CORNERSTONES OF CARE AND AFFILIATES COMBINED FINANCIAL STATEMENTS TOGETHER WITH INDEPENDENT AUDITOR'S REPORT DECEMBER 31, 2013 AND 2012

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1 COMBINED FINANCIAL STATEMENTS TOGETHER WITH INDEPENDENT AUDITOR'S REPORT DECEMBER 31, 2013 AND 2012

2 December 31, 2013 and 2012 TABLE OF CONTENTS Independent Auditor s Report 1-2 Financial Statements: Combined Statements of Financial Position 3 Combined Statements of Activities 4 Combined Statements of Functional Expenses 5 Combined Statements of Cash Flows 6 Page Notes to the Combined Financial Statements 7-24 Supplemental Information: Independent Auditor s Report on Supplemental Information 25 Combining Statements of Financial Position Combining Statements of Activities Compliance Report: Independent Auditor s 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 Schedule of Findings and Questioned Costs 36

3 COCHRAN HEAD VICK & CO., P.C. Certified Public Accountants 1251 NW Briarcliff Pkwy Suite 125 Kansas City, MO (816) Fax (816) Board of Directors Cornerstones of Care and Affiliates INDEPENDENT AUDITOR S REPORT Report on the Financial Statements We have audited the accompanying combined financial statements of Cornerstones of Care and Affiliates (the Organizations) (nonprofit organizations), which comprise the combined statements of financial position as of December 31, 2013 and 2012, and the related combined statements of activities, functional expenses, and cash flows for the years then ended, and the related notes to the combined financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these combined 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 combined 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 combined 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 Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. Other Offices 1333 Meadowlark Lane Kansas City, KS (913) (913) FAX 6700 Antioch Rd, Suite 460 Merriam, Kansas (913) (913) FAX 400 Jules Street Suite 415 St, Joseph, MO (816) (816) FAX An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the combined 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 combined 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 combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 Opinion In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Cornerstones of Care and Affiliates as of December 31, 2013 and 2012, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated July 18, 2014, on our consideration of the Organizations internal control over financial reporting and on our tests of their 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 the Organizations internal control over financial reporting and compliance. Kansas City, Missouri July 18, 2014

5 COMBINED STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2013 AND 2012 ASSETS ASSETS Current assets: Cash and cash equivalents $ 6,385,021 $ 5,734,013 Accounts receivable, less allowance for doubtful accounts of $360,331 at December 31, 2013 and $224,404 at December 31, ,874,650 3,859,206 Contributions receivable 466, ,052 Contributions receivable - use of property 8,036 7,250 Other receivables 660, ,786 Prepaid expenses 420, ,892 Total current assets 11,816,090 10,732,199 Investments 18,530,980 16,720,057 Contributions receivable - use of property 2,126,370 2,134,406 Security deposits 93,864 21,243 Property and equipment, less accumulated depreciation 13,675,583 13,908,350 TOTAL ASSETS $ 46,242,887 $ 43,516,255 LIABILITIES LIABILITIES AND NET ASSETS Current liabilities: Accounts payable and accrued expenses $ 1,408,071 $ 1,180,484 Accrued compensation expense 2,167,196 2,193,533 Deferred revenue 795, ,698 Lines of credit 525,000 - Current portion of notes payable 411, ,274 Current portion of pension plan obligation 50,951 57,230 Total current liabilities 5,358,029 4,516,219 Annuity agreements 48,091 60,800 Notes payable, less current portion 1,639,642 2,050,924 Pension plan obligation, less current portion 190, ,171 Total liabilities 7,236,583 6,825,114 NET ASSETS Unrestricted Undesignated 24,999,685 24,013,668 Board designated 662, ,564 Board designated - Quasi Endowment 6,490,436 5,918,245 Total unrestricted 32,152,354 30,584,477 Temporarily restricted 4,701,318 4,331,028 Permanently restricted 2,152,632 1,775,636 Total net assets, as restated 39,006,304 36,691,141 TOTAL LIABILITIES AND NET ASSETS $ 46,242,887 $ 43,516,255 See accompanying notes to the combined financial statements. 3

