National Multiple Sclerosis Society Greater Delaware Valley Chapter. Financial Statements Years Ended September 30, 2016 and 2015

Transcription

1 National Multiple Sclerosis Society Greater Delaware Valley Chapter Financial Statements Years Ended

2 CONTENTS INDEPENDENT AUDITOR'S REPORT 1 FINANCIAL STATEMENTS Statements of Financial Position 2 Statements of Activities 3 Statements of Functional Expenses 5 Statements of Cash Flows 7 Notes to Financial Statements 8

3 INDEPENDENT AUDITOR'S REPORT Board of Trustees National Multiple Sclerosis Society Greater Delaware Valley Chapter Philadelphia, Pennsylvania We have audited the accompanying financial statements of National Multiple Sclerosis Society, Greater Delaware Valley Chapter (a nonprofit organization), which comprise the statements of financial position as of September 30, 2016 and 2015, and the related statements of activities, functional expenses and cash flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of National Multiple Sclerosis Society, Greater Delaware Valley Chapter as of, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Philadelphia, Pennsylvania December 29, 2016

4 STATEMENTS OF FINANCIAL POSITION ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,519,305 $ 2,054,644 Contributions and other receivables 517, ,631 Prepaid expenses and other 32, ,680 Due from other chapters - 9,835 Total current assets 2,069,991 2,426,790 NONCURRENT ASSETS Deposits 31,453 31,453 Investments 2,472,922 2,306,745 Property and equipment 92, ,675 Due from Home Office - charitable gift annuities 108,292 95,880 Beneficial interest in charitable remainder trust 361, ,000 Beneficial interest in perpetual trust 256, ,726 Total noncurrent assets 3,323,150 3,197,479 Total assets $ 5,393,141 $ 5,624,269 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Due to Home Office Other payables due to Home Office $ - $ 39,721 Due to other chapters 173,614 - Accounts payable and accrued expenses 698, ,976 Deferred revenue 47,655 56,333 Total current liabilities 919, ,030 NONCURRENT LIABILITIES Deferred rent 187, ,537 Total liabilities 1,107, ,567 NET ASSETS Unrestricted 3,092,187 3,756,832 Temporarily restricted 562, ,404 Permanently restricted 630, ,466 Total net assets 4,285,955 4,973,702 Total liabilities and net assets $ 5,393,141 $ 5,624,269 See accompanying notes -2-

5 STATEMENT OF ACTIVITIES Year ended September 30, 2016 with comparative totals for 2015 Temporarily Permanently Totals Unrestricted Restricted Restricted Public support Received directly Special events (includes inkind donations of $394,209 in 2016 and $525,446 in 2015) $ 10,226,629 $ - $ - $ 10,226,629 $ 9,819,148 Less benefit to donor costs (1,599,688) - - (1,599,688) (1,376,192) 8,626, ,626,941 8,442,956 Contributions (including inkind donations of $0 in 2016 and $78,721 in 2015) 1,109,721 99,646-1,209,367 1,353,333 Legacies 117,177 (31,500) 4,526 90, ,686 Total received directly and total public support 9,853,839 68,146 4,526 9,926,511 10,527,975 Other revenue Investment income (loss) 151,044 21, ,943 (155,270) Service program fees 11, ,675 1,865 Loss on disposal of property and equipment (8,893) Total other revenue 162,719 21, ,618 (162,298) Net assets released from restrictions 117,673 (117,673) Total revenue 10,134,231 (27,628) 4,526 10,111,129 10,365,677 Expenses Program services Research 2,881, ,881,370 4,144,728 Client programs 1,898, ,898,626 1,888,138 Community programs 1,113, ,113,845 1,284,533 Professional education and training 408, , ,734 Public education 1,219, ,219,997 1,846,217 Total program services 7,522, ,522,225 9,371,350 Supporting services Fundraising 2,328, ,328,079 1,919,877 Management and general 948, , ,060 Total supporting services 3,276, ,276,651 2,692,937 Total expenses 10,798, ,798,876 12,064,287 Change in net assets before realignment contribution (664,645) (27,628) 4,526 (687,747) (1,698,610) Realignment contribution ,691 CHANGE IN NET ASSETS (664,645) (27,628) 4,526 (687,747) (1,491,919) NET ASSETS Beginning of year 3,756, , ,466 4,973,702 6,465,621 End of year $ 3,092,187 $ 562,776 $ 630,992 $ 4,285,955 $ 4,973,702 See accompanying notes -3-

