UNITED WAY OF TUCSON AND SOUTHERN ARIZONA, INC. AND UNITED WAY CAPITAL CORPORATION

Transcription

1 UNITED WAY OF TUCSON AND SOUTHERN ARIZONA, INC. AND UNITED WAY CAPITAL CORPORATION INDEPENDENT AUDITOR S REPORT AND CONSOLIDATED FINANCIAL STATEMENTS (WITH SUPPLEMENTARY INFORMATION) YEARS ENDED JUNE 30, 2016 AND 2015

2 UNITED WAY OF TUCSON AND SOUTHERN ARIZONA, INC. AND UNITED WAY CAPITAL CORPORATION TABLE OF CONTENTS Page Independent Auditor s Report... 1 Consolidated Financial Statements Consolidated Statements of Financial Position... 3 Consolidated Statement of Activities... 5 Consolidated Statement of Functional Expenses... 7 Consolidated Statements of Cash Flows... 9 Notes to Consolidated Financial Statements...11 Supplementary Information Consolidating Statement of Financial Position...33 Consolidating Statement of Activities...35

3 INDEPENDENT AUDITOR S REPORT To the Board of Directors United Way of Tucson and Southern Arizona, Inc. and United Way Capital Corporation Tucson, Arizona We have audited the accompanying consolidated financial statements of United Way of Tucson and Southern Arizona, Inc. and United Way Capital Corporation (nonprofit organizations), which comprise the consolidated statement of financial position as of June 30, 2016 and 2015 and the related consolidated 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 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 consolidated 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. -1-

4 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Way of Tucson and Southern Arizona, Inc. and United Way Capital Corporation as of June 30, 2016 and 2015 and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Supplementary Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The information in the consolidating statement of financial position and consolidating statement of activities 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 consolidating 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 themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the consolidating information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. December 13, 2016 Tucson, Arizona -2-

5 UNITED WAY OF TUCSON AND SOUTHERN ARIZONA, INC. AND UNITED WAY CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION June 30, 2016 and 2015 ASSETS CURRENT ASSETS Cash and cash equivalents $ 4,641,676 $ 4,038,234 Certificates of deposit 1,337,963 2,160,580 Short-term investments 442, ,150 Government contracts receivable 1,089, ,820 Pledges receivable, net 1,912,774 2,199,210 Other receivables 264, ,633 Note receivable, current portion ,202 Prepaid expenses and deposits 23,656 16,333 Total current assets 9,713,157 9,701,162 LONG-TERM ASSETS Certificates of deposit 1,237, ,500 Long-term investments 1,223,564 1,393,763 Beneficial interest in funds held by others 25,184 26,144 Note receivable Cash surrender value of life insurance 11,657 12,686 Other long-term receivables 37,036 79,648 Property and equipment, net 3,670,644 3,934,236 Total assets $ 15,918,242 $ 15,745,650 The Notes to Consolidated Financial Statements are an integral part of these statements. -3-

6 UNITED WAY OF TUCSON AND SOUTHERN ARIZONA, INC. AND UNITED WAY CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION June 30, 2016 and 2015 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 129,782 $ 230,003 Subrecipient awards payable 624, ,397 Accrued expenses and other liabilities 387, ,426 Deferred revenue, current portion 61,536 73,717 Custodial and agency liabilities 1,375,496 1,440,095 Refundable security deposits 12,808 12,808 Annuity obligations, current portion 5,795 5,454 Long-term debt, current portion 116, ,759 Total current liabilities 2,713,365 2,893,659 LONG-TERM LIABILITIES Long-term annuity obligations 88,469 94,264 Long-term debt 1,307,543 1,581,022 Long-term deferred revenue 37,036 79,648 Less unamortized debt issuance costs (3,880) (4,656) Total long-term liabilities 1,429,168 1,750,278 Total liabilities 4,142,533 4,643,937 NET ASSETS Unrestricted Undesignated 2,169,853 1,439,346 Designated for donor advised funds 1,786,519 1,715,708 Board designated reserves 1,753,982 1,809,930 Expended for property and equipment 2,246,876 2,247,455 Total unrestricted net assets 7,957,230 7,212,439 Temporarily restricted 2,204,915 2,278,011 Permanently restricted 1,613,564 1,611,263 Total net assets 11,775,709 11,101,713 Total liabilities and net assets $ 15,918,242 $ 15,745,650 The Notes to Consolidated Financial Statements are an integral part of these statements. -4-

