Birch Family Services, Inc. and Affiliate

Transcription

1 Birch Family Services, Inc. and Affiliate Combining Financial Statements Year Ended June 30, 2013 The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee.

2 Birch Family Services, Inc. and Affiliate Combining Financial Statements Year Ended June 30, 2013

3 Contents Independent Auditor s Report 3-4 Combining Financial Statements: Statement of Financial Position as of June 30, Statement of Activities for the Year Ended June 30, Statement of Functional Expenses for the Year Ended June 30, Statement of Cash Flows for the Year Ended June 30,

4 Tel: Fax: Park Avenue New York, NY Independent Auditor s Report Board of Directors Birch Family Services, Inc. and Affiliate New York, New York We have audited the accompanying combining financial statements of Birch Family Services, Inc. and Affiliate ( Birch and Affiliate ), which comprise the combining statement of financial position as of June 30, 2013, and the related combining statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the combining financial statements. Management s Responsibility for the Combining Financial Statements Management is responsible for the preparation and fair presentation of these combining 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 combining 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 combining financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combining financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combining financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the combining 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 combining 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 combining financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 3

5 Opinion In our opinion, the combining financial statements referred to above present fairly, in all material respects, the financial position of Birch Family Services, Inc. and Affiliate as of June 30, 2013, and the changes in their net assets and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Report on Summarized Comparative Information We have previously audited Birch Family Services, Inc. and Affiliate s 2012 combining financial statements, and we expressed an unmodified audit opinion on those audited combining financial statements in our report dated December 14, In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2012 is consistent, in all material respects, with the audited combining financial statements from which it has been derived. November 25,

6 Combining Statement of Financial Position (with comparative totals for 2012) June 30, Birch Family Services, Inc. The Herbert G. Birch Services Fund, Inc. 5 Combined Total Eliminations Assets Current: Cash and cash equivalents (Note 3) $ 4,155,803 $581,062 $ - $ 4,736,865 $ 3,555,425 Restricted cash (Note 3) 590, , ,861 Accounts receivable, net of allowance for doubtful accounts of $18,700 for 2012 (Notes 3, 8 and 9) 4,322,013 4,322,013 3,998,447 Pledges receivable (Note 3) - 9,255-9,255 5,000 Prepaid expenses and other assets 314, , ,501 Due from affiliate (Notes 2 and 15) 119,991 - (119,991) - - Total Current Assets 9,502, ,317 (119,991) 9,973,155 7,971,234 Assets Limited to Use (Note 4) 1,104, ,104,698 1,098,001 Deferred Bond, Loan Financing and Other Program Costs (Note 3) 290, , ,782 Fixed Assets, Net (Notes 3, 5, 7 and 8) 12,269, ,269,559 12,551,359 $23,167,948 $590,317 $(119,991) $23,638,274 $21,859,376 Liabilities and Net Assets Current: Accounts payable and accrued expenses $ 2,179,096 $ 5,072 $ - $ 2,184,168 $ 1,539,142 Accrued compensation 1,252, ,252,602 1,297,320 Due to affiliate (Notes 2 and 15) - 119,991 (119,991) - - Due to governmental agencies (Notes 3 and 6) 2,259, ,259,931 2,740,017 Bonds payable, current portion (Note 7) 725, , ,000 Loans and mortgages payable, current portion (Note 8) 797, ,263 1,396,018 Capital leases, current portion (Note 16) 90, ,774 98,369 Line of credit (Note 9) 2,000, ,000,000 - Total Current Liabilities 9,304, ,063 (119,991) 9,309,738 7,570,866 Due to Governmental Agencies, Net of Current Portion (Notes 3 and 6) 1,849, ,849,508 1,849,508 Bonds Payable, Net of Current Portion (Note 7) 5,231, ,231,374 4,665,186 Loans and Mortgages Payable, Net of Current Portion (Note 8) 3,507, ,507,723 4,101,885 Capital Leases, Net of Current Portion (Note 16) 73, ,475 70,208 Total Liabilities 19,966, ,063 (119,991) 19,971,818 18,257,653 Commitments and Contingencies (Notes 3, 5, 7, 8, 9, 11, 12 and 14) Net Assets (Note 3): Unrestricted 3,201, ,824-3,579,026 3,512,087 Temporarily restricted (Note 13) - 87,430-87,430 89,636 $23,167,948 $590,317 $(119,991) $23,638,274 $21,859,376 See accompanying notes to combining financial statements.

