Independent Auditor s Report and Financial Statements
Contents Independent Auditor s Report... 1 Financial Statements Statements of Financial Position... 3 Statement of Activities Year Ended September 30, 2016... 4 Statement of Activities Year Ended September 30, 2015... 5 Statements of Cash Flows... 6... 7 Other Information Statement of Functional Expenses Year Ended September 30, 2016... 25 Statement of Functional Expenses Year Ended September 30, 2015... 26
Independent Auditor s Report Board of Directors NewView Oklahoma, Inc. Oklahoma City, Oklahoma We have audited the accompanying financial statements of NewView Oklahoma, Inc. (the Organization), which comprise the statements of financial position as of, and the related statements of activities 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.
Board of Directors NewView Oklahoma, Inc. Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Organization 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. Other Matter Our audit was conducted for the purpose of forming an opinion on the basic financial statements as a whole. The statements of functional expenses listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. Oklahoma City, Oklahoma February 15, 2017
Statements of Financial Position Assets 2016 2015 Cash and cash equivalents $ 1,757,703 $ 1,893,097 Investments 3,500,647 207,140 Accounts receivable, net 2,290,461 1,731,296 Contributions receivable, net 153,266 152,935 Grants receivable 516,679 117,500 Inventory, net 1,039,649 707,177 Prepaid expenses 83,332 21,697 Property and equipment, net 2,659,180 983,377 Beneficial interest in assets held by others 1,675,363 2,203,267 Total assets $ 13,676,280 $ 8,017,486 Liabilities and Net Assets Liabilities Accounts payable $ 1,672,117 $ 1,614,656 Accrued expenses 520,607 451,402 Capital lease obligations 5,421 9,465 Notes payable 1,482,059 30,314 Total liabilities 3,680,204 2,105,837 Net Assets Unrestricted Undesignated 6,666,129 2,472,269 Designated for Board-designated for operating reserve 750,000 750,000 Board-designated for endowment 206,992 178,130 Total unrestricted net assets 7,623,121 3,400,399 Temporarily restricted 756,072 978,443 Permanently restricted 1,616,883 1,532,807 Total net assets 9,996,076 5,911,649 Total liabilities and net assets $ 13,676,280 $ 8,017,486 See 3
Statement of Activities Year Ended September 30, 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Program Revenue $ 29,884,833 $ - $ - $ 29,884,833 Direct Operating Expenses Program costs for manufacturing and service contracts 25,618,254 - - 25,618,254 Program costs, other 2,075,617 - - 2,075,617 Management and general 1,517,801 - - 1,517,801 Total direct operating expense 29,211,672 - - 29,211,672 Changes in net assets from operating activities 673,161 - - 673,161 Contributions, Income and Other Nonoperating Income (Expense) Contributions 220,801 878,383-1,099,184 Contributions to beneficial interest in assets held by others (34,221) 25,000 9,221 - Distribution of beneficial interest in assets held by others 3,184,290 (3,149,090) (35,200) - Other income 233,740 - - 233,740 Realized and unrealized gain on investments 11,204 - - 11,204 Loss on sale of asset (66,883) - - (66,883) Impairment loss (75,088) - - (75,088) Change in value of beneficial interest in assets held by others - 2,511,674 110,055 2,621,729 Fundraising expenses (412,620) - - (412,620) Net assets released from restrictions 488,338 (488,338) - - Total contributions, income and other nonoperating income (expense) 3,549,561 (222,371) 84,076 3,411,266 Change in Net Assets 4,222,722 (222,371) 84,076 4,084,427 Net Assets, Beginning of Year 3,400,399 978,443 1,532,807 5,911,649 Net Assets, End of Year $ 7,623,121 $ 756,072 $ 1,616,883 $ 9,996,076 See 4
Statement of Activities Year Ended September 30, 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Program Revenue $ 19,952,184 $ - $ - $ 19,952,184 Direct Operating Expenses Program costs for manufacturing and service contracts 17,774,242 - - 17,774,242 Program costs, other 1,653,421 - - 1,653,421 Management and general 1,176,985 - - 1,176,985 Total direct operating expense 20,604,648 - - 20,604,648 Changes in net assets from operating activities (652,464) - - (652,464) Contributions, Income and Other Nonoperating Income (Expense) Contributions 195,274 668,850-864,124 Distribution of beneficial interest in assets held by others 624,930 (590,482) (34,448) - Other income 75,372 - - 75,372 Realized and unrealized loss on investments (10,114) - - (10,114) Loss on sale of asset (24,466) - - (24,466) Change in value of beneficial interest in assets held by others - 69,813 12,926 82,739 Fundraising expenses (321,221) - - (321,221) Net assets released from restrictions 497,233 (497,233) - - Total contributions, income and other nonoperating income (expense) 1,037,008 (349,052) (21,522) 666,434 Change in Net Assets 384,544 (349,052) (21,522) 13,970 Net Assets, Beginning of Year 3,015,855 1,327,495 1,554,329 5,897,679 Net Assets, End of Year $ 3,400,399 $ 978,443 $ 1,532,807 $ 5,911,649 See 5
