Morton Plant Mease Health Care Foundation, Inc.

Transcription

1 Morton Plant Mease Health Care Foundation, Inc. FINANCIAL STATEMENTS For the Years Ended December 31, 2018 and 2017

2 Table of Contents December 31, 2018 and 2017 TAB: REPORT Independent Auditors Report 1 TAB: FINANCIAL STATEMENTS Statements of Financial Position 3 Statements of Activities 4 Statements of Cash Flows 6 7

3 REPORT

4 INDEPENDENT AUDITORS REPORT Clearwater, Florida Report on the Financial Statements We have audited the accompanying financial statements of Morton Plant Mease Health Care Foundation, Inc. (a nonprofit organization), which comprise the statement of financial position as of December 31, 2018, and the related statements of activities 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. Auditors 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 auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion

5 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of as of December 31, 2018, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter Adoption of New Accounting Pronouncement As described in Note 2 to the financial statements, in the 2018 financial statements the Foundation adopted Accounting Standards Update (ASU) : Not-For-Profit Entities, which did not change opening net assets. Our opinion is not modified with respect to this matter. Report on Summarized Comparative Information We have previously audited the s 2017 financial statements, and our report dated February 21, 2018, expressed an unmodified opinion on those audited financial statements. In our opinion, the summarized comparative information presented herein as of and for the year ended December 31, 2017, is consistent, in all material respects, with the audited financial statements from which it has been derived. CARR, RIGGS & INGRAM, LLC Clearwater, Florida February 25,

6 FINANCIAL STATEMENTS

7 Statements of Financial Position Year ended December 31, 2018 with comparative totals for the year ended 2017 Without Donor With Donor Total Total Restrictions Restrictions Assets Cash $ 212,657 $ 331,038 $ 543,695 $ 1,297,006 Contributions receivable, net - 8,502,584 8,502,584 4,508,114 Marketable securities 15,190,761 35,825,789 51,016,550 49,675,446 Other assets 314,297 51, , ,068 Cash surrender value of life insurance policies 2,722,448 1,694,688 4,417,136 4,370,119 Remainder interest in irrevocable Trusts and estates - 6,323,871 6,323,871 10,548,348 Gift annuity investments 4,492,318 7,497,706 11,990,024 13,278,201 Property and equipment, net 495, , ,524 Endowment investments - 13,353,179 13,353,179 13,324,879 Externally controlled endowments - 14,703,393 14,703,393 16,148,937 Total assets $ 23,427,519 $ 88,283,761 $ 111,711,280 $ 113,967,642 Liabilities and Net assets Liabilities Accounts payable and accrued expenses $ 341,746 $ 37,061 $ 378,807 $ 411,314 Gift annuity obligations - 6,389,321 6,389,321 6,583,277 Liability under trust agreements - 859, , ,574 Total liabilities 341,746 7,285,850 7,627,596 7,980,165 Net assets Net assets without donor restrictions Undesignated 18,593,455-18,593,455 21,058,571 Board designated net assets, gift annuities (Note 1) 4,492,318-4,492,318 5,311,562 Total net assets without donor restrictions 23,085,773-23,085,773 26,370,133 Net assets with donor restrictions - 80,997,911 80,997,911 79,617,344 Total net assets 23,085,773 80,997, ,083, ,987,477 Total liabilities and net assets $ 23,427,519 $ 88,283,761 $ 111,711,280 $ 113,967,642 The accompanying notes are an integral part of these financial statements

8 Statements of Activities Year ended December 31, 2018 with comparative totals for the year ended 2017 Without Donor With Donor Total Total Restrictions Restrictions Public support and revenue: Public support: Contributions $ 1,000,889 $ 1,854,766 $ 2,855,655 $ 3,492,170 Promises to give, net - 7,045,483 7,045,483 1,122,933 Gift annuities, net - 300, , ,274 Trusts and estates 839,948 2,737,943 3,577, ,630 Special events, net 12, , , ,258 Total public support 1,853,536 12,202,776 14,056,312 6,250,265 Revenue: Investment income, net of fees: Investments 497, ,329 1,052, ,541 Gift annuities - 242, , ,903 Other 351,163 9, , ,553 Total revenue 849, ,815 1,654,889 1,574,997 Net assets released from restrictions: Satisfaction of program restrictions 6,870,111 (6,870,111) - - Satisfaction of time restrictions 504,285 (504,285) - - Other changes in donor restrictions 54,884 (54,884) - - Total net assets released from restrictions 7,429,280 (7,429,280) - - Total public support and revenue (carried forward) 10,131,890 5,579,311 15,711,201 7,825,262 The accompanying notes are an integral part of these financial statements

