CATHOLIC CHARITIES USA AND AFFILIATE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2013 AND 2012

CATHOLIC CHARITIES USA AND AFFILIATE TABLE OF CONTENTS YEARS ENDED JUNE 30, 2013 AND 2012

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INDEPENDENT AUDITORS’ REPORT ............................................................................................. 1 FINANCIAL STATEMENTS ............................................................................................................... 3 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ................................................... 4 CONSOLIDATED STATEMENT OF ACTIVITIES - 2013 ............................................................ 5 CONSOLIDATED STATEMENT OF ACTIVITIES - 2012 ............................................................ 6 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES - 2013 ................................... 7 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES - 2012 ................................... 8 CONSOLIDATED STATEMENTS OF CASH FLOWS ................................................................. 9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS .............................................. 10

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INDEPENDENT AUDITORS’ REPORT

Board of Trustees Catholic Charities USA Alexandria, Virginia Report on the Financial Statements We have audited the accompanying consolidated financial statements of Catholic Charities USA and Affiliate, which comprise the consolidated statements of financial position as of June 30, 2013 and 2012, and the related consolidated 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 consolidated 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 consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards 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 consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment 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 entity’s preparation and fair presentation of the consolidated 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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Board of Trustees Catholic Charities USA and Affiliate

Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Catholic Charities USA and Affiliate as of June 30, 2013 and 2012, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

a
Arlington, Virginia January 7, 2014

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CONSOLIDATED FINANCIAL STATEMENTS

3

CATHOLIC CHARITIES USA AND AFFILIATE CONSOLIDATED STATEMENTS OF FINANCIAL POSITION JUNE 30, 2013 AND 2012     2013 ASSETS Cash and Cash Equivalents $ 6,843,746 Receivables: U.S. Government 528,680 Interest and Dividends 21,388 Other 119,967 Total Receivables 670,035 Pledges Receivable, Net 2,998,311 Prepaid Expenses and Other Assets, Net 720,748 Deferred Lease Incentives and Lease Origination Costs 978,285 Investments 21,051,024 Property and Equipment, Net 30,202,484

2012 $ 6,115,449 1,938,822 21,307 196,104 2,156,233 10,531,528 659,889 13,824,566 31,755,287 $ 65,042,952

Total Assets LIABILITIES AND NET ASSETS LIABILITIES Accounts Payable and Accrued Expenses Grants Payable Short-Term Loan Payable Deferred Revenue Capital Lease Obligations Deferred Rent Security Deposits Split Interest Agreements Accrued Loss On Lease Obligations Note Payable Value of Interest Rate SWAP Agreement Total Liabilities NET ASSETS Unrestricted: Board-Designated Net Investment in Property and Equipment Undesignated Total Unrestricted Temporarily Restricted Permanently Restricted Total Net Assets Total Liabilities and Net Assets

$ 63,464,633

$

1,878,491 299,721 383,905 108,590 55,569 109,345 1,989,773 5,210,000 132,681 10,168,075

$

2,390,469 598,638 3,900,000 118,507 134,443 1,091,480 112,120 2,768,548 5,210,000 186,752 16,510,957

9,676,936 24,992,484 8,545,864 43,215,284 9,966,274 115,000 53,296,558 $ 63,464,633

9,676,936 26,545,287 5,232,053 41,454,276 6,962,719 115,000 48,531,995 $ 65,042,952

The accompanying notes are an integral part of the consolidated financial statements. 4

CATHOLIC CHARITIES USA AND AFFILIATE CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2013    
Unrestricted REVENUE Membership Dues Federal Grants Federal Contracts Contributions: Disaster Response Combined Federal Campaign Other Total Contributions Investment Income (Loss): Disaster Response Other Total Investment Income Registration and Workshop Fees Other Revenue Net Assets Released from Restrictions Total Revenue EXPENSES Program Services: Distributions to Catholic Charities Service Agencies and Other Non Profits: Disaster Response Programs and Services Member Agencies' Support Member Services Total Distributions Other Program Services: Disaster Response Programs and Services Social Policy Member Agencies' Support Member Services Total Other Program Services Supporting Services: Management and General Fundraising Total Supporting Services Total Program and Supporting Services Expenses 2050 Ballenger LLC Expenses Total Expenses Fair Value Gain (Loss) on Interest Rate SWAP Agreement Loss on Lease Obligation CHANGE IN NET ASSETS Net Assets - Beginning of Year NET ASSETS - END OF YEAR $ 1,579,813 1,667,444 4,868,425 762,358 9,606,882 10,369,240 (133,301) 897,000 763,699 416,819 209,629 9,176,550 29,051,619 Temporarily Permanently Restricted Restricted $ $ Total $ 1,579,813 1,667,444 4,868,425 10,355,009 762,358 11,431,978 22,549,345 (133,301) 897,000 763,699 416,819 209,629 32,055,174

10,355,009 1,825,096 12,180,105 (9,176,550) 3,003,555

8,818,611 2,585,438 619,233 33,762 12,057,044 2,372,336 3,317,526 2,539,812 102,677 940,753 9,273,104 3,316,563 2,059,928 5,376,491 26,706,639 590,554 27,297,193 54,071 47,489 1,761,008 41,454,276 $ 43,215,284

3,003,555 6,962,719 $ 9,966,274 $

115,000 115,000

8,818,611 2,585,438 619,233 33,762 12,057,044 2,372,336 3,317,526 2,539,812 102,677 940,753 9,273,104 3,316,563 2,059,928 5,376,491 26,706,639 590,554 27,297,193 54,071 47,489 4,764,563 48,531,995 $ 53,296,558

The accompanying notes are an integral part of the consolidated financial statements. 5