6 COMBINED STATEMENTS OF ACTIVITIES YEARS ENDED DECEMBER 31, 2013 AND Temporarily Permanently Temporarily Permanently Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total REVENUE AND OTHER SUPPORT Program fees Government agencies $ 34,767,594 $ - $ - $ 34,767,594 $ 32,899,964 $ - $ - $ 32,899,964 Other program fees 5,786, ,786,856 5,945, ,945,878 Total program fees 40,554, ,554,450 38,845, ,845,842 Other support and revenue Grants from government agencies 505, , , ,758 Contributions and bequests 1,028,294 1,719, ,602 3,124, ,647 1,512,354 76,160 2,557,161 In kind contributions 426, , , ,149 United Way 674, , , ,709 Special events 1,344, ,344,028 1,282, ,282,065 Less direct costs (306,017) - - (306,017) (272,333) - - (272,333) Investment income 1,892, , ,071,107 1,245, , ,464,084 Miscellaneous 846,587 30, , ,080 39,322-1,000,402 Total other support and revenue 6,411,845 1,928, ,996 8,717,544 5,953,980 1,769,525 76,490 7,799,995 Net assets released from restrictions 1,558,413 (1,558,413) - - 1,472,718 (1,472,718) - - Total revenue and other support 48,524, , ,996 49,271,994 46,272, ,807 76,490 46,645,837 EXPENSES Program services 39,296, ,296,350 37,893, ,893,827 Supporting services Administrative 6,099, ,099,186 5,435, ,435,540 Development 1,561, ,561,295 1,429, ,429,039 Total supporting services 7,660, ,660,481 6,864, ,864,579 Total expenses 46,956, ,956,831 44,758, ,758,406 CHANGE IN NET ASSETS 1,567, , ,996 2,315,163 1,514, ,807 76,490 1,887,431 NET ASSETS, beginning of year, as restated 30,584,477 4,331,028 1,775,636 36,691,141 29,070,343 4,034,221 1,699,146 34,803,710 NET ASSETS, end of year, as restated $ 32,152,354 $ 4,701,318 $ 2,152,632 $ 39,006,304 $ 30,584,477 $ 4,331,028 $ 1,775,636 $ 36,691,141 See accompanying notes to the combined financial statements. 4

7 COMBINED STATEMENTS OF FUNCTIONAL EXPENSES YEARS ENDED DECEMBER 31, 2013 AND Supporting Services Supporting Services Program Total Program Total Services Administrative Development Total Expenses Services Administrative Development Total Expenses SALARIES AND RELATED EXPENSES Salaries $ 22,613,455 $ 3,187,947 $ 879,543 $ 4,067,490 $ 26,680,945 $ 21,902,220 $ 3,097,684 $ 829,314 $ 3,926,998 $ 25,829,218 Employee benefits 2,529, , , ,657 2,963,902 2,418, ,010 82, ,306 2,788,016 Retirement 122,939 48,173 7,396 55, ,508 61,433 22,767 2,457 25,224 86,657 Payroll Taxes 1,636, ,376 60, ,146 1,937,121 1,586, ,208 56, ,119 1,869,532 Other 189, ,749 7, , , ,538 55,239 7,555 62, ,332 Total salaries and related expenses 27,091,650 3,956,786 1,057,197 5,013,983 32,105,633 26,168,314 3,688, ,533 4,667,441 30,835,755 OTHER EXPENSES Professional fees 3,159, ,680 41, ,577 3,733,483 2,670, ,634 9, ,797 3,268,441 Food service 1,015,666 8,586 2,862 11,448 1,027, ,316 8,603 2,557 11, ,476 Supplies 616,205 35,228 9,123 44, , ,474 30,208 12,383 42, ,065 Postage and printing 48,998 12,930 13,526 26,456 75,454 53,301 16,244 15,723 31,967 85,268 Telephone 53, , ,070 33,029 1,357 34, ,456 Occupancy 1,912, ,385 16, ,149 2,172,269 1,877, ,726 16, ,370 2,103,945 Equipment rental and maintenance 380, ,288 11, , , , ,136 9, , ,873 Marketing 1,247 1, , , ,986 6,356 5, , , ,627 Local transportation 559,965 34,713 5,460 40, , ,977 57,174 6,712 63, ,863 Conference and meetings 50,682 21,221 2,537 23,758 74,440 51,511 21,313 1,521 22,834 74,345 Assistance to individuals 3,048,609 3, ,984 3,052,593 3,382,170 2,785 1,189 3,974 3,386,144 Investment expense - 82,475-82,475 82,475-71,811-71,811 71,811 Interest expense 124,502 17,367 1,047 18, , ,523 11,812 1,177 12, ,512 Dues and subscriptions 41,790 82,874 2,209 85, ,873 32,788 56,696 2,790 59,486 92,274 Bank charges 1,766 50,555-50,555 52,321 5,615 49, ,126 54,741 Bad debt 457,782 23,332-23, , ,196 (86,061) - (86,061) 142,135 Professional liability insurance 242, ,805 4, , , , ,270 4, , ,819 In kind , , , , , , ,593 Miscellaneous 3, , , ,251 4,185 69, ,244 73,429 Total other expenses 11,719,055 1,903, ,012 2,694,052 14,413,107 11,234,191 1,524, ,211 2,228,626 13,462,817 TOTAL EXPENSES BEFORE DEPRECIATION 38,810,705 5,859,826 1,848,209 7,708,035 46,518,740 37,402,505 5,213,323 1,682,744 6,896,067 44,298,572 Depreciation 485, ,360 19, , , , ,217 18, , ,167 TOTAL GROSS EXPENSES 39,296,350 6,099,186 1,867,312 7,966,498 47,262,848 37,893,827 5,435,540 1,701,372 7,136,912 45,030,739 Less: Direct costs of special events - - (306,017) (306,017) (306,017) - - (272,333) (272,333) (272,333) TOTAL NET EXPENSES $ 39,296,350 $ 6,099,186 $ 1,561,295 $ 7,660,481 $ 46,956,831 $ 37,893,827 $ 5,435,540 $ 1,429,039 $ 6,864,579 $ 44,758,406 See accompanying notes to the combined financial statements. 5