6 STATEMENT OF ACTIVITIES Year ended September 30, 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Public support Received directly Special events (includes inkind donations of $525,466) $ 9,819,148 $ - $ - $ 9,819,148 Less benefit to donor costs (1,376,192) - - (1,376,192) 8,442, ,442,956 Contributions (including inkind donations of $78,721) 1,351,127 2,206-1,353,333 Legacies 351, ,000 (30,254) 731,686 Total received directly and total public support 10,146, ,206 (30,254) 10,527,975 Other revenue Investment loss (155,270) - - (155,270) Service program fees 1, ,865 Loss on disposal of property and equipment (8,893) - - (8,893) Total other revenue (162,298) - - (162,298) Net assets released from restrictions 159,830 (159,830) - - Total revenue 10,143, ,376 (30,254) 10,365,677 Expenses Program services Research 4,144, ,144,728 Client programs 1,888, ,888,138 Community programs 1,284, ,284,533 Professional education and training 207, ,734 Public education 1,846, ,846,217 Total program services 9,371, ,371,350 Supporting services Fundraising 1,919, ,919,877 Management and general 773, ,060 Total supporting services 2,692, ,692,937 Total expenses 12,064, ,064,287 Change in net assets before realignment contribution (1,920,732) 252,376 (30,254) (1,698,610) Realignment contribution 55, , ,691 CHANGE IN NET ASSETS (1,864,791) 403,126 (30,254) (1,491,919) NET ASSETS Beginning of year 5,621, , ,720 6,465,621 End of year $ 3,756,832 $ 590,404 $ 626,466 $ 4,973,702 See accompanying notes -4-

7 STATEMENT OF FUNCTIONAL EXPENSES Year ended September 30, 2016 with comparative totals for 2015 Professional Client Community Education Research Programs Programs and Training Salaries $ - $ 466,704 $ 343,438 $ 140,841 Employee benefits - 48,390 35,609 14,603 Payroll taxes - 39,469 29,044 11,911 Total salaries and related expenses - 554, , ,355 Printing - 18,956 5,254 1,833 Postage and shipping - 5,476 1, Telephone - 2,646 1, Supplies - 5,565 2, Dues and memberships - 1, Professional and other contract service fees - 80,296 20,337 18,628 Donated public service announcements and advertising Travel - 24,818 18,168 3,643 Meetings - 62,969 1, Occupancy - 72,518 53,365 21,884 Furniture and equipment - 10,799 7,947 3,260 Insurance Funding of other organizations that support individuals with MS ,262 - Direct financial assistance - 482, Awards and prizes - 7, Miscellaneous expense - 6,974 3,815 1,565 Depreciation - 12,016 8,842 3,626 Restricted contributions to Society research initiatives (See Note 13) Total expenses before Chapter support of Society initiatives - 1,348, , ,027 Chapter support of Society initiatives (See Note 13) 2,881, , , ,360 Total expenses $ 2,881,370 $ 1,898,626 $ 1,113,845 $ 408,387 Less: Direct benefit to donor costs Total expenses as reported on the statement of activities Program Services See accompanying notes -5-

8 Supporting Services Total Total Program and Benefit Public Program Management Supporting to Donor Totals Education Services Fundraising and General Services Costs $ 174,038 $ 1,125,021 $ 882,638 $ 433,264 $ 2,440,923 $ - $ 2,440,923 $ 2,469,136 18, ,647 91,516 44, , , ,102 14,718 95,142 74,644 36, , , , ,801 1,336,810 1,048, ,828 2,900,436-2,900,436 2,990,975 36,626 62, ,837 5, , , ,737 4,981 12, ,902 3, , , , ,378 6,091 2,456 14,925-14,925 32,616 1,222 10,188 7,734 3,043 20,965 52,740 73, , ,483 1, ,387-5,387 15,541 10, , ,116 26, , , , , , , ,418 3,783 50,412 47,617 8, , , , , ,709 9,065 1,458 76,232 48, ,842 96,972 27, , ,699 67, , , , ,631 4,027 26,033 20,423 10,025 56,481-56,481 66, , , , , , , , , ,907-7, , , , ,742 1,933 14, ,081 4, , , , ,684 4,481 28,965 22,725 11,155 62,845-62,845 71, ,521, ,197 2,676,284 2,223, ,435 5,560,021 1,599,688 7,159,709 8,755, ,800 4,845, , ,137 5,238,855-5,238,855 4,684,980 $ 1,219,997 $ 7,522,225 $ 2,328,079 $ 948,572 $ 10,798,876 $ 1,599,688 12,398,564 13,440,479 (1,599,688) (1,376,192) $ 10,798,876 $ 12,064,287

