RONALD MCDONALD HOUSE CHARITIES OF ST. LOUIS FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 AND INDEPENDENT AUDITORS' REPORT

Transcription

1 RONALD MCDONALD HOUSE CHARITIES OF ST. LOUIS FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 AND INDEPENDENT AUDITORS' REPORT

2 CONTENTS Page INDEPENDENT AUDITORS' REPORT FINANCIAL STATEMENTS Statements of Financial Position... 3 Statements of Activities... 4 Statements of Functional Expenses Statements of Cash Flows... 7 Notes to Financial Statements

3 E HL TRELOAR Co. Public Accountants Independent Auditors' Report To the Board of Directors Ronald McDonald House Charities of St. Louis We have audited the accompanying financial statements of Ronald McDonald House Charities of St. Louis (a nonprofit organization), which comprise the statements of financial position as of, and the related statements of activities, cash flows, and functional expenses 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. Auditors' 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 audits 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 $ Sunset Suite 400 St. Louis, MO "' com

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ronald McDonald House Charities of St. Louis as ofdecember 31, 2014 and 2013, 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. St. Louis, Missouri March 4, 2015 (2)

5 FINANCIAL STATEMENTS

6 STATEMENTS OF FINANCIAL POSITION ASSETS December CURRENT ASSETS Cash and cash equivalents $ 553,695 $ 811,711 Current portion of pledges receivable 137, ,633 Prepaid expenses 27,977 13,268 Other assets 21,254 45,769 Total Current Assets 740,644 1,226,381 PLEDGES RECEIVABLE 5,998 94,424 PROPERTY AND EQUIPMENT, Net 9,780,952 10,379,260 REAL ESTATE HELD FOR SALE 25,000 INVESTMENTS 4,391,511 4,473,871 Total Assets $ 14,944,105 $ 16,173,936 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 140,925 $ 87,714 Current annuity obligation 28,665 26,825 Current portion oflong-term debt 76, ,102 Accrued payroll and related liabilities 56,091 66,190 Total Current Liabilities 301, ,831 LONG-TERM DEBT 743,922 2,040,568 ANNUITY OBLIGATION 169, ,461 Total Liabilities 1,215,719 2,645,860 NET ASSETS Unrestricted Net investment in property and equipment 8,960,877 8,067,590 Board designated endowment 1,970,145 1,845,472 Available for general use 2,001,778 2,528,883 12,932,800 12,441,945 Temporarily restricted 177, ,392 Permanently restricted 617, ,739 Total Net Assets 13,728,386 13,528,076 Total Liabilities and Net Assets $ 14,944,105 $ 16,173,936 See accompanying notes to financial statements (3)

7 STATEMENTS OF ACTIVITIES Year Ended December Permanently Temporarily Restricted Unrestricted Restricted Endowment Total SUPPORT AND REVENUE Support Special events $ 884,140 $ $ $ 884,140 Less: costs of direct benefit to donors 297, ,307 Net revenue from special events 586, ,833 Contributions 1,965, ,839 2,582,146 Capital campaign contributions 15,392 15,392 Outside fundraisers 166, ,348 Planned giving - annuities 40,000 40,000 Change in value of split-interest agreements ( 19,478) ( 19,478) Net assets released from restrictions 928,971 ( 928,971) Total Support 3,667,981 ( 296,740) 3,371,241 Revenue Lodging receipts (net of waived fees of $88,060 and $31,309, respectively) 99,368 99,368 Investment income 155,812 2, ,962 Net unrealized and realized (losses) gains on investments ( 39,979) 4,045 ( 35,934) Miscellaneous income 45,919 45,919 Total Revenue 261,120 6, ,315 Total Support and Revenue 3,929,101 ( 290,545) 3,638,556 EXPENSES Program Services Residential facilities 2,282,030 2,282,030 Family rooms 231, ,203 Canisters 132, ,218 Total Program Services 2,645,451 2,645,451 Supporting Services General and administrative 378, ,790 Fundraising 359, ,465 Total Supporting Services 738, ,255 Payments to RMHC Global 54,540 54,540 Total Expenses 3,438,246 3,438,246 CHANGE IN NET ASSETS 490,855 ( 290,545) 200,310 NET ASSETS, Beginning of year 12,441, , ,739 13,528,076 NET ASSETS, End of year $ 12,932,800 $ 177,847 $ 617,739 $ 13,728,386 See accompanying notes to financial statements (4)