8 COMBINED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2013 AND CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 2,315,163 $ 1,887,431 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 744, ,167 Investment income restricted for reinvestment (394) (330) Realized (gains) losses on investments (848,038) (143,326) Unrealized (gains) losses on investments (829,214) (916,946) (Gain) Loss on disposition of fixed asset (250) (750) Decrease (Increase) in operating assets: Accounts receivable (15,444) (658,952) Other receivables (238,833) (76,655) Prepaid expenses 47,955 (27,588) Contributions receivable (218,525) (44,990) Security deposits (72,621) 1,105 Increase (decrease) in operating liabilities: Accounts payable and accrued expenses 227,587 (53,657) Accrued compensation expense (26,337) 73,750 Deferrred revenues 30, ,266 Pension plan obligation (12,629) (179,527) Annuity agreements (12,709) (5,793) Total adjustments (1,225,275) (1,088,226) Net cash provided by operating activities 1,089, ,205 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (6,638,145) (5,149,975) Proceeds from the sale of investments 6,504,474 4,778,402 Investment in property and equipment (511,091) (508,716) Investment income restricted for reinvestment Net cash used in investing activities (644,368) (879,959) CASH FLOWS FROM FINANCING ACTIVITIES Issuance of new debt 525,000 - Debt repayments (319,512) (313,389) Net cash provided by (used in) financing activities 205,488 (313,389) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 651,008 (394,143) CASH AND CASH EQUIVALENTS, beginning of year 5,734,013 6,128,156 CASH AND CASH EQUIVALENTS, end of year $ 6,385,021 $ 5,734,013 See accompanying notes to the combined financial statements. 6

9 NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Activities Cornerstones of Care (Cornerstones) is a family of agencies dedicated to strengthening children, families, and the communities in which they live. Our agencies and programs (Gillis, Marillac, Ozanam, Spofford, and Healthy Families Programs) provide a comprehensive continuum of prevention and treatment services. Cornerstones helps its agencies better serve the community by leveraging expertise from across the family of agencies, providing financial security by reducing costs and creating efficiencies, and building an infrastructure to provide a comprehensive continuum of care. United, our agencies improve the lives of at-risk children and families, ultimately reducing the effects of adverse childhood experiences, decreasing the incidence of violence and incarceration, increasing the ability for independent living, and providing children and families with hope and a strong foundation for success. Cornerstones, Spofford, Ozanam, Ozanam Foundation, Women's Christian Association of Kansas City, Missouri (WCA) and Gillis Charities, Inc., entered into an Integration Agreement in As a result, WCA transferred a portion of its net assets to a new corporation named Gillis Center, Inc. and terminated its association with this new entity. In 1998, Cornerstones entered into an Integration Agreement with Marillac Center, Inc. and Healthy Families Counseling and Support (formerly Spofford Ozanam Services). As a result of the Integration Agreements, Cornerstones became the sole member of the following not-for-profit corporations: Gillis Center, Inc., Ozanam, Spofford, Marillac Center, Inc. and Healthy Families Counseling and Support. Healthy Families Counseling and Support was dissolved effective December 31, Under the integration plans, Gillis Center, Inc., Ozanam, Spofford, and Marillac Center each have three representatives on the Cornerstones Board of Directors. Cornerstones has the authority to approve or disapprove the nominees of the Board of Directors of Gillis Center, Inc., Ozanam, Spofford, and Marillac Center, Inc. Also under the Integration Agreements, Ozanam, Marillac Center, Inc., and Spofford have the authority to appoint the Board of Directors of Ozanam Foundation, Marillac Foundation, and Spofford Foundation, respectively. Ozanam Thriftmart was organized to support and conduct activities for the benefit of Ozanam. Healthy Families Programs is a group of programs operated directly by Cornerstones. Healthy Families Programs provide foster care case management, foster care nurse case management, a resource development program for foster and adoptive families, a home visitation program, and additional support programs for foster youth. Gillis Center, Inc. (Gillis) opened in 1870 and is the oldest child and family serving agency in Kansas City. Each year, Gillis provides therapeutic residential treatment to 100-plus boys ages 5-18, emergency shelter for 80-plus boys and girls ages 0-18, and alternative education day treatment programming to 90-plus boys and girls ages 0-18 on their campus at 8150 Wornall. Gillis also provides treatment foster care and a broad range of therapy services throughout the Kansas City area, including the Northland and Johnson County, Kansas. These services are provided in the community or in the home to over 1,400 children and families who have experienced abuse, neglect, and mental illness. Spofford is a 98 year-old community benefit organization that provides family-focused intensive residential treatment programs, psychiatric evaluation programs, and community and schoolbased mental health interventions for young children residing in the states of Missouri and Kansas. Campus-based services include a 49-bed psychiatric residential treatment program for boys and girls between 4 and 12 years of age. The school-based services were initiated in 2005 with 4 schools and in 2013 served more than 4,300 children from 16 schools. 7