CATHOLIC CHARITIES USA AND AFFILIATE CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2012    
Unrestricted REVENUE Membership Dues Federal Grants Federal Contracts Contributions: Disaster Response Combined Federal Campaign Other Total Contributions Investment Income (Loss): Disaster Response Other Total Investment Income Registration and Workshop Fees Other Revenue Net Assets Released from Restrictions Total Revenue EXPENSES Program Services: Distributions to Catholic Charities Service Agencies and Other Non Profits: Disaster Response Programs and Services Member Agencies' Support Member Services Total Distributions Other Program Services: Disaster Response Programs and Services Social Policy Member Agencies' Support Member Services Total Other Program Services Supporting Services: Management and General Fundraising Total Supporting Services Total Program and Supporting Services Expenses 2050 Ballenger LLC Expenses Total Expenses Fair Value Gain (Loss) on Interest Rate SWAP Agreement Loss on Lease Obligation CHANGE IN NET ASSETS Net Assets - Beginning of Year NET ASSETS - END OF YEAR $ 1,595,133 1,517,506 4,699,911 595,587 9,996,989 10,592,576 178,478 174,956 353,434 352,035 214,686 3,141,696 22,466,977 Temporarily Permanently Restricted Restricted $ 5,462,587 984,373 6,446,960 (3,141,696) 3,305,264 $ Total $ 1,595,133 1,517,506 4,699,911 5,462,587 595,587 10,981,362 17,039,536 178,478 174,956 352,035 214,686 25,772,241

3,383,482 2,334,504 503,526 6,221,512 2,325,003 3,010,587 2,789,703 128,142 1,145,327 9,398,762 3,273,785 1,735,978 5,009,763 20,630,037 169,626 20,799,663 32,222 2,768,548 (1,133,456) 42,587,732 $ 41,454,276

3,305,264 3,657,455 $ 6,962,719 $

115,000 115,000

3,383,482 2,334,504 503,526 6,221,512 2,325,003 3,010,587 2,789,703 128,142 1,145,327 9,398,762 3,273,785 1,735,978 5,009,763 20,630,037 169,626 20,799,663 32,222 2,768,548 2,171,808 46,360,187 $ 48,531,995

The accompanying notes are an integral part of the consolidated financial statements. 6

CATHOLIC CHARITIES USA AND AFFILIATE CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2013    
Program Services Disaster Response Distributions to Catholic Charities Service Agencies Distributions to Other Non Profits Total Distributions OTHER PROGRAM AND SUPPORTING SERVICES Salaries and Employee Benefits Travel Professional Fees Outside Services Convening Internal and External Tools Advertising and Promotions Collaboration and Public Relations Personnel Expenses Office Expenses Telecommunications Equipment and Software Purchase and Maintenance Occupancy and Ballenger Occupancy Allocation Depreciation Investment Expenses Interest Expense Overhead Expense Allocation Other Expenses Total Other Program and Supporting Service Expenses Total Functional Expenses Programs and Services Social Policy Member Agencies' Support $ 619,233 $ 619,233 Member Services Supporting Services Management and General Fundraising $ $ $ 2050 Ballenger LLC $ $ Total Expenses 11,850,846 206,198.00 12,057,044

Total

Total -

Total CCUSA $ 11,850,846 206,198 12,057,044

$ 8,620,413 $ 2,577,438 $ 198,198 8,000 8,818,611 2,585,438

33,762 $ 11,850,846 206,198 33,762 12,057,044

1,234,921 142,954 99,940 192,321 38,872 207 75,458 12,143 84,193 110,944 67,259 89,046 115,866 39,871 68,199 142 2,372,336

1,606,771 74,170 442,884 75,706 310,377 119,109 158,639 3,629 74,260 62,752 19,973 219,936 72,999 75,517 804 3,317,526

862,440 64,109 1,296,644 9,178 11,251 58,110 4,665 12,450 10,408 13,392 2,736 102,580 35,299 38,550 18,000 2,539,812

59,696 147 20,103 5,532 6,878 6,266 2,156 1,899 102,677

251,953 11,399 4,591 580,727 682 4,726 1,524 34,729 4,109 72 46,241 940,753

4,015,781 292,779 1,844,059 297,308 941,227 178,108 75,458 180,173 101,796 235,873 147,512 118,705 444,648 150,325 184,165 65,187 9,273,104

2,026,202 36,670 178,383 328,454 112,798 1,689 890 27,359 47,383 65,315 172,393 269,784 184,853 96,574 4,959 (237,143) 3,316,563

746,361 8,450 510,917 106,078 29,044 1,212 240,436 91,357 6,623 34,558 9,931 30,930 140,136 50,907 52,978 10 2,059,928

2,772,563 45,120 689,300 434,532 141,842 2,901 240,436 92,247 33,982 81,941 75,246 203,323 409,920 235,760 96,574 4,959 (184,165) 10 5,376,491

6,788,344 337,899 2,533,359 731,840 1,083,069 181,009 315,894 272,420 135,778 317,814 222,758 322,028 854,568 386,085 96,574 4,959 65,197 14,649,595 $ 26,706,639 $

75,919 18,940 79,466 (501,262) 759,337 158,154 590,554 590,554 $

6,864,263 337,899 2,552,299 811,306 1,083,069 181,009 315,894 272,420 135,778 317,814 222,758 322,028 353,306 1,145,422 96,574 163,113 65,197 15,240,149 27,297,193

$ 11,190,947 $ 5,902,964 $ 2,539,812 $ 721,910 $ 974,515 $ 21,330,148

$ 3,316,563 $ 2,059,928 $ 5,376,491

The accompanying notes are an integral part of the consolidated financial statements. 7

CATHOLIC CHARITIES USA AND AFFILIATE CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2012    
Program Services Disaster Response Distributions to Catholic Charities Service Agencies Distributions to Other Non Profits Total Distributions OTHER PROGRAM AND SUPPORTING SERVICES Salaries and Employee Benefits Travel Professional Fees Outside Services Convening Internal and External Tools Advertising and Promotions Collaboration and Public Relations Personnel Expenses Office Expenses Telecommunications Equipment and Software Purchase and Maintenance Occupancy and Ballenger Occupancy Allocation Depreciation & Amortization Investment Expenses Interest Expense Overhead Expenses Allocation Other Expenses Total Other Program and Supporting Service Expenses Total Functional Expenses Programs and Services Social Policy Member Agencies' Support $ 503,526 $ 503,526 Member Services Supporting Services Management and General Fundraising $ $ $ 2050 Ballenger LLC $ $ Total Expenses 5,337,000 884,512 6,221,512

