United Church of Christ Retirement Community, Inc., d/b/a Ravenwood-Heritage Heights

Transcription

1 BAKER NEWMAN NOYES United Church of Christ Retirement Community, Inc., d/b/a Ravenwood-Heritage Heights Audited Financial Statements With Independent Auditors' Report Baker Newman & Noyes. LLC BOSTON T: I MANCHESTER T: PORTLAND T: I PORTSMOUTH T: I

2 d/b/a HA VENWOOD-HERIT AGE HEIGHTS AUDITED FINANCIAL STATEMENTS Years Ended December 3 1, 2014 and 2013 Independent Auditors' Report TABLE OF CONTENTS Audited Financial Statements: Statements of Financial Position Statements of Operations Statements of Changes in Net Assets Statements of Functional Expenses Statements of Cash Flows Notes to Financial Statements

3 BOSTON MANCHESTER PORTLAND : PORTSMOUTH r Board of Directors United Church of Christ Retirement Community, Inc. INDEPENDENT AUDITORS' REPORT We have audited the accompanying financial statements of United Church of Christ Retirement Community, Inc., d/b/a Havenwood-Heritage Heights, which comprise the statements of financial position as of December 31, 2014 and 2013, and the related statements of operations, changes in net assets, functional expenses and cash flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these 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 audits. We conducted our audits 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the United Church of Christ Retirement Community, Inc., d/b/a Havenwood-Heritage Heights, as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Manchester, New Hampshire April 28, 2015 Limited Liability Company

4 d/b/a HA VENWOOD-HERIT AGE HEIGHTS STATEMENTS OF FINANCIAL POSITION December 31, 2014 and 2013 ASSETS Current assets: Cash and cash equivalents Investments Resident funds Resident accounts receivable (net of allowance for uncollectible accounts of $75,000 in 2014 and $202,947 in 2013) Due from Havenwood-Heritage Heights Trust Fund Inventories Prepaid expenses and other current assets Assets held under bond indenture agreement Other receivables Pledges receivable Total current assets Property and equipment, net Assets limited as to use, net of current portion: Interest in Havenwood-Heritage Heights Trust Fund Assets held under bond indenture agreement Other restricted cash and investments Other assets: Cash surrender value of life insurance Bond issuance costs (net of accumulated amortization of $356,380 in 2014 and $304,143 in 2013) Resident deposits Other assets Total assets 2014 $ 6,692,679 12,581,147 18, ,009 65,550 41, , , , ,126,790 38,006,392 16,288, , ,121, , , , ,541,668 $7=a,796~ $ 3,967,978 11,462,361 19, ,344 60,781 45, , , , ,310,140 27,628,913 15,102, ,972 2,345,839 18,403, , ,144 1,239, ,889,930 $65.232_.243 2

5 LIABILITIES AND NET ASSETS Current liabilities: Current portion of long-term debt Current portion of capital lease obligations Accounts payable and accrued expenses Resident funds $ ,853,350 45,683 2,659,101 18,817 $ ,658,110 42,499 2,839, Total current liabilities 4,576,951 4,559,751 Long-term liabilities: Long-term debt, net of current portion Capital lease obligations, net of current portion Refundable entrance fees Deferred revenue from entrance fees Resident deposits Interest rate swap agreements Other long-term liabilities 39,444,508 77, ,750 10,362, ,773 2,947,686 6,066 29,001, ,482 33,500 7,935,726 1,239, , ,948 Total long-term liabilities 53,850,369 39,135,396 Total liabilities 58,427,320 43,695,147 Commitments and contingencies (notes 6, 9 and 13) Net assets: Unrestricted Temporarily restricted Permanently restricted 3,841,056 15,213,924 1,314,341 20,369,321 6,155,493 14,069,274 1,312,329 21,537,096 Total liabilities and net assets $ $ See accompanying notes. 3

6 d/b/a HA VENWOOD-HERIT AGE HEIGHTS STATEMENTS OF OPERATIONS Years Ended December 3 1, 2014 and 2013 Unrestricted revenue and other support: Net retirement community revenue Net health services revenue Amortization of deferred revenue from entrance fees Other operating revenues Net assets released from restrictions used for operations Total unrestricted revenue and other support Operating expenses: Salaries and wages Fringe benefits Supplies and maintenance Purchased services Ancillary services Food Utilities Depreciation Interest expense Nursing facility assessment tax Other operating expenses Total operating expenses (Loss) gain on interest rate swap agreements (Loss) income from operations Other income (loss): Investment income Net realized and unrealized gains on investments Loss on interest rate swap settlement Loss on disposal of fixed assets Gifts and bequests Total other income (Deficiency) excess of unrestricted revenue and other support over expenses 2014 $ 9,292,800 11,043,804 1,381, , ,582 22,806,534 9,715,865 4,176, ,046 1,109, , ,806 1,392,268 2,505,389 1,340, , ,458,830 (2, 731,588) (3,383,884) 309, ,402 (104,821) (18,877) ,030,750 $ ) 2013 $ 8,879,877 11,114,121 1,465, , ,184 22,678,394 9,361,005 4,029,017 1,121, ,790 75, ,591 1,296,673 2,309,061 1,240, , ,289 22,629, , , ,282 1,131,765 (566,017) 8, ,852 $ 1±219.llQ See accompanying notes. 4