10 NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 Spofford s community-based programs include Parent Aide services and the Family Resiliency Initiative. Parent Aides help parents who have had their children removed from their homes and placed in foster care at the request of Child Welfare. Parent Aides transport the children from their foster placement to visit with their parents. They provide parents with comprehensive information and resources so that families can be reunited. The Family Resiliency Initiative provides in-home mental health treatment to very young children and their families who live in impoverished communities and are negatively impacted by risk factors such as abuse, community violence, substance abuse and mental health disorders. Marillac Center, Inc. is a comprehensive children s mental health center located on a 17-acre campus in Overland Park, Kansas. Founded in 1897 as the Kansas City Orphan Boys Home, Marillac is an organization that has continually evolved to meet the needs of the Kansas City area s at-risk youth. Today, it provides a broad range of compassionate, trauma-informed behavioral health services to more than 1,700 children (up to age 17) and their families each year. Marillac s programs for youths with special emotional and behavioral challenges include the only children s psychiatric hospital in Johnson County, Kansas; a Psychiatric Residential Treatment Facility (PRTF); a therapeutic day school in Blue Springs, Missouri; and a growing outpatient mental health clinic. Available treatment services include psychiatric and medical evaluation; 24-hour nursing care; individual, group, and family therapy; expressive therapies (such as art, music, and recreation therapies); substance-abuse assessment and treatment; medication and laboratory services; and case management/discharge planning. Since 2011, Marillac has had a collaborative agreement with the University of Kansas School of Medicine (KUMC). Medical school faculty psychiatrists provide the finest evidence-based care for Marillac clients, while psychiatry residents and fellows receive real world experience in a state-of-the-art pediatric treatment center. Together, Marillac and KUMC look forward to creating a Center of Excellence in Child Psychiatry at Marillac s Joint Commission-accredited facility. Since 1948, Ozanam has provided a variety of prevention and treatment programs to adolescents and young adults. Started as a boys home, Ozanam has grown into a multiple program community benefit agency providing both campus- and community-based services. Campus-based services include a 76-bed psychiatric residential treatment program for boys and girls between 12 and 18 years of age, as well as an educational day treatment program serving 40 adolescents from the community who require special education services in a therapeutic setting. Community-based programming includes services offered through both Ozanam Pathways and Ozanam BIST (Behavioral Intervention Support Team). Ozanam Pathways provides transitional living services in the Kansas City metro area, as well as in Wichita, Kansas. Ozanam Pathways serves approximately 90 young adults at any given time through a combination of group-home programming, and both clustered- and scattered-site apartments. Ozanam Pathways also includes a mentoring program that provides mentoring services to youth in foster care settings. The Ozanam BIST program is an education-based training and consultation program that better equips teachers to manage classroom behaviors towards a goal of having more time for instruction. BIST services are provided to schools across the region, with BIST staff operating out of offices in Kansas City and Lincoln, Nebraska. Ozanam Foundation and Ozanam Thriftmart, Marillac Foundation, and Spofford Foundation were formed to conduct and support activities for the benefit of Ozanam, Marillac Center, Inc., and Spofford, respectively. The Organizations are supported primarily through contributions, grants, and government agencies. Approximately 72% of these Organizations' support for the years ended December 31, 2013 and 2012 came from government agencies. 8

11 NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 Principles of Combination The accounts of Gillis Center, Inc., Ozanam, Ozanam Foundation, Ozanam Thriftmart, Spofford, Spofford Foundation, Marillac Center, Inc., Marillac Foundation and Cornerstones of Care (the Organizations) are included in the combination as the Organizations meet the criteria for combination under FASB ASC , "Consolidation of Not-for-Profit Organizations." Under this standard, the presentation of combined or consolidated financial statements is required when certain elements of control and economic interest, as defined in the statement, exist between not-for-profit organizations. Although the Organizations operate as separate legal entities, combined financial statements have been presented to comply with accounting principles generally accepted in the United States of America. Balances and significant transactions between the organizations, if any, have been eliminated in the combination. Basis of Accounting The policy of the Organizations is to prepare their financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Under this method, revenues are recognized when earned, and expenses and purchases are recognized when the obligation is incurred. Financial Statement Presentation Financial statement presentation follows the recommendations of the FASB ASC "Financial Statements of Not-for-Profit Organizations". Under this standard, the Organizations are 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. Unrestricted Net Assets Unrestricted net assets include all assets which are neither temporarily or permanently restricted. Unrestricted net assets may include Board-designated funds that are not restricted by the donor. Earnings on investments are reported as increases in unrestricted net assets unless their use is limited by donor stipulation or by laws. Temporarily Restricted Net Assets Temporarily restricted net assets include gifts for which donor-imposed restrictions have not been met, trust activity, deferred gifts and pledges receivable for which the ultimate purpose of the proceeds is not permanently restricted. Permanently Restricted Net Assets Permanently restricted net assets include contributed net assets which require, by donor restriction, that the corpus be invested in perpetuity and only the income be made available for program operations in accordance with donor restrictions. 9