Total $ 5,337,000 884,512 6,221,512

Total -

Total CCUSA $ 5,337,000 884,512 6,221,512

$ 2,501,940 $ 2,331,534 $ 881,542 2,970 3,383,482 2,334,504

1,017,515 262,109 167,519 192,434 97,892 3,370 15,000 1,032 53,560 33,583 242,069 106,217 42,574 90,093 36 2,325,003

1,629,079 116,704 80,565 78,944 274,340 129,642 1,075 184,432 9,144 71,998 46,433 12,576 194,471 77,957 103,201 26 3,010,587

757,256 62,420 1,446,412 63,819 152,396 71,339 2,670 3,019 6,524 11,440 13,826 1,926 94,039 37,694 52,924 11,999 2,789,703

77,158 133 8,292 24,600 1,893 5,565 5,744 2,285 2,472 128,142

268,639 12,447 199,405 605,856 7,732 1,274 1,800 1,581 42,937 3,656 1,145,327

3,749,647 453,813 1,893,901 343,489 1,130,484 208,713 32,989 204,251 18,281 181,828 97,498 262,136 400,471 160,510 248,690 12,061 9,398,762

1,855,004 65,975 195,538 245,600 116,814 200 431 45,873 217,058 66,174 131,304 243,348 150,624 73,147 1,109 (329,866) 195,452 3,273,785

921,127 11,588 22,492 64,393 972 1,879 353,526 3,637 3,488 41,006 11,501 24,805 135,618 54,427 81,176 4,343 1,735,978

2,776,131 77,563 218,030 309,993 117,786 2,079 353,526 4,068 49,361 258,064 77,675 156,109 378,966 205,051 73,147 1,109 (248,690) 199,795 5,009,763

6,525,778 531,376 2,111,931 653,482 1,248,270 210,792 386,515 208,319 67,642 439,892 175,173 418,245 779,437 365,561 73,147 1,109 211,856 14,408,525 $ 20,630,037 $

4,729 18,040 3,970 (105,239) 188,228 59,898 169,626 169,626 $

6,530,507 531,376 2,129,971 657,452 1,248,270 210,792 386,515 208,319 67,642 439,892 175,173 418,245 674,198 553,789 73,147 61,007 211,856 14,578,151 20,799,663

$ 5,708,485 $ 5,345,091 $ 2,789,703 $ 631,668 $ 1,145,327 $ 15,620,274

$ 3,273,785 $ 1,735,978 $ 5,009,763

The accompanying notes are an integral part of the consolidated financial statements. 8

CATHOLIC CHARITIES USA AND AFFILIATE CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012    
2013 CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets Adjustments to Reconcile Change in Net Assets to Net Cash Provided by Operating Activities: Depreciation and Amortization Loss on Disposal of Fixed Assets Leasehold Improvement Abandonment Loss Change in Bad Debt Allowance Donated Stock Unrealized Losses on Investments Realized Gains on Sales of Investments (Gain) Loss on Interest Rate SWAP Agreement Change in Present Value Factor to Discount Grants Payable Changes in Assets and Liabilities: Receivables Pledges Receivable Prepaid Expenses and Other Assets Deferred Lease Incentives and Lease Origination Costs Accounts Payable and Accrued Expenses Grants Payable Deferred Rent Deferred Revenue Accrued Loss on Canal Center Lease Obligation Security Deposits Other Liabilities Net Cash Provided by Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES Purchases of Property and Equipment Proceeds from Sale of Investments Purchases of Investments Net Cash Used in Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Payments on Short-term Loan Payable Proceeds from Bonds Payable Payments for Capital Leases Net Cash (Used in) Provided by Financing Activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash and Cash Equivalents - Beginning of Year CASH AND CASH EQUIVALENTS - END OF YEAR SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash Paid for Interest Property and Equipment Acquired through Capital Lease $ $ $ $ 4,764,563 $ 2012 2,171,808

1,145,422 5,180 902,615 (1,102,197) (588,818) 292,421 (614,539) (54,071) (49,486) 1,532,439 8,589,173 (60,859) (978,285) (511,978) (298,917) (1,091,480) 265,398 (729,289) 55,569 (2,775) 11,470,086

553,790 (362,930) (610,818) 246,722 (249,342) 32,222 (1,302,457) (1,770,057) (292,512) 1,432,561 (595,417) (109,232) (14,509) 2,768,548 (7,274) 1,891,103

(500,414) 7,567,489 (13,883,011) (6,815,936)

(5,366,228) 6,047,920 (9,181,804) (8,500,112)

(3,900,000) (25,853) (3,925,853) 728,297 6,115,449 6,843,746 163,113 $ $ $

(12,247) 5,210,000 (4,796) 5,192,957 (1,416,052) 7,531,501 6,115,449 230,218 139,239

The accompanying notes are an integral part of the consolidated financial statements. 9

NOTE 1

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     ORGANIZATION Catholic Charities USA (“CCUSA”) is a not-for-profit organization incorporated in 1950 to provide a forum for 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. 2050 Ballenger, LLC (the “LLC”) is a limited liability corporation as defined under the Internal Revenue Code and is operated exclusively for purposes of leasing office space at 2050 Ballenger Avenue in Alexandria, Virginia, to CCUSA, as its new headquarters, and leasing any excess space to other tenants. The LLC, which was incorporated in 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 other diocesan organizations as part of its role as the lead Catholic agency in times of natural disaster. CCUSA support is provided to not only assist organizations and communities respond to disasters, but also to help them prepare and plan for disasters. Additionally, CCUSA has a contract with the federal government to provide disaster case management services for individuals and families recovering from natural disasters. Programs and Services Local Catholic Charities agencies provide a wide range of human services to millions of people in need each 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 provides opportunities for leadership development and consultations to ensure that members remain at the forefront of emerging needs and quality services. CCUSA applies for federal grants to support specific programs on behalf of its membership. These funds are 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 they serve. 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 its membership around issues of racial equality and diversity. Member Agencies’ Support CCUSA provides grants to member agencies to support general operations of local Catholic Charities. 10

NOTE 1

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     ORGANIZATION (CONTINUED) Member Services CCUSA supports its membership by providing a range of services that promote networking, ongoing education, and improve their ability to respond to the needs of the poor and vulnerable in their communities. These services include: an annual gathering, web-based training and information, a quarterly newsletter and other printed resources.

NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting and Principles of Consolidation The consolidated financial statements of CCUSA and LLC, collectively the “Organization”, are presented on the accrual basis of accounting. Consequently, revenue is recognized when earned and expenses when obligations are incurred. The consolidated financial statements include the assets, liabilities, net assets and activities of CCUSA and the LLC. All significant intra-entity transactions and balances have been eliminated in consolidation. 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 certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For financial statement purposes, the Organization considers money market and overnight sweep accounts to be cash equivalents. 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. Government securities, corporate debt securities, and equities. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in future statement of activities. Fair Value of Financial Instruments The Organization accounts for a portion of its financial instruments at fair value or considers fair value in their measurement. The Organization accounts for certain financial assets and liabilities at fair value under various accounting literature that establishes a fair value hierarchy.

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NOTE 2

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Uniform Prudent Management of Institutional Funds Act During 2008, Virginia enacted the Uniform Prudent Management of Institutional Funds Act (UPMIFA). Also during 2008, guidance was provided on the classification of endowment fund net assets for states that have enacted versions of UPMIFA. Under UPMIFA, all unappropriated endowment fund assets are considered restricted. Pledges Receivable Pledges receivable are recorded at fair value at the date the promise is received. Pledges that are expected to be collected within one year are recorded at their net realizable value. Pledges that are expected to be collected in future years are recorded at the present value of the amount expected to be collected. The discounts on those amounts are computed using a discount rate that approximates the difference between the present and future value of the cash receipts. Accounts Receivable Accounts receivable are recorded at their net realizable value. The majority of the receivables are from government grants and contracts, membership dues, and the Medical Trust. Accounts that are past due are individually analyzed for collectability. When all collection efforts have been exhausted, the account is written off against an allowance for bad debts. At June 30, 2013 and June 30, 2012, the allowance for bad debts on accounts receivable approximated $46,000 and $-0-, respectively. Property and Equipment Acquisitions of property and equipment are recorded at cost and depreciated using the straight-line depreciation method. Depreciation is provided over the estimated useful lives of the assets, which range from 3 - 40 years. Building improvements are depreciated on a straight-line basis over the lesser of the remaining life of the building or estimated useful life of the improvement. Leasehold improvements are amortized on a straight-line basis over the remaining term of the lease agreement. CCUSA capitalizes all property and equipment 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 the Organization, 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 available to support general operations and amounts invested in property and equipment, net of the mortgage liability. The Organization’s Board of Trustees has internally designated a portion of its unrestricted net assets (see Note 13). Temporarily Restricted: Represents resources that result from contributions limited in use by donor-imposed stipulations. Such restrictions either expire by the passage of time or can be fulfilled and removed by actions of the Organization pursuant to those stipulations.

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NOTE 2

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Net Assets (Continued) Permanently Restricted: Represent two bequests that established Endowment Funds. The Caritas Endowment Fund is to be held in perpetuity by CCUSA. Investment income earned is used to support program activities for Caritas Internationalis and is recorded as temporarily restricted activity. The Tracy Endowment Fund is to be held in perpetuity by CCUSA. Investment income earned is used to support scholarships 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 is recognized in the year to which the membership applies. 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 deferred revenue. 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, the contribution 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 consolidated statement of activities. Accordingly, indirect expenses have been allocated among the programs and supporting services benefited that includes an allocation of personnel and overhead expenses based upon the estimated 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) of the Internal Revenue Code and is classified as an organization that is not a private foundation under Section 509(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 any activities that are subject to tax on unrelated business income, excise, or other taxes. As of June 30, 2013, there are no identified uncertain tax positions. As a church related entity, CCUSA does not file a 990 with the IRS.

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NOTE 2

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Reclassification Certain amounts in the fiscal year 2012 consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in fiscal year 2013. Subsequent Events In preparing these consolidated financial statements, the Organization has evaluated events and transactions for potential recognition or disclosure through January 7, 2014, the date the consolidated financial statements were available to be issued.

NOTE 3

FAIR VALUE OF FINANCIAL INSTRUMENTS The Organization 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 quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded on the statement of financial position are categorized based on the inputs to the valuation techniques as follows: Level 1 Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Organization has the ability to access (examples include active exchange-traded equity securities, listed derivatives, and most U.S. Government and agency securities including government guaranteed CMO actively traded in the secondary market). Level 2 Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or 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 include corporate 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 market data 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). 14

NOTE 3

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) Level 3 Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s assumptions about how a market participant determines the price of the asset or liability (examples include certain private equity investments and split interest agreements). The following tables present the Organization’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (excluding managed money market funds not subject to fair value measurement) as of June 30, 2013 and 2012:
2013 Level 1 Assets Government Obligations Government Guaranteed CMO-Backed Securities Corporate Bonds U.S. Equities International Equities Mutual Funds - Real Estate Mutual Funds - Fixed Income Total Assets Liabilities Value of Interest Rate SWAP Agreement Split-Interest Liability Total Liabilities $ 2,589,294 $ Level 2 $ Level 3 $ Total 2,589,294