9 STATEMENT OF FUNCTIONAL EXPENSES Year ended September 30, 2015 Professional Client Community Education Research Programs Programs and Training Salaries $ - $ 549,630 $ 498,519 $ 37,531 Employee benefits - 66,070 59,926 4,512 Payroll taxes - 49,581 44,971 3,386 Total salaries and related expenses - 665, ,416 45,429 Printing - 14,825 2, Postage and shipping - 6,002 4, Telephone - 6,820 6, Supplies - 7,438 7, Dues and memberships - 3,337 3, Professional and other contract service fees - 101,538 16,729 9,467 Donated public service announcements and advertising Travel - 24,278 25, Meetings - 45,097 6, Occupancy - 84,805 76,919 5,791 Furniture and equipment - 14,848 13,468 1,014 Insurance Funding of other organizations that support individuals with MS - 23, ,646 - Direct financial assistance - 415, Awards and prizes Miscellaneous expense - 13,591 12, Depreciation - 15,846 14,372 1,082 Restricted contributions to Society research initiatives (See Note 13) 1,521, Total expenses before Chapter support of Society initiatives 1,521,139 1,443,065 1,050,284 67,185 Chapter support of Society initiatives (See Note 13) 2,623, , , ,549 Total expenses $ 4,144,728 $ 1,888,138 $ 1,284,533 $ 207,734 Less: Direct benefit to donor costs Total expenses as reported on the statement of activities Program Services See accompanying notes -6-

10 Supporting Services Total Total Program and Benefit Public Program Management Supporting to Donor Education Services Fundraising and General Services Costs Total $ 533,333 $ 1,619,013 $ 542,222 $ 307,901 $ 2,469,136 $ - $ 2,469,136 64, ,619 67,471 37, , ,102 48, ,049 48,913 27, , , ,555 1,959, , ,688 2,990,975-2,990,975 51,988 69, ,638 1, , ,737 5,178 15,690 97,579 2, , ,959 6,503 19,859 9,003 3,754 32,616-32,616 7,174 22,351 8,524 4,847 35, , ,227 3,238 9,830 3,842 1,869 15,541-15,541 17, , ,381 65, , ,167 23,813 23, , , ,418 14,700 65,591 37,219 9, , , ,519 8,178 60,820 11,288 4,356 76,464 20,508 96,972 82, , ,206 47, , , ,631 14,408 43,738 14,648 8,318 66,704-66, ,356-11,356-11, , , , , , , , ,742 13,166 39, ,075 7, , , ,684 15,376 46,676 15,632 8,876 71,184-71,184-1,521, ,521,139-1,521, ,221 4,990,894 1,849, ,811 7,379,307 1,376,192 8,755, ,996 4,380,456 70, ,249 4,684,980-4,684,980 $ 1,846,217 $ 9,371,350 $ 1,919,877 $ 773,060 $ 12,064,287 $ 1,376,192 13,440,479 (1,376,192) $ 12,064,287

11 STATEMENTS OF CASH FLOWS Years ended CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ (687,747) $ (1,491,919) Adjustments to reconcile changes in net assets to net cash provided by (used for) operating activities Net realized and unrealized (gain) loss on investments (110,705) 242,592 Depreciation 62,845 71,184 Contribution of beneficial interest in charitable remainder trust - (393,000) Change in value of beneficial interest in charitable remainder trust 31,500 - Change in value of beneficial interest in perpetual trust (4,526) 30,254 Loss on disposal of property and equipment - 8,893 Realignment contribution - (206,691) (Increase) decrease in Contributions and other receivables (293,116) 405,923 Contributions receivable from Home Office - 79,941 Prepaid expenses and other 104,741 (114,394) Due from other chapters 9, Due from Home Office - charitable gift annuities (12,412) 15,853 Deposits - (5,052) Increase (decrease) in Other payables due to Home Office (39,721) (45,909) Due to other chapters 173,614 - Accounts payable and accrued expenses 311,430 (253,777) Deferred revenue (8,678) (252,589) Deferred rent 19,974 (4,468) Net cash used for operating activities (442,966) (1,912,839) CASH FLOWS FROM INVESTING ACTIVITIES Net sale (purchase) of investments (55,472) 1,543,346 Acquisition of property and equipment (36,901) (36,042) Proceeds from realignment with Delaware Chapter - 221,726 Net cash provided by (used for) investing activities (92,373) 1,729,030 Net decrease in cash (535,339) (183,809) CASH AND CASH EQUIVALENTS Beginning of year 2,054,644 2,238,453 End of year $ 1,519,305 $ 2,054,644 See accompanying notes -7-