Statements of Cash Flows Years Ended 2016 2015 Operating Activities Change in net assets $ 4,084,427 $ 13,970 Items not providing (requiring) operating activities cash flows Depreciation 222,898 223,259 Change in value of beneficial interest in assets held by others (2,621,729) (82,457) Realized and unrealized (gain) loss on investments (11,204) 10,114 Provision for uncollectible receivables 79,790 19,077 Loss on disposal of property and equipment 66,883 24,466 Impairment loss 75,088 - Changes in Accounts receivable (638,955) (646,965) Contribution and grants receivable (399,510) (118,603) Inventory (332,472) (78,602) Prepaid expenses (61,635) 6,499 Accounts payable 57,461 242,775 Accrued payroll and related benefits 69,205 (29,127) Net cash provided by (used in) operating activities 590,247 (415,594) Investing Activities Purchases of investments (770,065) (212,016) Proceeds from distribution of beneficial interest 672,052 624,930 Purchase of beneficial interest in assets held by others (34,657) (8,739) Proceeds from sale of property and equipment - - Purchases of assets restricted to investment in capital campaign (315,013) - Purchase of property and equipment (255,659) (239,687) Net cash provided by (used in) investing activities (703,342) 164,488 Financing Activities Proceeds from debt - - Payments on debt and capital lease obligations (22,299) (21,881) Net cash provided by (used in) financing activities (22,299) (21,881) Decrease in Cash and Cash Equivalents (135,394) (272,987) Cash and Cash Equivalents, Beginning of Year 1,893,097 2,166,084 Cash and Cash Equivalents, End of Year $ 1,757,703 $ 1,893,097 Supplemental Cash Flow Information Interest paid $ 42,209 $ 6,323 Distribution of land and mineral interests from beneficial interests in assets held by others $ 2,512,238 $ - Property and equipment restricted for investment in capital campaign acquired through long-term debt $ 1,470,000 $ - See 6
Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations NewView Oklahoma, Inc. (the Organization) (formerly Oklahoma League for the Blind) is a notfor-profit organization whose goal is to employ and rehabilitate blind and visually handicapped individuals. The Organization extends unsecured credit to its customers, with credit extended to three customers equaling approximately 74% and 70% of accounts receivable at September 30, 2016 and 2015, respectively. The Organization s revenues and other support are derived principally from service contracts and manufacturing of aircraft wheel chocks, fire hoses and other workshop items, as well as the assembly of component packages for sale to governmental and commercial enterprises. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, gains, losses and other changes in net assets during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Organization considers all liquid investments with original maturities of three months or less to be cash equivalents. At, cash equivalents consisted of a money market account with a financial institution. At September 30, 2016, the Organization s cash accounts exceeded federally insured limits by approximately $1,425,000. Investments and Investment Return Investments in equity securities having a readily determinable fair value and in all debt securities are carried at fair value. Investments in certain mineral rights and real estate are carried at fair value. Other investments are values at the lower of cost (or fair value at time of donation, if acquired by contribution). Investment return includes dividends, interest and other investment income; realized and unrealized gains and losses on investments carried at fair value; and realized gains and losses on other investments. Investment return that is initially restricted by donor stipulation and for which the restriction will be satisfied in the same year is included in unrestricted net assets. Other investment return is reflected in the accompanying statements of activities as unrestricted, temporarily restricted or permanently restricted based upon the existence and nature of any donor or legally imposed restrictions. 7
