RONALD MCDONALD HOUSE CHARITIES OF ST. LOUIS FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 AND INDEPENDENT AUDITORS' REPORT

Transcription

1 RONALD MCDONALD HOUSE CHARITIES OF ST. LOUIS FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 AND INDEPENDENT AUDITORS' REPORT

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

3 Independent Auditors' Report To the Board of Directors Ronald McDonald House Charities of St. Louis We have audited the accompanying financial statements of Ronald McDonald House Charities of St. Louis (a nonprofit organization), which comprise the statements of financial position as of, and the related statements of activities, functional expenses, and cash flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. (314) fax (314) Sunset Office Drive, Suite 400 St. Louis, MO

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ronald McDonald House Charities of St. Louis as of December 31, 2017 and 2016, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note P to the financial statements, the beneficial use ofland had been misstated in the prior year. The 2016 financial statements have been restated to correct the misstatement. Our opinion is not modified with respect to this matter. St. Louis, Missouri March 6, 2018 (2)

5 FINANCIAL STATEMENTS

6 STATEMENTS OF FINANCIAL POSITION ASSETS December 31, (Restated) CURRENT ASSETS Cash and cash equivalents $ 904,459 $ 659,541 Prepaid expenses 45,034 56,583 Other assets 41,413 66,031 Total Current Assets 990, ,155 PROPERTY AND EQUIPMENT, NET 8,695,658 9,161,493 BENEFICIAL USE OF LAND, NET 485, ,537 INVESTMENTS 5,479,419 4,663,938 Total Assets $ 15,651,969 $ 15,109,123 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 71,360 $ 115,979 Current annuity obligation 29,865 26,505 Current portion of long-term debt 86,627 Accrued payroll and related liabilities 42,100 73,617 Total Current Liabilities 143, ,728 LONG-TERM DEBT 145,859 ANNUITY OBLIGATION 179, ,024 Total Liabilities 322, ,611 NET ASSETS Unrestricted Net investment in property and equipment 8,695,658 8,929,007 Board designated endowment 4,588,602 2,082,069 Available for general use 622,782 2,360,597 Total Unrestricted Net Assets 13,907,042 13,371,673 Temporarily restricted 804, ,100 Permanently restricted 617, ,739 Total Net Assets 15,329,029 14,512,512 Total Liabilities and Net Assets $ 15,651,969 $ 15,109,123 See accompanying notes to financial statements (3)

7 STATEMENTS OF ACTIVITIES Year Ended December 31, Temporarily Permanently Unrestricted Restricted Restricted Total SUPPORT AND REVENUE Support Special events $ 924,399 $ $ $ 924,399 Less: costs of direct benefits to donors 300, ,317 Net revenue from special events 624, ,082 Contributions 2,715, ,806 3,200,401 Outside fundraisers 218, ,171 Change in value of split-interest agreements ( 21,259) ( 21,259) Net assets released from restrictions 203,658 ( 203,658) Total Support 3,740, ,148 4,021,395 Revenue Lodging receipts (net of waived fees of $184,383 and $90,707, respectively) 162, ,921 Investment income 246, ,310 Net unrealized and realized gains on investments 499, ,169 Miscellaneous income 57,303 57,303 Total Revenue 965, ,703 Total Support and Revenue 4,705, ,148 4,987,098 EXPENSES Program Services Residential facilities 2,590,865 2,590,865 Family rooms 361, ,642 Other program services 141, ,620 Total Program Services 3,094,127 3,094,127 Supporting Services General and administrative 431, ,680 Fundraising 580, ,923 Total Supporting Services 1,012,603 1,012,603 Unallocated Payments to RMHC Global 63,851 63,851 Total Expenses 4,170,581 4,170,581 CHANGEINNET ASSETS 535, , ,517 NET ASSETS, Beginning of year - restated (Note P) 13,371, , ,739 14,512,512 NET ASSETS, End of year $ 13,907,042 $ 804,248 $ 617,739 $ 15,329,029 See accompanying notes to financial statements (4)

