Financial Statements and Audit Letters (Final Board … Kerr Centers...2013 Financial Statements and Audit Letters Meeting of the Board of Directors CONFIDENTIAL November 18, 2013

Albertina Kerr Centers2013 Financial Statements and Audit LettersMeeting of the Board of Directors CONFIDENTIALNovember 18, 2013

Prepared byGary McGee & Co. LLP, Certified Public Accountants

Albertina Kerr Centers 1 Letter to the Board of Directors A letter fulfilling our professional obligation to communicate directly with the Board of Directors concerning the audit and the financial reporting and disclosure process for which management is responsible 2 Financial Statements The organization’s financial statements and other supplementary information as of and for the year ended June 30, 2013 3 No Material Weaknesses Letter A letter reporting that no material weaknesses were identified during the audit of the organization’s financial statements 4 Historical Summary and Key Performance Indicators A review of the organization’s historical trends and important financial ratios GM&Co. Client Service Team

Gary McGee, Partner Debra Day, Manager Charlotte Henry, Manager Melissa McMurphy, Senior Associate Thomas Wiederrecht, Associate

Information

GARY MCGEE & CO. LLP Certified Public Accountants 808 S.W. Third Avenue, Suite 700 Portland, Oregon 97204 (503) 222-2515 (503) 222-6401 Fax [email protected]

LETTER TO THE BOARD OF DIRECTORS The Board of Directors Albertina Kerr Centers: We have audited the consolidated financial statements of Albertina Kerr Centers as of and for the year ended June 30, 2013, and have issued our report thereon dated November 8, 2013. Our professional standards require that we communicate with you concerning certain matters that may be of interest to you in fulfilling your obligation to oversee the financial reporting and dis-closure process for which management is responsible. We have prepared the following com-ments to assist you in fulfilling that obligation. 1. The Auditor’s Responsibility Under Professional Standards

Our responsibility under generally accepted auditing standards is to conduct an audit with the objective of forming and expressing an opinion about whether the financial statements are prepared, in all material respects, in accordance with accounting principles generally accepted in the United States. An audit conducted in accordance with generally accepted auditing standards is designed to obtain reasonable, rather than absolute, assurance about whether the financial statements as a whole are free from material misstatement, whether caused by error or fraud. We have no responsibility to plan and perform the audit to obtain reasonable assurance that misstatements that are not material to the financial statements, whether caused by error or fraud, are detected. Furthermore, the audit does not relieve management or those charged with governance of their responsibilities. In planning and performing our audit of the financial statements, we considered the organi-zation’s internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the organization’s internal control over financial reporting. Accordingly, we express no such opinion.

2. Significant Accounting Policies and Unusual Transactions

Management is responsible for the selection and use of appropriate accounting policies. The organization’s significant accounting policies are disclosed in the notes accompanying the financial statements. During the year ended June 30, 2013, there were no changes in previously adopted accounting policies or their application, nor were there any significant unusual transactions or transactions in controversial or emerging areas for which there is a lack of authoritative guidance or consensus.

GaryMcGee & Co. LLPCERTIFIED PUBLIC ACCOUNTANTS

808 SW Third Avenue, Suite 700 Portland, Oregon 97204 p: 503 222 2515 f: 503 222 6401 www.garymcgee.com

Albertina Kerr Centers Page 2 3. Management Judgments and Accounting Estimates

Accounting estimates are an integral part of financial statements prepared by management, and are based upon management’s current judgments. Those judgments are normally based on knowledge and experience about past and current events, as well as assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events af-fecting them may differ markedly from management’s current judgments. Our responsibil-ity is to determine that the Board of Directors is informed about the process used by man-agement in formulating particularly sensitive accounting estimates and about the basis for our conclusions regarding the reasonableness of those estimates. The significant accounting estimates contained in the organization’s financial statements as of and for the year ended June 30, 2013 include, among others, (1) the collectibility of ac-counts and contributions receivable, (2) the fair value of the beneficial interest in assets held by the Oregon Community Foundation, (3) the valuation of contributions receivable from charitable trusts and liabilities to gift annuity beneficiaries, (4) the valuation of vacation, unemployment, and workers’ compensation insurance liabilities, (5) depreciation expense, (6) the fair value ascribed to in-kind gifts, and (7) the functional allocation of expenses.

4. No Audit Adjustments

No adjustments resulted from the audit that, in our judgment, either individually or in the aggregate, had a significant quantitative or qualitative effect on the organization’s financial reporting process.

5. No Disagreements With Management

We had no disagreements with management regarding the application of accounting princi-ples, the basis for management’s judgments about accounting estimates, the scope of our audit, disclosures to be included in the financial statements, or the wording of our report on the financial statements that, if not satisfactorily resolved, could be significant to the or-ganization’s financial statements or to our independent accountants’ report.

6. No Consultation With Other Accountants

In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management has informed us that there were no consultations with other independent public accountants regarding accounting or auditing matters relat-ing to the current audit period.

Albertina Kerr Centers Page 3 7. No Significant Issues Discussed With Management Prior to Engagement

We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to our retention as the organiza-tion’s independent accountants. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition of our retention.

8. No Difficulties Encountered in Performing the Audit

We experienced no difficulties working with management during the performance of our audit. We received the full cooperation of management and staff.

9. Material Written Communications

Enclosed in this packet you will find a copy of our firm’s management letter. In addition to this letter, management can provide you with copies of other material written communica-tions from our firm, including the engagement letter and the management representation letter.

This report is intended solely for the information and use of management, the Board of Direc-tors, and others within the organization, and is not intended to be and should not be used by anyone other than these specified parties. November 8, 2013

Albertina Kerr Centers

Consolidated Financial Statements and Other Information as of and for the Year Ended June 30, 2013

and Report of Independent Accountants

A L B E R T I N A K E R R C E N T E R S

TABLE OF CONTENTS Page Letter from the Chief Financial Officer 3 Report of Independent Accountants 5 Financial Statements:

Consolidated Statement of Financial Position 7

Consolidated Statement of Activities 8

Consolidated Statement of Functional Expenses 9

Consolidated Statement of Cash Flows 10

Notes to Consolidated Financial Statements 11 Supplementary Information:

Schedule 1 − Consolidating Schedule of Financial Position 28

Schedule 2 − Consolidating Schedule of Activities 29 Other Information:

Governing Board and Management 30

Inquiries and Other Information 31

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Letter from the Chief Financial Officer

he financial statements and other information contained in this report have been prepared by

management, which is responsible for the informa-tion’s integrity and objectivity. The financial state-ments have been prepared in accordance with gen-erally accepted accounting principles applied on a consistent basis and are deemed to present fairly the financial position of ALBERTINA KERR CENTERS and the changes in its net assets and cash flows. Where necessary, management has made informed judg-ments and estimates of the outcome of events and transactions, with due consideration given to mate-riality. As a means of fulfilling its responsibility for the in-tegrity of financial information included in this re-port, management relies on a system of internal con-trols established to ensure, within reasonable limits, that assets are safeguarded against loss or unauthor-ized use, that transactions are properly recorded and executed in accordance with management’s authori-zation, and that the accounting records can be relied upon to prepare financial statements in accordance with generally accepted accounting principles. This

system is augmented by careful selection and training of qualified personnel and the dissemination of written policies and procedures. The financial statements have been examined by the organization’s independent accountants, GARY MCGEE

& CO. LLP, whose report follows. Their examinations were made in accordance with generally accepted audit-ing standards. The Board of Directors meets periodi-cally with management and the independent accountants to review accounting, auditing, internal accounting con-trols, and financial reporting matters, and to ensure that all responsibilities are fulfilled with regard to the objec-tivity and integrity of the organization’s financial state-ments. The Board of Directors also reviews the scope and results of Albertina Kerr Centers’ audit, and current and emerging accounting and financial requirements and practices affecting the organization. Jerry Hoffert, MBA Chief Financial Officer Albertina Kerr Centers

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REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors Albertina Kerr Centers: We have audited the accompanying consolidated financial statements of Albertina Kerr Centers, which comprise the consolidated statement of financial position as of June 30, 2013, and the related consolidated statements of activities, functional expenses, and cash flows for the year 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; this includes the design, implemen-tation, and maintenance of internal control relevant to the preparation and fair presentation of financial state-ments 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those stan-dards 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 con-solidated financial statements. The procedures selected depend on the auditor’s judgment, including the assess-ment 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 organization’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appro-priate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the organiza-tion’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropri-ateness of accounting policies used and the reasonableness of significant accounting estimates made by manage-ment, 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. Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Albertina Kerr Centers as of June 30, 2013, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States.



