Catholic Charities USA Financial Statements Ending June 2012

8/13/2019 Catholic Charities USA Financial Statements Ending June 2012

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CATHOLIC CHARITIES USA

CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED JUNE 30, 2012


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CATHOLIC CHARITIES USATABLE OF CONTENTS


INDEPENDENT AUDITORS REPORT 1

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 2

CONSOLIDATED STATEMENT OF ACTIVITIES 3

CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES 4

CONSOLIDATED STATEMENT OF CASH FLOWS 5

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6


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An independent member of Nexia International

INDEPENDENT AUDITORS REPORT

Board of TrusteesCatholic Charities USAAlexandria, Virginia

We have audited the accompanying consolidated statement of financial position of Catholic Charities USA (CCUSA) asof June 30, 2012, and the related consolidated statements of activities, functional expenses, and cash flows for the year thenended. These consolidated financial statements are the responsibility of CCUSA's management. Our responsibility is toexpress an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with U.S. generally accepted auditing standards. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. We believe that our audit provides areasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financialposition of CCUSA as of June 30, 2012, and the changes in its net assets and its cash flows for the year then ended in

conformity with U.S. generally accepted accounting principles.

CliftonLarsonAllen LLPArlington, VirginiaSeptember 25, 2012

CliftonLarsonAllen LLP

www.cliftonlarsonallen.com


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CATHOLIC CHARITIES USACONSOLIDATED STATEMENT OF FINANCIAL POSITION

JUNE 30, 2012

See accompanying Notes to the Consolidated Financial Statements.

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ASSETS

Cash and Cash Equivalents 6,115,449$

Receivables:

U.S. Government 1,938,822Interest and Dividends 21,307

Other 196,104

Total Receivables 2,156,233

Pledges Receivable, Net 10,531,528

Prepaid Expenses and Other Assets, Net 659,889

Investments 13,824,566

Property and Equipment, Net 31,755,287

Total Assets 65,042,952$

LIABILITIES AND NET ASSETS

LIABILITIES

Accounts Payable and Accrued Expenses 2,390,469$

Grants Payable 598,638

Short-Term Loan Payable 3,900,000

Deferred Revenue 118,507

Capital Lease Obligations 134,443

Deferred Rent 1,091,480

Split Interest Agreements 112,120

Accrued Loss on Lease Obligations 2,768,548

Note Payable 5,210,000

Value of Interest Rate SWAP Agreement 186,752

Total Liabilities 16,510,957

NET ASSETS

Unrestricted:

Board-Designated 9,676,936

Net Investment in Property and Equipment 26,545,287

Undesignated 5,232,053

Total Unrestricted 41,454,276

Temporarily Restricted 6,962,719

Permanently Restricted 115,000

Total Net Assets 48,531,995

Total Liabilities and Net Assets 65,042,952$


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CATHOLIC CHARITIES USACONSOLIDATED STATEMENT OF ACTIVITIES


See accompanying Notes to the Consolidated Financial Statements.(3)

Temporarily Permanently

Unrestricted Restricted Restricted Total

REVENUE

Membership Dues 1,595,133$ -$ -$ 1,595,133$

Federal Grants 1,517,506 - - 1,517,506

Federal Contracts 4,699,911 - - 4,699,911

Contributions:

Disaster Response - 5,462,587 - 5,462,587

Combined Federal Campaign 595,587 - - 595,587

Other 9,996,989 984,373 - 10,981,362

Total Contributions 10,592,576 6,446,960 - 17,039,536

Investment Income:

Disaster Response 178,478 - - 178,478

Other 174,956 - - 174,956

Total Investment Income 353,434 - - 353,434

Registration and Workshop Fees 352,035 - - 352,035

Other Revenue 214,686 - - 214,686

Net Assets Released from Restrictions 3,141,696 (3,141,696) - -

Total Revenue 22,466,977 3,305,264 - 25,772,241

EXPENSES

Program Services:

Distributions to Catholic Charities

Service Agencies and Other Non Profits:

Disaster Response 3,383,482 - - 3,383,482

Programs and Services 2,334,504 - - 2,334,504

Member Agencies' Support 503,526 - - 503,526

Total Distributions 6,221,512 - - 6,221,512

Other Program Services:

Disaster Response 2,325,003 - - 2,325,003

Programs and Services 3,010,587 - - 3,010,587

Social Policy 2,789,703 - - 2,789,703Member Agencies' Support 128,142 - - 128,142

Member Services 1,145,327 - - 1,145,327

Total Other Program Services 9,398,762 - - 9,398,762

Supporting Services:

