Ronald McDonald House Charities of Charleston, SC, Inc.

Transcription

1 Ronald McDonald House Charities of Charleston, SC, Inc. Report on Consolidated Financial Statements For the years ended December 31, 2016 and 2015

2 Contents Page Independent Auditor s Report Consolidated Financial Statements Consolidated Statements of Financial Position as of December 31, 2016 and Consolidated Statement of Activities for the Year Ended December 31, Consolidated Statement of Activities for the Year Ended December 31, Consolidated Statement of Functional Expenses for the Year Ended December 31, Consolidated Statement of Functional Expenses for the Year Ended December 31, Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and Notes to Consolidated Financial Statements Supplementary Information Consolidating Statement of Financial Position as of December 31, Consolidating Statement of Activities for the Year Ended December 31, Consolidating Statement of Cash Flows for the Year Ended December 31,

3 Independent Auditor s Report To the Board of Directors Ronald McDonald House Charities of Charleston, SC, Inc. Charleston, South Carolina We have audited the accompanying consolidated financial statements of Ronald McDonald House Charities of Charleston, SC, Inc. and its subsidiary, which comprise the consolidated statements of financial position as of December 31, 2016 and 2015, and the related consolidated statements of activities, functional expenses, and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Consolidated 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. Those standards require that we plan and perform the audits 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. Elliott Davis Decosimo, 100 Calhoun Street, Suite 300, Charleston, SC Phone: Fax:

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ronald McDonald House Charities of Charleston, SC, Inc. and its subsidiary as of December 31, 2016 and 2015, and the changes in net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Supplementary Information Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the consolidated 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 consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated 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 consolidated financial statements as a whole. Charleston, South Carolina August 8,

5 Consolidated Statements of Financial Position As of December 31, 2016 and Assets Cash and cash equivalents $ 561,437 $ 587,644 Unconditional promises to give, net 112, ,802 Other receivables 117,270 83,213 Prepaid expenses 18,262 13,489 Investments 864, ,288 Investment at Coastal Community Foundation of SC 26,042 24,896 Property and equipment, net 3,163,593 3,367,869 Total assets $ 4,863,560 $ 5,059,201 Liabilities and Net Assets Liabilities Accounts payable $ 18,988 $ 26,979 Accrued expenses 36,531 37,796 Line of credit 14, ,333 Mortgage payable 356, ,615 Total liabilities 426, ,723 Net assets Unrestricted: Undesignated 3,500,542 3,310,214 Board designated net assets 17,229 15,515 Total unrestricted 3,517,771 3,325,729 Temporarily restricted 302, ,254 Permanently restricted 616, ,495 Total net assets 4,436,854 4,300,478 Total liabilities and net assets $ 4,863,560 $ 5,059,201 See Notes to Consolidated Financial Statements 3

6 Consolidated Statement of Activities For the year ended December 31, 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Revenue, Gains and Other Support Contributions $ 616,236 $ 51,075 $ - $ 667,311 In-kind contributions 398, ,209 Special events, net 251, ,341 Realized/unrealized gain on investments ,002-28,234 Loss on disposal of fixed assets (433) - - (433) Interest and dividends 1,514 20,359-21,873 Rental income, net 333, ,066 Grants - 54,318-54,318 Sales of soda and novelty items 3, ,847 1,604, ,754-1,757,766 Net assets released from restrictions 209,420 (209,420) - - Total revenue, gains (losses) and other support 1,813,432 (55,666) - 1,757,766 Expenses Program 1,203, ,203,857 Management and general 192, ,761 Fundraising 224, ,772 Total expenses 1,621, ,621,390 Change in net assets 192,042 (55,666) - 136,376 Net assets, beginning of year 3,325, , ,495 4,300,478 Net assets, end of year $ 3,517,771 $ 302,588 $ 616,495 $ 4,436,854 See Notes to Consolidated Financial Statements 4

7 Consolidated Statement of Activities For the year ended December 31, 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Revenue, Gains and Other Support Contributions $ 520,090 $ 321,944 $ - $ 842,034 In-kind contributions 409, ,981 Special events, net 217, ,587 Realized/unrealized gain on investments ,305-30,530 Loss on disposal of fixed assets (6,987) - - (6,987) Interest and dividends 2,647 5,727-8,374 Rental income, net 129, ,958 Grants - 46,062-46,062 Sales of soda and novelty items 1, ,840 1,275, ,038-1,679,379 Net assets released from restrictions 615,524 (615,524) - - Total revenue, gains (losses) and other support 1,890,865 (211,486) - 1,679,379 Expenses Program 1,254, ,254,525 Management and general 208, ,153 Fundraising 251, ,302 Total expenses 1,713, ,713,980 Change in net assets 176,885 (211,486) - (34,601) Net assets, beginning of year 3,148, , ,495 4,335,079 Net assets, end of year $ 3,325,729 $ 358,254 $ 616,495 $ 4,300,478 See Notes to Consolidated Financial Statements 5