7 Combining Statement of Activities (with comparative totals for 2012) Year ended June 30, Temporarily Unrestricted Restricted The Herbert The Herbert Birch Family G. Birch G. Birch Combined Total Services, Inc. Services Fund, Inc. Services Fund, Inc. Eliminations Revenue and Other Support: Tuition revenue $32,381,182 $ - $ - $ - $32,381,182 $31,619,716 Medicaid revenue for community services 17,053, ,053,008 15,306,638 Federal and New York State grants 4,742, ,742,082 5,210,170 Training and consultant services 114, , ,110 Contributions 258,448 44,011 57, , ,729 Donated services 76, ,415 56,034 Donated costs (Note 10) 524, , ,921 Day care private fees 29, , ,570 Special events - 165, , ,905 Less: Direct costs of special events - (30,233) - - (30,233) (20,598) Interest income 20, ,424 23,959 Other income 34, ,567 39,879 Net assets released from restriction (Note 13) - 59,253 (59,253) Total Revenue and Other Support 55,235, ,539 (2,206) - 55,471,423 53,627,033 Expenses: Program services: Educational services 34,424,971 49, ,474,825 34,053,019 Community services 15,182, ,182,273 13,464,527 Total Program Services 49,607,244 49, ,657,098 47,517,546 Supporting services: Management and general 5,456,234 17, ,474,017 5,643,256 Fundraising - 275, ,575 27,098 Total Expenses 55,063, , ,406,690 53,187,900 Change in Net Assets 171,612 (104,673) (2,206) - 64, ,133 Net Assets, Beginning of Year 3,029, ,497 89,636-3,601,723 3,162,590 Net Assets, End of Year $ 3,201,202 $ 377,824 $ 87,430 $ - $ 3,666,456 $ 3,601,723 See accompanying notes to combining financial statements. 6

8 Combining Statement of Functional Expenses (with comparative totals for 2012) Year ended June 30, Educational Services Program Services Community Services Total Program Services Management and General The Herbert G. Birch Services Fund, Inc. Combined Total Total Eliminations Salaries and Related Expenses: Salaries $ 22,425,671 $ 7,892,121 $ 30,317,792 $ 2,435,599 $ 32,753,391 $171,440 $ - $32,924,831 $32,199,072 Payroll taxes and employee benefits 4,932,356 1,762,042 6,694, ,198 7,255,596 38,682-7,294,278 6,788,118 Total Salaries and Related Expenses 27,358,027 9,654,163 37,012,190 2,996,797 40,008, ,122-40,219,109 38,987,190 Other Expenses: Contracted personal services 1,106, ,599 1,891,730-1,891, ,891,730 1,643,507 Advertising ,779 74, ,168 94,540 Auto expense ,749 36, , ,417 46,011 Donated costs from ACS, HHS and ACD 524, , , , ,921 Facility and equipment costs 2,671, ,957 3,342, ,470 4,035,972 54,350-4,090,322 3,934,852 Food 593, , , , , ,936 Insurance 81, , ,491 84, , , ,835 Interest expense 236, , , , , , ,299 Equipment rental 89,218 48, ,012 37, , , ,899 Office supplies, printing and postage 160,598 35, ,430 87, ,232 51, , ,075 Professional fees 77,657 6,219 83, , ,330 6, , ,193 Program operational expenses 629,194 1,524,453 2,153,647 15,185 2,168, ,168,832 1,462,916 Repairs and maintenance 351, , , , , , ,409 Indirect gala expenses ,301 Licenses and other fees 1,735 11,276 13,011 72,699 85,710-85, ,187 Staff development 40, ,079 48,141 89, , ,434 Telephone 35,724 87, ,110 20, , , ,844 Transportation 13, , ,934 38, , , ,160 Start up expenses - 66,817 66,817-66, ,817 - Miscellaneous 7,023 6,091 13,114 12,529 25,643 20,882-46, ,319 Total Expenses Before Depreciation and Amortization 33,978,744 14,358,475 48,337,219 5,275,541 53,612, ,212-53,955,972 51,779,828 Depreciation and Amortization 446, ,798 1,270, ,693 1,450, ,450,718 1,408,072 Total Expenses $34,424,971 $15,182,273 $49,607,244 $5,456,234 $55,063,478 $343,212 $ - $55,406,690 $53,187,900 See accompanying notes to combining financial statements. 7