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Supplementary Information

Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The consolidating schedules on pages 28 and 29 are presented for purposes of additional analysis and are not a required part of the consolidated financial statements. Such information is the responsibility of manage-ment and was derived from, and relates directly to, the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consoli-dated financial statements or to the financial statements themselves, and other additional procedures in accor-dance with auditing standards generally accepted in the United States. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Summarized Comparative Information

We have previously audited Albertina Kerr Centers’ 2012 consolidated financial statements, and we expressed an unmodified audit opinion on those audited consolidated financial statements in our report dated November 6, 2012. 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 consolidated financial statements from which it has been derived. November 8, 2013

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

J U N E 3 0 , 2 0 1 3

( W I T H C O M P A R A T I V E A M O U N T S F O R 2 0 1 2 )

2013 2012

Assets: Cash and cash equivalents $ 3,672,797 3,690,211 Accounts receivable (note 4) 1,968,070 1,685,577 Contributions receivable (note 5) 639,417 259,395 Note receivable (note 6) 400,000 – Prepaid expenses, deposits, and other current assets 706,929 424,300 Investments (note 7) 9,270,775 8,615,642 Beneficial interest in assets held by the Oregon Community Foundation (note 8) 137,874 125,535 Contributions receivable from charitable remainder unitrusts (note 9) 598,920 548,913 Other long-term assets 75,488 74,923 Land, buildings, equipment, and property rights (notes 10 and 12) 10,274,924 9,799,938

Total assets $ 27,745,194 25,224,434

Liabilities: Accounts payable and accrued expenses 724,012 632,645 Accrued payroll liabilities 1,943,107 1,829,348 Deferred revenues and amounts refundable to grantors 99,063 73,845 Other liabilities (note 11) 202,119 248,275 Capital lease obligations – 118,505 Long-term debt (note 12) 1,928,105 1,393,502

Total liabilities 4,896,406 4,296,120

Net assets: Unrestricted: Available for programs and general operations 4,201,517 3,332,930 Designated by Board for long-term investment (note 14) 6,894,402 6,574,140 Net investment in capital assets 6,806,713 6,588,318

Total unrestricted 17,902,632 16,495,388

Temporarily restricted (note 14) 2,751,175 2,261,587 Permanently restricted (note 14) 2,194,981 2,171,339

Total net assets 22,848,788 20,928,314

Commitments and contingencies (notes 13, 17, 18, 19, 20, and 21)

Total liabilities and net assets $ 27,745,194 25,224,434

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENT OF ACTIVITIES

Y E A R E N D E D J U N E 3 0 , 2 0 1 3

( W I T H C O M P A R A T I V E T O T A L S F O R 2 0 1 2 )

2013 Temporarily Permanently Unrestricted restricted restricted Total 2012

Revenues, gains, and other support: Contract service fees $ 36,156,988 – – 36,156,988 33,903,283 Grants and contributions 847,606 627,314 2,920 1,477,840 1,733,429 Special events, net of direct costs of $440,266 in 2013 and $384,075 in 2012 395,360 – – 395,360 410,665 Sales, net of cost of sales of $103,649 in 2013 and $86,769 in 2012 446,412 – – 446,412 381,148 Investment income 168,634 47,706 405 216,745 163,198 Net appreciation (decline) in the fair value of investments 519,089 162,637 1,195 682,921 (172,938) Increase (decrease) in the beneficial interest in assets held by the Oregon Community Foundation (note 8) 12,339 – – 12,339 (5,519) Increase (decrease) in the carrying value of contributions receivable from charitable remainder unitrusts – 27,926 22,081 50,007 (17,347) Net change in the actuarial value of charitable gift annuity agreements (7,018) – (2,959) (9,977) 44 Net gain (loss) on disposal of assets 8,669 – – 8,669 (61,785) Other 625,868 – – 625,868 319,609

Total revenues and gains 39,173,947 865,583 23,642 40,063,172 36,653,787

Net assets released from restrictions (note 15) 375,995 (375,995) – – –

Total revenues, gains, and other support 39,549,942 489,588 23,642 40,063,172 36,653,787

Expenses (note 16): Program services 33,975,948 – – 33,975,948 32,334,052 Management and general 3,165,357 – – 3,165,357 3,010,639 Resource development 594,772 – – 594,772 426,413 Volunteer-managed businesses 406,621 – – 406,621 382,831

Total expenses 38,142,698 – – 38,142,698 36,153,935

Increase in net assets 1,407,244 489,588 23,642 1,920,474 499,852

Net assets at beginning of year 16,495,388 2,261,587 2,171,339 20,928,314 20,428,462

Net assets at end of year $ 17,902,632 2,751,175 2,194,981 22,848,788 20,928,314


Volunteer-Program Management Resource managedservices and general development businesses Total 2012

Salaries and related costs $ 26,082,618 2,310,116 368,743 174,377 28,935,854 27,601,625Clinical and other

contract labor 591,852 5,170 − − 597,022 550,365Foster and respite fees 997,892 − − − 997,892 933,663Legal and professional fees 180,538 139,828 1,050 6,845 328,261 214,163Liability insurance 144,206 25,025 739 559 170,529 136,387Program supplies 1,066,707 1,853 132 14,643 1,083,335 1,008,778Office supplies 159,486 113,225 1,161 14,710 288,582 240,092Telecommunications

and information systems 664,470 121,673 9,315 1,262 796,720 628,723Facilities 2,086,748 82,225 5,798 99,069 2,273,840 2,365,043Equipment costs 133,414 10,316 173 3,856 147,759 131,506Vehicle expense 569,317 6,736 134 11 576,198 531,302Public relations

and fundraising 16,009 176,550 196,816 19,651 409,026 385,717Interest 83,978 2,422 − − 86,400 78,904Other 145,538 100,951 6,177 38,829 291,495 259,925

Total expenses beforedepreciation and amortization 32,922,773 3,096,090 590,238 373,812 36,982,913 35,066,193

Depreciation andamortization 1,053,175 69,267 4,534 32,809 1,159,785 1,087,742

Total expenses $ 33,975,948 3,165,357 594,772 406,621 38,142,698 36,153,935


2013


CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES

Y E A R E N D E D J U N E 3 0 , 2 0 1 3( W I T H C O M P A R A T I V E T O T A L S F O R 2 0 1 2 )

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CONSOLIDATED STATEMENT OF CASH FLOWS

Y E A R E N D E D J U N E 3 0 , 2 0 1 3

( W I T H C O M P A R A T I V E T O T A L S F O R 2 0 1 2 )

2013 2012

Cash flows from operating activities: Cash received from contractors, grantors, contributors, and others $ 38,014,114 35,883,144 Cash received upon the termination of a charitable trust – 41,950 Cash received from sales of associated businesses 550,061 467,917 Investment income received 216,745 168,451 Cash paid to employees and suppliers (37,147,793) (35,547,001) Interest paid (86,400) (78,904)

Net cash provided by operating activities 1,546,727 935,557

Cash flows from investing activities: Capital expenditures (1,632,012) (1,280,469) Cash proceeds received on the sale of assets 17,866 21,300 Cash proceeds received on the sale of investments 394,283 834,985 Purchases of investments (149,750) (1,672,652) Reinvestment of investment income (216,745) (163,198) Issuance of a note receivable (400,000) –

Net cash used in investing activities (1,986,358) (2,260,034)

Cash flows from financing activities: Proceeds from contributions restricted for capital acquisition and long-term investment 19,019 98,692 Distributions to charitable gift annuity beneficiaries (12,900) (15,005) Proceeds on issuance of long-term debt 742,517 – Principal reductions of long-term debt (207,914) (89,503) Payments made on capital lease obligations (118,505) (58,547)

Net cash provided by (used in) financing activities 422,217 (64,363)

Net decrease in cash and cash equivalents (17,414) (1,388,840)

Cash and cash equivalents at beginning of year 3,690,211 5,079,051

Cash and cash equivalents at end of year $ 3,672,797 3,690,211

Supplemental schedule of noncash investing and financing activities

Capital assets financed through the issuance of long-term notes $ – 183,750


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Y E A R E N D E D J U N E 3 0 , 2 0 1 3

1. Organization

A private, nonprofit organization, headquartered in Portland since 1907, Albertina Kerr Centers strengthens Oregon families and children by help-ing children and adults with developmental dis-abilities and mental health challenges, empower-ing them to live richer lives. Kerr provides a wide range of mental health services for children and support for their families. Kerr also provides care and skills training for people with development disabilities, serving people in their own homes, in the community and in group home settings. Pri-vate donations and community support make this vital work possible.

2. Summary of Significant Accounting

Policies

The significant accounting policies followed by Albertina Kerr Centers are described below to en-hance the usefulness of the financial statements to the reader. Basis of Accounting − The accompanying finan-cial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles and the principles of fund accounting. Fund accounting is the pro-cedure by which resources for various purposes are classified for accounting purposes in accor-dance with activities or objectives specified by donors. Principles of Consolidation − The accompanying financial statements include the accounts of Al-bertina Kerr Centers; Albertina Kerr Centers Foundation (the “Foundation”); Kerr Bikes, LLC; and The Old Kerr Nursery Association (“TOK-NA”), a voluntary association that operates Al-bertina’s restaurant, the Kerr Gift Shop, and

Kerr’s Economy Jar and Annex for the benefit of the organization’s programs. All significant inter-organizational investments, accounts, and trans-actions have been eliminated. Basis of Presentation − The organization has adopted the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 958-605, Revenue Rec-ognition and FASB ASC No. 958-205, Presenta-tion of Financial Statements. Under these provi-sions, net assets and all balances and transactions are presented based on the existence or absence of donor-imposed restrictions. Accordingly, the net assets of the organization and changes therein are classified and reported as follows: • Unrestricted net assets − Net assets not subject

to donor-imposed stipulations.

