KVC Health Systems, Inc.

Transcription

1 Independent Auditor s Report and Consolidated Financial Statements June 30, 2016 and 2015

2 June 30, 2016 and 2015 Contents Independent Auditor s Report... 1 Consolidated Financial Statements Statements of Financial Position... 3 Statements of Activities... 4 Statements of Cash Flows... 5 Notes to Financial Statements... 6 Supplementary Information Consolidating Schedule of Financial Position June 30, Consolidating Schedule of Activities Year Ended June 30, Consolidating Schedule of Financial Position June 30, Consolidating Schedule of Activities Year Ended June 30, Consolidated Functional Expenses Functional Expenses KVC Health Systems, Inc Functional Expenses KVC Behavioral HealthCare, Inc Functional Expenses KVC Behavioral Healthcare West Virginia, Inc Functional Expenses KVC Behavioral Healthcare Kentucky, Inc Functional Expenses KVC Behavioral Healthcare Nebraska, Inc Functional Expenses KVC Hospitals, Inc Functional Expenses KVC Foundation, Inc Schedule of Revenue and Expenses for Kansas Department for Children and Families Reintegration/Foster Care/Adoption Services Schedule of Revenue and Expenses for Kansas Department for Children and Families Family Preservation Services Schedule of Revenue and Expenses for Kansas Department for Children and Families Kansas Child Placing Services Schedule of System of Care Grant G Schedule of Safe at Home Grant G Schedule of Safe at Home Grant G

3 June 30, 2016 and 2015 Contents (Continued) Schedule of Expenditures of Federal Awards Notes to the Schedule of Expenditures of Federal Awards Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Independent Auditor s Report Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings... 43

4 Independent Auditor s Report Board of Directors KVC Health Systems, Inc. Olathe, Kansas Report on the Financial Statements We have audited the accompanying consolidated financial statements of KVC Health Systems, Inc., which comprise the consolidated statements of financial position as of June 30, 2016 and 2015, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

5 Board of Directors KVC Health Systems, Inc. Page 2 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of KVC Health Systems, Inc. as of June 30, 2016 and 2015, 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. Supplementary Information Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying supplementary information, including the schedule of expenditures of federal awards required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards, as listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 14, 2016, on our consideration of KVC Health Systems, Inc. s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the 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 KVC Health Systems, Inc. s internal control over financial reporting and compliance. Kansas City, Missouri December 14, 2016

6 Consolidated Statements of Financial Position June 30, 2016 and Assets Current Assets Cash and cash equivalents $ 5,265,540 $ 1,574,864 Accounts receivable, net of allowance; $1,097,000, $2,055,000 12,351,643 12,134,417 Contributions receivable 199, ,124 Grants receivable 1,130,293 1,833,969 Prepaid expenses and other 344, ,438 Total current assets 19,291,886 16,899,812 Property and Equipment, Net 17,548,643 18,065,540 Contributions Receivable 1,069,691 1,266,820 Other Assets Goodwill 545, ,000 Deposits and other assets 565, ,168 1,110,800 1,279,168 Total assets $ 39,021,020 $ 37,511,340 Liabilities and Net Assets Current Liabilities Current maturities of long-term debt $ 297,984 $ 116,327 Construction line of credit - 5,882,752 Line of credit - 1,000,000 Accounts payable 2,761,148 4,987,229 Accrued salaries 2,813,834 2,428,576 Accrued compensated absences 1,652,692 1,702,988 Other accrued expenses 3,018,404 1,432,346 Deferred revenue 1,232,905 1,528,335 Total current liabilities 11,776,967 19,078,553 Long-term Debt Notes payable 6,404, ,235 Capital lease obligations 19, ,353 Total liabilities 18,200,999 19,917,141 Net Assets Unrestricted 20,820,021 17,594,199 Total net assets 20,820,021 17,594,199 Total liabilities and net assets $ 39,021,020 $ 37,511,340 See Notes to Consolidated Financial Statements 3

7 Consolidated Statements of Activities Years Ended June 30, 2016 and Unrestricted Revenues, Gains and Other Support Contract reintegration and adoption services $ 78,050,316 $ 67,831,983 Child placing services 14,149,651 14,926,911 Inpatient services 20,615,166 17,848,625 Family preservation/in-home services 17,606,663 17,943,607 Contributions and grants 3,647,550 5,817,908 Interest income 3,187 5,506 Miscellaneous 1,078, ,406 Total unrestricted revenues, gains and other support 135,151, ,817,946 Operating Expenses Client care 117,158, ,157,229 Administrative and general 14,536,230 14,962,388 Fundraising 231, ,010 Total operating expenses 131,925, ,317,627 Excess (Deficiency) of Revenues Over Expenses 3,225,822 (3,499,681) Net assets released from restrictions for property acquisitions - 4,439,969 Change in Unrestricted Net Assets 3,225, ,288 Temporarily Restricted Net Assets Assets released from restriction - (4,439,969) Change in Net Assets 3,225,822 (3,499,681) Net Assets, Beginning of Year 17,594,199 21,093,880 Net Assets, End of Year $ 20,820,021 $ 17,594,199 See Notes to Consolidated Financial Statements 4

