JUDSON ISD EDUCATION FOUNDATION, INC. (A NONPROFIT ORGANIZATION) FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015

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1 (A NONPROFIT ORGANIZATION) FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015

2 TABLE OF CONTENTS Report of Independent Auditors... 1 Statements of Financial Position... 3 Statements of Activities and Changes in Net Assets years ended... 4 Statements of Activities and Changes in Net Assets year ended December 31, Statements of Cash Flows... 6 Notes to the Financial Statements

3 REPORT OF INDEPENDENT AUDITORS To the Board of Directors Judson ISD Education Foundation, Inc. San Antonio, Texas Report on the Financial Statements We have audited the accompanying financial statements of Judson ISD Education Foundation, Inc. ( Foundation ), a nonprofit organization, which comprise the statements of financial position as of and the related statements of activities and changes in net assets and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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5 STATEMENTS OF FINANCIAL POSITION December 31, ASSETS Current Assets: Cash and cash equivalents $ 100,975 $ 208,302 Prepaid expenses 7,752 1,713 Total current assets 108, ,015 Assets Whose Use is Limited: (note 3) Cash and cash equivalents 18,312 16,465 Investments 917, ,658 Total assets whose use is limited 935, ,123 Total assets $ 1,044,544 $ 988,138 LIABILITIES AND NET ASSETS Current Liabilities: Accounts payable $ 5,094 $ 6,938 Deferred revenue 2,000 4,500 Total current liabilities 7,094 11,438 NET ASSETS Unrestricted 966, ,716 Temporarily restricted 40,010 35,229 Permanently restricted 30,755 30,755 Total net assets 1,037, ,700 Total liabilities and net assets $ 1,044,544 $ 988,138 See notes to the financial statements. 3

6 STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS Years Ended Temporarily Permanently Unrestricted Restricted Restricted REVENUES AND OTHER SUPPORT Contributions $ 15,702 $ 3,650 $ - $ 19,352 $ 25,318 Investment income, including realized gains 11, ,978 27,792 Special events income, net of $35,286 in expenses 84, ,352 62,175 Miscellaneous income 6, ,032 7,447 In-kind contributions 30, ,634 33,250 Net assets released from restriction: Satisfaction of purpose restrictions 2,500 (2,500) Total revenues and other support 150,419 1, , ,982 EXPENSES Program Expenses: Scholarships 40, ,000 28,995 Teaching grants 43, ,104 53,202 Salaries and benefits 15, ,317 16,625 Other 1, ,369 1,396 General & Administrative Expenses: Administration 6, ,160 3,418 Bank charges 1, ,989 1,890 Professional fees 7, ,600 7,600 Salaries and benefits 15, ,317 16,625 Insurance 1, ,374 2,274 Fundraising expenses 3, ,237 2,766 Total expenses 135, , ,791 UNREALIZED (LOSS) GAIN ON INVESTMENTS 41,017 2,852-43,869 (26,533) CHANGE IN NET ASSETS 55,969 4,781-60,750 (5,342) NET ASSETS AT BEGINNING OF YEAR 910,716 35,229 30, , ,042 NET ASSETS AT END OF YEAR $ 966,685 $ 40,010 $ 30,755 $ 1,037,450 $ 976,700 See notes to the financial statements. 4