8 Consolidated Statement of Functional Expenses For the year ended December 31, 2016 Program Management Fund- Services and General Raising Total Payroll expenses $ 381,817 $ 97,838 $ 94,062 $ 573,717 Employee benefits 28,782 5,327 3,425 37,534 Total personnel costs 410, ,165 97, ,251 Utilities 54, ,632 Other fundraising events 37,445-2,710 40,155 Insurance 28,408 6,680-35,088 Repairs and maintenance 33, ,883 Household supplies 30, ,740 Interest expense 6,672 18,602-25,274 Office and computer expense 15,722 6,840 1,917 24,479 Professional fees - 22,111-22,111 Storage 13,926 3,680-17,606 Marketing and printing 8,854 1,443 5,323 15,620 Miscellaneous 4,540 8,058 2,228 14,826 Telephone and website 9, ,052 14,306 Cost of novelty merchandise 4,123-6,449 10,572 Travel and mileage 6,111 1,486 2,682 10,279 Real estate taxes - 7,590-7,590 Junior board 5,026-1,250 6,276 Staff development 3,165 2,011-5,176 Postage and delivery 2, ,359 Volunteer and donor appreciation 2, ,675 Dues and memberships ,501 Expenses before depreciation and in-kind expenses 678, , , ,399 Depreciation 227,285 8, ,782 In-kind expenses 298, , ,209 Total functional expenses $ 1,203,857 $ 192,761 $ 224,772 $ 1,621,390 See Notes to Consolidated Financial Statements 6

9 Consolidated Statement of Functional Expenses For the year ended December 31, 2015 Program Management Fund- Services and General Raising Total Payroll expenses $ 396,074 $ 78,099 $ 83,678 $ 557,851 Employee benefits 21,777 4,294 4,601 30,672 Total personnel costs 417,851 82,393 88, ,523 Insurance 64, ,440 Repairs and maintenance 56, ,175 Household supplies 53, ,274 Utilities 49,433 2,602-52,035 Miscellaneous 10,290 39,891-50,181 Other fundraising events ,762 39,762 Office and computer expense 3,092 24,738 3,092 30,922 Professional fees - 22,779-22,779 Storage 15,017 2,829 3,917 21,763 Interest expense 19, ,050 Marketing and printing 11,427 2,253 2,414 16,094 Staff development 13,135 1,459-14,594 Dues and memberships 1,184 10,659-11,843 Travel and mileage 6,710-4,771 11,481 Telephone 7,314 1,442 1,545 10,301 Bad debt - 7,785-7,785 Postage and delivery - 2,248 5,244 7,492 Junior board 5, ,932 Cost of novelty merchandise 2,169-2,169 4,338 Real estate taxes 3, ,274 Volunteer and donor appreciation Expenses before depreciation and in-kind expenses 740, , ,302 1,093,207 Depreciation 210, ,792 In-kind expenses 303,296 6, , ,981 Total functional expenses $ 1,254,525 $ 208,153 $ 251,302 $ 1,713,980 See Notes to Consolidated Financial Statements 7

10 Consolidated Statements of Cash Flows For the years ended December 31, 2016 and Operating activities Change in net assets $ 136,376 $ (34,601) Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 235, ,792 Realized/unrealized gain on investments (28,234) (30,530) Income from investment in subsidiary - - Loss on disposal of fixed assets 433 6,987 Bad debt 2,098 30,160 Change in discount to net present value (530) 1,709 Stock contributions received (1,028) (9,979) Changes in operating assets and liabilities: Unconditional promises to give 52,416 (2,651) Other receivables (36,155) (62,840) Prepaid expenses (4,773) 21,881 Accounts payable (7,991) 6,087 Accrued expenses (1,265) 10,035 Net cash provided by operating activities 347, ,050 Investing activities Purchases of property and equipment (31,939) (786,274) Proceeds from sales of investments, net 2, ,917 Purchases of investments (20,809) (83,292) Net cash used for investing activities (50,575) (763,649) Financing activities Proceeds from line of credit - 500,000 Payments on mortgage payable and line of credit (322,761) (199,968) Net cash (used for) provided by financing activities (322,761) 300,032 Net decrease in cash and cash equivalents (26,207) (316,567) Cash and cash equivalents, beginning of year 587, ,211 Cash and cash equivalents, ending of year $ 561,437 $ 587,644 Supplemental disclosures Supplemental cash flow information Interest paid $ 25,274 $ 19,660 Stock contributions received $ 1,028 $ 9,979 See Notes to Consolidated Financial Statements 8

