CHARLOTTE REGIONAL REALTOR ASSOCIATION, INC. AND ITS SUBSIDIARY AND AFFILIATE

Transcription

1 CHARLOTTE REGIONAL REALTOR ASSOCIATION, INC. AND ITS SUBSIDIARY AND AFFILIATE CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING INFORMATION As of and for the Years Ended December 31, 2014 and 2013 And Report of Independent Auditor

2 TABLE OF CONTENTS REPORT OF INDEPENDENT AUDITOR FINANCIAL STATEMENTS Consolidated Statements of Financial Position... 3 Consolidated Statements of Activities... 4 Consolidated Statements of Cash Flows... 5 Notes to Consolidated Financial Statements ACCOMPANYING INFORMATION Consolidating Statements of Financial Position Consolidating Statements of Activities Consolidating Statements of Cash Flows

3 Report of Independent Auditor The Board of Directors Charlotte Regional REALTOR Association, Inc. and its Subsidiary and Affiliate Charlotte, North Carolina Report on the Financial Statements We have audited the accompanying consolidated financial statements of Charlotte Regional REALTOR Association, Inc. and its Subsidiary (Carolina Multiple Listing Services, Inc.) and Affiliate (Charlotte Regional REALTOR Association Housing Opportunity Foundation), collectively referred to as the Association, which comprise the consolidated statements of financial position as of December 31, 2014 and 2013, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated 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 consolidated 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 audits to obtain reasonable assurance about whether the consolidated 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 consolidated 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 consolidated 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 consolidated financial statements. We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Charlotte Regional REALTOR Association, Inc. and its Subsidiary and Affiliate as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. 1

4 Other Matter Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The information contained in the consolidating statements of financial position, activities, and cash flows is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information referred to above is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Charlotte, North Carolina March 23,

5 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2014 AND 2013 ASSETS Current Assets: Cash and cash equivalents $ 4,874,725 $ 3,970,782 Investments 6,064,305 6,204,812 Accounts receivable, net 50,202 38,426 Other receivables 230,000 6,000 Contribution receivable - 5,000 Prepaid expenses 371, ,663 Inventories 139, ,008 Total Current Assets 11,730,762 10,736,691 Property and equipment, net 6,269,432 5,518,943 Deferred loan costs 3,375 4,875 Noncurrent deferred income tax asset, net 7,300 7,300 Beneficial interest in trust 608, ,669 Total Assets $ 18,619,782 $ 16,851,478 LIABILITIES AND NET ASSETS Current Liabilities: Accounts payable and accrued expenses $ 1,480,322 $ 1,383,063 Income taxes payable 226,000 - Current portion of long-term debt 139, ,176 Deferred revenue 1,805,050 1,608,746 Current deferred income tax liability, net 80, ,000 Other liabilities 229, ,097 Total Current Liabilities 3,960,821 3,455,082 Noncurrent deferred income tax liability, net 12,000 14,000 Long-term debt 1,009,490 1,149,341 Total Liabilities 4,982,311 4,618,423 Net assets Unrestricted net assets: Unrestricted net assets, undesignated 2,360,913 2,262,111 Unrestricted net assets, equity in fixed assets 5,119,958 4,234,426 Unrestricted net assets, board designated 6,156,134 5,731,008 13,637,005 12,227,545 Temporarily restricted net assets 466 5,510 Total Net Assets 13,637,471 12,233,055 Total Liabilities and Net Assets $ 18,619,782 $ 16,851,478 The accompanying notes to the consolidated financial statements are an integral part of these financial statements 3

6 CONSOLIDATED STATEMENTS OF ACTIVITIES YEARS ENDED DECEMBER 31, 2014 AND 2013 Unrestricted revenue and support: Services fees $ 6,043,438 $ 5,588,986 Dues 1,133, ,464 Lockbox and Supra key income 1,236,640 1,106,355 Initiation and other fees 890, ,632 Education income 724, ,027 REALTOR store income 183, ,561 Contributions, grants, and sponsorships 216, ,525 Special events 89, ,053 Rental income 203, ,376 Advertising and other revenues 196, ,607 Investment income, net 86, ,224 Net assets released from restrictions 5,510 5,000 Total unrestricted revenue and support 11,008,482 9,887,810 Expenses: Payroll, payroll taxes, and employee benefits 2,963,865 2,743,618 MLS system and showing service expense 2,735,288 2,574,875 Lockbox costs and Supra key fees 493, ,475 Education and training 642, ,484 REALTOR store 130, ,021 Events, advocacy, and other services 356, ,928 Bank and credit card fees 277, ,856 Building operations and insurance 479, ,460 Conventions and meetings 220, ,017 Computer services 140, ,710 Depreciation 147, ,131 Interest 44,897 49,598 Legal and other professional services 245, ,798 Supplies, printing, and postage 73,222 61,183 Website redevelopment - 272,063 Other expenses 223, ,792 Total expenses before income taxes 9,174,603 8,915,009 Change in unrestricted net assets before income tax expense 1,833, ,801 Income tax expense, net 424, ,329 Change in unrestricted net assets 1,409, ,472 Temporarily restricted revenue and support Contribution revenue Net assets released from restrictions (5,510) (5,000) Change in temporarily restricted net assets (5,044) (4,490) Change in total net assets 1,404, ,982 Total net assets, beginning of year 12,233,055 11,574,073 Total net assets, end of year $ 13,637,471 $ 12,233,055 The accompanying notes to the consolidated financial statements are an integral part of these financial statements 4

