCIAL NOTES YEAR ENDED DECEMBER 31, 2013 11. Endowment Funds Contributions restricted for endowment funds consist of restricted donations received by the Gallery. From the time of its receipt, the endowment principal is to be maintained for not less than 10 years. All donations to the endowment fund shall be pooled in a separate account held by a third party. The Board of Directors may make a distribution in each calendar year to the operating account of the Gallery not exceeding 4% of the market value of the assets of the endowment fund on December 31 of the preceding year. No distribution is allowed in a calendar year when the market value of the assets of the endowment fund at the previous December 31 is less than 104% of the sum of all donations to the endowment fund. However, the Board of Directors may continue distributions for two calendar years regardless of the market value of the assets in the endowment fund. After making two such distributions, there shall be no further distribution until the year after, when the market value of assets in the endowment fund exceeds 104% of the sum of all donations to the endowment fund. 12. Ontario Arts Council Endowment Fund The Gallery has entered into an agreement to establish a permanent endowment fund with the Ontario Arts Council Foundation. Under the terms of the agreement, the invested capital cannot be withdrawn and only the related income can be paid to the Gallery. Accordingly, this endowment fund is not presented in these financial statements. The estimated market value of the endowment fund as at December 31, 2013 is $105,235 ($95,500 in 2012). During the year the Gallery received $3,689 from the endowment fund. 13. Commitments and Contingencies The Gallery has agreed with The Centre in the Square Inc. to occupy the Art Gallery premises for a twenty-year period, which commenced on completion of the Art Gallery building in 1980, with successive automatic renewal periods of ten years. The Gallery has agreed to make an annual contribution to the costs related to the premises. In 2013 this amount was $91,918 ($90,116 in 2012). It is anticipated that future annual contributions will be comparable to those of 2013 and 2012. 14. Bank Indebtedness The Gallery has available a revolving line of credit to a maximum of $165,000. The line of credit bears interest at a rate of prime plus 1.5% and is unsecured. 15. Interfund Transfers An amount of $2,960 ($25,633 in 2012) was transferred from Unrestricted Funds to the Funds Invested in Capital Assets in order to fund disbursements for capital purchases. M1 THE KITCHENER-WATERLOO ART GALLERY SCHEDULE OF REVENUE YEAR ENDED DECEMBER 31, 2013 2013 2012 $ $ Government grants City of Kitchener - Arts Culture Sustainability Fund 40,003 40,000 City of Kitchener 252,495 249,103 City of Waterloo 58,5.00 58,500 City of Waterloo - Sustainability Funding 18 000 18,000 Sale of catalogues and books 368,998 365,603 Arts agencies 254,459 146,319 Ontario Arts Council 111,000 111,000 Canada Council for the Arts 82,000 80,000 Arts Investment Fund 3,032 -17,065 Summer employment grants 196,032 208,065 Project grants 55,400 58,389 The Ontario Trillium Foundation 17,495 69,248 Exhibitions Corporate sponsorships 141;815 124,260 Exhibition fees 26,000 10,000 Catalogue contributions 58,000 Allan Mackay Curatorial Fund 27,400 10,910 Sale of catalogues and books 1244 _ 1,149 254,459 146,319 Public programs Waterloo Catholic District School .Board 21,750 21,750 Waterloo Region District School Board 15,600 16,100 Summer employment grants 5,917 7,847 Workshop fees 55,400 58,389 Tours - other groups 1,754 5,709 100,421 109,795_ Public support Corporate donations 5,606 13,189 Service club donations 4,545 2,066 Individual donations 108,440 106,024 Major gifts 50,000 Voluntary admissions 1,925 2,004 Fundraising 58,195 61,398 Amortization of deferred contributions 4,034 1,024 Other 18,064. 7,850 _ 250809 193,555 Foundations The Kitchener and Waterloo Community Foundation - The Musagetes Fund 20,000. 