National Multiple Sclerosis Society; South Central

Financial Statements and Independent Auditors' Report

for the years ended September 30, 2014 and 2013

Under provisions of state law, this report is a public document. Acopy of the report has been submitted to the entity and other appropriate public officials. The report is available for public inspection at the Baton Rouge office of the Legislative Auditor and. where appropriate, at the office of the parish clerk of court.

Release Date FEB 2 5 2015 ^

National Multiple Sclerosis Society: South' Central

Table of Contents

Independent Auditors' Report

-• . •: K. I" ' V. ' !,•: '.f; I ;I • •, :)i '' j;'-

,{; • /-i-

Page

Financial Statements:

Statements of Financial Position as of September 30, 2014 2013 2

Statements of Activities for the years ended September 30,2014 and 2013 3

Statement of Functional Expenses for the year ended September 30,2014 5

Statement of Functional Expenses for the year ended September 30,2013 6

Statements of Cash Flows for the years ended September 30, 2014 and 2013 7

Notes to Financial Statements.for the years ended September 30, 2014 and 2013 8

Blazek &Vetterling CERTIFIED PUBLIC ACCOUNTANTS

Independent Auditors^ Report

To the Board of Trustees of National Multiple Sclerosis Society: South Central:

We have audited the accompanying financial statements of National Multiple Sclerosis Society: South Central, which comprise the statement of financial position as of September 30, 2014 and the related statements of activities, of functional expenses, and of cash flows for the year 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.

Auditors' Responsibility - Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform our 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 auditors' 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: South Central as of September 30, 2014 and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Prior Year Independent Auditors' Report - The financial statements of National Multiple Sclerosis Society: South Central as of September 30, 2013 were audited by other auditors whose report dated December 13,2013 expressed an unmodified opinion on those statements.

6jk/^ / December 12,2014

2900 Weslayan, Suite 200 Houston, Texas 77027-5132 (7i3) 439*5757 Fax (713) 439*5758 -I-

National Multiple Sclerosis Society: South Central

Statements of Financial Position as of September 30.2014 and 2013

ASSETS

Current assets: Cash and cash equivalents Certificates of deposit Contributions receivable ' Contributions receivable from National Due from other chapters Prepaid expenses and other assets

Total current assets

Noncurrent assets: Rent and equipment investments Property and equipment, at cost, net of accumulated

depreciation and amortization Beneficial interest in National Multiple Sclerosis Society's

pooled investments Due from National Multiple Sclerosis Society

Total noncurrent assets

TOTAL ASSETS

2014

5,398,447

147,656

295.609

4,563,653

2013

$ 8,616,347 56,356

108,014 3,049

605 645.702

5.841.712 9.430.073

1,887 4,900

361,549 436,182

4,172,188 28,340

469.422

$10.405.365 $ 9.899.495

LIABILITIES AND NET ASSETS

Current liabilities: Due tp National Multiple Sclerosis Society:

Remittance due to.National Due to other chapters

Accounts payable and accrued expenses Deferred revenue

Total current liabilities

Net assets: Unrestricted Temporarily resfricted Permanently restricted

Total net assets

TOTAL LIABILITIES AND NET ASSETS

$ 42,244 533

1,368,580 2.146.047

3.557.404

$ 173,923

1,305,447 1.810.289

6,416,951 6,175,763 381,010 434,073 50.000

6.847.961 6.609.836

^10-405.365 9.R99.495

See accompanvins notes to financial statements.

-2-

National Multiple Sclerosis Society: South Central •I

Statements of Activities for the years ended September 30. 2014 and 2013

Revenues:

Public support:

Received directly: Special events (includes in-kind

donations of $935,520 in 2014 and $659,401 in 2013)

Less: Direct benefit to donor costs

Total

Contributions (includes in-kind donations of $0 in 2014 and $34,539 in 2013)

Legacies

Total received directly

Received indirectly: Federated Fund Raising

Organizations

Total received indirectly

Total public support

Other revenues: Investment income Service program fees Miscellaneous income

Total other revenues

Net assets released from restrictions

Total revenues

2014, 2013

UNRESTRICTED

TEMPORARILY

RESTRICTED

PERMANENTLY

RESTRICTED

$ 29,811,560 (3.410.382)

