Financial Statements September 30, 2016 and 2015 Girl Scouts - Arizona Cactus-Pine Council, Inc.

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1 Financial Statements Girl Scouts - Arizona Cactus-Pine Council, Inc.

2 Table of Contents Independent Auditor s Report... 1 Financial Statements Statements of Financial Position... 2 Statements of Activities... 3 Statements of Functional Expenses... 4 Statements of Cash Flows

3 Independent Auditor s Report The Board of Directors Girl Scouts - Arizona Cactus-Pine Council, Inc. Phoenix, Arizona Report on the Financial Statements We have audited the accompanying financial statements of Girl Scouts - Arizona Cactus-Pine Council, Inc., (the Council) which comprise the statements of financial position as of September 30, 2016 and 2015, and the related statements of activities, functional expenses, and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Girl Scouts - Arizona Cactus-Pine Council, Inc. as of, and the results of its changes in net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Phoenix, Arizona January 23, N. Central Ave., Ste. 400 Phoenix, AZ T F EOE 1

4 Statements of Financial Position Assets Cash and cash equivalents $ 4,557,690 $ 1,781,652 Promises to give United Way 170, ,271 Other 49,350 1,000 Accounts receivable, net of allowance for doubtful 78,162 57,351 accounts of $189,031 and $171,253, respectively Inventory 158, ,783 Prepaids and deposits 222, ,688 Investments 11,011,630 10,388,487 Property and equipment, net 3,317,049 3,394,586 Assets held for long-lived asset Cash related to long-lived assets - 1,542,810 Restricted cash 2,118,555 2,114,797 Capital campaign promises to give 1,373,026 5,927,822 Construction in progress 12,634,992 2,271,155 Total assets held for long-lived assets 16,126,573 11,856,584 Total assets $ 35,692,345 $ 28,390,402 Liabilities and Net Assets Accounts payable and accrued expenses $ 1,385,382 $ 1,196,449 Capital lease obligation 56,941 - Deferred income 160, ,624 Amount due to affiliated organization 12,694 13,946 Bond payable, less unamortized bond issuance costs of $221,797 and $186,399, respectively 4,581,944 10,760 Total liabilities 6,197,601 1,417,779 Net Assets Unrestricted Board-designated 7,697,015 7,928,353 Undesignated 19,899,538 12,148,920 Total unrestricted 27,596,553 20,077,273 Temporarily restricted 1,898,191 6,895,350 Total net assets 29,494,744 26,972,623 Total liabilities and net assets $ 35,692,345 $ 28,390,402 See 2

5 Support and Revenue Support 2016 Temporarily Unrestricted Restricted Total Contributions $ 503,199 $ 2,430,002 $ 2,933,201 United Way 36, , ,058 Special fundraising events 141, ,625 Revenue Program service fees, including camp fees 1,267,513-1,267,513 Cookie and product sales 13,095,183-13,095,183 Cost of cookie and product sales (5,822,063) - (5,822,063) Net cookie and product sales 7,273,120-7,273,120 Sale of scout equipment 759, ,319 Cost of scout equipment sales (478,111) - (478,111) Net scout equipment sales 281, ,208 Miscellaneous 19,908-19,908 Net assets released from restrictions 7,601,182 (7,601,182) - Total support and revenue 17,123,792 (4,997,159) 12,126,633 Expenses Program services 8,331,392-8,331,392 Management and general 1,291,307-1,291,307 Fundraising 673, ,728 Total expenses 10,296,427-10,296,427 Change in Net Assets before Non-Operating Activity 6,827,365 (4,997,159) 1,830,206 Gain on sale of property and equipment Investment gain (loss) 691, ,915 Change in Net Assets 7,519,280 (4,997,159) 2,522,121 Net Assets, Beginning of Year 20,077,273 6,895,350 26,972,623 Net Assets, End of Year $ 27,596,553 $ 1,898,191 $ 29,494,744 See

