PLANNED PARENTHOOD SOUTH ATLANTIC, INC.

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1 FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS SUPPLEMENTARY INFORMATION AND OTHER MATTERS JUNE 30, 2017 AND 2016

2 TABLE OF CONTENTS REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1-2 Page FINANCIAL STATEMENTS Consolidated Statements of Financial Position, June 30, 2017 and Consolidated Statements of Activities, For the years ended June 30, 2017 and Consolidated Statements of Functional Expenses, For the years ended June 30, 2017 and Consolidated Statements of Cash Flows, For the years ended June 30, 2017 and Notes to Consolidated Financial Statements 9-16 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards, Year ended June 30, Notes to Schedule of Expenditures of Federal Awards 18 OTHER MATTERS Independent Auditors Report on Internal Control over Financial Reporting and On Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Independent Auditors Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Findings and Questioned Costs Schedule of Prior Year Findings 25

3 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Planned Parenthood South Atlantic, Inc. Raleigh, North Carolina We have audited the accompanying consolidated financial statements of financial position of Planned Parenthood South Atlantic, Inc., (a nonprofit organization) and its affiliates, which comprise the consolidated statements of financial position as of June 30, 2017 and 2016, and the related consolidated statements of activities, functional expenses, and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated 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 consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Audit Standards, issued by the Comptroller of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Planned Parenthood South Atlantic, Inc. and its affiliates, as of June 30, 2017 and 2016, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Other Matters Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards, as required by Office of Management and Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. 1

4 Board of Directors Planned Parenthood South Atlantic, Inc. Raleigh, North Carolina Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 5, 2018, on our consideration of Planned Parenthood South Atlantic, Inc. s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Planned Parenthood South Atlantic, Inc. s internal control over financial reporting and compliance. Philadelphia, Pennsylvania January 5, 2018, except for the Schedule of Expenditures of Federal Awards, for which the date is March 29,

5 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION June 30, 2017 And 2016 ASSETS Current Assets Cash and cash equivalents $ 6,398,997 $ 856,363 Contributions and grants receivable, net 1,213,547 1,551,476 Accounts receivable patient (net of allowance of $422,331 and $368,651, respectively) 464, ,658 Accounts receivable other 54,149 32,638 Prepaid expenses 165,698 44,202 Inventory 438, ,897 Investments 7,075,474 6,093,514 Total Current Assets 15,811,008 9,325,748 Property and Equipment, net 13,069,387 12,497,561 Other Assets Contributions receivable 624, ,049 Deposits 23,695 17,423 Beneficial interest in perpetual trusts 1,043, ,515 Total Other Assets 1,691,841 1,143,987 Total Assets $ 30,572,236 $ 22,967,296 LIABILITIES AND NET ASSETS Current Liabilities Accounts payable $ 747,685 $ 662,847 Accrued expenses 834,356 1,050,366 Note Payable 768, ,000 Deferred Revenue 20, ,934 Total Current Liabilities 2,370,662 2,397,147 Total Liabilities 2,370,662 2,397,147 Net Assets Unrestricted 21,847,687 15,087,679 Temporarily restricted 5,284,160 4,492,684 Permanently restricted 1,069, ,786 Total Net Assets 28,201,574 20,570,149 Total Liabilities And Net Assets $ 30,572,236 $ 22,967,296 The accompanying notes to financial statements are an integral part of these statements. 3