• Temporarily restricted net assets − Net assets subject to donor-imposed stipulations that will be met either by actions of the organization and/or the passage of time. These balances represent the unexpended portion of externally restricted contributions and investment return to be used for specific programs and activities as directed by the donor.

• Permanently restricted net assets − Net assets subject to donor-imposed stipulations that they be maintained permanently by the organiza-tion. Generally, the donors of these assets permit the organization to use all or part of the income earned on related investments for gen-eral or specific purposes.

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Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. Expirations of temporary restrictions on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as net assets released from restrictions. Use of Estimates − The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities, the dis-closure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the re-porting period. Actual results could differ from those estimates. In the opinion of management, such differences, if any, would not be significant. Cash Equivalents − For purposes of the financial statements, the organization considers all liquid investments having initial maturities of three months or less to be cash equivalents. Cash and cash equivalents held as part of the organization’s investment portfolio, and where management’s intention is to use the cash to acquire investments to be held long-term, are classified as investments. Investments − Investments are carried at fair value. Net appreciation (decline) in the fair value of investments, which consists of the realized gains or losses and the unrealized appreciation (decline) of those investments, is reported in the statement of activities. Interest income is accrued as earned, and is presented net of investment ad-visory fees (totaling $61,377 for the year ended June 30, 2013). The organization has some exposure to invest-ment risks, including interest rate, market, and credit risks. Due to the level of risk exposure, it is possible that near-term valuation changes for in-vestment securities may occur to an extent that could materially affect the amounts reported in the accompanying financial statements.

Capital Assets and Depreciation − Generally, property and equipment with a carrying value of $3,000 or more are capitalized and reported at cost when purchased, and at market value when acquired by gift. Depreciation is provided on a straight-line basis over the estimated useful lives of the respective assets, which is generally 40 years for buildings, 10 to 20 years for building improvements, 10 years (or the length of the lease term, if less) for leasehold improvements, and 3 to 5 years for furniture, equipment, and vehicles. The organization periodically reviews the carry-ing amount of its capital assets whenever events or circumstances provide evidence that suggests that the carrying amount may not be recoverable. If this review indicates that capital assets may not be recoverable, the organization reviews the ex-pected undiscounted future net operating cash flows from the use of these assets. If such assets are considered to be impaired, the impairment in value is recognized as a charge in the statement of activities. The impairment charge is the differ-ence between the carrying amount of the capital assets and its fair value. As of June 30, 2013, the organization does not believe there is any indica-tion that the carrying value or the amortization of its capital assets has been impaired during the year ended June 30, 2013. Beneficial Interest in Trusts − The organization receives contributions of property in which the donor or donor-designated beneficiary may retain a life interest. The assets are invested and admin-istered by either a trustee or the organization, and distributions are made to the beneficiaries during the term of the agreement. These funds are in-vested in debt and equity securities, and the or-ganization records its interest in these trusts at fair value based on estimated future cash receipts. Initial recognition and subsequent adjustments to the assets’ carrying values are reported as a change in the value of split-interest trusts in the accompanying financial statements, and are clas-sified as permanently restricted, temporarily re-stricted, or unrestricted depending on the exis-tence of donor-imposed purpose or time restric-tions, if any.

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Endowment Funds and Interpretation of Relevant Law – Effective January 1, 2008, the State of Oregon adopted the Uniform Prudent Management of Institutional Funds Act (“UP-MIFA”) which governs Oregon charitable institu-tions with respect to the management, investment, and expenditure of donor-restricted endowment funds. The Board of Directors has interpreted Oregon’s adoption of UPMIFA as requiring the organiza-tion to adopt investment and spending policies that preserve the fair value of the original gift as of the date of gift, absent explicit donor stipula-tions to the contrary. Although the organization has a long-term fiduciary duty to the donor (and to others) for a fund of perpetual duration, the preservation of the endowment’s purchasing power is only one of several factors that are con-sidered in managing and investing these funds. Furthermore, in accordance with UPMIFA, a por-tion of the endowment’s original gift may be ap-propriated for expenditure in support of the re-stricted purposes of the endowment if this is con-sistent with a spending policy that otherwise satis-fies the requisite standard of prudence under UPMIFA. As a result of this interpretation, the organization classifies as permanently restricted net assets (1) the original value of gifts donated to the perma-nent endowment, (2) subsequent gifts to the en-dowment, and (3) accumulations made pursuant to the direction of the applicable donor gift in-strument at the time the accumulation is added to the fund. Net earnings (realized and unrealized) on the in-vestment of endowment assets are classified as temporarily restricted until those amounts are ap-propriated for expenditure by the organization in a manner consistent with the standard of pru-dence prescribed by UPMIFA and until expended in a manner consistent with the purpose or time restrictions, if any, imposed by the donor. Any investment return classified as permanently re-stricted represents only those amounts required to be retained permanently as a result of explicit do-nor stipulations.

With regard to endowment losses or appropria-tions in excess of the fair value of the original gift, in accordance with FASB ASC No. 958-320, In-vestments – Debt and Equity Securities, the por-tion of a donor-restricted endowment that is clas-sified as permanently restricted is not reduced by losses on the investments of the fund, except to the extent required by the donor, including losses related to specific investments that the donor re-quires the organization to hold in perpetuity. Similarly, the amount of permanently restricted net assets is not reduced by the organization’s ap-propriations from the fund. In the absence of do-nor stipulations or law to the contrary, losses or appropriations of a donor-restricted endowment reduce temporarily restricted net assets to the ex-tent that donor-imposed temporary restrictions on net appreciation of the fund have not been sat-isfied before the loss or appropriation occurs. Any remaining loss or appropriation reduces un-restricted net assets. In accordance with UPMIFA, the Board of Direc-tors has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to the programs and operations supported by its endowment, while also seeking to maintain the long-term pur-chasing power of the endowment assets. There-fore, the Board of Directors considers the follow-ing factors in making a determination to appro-priate or accumulate donor-restricted endowment funds: • The duration and preservation of the fund; • The purposes of the organization and the fund; • General economic conditions; • The possible effect of inflation and deflation; • The expected total return from income and the

appreciation of investments; • Other resources of the organization; and • The investment policies of the organization.

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To meet that objective, the Foundation’s policies limit the spending of investment income and ap-preciation to a maximum of 7.0% of the market value of such investments calculated on a 13-quarters rolling average. During the year ended June 30, 2013, the Foundation’s Board of Trustees appropriated 4.0%, or a total of $71,375, from donor-restricted endowment funds and $195,634 from the Board-designated endowment in accor-dance with this policy. In addition, the Founda-tion’s Board of Trustees authorized the appro-priation of $335,475 from Board-designated en-dowment funds to help cover the costs of some nonrecurring operating expenses. Contributions – Contributions, which include un-conditional promises to give (pledges), are recog-nized as revenues in the period received. Condi-tional promises to give are not recognized until they become unconditional, that is when the con-ditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value. Contributions receivable for the support of future operations, programs, and activities are recorded at the present value of the estimated future cash flows, net of an allowance for uncollectible amounts. The allowance for uncollectible contri-butions receivable is provided based upon man-agement’s judgment including such factors as pri-or collection history, type of contribution, and na-ture of fundraising activity. Contributions of land, buildings, and equipment without donor stipulations concerning the use of such long-lived assets are reported as revenues of the unrestricted net asset class. Contributions of cash or other assets to be used to acquire land, buildings, and equipment with such donor stipu-lations are reported as revenues of the temporarily restricted net asset class; the restrictions are con-sidered to be released over the period of the as-set’s intended useful life.

In-Kind Contributions − The organization re-ceives contributed services from a large number of volunteers who assist in fundraising efforts through their participation in a range of busi-nesses and activities. In accordance with FASB ASC No. 958-605, Revenue Recognition, the val-ues of such services, which the organization con-siders not practicable to estimate, have not been recognized in the statement of activities. Signifi-cant services received which create or enhance a non-financial asset or require specialized skills that the organization would have purchased if not donated are recognized in the statement of activi-ties. During the year ended June 30, 2013, the or-ganization recorded $83,270 in donated program related services, and $9,809 in donated services for special events. In-kind contributions of equipment, other capital assets and materials, the free or discounted use of facilities, and contributed fundraising materials and advertising are recorded where there is an ob-jective basis upon which to value these contribu-tions and where the contributions are an integral part of the organization’s activities. During the year ended June 30, 2013, the organization re-corded $133,551 in in-kind contributions of pro-gram goods and materials, and $67,864 in do-nated materials for special events. In addition, the organization reported $10,735 in in-kind con-tributions associated with the use of program fa-cilities at discounted rates, $15,558 in the free use of meeting facilities for special events, and $104,540 in contributed advertising for special events. Outstanding Legacies − The organization is the beneficiary under various wills and trust agree-ments, the total realizable amounts of which are not presently determinable. The organization’s share of such bequests is recorded when the pro-bate court has declared the testamentary instru-ment valid and the proceeds are measurable. Revenue Recognition − All contributions and grants are considered available for unrestricted use unless specifically restricted by the donor. Service revenues are recognized at the time ser-vices are provided and the revenues are earned.