6 Statements of Activities Years Ended 2015 Temporarily Unrestricted Restricted Total $ 419,396 $ 7,559,348 $ 7,978,744 36, , , , ,185 1,299,966-1,299,966 13,537,095-13,537,095 (6,030,350) - (6,030,350) 7,506,745-7,506, , ,136 (475,375) - (475,375) 371, ,761 38,388-38,388 2,820,400 (2,820,400) - 12,645,279 4,999,989 17,645,268 9,065,933-9,065,933 1,272,789-1,272, , ,713 11,110,435-11,110,435 1,534,844 4,999,989 6,534,833 4,750-4,750 (45,545) - (45,545) 1,494,049 4,999,989 6,494,038 18,583,224 1,895,361 20,478,585 $ 20,077,273 $ 6,895,350 $ 26,972,623 3

7 Program Services Membership Volunteer Programs Support Support Salaries and related $ 2,285,473 $ 1,008,931 $ 668,018 Supplies 979,540 60, ,865 Professional services 240,110 31,545 23,834 Telephone 56,590 33,867 21,383 Postage and shipping 25,431 2,934 4,204 Occupancy 310,701 43,104 32,419 Equipment rental 80,531 13,656 66,571 Conferences, conventions, and meetings 18,275 6,856 4,909 Printing and publications 148,981 70,338 43,086 Depreciation 157,169 46,038 36,401 Interest Miscellaneous 439,231 71,332 28,597 Cost of sales - cookies and product 5,822, Cost of sales - scout equipment ,111 10,564,314 1,389,117 1,576,449 Less expenses included with revenues on the statement of activities Cost of sales - cookies and product (5,822,063) - - Cost of sales - scout equipment - - (478,111) Total expenses included in the expense section on the statement of activities $ 4,742,251 $ 1,389,117 $ 1,098,338 See

8 Statements of Functional Expenses Year Ended September 30, 2016 Program Services Supporting Services Community Management Activities Total and General Fundraising Total $ 512,171 $ 4,474,593 $ 932,148 $ 532,978 $ 5,939, ,115 1,388,972 21,914 11,398 1,422, , ,896 80,485 12, ,472 15, ,318 12,136 8, ,736 2,215 34,784 3,290 2,626 40,700 30, ,172 35,203 18, ,769 16, ,622 15,176 24, ,260 11,035 41,075 14,532 4,509 60,116 34, ,366 29,046 18, ,162 36, ,120 42,733 22, , , , ,585 17, ,552-5,822, ,822, , ,111 1,101,686 14,631,566 1,291, ,728 16,596,601 - (5,822,063) - - (5,822,063) - (478,111) - - (478,111) $ 1,101,686 $ 8,331,392 $ 1,291,307 $ 673,728 $ 10,296,427 4

9 Program Services Membership Volunteer Programs Support Support Salaries and related $ 2,462,124 $ 1,056,593 $ 691,667 Supplies 1,016, ,603 95,438 Professional services 264,843 21,480 26,381 Telephone 66,219 36,625 18,391 Postage and shipping 31,113 3,795 5,844 Occupancy 325,033 47,909 33,363 Equipment rental 70,818 14,505 43,671 Conferences, conventions, and meetings 22,819 6,452 6,436 Printing and publications 141,404 66,514 31,069 Depreciation 157,614 47,498 32,176 Miscellaneous 441,047 94,694 36,191 Cost of sales - cookies and product 6,030, Cost of sales - scout equipment ,375 11,029,943 1,506,668 1,496,002 Less expenses included with revenues on the statement of activities Cost of sales - cookies and product (6,030,350) - - Cost of sales - scout equipment - - (475,375) Total expenses included in the expense section on the statement of activities $ 4,999,593 $ 1,506,668 $ 1,020,627 See

10 Statements of Functional Expenses Year Ended September 30, 2015 Program Services Supporting Services Community Management Activities Total and General Fundraising Total $ 665,680 $ 4,876,064 $ 912,483 $ 598,278 $ 6,386, ,960 1,539,560 17,520 17,936 1,575, , ,514 88,862 20, ,067 18, ,669 13,471 14, ,786 5,162 45,914 3,374 4,423 53,711 62, ,071 32,180 20, ,262 20, ,845 15,022 22, ,119 14,171 49,878 12,708 4,732 67,318 68, ,988 27,191 22, ,447 48, ,807 40,125 24, ,261 42, , ,853 22, ,623-6,030, ,030, , ,375 1,539,045 15,571,658 1,272, ,713 17,616,160 - (6,030,350) - - (6,030,350) - (475,375) - - (475,375) $ 1,539,045 $ 9,065,933 $ 1,272,789 $ 771,713 $ 11,110,435 5