7 d/b/a RAVENWOOD-HERITAGE HEIGHTS STATEMENTS OF CHANGES IN NET ASSETS Unrestricted net assets: (Deficiency) excess of unrestricted revenue and other support over expenses Net assets released from restrictions used for capital purchases (Decrease) increase in unrestricted net assets Changes in temporarily restricted net assets: Contributions Interest in Havenwood-Heritage Heights Trust Fund Net assets released from restrictions used for operations Net assets released from restrictions used for capital purchases Increase in temporarily restricted net assets Changes in permanently restricted net assets: Interest in Havenwood-Heritage Heights Trust Fund Increase in permanently restricted net assets (Decrease) increase in net assets Net assets, beginning of year Net assets, end of year 2014 $(2,353,134) (2,314,437) 171,889 ] '184,040 (172,582) (38,697) 1, 144, ,012 (1,167,775) 21,537,096 $2Q.1fi<LJ2J~ 2013 $ 1,219, ,319, ,692 3,269,616 (298,184) (100,424) 3,162,700 63,235 63,235 4,545,489 16,991,607 $21 '537,096 See accompanying notes. 5

8 d/b/a HA VENWOOD-HERITAGE HEIGHTS STATEMENTS OF FUNCTIONAL EXPENSES Years Ended December 3 1, 2014 and 2013 General General and and Admin- Fund Admin- Fund Program istrative Devel Program istrative Devel Expenses Expenses opment Total Expenses Expenses opment Total Salaries and wages $ 8,576,556 $1,091,974 $47,335 $ 9,715,865 $ 8,253,935 $1,063,382 $ 43,688 $ 9,361,005 Fringe benefits 3,650, ,872 10,901 4,176,450 3,523, ,225 10,488 4,029,017 Supplies and maintenance 883,167 74, ,046 1,029,514 91, ,121,062 Purchased services 688, ,519 1,302 1,109, , ,173 1, ,790 Ancillary services 103, ,040 75, ,477 Food 810,231 31, , ,023 26, ,591 Utilities 1,355,768 35,347 1,153 1,392,268 1,262,694 32,944 1,035 1,296,673 Depreciation 2,414,522 87,177 3,690 2,505,389 2,223,430 82,159 3,472 2,309,061 Interest expense 1,340,564-1,340,564 1,240,793 1,240,793 Nursing facility assessment tax 454, , , ,176 Other operating expenses 684, ,000 1, , , ,600 _ ,289 $20,962, 105 $2,430,756 $65,969 $23,458,830 $20,169,651 $2,399,043 $ 61,240 $ See accompanying notes. 6

9 d/b/a HAVENWOOD-HERITAGE HEIGHTS ST A TEMENTS OF CASH FLOWS Cash flows from operating activities: (Decrease) increase in net assets Adjustments to reconcile (decrease) increase in net assets to net cash provided by operating activities: Depreciation and amortization Loss (gain) on interest rate swap agreements Loss on interest rate swap settlement Reinvested investment income Noncash investment expense Net realized and unrealized gains on investments Loss on disposal of fixed assets Change in interest in Trust Fund Bad debt (recoveries) expense, net Interest payments to bond escrow Interest paid from bond escrow and bond proceeds Interest earned on bond escrow fund Changes in operating assets and liabilities: Resident accounts receivable Due from Havenwood-Heritage Heights Trust Fund Inventories Prepaid expenses and other current assets and other receivables Other assets Accounts payable and accrued expenses Deferred revenue from entrance fees and refundable entrance fees Other long-term liabilities Net cash provided by operating activities Cash flows from investing activities: Capital expenditures Proceeds from sale of property Purchases of investments Proceeds from sale of investments Change in restricted cash Cash surrender value of life insurance Net cash used by investing activities 2014 $ (1,167,775) 2,557,626 2,731, ,821 (297,567) 47,808 (835,402) 18,877 (1, 186,052) (9,844) (816,950) 832,072 (10,902) (26,821) (4,769) 4,591 69,790 (33,940) (180,137) 2,603,310 (684,703) 3,715,621 ( 12,902,345) 600 (7,000,048) 6,974,237 1,373,580 (12,000) (11,565,976) 2013 $ 4,545,489 2,332,968 (281,818) (288,959) 41,129 (1,131,765) 566,017 (3,332,851) 82, 107 (828,023) 861,948 (16,452) (255,598) 74,708 (7,283) (126,320) (6,464) 503,512 (795,395) ,940,419 (4,228,107) 2,762 (1,042,934) 1,045,648 ( 1, 726,3 96) (14,714) (5,963,741) 7

10 d/b/a RAVENWOOD-HERITAGE HEIGHTS STATEMENTS OF CASH FLOWS (CONTINUED) Cash flows from financing activities: Pledges receivable Proceeds from issuance of bonds Principal payment to bond escrow funds Payments on construction loan Payments of capital lease obligations Payments on swap loan Bond issuance costs Net cash provided by financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year $ (995) 12,296,659 (735,000) (863,000) (42,498) (80,110) 10,575,056 2,724,701 3,967,978 $ 41,139 3,097,849 (697,696) (70,650) (42,193) (106,814) (277,380) 1,944,255 (2,079,067) 6,047,045 Cash and cash equivalents at end of year $ 6,622,679 $ 3,267,978 Supplemental information: Cash paid during the year for interest (including capitalized interest of $43,994 and $6,872 in 2014 and 2013, respectively) $ 1.272, 782 $ 1.222,624 Noncash investing and financing activities: During 2014 and 2013, $715,000 and $680,000, respectively, was withdrawn from the bond escrow fund to meet bond principal maturities. In 2013, the Community entered into capital lease obligations to finance equipment purchases totaling $12, 140. See accompanying notes. 8

