TARZANA TREATMENT CENTERS, INC. FINANCIAL …

1 TARZANA TREATMENT CENTERS, STATEMENTSAND SINGLE AUDIT REPORTS AND SCHEDULESFOR THE YEAR ENDED JUNE 30, 2012 TABLE OF CONTENTS Page INDEPENDENT AUDITORS' REPORT1 - 2 FINANCIAL STATEMENTSS tatement of FINANCIAL Position3 Statement of Activities4 Statement of Functional Expenses5 Statement of Cash Flows6 NOTES TO FINANCIAL STATEMENTS7 - 19 SINGLE AUDIT REPORTS AND SCHEDULESR eport on Internal Control Over FINANCIAL Reporting and on Complianceand Other Matters Based on an Audit of FINANCIAL Statements Performedin Accordance with Government Auditing Standards21 - 22 Independent Auditors' Report on Compliance with Requirements that CouldHave a Direct and Material Effect on Each Major Program and on InternalControl Over Compliance in Accordance With OMB Circular A-13323 - 24 Schedule of Expenditures of Federal Awards25 Notes to Schedule of Expenditures of Federal Awards26 Schedule of Findings and Questioned Costs27 - 29 Corrective Action Plan30 - 31 Summary Schedule of Prior Audit

2 CERTIfiED PUBLIC ACCOUNTANTS I BUSINESS ADVISORS INDEPENDENT AUDITORS' REPORT To the Audit Committee TARZANA TREATMENT CENTERS, INC. TARZANA , California We have audited the accompanying statement of fina ncial position of Tarza na TREATMENT Centers, Inc. (the "Organization") as of June 30, 2012, and the related statements of activities, functional expenses, and cash flows for the year then ended. These FINANCIAL statements are th e responsibility of the Organization's management. 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 (the " ") and th e standards applicable to FINANCIAL audits contained in Gove/'l1l11ent Auditing Standards, issued by the Comptroller General of the Those standards require that we plan and perfornl the audit to obtain reasonable ass urance about whether th e financia l statements are free of material misstatement.

3 An audit includes examining, on a test basis, evidence supporting the amounts and discl os ures in the FINANCIAL statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall FINANCIAL statement presentation. We believe that our audit provides a reasonable bas is for our opinion. In our opinion, the FINANCIAL statements referred to above present fairly, in all material res pects, the FINANCIAL position of the Organiza tion as o f June 30,2012, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the In accordance with Governmel1l Auditing Standards, we have al so issued our report dated January 24, 2013, on our consideration of the Organization's internal control over FINANCIAL reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters.

4 The purpose of that report is to describe the scope of our testing of internal control over FINANCIAL reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over FINANCIAL reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the res ults of our audit. A ' MIX ,,~ Paper FSC FSc-COl6927 t 31 f t 11766 W il shir e Boulevard, Ninth Floor Los Angeles, California 90025-1586 rbz. INDEPENDENT AUDITORS' REPORT (Continued) Our audit was conducted for the purpose of fonning an opinion on the FINANCIAL statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Office of Management and Budget Circular A-133, Audits of Stales, Local Governments, and Nonprofit Organizations, and is not a required part of the FINANCIAL statements.

5 Such infonnation is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the FINANCIAL statements. The infonnation has been subjected to the auditing procedures applied in the audit of the FINANCIAL statements and certain additional procedures, including comparing and reconciling such infonnation directly to the underlying accounting and other records used to prepare the FINANCIAL statements or to the FINANCIAL statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the FINANCIAL statements as a whole. January 24, 2013 TARZANA TREATMENT CENTERS, OF FINANCIAL POSITIONJUNE 30, 2012 ASSETSC urrent AssetsCash and cash equivalents$5,588, Treasury Bills7,023,203 Accounts receivable, net6,518,959 Prepaid expenses449,652 Other current assets43,81319,623,857 Property and equipment, net6,429,605 Long-Term AssetsDeferred compensation investments2,289,146 Other485,9622,775,108$ 28,828,570 LIABILITIES AND UNRESTRICTED NET ASSETSC urrent LiabilitiesAccounts payable$2,519,876 Accrued expenses2,657,934 Deferred revenue69,982 Current portion of debt75,0005,322,792 Long-Term LiabilitiesLong-term debt, net of current portion1,180,000 Deferred compensation liability2,320,8703,500,870 Total Liabilities8,823,662 Commitments and Contingencies(Notes 2, 7, 10 and 11)