Accounts Receivable Accounts receivable consist of amounts due from customers for products purchased from or services provided by the Organization. The Organization provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Delinquent receivables are written off based on individual credit evaluation and specific circumstances. The Organization s allowance for uncollectible accounts receivable was approximately $32,600 and $9,800 at September 30, 2016 and 2015, respectively. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful life of each asset. Assets under leasehold improvements are depreciated over the shorter of the lease term or their respective estimated useful lives. The estimated useful lives for each major depreciable classification of property and equipment are as follows: Building Leasehold improvements Machinery and equipment Furniture and fixtures Office equipment and computers 30 39 years 3 5 years 3 10 years 3 7 years 1 5 years Long-Lived Asset Impairment The Organization evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds it fair value. An impairment loss of approximately $75,000 was recognized for the roof at the Organization s headquarters for the year ended September 30, 2016, based on the age of the roof and the damage caused by hail storms in previous years. The loss is included in impairment loss in the accompanying statements of activities. The Organization determined certain improvements to the roof had no fair value. Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are those whose use by the Organization have been limited by donors to a specific time period or purpose. Permanently restricted net assets have been restricted by donors to be maintained by the Organization in perpetuity. 8
Contributions Gifts of cash and other assets received without donor stipulations are reported as unrestricted revenue and net assets. Gifts received with a donor stipulation that limits their use are reported as temporarily or permanently restricted revenue and net assets. When a donor-stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the accompanying statements of activities as net assets released from restrictions. Gifts that are originally restricted by the donor and for which the restriction is met in the same time period are recorded as temporarily restricted and then released from restriction. Donations of property and equipment are recorded as support at their estimated fair value at the date of donation. Assets donated with explicit restrictions regarding their use and contributions of cash that must be used to acquire property and equipment are reported as restricted support. It is the Organization s policy to imply a time restriction, based on the assets estimated useful lives, on donations of property and equipment that are not restricted as their use by the donor. Accordingly, those donations are recorded as support increasing temporarily restricted net assets. Absent explicit donor stipulations for the time long-lived assets must be held, expirations of restrictions resulting in reclassification of temporarily restricted net assets as unrestricted net assets are reported when the long-lived assets are placed in service. An allowance is made for uncollectible contributions based upon management s judgment and analysis of the creditworthiness of the donors, past collection experience, the general economic environment and other relevant factors. The Organization s allowance for uncollectible contributions receivable was approximately $28,100 and $24,500 at, respectively. Grants Grants, including unconditional grants (grants receivable), are recognized in the period when the grant becomes unconditional. Grants which are conditioned upon the Organization incurring certain qualifying expenses (or costs) are recognized to the extent the expenses are incurred. Determination as to whether a transaction is a grant award or an exchange transaction requires the Organization to exercise judgment concerning whether a reciprocal transaction has occurred. The Organization evaluates transactions from both the Organization s and the resource provider s point of view, and the determination can be affected by a wide variety of factors, including the Organization s intent on soliciting the funds, the resource provider s expressed intent in providing the funds, the method of delivering the services, the method of determining the amount of payment and other factors as deemed relevant by the Organization. Exchange Transactions The Organization accounts for exchange transactions as reimbursement arrangements in which revenue is recognized as services are performed and costs are incurred according to the terms of the underlying agreement. Revenue earned but not collected is included in grants receivable in the accompanying statements of financial position. 9