12 NOTES TO FINANCIAL STATEMENTS (1) ORGANIZATION The National Multiple Sclerosis Society (the "Society") is a not-for-profit voluntary health and welfare agency that mobilizes people and resources to drive research for a cure and to address the challenges of everyone affected by MS through a 50-state network of chapters. The Greater Delaware Valley Chapter (the "Chapter") raises funds in its territory to fund cutting-edge research, drive change through advocacy, facilitate professional education, and provide programs and services that help people with MS and their families move their lives forward. Effective January 1, 2015, the Chapter entered into a realignment agreement with the Delaware Chapter of the National Multiple Sclerosis Society pursuant to which the Chapter and the Delaware Chapter combined their operations to form a single chapter (See Note 3). The combined chapter retained the name of the Greater Delaware Valley Chapter. In December 2014, the Board of Trustees approved a voluntary dissolution of the separate incorporation of the Chapter. In June 2015, the Chapter adopted a Plan of Complete Liquidation and Dissolution pursuant to which it has filed Articles of Dissolution with the Secretary of State of the Commonwealth of Pennsylvania. The Articles of Dissolution were approved by the Secretary of State of the Commonwealth of Pennsylvania in May The Chapter will continue to operate under the incorporation of the Society, and the dissolution will have no impact on how the Chapter serves the needs of the individuals affected by MS within its territory. In connection with the dissolution, effective April 30, 2015, the Chapter and Society executed an Assignment, Delegation and Assumption Agreement pursuant to which the Chapter has transferred all of its assets and liabilities to the Society. (2) SOCIETY REALIGNMENT As the Society continues to become unified, the organization is transitioning to a single Society entity, which will perform one audit and file a single IRS Form 990 under one federal employer s identification number (EIN) effective October 1, The transition will better align Society resources so that the organization can maximize its impact. For accounting purposes, the transition will be treated as an acquisition of 100% of the assets and liabilities of the Chapter by the Society. No consideration was given in exchange for the interests. The assets and liabilities of the Chapter were recorded at fair values as of October 1, 2016, which were estimated to approximate book value as recorded on the Chapter s books. Recognized amounts of identifiable assets and liabilities assumed by the Society totaled $4,285,955 on October 1, The excess fair value of assets received over liabilities assumed is reported as a contribution received in the acquisition of the Chapter on the statement of activities and changes in net assets of the realigned Society entity in fiscal (3) REALIGNMENT WITH DELAWARE CHAPTER Effective January 1, 2015, the Chapter combined with the Delaware Chapter of the National Multiple Sclerosis Society. The realignment was conducted in part to unify the organizations and to more effectively use resources. The transaction has been treated as an acquisition for accounting purposes. No consideration was exchanged in the combination. -8-

13 NOTES TO FINANCIAL STATEMENTS The assets and liabilities of the Delaware Chapter were recorded at fair market value as of the date of the realignment, which were estimated to approximate book value as recorded on the Delaware Chapter s records. Recognized amounts of identifiable assets and liabilities assumed on January 1, 2015 were as follows: Cash and cash equivalents $221,726 Contributions receivable 36,072 Prepaid expenses 7,280 Property and equipment 19,949 Accounts payable and accrued expenses (31,298) Due to Home Office (47,038) Excess of assets over liabilities received $206,691 The excess of assets over liabilities received is reported as a realignment contribution on the 2015 statement of activities. (4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The financial statements have been prepared on the accrual basis of accounting. Accordingly, revenues are recognized when earned and expenses are recognized when incurred. Financial Statement Presentation The Chapter reports information regarding its financial position and activities according to three classes of net assets as follows: Unrestricted net assets Net assets that are not subject to donor-imposed restrictions and, therefore, are fully available at the discretion of management and the Board of Trustees for the Chapter to utilize in any of its program or supporting services. Temporarily restricted net assets Net assets that are subject to donor-imposed restrictions that will be satisfied by actions of the Chapter and/or the passage of time. When a restriction is satisfied, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. Permanently restricted net assets Net assets that are subject to donor-imposed restrictions that such assets be maintained in perpetuity but permit the Chapter to expend all or a portion of the income derived from the donated assets. When both restricted and unrestricted resources are available for use, it is the Chapter s policy to use restricted resources first, then unrestricted resources as they are needed. Accounting Estimates In preparing financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"), management makes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. -9-

