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VFW National Home for Children Financial Report June 30 2015

VFW National Home for Children Contents Report Letter 1 2 Financial Statements Balance Sheet 3 Statement of Public Support Revenue Expenses and Changes in Net Assets 4 Statement of Cash Flows 5 Statement of Functional Expenses 6 Notes to Financial Statements 7 15

Independent Auditor s Report To the Board of Trustees VFW National Home for Children We have audited the accompanying financial statements of VFW National Home for Children the National Home which comprise the balance sheet as of June 30 2015 and the related statements of public support revenue expenses and changes in net assets cash flows and functional expenses for the year 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 audit We conducted our audit in accordance with auditing standards generally accepted in the United States of America Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 Opinion In our opinion the financial statements referred to above present fairly in all material respects the financial position of VFW National Home for Children as of June 30 2015 and the changes in its net assets cash flows and functional expenses for the year then ended in accordance with accounting principles generally accepted in the United States of America 1

To the Board of Trustees VFW National Home for Children Report on Summarized Comparative Information We have previously audited VFW National Home for Children s 2014 financial statements and we expressed an unmodified audit opinion on those audited financial statements in our report dated October 20 2014 In our opinion the summarized comparative information presented herein as of and for the year ended June 30 2014 is consistent in all material respects with the audited financial statements from which it has been derived October 5 2015 2

VFW National Home for Children Balance Sheet June 30 2015 with summarized totals for June 30 2014 June 30 2015 June 30 2014 Assets Current Assets Cash and cash equivalents Investments Note 2 Receivables Inventory Prepaid expenses and other assets Total current assets 209 501 10 616 009 126 715 22 126 59 384 402 852 11 303 468 131 223 17 705 31 626 11 033 735 11 886 874 Property and Equipment Net Note 3 6 503 335 6 695 962 Beneficial Interest in Perpetual Trusts Note 2 1 894 398 2 020 692 Total assets 19 431 468 20 603 528 90 018 82 278 Liabilities and Net Assets Liabilities Accounts payable Accrued liabilities and other Accrued compensation Other accrued liabilities 264 644 61 408 416 070 Total net assets Total liabilities and net assets See Notes to Financial Statements 3 12 788 263 3 609 485 3 839 603 19 015 398 Net Assets Unrestricted Designated for future operations Temporarily restricted net assets Note 5 Permanently restricted net assets Note 5 and 6 366 177 11 283 779 3 833 241 3 898 378 Total liabilities 234 709 49 190 20 237 351 19 431 468 20 603 528

VFW National Home for Children Statement of Public Support Revenue Expenses and Changes in Net Assets Year Ended June 30 2015 with summarized totals for the year ended June 30 2014 Year Ended June 30 2015 June 30 2014 Public Support and Revenue Estate and bequests Poppies Note 4 Contributions Life membership dues Net realized and unrealized gains and losses on investments Investment income Investment income from beneficial interests in perpetual trusts Miscellaneous and other Net assets released from restrictions 614 052 116 900 1 651 855 62 090 361 642 417 260 116 574 132 610 1 017 738 1 964 295 105 421 1 893 456 76 055 1 115 638 291 359 44 033 114 899 1 273 422 3 767 437 6 878 578 1 594 197 932 689 1 389 138 181 486 569 038 605 373 1 567 260 859 084 1 359 226 199 517 587 271 577 905 5 271 921 5 150 263 Decrease Increase in Unrestricted Net Assets 1 504 484 1 728 315 Changes in Temporarily Restricted Net Assets Contributions Investment income Investment income from beneficial interests in perpetual trusts Net assets released from restrictions 1 223 549 5 388 12 557 1 017 738 840 803 4 087 10 397 1 273 422 Total public support and revenue Expenses Direct care Indirect care Facilities management Administration Fiscal services Fundraising Total expenses Increase Decrease in Temporarily Restricted Net Assets 223 756 185 069 126 294 Increase in Permanently Restricted Net Assets 65 291 196 246 58 775 Changes in Permanently Restricted Net Assets Contributions Change in value of beneficial interests in perpetual trusts 418 135 261 537 Decrease Increase in Net Assets 1 221 953 1 571 717 Net Assets Beginning of year 20 237 351 18 665 634 Net Assets End of year See Notes to Financial Statements 4 19 015 398 20 237 351

