EPISCOPAL CHURCH HOME & AFFILIATES LIFE CARE COMMUNITY, INC. d/b/a CANTERBURY WOODS

Transcription

1 EPISCOPAL CHURCH HOME & AFFILIATES LIFE CARE COMMUNITY, INC. d/b/a CANTERBURY WOODS Financial Statements as of December 31, 2014 and 2013 Together with Independent Auditor s Report

2 INDEPENDENT AUDITOR S REPORT April 28, 2015 To the Board of Directors of Episcopal Church Home & Affiliates Life Care Community, Inc., d/b/a Canterbury Woods: Report on the Financial Statements We have audited the accompanying financial statements of Episcopal Church Home & Affiliates Life Care Community, Inc., d/b/a Canterbury Woods (a New York not-for-profit corporation) which comprise the balance sheet as of December 31, 2014, and the related statements of activities and changes in net asset deficiency and cash flows 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. 100 Corporate Parkway Suite 200 Amherst, New York p (716) f (716) We believe that the audit evidence we have obtained is sufficient and appropriate to provide a reasonable 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 Episcopal Church Home & Affiliates Life Care Community, Inc., d/b/a Canterbury Woods as of December 31, 2014, and the results of its operations and changes in its net asset deficiency and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. (Continued) ALBANY BATAVIA BUFFALO EAST AURORA GENEVA NYC ROCHESTER RUTLAND, VT SYRACUSE UTICA

3 INDEPENDENT AUDITOR S REPORT (Continued) Prior Period Financial Statements The financial statements of Episcopal Church Home & Affiliates Life Care Community, Inc., d/b/a Canterbury Woods, as of December 31, 2013, were audited by other auditors whose report dated April 30, 2014, expressed an unmodified opinion on those statements.

4 EPISCOPAL CHURCH HOME & AFFILIATES LIFE CARE COMMUNITY, INC. d/b/a CANTERBURY WOODS BALANCE SHEETS December 31, ASSETS CURRENT ASSETS Cash and cash equivalents $ 13,985,132 $ 14,397,880 Accounts receivable - net of allowance for doubtful accounts of $23,234 and $25,775 as of December 31, 2014 and 2013, respectively 1,202, ,453 Prepaid expenses and other current assets 1,305,442 1,427,718 Amount due from related parties, net 39,802 91,332 Current portion of assets whose use is limited 1,523,326 1,349,790 Total current assets 18,056,197 17,807,173 Assets whose use is limited, net 17,369,996 16,983,701 Property, plant, and equipment, net of accumulated depreciation 32,555,494 32,598,866 Deferred marketing costs, net 1,039, ,349 Deferred financing costs, net 36,162 44,735 Beneficial interest in net assets of Foundation 235, ,382 TOTAL ASSETS $ 69,292,897 $ 67,757,206 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable and other accrued expenses $ 1,173,974 $ 896,993 Refundable entrance fees 2,471,174 2,094,909 Interest payable - bonds 102, ,206 Due to third party payors 7,592 7,738 Deposits on unoccupied units 574, ,083 Serial bonds payable - due within one year 1,400,000 1,325,000 Total current liabilities 5,730,105 4,578,929 OTHER LIABILITIES Serial bonds payable - due after one year 2,755,000 4,154,607 Refundable entrance fees 72,515,439 72,376,209 Deferred entrance fee revenue 9,523,609 9,597,718 Workers' compensation liability 550, ,000 Total non-current liabilities 85,344,048 86,478,534 TOTAL LIABILITIES 91,074,153 91,057,463 NET ASSETS Unrestricted net asset deficiency (22,076,876) (23,564,296) Temporarily restricted net assets 295, ,039 Total net assets (21,781,256) (23,300,257) TOTAL LIABILITIES AND NET ASSETS $ 69,292,897 $ 67,757,206 The accompanying notes are an integral part of these statements. 1