14 NOTES TO FINANCIAL STATEMENTS Fair Value Measurements of Assets and Liabilities GAAP 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 at the measurement date. GAAP establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Chapter. Unobservable inputs reflect the Chapter's assumptions about the inputs market participants would use in pricing the asset or liability based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows: Level 1 Valuations based on quoted prices in active markets for identical assets or liabilities that the Chapter has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these assets and liabilities does not require a significant degree of judgment. Level 2 Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 3 Valuations based on inputs that are unobservable, that is, inputs that reflect the Chapter's own assumptions. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Chapter believes its valuation methods 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 fair value measurement at the reporting date. Cash and Cash Equivalents The Chapter considers highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Investments Investments in equity and debt securities are reported at fair value with gains and losses included in the statements of activities. Donated securities are recorded as contributions at their fair value at date of receipt. Dividend and interest income is recorded as earned. Property and Equipment Property and equipment are recorded at cost. Donated property and equipment are recorded as contributions at fair value as of the date of receipt. Depreciation is computed on the straight-line basis over estimated useful lives of the assets. The Chapter capitalizes all property and equipment with a cost in excess of $1,000. Beneficial Interest in Charitable Remainder Trust The beneficial interest in charitable remainder trust is reported at the fair value of the related assets less the present value of the payments expected to be made to other beneficiaries. Beneficial Interest in Perpetual Trust The beneficial interest in perpetual trust is reported at fair market value and is equal to the Chapter's share of the assets in the trust. -10-

15 NOTES TO FINANCIAL STATEMENTS Special Event Revenue Special event revenue that is refundable is recognized during the period in which the related event is held. Special event revenue that is not refundable is recognized when received. Accordingly, refundable revenue received for special events that are held subsequent to year end is deferred. During 2016 and 2015, the Chapter received approximately 54% and 59% of its total revenue in connection with two special events. Contributions Contributions received are recorded as unrestricted, temporarily restricted or permanently restricted net assets depending on the absence or existence and nature of any donor restrictions. Donor-restricted contributions whose restrictions are satisfied in the same period are reported as unrestricted support. Unconditional contributions are recognized as revenue when the related promise to give is received. Conditional contributions are recognized as revenue when the conditions are satisfied. Contributions and other receivables consist primarily of public support for special events held before year end and are recorded at their net realizable value. The Chapter believes that the receivables are fully collectible and has not recorded an allowance for uncollectible amounts. Donated Services and Materials The Chapter recognizes revenue for donated services received when they require specialized skills which would need to be purchased if they were not donated. Donated services are recorded as both revenue and expenses in the accompanying statements of activities and functional expenses at their estimated value at the date of receipt. The Chapter also receives a significant amount of donated time from a substantial number of volunteers without compensation for its various program and supporting services. The financial statements do not reflect the value of these contributed services since they do not meet the criteria for recognition. The Chapter receives donated materials, consisting primarily of food and beverages, in connection with its special events. The donated materials are recorded as both public support and expenses in the accompanying statements of activities and functional expenses at their estimated value on the date of receipt. The Chapter received donated services and materials of $394,209 in 2016 and $604,167 in Advertising Costs Advertising costs are expensed as incurred. Advertising expense was $303,909 for 2016 and $365,506 for 2015, including $142,266 and $227,418, respectively, in donated advertising and public service announcements. Functional Allocation of Expenses The costs of providing the program and supporting services have been presented on a functional basis in the statements of activities and functional expenses. Accordingly, certain costs have been allocated among the program and supporting services benefited. -11-