6 CONSOLIDATED STATEMENTS OF ACTIVITIES For The Year Ended June 30, 2017 Temporarily Permanently Unrestricted Restricted Restricted Operating Revenues And Public Support Service Fees: Patient fees, net $ 9,486,125 $ - $ - $ 9,486,125 $ 9,124,870 Government Grants Title X 2,830, ,830,126 2,779,750 12,316, ,316,251 11,904,620 Contributions and grants 11,783,790 5,379,981-17,163,771 8,778,946 Other 115, , ,818 24,215,904 5,379,981 29,595,885 20,893,384 Net assets released from restrictions 1,562,698 (1,562,698) Total Operating Revenues And Public Support 25,778,602 3,817,283-29,595,885 20,893,384 Operating Expenses Program Services: Health services 13,797, ,797,261 13,102,345 Education and information 965, ,147 1,143,110 Operating Action Funds 3,264, ,264,191 1,071,606 Total Program Services 18,026, ,026,599 15,317,061 Supporting Services: Management and general 2,820, ,820,029 2,688,291 Fundraising 1,916, ,916,575 1,568,143 Total Supporting Services 4,736, ,736,604 4,256,434 Total Operating Expenses 22,763, ,763,203 19,573,495 Changes In Net Assets From Operations 3,015,399 3,817,283-6,832,682 1,319,889 Other Changes Net assets released from restriction - satisfaction of purpose restrictions 3,025,807 (3,025,807) Changes in beneficial interest in perpetual trusts ,941 79,941 (64,510) Investment Income 726, ,973 11,105 Billing adjustments ,999 Merger with Planned Parenthood of Central North Carolina Merger costs (8,171) - - (8,171) (114,587) Total Other Changes 3,744,609 (3,025,807) 79, , ,007 Changes In Net Assets 6,760, ,476 79,941 7,631,425 2,064,896 Net Assets Beginning of year 15,087,679 4,492, ,786 20,570,149 18,505,253 End of year $ 21,847,687 $ 5,284,160 $ 1,069,727 $ 28,201,574 $ 20,570,149 The accompanying notes to financial statements are an integral part of these statements. 4

7 CONSOLIDATED STATEMENT OF ACTIVITIES For The Year Ended June 30, 2016 Temporarily Permanently Unrestricted Restricted Restricted 2016 Operating Revenues And Public Support Service Fees: Patient fees, net $ 9,124,870 $ - $ - $ 9,124,870 Government Grants Title X 2,779, ,779,750 11,904, ,904,620 Contributions and grants 6,716,160 2,016,049 46,737 8,778,946 Other 209, ,818 18,830,598 2,016,049 46,737 20,893,384 Net assets released from restrictions 1,190,872 (1,190,872) - - Total Operating Revenues And Public Support 20,021, ,177 46,737 20,893,384 Operating Expenses Program Services: Health services 13,102, ,102,345 Education and information 1,143, ,143,110 Public affairs Operating Action Funds 1,071, ,071,606 Total Program Services 15,317, ,317,061 Supporting Services: Management and general 2,688, ,688,291 Fundraising 1,568, ,568,143 Total Supporting Services 4,256, ,256,434 Total Operating Expenses 19,573, ,573,495 Changes In Net Assets From Operations 447, ,177 46,737 1,319,889 Other Changes Changes in beneficial interest in perpetual trusts - - (64,510) (64,510) Investment Income 11, ,105 Billing adjustments 912, ,999 Merger with Planned Parenthood of Central North Carolina Merger costs (114,587) - - (114,587) Total Other Changes 809,517 - (64,510) 745,007 Changes In Net Assets 1,257, ,177 (17,773) 2,064,896 Net Assets Beginning of year 13,830,187 3,667,507 1,007,559 18,505,253 End of year $ 15,087,679 $ 4,492,684 $ 989,786 $ 20,570,149 The accompanying notes to financial statements are an integral part of these statements. 5