Management and General 3,273,785 - - 3,273,785

2050 Ballenger LLC 169,626 - - 169,626

Fundraising and External Relations 1,735,978 - - 1,735,978

Total Supporting Services 5,179,389 - - 5,179,389

Total Expenses 20,799,663 - - 20,799,663

CHANGE IN NET ASSETS FROM OPERATIONS 1,667,314 3,305,264 - 4,972,578

LOSS ON VALUE OF INTEREST RATE

SWAP AGREEMENT 32,222 - - 32,222

LOSS ON LEASE OBLIGATIONS 2,768,548 - - 2,768,548

CHANGE IN NET ASSETS (1,133,456) 3,305,264 - 2,171,808

Net Assets - Beginning of Year 42,587,732 3,657,455 115,000 46,360,187

NET ASSETS - END OF YEAR 41,454,276$ 6,962,719$ 115,000$ 48,531,995$


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CATHOLIC CHARITIES USANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


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NOTE 1 ORGANIZATION

Catholic Charities USA (CCUSA) is a not-for-profit organization incorporated in 1950 to provide a forumfor discussing the application of Catholic thought in the general field of social welfare and to stimulate action,research, and the publication of material in this field. Primary sources of funding include public contributions,membership dues and government grants.

The consolidated financial statements include the assets, liabilities, net assets and activities of CCUSA and 2050Ballenger, LLC (the LLC). All significant intra-entity transactions and balances have been eliminated inconsolidation. The LLC is a limited liability corporation as defined under the Internal Revenue Code and isoperated exclusively for purposes of leasing office space at 2050 Ballenger Avenue in Alexandria, Virginia, toCCUSA, as its new headquarters, and leasing any excess space to other tenants. The LLC, which was incorporatedin Virginia in March 2011, is wholly owned by CCUSA and is therefore consolidated as required under U.S.GAAP.

Program services are provided in the following principal areas:

Disaster Response

CCUSA provides leadership, coordination, and technical assistance to Catholic Charities and otherdiocesan organizations as part of its role as the lead Catholic agency in times of natural disaster. CCUSAsupport is provided to not only assist organizations and communities respond to disasters, but also tohelp them prepare and plan for disasters. Additionally, CCUSA has a contract with the federalgovernment to provide disaster case management services for individuals and families recovering fromnatural disasters.

Programs and Services

Local Catholic Charities agencies provide a wide range of human services to millions of people in needeach year. CCUSA provides training, technical assistance and networking opportunities for its

membership on a range of issues of critical importance including aging, housing, emergency services,parish social ministry, child care, healthcare and Catholic Identity. In addition, CCUSA providesopportunities for leadership development and consultations to ensure that members remain at theforefront of emerging needs and quality services.

CCUSA applies for federal grants to support specific programs on behalf of its membership. These fundsare then transferred to member agencies interested in implementing these programs through a sub-granting process.

Social Policy

CCUSA provides a national voice for the needs and concerns of its membership and the people theyserve. Working with its membership, CCUSA develops and advocates for just public policies that

empower people and alleviate the conditions that perpetuate poverty. CCUSA also works with itsmembership around issues of racial equality and diversity.

Member Agencies Support

CCUSA provides grants to member agencies to support general operations of local Catholic Charities.

Member Services

CCUSA supports its membership by providing a range of services that promote networking, ongoingeducation, and improve their ability to respond to the needs of the poor and vulnerable in theircommunities. These services include: an annual gathering, web-based training and information, aquarterly newsletter and other printed resources.


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NOTE 2 CHANGE IN FISCAL YEAR-END

In 2011, CCUSA changed to a fiscal year ending June 30th. CCUSA receives a majority of its contributions inDecember; thus the change in year-end to June has moved a majority of contribution revenue from the end ofthe year to the middle of the year, resulting in better planning and more efficient year-end closings. A June30th year-end is also more consistent with CCUSAs member agencies year-ends. In addition, the year-endchange has alleviated conflicts between the annual internal budget and planning process and the annualmeeting hosted by CCUSA for its member agencies. The consolidated financial statements for the year endedJune 30, 2012, represent the first 12-month reporting period after the fiscal year-end change.

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The financial statements of CCUSA are presented on the accrual basis of accounting. Consequently, revenueis recognized when earned and expenses when obligations are incurred.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptions that affect certainreported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses during the reporting period. Actualresults could differ from those estimates.

Cash and Cash Equivalents

For financial statement purposes, CCUSA considers money market and overnight sweep accounts to be cashequivalents. However, at times part of the investment portfolio may be held in cash equivalents.