5 EPISCOPAL CHURCH HOME & AFFILIATES LIFE CARE COMMUNITY, INC. d/b/a CANTERBURY WOODS STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSET DEFICIENCY Years Ended December 31, Revenue: Resident service revenue $ 15,650,090 $ 14,750,798 Earned entrance fees 2,227,124 1,888,040 Investment income 213, ,825 Other operating revenue 347, ,745 Net assets released - operations 26,597 25,603 Total revenue 18,464,118 17,318,011 Expenses: Salaries and wages 6,251,542 6,049,127 Employee benefits 2,274,662 2,120,279 Contract labor 25,628 16,023 Supplies 1,753,204 1,767,508 Purchased and contracted services 1,086,209 1,143,102 Utilities and rentals 690, ,370 Other operating expenses 1,421,266 1,396,414 Provision for bad debts - 23,786 Interest 253, ,773 Depreciation and amortization 2,940,056 3,082,843 Total expenses 16,696,174 16,557,225 Income from operations 1,767, ,786 Non-operating gains (losses): Loss on disposal of fixed assets (12,352) (3,555) Unrealized losses on investments (69,506) (297,940) Loss on extinguishment of debt - (37,426) Retroactive workers' compensation adjustment (Note 9) (200,000) (300,000) Net assets released - capital acquisitions 1,334 7,026 Total non-operating losses (280,524) (631,895) Change in unrestricted net asset deficiency 1,487, ,891 Temporarily restricted: Change in interest in Foundation 59,512 83,527 Temporarily restricted net assets released from restrictions (27,931) (32,629) Total increase in temporarily restricted net assets 31,581 50,898 Change in net asset deficiency 1,519, ,789 Net asset deficiency - beginning of year (23,300,257) (23,480,046) Net asset deficiency - end of year $ (21,781,256) $ (23,300,257) The accompanying notes are an integral part of these statements. 2

6 EPISCOPAL CHURCH HOME & AFFILIATES LIFE CARE COMMUNITY, INC. d/b/a CANTERBURY WOODS STATEMENTS OF CASH FLOWS Years Ended December 31, Cash flows from operating activities: Change in net asset deficiency $ 1,519,001 $ 179,789 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 2,940,056 3,082,843 Change in allowance for doubtful accounts (2,541) 18,203 Amortization of deferred revenue from entrance fees (2,227,124) (1,888,040) Amortization of original issuance discount 393 7,159 Unrealized loss on investments 69, ,940 Loss on disposal of fixed assets 12,352 3,555 Loss on extinguishment of debt - 37,426 Net change in beneficial interest in net assets of Foundation (31,581) (50,898) (Increase) decrease in: Accounts receivable (659,501) 288,734 Prepaid expenses and other current assets, net (33,984) (21,602) Amount due from related parties, net 51,530 (32,174) Accrued income on assets whose use is limited 5,522 11,629 Increase (decrease) in: Accounts payable and accrued expenses, net (121,560) 107,213 Interest payable (32,435) (80,599) Due to third party payors (146) (7,841) Workers' compensation liability 200, ,000 Receipt of non-refundable entrance fees and deposits 2,485,860 2,351,270 Net cash provided by operating activities 4,175,348 4,604,607 Cash flows from investing activities: Net (increase) in assets whose use is limited (634,859) (157,409) Acquisitions of property, plant, and equipment (2,464,937) (1,610,557) Capitalized marketing costs (957,721) - Net cash used by investing activities (4,057,517) (1,767,966) Cash flows from financing activities: Receipt of entrance fees and deposits 8,777,924 8,871,631 Refund of entrance fees and deposits, net (7,983,503) (4,968,955) Payment of debt (1,325,000) (3,250,000) Net cash (used by)/provided by financing activities (530,579) 652,676 Net (decrease) / increase in cash and cash equivalents (412,748) 3,489,317 Cash and cash equivalents at beginning of year 14,397,880 10,908,563 Cash and cash equivalents at end of year $ 13,985,132 $ 14,397,880 Supplemental disclosure of cash flow information: Cash paid for interest $ 285,965 $ 428,372 Property, plant, and equipment purchases in accounts payable at end of year $ 398,541 $ - The accompanying notes are an integral part of these statements. 3