11 d/b/a HAVENWOOD-HERITAGE HEIGHTS 1. Description of Organization and Summary of Significant Accounting Policies Organization The United Church of Christ Retirement Community, Inc. ("Ravenwood" campus) was organized on April 18, The United Church of Christ Retirement Community II, Inc. ("Heritage Heights" campus) was organized on May 2, In February 1998, the United Church of Christ Retirement Community II, Inc. merged into the United Church of Christ Retirement Community, Inc., d/b/a Ravenwood-Heritage Heights, to form the "Community", a nonprofit organization which owns and operates retirement facilities located in Concord, New Hampshire. The Community consists of 377 independent living units (347 units in 2013), 55 assisted living units and 95 skilled nursing facility beds. The residents of the Community are provided with a variety of services ranging from assisted or full nursing care to services for those who are able to live independently. Residents have the option of entering into a continuing care retirement community (CCRC) contract. Under this contract, residents pay a one-time entrance fee in addition to ongoing monthly fees which, should they outlive their financial resources, allows them to occupy a unit at any level of care for twelve months at a rate based on their ability to pay. Residents who entered the Community under the CCRC contract prior to January 1, 1999 are also guaranteed a maximum of 10 nursing bed days per year for 10 years, at no charge. Residents who entered the Community under the CCRC contract on or after January 1, 1999 are guaranteed a maximum of 10 nursing bed days in total. The entrance fee is refundable only within the first six months after occupancy begins. The Ravenwood-Heritage Heights Trust Fund (the "Trust Fund") was established on August 16, 1982 to provide financial assistance to the residents of the Community. Requests for resident assistance are made to the Trust Fund by the Community's Board of Directors. Payments are made at the discretion of the Trust Fund's Trustees (see Note 8). The Financial Accounting Standards Board (F ASB) Accounting Standards Codification (ASC) Topic 958 requires that a specified beneficiary recognize its rights to assets held by a recipient organization as an asset unless the donor has explicitly granted the recipient organization variance power. Management of the Community and the Trust Fund has determined that the Trust Fund has not been granted such variance power. Therefore, the Community's interest in the net assets of the Trust Fund has been recognized at estimated fair value in the statement of financial position. Changes in the fair market value of the Community's interest are reflected in the statement of changes in net assets. Basis of Accounting and Presentation The accompanying financial statements have been prepared on the accrual basis of accounting. Financial statement presentation for not-for-profit organizations requires the Community to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. 9

12 d/b/a HA VENWOOD-HERITAGE HEIGHTS 1. Description of Organization and Summary of Significant Accounting Policies (Continued) Temporarily restricted net assets are those whose use by the Community has been limited by donors to a specific time period or purpose. Permanently restricted net assets have been restricted by donors to be maintained by the Community in perpetuity. Substantially all income from permanently restricted net assets is temporarily restricted until released by the Board of Directors. 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. Estimates, by their nature, are based on judgment and available information. The most significant areas which are affected by the use of estimates include actuarial analysis to determine the amortization of deferred entrance fees and future service obligations, as well as the allowance for doubtful accounts, estimates of the fair value of the interest rate swap agreements and certain investments, refundable entrance fees, certain accruals and reserves, and estimated useful lives of property and equipment to compute depreciation. Actual results could differ from these estimates. Concentration o{credit Risk Financial instruments which subject the Community to credit risk consist of cash and cash equivalents, accounts receivable and investments. The risk with respect to cash equivalents is minimized by the Community's policy of investing in financial instruments with short-term maturities issued by highly rated financial institutions. The Community's accounts receivable are primarily due from third-party payors and amounts are presented net of expected contractual allowances and uncollectible amounts. The Community's investment portfolio consists of diversified investment funds, which are subject to market, interest rate, and credit risks, among others. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in value will occur in the short-term and that such changes could be material. See Notes 2 and 14 for additional information related to investments. Cash and Cash Equivalents Cash and cash equivalents generally include bank checking, savings and money market accounts. The total cash and cash equivalents balance may at times exceed federal depository insurance limits. Resident Accounts Receivable Resident accounts receivable is recorded at the estimated net collectible amount. Third-party payors have restrictions on time limits for billings. Management reviews the outstanding resident accounts receivable and establishes an allowance for uncollectible accounts based on the aging of specific outstanding accounts, bad debt write offs experienced in the past and contract terms with third-party payors. Resident accounts receivable are charged against the allowance account when such receivables are deemed to be uncollectible. Delinquency status is determined based on contractual terms. 10