9 Combining Statement of Cash Flows (with comparative totals for 2012) Year ended June 30, Birch Family Services, Inc. The Herbert G. Birch Services Fund, Inc. Eliminations Combined Total Cash Flows From Operating Activities: Change in net assets $ 171,612 $(106,879) $ - $ 64,733 $ 439,133 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 1,450, ,450,718 1,383,101 Amortization of bond and loan financing costs 31, ,180 23,896 Amortization of bond premium (9,564) - (9,564) - (Increase) decrease in: Accounts receivable (323,566) - - (323,566) 678,507 Pledges receivable - (4,255) - (4,255) 5,000 Prepaid expenses and other assets (126,435) 3,708 - (122,727) 17,400 Due from affiliate (107,311) - 107, Deferred bond, loan financing and program costs (83,260) - - (83,260) (46,487) Increase (decrease) in: - Accounts payable and accrued expenses 639,954 5, ,026 (942,242) Accrued compensation (44,718) - - (44,718) (9,602) Deferred revenue (3,165) Due to affiliate - 107,311 (107,311) - - Due to governmental agencies (480,086) - - (480,086) 2,166,050 Net Cash Provided By Operating Activities 1,118,524 4,957-1,123,481 3,711,591 Cash Flows From Investing Activities: Purchase of fixed assets (1,168,918) - - (1,168,918) (1,715,547) Change in assets limited to use (6,697) - - (6,697) (350,813) Net Cash Used In Investing Activities (1,175,615) - - (1,175,615) (2,066,360) Cash Flows From Financing Activities: Proceeds from bonds payable 1,365, ,365,000 2,629,771 Repayment of bonds payable (564,248) - - (564,248) (219,085) Proceeds from loans and mortgages payable 817, ,652 1,877,413 Repayment of loans and mortgages payable (2,010,569) - - (2,010,569) (2,688,377) Proceeds from capital lease obligations 106, ,768 86,369 Repayments of capital lease obligations (111,096) - - (111,096) (120,693) Proceeds from line of credit 4,500, ,500,000 5,000,000 Payments on line of credit (2,500,000) - - (2,500,000) (6,051,599) Net Cash Provided By Financing Activities 1,603, ,603, ,799 Net Increase in Cash and Cash Equivalents 1,546,416 4,957-1,551,373 2,159,030 Cash and Cash Equivalents, Beginning of Year 3,200, ,105-3,776,286 1,617,256 Cash and Cash Equivalents, End of Year $ 4,746,597 $581,062 $ - $ 5,327,659 $ 3,776,286 Supplemental Disclosures of Cash Flow Information: Cash paid for interest $ 691,613 $ - $ - $ 691,613 $ 614,299 Noncash transactions related to capital leases 106, ,768 86,369 See accompanying notes to combining financial statements. 8