Investments

Investments are recorded at fair value. CCUSA invests in various securities, including U.S. Governmentsecurities, corporate debt securities, and equities. Investment securities, in general, are exposed to variousrisks, such as interest rate, credit and overall market volatility. Due to the level of risk associated with certaininvestment securities, it is reasonably possible that changes in the values of investment securities will occur inthe near term and that such changes could materially affect the amounts reported in future statement ofactivities.

Fair Value of Financial Instruments

CCUSA accounts for a portion of its financial instruments at fair value or considers fair value in theirmeasurement. CCUSA accounts for certain financial assets and liabilities at fair value under various

accounting literature that establishes a fair value hierarchy.

Uniform Prudent Management of Institutional Funds Act

During 2008, Virginia enacted the Uniform Prudent Management of Institutional Funds Act (UPMIFA). Alsoduring 2008, guidance was provided on the classification of endowment fund net assets for states that haveenacted versions of UPMIFA. Under UPMIFA, all unappropriated endowment fund assets are consideredrestricted.


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NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Pledges Receivable

Pledges receivable are recorded at fair value at the date the promise is received. Pledges that are expected tobe collected within one year are recorded at their net realizable value. Pledges that are expected to be collectedin future years are recorded at the present value of the amount expected to be collected. The discounts onthose amounts are computed using an imputed interest rate applicable to the year in which the pledge isexpected to be received.

Accounts Receivable

Accounts receivable are recorded at their net realizable value. The majority of the receivables are fromgovernment grants and contracts, membership dues, and the Medical Trust. Accounts that are past due areindividually analyzed for collectibility. When all collection efforts have been exhausted, the account is writtenoff against an allowance for bad debts. At June 30, 2012 all outstanding accounts receivable were deemedcollectible and no allowance for bad debts was reported.

Property and Equipment

Acquisitions of property and equipment are recorded at cost and depreciated using the straight-linedepreciation method. Depreciation is provided over the estimated useful lives of the assets, which range from3 - 40 years. Building improvements are depreciated on a straight-line basis over the lesser of the remaininglife of the building or estimated useful life of the improvement. Leasehold improvements are amortized on astraight-line basis over the remaining term of the lease agreement. CCUSA capitalizes all property andequipment purchased with a cost of $5,000 or more.

Net Assets

To ensure the observance of limitations and restrictions placed on the use of resources available to CCUSA,its net assets and revenue have been classified into net asset groups based on the existence or absence of

donor-imposed restrictions. The classes of net assets are as follows:

Unrestricted: Represents both resources of CCUSA available to support general operations and amountsinvested in property and equipment, net of the mortgage liability. The CCUSA Board of Trustees hasinternally designated a portion of its unrestricted net assets (see Note 13).

Temporarily Restricted: Represents resources that result from contributions limited in use by donor-imposedstipulations. Such restrictions either expire by the passage of time or can be fulfilled and removed by actionsof CCUSA pursuant to those stipulations.

Permanently Restricted: Represents two bequests that established Endowment Funds. The CaritasEndowment Fund is to be held in perpetuity by CCUSA. Investment income earned is used to supportprogram activities for Caritas Internationalis and is recorded as temporarily restricted activity. The TracyEndowment Fund is to be held in perpetuity by CCUSA. Investment income earned is used to supportscholarships granted by CCUSA and is recorded as temporarily restricted activity.

Membership Dues Revenue

Membership dues are treated as an exchange transaction due to membership benefits offered. Revenue isrecognized in the year to which the membership applies.


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NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Grants and Contracts from U.S. Government

Grant and contract funds are reported as revenue when earned. Revenue is earned when eligible expenditures,as defined in each grant or contract, are incurred. Funds received but not yet earned are reported as deferredrevenue. Expenditures under government grants and contracts are subject to review by the granting authority.To the extent, if any, that such a review reduces expenditures allowable under these grants and contracts,CCUSA will record such disallowance at the time the final assessment is made.

Bequests

Bequest revenue is recorded in the period an irrevocable right to the assets occurs. At such time, thecontribution revenue and receivable are recorded at net realizable value.

Functional Allocation of Expenses

The costs of providing programs and other activities have been summarized on a functional basis in the

statement of activities. Accordingly, indirect expenses have been allocated among the programs andsupporting services benefited that includes an allocation of personnel and overhead expenses based upon theestimated amount of time worked by employees and space utilized in each functional area.

Income Taxes

CCUSA is exempt from the payment of federal income taxes on activities exempt under Section 501(c)(3) ofthe Internal Revenue Code and is classified as an organization that is not a private foundation under Section509(a) of the Code. The LLC is a limited liability corporation as defined by the Internal Revenue Service.