9 Statements of Activities (Continued) Year ended December 31, 2018 with comparative totals for the year ended 2017 Without Donor With Donor Total Total Restrictions Restrictions Total public support and revenue (brought forward) 10,131,890 5,579,311 15,711,201 7,825,262 Grants and expenses: Program Grants to hospital 7,991,269-7,991,269 7,170,489 Other expenses 145, , ,377 Administration 577, , ,404 Fund raising 1,456,798-1,456,798 1,326,630 Total grants and expenses 10,171,201-10,171,201 9,276,900 Public support and revenue in (deficit) excess of grants and expenses (39,311) 5,579,311 5,540,000 (1,451,638) Other changes: Depreciation (appreciation) in marketable securities: Investments (2,798,103) (3,109,577) (5,907,680) 8,388,228 Gift annuities - (618,788) (618,788) 906,037 Appreciation (depreciation) in value of split-interest agreements 97,432 (470,379) (372,947) 1,822,884 Loss for uncollectible pledges (569,878) (569,878) (3,600) Other income 25,500-25,500 25,500 Total other changes (3,245,049) (4,198,744) (7,443,793) 11,139,049 Change in net assets (3,284,360) 1,380,567 (1,903,793) 9,687,411 Net assets, beginning of year 26,370,133 79,617, ,987,477 96,300,066 Net assets, end of year $ 23,085,773 $ 80,997,911 $ 104,083,684 $ 105,987,477 The accompanying notes are an integral part of these financial statements

10 Statements of Cash Flows Years ended December 31, Change in net assets $ (1,903,793) $ 9,687,411 Adjustments to reconcile change in net assets to net cash used by operating activities: Depreciation 51,750 41,329 Depreciation (Appreciation) in value of investment activities 6,517,343 (9,259,528) Change in split interest agreements 1,189,311 (1,290,609) Provision for uncollectible contributions 569,878 3,600 Noncash contributions (6,135) (1,067) Endowment contributions, restricted for long-term purposes (26,261) (64,178) Changes in assets and liabilities: Contributions receivable (4,564,348) 231,205 Receivable - claim settlement - 857,475 Receivable - other - 210,040 Other assets (49,742) 23,732 Cash surrender value of life insurance policies (47,017) (89,749) Remainder interest in irrevocable trusts and estates 5,173,681 (221,986) Accounts payable and accrued expenses (32,507) (134,058) Gift annuity obligations (1,013,033) (419,704) Net cash provided (used) by operating activities 5,859,127 (426,087) Investing activities: Purchases of property and equipment (46,264) (86,089) Proceeds from sale of marketable securities 48,017,302 23,340,597 Purchases of marketable securities (54,609,737) (22,548,412) Net cash (used) provided by investing activities (6,638,699) 706,096 Financing activities: Endowment contributions 26,261 64,178 Net cash provided by financing activities 26,261 64,178 (Decrease) increase in cash (753,311) 344,187 Cash, beginning of year 1,297, ,819 Cash, end of year $ 543,695 $ 1,297,006 The accompanying notes are an integral part of these financial statements

11 NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Purpose, ( Foundation ), was organized for the purpose of obtaining, holding, and managing funds that are used mainly for the benefit of the Hospitals of Morton Plant Mease Health Care ( Hospital ), in accordance with restrictions, if any, imposed by donors. The Foundation collects contributions from both individuals and corporate donors, primarily from the Tampa Bay area. The Foundation is incorporated under the provisions of Section 501(c) (3) of the Internal Revenue Tax Code, to engage exclusively in not-for-profit activities and is exempt from federal and state income taxes. The Foundation is associated with Morton Plant Mease Health Care System, Inc. ( Health System ). These statements, which contain only the activity of the Foundation, are included in the combined statements of the Morton Plant Mease Health Care System, Inc. Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Net assets and revenue, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the Foundation and changes therein are classified and reported as follows: Net Assets Without Donor Restriction: Include net assets that are not subject to donor-imposed stipulations and net assets that have been designated for a specific purpose by the Board of Directors. Net Assets With Donor Restrictions: Include gifts for which donor-imposed restrictions due to time or purpose have not yet been met and gifts that require, by donor restriction, that the corpus be invested in perpetuity and only the income be made available for program operations in accordance with donor restrictions. 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 revenues and expenses during the reporting period. Actual results could differ from those estimates

12 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Federal Income Taxes The Foundation follows the provisions of ASC 740, Accounting for Uncertainty in Income Taxes. The Foundation has not recognized any respective liability for unrecognized tax benefits as it has no known uncertain tax positions that would subject the Foundation to any material income tax exposure. Liability Under Trust Agreements When the Foundation is the trustee of charitable remainder trusts in which the Foundation has a future interest, the full market value of the trusts assets are shown as an asset of the Foundation with an offsetting liability (liabilities under trust agreements) for the net present value of the expected payments to be made to the income beneficiary in accordance with ASC 820, Fair Value Measurements. Marketable Securities and Investments Investments in equity securities with readily determinable fair values and all investments in debt securities are measured at fair value based on quoted market prices. Investments that are measured at fair value on a recurring basis are classified by level based on an established fair value hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. The Foundation believes the carrying amount of these financial instruments is a reasonable estimate of fair value. Gains and losses on market value adjustments and sales are recognized within the statement of activities. Remainder Interests in Irrevocable Trusts, and Estates The Foundation recognizes an asset and revenue on estates in probate and charitable remainder trusts when they receive notification of an irrevocable interest in one of those types of contributions. The underlying investments for the internally-controlled assets are in debt and equity securities, mutual funds, and real estate and are stated at fair value in accordance with ASC 820. When management expects the cash from these contributions to be received more than one year in the future, the asset and revenue is discounted for the time value of money (net present value) based on the Internal Revenue Service discount rate at the time of the gift

