Independent Auditors’ Report

To the Board of Governors

Harvard Club of Boston

Opinion

We have audited the accompanying financial statements of the Harvard Club of Boston (a nonprofit organization) (the "Club"), which comprise the statements of financial position as of August 31, 2022 and 2021, and the related statements of changes in net assets, activities and cash flows for the years then ended, and the related notes to the financial statements.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Harvard Club of Boston as of August 31, 2022 and 2021, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Club and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Club's ability to continue as a going concern within one year after the date that the financial statements are available to be issued.

Auditors' Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

Telephone: (617) 753-9985 | Fax: (617) 753-9986

Email: info@pkfjnd.com | Website: www.pkfjnd.com

JND, P.C. | 75 State Street | Boston | Massachusetts 02109 | US

In performing an audit in accordance with generally accepted auditing standards, we:

 Exercise professional judgment and maintain professional skepticism throughout the audit.

 Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

 Obtain an understanding of internal control relevant to the audit 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 Club’s internal control. Accordingly, no such opinion is expressed.

 Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

 Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Club’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.

Boston, Massachusetts

December 14, 2022

Harvard Club Of Boston

Statements of Financial Position

Harvard Club Of Boston

Statements of Changes in Net Assets

Harvard Club Of Boston

Statements of Activities

Harvard Club Of Boston

Statements of Cash Flows

Note 1 – Nature of operations

Harvard Club of Boston (the “Club”) is a member owned social club located on Commonwealth Avenue in Boston, Massachusetts. Membership consists primarily of members who have a current or past affiliation with Harvard University and live predominately in the metropolitan Boston area. The Club’s primary sources of revenue are dues and entrance fees, guest room rentals, sales of food and beverages, athletic fees and parking fees.

Note 2 – Summary of significant accounting policies

Basis of presentation

The financial statements of the Club have been prepared in accordance with accounting principles generally accepted in the United States of America, which requires the Club to report information regarding its financial position and activities according to the following net asset classifications.

Net assets without donor restrictions: Net assets that are not subject to donor-imposed restrictions and may be expended for any purpose in performing the primary objectives of the organization. These net assets may be used at the discretion of the Club’s management and Board of Governors.

Net assets with donor restrictions: Net assets subject to stipulations imposed by donors and grantors. Some donor restrictions are temporary in nature; those restrictions will be met by actions of the Club or by the passage of time; other donor restrictions are perpetual in nature, whereby the donor has stipulated funds be maintained in perpetuity.

Donor restricted contributions are reported as increases in net assets with donor restrictions. When a restriction expires, net assets are reclassified from net assets with donor restrictions to net assets without donor restrictions in the Statements of Activities.

Functional allocation of expenses

The costs of program and supporting services activities have been summarized on a functional basis in Note 14. The note also presents the natural classification detail of expenses of the Club by function. Accordingly, certain costs have been allocated among the programs and supporting services benefited.

Cash and cash equivalents

The Club considers investments with an original maturity of three months or less when purchased to be cash equivalents. As of August 31, 2022, and 2021, the Club's cash equivalents were comprised primarily of money market funds.

Accounts receivable

The Club extends credit to its members for dues, parking, athletics, and food and beverage purchases. Credit is also extended to outside parties that contract to hold events at the Club. Receivables that are over 30 days old are considered past due. No collateral is required to support accounts receivable.

The Club maintains an allowance for potentially uncollectible accounts. This allowance is set-up as a reserve based on the balance in the various aging categories and historical losses experienced relative to those categories. When management determines that a receivable is uncollectible, the amount is removed from the receivables balance and is charged against the allowance. Subsequent recoveries of amounts previously written off are credited directly to revenue. The allowance for accounts receivable was approximately $55,000 and $19,000 for 2022 and 2021, respectively.

Inventories

Inventories consist of food, beverages and supplies and are valued at the lower of cost (first-in, first-out) or net realizable value.

Property and equipment

Property and equipment are stated at cost. Depreciation and amortization are computed using the straightline method and various accelerated methods over estimated service lives as follows: buildings – 40 years; building improvements – 10 to 40 years; furniture, fixtures and equipment – 3 to 12 years. The cost of retired or disposed property and related accumulated depreciation and amortization are removed from the respective accounts. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to operations as incurred.

Impairment of long-lived assets

The Club evaluates long-lived assets and intangible assets with definite lives for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the future undiscounted cash flows arising from the assets with the carrying value of the asset. If impairment is indicated, the asset is written down to its estimated fair value on a discounted cash flow basis.

Collections

The Club, over the years, has received contributions of historic and/or artistic materials. The Club has not capitalized these materials since they are held and preserved for public exhibition in keeping with the Club’s exempt purpose and are not intended to be sold.

Pension benefits

The Club's pension benefit costs are accounted for using actuarial valuations which recognize the funded status of its defined benefit pension plan on the Statements of Financial Position and recognize changes in the funded status that arise during the period but are not recognized as components of net periodic benefit cost as changes in net assets without donor restrictions.