16 NOTES TO FINANCIAL STATEMENTS Income Tax Status Guidance in the area of "Accounting for Uncertainty in Income Taxes" under the Financial Accounting Standards Board (the "FASB") Accounting Standards Codification, clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return, including issues relating to financial statement recognition and measurement. This standard provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is "more likely-than-not" to be sustained, if the position were to be challenged by a taxing authority. The standard also provides guidance on measurement, classification, interest and penalties, and disclosure. The fiscal years ended 2013, 2014, 2015 and 2016 remain open to audit for both federal and state purposes. The Chapter has processes presently in place to ensure the maintenance of its tax-exempt status; to identify and report unrelated income; to determine its filing and tax obligations in jurisdictions for which it has nexus; and to identify and evaluate other matters that may be considered tax positions. Concentrations of Credit Risk Financial instruments which potentially subject the Chapter to concentration of credit risk are cash and contributions and other receivables. The Chapter maintains its cash in accounts at various banks and financial institutions. At times, these accounts may exceed federally-insured limits. The Chapter has not experienced any losses in its cash accounts and the Chapter believes that it is not exposed to significant credit risk. Contributions and other receivables at September 30, 2016 are expected to be collected in (5) INVESTMENTS Investments at consisted of the following: Interest in Society s pooled investment fund $ 2,062,719 $ 1,925,936 Interest in Society s pooled endowment investment fund 410, ,809 $ 2,472,922 $ 2,306,745 Investment income (loss) for the years ended consisted of the following: Interest and dividends $ 62,238 $ 87,322 Net realized and unrealized gain (loss) 110,705 (242,592) $172,943 $ (155,270) As required by the implementation of the Society s Reserves Policy, the Chapter transferred $3,991,535 into the Society s pooled investment funds during The Chapter holds a share of the overall portfolio of the Society s pooled investment funds rather than in the individual financial instruments and therefore has the same composition of investments as that of the Society s total pooled investment fund. The Chapter s share of the Society s pooled investment fund totaled $2,472,922 and $2,306,745, which represents 4.09% and 2.94%, respectively of the Society s total pooled investment fund and 5.08% and 4.99% of the Society s total endowment investment portfolio as of September 30, 2016 and At, the Society s pooled investment portfolio was classified within the fair value hierarchy as Level 1. While principally all of the underlying funds investments are readily marketable, based on quoted fair market values, since the Chapter s share of the Society s pooled investment fund cannot be priced on an active exchange, the interests in the trust are classified as Level

17 NOTES TO FINANCIAL STATEMENTS (6) PROPERTY AND EQUIPMENT Property and equipment at consisted of the following: Leasehold improvements $ 36,819 $ 32,339 Furniture and equipment 398, , , ,101 Less accumulated depreciation (342,271) (279,426) $ 92,731 $ 118,675 (7) BENEFICIAL INTEREST IN CHARITABLE REMAINDER TRUST The Chapter has been named as a remaining beneficiary of an irrevocable charitable remainder trust administered by a financial institution. The agreement provides for the lead beneficiary to receive annual distributions until her death, and that upon her death, the Chapter is to receive a portion of the remainder. The amounts of the remainder and payments to be made to the lead beneficiary are estimated and have been reduced to present value. (8) BENEFICIAL INTEREST IN PERPETUAL TRUST The Chapter is the income beneficiary of a perpetual trust which is held by a financial institution. Because the Chapter will receive a perpetual stream of income from the trust, an estimate of the present value of estimated future cash flows has been recorded as an asset on the statements of financial position using Level 3 valuation inputs. The Chapter s beneficial interest is classified as a permanently restricted net asset in the accompanying statements of financial position. (9) RETIREMENT PLAN Effective January 1, 2016, the Chapter participates in the Society s Defined Contribution Retirement Plan, which covers substantially all of the Chapter s employees, based on defined eligibility for covered employees. Temporary employees and independent contractors are not eligible. Upon the first day of employment, covered employees receive a 100% matching employer contribution for the first 3% of eligible compensation contributed and then 50% on the next 2% of eligible compensation contributed for a maximum of a 4% employer contribution. All employer contributions are 100% vested for participants who complete at least one hour of service on or after January 1, All employees who have terminated employment prior to January 1, 2016 are subject to a 5-year vesting schedule. Retirement expenses related to the plan are incurred by the Society rather than the Chapter. Prior to January 1, 2016, the Chapter participated in the Society s noncontributory Defined Contribution Retirement Plan, which covered substantially all of the Chapter s employees, based on defined eligibility for covered employees. Temporary employees and independent contractors were not eligible. Employees became eligible on the first day of the first month after beginning employment and all covered employees received an annual contribution (after September 30) if they worked 1000 hours during the fiscal year and were employed on the last day of the fiscal year. The contribution rate for three months ended December 31, 2015 and fiscal 2015, as determined by the Society s President and CEO was 3% of gross annual salary. Chapter contributions to employees were vested over five years. In accordance with the Plan s provisions, contributions required in any given year were first offset by forfeitures of unvested Chapter contributions for terminated participants. -13-