7 EPISCOPAL CHURCH HOME & AFFILIATES LIFE CARE COMMUNITY, INC., d/b/a CANTERBURY WOODS NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, ORGANIZATION Episcopal Church Home & Affiliates Life Care Community, Inc., d/b/a Canterbury Woods (the Company ) is a New York non-profit organization that operates a life care community in Amherst, New York, providing housing, as well as food, health and other services to the elderly. Canterbury Woods consists of 243 independent living units (203 apartments and 40 cottages) and an 80-bed health center consisting of 32 assisted living units and 48 skilled nursing beds. The Company intends to construct 53 additional independent living units and 5 additional assisted living units at Gates Circle in Buffalo, New York (Canterbury Woods Gates Circle). The Company anticipates admitting residents to this facility in SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Reporting The Company reports revenue and expenses using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (US GAAP). US GAAP requires that resources be classified for reporting purposes into three net asset categories (temporarily restricted, permanently restricted and unrestricted) according to the existence or absence of donor-imposed restrictions. Temporarily restricted net assets are those whose use has been limited by donors to a specific purpose or time period. Permanently restricted net assets are those for which donors require the principal of the gift to be maintained in perpetuity. Unrestricted net assets, including board designated resources, are expendable for the support of the Company s operating activities. Temporarily restricted net assets are held by Episcopal Church Home Foundation of Western New York, Inc. (the Foundation ) and consist of contributions received for the benefit of Canterbury Woods which have been restricted for specific purposes. As of December 31, 2014 and 2013, there were no permanently restricted net assets. As a life care community, the Company has a multi-year business and planning cycle. It is using a period of 12 months in these financial statements to distinguish current from noncurrent assets and liabilities. An actuarial evaluation of the Company's projected financial position over this multi-year cycle is performed annually. The actuarial study compares the present value of the net cost of future services and use of facilities to be provided to current residents to the balance of deferred entrance fee revenue. An additional liability and corresponding charge to income is recognized if projected future costs exceed deferred fees. No additional liability was required for the years ended December 31, 2014 or 2013 (see Note 8). As of December 31, 2014 the Company had a net deficit of approximately $22 million and refundable entrance fees of approximately $75 million. While not amortized into income, refundable entrance fee deposits act as a component of the Company's permanent capitalization, as refunds to current residents are normally funded by entrance fee deposits of new residents entering the community. 4

8 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounts Receivable Accounts receivable are stated at unpaid balances, net of an allowance for doubtful accounts. The Company estimates the allowance based on its analysis of specific balances, taking into consideration the age of past due accounts, the status of the billing process with third-party payors, the value of remaining assets held by residents, and anticipated collections resulting from legal action. Receivables are considered impaired if payment is not received in accordance with terms. It is the Company's policy to charge off uncollectible accounts receivable when management determines the receivable will not be collected. Assets Whose Use Is Limited Assets whose use is limited are carried at fair value and include the following: Operating Reserve Fund Required to be funded for taxes, insurance, repairs and replacements for up to twelve months, and operating costs for up to six months. Long-Term Debt Service Reserve Fund Required to be funded in an amount equal to the lesser of the maximum annual debt service on all long-term bonds outstanding or 10% of the principal amount of bonds outstanding. Long-Term Bond Fund Required to be funded in an amount at least equal to current principal and interest payable on long-term bonds. Depreciation Fund Represents amounts available for the replacement of and additions to property and equipment. Replacement Fund Funds are available for capital expenditures or extraordinary maintenance, but withdrawn funds must be restored with monthly deposits of $17,000 until the balance is restored to $2,000,000. Lexington Village Deposits Include deposits made by those interested in a home in Lexington Village. Gates Circle Deposits Include deposits made by those interested in an apartment at Canterbury Woods Gates Circle. Earnings Fund Receives income from trustee held funds. Property and Equipment Property and equipment are stated at cost less accumulated depreciation computed using the straight-line method over estimated useful lives as follows: Building and improvements Furniture and equipment Land improvements years 3-20 years years Maintenance and repairs are charged to expense. The Company capitalizes assets with a cost greater than $500 and with an estimated useful life of more than 2 years. 5