CCUSA is not aware of any activities that would jeopardize its tax-exempt status and is not aware of anyactivities that are subject to tax on unrelated business income, excise, or other taxes. As of June 30, 2012,there are no identified uncertain tax positions. As a church related entity, CCUSA does not file a 990 with the

IRS.

Subsequent Events

In preparing these financial statements, CCUSA has evaluated events and transactions for potentialrecognition or disclosure through September 25, 2012, the date the financial statements were available to beissued.

NOTE 4 FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair Value Hierarchy

CCUSA has categorized its financial instruments, based on the priority of the inputs to the valuation

technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quotedprices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservableinputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of thehierarchy, the categorization is based on the lowest level input that is significant to the fair value measurementof the instrument.

Financial assets and liabilities recorded on the statement of financial position are categorized based on theinputs to the valuation techniques as follows:


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NOTE 4 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Fair Value Hierarchy (Continued)

Level 1Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assetsor liabilities in an active market that CCUSA has the ability to access (examples include activeexchange-traded equity securities, listed derivatives, and most U.S. Government and agency securitiesincluding government guaranteed CMO actively traded in the secondary market).

Level 2Financial assets and liabilities whose values are based on quoted prices in markets that are not active ormodel inputs that are observable either directly or indirectly for substantially the full term of the assetor liability. Level 2 inputs include the following:

Quoted prices for similar assets or liabilities in active markets (for example, restricted stock);

Quoted prices for identical or similar assets or liabilities in non-active markets (examples includecorporate and municipal bonds, which trade infrequently);

Pricing models whose inputs are observable for substantially the full term of the asset or liability(examples include most over-the-counter derivatives, including interest rate and currency swaps);and

Pricing models whose inputs are derived principally from or corroborated by observable marketdata through correlation or other means for substantially the full term of the asset or liability(examples include certain residential and commercial mortgage related assets, including loans,securities, and derivatives).

Level 3Financial assets and liabilities whose values are based on prices or valuation techniques that requireinputs that are both unobservable and significant to the overall fair value measurement. These inputsreflect managements assumptions about how a market participant determines the price of the asset orliability (examples include certain private equity investments and split interest agreements).


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NOTE 4 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Fair Value Hierarchy (Continued)

The following tables present CCUSAs fair value hierarchy for those assets and liabilities measured at fairvalue on a recurring basis as of June 30, 2012.

Level 1 Level 2 Level 3 Total

Assets

Government Obligations 1,817,252$ -$ -$ 1,817,252$

Government Guaranteed CMO-Backed Securities 801,306 - - 801,306

Corporate Bonds 510,761 - - 510,761

U.S. Equities 3,363,639 - - 3,363,639

International Equities 1,174,591 - - 1,174,591

Mutual Funds - Real Estate 465,216 - - 465,216

Mutual Funds - Fixed Income 4,758,269 - - 4,758,269

Total Assets 12,891,034$ -$ -$ 12,891,034$

Liabilities

Value of Interest Rate SWAP Agreement -$ 186,752$ -$ 186,752$

Split-Interest Liability - - 112,120 112,120

Total Liabilities -$ 186,752$ 112,120$ 298,872$

The fair value of the interest rate swap agreement is based on the estimated present value of the differencebetween the fixed and variable interest cash flows. Present values are estimated utilizing discounted cashflows techniques at discount rates based on interest rate assumptions corroborated by quoted rates on similaragreements.

The following table provides a summary of changes in fair value of CCUSAs Level 3 financial instrumentsfor the year ended June 30, 2012:

Split-Interest

Liability

Beginning Balance as of July 1, 2011 131,641$

Unrealized and Realized Net Loss (7,274)

Distributions (12,247)

Balance as of June 30, 2012 112,120$

The Reginato trust and charitable gift annuity split-interest liabilities were calculated based upon the InternalRevenue Service life expectancy tables and the adjusted federal midterm rate at the time the charitable annuityand the charitable remainder trust were established.


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NOTE 5 CONCENTRATION OF CREDIT RISK

Financial instruments, which subject the CCUSA to concentrations of credit risk, consist of demand deposits,overnight repurchase agreements, money market, and mutual funds that are held by financial institutions. Inthe normal course of business operations, the CCUSA may have funds on deposit in various financialinstitutions in excess of Federal and other insurance limits.