15

Benefits Provided to Donors at Special Events − The organization conducts special fundraising events in which a portion of the gross proceeds paid by the participants represents payment for the direct cost of the benefits received by partici-pants at the event. Unless a verifiable, objective mean exists to demonstrate otherwise, the fair value of meals and entertainment provided at spe-cial events is measured at the actual cost to the organization. Advertising and Promotional Expenses − Ad-vertising and promotional costs are charged to expense as they are incurred. Concentrations of Credit Risk − The organiza-tion’s financial instruments consist primarily of cash equivalents, mutual funds, and similar inter-ests, as well as an interest in assets held by the Oregon Community Foundation (“OCF”), which may subject the organization to concentrations of credit risk as, from time to time, for example, cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation (“FDIC”). In addition, the market value of securities is de-pendent on the ability of the issuer to honor its contractual commitments, and the investments are subject to changes in market values. All interest-bearing checking and savings ac-counts, money market deposit accounts, and cer-tificates of deposit are insured by the FDIC for up to $250,000 per depositor, per insured bank, for each account ownership category. Prior to Janu-ary 1, 2013, Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act pro-vided depositors with unlimited coverage for non-interest-bearing transaction accounts. This un-limited protection for noninterest-bearing trans-action accounts expired on December 31, 2012, and, beginning January 1, 2013, all accounts at an insured depository institution, including nonin-terest-bearing transaction accounts, are insured by the FDIC up to $250,000 per depositor, per in-sured bank, for each deposit insurance ownership category.

The fair values of securities are dependent on the ability of the issuer to honor its contractual com-mitments, and the investments are subject to changes in market values. The organization’s beneficial interest in assets held by OCF (see note 8) is subject to changes in the market values of the underlying assets owned by OCF (from which the value of the organization’s beneficial interest has been derived), and is also dependent on the value of the assets being commensurate with the value of distributions expected to be made to the or-ganization by OCF in future years. Certain receivables may also, from time to time, subject the organization to concentrations of credit risk. To minimize its exposure to signifi-cant losses from customer or donor insolvencies, management evaluates the financial condition of its customers and donors, and monitors concen-trations of credit risk arising from similar geo-graphic regions, activities, or economic character-istics. When necessary, receivables are reported net of an allowance for uncollectible amounts. Income Taxes − Both Albertina Kerr Centers and Albertina Kerr Centers Foundation are exempt from federal and state income taxes under Section 501(c)(3) of the Internal Revenue Code (“IRC”) and comparable state law. Albertina Kerr Cen-ters has been recognized as a public charity under Sections 170(b)(1)(a)(vi) and 509(a)(1) of the IRC. Albertina Kerr Centers Foundation derives its public charity status as a Type I supporting or-ganization described in IRC Section 509(a)(3). As a single-member LLC controlled by a nonprofit organization, Kerr Bikes, LLC is treated for tax purposes as a disregarded entity. For tax purposes, Albertina Kerr Centers’ and Al-bertina Kerr Centers Foundation’s open audit pe-riods are for the years ended June 30, 2010 through 2012. The organization has adopted the recognition re-quirements for uncertain income tax positions as required by FASB ASC No. 740-10, Income Tax-es. Under this standard, income tax benefits are recognized for income tax positions taken or ex-pected to be taken in a tax return only when it is determined that the income tax position will more-likely-than-not be sustained upon examina-tion by taxing authorities.

16

Subsequent Events – As required by FASB ASC No. 855-10, Subsequent Events, subse-quent events have been evaluated by man-agement through November 8, 2013, which is the date the financial statements were avail-able to be issued. Summarized Financial Information for 2012 – The accompanying financial information as of and for the year ended June 30, 2012, is presented for comparative purposes only and is not intended to represent a complete financial statement pres-entation. Other Significant Accounting Policies − Other significant accounting policies are set forth in the financial statements and the following notes.

3. Program Services

During the year ended June 30, 2013, the organi-zation incurred program service expenses in the following major categories: For Children and Families Crisis Psychiatric Care (Sub-Acute) – Short-term residential care (usually fewer than two weeks) and 24-hour access to mental health pro-fessionals for children with urgent mental health crises. Kerr works to stabilize children in crisis, provide effective mental health treatment, and ul-timately return the child to his or her home for a less intense level of care. Early Childhood Outpatient Services – Assis-tance for pre-school children ages 0 to 6 with be-havioural challenges and their families. The focus is on developing skills to promote the child’s suc-cess and safety, preparing them to enter kinder-garten ready to learn in their local community schools. Intensive Community-Based Treatment Ser-vices – Services for children ages 3 to 17 at risk of being unable to stay in their homes or in school due to mental health challenges. In addition to help with building connections within the com-munity to develop long-term stability, the family receives home-based therapy, skills training, and a 24-hour helpline.

Family Resource Center – A place for families in our community, raising a child with mental health and behavioural challenges to find support and answers to questions, and gather for activities and events. Foster Care – Safe and caring homes for foster children with mental health challenges as well as developmental disabilities. Parents receive exten-sive training and 24-hour support. Intensive Treatment Program – A safe and se-cure treatment program for youth with develop-mental disabilities, many of whom also have men-tal health challenges. This program is the only one of its kind in Oregon. Outpatient Services – Mental health services for children, youth, and their families provided in community settings, including homes, schools, and other locations. Youth Group Homes – More than a dozen group homes provide around-the-clock support and life skills training for youth ages 7 to 18 with devel-opmental disabilities and mental health challenges who require specialized care and treatment. For Adults and Families Adult Group Homes – More than thirty commu-nity-based residential homes that offer 24-hour support and individual growth opportunities to adults with developmental disabilities. Community Inclusion – Programs for people with developmental disabilities that gives them the op-portunity to participate in the workforce, join in activities, and pursue hobbies that enrich their lives, leading to increased independence and community involvement. Supported Living – A support system for adults with developmental disabilities that provides op-portunities to create their own living situation based on their needs and goals.

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4. Accounts Receivable

At June 30, 2013, the organization reported out-standing receivables as follows: Program service fees receivable $ 1,292,608 Contract payments receivable 748,353

2,040,961

Less allowance for uncollectible receivables (72,891)

$ 1,968,070

5. Contributions Receivable

Contributions receivable at June 30, 2013 repre-sent unconditional promises expected to be col-lected as follows: Less than one year $ 355,775 From one to five years 290,867

646,642

Less allowance for doubtful collection (7,225)

$ 639,417

Gross contributions receivable at June 30, 2013 carry the following restrictions: Capital projects $ 507,667 Donor-restricted endowment 9,600 Support of general programs and operations 129,375

$ 646,642

6. Note Receivable

In June of 2013, the organization entered into an agreement to provide a loan in the amount of $400,000 to the Children’s Developmental Health Institute (“CDHI”). The loan is payable in full at the earlier of either an acquisition of CDHI by Albertina Kerr Centers, or ten weeks after the or-ganization notifies CDHI it will not pursue an ac-quisition. The note bears interest at a rate of 1.0% annually. No interest was recorded during the year ended June 30, 2013. Subsequent to June 30, 2013, on October 1, 2013 Albertina Kerr Centers entered into a purchase agreement to acquire certain assets of CDHI for a total purchase price of $433,815. At the time of the purchase agreement, the balance due to the organization under the above note, including ac-crued interest, totaled $401,056, resulting in a net payment due to CDHI of $32,759.

7. Investments

Investments, which are carried at fair value, con-sist of the following at June 30, 2013: Equity securities and funds $ 6,688,217 Fixed income securities and funds 1,511,474 Exchange traded funds 414,071 Real estate investment trusts 335,785

8,949,547

Plus money market funds, sweep options, and other cash equivalents 321,228

$ 9,270,775

Investments are held for the following purposes: Donor-restricted endowment $ 1,943,490 Unappropriated endowment earnings 332,278 Other 6,995,007

$ 9,270,775

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8. Beneficial Interest in Assets Held by the Oregon Community Foundation

The organization has established certain Board-designated endowment funds at the Oregon Community Foundation. In accordance with FASB ASC No. 958-605, Revenue Recognition, the organization accounts for its interest in these funds using the equity method of accounting, which approximates the present value of the esti-mated expected future cash flows that will inure to the organization. Changes in the organization’s beneficial interest in these funds for the year ended June 30, 2013 are summarized as follows: Balance at beginning of year $ 125,535

Increase in the beneficial interest in assets held by the Oregon Community Foundation 1 12,339

Balance at end of year $ 137,874

1 Under the terms of its agreements with OCF, the organiza-tion may receive quarterly distributions of investment re-turn in accordance with OCF’s spending policies (currently 4.5% of a trailing 13-quarter market value average). Addi-tional distributions can be made at any time by the affirma-tive vote of a three-quarter majority of the organization’s Board of Directors and with the approval of OCF. During the year ended June 30, 2013, the organization did not re-ceive any distributions.