VFW National Home for Children Statement of Cash Flows Year Ended June 30 2015 with summarized totals for June 30 2014 June 30 2015 Cash Flows from Operating Activities Decrease increase in net assets Adjustments to reconcile decrease increase in net assets to net cash from operating activities Depreciation Net realized and unrealized loss gain on investments Loss on sale of fixed assets Change in value of beneficial interests in perpetual trusts Decrease increase in assets Receivables Accrued interest income Inventory Prepaid expenses Increase decrease in liabilities Accounts payable Accrued liabilities and other 1 221 953 June 30 2014 1 571 717 597 801 361 642 2 088 560 125 1 115 638 1 589 126 294 196 246 4 508 4 421 27 758 7 740 42 153 Cash and Cash Equivalents End of year 208 412 402 852 Cash and Cash Equivalents Beginning of year 578 304 193 351 Net Decrease Increase in Cash and Cash Equivalents 8 660 084 8 881 279 809 398 9 899 81 445 Net cash used in investing activities 786 716 3 858 029 4 183 846 407 262 Cash Flows from Investing Activities Purchases of investments Proceeds from sale of investments Purchase of equipment Proceeds from sale of equipment 56 693 39 657 111 906 Net cash used by provided by operating activities 31 183 4 375 100 26 061 194 440 209 501 402 852 Noncash Activity The National Home received 17 150 and 126 127 in donated property and equipment during the years ended June 30 2015 and 2014 respectively See Notes to Financial Statements 5

VFW National Home for Children Statement of Functional Expenses Year Ended June 30 2015 with summarized totals for the year ended June 30 2014 Totals Direct Salaries Indirect Facilities Care Care Management Administration 614 725 426 670 316 706 Fiscal 101 778 Services 177 909 Fundraising 157 895 2015 2014 1 795 683 1 758 862 Payroll taxes 45 301 31 189 24 124 7 650 13 182 10 885 132 331 Pension 14 108 13 509 9 234 6 376 9 572 4 770 57 569 60 104 143 897 146 949 100 430 17 345 61 935 34 097 504 653 509 411 818 031 618 317 450 494 133 149 262 598 207 647 2 490 236 2 460 955 Other employee benefits 132 578 Total salaries and related expenses Children s expenses Activities 47 091 47 091 29 945 Employment 4 529 4 529 5 305 1 603 1 603 9 284 21 751 21 751 11 170 Travel Scholarship Medical 3 822 3 822 Psychological services 10 557 10 557 9 659 Groceries 59 332 59 332 35 484 148 685 100 847 Total children s expenses 97 065 51 620 Natural parent expenses Travel 6 370 6 370 5 500 Trust 3 967 3 967 3 802 10 337 10 337 9 302 Total natural parent expenses Professional fees Purchased services Insurance 501 085 2 846 59 547 59 547 81 179 182 088 500 51 328 35 560 773 407 676 785 25 203 36 931 87 647 2 085 8 248 2 132 162 246 161 166 Supplies 2 063 37 890 178 521 6 726 16 111 1 793 243 104 288 333 Postage 24 449 24 449 35 048 Fundraising 344 944 344 944 352 419 Utilities and telephone 41 484 3 019 255 929 240 984 28 341 28 341 26 749 Employee travel 8 554 1 616 3 387 13 557 7 264 Cost of souvenirs 25 848 25 848 45 099 Information Technology 68 167 68 167 59 223 Advertising Promotion 4 271 3 811 8 082 33 834 Special events 10 998 10 998 4 042 3 694 1 250 460 150 689 6 243 5 108 1 801 Trustee travel Employee education Miscellaneous Subtotal 51 123 142 605 4 137 13 561 582 083 130 040 591 321 43 555 282 528 395 335 2 024 862 2 019 034 1 507 516 799 977 1 041 815 176 704 545 126 602 982 4 674 120 4 590 138 86 681 132 712 347 323 4 782 23 912 2 391 597 801 560 125 932 689 1 389 138 5 271 921 5 150 263 Total expenses before depreciation Depreciation of plant and equipment Total functional expenses 1 594 197 See Notes to Financial Statements 6 181 486 569 038 605 373