13 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Contributions Receivable Unconditional promises to give the Foundation cash or other assets in the future are recorded as promises to give revenue (with donor restriction) and contributions receivable. If management expects the cash from the contribution receivable to be received more than one year in the future, the promises to give revenue and receivable are discounted for the time value of money (i.e., net present value) at a discount rate of 1.90% for The discount rate used in previous years are as follows: Year Ending December 31, Discount Rate Prior to % % % % % % % % Management estimates the allowance for uncollectible promises based on historical write-offs. Management writes off contributions receivable as identified. Pledges are reported at net realizable value in the initial year and a discount is recorded. These pledges are not revalued in subsequent years and the Foundation has not elected the fair value option. Discount amortization is recognized as contribution revenue in subsequent years. Contribution Revenue Contribution revenue includes cash or other assets contributed in which the Foundation received notification during the year. Contributed Services Many volunteers contributed numerous hours of administrative and fund raising services to the Foundation. However, these hours do not meet the requirements to be recorded as revenue and expense under ASC

14 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and Equipment Office equipment, furnishings, buildings and land purchased by the Foundation are recorded at cost if greater than $500. Donated property used by the Foundation is recorded at fair market value on the date contributed. If donors stipulate how long the assets must be used, the contributions are recorded as with donor restrictions. In the absence of such stipulations, contributions of property and equipment are recorded as unrestricted support. Depreciation is recorded under the straightline method over the estimated useful lives of the assets, which range from 2 to 25 years. Grants Grants to the Hospital are approved by the Community Impact Committee and recommended to the Board for approval periodically. Upon Board approval, the grants are then paid and expensed in the same period as they are approved. Gift Annuities Gift annuity contracts issued by the Foundation, guarantee that a donor will receive a fixed amount of money every year for the rest of their life in exchange for a donation. The assets received by the Foundation are recorded at fair value at the date of the donation. The assets underlying the gift annuities are investments in debt and equity securities and mutual funds stated at fair value. The liability to the donor is computed using the Internal Revenue Service s actuarial model, at the date of the gift. The interest rate used, in the model are those prescribed by the IRS as of the date of the gift. The excess of the annuity gift asset received over the recorded liability is recorded as support in the year of receipt. The governing board has designated the excess as a reserve to ensure fulfillment of the obligations related to the gift annuity contracts. Upon the donor s death, the excess of the gift received from the donor and revenues realized over the distribution paid to the donor is spent as specified by the gift annuity contract. The Foundation quarterly revalues the gift annuity liability for each donor, based on the donor s life expectancy. The resulting change in the liability is recorded as a change in split interest agreements in the statement of activities

15 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Functional Allocation of Expenses The cost of providing certain activities of the Foundation have been summarized on a functional basis in the statement of activities. Certain categories of expenses are attributable to program, administration, and fund raising activities. These expenses include salaries, payroll benefits, supplies, associated occupancy expenses and depreciation. These expenses are allocated based on estimates of time and effort. These functions are defined as follows: Program- The costs related to supporting the hospitals of Morton Plant Mease to improve health and wellness of the community. Administration The costs of operating the Foundation offices, including gathering, processing, and maintaining financial and legal information. Fund Raising The costs associated with the direct solicitation of contributions to the Foundation and promoting the community s awareness of the combined mission of the Health Care System and the Foundation. Cash Surrender Value of Life Insurance Policies Donated insurance policies are valued at the gross cash surrender value less outstanding loans. Management s Review Management has reviewed subsequent events through February 25, 2019, which is the date the financial statements were issued

16 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Reclassifications Approximately $54,900 has been transferred between the net asset accounts, as shown below. These transfers are shown on the Statement of Activities. December 31, 2018 Without Donor Restrictions With Donor Restrictions Gift annuity reserve adjustment * $ (819,244) $ 819,244 Donor gift changes ** 569,878 (569,878) Due to/ due from restrictions *** 304,250 (304,250) $ 54,884 $ (54,884) *Charitable gift annuity reserves are adjusted quarterly based on the calculation to determine required asset reserves. **Changes resulting from donor restricted pledges deemed uncollectible. ***Funds released from restriction and transferred to unrestricted. NOTE 2: COMPARATIVE FINANCIAL INFORMATION The financial statements include certain prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Foundation s financial statements for the year ended December 31, 2017, from which the summarized information was derived. In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No , Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. The Foundation has adjusted the presentation of its financial statements accordingly, applying the changes retrospectively to the comparative period presented

17 NOTE 2: COMPARATIVE FINANCIAL INFORMATION (Continued) The new standard changes the following aspects of the Foundation s financial statements: The temporarily restricted and permanently restricted net asset classes have been combined into a single net asset class called net assets with donor restrictions. The unrestricted net asset class has been renamed net assets without donor restrictions. The footnotes no longer require components of investment income to be disclosed. The financial statements include a new disclosure about liquidity and availability of resources (Note 5). The financial statements include a new disclosure related to functional allocation of expenses. The changes have the following effect on net assets at December 31, 2017: Net Asset Class As Originally Presented After Adoption of ASU Unrestricted net assets $ 26,370,133 $ - Temporarily restricted net assets 50,143,528 - Permanently restricted net assets 29,473,816 - Net assets without donor restrictions - 26,370,133 Net assets with donor restrictions - 79,617,344 Total net assets $ 105,987,477 $ 105,987,477 In addition, certain amounts of investment income in the prior-year financial statements have been reclassified for comparative purposes to conform with the presentation in the current-year financial statements