11 Statements of Cash Flows Years Ended Operating Activities Change in net assets $ 2,522,121 $ 6,494,038 Adjustments to reconcile net assets to net cash from operating activities Depreciation 341, ,261 Net realized and unrealized (gain) loss on investments (691,915) 172,411 Change in present value of discount on promises to give 11,380 (69,116) Bad debt expense 19,255 10,182 Contributions restricted to long-lived assets 4,543,416 (4,703,014) Donated investments - (28,907) Gain on sale of fixed asset - (4,750) Change in assets and liabilities Promises to give, United Way 28,375 12,201 Promises to give, other (48,350) 197,000 Accounts receivable (40,066) (9,106) Inventory 334,091 (229,194) Prepaids and deposits (3,615) (27,404) Accounts payable and accrued expenses 188, ,614 Deferred income (35,984) 49,817 Amount due to affiliated organization (1,252) 3,146 Net Cash from Operating Activities 7,167,571 2,840,179 Cash Flows from Investing Activities Purchases of property and equipment (5,961,715) (2,159,356) Proceeds from sale of property and equipment - 4,750 Purchases of investments - (62,877) Proceeds from the maturities and sales of investments 68, ,000 Net Cash used for Investing Activities (5,892,943) (1,617,483) Net Cash from Financing Activities Bond proceeds - 197,159 Payments of contributions restricted to building project Payments on capital lease obligations 1,539,052 (2,244) (3,507,607) - Bond issuance costs (35,398) (186,399) Net Cash from (used for) Financing Activates 1,501,410 (3,496,847) Net Change in Cash and Cash Equivalents 2,776,038 (2,274,151) Cash and Cash Equivalents, Beginning of Year 1,781,652 4,055,803 Cash and Cash Equivalents, End of Year $ 4,557,690 $ 1,781,652 Supplemental Disclosure of Cash Flow Information Purchase of property and equipment through issuance of bond $ 4,606,582 $ - Purchase of property and equipment through issuance of capital lease $ 59,185 $ - See 6

12 Note 1 - Nature of Operations and Significant Accounting Policies Nature of Operations Girl Scouts - Arizona Cactus-Pine Council, Inc. (the "Council") follows the mission statement of the Girl Scouts of the USA, which is, Girls Scouting builds girls of courage, confidence, and character who make the world a better place. Through the Girl Scout leadership experience, girls discover their personal best, connect with others, and take action to improve their communities and the world around them. This leadership model is experienced through troops, day and resident camp, program series, signature events, and travel opportunities. At the intersection of what girls want, what girls need, and what society needs, the Council has five program focus areas: Science, Technology, Engineering, and Math (STEM); Healthy Living; Global Citizenship; Environmental Leadership; and Financial Literacy. The Girl Scout Cookie program is the nation's largest girl-run financial literacy enterprise. The Council's membership is comprised of almost 21,000 girl members, aged 5 to 17 and more than 10,000 adult members. The Council jurisdiction includes 2/3 of Arizona with 85% of the girls who benefit from Girl Scout programs residing in Maricopa County. The Council also provides programming to girls living in Apache, Coconino, Gila, La Paz, Mohave, Navajo, and Yavapai counties, the northern half of Pinal and Graham counties, the portion of the Navajo Nation that extends into Utah and New Mexico, and the southern portion of Clark County, Nevada. As an independent 501(c)(3) nonprofit organization, chartered by Girl Scouts of the USA, the Council is governed and supervised by a volunteer board of directors elected by delegate members at an annual meeting. Cash and Cash Equivalents The Council considers all cash and highly liquid financial instruments with original maturities of three months or less, and which are neither held for nor restricted by donors for long-term purposes, to be cash and cash equivalents. Cash and highly liquid financial instruments restricted to capital expenditures, permanent endowment, or other long-term purposes of the Council are excluded from this definition. Cash does not include bank accounts held by Girl Scout troops and other groups such as service units under the federal identification number of the Council. Bank accounts held by troops and groups are under the federal identification number but are not under the control of the Council. The Council has no signature authority over and will not access the funds in these accounts as long as a troop or group is functioning according to Girl Scout policy and procedure. Individual troops and groups have the responsibility to use funds in their control for the purpose of Girl Scouting as determined by the members and adult volunteers. If a troop or group is about to disband, the troop may use the funds to pay for a final group activity or to donate to groups or projects considered worthwhile. If a troop or group disbands without making a determination as to the final distribution of funds, the funds will revert to the Council for a holding period in case the troop re-forms or members of the troop join another troop. After this time, if funds are not claimed they will be considered a donation to the Council. Restricted Cash Pursuant to the terms of the bond agreement (Note 6), the Council must maintain a cash reserve on deposit with the lender in respect of future capital expenditures. 7