7 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2014 AND 2013 Cash flows from operating activities: Change in net assets $ 1,404,416 $ 658,982 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 147, ,131 Change in allowance for doubtful accounts 8, Deferred income taxes (37,000) 77,900 Realized and unrealized loss on investments 142, ,020 Change in beneficial interest (25,244) (71,956) Amortization of deferred loan costs 1,500 1,500 Changes in operating assets and liabilities: Receivables (14,891) 15,170 Prepaid expenses 41 (121,629) Inventories ,409 Income taxes refundable/payable 2, ,180 Accounts payable and accrued expenses 97, ,553 Deferred revenue 196, ,085 Other liabilities 16,368 4,952 Net cash provided by operating activities 1,939,193 1,693,255 Cash flows from investing activities: Proceeds from sales of property and equipment Purchases of property and equipment (898,135) (19,933) Proceeds from sales of investments 199, ,357 Purchases of investments (201,977) (215,388) Net cash provided by investing activities (900,207) 124,333 Cash flows from financing activities: Repayment of long-term debt (135,043) (130,342) Net cash used in financing activities (135,043) (130,342) Net change in cash and cash equivalents 903,943 1,687,246 Cash and cash equivalents, beginning of year 3,970,782 2,283,536 Cash and cash equivalents, end of year $ 4,874,725 $ 3,970,782 Supplemental cash flow information: Income taxes paid $ 459,419 $ 216,327 Interest paid $ 43,397 $ 48,098 The accompanying notes to the consolidated financial statements are an integral part of these financial statements 5

8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 Note 1 Summary of significant accounting policies Description of the Business Charlotte Regional REALTOR Association, Inc. ( CRRA ) is a non-profit corporation organized under the laws of North Carolina. CRRA is a trade association for Charlotte, North Carolina area realtors. CRRA's mission is to lead, educate and equip members to be productive. CRRA provides educational opportunities through the Mingle School of Real Estate as well as holding seminars throughout the region. CRRA also provides its members with mediation and arbitration services, information regarding legislative actions that impact the real estate business, and other resources such as its bookstore, computer lab, and online magazine Realtor Reflections. The consolidated financial statements include the accounts of CRRA and its wholly-owned subsidiary, Carolina Multiple Listing Services, Inc. ( CarolinaMLS ), which is subject to income tax. CarolinaMLS provides members of CRRA and other associations access to a comprehensive database of local properties that are available for sale. CarolinaMLS also provides certain CRRA members with the ability to purchase and lease unattended lockboxes and electronic keys to open the lockboxes. The consolidated financial statements also include the accounts of CRRA s wholly-controlled entity, Charlotte Regional REALTOR Association Housing Opportunity Foundation (the Foundation ), which is exempt from income tax. The Foundation s mission is to provide support, funding and education related to housing opportunities. All significant intercompany balances and transactions have been eliminated in consolidation. Unless separately designated, the entities are collectively referred to as the Association. Basis of Presentation The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ( GAAP ). Net assets and revenue, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified and reported as follows: Unrestricted net assets Net assets that are both undesignated and designated in nature. Undesignated, unrestricted net assets are those currently available for use in the day-to-day operation of the Association. From time to time, the Board of Directors may designate certain amounts to be utilized/invested to meet specific objectives of the Association. Such amounts are reflected as unrestricted, designated net assets. Temporarily restricted net assets Net assets subject to donor-imposed stipulations that may or will be met, either by fulfillment of the donor-stipulated purpose and/or the passage of time. When a restriction expires, that is when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statement of activities as net assets released from restrictions. If a restriction is fulfilled in the same time period in which the contribution is received, the contribution is reported as unrestricted. Permanently restricted net assets Net assets subject to donor-imposed stipulations that they be maintained permanently by the Association. Generally, the donors of these assets permit the Association to use all of, or part of, the income earned on the related investments for general or specific purpose. At December 31, 2014 and 2013, the Association did not have any permanently restricted net assets. 6