18 NOTE 3: CONTRIBUTIONS RECEIVABLE Contributions receivable at December 31, 2018 are summarized as follows: Expected receipt of contribution in: Amount 2019 $ 1,514, ,608, ,788, ,717, ,405,000 Thereafter 1,165,000 Gross contributions receivable 9,198,851 Less discount for present value (524,748) Less allowance for doubtful contributions receivable (171,519) Net contributions receivable $ 8,502,584 Contributions receivable consist primarily of promises from individuals and corporations within the Tampa Bay area. Management has established an allowance account as its estimate of uncollectible promises to give of approximately $172,000 and $92,000 at December 31, 2018 and 2017, respectively

19 NOTE 4: INVESTMENTS Marketable securities, gift annuity investments and endowment investments are recorded at market value and are summarized as follows: December 31, Cost Market Cost Market Debt securities $ 20,686,776 $ 20,411,592 $ 18,530,248 $ 18,540,452 Equity securities 51,243,460 47,138,406 44,995,702 55,470,969 Money market funds 8,772,286 8,772,286 2,233,522 2,233,522 Other 37,469 37,469 33,483 33,583 $ 80,739,991 $ 76,359,753 $ 65,792,955 $ 76,278,526 Below is a summary of the line items from the balance sheet that comprise the investment breakdown above at market value: December 31, Marketable securities $ 51,016,550 $ 49,675,446 Gift annuity investments 11,990,024 13,278,201 Endowment investments 13,353,179 13,324,879 $ 76,359,753 $ 76,278,526 NOTE 5: LIQUIDITY AND AVAILABILITY OF FINANCIAL ASSETS The Foundation monitors its liquidity so that it is able to provide grant funding to the Hospitals and cover operating expenses. Readily available assets with donor restrictions are available to cover grant funding. Management budgets for grants based on the range of the most recent five year rolling average of grants paid as a percentage of the respective year s total available assets. Assets without donor restrictions are available to cover operating expenses. Management has budgeted approximately $10,100,000 in grant funding and $2,460,000 in operating expenses to be paid within one year of the balance sheet date. The Foundation is able to reduce grants paid to the hospital in the event of an unanticipated liquidity need

20 NOTE 5: LIQUIDITY AND AVAILABILITY OF FINANCIAL ASSETS (Continued) The Foundation has the following financial assets that could readily be made available within one year of the balance sheet to fund expenses: December 31, Cash without donor restrictions $ 212,657 $ 474,046 Marketable securities without donor restrictions 15,190,761 17,084,452 Cash with donor restrictions 331, ,960 Marketable securities with donor restrictions 35,825,789 32,590,994 $ 51,560,245 $ 50,972,452 NOTE 6: GIFT ANNUITY CONTRACTS The Foundation is certified by the State of Florida to market and manage gift annuity contracts that are invested in cash, bonds and marketable securities. Under these contracts a donor gives the Foundation a lump sum of assets at the beginning of the contract, and the Foundation makes predetermined quarterly payments to the donor for their lifetime. At the end of the donor s life, the Foundation keeps any remaining assets not used in making payments to the donor. In the contract, the donor may specify how the Foundation must use the revenue earned under the contract

21 NOTE 6: GIFT ANNUITY CONTRACTS (Continued) Consequently, the gift annuity activity has been divided between those without donor restrictions and with donor restrictions in the accompanying financial statements for the years ended December 31, 2018 and 2017 and is summarized as follows: Year ended December 31, 2018 Without Donor Restrictions With Donor Restrictions Total Gift annuity contracts - gross $ 415,000 $ 115,000 $ 530,000 Less estimated gift annuity liability to annuitant 165,060 64, ,380 Contributions from new contracts 249,940 50, ,620 Investment income on gift annuity assets, net of $50,180 management fee 194,350 47, ,055 Depreciation in value of gift annuity assets (496,613) (122,175) (618,788) Change in split interest agreements (537,261) (186,181) (723,442) Transfer due to donors' death (294,666) - (294,666) Other transfers 65,006 (65,006) - Change in net assets - gift annuities (819,244) (274,977) (1,094,221) Gift annuity net assets, beginning of year 5,311,562 1,383,362 6,694,924 Gift annuity net assets, end of year $ 4,492,318 $ 1,108,385 $ 5,600,703 Gift annuity obligations at December 31, 2018 $ 6,389,321 Gift annuity investments at December 31, 2018 $ 11,990,