13 Promises to Give Unconditional promises to give expected to be collected within one year are recorded at net realizable value. Unconditional promises to give expected to be collected in future years are initially recorded at fair value using present value techniques incorporating risk-adjusted discount rates designed to reflect the assumptions market participants would use in pricing the asset. In subsequent years, amortization of the discounts is included in contribution revenue in the statement of activities. Management determines the allowance for uncollectable promises to give based on historical experience, an assessment of economic conditions, and a review of subsequent collections. Promises to give are written off when deemed uncollectable. At September 30, 2016 and 2015, the Council has determined all outstanding promises to give are collectible and no allowance has been recorded. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities, deferred revenue, and line of credit payable approximate fair value due to the short-term nature of the items, and are considered to fall within Level 1 of the fair value hierarchy. The carrying amount of promises to give due in more than one year is based on the discounted net present value of the expected future cash receipts, and approximates fair value. The fair values of bonds payable are based on estimates provided by our bond remarketing agent, and trading activity occurring on or near as listed on the Electronic Municipal Market Access (EMMA) database, and totaled $4,803,741 and $197,519, respectively. Inventory Inventory is comprised of program-related merchandise held for sale in the gift shop, and is stated at the lower of cost or market value determined by the cost average method. Property and Equipment Property and equipment additions over $5,000 are recorded at cost, or if donated, at fair value on the date of donation. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets ranging from 3 to 30 years, or in the case of capitalized leased assets or leasehold improvements, the lesser of the useful life of the asset or the lease term. When assets are sold or otherwise disposed of, the cost and related depreciation or amortization are removed from the accounts, and any remaining gain or loss is included in the statement of activities. Costs of maintenance and repairs that do not improve or extend the useful lives of the respective assets are expensed currently. The Council reviews the carrying values of property and equipment for impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. When considered impaired, an impairment loss is recognized to the extent carrying value exceeds the fair value of the asset. There were no indicators of asset impairment during the years ended. Bond Issuance Costs Bond issuance costs incurred for the years ended, are costs associated with the issuance with the long-term debt which are deferred, carried at cost and amortized on a straight-line basis over the term of the related long-term debt. Amortization has not begun as the bond proceeds have not been fully drawn. 8

14 Debt issuance costs relate to a recognized debt liability and are presented on the statement of financial position as a direct reduction from the carrying amount of that debt liability. Investments Investment purchases are recorded at cost, or if donated, at fair value on the date of donation. Thereafter, investments are reported at their fair values in the statement of financial position. Net investment gain/(loss) is reported in the statement of activities and consists of interest and dividend income, realized and unrealized capital gains and losses, less investment management and custodial fees. Net Assets Net assets, revenues, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified and reported as follows: Unrestricted Net Assets Net assets available for use in general operations. Unrestricted board-designated net assets consist of net assets designated by the Board of Directors for operating reserve. Temporarily Restricted Net Assets Net assets subject to donor restrictions that may or will be met by expenditures or actions of the Council and/or the passage of time, and certain income earned on permanently restricted net assets that has not yet been appropriated for expenditure by the Council s Board of Directors. The Council reports contributions as temporarily restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Permanently Restricted Net Assets Net assets whose use is limited by donor-imposed restrictions that neither expire by the passage of time nor can be fulfilled or otherwise removed by action of the Council. The restrictions stipulate that resources be maintained permanently but permit the Council to expend the income generated in accordance with the provisions of the agreements. As of, the Council had no permanently restricted net assets. Revenue and Revenue Recognition Revenue is recognized when earned. Program service fees received in advance are deferred to the applicable period in which the related services are performed or expenditures are incurred. Contributions are recognized when cash, securities or other assets, an unconditional promise to give, or notification of a beneficial interest is received. Conditional promises to give are not recognized until the conditions on which they depend have been substantially met. Cookie Activity Credits As a program reward, the Council issues credits to those who sell a certain amount of cookies which are redeemable for program and membership fees and Girl Scout merchandise. The value of these credits is recorded as an expense of cookie sales. Unredeemed and available credits are reflected in the financial statements as accrued expenses. Credits expire within a specified time period and are charged back to accrued expenses upon expiry. 9