Inventory Pricing Inventories consist of raw materials and finished goods. Inventories are stated at the lower of weighted-average cost or market. Costs are determined using the first-in, first-out (FIFO) method. Income Taxes The Organization is exempt from income taxes under Section 501 of the Internal Revenue Code (IRC) and a similar provision of state law. However, the Organization is subject to federal income tax on any unrelated business taxable income. The Organization files tax returns in the U.S. federal jurisdiction. Revenue Recognition Revenue from the sale of the Organization s production of hoses is recognized when delivered to the customer. Revenue from all other products are recognized when the products are shipped to the customer. Revenue from switchboard and mail room operations are recognized as the services are performed. Functional Allocation of Expenses The costs of supporting the various programs and other activities have been summarized on a functional basis in the accompanying statements of activities. Certain costs have been allocated among the program, management and general and fundraising categories based on time expended and other methods. Shipping and Handling Costs Shipping and handling costs of approximately $102,000 and $77,000 for 2016 and 2015, respectively, are included in program costs. Taxes Collected from Customers and Remitted to Governmental Authorities Taxes collected from customers and remitted to governmental authorities are presented in the accompanying statement of activities on a net basis. Reclassifications Certain reclassifications have been made to the 2015 financial statements to conform to the 2016 financial statement presentation. These reclassifications had no effect on the change in net assets. 10
Note 2: Investments and Investment Return Investments consisted of the following at September 30: 2016 2015 Mutual funds Fixed income $ 90,757 $ 62,849 Equity 105,566 102,110 Money market 39,532 42,181 CDARS 752,554 - Real property 282,000 - Mineral interests 2,230,238 - Total investments $ 3,500,647 $ 207,140 The Organization s temporarily and permanently restricted net assets include various endowment funds established by the Board at September 30: 2016 2015 Unrestricted investments $ 3,293,655 $ 29,010 Board-restricted investments 206,992 178,130 Total investments $ 3,500,647 $ 207,140 Total investment return is comprised of the following for the years ended September 30: 2016 2015 Realized and unrealized gains (losses) $ 11,204 $ (10,114) Total realized and unrealized gains (losses) 11,204 (10,114) Interest and dividends 6,635 727 Less investment fees (1,570) (419) Total interest and dividend income 5,065 308 Net investment gain (loss) $ 16,269 $ (9,806) 11
Note 3: Contributions Receivable Contributions receivable were all temporarily restricted. At, approximately $77,700 and $58,100, respectively, of the contributions receivable were due within one year. Note 4: Beneficial Interests in Assets Held by Others Oklahoma City Community Foundation (OCCF) The Organization has transferred assets to OCCF and retained a beneficial interest in those assets. The Organization receives annual distributions from these assets according to OCCF s spending policy, which currently states that 5% of the average market value over the previous 12 quarters will be distributed each year. The Organization has granted variance power to OCCF. The Organization s agreement with OCCF states that funds received by OCCF are subject to variance power, described by the U.S. Treasury regulations as the power of OCCF s governing board to modify any donor restrictions related to distributions if they determine them to become unnecessary, incapable of fulfillment or inconsistent with the charitable needs of the community. The fair value of the retained beneficial interest in OCCF was determined using the fair value of the assets in the OCCF trust as included in the accompanying statements of financial position and was approximately $157,900 and $142,600 at, respectively. Tulsa Community Foundation (TCF) The Organization has transferred assets to TCF and retained a beneficial interest in those assets. Annually, distributions from the funds are paid to the Organization according to TCF s spending policy. TCF maintains variance power over these funds, which totaled approximately $15,700 and $14,400 at, respectively. Communities Foundation of Oklahoma (CFOO) The Organization transferred $25,000 to CFOO in 2016. Annually, distributions from the funds are paid to the Organization according to CFOO s spending policy. CFOO maintains variance power over these funds, which totaled approximately $25,400 at September 30, 2016. Other Interests The Organization was the beneficiary of a split-interest agreement from which it received distributions from a certain irrevocable trust (the Brown Trust). Under this agreement, the Organization received 33% of the Brown Trust s annual income each year until June 1, 2016, at which time the Organization received 33% of the Brown Trust s assets. The fair value of the retained beneficial interest in this trust included in the accompanying statements of financial position was $644,300 at September 30, 2015. Upon dissolution during 2016, the Organization received a distribution of approximately $3,141,000. 12