6 Net AssetsUnrestrictedGeneral14,830,303 Property and equipment, net5,174,605 Total Net Assets20,004,908$ 28,828,570 See accompanying notes to FINANCIAL TREATMENT CENTERS, OF ACTIVITIESFOR THE YEAR ENDED JUNE 30, 2012 RevenueGrants and contracts$18,344,004 Federal funding15,511,979 Private insurance and private pay5,568,499 Healthy Way clinic revenue2,977,129 Other program income1,086,342In-kind goods and services129,661 Contributions52,952 Interest and dividends5,29543,675,861 Functional ExpensesProgram services31,476,395 General and administrative13,615,50145,091,896 Changes in Unrestricted Net Assets(1,416,035)Unrestricted Net Assets, beginning of year21,420,943 Unrestricted Net Assets, end of year$ 20,004,908 See accompanying notes to FINANCIAL TREATMENT CENTERS, OF FUNCTIONAL EXPENSESFOR THE YEAR ENDED JUNE 30, 2012 See accompanying notes to FINANCIAL General andTotalServicesServicesServicesAdminist rativeExpensesPersonnel CostsWages and salariesAdministrative-$ -$ -$ 3,856,461$ 3,856,461$ Program directors890,640 1,466,175 2,356,815 674,843 3,031,658 Counselors3,013,671 4,961,113 7,974,784 07,974,784 Nurses1,555,772 01,555,772 01,555,772 Clinical1,253,106 2,062,867 3,315,973 03,315,973 Kitchen372,159 0372,159 0372.

7 159 Maintenance and janitorial271,744 447,345 719,089 102,927 822,016 Total personnel7,357,092 8,937,500 16,294,592 4,634,231 20,928,823 Payroll taxes and employee benefitsPayroll taxes522,718 860,500 1,383,218 393,391 1,776,609 Medical insurance473,274 779,104 1,252,378 356,180 1,608,558 Retirement plan 57,865 95,257 153,122 43,548 196,670 Vacation accrual32,848 54,075 86,923 24,721 111,644 Workers' compensation insurance254,168 418,409 672,577 191,283 863,860 Total personnel andrelated benefits8,697,965 11,144,845 19,842,810 5,643,354 25,486,164 Other CostsAuto mileage and travel costs39,058 64,297 103,355 291,857 395,212 Computer supplies and maintenance49,268 54,087 103,355 289,037 392,392 Consultants and home care nursing1,129,333 997,285 2,126,618 516,385 2,643,003 Depreciation and amortization- - - 832,422 832,422 Facility maintenance and costs42,611 70,146 112,757 238,255 351,012 Food costs1,184,194 - 1,184,194 - 1,184.

8 194 Insurance- - - 476,811 476,811 Interest, bank charges, payroll processing and merchant fees- - - 201,993 201,993 Laboratory, medication, medical supplies and radiology1,162,620 1,370,654 2,533,274 - 2,533,274 Marketing costs- - - 486,345 486,345 Office supplies- - - 275,883 275,883 Printing and duplicating16,967 27,932 44,899 125,912 170,811 Professional fees- - - 1,332,265 1,332,265 Program supplies and expenses145,734 239,908 385,642 - 385,642 Property taxes and other taxes- - - 283,025 283,025 Provision for contract allowances- - - 152,463 152,463 Rent1,177,307 2,735,577 3,912,884 560,071 4,472,955 Subcontract grants and allocations- 688,380 688,380 - 688,380 Supplies- - - 313,391 313.

9 391 Telephone- - - 287,229 287,229 Utilities and waste disposal102,472 168,690 271,162 530,392 801,554 Volunteer costs11,790 19,410 31,200 - 31,200 Other costs82,225 53,640 135,865 778,411 914,276 Total Expenses13,841,544$ 17,634,851$ 31,476,395$ 13,615,501$ 45,091,896$ ProgramTARZANA TREATMENT CENTERS, OF CASH FLOWSFOR THE YEAR ENDED JUNE 30, 2012 Cash Flows from Operating ActivitiesChanges in net assets$(1,416,035)Adjustments to reconcile changes in net assets to net cash providedby operating activitiesDepreciation and amortization832,422 Unrealized gain on Treasury Bills(3,937)(Increase) decrease in operating assetsAccounts receivable, net(511,952)Prepaid expenses(56,947)Other current assets(32,325)Deferred compensation investments416,934 Other assets(34,830)Increase (decrease) in operating liabilitiesAccounts payable870,454 Accrued expenses336,295 Deferred revenue3,980 Deferred compensation(380,066)Net Cash Provided by Operating Activities23,993 Cash Flows from Investing ActivitiesPurchases of property and equipment(637,638)Net Cash Used in Investing Activities(637,638)Cash Flows from Financing ActivitiesPrincipal payments on debt(70,000)Net Cash Used in Financing Activities(70,000)Net Decrease in Cash and Cash Equivalents(683,645)

10 Cash and Cash Equivalents, beginning of year6,271,875 Cash and Cash Equivalents, end of year$ 5,588,230 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash Paid during the Year for Interest$66,434 See accompanying notes to FINANCIAL TREATMENT CENTERS, TO FINANCIAL STATEMENTSFOR THE YEAR ENDED JUNE 30, 2012 NOTE 1 -NATURE OF OPERATIONSN ature of ActivitiesTarzana TREATMENT Centers, Inc. (the "Organization") is a full-service behavioralhealthcare organization that provides high quality, cost-effective substance abuse andmental health TREATMENT to adults and youth. The Organization is a nonprofit,community-based organization that operates a psychiatric hospital, residential andoutpatient alcohol and drug TREATMENT centers, adolescent drug TREATMENT centers andfamily medical clinics in locations throughout Southern California. The Organizationhas been accredited by the Joint Commission on Accreditation of HealthcareOrganizations and all facilities are licensed and certified by the State of California andthe County of Los Angeles.