13 d/b/a HA VENWOOD-HERITAGE HEIGHTS Years Ended December 3 1, 2014 and Description of Organization and Summary of Significant Accounting Policies (Continued) Approximately 46% and 35% of gross resident accounts receivable at December 31, 2014 and 2013, respectively, are due from the State of New Hampshire (Medicaid program) and the federal government (Medicare program). The Community does not require collateral for the extension of credit. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. As of December 31, 2014 and 2013, inventories consist primarily of food, medical supplies and other dining service supplies. Assets Limited as to Use Assets limited as to use include assets held by trustees under debt agreements and donor-restricted investments. Amounts required to meet current liabilities have been reclassified to current assets in the statement of financial position at December 31, 2014 and Investments Investments are valued at fair value in the statement of financial position. See Note 14 for further discussion regarding fair value. Investment income or loss (including realized and unrealized gains and losses on investments and interest and dividends) is included in the accompanying statements of operations unless the income is restricted by donor or law. Property and Equipment Property and equipment is recorded at cost if purchased, or at estimated fair market value at the date of receipt if donated. Expenditures for normal repairs and maintenance are charged to expense as incurred. The Community provides for depreciation using the straight-line method by charges to operations in amounts estimated to amortize the cost or donated value of the assets over their estimated useful lives, which are as follows: Land improvements Buildings Furniture and fixtures Equipment Capital leased equipment Computer software (included in equipment) years years 5-10 years 5-10 years Sh01ier of the estimated useful life or lease term 3 years Depreciation expense for 2014 and 2013 was $2,505,389 and $2,309,061, respectively. 11

14 d/b/a HA VENWOOD-HERITAGE HEIGHTS 1. Description of Organization and Summary of Significant Accounting Policies (Continued) Bond Issuance Costs The Community provides for amortization of bond issuance costs on the straight-line method, which approximates the effective interest method over the terms of the bonds which is recorded within interest expense. Amortization expense for 2014 and 2013 amounted to $52,237 and $23,907, respectively. Deferred Revenue from Entrance Fees Entrance fees paid by residents under the CCRC contracts are recorded as deferred revenue. The fees are amortized and recorded as revenue on the straight-line method over the actuarially determined remaining average life expectancy of the resident. Amortization of deferred revenue for the years ended December 31, 2014 and 2013 amounted to $1,381,690 and $1,465,395, respectively. Obligation to Provide Future Services The estimated obligation to provide future services is based on an actuarial calculation of the present value of the net estimated cost of future services and the use of facilities to be provided to current residents under the CCRC contracts. The excess (if any) of this amount over the balance of deferred revenue is reported as a liability in the statement of financial position. Changes in the estimated liability are included in operations. The obligation is discounted at 5.5% based, in part, on the expected annual increases in monthly fees. No liability was required to be recognized at December 31, 2014 or Monthly service fees are generally increased annually based upon the projected needs of the Community and are recognized in the month earned. Derivative Financial Instruments ASC Topic 815, Accounting for Derivative Instruments and Hedging Activities, requires that all derivative instruments be reported on the statement of financial position at fair value and establishes criteria for designation and effectiveness of hedging relationships. The Community uses interest rate swap agreements for risk management purposes. The Community does not use derivative financial instruments for trading or speculative purposes. The Community is exposed to credit loss in the event of nonperformance by the swap counter party. The Community has not assessed the effectiveness of the hedging relationship of the swaps and therefore has voluntarily designated these as ineffective. As such, the entire change in fair value of the interest rate swap agreements has been recorded within the accompanying statements of operations as a component of excess of unrestricted revenue and other support over expenses. See also Note 6. The Community had a liability of$2,947,686 as of December 31, 2014 and $216,098 as of December 31, 2013, representing the estimated fair value of the Community's outstanding interest rate swap agreements. The annual change in the fair value of these derivative financial instruments is recognized within (loss) income from operations in the statements of operations. For the years ended December 31, 2014 and 2013, the Community recognized a loss (gain) on the interest rate swap agreements of $2,731,588 and $(281,818), respectively. 12

15 d/b/a HA VENWOOD-HERIT AGE HEIGHTS 1. Description of Organization and Summary of Significant Accounting Policies (Continued) Certain investment funds may use derivative financial instruments to hedge against their exposure to the stock market, to foreign currency markets and to fluctuations in interest rates. These financial instruments may include futures contracts, swap agreements and forward currency contracts. As these instruments are owned within the funds, the amounts associated with the Community's holdings in these funds cannot be readily determined, but are estimated by management to be immaterial to the Community's overall investments. Service Revenue The Community has agreements with third-party payors that provide for payments to the Community at amounts different from its established rates. Net resident service revenue is reported at the estimated net realizable amounts from residents, third-party payors and others for services rendered. Amounts received for services provided to residents covered under these programs are generally based on prospectively determined rates. The Community's policy is to record the difference between the revenue, recorded at established rates and the estimated amounts receivable as a contractual adjustment during the period in which the related services are provided. Revenues from the Medicare and Medicaid programs accounted for approximately 4% and 5%, respectively, of the Community's net resident service revenue in 2014 and 3% and 6%, respectively, in Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. The Community believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties and exclusion from the Medicare and Medicaid programs. Donor-Restricted Gifts 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 operations as net assets released from restrictions. Donor-restricted contributions whose restrictions are met within the same year as received are reported as unrestricted contributions in the statement of operations. (Loss) Income From Operations (Loss) income from operations includes unrestricted revenues, gains, losses and expenses, except contributions and pledges, gifts and bequests, investment income, realized and unrealized gains and losses on investments, changes in the interest in the Trust Fund, loss on the interest rate swap settlement and losses on disposal of fixed assets consistent with industry practice. 13