26,401,178

1,268,196 $ 84,915 $ 106.775

27,776,149

6^

6.620

27.782.769

25,735 11,320

52.358

27.994.987

84.915

19,691

19.691

104.606

2,191

2.191

(159,860)

(53.063)

50,000

TOTAL UNRESTRICrED TEMPORMILY

RESTRICmD TOTAL

$ 29,811,560 $ 28,577,422 $ (3.410.382) (3.561.069) _

26,401,178 25,016,353

1,403,111 106.775

26.311

54.549

867,694 220.422

50.000 27.911.064 26.104.469

26,311

50,000 27,937,375 26,104,469

27,926 11,320

19,500 $ 28,596,922 (3.561.069)

19,500 25,035,853

615,388 1,483,082 262 220.684

635.150

60.280

60.280 60.280

925 17,931 18.856

682.527

26.787.921

(682.527)

30.834 26.818.755

(continued)

-3-

National Multiple Sclerosis Society: South Central

Statements of Activities for the years ended September 30. 2014 and 2013 (continued)

_20i4. 20ii

Expenses: Program services;

Research Society activities Client programs Community programs Public education Professional education and

training

Total program services

Supporting services: Fundraising Management and general

Total supporting services

Total expenses

Changes in net assets

Net assets, beginning of year

Net assets, end of year

8,340,438 4,591,352 3,204,684 2,413,686 1,464,438

755.640

241,188

6.175.763

TEMPORARaV PERMANENTLY

RESTRICTED

(53,063)

434.073

50,000

0

TOTAL

8,340,438 4,591,352 3,204,684 2,413,686 1-464,438

755.640

20.770.238

4,682,086

6.983.561

UNRESTRICTED

7,443,039 4,570,531 3,686,637 2,675,189 1,468,179

746.403

3,867,384

5.792.966

26,382,944

238,125 404,977

6.609.836 5.770.786

TEMPORARILY,

RESTRICTED

30,834

403.239

TOTAL

7,443,039 4,570,531 3,686,637 2,675,189 1,468,179

746.403

20.589.978

3,867,384 1.925.582

5.792.966

,435,811

6.174.025

iC 6.416.9S1 $ 3«10in 50.000 $ 6,847,961 $ 6,175,763 $ 434,073 ^ 6fi09.836

See accompanvins notes to financial statements.

-4-

National Multiple Sclerosis Society: South Central

Statement of Functional Expenses for the year ended September 30.2014

Salaries Employee benefits Payroll taxes

Total s^aries and related expenses

Printing Postage and shipping Telephone Supplies Dues and memberships* Profe^ional and other contract

service fees Donated public service announcements

and advertising Travel Meetings Occupancy Furniture and equipment Funding of other organizations that

support individuals with MS Direct fmancial assistance ^izes and promotional items Miscellaneous expense Depreciation and amortization Restricted contributions to Society

research invesbnent Chapter support of Society research

investment

SOCIETY ACnVfTTHS

Total expenses before Chapter , support of Society activities

Chapter support of Society activities

Total expenses

Less: Direct benefit to donor costs

Total expenses as reported on the statement of activities

$2,000,000

6:340.438

8,340,438

$4.591.352

r\ iSVytyw PROFESSIONAL

rruwiiwuamviLj; MANAGEMENT

A. TOTAL BENEFIT TO

CLIENT COMMUNITY PUBLIC EDUCATION AND PROGRAMS DONOR GR^

raOGRAMS eOUCASQIl ANPTRMNINC TOTAL FUNDRAISING . GENERAL TOTAL AND SUPPORT COSTS foTi^

$1,399,884 $ 990,107 $ 842,639 $ 330,594 $ 3,563;224 $1,505;762 $1.379;121 $2,884,883 $ 6,448307 $ 6,448,107 363;485 257,085 218,794 85,840 '925,204 390;977 358,094 749,071 1,674,275 [,674,275 113.839 80.516 68.524 26.884 289.763 1221449 112.151. 234:600- -524.363 524.363