7 UNITED WAY OF TUCSON AND SOUTHERN ARIZONA, INC. AND UNITED WAY CAPITAL CORPORATION CONSOLIDATED STATEMENT OF ACTIVITIES For the Year Ended June 30, 2016 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUE, SUPPORT AND GAINS Total campaign support $ 5,466,688 $ 1,109,820 $ - $ 6,576,508 Less amounts raised on behalf of others (2,650,963) - - (2,650,963) 2,815,725 1,109,820-3,925,545 Less provision for uncollectible pledges (199,762) (112,895) - (312,657) Net campaign support 2,615, ,925-3,612,888 Government contracts 5,343, ,343,416 Other gifts, grants and sponsorships 8, , ,797 Donated services and materials 132,382 10, ,766 Service fee income 126, ,368 Program fees 219,095 13, ,823 Rent income 644, ,104 Investment (loss) income (6,277) 32,652-26,375 Net assets released from restriction 1,978,149 (1,978,149) - - Total revenue, support and gains 11,061,633 (82,096) - 10,979,537 ALLOCATIONS AND EXPENSES Program services: Collective impact: Allocations and grants 3,503, ,503,090 Less amounts raised on behalf of others (2,650,963) - - (2,650,963) 852, ,127 Subrecipient awards 4,357, ,357,016 5,209, ,209,143 Office rental expense to nonprofits 727, ,670 Donated services and materials 142, ,766 Other collective impact expenses 2,641, ,641,351 8,720, ,720,930 Fundraising 969, ,080 Management and general 561, ,468 United Way Worldwide dues 54, ,063 Total allocations and expenses 10,305, ,305,541 Change in net assets before fund transfers 756,092 (82,096) - 673,996 Transfers per donor request (11,301) 9,000 2,301 - Change in net assets 744,791 (73,096) 2, ,996 Net assets, beginning of year 7,212,439 2,278,011 1,611,263 11,101,713 Net assets, end of year $ 7,957,230 $ 2,204,915 $ 1,613,564 $ 11,775,709 The Notes to Consolidated Financial Statements are an integral part of these statements. -5-

8 UNITED WAY OF TUCSON AND SOUTHERN ARIZONA, INC. AND UNITED WAY CAPITAL CORPORATION CONSOLIDATED STATEMENT OF ACTIVITIES For the Year Ended June 30, 2015 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUE, SUPPORT AND GAINS Total campaign support $ 6,441,232 $ 1,171,955 $ - $ 7,613,187 Less amounts raised on behalf of others (2,984,185) - - (2,984,185) 3,457,047 1,171,955-4,629,002 Less provision for uncollectible pledges (145,460) (43,940) - (189,400) Net campaign support 3,311,587 1,128,015-4,439,602 Government contracts 7,122, ,122,262 Other gifts, grants and sponsorships 22,832 1,175,065-1,197,897 Donated services and materials 122,099 16, ,042 Service fee income 177, ,087 Program fees 276,580 18, ,596 Rent revenue 621, ,183 Investment income 12,231 22,636-34,867 Net assets released from restriction 1,998,733 (1,998,733) - - Total revenue, support and gains 13,664, ,942-14,026,536 ALLOCATIONS AND EXPENSES Program services: Collective impact: Allocations and grants 4,633, ,633,401 Less donor designations (2,984,185) - - (2,984,185) 1,649, ,649,216 Subrecipient awards 5,950, ,950,491 7,599, ,599,707 Office rental expense to nonprofits 796, ,837 Donated services and materials 139, ,042 Other collective impact expenses 2,751, ,751,602 11,287, ,287,188 Fundraising 949, ,671 Management and general 713, ,878 United Way Worldwide dues 89, ,833 Total allocations and expenses 13,040, ,040,570 Change in net assets before fund transfers 624, , ,966 Transfers per donor request (56,000) 56, Change in net assets 568, , ,966 Net assets, beginning of year 6,644,415 1,860,069 1,611,263 10,115,747 Net assets, end of year $ 7,212,439 $ 2,278,011 $ 1,611,263 $ 11,101,713 The Notes to Consolidated Financial Statements are an integral part of these statements. -6-