15 Donated Services and In-Kind Contributions Volunteers contribute significant amounts of time to the Council s program services, administration, and fundraising and development activities; however, the financial statements do not reflect the value of these contributed services because they do not meet recognition criteria prescribed by generally accepted accounting principles. Contributed goods are recorded at fair value at the date of donation. The Council records donated professional services at the respective fair values of the services received. Advertising Costs Advertising costs are expensed as incurred, and approximated $131,000 and $152,000 for the years ended, respectively. Functional Allocation of Expenses The costs of program and supporting services activities have been summarized on a functional basis in the statements of activities. The statements of functional expenses present the natural classification detail of expenses by function. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Income Taxes The Council is organized as an Arizona non-profit corporation and has been recognized by the Internal Revenue Service (IRS) as exempt from federal income taxes under Section 501(a) of the Internal Revenue Code as organizations described in Section 501(c)(3) and has been determined not to be a private foundation under Section 509(a)(2). Accordingly, contributions to it qualify for the charitable contribution deduction under Section 170(b)(1)(A). The Council is annually required to file a Return of Organization Exempt from Income Tax (Form 990) with the IRS. In addition, the Council is generally subject to income tax on net income that is derived from business activities that are unrelated to its exempt purpose. The Council has determined it is not subject to unrelated business income tax and has not filed an Exempt Organization Business Income Tax Return (Form 990- T) with the IRS, or its Arizona equivalent, Form 990-T, with the Arizona Department of Revenue. Management believes that it has appropriate support for any tax positions taken affecting the Organization s annual filing requirements, and as such, does not have any uncertain tax positions that are material to the financial statements. The Organization would recognize future accrued interest and penalties related to unrecognized tax benefits and liabilities in income tax expense if such interest and penalties are incurred. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and those differences could be material. 10

16 Financial Instruments and Credit Risk The Council manages deposit concentration risk by placing cash, money market accounts, and certificates of deposit with financial institutions believed by management to be creditworthy. At times, amounts on deposit may exceed insured limits or include uninsured investments in money market mutual funds. To date, the Council has not experienced losses in any of these accounts. Credit risk associated with accounts receivable and promises to give is considered to be limited due to high historical collection rates and because substantial portions of the outstanding amounts are due from board members, governmental agencies, and foundations supportive of the Council s mission. Investments are made by diversified investment managers whose performance is monitored by management and the Investment Committee of the board of directors Although the fair values of investments are subject to fluctuation on a year-to-year basis, management and the Investment Committee believe that the investment policies and guidelines are prudent for the long-term welfare of the Council. Additionally, a significant portion of the Council s revenues result from the annual cookie program campaign. Loss of this revenue source would have a significant adverse effect upon the Council. Subsequent Events The Council has evaluated subsequent events through January 23, 2017, the date which the financial statements were available to be issued. Note 2 - Promises to Give Unconditional promises to give are estimated to be collected as follows as of September 30: Within one year $ 446,886 $ 4,755,167 In one to five years 1,229,145 1,467,065 1,676,031 6,222,232 Less discount to net present value at rates ranging from 2.5% to 3.0% (82,759) (94,139) $ 1,593,272 $ 6,128,093 Promises to give United Way $ 170,896 $ 199,271 Other 49,350 1,000 Promises related to long-lived assets 1,373,026 5,927,822 $ 1,593,272 $ 6,128,093 At, one donor accounted for 61% and two donors accounted for 80%, respectively, of outstanding promises to give. 11