11 Notes to Consolidated Financial Statements December 31, 2016 and 2015 Note 1. Nature of Activities and Summary of Significant Accounting Policies Nature of activities: Ronald McDonald House Charities of Charleston, SC, Inc. ( RMHCC, or the Organization ) was formed in 1981 as the Pediatric Family Center of Charleston, Inc. The Organization then merged with Ronald McDonald Children s Charities in 1997, changing its name to Ronald McDonald House Charities of Charleston, SC, Inc. RMHCC provides temporary lodging and support for eligible families of seriously ill children in a home-like environment through the operation of the Ronald McDonald House (the House ). RMHCC also provides comfort and support to such families through the Ronald McDonald Family Room located in the Children s Hospital at the Medical University of South Carolina ( MUSC ). Through both of these programs, families are provided a forum to communicate and share experiences with other similarly situated families. RMHCC also supports related programs that improve the health and enhance the lives of children. Although RMHCC is licensed by Ronald McDonald House Charities, Inc., the Organization is independently operated by a local board of directors. The Organization relies heavily upon local donors and volunteers to provide funds for operations and staffing needs. Income is also derived from earnings on the Organization s endowment. Minimal rents charged to the families staying at the House help offset a portion of operating costs. Principles of consolidation: The Organization s consolidated financial statements include GC Investments of Charleston, LLC ( GC Investments ), which is a single member limited liability company and a wholly owned subsidiary of the Organization formed in On September 15, 2014, GC Investments purchased a single family residence at 71 Gadsden Street for $498,000. A portion of the purchase price was financed with a loan for $398,400 (see Note 7 for further information). This residence is leased as of August 1, 2015 as part of the master facility plan for RMHCC. All material inter-organization transactions have been eliminated in consolidation. Basis of accounting: The consolidated financial statements are prepared on the accrual basis of accounting and, accordingly, reflect all significant receivables, payables, and other liabilities. Basis of presentation: The consolidated financial statement presentation follows the recommendations of Financial Accounting Standards Board ( FASB ) in its Accounting Standards Codification ( ASC ), Financial Statements of Not-for-Profit Organizations. Under Financial Statements of Not-for-Profit Organizations, the Organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Revenue recognition: Under the FASB s Accounting for Contributions Received and Contributions Made, contributions are recorded as revenue when they are received or unconditional promises to give are made. Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and/or nature of any donor restrictions. 9

12 Notes to Consolidated Financial Statements December 31, 2016 and 2015 Note 1. Nature of Activities and Summary of Significant Accounting Policies, Continued Revenue recognition, continued: RMHCC reports contributions as restricted support if they are received with donor stipulations that limit the use of the donation. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose 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 restriction. RMHCC reports gifts of property and equipment as unrestricted support unless explicit donor stipulations specify how the 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 assets must be maintained, the Organization reports expirations of donor restrictions when the donated or acquired longlived assets are placed in service. Cash and cash equivalents: For purposes of the Statement of Cash Flows, RMHCC considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. Cash equivalents include money market funds. Investments/endowment funds: Investments include common stock, equities, and mutual funds carried at fair value based upon quoted market prices. Unrealized gains and losses are included in the change in net assets in the accompanying Statements of Activities. The Organization may utilize accumulated earnings from the investments to support operations, and may make an annual withdrawal, in accordance with investment policies described below, to support House operations. With respect to endowment funds, the Board of Directors of the Organization has interpreted the Uniform Prudent Management of Institutional Funds Act ( UPMIFA ) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds, absent explicit donor stipulations to the contrary. As a result of this interpretation, the Organization classifies as permanently restricted net assets (a) the original gifts donated to the permanent endowment, (b) subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donorrestricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Organization in a manner consistent with the standard of prudence prescribed by UPMIFA. 10