16 d/b/a HAVENWOOD-HERITAGE HEIGHTS NOTES TO FINANCIAL ST A TEMENTS 1. Description of Organization and Summary of Significant Accounting Policies (Continued) Charity Care (Unaudited) The Community occasionally provides care to residents without charge or at amounts less than its established rates. The Community does not pursue collection of amounts determined to qualify as charity care and, therefore, such amounts are not reported as revenue. The Community determines the costs associated with providing charity care by calculating a ratio of cost to gross charges and then multiplying that ratio by gross uncompensated charges associated with providing care to residents eligible for free care. The costs of providing services to charity care residents for the years ended December 31, 2014 and 2013 were approximately $139,000 and $250,000, respectively. Funds received from gifts and grants to subsidize charity services provided for the years ended December 31, 2014 and 2013 were approximately $155,000 and $278,000, respectively. Of this funding, $148,577 and $272,120 is from the Trnst Fund in 2014 and 2013, respectively. See Note 8. Advertising Expense Advertising costs are expensed as incurred and totaled approximately $82,000 and $66,000, respectively, for the years ended December 31, 2014 and Income Taxes The Community is exempt from federal and state income taxes under section 50l(c)(3) of the Internal Revenue Code. It qualifies as a publicly supported organization under Code Section 509 and, therefore, qualifies as a public charity. Accordingly, no provision for income taxes has been recorded in the accompanying financial statements. There was no unrelated business income tax for the years ended December 31, 2014 and Management evaluated the Community's tax positions and concluded the Community had maintained its tax-exempt status, does not have any significant unrelated business income and had taken no uncertain tax positions that require adjustment to the financial statements. With few exceptions, the Community is no longer subject to income tax examinations by the U.S. Federal or State tax authorities for years before Any estimated interest and penalties, if applicable, related to uncertain tax positions would be included in income tax expense. New Accounting Pronouncement In May 2014, the FASB issued Accounting Standards Update No , Revenue.from Contracts with Customers (ASU ), which requires revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the Community expects to be entitled in exchange for those goods and services. ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU is effective for the Community on January 1, ASU permits the use of either the retrospective or cumulative effect transition method. The Community is evaluating the effect that ASU will have on its financial statements and related disclosures. 14

17 d/b/a RAVENWOOD-HERITAGE HEIGHTS 1. Description of Organization and Summary of Significant Accounting Policies (Continued) Subsequent Events Events occurring after the statement of financial position date are evaluated by management to determine whether such events should be recognized or disclosed in the financial statements. Management has evaluated subsequent events through April 28, 2015 which is the date the financial statements were available to be issued. 2. Investments and Assets Limited as to Use The current portion of assets limited as to use represents the current portion of principal payments due under the bond indenture agreements. These funds are held in trust by a bank, as trustee, pursuant to the related bond indenture agreements. These funds are invested in a short-tenn U.S. Treasury money market account whose fair value equals cost as of December 31, 2014 and The composition of investments and assets limited as to use at December 31, 2014 and 2013 is set forth in the following table: Cost Fair Value Cost Fair Value Cash and cash equivalents $ 3,024,698 $ 3,024,698 $ 4,151,906 $ 4,151,906 U.S. Government obligations 1,154,231 1,168,439 1,563,305 1,544,367 Corporate bonds 781, , , ,827 Foreign bonds 152, , , ,301 Municipal obligations 1,463,884 1,510,501 2,118,869 2, 172,323 Fixed income mutual fund 1,107,939 1,110,509 Common equity securities 5,817,145 6,871,314 1,897,073 2,386,254 Exchange-traded funds ,247,371 4,492,544 $13,878,323 $15,216,007 $13,800,865 $15,558,522 Investments are included in the accompanying statements of financial position as follows: Current assets: Investments Assets held under bond indenture agreement Assets limited as to use, net of current portion: Assets held under bond indenture agreement Other restricted cash and investments $12,581,147 $11,462, , , , , ,345,839 $_15,216,007 $15,558,522 15

18 d/b/a HA VENWOOD-HERITAGE HEIGHTS 2. Investments and Assets Limited as to Use (Continued) Total interest income, realized gains and losses, and net unrealized appreciation/depreciation for investments and assets limited as to use reported within the statements of operations and changes in net assets for the years ended December 31 are as follows: Investment income Net realized and unrealized gains on investments $ 309, ,402 $ 314,282 1,131,765 $ $L,446, Resident Accounts Receivable Net resident accounts receivable consists of the following at December 31: Private pay residents Medicaid residents Medicare residents Other Less allowance for uncollectible accounts Net accounts receivable $307,931 48, ,280 41, ,009 (75,000) $568,009 $ 423,337 82, ,971 56, ,291 (202,947) $ Property and Equipment Property and equipment consisted of the following as of December 31: Land and land improvements Buildings and improvements Furniture and fixtures Equipment Construction in process $ 2,639,678 $ 60,262,671 2, 190,573 7,792, ,932 2,606,073 44,710,543 1,990,534 7,537,783 3,438,609 Less accumulated depreciation and amortization 73,054,703 (35,048,311) 60,283,542 (32,654,629) $ 38,006,392 $ 27,628,913 16