The Organization is also a beneficiary of a certain irrevocable trust (the Mullen Trust) from which it receives annual distributions. Under the irrevocable trust agreement, the Organization receives approximately 10% of the Mullen Trust s annual income. The fair value of the retained beneficial interest in this trust was determined using the fair value of the assets in the Mullen trust as included in the accompanying statements of financial position and was approximately $1,476,000 and $1,402,000 at, respectively. Note 5: Property and Equipment Property and equipment at September 30 consists of: 2016 2015 Land $ 100,500 $ 100,500 Construction in process 95,331 238,463 Buildings 2,936,679 1,151,666 Building improvements 999,709 1,006,033 Leasehold improvements 154,357 154,357 Machinery and equipment 647,062 533,060 Office furniture and equipment 353,497 311,152 5,287,135 3,495,231 Less accumulated depreciation (2,627,955) (2,511,854) Property and equipment, net $ 2,659,180 $ 983,377 Note 6: Lines of Credit The Organization has a $1,000,000 revolving bank line of credit expiring in March 2017. At, there were no funds borrowed against this line. The line is collateralized by the Organization s equipment, inventory, receivables and real estate. Interest varies with the London Interbank Rate (LIBOR) plus 2.50%, which was 4.05% and 3.34% on, respectively, and is payable quarterly. On October 31, 2016, the Organization obtained an additional $1,000,000 revolving line of credit with another financial institution which expires in October 2017. 13
Note 7: Notes Payable 2016 2015 Note payable (A) $ 7,626 $ 19,335 Note payable (B) 4,433 10,979 Note payable (C) 1,470,000 - $ 1,482,059 $ 30,314 (A) Consists of a note with National Industries for the Blind, payable at $1,083 monthly, with a fixed interest at a rate of 1.625% annually and is collateralized by all assets. (B) Consists of an advance from Chesapeake Land Development Company, LLC for leasehold improvements, payable back over the term of the lease. (C) Consists of a note with BancFirst, monthly payments of $11,487, with a fixed interest rate of 4.75% annually and is collateralized by certain real property. In connection with this note payable to bank, the Organization is required, among other things, to maintain certain financial conditions, including minimum debt service coverage of 1.2 and tangible net worth of not less than $5,300,000. Aggregate annual maturities of notes payable at September 30 2016 are: 2017 $ 17,533 2018 68,824 2019 72,212 2020 75,593 2021 79,490 Thereafter 1,168,407 $ 1,482,059 14
Note 8: Net Assets Temporarily Restricted Net Assets Temporarily restricted net assets at September 30 are restricted to: 2016 2015 Contributions received with donor-restricted purpose Capital campaign $ 525,500 $ - Low-Vision Tulsa - 100,000 Safety and Healthy Meals - 15,000 Contributions received with donor-imposed time restrictions Beneficial interest 58,480 670,460 General operations 172,092 218,849 Total temporarily restricted net assets $ 756,072 $ 1,004,309 Permanently Restricted Net Assets Permanently restricted net assets at September 30 are restricted to: 2016 2015 Beneficial interest in trusts $ 1,616,883 $ 1,532,807 Total permanently restricted net assets $ 1,616,883 $ 1,532,807 Net Assets Released from Restrictions Net assets were released from donor restrictions by incurring expenses, satisfying the restricted purposes by occurrence of other events specified by donors or by time restrictions satisfied by receipt of pledges for the years ended September 30: 2016 2015 Source restrictions accomplished Contributions $ 65,505 $ 32,392 Grants 422,833 464,841 Total temporarily restricted net assets released from restrictions $ 488,338 $ 497,233 15
Note 9: Endowment The Organization s endowment consists of the beneficial interests in assets held by others, as discussed in Note 4, along with a board-designated endowment fund. The endowment includes both donor-restricted endowment funds and funds designated by the governing body to function as endowments (board-designated endowment funds). As required by GAAP, net assets associated with endowment funds, including board-designated endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions. The Organization s governing body has interpreted the State of Oklahoma Prudent Management of Institutional Funds Act of 1972 (SPMIFA) as requiring 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, the Organization 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 donor-restricted endowment funds 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 SPMIFA. In accordance with SPMIFA, the Organization considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 1. Duration and preservation of the fund 2. Purposes of the Organization and the fund 3. General economic conditions 4. Possible effect of inflation and deflation 5. Expected total return from investment income and appreciation or depreciation of investments 6. Other resources of the Organization 7. Investment policies of the Organization 16
