MISSISSIPPI METHODIST SENIOR SERVICES, INC. AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION DECEMBER 31, 2013

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1 MISSISSIPPI METHODIST SENIOR SERVICES, INC. AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION DECEMBER 31, 2013

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3 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Audited Consolidated Financial Statements December 31, 2013 Contents Page Independent Auditors Report Consolidated Statements of Financial Position Consolidated Statements of Activities... 5 Consolidated Statements of Cash Flows Consolidated Statements of Functional Expenses Notes to Financial Statements Additional Financial Information: Independent Auditors Report on Additional Information Statements of Financial Position: Mississippi Methodist Senior Services, Inc.: Administrative and Development Fund Traceway Manor Fund Traceway Villas Fund Meals on Wheels Fund Employee Assistance Fund Methodist Senior Services Sunday Fund Endowment Fund Outreach Service Fund Hurricane Katrina Senior Rx Senior Tx United Methodist Senior Services Health Care, Inc.: Cedars Health Center Fund United Methodist Senior Services of Clarksdale Area, Inc.: Roy Flowers Manor Fund Flowers Cottages Fund... 40

4 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Audited Consolidated Financial Statements December 31, 2013 Statements of Financial Position (Continued): Contents (Continued) Page United Methodist Senior Services of Columbus Area, Inc.: Trinity Place Fund Trinity Terrace Fund United Methodist Senior Services of Clay County, Inc.: Henry Clay Fund and Henry Clay Partners, L.P United Methodist Senior Services of Tupelo Area, Inc.: Lakeside Cottages Fund Guy Mitchell, Jr. Personal Care Center Fund Lauderdale Senior Services, Inc.: Aldersgate I Fund United Methodist Senior Services of Jackson Area, Inc.: Riggs Manor Fund The Garden Homes at Riggs The Greenhouses at Riggs Hattiesburg Area Senior Services, Inc.: Wesley Manor I Fund Seashore Campgrounds Retirement Home, Inc.: Seashore Highlands The Cove Seashore Highlands The Villas United Methodist Senior Services of Desoto County, Inc.: Wesley Meadows Fund Aldersgate Retirement Community, Inc.: Aldersgate II Fund Greene County Retirement Systems, Inc.: Turner-Duvall Center Fund... 55

5 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Audited Consolidated Financial Statements December 31, 2013 Statements of Financial Position (Continued): Contents (Continued) Page Wesley Manor Retirement Community, Inc.: Wesley Manor II Fund Meridian Senior Services, Inc.: Aldersgate III Fund United Methodist Senior Services of Golden Triangle Area, Inc.: Trinity Personal Care Center Fund Trinity Nursing Center Fund Aldersgate Personal Care, Inc.: Aldersgate Personal Care Center Fund Aldersgate Cottages Fund Dugan Memorial Home, Inc.: Dugan Memorial Home Martha Coker Home, Inc.: Martha Coker Home MMSS Ancillary Services, Inc. Senior Rx Senior Tx Statements of Activities: Mississippi Methodist Senior Services, Inc.: Administrative and Development Fund Traceway Manor Fund Traceway Villas Fund Meals on Wheels Fund Employee Assistance Fund Methodist Senior Services Sunday Fund... 72

6 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Audited Consolidated Financial Statements December 31, 2013 Statements of Activities (Continued): Contents (Continued) Page Mississippi Methodist Senior Services, Inc. (Continued): Endowment Fund Outreach Service Fund Hurricane Katrina Senior Rx Senior Tx United Methodist Senior Services Health Care, Inc.: Cedars Health Center Fund United Methodist Senior Services of Clarksdale Area, Inc.: Roy Flowers Manor Fund Flowers Cottages Fund United Methodist Senior Services of Columbus Area, Inc.: Trinity Place Fund Trinity Terrace Fund United Methodist Senior Services of Clay County, Inc.: Henry Clay Fund and Henry Clay Partners, L.P United Methodist Senior Services of Tupelo Area, Inc.: Lakeside Cottages Fund Guy Mitchell, Jr. Personal Care Center Fund Lauderdale Senior Services, Inc.: Aldersgate I Fund United Methodist Senior Services of Jackson Area, Inc.: Riggs Manor Fund The Garden Homes at Riggs The Greenhouses at Riggs... 89

7 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Audited Consolidated Financial Statements December 31, 2013 Statements of Activities (Continued): Hattiesburg Area Senior Services, Inc.: Contents (Continued) Page Wesley Manor I Fund Seashore Campgrounds Retirement Home, Inc.: Seashore Highlands The Cove Seashore Highlands The Villas United Methodist Senior Services of Desoto County, Inc.: Wesley Meadows Fund Aldersgate Retirement Community, Inc.: Aldersgate II Fund Greene County Retirement Systems, Inc.: Turner-Duvall Center Fund Wesley Manor Retirement Community, Inc.: Wesley Manor II Fund Meridian Senior Services, Inc.: Aldersgate III Fund United Methodist Senior Services of Golden Triangle Area, Inc.: Trinity Personal Care Center Fund Trinity Nursing Center Fund Aldersgate Personal Care, Inc.: Aldersgate Personal Care Center Fund Aldersgate Cottages Fund Dugan Memorial Home, Inc.: Dugan Memorial Home Martha Coker Home, Inc.: Martha Coker Home