1,007,652 493,377 3,769,614 1,182,385 472,043 10,521,555 $ 20,035,920

$

$

1,007,652 493,377 3,769,614 1,182,385 472,043 10,521,555 $ 20,035,920

$ $

-

$ $

132,681 132,681

$ $

109,345 109,345

$ $

132,681 109,345 242,026

2012 Level 1 Assets Government Obligations Government Guaranteed CMO-Backed Securities Corporate Bonds U.S. Equities International Equities Mutual Funds - Real Estate Mutual Funds - Fixed Income Total Assets Liabilities Value of Interest Rate SWAP Agreement Split-Interest Liability Total Liabilities $ 1,817,252 $ Level 2 $ Level 3 $ Total 1,817,252

801,306 510,761 3,363,639 1,174,591 465,216 4,758,269 $ 12,891,034

$

$

801,306 510,761 3,363,639 1,174,591 465,216 4,758,269 $ 12,891,034

$ $

-

$ $

186,752 186,752

$ $

112,120 112,120

$ $

186,752 112,120 298,872

15

NOTE 3

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The fair value of the interest rate swap agreement is based on the estimated present value of the difference between the fixed and variable interest cash flows. Present values are estimated utilizing discounted cash flows techniques at discount rates based on interest rate assumptions corroborated by quoted rates on similar agreements. The following table provides a summary of changes in fair value of CCUSA’s Level 3 financial instruments for the years ended June 30, 2012 and 2013:

Split-Interest Liability Balance as of June 30, 2011 Unrealized and Realized Net Loss Distributions Balance as of June 30, 2012 Unrealized and Realized Net Gain Distributions Balance as of June 30, 2013 $ $ $ 131,641 (7,274) (12,247) 112,120 7,777 (10,552) 109,345

The unobservable inputs used to determine the fair value of the Reginato trust and charitable gift annuity split-interest liabilities were calculated based upon the Internal Revenue Service life expectancy tables and the adjusted federal midterm rate at the time the charitable annuity and the charitable remainder trust were established.

NOTE 4

CONCENTRATION OF CREDIT RISK Financial instruments, which subject the Organization to concentrations of credit risk, consist of demand deposits, overnight repurchase agreements, money market funds, funds held in investment portfolios, and certificates of deposit that are held by financial institutions. In the normal course of business operations, the Organization may have funds on deposit in various financial institutions in excess of Federal and other insurance limits.

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NOTE 5

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     INVESTMENTS Investments are recorded at fair market value and are comprised of the following at June 30, 2013 and 2012:

2013 Cost U.S. Government Obligations Government Guaranteed CMO-Backed Securities Corporate Bonds U.S. Equities International Equities Mutual Funds - Real Estate Mutual Funds - Fixed Income Money market funds Total investments $ 2,682,346 1,043,865 470,871 3,306,192 1,038,373 473,895 10,620,183 19,635,725 1,015,104 $ 20,650,829 Market $ 2,589,294 1,007,652 493,377 3,769,614 1,182,385 472,043 10,521,555 20,035,920 1,015,104 $ 21,051,024

2012 Cost U.S. Government Obligations Government Guaranteed CMO-Backed Securities Corporate Bonds U.S. Equities International Equities Mutual Funds - Real Estate Mutual Funds - Fixed Income Money market funds Total investments $ 1,780,651 803,597 436,008 3,090,984 1,080,446 467,504 4,539,228 12,198,418 933,532 $ 13,131,950 Market $ 1,817,252 801,306 510,761 3,363,639 1,174,591 465,216 4,758,269 12,891,034 933,532 $ 13,824,566

Investment income consists of the following for the years ended June 30, 2013 and June 30, 2012:

2013 Interest and dividends Unrealized losses on investments, Net Realized gains on sale of investments, Net Total investment income $ 441,581 (292,421) 614,539 763,699 $

2012 350,814 (246,722) 249,342 353,434

$

17

NOTE 6

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     DEFERRED LEASE INCENTIVES AND LEASE ORIGINATION COSTS During the year ended June 30, 2013 the LLC entered into a 10-year tenant lease agreement with a lease commencement date of September 14th, 2013 to rent excess space at the Organization’s headquarters. The Organization incurred certain lease origination costs in legal and broker fees and in inventive payments for tenant allowance totaling $978,285, and recorded a deferred lease incentives and lease origination costs asset which will be amortized over the lease term.

NOTE 7

PLEDGES RECEIVABLE Pledges receivable represent unconditional amounts pledged under various fundraising campaigns. Pledges expected to be collected in more than one year are reflected at net realizable value. The net realizable value is estimated by calculating the present value of estimated cash flows. Pledges receivable at June 30, 2013 and 2012, are as follows:

2013 2014 2015 2016 2017 Total Pledges Receivable Less: Allowance for Doubtful Pledges Net Pledges Receivable $ 2,593,311 165,000 165,000 105,000 3,028,311 (30,000) $ 2,998,311

2012 $ 11,437,484 60,000 60,000 60,000 11,617,484 (1,085,956) $ 10,531,528

In 2010, CCUSA received the William R. Fry bequest, valued at approximately $22 million at the time of the award. Approximately $15,861,000 of the bequest was received during fiscal year 2010. As of June 30, 2012, the outstanding balance to be received from the William R. Fry Estate to CCUSA in accordance with the bequest’s provisions, was approximately $9.6 million. The bequest was collected during fiscal year 2013.

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NOTE 8

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     PROPERTY AND EQUIPMENT As of June 30, 2013 and, 2012, property and equipment consisted of the following:

2013 CCUSA Leasehold Improvements - Canal Center Equipment and Software Capital Lease Furniture and Fixtures Construction in progess Less: Accumulated Depreciation and Amortization Net CCUSA Property and Equipment LLC Land Building and Building Improvements Equipment Construction in Progress Less: Accumulated Depreciation and Amortization Net LLC Property and Equipment Total Net Property and Equipment $ 346,931 139,239 1,453,037 88,966 (845,152) 1,183,021 2,560,000 27,013,173 369,338 13,335 (936,383) 29,019,463 $ 30,202,484 $

2012 1,833,338 304,285 139,239 1,450,843 (1,393,700) 2,334,005 2,560,000 26,687,865 359,409 (185,992) 29,421,282 $ 31,755,287

In April 2011, the CCUSA purchased a new, never occupied 72,670 square foot office building in Alexandria, Virginia, for $24,696,000. The Board of Trustees approved the use of the William R. Fry cash bequest to acquire the office building with the condition that future cash flows would be used to support member agencies (see Note 20). While most of the payment involved cash, a $3,900,000 bridge loan was also initiated. In addition, CCUSA financed most of the costs of improvements to the office building with a $5,200,000 note payable (see Note 16). CCUSA moved to the new office space in April 2012, occupying a portion of the building. During fiscal year 2013, a lease was signed for the remainder of the space.