The composition of net assets by type of endowment fund at, was: Temporarily Permanently Unrestricted Restricted Restricted Total 2016 Donor-restricted endowment funds $ - $ 58,480 $ 1,616,883 $ 1,675,363 Board-designated endowment funds 206,992 - - 206,992 Total endowment funds $ 206,992 $ 58,480 $ 1,616,883 $ 1,882,355 2015 Donor-restricted endowment funds $ - $ 670,460 $ 1,532,807 $ 2,203,267 Board-designated endowment funds 178,130 - - 178,130 Total endowment funds $ 178,130 $ 670,460 $ 1,532,807 $ 2,381,397 Changes in endowment net assets are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Balance, September 30, 2014 $ - $ 1,182,672 $ 1,554,329 $ 2,737,001 Change in value of beneficial interest in assets held by others - 78,270 12,926 91,196 Contributions 178,130 - - 178,130 Distrbutions - (590,482) (34,448) (624,930) Balance, September 30, 2015 178,130 670,460 1,532,807 2,381,397 Change in value of beneficial interest in assets held by others - 2,511,674 110,055 2,621,729 Contributions 28,862 25,000 9,657 63,519 Distributions - (3,148,654) (35,636) (3,184,290) Balance, September 30, 2016 $ 206,992 $ 58,480 $ 1,616,883 $ 1,882,355 17
From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level the Organization is required to retain as a fund of perpetual duration pursuant to donor stipulation or SPMIFA. In accordance with GAAP, no deficiencies of this nature were reported in unrestricted net assets as of September 30, 2016 or 2015. The Organization has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs and other items supported by its endowment while seeking to maintain the purchasing power of the endowment. Endowment assets include those assets of donor-restricted endowment funds the Organization must hold in perpetuity or for donor-specified periods, as well as those of board-designated endowment funds. Under the Organization s policies, endowment assets are invested with the Oklahoma City and Tulsa Foundations (the Foundations) and trustees, whose investment policy emphasizes preservation of capital, protection against inflation and continuing source of income. The distribution policy of the Foundations and the trustees to beneficiary organizations is determined by their respective governing bodies. The Organization has evaluated the investment and spending policies of the Foundations and the trustees to sufficiently protect the purchasing power of the endowments and allocates distributions received to be available for use in specific programs. During 2014, the Board designated $750,000 of unrestricted net assets to establish an operating reserve fund to help ensure the long-term financial stability of the Organization. During 2015, the Board approved a motion that established an endowment fund, which consists of 10% of unrestricted contributions received each year. Note 10: Related-Party Transactions The Organization receives contributions and special events revenue from various board members and employees. Amounts receivable from board members and employees at September 30, 2016 and 2015, was approximately $52,900 and $33,000, respectively. Amounts received from board members and employees as contributions during the year were approximately $32,700 and $16,200 for the years ended, respectively. Note 11: Operating Leases Noncancellable operating leases for office space and copiers expire in various years through 2019. Future minimum lease payments under operating leases are: 2017 $ 94,884 2018 65,231 2019 42,200 Total minimum lease payments $ 202,315 18
The Organization also receives minimum future lease payments for a building lease through 2018 through noncancellable operating leases. Future minimum rental income at September 30, 2016, was: 2017 $ 67,067 2018 27,945 Total future rental income $ 95,012 Note 12: Employee Retirement Plan The Organization has a retirement plan covering qualified employees under section 403(b) of the IRC. The Organization, at its discretion, may make a matching contribution equal to 3% of each participant s annual compensation. The Organization s matching contributions for the years ended, were approximately $47,000 and $33,000, respectively. Note 13: Disclosures About Fair Value of Assets Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value: Level 1 Level 2 Level 3 Quoted prices in active markets for identical assets Observable inputs other than Level 1 prices, such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets 19