15,000 The Kitchener and Waterloo Community Foundation 7,058 Region of Waterloo Arts Fund 3,200 Other Foundations 1,510 5,934 _ 4 31,768 20,934 Investment income 21,439 20,441 Total revenue 1,241,421 1$1339960 CAO -15-001 Arts & Culture Sustainability Fund 2015 Appendix C: Kitchener -Waterloo Symphony Orchestra financial statements for the year ended July 31, 2014 15 pages Financial Statements of KITCHENER-WATERLOO SYMPHONY ORCHESTRA ASSOCIATION INC. Year ended July 31, 2014 I KPMG LLP Chartered Accountants 115 King Street South, 2nd floor Waterloo Ontario N2J 5A3 Canada Telephone (519) 747-8800 Fax (519) 747-8830 Internet www.kpnng.ca INDEPENDENT AUDITORS' REPORT To the Members of Kitchener -Waterloo Symphony Orchestra Association Inc. We have audited the accompanying financial statements of Kitchener -Waterloo Symphony Orchestra Association Inc., which comprise the statement of financial position as at July 31, 2014, the statements of operations and changes in deficit and cash flows for the year then ended then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for not-for-profit organizations, and for such internal control as management determines is necessary to enable the preparation 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 audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and 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 our 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, we consider 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of 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 in our audit is sufficient and appropriate to provide a basis for our audit opinion. Basis of Qualified Opinion In common with many charitable organizations, Kitchener -Waterloo Symphony Orchestra Association Inc. derives revenue from public donations and fundraising, the completeness of which is not susceptible to satisfactory audit verification. Accordingly, our verification of these revenues was limited to the amounts recorded in the records of the entity and we were not able to determine whether any adjustments might be necessary to excess of expenditures over revenue, current assets and deficit. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG Canada provides services to KPMG LLP. Page 2 Qualified Opinion In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, the statements of financial position of Kitchener -Waterloo Symphony Orchestra Association Inc. as at July 31, 2014, and the results of its operations and its cash flows for the year then ended in accordance with Canadian accounting standards for not-for-profit organizations. Emphasis of Matter Without modifying our opinion, we draw attention to Note 1 in the financial statement which indicates that the Association has experienced losses in the current and prior years and has a working capital deficiency. These conditions, along with other matters set forth in Note 1 in the financial statements, indicate the existence of a material uncertainty that may cast significant doubt about the Association's ability to continue as a going concern. Chartered Professional Accountants, Licensed Public Accountants November 4, 2014 Waterloo, Canada KITCHENER-WATERLOO SYMPHONY ORCHESTRA ASSOCIATION INC. Statement of Financial Position July 31, 2014, with comparative information for 2013 2014 2013 Current assets: Accounts receivable (note 3) $ 174,340 $ 282,596 Prepaid expenses 45,356 32,478 Special funds (note 4) Capital assets (note 5) Liabilities and Deficit Current liabilities: Bank indebtedness Operating line of credit (note 6) Accounts payable and accrued liabilities (note 7) Revenue received in advance (note 8) 219,696 46,834 566,090 315,074 48,745 591,754 $ 832,620 $ 955,573 $ 101,101 $ 16,482 290,000 144,000 106,131 92,082 1,214,339 1,183,759 1,711,571 1,436,323 Deferred capital contributions (note 9) 55,905 56,659 Deficit (note 10) (934,856) (537,409) Commitments (note 11) See accompanying notes to financial statements. On behalf of the Board: Director Director $ 832,620 $ 955,573 KITCHENER-WATERLOO SYMPHONY ORCHESTRA ASSOCIATION INC. Statement of Operations and Changes in Deficit Year ended July 31, 2014, with comparative information 2013 2014 2013 Revenue: Earned revenue: Ticket and service sales: 2,284,290 2,215,740 Ticket sales - subscriptions $ 894,271 $ 899,353 Ticket sales - single tickets 500,783 542,242 Sales of service 92,890 230,255 Youth orchestra 41,362 40,223 Rental 76,011 96,077 Other 68,681 70,218 Educational programs 1,673,998 1,878,368 Contributed revenue: 100,182 111,105 Individual campaigns 989,317 1,077,138 Corporate sponsorships/donations 619,364 387,415 Foundations 126,014 91,160 Endowment income (notes 12 and 13) 147,899 140,041 Special events 82,428 83,221 Volunteer committee (note 13) 53,970 48,000 2,018,992 1,826,975 Grants: Region of Waterloo and Cities of Kitchener, Waterloo and Cambridge 683,671 701,688 Canada Council 477,520 476,000 Ontario Arts Council 365,000 412,762 1,526,191 1,590,450 Total revenue 5,219,181 5,295,793 Expenditures: Orchestra and artistic: Contract wages and benefits 2,284,290 