8 CONSOLIDATED STATEMENTS OF FUNCTIONAL EXPENSES For The Year Ended June 30, 2017 Operating Health Education & Action Management Services Information Funds And General Fundraising Total Totals Salaries and related costs $ 6,276,430 $ 541,905 $ 693,361 $ 1,443,630 $ 1,124,781 $ 10,080,107 $ 9,195,592 Employees benefits 1,102, , , , ,295 1,805,954 1,556,132 Professional and contracted services 720,288 41, , , ,455 2,087,446 1,602,094 Cost of goods sold 2,169, ,169,233 1,877,728 Lab services 365,107 7, , ,420 Medical Supplies 371, , ,212 Telephone 116,173 16, ,030 10, , ,615 Equipment supplies 40,863 1, ,066 7,112 51,415 36,366 Information Technology 28, ,251 58,145 57, , ,272 Insurance 253,503 3,984-5,652 3, , ,015 Office supplies 81,838 26,666 15,479 18,870 21, , ,423 Advertising/marketing 348, ,875 12,063 1, , ,130 Postage and printing 35,124 3, ,707 4,456 73, , ,588 Travel 332,038 60,074 94,963 52,990 69, , ,009 Dues/fees 47,944 1,718 42, ,281 52, , ,782 Bank charges 42, ,814 38,883-83,076 90,336 Meeting expenses 41,010 50,705 26,597 54,804 24, , ,487 Polling expenses , ,343 - Depreciation 453,668 27,071-77,920 25, , ,989 Employee training 17,255 9,221-6,662 5,232 38,370 16,853 Rent 236,580 20,606-15,549 17, , ,011 Property and other taxes 32,264 1,969-1,761 1,711 37,705 34,024 Utilities 86,535 7,537-5,687 6, ,308 92,594 Bad debt 235, , , ,983 Miscellaneous expenses 22, ,713 7,154 18, , ,763 Maintenance and security 339,647 27,414 22,611 98,111 23, , ,077 Total Expenses $ 13,797,261 $ 965,147 $ 3,264,191 $ 2,820,029 $ 1,916,575 $ 22,763,203 $ 19,573,495 6 The accompanying notes to financial statements are an integral part of these statements.

9 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES For The Year Ended June 30, 2016 Operating Health Education & Public Action Management 2016 Services Information Affairs Funds And General Fundraising Totals Salaries and related costs $ 5,741,865 $ 687,166 $ 449,640 $ - $ 1,350,233 $ 966,688 $ 9,195,592 Employees benefits 964, ,750 83, , ,843 1,556,132 Professional and contracted services 890,120 62,315 15,854 35, ,513 87,014 1,602,094 Cost of goods sold 1,877, ,877,728 Lab services 288, ,420 Medical Supplies 373,085 5, ,212 Telephone 398,763 54,530 27,366-49,801 42, ,615 Equipment supplies 33, ,200 1,221 36,366 Information Technology 67,475 5,462 1,211-37,803 47, ,272 Insurance 249,464 3,124 1,435-4,906 2, ,015 Office supplies 89,266 16,671 1,951 4,212 29,297 21, ,423 Advertising/marketing 319, ,706 29,873 18,817 5, ,130 Postage and printing 51,299 3, ,133 7,733 65, ,588 Travel 290,924 78,514 6,271 71,963 62,358 74, ,009 Dues/fees 54,142 4, , ,888 49, ,782 Bank charges 52, ,803 33,627-90,336 Meeting expenses 8,516 22,795-6,560 60,141 11, ,487 Depreciation 448,486 20,712 9,610-32,246 15, ,989 Employee training 1,832 13, , ,853 Rent 243,776 18,030 8,251 8,155 14,809 11, ,011 Property and other taxes 28,593 1, ,517 1,229 34,024 Utilities 76,028 5,679 2,563-4,600 3,724 92,594 Bad debt 176, , ,983 Miscellaneous expenses 15,713 2,375-21,856 55,930 16, ,763 Maintenance and security 360,163 24,649 11,305-22,378 16, ,077 Allocation of expenses - (11,716) (627,023) 800,655 (89,735) (72,181) - Total Expenses $ 13,102,345 $ 1,143,110 $ - $ 1,071,606 $ 2,688,291 $ 1,568,143 $ 19,573,495 7 The accompanying notes to financial statements are an integral part of these statements.