9 UNITED WAY OF TUCSON AND SOUTHERN ARIZONA, INC. AND UNITED WAY CAPITAL CORPORATION CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES For the Year Ended June 30, 2016 Collective Impact Program Services Office Rental Expense to Nonprofits Supporting Services Total United Way Total Program Management Worldwide Supporting Services Fundraising and General Dues Services Total Allocations and grants $ 3,503,090 $ - $ 3,503,090 $ - $ - $ - $ - $ 3,503,090 Less donor designations (2,650,963) - (2,650,963) (2,650,963) 852, , ,127 Subrecipent awards 4,357,016-4,357, ,357,016 Total allocations and grants 5,209,143-5,209, ,209,143 Salaries 1,428,861 24,621 1,453, , , ,773 2,371,255 Employee benefits 203,165 4, ,089 60,153 42, , ,125 Payroll taxes 125,983 1, ,953 44,874 31,046-75, ,873 Total personnel expenses 1,758,009 31,515 1,789, , ,151-1,096,729 2,886,253 Advertising 43,509-43,509 9,064 5,077-14,141 57,650 Bank fees ,678-14,084 14,178 Combined federal campaign , ,131 75,131 Conferences and meetings 29,884-29,884 9,632 11,021-20,653 50,537 Donated services and materials 114,988 27, , ,766 Equipment 69,351-69,351 16,498 14,529-31, ,378 Events and promotional supplies 73,026-73,026 18,971 10,359-29, ,356 Insurance 209 7,517 7,726-9,707-9,707 17,433 Interest expense - 61,428 61,428-6,232-6,232 67,660 Investment fees , ,886 30,886 Miscellaneous ,003-4,009 4,021 Occupancy 187, , ,713 22,450 13,203-35, ,366 Office supplies 9,720-9, ,189-3,929 13,649 Postage 1,390-1,390 7,641 1,802-9,443 10,833 Printing and artwork 86, ,194 53,517 3,475-56, ,186 Professional dues 2,115-2,115 1,180 6,699-7,879 9,994 Professional outside services 273,438 47, ,867 13,535 40,256-53, ,658 Subscriptions & publications 3,844-3,844 1,141 1,019 2,160 6,004 Technical/direct assistance 2,447-2, ,447 Telephone 22, ,762 1,675 3,126-4,801 27,563 Temporary services 42,406-42,406 22,024 1,610-23,634 66,040 Travel 63,633-63,633 5,891 4,626-10,517 74,150 Depreciation - 257, ,376-20,706-20, ,082 United Way Worldwide dues ,063 54,063 54,063 Total expenses 7,993, ,670 8,720, , ,468 54,063 1,615,497 10,336,427 Less investment fees netted against revenue (30,886) - - (30,886) (30,886) Total functional expenses $ 7,993,260 $ 727,670 $ 8,720,930 $ 969,080 $ 561,468 $ 54,063 $ 1,584,611 $ 10,305,541 The Notes to Consolidated Financial Statements are an integral part of these financial statements. -7-

10 UNITED WAY OF TUCSON AND SOUTHERN ARIZONA, INC. AND UNITED WAY CAPITAL CORPORATION CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES For the Year Ended June 30, 2015 Collective Impact Program Services Office Rental Expense to Nonprofits Total Program Services Supporting Services United Way Total Management Worldwide Supporting Fundraising and General Dues Services Total Allocations and grants $ 4,633,401 $ - $ 4,633,401 $ - $ - $ - $ - $ 4,633,401 Less donor designations (2,984,185) - (2,984,185) (2,984,185) 1,649,216-1,649, ,649,216 Subrecipent awards 5,950,491-5,950, ,950,491 Total allocations and grants 7,599,707-7,599, ,599,707 Salaries 1,351,278 24,621 1,375, , , ,548 2,363,447 Employee benefits 197,688 4, ,612 72,559 96, , ,080 Payroll taxes 118,338 1, ,308 47,509 33,225-80, ,042 Total personnel expenses 1,667,304 31,515 1,698, , ,877-1,237,750 2,936,569 Advertising 41,604-41,604 4,950 3,912-8,862 50,466 Bank fees ,543-13,970 14,076 Combined federal campaign , ,941 78,941 Conferences and meetings 27,807-27,807 3,042 10,201-13,243 41,050 Donated services and materials 103,655 35, , ,042 Equipment 72,558 2,709 75,267 15,475 16,155-31, ,897 Events and promotional supplies 93,317-93,317 19,063 15,077-34, ,457 Insurance ,478 27,898-6,260-6,260 34,158 Interest expense - 84,497 84,497-6,584-6,584 91,081 Investment fees , ,871 27,871 Miscellaneous Occupancy 234, , ,443 24,736 6,694-31, ,873 Office supplies 14,700-14, ,938-5,498 20,198 Postage 1,062-1,062 4,229 2,906-7,135 8,197 Printing and artwork 83, ,649 38,075 4,076-42, ,800 Professional dues 4,293-4, ,837-5,477 9,770 Professional outside services 422,961 46, ,279 30,422 51,154-81, ,855 Technical/direct assistance 2,618-2, ,618 Telephone 19, ,392 1,498 3,456-4,954 25,346 Temporary services 45,781-45,781 23,109 1,624-24,733 70,514 Travel 55,206-55,206 7,631 6,301-13,932 69,138 Depreciation - 271, ,683-15,045-15, ,728 United Way Worldwide dues ,833 89,833 89,833 Total expenses 10,490, ,837 11,287, , ,878 89,833 1,781,253 13,068,441 Less investment fees netted against revenue (27,871) - - (27,871) (27,871) Total functional expenses $ 10,490,351 $ 796,837 $ 11,287,188 $ 949,671 $ 713,878 $ 89,833 $ 1,753,382 $ 13,040,570 The Notes to Consolidated Financial Statements are an integral part of these financial statements. -8-