1,877.208 1,327,708 1,129,957 . 443,318 4,778,191 2,019,188 1,849,366 3;868,554 8,646.745 8,646,745

17,821 9.659 71,243 3,049 101,772 154,775 11,375 166,150 267,922 267.922 24;733 4.784 38,644 1,981 -70,142 59;570 5,554 65,124 135,266 135,266 18,264 13,954 10,567 4.116 46,901 18,749 18,821 37,570 84,471 84,471 22,943 10,860 12,467 4,045 50,315 29,550 13,832 43,382 93,697 $ 304,886 . 398,583

5,706 4,687 4,596 1,245 16,234 8,138 5.193 13,331 29,565 29,565

406,322 85,495 22.876 10,350 525,043 576,454 68,617 645.071 1,170314 1,170,114

255,000 255,000 255.000 255,000 70,054 58,825 16,198 19,882 164,959 202,262 32,657 234,919 399,878 1,539,857 1,939,735

126,870 20,069 14,5i9 11,400 172,858 216,075 31377 247,252 420,110 69,989 490,099 169.184 119,660 101,838 39,954 430,636 218364 166,675 385,039 815,675 357,394 1,173,069 20,854 14,750 12.553 4,925 53,082 24398 20,545 • 44,843 97,925 97,925

704,600 704,600 - 704.600 704,600 386.979 386,979 386,979 386,979 12,^ 7,133 2,667 201.046 223.790 30,380 34,01 i 64,391 288,181 488,089 776,270 18,552 12,936 10,512 4,130 46,130 841,047 17,791 858,838 904,968 650,167 1,555,135 26.250 18,566 15,801 6,199 66,816 28336 25,861 54,097 120,913 120,913

2,000,000^ 2,000:000 2,666,000

6.340:438 6.340.438 6.340.438

3,204,684 2,413,686 1,464,438 755.640 16,178,886 4.682,086 2,301.475 I

6,983,561 23,162,447 3.410,382 • 26,572,82?

4.591.352 4.591.352 4.591.352

m2L352 .$3,204,684 $2.413.686 $1.464.438 $ 755.640 $2Q.77Q,238 $4.682.086 $2.301.475 $6.983.561 $27.753.799 $3.410.382 31,164.181

(3,410,382)

accompanying nqte^ (Q finan<;idl stat?m^r\ts.

-5-

National Multiple Sclerosis Society: South Central

Statement of Functional Expenses for the year ended September 30. 2013

Total expenses before Chapter support of Society activities

Chapter support of Society activities

Total expenses

Less; Direct benefit to donor costs

Total expenses as reported on the statement of activities

7.443,039

r R<XiRAMSgRV}CH PROFESSKWiAL

SL! TPgRTiNqsp^vig MANAGEMEhTT

;s TOTAL BENEPrrTO

SOCIETY CLIENT COMMUNfTY PUBLIC EDUCATION AND PROGRAMS DONM auHD RESEARCH ACTTVmES ANPTRALNgJC TOTAL PUNMUUSING CZNERAL TOTAL COSTS TOTAL

Salaries $1,649,216 $1,216,481 $ 859,767 $ 458.854 $ 4,184,318 $1,114,470 $1,182,196 $2,296,666 $ 6,480,984 $ 6,480,984 Hmployee benefits 402,462 296,861 209,811 111,975 1,021,109 271,967 288,494 560,461 1,581,570 1,581.570 Payroll taxes 130.230 96,039 67.891 36J33 330.413 88.004 93.351 181.355 511.768 511.768

Total salaries and related expenses 2.181.908 1,609,401 1,137.469 607,062 5.535,840 1.474,441 1,564,041 3.038.482 8.574,322 8.574,322