7 STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS Year Ended December 31, 2015 Temporarily Permanently Unrestricted Restricted Restricted 2015 REVENUES AND OTHER SUPPORT Contributions $ 21,218 $ 4,100 $ - $ 25,318 Investment income, including realized gains 25,985 1,807-27,792 Special events income, net of $51,325 in expenses 62, ,175 Miscellaneous income 7, ,447 In-kind contributions 33, ,250 Net assets released from restriction: Satisfaction of purpose restrictions 3,752 (3,752) - - Total revenues and other support 153,827 2, ,982 EXPENSES Program Expenses: Scholarships 28, ,995 Teaching grants 53, ,202 Salaries and benefits 16, ,625 Other 1, ,396 General & Administrative Expenses: Administration 3, ,418 Bank charges 1, ,890 Professional fees 7, ,600 Salaries and benefits 16, ,625 Insurance 2, ,274 Fundraising expenses 2, ,766 Total expenses 134, ,791 UNREALIZED (LOSS) GAIN ON INVESTMENTS (24,808) (1,725) - (26,533) CHANGE IN NET ASSETS (5,772) (5,342) NET ASSETS AT BEGINNING OF YEAR 916,488 34,799 30, ,042 NET ASSETS AT END OF YEAR $ 910,716 $ 35,229 $ 30,755 $ 976,700 See notes to the financial statements. 5

8 STATEMENTS OF CASH FLOWS Years Ended December 31, OPERATING ACTIVITIES Change in net assets $ 60,750 $ (5,342) Adjustments to reconcile change in net assets to net cash provided by operating activities: Unrealized loss (gain) on investments (43,869) 26,533 Realized gain on sale of investments (included in investment income) (6,393) (23,986) Net changes in: Prepaids expenses (6,039) - Accounts payable (1,844) 5,725 Deferred revenue (2,500) 4,500 Net cash provided by operating activities 105 7,430 INVESTING ACTIVITIES Purchases of investments (105,585) (789,092) Proceeds from sale of investments - 785,286 Net cash used by investing activities (105,585) (3,806) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (105,480) 3,624 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 224, ,143 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 119,287 $ 224,767 See notes to the financial statements. 6

9 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Activities The Judson ISD Education Foundation, Inc. (the Foundation ) is a Texas notfor-profit foundation whose primary purpose is to encourage and foster community support for academic advancement of Judson ISD through scholarships, teacher grants and special projects and to perpetuate the academic advancement of all students of the Judson Independent School District located in Bexar County, Texas. Basis of Accounting The Foundation maintains its books on the cash basis of accounting for all transactions; however, for the audit and to be in accordance with U.S. generally accepted accounting principles, the financial statements were converted to the accrual basis of accounting. Consequently, revenue is recognized when earned and expenses are recognized when the obligation is incurred. Net assets, revenues, expenses, gains, and losses are classified based on the existence or absence of donorimposed restrictions. Accordingly, net assets of the Foundation and changes therein are classified and reported as follows: Unrestricted Net assets that are not subject to donor-imposed restrictions. Temporarily Restricted Net assets that are the result of contributions whose use is limited by donor-imposed stipulations that either expire by the passage of time, or can be fulfilled and removed by actions of the Foundation pursuant to those stipulations. Permanently Restricted Net assets subject to donor-imposed stipulations that neither expire by the passage of time nor can be fulfilled or otherwise removed by the Foundation. Generally, the donors of these assets permit the Foundation to use all or part of the income earned on related investments for general or specific purposes. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For the purpose of presentation in the financial statements of cash flows, cash and cash equivalents are defined as those amounts included in the statement of financial position captions cash and cash equivalents. The Foundation considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The NCUSIF insurance coverage is $250,000. The majority of cash and cash equivalents of the Foundation are maintained with major financial institutions in the United States. As such, interest bearing, non-transaction account deposits with these financial institutions may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and therefore, bear minimal risk. As of December 31, 2016, there was no credit risk exposure. The Foundation has not experienced any losses in such accounts. The Foundation believes it is not exposed to any significant risk on its cash and cash equivalents. 7