8 Consolidated Statements of Cash Flows Years Ended June 30, 2016 and Operating Activities Change in net assets $ 3,225,822 $ (3,499,681) Items not requiring (providing) operating activities cash flows Depreciation and amortization 1,415,089 1,220,413 Loss on disposition of assets 135,470 - Contributions restricted for acquisition of long-lived assets - (240,000) Changes in Accounts receivable (217,226) 1,573,571 Grants receivable 703, ,132 Prepaid expenses 530,869 (364,316) Other assets 168,368 (185,069) Accounts payable (1,993,521) 2,665,828 Accrued salaries 385, ,208 Accrued compensated absences (50,296) 133,974 Other accrued expenses 1,586,058 (2,492,951) Deferred revenue (295,430) 853,929 Net cash provided by operating activities 5,594, ,038 Investing Activities Purchase of property and equipment (1,266,222) (6,870,768) Change in assets limited as to use - 1,348,117 Net cash used in investing activities (1,266,222) (5,522,651) Financing Activities Proceeds from contributions restricted for acquisition of long-lived assets 478,412 1,583,908 Proceeds from issuance of long-term debt - 763,527 Principal payments on long-term debt (179,770) (877,249) Net advances (payments) under line-of-credit agreements (935,881) 4,382,752 Net cash provided by (used in) financing activities (637,239) 5,852,938 Increase in Cash and Cash Equivalents 3,690, ,325 Cash and Cash Equivalents, Beginning of Year 1,574,864 1,055,539 Cash and Cash Equivalents, End of Year $ 5,265,540 $ 1,574,864 Supplemental Cash Flows Information Property and equipment in accounts payable $ - $ 232,560 Capital lease obligations incurred for property and equipment - 14,819 Construction line of credit converted to long-term debt 5,946,871 - Interest paid 355, ,927 See Notes to Consolidated Financial Statements 5

9 Notes to Consolidated Financial Statements June 30, 2016 and 2015 Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations and Principles of Consolidation KVC Health Systems, Inc. is the sole corporate member of the following affiliates, collectively referred to as the Organization: KVC Behavioral HealthCare, Inc. KVC Behavioral HealthCare, Inc. is a Kansas not-for-profit organization headquartered in Olathe, Kansas. It provides an integrated array of programs for emotionally and behaviorally impaired, abused, neglected, runaway and homeless youth, ages birth to twenty-one, and their families. KVC Behavioral Healthcare West Virginia, Inc. KVC Behavioral Healthcare West Virginia, Inc. is a West Virginia not-for-profit organization headquartered in Charleston, West Virginia, whose mission and principal activities are to provide an integrated array of programs for emotionally and behaviorally impaired, abused, neglected, runaway and homeless youth, ages birth to twenty-one, and their families. KVC Behavioral Healthcare Kentucky, Inc. KVC Behavioral Healthcare Kentucky, Inc. is a Kentucky not-for-profit organization headquartered in Lexington, Kentucky, whose mission and principal activities are to provide mental health, educational and case management services to children with mental health needs who are either placed in out-of-home care, hospitalized or who are facing imminent removal from their biological home in the state of Kentucky. KVC Behavioral Healthcare Nebraska, Inc. KVC Behavioral Healthcare Nebraska, Inc. is a Nebraska not-for-profit organization headquartered in Omaha, Nebraska, whose mission and principal activities are to provide service coordination, foster care, family preservation and supportive mental health services to the children and families of Nebraska. KVC Hospitals, Inc. KVC Hospitals, Inc. is a Kansas not-for-profit organization headquartered in Olathe, Kansas, whose mission and principal activities are to provide psychiatric care to children and adolescents out of facilities in Kansas City, Kansas and Hays, Kansas. 6

10 Notes to Consolidated Financial Statements June 30, 2016 and 2015 KVC Foundation, Inc. KVC Foundation, Inc. is a Kansas not-for-profit organization in Olathe, Kansas. The Foundation was created to establish an endowment and provide fundraising activities to support the programs of KVC Health Systems, Inc. and its affiliates. The accompanying consolidated financial statements include the accounts of KVC Health Systems, Inc. and its affiliates. All significant intercompany accounts and transactions have been eliminated in consolidation. 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, expenses, gains, losses and other changes in net assets during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Organization considers all liquid investments with original maturities of three months or less to be cash equivalents. At June 30, 2016 and 2015, cash equivalents consisted primarily of money market accounts with banks. At June 30, 2016, the Organization s cash accounts exceeded federally insured limits by approximately $4,350,000. Accounts Receivable Accounts receivable are stated at the net realizable value, which is the amount management expects to collect from outstanding balances. The Organization provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Accounts receivable are ordinarily due 30 days after the issuance of the invoice. Accounts past due more than 90 days are considered delinquent. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer. 7

11 Notes to Consolidated Financial Statements June 30, 2016 and 2015 Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful life of each asset. Assets under capital lease obligations and leasehold improvements are depreciated over the shorter of the lease term or their respective estimated useful lives. The estimated useful lives for each major depreciable classification of property and equipment are as follows: Buildings and leasehold improvements Furniture and equipment Computer equipment and vehicles 5-40 years 5-10 years 5 years Long-lived Asset Impairment The Organization evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. Contributions Gifts of cash and other assets received without donor stipulations are reported as unrestricted revenue and net assets. Gifts received with a donor stipulation that limits their use are reported as temporarily or permanently restricted revenue and net assets. When a donor stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Gifts having donor stipulations that are satisfied in the period the gift is received are reported as unrestricted revenue and net assets. Unconditional gifts expected to be collected within one year are reported at their net realizable value. Unconditional gifts expected to be collected in future years are initially reported at fair value determined using the discounted present value of estimated future cash flows technique. The resulting discount is amortized using the level-yield method and is reported as contribution revenue. 8