17 In 2011, the Council began The Campaign for Girls in Arizona, a capital campaign, to raise funds needed to significantly expand the Girl Scout Leadership Experience, especially in the South Mountain area. This includes not only reaching more girls, developing and supporting more volunteers and expanding programming but also transforming the existing South Mountain facility into The Bob and Renee Parsons Leadership Center for Girls and Women at Camp South Mountain. The funds will be used to significantly expand the Girl Scout Leadership Experience. Note 3 - Property and Equipment Property and equipment consists of the following at September 30: Buildings and improvements $ 10,047,114 $ 9,886,218 Equipment 1,066,499 1,037,430 Vehicles 243, ,427 Computer hardware and software 653, ,710 12,011,430 11,747,785 Accumulated depreciation (9,437,675) (9,096,493) 2,573,755 2,651,292 Land 743, ,294 Property and equipment, net $ 3,317,049 $ 3,394,586 Note 4 - Fair Value Measurements and Disclosure Certain assets and liabilities are reported at fair value in the financial statements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal, or most advantageous, market at the measurement date under current market conditions regardless of whether that price is directly observable or estimated using another valuation technique. Inputs used to determine fair value refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available. A three-tier hierarchy categorizes the inputs as follows: Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Council can access at the measurement date. Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and market-corroborated inputs. Level 3 Unobservable inputs for the asset or liability. In these situations, the Council develops inputs using the best information available in the circumstances. 12

18 In some cases, the inputs used to measure the fair value of an asset or a liability might be categorized within different levels of the fair value hierarchy. In those cases, the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. Assessing the significance of a particular input to entire measurement requires judgment, taking into account factors specific to the asset or liability. The categorization of an asset within the hierarchy is based upon the pricing transparency of the asset and does not necessarily correspond to the Council s assessment of the quality, risk or liquidity profile of the asset or liability. A significant portion of the Council s investment assets are classified within Level 1 because they are comprised of equity securities, equity securities SPDRs, money market funds and exchange traded funds with readily determinable fair values based on daily redemption values. The Council invests in certificates of deposit traded in the financial markets. Those certificates of deposit are valued by the custodians of the securities using pricing models based on credit quality, time to maturity, stated interest rates and market-rate assumptions, and are classified within Level 2. The fair value of the Council s beneficial interest in assets held by the Arizona Community Foundation is based on the fair value of fund investments as reported by the Arizona Community Foundation. These are considered to be Level 2 measurements. The following table presents assets measured at fair value on a recurring basis at September 30: 2016 Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs Total (Level 1) (Level 2) (Level 3) Investments Equity securities $ 3,855,739 $ 3,855,739 $ - $ - Money market funds 1,127,575 1,127, Exchange traded funds Bonds 1,596,363 1,596, Negotiable certificates of deposits 713, ,835 - Annuity 35,112-35,112-7,328,624 6,579, ,947 - Arizona Community Foundation 3,683,006-3,683,006 - Total $ 11,011,630 $ 6,579,677 $ 4,431,953 $ - 13

19 2015 Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs Total (Level 1) (Level 2) (Level 3) Investments Equity securities $ 3,470,060 $ 3,470,060 $ - $ - Money market funds 1,012,166 1,012, Exchange traded funds Equity securities 1,160,986 1,160, Bonds 1,056,660 1,056, Negotiable certificates of deposits 202, ,567 - Annuity 31,646-31,646-6,934,085 6,699, ,213 - Arizona Community Foundation 3,454,402-3,454,402 - Total $ 10,388,487 $ 6,699,872 $ 3,688,615 $ - Funds held by the Arizona Community Foundation (the Foundation) are part of pooled investments, invested in debt and equity securities, and are valued at the fair value reported by the Foundation. These funds held by the Foundation can be redeemed by the Council without notice and can be at any time. Net investment return consisted of the following for September 30: Dividends and interest $ 131,820 $ 126,866 Net realized and unrealized (losses) gains 560,095 (172,411) Net investment gain (loss) $ 691,915 $ (45,545) Note 5 - Due to Affiliated Organization and Related Party Transactions The Council collects membership dues from its members for their national affiliate, Girls Scouts of the USA. The membership dues do not benefit the Council. The total amount of dues collected by the Council and not yet submitted to Girl Scouts of the USA was $2,404 and $7,759 as of, respectively. The Council also holds disbanded troop treasuries funds in the amounts of $10,290 and $6,187, respectively. These funds are awaiting distribution to new troops in the area of the disbanded troops or being recognized as donations if no troop reforms in the area of the disbanded troops. During the years ended, the Council purchased inventory in the amount of $314,375 and $358,955, respectively, from Girl Scouts of the USA. The Council also received $97,131 and $128,580 in grants and other financial assistance from Girl Scouts of the USA for the years then ended. 14