Printing 24.207 13,395 73,459 6,598 117,659 170.451 9,642 180.093 297,752 297.752 Postage and shipping 32,509 12,074 39,988 5,438 90,009 49,538 11,175 60,713 150,722 150.722 Telephone 32,209 18,393 10,796 9,126 70,524 14,054 15,741 29,795 100,319 100.319 Supplies 28,480 13,541 12,510 6,535 61,066 24,768 13,054 37,822 98,888 $ 515,432 614.320 Dues and memberships 3,230 4,959 1.337 714 10,240 4,772 1,838 6,610 16,850 16,850 Professional and other contract

service fees 374,685 110,481 18.841 13,088 517,095 357.788 50,063 407,851 924,946 924.946 Donated public service announcements

and advertising 488,050 488,050 488,050 488.050 Travel 61,813 60.668 12.466 10,777 145,724 196,796 24,650 221,446 367,170 1,909,887 2,277,057 Meetings 155,075 27,209 9.756 6,238 198,278 212,785 20,307 233,092 431,370 56,620 487.990 Occupancy 211,103 155,712 110,052 58,734 535,601 169,068 151,324 320,392 855,993 116.165 972,158 Fumilurc and equipment 33,477 24,693 17,452 9,314 84,936 22,267 23,997 46,264 131,200 131.200 Funding of other organizations that

support individuals with MS 585,000 585,000 585,000 585,000 Direct financial assistance 495,520 495,520 495,520 495,520 Prizes and promotional items 7,493 6,523 631 279 14,926 ??,382 7,545 29,927 44,853 561,248 606,101 Miscellaneous expense 18313 13,508 9,547 5,095 46,463 642,239 13,127 655,366 701,829 401,717 1,103,546 Depreciation and amortization 26,615 19,632 13.875 7,405 67,527 17,985 19,078 37,063 104,590 104,590 Restricted contributions to Society

research investment $1,626,000 1,626.000 1.626,000 1.626,000 Chapter support of Society research

investment 5.817.039 5.817.039 5.817.039 5.817.039

3,686,637 2.675,189 1,468,179 746,403 16,019,447 3.867,384 1,925.582 5,792,966 21,812,413 3,561,069 25,373.482

i4.570.S31 4.570.531 4.570531

H57Q.531 K.686.637 Umm 3t.468.|79 S 746.403 $2Q.58?.?78 S3.867.384 $1.92S.g82 $5.7?2.966 S26.382.944 S3.561,Q69 29.944.013

f3.561.069t

$26382944

-6-

National Multiple Sclerosis Society; South Central

Statements of Cash Flows for the years ended September 30. 2014 and 2013

2014 . 2013

CASH FLOWS FROM OPERATING ACTIVITIES:

Changes in net assets Adjustments to reconcile changes in net assets to net cash provided, by operating activities:

Depreciation and amorti^tion Perm^ently restricted contributions Loss on disposal of property and equipment Due from National— charitable remainder trusts

^d/or charitable gift annuities Net unre^ized gain on investments Changes in operafrng assets and liabilities:

Contributions receivable Contributions receivable from National Prepaid expenses and other assets Due to National and/or other chapters Due from other chapters Accounts payable and accrued expenses Deferred revenue

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of investments Reduction in rent and equipment investments Purchases of property and equipment Redemption of certificates of deposit

Net cash used by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Permanently restricted contributions

NET CHANGE IN CASH AND CASH EQUIVALENTS

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

$ 238,125 $ 435,811

120,913 (50,000)

31! (10,109)

(39,642) 3,049

350,093 (131,146)

. 605 63,133 335:758

(4,162,079) 3,013

(46,280) 56,356

(4,148,9901

50.000

104,590

2,273

713

73,398 (3,049)

(232,717) 168,379 • (605) 236,476 74.472

859,741

(84,794) 52.670

(32.1241

(3,217,900) 827,617

8.616.347 7.788.730

S 5,398,447 $ 8,616,347

See accompanvine notes to financial statements.

-7-

National Multiple Sclerosis Society: South Central

Notes to Financial Statements for the years ended September 30. 2014 and 2013

1. Organization and Significant Accounting Policies

Organization

The National Multiple Sclerosis Society (the "Society") is a not-for-profit voluntary health and welfare agency that helps each person address the challenges of living with MS through a 50-state network of chapters. The South Central Chapter (the "Chapter") raises funds in Arkansas, Louisi^a, Oklahoma, New Mexico and Texas 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.