12 Notes to Consolidated Financial Statements June 30, 2016 and 2015 Conditional gifts depend on the occurrence of a specified future and uncertain event to bind the potential donor and are recognized as assets and revenue when the conditions are substantially met and the gift becomes unconditional. Goodwill Goodwill is tested annually for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements. In-Kind Contributions In addition to receiving cash contributions, the Organization receives in-kind contributions of goods and services from various donors. It is the policy of the Organization to record the estimated fair value of certain in-kind donations as an expense in its financial statements, and similarly increase contribution revenue by a like amount. For the years ended June 30, 2016 and 2015, $28,516 and $140,330, respectively, was received in in-kind contributions. Deferred Revenue Revenue from contracts, grants and other miscellaneous fees is deferred and recognized over the periods in which the services are performed. Professional Liability Coverage and Claims The Organization purchases professional liability insurance under a claims-made policy on a fixed premium basis. Accounting principles generally accepted in the United States of America require an organization to accrue the expense of its share of professional liability claim costs, if any, for any reported and unreported incidents of potential improper professional service occurring during the year by estimating the probable ultimate costs of the incidents. Based upon the Organization s claims experience, an accrual had been made for the Organization s estimated professional liability costs, including costs associated with litigating or settling claims, under its professional liability policy, amounting to $282,002 and $141,303 as of June 30, 2016 and 2015, respectively. It is reasonably possible that this estimate could change materially in the near term. The Organization recorded in accounts receivables on the consolidated statements of financial position $282,002 and $141,303 as of June 30, 2016 and 2015, respectively, of professional liability reserve insurance coverage receivables. 9

13 Notes to Consolidated Financial Statements June 30, 2016 and 2015 Income Taxes The Organization is exempt from income taxes under Section 501 of the Internal Revenue Code and a similar provision of state law. However, the Organization is subject to federal income tax on any unrelated business taxable income. The Organization files tax returns in the U.S. federal jurisdiction. Functional Allocation of Expenses The costs of supporting the various programs and other activities have been summarized on a functional basis in the consolidated statements of activities. Certain costs have been allocated among the program, management and general and fundraising categories based on time expended, usage and other methods. Reclassifications Certain reclassifications have been made to the 2015 financial statements to conform to the 2016 financial statement presentation. These reclassifications had no effect on net earnings. Subsequent Events Subsequent events have been evaluated through the date of the Independent Auditor s Report, which is the date the consolidated financial statements were available to be issued. Note 2: Revenue Concentrations KVC Behavioral HealthCare, Inc. On July 1, 2013, the Organization was awarded Foster Care Reintegration Services and Family Preservation Services contracts from a state agency to provide foster care and family preservation services to the Kansas City and East Regions of the State of Kansas. The contracts are for a term of four years, with two additional two-year renewal options. Revenues for the contracts amounted to $82,770,171 and $72,772,559, which represents 61% and 58% of the Organization s unrestricted revenues, gains and support for the years ended June 30, 2016 and 2015, respectively. Accounts receivable related to the foster care reintegration contract amounted to $6,725,710 and $5,920,525 at June 30, 2016 and 2015, respectively. Effective July 1, 2016, the Organization negotiated rates as permitted within the contracts resulting in a monthly case rate increase of approximately 3%. It is reasonably possible that the increased rates will have a material impact to revenue from the contracts in the near term. 10

14 Notes to Consolidated Financial Statements June 30, 2016 and 2015 Note 3: Contributions Receivable Contributions receivable consisted of the following at a discount rate of 4.13%: Due within one year $ 274,200 $ 498,547 Due in one to five years 1,267,351 1,579,039 1,541,551 2,077,586 Less Allowance for uncollectible contributions (70,384) (59,503) Unamortized discount (201,635) (270,139) $ 1,269,532 $ 1,747,944 Note 4: Property and Equipment Property and equipment at June 30 consists of: Land and land improvements $ 1,373,701 $ 1,373,701 Buildings and leasehold improvements 20,117,617 20,101,191 Furniture and equipment 5,338,779 5,479,487 Works of art 95,142 95,142 Computer equipment 5,147,302 5,388,386 Vehicles 216, ,596 Construction in progress 61,600-32,350,514 32,621,503 Less accumulated depreciation and amortization 14,801,871 14,555,963 $ 17,548,643 $ 18,065,540 11

15 Notes to Consolidated Financial Statements June 30, 2016 and 2015 Note 5: Lines of Credit The Organization has a $9,000,000 revolving bank line of credit expiring in February At June 30, 2016 and 2015, there was $0 and $1,000,000, respectively, borrowed against this line. The line is collateralized by property and equipment. Interest was 4.13% on June 30, 2016 and 2015, and is payable monthly. During 2015, the Organization obtained a $6,000,000 construction line of credit expiring in February In February 2016, the construction line of credit was converted to a long-term financing agreement. At June 30, 2015, there was $5,888,504 borrowed against the line. Note 6: Long-term Debt Notes payable, bank (A) $ 720,013 $ 744,059 Notes payable, bank (B) 5,888,504 - Capital lease obligations (C) 113, ,856 6,722, ,915 Less current maturities 297, ,327 $ 6,424,032 $ 838,588 (A) Due August 25, 2019; payable $5,014 monthly and one irregular last payment, including interest at 4.88%; collateralized by real estate. (B) Due February 25, 2021; payable $39,482 monthly and one irregular last payment, including interest at 5.00%; collateralized by real estate. (C) Capital leases include leases with varying imputed interest rates from 4.00% to 7.00%, due through 2018, collateralized by equipment. 12