8 Year Ended December 31, 2013 Permanently Temporarily Restricted Unrestricted Restricted Endowment Total $ 942,140 $ $ $ 942, , , , ,410 1,842, ,926 2,162,523 4,545 4, , ,045 ( 18,841) ( 18,841) 795,250 ( 795,250) 3,453,461 ( 470,779) 2,982,682 75,003 75,003 91,241 5,798 97, ,632 16, ,129 40,127 40, ,003 22, ,298 4,192,464 { 448,484) 3,743,980 2,180,282 2,180, , , , ,595 2,655,080 2,655, , , , , , ,478 49,065 49,065 3,465,623 3,465, ,841 ( 448,484) 278,357 11,715, , ,739 13,249,719 $ 12,441,945 $ 468,392 $ 617,739 $ 13,528,076

9 STATEMENT OF FUNCTIONAL EXPENSES Year Ended December 31, 2014 Residential Facilities Salaries $ 918,158 Salaries - relief staff 44,311 Employee benefits 111,813 Payroll taxes 66,133 SuEEortin~ Services Pro~ram Services Total Program General and Fund- Family Rooms Canisters Services Administrative raising $ 124,302 $ 13,496 $ 1,055,956 $ 145,221 $ 148, , ,137 1, ,594 17,685 18,080 8, ,058 10,460 10,694 Total Supporting Services - Total $ 293,681 $ 1,349,637-44,311 35, ,359 21,154 97,212 Advertising - Bank charges 8,789 Charities - Depreciation 577,405 Fundraising projects - Grants - Insurance 49,760 Interest 50,158 Laundry service 18,269 Maintenance and repairs 155,020 Miscellaneous 31,493 Newsletter - Professional fees and services 4,632 Seminars - training 13,592 Supplies 17,289 Telephone 33,368 Transportation 38,987 Utilities 142,853 $ 2,282, , ,789 9,888 3,296-15,608 15,608 7,740 14,375 74, ,050 15,195 15, ,373-32,500 32, ,760 1,309 1, ,158 1,320 1, , , ,166 1,396 41,055 34, ,016-66,602 71,234 41, ,592 20, ,289 69, , , ,853 3,759 3,759 $ 231,203 $ 132,218 $ 2,645,451 $ 378,790 $ 359,465 6,389 6,389 13,184 21,973 22,115 37,723 30, , , ,373-32,500 2,618 52,378 2,640 52,798-18, ,020 34,332 75,387 22,016 22,016 41, ,172 20,232 33,824 69,154 86,443 1,756 35,124-38,987 7, ,371 $ 738,255 $ 3,383,706 See accompanying notes to financial statements (5)

10 STATEMENT OF FUNCTIONAL EXPENSES Year Ended December 31, 2013 Residential Facilities Salaries $ 850,708 Salaries - relief staff 42,488 Employee benefits 103,622 Payroll taxes 64,250 Pro!:!iram Services SuEEortin!l; Services Total Program General and Fund- Family Rooms Canisters Services Administrative raising $ 152,725 $ 13,076 $ 1,016,509 $ 143,179 $ 147, , ,603 1, ,818 17,440 18,013 11, ,773 10,814 11,168 Total Supporting Services Total $ 291,065 $ 1,307,574-42,488 35, ,271 21,982 98,755 - Advertising - Bank charges 7,585 Charities - Depreciation 608,464 Fundraising projects - Grants - Insurance 46,762 Interest 40,354 Laundry service 17,305 Maintenance and repairs 115,766 Miscellaneous 34,469 Newsletter - Professional fees and services 5,641 Seminars - training 15,069 Supplies 33,308 Telephone 34,381 Transportation 38,138 Utilities 121,972 $ 2,180, , ,585 8,533 2,844-22,064 22,064 11,338 21, , ,157 19,951 19, ,013-32,500 32, ,762 1,231 1, ,354 7, , , , ,276 45,950 4, ,798-64,214 69,855 42, ,069 23, ,308 49, , , ,972 3,210 3,210 $ 340,203 $ 134,595 $ 2,655,080 $ 385,469 $ 376,009 5,040 5,040 11,377 18,962 32,393 54,457 39, , , ,013-32,500 2,461 49,223 7,838 48,192-17, ,766 50,846 93,122 26,798 26,798 42, ,121 23,217 38,286 49,597 82,905 1,810 36,191-38,138 6, ,392 $ 761,478 $ 3,416,558 See accompanying notes to financial statements (6)