VFW National Home for Children Notes to Financial Statements June 30 2015 Note 1 Nature of Business and Significant Accounting Policies The Veterans of Foreign Wars National Home for Children the National Home provides children youth and families of members of the VFW VFW Auxiliary and Veterans and Active Duty Military opportunities for growth and development in a nurturing community and by doing so serves as a living memorial for all veterans The National Home is located in Eaton Rapids Michigan Summarized Financial Information The financial statements include certain prior year summarized comparative information in total but not by net asset class Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America Accordingly such information should be read in conjunction with the National Home s financial statements for the year ended June 30 2014 from which the summarized information was derived Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and all highly liquid investments purchased with an original maturity of three months or less Investments Investments consist primarily of mutual funds and equity securities and are stated at fair value based on quoted market prices Investment income or loss including realized and unrealized gains and losses on investment interest and dividends is included in the statement of public support revenue expenses and changes in net assets Accounts Receivable Accounts receivable consist of amounts due from various organizations Accounts receivable are stated at net amounts An allowance for doubtful accounts is established based on a specific assessment of all amounts that remain unpaid following normal payment periods All amounts deemed to be uncollectible are charged against the allowance for doubtful accounts in the period that the determination is made The National Home has determined no allowance for uncollectibility is necessary at June 30 2015 Inventory Inventories are comprised of souvenirs and are recorded at cost on a lastin first out LIFO basis Property and Equipment Property and equipment are carried at cost except donated real estate and equipment which are stated at estimated fair market value at the date of receipt Depreciation on property and equipment is calculated on the straight line method over the estimated useful lives of the assets Repairs and maintenance costs are expensed as incurred Beneficial Interests The National Home is a beneficiary of irrevocable trusts According to the trusts the National Home is to receive its share of the investment income annually The value of the National Home s interests in the trusts is recorded at fair market value 7

VFW National Home for Children Notes to Financial Statements June 30 2015 Note 1 Nature of Business and Significant Accounting Policies Continued The National Home also has beneficial interests in oil gas and mineral rights The National Home is not able to determine the fair values of these interests The income from these rights is recorded as contribution income when received Contributions and Bequests Contributions and bequests are recorded as revenue when the unconditional promise is received by the National Home Contributions and bequests are reported as restricted support if received with donor stipulations that limit the use of the donated assets When a donor restriction expires that is when a stipulated time restriction ends or purpose restriction is accomplished temporarily restricted net assets are classified as unrestricted net assets and reported in the statement of public support revenue expenses and changes in net assets as net assets released from restrictions Donated Services The National Home receives volunteer service not recordable under accounting principles generally accepted in the United States of America A substantial number of volunteers have donated time in the National Home s fundraising campaigns and determination of the allocation of the funds raised The value of volunteer services is not disclosed as no objective basis is available to measure the value of such services Temporarily Restricted Net Assets Temporarily restricted net assets reflect funds contributed to the National Home related to maintenance of the home education scholarships various activities and special events Permanently Restricted Net Assets Permanently restricted net assets reflect donor imposed restrictions stipulating that the investment principal be maintained permanently but permit the National Home to use the income derived from the investments which can be used for general operations and various programs Functional Expense and Joint Costs Allocation Expenses identified as applying to a specific program or support service are recorded in the appropriate service area as incurred Expenses not directly attributable to a program or support service are allocated between service areas based upon predetermined percentage rates set by the National Home s management Fundraising expenses consist primarily of the direct costs of fundraising During the year ended June 30 2015 approximately 390 000 of joint direct mail costs were allocated to direct care Although the methods of allocation used are considered appropriate other methods could be used that would produce different amounts Pension Plan The defined contribution pension plan covers substantially all employees of the National Home The National Home contributed a 4 0 percent matching contribution for employees who contributed to the plan Pension expense for fiscal year 2015 amounted to 57 568 8