Revenue and revenue recognition

Membership dues, which are nonrefundable, are an exchange transaction and, as such, are recognized over the membership period. Room revenue is recognized when the booked room is provided to the Member. Food and beverage and parking revenues are recognized at the time of purchase. Athletics consist of athletic facility season fees which are recognized as revenue over the applicable season period. Payments for such goods and services are generally received at the point of sale in the form of member account charges. All amounts owed by members must be paid in 30 days following presentation of the bill. The Club recognizes revenue at the point in time when goods have been provided and/or services have been rendered. With the exception of goods and services provided in connection with membership dues and athletic facility season fees, which are transferred over the applicable period, all goods and services are transferred at a point in time.

Membership dues received in advance of providing access to the exchange services are recorded as a deferred revenue (contract liability) on the Statements of Financial Position.

Entrance fees and assessments

Entrance fees are recorded as other changes in net assets in the period in which they are due.

Contributed services

Many members have contributed significant amounts of time to the Club’s activities. The financial statements do not reflect the value of these services because they do not meet the recognition criteria.

Income taxes

The Club is exempt from income taxes on member income in accordance with Section 501(c)(7) of the Internal Revenue Code. The Club is, however, subject to income taxes on its income from nonmembers and on its investment income. Management of the Club has evaluated its uncertain tax positions and related income tax contingencies and does not believe that any material uncertain tax positions exist.

The Club’s tax returns are generally subject to examination by the Internal Revenue Service and the Commonwealth of Massachusetts for a period of three years from the date they are filed.

Operating income (loss)

Operating income (loss) pertains to ordinary, day-to-day operations and includes revenues from dues and assessments, user fees and sales of food and beverages, less related expenses. The Club excludes from operating income (loss) entrance fees and unusual, nonrecurring items, such as special assessments.

Accounting estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

Credit risk

The principal financial instruments subject to credit risk are cash and cash equivalents. Credit risk represents the accounting loss that would be recognized at the reporting date if the parties failed to perform as contracted. The total of these financial instruments at times exceed the insured amounts. To mitigate credit risk, the Club places its cash and cash equivalents in investment grade companies or financial institutions. The Club has not experienced any losses on its deposits. The Club’s defined benefit pension assets are invested in separate investment accounts with Bank New York Mellon.

Note 3 – Liquidity and availability

Financial assets available for general expenditure, that is, without donor restrictions limiting their use, within one year of the Statements of Financial Position date, are comprised of the following at August 31:

As part of the Club’s liquidity management plan, cash in excess of daily requirements is invested in a money market account. The Club also has a line of credit available to meet short-term needs. See Note 7 for information about this arrangement.

Note 4 – Note receivable

The Club has a note receivable with a key employee for an amount advanced in connection with employment. The note bears interest at a rate of 2.55% per annum. The note is unsecured.

Note 5 – Property and equipment

Property and equipment consist of the following:

Depreciation expense was $988,358 and $1,246,017 for 2022 and 2021, respectively.

Construction in progress consists mostly of legal and consulting costs related to planning and scoping for a future construction project. The construction project is currently in a preliminary phase and the Club will not break ground on the project until various approvals have been received from the City of Boston.

Note 6 – Deferred compensation

The Club maintains deferred compensation plans with certain key employees under the provisions of Internal Revenue Code Section 457(b). The Club had purchased, as owner and beneficiary, a life insurance policy on the life of one employee. In 2021, the policy was liquidated and the cash surrender value of the policy was distributed to the insured employee. Accrued deferred compensation, representing the vested portion of the future cash payments, approximates $369,000 and $357,000 as of August 31, 2022 and 2021, respectively. The Club contributed $41,000 and $19,500 to the plan for the years ended August 31, 2022 and 2021, respectively.

Note 7 – Line of credit

The Club has a revolving line of credit with a bank under which the Club can borrow up to $5,000,000 for working capital purposes through February 28, 2024. Amounts borrowed bore interest at the bank’s prime rate of interest plus 1.75% (5.00% as of August 31, 2021). On May 17, 2022 the agreement was amended to change the interest rate to the bank’s Base Rate, as defined in the agreement. (5.50% as of August 31, 2022). Interest is payable monthly. There was no outstanding balance as of August 31, 2022 and 2021.

Note 8 – Long-term debt

Long term debt consists of the following: economic injury disaster loan

A.

B.

A. The Club has a commercial real estate mortgage loan that matures in April 2025. For the first five years in which the loan is outstanding, the loan bears interest at a fixed rate of 4.26%. Subsequently, the rate is adjusted to the then current Federal Home Loan Bank rate plus 2.50%. In June 2020, the fixed rate changed to 3.69% in accordance with the terms of the loan agreement. Principal and interest is payable monthly based on a 20-year amortization schedule.