12 Contributions NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 The Organizations utilize FASB ASC , "Not-for Profit Entities Revenue Recognition." This standard requires that unconditional promises to give (pledges) be recorded as receivables and revenues and requires the organization to distinguish between contributions received for each net asset category in accordance with donor imposed restrictions. Contributions with donor restrictions are reported as increases in unrestricted net assets if the restrictions are met within the same reporting period that the contribution was received. Conditional promises to give are recognized only when the conditions on which they depend are substantially met and the promises become unconditional. Contributed Materials and Services The Organizations record various types of in-kind contributions. Contributed services are recognized at fair value if the services received (a) create or enhance long-lived assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. Contributions of tangible assets are recognized at fair value when received. The amounts reflected in the accompanying financial statements as in-kind contributions are offset by like amounts included in expenses or additions to property and equipment. Volunteers Many individuals volunteer their time and perform a variety of tasks that assist the Organizations with their operations. The value of volunteer services has not been recorded in the financial statements since those services do not meet the criteria for recognition. Bequests Bequests to the Organizations from trusts and estates are recorded as income in the year the assets are received due to the uncertainty of the actual amounts to be received at the time the bequests are made. Cash and Cash Equivalents For the purposes of the statement of cash flows, the Organizations consider all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents. Accounts Receivable The Organizations use the allowance method to account for uncollectible accounts receivable. 10

13 Investments NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 The Organizations have adopted FASB ASC , "Not-for Profit Entities Investments - Debt and Equity Securities." FASB ASC establishes standards of reporting at fair value certain investments, debt and equity securities, held by not-for-profit organizations. Therefore, investments in equity securities that have a readily determinable fair value and all investments in debt securities are stated at fair value, with gains and losses included in the statements of activities. Investment income is accounted for as unrestricted, temporarily restricted, or permanently restricted support depending on the classification of the source investment. Property and Equipment and Depreciation Property and equipment are recorded at cost for all purchases over $1,000. Donated property and equipment are recorded at their fair value on the date of the donation. Depreciation is computed under the straight-line method using the following estimated useful lives: Property and Equipment Land improvements Buildings and improvements Leasehold improvements Furniture and equipment Automobiles Useful Lives years 5-45 years 5-30 years 2-20 years 5 years Major renewals and betterments are capitalized. Maintenance, repairs, and minor renewals are expensed. When property and equipment are retired or otherwise disposed of, the related costs and accumulated depreciation are removed from the accounts and any resulting gains or losses are included in income. Income Taxes The Organizations are organized as separate not-for-profit corporations and qualify as tax exempt under Section 501(c)(3) of the Internal Revenue Code. However, income from certain activities not directly related to the Organization's tax-exempt purpose may be subject to taxation as unrelated business income. In addition, the Organizations qualify for the charitable contribution deductions under Section 170(b)(1)(A) and have been classified as Organizations other than private foundations. Accordingly, no provision has been made for income taxes in these combined financial statements. The Organizations have adopted the provisions of FASB ASC , Accounting for Uncertain Tax Positions. The Organizations have evaluated their tax positions and do not believe there are any uncertain tax positions taken by the Organizations. The Organization s Forms 990, Return of Organizations Exempt from Income Tax, for the years ending 2011 through 2013 are subject to examination by the IRS, generally for three years after they were filed. 11

14 NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates include depreciation, compensated absences, the functional expense allocation, and the allowance for doubtful accounts of $360,331 and $224,404 for December 31, 2013 and 2012, respectively. Functional Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the statement of activities. Compensated Absences Employees of the Organizations are entitled to personal time off, depending on job classification, length of service, and other factors. Accordingly, a liability for accrued compensated absences has been included as part of the accrued compensation expense line item in the financial statements. The amounts included in the financial statements for this liability at December 31, 2013 and 2012 were $1,140,930 and $1,290,369, respectively. Advertising Advertising costs of the Organizations (if any) are expensed as incurred. NOTE 2. FAIR VALUE MEASUREMENTS The Organizations have adopted FASB ASC , "Fair Value Measurements", which provides a framework for measuring fair value under generally accepted accounting principles. FASB ASC applies to all financial instruments that are being measured and reported on a fair value basis. As defined in FASB ASC , fair value is 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. In determining fair value, the Organizations use various methods including market, income and cost approaches. Based on these approaches, the Organizations often utilize certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Organizations utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Organizations are required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories: Level 1 - Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Level 2 - Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or similar assets or liabilities. 12