11 UNITED WAY OF TUCSON AND SOUTHERN ARIZONA, INC. AND UNITED WAY CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended June 30, 2016 and CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 673,996 $ 985,966 Adjustments to reconcile change in net assets to net cash from operating activities: Realized (gains) on investments (13,866) (1,257) Unrealized losses on investments 74,264 16,445 Cash receipts resulting from sale of donated financial assets 123, ,967 Amortization of capitalized loan costs Provision for allowance on pledges receivable 312, ,400 Depreciation 278, ,728 (Increase) decrease in assets: Government contracts receivable (313,896) 289,800 Pledges receivable (26,221) (513,880) Other receivables (125,992) (113,039) Prepaid expenses and deposits (7,323) 12,438 Cash surrender value of life insurance 1,029 (3,807) Increase (decrease) in liabilities: Accounts payable (100,221) 82,508 Accrued expenses and other liabilities 70,667 62,755 Deferred revenue (12,181) 121,928 Annuity obligations (5,454) (5,132) Subrecipient awards payable (84,767) 87,385 Custodial and agency liabilities (64,599) (243,375) Net cash provided by operating activities 780,499 1,374,606 The Notes to Consolidated Financial Statements are an integral part of these financial statements. -9-

12 UNITED WAY OF TUCSON AND SOUTHERN ARIZONA, INC. AND UNITED WAY CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the Years Ended June 30, 2016 and CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investments (927,404) (1,237,552) Proceeds from sales or maturities of investments 833,531 1,316,553 Collections on note receivable 11,202 9,696 Redemptions (purchases) of certificates of deposits 183,117 (768,569) Purchases of property and equipment (14,490) (67,709) Net cash provided (used) by investing activities 85,956 (747,581) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt (263,013) (364,855) Net cash used in financing activities (263,013) (364,855) Net increase in cash and cash equivalents 603, ,171 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,038,234 3,776,063 CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,641,676 $ 4,038,234 SUPPLEMENTARY DISCLOSURE Cash paid for interest $ 67,861 $ 91,603 The Notes to Consolidated Financial Statements are an integral part of these statements. -10-

13 UNITED WAY OF TUCSON AND SOUTHERN ARIZONA, INC. AND UNITED WAY CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2016 and ORGANIZATION Nature of Organization United Way of Tucson and Southern Arizona, Inc. ( UWTSA ) is a nonprofit organization incorporated in Arizona in September 1942 and governed by greater Tucson area community leaders who have been elected to its Board of Directors. UWTSA s mission is building a better community by uniting people, ideas and resources. To fulfill this mission, UWTSA conducts an annual fundraising campaign in the greater Tucson area. Pledges are received from corporations and individuals and are used to fund organizations assisting children, families and seniors in need and to cover current administrative and development expenses. United Way Capital Corporation ( UWCC ) is a nonprofit organization incorporated in Arizona in April UWCC was established to conduct nonprofit activities consistent with and in furtherance of the principles and purposes of UWTSA. UWCC owns real estate in Southern Arizona that it rents at below market rates to nonprofit and governmental organizations that provide services which contribute to UWTSA s mission. UWTSA and UWCC are hereinafter collectively referred to as United Way. Following is a description of program service categories: Collective Impact UWTSA is working to advance the common good by focusing on education, income and health the building blocks of a good life. Through an integrated model of community and resource development strategies, UWTSA achieves significant community impact for children, families and seniors. To achieve these results, community volunteer experts and constituents work on data-driven strategies through collective impact partnerships the Cradle to Career Partnership, First Focus on Kids Coalition, Youth on the Rise, the Financial Stability Partnership, the ELDER Alliance and the Public Policy Committee. UWTSA uses the strengths, commitment and expertise of the community to facilitate lasting community change in these key areas of focus. -11-

14 1. ORGANIZATION Office Rental to Non-Profits UWCC provides office and program space at below market rates to nonprofit and governmental organizations, including UWTSA, which provide services that contribute to UWTSA s mission. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements presented as United Way of Tucson and Southern Arizona, Inc. and United Way Capital Corporation include all accounts of UWTSA and UWCC. All significant inter-organization accounts and transactions have been eliminated. Consolidated Financial Statement Presentation United Way reports information regarding its consolidated financial position and activities using the accrual basis of accounting and according to three classes of net assets: unrestricted, temporarily restricted and permanently restricted. Unrestricted net assets are those not subject to donor-imposed stipulations and are available for use in operations. Temporarily restricted net assets are those subject to donor-imposed stipulations that will be met by expenditure or the passage of time. Temporarily restricted net assets received and expended in the same fiscal year are classified as unrestricted. Permanently restricted net assets represent permanent endowments where the donors have stipulated that the principal be held in perpetuity with the income only available for expenditures. Allocation of Indirect Expenses Indirect expenses are allocated based on salaries as a function of staff time tracked by functional area on timesheets. Technical and Direct Assistance Technical and direct assistance is provided directly to intended beneficiaries of a grant and/or program. Advertising Advertising costs are expensed as incurred and totaled $57,650 and $50,466 for the years ended June 30, 2016 and 2015, respectively. -12-