VFW National Home for Children Notes to Financial Statements June 30 2015 Note 1 Nature of Business and Significant Accounting Policies Continued Tax Status The National Home is a not for profit voluntary health and welfare organization exempt from federal income tax under Section 501 c 3 of the Internal Revenue Code except for income if any derived from sources unrelated to its exempt function Accounting principles generally accepted in the United States of America require management to evaluate tax positions taken by the National Home and recognize a tax liability if the organization has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS or other applicable taxing authorities Management has analyzed the tax positions taken by the National Home and has concluded that as of June 30 2015 there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements The National Home is subject to routine audits by taxing jurisdictions however there are currently no audits for any tax periods in progress The National Home believes it is no longer subject to income tax examinations for years prior to 2012 Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period Actual results could differ from those estimates Risk and Uncertainties The National Home invests in various investment securities Investment securities are exposed to various risks such as interest rate market and credit risks Due to the level of risk associated with certain investment securities it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect those amounts reported in the statement of public support revenue expenses and changes in net assets 9

VFW National Home for Children Notes to Financial Statements June 30 2015 Note 1 Nature of Business and Significant Accounting Policies Continued Upcoming Accounting Change In May 2014 the Financial Accounting Standards Board issued Accounting Standards Update No 2014 09 Revenue from Contracts with Customers Topic 606 which will supersede the current revenue recognition requirements in Topic 605 Revenue Recognition The ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services The ASU also requires additional disclosure about the nature amount timing and uncertainty of revenue and cash flows arising from customer contracts including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract The new guidance will be effective for the National Home s year ending June 30 2020 The ASU permits application of the new revenue recognition guidance to be applied using one of two retrospective application methods The National Home has not yet determined which application method it will use or the potential effects of the new standard on the financial statements if any Subsequent Events The financial statements and related disclosures include evaluation of events up through and including October 5 2015 which is the date the financial statements were available to be issued Note 2 Fair Value Measurements Accounting standards require certain assets and liabilities be reported at fair value in the financial statements and provide a framework for establishing that fair value The framework for determining fair value is based on a hierarchy that prioritizes the inputs and valuation techniques used to measure fair value The following table presents information about the National Home s assets measured at fair value on a recurring basis at June 30 2015 and the valuation techniques used by the National Home to determine those fair values Fair values determined by Level 1 inputs use quoted prices in active markets for identical assets that the National Home has the ability to access Fair values determined by Level 2 inputs use other inputs that are observable either directly or indirectly These Level 2 inputs include quoted prices for similar assets in active markets and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals 10

VFW National Home for Children Notes to Financial Statements June 30 2015 Note 2 Fair Value Measurements Continued Level 3 inputs are unobservable inputs including inputs that are available in situations where there is little if any market activity for the related asset These Level 3 fair value measurements are based primarily on management s own estimates using pricing models discounted cash flow methodologies or similar techniques taking into account the characteristics of the asset In instances whereby inputs used to measure fair value fall into different levels in the above fair value hierarchy fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation The National Home s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability Assets Measured at Fair Value on a Recurring Basis at June 30 2015 Quoted Prices in Active Markets for Identical Assets Level 1 Assets Investments Mutual funds Equities Bonds Balanced Foreign Stocks U S securities Total investments 3 220 480 3 327 476 899 627 2 508 819 659 607 10 616 009 Beneficial interests in perpetual trusts Total assets measured at fair value Significant Other Observable Inputs Level 2 Significant Unobservable Inputs Level 3 10 616 009 Balance at June 30 2015 10 616 009 1 894 398 3 220 480 3 327 476 899 627 2 508 819 659 607 1 894 398 1 894 398 12 510 407 Beneficial Interests in Perpetual Trusts The National Home is the beneficiary of investments held by third parties which are considered Level 3 assets Fair Value at June 30 2015 Assets Beneficial interests in perpetual trusts 1 894 398 11 Valuation Technique Fair value of the interest in underlying assets Significant Unobservable Inputs Used Values of underlying assets

VFW National Home for Children Notes to Financial Statements June 30 2015 Note 2 Fair Value Measurements Continued Changes in Level 3 assets measured at fair value on a recurring basis for the year ended June 30 2015 are as follows Beneficial Interest in Perpetual Trusts Balance at July 1 2014 Unrealized losses 2 020 692 126 294 Balance at June 30 2015 1 894 398 Unrealized loss of 126 294 for the year ended June 30 2015 is reported in change in fair value of beneficial interests in perpetual trusts in the statement of public support revenue and changes in net assets Note 3 Property and Equipment Property and equipment consist of the following at June 30 2015 Amount Land Buildings Machinery and equipment Transportation equipment Furniture and fixtures Construction in progress Total cost 46 727 15 361 669 3 185 929 769 431 759 564 214 767 Depreciable Life Years 7 40 2 10 5 3 5 20 338 087 Less accumulated depreciation 13 834 752 Net carrying amount 6 503 335 Depreciation expense was 597 801 for the year ended June 30 2015 Note 4 Affiliated Organizations The National Home is a separate and autonomous organization from the Veterans of Foreign Wars The Veterans of Foreign Wars provided public support from the sale of poppies amounting to 116 900 for the year ended June 30 2015 12