13 Notes to Consolidated Financial Statements December 31, 2016 and 2015 Note 1. Nature of Activities and Summary of Significant Accounting Policies, Continued Investments/endowment funds, continued: In accordance with UPMIFA, the Organization considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 1) The duration and preservation of the fund 2) The purposes of the Organization and the donor-restricted endowment fund 3) General economic conditions 4) The possible effects of inflation and deflation 5) The expected total return from income and the appreciation of investments 6) Other resources of the Organization 7) The investment policies of the Organization Funds with deficiencies: From time to time, the fair value of assets associated with the individual donor-restricted endowment funds may fall below the level that the donor or state statutes require the Organization to retain as a fund of perpetual duration. In accordance with generally accepted accounting principles, deficiencies of this nature are reported in unrestricted net assets. There were no deficiencies of this nature as of December 31, 2016 or Return objectives and risk parameters: RMHCC has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that RMHCC must hold in perpetuity or for a donor-specified period as well as board-designated funds. Under this policy, the endowment assets are invested in a manner that is intended to produce results that exceed the price and yield results of broad market measures of return on investments. Strategies employed for achieving objectives: To satisfy its long-term rate-of-return objectives, RMHCC relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). RMHCC targets a diversified asset allocation that places an emphasis on equity-based investments and mutual funds to achieve its long-term return objectives within prudent risk constraints. 11

14 Notes to Consolidated Financial Statements December 31, 2016 and 2015 Note 1. Nature of Activities and Summary of Significant Accounting Policies, Continued Investments/endowment funds, continued: Spending Policy and How the Investment Objectives Relate to Spending Policy: RMHCC has a policy of appropriating for distributions as needed to cover any shortfall in operating funds. In applying this policy, RMHCC considers the long-term expected return on its endowment. Accordingly, over the long term, RMHCC expects the current spending policy to allow its endowment to grow annually. This is consistent with RMHCC s objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return. Use of estimates: The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Property and equipment: RMHCC generally capitalizes all expenditures for property and equipment in excess of $2,500. Property and equipment is carried at cost if purchased, and estimated fair value as of the date of donation, if donated. Depreciation is computed using the straight-line method over the estimated useful lives of the property or equipment, ranging from 5 to 30 years. Unconditional promises to give, net: RMHCC provides an allowance for uncollectible promises to give sufficient to cover any estimated uncollectible amounts. RMHCC s estimate is based on historical collection experience and management s review of the current status of promises to give. Management believes that all promises to give are collectible; therefore, no allowance for doubtful accounts has been recorded as of December 31, 2016 or Other receivables: Other receivables include amounts due from Medicaid for rent reimbursement and deposits received subsequent to December 31, 2016 relating to For the year ended December 31, 2016, $2,098 of Medicaid billings were written off. During the year ended December 31, 2015, $20,718 of Medicaid billings were written off. Expense allocation: The costs of providing various programs and other activities have been summarized on a functional basis in the Statements of Activities and in the Statements of Functional Expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited, based upon management s estimate of time devoted to each functional area. 12

15 Notes to Consolidated Financial Statements December 31, 2016 and 2015 Note 1. Nature of Activities and Summary of Significant Accounting Policies, Continued Donated services: Donated services are recognized as contributions in accordance with Accounting for Contributions Received and Contributions Made, if the services, a) create or enhance nonfinancial assets, or b) require specialized skills, are performed by people with those skills, and would otherwise be purchased. Volunteers also provide many services that are not recognized as contributions because the recognition criteria were not met. Income taxes: RMHCC is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code ( IRC ) and, therefore, the Organization has made no provision for federal income taxes in the accompanying financial statements. GC Investments is a disregarded entity and therefore is reported with RMHCC for tax purposes. In addition, the Internal Revenue Service has determined that RMHCC qualifies for the charitable contribution deduction under Section 170(b)(1)(A) and has been classified as an organization that is not a private foundation under Section 509(a)(1). Management has evaluated the tax positions of the Organization and does not believe that any uncertain tax positions or unrecognized tax benefits exist for the years ended December 31, 2016 or The Organization s policy is to report accrued interest related to unrecognized tax benefits, when applicable, as interest expense and to report penalties as other expense. With few exceptions, the Organization is no longer subject to income tax examinations by the U.S. federal, state, or local tax authorities for tax years before Fair value of financial instruments: The Organization utilizes a three-tier fair value hierarchy that clarifies fair value as an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under this standard, fair value measurements are disclosed by level within that hierarchy. The carrying amounts of promises to give, other receivables, accounts payable and accrued expenses approximate fair value at December 31, 2016 and 2015, because of the terms and relatively short maturity of those instruments. Subsequent events: In preparing these consolidated financial statements, the Organization has evaluated events and transactions for potential recognition or disclosure through August 8, 2017, which is the date the consolidated financial statements were available to be issued. 13