Net Asset Classifications

Resources for various purposes are classified for accounting and fin^cial reporting purposes into net asset categories established according to their nature and purpose, as follows:

• Unrestricted Net Assets: Unrestricted net assets represent funds which 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: Temporarily restricted net assets are comprised of funds which are restricted by donors for specific periods or purposes. The restrictions are satisfied either by the passage of time or by actions of the Chapter.

• • Permanently Restricted Net Assets: Permanently restricted net assets include resources with permanent donor-imposed restrictions, which require the assets to be maintained in perpetuity, but permit the Chapter to expend all or part 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.

Revenue Recognition and Deferred Revenue

Contributions are recorded as revenue when received or promised (pledged) unconditionally at their fair value. The fair value of long-term contributions receivable are measured based on the present value of future cash flows, with consideration of expectation about possible variations in the amount and/or timing of the cash flows and. other specific factors that wouId.be considered by market participants. The fair value measurements also consider donors' credit risk. The Chapter recognizes income from legacies and bequests when an unassailable right to the gift has been established by the court and the proceeds are measurable in amount. 'It is the Chapter's policy to record temporarily restricted contributions received and fulfilled in the same accounting period in the unrestricted net asset class. When a prior year's donor restriction expires, that is, when a time restriction ends or purpose restriction is fulfilled, temporarily restricted net assets are reclassified as unrestricted net assets and reported in the statement of activities as net assets released from restrictions: Conditional contributions are recognized as revenue when the conditions on which they depend have been substantially met.

All revenue received in advance for special events that are held subsequent to year-end is deferred and recognized in the year of the event.

-8-

Expense Allocations

Functional expenses which are not specifically attributable to program services or supporting services.^e allocated by management based on various allocation factors.

r

Concentration of Credit Risk

Deposits at the Chapter's financial institutions are insured by the Federal Deposit Insurance Corporation up to $250,000. The Chapter has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on its cash and investments. The Chapter had no uninsured cash balances at September 30, 2014 and $5,826,136 at September 30, 2013.

Cash and Cash Equivalents

The Chapter considers highly liquid investments with maturities of three months or less when purchased to be cash equivalents. At September 30, 2014 and 2013, the Chapter's cash Md cash equivalents were held by four institutions. Cash and cash equivalents consist of the following:

2014 2013

Demand deposits $ 246,466 $ 4,821,999 Money market mutual funds 5,151.981 3^794.348

Total cash and cash equivalents $ 5.398.447 $ 8.616.347

Investments t'

Interest in the Society's pooled investments is reported at quoted market prices; with the net change in unrealized gains or losses included in the statement of activities. Donated securities are recorded as contributions at their fair value at date of gift.

J

Contributions Receivable

Contributions receivable consist of accruals of public support received after year end that pertained to fundraising: events held during fiscal years 2014 and 2013, respectively. Receivables are recorded at net realizable value, net of an allowance for uncollectible amounts. At September 30, 2014, the Chapter believes that the pledges receivable are fully collectible, and accordingly, no allowance' has been provided. There are no identifiable concentrations of credit risk related to these receivables. At September 30, 2014, all pledges are expected to be collected within one year.

Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization are provided on the straight-line basis over the estimated 'useful lives of the assets or the terms of the lease, as appropriate. Expenditures for maintenance and repairs are charged to operations as incurred. The Chapter capitalizes all equipment purchases exceeding $ 1,000 with useful lives in excess of one year.

Donated Goods and Services

Donated goods and services, including public service announcements and donated advertising, used by the Chapter in progmmsi special events, and supporting services are reflected as in-kind contributions and

-9-

expensed in the accompanying financial statements at.their estimated fair value at the date of receipt. The value of donated goods and services recorded by the Chapter in fiscal years 2014 and 2013 are as follows;

2014 2013

Donated goods • $ 360,689 $ 518,484 Donated services 574.830 1.005.434

Total • $ 935.519 $ 1.523.918

In addition, a number of volunteers have donated significant amounts of their time to the Chapter's program services and supporting services. No amounts have been reflected in the accomp^ying financial statements for those donated services because they do not meet the criteria for revenue recognition established by ASC Section 958-605 (formerly Statement of Financial Accounting Standards No. 116, Contributions Received and Contributions Made).