10 1. Principles of Combination The accompanying combining financial statements include Birch Family Services, Inc. ( Birch ) and the Herbert G. Birch Services Fund, Inc. (the Fund ) (collectively, Birch and Affiliate ), which are related through common board membership and substantially identical management. 2. Nature of Organizations (a) Birch is a not-for-profit organization that operates 8 schools in New York City for preschool and school-age students with various learning disabilities and serious developmental disabilities, as well as for nondisabled children. Birch also operates 5 Intermediate Care Facilities ( ICFs ), 5 Individual Residential Alternative Facilities ( IRAs ) and 2 day habilitation facilities, and provides other services for developmentally disabled individuals varying in age from birth through adulthood. (b) The Fund operates in support of Birch, which is funded primarily by general public contributions, special events and training and consultation. 3. Summary of Significant Accounting Policies (a) Basis of Presentation The combining financial statements of Birch and Affiliate have been prepared on the accrual basis. In the combining statement of financial position, assets and liabilities are presented, on a classified basis, in order of liquidity or conversion to cash and their maturity resulting in the use of cash, respectively. (b) Financial Statement Presentation The classification of a not-for-profit organization s net assets and its support, revenue and expenses is based on the existence or absence of donor-imposed restrictions. It requires that the amounts for each of three classes of net assets, permanently restricted, temporarily restricted, and unrestricted, be displayed in a statement of financial position and that the amounts of change in each of those classes of net assets be displayed in a statement of activities. These classes are defined as follows: (i) Permanently Restricted Net assets resulting from contributions and other inflows of assets whose use by Birch and Affiliate is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of Birch and Affiliate. (ii) Temporarily Restricted Net assets resulting from contributions and other inflows of assets whose use by Birch and Affiliate is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of Birch and Affiliate pursuant to those stipulations. When such stipulations end or are fulfilled, such temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities. (iii) Unrestricted The part of net assets that is neither permanently nor temporarily restricted by donor-imposed stipulations. 9

11 (c) Cash and Cash Equivalents Birch and Affiliate consider all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents. (d) Restricted Cash Birch has restricted cash at one financial institution for its programs in the amount of $590,794 at June 30, (e) Fixed Assets Fixed assets are stated at cost. Depreciation is computed using the straight-line method over the useful lives of the assets. Leasehold improvements and equipment under capital leases are amortized over the shorter of the lease term or the estimated useful lives of the related assets. Building and building improvements Leasehold improvements Furniture, fixtures and equipment Vehicles Estimated Useful Lives 25 years 5-25 years 3-20 years 3 years (f) Deferred Bond, Loan Financing and Other Program Costs Deferred bond and loan financing costs are stated at cost and amortized on the straight-line basis over the term of the bonds/loans. Deferred program costs are stated at cost. They are costs related to new programs incurred by Birch and will be amortized once the program commences operations in accordance with applicable New York State guidelines. (g) Contributions and Promises to Give Contributions, including unconditional promises to give that are expected to be collected within one year, are recognized as revenues in the period earned and are either classified as permanently restricted, temporarily restricted or unrestricted. Conditional contributions, including conditional promises to give, are not recognized until they become unconditional, that is, when the conditions on which they depend are substantially met. (h) Third-party Reimbursement and Revenue Recognition Birch and Affiliate receive substantially all its revenue for services provided to approved clients from third-party reimbursement agencies. These revenues are based on predetermined rates based on cost reimbursement principles and are subject to audit and retroactive adjustment by the respective third-party fiscal intermediary. In the opinion of management, retroactive adjustments, if any, would not be material to the financial position or results of operations of Birch and Affiliate. Revenue is recognized as earned from third parties and when received or pledged for contributions and fundraising activities. (i) Income Taxes Birch and Affiliate were incorporated in the State of New York and are exempt from Federal, state and local income taxes under Section 501(c)(3) of the IRC. Birch and Affiliate have been 10