NOTE 6 INVESTMENTS

Investments are recorded at fair market value and are comprised of the following at June 30, 2012:

Cost Market

U.S. Government Obligations 1,780,651$ 1,817,252$

Government Guaranteed CMO-backed Securities 858,939 801,306

Corporate Bonds 436,008 510,761U.S. Equities 3,090,984 3,363,639

International Equities 1,080,446 1,174,591

Mutual Funds - Real Estate 467,504 465,216

Mutual Funds - Fixed Income 4,539,228 4,758,269

12,253,760 12,891,034

Money market funds 933,532 933,532

Total investments 13,187,292$ 13,824,566$

Investment income consists of the following for the year ended June 30, 2012:

Interest and dividends 350,814$Unrealized loss on investments (246,722)

Realized gains on sale of investments 249,342

Total investment income 353,434$

NOTE 7 PLEDGES RECEIVABLE

Pledges receivable at June 30, 2012, represent unconditional amounts pledged under various fundraisingcampaigns. Pledges expected to be collected in more than one year are reflected at net realizable value. Thenet realizable value is estimated by calculating the present value of estimated cash flows.


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NOTE 7 PLEDGES RECEIVABLE (CONTINUED)

Pledges receivable for the fiscal years ending June 30 are as follows:

2013 11,437,484$

2014 60,000

2015 60,000

2016 60,000

Total Pledges Receivable 11,617,484

Less: Allowance for Doubtful Pledges (1,085,956)

Net Pledges Receivable 10,531,528$

In 2010, CCUSA received the William R. Fry bequest, valued at approximately $22 million at the time of theaward. Approximately $15,861,000 of the bequest was received during fiscal year 2010. As of June 30, 2012,the outstanding balance expected to be received from the William R. Fry Estate to CCUSA in accordancewith the bequests provisions, amounts to approximately $9.6 million, after an increase of approximately $3.5million based on current yearsvaluation of the remaining balance from updated Estate information. Thedistribution is expected to be collected in September of 2012.

NOTE 8 PROPERTY AND EQUIPMENT

At June 30, 2012, property and equipment consisted of the following:

Canal Center:

Leasehold Improvements - Canal Center 1,833,338$Less: Accumulated Depreciation

and Amortization (838,162)

Net Canal Center Leasehold Improvements 995,176

2050 Ballenger LLC:

Land 2,560,000

Building and Building Improvements 26,687,865

Less: Accumulated Depreciation


Net 2050 Ballenger LLC Property 29,074,709

Equipment and Software 663,695

Furniture and Fixtures 1,450,842Capital Leases 139,239

Less: Accumulated Depreciation


Net Equipment, Software and Furniture and Fixtures 1,685,402

Net Property and Equipment 31,755,287$


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NOTE 8 PROPERTY AND EQUIPMENT (CONTINUED)

In April 2011, CCUSA purchased a new, never occupied 72,670 square foot office building in Alexandria,Virginia, for $24,696,000. While most of the payment involved cash, a $3,900,000 bridge loan was alsoinitiated. CCUSA financed most of the costs of improvements to the office building (see Note 16). CCUSAmoved to the new office space in April 2012, occupying a portion of the building, and expects to lease theremaining portion. Currently, CCUSA has executed a Letter of Intent to sublease the office space at CanalCenter (See Note 15).

NOTE 9 DISASTER RESPONSE AND GRANTS PAYABLE

Grants are based on applications submitted and reviewed by the Disaster Response Advisory Committee aspart of the approval process, which requires concurrence by the President of CCUSA. Grants are made forneeds related to a variety of disasters, including hurricanes, floods, terrorist attacks, and other events.

It is CCUSAs policy to be reimbursed for actual costs incurred for Disaster Response oversight andadministration. Amounts charged for the administration of the Disaster Response program are determined byformula based on amounts received and disbursed. An assessment is applied against each Disaster Responseprogram and is recovered over the period the funds are held, part when contributions are processed, and theremainder when grants are disbursed. For most disasters, the total assessment is 10%.

NOTE 10 SHORT-TERM LOAN PAYABLE

CCUSA entered into a loan agreement for $3,900,000 on April 19, 2011, as a bridge loan to finance thepurchase of the office building located at 2050 Ballenger Avenue in Alexandria, Virginia (see Note 8).Monthly interest-only payments are required at a variable interest rate based on the one-month LIBOR rate,

0.25% at June 30, 2012. The loan matured on April 19, 2012, and has been extended to September 19, 2012,when the principal balance and any accrued interest are due. The loan is secured by the proceeds of a bequestof approximately $9.6 million (See Note 7).

NOTE 11 SPLIT INTEREST AGREEMENTS

CCUSA receives contributions pursuant to several charitable gift annuity contracts with donors. Theactuarially determined liability resulting from the annuity gifts was recorded at the date of the gift. The excessof the annuity gifts over the annuity liabilities is recognized as unrestricted support and has been set aside as aportion of the Board-designated net assets. The liability amount is adjusted annually based on the latestactuarial information available. The charitable gift annuity obligations approximated $59,000 at June 30, 2012.