11 STATEMENTS OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets Adjustments to reconcile change in net assets to net change in cash from operating activities: Depreciation Change in value of split-interest agreements Net unrealized and realized losses (gains) on investments Loss on disposal of property and equipment Donated securities Proceeds from sales of donated securities Contribution of real estate Donated property and equipment (fucrease) decrease in assets: Pledges receivable Prepaid expenses Other assets fucrease (decrease) in liabilities: Accounts payable Annuity obligation Accrued payroll and related liabilities Years Ended December 31, $ 200, ,440 19,478 35,934 7,991 ( 45,265) 45,265 ( 25,000) ( 24,725) 306,341 ( 14,709) 24,515 53,211 ( 1,136) ( 10,099) $ 278, ,059 18,841 ( 549,129) ( 38,179) 38,179 ( 112,893) 461,819 39,893 ( 9,612) ( 14,584) ( 26,825) ( 11,963) Net Change in Cash from Operating Activities 1,254, ,963 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment Purchase of investments Proceeds from the sale of investments Net Change in Cash from fuvesting Activities ( 67,398) ( 1,384,035) 1,430,461 ( 20,972) ( 1,774,253) ( 231,235) 289,563 ( 1,715,925) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt Payments on long-term debt Net Change in Cash from Financing Activities ( 1,491,595) ( 1,491,595) 1,500,000 ( 471,553) 1,028,447 NET CHANGE IN CASH AND CASH EQUN ALENTS CASH AND CASH EQUIVALENTS, Beginning of year CASH AND CASH EQUN ALENTS, End of year ( 258,016) 811,711 $ 553, , ,226 $ 811,711 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: futerest paid $ 52,798 $ 48,192 See accompanying notes to financial statements (7)

12 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Ronald McDonald House Charities of St. Louis ("Ronald McDonald House Charities") is a not-for-profit corporation, incorporated under the laws of the State of Missouri. Ronald McDonald House Charities provides three short-term residential facilities and an eight unit residential apartment complex primarily used for long-term (in excess of three months) stays to serve as homes for the parents and families of critically ill children being treated at hospitals in the Metropolitan St. Louis Area. The residential facilities are known as Ronald McDonald Houses. Ronald McDonald House Charities also operates three family rooms inside local hospitals. Ronald McDonald House Charities receives its support and revenues from public contributions and fundraising events. Ronald McDonald House Charities makes grants to other not-for-profit organizations whose charitable purpose is beneficial to children. The grant funds are generated primarily through contributions and promotions at McDonald's restaurants. Method of Accounting The financial statements of Ronald McDonald House Charities have been prepared on the accrual basis of accounting. Financial Statement Presentation Financial statement presentation follows the requirements of the standards of the Financial Accounting Standards Board; therefore, Ronald McDonald House Charities reports its financial position and activities according to three classes of net assets: unrestricted net assets; temporarily restricted net assets; and permanently restricted net assets. Cash Equivalents Ronald McDonald House Charities considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Ronald McDonald House Charities maintains cash deposits in bank accounts which at times exceed the federally insured limits of up to $250,000 for each institution. Ronald McDonald House Charities has not experienced any losses in such accounts. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts aild disclosures. Actual results could differ from those estimates. (8)

13 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Instruments The following methods and assumptions were used by Ronald McDonald House Charities in estimating its fair value disclosure for financial instruments: The carrying amounts of cash and cash equivalents, pledges receivable due in less than one year, prepaid expenses, other assets, accounts payable, accrued payroll and related liabilities, and annuity obligations reported in the Statements of Financial Position approximate fair values due to the short-term maturities of those instruments. In addition, Ronald McDonald House Charities believes the carrying amount of long-term obligations approximate fair market value due to the relative similarity of the effective interest rates as compared to current market rate. Fair values for Level 1 investments are determined by reference to quoted market prices and other relevant information generated by market transactions. Fair values for Level 2 assets are determined by reference to quoted prices from less active markets provided by the Organization's brokers. Fair values for Level 3 assets are based upon unobservable other inputs. Property and Equipment Property and equipment are stated at cost. Depreciation is computed on a straight-line basis over the assets' estimated useful lives ranging as follows: Description Buildings and improvements Furniture Equipment and machinery Vehicles Useful Life Years Expenditures for repairs and maintenance are charged to operations while renewals and betterments are capitalized. Donations of furniture and equipment are recorded as support at their estimated fair value at the date of donation. Such donations are reported as unrestricted support unless the donor has restricted the donated asset to a specific purpose. (9)