8 Year Ended December 31, 2016 Temporarily Permanently Unrestricted Restricted Restricted Total $ 951,429 $ $ $ 951, , , , ,187 2,799, ,936 3,061, , ,786 ( 18,503) ( 18,503) 461,997 ( 461,997) 4,126,023 ( 200,061) 3,925, , , , , , ,643 22,944 22, , ,674 4,587,632 ( 199,996) 4,387,636 2,520,711 2,520, , , , ,353 3,028,044 3,028, , , , , , ,996 59,113 59,113 4,048,153 4,048, ,479 ( 199,996) 339,483 12,832, , ,739 14,173,029 $ 13,371,673 $ 523,100 $ 617,739 $ 14,512,512

9 STATEMENT OF FUNCTIONAL EXPENSES For the Year Ended December 31, Residential Facilities Salaries $1,045,905 Salaries - relief staff 86,717 Employee benefits 135,238 Payroll taxes 79,539 Advertising Bank charges 10,920 Charities Depreciation 575,858 Fundraising projects In-kind rent 42,000 Insurance 58,463 Interest 3,058 Laundry service 17,507 Maintenance and repairs 176,992 Miscellaneous 54,009 Newsletter Professional fees and services 5,389 Seminars - training 18,076 Supplies 27,875 Telephone 33,224 Transportation 46,841 Utilities 154,000 Volunteer expenses 19,254 $2,590,865 Pro~ram Services Su.eporting Services Other Total Total Family Program Program General and Fund- Supporting Rooms Services Services Administrative raising_ Services $180,111 $ $1,226,016 $146,888 $165,191 $ 312,079 86,717 23, ,527 18,993 21,359 40,352 13,697 93,236 11,171 12,562 23,733 11,541 11,541 10,920 12,284 4,095 16,379 91,527 91,527 15,456 28,703 44, ,858 15,154 15,154 30, , , , ,400 58,463 1,539 1,539 3,078 3, , ,992 23,032 1,381 78,422 15,092 15,092 22,727 22,727 48,712 54,101 23,015 23,015 3,113 21,189 26,697 2,855 29,552 27, , ,501 33, ,748 46, ,000 4,053 4,053 8,106 19,254 28,882 28,882 $361,642 $141,620 $3,094,127 $431,680 $580,923 $ 1,012,603 Total $1,538,095 86, , ,969 11,541 27, , , , ,400 61,541 3,220 17, ,992 93,514 22,727 77,116 50, ,376 34,972 46, ,106 48,136 $4,106,730 Unallocated Payments to RMHC Global Total Expenses See accompanying notes to financial statements (5) 63,851 $4,170,581

10 STATEMENT OF FUNCTIONAL EXPENSES For the Year Ended December 31, 2016 Residential Facilities Salaries $ 993,680 Salaries - relief staff 68,694 Employee benefits 150,064 Payroll taxes 74,916 Pro~ram Services Sup12orting Services Other Total Family Program Program General and Fund- Rooms Services Services Administrative raising $ 179,379 $ $ 1,173,059 $ 147,066 $ 189,797 68,694 27, ,153 22,210 28,663 13,524 88,440 11,088 14,309 Total Supporting Services - Total $ 336,863 $ 1,509,922 68,694 50, ,026 25, ,837 Advertising Bank charges 9,685 Charities Depreciation 589,358 Fundraising projects In-kind rent 42,000 Insurance 63,089 Interest 15,305 Laundry service 19,685 Maintenance and repairs 158,255 Miscellaneous 42,167 Newsletter Professional fees and services 5,247 Seminars - training 17,768 Supplies 20,513 Telephone 33,109 Transportation 45,752 Utilities 145,936 Volunteer expense 25,488 11,553 9,685 10,895 3, , ,957 11,935 22, ,358 15,715 15, , , ,400 63,089 1,660 1,660 15, , ,255 11, ,402 30, ,684 47,542 52,789 24,293 3,207 20,975 26,169 3,394 20,513 82,053 33, , ,936 3,840 3,840 25,488 38,231 11,553 11,553 14,527 24,212 34, ,056 31, , , , ,400 3,320 66, ,111 19, ,255 30,440 84,842 23,684 23,684 24,293 77,082 29,563 50,538 82, ,566 1,742 34,851 45,752 7, ,616 38,231 63,719 $ 2,520,711 _$ 352,980 $ 154,353 $ 3,028,044 $ 426,672 $ 534,324 $ 960,996 $ 3,989,040 Unallocated Payments to RMHC Global Total Expenses See accompanying notes to financial statements (6) 59,113 $ 4,048,153