CCUSA also received a contribution of a charitable remainder unitrust in 1998. Under this charitableremainder unitrust, a donor made a contribution to CCUSA that will remain in trust until a stipulated event, atwhich time the remaining trust balance will convey to CCUSA. The unitrust was valued at market value at thetime of the gift. In consideration of the gift, the donors will receive an annuity from the trust based on thelesser of the trust principal at the beginning of the year at a stated interest rate or the actual earnings of thetrust. The liability amount is adjusted annually based on the latest actuarial information available. The assetsof the unitrust are included in temporarily restricted net assets on the Statement of Activities. The charitableremainder unitrust obligation approximated $53,000 at June 30, 2012.


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NOTE 12 TEMPORARILY RESTRICTED NET ASSETS

Changes in temporarily restricted net assets during the year ended June 30, 2012 are detailed as follows:

Balance Funds Balance

July 1, Funds Released from June 30,

2011 Received Restriction 2012

Cafferty Fellow 91,310$ -$ 89,352$ 1,958$

Children of Children 43,669 - - 43,669

Disaster Response 2,592,316 5,462,588 1,758,834 6,296,070

Food Service Program 758,285 - 758,285 -

Domestic Trafficking 24,532 83,722 2,429 105,825

Family Strengthening 33,058 200,000 179,209 53,849

National Religious Partnership 3,842 - 5 3,837

Other 18,876 - - 18,876

Reginato Trust 81,067 - 14,633 66,434

Adoption - 50,150 17,692 32,458

Notre Dame Social Policy Partnership - 350,500 270,307 80,193

Social Policy Advocacy - 50,000 50,000 -

Partners in Excellence - 250,000 950 249,050

U.S. Catholic Conference Children's

Environmental Health 10,500 - - 10,500

Total 3,657,455$ 6,446,960$ 3,141,696$ 6,962,719$

NOTE 13 UNRESTRICTED NET ASSETS

Unrestricted Net Assets

Unrestricted net assets are available to finance the general operations of Catholic Charities USA. The onlylimits on the use of unrestricted net assets are the purposes specified in the CCUSAs articles of incorporationand those limitations resulting from the nature of the CCUSA and the environment in which it operates.

Board-Designated Net Assets

Board-designated net assets are based on voluntary resolutions by the Board of Trustees to designate aportion of net assets for specific purposes and do not result in restricted net assets. Since designations arevoluntary and may be reversed by the Board of Trustees at any time, designated net assets are classified asunrestricted net assets. During 2004, the Board of Trustees approved a policy to designate for operationsunrestricted net assets by transferring a portion of the Facilities and General Reserve Funds to the Designatedfor Operations Fund. The reserve will serve to address the CCUSAs financial needs when economicdownturns impact Catholic Charities USA and to address cash flow needs that result from differences in the

timing between Catholic Charities USA expenses and the receipt of revenues. The designated purpose of theOperations Fund is to address cash flow needs of Catholic Charities USA; therefore, the Board believes suchfunds are not subject to the Uniform Prudent Management of Institutional Funds Acts (UPMIFA). Theappropriations from the fund are authorized by the Board of Trustees resolutions. The investment objectivesof this fund are primarily liquidity and secondarily return and capital preservation.

Board-designated Disaster Response funds are unrestricted net assets to fund the disaster operations office atCCUSA and emergency disaster grants made by CCUSA to Catholic charities around the country.


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NOTE 13 UNRESTRICTED NET ASSETS (CONTINUED)

Board-Designated Net Assets (Continued)

At June 30, 2012, CCUSA unrestricted net assets were as follows:

June 30, 2012

Board-Designated:

Disaster Response 1,976,936$

Operations Fund 7,700,000

Total Board-Designated 9,676,936

Net Investment in Property and Equipment 26,545,287

Unrestricted and Not Board-Designated 5,232,053

Total Unrestricted Net Assets 41,454,276$

The activity in the Board Designated Disaster Response Net Assets for the year ended June 30, 2012 was asfollows:

Beginning balance as of July 1, 2011 1,976,936$

Temporary Restricted Releases and Other Revenue 851,215

Expenses (851,215)

Ending balance as of June 30, 2012 1,976,936$

The net change in the Board Designated Disaster Response Net Assets was $0, due to temporary restricted

releases covering all disaster operations office expenses and emergency grants, for the year ended June 30,2012.