14 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Property and Equipment Ronald McDonald House Charities evaluates its long-lived assets for any events or changes in circumstances which indicate the carrying amount of such assets may not be fully recoverable. Ronald McDonald House Charities evaluates the recoverability oflong~lived assets by measuring the carrying amount of such assets against the estimated undiscounted future cash flows associated with them. At the time such evaluation indicates the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. No such adjustments have been made in 2014 or Revenue Recognition Contributions are recognized when the donor makes a promise to give to Ronald McDonald House Charities, that is, in substance, unconditional. Amounts received that are restricted by the donor for use in future periods or for specific purposes are reported as temporarily restricted or permanently restricted support that increases those net asset classes. When a donor restriction expires, that is, when a stipulated time restriction ends or the purpose of the restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the Statements of Activities as net assets released from restrictions. Advertising Costs Ronald McDonald House Charities expenses advertising production costs as they are incurred and advertising communication costs the first time the advertising takes place. Advertising expense amounted to $6,389 and $5,040 for the years ended December 31, 2014 and 2013, respectively. Donated Assets and Services Donated marketable securities are recorded as contributions at their estimated fair market values at the date of donation. Certain donations of time, which meet the criteria for in-kind recognition, established by the Financial Accounting Standards Board, are recorded in the year contributed. Many individuals volunteer their time and perform a variety of tasks that assist Ronald McDonald House Charities with specific programs, campaign solicitations, and various administrative assignments. Such time is not recorded as an in-kind donation. Expense Allocation The cost of providing various programs and other activities has been summarized on a functional basis in the Statements of Activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. (10)

15 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Income Taxes Ronald McDonald House Charities qualifies as a not-for-profit organization under Section 50l(c)(3) of the Internal Revenue Code and is exempt from federal and state income taxes. Ronald McDonald House Charities files an information return, IRS Form 990. Tax returns for years 2010 and later remain subject to examination by taxing authorities, generally for three years after they were filed. Ronald McDonald House Charities follows the provisions relating to Accounting for Uncertainty in Income Taxes and management is not aware of any uncertain tax positions of Ronald McDonald House Charities related to tax filings. Recent Accounting Pronouncement The Organization chose to adopt the provisions of Accounting Standards Update , Not-for-profit-Entities: Classification of the Sale Proceeds ofdonated Financial Assets in the Statements of Cash Flows. ASU provides for classification of each receipt from the sale of donated financial assets consistently with cash donations received in the Statements of Cash Flows if those cash receipts were from the sale of donated financial assets that upon receipt were converted nearly immediately to cash. The effect of adopting appears on the Statements of Cash Flows as "Proceeds from sales of donated securities." Reclassifications Certain prior year amounts have been reclassified, where appropriate, to conform to the financial statement presentation used in the current year. Subsequent Events In preparing these financial statements, Ronald McDonald House Charities has evaluated events and transactions for potential recognition or disclosure through March 4, 2015, the date the financial statements were available to be issued. B. PLEDGES RECEIVABLE Ronald McDonald House Charities completed a capital campaign in 2012, which began in 2009, to construct and renovate facilities and to increase the Board Designated Endowment, with the purpose of paying off the newly constructed West County Ronald McDonald House and for any future renovations and expansion of the other facilities. Pledges receivable are restricted for payment of the costs of the facilities and to increase the Board Designated Endowment. (11)