16 Notes to Consolidated Financial Statements June 30, 2016 and 2015 Aggregate annual maturities of long-term debt and payments on capital lease obligations at June 30, 2016 are: Long-term Debt (Exc. Leases) Capital Lease Obligations 2017 $ 204,285 $ 96, ,085 19, , , ,113,915 - $ 6,608, ,572 Less amount representing interest (3,073) Present value of future minimum lease payments $ 113,499 Property and equipment include the following property under capital leases: Equipment $ 328,631 $ 347,190 Less accumulated depreciation 232, ,512 $ 95,880 $ 183,678 Note 7: Defined Contribution Plan The Organization has a defined contribution plan (the Plan) covering all full-time employees who have at least one year of service and who are at least 21 years of age. Participants receive 20% vesting for each eligible year of service. Each year, the Board of Directors determines the amount of the contribution to the Plan. Total expenses for the years ended June 30, 2016 and 2015 were approximately $391,000 and $321,000, respectively. 13

17 Notes to Consolidated Financial Statements June 30, 2016 and 2015 Note 8: Operating Leases Noncancellable operating leases for office space expire in various years through These leases generally contain renewal options for periods ranging from one to five years and require the Organization to pay all executory costs (property taxes, maintenance and insurance). Total rental expense for property leases for the years ended June 30, 2016 and 2015 was $2,370,554 and $2,771,524, respectively. Noncancellable operating leases for equipment expire in various years through Total rental expense for equipment leases for the years ended June 30, 2016 and 2015 was $1,523,343 and $1,932,456, respectively. Future minimum lease payments at June 30, 2016 were: Equipment Property Total 2017 $ 1,010,413 $ 2,102,411 $ 3,112, , , , , , , ,363 76,234 81,597 $ 1,176,071 $ 2,929,535 $ 4,105,606 Note 9: Litigation The Organization is subject to claims and lawsuits that arose primarily in the ordinary course of its activities. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the financial position, change in net assets and cash flows of the Organization. Events could occur that would change this estimate materially in the near term. 14

18 Supplementary Information

19 Consolidating Schedule of Financial Position June 30, 2016 KVC Behavioral KVC KVC KVC KVC Healthcare Behavioral Behavioral Health Behavioral West Healthcare Healthcare KVC KVC Systems, Inc. HealthCare, Inc. Virginia, Inc. Kentucky, Inc. Nebraska, Inc. Hospitals, Inc. Foundation, Inc. Eliminations Consolidated Current Assets Cash and cash equivalents $ 1,988,105 $ 191,937 $ 401,010 $ 838,141 $ 383,264 $ 1,129,341 $ 333,742 $ 5,265,540 Accounts receivable, net of allowance of $1,097, ,342 6,916, , , ,521 3,217,721 4,880 12,351,643 Contributions receivable , ,841 Grants receivable 210, ,259 15, , ,130,293 Prepaid expenses and other 136,411 54,999 33,073 41,698 12,579 63,964 1, ,569 Total current assets 2,638,833 7,497,454 1,088,927 2,011,974 1,103,364 4,411, ,308 19,291,886 Property and Equipment, Net 1,157,411 1,301,998 14,312-84, ,194 14,305,731 17,548,643 Contributions Receivable ,069,691 1,069,691 Other Assets Goodwill , ,000 Deposits and other assets 358, ,362 9,785 21,426 9,597 5, , , ,362 9, ,426 9,597 5,000-1,110,800 Total assets $ 4,154,874 $ 8,960,814 $ 1,113,024 $ 2,578,400 $ 1,197,958 $ 5,100,220 $ 15,915,730 $ - $ 39,021,020 15

20 Consolidating Schedule of Financial Position (Continued) June 30, 2016 KVC Behavioral KVC KVC KVC KVC Healthcare Behavioral Behavioral Health Behavioral West Healthcare Healthcare KVC KVC Systems, Inc. HealthCare, Inc. Virginia, Inc. Kentucky, Inc. Nebraska, Inc. Hospitals, Inc. Foundation, Inc. Eliminations Consolidated Current Liabilities Current maturities of long-term debt $ 10,543 $ 59,350 $ - $ - $ 6,512 $ 17,294 $ 204,285 $ 297,984 Accounts payable 128,721 1,783, , , , ,444 10,910 2,761,148 Accrued salaries 282,250 1,270, , , , ,403-2,813,834 Accrued compensated absences 206, ,329 96, ,931 81, ,449-1,652,692 Other accrued expenses 442,878 2,016,023 50,287 89,982 34, ,291 5,492 3,018,404 Deferred revenue 55, ,854 3, ,936-75,000 65,140 1,232,905 Total current liabilities 1,127,299 6,532, ,510 1,209, ,702 1,645, ,827 11,776,967 Long-term Debt Notes payable ,404,232 6,404,232 Capital lease obligations 2,703 10, ,299 4,434-19,800 Total liabilities 1,130,002 6,542, ,510 1,209, ,001 1,650,315 6,690,059 18,200,999 Net Assets Unrestricted 3,024,872 2,418, ,514 1,369, ,957 3,449,905 9,225,671 20,820,021 Total net assets 3,024,872 2,418, ,514 1,369, ,957 3,449,905 9,225,671 20,820,021 Total liabilities and net assets $ 4,154,874 $ 8,960,814 $ 1,113,024 $ 2,578,400 $ 1,197,958 $ 5,100,220 $ 15,915,730 $ - $ 39,021,020 16