15 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles ( GAAP ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues, support, gains, allocations, expenses and losses during the reporting period. Actual results could differ from those estimates. Significant estimates included in these consolidated financial statements are management s estimate of the collectibility of pledges receivable, the useful lives of assets, the valuation of annuity payment obligations and the valuation of non-cash donations. These estimates are subject to change in the near term. The recording of in-kind donations had no effect on the total change in net assets. Cash and Cash Equivalents All highly liquid debt instruments purchased with a maturity of three months or less are considered to be cash equivalents. All cash and cash equivalents are placed with various financial institutions. At times, such amounts may be in excess of Federal Deposit Insurance Corporation and Securities Investor Protection Corporation insurance limits; however, management does not believe they are exposed to any significant credit risk on cash and cash equivalents. At June 30, 2016 and 2015, uninsured cash approximated $3,767,000 and $3,283,000, respectively. UWTSA s policy is to maintain cash balances sufficient to liquidate obligations as they arise in the near term. Investments Investments in equity securities with readily determinable fair values and all investments in debt securities are recorded at their fair value in the consolidated statements of financial position determined by quoted market prices. Donated investments are recorded at fair value at the date of gift. Investment gains and losses are included in the changes in net assets in the accompanying consolidated statements of activities as increases or decreases in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor-imposed stipulations or legal requirements. Certificates of deposit held are carried at cost, which approximates fair value, bear interest ranging from 1.40% % at June 30, 2016, and mature between July 2016 and October Any penalties for early withdrawal would not have a material effect on the consolidated financial statements. -13-

16 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Pledges Receivable Unconditional pledges receivable are recognized as revenues or gains at their estimated net realizable value in the period received and as assets, decreases of liabilities or expense depending on the form of the benefits received. Conditional pledges receivable are recognized only when the conditions on which they depend are substantially met and the pledges become unconditional. Pledges receivable that are collectible over future periods are discounted to their net present value. The provision for uncollectible pledges is based on management s estimate of current economic factors, applied as a percentage to gross campaign revenues. Pledges are periodically reviewed for collectibility and written off to the provision for uncollectible pledges at the time of such determination. Property and Equipment Property and equipment are stated at cost except for donated equipment, which is recorded at its fair market value at the date of the gift. Property and equipment with a value of greater than or equal to $5,000 is capitalized. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as follows: Asset Buildings and improvements Computer equipment Furniture and fixtures Useful Life Useful life up to 31.5 years 3-10 years 3-10 years Permanent Collection UWCC owns a mineral deposit on display that it has opted to treat as a permanent collection that is not recorded on the consolidated statements of financial position. Any additional minerals, sculptures or other artwork on display as part of its permanent collection that are purchased will be expensed and, if donated, will not be recorded. -14-

17 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Public Support and Revenue An annual fundraising campaign is conducted to raise support for allocations to other organizations and agencies that provide services that assist children, families and seniors. As described further in these notes, contributions received that are intended to be used in a subsequent year or for a specific purpose are time- and/or purpose-restricted contributions and are recorded as temporarily restricted net assets until the time expires or the purpose is fulfilled. All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Pledges for contributions are recorded as received and allowances are provided for amounts estimated to be uncollectible. Funds that have been designated by the donor to agencies or collected for others are reported in the consolidated financial statements as custodial and agency liabilities. Contributions received are recorded as unrestricted, temporarily restricted or permanently restricted support, depending on the existence and/or nature of any donor restrictions. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. 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 statements of activities as net assets released from restrictions. Endowment contributions are reported as additions to permanently restricted net assets. Combined Federal Campaign Expense UWTSA serves as the Principal Combined Fund Organization ( PCFO ) for the Arizona Combined Federal Campaign, which is a campaign separate from UWTSA s campaign as it targets federal employees and is regulated by the federal Office of Personnel Management ( OPM ). The primary role of the PCFO is to administer the local campaign under the direct control of the Local Federal Coordinating Committee ( LFCC ) and OPM. As the PCFO, UWTSA honors designations made to each member organization by distributing a proportionate share of receipts based on donor designations to each agency. Donated Goods, Facilities and Services Donated goods and facilities are valued at their fair market value when received. Donated services are recognized in the consolidated financial statements at their fair market value if the following criteria are met: The services require specialized skills and the services are provided by individuals possessing those skills; and The services would typically need to be purchased if not donated. -15-

18 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Although United Way may utilize the services of outside volunteers, the fair value of many of these services have not been recognized in the accompanying consolidated financial statements since they do not meet the criteria for recognition under GAAP. Income Tax Status Both UWTSA and UWCC are exempt from Federal income tax under Section 501(c)(3) of the Internal Revenue Code. However, income from certain activities not directly related to their taxexempt purpose may be subject to taxation as unrelated business income. In addition, contributions to UWTSA and UWCC qualify for the charitable contribution deduction under Section 170(b)(1)(A)(11). UWTSA and UWCC are classified as organizations other than a private foundation under Section 509(a)(2) and 509(a)(1), respectively. Management believes that UWTSA and UWCC hold no uncertain tax positions and therefore, have no policy for evaluating them. UWTSA and UWCC s Forms 990, Return of Organization Exempt from Income Taxes and Arizona Forms 99, Arizona Exempt Organization Annual Information Return, are generally subject to examination by the Internal Revenue Service for three years and the Arizona Department of Revenue for four years, respectively, after the date the returns were filed. All prior year returns have been timely filed. Endowments UWTSA s endowments consist of three funds established under donor restriction for charitable purposes. Net assets associated with endowment funds (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. The Board of Directors of UWTSA has interpreted the State of Arizona s Management of Institutional Funds Act (the Act ) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, UWTSA classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the organization in a manner consistent with the standard of prudence prescribed by the Act. -16-