Use of Estimates

The preparation of financial statements in confonnity with accounting principles generally accepted in the United States of America 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.

R^arch and National Activities Expense

The Society calculates; the National Programs Expense, which funds research and other Society activities, for each chapter in advance of the fiscal year after a complete review by the Budget Review Committee and national Board. The Chapter's National Progr^s Expense is calculated using the average of the previous two year's audited results as the revenue base. 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. The Chapter's National Programs Expense was calculated to be $10,931,790 in 2014 and $10,387,570 in 2013. By setting the Chapter's National Programs Expense in advance, the chapters and the national organization are in a better position to control resources through Aeir respective budgeting and planning processes.

In addition tp. the fixed amount of National Programs Expense, the Chapter made an additional research contribution to the national organization in the amount of $2,000,000 in 2014 and $1,626,000 in 2013. This amount is reflected as a Research Expense in the accompanying statement of activities.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense was $283,332 and $509,080 in 2014 and 2013, respectively, including donated advertising of $255,000 in 2014 and $488,050 in 2013.

-f# '

Reclassifications

Certain reclassifications have been made to the prior year financial statements to conform with the current presentation.

-10-

2. Income Taxes

The Chapter qualifies as a charitable organization as defined by Internal Revenue Code §501(c)(3), and, accordingly, it is exempt from federal income taxes under Internal Revenue Code Section 501(a). Additionally, since the Chapter is publicly supported, contributions made to the. Chapter qualify for the maximum charitable contributions deduction under the Internal Revenue Code. The Chapter is also exempt from Texas^ New Mexico and Oklahoma states' sales taxes and Texas, Arkansas, Louisiana, Oklahoma ^d New Mexico.income an^or franchise taxes.

Management analyzed the tax positions taken by the Chapter and concluded that, as of September 30, 2014, there were no uncertain tax positions taken or are expected to-be taken. Accordingly, no interest or penalties related to uncertain tax positions have been accrued in the accompanying financial statements.

The Chapter is subject to audits by taxing jurisdictions; however, no audit for any tax period is cun-ently in progress. Management believes that the Chapter is no longer subject to such audits for years ended on or prior to September 30, 2011 under federal and Texas, Arkansas, Louisiana, Oklahoma and New Mexico states tax jurisdictions, .

3. Fair Value Measurements

The Chapter adopted the provisions of ASC Section 820-10 (formerly known as FASB Statement of Financial.Accounting Stand^ds No. 157), Fair Value Measurements ("FAS 157") effective October 1, 2008. FAS-157 establishes a fair value hierarchy for the inputs used to measure fair value based on the nature of the data input, which generally range from quoted prices for identical instruments in a principal trading market (Level 1) to estimates determined using related market data (Level 3). Multiple inputs may be used to measure fair value; however, the level of fair value .of each financial asset or liability presented below is based on the lower significant input level within this fair value hierarchy.

> •

Fair value measurements based on Level 1 inputs: Measurements that are most observable are based on quoted prices of identical instruments obtained from the principal markets in which they are traded. Closing prices are both readily available and representative of fair value. Market transactions occur with sufficient frequency and volume to ensure liquidity.

Fair value measurements based on Level 2 inputs: Measurements derived indirectly from observable inputs or from quoted prices firom markets that are less liquid are considered Level 2. Measurements may consider inputs.that other market participants would use in valuing a portfolio, quoted market prices for similar securities, interest rates, credit risks, and others.

Fair value measurements based on Level 3 inputs: Measurements that are least observable are estimated from related market data, determined from sources with little or no market activity for comparable contracts, or are positions with longer durations.

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. Furthermbfe, while the Chapter believes, its valuation methods are appropriate and consistent with other market p^cipants, the use of different methodologies or assumptions to determine the fair value of certain fmancial instruments could result in a different fair value measurement at the reporting date.