21 Consolidating Schedule of Activities Year Ended June 30, 2016 KVC Behavioral KVC KVC KVC KVC Healthcare Behavioral Behavioral Health Behavioral West Healthcare Healthcare KVC KVC Systems, Inc. HealthCare, Inc. Virginia, Inc. Kentucky, Inc. Nebraska, Inc. Hospitals, Inc. Foundation, Inc. Eliminations Consolidated Unrestricted Revenues, Gains and Other Support Contract reintegration and adoption services $ - $ 78,050,316 $ - $ - $ - $ - $ - $ - $ 78,050,316 Child placing services - 810,707 5,584, ,556 7,492, ,149,651 Inpatient services ,615, ,615,166 Family preservation/in-home services - 5,734, ,439 9,671,751 1,597, ,606,663 Contributions and grants 462,159 1,038, , ,938 17,226 61, ,638-3,647,550 Interest income 932 1, ,187 Miscellaneous 708,443 26,136 1,840 65, , ,000-1,078,606 Management fee 10,314,574 74,000-51, (10,439,574) - Intercompany services (52,724) (2,046,047) ,098, Intercompany rent ,765,200 (1,765,200) - Total unrestricted revenues, gains and other support 11,433,384 83,689,853 6,721,000 10,744,173 9,107,746 22,834,919 2,824,838 (12,204,774) 135,151,139 Operating Expenses Client care - 75,142,161 6,327,077 9,706,895 7,421,417 19,108,323 - (547,800) 117,158,073 Administrative and general 11,344,036 8,642, ,076 1,064, ,946 2,867,525 1,060,752 (11,650,103) 14,536,230 Fundraising 99,137-1,515-2, ,098 (6,871) 231,014 Total operating expenses 11,443,173 83,784,890 6,883,668 10,771,164 8,075,498 21,975,848 1,195,850 (12,204,774) 131,925,317 Operating Income (Loss) (9,789) (95,037) (162,668) (26,991) 1,032, ,071 1,628,988-3,225,822 Other Income (Expense) Intercompany transfers 1,994,293 (137,000) 355,244 1,112,283 (946,293) (560,337) (1,818,190) - - Change in Unrestricted Net Assets 1,984,504 (232,037) 192,576 1,085,292 85, ,734 (189,202) - 3,225,822 Net Assets, Beginning of Year 1,040,368 2,650, , , ,002 3,151,171 9,414,873-17,594,199 Net Assets, End of Year $ 3,024,872 $ 2,418,066 $ 551,514 $ 1,369,036 $ 780,957 $ 3,449,905 $ 9,225,671 $ - $ 20,820,021 17

22 Consolidating Schedule of Financial Position June 30, 2015 KVC Behavioral KVC KVC KVC KVC Healthcare Behavioral Behavioral Health Behavioral West Healthcare Healthcare KVC KVC Systems, Inc. HealthCare, Inc. Virginia, Inc. Kentucky, Inc. Nebraska, Inc. Hospitals, Inc. Foundation, Inc. Eliminations Consolidated Current Assets Cash and cash equivalents $ 865,637 $ 38,700 $ 177,807 $ 165,600 $ 112,480 $ 114,923 $ 99,717 $ 1,574,864 Accounts receivable, net of allowance of $2,055, ,903 6,270, , , ,372 3,959,312-12,134,417 Contributions receivable , ,124 Grants receivable 616, ,769 23, , ,833,969 Prepaid expenses and other 152, , ,193 40,977 67,653 61,908 14, ,438 Total current assets 1,783,394 7,235, ,834 1,272,206 1,072,505 4,136, ,621 16,899,812 Property and Equipment, Net 1,224,792 1,777,711 21,566 9,100 68, ,413 14,258,246 18,065,540 Contributions Receivable ,266,820 1,266,820 Other Assets Goodwill , ,000 Deposits and other assets 526, ,362 9,785 21,426 9,597 5, , , ,362 9, ,426 9,597 5,000-1,279,168 Total assets $ 3,535,184 $ 9,174,182 $ 836,185 $ 1,847,732 $ 1,150,814 $ 4,846,556 $ 16,120,687 $ - $ 37,511,340 18

23 Consolidating Schedule of Financial Position (Continued) June 30, 2015 KVC Behavioral KVC KVC KVC KVC Healthcare Behavioral Behavioral Health Behavioral West Healthcare Healthcare KVC KVC Systems, Inc. HealthCare, Inc. Virginia, Inc. Kentucky, Inc. Nebraska, Inc. Hospitals, Inc. Foundation, Inc. Eliminations Consolidated Current Liabilities Current maturities of long-term debt $ 9,635 $ 54,589 $ 5,923 $ - $ 6,512 $ 15,844 $ 23,824 $ 116,327 Construction line of credit ,882,752 5,882,752 Line of credit 1,000, ,000,000 Accounts payable 536,928 3,410, , , , ,862 10,833 4,987,229 Accrued salaries 266,476 1,175,321 97, , , ,687-2,428,576 Accrued compensated absences 279, ,110 70, ,214 59, ,100-1,702,988 Other accrued expenses 319, ,759 25,698 89,828 53, ,164 50,000 1,432,346 Deferred revenue 69, , , ,170 1,528,335 Total current liabilities 2,481,570 6,449, ,247 1,563, ,002 1,673,657 5,985,579 19,078,553 Long-term Debt Notes payable , ,235 Capital lease obligations 13,246 74, ,810 21, ,353 Total liabilities 2,494,816 6,524, ,247 1,563, ,812 1,695,385 6,705,814 19,917,141 Net Assets Unrestricted 1,040,368 2,650, , , ,002 3,151,171 9,414,873 17,594,199 Total net assets 1,040,368 2,650, , , ,002 3,151,171 9,414,873 17,594,199 Total liabilities and net assets $ 3,535,184 $ 9,174,182 $ 836,185 $ 1,847,732 $ 1,150,814 $ 4,846,556 $ 16,120,687 $ - $ 37,511,340 19