10 CONSOLIDATED STATEMENTS OF CASH FLOWS For The Years Ended June 30, 2017 And 2016 Cash Flows From Operating Activities Changes in net assets $ 7,631,425 $ 2,064,896 Adjustments to reconcile changes in net assets to net cash provided by operating activities Depreciation 583, ,989 Realized/unrealized (gains) losses on investments (598,343) 179,492 Increase (decrease) in allowance for doubtful accounts 53,680 (130,304) Change in beneficial interest in perpetual trusts (79,941) 17,773 (Increase) decrease in Contributions and grants receivable (123,712) 134,512 Accounts receivable patient (117,946) 731,512 Accounts receivable other (21,511) 67,446 Inventory (91,322) (32,427) Prepaid expenses (121,496) 169,982 Deposits (6,272) (1,218) Increases (decrease) in Accounts payable 84,838 35,575 Accrued expenses (216,010) (2,960,338) Deferred revenue (163,689) 183,934 Deferred compensation - (78,467) Net cash provided by operating activities 6,813, ,357 Cash Flows From Investing Activities Purchases of investments (434,276) (1,999,351) Proceeds from sale of investments 50,659 1,652,275 Purchases of property and equipment (1,155,803) (2,013,675) Net cash used by investing activities (1,539,420) (2,360,751) Cash Flows From Financing Activities Proceeds from debt issuance 500, ,000 Repayments of debt (231,624) - Net cash provided by financing activities 268, ,000 Net increase (decrease) in cash and cash equivalents 5,542,634 (951,394) Cash and Cash Equivalents Beginning of year 856,363 1,807,757 End of year $ 6,398,997 $ 856,363 Other Disclosure In-kind donations/expenditures $ 70,351 $ 19,279 The accompanying notes to financial statements are an integral part of these statements. 8

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2017 And 2016 (1) ORGANIZATION Planned Parenthood South Atlantic, Inc. s (the Organization ) mission is to ensure access to comprehensive reproductive health care by: providing comprehensive reproductive health care services in settings which preserve and protect the individual s right to privacy and reproductive choice; advocating public policies which guarantee these rights and ensure access to such services; promoting and providing educational programs which enhance the understanding of human sexuality and its individual and social implications; and reaching out to those who are underserved. The Organization was formed on January 1, 2015 through a merger of Planned Parenthood Central North Carolina, Inc. ( PPCNC ) into Planned Parenthood Health Systems, Inc. ( PPHS ). At the effective date of the merger, the articles of incorporation and bylaws of PPHS were amended and the name was changed to Planned Parenthood South Atlantic, Inc. ( PPSAT ). The Board of Directors of PPHS ceased to hold office and a new Board of Directors for PPSA were designated by the merger organizations. The Organization operates 14 health centers in 4 states, including North Carolina, South Carolina, Western Virginia and West Virginia, and currently has its headquarters in Raleigh, North Carolina. Planned Parenthood Votes! South Atlantic ( PPVSA ) is an affiliate of the Organization and engages in educational and electoral activity, including legislative advocacy, voter education, and grassroots organizing. This affiliate is committed to supporting pro-choice, pro-family planning candidates for office. The Organization is an affiliate of Planned Parenthood Federation of America ( PPFA ). (2) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES BASIS OF ACCOUNTING AND CONSOLIDATION The financial statements of the Organization are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts of the Organization and its affiliate, PPVSA. All significant intercompany balances and transactions have been eliminated. ACCOUNTING 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of 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. CONCENTRATION OF MARKET AND CREDIT RISK The Organization periodically, maintains cash balances in excess of insured limits. Accounting Standards Codification ( ASC ) 825, Financial Instruments identifies these items as a concentration of credit risk requiring disclosure, regardless of degree of risk. The risk is managed by monitoring the financial institutions in which deposits are made. Market risk represents the potential loss the Organization faces due to the decrease in the value of marketable securities. Credit risk represents the potential loss the Organization faces due to the possible nonperformance by obligors and counterparts of the terms of their contracts. ALLOCATION OF EXPENSES Expenses, not specifically identified by type, are allocated between program, management and general, and fundraising expenses using the following methods. Expenses associated with occupancy are allocated based upon the square footage used by the program, management, and administrative personnel. All other expenses are allocated based upon estimates made by the Organization s management. Functional expenses fluctuate annually based on the priorities of the Organization. 9