19 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES In accordance with the Act, UWTSA considers the following factors in making a determination to appropriate or accumulate endowment funds: The duration and preservation of the fund The purposes of the organization and the donor-restricted endowment fund General economic conditions The possible effect of inflation and deflation The expected total return from income and the appreciation of investments Other resources of the organization The investment policies of the organization Cost Deduction Standards UWTSA adheres to the following cost deduction standards set by United Way Worldwide on designated contributions (amounts raised on behalf of others): Fees charged are based on actual expenses. Fundraising fees are not deducted from designated gifts originating by or from another United Way. Recent Accounting Pronouncements Revenue Recognition In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No , Revenue from Contracts with Customers (Topic 606), that will supersede the current revenue recognition requirements in Topic 605, Revenue Recognition. The ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new guidance will be effective for the Organization s year ending June 30, The ASU permits application of the new revenue recognition guidance to be applied using one of two retrospective application methods. The Organization has not yet determined which application method it will use or the potential effects on the new standard on the consolidated financial statements, if any. -17-

20 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Leases In February 2016, the Financial Accounting Standards Board issued ASU No , Leases (Topic 842), that will supersede the current lease requirements in ASC 840. The ASU requires lessees to recognize a right-of-use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either financing or operating, with the classification affecting the pattern of expense recognition in the statement of operations. Currently, leases are classified as either capital or operating, with only capital lease obligations recognized on the consolidated balance sheet. Lessor accounting under the new standard will remain similar to lessor accounting under current GAAP. The reporting of lease-related expenses in the statements of operations and cash flows will be generally consistent with the current guidance. The new lease guidance will be effective for the Organization s year ending June 30, 2020 and will be applied using a modified retrospective transition method to the beginning of the earliest period presented. The effect of applying the new lease guidance on the consolidated financial statements has not yet been determined. Non-Profit Organizations In August 2016, The Financial Accounting Standards Board issued ASU , Not-for- Profit Entities (Topic 948), which will change how not-for-profit organizations will report and present certain items in their financial statements. The new guidance will take effect for the year ending June 30, The significant changes are: o Simplification of net asset presentation net assets will now be presented in two classes, Net assets with donor restrictions, and Net assets without donor restrictions. o All not-for-profit organizations will be required to present expenses in their natural classification (advertising, payroll, rent, etc.) and by function (program, general and administrative and fund raising). o Enhanced disclosure requirements related to presenting liquidity information and simplification of existing disclosure requirements related to investment returns and long lived assets purchased with donor-restricted funds. The Organization currently presents a statement of functional expenses and has not yet determined the effect of applying the remaining requirements of the new standard on the consolidated financial statements. Reclassification of Prior Year Presentation Certain prior-year amounts have been reclassified for consistency with current year presentation. These reclassifications had no impact on the reported change in net assets or cash flows. -18-

21 3. FAIR VALUE MEASUREMENTS AND INVESTMENTS Fair value measurements are determined based on the assumptions referred to as inputs that market participants would use in pricing the asset or liability. A fair value hierarchy distinguishes between market participant assumptions and UWTSA s own assumptions about market participant assumptions. Observable inputs are assumptions based on market data obtained from independent sources, while unobservable inputs are UWTSA s own assumptions about what market participants would assume based on the best information available in the circumstances. Level 1 Inputs: A quoted price in an active market for an identical asset or liability is considered to be the most reliable evidence of fair value. The fair value of UWTSA s mutual funds, common stocks, corporate bonds, U.S. government securities and fixed income securities are valued at the closing price reported on the active market on which the individual securities are traded. Level 2 Inputs: These are observable inputs, either directly or indirectly, other than quoted prices included within Level 1. UWTSA had no assets categorized as level 2 at June 30, 2016 and Level 3 Inputs: These inputs are unobservable and are used to measure fair value only when observable inputs are not available. UWTSA is the beneficiary of funds held at Community Foundation for Southern Arizona ( CFSA ). CFSA does not have variance power over the funds. This beneficial interest in funds held by others is considered Level 3, because UWTSA owns units of pooled funds held at CFSA and relies on CFSA to provide the value of those funds. At CFSA, these pooled investments are primarily held in mutual funds and are considered to be Level 1. See Note 10 for the valuation method of annuity payment obligations. Fair values of assets measured on a recurring basis at June 30, 2016 were as follows: Level 1 Level 3 Total Mutual funds $ 1,183,627 $ - $ 1,183,627 U.S. equities 262, ,122 International equities 220, ,051 Beneficial interest in funds held by others - 25,184 25,184 Total $ 1,665,800 $ 25,184 $ 1,690,