22 NOTE 6: GIFT ANNUITY CONTRACTS (Continued) Year ended December 31, 2017 Without Donor Restrictions With Donor Restrictions Total Gift annuity contracts - gross $ 518,222 $ 1,009,627 $ 1,527,849 Less estimated gift annuity liabilty to annuitant 207, , ,575 Contributions from new contracts 311, , ,274 Investment income on gift annuity assets, net of $47,400 management fee 161,708 33, ,903 Appreciation in value of gift annuity assets 756, , ,040 Change in split interest agreements (541,470) (196,007) (737,477) Transfer due to donors' death (8,068) - (8,068) Other transfers (151,055) 151,055 - Change in net assets - gift annuities 528, ,149 1,234,672 Gift annuity net assets, beginning of year 4,783, ,213 5,460,252 Gift annuity net assets, end of year $ 5,311,562 $ 1,383,362 $ 6,694,924 Gift annuity obligations at December 31, 2017 $ 6,583,277 Gift annuity investments at December 31, 2017 $ 13,278,201 In addition to the income usage restriction placed on the Foundation by donors, the State of Florida, Department of Insurance imposes certain gift annuity asset retainage restrictions. The State of Florida requires the Foundation to maintain (reserve) specific types of assets in excess of the $6,389,321 gift annuity liability described above. The total asset reserve requirement as of December 31, 2018 was $7,712,494. The Foundation meets the reserve requirement with the board policy that states that all assets received from gift annuity contracts be held until the donor s death, to insure that the Foundation has ample assets to cover its gift annuity obligations

23 NOTE 7: PROPERTY AND EQUIPMENT Property and equipment is summarized as follows: December 31, Office equipment $ 110,471 $ 113,911 Furniture 78,790 79,903 Building and improvements 1,162,129 1,140,114 Land 272, ,045 1,623,435 1,605,973 Less: accumulated depreciation 1,128,397 1,105,449 Net property and equipment $ 495,038 $ 500,524 Depreciation expense was $51,750 and $41,329 for the years ended December 31, 2018 and 2017, respectively. NOTE 8: INTERNALLY CONTROLLED ENDOWMENTS The Foundation s endowment consists of 26 individual funds established for a variety of purposes. The endowments are all donor-restricted endowment funds. The Foundation has no boarddesignated endowments. As required by GAAP, net assets associated with endowment funds, are classified and reported based on the existence of donor-imposed restrictions. The Board of Directors of the Foundation has interpreted the Florida Uniform Prudent Management of Institutional Funds Act (FUPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundation classifies as donor 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, (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, and (d) for endowments instruments that are silent as to the restriction of the earnings, the Board has determined to record all realized and unrealized gains and losses as with donor restrictions or without donor restrictions depending on the purpose restriction of the endowment

24 NOTE 8: INTERNALLY CONTROLLED ENDOWMENTS (Continued) A portion of the donor-restricted endowment fund that is classified as with donor restrictions assets until those amounts are appropriated for expenditure by the Foundation in a manner consistent with the standard of prudence prescribed by FUPMIFA. For certain endowment funds, the donors have stipulated that additional accumulation of funds above and beyond the permanent endowment are without donor restriction as to purpose and are therefore classified as without donor restrictions. The Foundation s investment policy is based on providing funding for the Hospitals philanthropic efforts. Therefore the time horizon is reasonably long. The objective is to maximize total return with a balance between income and capital appreciation, as income is required for annual spending needs while principal provides long term growth of assets. The following is the Foundation investment policy for internal endowment funds: Asset Class Target Objective Minimum Maximum % % % Equity Portfolio Fixed Income Portfolio Alternative Investments Money Market It is expected that fixed income investments will be restricted to investments with a rating of BBB- /Baa3 or better at time of purchase. Investments in hedge funds will generally be diversified, commingled fund of funds vehicles. Hedge investments will not be purchased without written consent of the investment committee. Without Donor Restrictions With Donor Restrictions Total Donor-restricted endowments as of 12/31/17 $ 1,640,826 $ 20,993,103 $ 22,633,929 Investment return: Investment income, net of fees 46, , ,644 Net depreciation (realized and unrealized) (244,346) (1,636,885) (1,881,231) Total investment return (197,650) (1,349,937) (1,547,587) Contributions - 26,261 26,261 Donor-restricted endowments as of 12/31/18 $ 1,443,176 $ 19,669,427 $ 21,112,

25 NOTE 8: INTERNALLY CONTROLLED ENDOWMENTS (Continued) Without Donor Restrictions With Donor Restrictions Total Donor-restricted endowments as of 12/31/16 $ 1,237,844 $ 18,235,406 $ 19,473,250 Investment return: Investment income, net of fees 45, , ,814 Net appreciation (realized and unrealized) 357,690 2,408,897 2,766,587 Total investment return 402,982 2,690,419 3,093,401 Contributions - 64,277 64,277 Transfers - 3,001 3,001 Donor-restricted endowments as of 12/31/17 $ 1,640,826 $ 20,993,103 $ 22,633,929 A portion of endowments without donor restrictions and with donor restrictions are included in marketable securities on the Statement of Financial Position. NOTE 9: EXTERNALLY CONTROLLED ENDOWMENTS The Foundation receives income from certain endowment funds that are neither in the Foundation s possession nor under its control. These external endowment assets are held in perpetuity and are invested and managed by outside trustees in accordance with trust instruments established by the donors. The fair market value of the assets that support the revenue stream to the Foundation decreased by $1,445,544 in 2018 and increased by $1,450,006 in The interest and dividend income received from the externally controlled endowment for the years ended December 31, 2018 and 2017 amounted to $411,306 and $431,893, respectively. NOTE 10: FAIR VALUE MEASUREMENTS ASC 820, Fair Value Measurements, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy under ASC 820 are described as follows:

26 NOTE 10: FAIR VALUE MEASUREMENTS (Continued) Level 1 Inputs to the valuation methodology are unadjusted quote prices in active markets for identical assets. Level 2 Inputs other than quoted prices within Level 1 that are observable for the asset or liability either directly or indirectly. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Following is a description of valuation methodologies used for assets and liabilities measured at fair value. There have been no changes in the methodology used at December 31, Money Markets: Valued at the net asset value (NAV) of shares held by the organization at year end. The money markets held by the Foundation are deemed to have readily determinable fair value. Equities: Comprised of common stock valued at the closing price reported in the active market in which the individual securities are traded. Fixed Income Funds: Valued at the net asset value (NAV) of shares held by the organization at year end. There are no unfunded commitments within the fixed income funds and in addition there are no significant restrictions on the organizations ability to sell investments. The fixed income funds held by the Foundation are deemed to have readily determinable fair value. Mutual Funds: Valued at the net asset value (NAV) of shares held by the organization at year end. The mutual funds are invested in individual equities in industries noted below. There are no unfunded commitments within the mutual funds and in addition there are no significant restrictions on the organizations ability to sell investments. The mutual funds held by the Foundation are deemed to have readily determinable fair value. Exchange Traded Products: Valued at the net asset value (NAV) of shares held by the organization at year end. The exchange traded products held by the Foundation are deemed to have readily determinable fair value. Property: Property (gifts through remainder interest trusts and estates) is valued based on appraisals obtained by management from independent third parties at the time of the original gift. After the initial date of the gift, if property is on the books more than one year, management discusses property values with experts in the field and will make adjustments based on comparable properties in the market if needed. The policy is to obtain new appraisals every 5 years for properties which are held for long periods of time

27 NOTE 10: FAIR VALUE MEASUREMENTS (Continued) Third Party Endowments: The investments are managed by a third party unrelated to this organization. The endowment assets are valued based on the third party pricing information without adjustment. The organization does not develop nor are they provided with the quantitative inputs used to develop the fair market values. Externally Controlled Endowments: The investments are managed by a third party which is unrelated to this organization. The remainder interest trust assets are valued based on the third party pricing information without adjustment. The organization does not develop nor are they provided with the quantitative inputs used to develop the fair market values. The organization uses the fair market values provided along with percentage of the expected benefit, life expectancy and time value of money. Liability Under Trust Agreements: These liabilities are valued using the income approach based on the present value of the future distributions expected to be received, using published life expectancy tables and a discount for the time value of money. Gift Annuity Obligations: These liabilities are estimated by management based on the fair market value of the assets, life expectancy and a discount for the time value of money. Cash Surrender Value of Life Insurance Policies: Managed by the respective insurance companies. These companies provide the cash surrender value of the policies and the organization uses these fair values without adjustment. The organization does not develop nor are they provided with the quantitative inputs used to develop the fair values. The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although management believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date

28 NOTE 10: FAIR VALUE MEASUREMENTS (Continued) The following table sets forth by level, the fair value hierarchy, of investments at fair value: December 31, 2018 Assets Measured at Fair Value Level 1 Fair Value Hierarchy Level Level 2 Level 3 Assets: Cash surrender value of life insurance policies $ 4,417,136 $ - $ - $ 4,417,136 Marketable securities: Money Markets 8,809,783 8,809, Equities: Domestic 6,822,899 6,822, International 4,563,328 4,563, US Large Cap 10,699,787 10,699, US Mid Cap 2,786,777 2,786, US Small Cap 2,655,562 2,655, Emerging Markets 2,698,897 2,698, Mutual Funds: Fixed Income 2,027,500 2,027, Equity Domestic 864, , International 15,205,332 15,006, ,825 - Real Estate 84,595 84, Domestic Commodities 752, , Emerging Markets 191, , Exchange Traded Products: Exchange Traded Funds 12,453 12, Exchange Traded Bond Funds 289, , Fixed Income: US Government Obligations 5,500,728 5,216, ,193 - Mortgage Backed Securities 5,252,594-5,252,594 - Corporate Bonds 6,134,784-6,134,784 - International 967, ,166 - International Gov Bonds 40,355-40,355 - Total marketable securities $ 76,359,753 $ 63,481,836 $ 12,877,917 $