9. Contributions Receivable from Charitable Remainder Unitrusts

The organization has been named the beneficiary of several irrevocable charitable remainder uni-trusts. The current beneficiaries of the trusts re-ceive a percentage each year of the net fair market value of the assets of the trusts, valued annually. Upon the deaths of the beneficiaries, the organiza-tion will receive either a percentage or all of the remaining assets of the trusts. A contribution re-ceivable of $598,920 was recorded at June 30, 2013, representing the actuarially determined present value of the estimated future cash flows that will inure to the organization, using discount rates ranging from 5.8% to 8.735%. Of the trusts, one representing $246,691 of the total receivable has been restricted by the donor to be added to the ex-isting endowment fund. The other trusts are unre-stricted as to purpose.

10. Land, Buildings, Equipment, and Property

Rights

A summary of land, buildings, equipment, and property rights at June 30, 2013 is as follows: Land $ 563,678 Buildings 10,849,217 Improvements 3,835,632 Furniture and equipment 2,241,351 Vehicles 1,680,748 Property rights 118,022 Construction-in-progress 176,682

19,465,330

Less accumulated depreciation and amortization (9,190,406)

$ 10,274,924

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11. Other Liabilities

At June 30, 2013, the following summarizes the organization’s other liabilities: Funds held on behalf of others $ 149,119 Liabilities associated with charitable gift annuities 1 53,000

$ 202,119

1 Included in the organization’s investment balances at June 30, 2013 are $87,744 in assets invested in money market, equi-ties and mutual funds associated with four charitable gift an-nuities held at June 30, 2013. Under the terms of these gifts, the organization has agreed, in return for the gifted assets, to make payments to gift beneficiaries for the balance of their lives. Upon the death of the beneficiary (and, in certain cases, the beneficiary’s spouse), the organization will receive the bal-ance of the remaining assets. At June 30, 2013, the organiza-tion recorded a liability for these charitable gift annuities, rep-resenting the actuarially determined present value of the esti-mated future payments to be made to the beneficiaries using discount rates ranging from 2.5% to 10.0%. The liability re-corded at June 30, 2013 totaled $53,000. State law requires, among other things, that the issuer of chari-table gift annuities maintain certain minimum reserves, calcu-lated in accordance with rules promulgated in Chapter 731.038 of the Oregon Revised Statutes. These rules also mandate that the reserves be held in separate investment accounts. The min-imum reserves required by law at June 30, 2013 totaled $53,000.

12. Long-Term Debt

The acquisition and rehabilitation of the organi-zation’s properties include costs financed through loans received from various parties. The follow-ing obligations, all secured by property and asso-ciated trust deeds unless noted otherwise, were outstanding at June 30, 2013: Two notes with the City of Gresham, Oregon. Proceeds used to finance $90,163 in sewer as-sessment charges. Interest is at 5.68%. Interest and principal are due in monthly payments of $629 through August of 2018. $ 34,606

Wells Fargo Bank. $450,000 for construction of the sub-acute psy-chiatric residential treatment facil-ity. This is a 20-year loan with rate adjustments every five years. In conjunction with this loan, the State of Oregon awarded a 4.0% tax credit, which effectively reduces the market interest rate to 4.27%, also adjustable every five years. Pre-payment penalties will not be as-sessed at the adjustment dates, but could apply if prepayment was made at any other time. Costs in-curred to acquire the loan were $16,419 and are being amortized on a straight-line basis over the life of the loan. Interest and principal are due in monthly payments of $2,571 through November of 2017. 131,954

Bank of America. $115,351 to re-finance the acquisition loan on the Appaloosa group home in Sa-lem, Oregon. Interest is at 5.1%. Interest and principal are due in monthly payments of $923 through June of 2028. 115,351

Bank of America. $177,645 to re-finance the acquisition loan on the Tuckerwood group home in Beaverton, Oregon. Interest is at 5.1%. Interest and principal are due in monthly payments of $1,421 through June of 2028. 177,645

Bank of America. $999,900 to refi-nance conventional loans associ-ated with four program facilities lo-cated in Eugene, Cornelius, Hills-boro, and Salem, and to finance the acquisition of an additional pro-gram facility in Portland. Costs in-curred to acquire the loan were $49,545 and are being amortized on a straight-line basis over the life of the loan. Interest and principal are due in monthly payments of $8,255, with interest carried at a fixed rate of 5.53%, through March of 2023. 1 738,862

Continued

20

Bank of America. $167,186 to refi-nance the loan on the San Rafael group home in Portland Oregon. Interest is at 5.1%. Interest and principal are due in monthly pay-ments of $1,337 through June of 2028. 167,186

Bank of America. $198,576 to re-finance the loan on the SW 76th group home in Tigard, Oregon. Interest is at 5.1%. Interest and principal are due in monthly payments of $1,588 through June of 2028. 198,576

Bank of America. $165,200 to acquire the Cokeron group home in Oregon City, Oregon. Interest is at 5.25%. Interest and princi-pal are due in monthly payments of $1,335 through April of 2028. 163,925

Bank of America. $200,000 to acquire the Wheeler group home in Milwaukie, Oregon. Interest is at 5.1%. Interest and principal are due in monthly payments of $1,600 through June of 2028. 200,000

$ 1,928,105

1 The Bank of America loan of $999,900, undertaken during the year ended June 30, 2008, utilized a “Small Nonprofit Ac-celerated Program” (“SNAP”) Bond, which is a tax-exempt bond issued by the Oregon Facilities Authority and exchanged with, in this case, Bank of America in return for the loan made by the Bank to Albertina Kerr Centers. A type of private placement bond, this method of financing provided the or-ganization with a streamlined approach to financing and sig-nificantly reduced fees. The loan is secured by certain real property. In addition, to ensure an additional measure of liquidity on both this loan and the organization’s line of credit (see note 13), the loan agree-ment with Bank of America requires that Albertina Kerr Cen-ters Foundation, a separately incorporated entity that supports Albertina Kerr Centers, guarantee the loan by maintaining a minimum of unrestricted, unencumbered liquid assets in an amount equal to the amount of the outstanding liability.

Obligations for future payments of principal are summarized as follows: Years ending June 30,

2014 $ 138,892 2015 145,929 2016 153,040 2017 160,972 2018 155,002 Thereafter 1,174,270

$ 1,928,105

Interest expense totaled $86,400 for the year end-ed June 30, 2013.

13. Line of Credit

At June 30, 2013, the organization had available a line of credit in the amount of $1.0 million, se-cured by receivables, inventory, and equipment. Interest is based on the British Bankers’ Associa-tion London Interbank Offered Rate (“BBA LI-BOR,” adjusted daily) plus 2.25%. Borrowings are payable in full on December 31, 2013. Any balances drawn on the line are also guaranteed by Albertina Kerr Centers Foundation, and require maintenance of a consolidated debt service cover-age ratio of at least 1.25:1.0 and consolidated, un-restricted, unencumbered liquid assets in an amount not less than $1.0 million. At June 30, 2013, the organization was in compliance with these covenants. No balances were outstanding under this arrangement at June 30, 2013.

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14. Restrictions and Limitations on Net Asset Balances

Board-Designated Net Assets

At June 30, 2013, $6,894,402 had been designated by the Board of Directors for endowment pur-poses. Temporarily Restricted Net Assets

Temporarily restricted net assets held at June 30, 2013 represent $2,751,175 in contributions, grants, and other unexpended revenues and gains available for specific program purposes and fu-ture periods, as follows: Net investment in capital assets to be amortized: Group home properties $ 1,059,784 Information technology software 33,947 Building repairs and other building projects and investments 446,375

1,540,106

Capital campaign: Sub-acute expansion 151,000 General 364,600

515,600

Charitable remainder unitrusts: Contributions receivable from charitable remainder unitrusts (see note 9) 352,229

Unexpended endowment earnings: Purpose unrestricted 167,407 Chaplaincy 96,829 Landmark Preservation Fund 68,042

332,278

Unexpended cash: Cash received for programs and other purposes 10,962

Total $ 2,751,175

Permanently Restricted Net Assets

At June 30, 2013, the organization held $2,194,981 in endowment funds. The investment income earned on the investment of these permanently re-stricted net assets is either restricted or unre-stricted as follows: Income unrestricted $ 1,291,030 Income restricted for: Landmark Preservation Fund − improvements to the Old Kerr Nursery Association building 240,015 Chaplaincy program 663,936

$ 2,194,981

Continued

22

The organization’s endowment includes both donor-restricted endowment funds and funds designated by the Board of Directors to function as endowment. As required by generally accepted accounting principles, net assets associated with endowment, including funds designated by the Board of Directors to function as en-dowment, are classified and reported based on the existence or absence of donor-imposed restrictions. The following summarizes the organization’s endowment-related activities for the year ended June 30, 2013: Board- Donor-restricted endowment designated Total Temporarily Permanently endowment endow- restricted restricted Total Unrestricted ment