16 B. PLEDGES RECEIVABLE Capital campaign pledges receivable are collectible as follows at December 31: Receivable in less than one year Receivable in one to five years Less discount of 2.6% Total Pledges Receivable 2014 $137,718 16, ,107 10,391 $143, $355, , ,840 25,783 $450,057 Management has determined the pledges receivable are fully collectible; therefore, no allowance for uncollectible accounts is considered necessary at December 31, C. PROPERTY AND EQUIPMENT Property and equipment consist of the following: December Land Buildings and improvements Furniture Equipment and machinery Vehicles Construction in progress Less accumulated depreciation Total Property and Equipment, Net ( $ 624,924 $ 624,924 13,432,178 13,418, , , , ,762 93, , ,853,151 15,806,338 6,072,199) ( 5,427,078) $ 9,780,952 $10,3 79,260 Depreciation expense amounted to $682,440 and $798,059 for the years ended December 31, 2014 and 2013, respectively. D. REALESTATEHELDFORSALE In 2014, a donor contributed real estate in St. Charles County, Missouri to Ronald McDonald House Charities and the property was immediately listed for sale. The property was held for sale as of December 31, Subsequent to year end a letter of intent to sell the property for $25,000 was signed. As a result, the fair market value of the property was reported at $25,000 at December 31, (12)

17 E. INVESTMENTS Ronald McDonald House Charities of St. Louis Long-term investments are stated at fair value and consist of funds held in the McDonald Charities Investment Program in equity and bond funds. Cost, fair values, and unrealized appreciation/ (depreciation) at, are summarized as follows: December 31, 2014 Unrealized Fair Appreciation/ Cost Value {De2reciation} McDonald Charities Investment Program Equity Fund $2,123,480 $2,610,880 $487,400 Bond Fund 1,786,736 1,780,631 { 6,105) Total McDonald Charities Investment Program $3,910,216 $4,391,511 $481,295 December Fair Unrealized Cost Value A22reciation McDonald Charities Investment Program Equity Fund $1,978,862 $2,565,763 $586,901 Bond Fund 1,886,402 1,908,108 21,706 Total McDonald Charities Investment Program $3l865l264 $ $ Included in long-term investments at, are permanently restricted endowment investments of $617,73 9 and Board designated endowment investments of $1,970,145 and $1,845,472, respectively (See Note J). F. FAIR VALUE MEASUREMENTS The financial assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with GAAP. GAAP establishes a hierarchy based on the quality of the inputs used to measure fair value. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of Ronald McDonald House Charities. Unobservable inputs are inputs that reflect management's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows: (13)

18 F. FAIR VALUE MEASUREMENTS Level I-Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Center has the ability to access and does not entail a significant degree of judgment. Level 2-Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 3-Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Fair values of assets measured on a recurring basis at are as follows: Fair Value Measurements at Re2orting Date Using Quoted Prices In Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Fair Value (Level I) (Level 2) (Level 3) December 31, 2014 Equity Fund $2,610,880 $2,610,880 $ $ Bond Fund 1,780,631 1,780,631 Pledges Receivable 143, Total $4,535,227 $2,610,880 $1,780,631 $143,716 December 31, 2013 Equity Fund $2,565,763 $2,565,763 $ $ Bond Fund 1,908,108 1,908,108 Pledges Receivable ,057 Total $4,923,928 $22565,763 $1, $450,057 Assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3): Pledges Receivable January 1, 2013 Cash Donations Pledged Cash Donations Received Change in Present Value December 31, 2013 $911,876 ( 4,250) ( 466,284) 8,715 $450,057 (14)

19 F. FAIR VALUE MEASUREMENTS January 1, 2014 Cash Donations Received Change in Present Value December 31, 2014 $450,057 ( 321,733) 15,392 $143,716 Fair value for the pledges receivable (Level 3) is determined by calculating the present value of the expected future cash receipts using a 2.6% discount rate. G. LINE OF CREDIT AGREEMENT Ronald McDonald House Charities has a $500,000 revolving line of credit agreement with a bank which is collateralized by a deed of trust on the leasehold of the West County Ronald McDonald House (See Note N). The agreement expires June 25, 2015, and is subject to annual renewal. Interest is payable at prime rate (3.25% at December 31, 2014) less three-quarters percent. The line is used to cover temporary cash shortfalls. There has been no activity on the line during 2014 or 2013, and there has been no balance outstanding at. H. LONG-TERMDEBT At, long term debt consisted of: Temporary Residential Facilities Revenue Bonds, Series 2008, monthly installments of principal and interest of $21,826 at a rate of 3.64%, collateralized by leasehold deed of trust; retired during J Note payable to a bank, monthly installments of interest only of $3,750 through April 2014; principal and interest of $8,342 at a rate of 3% beginning in May 2014, collateralized by leasehold deed of trust; refinanced during Note payable to a bank, monthly installments of principal and interest of $8,342 at a rate of 3% beginning in January 2014, collateralized by leasehold deed of trust; due April $ December 31, ,075 $ 811,670 1,500,000 Less portion considered current 820,075 76,153 2,311, ,102 Total Long-Term Debt $743,922 $2,040,568 (15)