19 d/b/a HA VENWOOD-HERITAGE HEIGHTS 5. Capital Lease Obligations The Community has various capital lease obligations related to certain vehicles and equipment. Future minimum annual payments under the capital lease agreements at December 31, 2014 are as follows: Total payments Less amounts representing interest Present value of total minimum lease payments Less current maturities Long-term capital lease obligations $ 53,145 53,145 30, ,311 (12,828) 123,483 ( 45,683) $ The cost of assets recorded under capital leases, which are included in property and equipment, totaled $219,930 as of December 31, 2014 and Accumulated amortization associated with these leases was $106,851 and $62,258 as of December 31, 2014 and 2013, respectively. 6. Long-Term Debt Long-term debt consisted of the following at December 31: 5.0% to 5.4% New Hampshire Health and Education Facilities Authority (the Authority) Fixed Rate Revenue Bonds, Ravenwood-Heritage Heights Issue, Series 2006A; maturity at various dates through 2030 The Authority Variable Rate Revenue Bonds, Ravenwood-Heritage Heights Issue, Series 2009; maturity at various dates through The Authority Variable Rate Revenue Bonds, Ravenwood-Heritage Heights Issue, Series 2013A; maturity at various dates through 2016 The Authority Variable Rate Revenue Bonds, Ravenwood-Heritage Heights Issue, Series 2013B; maturity at various dates through 2042 Construction loan Interest rate swap loan Less current portion $10,470,000 $10,845,000 14,570,000 14,910, ,508 14,470,000 3,097, ,350 1,726,350 80,110 41,297,858 30,659,309 (1,853,350) (1,658,110) $39,444,508 $22,001,192 17

20 d/b/a HA VENWOOD-HERITAGE HEIGHTS 6. Long-Term Debt (Continued) During 2006, the Authority issued $29,245,000 of bonds, the proceeds of which were loaned by the Authority to the Community. The loan agreement entered into by the Community contains the same terms and provisions as the bond indenture. Two series of bonds were issued, Series 2006A and Series 2006B. The original principal amount of each series of bonds was $12,745,000 and $16,500,000, respectively. The primary purposes of the bond proceeds were to refinance the previously outstanding Series 1995 bonds and to pay the costs of certain capital improvements to be made by the Community. The bonds are collateralized by a security interest in substantially all of the Community's assets, as well as its gross receipts. The loan agreement includes various covenants and restrictions, as well as a requirement to meet various financial ratios, including long-term debt service coverage ratio and liquidity covenants, as defined. The Community was in compliance with all of its covenants at December 31, The Series 2006A bonds are fixed-rate bonds that mature at various dates (in various amounts) and bear interest rates as follows: Years of Maturity January 1, 2016 January 1, 2026 January 1, 2030 Interest Rate 5.00% Amount $ 810,000 5,545,000 4,115,000 All or any number of the Series 2006A bonds maturing after January 1, 2016 are subject to redemption (at face value) at the option of the Community, on or after January 1, Interest on the Series 2006A bonds is payable semiannually on each July 1 and January 1. During 2009, the Authority issued the Series 2009 bonds with an original principal amount of $15,675,000 to repay the Series 2006B bonds and to pay the costs of certain capital improvements. The Series 2009 bonds were privately placed with the Community's financial institution. The Series 2009 bonds mature on January 1, 2035 and initially bore interest through September 16, 2014 at a rate equal to 68% of the sum of Adjusted LIBOR, as defined, plus 2.5% (l.81 % at December 31, 2013). The bonds were subject to mandatory tender for purchase on September 16, 2014, at a price equal to the principal amount plus accrued interest, unless such date was extended as mutually agreed. The bonds were extended on November 1, 2013 to November 1, 2023 and the variable rate became 72% of the sum of adjusted LIBOR, as defined, plus 2.3% (1.77% at December 31, 2014). If the bonds are subsequently remarketed, the interest rate will become a variable rate or a fixed rate, as provided for in the bond indenture. The bonds are collateralized by a security interest in substantially all of the Community's assets, as well as its gross receipts. The loan agreement includes various covenants and restrictions, as well as a requirement to meet various financial ratios, including long-term debt service coverage ratio and liability covenants, as defined. The Community was in compliance with all of its financial covenants at December 31, 2014, with the exception of the maximum annual capital spending limitation provision. The bank waived this requirement for the year ended December 31, 2014 on August 11, The Community must annually redeem the Series 2009 bonds beginning July 1, 2011 through January 1, 2035 in increasing annual amounts ranging from $200,000 to $1,670,000. The bonds may be redeemed prior to maturity by the Community at its option under the terms of the bond indenture. 18