20 The Council s board of directors is committed to the financial success of the Council and regularly makes contributions to the Council. During the years ended, board members gave approximately $33,000 and $31,000, respectively. Amounts outstanding on promises to give from previous years to be paid over five years from board members as of were $2,500 and $9,800, respectively, and are reflected in promises to give on the accompanying statements of financial position. Note 6 - Bond Payable In March 2015, the Council entered into an agreement with the Industrial Development Authority of the City of Phoenix to issue Direct Purchase Revenue Bonds, Series 2015 (the bond) in the amount of $10,000,000 for a term of twenty five years. The bond is collateralized by certain real property and designated capital campaign pledges as set forth in the agreement. At, the Council had $4,803,741and $197,159, respectively, outstanding on the balance, which is presented net of unamortized bond issuances costs of $221,797 and $186,399, respectively. An amount up to $10,000,000 can be drawn from the bond with submission of contract invoices. Interest on the bond is payable on a monthly basis at a fixed rate of 3.3%, which will continue for the life of the bond. These interest payments are being capitalized during construction and are included in construction in progress on the statement of financial position. The amount of interest paid was $40,110 and $3,687, respectively, for the years ended. At the completion of the construction period the interest payments will become an expense. Annual principal payments on the bond are scheduled for repayment, anticipating the full bond payable will be drawn on, as follows: Years Ending September $ 144, , , , ,404 Thereafter 8,598,567 Total bond payable $ 10,000,000 Note 7 - Capital Lease Obligation In August 2016, the Council entered into a capital lease agreement for office equipment for a term of four years. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or fair value of the asset. The Council s assets and liabilities are recorded at the present value of future lease payments. The assets are depreciated over their estimated productive lives. 15

21 Leased property under capital leases at includes: Property and equipment under capital lease obligations $ 56,941 $ - Less accumulated amortization - - $ 56,941 $ - Future minimum lease payments are as follows: 2017 $ 16, , , ,591 Total minimum lease payments 62,524 Less portion representing interest (5,583) Total $ 56,941 Note 8 - Board Designated Unrestricted Net Assets Board designated unrestricted net assets consist of the following balance for the years ended September 30: 2015 Designated Expended 2016 Board designated net assets Property replacement $ 3,410,809 $ - $ (231,338) $ 3,179,471 Capital campaign 1,065, ,065,289 Future funds 3,252, ,252,255 Pension obligation 200, ,000 Total $ 7,928,353 $ - $ (231,338) $ 7,697, Designated Expended 2015 Board designated net assets Property replacement $ 3,329,809 $ 400,000 $ (319,000) $ 3,410,809 Capital campaign 555, ,476-1,065,289 Future funds 3,252, ,252,255 Pension obligation 200, ,000 Total $ 7,337,877 $ 909,476 $ (319,000) $ 7,928,353 16

22 Note 9 - Temporarily Restricted Net Assets Temporarily restricted net assets are available for the following purposes: Purpose restriction: Capital campaign $ - $ 472,680 Scholarships and camperships 11,959 14,868 Girl programming 182, ,012 Shadow Rim Ranch - 40,000 Recruitment 30,381 19,361 Other 5,362 6,153 Time restriction: Fiscal year operations - United Way 170, ,271 Time and purpose restriction: Promises to give - programming 41,000 - Promises to give - capital campaign 1,455,785 6,022,005 Total temporarily restricted net assets $ 1,898,191 $ 6,895,350 Temporarily restricted net assets released from restriction include: Purpose restriction: Capital campaign $ (427,680) $ - Scholarships and camperships (9,000) (18,200) Girl programming (215,333) (344,611) Shadow Rim Ranch (45,000) - Recruitment (501) (18,689) Other (9,100) (65) Time restriction: Fiscal year operations - United Way (202,896) (263,403) Time and purpose restriction: Promises to give - programming (500) - Promises to give - capital campaign (6,691,172) (2,175,432) Total temporarily restricted net assets released from restriction $ (7,601,182) $ (2,820,400) 17