12 determined by the Internal Revenue Service ( IRS ) not to be private foundations within the meaning of Section 509(a) of the Internal Revenue Code ( IRC ). As of June 30, 2013, there was no unrelated business income. (j) Functional Allocation of Expenses The costs of providing the various programs and other activities have been detailed by expense category on a functional basis in the statement of functional expenses. Direct program and administrative expenses are charged to the cost centers in which they are incurred. Shared costs have been allocated among the various cost centers based upon various allocation methods. (k) Uncertainty in Income Taxes Birch and Affiliate adopted the provisions of Accounting Standards Codification ( ASC ) 740, Income Taxes. Under ASC 740, an organization must recognize the tax benefit associated with tax positions taken for tax return purposes when it is more likely than not that the position will not be sustained. Then implementation of ASC 740 had no impact on Birch and Affiliate's combining financial statements. Birch and Affiliate do not believe there are any material uncertain tax positions and, accordingly, they will not recognize any liability for unrecognized tax benefits. Birch and Affiliate have filed for and received income tax exemptions in the jurisdictions where it is required to do so. Additionally, Birch and Affiliate have filed IRS Form 990 tax returns, as required, and all other applicable returns in jurisdictions when it is required. For the year ended June 30, 2013, there was no interest or penalties recorded or included in the combining statement of activities. Birch and Affiliate are subject to routine audits by a taxing authority. As of June 30, 2013, Birch and Affiliate were not subject to any examination by the taxing authority. Management believes that Birch and Affiliate are no longer subject to income tax examinations for years prior to (l) Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. (m) Provision for Doubtful Accounts Birch and Affiliate provide an allowance for doubtful accounts for accounts receivable which are specifically identified by management as to their uncertainty in regards to collectibility. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. (n) Allocation Methodology Common costs incurred for the administration of the various programs are allocated directly to respective programs as incurred and/or utilizing predetermined allocation rates established by management. (o) Concentration of Credit Risk Financial instruments which potentially subject Birch and Affiliate to concentration of credit risk consist primarily of cash and cash equivalents. At various times Birch and Affiliate have cash deposits at financial institutions, which exceed the Federal Depository Insurance Corporation insurance limits. 11

13 4. Assets Limited to Use Assets limited to use consisting of cash and cash equivalents at June 30, 2013 amount to $1,104,698 and are maintained in the following restricted bond funds: (a) Debt Service Reserve Fund - The Debt Service Reserve Fund was established for the purpose of assuring that Birch will have money for payment of debt service on the bonds in each year that the bonds are outstanding. Escrow Funds - Assets whose use is limited is comprised of assets set aside under the terms of escrow agreements, under the control of the New York City Industrial Development Agency ( NYCIDA ), Birch and the escrow agent, to be used for capital replacements. 5. Fixed Assets, Net Fixed assets, net, consists of the following: June 30, 2013 Birch Fund Combined Land $ 1,513,261 $- $ 1,513,261 Building and building improvements 10,356,092-10,356,092 Leasehold improvements 5,539,047-5,539,047 Furniture, fixtures and equipment 3,015,818-3,015,818 Vehicles and equipment under capital lease obligations 659, ,826 Total fixed assets 21,084,044-21,084,044 Less: Accumulated depreciation (8,814,485) - (8,814,485) Fixed assets, net $12,269,559 $- $12,269, Due to Governmental Agencies Due to governmental agencies at June 30, 2013 consists of the following: June 30, 2013 Advanced funds by Office of People With Developmental Disabilities ( OPWDD ) under various contracts for the construction and rehabilitation of several residencies $2,258,527 Due to the New York City Education Department 1,849,508 Due to the Administration for Children s Services 1,404 $4,109,439 12

14 7. Bonds Payable Issuer Description Date of Issuance Original Amount Total Payments ( ) Balance at June 30, 2013 Collateral NYCIDA Series 1997B at 8.375% per annum, due February 1, 2022 February 6, 1997 $2,195,000 $(450,000) $1,745,000 Leasehold mortgage liens and security interests in Washington Heights facility NYCIDA NYCIDA DASNY DASNY DASNY DASNY Series 1999B-1 at 7.125% per annum, due August 1, 2015 Series 2000A-1 at 8.125% per annum, due July 1, 2015 Series 2012A-1 at 7.5% per annum, due June 1, 2019 Series 2013A-1 at 7.65% per annum, due June 1, 2028 Series 2013A-2 at 7.65% per annum, due June 1, 2028 Mortgage - semiannual payments of principal plus interest at % per annum, due February 15, 2020 December 9, ,000 (205,000) 95,000 Leasehold mortgage liens and security interests in Brooklyn IRA facility August 17, ,000 (260,000) 165,000 Leasehold mortgage liens and security interests in Brooklyn IRA facility February 29, ,425,000 (260,000) 2,165,000 Leasehold mortgage liens and security interests in St. Nicholas and Wyckoff ICF facilities March 13, ,300,000-1,300,000 Leasehold mortgage liens and security interests in Irwin IRA facilities March 13, ,000 (5,000) 60,000 Leasehold mortgage liens and security interests in Irwin IRA facilities April 29, ,500 (433,333) 321,167 Real property, improvements, gifts, grants and bequests for Flatlands Avenue project Subtotal 5,851,167 Premium on bonds payable 105,207 $5,956,374 13