Recurring Measurements The following table presents the fair value measurements of assets recognized in the accompanying statements of financial position measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at year-end. Fair Value Measurements Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) September 30, 2016 Investments Money market mutual funds $ 39,532 $ 39,532 $ - $ - Fixed income mutual funds 90,757 90,757 - - Equity mutual funds 105,566 105,566 - - CDARS 752,554 752,554 - - Real estate 282,000 - - 282,000 Producing mineral interests 1,113,690 - - 1,113,690 Undeveloped mineral interests 1,116,548 - - 1,116,548 Beneficial interest in assets held by others 1,675,363 - - 1,675,363 $ 5,176,010 $ 988,409 $ - $ 4,187,601 September 30, 2015 Investments Money market mutual funds $ 42,181 $ 42,181 $ - $ - Fixed income mutual funds 62,849 62,849 - - Equity mutual funds 102,110 102,110 - - Beneficial interest in assets held by others 2,203,267 - - 2,203,267 $ 2,410,407 $ 207,140 $ - $ 2,203,267 Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying statements of financial position, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the year ended September 30, 2016. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below. 20
Investments Where quoted market prices are available in an active market, investments are classified within Level 1 of the valuation hierarchy. Level 1 investments include money market mutual funds, fixed income funds, equity mutual funds and CDARS. If quoted market prices are not available, then fair values are estimated by using quoted prices of investments with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such investments are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, investments are classified within Level 3 of the hierarchy. Level 3 investments include beneficial interest in assets held by others, real estate and mineral interests. See the table below for input and valuation techniques used for Level 3 investments. Beneficial Interest in Assets Held by Others The Organization does not have the ability to redeem the funds held by OCCF and the trusts. The Organization can only redeem funds held by TCF and CFOO in the event of an unusual circumstance of need or if an opportunity exists. Based on the methodology of determining fair value of beneficial interest held by these four entities, the Organization has categorized these within Level 3 of the hierarchy. Level 3 Reconciliation The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying statements of financial position using significant unobservable (Level 3) inputs: Beneficial Beneficial Beneficial Beneficial Beneficial Interest in Interest in Interest in Interest in Interest in Assets Held Assets Held Assets Held Assets Held Assets Held Producing Undeveloped by Others by Others by Others by Others by Others Real Mineral Mineral OCCF TCF CFOO Mullen Trust Brown Trust Estate Interests Interests Balance, September 30, 2014 $ 143,246 $ 15,000 $ - $ 1,432,187 $ 1,146,567 $ - $ - $ - Purchase of beneficial interest 8,739 - - - - - - - Change in value of beneficial interest (2,639) (557) - 4,187 81,466 - - - Distributions to the Organization (6,737) - - (34,448) (583,745) - - - Balance, September 30, 2015 142,609 14,443-1,401,926 644,288 - - - Purchase of beneficial interest 9,657-25,000 - - - - - Contributions from Brown Trust - - - - - 282,000 1,113,690 1,116,548 Change in value of beneficial interest 12,913 1,242 1,964 108,091 2,496,673 - - - Distributions to the Organization (7,282) - (1,528) (33,672) (3,140,961) - - - Balance, September 30, 2016 $ 157,897 $ 15,685 $ 25,436 $ 1,476,345 $ - $ 282,000 $ 1,113,690 $ 1,116,548 21
The summary of changes in fair value of Level 3 assets has been prepared to reflect the activity in the same categories as those used in the accompanying statements of activities. The change in value of the beneficial interest in assets held by others includes realized and unrealized gains (losses) on investments, investment income, i.e., interest and dividends, and administrative fees. The change in value of the beneficial interest is included in the change in net assets in the accompanying statements of activities. The trusts are made up of cash, investment securities and oil and gas mineral rights. The trusts value cash and investments at fair value per independent third-party valuation. Unobservable (Level 3) Inputs The following table present quantitative information about unobservable inputs used in recurring Level 3 fair value measurements at. Valuation Unobservable Fair Value Technique Inputs September 30, 2016 Real estate $ 282,000 Cost approach Contract price Producing mineral interests $ 1,113,690 Discounted cash flow Write-off Undeveloped mineral interests $ 1,116,548 Market comparable sales Write-off Beneficial interest in assets held by others $ 1,675,363 Discounted cash flow September 30, 2015 Beneficial interest in assets held by others $ 2,203,267 Discounted cash flow Discount rate Regulatory change Discount rate Regulatory change Discount rate Discount rate 22