24 Consolidating Schedule of Activities Year Ended June 30, 2015 KVC Behavioral KVC KVC KVC KVC Healthcare Behavioral Behavioral Health Behavioral West Healthcare Healthcare KVC KVC Systems, Inc. HealthCare, Inc. Virginia, Inc. Kentucky, Inc. Nebraska, Inc. Hospitals, Inc. Foundation, Inc. Eliminations Consolidated Unrestricted Revenues, Gains and Other Support Contract reintegration and adoption services $ - $ 67,831,983 $ - $ - $ - $ - $ - $ - $ 67,831,983 Child placing services - 1,032,366 5,301, ,672 8,190, ,926,911 Inpatient services ,848, ,848,625 Family preservation/in-home services - 6,259, ,476 9,564,843 1,598, ,943,607 Contributions and grants 1,663,293 1,928,033 97,377 1,277,234 26,722 53, ,449-5,817,908 Interest income 1,011 1, , ,506 Miscellaneous 524, ,355 5,602 27,254 3,979 (262,372) ,406 Management fee 9,223, ,000-51, (9,406,000) - Intercompany services - (1,653,541) ,653, Intercompany rent ,505,200 (1,505,200) - Total unrestricted revenues, gains and other support 11,411,892 75,676,323 5,925,237 11,323,324 9,819,657 19,295,153 2,277,560 (10,911,200) 124,817,946 Operating Expenses Client care - 72,487,984 5,559,033 10,572,625 7,735,139 17,364,248 - (561,800) 113,157,229 Administrative and general 11,468,993 7,629, ,654 1,125, ,777 3,256, ,380 (10,341,350) 14,962,388 Fundraising 93, ,102 (8,050) 198,010 Total operating expenses 11,562,951 80,117,283 6,071,687 11,697,923 8,441,916 20,620, ,482 (10,911,200) 128,317,627 Operating Income (Loss) (151,059) (4,440,960) (146,450) (374,599) 1,377,741 (1,325,432) 1,561,078 - (3,499,681) Other Income (Expense) Intercompany transfers 2,980,402 4,708, ,958 (1,028,042) (1,603,206) (617,871) (4,755,737) - - Excess (Deficiency) of Revenues Over Expenses 2,829, , ,508 (1,402,641) (225,465) (1,943,303) (3,194,659) - (3,499,681) Net assets released from restrictions for property acquisitions ,439,969-4,439,969 Change in Unrestricted Net Assets 2,829, , ,508 (1,402,641) (225,465) (1,943,303) 1,245, ,288 Temporarily Restricted Net Assets Assets released from restriction (4,439,969) - (4,439,969) Change in Net Assets 2,829, , ,508 (1,402,641) (225,465) (1,943,303) (3,194,659) - (3,499,681) Net Assets (Defecit), Beginning of Year (1,788,975) 2,382, ,430 1,686, ,467 5,094,474 12,609,532-21,093,880 Net Assets, End of Year $ 1,040,368 $ 2,650,103 $ 358,938 $ 283,744 $ 695,002 $ 3,151,171 $ 9,414,873 $ - $ 17,594,199 20