21 d/b/a HAVENWOOD-HERITAGE HEIGHTS 6. Long-Term Debt (Continued) In order to meet future principal and interest maturities, the Community is required to maintain certain bond escrow funds as defined in the bond indentures. The funds, including accumulated earnings, totaled $1,756,542 and $1,750,322 as of December 31, 2014 and 2013, respectively. The funds are invested in U.S. Government obligations or money market accounts comprised of government obligations (Note 2). During 2013, the Authority issued the Series 2013 bonds in the aggregate principal amount of $17,4 70,000 to assist the Community in the funding of the construction of new units on the Heritage Heights campus, as well as renovation of existing units. The Series 2013 bond issuance consists of two sub-series, which include $3,000,000 of Series 2013A bonds and $14,470,000 of Series 2013B bonds. Proceeds from the issuance of the bonds were deposited into an escrow fund established to pay the cost of the construction project. The Authority made loans of the proceeds of the bonds to the Community as bond draw-down loan requests were submitted by the Community. Any unexpended bond proceeds shall be applied to the optional redemption of the bonds in the manner set forth in the bond indenture. As of December 31, 2014, $924,508 has been drawn-down under the Series 2013A bonds and is reflected as outstanding in the accompanying 2014 statement of financial position. As of December 31, 2013, no amounts had been drawn-down under the Series 2013A bonds. As of December 31, 2014 and 2013, $14,470,000 and $3,097,849, respectively, has been drawn-down under the Series 2013B bonds and is reflected as outstanding in the accompanying statements of financial position. Amounts not yet drawn under the issuance are not reflected within long-term debt within the accompanying statements of financial position. The Series 2013A bonds are subject to mandatory redemption and are redeemable monthly in the amount of $250,000, commencing December 1, 2015 through November 1, 2016, at which time the bonds mature. The Series 2013B bonds are subject to mandatory redemption and are redeemable annually in amounts ranging from $27,291 to $2,281,821, commencing November 1, 2017 through November 1, 2041, at which time the bonds mature. Both series bear interest commencing December 1, 2013, at a variable rate equal to 72% of LIBOR, as defined, plus 2.3% (1.77% at December 31, 2014 and 1.78% at December 31, 2013). The Community capitalized interest in 2014 and 2013 totaling $43,994 and $6,872, respectively, related to the construction project. The Community paid bond issuance costs totaling $277,380 associated with the Series 2013 issuance during The bonds are collateralized by a security interest in substantially all of the Community's assets, as well as its gross receipts. The loan agreement includes various covenants and restrictions, as well as a requirement to meet various financial ratios, including a long-term debt service coverage ratio and reserve ratio. The Community was in compliance with all of its financial covenants, except for the maximum annual capital spending limitation provision at December 31, 20 I 4. The bank waived this requirement for the year ended December 31, 2014 on August 11, Jn the event that interest earned on the bonds ceases to qualify as tax-exempt under the Internal Revenue Code, all bonds are subject to mandatory redemption. Bonds are to be redeemed at a redemption price equal to the principal amount of the bonds, plus interest accrued to the date fixed for redemption. 19

22 d/b/a HA VENWOOD-HERITAGE HEIGHTS NOTES TO FINANCIAL ST A TEMENTS 6. Long-Term Debt (Continued) During 2008, the Community obtained financing of up to $3,000,000 from a financial institution for the construction of 12 independent living units. Jn November 2013, the terms of this loan were amended to modify the interest rate and extend the due date of the loan. The balance of the loan outstanding at the time of the amendment was $1,726,350. The new terms of the loan include interest payable monthly at a variable rate equal to the LIBOR Advantage Rate plus 2.3% (2.46% and 2.47% at December 31, 2014 and 2013, respectively) and, commencing February 1, 2014, quarterly principal payments of $215,750 are payable through November 1, The amendment further modified the collateral secured by the loan. The loan is now collateralized by a deposit account held with the financial institution. This deposit account totaled $863,017 and $1, 727,071 at December 31, 2014 and 2013, respectively, and is reflected in other restricted cash and investments in the accompanying statements of financial position. The loan contains various restrictive and financial covenants and has certain cross default provisions with all other loans and obligations to the bank. The previously outstanding Series 2006B bonds bore interest at a variable rate. To minimize the effect of changes in this rate, the Community had entered into an interest rate swap contract with respect to $15,000,000 of its Series 2006B bonds with Lehman Brothers Special Financing, Inc. (Lehman). Under the terms of the contract, which was set to expire in 2016, the Community paid interest at a fixed rate of 3.937% for the term of the swap contract and in turn received interest at a variable rate based on a municipal swap index, as defined. The resulting difference was charged or credited to interest expense. The Community was exposed to credit loss in the event of nonperformance by Lehman. In September 2008, Lehman Brothers Holdings, Inc. filed for bankruptcy protection, followed by Lehman, which filed in October Lehman's bankruptcy filing constituted an event of default under the swap agreement, giving the Community certain termination and other rights against Lehman. As a result of its financial difficulties, Lehman was likely no longer in a position to fulfill its obligations under the swap agreement. Following the Lehman bankruptcy filings, the SIFMA mid market swap rate was lower than the fixed rate, therefore, Lehman was not currently obligated to make payments to the Community under the agreement. The Community engaged investment bankers, legal counsel and a derivative advisor that assisted with strategy for alleviating the risk associated with the Lehman bankruptcy. On September 15, 2009, the Community gave notice to Lehman that it was in default and designated September 16, 2009 as the early termination date for the swap. During 2009, the Community made a payment of $421, 142, which was determined by the outside derivatives consultant to be the estimated final payment for termination and settlement of the swap agreement. This calculation utilized the current mid-market swap rates, as well as adjustments to reduce the swap liability for loss of funding, loss of bargain, the cost of re-establishing the hedge, and professional fees incurred. The Community determined the termination payment to be $421,142 as of September 16, 2009, after taking into account the aforementioned adjustments of approximately $683,000. Through December 31, 2010, Lehman had not accepted or agreed that the termination payment made constituted a full and final settlement of the Community's obiigations, and it was not then known whether Lehman would contest any of the payment adjustments determined to reduce the swap liability settlement amount. 20