Endowment net assets at beginning of year $ 193,310 2,171,339 2,364,649 6,574,140 8,938,789

Grants and contributions – 2,920 2,920 158,327 161,247

Investment return 210,343 1,600 211,943 687,723 899,666

Increase in the carrying value of contributions receivable from charitable remainder unitrusts – 22,081 22,081 – 22,081

Increase in the beneficial interest in assets held by the Oregon Community Foundation – – – 12,339 12,339

Net change in the actuarial value of charitable gift annuity agreements – (2,959) (2,959) (7,018) (9,977)

Appropriation of endowment assets for expenditure (71,375) – (71,375) (531,109) (602,484)

Endowment net assets at end of year $ 332,278 2,194,981 2,527,259 6,894,402 9,421,661

15. Net Assets Released from Restrictions

During the year ended June 30, 2013, the organi-zation incurred $375,995 in expenses in satisfac-tion of the restricted purposes specified by do-nors, or satisfied the restrictions by the occurrence of other events. Accordingly, a corresponding amount has been reported as a reclassification from temporarily restricted net assets to unre-stricted net assets in the accompanying statement of activities, as described in the following table: Satisfaction of donor restrictions for operating purposes $ 196,202 Time restrictions that expired as depreciation was recognized 179,793

$ 375,995

16. Expenses

The costs of providing the various programs and other activities of the organization have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited based on certain estimates made by management. Expenses are presented in their natural categories in the statement of functional expenses.

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17. Employee Retirement Plans

The organization sponsors a defined contribution retirement savings plan covering substantially all employees who have completed one year of ser-vice with the organization and greater than 1,000 hours worked. The plan was established under Section 401(k) of the Internal Revenue Code, with the organization matching employee contribu-tions in the amount of 100% of the first 3.0% of salary deferred and contributed to the plan by the employee, and 50% of the next 2.0% of salary de-ferred and contributed to the plan by the em-ployee. The plan also includes an additional dis-cretionary employer contribution component, whereby the organization may contribute to the plan a discretionary amount to each eligible em-ployee on an annual basis. During the year ended June 30, 2013, the organi-zation contributed $195,408 as a part of the plan’s matching component described in the preceding paragraph and no discretionary contributions were made to the plan.

18. Contingencies

Amounts received or receivable under the organi-zation’s governmental contracts are subject to au-dit and adjustment by the grantor agencies. Any expenditures or claims disallowed as a result of such audits would become a liability of the or-ganization’s unrestricted net assets. In the opin-ion of the organization’s management, any ad-justments that might result from such audits would not be material to the organization’s over-all financial statements.

19. Self-Insurance Programs

The organization is self-insured for unemploy-ment claims. The estimated liability for such claims is based upon management’s estimate as of June 30, 2013, and includes provisions for known claims and estimates of incurred but unreported

claims. Although the organization’s actual ex-pense upon the ultimate disposition of the claims may vary from this estimate, the organization holds general unrestricted funds that are in excess of the recorded liability at June 30, 2013. Changes in the reported liability for self-insured unemployment claims during the year ended June 30, 2013 resulted from the following: Liability at beginning of year $ 492,253

Current year claims 307,369 Current year change in estimates (129,298) Claim payments (305,843)

Liability at end of year $ 364,481

20. Operating Lease Commitments

The organization leases various administrative and program office facilities and equipment under non-cancelable operating leases that expire in var-ious years through 2018. The organization has the option to renew many of these leases at vari-ous terms and amounts. At June 30, 2013, the approximate minimum rental commitments under these leases are as fol-lows: Years ending June 30,

2014 $ 729,096 2015 380,469 2016 326,780 2017 310,280 2018 307,740

$ 2,054,365

Rent expense for the year ended June 30, 2013 to-taled $834,276, including $10,735 in donated use of facilities. Equipment lease costs totaled $101,865.

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21. Litigation

From time to time, the organization is involved in various unresolved legal actions and claims in the ordinary course of its business involving services provided to severely abused and neglected chil-dren, young people with significant mental health and behavioral problems, families in crisis, and individuals with developmental disabilities. Al-though it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss or recovery, the organi-zation believes these unresolved legal actions will not have a material adverse effect on its financial position, results of operations, or cash flows.

22. Fair Value Measurements

Included in the accompanying financial state-ments are certain financial instruments carried at fair value. These instruments include: Investments Beneficial interest in assets held by the Oregon

Community Foundation Contributions receivable from charitable re-

mainder unitrusts The fair value of an asset is the amount at which that asset could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale; similarly, the fair value of a liability is the amount at which the liability could be transferred in a current transac-tion between willing parties. Fair values are based on quoted market prices when available. When market prices are not available, fair value is

generally estimated using discounted cash flow analyses, incorporating current market inputs for similar financial instruments with comparable terms and credit quality. All financial assets and liabilities carried at fair value have been classified, for disclosure pur-poses, based on a hierarchy defined by FASB ASC No. 820, Fair Value Measurements and Disclo-sures. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and li-abilities and the lowest ranking to fair values de-termined using methodologies and models with unobservable inputs, as follows: • Level 1 – Values are unadjusted quoted prices

for identical assets and liabilities in active mar-kets accessible at the measurement date.

• Level 2 – Inputs include quoted prices for simi-

lar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are ob-servable or can be corroborated by market data for the term of the instrument.

• Level 3 – Certain inputs are unobservable (sup-

ported by little or no market activity) and sig-nificant to the fair value measurement. Unob-servable inputs reflect the organization’s best estimate of what hypothetical market partici-pants would use to determine a transaction price for the asset or liability at the reporting date.

25

At June 30, 2013, the following financial assets are measured at fair value on a recurring basis: Level 1 Level 3 Total

Investments (see note 7): Equity securities and funds: Corporate stocks $ 5,861,998 – 5,861,998 Small cap domestic funds 521,347 – 521,347 International and emerging markets 304,872 – 304,872

Total equity securities and funds 6,688,217 – 6,688,217

Fixed income securities and funds: Corporate bonds 768,295 – 768,295 Mortgage pools 465,220 – 465,220 Government securities 123,659 – 123,659 Agency securities 97,717 – 97,717 Municipal bonds 56,583 – 56,583

Total fixed income securities and funds 1,511,474 – 1,511,474

Exchange traded funds: Bonds 215,879 – 215,879 Emerging markets 95,629 – 95,629 International 47,523 – 47,523 Other 55,040 – 55,040

Total exchange traded funds 414,071 – 414,071

Real estate investment trusts 335,785 – 335,785

Total investments 8,949,547 – 8,949,547

Beneficial interest in assets held by the Oregon Community Foundation (note 8) – 137,874 137,874 Contributions receivable from charitable remainder unitrusts (note 9) – 598,920 598,920

$ 8,949,547 736,794 9,686,341

Continued

26

The changes in valuation of Level 3 assets using significant unobservable inputs are as follows: Beneficial interest in Contributions assets held receivable from by the Oregon charitable Community remainder Foundation unitrusts Total

Fair value at beginning of year $ 125,535 548,913 674,448

Increase in the beneficial interest in assets held by the Oregon Community Foundation 12,339 – 12,339 Increase in the carrying value of contributions receivable from charitable remainder unitrusts – 50,007 50,007

Fair value at end of year $ 137,874 598,920 736,794

[A] [B]

[A] Measured at fair value based upon a discounted cash flow analysis of the expected income, which is equivalent to the fair value of the underlying assets held by the Oregon Community Foundation. Management’s estimate of fair value is based solely upon informa-tion provided by the Oregon Community Foundation (see note 8). [B] Measured at fair value based upon a discounted cash flow analysis of the expected income, taking the fair value of the assets held in trust and the life expectancy of the current beneficiaries into consideration (see note 9).