12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2017 And 2016 CASH AND CASH EQUIVALENTS All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. Cash and cash equivalents consist of petty cash and money on deposit with banks and a certificate of deposit. SERVICE FEES AND PATIENT RECEIVABLES Patient revenue is recorded at the estimated net realizable amounts from patients, third-party payors, government assistance programs and others when the service is rendered. Additions to the allowance for doubtful accounts are made by means of the provision for doubtful accounts. Accounts written off as uncollectible are deducted from the allowance for doubtful accounts and subsequent recoveries are added. The amount of the provision for doubtful accounts is based upon management s assessment of historical and expected net collections, business and economic conditions, trends in local government and other collection indicators. INVENTORY Inventory consists primarily of birth control supplies and other medications, and is stated at cost. Cost is determined using the average cost method. INVESTMENTS Investments are carried at fair value, using quoted market prices, with unrealized gains and losses included in the statement of activity and changes in net assets. Donated securities are recorded at their fair value, using quoted market prices at the date of donation. Interest income is recorded as earned and dividend income is recorded when received. PROPERTY AND EQUIPMENT Property and equipment are stated at cost for purchased assets and at fair market value on the date of the gift for donated assets. The Organization s capitalization level is $1,000. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Maintenance, repairs, and small equipment purchases are charged to expense when incurred. The Organization reports gifts of land, buildings, and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about how long those long-lived must be maintained, the Organization reports expirations of donor restrictions as the donated or acquired long-lived assets are placed in service. NET ASSETS Net assets and revenues, expenses, gains, and losses are classified based on the existence or absence of donorimposed restrictions. All contributions are considered available for unrestricted use, unless specifically restricted by the donor. Accordingly, net assets of the Organization and changes therein are classified and reported as follows: Unrestricted net assets Net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets Net assets subject to donor-imposed stipulations that will be met either by actions of the Organization and/or the passage of time. Permanently restricted net assets Net assets subject to donor-imposed stipulations that they be maintained permanently by the Organization. Generally, the donors of these assets permit the Organization to use all or part of the income earned on related investments for unrestricted or temporarily restricted purposes. 10

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2017 And 2016 CONTRIBUTIONS Unconditional contributions, including promises to give cash and other assets, are reported at fair value at the date the contribution or promise to give is received. Promises to give are recorded as a receivable net of the discount, using a risk-free interest rate, to present value of the future cash flows for gifts that are not expected to be received within one year. Gifts of cash and other assets are reported as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose of the restriction is accomplished, temporarily restricted net assets are then classified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. DONATED SERVICES The Organization recognizes donated services that create or enhance nonfinancial assets or that require specialized skills which are provided by individuals possessing those skills and would typically need to be purchased if not provided by donation. The Organization recognized donated services totaling $70,351 and $19,279 during the years ended June 30, 2017 and 2016, respectively. MARKETING AND PROMOTION COSTS Marketing and promotion costs are expensed as incurred. INCOME TAXES The Organization is exempt from income taxes as a not-for-profit organization under Section 501(c)(3) of the Internal Revenue Code and is not a private foundation because it is an organization of the type described in Internal Revenue Code Section 170(b)(1)(A)(VI). PPVSA is exempt from income taxes as a not-for-profit organization under Section 501(c)(4) of the Internal Revenue Code. Management has reviewed the tax positions for each of the open tax years ( ) or expected to be taken in the Organization s 2016 tax return and has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. (3) INVESTMENTS Investments at June 30, 2017 and 2016, consist of the following: 2017 Market Appreciation Value_ Cost (Depreciation) Cash and cash equivalents $ 200,937 $ 200,937 $ - Equities 46,828 46, Mutual Funds Equity funds 5,003,355 4,527, ,418 Fixed income funds 448, ,481 11,101 Exchange-traded funds 1,327,763 1,139, ,966 Other 48,009 48,009 - $ 7,075,474 $ 6,400,649 $ 674,825 11

