HOWARD BROWN HEALTH CENTER (A NOT-FOR-PROFIT CORPORATION) FINANCIAL STATEMENTS June 30, 2018 and 2017 HOWARD BROWN HEALTH CENTER (A NOT-FOR-PROFIT CORPORATION) Chicago, Illinois FINANCIAL STATEMENTS June 30, 2018 and 2017 CONTENTS INDEPENDENT AUDITOR’S REPORT .................................................................................................... 1 FINANCIAL STATEMENTS STATEMENTS OF FINANCIAL POSITION ....................................................................................... 3 STATEMENTS OF ACTIVITIES ........................................................................................................ 4 STATEMENTS OF FUNCTIONAL EXPENSES ................................................................................. 6 STATEMENTS OF CASH FLOWS ..................................................................................................... 8 NOTES TO FINANCIAL STATEMENTS ............................................................................................ 9 Crowe LLP Independent Member Crowe Global INDEPENDENT AUDITOR’S REPORT The Board of Directors Howard Brown Health Center Chicago, Illinois Report on the Financial Statements We have audited the accompanying financial statements of Howard Brown Health Center (the “Organization”), which comprise the statements of financial position as of June 30, 2018 and 2017, and the related statements of activities, functional expenses and cash flows for the years then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. (Continued) 1. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Howard Brown Health Center as of June 30, 2018 and 2017, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Crowe LLP Chicago, Illinois November 29, 2018 2. HOWARD BROWN HEALTH CENTER STATEMENTS OF FINANCIAL POSITION June 30, 2018 and 2017 2018 2017 ASSETS Current assets Cash and cash equivalents $ 27,667,202 $ 16,782,085 Accounts receivable, net of allowance for doubtful accounts of $1,030,169 and $841,637 15,795,250 7,999,475 Pledges receivable, net of allowance for doubtful accounts of $58,107 and $50,511 717,732 1,405,608 Prepaid expenses and other current assets 806,134 696,653 Total current assets 44,986,318 26,883,821 Property and equipment, net 14,072,902 13,179,800 Investment in Alliance and others 1,148,138 1,014,381 Other assets, primarily works of art 509,776 494,362 $ 60,717,134 $ 41,572,364 LIABILITIES AND NET ASSETS Current liabilities Current maturities of long-term debt $ 395,437 $ 374,534 Accounts payable 4,044,244 1,163,097 Accrued expenses 2,730,629 1,924,183 Deferred revenue 54,369 20,974 Total current liabilities 7,224,679 3,482,788 Long-term debt, less current maturities 6,476,750 7,066,335 Total liabilities 13,701,429 10,549,123 Net assets Unrestricted 45,282,954 29,154,768 Temporarily restricted 1,732,751 1,868,473 Total net assets 47,015,705 31,023,241 $ 60,717,134 $ 41,572,364 See accompanying notes to financial statements 3. HOWARD BROWN HEALTH CENTER STATEMENT OF ACTIVITIES Year ended June 30, 2018 Temporarily Unrestricted Restricted Total Revenues, Gains and Other Support Net patient service revenue, net of contractual allowances, discounts, and charitable care $ 96,061,454 $ - $ 96,061,454 Government contracts 7,485,502 - 7,485,502 Direct public support 5,119,869 1,879,300 6,999,169 Donated services 991,984 - 991,984 Net assets released from restriction 2,015,022 (2,015,022) - Other, including Alliance income 539,850 - 539,850 Total revenues, gains and other support 112,213,681 (135,722) 112,077,959 Expenses Medical 75,813,300 - 75,813,300 Youth services 2,476,534 - 2,476,534 Behavioral health 2,224,832 - 2,224,832 Research 924,537 - 924,537 Prevention 2,321,835 - 2,321,835 Total program expenses 83,761,038 - 83,761,038 Development 597,552 - 597,552 Public relations 485,055 - 485,055 Brown elephant 2,803,588 - 2,803,588 Total expenses by function 87,647,233 - 87,647,233 General and administrative 8,438,262 - 8,438,262 Total expenses 96,085,495 - 96,085,495 Change in net assets 16,128,186 (135,722) 