-11-

The following tables provide the fair value hierarchy of the Chapter's financial assets:

September 30, 2014:

FINANCIAL ASSETS

Money market mutual funds* Beneficial interest in the Society's

pooled investments

Total

September 30, 2013:

FINANCIAL ASSETS

Money market mutual funds* Certificates of deposit

Total

LEVEL 1

$ 5,151,981

LEVEL 2

$ 5.151.981 $_

LEVEL 1

$ 3,795,837

LEVEL 2

$ 56.356

LEVEL 3

$ 4,172.188

S 4.172.188

LEVELS

TOTAL

$ 5,151,981

4.172,188

$ 9,324,169

$ 3.795.837 $ 56.356 £

TOTAL

$ 3,795,837 56.356

^ S 3.852.193

• Included in cash and cash equivalents in the accompanying statement of financial position.

Valuation methods for assets measured at fair value are as follows:

• Money market mutual funds are valued at the reported net asset value. • Interest in the Society's pooled investments are valued as provided by the Society based on the fair

value of the underlying investments. While principally all of the underlying trusts' investments are readily marketable based on quoted fair market values, since the Chapter's beneficial interest in the trust cannot be priced on an active exchange, the interests in the trust are classified as Level 3.

• Certificates of deposit are valued using prices obtained from independent quotation bureaus that use computerized valuation formulas which may include market-corroborated inputs for credit risk factors, interest rate and yield curves and broker quotes to calculate fair values.

Changes in the fair value of Level 3 assets during the year ended September 30, 2014 consist of the following:

Balance at October 1, 2013 Purchases Change in fair value in interest in the Society's pooled investments

Balance at September 30, 2014

$ 0 4,162,079

10.109

$ 4.172.188

4. Interest in Pooled Investment Fund

During 2014, the Chapter began participating in the Society's overall investment portfolio. The Chapter holds shares in the overall portfolio of the Society rather than the individual financial instruments, and therefore has the same composition of investments as that of the Society's total trust fund portfolio. The Chapter's interest in the Society's pooled investment portfolio totaled $4,122,188, which represents 9% of the Society's total investment portfolio and 1% of the Society's total endowment investment portfolio as of September 30,2014.

At September 30, 2014, the Chapter's share of the pooled portfolio was invested as follows:

Cash and money market mutual funds 71 % Equity securities 29%

Total 100%

-12-

Investment net income, including earnings on cash and cash- equivalents, totaled $27,926 for the year ended September 30, 2014, which included interest and dividends of 322,050, net unrealized gains of $10,109, net of administration fees of $4,233.

5. Property and Equipment

Property and equipment consists of the following:

Computer hardware and purchased software Furniture and fixtures Equipment Leasehold improvements

Total Less: Accumulated depreciation and amortization

Property and equipment, net

^ 2014

$ 389,811 253,478 481,724 703.743

1,828,756 n.467.207)

$ 36U549

2013

344,675 253,477 480,582 703.742

1,782,476

6. Operating Leases

The Chapter generally recognizes rent expense based on the straijght-line of the minimum lease payments over the respective terms of the leases and has recorded an accrued rent liability of approximately $32,000 md $45,000 at September 30,2014 and,2013, respectively.

Office rent expense for the years ended September 30, 2014 and 2013 was approximately $668,000 and $713,000, respectively.

The future minimum annual rental commitments under nonrcancellable Iwse agreements at September 30,2014 are as follows:

2015 '2016 2017 2018 2019 Thereafter

Total

$ 478,242 283,273 241,361 120,652 123,060 179,524

$ K426J12

7. Pension Plan

The Chapter participates in the Society's noncontributory Defmed Contribution Retirement Plan ("the Plan"), which covers substantially all of the Chapter's employeies based on defined eligibility for covered employees. Temporaiy employees and independent contractors are not eligible. Employees become eligible on the first day of the first month after beginning employment and all covered employees receive a contribution on September 30 of each year.' Employees are flilly vested at the end of five years. The contribution rate for the years ended September 30, 2014 and 2013, as determined by te Society's President and Chief Executive Officer was 3% and 3% of gross annual salary, respectively. In accordance with the Plan's provisions, contributions required in any given year are first offset by

- 13-

forfeitures of unvested Chapter contributions for terminated participants. The pension expense related to the Plan for the years ended September 30, 2014 and 2013 was $165,735 and $155,089, respectively.