18 NOTES TO FINANCIAL STATEMENTS Retirement expense, which is included in employee health and retirement benefits in the accompanying statements of functional expenses, was $83,964 for Retirement expense for 2016 was incurred by the Society rather than the Chapter. (10) LEASES The Chapter leases its office facility in Philadelphia, Pennsylvania under a non-cancelable lease agreement that expires December The provisions of the lease (a) allow the Chapter to extend the term of the lease for one additional five-year term, (b) require the Chapter to pay for its share of operating expenses in addition to the base rent, and (c) include scheduled rent increases which are being recognized on a straight line basis over the lease term. As a result, the rent expense exceeded the amount paid by $156,914 at September 30, 2016 and $167,537 at September 30, 2015 and this excess is reported as "deferred rent" in the accompanying statements of financial position. The Chapter leased an office facility in Wilmington, Delaware pursuant to a non-cancelable operating lease that expired on January 31, The Chapter moved its Delaware office from Wilmington, Delaware to Newark, Delaware. As a result, on September 30, 2015 the Chapter entered into a non-cancelable lease agreement for an office facility in Newark, Delaware. This lease commenced on February 1, 2016 and expires on July 31, The provisions of the lease include scheduled rent increase which are being recognized on a straight line basis over the lease term. As a result the rent expense exceeded the amount paid by $30,597 at September 30, 2016 and this excess is reported as "deferred rent" the accompanying statements of financial position. The Chapter also leases warehouse space in Philadelphia, Pennsylvania under a non-cancelable lease that expires August Rent expense for the office and warehouse facilities, inclusive of operating expenses, was $420,831 for 2016 and $407,314 for The Chapter also entered into two lease agreements for office equipment, one of which expired April 2016 and one of which expires in September Rent expense for this equipment was $12,636 for 2016 and $45,636 for The minimum annual lease commitments under all non-cancelable leases with initial or remaining terms in excess of one year are as follows: Year ending September 30, 2017 $ 400, , , , ,631 Thereafter 430,710 $ 2,539,

19 NOTES TO FINANCIAL STATEMENTS (11) TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets at are available for the following purposes: 2016 Balance Additions Balance September 30, 2015 (Reductions) Released September 30, 2016 Purpose Restrictions Homeable Program $ 25,000 $ 25,000 $ (25,000) $ 25,000 Scholarships 38,012 36,972 (54,161) 20,823 Research - 7,332-7,332 Other 3,453 - (3,453) - Time Restrictions Contributions receivable 35,059 17,930 (35,059) 17,930 Charitable gift annuities held by Home Office 95,880 12, ,292 Beneficial interest in charitable remainder trust 393,000 (31,500) - 361,500 Endowment appreciation - 21,899-21,899 $590,404 $ 90,045 $(117,673) $562, Balance Additions Balance September 30, 2014 (Reductions) Released September 30, 2015 Purpose Restrictions Wellness Program $ 23,375 $ - $ (23,375) $ - Homeable Program 5,000 84,472 (64,472) 25,000 Scholarships - 58,012 (20,000) 38,012 Other - 8,266 (4,813) 3,453 Time Restrictions Contributions receivable 20,405 35,059 (20,405) 35,059 Charitable gift annuities held by Home Office 111,733 (15,853) - 95,880 Beneficial interest in charitable remainder trust - 393, ,000 Endowment appreciation 26,765 - (26,765) - $187,278 $562,956 $(159,830) $590,404 (12) PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets at consisted of the following: Endowment $ 374,740 $ 374,740 Beneficial interest in perpetual trust 256, ,726 $ 630,992 $ 626,