9 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Intangible Assets Intangible assets consist of deferred marketing costs and deferred financing costs. Deferred marketing costs represent direct response advertising and related costs incurred in connection with the initial marketing of the community and subsequent marketing of Lexington Village. Amortization of deferred marketing costs is computed using the straight-line method over the estimated remaining lives of the first residents of the Company s apartments and cottage homes (composite life of approximately 8.4 years and 11.2 years respectively). Deferred marketing costs also include direct response advertising and related costs incurred in the initial marketing of Canterbury Woods Gates Circle. Amortization of Canterbury Woods Gates Circle marketing costs will begin when the location commences operations. Deferred financing costs consist primarily of professional fees and debt issue costs incurred in securing financing. These costs are amortized using the straight line method over the life of the related debt. Fair Value of Financial Instruments For all current assets and liabilities, the carrying amounts of all financial instruments approximate fair values. The fair values of other assets and liabilities are disclosed in the appropriate footnotes. Resident Service Revenue Resident service revenue consists primarily of amounts earned under continuing care contracts. Amounts received from third-party payors for skilled nursing and other services are also classified as resident service revenue. Continuing Care Contracts Revenue The facility provides residents with a continuum of services including independent living, assisted living, and nursing home care. As a condition precedent to providing these services, the Company enters into a continuing care contract with each prospective resident which sets forth the responsibilities of both parties. For the right to occupy and use the living accommodations and receive the services of the life care community, each resident is required to pay an entrance fee and a monthly service fee based on the size and type of apartment and the number of occupants. Entrance fees are due in two installments. Ten percent of the entrance fee is due when the continuing care contract is signed, while the remainder is to be paid upon the earlier of the date the resident occupies the facility or 60 days from the date the contract is executed. Entrance fees include a residential component and a life care component. The Company maintains three types of residential and life care contracts that offer varying degrees of refundability. The refundable portion of the entrance fees are recorded as a liability and refunds can range from 0% to 100% of the total entrance fee depending on the type of contract and the date the contract is terminated. The remaining amount of entrance fees are accounted for as deferred revenue, and are amortized to income using the straight-line method over the estimated life of each resident. The period of amortization is adjusted annually based on the actuarially estimated remaining life expectancy of each individual or on the joint and last survivor life expectancy of each pair of residents occupying the same unit. During 2014 and 2013, the Company amortized $2,227,124 and $1,888,040, respectively, of deferred entrance fees to income. Monthly service fees are billed in advance and are recognized as income in the month they are earned. 6