20 H. LONG-TERM DEBT Ronald McDonald House Charities of St. Louis In September 2008, Ronald McDonald House Charities borrowed $3, 700,000 through the issuance oftemporary Residential Facilities Revenue Bonds, Series 2008 held by a bank. The bonds were used for the construction of a West County Ronald McDonald House. A portion of the proceeds from a Capital Campaign will be used to repay these bonds. The bonds have a term of 20 years and the bank has put options at each five year anniversary that require the outstanding bonds be repurchased, either by Ronald McDonald House Charities or another institution with six months notice. The bonds require set monthly principal and interest payments of $21,826 with an initial fixed interest rate of 3.64% for the first five years. At each five year anniversary, the bank can reset the interest rate for the next five year period. There was no change in interest rate at the five year anniversary that occurred during the year ended December 31, There is no penalty for the early payment of the outstanding principal amount. The organization made $575,000 and $250,000 of additional payments during the years ended, respectively. The bond was retired in During 2013, Ronald McDonald House Charities renovated the West Pine House, financed by a $1,500,000 construction line with a bank. The line called for payments of interest only through April Beginning in May 2014, the line called for 47 monthly payments of principal and interest of$8,342. Interest was calculated at 3% and the note was refinanced during The construction line was refinanced to a term loan in December 2014, with a down payment of $100,000 and 39 monthly payments of principal and interest of $8,342. Interest is calculated at 3% and the note is set to mature in April 2018 with a final installment of $565,204. The term loan is collateralized by a leasehold deed of trust and consent that states upon non-payment, the bank has the right to take control of the West County Ronald McDonald House with the consent of the owner of the leased property where the House is located. The agreement contains various covenants that pertain to providing regular and annual financial statements and annual liquidity requirements. At December 31, 2014 and 2013, Ronald McDonald House Charities was in compliance with these covenants. Annual maturities of the loan are as follows: Year Ending December 31, Principal $ 76,153 78,500 80, ,439 $ 820,075 (16)

21 I. RESTRICTIONS ON NET ASSETS Ronald McDonald House Charities of St. Louis Temporarily restricted net assets consist of pledges receivable at December 31, 2014 and 2013 of $143,716 and $450,057, respectively, to fund the construction of the West County Ronald McDonald House and for any future renovations and expansion of the other facilities, including the payment of bond proceeds used for construction, as well as $34, 131 and $18,335, respectively, restricted for specific programs. Temporarily restricted net assets are reclassified to unrestricted net assets when the time restriction expires or the funds are utilized for the restricted purpose. Permanently restricted net assets consist of endowment contributions to be held indefinitely, the income from which is restricted to Ronald McDonald House Charities operating expenses. J. BOARD DESIGNATED NET ASSETS Board designated net assets consist of unrestricted support previously received by Ronald McDonald House Charities. These funds are earmarked by the Board of Directors as follows: Endowment - Established with the intention of allowing the corpus to be retained and the income to build within the account or be used to fund a portion of the operating costs. The Board retains the authority to change the designation of these funds as deemed necessary in the future. The Board designated endowment is $1,970,145 and $1,845,472 at December 31, 2014 and 2013, respectively. K. ENDOWMENT FUNDS Ronald McDonald House Charities has adopted provisions of ASC lB, Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act (UPMIF A), and Enhanced Disclosures for All Endowment Funds. ASC lB provides guidance on the net asset classification of donor-restricted endowment funds for a nonprofit organization. Ronald McDonald House Charities endowment consists of individual funds established including both donor-restricted funds and funds designated by the Board of Directors to function as endowments. Net assets associated with endowment funds, including funds designated by the Board of Directors to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. Effective August 28, 2009, the State of Missouri enacted UPMIFA. UPMIFA requires the preservation of the fair value of the original gift as of the date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result, Ronald McDonald House Charities 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. (17)