23 Note 10 - Leases The Council leases equipment and facilities under various non-cancelable operating lease agreements. Approximate minimum future rental payments are as follows: 2017 $ 24, , ,602 Total future minimum lease payments $ 46,830 Total rental expense paid on these leases for the years ended was $210,770 and $185,533, respectively. Note 11 - Retirement Plans Defined benefit plan The council participates in the National Girl Scout Council Retirement Plan (NGSCRP), a noncontributory defined benefit pension plan sponsored by Girl Scouts of the USA. The National Board of Girl Scouts of the USA voted to freeze the Plan to new entrants and to freeze future benefit accruals for all current participants under the Plan effective July 31, The Plan covers substantially all of the employees of various Girl Scout councils who were eligible to participate in the plan prior to the Plan freeze. Accrued and vested benefits prior to July 31, 2010 are based on years of service and salary levels. Although net Plan assets grew during the year, net Plan assets available for Plan benefits continue to be less than the actuarial present value of accumulated Plan benefits as of January 1, Based on the April 18, 2014 conditional approval by the Internal Revenue Service (IRS), all existing amortization bases in the Plan s funding standard account as of January 1, 2013 were combined into one base and the resulting amortization period for that single base was extended to 10 years. Approval applies as long as at a minimum, beginning with the January 1, 2013 calendar year, $30,000,000 is remitted. The $30,000,000 calendar year minimum applies for each succeeding calendar year until the Plan is fully funded based upon the requirements of the Pension Protection Act of 2006 (PPA). In addition, on April 8, 2014, President Obama signed H.R into law, a relief package unanimously passed by Congress that gives NGSCRP the flexibility to adopt the Pension Protection Act (PPA) funding requirements immediately or not at all. NGSCRP has elected to adopt this relief and not be subject to PPA. Aggregate annual contributions made in fiscal years 2015 and 2016 were $34.5 million and $34.3 million, respectively. The aggregate annual contributions decreased from 2015 to 2016 due to the January 1, 2016 spin-off of Girl Scouts of Middle Tennessee. Aggregate contributions made in fiscal 2017 are expected to continue to be $34.3 million. The Council's contributions to the Plan and corresponding pension expense for the years ended September 30, 2016 and 2015, were approximately $429,400 and $409,000, respectively. Due to the nature of the Plan, it is not practicable to determine the extent to which the assets of the Plan cover the actuarially computed value of vested benefits for the Council as a standalone operation. 18

24 403(b) plan The Council has a 403(b) retirement plan in which all employees are eligible to participate. Investments in the Plan are participant directed. The Council makes contributions to the plan on behalf of employees after one year of service when an employee has at least 1,000 hours of service during that year. The Council s contribution to the plan is equal to 2% of an employee s salary. Additionally, the Council matches 50% of the employee s contributions up to 4% of salary. The Council s contributions to the Plan during the years ended September 30, 2016 and 2015 were $102,872 and $113,144, respectively. Note 12 - Commitments During the year ended September 30, 2016, the Council had remaining contracts for the construction of the Bob and Renee Parsons Leadership Center for Girls and Women Camp South Mountain (Leadership Center) of approximately $15,250,000. During the year ended September 30, 2016, the Council s Board of Directors approved adding $371,000 in construction commitments. At September 30, 2016, there are approximately $11,254,000 in capitalized costs associated with the Leadership Center in construction in progress related to construction commitments. At September 30, 2016, the Council s remaining commitment approximates $4,368,000. Of this remaining commitment, approximately $966,000 is accrued as a liability for retainage. In accordance with the contract, this retainage will be paid at the conclusion of the contract. The Leadership Center is funded by bond proceeds and the capital campaign. 19