11 STATEMENTS OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets Adjustments to reconcile change in net assets to net change in cash from operating activities: Depreciation Change in value of split-interest agreements Net unrealized and realized gains on investments Bad debt Loss on disposal of property and equipment Donated securities Proceeds from sales of donated securities Donated property and equipment Beneficial use of land - discount amortization (Increase) decrease in assets: Pledges receivable Prepaid expenses Other assets Increase (decrease) in liabilities: Accounts payable Annuity obligation Accrued payroll and related liabilities ( ( $ Years Ended December 31, (Restated) , ,166 21, ,169) 1, ,383) 15,551 11,549 22,988 44,619) 13,692 31,517) $ 339, ,788 18,503 ( 114,643) 15,744 3,431 ( 19,814) 19,814 ( 73,785) 14,715 19,256 ( 26,511) 16,981 ( 112) ( 34,024) 49,617 Net Change in Cash from Operating Activities 919, ,443 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment Purchases of investments Proceeds from the sale of investments ( ( 125,712) 1,337,312) 1,021,000 ( 488,786) ( 161,750) Net Change in Cash from Investing Activities ( 442,024) ( 650,536) CASH FLOWS FROM FINANCING ACTIVITIES Payments on long-term debt 232,486) ( 333,987) NET CHANGE IN CASH AND CASH EQUIVALENTS 244,918 ( 135,080) CASH AND CASH EQUIVALENTS, Beginning of year 659, ,621 CASH AND CASH EQUIVALENTS, End of year $ 904,459 $ 659,541 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: Interest paid $ 3,220 $ 16,111 See accompanying notes to financial statements (7)

12 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Ronald McDonald House Charities of St. Louis (the Organization) is a not-for-profit charitable corporation, incorporated under the laws of the State of Missouri. The mission of Ronald McDonald House Charities is to create, find, and support programs that directly improve the health and well-being of children. Collectively, RMHC and the network oflocal Chapters ascribe to five core values; we are focused on the critical needs of children, we lead with compassion, we celebrate the diversity of our people and our programs, we value our heritage and we operate with accountability and transparency. We fulfill our mission through operation of sustainable programs that enable family-centered care, bridge access to quality health care, are a vital part of the health care continuum and strengthen families during difficult times. The following programs, operated by the Organization, represent the core functions of Ronald McDonald House Charities of St. Louis: Ronald McDonald House When children must travel long distances to access top medical care, accommodations and support for families can be expensive or not readily available. The Organization helps families stay close to their ill or injured child through the Ronald McDonald House program, which provides temporary lodging, meals and other support to children and their families. The program provides families with emotional and physical comfort and increases the caregivers' ability to spend more time with their child, to interact with their clinical care team and to participate in critical medical care decisions. Ronald McDonald Family Room When a child is critically ill, parents may be reluctant to leave the hospital. In order to provide comfort and support to their child, it is important that parents have an opportunity to rest, have a meal or have a moment of quiet. Located inside medical care facilities, the Ronald McDonald Family Room program in Mercy Children's Hospital, SSM Health Cardinal Glennon Children's Hospital and St. Louis Children's Hospital serve as a place of respite, relaxation and privacy for family members, often just steps away from where their child is being treated. The Ronald McDonald Family Room program provides parents with an opportunity to remain close to their hospitalized child and to be an active member of their child's health care team. (8)

13 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements of the Organization have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and are presented on the basis of unrestricted net assets; temporarily restricted net assets; and permanently restricted net assets. Net assets of the two restricted classes are created only by donor-imposed restrictions on their use. When a 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. All other net assets, including board designated or appropriated amounts, are unrestricted and are reported as part of the unrestricted class. Cash Equivalents The Organization considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The Organization maintains cash deposits in bank accounts which at times exceed the federally insured limits of up to $250,000 for each institution. The Organization has not experienced any losses in such accounts. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Financial Instruments The following methods and assumptions were used by the Organization in estimating its fair value disclosure for financial instruments: The carrying amounts of cash and cash equivalents, prepaid expenses, other assets, accounts payable, accrued payroll and related liabilities, and annuity obligations reported in the Statements of Financial Position approximate fair values due to the short-term maturities of those instruments. (9)