9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 Note 1 Summary of significant accounting policies (continued) Revenue is reported as increases in unrestricted net assets unless use of the related assets is limited by donorimposed restrictions. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. Expirations of temporary restrictions on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications between the applicable classes of net assets. Contributions, including unconditional promises to give, are recognized as revenue in the period received. Conditional promises to give are not recognized until they become unconditional, that is, when the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value. Contributions of cash and other assets are considered to be available for unrestricted use unless specifically restricted by the donor. Amounts received that are restricted for future periods or are restricted by the donor for specific purposes are reported as temporarily restricted support. Unconditional promises to give due in the next year are recorded at their net realizable value. Unconditional promises to give due in subsequent years are recorded at the present value of their estimated future cash flows, using credit risk adjusted interest rates applicable to the years in which the pledge was received. Amortization of the resulting discount is taken into income as a contribution in subsequent years. Revenue Recognition Service fees, dues and other revenues are recorded when earned (in the applicable membership period for dues). Revenue from the sale of lock boxes and Supra keys is recorded on the date of the sale. Amounts billed or collected in advance of being earned are recorded as deferred revenue. Income Taxes CRRA and the Foundation are exempt from federal income taxes under Section 501(c)(6) and Section 501(c)(3), respectively, of the Internal Revenue Code (the Code ). CRRA and the Foundation are liable for federal and state taxes on any unrelated business income, as defined in the Code. CarolinaMLS is subject to income tax. The Association accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and attributable to certain tax deduction carryforwards. The Association follows the Financial Accounting Standards Board ( FASB ) guidance on accounting for uncertainty in income taxes. The Association s policy is to record a liability for any tax position taken that is beneficial to the Association, including any related interest and penalties, when it is more likely than not the position taken by management with respect to a transaction or class of transactions will be overturned by a taxing authority upon examination. Management believes there are no such positions as of December 31, 2014 and 2013 and, accordingly, no liability has been accrued. Income tax returns filed prior to the year ended December 31, 2011, are no longer subject to audit by the taxing authority. Advertising Expense The Association expenses advertising costs as they are incurred. Total advertising costs for the years ended December 31, 2014 and 2013, were $61,084 and $55,558, respectively. 7

10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 Note 1 Summary of significant accounting policies (continued) Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, the Association considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents, except those cash equivalents managed as part of investment strategies. Investments Investments in marketable securities with readily determinable fair values are valued in the consolidated statements of financial position at their fair value. Fair value is determined by reference to exchange or dealer-quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar investment securities. Changes in the fair value of securities are reflected as investment gains or losses in the accompanying consolidated statements of activities. Accounts Receivable Accounts receivable, consisting of trade accounts receivable, and contributions receivable are stated at cost less an allowance for doubtful accounts. Management s determination of the allowance for doubtful accounts is based on an evaluation of the accounts and contributions receivable, past experience, current economic conditions, and other risks inherent in the accounts receivable portfolio. Chargeoffs are determined on a case-by-case basis. Inventories Inventories, consisting of supplies used by real estate agents, are stated at lower of cost or market with cost based on the average cost method. Property and Equipment Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Expenditures for acquisitions, renewals and betterments are capitalized, whereas maintenance and repair costs are expensed as incurred. Expenditures paid to third parties for the development of computer software are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed from the accounts and any gains or loss are included in unrestricted revenue. These assets are reviewed for impairment whenever changes in circumstances indicate the carrying value of an asset may not be recoverable. Property and equipment in excess of $500 is capitalized. The estimated useful lives of assets are as follows: Buildings Building improvements Leasehold improvements Furniture and equipment Systems development costs Computer equipment 40 years years 10 years 7-10 years 10 years 3-5 years Deferred Revenues Annual membership dues are billed during the last quarter of the calendar year. Dues received in advance are recorded as deferred revenue until earned in the next calendar year. Deferred revenue also includes fee income, grant and sponsorship revenues received for future periods. 8