29 NOTE 10: FAIR VALUE MEASUREMENTS (Continued) December 31, 2018 Assets Measured at Fair Value Level 1 Fair Value Hierarchy Level Level 2 Level 3 Remainder interest in irrevocable: Internally controlled trusts & estates: Money Markets $ 19,087 $ 19,087 $ - $ - Equities 925, , Fixed Income: Fixed Income 313, , Real Estate 123, , Commodities 18,260 18, Property 854, ,540 Total internally controlled trusts & estates 2,254,299 1,399, ,540 Externally controlled trusts (a) 4,069, ,069,572 Total remainder interest in irrevocable trusts & estates 6,323,871 1,399,759-4,924,112 Externally controlled endowments (a) 14,703, ,703,393 Total assets $ 101,804,153 $ 64,881,595 $ 12,877,917 $ 24,044,641 Liabilities: Gift annuity obligations $ 6,389,321 $ - $ - $ 6,389,321 Liability under trust agreements 859, ,468 Total liabilities $ 7,248,789 $ - $ - $ 7,248,789 (a) Based on its analysis and nature and risks of these investments, the reporting entity has determined that presenting them as a single class is appropriate

30 NOTE 10: FAIR VALUE MEASUREMENTS (Continued) December 31, 2017 Assets Measured at Fair Value Level 1 Fair Value Hierarchy Level Level 2 Level 3 Assets: Cash surrender value of life insurance policies $ 4,370,119 $ - $ - $ 4,370,119 Marketable securities: Money Markets 2,267,106 2,267, Equities: Domestic 14,885,916 14,885, International 1,764,578 1,764, US Large Cap 337, , US Mid Cap 90,797 90, Convertible Preferred Stock 60,988-60,988 - Preferred Stock 20,834 20, Mutual Funds: Fixed Income 2,089,376 2,089, Equity Domestic 996, , International 8,197,842 8,096, ,231 - Real Estate 243, , Domestic Commodities 918, , Emerging Markets 86,981 86, Exchange Traded Products: Exchange Traded Funds 27,951,029 27,951, Exchange Traded Bond Funds 4,554,882 4,554, Fixed Income: US Government Obligations 4,714,247 1,379,622 3,334,625 - Mortgage Backed Securities 80,774-80,774 Corporate Bonds 6,313,484-6,313,484 - International 313, ,192 - International Gov Bonds 391, ,125 - Total marketable securities $ 76,278,526 $ 65,683,107 $ 10,595,419 $

31 NOTE 10: FAIR VALUE MEASUREMENTS (Continued) December 31, 2017 Assets Measured at Fair Value Level 1 Fair Value Hierarchy Level Level 2 Level 3 Remainder interest in irrevocable: Internally controlled trusts & estates: Money Markets $ 43,218 $ 43,218 $ - $ - Equities: Equities 1,164,137 1,164, Fixed Income: Fixed Income 320, , Real Estate 58,624 58, Commodities 24,256 24, Property 868, ,364 Total internally controlled trusts & estates 2,479,161 1,610, ,364 Externally controlled trusts (a) 8,069, ,069,187 Total remainder interest in irrevocable trusts & estates 10,548,348 1,610,797-8,937,551 Externally controlled endowments (a) 16,148, ,148,937 Total assets $ 107,345,930 $ 67,293,904 $ 10,595,419 $ 29,456,607 Liabilities: Gift annuity obligations $ 6,583,277 $ - $ - $ 6,583,277 Liability under trust agreements 985, ,574 Total liabilities $ 7,568,851 $ - $ - $ 7,568,851 (a) Based on its analysis and nature and risks of these investments, the reporting entity has determined that presenting them as a single class is appropriate

32 NOTE 10: FAIR VALUE MEASUREMENTS (Continued) Gains and losses (realized and unrealized) are included in other changes in net assets for the years ended December 31, 2018 and December 31, The following tables provide details of the Level 3 fair value measurements: Cash surrender value of life insurance policies: Year ended December 31, Beginning balance $ 4,370,119 $ 4,280,370 Appreciation in cash surrender value 84,046 89,749 Maturity payments received (37,029) - Ending balance $ 4,417,136 $ 4,370,119 Remainder interest in irrevocable trusts and estates: Year ended December 31, Beginning balance $ 8,937,551 $ 8,236,678 New trusts and estates 3,538, ,452 Maturity payments received (8,712,639) (187,466) Appreciation in value in split interest agreements 1,160, ,887 Ending balance $ 4,924,112 $ 8,937,551 Externally controlled endowments: Year ended December 31, Beginning balance $ 16,148,937 $ 14,698,931 (Depreciation) Appreciation in value in split interest agreements (1,445,544) 1,450,006 Ending balance $ 14,703,393 $ 16,148,

33 NOTE 10: FAIR VALUE MEASUREMENTS (Continued) Gift annuity obligations: Year ended December 31, Beginning balance $ 6,583,277 $ 6,261,262 Transfers out (29,466) (4,241) (Depreciation) Appreciation in value in split interest agreements (164,490) 326,256 Ending balance $ 6,389,321 $ 6,583,277 Liability Under Trust Agreements: Year ended December 31, Beginning balance $ 985,574 $ 1,013,729 Depreciation in value in split interest agreements (126,106) (28,155) Ending balance $ 859,468 $ 985,574 The following table represents the Foundation s level 3 financial instruments, the valuation technique used to measure the fair value of those financial instruments, and the significant unobservable inputs and ranges of the values for those inputs: Instrument Fair Value Principal Valuation Technique Unobservale Inputs Range of Significant Input Values Weighted Average Gift annuity obligations $ 6,389,321 Discounted cash flow IRS prescribed 1% to 9.4% N rate Life expectancy Varies N Liability under trust agreements $ 859,468 Discounted cash flow IRS prescribed 2% to 8% N rate Life expectancy Varies N