NOTE 14 PENSION PLAN

CCUSA sponsors a defined contribution 401(k) profit sharing plan covering all employees who have reachedthe age of twenty-one and have completed one year of continuous employment. Under the terms of the plan,CCUSA contributes 10% of the employees compensation (3% safe harbor and 7% profit share) withinstatutory limits to the plan. Pension expense was approximately $388,000 for the year ended June 30, 2012.


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NOTE 15 LEASES

Leases 66 Canal Center

In October 2007, CCUSA executed a non-cancelable operating lease for its headquarters (20,866 square feet)in Alexandria, Virginia, for ten years, six months effective through March 31, 2018. In April 2012, CCUSAmoved its headquarters to the office building purchased by CCUSA in April 2011 (see Note 8). Currently, theoffice space at 66 Canal Center is unoccupied. In August 2012, CCUSA executed a letter of intent to subleasethe entire office space at 66 Canal Center. The sublease agreement is expected to come into effect onSeptember 1, 2013 and terminate on March 31, 2018. The sublease rent will be lower than CCUSA's leasepayments. Accordingly, CCUSA recorded an accrued loss on lease obligations of $2,768,458 as of June 30,2012. CCUSA used adiscount rate of 4.75% approximating its incremental borrowing rate at June 30, 2012.All 66 Canal Center net leasehold improvements and related liability write-offs have been included in theaccrued loss on lease obligations.

Future minimum lease payments, expected sublease receipts, and sublease related costs are as follows:

Former Headquarters Expected Headquarters Sublease Related

Year Ending June 30, Lease Payments Sublease Receipts Costs Net

2013 854,567$ -$ 245,704$ 1,100,271$

2014 877,989 (214,191) - 663,798

2015 902,037 (504,333) - 397,704

2016 926,868 (588,988) - 337,880

2017 952,376 (606,657) - 345,719

Thereafter 732,242 (466,334) - 265,908

Total Rental Payments, Receipts, and Related Costs 5,246,079 (2,380,503) 245,704 3,111,280

Less: PV Discount on Lease Payments and

Sublease Receipts 766,007 (423,275) - 342,732

Accrued Loss on Lease Obligations 4,480,072$ (1,957,228)$ 245,704$ 2,768,548$

CCUSA recorded rent expense on a straight-line basis over the term of the lease. A deferred rent obligation inthe amount of $520,313 has been recorded at June 30, 2012, that represents the difference between rentexpense and cash payments. CCUSA was provided a leasehold improvement allowance in the amount ofapproximately $1,043,000 as an incentive to enter into this lease. The leasehold improvement allowance isamortized over the term of the lease and has an unamortized balance of $571,167 as of June 30, 2012.

The lease has an option to renew for 5 additional years. Additionally, in lieu of a security deposit, CCUSAexecuted a letter of credit tied to this lease in the amount of $250,932. With each passing year, the minimum

balance requirement reduces until the sixth anniversary in which minimum requirement is set at $62,598 forthe duration of the lease. Related rent expense was $752,848 for the year ended June 30, 2012.

NOTE 16 COMMITMENTS AND CONTINGENCIES

Hotel Commitments

CCUSA entered into several agreements with hotels concerning room accommodations for its meetings andseminars through calendar year 2013. These agreements indicate CCUSA is liable for liquidated damages inthe event of cancellation. At June 30, 2012, CCUSAs commitments for possible liquidated damages totaled$293,000. Approximately $15,000 of the commitments has been paid as of September 25, 2012.


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NOTE 16 COMMITMENTS AND CONTINGENCIES (CONTINUED)

Federal Grants and Contracts

Under the terms of the CCUSAs reimbursable government grants and contracts, CCUSA is entitled to thereimbursement of direct and indirect costs incurred. These expenses are subject to audit by the cognizantgovernment agency.

Note Payable

In July 2011, CCUSA entered into a Bond Purchase and Loan Agreement with the Industrial DevelopmentAuthority of the City of Alexandria (the Authority) and Capital One Public Funding, LLC (Capital One).According to the agreement's provisions, the Authority issued a 27-year variable rate tax-exempt revenuebond in the amount of $5,210,000 to finance CCUSAs acquisition of a building located at 2050 BallengerAvenue in the City of Alexandria consisting of office space to be used as the CCUSAs headquarters, with anyexcess space being leased to other tenants. The Authority sold the Bond to Capital One, and the proceedswere loaned to CCUSA, through the execution of a Promissory Note dated with the same date as the Bond

issuance to evidence CCUSA's obligation to make monthly payments sufficient to pay the Bond. The Note,secured by the acquired real estate, was assigned by the Authority to Capital One who became the obligation'sholder. The bonds have a maturity date of July 14, 2038. Interest is payable monthly at a LIBOR-basedvariable interest rate.