2,215,740 Per service wages and benefits 104,198 151,831 Guest artists and conductors 480,251 489,598 Other 25,194 26,122 2,893,933 2,883,291 Education and outreach: Youth orchestra 25,475 23,342 Educational programs 74,707 87,763 100,182 111,105 Other: Development fundraising 315,748 251,636 Marketing and patron services 801,420 740,539 Administration 517,102 485,024 Orchestra and building operations 973,400 1,006,528 Loan interest 14,843 8,518 2,622,513 2,492,245 Total expenditures 5,616,628 5,486,641 Excess of expenditures over revenue (397,447) (190,848) Deficit, beginning of year (537,409) (346,561) Deficit, end of year $ (934,856) $ (537,409) See accompanying notes to financial statements. 2 KITCHENER-WATERLOO SYMPHONY ORCHESTRA ASSOCIATION INC. Statement of Cash Flows Year ended July 31, 2014, with comparative information for 2013 Cash provided by (used in): Operations: Excess of expenditures over revenue Items not involving cash: Amortization of capital assets Amortization of deferred capital contributions Changes in non-cash operating working capital 2014 $ (397,447) 90,664 (12,154) (318,937) 2013 $ (190,848) 95,837 (12,758) (107,769) Accounts receivable 108,256 (8,871) Prepaid expenses (12,878) (17,101) Accounts payable and accrued liabilities 14,049 (21,334) Revenue received in advance 30,580 (145,566) (178,930) (300,641) Financing Decrease in loan payable - (147,504) Capital contributions 11,400 34,400 Operating line of credit 146,000 144,000 157,400 30,896 Investments: Purchase of capital assets (65,000) (49,354) Special funds 1,911 4,515 (63,089) (44,839) Decrease in cash Cash (bank indebtedness), beginning of year (84,619) (314,584) (16,482) 298,102 Bank indebtedness, end of year $ (101,101) $ (16,482) KITCHENER-WATERLOO SYMPHONY ORCHESTRA ASSOCIATION INC. Notes to Financial Statements Year ended July 31, 2014 The Kitchener -Waterloo Symphony Orchestra Association Inc. (the "Association") is incorporated without share capital under the laws of Ontario and its principal activity is providing symphony performances. Revenue is generated primarily from ticket sales, service fees, grants, sponsorships and donations. 1. Basis of presentation: These financial statements have been prepared on the basis of accounting principles applicable to a going concern. However, there is significant doubt about the appropriateness of the use of the going concern assumption as the Association experienced losses in the current and prior years, has a working capital deficiency and a deficit. The ability of the Association to continue as a going concern and realize its assets and discharge its liabilities in the normal course of business is dependent upon the continued support from its lenders, securing additional financing and on its ability to restore and maintain profitable operations in future. Management has developed a five year deficit reduction plan, and is of the opinion that sufficient working capital will be obtained from future cash flows to meet the Association's liabilities and commitments as they become payable. Management is presently in the process of attempting to secure additional financing from various sources. There can be no assurance that additional financing will be secured. These financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern basis was not appropriate for these financial statements, then adjustments would be necessary to the carrying amount of assets and liabilities, the reported revenues and expenses, and the financial position classifications. 4 KITCHENER-WATERLOO SYMPHONY ORCHESTRA ASSOCIATION INC. Notes to Financial Statements (continued) Year ended July 31, 2014 2. Significant accounting policies: These financial statements are prepared in accordance with the Chartered Professional Accountants of Canada Handbook Part III - Canadian accounting standards for not-for-profit organizations. The Association's significant accounting policies are as follows: (a) Revenue recognition: The Association follows the deferral method of accounting for contributions which include donations and grants. Restricted contributions are recognized as revenue in the year in which the related expenses are incurred. Unrestricted contributions and pledges are recognized as revenue when received or receivable, if the amount to be received can be reasonably estimated and collection is reasonably assured. Contributions restricted for the purchase or the donation of capital assets are deferred and amortized into revenue on a straight-line or declining balance basis, at a rate