14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2017 And Market Appreciation Value Cost (Depreciation) Cash and cash equivalents $ 21,546 $ 21,546 $ - Mutual Funds Equity funds 4,429,077 4,384,973 44,104 Fixed income funds 450, ,951 26,621 Exchange-traded funds 1,149,188 1,139,797 9,391 Other 43,131 43,131 - $ 6,093,514 $ 6,013,398 $ 80, Returns on the securities are as follows: Realized gains $ 3,634 $ 604,904 Unrealized gains (losses) 594,709 (784,396) Interest and dividends, net of investment fees 128, ,597 Investment fees totaled $39,329 and $32,341 for the years ending June 30, 2017 and 2016, respectively. $ 726,973 $ 11,105 Fair Value of Financial Instruments The Organization utilized various methods to measure the fair value of its investments on a recurring basis. Generally accepted accounting principles established a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are described below: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities that Organization has the ability to access. Level 2 Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instruments on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. Level 3 Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing Organization s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. The inputs methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. All Organization investments are Level 1 inputs as of June 30, 2017 and There were no transfers between Level 1 and Level 2 during the years ended June 30, 2017 and The beneficial interest in assets held by the various foundations is measured at fair value. As a result, the present value technique is a Level 3 input. 12

15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2017 And 2016 (4) CONTRIBUTIONS AND GRANTS RECEIVABLE Contributions and grants receivable are due as follows: Due in less than one year $ 1,213,547 $ 1,551,476 Due in one to five years 654, ,016 Total unconditional contributions and grants receivable 1,867,783 1,716,492 Less: Discount (29,546) (1,967) Net present value of contributions and grants receivable $ 1,838,237 $ 1,714,525 Unrestricted $ 998,124 $ 1,537,624 Temporarily Restricted 840, ,901 $ 1,838,237 $ 1,714,525 No allowance for uncollectible promises to give has been recorded at June 30, 2017 and 2016, based on management s estimate of collectability. (5) PROPERTY AND EQUIPMENT Property and equipment at June 30, 2017 and 2016, consists of: Land $ 2,490,083 $ 2,490,083 Buildings and Improvements 12,583,520 9,419,118 Construction in Progress 98,804 2,323,373 Equipment 3,910,764 3,694,794 19,083,171 17,927,368 Accumulated depreciation 6,013,784 5,429,807 Total property and equipment, net $ 13,069,387 $ 12,497,561 (6) LINE OF CREDIT At June 30, 2017 and 2016, the Organization has available an unsecured line of credit up to $2,000,000 with a local bank at the prime rate of interest. The line expires February 25, There was no outstanding balance on the line of credit at June 30, 2017 and (7) NOTE PAYABLE The Organization entered into a term-loan agreement with BB&T Bank on March 7, 2016 with a maximum borrowing of $1,270,000. The balance is payable in monthly installments of principal and interest of $23,234 with a final installment due on March 7, Interest on the loan is based upon the adjusted LIBOR Rate. At June 30, 2017 and 2016, the interest rate on the note was % and %, respectively. The Organization has agreed that it will not transfer, encumber, assign or allow liens on the Chapel Hill property until the debt is extinguished or the encumbrance is removed. The outstanding balance on the loan was $768,376 and $500,000 as of June 30, 2017 and 2016, respectively. Interest expense was $23,945 and $3,029 for the years ended June 30, 2017 and 2016, respectively. 13

16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2017 And 2016 Principal payments under the terms of the Loan are as follows: Year Ending Payments June 30, 2018 $ 258,783 June 30, ,850 June 30, ,743 $ 768,376 (8) NET ASSETS TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets at June 30, 2017 and 2016 were restricted for the following purposes: TRAP Capital Campaign: Campaign contributions $ 6,387 $ 656,949 Construction in progress - 2,323,372 Promises to give 58, ,901 Charlotte Capital Campaign: Campaign contributions 2,582,795 - Promises to give 751,954 - TRAP NC 125, ,000 Education 82, ,989 Public affairs 156, ,000 Capital Asheville 387, ,575 Capital Other 130,005 - Patient Services 314,928 21,882 Other 19,000 11,000 Total purpose restricted 4,614,916 4,077,668 Time restricted: Unrestricted promises to give 669, ,016 Temporarily restricted net assets $ 5,284,160 $ 4,492,684 During 2017 and 2016, net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by the collection of promises to give, as follows: Purpose restrictions satisfied: Operating Releases Education $ 344,778 $ 274,404 Patient Services 173, ,866 Public Affairs 527, ,549 Time restrictions met 445, ,000 Capital 68, ,953 Merger - 100,000 Other 2,800 37,100 Total operating releases $ 1,562,698 $ 1,190,872 During 2017, the renovation and expansion of the Chapel Hill facility funded by the TRAP Capital Campaign was completed and placed in service and $3,025,807 of the campaign funds were released to unrestricted net assets which represented the total amount of the Chapel Hill facility building and equipment costs. 14