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 Note 1 Summary of significant accounting policies (continued) Functional Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Programs: Education, advocacy, and other member services $ 1,644,044 $ 1,857,273 CarolinaMLS services 4,523,009 4,275,403 Foundation programs 286, ,669 6,454,002 6,404,345 Management and general 1,621,448 1,549,053 Supporting services 1,083, ,444 Fundraising 16,046 16,167 $ 9,174,603 $ 8,915,009 Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ( GAAP ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates and assumptions may also affect disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from management s estimates. Note 2 Concentration of credit risk The Association s revenues and membership dues are received principally from individuals and companies engaged in the service and sale of real estate. Membership and revenue sources are generally dispersed in Charlotte and the surrounding counties of Mecklenburg, Iredell, Gaston, Cabarrus, Lincoln, Union and Rowan. The Association s ability to collect on these accounts receivable is directly affected by economic conditions in these geographic regions. The Association places its cash and cash equivalents on deposit with financial institutions in the United States of America. The Federal Deposit Insurance Corporation (FDIC) covers $250,000 for substantially all depository accounts. During the year, the Association from time to time may have had amounts on deposit in excess of the insured limits. 9

12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 Note 3 Accounts receivable Accounts receivable consists of the following at December 31: MLS fees $ 50,242 $ 23,018 Advertising, Mingle, events 46,569 54,102 96,811 77,120 Less allowance for doubtful accounts (46,609) (38,694) Accounts receivable, net $ 50,202 $ 38,426 Note 4 Contribution receivable Contribution receivable is summarized as follows as of December 31: Receivable in less than one year $ - $ 5,000 Receivable in one to five years - - Gross contribution receivable - 5,000 Discount and allowance - - Net contribution receivable - 5,000 Less: current portion - (5,000) Long-term portion $ - $ - Note 5 Investments and beneficial interest in trust Investments are subject to fluctuations in market values and expose the Association to a certain degree of interest and credit risk. The following is a summary of investments and beneficial interest in trust at December 31: Investments: Government bond mutual funds $ 6,064,305 $ 6,204,812 Beneficial interest in trust 608, ,669 $ 6,673,218 $ 6,788,481 The beneficial interest in trust is held at the Foundation for the Carolinas and is invested in pooled funds of primarily common stock equities, bonds and fixed income investments. 10

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 Note 5 Investments and beneficial interest in trust (continued) The beneficial interest in trust s underlying investments include fund managers that invest in private investment funds as part of the asset allocation, as an alternative investment strategy with the purpose of increasing the diversity of the holdings and being consistent with the overall investment objectives. The private investment funds are not traded on an exchange, and accordingly, investments in such funds may not be as liquid as investments in marketable equity or debt securities. The private investment funds may invest in other private investment funds, equity or debt securities, which may or may not have readily available fair values, and foreign exchange or commodity forward contracts. Management of the Foundation receives the estimates of fair value of these investments from Foundation for the Carolinas and relies on various factors, processes and procedures to determine if the estimate of value is reasonable. However, information used by Foundation for the Carolinas and by management is subject to change in the near term, and, accordingly, investment values and performance can be affected. The effect of these changes could be material to the financial statements. Investment income is comprised of the following for the years ended December 31: Dividends and interest $ 203,371 $ 216,288 Unrealized losses (141,789) (145,322) Realized losses (790) (6,698) Change in beneficial interest in trust 25,244 71,956 $ 86,036 $ 136,224 Note 6 Property and equipment Property and equipment consists of the following at December 31: Land and land improvements $ 5,797,792 $ 4,913,457 Buildings and building improvements 2,069,340 2,069,340 Furniture and equipment 467, ,146 Systems developments 27,595 27,595 Computer equipment 1,386,517 1,384,166 9,748,725 8,853,704 Less: accumulated depreciation (3,479,293) (3,334,761) $ 6,269,432 $ 5,518,943 Depreciation expense for the years ended December 31, 2014 and 2013 was $147,646 and $171,131, respectively. 11

14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 Note 7 Long term debt In April 2012, the Association entered into a loan agreement with a bank in the original amount of $1,500,000. The loan is collateralized by a security interest in the Association s institutional trust account with a requirement that the market value be at least 133% of the outstanding loan balance. As of the year ending December 31, 2014, the balance of the collateralized security interest is $1,562,769 which is included as part of the total investment in the consolidated statements of financial position. Long-term debt consists of the following at December 31: Note payable, bearing interest at 3.5%, payable in 59 monthly installments of $14,870 with one final payment of all remaining principal and accrued interest due on April 5, $ 1,149,474 $ 1,284,517 Less current portion (139,984) (135,176) $ 1,009,490 $ 1,149,341 Future minimum principal payments are as follows at December 31, 2014: $ $ 139, , ,527 1,149,474 Total interest expense for the year ended December 31, 2014 and 2013, was $44,897 and $49,598, respectively. Under terms of the new loan agreement, the Association is subject to certain financial covenants related to debt service coverage and maintaining a minimum level of liquidity. The Association believes it was in compliance with all such covenants as of December 31, Note 8 Net assets Temporarily restricted net assets consist of the following at December 31: Future payments on contributions receivable $ - $ 5,000 Purpose-restricted contribution $ 466 $ 5,510 Board-designated reserves are a portion of unrestricted net assets that are available for use at the discretion of the board. The board-designated operating reserve is intended to provide an internal source of funds for situations such as sudden increase in expenses, one-time unbudgeted expenses, unanticipated loss in revenues, or uninsured losses. The minimum operating reserve equals three months of average operating costs. 12