Note 14: Significant Estimates and Concentrations GAAP requires disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following: Contributions and Grants At September 30, 2016, approximately 97% of grants receivable was from one donor. At September 30, 2015, approximately 98% of grants receivable was from two donors. For the year ended September 30, 2016, one donor comprised approximately 62% of total grant revenue and for the year ended September 30, 2015, two donors comprised approximately 47% of total grant revenue. Two donors made up approximately 36% of total contributions receivable at September 30, 2016, and one donor made up approximately 8% of total contributions receivable at September 30, 2015. Major Customer Revenue for the years ended, included sales and service revenue to three customers representing approximately 81% and 89%, respectively of total revenue. These customers balances comprised 74% and 61% of accounts receivable at September 30, 2016 and 2015, respectively. Major Supplier The Organization purchases a majority of their fire hose supply from one vendor. There is a limited number of supplies for this product. Litigation The Organization is subject to other claims and lawsuits that arose primarily in the ordinary course of its activities. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the financial position, change in net assets and cash flows of the Organization. Events could occur that would change this estimate materially in the near term. Investments The Organization invests in various investment securities. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the accompanying statements of financial position. 23
Note 15: Subsequent Events Subsequent events have been evaluated through the date of the Independent Auditor s Report, which is the date the financial statements were available to be issued. 24
Other Information
Functional Expenses Year Ended September 30, 2016 Program Costs for Manufacturing Program Supporting Services and Service Services, Management Contracts Other and General Fundraising Total Salaries, wages and related taxes $ - $ 1,252,214 $ 833,739 $ 245,059 $ 2,331,012 403(b) plan employer match - 16,460 11,100 5,543 33,103 Freight - 668 553 4 1,225 Utilities - 79,647 2,006 1,922 83,575 Repair and maintenance - 9,126 7,001 3,567 19,694 Dues - 15,129 22,110 6,943 44,182 Supplies - 24,120 9,652 13,658 47,430 Insurance - - 23,693-23,693 Travel - 171,790 15,042 11,083 197,915 Postage - 1,705 3,376 2,231 7,312 Professional services - 190,099 320,826 96,288 607,213 Taxes - 8,316 51-8,367 Bad debt expense - - 79,790-79,790 Advertising - 3,614 19,117 1,206 23,937 Depreciation and amortization - 75,774 5,529-81,303 Rents - 113,173 16,199-129,372 Bank service charges - - 27,187-27,187 Donations - - 1,300-1,300 Entertainment - - 540 443 983 Interest expense - 29,547 6,331 6,331 42,209 Late fees - - 418-418 Meals - 11,359 10,956 1,532 23,847 Meetings/seminars/training - 9,188 16,783 1,519 27,490 Youth services and special events - 51,052 213 11,892 63,157 Computer network - 2,137 83,249-85,386 Program costs for manufacturing and service contracts (a) 25,618,254 - - - 25,618,254 Other miscellaneous expenses - 10,499 1,040 3,399 14,938 Total expenses $ 25,618,254 $ 2,075,617 $ 1,517,801 $ 412,620 $ 29,624,292 (a) Components of program costs for manufacturing and service contracts, i.e., personnel costs, material costs, etc., are all included in this line. 25
Functional Expenses Year Ended September 30, 2015 Program Costs for Manufacturing Program Supporting Services and Service Services, Management Contracts Other and General Fundraising Total Salaries, wages and related taxes $ - $ 1,015,182 $ 757,029 $ 221,926 $ 1,994,137 403(b) plan employer match - 9,477 7,135 2,034 18,646 Freight - 2,617 448 3 3,068 Utilities - 43,871 1,105 1,059 46,035 Repair and maintenance - 8,973 1,340 588 10,901 Dues - 17,039 18,632 9,232 44,903 Supplies - 24,136 8,298 1,840 34,274 Insurance - 524 19,216-19,740 Travel - 134,407 11,768 8,671 154,846 Postage - 1,870 4,745 1,269 7,884 Professional services - 122,131 134,860 56,673 313,664 Taxes - 114 101-215 Bad debt expense - 7,510 11,567-19,077 Advertising - 1,358 25,137-26,495 Depreciation and amortization - 81,228 5,926-87,154 Rents - 107,197 14,913-122,110 Bank service charges - - 22,377-22,377 Donations - - 739-739 Entertainment - - - 239 239 Interest expense - 4,427 948 948 6,323 Late fees - - 164-164 Meals - 11,067 11,585 1,334 23,986 Meetings/seminars/training - 9,803 40,741 709 51,253 Youth services and special events - 39,704-14,368 54,072 Computer network - 1,068 70,756 160 71,984 Program costs for manufacturing and service contracts (a) 17,774,242 - - - 17,774,242 Other miscellaneous expenses - 9,718 7,455 168 17,341 Total expenses $ 17,774,242 $ 1,653,421 $ 1,176,985 $ 321,221 $ 20,925,869 (a) Components of program costs for manufacturing and service contracts, i.e., personnel costs, material costs, etc., are all included in this line. 26