15 NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 Level 3 - Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. For the years ended December 31, 2013 and 2012, the application of valuation techniques applied to similar assets has been consistent. The fair value of mutual funds, exchange traded funds and U.S. treasury and agency securities is the market value based on quoted market prices, when available, or market prices provided by recognized broker dealers. The fair value of bonds and C.D.s is based on valuations obtained from third party pricing services for identical or similar assets. Fair Value on a Recurring Basis The table below presents the balances of assets measured at December 31, 2013 and 2012 at fair value on a recurring basis Investments Total Level 1 Level 2 Level 3 Mutual funds $ 7,417,427 $ 7,417,427 $ - $ - Exchange traded funds 8,122,924 8,122, U.S. treasury & agency 49,518 49, Corporate bonds 2,849,916-2,849,916 - Tax exempt bonds 50,737-50,737 - C.D.s, 5 years or less 40,458-40,458 - Total $ 18,530,980 $ 15,589,869 $ 2,941,111 $ Investments Total Level 1 Level 2 Level 3 Mutual funds $ 9,917,519 $ 9,917,519 $ - $ - Exchange traded funds 3,696,581 3,696, U.S. treasury & agency 102, , Corporate bonds 2,909,047-2,909,047 - Tax exempt bonds 53,232-53,232 - C.D.s, 5 years or less 41,560-41,560 - Total $ 16,720,057 $ 13,716,218 $ 3,003,839 $ - 13

16 NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 NOTE 3. INVESTMENTS Investments at December 31, 2013 and 2012 are comprised of the following: 2013 Investments Cost Unrealized Gain (Loss) Fair Value Mutual funds $ 6,572,740 $ 844,687 $ 7,417,427 Exchange traded funds 6,871,252 1,251,672 8,122,924 U.S. treasury & agency 51,346 (1,828) 49,518 Corporate bonds 2,901,379 (51,463) 2,849,916 Tax exempt bonds 46,770 3,967 50,737 C.D.s, 5 years or less 39, ,458 Total $ 16,483,251 $ 2,047,729 $ 18,530, Investments Cost Unrealized Gain (Loss) Fair Value Mutual funds $ 9,221,163 $ 696,356 $ 9,917,519 Exchange traded funds 3,485, ,023 3,696,581 U.S. treasury & agency 100,288 1, ,118 Corporate bonds 2,848,604 60,443 2,909,047 Tax exempt bonds 46,780 6,452 53,232 C.D.s, 5 years or less 39,720 1,840 41,560 Total $ 15,742,113 $ 977,944 $ 16,720,057 Investment income for the years ended December 31, 2013 and 2012 is comprised of the following: Interest and dividend income $ 393,855 $ 403,812 Net realized gains 848, ,326 Net unrealized gains (losses) 829, ,946 Total investment income $ 2,071,107 $ 1,464,084 NOTE 4. PROPERTY AND EQUIPMENT Property and equipment is comprised of the following: Land and land improvements $ 3,193,594 $ 3,193,594 Building and improvements 15,544,886 15,466,785 Leasehold improvements 1,012, ,345 Furniture and equipment 4,510,268 4,232,550 Automobiles 535, ,241 Total 24,796,140 24,308,515 Accumulated Depreciation (11,120,557) (10,400,165) Net property and equipment $ 13,675,583 $ 13,908,350 Depreciation expense for the years ended December 31, 2013 and 2012 was $744,108 and $732,167, respectively. 14

17 NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 NOTE 5. CONTRIBUTIONS RECEIVABLE At December 31, 2013 and 2012, unconditional contributions receivable were $466,827 and $241,052, respectively. All of these amounts were due in less than one year. Management believes that these amounts are fully collectible. NOTE 6. CONTRIBUTION RECEIVABLE USE OF PROPERTY Effective January 3, 1997, Gillis Center, Inc (Gillis) entered into a below market lease agreement with The Women s Christian Association of Kansas City, Missouri (Landlord) to lease the buildings and grounds that it occupies for a five-year term with nine five-year renewal periods. Alterations, additions, improvements to the buildings, maintenance and repairs are the responsibility of Gillis. Utilities and property and casualty insurance are shared with the landlord at agreed upon rates. Rent under the lease is $1 per year, and the landlord shall not terminate the lease and shall not increase the rent as long as Gillis meets its responsibility under the lease. While the base annual rent is $1, the fair market annual rent was estimated in an appraisal valuation to be $228,099 per year. A % discount rate was used in determining the present value of the contribution at the inception of the lease, with the discount being amortized over a 50 year period as management has estimated the property will be used for all available lease periods. However, in accordance with FASB ASC the amount recorded as a contribution was limited to the fair value of the property. The contribution of the future use of the property has been recognized in the financial statements as temporarily restricted net assets, with a release from temporarily restricted to unrestricted made each year to reflect the use of the property. The contribution receivable for the use of the property at December 31, 2013 and 2012 are classified as follows: December 31, 2013: Contribution receivable $ 2,134,406 Less: Current portion 8,036 Contribution receivable, noncurrent $ 2,126,370 December 31, 2012: Contribution receivable $ 2,141,656 Less: Current portion 7,250 Contribution receivable, noncurrent $ 2,134,406 15