15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 Note 8 Net assets (continued) The balance of Board-designated net assets held by the Association at December 31, 2014 and 2013, respectively, is calculated as follows: Total unrestricted net assets $ 13,637,005 $ 12,227,545 Less equity in fixed assets, net of related debt (5,119,958) (4,234,426) Unrestricted net assets available for designation 8,517,047 7,993,119 Less board designated amounts for: Operating reserves 2,513,700 2,492,800 Technology and capital asset reserves 1,127, ,567 Debt reserve (see Note 7) 1,562,769 1,746,054 Greenwood Cliff Task Force reserve 43,325 76,918 Legal reserve 300, ,000 Quasi-endowment 608, ,669 6,156,134 5,731,008 Undesignated net assets $ 2,360,913 $ 2,262,111 Note 9 Board designated endowment fund The Board of Directors has designated a portion of unrestricted net assets as funds functioning as endowments totaling $608,913 and $583,669 at December 31, 2014 and 2013, respectively. The board designated endowment fund is to be used for the continued support of Foundation operations. It is the intent of the board to accumulate earnings until the balance in the total fund reaches at least $1,000,000. In 2003, these funds were transferred to the Foundation for the Carolinas creating a trust in which the Foundation has a beneficial interest (see Note 5). As required by GAAP, net assets associated with this endowment fund, including funds designated by the Board of Directors to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. As of December 31, 2014 and 2013, there were no donor-imposed restrictions on these endowment funds. The purpose of the endowment is to provide a method for funding of the Foundation s growth and allow the investment of these endowed funds for long-term projects. The funds are invested in the asset allocation strategy recommended by the Foundation for the Carolina s Investment Committee, long-term growth. This diverse mix of investments seeks to provide a predictable stream of funding to programs supported by the endowment while seeking to maintain the purchasing power of the endowment assets. Under this policy, the endowment assets are invested in a manner that is intended to produce results that provide an average annual real rate of return, net of fees, equal to or greater than spending, administrative fees, and inflation (Consumer Price Index). Actual returns in any given year may vary from this amount. To satisfy its long-term rate-of-return objectives, it relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). Accordingly, the investment target allocation guidelines are as follows: global equities 62.9%, global fixed income 14.2%, real assets 8%, and diversifying strategies 14.9%. 13

16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 Note 9 Board designated endowment fund (continued) Funds available for distribution from the fund are based upon a 4.5% spending plan using a twelve quarter rolling average of fund assets and is evaluated on an annual basis for prudence. No amounts were withdrawn from the fund for 2014 and The following schedule represents changes in unrestricted, board designated endowment net assets for the years ended December 31: Beginning of year $ 583,669 $ 511,713 Investment return: Investment income (loss), net of fees 2,589 (1,247) Realized and unrealized gains 22,655 73,203 Total investment return 25,244 71,956 End of year $ 608,913 $ 583,669 Note 10 Fair value measurements of assets and liabilities Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction value hierarchy which requires an entity to maximize the use of observable inputs when measuring fair value. Under the fair value guidance, the Association groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are: Level 1 Inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date. The Association s Level 1 investments totaled $6,064,305 and $6,204,812 at December 31, 2014 and 2013 (see Note 5), respectively. Level 2 Inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value can be determined through the use of models or other valuation methodologies. The Association has no assets or liabilities as of December 31, 2014 and 2013 subject to Level 2 valuation. Level 3 Inputs to the valuation methodology are unobservable inputs in situations where there is little or no market activity for the asset or liability, and the reporting entity makes estimates and assumptions related to the pricing of the asset or liability including assumptions regarding risk. The Association s beneficial interest of $608,913 and $583,669 at December 31, 2014 and 2013, respectively (see Note 5), is considered subject to Level 3 valuations. 14