14 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Instruments In addition, the Organization believes the carrying amount of long-term obligations approximate fair market value due to the relative similarity of the effective interest rates as compared to current market rate. Investments Investments in marketable securities with readily determinable fair values and all investments in debt securities are reported at their fair values based on quoted prices in active markets in the Statements of Financial Position. Realized and unrealized gains and losses are included in the accompanying Statements of Activities. Investments are exposed to various risks such as significant world events, interest rate, credit, and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the fair value of investments will occur in the near term and that such changes could materially affect the amounts reported in the statements of financial position. Property and Equipment Property and equipment are stated at cost. Depreciation is computed on a straight-line basis over the assets' estimated useful lives ranging as follows: Description Buildings and improvements Furniture Equipment and machinery Vehicles Useful Life Years Expenditures for repairs and maintenance are charged to operations while renewals and betterments are capitalized. The Organization evaluates its long-lived assets for any events or changes in circumstances which indicate the carrying amount of such assets may not be fully recoverable. The Organization evaluates the recoverability of long-lived assets by measuring the carrying amount of such assets against the estimated undiscounted future cash flows associated with them. At the time such evaluation indicates the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. No such adjustments have been made in 2017 or (10)

15 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Donated Assets, Property and Equipment, and Services Donated marketable securities, property and equipment, and other noncash donations are recorded as contributions at their fair values at the date of donation. Such donations are reported as increases in unrestricted net assets unless the donor has restricted the donated asset for a specific purpose. Assets donated with explicit restrictions regarding their use are reported as restricted contributions. Absent donor stipulations regarding how long those donated assets must be maintained, the Organization reports expirations of donor restrictions when the donated or acquired assets are placed in service as instructed by the donor. The Organization reclassifies temporarily restricted net assets to unrestricted net assets at that time. Revenue Recognition Contributions are recognized when the donor makes a promise to give to the Organization, that is, in substance, unconditional. Amounts received that are restricted by the donor for use in future periods or for specific purposes are reported as temporarily restricted or permanently restricted support that increases those net asset classes. When a donor restriction expires, that is, when a stipulated time restriction ends or the purpose of the restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the Statements of Activities as net assets released from restrictions. When restrictions are met in the same period as the contribution is received, the Organization records the contribution revenue as unrestricted. Advertising Costs Ronald McDonald House Charities expenses advertising production costs as they are incurred and advertising communication costs the first time the advertising takes place. Advertising expense amounted to $11,541 and $11,553 for the years ended December 31, 2017 and 2016, respectively. Expense Allocation The cost of providing various programs and other activities has been summarized on a functional basis in the Statements of Activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. (11)

16 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Income Taxes The Organization qualifies as a not-for-profit organization under Section 50l(c)(3) of the Internal Revenue Code and is exempt from federal and state income taxes. However, income, if any, from certain activities not directly related to the Organization's tax-exempt purpose is subject to taxation as unrelated business income. The Organization files an information return, IRS Form 990. Tax returns for years 2014 and later remain subject to examination by taxing authorities, generally for three years after they were filed. The Organization follows the provisions relating to Accounting for Uncertainty in Income Taxes and management is not aware of any uncertain tax positions of the Organization related to tax filings. Sale Proceeds of Donated Financial Assets in the Statements of Cash Flows The Organization follows the provisions of Accounting Standards Update , Not-forprofit-Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statements of Cash Flows. ASU provides for classification of each receipt from the sale of donated financial assets consistently with cash donations received in the Statements of Cash Flows if those cash receipts were from the sale of donated financial assets that upon receipt were converted nearly immediately to cash. The effect of adopting appears on the Statements of Cash Flows as "Proceeds from sales of donated securities." Reclassifications Certain prior year amounts have been reclassified, where appropriate, to conform to the financial statement presentation used in the current year. Subsequent Events In preparing these financial statements, the Organization has evaluated events and transactions for potential recognition or disclosure through March 6, 2018, the date the financial statements were available to be issued. (12)