10 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Prepaid Expenses Prepaid expenses represent payments for insurance and deposits that will benefit future periods. Investments The Foundation s investments consist of marketable securities comprised of cash and cash alternatives, exchange traded funds, and mutual funds (See note 4). Investments that are listed or traded on a national securities exchange are valued at the last price on the last business day of the year or, if there was not a sale transacted that day, at the last bid price. The Foundation follows the accounting guidance which requires that investments with readily determinable fair values and all investments in debt securities be reported at fair value with gains and losses included in the statements of activities on a recurring basis. Realized and unrealized gains and losses on listed or traded investment securities are determined by comparing cost to sales proceeds and quoted market values. Interest and dividend income is recorded as earned. Assets Whose Use Is Limited Assets designated by the Board of Directors and assets limited as to use under terms of the donor are classified as assets whose use is limited (See note 2). Revenue Recognition and Deferred Revenue Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. Deferred revenue consists of cash collections on special events scheduled for the following fiscal year. All donor-restricted contributions are 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 statement of activities as net assets released from restrictions. Functional Expenses The costs of providing the various programs and activities have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Income Tax Status The Foundation is a not-for-profit organization exempt from federal income taxes pursuant to Section 50l(c)(3) of the Internal Revenue Code, except to the extent it has unrelated business income. As such, no provision for income taxes has been made in the financial statements. The most significant tax positions of the Foundation is its assertion that it is exempt from income taxes and its determination of whether any amounts are subject to unrelated business income tax ( UBIT ). All significant tax positions have been considered by management. It has been determined that it is more likely than not that all tax positions would be sustained upon examination by taxing authorities. The Foundation s tax years for 2013 through 2016 are open to examination by the Internal Revenue Service as of December 31, Advertising Advertising costs are expensed as incurred. Advertising costs for the years ended were $1,164 and $1,000, respectively. 8

11 2. RECLASSIFICATION The Foundation has restated its previously issued Statement of Activities and Change in Net Assets for the year ended December 31, 2015 to correct a classification in its presentation of expenses. The Foundation restated its reporting of investment expense by netting the amount against investment income. Formerly, the Foundation reported the entire amount under bank charges. The result of the restatement decreased bank charges under general and administrative expenses by $6,930, and decreased investment income under revenues and other support by the same amount. The restatement had no effect on total net assets or change in net assets. 3. ASSETS WHOSE USE IS LIMITED Cash and investments, whose use is limited at December 31, are summarized as follows: By the Board of Directors: Operations $ 864,355 $ 712,139 By Donor: JLA/GED Scholarships 17,615 16,465 William Paschell Endowment 14,229 14,229 Other Endowments 38,921 35,290 $ 935,817 $ 778,123 The cost and estimated fair market value of investments whose use is limited consisted of the following: Cost Market Value Cash and cash alternatives $ 35,184 $ 25,393 $ 35,184 $ 25,393 Exchange traded funds 310, , , ,447 Mutual funds 554, , , ,818 Total $ 900,168 $ 788,190 $ 917,505 $ 761,658 The Foundation s Board of Directors designated a portion of unrestricted funds to be invested. In 2008, the Board passed a resolution that the Foundation would attempt to invest 80% of their net income each year. The funds are held by TD Ameritrade ( Ameritrade ) and invested in marketable securities. Additionally, the Board Designated Endowment is recorded as unrestricted net assets. 9

12 4. RESTRICTED NET ASSETS Restricted net assets consisted of the following at December 31: Temporarily Restricted: GED Graduation $ 100 $ 100 JLA/GED Scholarship Fund 17,515 16,365 Endowments (other) 22,395 18,764 $ 40,010 $ 35,229 Permanently Restricted: William Paschell Endowment $ 14,229 $ 14,229 Endowments (other) 16,526 16,526 $ 30,755 $ 30, ENDOWMENTS Permanently restricted donations to the Endowment are to be held in perpetuity, and any earnings from this fund are to support the Foundation at management s discretion. The Foundation has interpreted the Texas Prudent Management of Institutional Funds Act ( TPMIFA ) as requiring the preservation of the original gift as of the gift date of the endowment fund (absent any donor stipulation to the contrary). In other words, the donated principal should not be invaded. Additionally, distribution of any profits will occur from only two areas, the distribution of profits from cash, interest or stock dividends or an increase in the realized value of investment. As a result of this interpretation, the Foundation will classify as permanently restricted net assets the original and subsequent gifts donated to the permanent endowment fund. Any accumulations (income from cash, interest or stock dividends, or unrealized/realized gains) will be recognized as temporarily restricted net assets. Moreover, any unrealized/realized losses in excess of the fair value of donor restrictions will be first netted against temporarily restricted net assets and then netted against unrestricted net assets. The Foundation in accordance with TPMIFA has considered the following factors in making decisions to appropriate or accumulate donor restricted endowment funds. Duration and preservation of the funds; Purpose of the Foundation and the Endowment funds; Economic conditions; The possible effect of inflation or deflation; The expected total return from income and the appreciation or market downturns; Other resources of the Foundation; and The investment policies of the Foundation. 10