16 Notes to Consolidated Financial Statements December 31, 2016 and 2015 Note 2. Unconditional Promises to Give, Net Promises to give as of December 31, 2016 and 2015 are unconditional. Promises to give that are expected to be received after December 31, 2016 are discounted to net present value using a discount rate of 1.8%. Promises to give consist of the following at December 31: Unconditional promises to give $ 114,183 $ 166,599 Discount to net present value (1,267) (1,797) Unconditional promises to give, net $ 112,916 $ 164,802 Amounts expected to be collected in: Less than one year $ 42,516 $ 74,933 One to five years 71,667 91,666 $ 114,183 $ 166,599 Note 3. Investments Investments are stated at fair value and consist of the following at December 31: Fair Value Cost Fair Value Cost Common Stock - McDonald's Corp $ 157,162 $ 33,240 $ 149,093 $ 29,780 Mutual Funds equities 423, , , ,427 Mutual Funds bonds 282, , , ,542 Total investments $ 864,040 $ 670,797 $ 817,288 $ 642,749 The following table shows the gross unrealized losses and fair value of RMHCC s investments, with unrealized losses that are deemed to be temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31: Months or Longer 12 Months or Less Unrealized Unrealized Fair Value Losses Fair Value Losses Mutual funds - equities $ - $ - $ 405,709 $ (24,933) Total investments $ - $ - $ 405,709 $ (24,933) 14

17 Notes to Consolidated Financial Statements December 31, 2016 and 2015 Note 3. Investments, Continued Months or Longer 12 Months or Less Unrealized Unrealized Fair Value Losses Fair Value Losses Mutual funds - equities $ 102,915 $ (29,582) $ 330,237 $ (3,536) Total investments $ 102,915 $ (29,582) $ 330,237 $ (3,536) RMHCC has the ability and the intent to hold these mutual funds until such time as the value recovers. RMHCC believes, based on industry analyst reports and credit ratings, that the deterioration in value is attributable to changes in market interest rates and is not in the credit quality of the issuer and, therefore, these losses are not considered other-than-temporary. Note 4. Investment at the Coastal Community Foundation In June 2009, an endowment fund was established with the Coastal Community Foundation (the CCF ) of South Carolina by RMHCC. RMHCC retains variance power over the fund and four percent of the fund s earnings may be distributed to the Organization on an annual basis. The contributions into the fund are invested in the CCF s pooled account, which consists of equity funds, fixed income funds, growth funds and other investments. The Coastal Community Foundation investment account had a fund balance of $26,042 and $24,896 as of December 31, 2016 and 2015, respectively. In addition, an endowment fund was established with CCF of South Carolina by the Gilbreth Family. RMHCC retains no variance power over this fund, and therefore the account is not included in the financial statements of RMHCC, but RMHCC receives a percentage of earnings. Amounts received totaled $9,118 and $8,925 for the years ended December 31, 2016 and 2015, respectively. The balance of this fund as of December 31, 2016 and 2015 was $224,894 and $223,747, respectively. Note 5. Fair Value of Financial Instruments Fair Value Measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair Value Measurements also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs are not corroborated by market data. 15

18 Notes to Consolidated Financial Statements December 31, 2016 and 2015 Note 5. Fair Value of Financial Instruments, Continued The following is a description of the valuation methodologies used to measure fair value. There have been no changes in the methodologies used at December 31, 2016 and Common stocks - Valued at the closing price reported on the active markets on which the individual securities are traded. Mutual funds - Valued at the net asset value of shares held by RMHCC at year-end. Other investments - The underlying assets held in these investments are both equity securities valued at the closing price reported on the active markets in which the individual securities are traded and mutual funds valued at the net asset value of shares held at year-end. The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although RMHCC believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The table below presents the balances of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy. Fair value measurements at December 31, 2016 (Level 1) (Level 2) (Level 3) Fair Value Domestic common stocks $ 157,162 $ - $ - $ 157,162 Mutual funds: Bonds 282, ,907 Equities 423, ,971 Investment in Coastal Community Foundation - 26,042 26,042 $ 864,040 $ 26,042 $ - $ 890,082 Fair value measurements at December 31, 2015 (Level 1) (Level 2) (Level 3) Fair Value Domestic common stocks $ 149,093 $ - $ - $ 149,093 Mutual funds: Bonds 278, ,700 Equities 389, ,495 Investment in Coastal Community Foundation - 24,896-24,896 $ 817,288 $ 24,896 $ - $ 842,184 16