22 3. FAIR VALUE MEASUREMENTS AND INVESTMENTS Fair values of assets measured on a recurring basis at June 30, 2015 were as follows: Level 1 Level 3 Total Mutual funds $ 335,812 $ - $ 335,812 U.S. equities 1,166,108-1,166,108 International equities 252, ,993 Beneficial interest in funds held by others - 26,144 26,144 Total $ 1,754,913 $ 26,144 $ 1,781,057 At June 30, 2016 and 2015, the fair value of other assets and liabilities measured using Level 3 inputs on a non-recurring basis consisted of pledges receivable totaling $1,912,774 and $2,199,210, respectively, and annuity payment obligations totaling $94,264 and $99,718, respectively. Investment income for the years ended June 30, 2016 and 2015 was as follows: Dividends and interest $ 117,659 $ 77,926 Realized gains on investments 13,866 1,257 Unrealized losses on investments (74,264) (16,445) Investment fees (30,886) (27,871) Total $ 26,375 $ 34,867 Activity in assets measured on a recurring basis utilizing Level 3 inputs consisted of the following for the year ended June 30, 2016: Beginning Donated Investment Ending Balance Assets Activity Balance Beneficial interest in funds held by others $ 26,144 $ - $ (960) $ 25,184 Activity in assets measured on a recurring basis utilizing Level 3 inputs consisted of the following for the year ended June 30, 2015: Beginning Donated Investment Ending Balance Assets Activity Balance Beneficial interest in funds held by others $ 26,104 $ - $ 40 $ 26,

23 4. CONTRIBUTIONS AND NOTE RECEIVABLE FROM VOLUNTEER SOUTHERN ARIZONA Upon its dissolution during the year ended June 30, 2013, Volunteer Southern Arizona ( VSA ) transferred its programs and contributed its remaining assets to UWTSA. UWTSA recognized revenue of $81,354 consisting of cash, a note receivable and a beneficial interest in funds held by others. Of the total assets received, $20,000 was considered to be permanently restricted as of June 30, 2016 and The note receivable was issued by a nonprofit organization to VSA, with an original amount of $50,000 and a maturity date of July The note is unsecured, bears interest at 5%, and requires monthly principal and interest payments of $967. Future minimum payments on the note are $511, all to be received during the year ending June 30, CAMPAIGN PLEDGES RECEIVABLE Campaign pledges receivable consist of unconditional promises to give from corporations, foundations, corporate employees and individual donors. All pledges are considered current as of June 30, 2016 and Campaign pledges receivable at June 30, 2016 and 2015 were as follows: Receivable in less than one year $ 2,384,839 $ 2,669,902 Less allowance for uncollectible pledges (472,065) (470,692) Net pledges receivable $ 1,912,774 $ 2,199, PROPERTY AND EQUIPMENT Property and equipment at June 30, 2016 and 2015 consists of the following: Land $ 102,000 $ 102,000 Buildings and improvements 7,011,042 6,996,553 Computer equipment 393, ,953 Furniture and fixtures 487, ,279 Total 7,994,275 7,979,785 Accumulated depreciation (4,323,631) (4,045,549) Net property and equipment $ 3,670,644 $ 3,934,

24 7. CREDIT FACILITIES In November 2013, UWCC obtained a $250,000 credit facility from a financial institution secured by real property. Borrowings under the credit facility were intended for extraordinary repairs or capital improvements with interest payable at the prime rate with a minimum rate of 5%. At June 30, 2015 there was no outstanding balance on this note. This note matured in November 2015 and was not renewed. UWTSA had an unsecured $250,000 revolving line of credit with a financial institution which matured in January 2015 and was not renewed. Interest was payable monthly at the prime rate with a minimum rate of 5%. 8. SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN Effective July 1, 2013, UWTSA adopted the United Way of Tucson and Southern Arizona Deferred Compensation Plan for the President and CEO. The plan states that UWTSA will contribute $8,000 per year to a deferred compensation benefit plan, with three years payments applied in arrears as of the date of the agreement. The funds in this account are considered assets of UWTSA and a liability is accrued to show a corresponding payable to the employee. During the term of the plan, all income received by the plan, net of expenses and taxes, shall be accumulated and reinvested. The plan shall be transferrable to the employee upon termination of his employment agreement. Investments are valued at fair value as determined by quoted security exchange prices and fluctuate with the market value of the investments which are held in the account and any additional deferrals or payments to the President and CEO. At June 30, 2016 and 2015, the assets of the plan were held in cash and cash equivalents in the amount of $16,001 and $32,025, respectively. UWTSA does not bear any of the risk for those market fluctuations. At June 30, 2016 and 2015, a liability of $24,001 and $15,955 respectively, for the present value of future retirement benefits payable has been reported in accrued expenses in the consolidated statements of financial position. -22-