NOTE 9

DISASTER RESPONSE AND GRANTS PAYABLE Grants are based on applications submitted and reviewed by the Disaster Response Advisory Committee as part of the approval process, which requires concurrence by the President of CCUSA. Grants are made for needs related to a variety of disasters, including hurricanes, floods, terrorist attacks, and other events. All grants payable as of June 30, 2013 and 2012 are expected to be paid within one year. Future grant payments not yet accrued are subject to grantee need and committee approval.

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NOTE 9

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     DISASTER RESPONSE AND GRANTS PAYABLE (CONTINUED) It is CCUSA’s policy to be reimbursed for actual costs incurred for Disaster Response oversight and administration. Amounts charged for the administration of the Disaster Response program are determined by formula based on amounts received and disbursed. An assessment is applied against each Disaster Response program and is recovered over the period the funds are held, part when contributions are processed, and the remainder 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 the purchase of the office building located at 2050 Ballenger Avenue in Alexandria, Virginia (see Note 8). The loan was secured by the proceeds of the William R. Fry bequest (See Note 7). Monthly interest-only payments were required at a variable interest rate based on the one-month LIBOR rate, 0.25% at June 30, 2012. The loan matured on September 19, 2012, when the principal balance and accrued interest thereon was paid off by the Organization.

NOTE 11

SPLIT INTEREST AGREEMENTS CCUSA receives contributions pursuant to several charitable gift annuity contracts with donors. The actuarially determined liability resulting from the annuity gifts was recorded at the date of the gift. The excess of the annuity gifts over the annuity liabilities is recognized as unrestricted support. The liability amount is adjusted annually based on the latest actuarial information available. The charitable gift annuity obligations approximated $50,000 and $59,000 at June 30, 2013 and 2012, respectively. CCUSA also received a contribution of a charitable remainder unitrust in 1998. Under this charitable remainder unitrust, a donor made a contribution to CCUSA that will remain in trust until a stipulated event, at which time the remaining trust balance will convey to CCUSA. The unitrust was valued at market value at the time of the gift. In consideration of the gift, the donors will receive an annuity from the trust based on the lesser of the trust principal at the beginning of the year at a stated interest rate or the actual earnings of the trust. The liability amount is adjusted annually based on the latest actuarial information available. The assets of the unitrust are included in temporarily restricted net assets on the Statement of Activities. The charitable remainder unitrust obligation approximated $59,000 and $53,000 at June 30, 2013 and 2012, respectively.

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NOTE 12

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     TEMPORARILY RESTRICTED NET ASSETS Changes in temporarily restricted net assets during the year ended June 30, 2013 are detailed as follows:

Balance July 1, 2012 Cafferty Fellow Children of Children Disaster Response Domestic Traficking Family Strenghtening National Reliogious Partnership Other Reginato Trust Adoption Notre Dame Social Policy Partnership Partners in Excellence U.S. Catholic Conference Children's Environmental Health Annie Casey Advocacy O'Brien Wal-Mart Sandy Education Total $

Funds Received

Funds Released from Restriction

Balance June 30, 2013 43,669 9,251,750 76,315 3,837 4,292 74,796 59,458 174,050 10,500 136,820 127,010 3,777 9,966,274

1,958 $ $ 43,669 6,296,070 10,355,009 105,825 53,849 100 3,837 18,876 66,434 8,362 32,458 27,000 80,193 249,050 10,500 150,000 1,007 532,525 1,000,000 106,102 6,962,719 $ 12,180,105 $

(1,958) $ (7,399,329) (29,510) (53,949) (14,584) (80,193) (75,000) (13,180) (1,007) (532,525) (872,990) (102,325) (9,176,550) $

$

21

NOTE 12

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     TEMPORARILY RESTRICTED NET ASSETS (CONTINUED) Changes in temporarily restricted net assets during the year ended June 30, 2012 are detailed as follows:

Balance July 1, 2011 Cafferty Fellow Children of Children Children's Health Matters Disaster Response Food Service Program Domestic Trafficking Family Strengthening National Religious Partnership Other Reginato Trust Adoption Notre Dame Social Policy Partnership Social Policy Advocacy Partners in Excellence U.S. Catholic Conference Children's Environmental Health Total $ 91,310 $ 43,669 2,592,316 758,285 24,532 33,058 3,842 18,876 81,067 10,500 $ 3,657,455 $

Funds Received

Funds Released from Restriction

Balance June 30, 2012

$ 5,462,588 83,722 200,000 50,150 350,500 50,000 250,000 6,446,960 $

89,352 $ 1,958 43,669 1,758,834 6,296,070 758,285 2,429 105,825 179,209 53,849 5 3,837 18,876 14,633 66,434 17,692 32,458 270,307 80,193 50,000 950 249,050 3,141,696 $ 10,500 6,962,719

NOTE 13

UNRESTRICTED NET ASSETS Unrestricted Net Assets Unrestricted net assets are available to finance the general operations of the Organization. The only limits on the use of unrestricted net assets are the purposes specified in the CCUSA’s articles of incorporation and those limitations resulting from the nature of the Organization and the environment in which it operates.