17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 Note 10 Fair value measurements of assets and liabilities (continued) The following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value. Mutual funds Investments in mutual funds valued at the quoted prices in an active market are classified within Level 1 of the fair value hierarchy. Beneficial interest in trust Beneficial interests in trusts are valued using the fair value of the assets in the trust as a practical expedient unless facts and circumstances indicate the fair value of the assets in the trust differs from the fair value of the beneficial interests. Beneficial interests in trust are classified within Level 3 of the fair value hierarchy. The changes in unrestricted, board designated net assets in Note 9 presents a reconciliation of the assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2014 and Note 11 Employee benefit plans The Association maintains a defined contribution 401(k) Savings and Retirement Plan for all eligible employees. The Association matches employee contributions at 100% of such contributions up to 4% of pay. The Association had previously suspended the match in 2010 and the match was not reinstated until The Association may make annual discretionary contributions based on a percentage of employee s gross current year earnings, which was done in 2013 but not in During the years ended December 31, 2014 and 2013, the Association s contributions expensed were $79,892 and $80,099, respectively. Note 12 Income taxes Income tax expense for the Association, including the wholly-owned subsidiary, is comprised of the following components for the years ended December 31: Current tax expense $ 461,419 $ 231,429 Deferred tax expense (benefit) (37,000) 77,900 Income tax expense $ 424,419 $ 309,329 A net deferred income tax asset or liability has been provided for the net income tax effect of temporary differences between the carrying amount of assets and liabilities for tax purposes over the amount for financial reporting purposes and also for net operating loss and charitable contributions available to offset future taxable income. 15

18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 Note 12 Income taxes (continued) Deferred income tax accounts for the Association are detailed as follows at December 31: 2014 Benefit of carryforward of expenses available to offset future taxable income Payments on future liabilities made in the current period Financial reporting net carrying value of property and equipment in excess of net carrying value for income tax purposes Less valuation allowance Deferred income tax asset Deferred income tax liability Net deferred income tax asset (liability) $ 97,300 $ - $ 97,300 - (92,000) (92,000) - (51,000) (51,000) (39,000) - (39,000) Total deferred income tax asset (liability) $ 58,300 $ (143,000) $ (84,700) 2013 Benefit of carryforward of expenses available to offset future taxable income Payments on future liabilities made in the current period Financial reporting net carrying value of property and equipment in excess of net carrying value for income tax purposes Less valuation allowance Deferred income tax asset Deferred income tax liability Net deferred income tax asset (liability) $ 127,300 $ - $ 127,300 - (123,000) (123,000) - (70,000) (70,000) (56,000) - (56,000) Total deferred income tax asset (liability) $ 71,300 $ (193,000) $ (121,700) The principal differences between the income tax provision in the consolidated financial statements, and the tax resulting from applying the federal statutory rate to change in unrestricted net assets before income tax expense, results primarily from nondeductible expenses, state income taxes and changes to the valuation allowance. 16

19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 Note 12 Income taxes (continued) The following charitable contribution carryforwards are available at December 31, Their future deductibility is subject to future year taxable income. Carryforward Amount Expiration $ 116, , , , , At December 31, 2014 and 2013, the deferred income tax asset (liability) shown above has been reduced by an allowance of approximately $162,000 and $195,000, respectively, to reflect the uncertainty with respect to the full utilization of the charitable contribution carryforwards. Note 13 Leases Future minimum lease payments under operating leases for office equipment have monthly required payments ranging from $320 to $665 with expiration dates through November At December 31, 2014, future minimum lease payments of $14,288 are expected to be paid in Lease expense for operating leases during 2014 and 2013 was $43,213 and $38,330, respectively. Note 14 Rental revenue The Association owns two office buildings in Charlotte, North Carolina. The Association occupies part of one building and leases out the remaining available space as well as excess parking spaces. The net book value of these buildings and associated land was $6,088,900 at December 31, The Association has entered into lease agreements expiring through September At December 31, 2014, future minimum rental revenue from third-party lessees is detailed as follows: Note 15 Subsequent events $ $ 75,352 24,375 99,727 The Association has evaluated subsequent events through March 23, 2015, in connection with the preparation of these consolidated financial statements which is the date the consolidated financial statements were available to be issued. In January 2015, the CarolinaMLS and North Carolina Mountains Multiple Listing Services (NCMMLS) entered into a contract for CarolinaMLS to operate and serve as the wholesale vendor for NCMMLS. As the wholesale MLS system vendor, CarolinaMLS will provide core services to NCMMLS as well as training and support for its subscribers for a fee. 17