10 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Third-Party Payor Revenue Net resident service revenue is reported at estimated net realizable amounts from residents, third-party payors, and others for services rendered and includes estimated retroactive revenue adjustments resulting from changes in case mix indexes and future audits, reviews and investigations. Retroactive adjustments are considered in the recognition of revenue on an estimated basis in the period the related services are rendered. Such amounts are adjusted in future periods as adjustments become known or as years are no longer subject to such audits, reviews and investigations. It is not possible to determine the extent of additional liability (or receivable) resulting from governmental audits conducted in years subsequent to the balance sheet dates. Laws and regulations governing reimbursement are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term. Investment Income Investment income during 2014 includes interest amounting to $213,241 ($312, ) and realized losses amounting to $235 (gains of $3, ). Non-operating investment income consists of unrealized gains and losses. Contributions Unconditional promises to give cash and other assets are reported at fair value at the date the promise is received. The gifts are reported as either temporarily or permanently restricted support if they are 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 reclassified as unrestricted net assets and reported in the statement of activities and changes in net assets as net assets released from restrictions. Donor-restricted contributions whose restrictions are met within the same year as received are reflected as unrestricted contributions in the accompanying financial statements. Advertising Expense Advertising costs which are not related to direct response advertising as well as the costs of acquiring continuing care contracts are expensed as incurred. Income Taxes The Company is a not-for-profit corporation and is exempt from income taxes as a corporation qualified under Section 501(c)(3) of the Internal Revenue Code. The Company files its Return of Organization Exempt from Income Tax in the U.S. federal jurisdiction. The tax years generally remain open to examination in taxing jurisdictions in which the Company is subject to filing requirements of those jurisdictions. Income from Operations For purposes of display, transactions deemed by management to be ongoing, major, or central to the provision of health care and housing services are reported as operating revenue and expenses. Peripheral or incidental transactions are reported as non-operating items. 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. 7

11 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash accounts in a financial institution. Although the accounts exceed the federally insured deposit amount, management does not anticipate nonperformance by the financial institution. Reclassification Certain 2013 amounts have been reclassified to conform with the 2014 financial statement presentation. 3. FAIR VALUE As defined by United States Generally Accepted Accounting Principles (US GAAP), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. US GAAP establishes a fair value hierarchy that requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. US GAAP s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect the Company s estimate of market assumptions. US GAAP classifies these inputs into the following hierarchy: Level I: Quoted prices in active markets for identical assets or liabilities. Level II: Observable inputs other than Level 1 prices, such as quoted prices for similar instruments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the same term of the assets or liabilities. Level III: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. As of December 31, 2014 and 2013, those assets and liabilities that are measured at fair value on a recurring basis consisted of the Company s assets whose use is limited. The Company believes that the carrying amounts of its other financial instruments, including cash and cash equivalents and accounts payable and accrued expenses, approximate their fair value due to the short-term maturities of these instruments. Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in methodologies used at December 31, 2014 and Cash and Cash Equivalents Stated at cost, which approximates fair value. Cash and cash equivalents are classified as Level 1. Mortgage and Asset Backed Securities Valued at their recent bid prices (sales price if the principal market is an exchange) in the principal market in which such securities are normally traded, as determined by recognized dealers in such securities, or securities are valued on the basis of information provided by a pricing service. All mortgage and asset backed securities held by the Company are insured by the full faith and credit of the United States government or its authorized agents. Mortgage and asset backed securities are classified as Level 2. 8

12 3. FAIR VALUE (Continued) The following tables present information about the Company s assets whose use is limited that are measured at fair value on a recurring basis as of December 31, 2014 and 2013, and indicates the fair value hierarchy of the valuation techniques the Company utilizes to determine such fair value. At December 31, 2014 Quoted Prices in Active Market Level I Significant Other Observable Inputs Level II Significant Unobservable Inputs Level III Total Assets limited as to use: Cash and cash equivalents $ 15,608,281 $ - $ - $ 15,608,281 Mortgage and asset backed securities - 3,285,041 3,285,041 Total assets limited as to use $ 15,608,281 $ 3,285,041 $ - $ 18,893,322 At December 31, 2013 Quoted Prices in Active Market Level I Significant Other Observable Inputs Level II Significant Unobservable Inputs Level III Total Assets limited as to use: Cash and cash equivalents $ 13,770,808 $ - $ - $ 13,770,808 Mortgage and asset backed securities - 4,562,683-4,562,683 Total assets limited as to use $ 13,770,808 $ 4,562,683 $ - $ 18,333, ASSETS WHOSE USE IS LIMITED Assets whose use is limited are summarized as follows at December 31: Operating reserve fund $ 6,340,715 $ 6,360,434 Long-term debt service reserve fund 994, ,887 Long-term bond fund 1,523,326 1,349,790 Depreciation fund 2,757,666 2,744,045 Replacement fund 4,829,543 4,780,457 Lexington Village deposits 2,355 2,355 Gates Circle deposits 230,098 - Earnings Fund 1,922,624 1,839,903 Other 278, ,708 Total funds 18,879,932 18,314,579 Accrued income on investments 13,390 18,912 Total $ 18,893,322 $ 18,333,491 9