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NOTE 13

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     UNRESTRICTED NET ASSETS (CONTINUED) Board-Designated Net Assets Board-designated net assets are based on voluntary resolutions by the Board of Trustees to designate a portion of net assets for specific purposes and do not result in restricted net assets. Since designations are voluntary and may be reversed by the Board of Trustees at any time, designated net assets are classified as unrestricted net assets. During 2004, the Board of Trustees approved a policy to designate for operations unrestricted net assets by transferring a portion of the unrestricted funds to the Designated for Operations Fund. The reserve serves to address the organization's financial needs when economic downturns impact the Organization’s approved budget, to create an internal line of credit to manage cash flows that result from differences in timing between the Organization’s expenses and receipt of revenues, and maintain financial flexibility and to promote public and funder confidence in the long-term sustainability of the organization by preventing chronic cash flow crises that can diminish its reputation and force its leaders to make expensive short-term, crisis-based decisions. The designated purpose of the Operations Fund is to address cash flow needs of the Organization; therefore, the Board believes such funds are not subject to the Uniform Prudent Management of Institutional Funds Acts (UPMIFA). The appropriations from the fund are authorized by the Board of Trustees’ resolutions. The investment objectives of this fund are primarily liquidity and secondarily return and capital preservation. The fund is to equal to approximately 50% of annual budgeted operating expenses or 6 months of expenses on average, not including distributions to member agencies for the subsequent year as approved by the Board at its last meeting during the current fiscal year. Board-designated Disaster Response funds are unrestricted net assets to fund the disaster operations office at CCUSA and emergency disaster grants made by CCUSA to Catholic Charities around the country. At June 30, 2013 and 2012, the Organization’s unrestricted net assets were as follows:

June 30, 2013 June 30, 2012 Board-Designated: Disaster Response Operations Fund Total Board-Designated Net Investment in Property and Equipment Unrestricted and Not-Board Designated Total Unrestricted Net Assets $ 1,976,936 7,700,000 9,676,936 24,992,484 8,545,864 $ 1,976,936 7,700,000 9,676,936 26,545,287 5,232,053

$ 43,215,284 $ 41,454,276

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NOTE 13

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     UNRESTRICTED NET ASSETS (CONTINUED) The activity in the Board Designated Disaster Response Net Assets for the years ended June 30, 2013 and 2012 was as follows:

Beginning balance as of July 1, 2011 Administrative Fees and Investment and Other Income Expenses Ending balance as of June 30, 2012 Administrative Fees and Investment and Other Income Expenses Ending Balance as of June 30, 2013

$

1,976,936 851,215 (851,215) 1,976,936 1,049,904 (1,049,904)

$

1,976,936

The net reduction in the Board Designated Disaster Response Net Assets was $-0- in both years, due to investment income, administrative fees and other Temporarily Restricted transfers covering all releases of disaster operations office expenses and emergency grants. NOTE 14 PENSION PLAN CCUSA sponsors a defined contribution 401(k) profit sharing plan covering all employees who have reached the age of twenty-one and have completed one year of continuous employment. Under the terms of the plan, CCUSA contributes 10% of the employee’s compensation (3% safe harbor and 7% profit share) within statutory limits to the plan. Pension expense was approximately $430,000 and $388,000 for the years ended June 30, 2013 and 2012. NOTE 15 LEASES Leases – 66 Canal Center In October 2007, CCUSA executed a non-cancelable operating lease for its former headquarters (20,866 square feet) in Alexandria, Virginia, for ten years, six months effective through March 31, 2018. In April 2012, CCUSA moved its headquarters to the office building purchased by CCUSA in April 2011 (see Note 8). In August 2012, CCUSA executed a letter of intent to sublease the entire office space at 66 Canal Center and in December 2012, a sublease agreement was signed between Catholic Charities USA and American Bankruptcy Institute for subleasing the office space at Canal Center Plaza, 6th floor. The sublease agreement came into effect on September 1, 2013 and terminates on March 31, 2018. The sublease rent will be lower than CCUSA's future lease payments and, accordingly, the Organization recorded accrued loss on lease obligations using a discount rate of 4.75% which approximates its incremental borrowing rate at the date of recognition. Net leasehold improvements for Canal Center of $902,615 and related liabilities of $1,028,335 were written off and netted into the Accrued Loss on Lease Obligations which will be amortized over the life of the sublease. At June 30, 2013 and 2012, accrued Loss on Lease Obligations was $1,989,773 and $2,768,548, respectively. 24

NOTE 15

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     LEASES (CONTINUED) Future minimum lease payments net of sublease related cost, expected sublease receipts, and leasehold related asset and liabilities’ write-offs are as follows:

Former Expected Headquarters Headquarters Lease Payments Lease Reciepts Write-offs 2014 2015 2016 2017 2018 Total Rental Payments, Receipts, and Related Costs Less; PV Discount on Lease Payments and Sublease Receipts Net Leasehold Improvements and Related Liability Write-offs Accrued Loss on Obligations $ 940,681 977,267 1,002,097 1,027,606 814,382 4,762,033 (214,191) (504,333) (588,988) (606,657) (466,334) (2,380,503) -

Net 726,490 472,934 413,109 420,949 348,048 2,381,530

596,343 4,165,690 $

(330,306) (125,720)

266,037

(2,050,197) $ (125,720) $ 1,989,773

CCUSA recorded rent expense on a straight-line basis over the term of the lease. An unamortized deferred rent obligation in the amount of $520,313 remained at June 30, 2012, which represented the difference between rent expense and cash payments. CCUSA was provided a leasehold improvement allowance in the amount of approximately $1,043,000 as an incentive to enter into this lease. The leasehold improvement allowance was amortized over the term of the lease and had an unamortized balance of $571,167 as of June 30, 2012. Both balances were written off as of the signing of the sublease during fiscal year 2013 and are included as an offset to the Accrued Loss on Lease Obligation noted above. Rent expense was $752,848 for the year ended June 30, 2012. Lease net accretion loss was $47,489 for the year ended June 30, 2013, and it is reported as loss on lease obligation in the Organization’s consolidated statement of activities.