25 Consolidated Functional Expenses Year Ended June 30, 2016 (with Comparative Totals for 2015) Client Administrative Fund Total 2015 Total Care and General Raising Expenses Expenses Salaries and wages $ 42,712,995 $ 6,542,868 $ 85,546 $ 49,341,409 $ 47,398,155 Payroll taxes 3,301, ,775 6,565 3,730,655 4,117,331 Employee benefits 5,853, ,927 7,726 6,404,689 5,998,797 Total salaries, wages and related expenses 51,867,346 7,509,570 99,837 59,476,753 57,514,283 Office supplies and printing 229,457 79,462 9, , ,481 Copier and fax expense 143,639 55, , ,959 Postage 137,475 41, , ,268 Employee recruitment and advertising 65, , , ,983 Licenses and dues 210, , , ,501 Insurance 38, , , ,478 Travel 1,838, ,643-2,071,988 2,241,594 Telephone 729, , ,003 1,576,965 Professional fees 32, , , ,584 Contract labor 1,030,830 48,271-1,079,101 1,152,651 Contract physicians 2,230, ,230,426 2,118,215 Contract unallowable expenses - 52,298-52,298 - Consulting and other contractual expenses 1,385, ,762-2,310,624 2,660,390 Staff development 305, , , ,877 Promotion 28,088 11, ,104 79,712 Office rent 3,521, ,510-4,135,754 4,276,724 Equipment expenses 223, , ,667 1,044,189 Network services 607, , ,923 10,383 Maintenance and repairs 288,172 77, , ,754 Safety services and materials 158,408 29, , ,099 Food 590,772 3, , ,585 Food outings 63,723 62, , ,776 Housekeeping supplies 53,080 11,939-65,019 69,598 Miscellaneous housekeeping 552,974 70, , ,200 Utilities 441, , , ,869 Payments to foster parents 21,545, ,545,420 19,665,752 Subcontractor foster home payments 12,994, ,994,970 13,079,219 Foster family training 569,347 40, , ,731 Subcontractor payments 5,012, ,012,798 4,748,036 Child care payments 4,122, ,122,464 3,516,730 Incidentals ,901 Medical supplies 797, , ,447 Vehicle expenses and repairs 585,632 12, , ,961 Vehicle rental 2,287,916 42,914-2,330,830 1,853,197 General program supplies 205,511 10, , ,529 Clothing 951, , ,414 Miscellaneous 88,698 92, , , ,418 Interest 1, , , ,927 Bad debts - 1,300,120-1,300,120 2,012,510 Property tax expense 22, ,995 12,407 Cost of in-kind donated goods - 28,186-28, ,104 Medicaid assessments 21, ,965 7,322 Flex fund 1,007,512 1,090-1,008,602 1,102,389 Loss on disposition of assets 135, ,470 - Kids activity fund 98, ,741 77,306 Expenses before depreciation, amortization and intercompany fees 117,225,821 14,818, , ,275, ,602,418 Depreciation and amortization 480, ,037-1,415,089 1,220,413 Intercompany management and residential fees - 10,432,703 6,871 10,439,574 9,406,000 Eliminations (547,800) (11,650,103) (6,871) (12,204,774) (12,204,774) Totals, Year Ended June 30, 2016 $ 117,158,073 $ 14,536,230 $ 231,014 $ 131,925,317 $ 127,024,057 Totals, Year Ended June 30, 2015 $ 113,171,233 $ 13,653,635 $ 199,189 $ 127,024,057 21

26 Functional Expenses KVC Health Systems, Inc. Year Ended June 30, 2016 Client Administrative Fund Total Care and General Raising Expenses Salaries and wages $ - $ 5,726,005 $ 85,546 $ 5,811,551 Payroll taxes - 369,783 6, ,348 Employee benefits - 447,768 7, ,494 Total salaries, wages and related expenses - 6,543,556 99,837 6,643,393 Office supplies and printing - 64,403-64,403 Copier and fax expense - 39,028-39,028 Postage - 36,303-36,303 Employee recruitment and advertising - 132, ,002 Licenses and dues - 190, ,622 Insurance - 76,655-76,655 Travel - 192, ,329 Telephone - 78,356-78,356 Professional fees - 535, ,688 Contract labor - 48,271-48,271 Contract physicians Contract unallowable expenses - 52,298-52,298 Consulting and other contractual expenses - 877, ,965 Staff development - 313, ,179 Promotion - 8,536-8,536 Office rent - 588, ,900 Equipment expenses - 394, ,934 Network services - 283, Maintenance and repairs - 72,287-72,287 Safety services and materials - 26,879-26,879 Food Food outings - 52,834-52,834 Housekeeping supplies - 11,908-11,908 Miscellaneous housekeeping - 67,551-67,551 Utilities - 146, ,983 Payments to foster parents Subcontractor foster home payments Foster family training - 39,510-39,510 Subcontractor payments Child care payments Incidentals Medical supplies Vehicle expenses and repairs - 10,875-10,875 Vehicle rental - 40,905-40,905 General program supplies - 7,056-7,056 Clothing Miscellaneous - 1,853 (700) 1,153 Interest - 32,358-32,358 Bad debts Property tax expense Cost of in-kind donated goods Medicaid assessments Flex fund Loss on disposition of assets Kids activity fund Expenses before depreciation, amortization and intercompany fees - 10,968,057 99,137 10,783,221 Depreciation and amortization - 375, ,979 Intercompany management and residential fees Eliminations Totals, Year Ended June 30, 2016 $ - $ 11,344,036 $ 99,137 $ 11,159,200 22

27 Functional Expenses KVC Behavioral HealthCare, Inc. Year Ended June 30, 2016 Client Administrative Fund Total Care and General Raising Expenses Salaries and wages $ 22,147,713 $ 67,651 $ - $ 22,215,364 Payroll taxes 1,646,920 5,581-1,652,501 Employee benefits 3,211,591 4,611-3,216,202 Total salaries, wages and related expenses 27,006,224 77,843-27,084,067 Office supplies and printing 135, ,377 Copier and fax expense 100, ,908 Postage 114, ,940 Employee recruitment and advertising 38, ,473 Licenses and dues 49, ,330 Insurance 35, , ,919 Travel 1,023,633 4,692-1,028,325 Telephone 425, ,037 Professional fees 9, ,192 Contract labor 212, ,003 Contract physicians Contract unallowable expenses Consulting and other contractual expenses 651, ,482 Staff development 39, ,051 Promotion 7, ,820 Office rent 1,986, ,986,446 Equipment expenses 19, ,718 Network services 321, ,338 Maintenance and repairs 70, ,937 Safety services and materials 89, ,327 Food 35, ,409 Food outings 22, ,268 Housekeeping supplies 26, ,914 Miscellaneous housekeeping 164, ,568 Utilities 258, ,383 Payments to foster parents 14,744, ,744,902 Subcontractor foster home payments 12,994, ,994,970 Foster family training 416, ,943 Subcontractor payments 5,012, ,012,798 Child care payments 4,122, ,122,464 Incidentals Medical supplies 101, ,791 Vehicle expenses and repairs 541, ,633 Vehicle rental 2,226, ,226,942 General program supplies 61, ,476 Clothing 917, ,027 Miscellaneous 11,026 62,112-73,138 Interest 1,873 2,724-4,597 Bad debts - 78,429-78,429 Property tax expense 22, ,741 Cost of in-kind donated goods - 27,005-27,005 Medicaid assessments Flex fund 549, ,700 Loss on disposition of assets 135, ,470 Kids activity fund 95, ,352 Expenses before depreciation, amortization and intercompany fees 74,801, ,729-75,492,646 Depreciation and amortization 340, ,244 Intercompany management and residential fees - 7,952,000-7,952,000 Eliminations Totals, Year Ended June 30, 2016 $ 75,142,161 $ 8,642,729 $ - $ 83,784,890 23