34 NOTE 10: FAIR VALUE MEASUREMENTS (Continued) Changes in Fair Value Levels The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or modelbased valuation techniques may require the transfer of financial instruments from one fair value to another. In such instances, the transfer is reported at the beginning of the reporting period. We evaluated the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total net assets available for benefits. For the year ended December 31, 2018 and 2017, there were no transfers in or out of levels 1, 2, or 3. NOTE 11: NET ASSETS WITH DONOR RESTRICTIONS Net assets with donor restrictions are restricted for the following purposes or periods: December 31, Subject to expenditure for specified purpose: Cash Contributions $ 31,111,874 $ 25,806,481 Gift Annuities 1,108,385 1,383,362 Cash Surrender Value of life insurance contracts 1,694,688 1,689,643 Trusts and Estates not yet received 477, ,223 Contributions Receivable 3,622,477 3,978,928 Cumulative capital gains on endowment assets 5,044,953 7,607,473 Subject to the passage of time: Trusts and Estates not yet received 4,987,186 8,995,551 Contributions Receivable 4,880, ,186 Due to Unrestricted - (435,536) Other 14,452 21,217 Donor-restricted Endowment Funds: Internally Controlled 13,353,179 13,324,879 Externally Controlled 14,703,393 16,148,937 Total net assets with donor restrictions $ 80,997,911 $ 79,617,

35 NOTE 12: FUNCTIONAL EXPENSES Grants and other expenses are summarized as follows: Year ended December 31, 2018 Program Administrative Fund Raising Total Grants expense $ 7,991,269 $ - $ - $ 7,991,269 Operating expenses: Salaries and benefits 119, ,810 1,029,200 1,564,372 Postage 1,886 3,695 13,280 18,861 Printing and publication 4,103 10,122 26,807 41,032 Direct mail 5,492 5,492 43,933 54,917 Cultivation ,713 90,713 Recognition ,836 79,836 Research - 1,422 12,795 14,217 Supplies 342 1,190 2,945 4,477 Utilities 3,480 12,122 30,004 45,606 Repairs and maintenance 4,931 17,179 42,521 64,631 Equipment lease and rental 2,271 7,911 19,582 29,764 Travel and education - 19,188 19,498 38,686 Outside services - 37,763 3,343 41,106 Memberships - 3,159 4,244 7,403 Other - 28,511 4,050 32,561 Depreciation 3,948 13,755 34,047 51,750 Total operating expenses 145, ,319 1,456,798 2,179,932 Total $ 8,137,084 $ 577,319 $ 1,456,798 $ 10,171,201 NOTE 13: SPECIAL EVENTS Special events revenue and expense is reported net in the statement of activity as these events are not major sources of revenue and are incidental in the normal course of operations. Special events revenue was $585,984 and $542,518 in 2018 and 2017, respectively. Special events expense was $309,321 and $260,260 in 2018 and 2017, respectively. Direct benefits to event attendees were $216,135 and $173,383 in 2018 and 2017, respectively

36 NOTE 14: RELATED-PARTY TRANSACTIONS The Foundation reimburses the Health System for payroll costs, employee benefits and operating supplies. Reimbursements to the Health System for these expenses were approximately $1,688,000 and $1,670,000 for the years ended December 31, 2018 and The Foundation owed the Health System approximately $202,000 and $205,000 at December 31, 2018 and 2017, for various reimbursable expenses. The Foundation received services for payroll and benefits processing, information technology and legal services from the Health System. The services received totaled $57,720 and $50,413 for the years ended December 31, 2018 and 2017, respectively and are recorded as in-kind revenue with offsetting expenses in applicable categories. See Note 1. The Foundation participates in a defined contribution employee benefit plan, which is sponsored by BayCare Health System. Under the Plan, employees are eligible upon hire and after completing one year of service prior to January 1 or July 1 of any plan year they are eligible to participate in the annual employer contribution. The sponsor declared a contribution to the Plan of 2% and 50% match with a maximum of 3% of gross compensation to eligible employees for the Plan years ended December 31, 2018 and The Foundation s share of this contribution was approximately $49,000 and $44,000 for the years ended December 31, 2018 and The Foundation remitted $34,046 and $32,909 for the Senior Executive Retirement Plan to the Health System for the Plan years ended December 31, 2018 and Effective 2017, the Foundation met requirements for classification as a public charity and received IRA Tax Free Distributions of $195,231. IRA Tax Free Distributions of approximately $331,307 were received during Board members contribute to the Foundation in various amounts. A member of management made contributions of $482,350 in The Foundation did not receive significant contributions from management in NOTE 15: CONTINGENCIES The Foundation regularly receives gifts restricted by donors for various grants to the Hospitals. In one case, if a donor s restriction is not followed, the combined gifts and undistributed earnings of $2,168,668, as of December 31, 2018, would have to be transferred to another charitable organization. In management s opinion, all gift restrictions and covenants have been fulfilled