23 d/b/a HAVENWOOD-HERITAGE HEIGHTS NOTES TO FINANCIAL ST A TEMENTS 6. Long-Term Debt (Continued) On March 28, 2011, Lehman notified the Community that it was contesting the Community's right to, and amount of, its termination payment, seeking alternative dispute resolution (ADR) proceedings to resolve the matter. In its initial communication, Lehman sought: (a) the sum of $369,744 for monthly payments Lehman claims were then past due, including interest (as of March 21, 2011 ), and (b) either (i) a commitment of the Community to perform timely on all future payments and other obligations under the swap; or (ii) a consensual termination of the swap by payment of an additional $1,332,024 termination fee (based on the market value of the swap as of March 21, 2011; as of December 31, 2013 that amount was $1,057, 115). The Community responded to Lehman's demand by denying the continuing validity of the swap and making a modest offer to resolve the outstanding Lehman claims. Lehman did not accept the Community's offer, and a discussion between the parties did not result in any agreement on the matter. In accordance with the court mandated ADR provisions, Lehman and the Community submitted materials to a court appointed mediator. The parties, their respective counsel and the Community's financial advisor met with the mediator on November 1, Although both parties made offers in settlement, their positions were so far apart that no consensus could be reached. As a result, the mediator indicated that the mediator would prepare a rep01i suggesting a figure in settlement of the dispute. The mediator's report was received on December 30, Under the protocol relating to the mediator's proposal, either side rejecting the amount suggested would result in the proposal not having been accepted. The Community rejected the proposed amount. On October 27, 2011, Lehman filed a motion with the bankruptcy court proposing to assume the swap agreement with the Community, which Lehman referred to as an executory contract, a position consistent with its demand for ADR in which it denied that the swap had been terminated lawfully. Counsel for the Community objected to the proposed assumption. This hearing by the bankruptcy court was adjourned on several occasions and never occurred. During 2014, Lehman and the Community continued settlement discussions through their respective counsel, and on August 15, 2014, reached a final settlement agreement in favor of Lehman in the amount of $682,752. Due to the contingency with the Lehman interest rate swap, the Community maintained an accrual to reserve for any potential additional payouts to Lehman. The difference between the settlement accrual of $577,931 at December 31, 2013 and the final settlement during 2014 of $682,752 totaled $104,821 and was charged to other income (loss) in the accompanying 2014 statement of operations. 21

24 d/b/a HAVENWOOD-HERITAGE HEIGHTS 6. Long-Term Debt (Continued) On September 16, 2009, the Community entered into a new interest rate swap agreement on the Series 2009 bonds with RBS Citizens, N.A. holding an original notional amount of $15,675,000. This swap contract was executed for risk management purposes and was not designated as a hedge. This interest rate swap agreement effectively fixes the rate of interest on the Series 2009 bonds at 2.775%, through September 1, 2014, which was the termination date of the swap. As further discussed below, this swap was settled during The Community paid interest at the fixed rate of 2.775% over the term of the swap contract and in turn received interest at a variable rate based upon a swap index, as defined. The resulting difference was charged or credited to interest expense. During 2013, such interest charges were $294,621. The Community recorded a liability equal to the fair value of the swap of $216,098 as of December 31, 2013 (as noted in Note 1 ). In order to provide the funding to settle the interest rate swap with Lehman on the Series 2006B bonds, the new interest rate swap's fixed interest rate of 2.775% incorporated a $534,069 loan to the Community by the financial institution issuing the swap upon execution. This amount was used to pay $421,142 to Lehman as noted above and to pay various direct expenses of $112,927. The Community had offset these settlement and expense payments against the swap liability previously recorded on the series 2006B bonds. In addition, the Community also paid the previously withheld amounts on the Lehman swap through the date of termination, which it had been accruing each month and which totaled $400,424, including interest. The value of the new interest rate swap agreement on the Series 2009 bonds had been adjusted to reflect the $534,069 loan by the financial institution with respect to the Lehman interest rate swap agreement. This loan was effectively repaid through higher interest payments on the new swap. Therefore, monthly cash payments made to the financial institution issuing the swap included principal and interest on the $534,069 debt as well as the swap settlement amounts for the difference in the current interest rate versus the swap rate. The term of the loan was sixty months through September 1, The remaining balance on this loan at December 31, 2013 was $80, 110. The loan was paid in full during The swap agreement was cross collateralized and was subject to cross default provisions with other debt outstanding to the bank. Effective January 2, 2014, the Community settled the above mentioned swap which was financed by the Community entering into a new swap with RBS Citizens N.A. with off-market interest rate terms. There were no termination fees paid as a result of this transaction. The original notional amount of the new swap was $14,825,000 ($14,570,000 at December 31, 2014). The original termination date of the swap was September I, 2014 and the new swap extends the termination date through November 1, The new swap effectively fixes the rate at 2.354%. The Community will pay interest at a fixed rate of2.354% over the term of the swap contract and receive interest at a rate equal to 72% of LIBOR, as defined in the swap agreement (0.11% at December 31, 2014). The resulting difference is charged or credited to interest expense. During 2014, such charges were $262,762. The Community recorded a liability equal to the fair value of the swap of $1,012, 114 as of December 31,