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23. Statement of Cash Flows Reconciliation

The following presents a reconciliation of the in-crease in net assets (as reported on the statement of activities) to net cash provided by operating ac-tivities (as reported on the statement of cash flows): Increase in net assets $ 1,920,474

Adjustments to reconcile increase in net assets to net cash provided by operating activities: Depreciation 1,136,027 Amortization of property rights 11,802 Amortization of fees 11,956 Net appreciation in the fair value of investments (682,921) Increase in the beneficial interest in assets held by the Oregon Community Foundation (12,339) Increase in the carrying value of contributions receivable from charitable remainder unitrusts (50,007) Net change in the actuarial value of charitable gift annuity agreements 9,977 Net gain on disposal of capital assets (8,669) Contributions restricted for capital acquisition and long-term investment (19,019)

Net changes in: Accounts receivable (282,493) Contributions receivable (380,022) Prepaid expenses, deposits, and other current assets (294,585) Other long-term assets (565) Accounts payable and accrued expenses 91,367 Accrued payroll liabilities 113,759 Deferred revenues and amounts refundable to grantors 25,218 Other liabilities (43,233)

Total adjustments (373,747)

Net cash provided by operating activities $ 1,546,727

Schedule 1

Albertina Consoli-Albertina Kerr dating

Kerr Kerr Centers eliminationCenters Bikes, LLC Foundation entries Total 2012

Assets:Cash and cash equivalents $ 3,525,413 59,666 87,718 − 3,672,797 3,690,211Accounts receivable 1,968,070 − − − 1,968,070 1,685,577Contributions receivable − − 639,417 − 639,417 259,395Note receivable 400,000 − − − 400,000 259,395Prepaid expenses, deposits,

and other current assets 660,117 12,252 34,560 − 706,929 424,300Investments 87,744 − 9,183,031 − 9,270,775 8,615,642Beneficial interest in assets held by the Oregon Community

Foundation − − 137,874 − 137,874 125,535Beneficial interest in Albertina

Kerr Centers Foundation 9,968,275 − − (9,968,275) − − Contributions receivable from

charitable remainder unitrusts − − 598,920 − 598,920 548,913Other long-term assets − − 75,488 − 75,488 74,923Land, buildings, equipment, and

property rights 10,231,624 25,253 18,047 − 10,274,924 9,799,938Intraorganizational receivable

(payable) 735,355 (80,105) (655,250) − − −

Total assets $ 27,576,598 17,066 10,119,805 (9,968,275) 27,745,194 25,483,829

Liabilities:Accounts payable and

accrued expenses 653,735 17,066 53,211 − 724,012 632,645Accrued payroll liabilities 1,943,107 − − − 1,943,107 1,829,348Deferred revenues and amounts

refundable to grantors 744 − 98,319 − 99,063 73,845Other liabilities 202,119 − − − 202,119 248,275Capital lease obligations − − − − 118,505Long-term debt 1,928,105 − − − 1,928,105 1,393,502

Total liabilities 4,727,810 17,066 151,530 − 4,896,406 4,296,120

Net assets:Unrestricted 20,788,613 − 7,082,294 (9,968,275) 17,902,632 16,495,388Temporarily restricted 2,052,690 − 698,485 − 2,751,175 2,261,587Permanently restricted 7,485 − 2,187,496 − 2,194,981 2,171,339

Total net assets 22,848,788 − 9,968,275 (9,968,275) 22,848,788 20,928,314

Total liabilities and net assets $ 27,576,598 17,066 10,119,805 (9,968,275) 27,745,194 25,224,434

2013


CONSOLIDATING SCHEDULE OF FINANCIAL POSITION

J U N E 3 0 , 2 0 1 3( W I T H C O M P A R A T I V E A M O U N T S F O R 2 0 1 2 )

28

Schedule 2

Albertina Consoli-Albertina Kerr dating

Kerr Kerr Centers eliminationCenters Bikes, LLC Foundation entries Total 2012

Revenues, gains, and other support:Contract service fees $ 36,156,988 − − − 36,156,988 33,903,283Grants and contributions 1,681,890 − 1,262,090 (1,466,140) 1,477,840 1,733,429Special events, net − − 395,360 − 395,360 410,665Sales, net − − 446,412 − 446,412 381,148Investment income 1,636 − 215,109 − 216,745 163,198Net appreciation (decline) in the fair value of investments 4,571 − 678,350 − 682,921 (172,938)Increase (decrease) in the beneficial

interest in assets held by the Oregon Community Foundation − − 12,339 − 12,339 (5,519)

Increase (decrease) in the fair valueof contributions receivable fromcharitable remainder unitrusts − − 50,007 − 50,007 (17,347)

Net change in the actuarial value ofcharitable gift annuity agreements (9,977) − − − (9,977) 44

Net gain (loss) on disposal of assets 8,669 − − − 8,669 (61,785)Other 440,091 185,775 2 − 625,868 319,609Net change in beneficial interest in

Albertina Kerr Centers Foundation 498,761 − − (498,761) − −

Total revenues, gains, and other support 38,782,629 185,775 3,059,669 (1,964,901) 40,063,172 36,653,787

Expenses:Program services 33,814,227 161,721 − − 33,975,948 32,334,052Management and general 3,043,443 − 121,914 − 3,165,357 3,010,639Resource development − − 594,772 − 594,772 426,413Volunteer-managed businesses − − 406,621 − 406,621 382,831Grants to Albertina Kerr Centers − 24,054 1,442,086 (1,466,140) − −

Total expenses 36,857,670 185,775 2,565,393 (1,466,140) 38,142,698 36,153,935

Increase (decrease) in net assetsbefore non-operating activities 1,924,959 − 494,276 (498,761) 1,920,474 499,852

Non-operating activities:Transfer of assets from

and to Albertina Kerr Centers (4,485) − 4,485 − − −

Increase (decrease) in net assets 1,920,474 − 498,761 (498,761) 1,920,474 499,852

Net assets at beginning of year 20,928,314 − 9,469,514 (9,469,514) 20,928,314 20,428,462

Net assets at end of year $ 22,848,788 − 9,968,275 (9,968,275) 22,848,788 20,928,314


2013

CONSOLIDATING SCHEDULE OF ACTIVITIES

Y E A R E N D E D J U N E 3 0 , 2 0 1 3( W I T H C O M P A R A T I V E T O T A L S F O R 2 0 1 2 )

29

30


GOVERNING BOARD AND MANAGEMENT 2012 to 2013 Board of Directors

Priscilla Lewis, RN, MBA, Chair Region Director of Community Executive Director Community Services & Development Providence Health & Services Larry Davis, MBA, Chair-Elect Senior Vice President & Senior Client Manager Bank of America Christopher Adamek Practice Director ACME Business Consulting, LLC

Teri L. Barichello, DMD Vice President & Chief Dental Officer Moda Health

Shelley Barnes Family Consultant Oregon Health & Science University

Rob Burton Chief Financial Officer Stoel Rives LLP Alex Duarte Community Volunteer

Angela Hult Executive Director Cambia Health Foundation Director of Corporate Philanthropy Regence BlueCross BlueShield

Tom Lasley Administrator, Healthcare Operations Providence Health & Services

Celia Murphey Community Representative

Rich Smith, JD Vice President, Human Resources Kaiser Permanente Northwest Region

Serilda Summers-McGee, MBA Affirmative Action/ Diversity Recruitment Consultant Kaiser Permanente Northwest Region

John Thoma, CPA Senior Director of Finance Hannah the Pet Society James M. Walker Attorney Miller Nash LLP John Ward President R&H Construction

Karin Wandtke, CPA Partner McDonald Jacobs Stewart A. Williams, III, MBA Community Volunteer

David Wilson, DMD General & Cosmetic Dentistry David L. Wilson, DMD, P.C.

Honorary

Ken and Ginger Harrison Peter Jacobsen

Emeritus

Peter Bhatia Christine Brown, JD Marsha Buono Jean C. Cory Andy F. Dignan Helen H. Lindgren Robert Mesher, CPA Greg Mottau Victor Stibolt, JD Ken Thrasher Jim Trolinger Connie West

Corporate Officers

Christopher Krenk, President Barbara Farringer, Secretary Jerry Hoffert, MBA, Treasurer

Management

Christopher J. Krenk, MSW Chief Executive Officer

Jeanne Farr President Developmental Disability Services & Strategic Projects

Peter Tompkins-Rosenblatt President Youth & Family Services

Doug Butler Chief Facilities & Fleet Officer

Brenda Eames, JD Chief Corporate Compliance Officer Jerry Hoffert, MBA Chief Financial Officer

Jodi Lippert Chief Development Officer

Craig Rusch Chief Information Officer Susan Stanley Chief Human Resources Officer

31


INQUIRIES AND OTHER INFORMATION Administrative Offices ALBERTINA KERR CENTERS 424 N.E. 22nd Avenue Portland, Oregon 97232 (503) 239-8101 (503) 239-8106 Fax E-Mail [email protected]

NO MATERIAL WEAKNESSES LETTER The Board of Directors Albertina Kerr Centers: In planning and performing our audit of the consolidated financial statements of Albertina Kerr Centers as of and for the year ended June 30, 2013, in accordance with auditing standards gen-erally accepted in the United States, we considered Albertina Kerr Centers’ internal control over financial reporting (“internal control”) as a basis for designing auditing procedures that are ap-propriate in the circumstances for the purpose of expressing our opinion on the financial state-ments, but not for the purpose of expressing an opinion on the effectiveness of the organiza-tion’s internal control. Accordingly, we do not express an opinion on the effectiveness of the organization’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to pre-vent, or detect and correct, misstatements on a timely basis. A material weakness is a defi-ciency, or a combination of deficiencies in internal control, such that there is a reasonable pos-sibility that a material misstatement of the organization’s financial statements will not be pre-vented, or detected and corrected, on a timely basis. Our consideration of internal control was for the limited purpose described in the first para-graph and was not designed to identify all deficiencies in internal control that might be material weaknesses. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. This communication is intended solely for the information and use of management, the Board of Directors, and others within the organization, and is not intended to be and should not be, used by anyone other than these specified parties. November 8, 2013