20 ACCOMPANYING INFORMATION

21 CONSOLIDATING STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2014 ASSETS Charlotte Regional Charlotte REALTOR Regional Carolina Association REALTOR Multiple Listing Housing Opportunity Association, Inc. Services, Inc. Foundation Eliminations Consolidated Current Assets: Cash and cash equivalents $ 2,033,339 $ 2,712,027 $ 129,359 $ - $ 4,874,725 Investments 4,116,610 1,947, ,064,305 Accounts receivable, net 29,519 20, ,202 Other receivables 230, ,000 Due from affiliate organizations 111, (111,689) - Prepaid expenses 141, , ,622 Inventories 120,511 19, ,908 Investment in subsidiary 3,208, (3,208,600) - Total Current Assets 9,991,730 4,929, ,480 (3,320,289) 11,730,762 Property and equipment 9,121, , ,748,725 Less accumulated depreciation (2,962,720) (516,573) - - (3,479,293) 6,158, , ,269,432 Deferred loan costs 3, ,375 Noncurrent deferred income tax asset, net 7, ,300 Beneficial interest in trust , ,913 Total Assets $ 16,161,078 $ 5,040,600 $ 738,393 $ (3,320,289) $ 18,619,782 See Report of Independent Auditor. 18

22 CONSOLIDATING STATEMENTS OF FINANCIAL POSITION (CONTINUED) DECEMBER 31, 2014 LIABILITIES AND NET ASSETS Charlotte Regional Charlotte REALTOR Regional Carolina Association REALTOR Multiple Listing Housing Opportunity Association, Inc. Services, Inc. Foundation Eliminations Consolidated Current Liabilities: Accounts payable and accrued expenses $ 1,377,160 $ 103,162 $ - $ - $ 1,480,322 Income taxes payable - 226, ,000 Current maturities of long-term debt 139, ,984 Deferred revenues 722,865 1,082, ,805,050 Current deferred income tax liability, net - 80, ,000 Other liabilities - 229, ,465 Due to affiliated organization - 99,188 12,501 (111,689) - Total current liabilities 2,240,009 1,820,000 12,501 (111,689) 3,960,821 Noncurrent deferred income tax liability, net - 12, ,000 Long-term debt 1,009, ,009,490 Total Liabilities 3,249,499 1,832,000 12,501 (111,689) 4,982,311 Net assets Unrestricted net assets: Unrestricted net assets, undesignated 2,244, ,513-2,360,913 Unrestricted net assets, equity in fixed assets 5,119, ,119,958 Unrestricted net assets, board designated 5,547, ,913-6,156,134 Temporarily restricted net assets Accumulated other comprehensive loss - (125,884) - 125,884 - Common stock - 75,000 - (75,000) - Retained earnings - 3,259,484 - (3,259,484) - Total Net Assets 12,911,579 3,208, ,892 (3,208,600) 13,637,471 Total Liabilities and Net Assets $ 16,161,078 $ 5,040,600 $ 738,393 $ (3,320,289) $ 18,619,782 See Report of Independent Auditor. 19

23 CONSOLIDATING STATEMENTS OF ACTIVITIES YEAR ENDED DECEMBER 31, 2014 Charlotte Regional Charlotte REALTOR Regional Carolina Association REALTOR Multiple Listing Housing Opportunity Association, Inc. Services, Inc. Foundation Eliminations Consolidated Unrestricted revenue and support: Services fees $ - $ 6,043,438 $ - $ - $ 6,043,438 Dues 1,133, ,133,126 Lockbox and Supra key income 556,142 1,236,640 - (556,142) 1,236,640 Initiation and other fees 345, , ,275 Education income 724, ,011 REALTOR store income 183, ,664 Contributions, grants, and sponsorships 135, ,164 (205,320) 216,372 Special events ,953-89,953 Rental income 402, (199,364) 203,215 Advertising 41, ,348 Other revenues 23, , ,894 Investment income, net 632,487 19,242 25,244 (590,937) 86,036 Management fees 1,961, (1,961,176) - Net assets released from restrictions - - 5,510-5,510 Total unrestricted revenue and support 6,139,050 7,975, ,871 (3,512,939) 11,008,482 Expenses: Payroll, payroll taxes, and employee benefits 2,963, ,963,865 Management fee and allocated expenses (442,902) 2,212, ,220 (1,961,176) - MLS system expenses - 1,054, ,054,211 Showing service expense - 1,681, ,681,077 Lockbox costs and Supra key fees - 1,049,605 - (556,142) 493,463 Education and training 595,061 47, ,118 REALTOR store 130, ,812 Member events 106, , ,597 Advocacy and other services 89,870-13, ,403 Statistical reporting - 37, ,981 Payments to outlying counties - 66, ,265 Bank and credit card fees 100, , ,850 Building rent and operations 431, ,196 3,168 (199,364) 431,032 Computer services 107,204 33, ,327 Contributions 97, ,000 40,000 (205,320) 52,000 See Report of Independent Auditor. 20