28 Functional Expenses KVC Behavioral Healthcare West Virginia, Inc. Year Ended June 30, 2016 Client Administrative Fund Total Care and General Raising Expenses Salaries and wages $ 2,198,021 $ 138,454 $ - $ 2,336,475 Payroll taxes 162,019 9, ,978 Employee benefits 276,719 15, ,929 Total salaries, wages and related expenses 2,636, ,623-2,800,382 Office supplies and printing 18,784 8,127-26,911 Copier and fax expense 18,800 15,228-34,028 Postage 4,427 1,709-6,136 Employee recruitment and advertising 5, ,902 Licenses and dues 10,306 12,679-22,985 Insurance 2,916 48,005-50,921 Travel 230,033 17, ,642 Telephone 62,537 12,862-75,399 Professional fees Contract labor Contract physicians 4, ,616 Contract unallowable expenses Consulting and other contractual expenses 11,429 45,972-57,401 Staff development 17,231 3,730-20,961 Promotion 7, ,316 Office rent 257,500 15, ,250 Equipment expenses 35,274 4,220-39,494 Network services 42,054 4,170-46,224 Maintenance and repairs 4, ,856 Safety services and materials 6,796 1,767-8,563 Food 11,803 3,290-15,093 Food outings Housekeeping supplies Miscellaneous housekeeping 18, ,928 Utilities 24, ,127 Payments to foster parents 2,704, ,704,536 Subcontractor foster home payments Foster family training 79,021 1,003-80,024 Subcontractor payments Child care payments Incidentals Medical supplies Vehicle expenses and repairs 20,844 1,357-22,201 Vehicle rental 33,200 1,524-34,724 General program supplies 10,605 2,338-12,943 Clothing 34, ,500 Miscellaneous 5,898 10,735 1,515 18,148 Interest Bad debts Property tax expense Cost of in-kind donated goods Medicaid assessments Flex fund Loss on disposition of assets Kids activity fund Expenses before depreciation, amortization and intercompany fees 6,321, ,354 1,515 6,700,414 Depreciation and amortization 5,532 1,722-7,254 Intercompany management and residential fees - 176, ,000 Eliminations Totals, Year Ended June 30, 2016 $ 6,327,077 $ 555,076 $ 1,515 $ 6,883,668 24

29 Functional Expenses KVC Behavioral Healthcare Kentucky, Inc. Year Ended June 30, 2016 Client Administrative Fund Total Care and General Raising Expenses Salaries and wages $ 6,419,450 $ 514,638 $ - $ 6,934,088 Payroll taxes 540,300 33, ,316 Employee benefits 878,988 53, ,848 Total salaries, wages and related expenses 7,838, ,514-8,440,252 Office supplies and printing 15,959 6,897-22,856 Copier and fax expense 439 1,678-2,117 Postage 1,080 3,226-4,306 Employee recruitment and advertising 2,106 2,426-4,532 Licenses and dues 8,997 47,623-56,620 Insurance - 39,914-39,914 Travel 351,815 17, ,749 Telephone 98,347 3, ,030 Professional fees Contract labor Contract physicians 66, ,926 Contract unallowable expenses Consulting and other contractual expenses 31, ,078 Staff development 163,354 17, ,866 Promotion 1,739 3,130-4,869 Office rent 264,430 9, ,290 Equipment expenses 37,712 8,178-45,890 Network services 121, ,242 Maintenance and repairs 8,289 4,988-13,277 Safety services and materials 2, ,919 Food Food outings 8,390 9,953-18,343 Housekeeping supplies Miscellaneous housekeeping 3,696 3,425-7,121 Utilities 14,065 5,419-19,484 Payments to foster parents 135, ,862 Subcontractor foster home payments Foster family training 6, ,491 Subcontractor payments Child care payments Incidentals Medical supplies Vehicle expenses and repairs 3, ,214 Vehicle rental 1, ,664 General program supplies 17, ,959 Clothing Miscellaneous 43,499 2,758-46,257 Interest Bad debts - 132, ,913 Property tax expense Cost of in-kind donated goods - 1,121-1,121 Medicaid assessments Flex fund 457,812 1, ,902 Loss on disposition of assets Kids activity fund Expenses before depreciation, amortization and intercompany fees 9,706, ,169-10,636,064 Depreciation and amortization - 9,100-9,100 Intercompany management and residential fees - 126, ,000 Eliminations Totals, Year Ended June 30, 2016 $ 9,706,895 $ 1,064,269 $ - $ 10,771,164 25