8. Temporarily Restricted Net Assets

Temporarily restricted net assets are available for specific client programs. Their use is limited by donor-imposed stipulations that either expire with the passage of time or the fulfillment of specific obligations. Temporarily restricted net assets are restricted for the following reasons:

2014 2013

Program restricted:

Client programs Community programs^ Public education Research

S 296,844 64,475

S 318,235 94,857

839 5.358

Total program restricted 361,319 419,289

Time restricted - United Way - Tarrant County 19,691 14.784

Total $ 381.010 $ 434.073

Temporarily restricted net assets released from restrictions at September 30, 2014 as follows:

Program restricted:

Research Client programs Community programs Public education

Total program restricted

Time restricted:

United Way - Tarrant County

Total

$ 5,358-106,932 31,947

839

145,076

14J84

159.860

9. Endowments

The Chapter's endovraient consists of funds established for scholarships. As required by generally accepted accounting principles ("GAAP"), net assets associated with endowment funds are classified and reported .based on the existence or absence of donor imposed restrictions.

*1 < *

Inteipretation of Relevant Law

The Chapter hias interpreted the State of Texas Unifonn Prudent Management of Institutional Funds Act ("TUPNOTA") as requiring the preservation of the fair value of the original gift ^ of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Chapter classifies as permanently restricted net assets (1) the original value of gifts

-14-

donated to the permanent endowment, (2) the original value of subsequent gifts to the permanent endowment, and (3) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted, endowment fund that is not classified in permanently restricted net assets is characterized as temporarily restricted net assets until those amounts are appropriated for expenditure by the Chapter in a manner consistent with the standard for expenditure prescribed by TUPMIFA. In accordance with TUPMIFA, the Chapter considers the following factors in making a determination to appropriate or calculate donor-restricted endowment funds:

1. The duration and preservation of the fund 2. The general purposes of the Chapter and the donor-restricted endowment fund 3. Genefaleconpmic conditions. 4. The possible effect of inflation and deflation 5. The expected total return from income and appreciation of investments 6. Other resources of the Chapter 7. _ The investment policies of the Chapter

. . • r . .. The changes in endowment net assets for the year ended September 30,2014 are as follows:

TEMPORARILY - PERMANENTLY UNRESTRICTED RESTRICTED RESTRICTED TOTAL

Endowment net assets, beginning of year $ 0 $ 0 $ 0 $ 0

Investment return : Investment income 798 798 Net realized and unrealized gain 1.393 1.393

Total investment return 0 2,191 0 2,191

Contributions '50.000 50.000

Endowment net assets, end of year $ 0 S 2.191 $ 50.000 S 52.191

Return Objectives and Risk Parameters

The Chapter has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the Chapter must hold in perpetuity or for donor-specified periods. Under this policy, as provided by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results that exceed the price and yield results of the S&P 500 Index while assuming a moderate level of investment risk. The Chapter expects its endowment funds over time to provide an average rate of return of 5% plus CPI-U annually. Actual returns in any given year may vary from this amount.

Spending Policy and How the Investment Objectives Relate to Spending Policy •* The endowments are to be thought of as a permanent fund. As such, the investment objectives require disciplined and consistent management philosophies that accommodate all those events which are relevant, reasonable, and probable, Therefore, periodic review of total rate of return and spending rate objectives is required. Extreme positions or variations in management style are not consistent with these objectives^ The spending policy of the Chapter allows up to 7% of the market value of the portfolio if funds are available.

-15-

10. Gift Annuity •

The Chapter is the beneficiary of 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 desi^ee). '

The year-end values of the Chapter's split-interest agreements for 2014 and 2013 were $28,029 and. $28,340, respectively. Income derived from changes in value of the agreements for 2014 and 2013 was $(311) and $712, respectively.

11. Subsequent Events

The Chapter has evaluated subsequent events through December 12, 2014, the date the fmahcial statements were approved for issuance. There were no subsequent events that are required to be recognized or disclosed in the accompanying fmancial statements.

16