17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2017 And 2016 PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets at June 30, 2017 and 2016, consist of the following: Beneficial Interest in Perpetual Trusts Triangle Community Foundation $ 59,971 $ 55,936 The Winston-Salem Foundation 530, ,351 Foundation for the Carolinas 149, ,854 Charlottesville Area Community Foundation 261, ,937 Greater Lynchburg Community Trust 27,960 26,736 Foundation for Roanoke Valley 13,626 12,701 Total beneficial interest in perpetual trusts 1,043, ,515 Other: Amy Meier Otto Special Gifts Fund 26,271 26,271 Total permanently restricted net assets $ 1,069,727 $ 989,786 Permanently restricted net assets consist of beneficial interests in perpetual Trusts. These are arrangements in which a donor has established and funded perpetual trusts administered by an entity other than the Organization where the Organization is the beneficiary. Under the terms of the trusts, the Organization has the irrevocable right to receive income earned on the trusts assets in perpetuity, but never receives the assets held in trust. Distributions received from the trusts increases unrestricted net assets. The Organization values its beneficial interest in these trusts annually at fair value. Changes in the fair value are recognized as increases or decreases in permanently restricted net assets. (9) PENSION PLAN The Organization participates in a 403(b) pension plan. Contributions are made by the Organization on a discretionary basis. Employees are allowed voluntary participation. Total expense charged for contributions to the plan was approximately $199,600 and $156,300 for the year ended June 30, 2017 and 2016, respectively. (10) RELATED PARTY TRANSACTIONS Annually, the Organization receives from PPFA a percentage of donations made to the Federation from individuals residing in regions serviced by the Organization for the year ended June 30, 2017 and 2016, the organization received $1,068,949 and $456,460 for the years ended June 30, 2017 and 2016, respectively. In addition, the Organization received $278,820 and $1,156,000 for the year ending June 30, 2017 and 2016, respectively, for the Consortium of Abortion Providers (CAPS) funding which is administered by PPFA. The Organization also received $1,273,227 and $142,246 in various grants from PPFA during the years ended June 30, 2017 and 2016, respectively. A fee is charged by PPFA for support services provided to each affiliate. This fee is based on a percentage of the Organization s unrestricted operating expenses in the prior year and totaled $148,948 and $243,519, for the years ending June 30, 2017 and 2016, respectively. The amount due to PPFA from the Organization was $742 at June 30,

18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 2017 And 2016 (11) OPERATING LEASES The Organization leases facilities in Columbia, South Carolina, Greensboro, North Carolina, and Vienna, West Virginia expiring at various dates through May 31, The future minimum obligations for operating leases with noncancelable terms in excess of one year are as follows: Year Ending June 30, Amount 2018 $ 126, ,000 Total future minimum rental payments $ 137,000 Rent expense including from month to month leases for the year ended June 30, 2017 and June 30, 2016 was approximately $291,000 and $297,000, respectively. (12) CONTINGENCIES The Department of Health and Human Services will be issuing new guidelines for obtaining grants under the Title X funding program. It is expected that the Trump administration will use that opportunity to either fully prohibit or make it difficult for Planned Parenthoods and other abortion providers to participate in the program. There are a number of ways that this administration could impact Title X ranging from reducing funding for the program, restricting the type of services performed at Title X clinics, or requiring that no clinics who refer patients for or perform abortions can participate. PPSAT currently receives $2.7M in funding from Title X to provide health care services and education in seven of its service communities. The Trump administration, along with the Republican led congress, continues to threaten to exclude all Planned Parenthoods from participation in the Medicaid program. While the administration has been unsuccessful in this fight so far, exclusion from the program remains a threat. Approximately 9% of PPSAT s patients are covered by Medicaid. The Organization receives funds from U.S. and state government agencies and such funding is subject to audit by these agencies. The Organization provides a reserve for possible adjustments to the amounts billed to these agencies and believes that any amount in excess of the reserves would not be material to the financial statements. For the year ended June 30, 2015, the Organization provided a reserve of $2,500,000 for possible billing adjustments. During the year ended June 30, 2016 the organization refunded approximately $1,572,000 to the US Government and incurred approximately $15,000 of expenses in connection with this funding, resulting in the reversal of the remaining reserve of $912,999 which is shown in others changes on the Consolidated Statement of Activities. (13) SUBSEQUENT EVENTS In July 2017, PPSAT purchased a building in Charlotte, North Carolina to be used for a clinic for $2,350,000. In November 2017, PPSAT acquired a building for $1,200,000 and a medical practice for $800,000 in Charleston, South Carolina. The building will be used for a new clinic, as the former clinic building was sold in October 2017, for $1,200,000. Subsequent events after the statement of financial position through the date that the financial statements were available for issuance January 5, 2018, have been evaluated in the preparation of the financial statements. 16