17 B. PROPERTY AND EQUIPMENT Ronald McDonald House Charities of St. Louis Property and equipment consist of the following: Land Buildings and improvements Furniture Equipment and machinery Vehicles Construction in progress December 31, $ 624,924 $ 624,924 13,818,428 13,779, , , , ,638 92,768 98,305 59,721 Less accumulated depreciation Total Property and Equipment, Net ( $ 16,374,402 16,253,691 7,678,744) ( 7,092,198) 8,695,658 $ 9,161,493 Depreciation expense amounted to $606,166 and $620,788 for the years ended December 31, and 2016, respectively. C. BENEFICIAL USE OF LAND In December 1998, the Organization entered into a lease agreement with SSM Health Cardinal Glennon Children's Hospital (the Hospital) whereby the Organization would lease from the Hospital certain land owned by the Hospital. The initial term of the lease was for a 30-year period that ends on December 31, 2028, with an aggregate annual base rent of $1.00. Listed sales prices for comparable properties sold in the area indicated that the fair value of the space at the time of inception was $110,000. The annual rental value was estimated to be approximately $12,000 per year. In connection with this lease agreement, the Organization discounted the value of the 30-year initial term of the lease using a discount rate of approximately 9.9%, and recorded a restricted contribution in 1998 in the amount of$110,000. The value remaining on the use ofland as of is $76,739 and $80,424, respectively, and has been recorded as such on the statements of financial position. For each of the years ended, rent expense of$12,000 was recorded in connection with this lease agreement. In 2008, the Organization entered into a lease agreement with Mercy Children's Hospital (the Hospital) whereby the Organization would lease from the Hospital certain land owned by the Hospital. The initial term of the lease was for a 30-year period that ends on September 19, 2038, with an aggregate annual base rent of $1.00. Listed sales prices for comparable properties sold in the area indicated that the fair value of the space at the time of inception was $500,000. The annual rental value was estimated to be approximately $30,000 per year. In connection with this lease agreement, the Organization discounted the value of the 30-year initial term of the lease using a discount rate of approximately 4.2%, and recorded a restricted contribution in 2008 in the amount of$500,000. (13)

18 C. BENEFICIAL USE OF LAND The value remaining on the use of land as of December 31, and 2016 is $409,247 and $421,113, respectively, and has been recorded as such on the statements of financial position. For each of the years ended, rent expense of $30,000 was recorded in connection with this lease agreement. D. INVESTMENTS Long-term investments are stated at fair value and consist of funds held in the McDonald Charities Investment Program in equity and bond funds. Cost, fair values, and unrealized appreciation (depreciation) at, are summarized as follows: December 31, Unrealized Fair Appreciation Cost Value {De12reciation) McDonald Charities Investment Program Equity Fund $3,000,106 $3,697,751 $697,645 Bond Fund 1,801,745 1,781,668 { 20,077) Total McDonald Charities Investment Program $ $5A79A19 $ December Unrealized Fair Appreciation Cost Value {De12reciation) McDonald Charities Investment Program Equity Fund $2,346,573 $2,791,653 $445,080 Bond Fund 1,887,765 1,872,285 ( 15,480) Total McDonald Charities Investment Program $ $ $ Included in long-term investments at, are permanently restricted endowment investments of $617,739 and Board designated endowment investments of $4,588,602 and $2,082,069 respectively (See Note I). (14)

19 E. FAIR VALUE MEASUREMENTS Ronald McDonald House Charities of St. Louis The Organization has established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 Inputs to the valuation methodology are unobservable and supported by little or no market activity and that are significant to the fair value of the assets or liabilities including investments in certain hedge funds, commodities, managed futures, private equity, and real estate strategies. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Fair values of assets measured on a recurring basis are as follows: Fair Value Measurements at Re12orting Date Using Quoted Prices In Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) December Equity Fund $3,697,751 $3,697,751 $ $ Bond Fund 1,781, ,668 Total $5,479,419 $3,697,751 $1,781,668 $ December Equity Fund $2,791,653 $2,791,653 $ $ Bond Fund Total $4,663,938 $2,791,653 $1,872,285 $ (15)