B. On June 24, 2020, the Club obtained a $150,000 economic injury disaster loan from the U.S. Small Business Administration (SBA). The loan was secured by all tangible and intangible personal property of the Club. The loan bore interest at a fixed rate of 2.75%. The loan was originally scheduled to mature on June 24, 2050. In May 2022, the Club repaid the outstanding principal and interest on the loan.

The line of credit and the commercial real estate mortgage are secured by substantially all real and personal property of the Club and contain customary financial covenants.

The following is a summary of principal payments due in each year following August 31, 2022:

Note 9 – Loan – Paycheck Protection Program (PPP)

In May 2021, the Club applied for and was approved for a $1,901,225 loan under the PPP created as part of the relief efforts related to COVID-19 and administered by the U.S. Small Business Administration. The loan accrued interest at 1%, but payments were not required to begin for ten months after the last day of the loan forgiveness covered period. The loan was uncollateralized and was fully guaranteed by the Federal government. On May 16, 2022, the Club was granted loan forgiveness for the $1,901,225 loan. The SBA requires that borrowers maintain documents supporting their applications for six years. As of August 31, 2022, the loan forgiveness is presented as non-operating income on the Statements of Activities and as a non-cash reconciling item in operating activities on the Statements of Cash Flows.

Note 10 – Retirement plans

Defined benefit pension plan

The Club maintains a noncontributory defined benefit pension plan (the “Plan”) for eligible employees. Benefits are based on employees’ years of service and compensation as defined in the plan. The Club’s policy is to contribute amounts sufficient to fund benefits provided by the plan, based on ERISA’s minimum annual funding requirements. Contributions are intended to provide not only for benefits attributed to services incurred to date, but also for those expected to be earned in the future. The Plan’s actuary performed the computations required for financial statement disclosure as of August 31, 2022 and 2021.

Effective September 1, 2012, the Club elected to curtail its defined benefit pension plan and froze benefits. The following table presents defined benefit plan disclosures required under current accounting standards.

recognized in the Statements of Financial Position not yet recognized as a component of net

Plan assets

The Plan’s weighted-average asset allocations, by asset category, are as follows:

Asset allocations reflect the investment policy set by the Club’s Retirement Committee and communicated to the investment manager.

The following table summarizes investments, at fair value, held by the Plan:

Fair value refers to the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. The fair value hierarchy gives the highest priority to quoted market prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3). Fair value measurements are required to be separately disclosed by level within the fair value hierarchy. The Plan’s investments at August 31, 2022 and 2021 are classified as Level 1 and 2.

Expected long-term rate of return on plan assets

The expected long-term rate of return on plan assets assumption is based on historical experience and consultation with the plan’s actuary. The revised 6.00% assumption compares to the 28-year historical weighted average annual compound return of 6.10% actually achieved by the plan assets.

Cash flow information

Contributions

The minimum contribution due for fiscal year 2023 is $86,204.

Estimated benefit payments

Plan contributions are made and the actuarial present value of accumulated plan benefits are reported based on certain assumptions pertaining to interest rates, inflation rates and employee demographics, all of which are subject to change. Due to uncertainties inherent in the estimations and assumptions process, it is at least reasonably possible that changes in these estimates and assumptions in the near term would be material to the financial statements.

In 2022, certain administrative fees incurred by the Plan were paid for by the Club. As of August 31, 2022, $171,008 of these fees are due to the Club from the Plan and are included in accounts receivable on the Statements of Financial Position.

Defined contribution plans

The Club maintains defined contribution plans under Section 401(k) of the Internal Revenue Code. Club employees who satisfy certain other conditions are eligible to participate in the plans and contribute eligible compensation, subject to certain limitations. Substantially all administrative costs are borne by the Club.

Employee contributions to the defined contribution plans are matched by the Club under safe harbor provisions. The Club matches contributions up to 5% of eligible compensation. During 2022 and 2021 there were approximately $166,000 and $142,000 in employer matching contributions, respectively.

Note 11 – Commitments

Operating leases

The Club leased its Federal Street premises under an operating lease which expired on December 31, 2020. The Club is also committed to operating leases for fitness and office equipment that have remaining noncancellable lease terms in excess of one year at August 31, 2022. Future minimum lease payments under the aforementioned non-cancelable operating lease agreements consist of approximately $33,461 due over the course of the year ending August 31, 2023.

Note 12 – Labor subject to collective bargaining agreement

Approximately 54% of the Club’s labor force is covered by a collective bargaining agreement, which expires on June 30, 2024.

Note 13 – Fixed expenses

The components of fixed expenses are as follows:

Note 14 – Functional expenses

The financial statements report certain categories of expenses that are attributed to more than one program or supporting function. Therefore, expenses require allocation on a reasonable basis that is consistently applied. The expenses that are allocated include repairs and maintenance, insurance, real estate taxes, depreciation and amortization, interest and utilities, which are allocated based on a squarefootage basis. Also, salaries and wages and payroll taxes and benefits are allocated on the basis of estimates of time and effort.