corresponding with the amortization rate of the related capital assets. Revenue from ticket and service sales is recognized when the services are provided. Rental revenue is recognized over the rental period. (b) Capital assets: Capital assets are stated at cost, less accumulated amortization. Amortization is provided using the following methods and annual rates: Asset Basis Rate Music library Straight-line 20 years Musical instruments Declining balance 20% Leasehold improvements Straight-line 10 years Supported office software Straight-line 10 years Computer and other equipment Declining balance 30% Banners Straight-line 10 years The carrying amount of an item of capital assets is tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized when the asset's carrying amount is not recoverable and exceeds its fair value. 9 KITCHENER-WATERLOO SYMPHONY ORCHESTRA ASSOCIATION INC. Notes to Financial Statements (continued) Year ended July 31, 2014 2. Significant accounting policies (continued): (c) Deferred revenue: Revenue received in advance represents revenue received for which the related services have not been provided or the related expenditures have not yet been made. (d) Deferred capital contributions: Contributions restricted for the purchase of capital assets are deferred and amortized into revenue on a straight-line or declining balance basis, at a rate corresponding with the amortization rate of the related capital assets. (e) Donated services: Donated services are recorded at their fair market value for those services where the fair market value is determinable. (f) Tax status: The Association is a registered charity under the Income Tax Act and, as such, is exempt from income taxes. (g) Financial instruments: Financial instruments are recorded at fair value on initial recognition and are subsequently recorded at amortized cost. (h) Measurement uncertainty: The preparation of the financial statements 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 revenue and expenses during the year. Significant items subject to such estimates and assumptions include the carrying amount of capital assets and the allowance for accounts receivable. Actual results could differ from those estimates. 2 KITCHENER-WATERLOO SYMPHONY ORCHESTRA ASSOCIATION INC. Notes to Financial Statements (continued) Year ended July 31, 2014 3. Accounts receivable: 2014 2013 Grants/sponsorship/pledges receivable $ 158,660 $ 194,151 K -W Symphony Foundation Inc. - 45,000 Other receivables 15,680 43,445 $ 174,340 $ 282,596 4. Special funds: Youth Orchestra Special Fund: This fund represents Kitchener -Waterloo Symphony ("KWS") Youth Orchestra fundraising efforts to offset Youth Orchestra members' touring costs. 2014 2013 Balance, beginning of year $ 15,174 $ 19,880 Expenses (4,615) (4,706) Balance, end of year $ 10,559 $ 15,174 W. A. Bernhardt Trust Fund: This fund was initiated by the Bernhardt family to provide annual scholarships to Youth Orchestra musicians, as chosen by a joint selection committee of the KWS Volunteer Committee and the KWS Youth Orchestra administration. 2014 2013 Balance, beginning of year $ 16,908 $ 16,807 Interest income 464 486 Scholarships awarded (600) (600) Change in fair value of investments 1,532 215 Balance, end of year $ 18,304 $ 16,908 7 KITCHENER-WATERLOO SYMPHONY ORCHESTRA ASSOCIATION INC. Notes to Financial Statements (continued) Year ended July 31, 2014 4. Special funds (continued): Karl Saley Memorial Scholarship Fund: This fund was set up by a donation from the Saley family to provide a sum from annual earnings to assist a deserving member of the Senior Youth Orchestra, as selected by a joint selection committee of the KWS Volunteer Committee and the KWS Youth Orchestra administration. Music library $ 226,804 $ 2014 2013 Balance, beginning of year Interest income Scholarships awarded Change in fair value of investments $ 16,663 $ 456 (600) 1,452 16,573 479 (600) 211 Balance, end of year $ 17,971 $ 16,663 176,965 148,866 149,003 Supported office software 215,460 127,827 2014 2013 Total special funds, end of year $ 46,834 $ 48,745 5. Capital assets: equipment 243,025 204,893 38,132 35,453 2014 2013 5,146 Accumulated Cost amortization Net book value Net book value Music library $ 226,804 $ 33,499 $ 193,305 $ 200,000 Musical instruments 181,495 83,341 98,154 105,679 Leasehold improvements 325,831 176,965 148,866 149,003 Supported office software 215,460 127,827 87,633 101,477 Computer and other equipment 243,025 204,893 38,132 35,453 Banners 5,146 5,146 - 142 $ 1,197,761 $ 631,671 $ 566,090 $ 591,754 KITCHENER-WATERLOO SYMPHONY ORCHESTRA ASSOCIATION INC. Notes to Financial Statements (continued) Year ended July 31, 2014 6. Operating line of credit: The Association has a bank operating line of credit of up to $600,000 as at July 31, 2014. The operating line bears interest at the bank prime rate plus 1.9%. As at July 31, 2014, $290,000 (2013 - $144,000) was drawn on the operating line of credit. The K -W Symphony Foundation Inc. ("Foundation") provides a guarantee against the Association's operating line of credit up to $450,000. 