20 F. LINE OF CREDIT AGREEMENT Ronald McDonald House Charities of St. Louis The Organization has a $500,000 revolving line of credit agreement with a bank which is collateralized by a deed of trust on the leasehold of the West County Ronald McDonald House. The agreement expires June 25, 2018, and is subject to annual renewal. Interest is payable at a rate of3.75% at December 31, The line is used to cover temporary cash shortfalls. There has been no activity on the line during 2017 or 2016, and there is no balance outstanding at. G. LONG-TERM DEBT At, long term debt consisted of: Note payable to UMB bank, monthly installments of principal and interest of $8,342 at a rate of 3%, collateralized by leasehold deed of trust until March 2018, final payment of $114,305 was originally due April 2018; retired early during Less: portion considered current Total Long-Term Debt $ $232,486 ( 86,627) $ $145,859 The term loan was collateralized by a leasehold deed of trust and the agreement contained various covenants that pertained to providing regular and annual financial statements and annual liquidity requirements. At December 31, 2016 and during the fiscal year 2017, the Organization was in compliance with these covenants. There was no penalty for the early payment of the outstanding principal amount. The Organization made additional payments of $145,859 during the year ended December 31, 2017 to retire the note in H. RESTRICTIONS ON NET ASSETS Temporarily restricted net assets consist of the following: December 31, Beneficial Use of Land Specific Programs Total Temporarily Restricted Net Assets $485, ,262 $804,248 $501,537 21,563 $523,100 Temporarily restricted net assets are reclassified to unrestricted net assets when the time restriction expires or the funds are utilized for the restricted purpose. Permanently restricted net assets consist of endowment contributions to be held indefinitely, the income from which is restricted to the Organization's operating expenses. (16)

21 I. BOARD DESIGNATED NET ASSETS Board designated net assets consist of unrestricted support previously received by the Organization. These funds are earmarked by the Board of Directors as follows: Endowment - Established with the intention of allowing the corpus to be retained and the income to build within the account or be used to fund a portion of the operating costs. The Board retains the authority to change the designation of these funds as deemed necessary in the future. The Board designated gift annuity and endowment is $4,588,602 and $2,082,069 at December 31, and 2016, respectively. J. ENDOWMENT FUNDS The Organization has adopted provisions of ASC lB, Endowments of Not-for Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Managenient of Institutional Funds Act (UPMIFA), and Enhanced Disclosures for All Endowment Funds. ASC B provides guidance on the net asset classification of donor-restricted endowment funds for a nonprofit organization. The Organization's endowment consists ofindividual funds established including both donorrestricted funds and funds designated by the Board of Directors to function as endowments. Net assets associated with endowment funds, including funds designated by the Board of Directors to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. Effective August 28, 2009, the State of Missouri enacted UPMIFA. UPMIFA requires the preservation of the fair value of the original gift as of the date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result, the Organization classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and ( c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. There are no donor-restricted endowment funds classified as temporarily restricted net assets at December 31, and (17)

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

23 J. ENDOWMENT FUNDS Ronald McDonald House Charities of St. Louis Endowment net asset composition by type of fund as of December 31, 2017 is as follows: Total Net Temporarily Permanently Endowment Unrestricted Restricted Restricted Assets Donor-restricted endowment funds Board designated gift annuity funds Board designated endowment funds $ 564, $ $617,739 $ 617, , Total Funds $4,588,602 $ $617,739 $5,206,341 Changes in endowment net assets as of December 31, 2017 are as follows: Total Net Temporarily Permanently Endowment Unrestricted Restricted Restricted Assets Endowment net assets, beginning of year $2,082,069 $ $617,739 $2,699,808 Contributions 70,000 70,000 Board transfer 2,274,106 2,274,106 Investment income 56, , ,694 Net realized and unrealized 105, , ,716 Amounts appropriated for operations ( 561,983) ( 561,983) Endowment net assets, end of year $4,588,602 $ $617,739 $5,206,341 Endowment net asset composition by type of fund as of December 31, 2016 is as follows: Total Net Temporarily Permanently Endowment Unrestricted Restricted Restricted Assets Donor-restricted endowment funds Board designated gift annuity funds Board designated endowment funds $ 434, $ $617,739 $ 617, , Total Funds $2,082,069 $ $617,739 $2,699,808 (19)