22 K. ENDOWMENT FUNDS Ronald McDonald House Charities of St. Louis There are no donor-restricted endowment funds classified as temporarily restricted net assets at. Investment Return Objectives, Risk Parameters and Strategies: Ronald McDonald House Charities has adopted an investment policy, approved by the Board of Directors, for endowment assets to provide a clear understanding of the investment philosophy and objectives regarding the investment of funds of Ronald McDonald House Charities. Accordingly, the primary investment objectives of the Board designated endowment funds are to balance growth and income while minimizing risk over an intermediate term time horizon. The primary investment objectives of the permanently restricted endowment funds are growth and income, to maximize total return and to minimize risk ofloss over a longer term time horizon. Endowment assets are invested in a diversified asset mix, which can include cash and cash equivalents, equities and fixed income securities. The Board designated endowment funds have asset allocation targets of cash and cash equivalents between 0% and 15%; equities between 40% and 60%; and fixed income between 40% and 60%. The permanently restricted endowment funds have asset allocation targets of cash and cash equivalents between 0% and 15%; equities between 60% and 80%; and fixed income between 20% and 40%. Ronald McDonald House Charities investment performance is evaluated on a 1, 3, and 5 year time horizon and evaluated against peer universes and index benchmarks. Investment risk is measured in terms of the total endowment fund; investment assets and allocation between asset classes and strategies are managed to not expose the fund to unacceptable levels of risk. Endowment assets include those assets of donor-restricted funds that Ronald McDonald House Charities must hold in perpetuity as well as Board designated funds. Spending Policy: Ronald McDonald House Charities utilizes the income and appreciation of the permanently restricted endowment funds for operations in accordance with the original gift instrument. The Board designated endowment fund was established with the intention of retaining the corpus and building income to be used to fund a portion of the operating costs. Contributions to the Board designated endowment fund and appropriations for operations must be authorized by the Board of Directors. Ronald McDonald House Charities expects the current spending policy to allow its endowment funds to grow. Funds with Deficiencies: From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or UPMIF A requires Ronald McDonald House Charities to retain as a fund of perpetual duration. Deficiencies of this nature, if any, would be reported in unrestricted net assets. These deficiencies could result from unfavorable market fluctuations on investment permanently restricted contributions. There were no deficiencies at December 31, 2014 and (18)

23 K. ENDOWMENT FUNDS Ronald McDonald House Charities of St. Louis Endowment net asset composition by type of fund as of December 31, 2014 is as follows: Total Net Temporarily Permanently Endowment Unrestricted Restricted Restricted Assets Donor-restricted endowment funds Board designated gift annuity funds Board designated endowment funds $ 410,576 1,559,569 $ $617,739 $ 617, ,576 1,559,569 Total Funds $1,970,145 $ $617,739 $2,587,884 Changes in endowment net assets as of December 31, 2014 are as follows: Total Net Temporarily Permanently Endowment Unrestricted Restricted Restricted Assets Endowment net assets, beginning of year $1,845,472 $ $617,739 $2,463,211 Transfer from operations 35,000 35,000 Contributions 40,000 40,000 fuvestment income 66,279 80, ,071 Net depreciation ( 16,606) ( 19,724) ( 36,330) Amounts appropriated for operations ( 61,068) ( 61,068) Endowment net assets, end of year $ $ $ $ Endowment net asset composition by type of fund as of December 31, 2013 is as follows: Total Net Temporarily Permanently Endowment Unrestricted Restricted Restricted Assets Donor-restricted endowment funds $ $ $617,739 $ 617,739 Board designated endowment funds Total Funds $ $ $ $ (19)