15 Required principal and interest payments are as follows: 2014 $ 734, , , , ,564 Thereafter 2,343,554 Total $5,956, Loans and Mortgages Payable Loans and mortgages payable consist of: June 30, 2013 Loan payable to Citibank, due April 18, 2017, payable in monthly installments of $8,333 including interest of 5.46%, secured by related property $ 383,333 Loan payable to Nonprofit Finance Fund, due February 1, 2021, payable in monthly installments including interest of 6.50%, secured by certain receivables from the New York State Education Department which includes reimbursement for the cost of certain renovations and improvements 818,981 Mortgage payable to Citibank, due April 14, 2014, payable in monthly installments including interest of 6.75%, secured by related property 137,043 Mortgage payable to Citibank, due February 11, 2022, payable in monthly installments of $5,082 including interest of 6.10%, secured by related property 528,541 Mortgage payable to Citibank, due May 1, 2024, payable in monthly installments of $3,533 including interest of 5.06%, secured by related property 462,800 Mortgage payable to Citibank, due May 1, 2014, payable in monthly installments of $9,490 including interest of 6.00%, secured by related property 104,388 Mortgage payable to Citibank, due June 10, 2025, payable in monthly installments of $3,393 including interest of 5.12%, secured by related property 488,591 Mortgage payable to Citibank, due June 10, 2015, payable in monthly installments of $1,666 including interest of 5.60%, secured by related property 39,976 14

16 June 30, 2013 Mortgage payable to Citibank, due June 10, 2025, payable in monthly installments of $3,597 including interest of 5.12%, secured by related property $ 517,934 Mortgage payable to Citibank, due June 10, 2015, payable in monthly installments of $2,774 including interest of 5.60%, secured by related property 66,574 Mortgage payable to Citibank, due September 22, 2020, payable in monthly installments of $5,274 including interest of 3.06%, secured by related property 458,831 Mortgage payable to Citibank, due September 22, 2017, payable in monthly installments of $5,843 including interest of 2.57%, secured by related property 297,994 Total loans and mortgages payable 4,304,986 Less: Current maturities 797,263 $3,507,723 Required principal payments are as follows: Birch Fund Total 2014 $ 797,263 $- $ 797, , , , , , , , ,972 Thereafter 1,613,468-1,613,468 $4,304,986 $- $4,304, Line of Credit Birch has a line of credit of $7,000,000 with Citibank. Interest is payable monthly at the greater of the prime rate or one-month LIBOR plus 2% per annum, less.125% in each instance. The interest rate charged during 2013 was 3.125%. The note is secured by the related receivables which are used to determine the borrowing base as defined in the agreement. The balance outstanding at June 30, 2013 was $2,000,000. Subsequent to June 30, 2013, there were no additional drawdowns or repayments on the line of credit. 15

17 10. Donated Costs Birch s contracts with the City of New York and Agency for Child Development (the Agency ) have cost-sharing agreements whereby certain costs are borne by the Agency. City-administered support is included in the accompanying combining financial statements as donated costs. Total city-administered support at June 30, 2013 has been recorded as follows: Health insurance $ 73,290 Lease/rental - real property 66,249 Pension 22,982 Gas and heating fuel 8,521 Water 1,624 HRA agency insurance package 1,668 Real property taxes 18,537 $192,871 Additionally, donated costs from the Department of Health and Human Services in the amount of $332,126 are included. 11. Leased Facilities Pursuant to several lease agreements, Birch and Affiliate is obligated for minimum annual rentals payable to nonrelated entities as indicated below. Birch and Affiliate are obligated for certain operating costs at these sites and equipment rentals. The future minimum commitments to all nonrelated parties are as follows: Year ending June 30, 2014 $ 2,947, ,934, ,702, ,316, ,049,256 Thereafter 2,035,774 Total $13,986,171 Rental expense for the year ended June 30, 2013 was $3,158,