19 SUPPLEMENTARY INFORMATION

20 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended June 30, 2017 Federal CFDA Federal Federal Grantor/Program Title Number Expenditures DEPARTMENT OF HEALTH AND HUMAN SERVICES (DHHS) Directly Funded Family Planning Services North Carolina Family Planning Access Preservation Project $ 2,058,236 Virginia Family Planning Access Preservation Project ,890 Total Directly Funded 2,830,126 Pass-Through Funded Pass-through North Carolina Division of Public Health Temporary Assistance for Needy Families (TANF) Cumberland County ,092 Pass-Through North Carolina Division of Public Health Temporary Assistance for Needy Families (TANF) New Hanover County ,610 Total Pass-Through Funded 135,702 TOTAL FEDERAL AWARDS $ 2,965,828 17

21 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended June 30, 2017 (1) BASIS OF PRESENTATION The schedule of expenditures of federal awards (the Schedule ) includes the federal award activity of Planned Parenthood South Atlantic, Inc. (the Organization ) under programs of the federal government for the year ended June 30, The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR), Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the Organization, it is not intended to and does not present the financial position, changes in net assets, or cash flows of the Organization. The Organization did not elect to use the 10% de minimis indirect cost rate. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. 18

22 OTHER MATTERS

23 INDEPENDENT AUDITORS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To The Board of Directors Planned Parenthood South Atlantic, Inc. Raleigh, North Carolina We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Planned Parenthood South Atlantic, Inc. (the Organization ) (a nonprofit organization), which comprise the statement of financial position as of June 30, 2017, and the related statements of activities, functional expenses and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated January 5, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Organization s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Organization s internal control. Accordingly, we do not express an opinion on the effectiveness of the Organization s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Organization s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 19

24 To The Board of Directors Planned Parenthood South Atlantic, Inc. Raleigh, North Carolina Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Organization s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Philadelphia, Pennsylvania January 5,

25 INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To The Board of Directors Planned Parenthood South Atlantic, Inc. Raleigh, North Carolina Report on Compliance for Each Major Federal Program We have audited Planned Parenthood South Atlantic, Inc. s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Planned Parenthood South Atlantic, Inc. s major federal programs for the year ended June 30, Planned Parenthood South Atlantic, Inc. s major federal programs are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditors Responsibility Our responsibility is to express an opinion on compliance for each of Planned Parenthood South Atlantic, Inc. s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Planned Parenthood South Atlantic, Inc. s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Planned Parenthood South Atlantic, Inc. s compliance. Opinion on Each Major Federal Program In our opinion, Planned Parenthood South Atlantic, Inc. complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30,

26 To The Board of Directors Planned Parenthood South Atlantic, Inc. Raleigh, North Carolina Report on Internal Control Over Compliance Management of Planned Parenthood South Atlantic, Inc. is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Planned Parenthood South Atlantic, Inc. s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Planned Parenthood South Atlantic, Inc. s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Philadelphia, Pennsylvania March 29,