24 CONSOLIDATING STATEMENTS OF ACTIVITIES (CONTINUED) YEAR ENDED DECEMBER 31, 2014 Charlotte Regional Charlotte REALTOR Regional Carolina Association REALTOR Multiple Listing Housing Opportunity Association, Inc. Services, Inc. Foundation Eliminations Consolidated Expenses (continued): Conventions, seminars, and meetings $ 126,824 $ 93,519 $ 206 $ - $ 220,549 Depreciation 97,492 50, ,646 Dues and subscriptions 11,523 14, ,023 Interest 44, ,897 Liability insurance 48, ,189 Legal and other professional services 136, ,589 1, ,119 Promotional materials 13, ,833 Supplies, printing, and postage 73, ,222 Other expenses 45,090 19, ,124 Total expenses before income taxes 4,776,821 6,960, ,640 (2,922,002) 9,174,603 Change in unrestricted net assets before income tax expense 1,362,229 1,015,356 47,231 (590,937) 1,833,879 Income tax expense, net - 424, ,419 Change in unrestricted net assets 1,362, ,937 47,231 (590,937) 1,409,460 Unrestricted net assets, beginning 11,549,350 2,617, ,195 (2,617,663) 12,227,545 Unrestricted net assets, ending 12,911,579 3,208, ,426 (3,208,600) 13,637,005 Temporarily restricted revenue and support: Contribution revenue Net assets released from restrictions - - (5,510) - (5,510) Change in temporarily restricted net assets - - (5,044) - (5,044) Temporarily restricted net assets, beginning - - 5,510-5,510 Temporarily restricted net assets, ending Change in total net assets $ 1,362,229 $ 590,937 $ 42,187 $ (590,937) $ 1,404,416 See Report of Independent Auditor. 21

25 CONSOLIDATING STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 2014 Charlotte Regional Charlotte REALTOR Regional Carolina Association REALTOR Multiple Listing Housing Opportunity Association, Inc. Services, Inc. Foundation Eliminations Consolidated Cash flows from operating activities: Change in net assets $ 1,362,229 $ 590,937 $ 42,187 $ (590,937) $ 1,404,416 Adjustments to reconcile change in net assets to cash provided by operating activities: Depreciation 97,492 50, ,646 Change in allowance for doubtful accounts (2,260) 10, ,115 Deferred income tax expense - (37,000) - - (37,000) Reinvestment of investment income, net (590,937) ,937 - Realized and unrealized losses on investments 97,694 44, ,579 Change in beneficial interest - - (25,244) - (25,244) Amortization of deferred loan costs 1, ,500 Changes in operating assets and liabilities: Receivables 6,744 (27,224) 5,589 - (14,891) Prepaid expenses (81,057) 81, Inventories 5,280 (5,180) Income taxes refundable/payable (230,000) 232, ,000 Accounts payable and accrued expenses 93,937 3, ,259 Deferred revenue 58, , ,304 Due to/from affiliates (72,401) 58,481 13, Other liabilities (1,600) 17, ,368 Net cash provided by operating activities 745,450 1,157,291 36,452-1,939,193 See Report of Independent Auditor. 22

26 CONSOLIDATING STATEMENTS OF CASH FLOWS (CONTINUED) YEAR ENDED DECEMBER 31, 2014 Charlotte Regional Charlotte REALTOR Regional Carolina Association REALTOR Multiple Listing Housing Opportunity Association, Inc. Services, Inc. Foundation Eliminations Consolidated Cash flows from investing activities: Purchases of property and equipment $ (898,135) $ - $ - $ - $ (898,135) Purchases of investments (138,583) (63,394) - - (201,977) Proceeds from sale of investments 199, ,905 Net cash used in investing activities (836,813) (63,394) - - (900,207) Cash flows from financing activities: Repayment of long-term debt (135,043) (135,043) Net change in cash and cash equivalents (226,406) 1,093,897 36, ,943 Cash and cash equivalents, beginning of year 2,259,745 1,618,130 92,907-3,970,782 Cash and cash equivalents, end of year $ 2,033,339 $ 2,712,027 $ 129,359 $ - $ 4,874,725 Supplementary Information: Income taxes paid $ 230,000 $ 229,419 $ - $ - $ 459,419 Interest paid $ 43,397 $ - $ - $ - $ 43,397 See Report of Independent Auditor. 23