19 Notes to Consolidated Financial Statements December 31, 2016 and 2015 Note 6. Property and Equipment, Net Property and equipment, net, consists of the following at December 31: Building and leasehold improvements $ 881,094 $ 875,477 Land 254, ,100 Renovation and expansion costs 4,034,328 4,034,328 Equipment 193, ,069 Furniture and fixtures 228, ,225 Software 12,000 12,000 5,603,138 5,572,199 Less accumulated depreciation (2,439,545) (2,204,330) Property and equipment, net $ 3,163,593 $ 3,367,869 Depreciation for the years ended December 31, 2016 and 2015 was $235,782 and $210,792, respectively. Note 7. Mortgage Payable GC Investments entered into a loan agreement in October 2014 for the purchase of a residence to be used as part of the RMHCC master plan. The loan has an interest rate of 4.99%, with monthly principal and interest payments of $3,163 starting October 15, 2014 until maturity at September 24, The balance on the loan as of December 31, 2016 and 2015 was $356,256 and $375,615, respectively. Interest expense totaled $18,602 and $19,660 for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, maturities on long-term obligations for the next five years are as follows: 2017 $ 20, , , , ,255 Thereafter 241,668 $ 356,256 Note 8. Line of Credit RMHCC entered into a line of credit agreement with Bank of America in June 2015 to furnish funds for the construction of 5 new rooms in the house. The line of credit was for $500,000 with an interest rate of prime plus 0.25 percentage points. The line of credit was to expire on June 3, 2016 but was amended on May 3, 2016 to a total line of credit of $200,000 with an expiration date of June 3, Bank deposits of $100,000 served as collateral. As of December 31, 2016 and 2015, the balance on the line of credit was $14,931 and $318,333, respectively. Interest expense totaled $6,672 and $390 for the years ended December 31, 2016 and 2015, respectively. 17

20 Notes to Consolidated Financial Statements December 31, 2016 and 2015 Note 9. Special Events RMHCC held a golf tournament, the Red Shoe Walk and the Bag Lady luncheon each year during 2016 and Revenues and expenses from these specific events are as follows: Revenues Expenses Revenues Expenses Golf Tournament $ 200,035 $ 57,004 $ 127,522 $ 40,886 Bag Lady Luncheon $ 95,909 $ 25,540 $ 84,945 $ 21,497 Red Shoe Walk $ 39,974 $ 2,033 $ 66,204 $ 2,142 Note 10. In-kind Contributions The Statements of Activities include noncash contributions of services totaling $398,209 and $409,981 for 2016 and 2015, respectively, including donated rent (see Note 12). The contributed amounts included various services for fundraising and for House operations, including donated meals. The Statements of Functional Expenses include corresponding in-kind expenses valued at $398,209 and $409,981 for 2016 and 2015, respectively. Note 11. Endowments RMHCC s endowments consist of three individual funds established for a variety of purposes. As required by generally accepted accounting principles, 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. Endowment net asset composition by type of fund is as follows: December 31, 2016 Unrestricted Board- Temporarily Permanently designated restricted restricted Total Donor-restricted endowment funds $ - $ 267,985 $ 616,495 $ 884,480 Board-designated endowment funds 17, ,229 Total funds $ 17,229 $ 267,985 $ 616,495 $ 901,709 Changes in endowment net assets: Endowment net assets, beginning of year $ 15,515 $ 319,624 $ 616,495 $ 951,634 Investment return: Investment income, net ,359-20,813 Net gains (realized and unrealized) ,002-28,234 Total investment return ,361-49,047 Contributions/board designations 1, ,028 Board approved withdrawals - (100,000) - (100,000) Endowment net assets, end of year $ 17,229 $ 267,985 $ 616,495 $ 901,709 18