20 NOTES TO FINANCIAL STATEMENTS The investment income from the endowment can be used by the Chapter for its general purposes. The investment income from the beneficial interest in perpetual trust is restricted for research. The Chapter has adopted investment and spending policies for its endowment assets that attempt to provide a predictable stream of funding while seeking to maintain the purchasing power of these endowment assets over the longterm. The investment policy establishes an achievable return objective through diversification of asset classes within prudent risk parameters. As permitted by Pennsylvania statutes, the Chapter has adopted Pennsylvania Act 141 relative to its endowment pursuant to which investment income is defined as a percentage of the three-year average of the fair value of the endowment. According to state law, the percentage must be between 2% and 7%. The changes in the endowment net assets for the years ended were as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, September 30, 2014 $ - $ 26,765 $374,740 $ 401,505 Withdrawals - (26,765) - (26,765) Investment income - 6,069-6,069 Spending policy distribution 7,145 (7,145) - - Excess of spending policy distribution over investment income (1,076) 1, Endowment net assets, September 30, , , ,809 Investment income - 29,394-29,394 Spending policy distribution 7,495 (7,495) - - Endowment net assets, September 30, 2016 $13,564 $ 21,899 $374,740 $ 410,203 (13) TRANSACTIONS WITH NATIONAL MULTIPLE SCLEROSIS SOCIETY The National Programs Expense ("NPE") is an allocation from the Society to chapters that funds a large portion of the Society s budget in areas such as nationwide programs, services, centralized functions and the Society s research investments as well as investments in the Society s unified plan. The Society s budget is determined through an inclusive budget planning process. The Budget Development Advisory Committee provides consensus advice to the CEO and is comprised of members of the Senior Leadership Team, members of the National Board of Directors and regional volunteer liaisons responsible for communicating with volunteer leadership in each region. Revenue tiers with progressively higher percentages are used to determine the NPE allocation amounts. The remittance percentage is subject to adjustment each year to ensure that the Society meets its programmatic goals and that all donor restrictions are honored. In 2016 and 2015, the Chapter s NPE was calculated to be $5,238,855 and $4,684,980, respectively. These amounts are reflected as Chapter Support of Society Initiatives in the accompanying statements of functional expenses. NPE will no longer be calculated after September 30, In addition to the allocated amount of National Programs Expense for 2015, the Chapter made a strategic decision to make an additional investment in the Society s research initiatives in the amount of $1,521,139. This amount is reflected in the research expense total in the accompanying 2015 statement of activities. The Chapter participates in the Home Office's gift annuity program. The Chapter is the beneficiary in a number of split-interest agreements with donors, whereby the Society controls and invests the donated assets and shares with the donor or the donor's designee income generated from these assets until such time as stated in the agreement (usually upon the death of the donor or the donor's designee). The amounts due to the Chapter from the Society were $108,292 at September 30, 2016 and $95,880 at September 30,

21 NOTES TO FINANCIAL STATEMENTS (14) ASSETS MEASURED AT FAIR VALUE The following table presents information about the Chapter's assets that are measured at fair value and the valuation inputs used to value them: 2016 Quoted Prices in Significant Other Significant Active Markets Observable Inputs Unobservable Total (Level 1) (Level 2) Inputs (Level 3) Investments Interest in Society s pooled investment fund $ 2,062,719 $ - $ - $ 2,062,719 Interest in Society s pooled endowment investment fund 410, ,203 2,472, ,472,922 Contributions receivable 517, ,747 - Charitable gift annuities held by Society 108, ,292 - Beneficial interest in charitable remainder trust 361, ,500 Beneficial interest in perpetual trust 256, , $ 3,716,713 $ - $ 626,039 $ 3,090,674 Quoted Prices in Significant Other Significant Active Markets Observable Inputs Unobservable Total (Level 1) (Level 2) Inputs (Level 3) Investments Interest in Society s pooled investment fund $ 1,925,936 $ - $ - $ 1,925,936 Interest in Society s pooled endowment investment fund 380, ,809 2,306, ,306,745 Contributions receivable 224, ,631 - Charitable gift annuities held by Society 95,880-95,880 - Beneficial interest in charitable remainder trust 393, ,000 Beneficial interest in perpetual trust 251, ,726 $ 3,271,982 $ - $ 320,511 $ 2,951,

22 NOTES TO FINANCIAL STATEMENTS The following table sets forth a summary of changes in the fair value of the Chapter s Level 3 assets for the years ended : Balance at beginning of year $ 2,951,471 $ 281,980 Contributions - 393,000 Transfer - 3,991,535 Withdrawals - (1,521,139) Investment income (loss) 166,177 (163,651) Change in value (26,974) (30,254) Balance at end of year $ 3,090,674 $ 2,951,471 (15) SUBSEQUENT EVENTS Management has evaluated subsequent events through December 29, 2016, the date on which the financial statements were available to be issued. Except as disclosed in Note 2 as it relates to the realignment of the Chapter and the Society and Note 13 related to the discontinuance of the NPE, no material subsequent events have occurred since September 30, 2016 that require recognition or disclosure in the financial statements. -18-