VFW National Home for Children Notes to Financial Statements June 30 2015 Note 5 Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are available for the following purposes at June 30 2015 House repairs equipment and maintenance Education and scholarships Activities and special events Total temporarily restricted net assets 1 543 060 1 222 200 1 067 981 3 833 241 Permanently restricted net assets are restricted investments to be held in perpetuity the income of which is expendable to benefit the National Home Permanently restricted net assets at June 30 2015 are as follows Amy Ross Fund Charles Wagner Minnesota Post 1215 Fund Carlton Jacobson Fund Delores and Walter Peterson Fund 2010 11 Commanders Presidents Fund Total donor restricted endowment funds 1 703 935 24 611 17 560 50 000 170 086 37 788 2 003 980 1 894 398 Beneficial interests in perpetual trusts Total permanently restricted net assets 3 898 378 Note 6 Donor restricted Endowments The National Home s endowment includes donor restricted endowment funds Net assets associated with endowment funds are classified and reported based on the existence or absence of donor imposed restrictions The income on donor restricted net assets is to be used for general operating purposes for the National Home s day today activities 13

VFW National Home for Children Notes to Financial Statements June 30 2015 Note 6 Donor restricted Endowments Continued Interpretation of Relevant Law The board of trustees and the management staff of the National Home have interpreted the Uniform Prudent Management of Institutional Funds Act UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor restricted endowment funds absent explicit donor stipulations to the contrary As a result of this interpretation the National Home classifies as permanently restricted net assets a the original value of gifts donated to the permanent endowment b the original value of subsequent gifts to the permanent endowment and c accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund The remaining portion of the donor restricted endowment fund that is not classified in permanently restricted net assets is classified as unrestricted net assets unless otherwise specified by the donor In accordance with UPMIFA the National Home exercises the standards of ordinary business care and prudence when determining the amount of earnings and gains to appropriate for expenditure or to accumulate within the endowment fund The National Home considers the following factors in exercising this standard of care 1 The long term and short term needs of the National Home in carrying out its charitable purpose 2 The present and anticipated financial requirements of the National Home 3 The expected total return on investments 4 Price level trends 5 General economic conditions Endowment Net Asset Composition by Type of Fund as of June 30 2015 Permanently Restricted Donor restricted endowment funds 14 2 003 980

VFW National Home for Children Notes to Financial Statements June 30 2015 Note 6 Donor restricted Endowments Continued Changes in Endowment Net Assets for the Fiscal Year Ended June 30 2015 Unrestricted Endowment net assets Beginning of year Investment income Net realized and unrealized gain Permanently Restricted 1 818 911 97 500 206 873 304 373 Total investment return Contributions 304 373 Appropriation of endowment assets for expenditure Endowment net assets End of year 185 069 2 003 980 Return Objectives and Risk Parameters The National Home has adopted investment policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets Endowment assets include those assets of donor restricted funds that the National Home must hold in perpetuity Under this policy as approved by the board of trustees the endowment assets are invested in a manner that is intended to produce results that exceed the results of the S P 500 index while assuming a moderate level of investment risk Actual returns in any given year may vary from this amount Strategies Employed for Achieving Objectives The National Home targets a diversified asset allocation that places a greater emphasis on equity based investments to achieve its long term return objectives within prudent risk constraints Spending Policy and How the Investment Objectives Relate to the Spending Policy The National Home has a practice of maintaining the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return Funds with Deficiencies From time to time the fair value of assets associated with individual donor restricted endowment funds may fall below the level that the donor or UPMIFA requires the National Home to retain as a fund of perpetual duration There were no deficiencies of this nature at June 30 2015 15