21 Notes to Consolidated Financial Statements December 31, 2016 and 2015 Note 11. Endowments, Continued December 31, 2015 Unrestricted Board- Temporarily Permanently designated restricted restricted Total Donor-restricted endowment funds $ - $ 319,624 $ 616,495 $ 936,119 Board-designated endowment funds 15, ,515 Total funds $ 15,515 $ 319,624 $ 616,495 $ 951,634 Changes in endowment net assets: Endowment net assets, beginning of year $ 28,924 $ 283,592 $ 616,495 $ 929,011 Investment return: Investment income, net 2,392 5,727-8,119 Net gains (losses) (realized and unrealized) (121) 30,305-30,184 Total investment return 2,271 36,032-38,303 Contributions/board designations 9, ,979 Board approved withdrawals (25,659) - - (25,659) Endowment net assets, end of year $ 15,515 $ 319,624 $ 616,495 $ 951,634 The endowment balances are included in the following accounts at December 31: Cash and cash equivalents $ 11,627 $ 109,450 Investments 864, ,288 Investment in the Coastal Community Foundation of SC 26,042 24,896 Total $ 901,709 $ 951,634 Note 12. Land Lease The land upon which the House sits has been leased from the Medical University of South Carolina ( MUSC ) since 1982 under a twenty-year lease, which expired April The lease agreement included a provision for four successive five-year extension periods. The House was exercising the first option period when the lease was re-negotiated and a new lease was made September 1, The new lease was expanded to include parking on an adjacent lot. The initial term of the new lease was ten years and includes a provision to extend the lease for another ten years. In September 2014, the lease was renewed through August 31, The annual rent is five dollars. Upon termination of the lease, the improvements and leasehold interest convey to the landlord. Included with in-kind contributions and in-kind expenses is $100,000 and $85,000 for 2016 and 2015, respectively, that has been recorded for the difference between actual rent paid and the estimated fair market value of what it would cost for leasing comparable property in the area. 19

22 Notes to Consolidated Financial Statements December 31, 2016 and 2015 Note 13. Temporarily Restricted Net Assets Temporarily restricted net assets consist of assets held for the following purposes as of December 31: Bedroom refurbishes $ 3,422 $ 6,282 Family room 4,933 3,549 Coca Cola 3,254 - Chairs 8,441 - Preemie Project (Baby Steps) 14,553 28,799 Unappropriated cash and investment in endowments 267, ,624 Temporarily restricted net assets $ 302,588 $ 358,254 Note 14. Permanently Restricted Net Assets Permanently restricted net assets at December 31, 2016 and 2015 include $531,495 of the Joan Kroc endowment corpus, $10,000 related to the Organization s Share-a-Night program invested in perpetuity and $75,000 of the Tarrant endowment corpus. The income from the Joan Kroc and Tarrant endowments is expendable to support any operating activities of the Organization; the income from the Share-a-Night is expendable to support only House expenses. Note 15. Retirement Plan RMHCC sponsors a 403(b) tax-deferred retirement plan for full and part-time employees. Employees may make elective deferrals up to the maximum allowed limits. The plan was amended in 2014 to provide for employer contributions. During the years ended December 31, 2016 and 2015, $2,372 and $6,197 was contributed to the plan by the employer, respectively. Note 16. Family Room Agreement In 2004, RMHCC designed and constructed the Family Room as a special family respite room for the comfort and support of families of seriously ill children undergoing medical treatment at MUSC. In exchange for the use of the room, RMHCC reached an agreement with the Medical University Hospitality Authority to manage the Family Room for a period of five years. The agreement was renewed November 5, 2012 for another five years. RMHCC receives no income for management of the Family Room. Note 17. Concentrations of Credit Risk Financial instruments that potentially subject the Organization to concentrations of credit risk consist principally of cash and cash equivalents, investments, and promises to give. Cash and cash equivalents are in high-quality financial institutions. Though the market value of investments is subject to fluctuations from year-to-year, management believes the investment policy is prudent for the long-term welfare of the Organization. RMHCC maintains accounts at three banks. As of December 31, 2016 and 2015, the Federal Deposit Insurance Corporation ( FDIC ) insured accounts up to $250,000 in aggregate per institution. From time to time, cash balances may exceed FDIC insured limits. The Organization relies on support and revenue from contributions that are mostly from donors in the Charleston, South Carolina geographic area. 20

23 Notes to Consolidated Financial Statements December 31, 2016 and 2015 Note 18. Related Parties The owner of a payroll software company, which donates payroll processing services to RMHCC beginning January 2014, is a member of the Board of Directors for RMHCC. The value of these services for the years ended December 31, 2016 and 2015 was $4,000 and is included in in-kind contributions and in-kind expenses on the Consolidated Statements of Activities. The Board of Directors also contributes to RMHCC. The value of their cash contributions for the year ended December 31, 2016 and 2015 was $125,438 and $156,316, respectively. Unconditional promises to give due from board members at December 31, 2016 and 2015 totaled $104,183 and $123,333, respectively. 21