24 K. ENDOWMENT FUNDS Ronald McDonald House Charities of St. Louis Changes in endowment net assets as of December 31, 2013 are as follows: Temporarily Permanently Unrestricted Restricted Restricted Endowment net assets, beginning of year $1,748,118 $ $617,739 Investment income 41,213 43,792 Net appreciation 211, ,147 Amounts appropriated for operations and capital projects ( 155,000) ( 343,939) Endowment net assets, end of year $ $ $ Total Net Endowment Assets $2,365,857 85, ,288 ( 498,939) $ L. PAYMENTS TO RMHC GLOBAL Ronald McDonald House Charities of St. Louis has a license agreement with Ronald McDonald House Charities, Inc. ("RMHC Global") which gives Ronald McDonald House Charities of St. Louis the nonexclusive right to use the trademark "Ronald McDonald House Charities" for its short-term residential facilities, its apartment complex, and the family rooms inside local hospitals, as well as the use of other registered trade and service marks in furtherance of the purposes of Ronald McDonald House Charities of St. Louis. Under the terms of this agreement, Ronald McDonald House Charities of St. Louis is required to remit to RMHC Global 25% of all receipts from national and special Ronald McDonald House Charities St. Louis fundraising contributions as defined by the licensing agreement. The Agreement can be terminated by RMHC Global with or without cause, upon thirty days written notice to Ronald McDonald House Charities of St. Louis. Total payments to RMHC Global for the years ended were $54,540 and $49,065, respectively. M. PLANNED GIVING - ANNUITIES Ronald McDonald House Charities administers several charitable gift annuities. A charitable gift annuity provides for the payment of distributions to the donor or other designated beneficiaries over the term of the annuity. At the end of the annuity term, the remaining assets are available for the unrestricted use of Ronald McDonald House Charities. (20)

25 M. PLANNED GIVING - ANNUITIES The portion of the annuity attributable to the present value of the estimated future benefits to be received by Ronald McDonald House Charities is recorded in the Statements of Activities as unrestricted support in the period the annuity is established. Such support totaled $40,000 in There were no such gifts in The gifts received are deposited into long-term investments as unrestricted assets as there were no donor restrictions on the use of the gifts. The assets are recorded at fair value on the Statements of Financial Position with the rest of Ronald McDonald House Charities investments. On an annual basis, Ronald McDonald House Charities revalues the liability to make distributions to the designated beneficiaries based on actuarial assumptions. During 2014 and 2013, the net change of $19,478 and $18,841, respectively, was recorded in the Statements of Activities as a decrease in unrestricted support as a change in value of split-interest agreements. The present value of the estimated future payments is recorded on the Statements of Financial Position as an annuity obligation ($198,628 and $180,286 at, respectively) and is calculated using the appropriate discount rate at the time of the donation (ranging from 4.0% to 16.5%) and applicable mortality tables. N. LEASE AGREEMENTS In connection with one of its short-term residential facilities, Ronald McDonald House Charities has a land lease agreement with a not-for-profit hospital organization. The term of the lease is thirty years from December 31, 1998, with the right to renew the term for two successive ten-year periods. The rent payment consisted of a non-refundable amount covering the entire term of the lease in the amount of $30. No amount has been recorded in the accompanying financial statements for the fair value of the lease agreement as the value cannot be estimated. In connection with the West County Ronald McDonald House, Ronald McDonald House Charities has a land lease agreement with a not-for-profit hospital organization. The term of the lease is thirty years from the September 2008 commencement date, with the right to renew the term for two successive thirty-year periods. The rent payment consisted of a nonrefundable amount covering the entire term of the lease in the amount of$30. No amount has been recorded in the accompanying financial statements for the fair value of the lease agreement as the value cannot be estimated. After fifteen years from the commencement date, if the West County Ronald McDonald House has below 50% occupancy for a period of twelve consecutive months, Ronald McDonald House Charities has the ability to terminate the lease on an annual basis. (21)

26 0. IN-KIND CONTRIBUTIONS Ronald McDonald House Charities of St. Louis Local businesses and individuals contributed fixed assets and professional services used in operations. Various professional service firms donate professional services to Ronald McDonald House Charities in lieu of cash sponsorship. In-kind contributions are recorded at estimated fair value at the date of donation. Total property and equipment donated during 2014 and 2013 were valued at $24,725 and $112,893, respectively. Total professional services donated during 2014 and 2013 were valued at $5,406 and $5,362, respectively. Inkind contributions are included in contributions on the Statements of Activities. In-kind services are included in professional fees and services in the Statements of Functional Expenses. P. RETIREMENT PLAN Ronald McDonald House Charities sponsors a defined contribution plan that covers substantially all permanent employees. Contributions to the plan are 4% of the employee's annual salary. For the years ended, the amount contributed to the plan by Ronald McDonald House Charities was $45,953 and $46,457, respectively. Q. OPERATING LEASES Ronald McDonald House Charities leases office equipment under two operating leases that expire October 2015 and February The future minimum lease payments required under these leases are as follows: Years Ending December 31, $10,546 1,550 $12,096 Total rent expense under these operating leases was $10, 796 during the years ended. (22)