Albertina Kerr CentersHistorical Summary 2009-2013

YEARS ENDED JUNE 30, 2009 2010 2011 2012 2013 $ change % change

1 Total revenues 35,539,906 40,817,332 40,879,303 36,653,787 40,063,172 +3,409,385 +9.3%

2 Total expenses 35,444,152 37,708,760 37,762,811 36,153,935 38,142,698 +1,988,763 +5.5%

3 Surplus 95,754 3,108,572 3,116,492 499,852 1,920,474 +1,420,622 +284.2%

4 Operating revenues 35,754,588 43,044,863 40,670,021 36,739,087 39,549,942 +2,810,855 +7.7%

5 Operating surplus 310,436 5,336,103 2,907,210 585,152 1,407,244 +822,092 +140.5%

6 Assets 19,048,841 22,015,484 25,124,205 25,224,434 27,745,194 +2,520,760 +10.0%

7 Net assets 14,203,398 17,311,970 20,428,462 20,928,314 22,848,788 +1,920,474 +9.2%

8 Expendable net assets 2,814,705 7,734,976 10,125,251 10,144,741 11,439,159 +1,294,418 +12.8%

9 Contract service fees and other revenues 32,935,777 36,894,481 36,844,403 34,161,107 36,791,525 +2,630,418 +7.7%

10 Contributions and grants 3,155,234 2,485,338 2,380,957 2,144,094 1,873,200 -270,894 -12.6%

11 Investment return [1] (950,704) 1,001,471 1,233,188 (32,562) 952,035 +984,597 +3023.8%

12 TOKNA net sales 399,599 436,042 420,755 381,148 446,412 +65,264 +17.1%

13 Program service expenses 32,406,231 34,227,369 34,208,250 32,334,052 33,975,948 +1,641,896 +5.1%

14 Management and general expenses 2,267,129 2,650,257 2,773,590 3,010,639 3,165,357 +154,718 +5.1%

15 Fundraising expenses 422,526 465,270 423,891 426,413 594,772 +168,359 +39.5%

16 Cost of TOKNA operations 348,266 365,864 357,080 382,831 406,621 +23,790 +6.2%

17 Salaries and related costs 26,725,458 27,958,619 28,798,969 27,601,625 28,935,854 +1,334,229 +4.8%

[1] Includes net changes in the value of split-interest agreements.

Operating Results

35,000,000

37,500,000

40,000,000

42,500,000

45,000,000

2009 2010 2011 2012 2013

Operating revenues Expenses

Capital Structure

05,000,000

10,000,00015,000,00020,000,00025,000,00030,000,000

2009 2010 2011 2012 2013

Assets Net assets Expendable net assets

Major Revenue Sources

(1,000,000)9,000,000

19,000,00029,000,00039,000,00049,000,000

2009 2010 2011 2012 2013

Contract svs. Contributions Invest. return TOKNA

GARY MCGEE & CO. LLP 1

Albertina Kerr CentersEvaluation of Key Ratios and Composite Index

KEY RATIOS 2009 2010 2011 2012 2013 % change 3-Year Avg.

1 Primary reserve ratio 7.9% 20.5% 26.8% 28.1% 30.0% +6.9% 28.3%

2 Net income ratio 0.9% 12.4% 7.1% 1.6% 3.6% +123.4% 4.1%

3 Return on net assets 2.2% 37.6% 16.8% 2.9% 6.7% +134.7% 8.8%

4 Viability ratio 1.494 4.753 6.858 6.709 5.933 -11.6% 6.500

5 Composite index (scale of 1 to 10) 1.8 10.1 9.2 6.9 6.9 +1.0% 7.7

In determining the composite index, the primary reserve ratio is given a weighting of 35%, net income 10%, return on net assets 20%, and viability ratio 35%. A score of 1.is ascribed to a primary reserve ratio of 13.3%, a net income ratio of 0.7%, a return on net assets of 2.0%, and a viability ratio of .417:1

CONTRIBUTION & DEMAND RATIOS 2009 2010 2011 2012 2013 % change 3-Year Avg.

6 Contract service fees and other as % of expenses 92.9% 97.8% 97.6% 94.5% 96.5% +2.1% 96.2%

7 Contributions and grants as % of expenses 8.9% 6.6% 6.3% 5.9% 4.9% -17.2% 5.7%

8 Investment return as % of expenses -2.7% 2.7% 3.3% -0.1% 2.5% +2871.3% -1.9%

9 TOKNA net sales as % of expenses 1.1% 1.2% 1.1% 1.1% 1.2% +11.0% 1.1%

10 Program svc. exp. as % of operating revenues 90.6% 79.5% 84.1% 88.0% 85.9% -2.4% 86.0%

11 Management expenses as % of operating revenues 6.3% 6.2% 6.8% 8.2% 8.0% -2.3% 7.7%

12 Fundraising expenses as % of operating revenues 1.2% 1.1% 1.0% 1.2% 1.5% +29.6% 1.2%

13 Salaries as % of operating revenues 74.7% 65.0% 70.8% 75.1% 73.2% -2.6% 73.0%

OTHER PERFORMANCE INDICATORS 2009 2010 2011 2012 2013 % change 3-Year Avg.

14 Cash balances on-hand at year-end 1,134,861 4,216,666 5,079,051 3,690,211 3,672,797 -0.5% 4,147,353

15 Cash needed for daily operations 98,456 104,747 104,897 100,428 105,952 +5.5% 103,759

16 Days of operating cash on-hand at year-end 12 40 48 37 35 -5.7% 40



Albertina Kerr Centers Explanation and Analysis of Key Ratios Primary Reserve Ratio This ratio is calculated as expendable net assets divided by total expenses. It pro-vides a snapshot of the organization’s financial strength and flexibility by indicating how long the organization could function using its expendable reserves without relying on additional net assets generated by operations. Trend analysis of the ratio indicates whether or not the organization has increased its net assets in proportion to the rate of growth in its operating size. It is reasonable to expect expendable net assets to increase at least in proportion to the rate of growth in operating size. If they do not, the same dollar amount of expendable net assets will provide a smaller margin of protection against adversity as the organization grows in dollar level of expenses. A negative or decreasing trend overtime indicates a weaken-ing financial condition. In general, a ratio of 40% or better is advisable to give the organization the flexibility to transform the enterprise in the near future. The implication of 40% is that the organi-zation would have the ability to cover about five months of expenses (i.e., 40% of 12 months). Organizations with such a ratio are generally able to rely on internal cash flow to meet short-term cash needs, are able to carry on a reasonable level of facilities maintenance, and are capable of managing modest unforeseen adverse financial events. If an organization is in the process of capital expansion, a temporary decline in the ratio would be expected. A ratio below 10% or 15% indicates that the organiza-tion’s expendable net asset balances are in a position that generally requires short-term borrowing on a regular basis, and that the organization tends to struggle to have sufficient resources for reinvestment. Net Income Ratio This ratio results from dividing operating surplus by total operating revenues. At its very simplest, the ratio indicates whether total activities in a given year resulted in a surplus or a deficit. More importantly, it demonstrates whether the organization is living within its available resources. Most organizations should target generally 2 to 4% as a goal for this ratio over an extended period of time, although the target will likely vary from year to year.

Return on Net Assets Calculated as the change in operating net assets divided by total net assets at the beginning of the period, this ratio demonstrates whether the performance of the or-ganization’s financial assets support its strategic direction. Because the long-term future of the organization depends, in part, on its ability to replace and enhance its capital base, managing its resource inflow streams is essential to achieving the or-ganization’s mission. The organization’s Board must be wary of diversions that sub-vert progress toward achieving the mission. This ratio basically determines whether the organization is financially better off than in previous years by measuring its total economic return. A decline in this ratio may be appropriate and even warranted if it reflects a strategy to better fulfill the organization’s mission. Organizations should establish a real rate of return target in the range of 3 to 4%. The real return plus the actual inflation index (e.g., the Consumer Price Index) will produce the nominal rate of return. Thus in a period of relatively low inflation, long-term nomi-nal returns should average approximately 6% annually to ensure reasonable growth in resources. Again, as with any ratio, there is no one correct number. For example, if an organiza-tion’s strategic plan calls for activities that will consume substantial resources, such as program expansion, a high return on net assets may be required in order to maintain a properly capitalized institution. Remember also that the organization’s physical facili-ties are carried at book value instead of market value. On the other hand, deferred maintenance of facilities will represent an unfunded liability that is not recorded. Viability Ratio This ratio divides expendable net assets by total long-term debt, and attempts to an-swer the question: “Is debt managed strategically to advance the organization’s mis-sion?” The ratio measures one of the most basic determinants of clear financial health: the availability of expendable net assets to cover debt should the organization need to settle its obligations as of the balance sheet date. Although a ratio of 1:1 or greater indicates that, as of the balance sheet date, an organization has sufficient expendable net assets to satisfy debt obligations, it is generally believed that this ratio should fall somewhere between 1.25:1 and 2.0:1, or higher.

Financial Statements and Audit Letters (Final Board … Kerr Centers...2013 Financial Statements and Audit Letters Meeting of the Board of Directors CONFIDENTIAL November 18, 2013

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