18 NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 The contribution receivable for the use of the property at December 31, 2013 and 2012 are calculated as follows: December 31, 2013: Undiscounted value of below-market rent $ 11,404,950 Discount to present value at % (9,209,267) Discounted value of below-market rent 2,195,683 To-date amortization (61,277) Contribution receivable $ 2,134,406 December 31, 2012: Undiscounted value of below-market rent $ 11,404,950 Discount to present value at % (9,209,267) Discounted value of below-market rent 2,195,683 To-date amortization (54,027) Contribution receivable $ 2,141,656 The expected time expirations on restrictions for the use of the property are as follows: Year ended December 31, 2014 $ 8, , , , ,125 Thereafter 2,084,528 $ 2,134,406 NOTE 7. LEASES The Organizations lease equipment and office space under various operating leases. Future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2013 are as follows: 2014 $ 47, , $ ,764 Equipment rental expense was $78,355 and $74,357 for the years ended December 31, 2013 and 2012, respectively. In addition, building rent expense under operating leases with a term in excess of one month that do not extend beyond a year was $149,629 and $114,000 for the years ended December 31, 2013 and 2012, respectively. Ozanam, in operation of its Pathways program, leases several residential apartments under operating leases with terms of one year or less. Total rental expenses associated with these leases were $442,181 and $484,520 for the years ended December 31, 2013 and 2012, respectively. 16

19 NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 NOTE 8. RETIREMENT PLANS Gillis previously participated in a defined benefit plan sponsored by the Women's Christian Association (WCA). Gillis was previously responsible for approximately 81% in 2012 of the plan obligations and 19% for WCA, based upon the mix of Gillis and WCA employees remaining under the plan from time to time. Effective for 2013, an agreement in principal was reached between Gillis and WCA to split the obligation 70% for Gillis and 30% for WCA moving forward, regardless of the mix of Gills and WCA employees remaining under the plan. Subsequent to this change, in addition to the allocation of the liability, expenses incurred in connection with the plan in 2014 have been allocated 70% to Gillis and 30% to WCA to reflect this new agreement. The plan was frozen in 1996 when Gillis established its separate 401(k) plan. For the years through December 31, 2003, Gillis was not required to make any additional contributions to the plan. Subsequently, Gillis has made contributions to the plan to reduce its share of the unfunded balance with the intent to fully fund its share of plan obligations in accordance with the Pension Protection Plan Act of Information regarding the plan as of December 31, 2013 and 2012 is summarized as follows: Projected benefit obligation $ (788,943) $ (684,932) Plan assets at fair value 443, ,037 Funded status $ (345,388) $ (267,895) Gillis Center, Inc.'s share at 70% & 81%, respectively $ (241,772) $ (216,995) Estimated service and transition costs - (37,406) Liability recognized $ (241,772) $ (254,401) Gillis contributions to the plan for the years ended December 31, 2013 and 2012 were $57,522 and $68,288, respectively. Benefits paid from the plan for the years ended December 31, 2013 and 2012 that were attributable to Gillis were $219,800 and $119,634, respectively. The following benefits attributable to Gillis are expected to be paid: 2014 $ 11, , , , , $ 108, ,000 The actuarial assumptions used for the 2013 and 2012 valuations included (a) 7.5% and 7%, respectively, investment rate of return, and (b) projected salary increases of 0% for both valuations. The actuarial value of plan assets was determined by calculating the average value of assets on the valuation date and the two previous valuation dates. This method is used to minimize the effect of fluctuations in the pension fund balances. Marillac Center, Inc. has a 403(b) retirement plan. The plan does not require Marillac Center, Inc. to make matching contributions. During 2001, the plan was closed to new participants. Existing participants may continue to make contributions to the plan. 17

20 NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 Ozanam had a 403(b) salary deferral plan covering substantially all of their employees. Under this plan, Ozanam is to contribute 50% of the employees' deferral up to 6% of the employees' compensation. This plan was terminated during During 2004, Ozanam joined the plan that was implemented in 2000 by Spofford, Marillac, Healthy Families Counseling and Support and Cornerstones of Care. During 2000, Spofford, Marillac, Healthy Families Counseling and Support and Cornerstones of Care implemented a defined contribution retirement plan open to all employees with at least 90 days or more of service. Prior to 2010, the Organizations contributed 50% of the contributions deferred by the employees, up to 6% of the employees' compensation. The Organizations were also able to make discretionary contributions to the plan. Contributions from the Organizations were discontinued in An employer match was reinstated in 2012 at fifty percent of the first two percent of employee contributions to the plan, and increased in 2013 to thirty percent of the first ten percent of employee contributions to the plan. NOTE 9. SPLIT INTEREST AGREEMENTS Ozanam is the recipient of various unrestricted and restricted charitable gift annuities. The assets are recognized at fair value when received and the annuity payment liabilities are recorded at the present value of future cash flows expected to be paid, based on the donors' life expectancies and discount rates, which range from 8% to 11.5%. All annuity agreements as of December 31, 2013 and 2012 require scheduled payments to the donors, which terminate upon the donors' death. Ozanam has a cumulative liability for annuities of $48,091 and $60,800 as of December 31, 2013 and NOTE 10. LINES OF CREDIT Cornerstones of Care has a $200,000 revolving line of credit with a bank which requires monthly interest payments at the bank's prime rate. The line is collateralized by a security interest in all assets of Cornerstones of Care. There was no balance on this line of credit as of December 31, 2013 and Gillis has a $400,000 revolving line of credit with a bank which requires monthly interest payments at the bank's prime rate minus.25% adjusted daily with a floor of 4%. The line is collateralized by a security interest in accounts receivable. The balance on the line of credit was $175,000 as of December 31, There was no balance on the line of credit as of December 31, Marillac has a revolving line of credit for $500,000 with an interest rate of 4.00%, secured by accounts receivable of the borrower. The balance on the line of credit was $350,000 as of December 31, There was no balance on the line of credit as of December 31, NOTE 11. REQUIRED CASH FLOW DISCLOSURES During the years ended December 31, 2013 and 2012, the Organizations paid $142,916 and $152,512 in interest. The Organizations paid no income taxes for either year. 18