13 6. ENDOWMENTS In 2016, the Foundation invested $100,000 in marketable securities held with Ameritrade. There was an unrealized gain of $43,869 and a realized gain of $6,393 on the sale of investments which is included in investment income. The Foundation also paid $11,004 in fund management fees which are netted against interest income, and received interest income of $16,589 which is included in investment income. In 2015, there was an unrealized loss of $26,533 and a realized gain of $23,986 on the sale of investments. The Foundation also paid $6,930 in fund management fees and received interest income of $10,736. There were no distributions of the invested funds made during 2016 or The following summarizes the activity in the Endowment Funds: Unrestricted Temporarily Permanently Designated Restricted Restricted Total Beginning balance at January 1, 2015 $ 710,962 $ 18,682 $ 30,755 $ 760,399 Unrealized gain (loss) (24,808) (1,725) - (26,533) Net investment income 25,985 1,807-27,792 Ending balance at December 31, 2015 $ 712,139 $ 18,764 $ 30,755 $ 761,658 Beginning balance at January 1, 2016 $ 712,139 $ 18,764 $ 30,755 $ 761,658 Contributions 100, ,000 Unrealized gain (loss) 41,017 2,852-43,869 Net investment income 11, ,978 Ending balance at December 31, 2016 $ 864,355 $ 22,395 $ 30,755 $ 917, SPECIAL EVENTS Revenue Expenses Profit (Loss) December 31, 2016 Jingle Bells Jamboree $ 2,610 $ 440 $ 2,170 Golf Tournament 51,998 11,926 40,072 Gala 42,279 16,296 25,983 Football Camp 11,210 2,496 8,714 Community Feast 9,400 3,283 6,117 Other 2, ,296 $ 119,638 $ 35,286 $ 84,352 11

14 7. SPECIAL EVENTS (continued) Revenue Expenses Profit (Loss) December 31, 2015 Jingle Bells Jamboree $ 2,460 $ - $ 2,460 Golf Tournament 47,778 11,996 35,782 Gala 40,483 14,459 26,024 Football Camp 16,887 13,664 3,223 Community Feast 4,550 9,599 (5,049) Other 1,342 1,607 (265) $ 113,500 $ 51,325 $ 62, FAIR VALUE DISCLOSURES The authoritative guidance on fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact. The authoritative guidance on fair value measurements requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). 12

15 8. FAIR VALUE DISCLOSURES (continued) Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, the guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: Level 1 Inputs Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 Inputs Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 Inputs Significant unobservable inputs that reflect an entity s own assumptions that market participants would use in pricing the assets or liabilities. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. While management believes the valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Financial Assets and Financial Liabilities Financial assets and financial liabilities measured at fair value on a recurring and nonrecurring basis include the following: Cash and Cash Alternatives Cash and cash alternatives are valued at the net asset value of shares held at year end. Exchange Traded Funds and Mutual Funds Valued at fair value utilizing Level 1 inputs. These securities are valued at the closing price reported in the active market in which the securities are traded. 13