15,992,464 Net assets at beginning of year 29,154,768 1,868,473 31,023,241 Net assets at end of year $ 45,282,954 $ 1,732,751 $ 47,015,705 (Continued) 4. HOWARD BROWN HEALTH CENTER STATEMENT OF ACTIVITIES Year ended June 30, 2017 Temporarily Unrestricted Restricted Total Revenues, Gains and Other Support Net patient service revenue, net of contractual allowances, discounts, and charitable care $ 67,123,736 $ - $ 67,123,736 Government contracts 6,627,171 - 6,627,171 Direct public support 4,722,858 1,909,827 6,632,685 Donated services 617,133 - 617,133 Net assets released from restriction 603,814 (603,814) - Other, including Alliance income 447,862 - 447,862 Total revenues, gains and other support 80,142,574 1,306,013 81,448,587 Expenses Medical 52,829,307 - 52,829,307 Youth services 1,576,533 - 1,576,533 Behavioral health 1,466,559 - 1,466,559 Research 813,640 - 813,640 Prevention 2,952,377 - 2,952,377 Total program expenses 59,638,416 59,638,416 Development 649,814 - 649,814 Public relations 226,832 - 226,832 Brown elephant 3,192,143 - 3,192,143 Total expenses by function 63,707,205 63,707,205 General and administrative 5,256,960 - 5,256,960 Total expenses 68,964,165 - 68,964,165 Change in net assets 11,178,409 1,306,013 12,484,422 Net assets at beginning of year 17,976,359 562,460 18,538,819 Net assets at end of year $ 29,154,768 $ 1,868,473 $ 31,023,241 See accompanying notes to financial statements 5. HOWARD BROWN HEALTH CENTER STATEMENT OF FUNCTIONAL EXPENSES Year ended June 30, 2018 Program Services Youth Behavioral Public Brown General and Medical Services Health Research Prevention Development Relations Elephant Administrative Total Salaries $ 11,667,524 $ 1,358,708 $ 1,558,865 $ 672,920 $ 1,191,473 $ 318,201 $ 139,289 $ 1,312,242 $ 3,335,406 $ 21,554,628 Fringe benefits 1,502,852 207,854 154,343 89,508 207,727 29,247 25,704 231,954 980,266 3,429,455 Payroll taxes 790,661 93,094 109,731 47,034 91,454 23,604 10,476 96,856 267,786 1,530,696 Bad debt 725,718 - - - - 7,596 - - - 733,314 Accounting and legal fees - - - - - - - - 155,853 155,853 Supplies 208,149 46,624 42,918 2,681 9,040 685 1,281 19,712 100,594 431,684 Telephone 265,163 40,087 42,410 4,428 - - 931 99,747 76,639 529,405 Postage and shipping 15,566 980 19 2,611 - 2,556 - 27,211 4,109 53,052 Occupancy and utilities 532,364 222,670 36,962 - - - - 790,477 89,513 1,671,986 Repairs and maintenance 505,002 34,566 24,452 150 - - - 83,733 2,345 650,248 Printing 49,034 15,996 1,208 599 8,606 15,349 24,327 1,282 97,056 213,457 Travel 112,792 36,043 16,035 5,485 30,353 832 1,082 125 65,661 268,408 Seminars and meetings 75,522 7,359 17,985 1,368 15,129 2,713 3,482 - 53,107 176,665 Depreciation and amortization 64,982 7,068 2,824 - - - - 5,653 392,698 473,225 Outside services 10,286,547 71,924 99,681 33,521 127,260 11,308 84,604 14,440 852,951 11,582,236 Staff services 69,995 3,084 2,445 665 5,209 8,293 458 101 14,691 104,941 Pharmaceuticals, outside labs and medical supplies 47,585,472 120,596 104 9,613 41,540 - 390 - 515 47,758,230 Client assistance 165,002 147,494 - 379 3,368 - - - 419 316,662 Dues and subscriptions 44,446 430 9,817 641 120 2,869 2,621 4,332 114,580 179,856 Advertising 34,042 163 - - 3,651 6,992 51,640 7,073 20,770 124,331 Client development 11,595 23,751 1,227 45,715 13,446 - 500 - 150 96,384 Public relations 1,542 - - - 2,018 700 3,517 - 1,569 9,346 Other 52,740 1,000 - - - 2,112 9,240 24,645 58,991 148,728 Benefit expense 116 - - - 25,872 127,236 740 - 55,040 209,004 Donated services 630,000 - - - - 17,516 124,773 - 219,695 991,984 Bank fees 40,465 - - - - 4,602 - 65,811 28,416 139,294 Interest expense - - - - - - - - 345,486 345,486 Insurance expense 85,759 - - - - - - 9,568 126,347 221,674 Subcontractor expense - 35,576 - - 498,601 - - - - 534,177 Computer and software expense 290,250 1,467 103,806 7,219 46,968 15,141 - 8,626 977,609 1,451,086 Total expense $ 75,813,300 $2,476,534 $ 2,224,832 $ 924,537 $2,321,835 $ 597,552 $ 485,055 $2,803,588 $ 8,438,262 $ 96,085,495 See accompanying notes to financial statements 6.