21 NOTE 12. NOTES PAYABLE NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 For the years ended December 31, 2013 and 2012, notes payable consisted of the following: On April 27, 2011, Cornerstones signed a note payable to a bank in the amount of $700,000 for the purpose of providing funds to purchase and renovate a new office building. The note is secured by the Cornerstones investment portfolio. The Organization will pay this loan in 59 regular payments of $7,202 each and one final payment of $395,013. The first payment was made on May 27, 2011, and all subsequent payments are due on the same day of each month after that. The final payment is due on April 27, 2016, and will be for all principal and all accrued interest not yet paid. The note has a fixed interest rate of 4.28%. $ 542,041 $ 603,471 On April 4, 2007, Marillac signed a note payable to a bank in the amount of $1,866,399 to be used as working capital. The note is secured by real estate owned by Marillac. Various provisions of the note were amended in 2011, including a requirement that Marillac Foundation guarantee the debt. Marillac is required to maintain a debt service coverage ratio covenant, as defined in the agreement, of 1:1.0. At December 31, 2013, management has determined that they are not in violation of this covenant. Marillac is required to make principal and interest payments in monthly installments totaling $16,854 beginning May 15, 2007 and ending March 1, The remaining principal balance is due on May 15, This note has a fixed interest rate of 6.97%. 1,277,468 1,385,550 On April 4, 2007, Marillac signed a note payable to a bank in the amount of $1,600,000 to be used as working capital. The note is secured by real estate owned by Marillac. Various provisions of the note were amended in 2011, including a requirement that Marillac Foundation guarantee the debt. Marillac is required to maintain a debt service coverage ratio covenant, as defined in the agreement, of 1:1.0. At December 31, 2013, management has determined that they are not in violation of this covenant. Marillac is required to make annual principal payments of $150,000 beginning December 31, 2011 until July 31, 2014 when the remaining principal balance is due. Marillac is also required to make monthly interest payments beginning September 19, 2011 and ending July 31, The interest rate is a rate equal to the BBA LIBOR Daily Floating Rate plus 2.50 percentage points which resulted in an interest rate of 2.67 percent and 2.71 percent at December 31, 2013 and 2012, respectively. 231, ,177 Total notes payable as of December 31, 2013 and 2012 $ 2,050,686 $ 2,370,198 Estimated maturities on notes payable are as follows: Principal Interest 2014 $ 411,044 $ 112, ,155 97, ,839 75, ,648 13,177 $ 2,050,686 $ 298,449 19

22 NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2013 AND 2012 NOTE 13. EQUALIZATION TRANSFER Cornerstones of Care and certain other related organizations, namely Ozanam, Marillac, Gillis, and Spofford adopted an equalization policy (the Policy) in The Policy was revised effective January 1, The revision provides for the equalization adjustment to be generally limited to the change in net assets derived from operations for the period as defined by the Policy for each entity. As such, entities generally experiencing an increase in operating net assets agreed to provide support for entities generally experiencing a decrease in operating net assets for the period. For the years ended December 31, 2013 and 2012, the following amounts were received (contributed) by each organization: Cornerstones of Care $ (395,073) $ (334,814) Marillac 497, ,282 Spofford (63,667) 271,513 Ozanam (80,087) (360,808) Gillis 41,801 (127,173) NOTE 14. CONCENTRATION OF CREDIT RISK The Organizations maintain cash in bank deposit accounts and money market accounts at financial institutions. Accounts at the bank institutions are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. Accounts at the financial institution are insured by the Securities Investor Protection Corporation (SIPC) up to $500,000 ($250,000 for cash balances). As of December 31, 2013 and 2012, $5,238,655 and $5,081,191, respectively, of the cash balance was uninsured. Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Organizations establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. The Organizations do not require collateral or other security to support accounts receivable. The Organization has investments in equity and debt securities that are exposed to various risks, such as interest rate, market, and credit. Due to the level of risk associated with these assets, it is at least reasonably possible that changes in risks in the near term would materially affect the amounts reported in the Statements of Financial Position and the Statements of Activities. NOTE 15. ENDOWMENT FUNDS Permanently restricted net assets at December 31, 2013 and 2012 consist of endowment funds established to support the Organizations. Contributions to the endowment funds are subject to donor restrictions that stipulate the original principal of the gift are to be held and invested by the Organizations indefinitely and income from the funds are to be expended for general purposes. As required by generally accepted accounting principles, net assets associated with endowment funds are classified and reported based on the existence or absence of donorimposed restrictions. 20