13 5. PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31: Building and improvements $ 50,662,820 $ 50,637,649 Furniture and equipment 24,665,082 23,945,690 Land improvements 1,806,115 1,782,308 Construction in progress 2,529, ,528 79,663,664 76,876,175 Less: Accumulated depreciation 50,184,095 47,353,234 29,479,569 29,522,941 Land 3,075,925 3,075,925 Total $ 32,555,494 $ 32,598,866 Depreciation expense amounted to $2,894,498 for the year ended December 31, 2014 ($3,034, ). 6. INTANGIBLE ASSETS Intangible assets consist of the following at December 31: Marketing costs $ 2,744,140 $ 1,786,420 Less: Accumulated amortization 1,705,055 1,668,071 Net marketing costs 1,039, ,349 Financing costs 329, ,842 Less: Accumulated amortization 293, ,107 Net financing costs 36,162 44,735 Net intangible assets $ 1,075,247 $ 163,084 As of December 31, 2014, the Company had capitalized $957,720 of costs associated with the marketing of its Canterbury Woods Gates Circle units. Amortization expense amounted to $45,558 for the year ended December 31, 2014 ($47, ). Amortization expense, excluding amortization of Canterbury Woods Gates Circle marketing costs, for the next five years subsequent to December 31, 2014 is expected to be as follows: 2015 $ 41, , , , ,604 Thereafter 21, $ 117,526

14 7. TERM BONDS PAYABLE Permanent financing for the original project was obtained in 1998 through the Erie County Industrial Development Agency s (the Agency ) issuance of tax-exempt bonds. At the date of the bond issuance, the Agency took title to all of the project s property and equipment and simultaneously leased the same to the Company. The Company is obligated to make lease rental payments to the bond trustee, as the Agency s assignee, in amounts which correspond to the principal and interest payments on the bonds. The lease agreement contains a bargain purchase option which provides for transfer of the leased assets to the Company. In April 2013, the Agency relinquished its fee title and deeded the property and equipment back to the Company, while at the same time, reserving their leasehold interest in the property. During 2013, the Company retired bonds with a face value of $2,000,000 at par. The related write off of deferred financing fees resulted in a loss on extinguishment of debt totaling $37,426. Outstanding bonds mature as follows at December 31: Term Bonds due in installments through February 1, 2016, with interest at 5.875%. $ 2,120,000 $ 3,445,000 Term Bonds due in installments through February 1, 2028, with interest at 6.00%. 2,035,000 2,035,000 4,155,000 5,480,000 Less: Unamortized original issue discount - (393) Net long-term bonds 4,155,000 5,479,607 Less: Amount due within one year (1,400,000) (1,325,000) Amount due after one year $ 2,755,000 $ 4,154,607 Annual maturities for the five years succeeding December 31, 2014 are as follows: 2015 $ 1,400, , Thereafter 2,035,000 $ 4,155,000 The term bonds are subject to mandatory sinking fund redemptions in years 2013 to 2028 in amounts ranging from $720,000 to $1,760,000. The term bonds due February 1, 2016, were issued at a discount of $113,970 to yield 5.95%. The original issue discount is being amortized over the average life of the related term bonds. Under the terms of the financing documents, the Company has guaranteed payment of all amounts due under the Long-Term Bonds. Additionally, the bonds are secured by first mortgage liens on all buildings, improvements and equipment now owned or subsequently acquired by the Company, a security interest in the Company s gross revenues, and a right of setoff against the Company s funds held by the trustee. 11