7. Accounts payable and accrued liabilities: Included in accounts payable and accrued liabilities are government remittances payable of $5,580 (2013 - $nil) relating to payroll taxes. 8. Revenue received in advance: Revenue received in advance, represents revenue received for which the related services have not been provided or the related expenditures have not yet been made. 9 2014 2013 Grants $ 217,140 $ 231,000 Sponsorship 180,000 151,800 Ticket sales 803,180 782,275 Other 14,019 18,684 $ 1,214,339 $ 1,183,759 9. Deferred capital contributions: 2014 2013 Balance, beginning of year $ 56,659 $ 35,017 Capital contributions received during the year 11,400 34,400 Less amounts amortized to revenue (12,154) (12,758) Balance, end of year $ 55,905 $ 56,659 9 KITCHENER-WATERLOO SYMPHONY ORCHESTRA ASSOCIATION INC. Notes to Financial Statements (continued) Year ended July 31, 2014 10. Deficit: The Association's Board of Directors have internally restricted special and trust funds as detailed in note 4. These internally restricted amounts are not available for other purposes without approval by the Board of Directors. 2014 2013 Internally restricted Capital reserve fund $ 35,029 $ 28,771 Special funds 46,834 48,745 Capital assets 566,090 591,754 647,953 669,270 Unrestricted (1,582,809) (1,206,679) $ (934,856) $ (537,409) 11. Commitments: The Association has entered into an agreement with The Centre in the Square, relating to rental of premises for concerts on a per event basis, which expires June 30, 2016. The Association has entered into a ten year agreement with the Conrad Theatre Corporation to be the managing tenant of the Conrad Centre for the Performing Arts with payment commitments until July 2019. Over the next five years, the lease commitments are as follows: 2015 2016 2017 2018 2019 10 142,121 143,037 40,400 38,600 38,000 KITCHENER-WATERLOO SYMPHONY ORCHESTRA ASSOCIATION INC. Notes to Financial Statements (continued) Year ended July 31, 2014 12. Endowment funds: The Association is the income beneficiary of permanent endowment funds with the Ontario Arts Fund and The Kitchener -Waterloo Symphony Foundation. Under the terms of these agreements, the capital is not available to the Association. The estimated market value of the endowment funds as at July 31, and the income received during the year from the endowment funds, are as follows: 2014 2013 Market value $ 3,713,808 $ 3,519,079 Income received 147,899 140,041 13. Related party transactions: (a) The Kitchener Waterloo Symphony Orchestra Volunteer Committee: The Kitchener Waterloo Symphony Orchestra Volunteer Committee ("Volunteer Committee") is an independent organization which raises funds and performs volunteer services for the Association. The accounts of the Volunteer Committee are not included in these financial statements. During the year, the Volunteer Committee contributed $53,970 (2013 - $48,000) to the Association. (b) K -W Symphony Foundation Inc.: The Foundation is an independent organization whose purpose is to aid the Association in the advancement of orchestral music and production of orchestral concerts. The accounts of the Foundation are not included in these financial statements. During the year, the Foundation contributed $30,000 (2013 - $45,000) to the Association which is included in the endowment income line on the statement of operations. 11 KITCHENER-WATERLOO SYMPHONY ORCHESTRA ASSOCIATION INC. Notes to Financial Statements (continued) Year ended July 31, 2014 14. Financial risks: The Association believes that it is not exposed to significant foreign exchange or market risk arising from its financial instruments. The Association is exposed to credit risk with respect to accounts receivable. The Association assesses, on a continuous basis, the collectibility of accounts receivable and establishes allowances for accounts that are considered doubtful of collection. The Association is exposed to interest rate risk and cashflow risk on its bank operating line of credit. 12