18 12. Pension Plans (a) Retirement Plan Birch s employees are covered under an employer-discretionary, noncontributory, defined contribution profit-sharing plan. To be eligible to participate, an employee must complete one year of service with Birch, have worked 1,000 hours during the plan year, have attained age 21 and be employed on the last day of the plan year, June 30. The entry dates are June 30 and December 31. The minimum required contribution is zero. The average contribution percentage used for 2013 was 3.5%, based on employee job classification and length of service. Vesting begins in the first year of participation and increases based upon years of continuous service until a participant is fully vested after the sixth year. Retirement expense for the year ended June 30, 2013 was $1,051,543. (b) 403(b) Plan Birch has a 403(b) tax-deferred annuity plan whereby participants in the plan may elect to defer a portion of their salary and direct Birch to contribute that deferral to the plan on their behalf. Employees become eligible to participate upon date of hire by directing Birch to make the aforementioned salary reduction contributions. (c) 457(b) Plan Birch has a Section 457(b) deferred compensation plan for one key employee. The fully funded liability related to the plan amounted to approximately $50,417 and is included in accrued compensation in the accompanying combining statement of financial position. (d) Postretirement Benefit Obligation Birch provides medical and dental benefits for the founder of the organization. As of June 30, 2013, the accumulated postretirement benefit obligation amounted to $6,000 and is included in accrued compensation in the accompanying combining statement of financial position. 13. Temporarily Restricted Net Assets The Fund has temporarily restricted net assets that are available for the following purposes: June 30, 2013 Hillcrest Music Fund $ 3,258 Family Literacy Program 40,000 Hillcrest Parents Fund 30,712 Other 13,460 $87,430 17

19 The Fund s net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes as follows: June 30, 2013 Domestic Violence Projects $ 4,635 Hillcrest Music Fund 38,217 Hillcrest Art and Book Funds 4,763 Other 11,638 $59, Commitments and Contingencies (a) Department of Education The New York City Department of Education ( DOE ) issued a revised reconciliation report covering Birch s education program s enrollment and rates for the years 1995/1996 through 2005/2006. That reconciliation report reflects a net liability owed to the DOE of $2,117,668 as of July Previously, DOE reconciliations for the same period of time were $1,904,000 less than the current amount. Birch is currently contesting the amount and timing of the proposed reconciliation. Management has set up a reserve of $163,000 as the liability to the DOE for those fiscal years. (b) Workers Compensation Trust Birch participated in a group self-insured workers compensation trust for the period from 1996 through 2003, for the purposes of providing workers compensation insurance. The trust voluntarily closed effective December 31, During 2011, Birch received notification of an assessment from the plan s administrator for $388,383 representing Birch s obligation for the administrator s estimate of the expected losses. In 2012, Birch and the workers compensation trust agreed to a temporary payment of $3,500 per month for its portion of the liability until a final bill is tallied. In 2013, Birch has yet to receive a settlement with the workers compensation trust. As such, a provision for the amount of the full liability has not been recorded in the accompanying combining financial statements for the assessment. 15. Transactions With Affiliate Birch charges the Fund for salaries, fringe benefits, rent and other administrative expenses. Total fees charged for the year ended June 30, 2013 were $229,651. The amount due from the Fund at June 30, 2013 was $119,

20 16. Capital Leases Birch leases various automobiles and copiers under capital leases that expire at various dates through 2018, which require monthly payments of principal and interest rates ranging from 2.0% %. The following is a schedule of the future minimum lease payments including interest under the terms of the leases, together with the present value of the net minimum lease payments as of June 30, June 30, 2014 $ 90, , , , ,045 Total minimum lease payments 171,163 Less: Amount representing interest 6,914 Present value of net minimum lease payments 164,249 Less: Current portion (90,774) $ 73, Subsequent Events Birch and Affiliate have performed subsequent event procedures through November 25, 2013, which is the date the combining financial statements were available to be issued. There were no subsequent events requiring adjustment to the combining financial statements. 19