15 7. TERM BONDS PAYABLE (Continued) The financing agreements contain certain covenants, the most restrictive of which are liquidity and performance tests and requirements to maintain certain reserve fund levels and debt service coverage ratios. The Company was in compliance with these covenants as of December 31, OBLIGATION TO PROVIDE FUTURE SERVICES The Company periodically calculates the present value of the net cost of future services and use of the facilities to be provided to current residents and compares that amount with the balance of deferred revenue from entrance fees. If the present value of the net cost of future services and the use of facilities exceeds the deferred entrance fee revenue, a liability is recorded with a corresponding charge to income. Based upon the calculation, the present value of the net cost of future services and use of facilities did not exceed deferred entrance fee revenue. Accordingly, no obligation was recorded at December 31, 2014 or The discount rate used to calculate the present value of the net cost at December 31, 2014 and 2013 was 4.5%. 9. WORKERS COMPENSATION Through 2009, the Company was self-insured for workers compensation claims through a captive group trust arrangement with other healthcare providers. The New York State Workers Compensation Board took over the trust during 2011 due to the self-insured trust s failure to meet and maintain liquidity and long term solvency requirements. In December 2013, the New York State Workers Compensation Board assessed the Company approximately $800,000, for its share of the trust s liabilities. The Company has hired legal counsel to represent them in defending against the claims of the New York State Workers Compensation Board. Currently, the New York State Workers Compensation Board has postponed any further collection activity related to its most recent trust liability assessment and the Company is considering its own next steps including further analysis, negotiation and litigation options. Because of the unknown ultimate amount of the trust liability, the balance sheet includes only an estimate based on the Company s most current assessment and assumptions of its trust liability less payments made. The Company recorded a non-operating expense of $200,000 and $300,000 during 2014 and 2013, respectively in order to adjust the corresponding estimated liability to $550,000 and $350,000 at December 31, 2014 and 2013, respectively. The estimated liability may be subsequently increased or decreased as the process develops and more factual data becomes known. Effective January 1, 2010, the Company is insured through a premium based plan. 10. EMPLOYEE BENEFIT PLAN The Company sponsors a 401(k) defined contribution plan, which provides for a matching contribution of 10% of an eligible employee s elective contribution. The matching contribution applies up to 1½% of each eligible employee s salary. The Company s contributions are reflected as a component of employee benefits and totaled $19,356 and $14,631 for the years ended December 31, 2014 and 2013, respectively. 12

16 11. FUNCTIONAL EXPENSES Expenses by functional category are as follows at December 31: Program activities $ 11,307,067 $ 10,906,576 General and administrative services 2,195,521 2,153,628 Depreciation and amortization 2,940,056 3,082,843 Interest 253, ,773 Professional fundraising - 66,405 Total $ 16,696,174 $ 16,557, RELATED PARTY TRANSACTIONS The Company is affiliated through common directors and/or shared economic interests with the following entities: Episcopal Church Home & Affiliates, Inc. (ECH&A) Episcopal Church Home of Western New York Episcopal Community Healthcare, Inc. Episcopal Community Housing, Inc. Episcopal Residential Health Care Facility, Inc. Brent Manor, Inc. Episcopal Community Housing Development Organization, Inc. (CHODO) Episcopal Church Home Foundation of Western New York, Inc. The Company recorded management fee income of $36,000 from ECH&A during 2014 ($36,000 from ECH&A ). Net amounts receivable from affiliates totaled $39,802 at December 31, 2014 ($91, ). The amounts are non-interest bearing, unsecured obligations with no defined repayment terms. 13. SUBSEQUENT EVENTS These financial statements have been updated for subsequent events occurring through April 28, 2015 which is the date these financial statements were available to be issued. 13