25 9. DEFERRED REVENUE At June 30, 2016 and 2015, deferred revenue consisted of the following: Unearned rent $ 79,648 $ 120,348 Government grant advances 18,924 33,017 Total $ 98,572 $ 153, CHARITABLE GIFT ANNUITY AGREEMENTS UWTSA has entered into charitable gift annuity agreements with various individuals. Under the terms of the agreements, UWTSA receives lump sum amounts and agrees to make distributions for a specified period of time to the donor or other beneficiaries. Assets received are recorded at fair value on the date the agreement is executed and a liability equal to the present value of the future distributions is recorded. Payments to annuitants are remitted based on the terms of the agreements and amount to $11,716 annually. The original contribution and any net investment earnings may not be sufficient to make the required periodic payments for an annuity payment obligation. If any insufficiency results, UWTSA has a continuing financial commitment to each annuitant until his/her death. Management believes that any insufficiency is not material to UWTSA s unrestricted net assets. The charitable gift annuities received by UWTSA are unrestricted. Adjustments to the annuity liability to reflect amortization of the discount and revaluations due to changes in life expectancy are reported in the current year as a change in value of split-interest agreements. Discount rates on these obligations ranged from 5.9% to 6.7% for the years ended June 30, 2016 and At June 30, 2016 and 2015, the net present value of the charitable gift annuity contracts totaled $94,264 and $99,718, respectively. -23-

26 11. CUSTODIAL AND AGENCY LIABILITIES Custodial liabilities represent those funds that UWTSA is holding at the discretion of affiliated and other charitable organizations. Agency liabilities represent funds that have been designated to agencies that UWTSA has not remitted. Custodial and agency liabilities consisted of the following at June 30: Custodial funds: United Way of Cochise County $ 3,400 $ 16,317 United Way of Santa Cruz County 67,432 83,525 Employees Combined Appeal Programs: Combined Federal Campaign 394, ,682 City of Tucson 58,538 59,403 Pima County 87, ,420 Total custodial funds 611, ,347 Amounts designated to agencies 764, ,748 Total $ 1,375,496 $ 1,440, LONG-TERM DEBT UWCC has a note payable to a financial institution secured by real property. Original terms of the note called for a fixed interest rate of 4.6%, monthly principal and interest payments of $14,248, and a maturity date of June 2021 (at which time a balloon payment was due). In May 2015, UWCC renegotiated the loan with the bank. Additional principal payments were made by UWCC and the principal balance at the date of the changes in terms was $1,695,004. The revised terms of the note call for monthly payments of $14,248 and the interest rate was adjusted to a fixed rate of 3.98%. The revised note calls for a balloon payment which will be payable in June Long-term debt was as follows at June 30, 2016 and 2015: Notes payable $ 1,423,768 $ 1,686,781 Current portion (116,225) (105,759) Non-current portion $ 1,307,543 $ 1,581,

27 12. LONG-TERM DEBT Future maturities of long-term debt are as follows: Year Ending June 30, 2017 $ 116, , , , ,881 Total $ 1,423, BOARD DESIGNATED RESERVES At June 30, 2016 and 2015, the Board of Directors Designated Reserves consisted of the following: UWTSA operating reserve $ 1,038,870 $ 1,084,402 UWCC debt reserve 142, ,267 UWCC operating reserve 223, ,122 UWCC maintenance reserve 349, ,139 Total $ 1,753,982 $ 1,809,930 In March 2013, the UWTSA Board of Directors approved the Board Designated Operating Reserve Policy ( Operating Reserve Policy ) to ensure the long-term stability of the organization and position it to respond to varying economic conditions and changes affecting the organization s financial position and its ability to continuously carry out its mission. The Operating Reserve Policy is intended to fulfill the following objectives: To promote public and donor confidence in the long-term sustainability of the organization by preventing chronic cash flow crises that could injure its reputation and force its leaders to make expensive short-term crisis-based decisions; To enable the organization to sustain operations through delays in receipts of committed funding and to accept reimbursable contacts and grants without jeopardizing ongoing operations; and To create an internal line of credit to manage cash flow and maintain financial flexibility. -25-

28 13. BOARD DESIGNATED RESERVES The minimum amount to be designated as operating reserves is an amount sufficient to maintain ongoing operations and programs for a set period of time, measured in months. The Board of Directors has established a minimum of three months and a maximum of six months of average unrestricted operating costs as operating reserves. The UWCC Board of Directors has designated net assets at June 30, 2016 as follows: Debt Reserve The UWCC Board of Directors has adopted a reserve policy to amortize the long-term debt associated with its rental facilities in accordance with the bond indenture used in the initial financing of the construction. As such, the UWCC Board of Directors has designated net assets in the amount of $142,844 that represents the amount required to maintain amortization of the debt in fiscal year ended June 30, 2016 in accordance with bond requirements, which is in addition to the debt reductions required by the current long-term bank financing. Operating Reserve The UWCC Board of Directors has adopted an operating reserve policy to ensure that adequate resources are available to maintain operations of the property in the event that a vacancy or other unanticipated operating issue may arise. The operating reserve policy s goal is to retain six months of average operating expenses and is fully funded at June 30, Maintenance Reserve The UWCC Board of Directors has adopted a maintenance reserve policy to ensure that adequate resources are available for major maintenance and repairs outside the normal course of operations. The maintenance reserve will be calculated at 5% of property balances exclusive of land. -26-