Estimated future principal payments of the note are as follows:

Year Ending June 30, Amount

2013 -$

2014 148,196

2015 152,233

2016 156,014

2017 216,071

Thereafter 4,537,486

Total 5,210,000$

The CCUSA also entered into an interest rate swap transaction with Capital One, evidenced by a masteragreement dated and effective July 14, 2011. The notional amount of the agreement is $5,210,000. Theagreement effectively changes the CCUSAs interest exposure on the $5,210,000 loan from LIBOR-basedvariable to fixed rates. The swap agreement terminates July 14, 2016, and provides for a fixed interest rate of2.65 percent. The interest rate swap agreement's fair value at June 30, 2012, approximated $187,000 in favorof Capital One.

NOTE 17 ENDOWMENT

CCUSA has a donor-restricted endowment fund established for the purposes of providing income to supportspecific donor-restricted activities. As required by GAAP, net assets of the endowment fund are classifiedand reported based on the existence or absence of donor-imposed restrictions. The board of directors of theCCUSA has interpreted Virginias Uniform Prudent Management of Institutional Funds Act (UPMIFA) asrequiring the preservation of the fair value of the original gift as of the gift date of the donor-restrictedendowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, CCUSAclassifies as permanently restricted net assets (a) the original value of gifts donated to the permanentendowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to


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NOTE 17 ENDOWMENT (CONTINUED)

the permanent endowment made in accordance with the direction of the applicable donor gift instrument atthe time the accumulation is added to the fund. The remaining portion of the donor-restricted endowmentfund that is not classified in permanently restricted net assets is classified as temporarily restricted net assetsuntil those amounts are appropriated for expenditure by the CCUSA in a manner consistent with the standardof prudence prescribed by UPMIFA. The CCUSA considered all amounts earned on the endowment fund tobe appropriated for current use.

NOTE 18 CAPITAL LEASE OBLIGATIONS

CCUSA entered into two five-year lease agreements for office equipment during fiscal year 2012. The value ofthe equipment, $139,239, has been capitalized and recorded as furniture and fixtures within the consolidatedstatement of financial position and is being depreciated on a straight-line basis. Imputed interest rate ofapproximately 4% is being amortized over the lease term. Future minimum lease payments are as follows for

the years ending June 30:

2013 30,812$

2014 30,812

2015 30,812

2016 30,812

2017 24,896

Total Minimum Lease Payments 148,144

Less: Amount Representing Interest (13,701)

Present Value of Minimum Lease Payments 134,443$

NOTE 19 RELATED PARTY TRANSACTIONS

On July 28, 2011, CCUSA (Sponsor) entered into an agreement with Catholic Charities USA EmployeeWelfare Benefit Trust (the Trust) acting through its Board of Trustees. The sponsor established the Trustwith the intention that the Trust would offer a series of welfare benefit plans, which provide health, dental,vision, and other health benefits on behalf of eligible employees of the Sponsor and its member organizations,and other affiliates of the Catholic Church in a manner that is consistent with the teachings of the CatholicChurch.

The Trusts Board of Trustees is chaired by CCUSAs CEO, and consists of members who are also members

of the CCUSA Board of Trustees, as well as independent members. The CEO and two of the Trust Boardmembers lead organizations that subscribe to the Trust benefit services.

CCUSA invested $45,807 in formation costs prior to establishing the Trusts corporate structure. On January5, 2012, CCUSA extended a $275,000 cash advance to the Trust, which was repaid on March 8, 2012. Thereare no outstanding advances as of June 2012.


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NOTE 19 RELATED PARTY TRANSACTIONS (CONTINUED)

CCUSA provides certain services at no cost to the sole Trust employee. CCUSA services are provided on a

cost reimbursement basis and include payroll services, accounting, accounts payable, cell phone, shipping andpostage. CCUSA has incurred out-of-pocket expenses of $180,124 of which $94,976 have been reimbursed bythe Trust. A receivable in the amount of $85,148 is outstanding as of June 30, 2012.

CCUSA has contracted with the Trust for healthcare services for staff and paid a total of $391,473 throughJune 30, 2012.

NOTE 20 SUBSEQUENT EVENT

In September 2012, CCUSA collected the balance of the approximately $9.6 million bequest pledge receivableoutstanding at June 30, 2012 (see Note 7). Also in September 2012, CCUSA used these proceeds to pay offthe entire balance of $3.9 million outstanding on the short-term loan payable at June 30, 2012 (see Note 10).

Documents

Catholic Charities USA Financial Statements Ending June 2012