25

NOTE 16

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     COMMITMENTS AND CONTINGENCIES Hotel Commitments CCUSA entered into several agreements with hotels concerning room accommodations for its meetings and seminars through calendar year 2014. These agreements indicate CCUSA is liable for liquidated damages in the event of cancellation. At June 30, 2013, CCUSA’s commitments for possible liquidated damages totaled $439,343. Approximately $389,000 of the commitments has been paid as of January 7, 2013. Federal Grants and Contracts Under the terms of the CCUSA’s reimbursable government grants and contracts, CCUSA is entitled to the reimbursement of direct and indirect costs incurred. These expenses are subject to audit by the cognizant government agency. Note Payable In July 2011, CCUSA entered into a Bond Purchase and Loan Agreement with the Industrial Development Authority 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 revenue bond in the amount of $5,210,000 to finance CCUSA’s planned improvement of the purchased building located at 2050 Ballenger Avenue in the City of Alexandria consisting of office space to be used as the CCUSA’s headquarters, with any excess space being leased to other tenants. The Authority sold the Bond to Capital One, and the proceeds were 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's holder. The bonds have a maturity date of July 14, 2038. Interest is payable monthly at a LIBOR-based variable interest rate. Estimated future principal payments of the note are as follows:

Year Ending June 30, 2014 2015 2016 2017 2018 Thereafter $

Amount 148,196 152,233 156,014 216,071 234,077 4,303,409 $ 5,210,000

The CCUSA also entered into an interest rate swap transaction with Capital One, evidenced by a master agreement dated and effective July 14, 2011. The notional amount of the agreement is $5,210,000. The agreement effectively changes the CCUSA’s interest exposure on the $5,210,000 loan from LIBOR-based variable to fixed rates. The swap agreement terminates July 14, 2016, and provides for a fixed interest rate of 2.65 percent. The interest rate swap agreement's fair value at June 30, 2013, approximated $133,000 in favor of Capital One. 26

NOTE 16

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     COMMITMENTS AND CONTINGENCIES (CONTINUED) Post Employment Commitments CCUSA has signed employment agreements with certain management-level employees. Should CCUSA terminate these agreements on June 30, 2013, for other than good cause, it will be committed to pay the remainder of the contract, which approximates $1,700,000.

NOTE 17

ENDOWMENTS CCUSA has a donor-restricted endowment fund established for the purposes of providing income to support specific donor-restricted activities. As required by GAAP, net assets of the endowment fund are classified and reported based on the existence or absence of donor-imposed restrictions. The board of directors of the CCUSA has interpreted Virginia’s 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, CCUSA 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 temporarily restricted net assets until those amounts are appropriated for expenditure by the CCUSA in a manner consistent with the standard of prudence prescribed by UPMIFA. The CCUSA considered all amounts earned on the endowment fund to be appropriated for current use.

NOTE 18

CAPITAL LEASE OBLIGATIONS CCUSA entered into two five-year lease agreements for office equipment during fiscal year 2013. The value of the equipment, $139,239, has been capitalized and recorded as furniture and fixtures within the consolidated statement of financial position and is being depreciated on a straight-line basis. An imputed interest rate of approximately 4% is being amortized over the lease term. Future minimum lease payments are as follows at June 30, 2013:

Year Ending June 30, 2014 2015 2016 2017 Total Minimum Lease Payments Less: Amount Prepresenting Interest Present Value of Minimum Lease Payments
27

Amount $ 30,812 30,812 30,812 24,896 117,332 (8,742) 108,590

$

NOTE 19

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     RELATED PARTY TRANSACTIONS On July 28, 2011, CCUSA (Sponsor) entered into an agreement with Catholic Charities USA Employee Welfare Benefit Trust (the Trust) acting through its Board of Trustees. The sponsor established the Trust with 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 Catholic Church. The Trust’s Board of Trustees is chaired by CCUSA’s 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 Board members lead organizations that subscribe to the Trust benefit services. CCUSA invested $45,807 in formation costs prior to establishing the Trust’s corporate structure. On January 5, 2012, CCUSA extended a $275,000 cash advance to the Trust, which was repaid on March 8, 2012. There were no outstanding advances as of June 30, 2013 and 2012. CCUSA provides certain services at no cost to the sole Trust employee. CCUSA services are provided on a cost reimbursement basis and include payroll expenses, accounting expenses, legal fees, cell phone, shipping and postage. CCUSA has incurred out-of-pocket expenses of $170,738 and $180,124 of which $131,635 and $94,976 have been reimbursed by the Trust during the years ended June 30, 2013 and 2012, respectively. A receivable in the amount of $39,103 and $85,148 is outstanding as of June 30, 2013 and 2012, respectively. CCUSA has contracted with the Trust for healthcare services for staff and paid a total of $678,125 and $391,473 during the years ended June 30, 2013 and 2012, respectively. CCUSA signed a lease agreement with the LLC for 66,748 square feet of office space at a cost of $854,567 for the year ended June 30, 2013. The LLC incurred total expenses of $1,445,121, of which CCUSA absorbed $854,567 and was eliminated in consolidation. Ballenger reports total expense of $590,554, which is attributed to unused space.

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NOTE 20

CATHOLIC CHARITIES USA AND AFFILIATE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012     SUBSEQUENT EVENT The William R. Fry Trust Fund On August 1, 2013, CCUSA entered into a trust agreement with the William R Fry Fund, establishing a Trust exclusively for the charitable purpose of supporting CCUSA’s member agencies in good standing, by providing grants to be used solely in connection with their poverty reduction initiatives throughout the United States of America. CCUSA funded the Trust by contributing the sum of three million eight hundred thousand dollars ($3,800,000). CCUSA and the Trust acknowledge and agree the Company shall donate to the Trust a minimum annual funding amount based on a variable percentage of the LLC’s net operating income and the recommendation of the Finance Committee to the Board of Trustees of CCUSA. The Funding agreement provides for a funding mechanism to increase the assets in the Trust to the original amount of the William R. Fry bequest of $25,500,000 (See also Note 8).

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