24 J. ENDOWMENT FUNDS Ronald McDonald House Charities of St. Louis Changes in endowment net assets as of December 31, 2016 are as follows: Endowment net assets, beginning of year Investment income Net depreciation Amounts appropriated for operations Total Net Temporarily Permanently Endowment Unrestricted Restricted Restricted Assets $1,970,686 66,732 44,651 $ 86,069 65,214 ( 151,283) $617,739 $2,588, , ,865 ( 151,283) Endowment net assets, end of year $2,082,069 $ $617,739 $2,699,808 K. TRANSACTIONS WITH RELATED ENTITIES Ronald McDonald House Charities (RMHC) is a system of independent, separately registered public benefit organizations, referred to as "Chapters" within the global organization. The Organization is an independent operating Chapter within the RMHC system. Each Chapter is licensed by McDonald's Corporation and Ronald McDonald House Charities, Inc. to use RMHC related trademarks in conjunction with fundraising activities and the operation of its programs; the License Agreement also sets standards of operations for programs, governance, finance, branding and reporting. Ronald McDonald House Charities, Inc. (RMHC Global), a separately registered non-forprofit organization, ensures delivery of the mission across the globe. As a center of excellence, RMHC Global guilds and sustains a robust infrastructure of support to the network of Chapters, including operating, licensing and compliance, finance, risk management, communications, marketing and development. The Organization remits to RMHC Global 25% of its revenues from all national fundraising efforts facilitated by RMHC Global, as defined by the license agreement. During the years ended December 31, 2017 and 2016, the Organization remitted to RMHC Global $63,851 and $59,113, respectively from these revenue streams. (20)

25 L. PLANNED GIVING - ANNUITIES Ronald McDonald House Charities of St. Louis The Organization administers several charitable gift annuities. A charitable gift annuity provides for the payment of distributions to the donor or other designated beneficiaries over the term of the annuity. At the end of the annuity term, the remaining assets are available for the unrestricted use of the Organization. The portion of the annuity attributable to the present value of the estimated future benefits to be received by the Organization is recorded in the Statements of Activities as unrestricted support in the period the annuity is established. Such support totaled $70,000 in There were no such gifts in The gifts received are deposited into long-term investments as unrestricted assets as there were no donor restrictions on the use of the gifts. The assets are recorded at fair value on the Statements of Financial Position with the rest of the Organization's investments. On an annual basis, the Organization revalues the liability to make distributions to the designated beneficiaries based on actuarial assumptions. During 2017 and 2016, the net change of$21,259 and $18,503, respectively, was recorded in the Statements of Activities as a decrease in unrestricted support as a change in value of splitinterest agreements. The present value of the estimated future payments is recorded on the Statements of Financial Position as an annuity obligation ($209,480 and $174,529 at, respectively) and is calculated using the appropriate discount rate at the time of the donation (ranging from 1.4% to 6.8%) and applicable mortality tables. M. IN-KIND CONTRIBUTIONS Local businesses and individuals contribute non-cash donations including property and equipment, supplies, services, and free use of facilities. In-kind contributions are recorded at estimated fair value at the date of donation. The value of the donated property and equipment, supplies, services and free use of facilities that are included in the financial statements for the years ended are $57,212 and $103,624 respectively. The Family Room programs located at Mercy Children's Hospital, SSM Health Cardinal Glennon Children's Hospital, and St. Louis Children's Hospital represent donated rent to the Organization. Total donated rent expense for the use of the family rooms during 2017 and 2016 was valued at $118,400. In-kind rent revenue is included in unrestricted contributions on the Statements of Activities, and the corresponding in-kind rent expense is included in the Statements of Functional Expenses. (21)

26 M. IN-KIND CONTRIBUTIONS In-kind rent expense recorded in connection with the beneficial use ofland leases (see Note C) was valued at $42,000 for each of the years ended. The related amortization of the recorded discount associated with the beneficial use of land assets was $15,551 and $14,715 for the years ended, respectively and is included in net assets released from restrictions on the Statement of Activities. N. RETIREMENT PLAN The Organization has a tax-deferred annuity plan qualified under Section 403(b) of the Internal Revenue Code. The plan covers full-time employees of the Organization. The Organization contributes 4% of gross salaries to the plan for qualified employees. Employees may make contributions to the plan up to the maximum amount allowed by the Internal Revenue Code if they wish. Employer contributions to the plan were $57,660 and $58,014 for the years ended, respectively. 0. OPERATING LEASES The Organization leases office equipment under an operating lease that expires in June The future minimum lease payments required under the lease is as follows: Years Ending December 31, $12,247 12,247 6,123 $30,617 Total rent expense under the operating lease was $12,247 and $13,797 during the years ended, respectively. P. PRIOR PERIOD ADJUSTMENT Temporarily restricted net assets at the beginning of 2016 have been adjusted for the beneficial use ofland misstated in the prior year. The cumulative effect increases beginning temporarily restricted net assets for 2016 by $54,099 and increases the change in net assets for 2016 by $5,594. (22)