16 8. FAIR VALUE DISCLOSURES (continued) The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value at December 31: Level 1 Inputs Cash and cash alternatives $ 35,184 $ 25,393 Exchange traded funds 320, ,447 Mutual funds 561, ,818 $ 917,505 $ 761, RELATED PARTY TRANSACTION The salary of the Executive Director for the Foundation is paid by Judson Independent School District which is included as an in-kind contribution. 10. LITIGATION The Foundation s management is unaware of any pending or threatened litigation. 11. SUBSEQUENT EVENTS The Foundation has evaluated the potential subsequent events through the date of the opinion of these financial statements, which is the date the financial statements were available for issuance, and concludes there were no events or transactions occurring during this period that required recognition or disclosure in the financial statements. Any event occurring after this date has not been factored into the financial statements being presented. 12. RECENTLY ISSUED AUTHORITATIVE GUIDANCE In 2016, the FASB issued authoritative guidance regarding the presentation of financial statements for non-profit entities. The accounting standards update changes presentation and disclosure requirements for not-for-profit entities to provide more relevant information about their resources and the changes in those resources to donors, grantors, creditors, and other users. 14

17 12. RECENTLY ISSUED AUTHORITATIVE GUIDANCE (continued) Under the new standard, non-for-profit entities will: (1) Present only two classes of net assets on the face of the statement of financial position, net assets with donor restrictions and net assets without donor restrictions. This will replace the current convention of reporting net assets as unrestricted, temporarily restricted, and permanently restricted. (2) Present the change in each of the two classes of net assets (noted in item 1) rather than that of the currently three required three classes. (3) No longer be required to present or disclose the indirect method if presenting the cash flow statement using the direct method (presentation of the indirect method alone is still permitted). (4) Provide enhanced disclosures about: a. amounts and purposes of governing board designations, appropriations, and similar actions that result in self-imposed limits on the use of resources without donorimposed restrictions as of the end of the period; b. the composition of net assets with donor restrictions at the end of the period and how the restrictions affect the use of resources; c. qualitative information that communicates how a non-for-profit entity manages its liquid resources available to meet cash needs for general expenditures within one year of the balance sheet date; d. quantitative information, either on the face of the balance sheet or in the notes, and additional qualitative information in the notes as necessary, that communicates the availability of a non-for-profit entity s financial assets at the balance sheet date to meet cash needs for general expenditures within one year of the balance sheet date. Availability of a financial asset may be affected by (1) its nature, (2) external limits imposed by donors, grantors, laws, and contracts with others, and (3) internal limits imposed by governing board decisions; e. amounts of expenses by both their natural classification and their functional classification either on the face of the statement of activities, as a separate statement, or in the notes to financial statements; f. method(s) used to allocate costs among program and support functions; and 15

18 12. RECENTLY ISSUED AUTHORITATIVE GUIDANCE (continued) g. underwater endowment funds, which include required disclosures of (1) a non-forprofit entity s policy, and any actions taken during the period concerning appropriation from underwater endowment funds, (2) the aggregate fair value of such funds, (3) the aggregate of the original gift amounts (or level required by donor or law) to be maintained, and (4) the aggregate amount by which funds are underwater (deficiencies), which are to be classified as part of net assets with donor restrictions. (5) Report investment return net of external and direct internal investment expenses and no longer require disclosure of those netted expenses. (6) Use, in the absence of explicit donor stipulations, the placed-in-service approach for reporting expirations of restrictions on gifts of cash or other assets to be used to acquire or construct a long-lived asset and reclassify any amounts from net assets with donor restrictions to net assets without donor restrictions for such long-lived assets that have been placed in service as of the beginning of the period of adoption (thus eliminating the current option to release the donor-imposed restriction over the estimated useful life of the acquired asset). This standard will be effective for annual financial statements issued for fiscal years beginning after December 15, The Foundation is evaluating the updated standard, but expects the adoption will have a significant impact on its financial statements with regards to providing enhanced disclosures about net assets with donor restrictions, expenses, and liquidity. In 2016, several other Accounting Standards were proposed and approved with effective dates ranging from fiscal year 2016 to fiscal year Except as noted above, the new authoritative guidance is not expected to have a significant impact to the Foundation s financial statements. 16