24 Supplementary Information

25 Consolidating Statement of Financial Position As of December 31, 2016 RMHCC GC Investments LLC Total Eliminating Reported Assets Cash and cash equivalents $ 553,195 $ 8,242 $ 561,437 $ - $ 561,437 Unconditional promises to give, net 112, , ,916 Other receivables 117, , ,270 Prepaid expenses 15,088 3,174 18,262-18,262 Due (to) from related party 66,486 (66,486) Investments 864, , ,040 Investment in subsidiary 70,516-70,516 (70,516) - Investment at Coastal Community Foundation of SC 26,042-26,042-26,042 Property and equipment, net 2,681, ,842 3,163,593-3,163,593 Total assets $ 4,507,304 $ 426,772 $ 4,934,076 $ (70,516) $ 4,863,560 Liabilities And Net Assets Liabilities Accounts payable $ 18,988 $ - $ 18,988 $ - $ 18,988 Accrued expenses 36,531-36,531-36,531 Line of credit 14,931-14,931-14,931 Mortgage payable - 356, , ,256 Total liabilities 70, , , ,706 Net assets Unrestricted: Undesignated 3,500,542 70,516 3,571,058 (70,516) 3,500,542 Board designated net assets 17,229-17,229-17,229 Total unrestricted 3,517,771 70,516 3,588,287 (70,516) 3,517,771 Temporarily restricted 302, , ,588 Permanently restricted 616, , ,495 Total net assets 4,436,854 70,516 4,507,370 (70,516) 4,436,854 Total liabilities and net assets $ 4,507,304 $ 426,772 $ 4,934,076 $ (70,516) $ 4,863,560 22

26 Consolidating Statement of Activities For the year ended December 31, 2016 RMHCC GC Investments LLC Total Eliminating Reported Revenue, Gains and Other Support Contributions $ 667,311 $ - $ 667,311 $ - $ 667,311 In-kind contributions 398, , ,209 Special events, net 251, , ,341 Realized/unrealized gain on investments 28,234-28,234-28,234 Loss from investment in subsidiary (7,962) - (7,962) 7,962 - Loss on disposal of fixed assets (433) - (433) - (433) Interest and dividends 21,873-21,873-21,873 Rental income, net 295,866 37, , ,066 Grants 54,318-54,318-54,318 Sales of soda and novelty items 3,847-3,847-3,847 Total revenue, gains (losses) and other support 1,712,604 37,200 1,749,804 7,962 1,757,766 Expenses Program 1,158,695 45,162 1,203,857-1,203,857 Management and general 192, , ,761 Fundraising 224, , ,772 Total expenses 1,576,228 45,162 1,621,390-1,621,390 Changes in net assets 136,376 (7,962) 128,414 7, ,376 Net assets, beginning of year 4,300,478 78,478 4,378,956 (78,478) 4,300,478 Net assets, end of year $ 4,436,854 $ 70,516 $ 4,507,370 $ (70,516) $ 4,436,854 23

27 Consolidating Statement of Cash Flows For the year ended December 31, 2016 RMHCC GC Investments LLC Total Eliminating Reported Operating activities Change in net assets $ 136,376 $ (7,962) $ 128,414 $ 7,962 $ 136,376 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 227,285 8, , ,782 Realized/unrealized gain on investments (28,234) - (28,234) - (28,234) Loss from investment in subsidiary 7,962-7,962 (7,962) - Loss on disposal of fixed assets Bad debt 2,098-2,098-2,098 Change in discount to net present value (530) - (530) - (530) Stock contributions received (1,028) - (1,028) - (1,028) Changes in operating assets and liabilities: Unconditional promises to give 52,416-52,416-52,416 Other receivables (36,155) - (36,155) - (36,155) Prepaid expenses (4,774) 1 (4,773) - (4,773) Due to (from) related party (22,777) 22, Accounts payable (7,991) - (7,991) - (7,991) Accrued expenses 7,115 (8,380) (1,265) - (1,265) Net cash provided by operating activities 332,196 14, , ,129 Investing activities Purchases of property and equipment (31,939) - (31,939) - (31,939) Proceeds from sales of investments, net 2,173-2,173-2,173 Purchases of investments (20,809) - (20,809) - (20,809) Net cash used for investing activities (50,575) - (50,575) - (50,575) Financing activities Payments on mortgage payable and line of credit (303,402) (19,359) (322,761) - (322,761) Net cash used for financing activities (303,402) (19,359) (322,761) - (322,761) Net decrease in cash and cash equivalents (21,781) (4,426) (26,207) - (26,207) Cash and cash equivalents, beginning of year 574,976 12, , ,644 Cash and cash equivalents, ending of year $ 553,195 $ 8,242 $ 561,437 $ - $ 561,437 Supplemental disclosures Supplemental cash flow information Interest paid $ 6,672 $ 18,602 $ 25,274 $ - $ 25,274 Stock contributions received $ 1,028 $ - $ 1,028 $ - $ 1,028 24