8 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Audited Consolidated Financial Statements December 31, 2013 Statements of Activities (Continued): MMSS Ancillary Services, Inc. Contents (Continued) Page Senior Rx Senior Tx Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Independent Auditor s Report on Compliance For Each Major Program and on Internal Control over Compliance Required by OMB Circular A Summary Schedule of Prior Audit Findings Schedule of Findings and Questioned Costs

9 WWS WATKINS, WARD AND STAFFORD Professional Limited Liability Company Certified Public Accountants James L. Stafford, CPA J. Randy Scrivner, CPA Harry W. Stevens, CPA Kimberly S. Caskey, CPA S. Keith Winfield, CPA Susan M. Lummus, CPA William B. Staggers, CPA Thomas J. Browder, CPA Aubrey R. Holder, CPA Stephen D. Flake, CPA Michael W. McCully, CPA John N. Russell, CPA Mort Stroud, CPA Thomas A. Davis, CPA R. Steve Sinclair, CPA Anita L. Goodrum, CPA Michael L. Pierce, CPA Ricky D. Allen, CPA Marsha L. McDonald, CPA Jason D. Brooks, CPA Wanda S. Holley, CPA Robert E. Cordle, Jr., CPA Robin Y. McCormick, CPA/PFS Perry C. Rackley, Jr., CPA Independent Auditors Report The Board of Trustees Mississippi Methodist Senior Services, Inc. Tupelo, Mississippi We have audited the accompanying consolidated financial statements of Mississippi Methodist Senior Services, Inc. (a nonprofit organization) and affiliates, which comprise the consolidated statements of financial position as of December 31, 2013 and 2012, and the related consolidated statements of activities, functional expenses, and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

10 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mississippi Methodist Senior Services, Inc. and affiliates as of December 31, 2013 and 2012, and the changes in their net assets and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Other Matters Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations is presented for purposes of additional analysis and in not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated May 8, 2014, on our consideration of Mississippi Methodist Senior Services, Inc. and affiliates internal control over financial reporting and on our tests of their compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Mississippi Methodist Senior Services, Inc. and affiliates internal control over financial reporting and compliance. Eupora, Mississippi May 8,

11 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Consolidated Statements of Financial Position December 31, Assets Current Assets: Cash on hand and on deposit $ 3,741,523 $ 4,934,305 Cash - Money market funds 1,747,271 1,173,049 Mississippi United Methodist Foundation, Inc. investment 544, ,673 Accounts receivable (Net of estimated uncollectibles of $1,505,509 in 2013 and $1,816,955 in 2012) 3,698,895 3,399,637 Other receivables 434, ,212 Due from intermediary - 267,878 Inventory 324, ,056 Prepaid expenses 323, ,933 Current portion of bond sinking funds 535, ,124 Total Current Assets 11,351,161 12,073,867 Property and Equipment: Land 3,819,684 3,819,684 Land improvements 5,678,636 4,273,685 Buildings 86,455,339 79,703,288 Vehicles 892, ,847 Equipment 10,820,059 9,988, ,666,666 98,602,588 Less: Accumulated depreciation ( 56,811,214) ( 54,598,814) 50,855,452 44,003,774 Construction in progress 2,113,364 9,668,613 Total Property and Equipment 52,968,816 53,672,387 Other Assets: Deposits 75,838 67,578 Replacement and painting reserves 1,497,991 1,295,102 Escrow deposits 44,630 58,896 Other bond funds - 1,288,937 Residual receipts reserves 44,223 51,632 Prepaid letter of credit fees 51, ,697 Unamortized bond issue cost 1,081,572 1,156,720 Endowment fund 1,392,677 1,302,915 Investments 760, ,495 Total Other Assets 4,948,638 6,040,972 Total Assets $ 69,268,615 $ 71,787,226 See accompanying notes to financial statements. 3

12 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Consolidated Statements of Financial Position (Continued) December 31, Liabilities and Net Assets Current Liabilities: Accounts payable $ 3,901,895 $ 4,291,913 Accrued expenses 1,617,538 1,335,682 Other payable 24,342 32,456 Residents' refundable deposits 1,002, ,562 Accrued interest on bonds payable 145, ,671 Due to intermediary 136,897 - Short-term note payable - 50,264 Current portion of bonds payable 2,162,850 2,061,565 Current portion of long-term mortgages and notes payable 435, ,999 Current portion of annuities payable 31,588 32,917 Total Current Liabilities 9,458,039 9,038,029 Long-Term Debt: Mortgages and notes payable 5,394,706 5,779,050 Bonds payable, including unamortized discount 37,047,231 39,067,057 Annuities payable 129, ,998 Total Long-Term Debt 42,571,057 44,990,105 Other Liabilities: Life use fees (Net) 1,286,186 1,343,904 Estimated obligation to provide future services, in excess of amounts received or to be received 291, ,730 Total Other Liabilities 1,578,106 1,613,634 Total Liabilities 53,607,202 55,641,768 Net Assets: Unrestricted 9,671,092 10,403,259 Temporarily restricted 5,990,321 5,742,199 Total Net Assets 15,661,413 16,145,458 Total Liabilities and Net Assets $ 69,268,615 $ 71,787,226 See accompanying notes to financial statements. 4

13 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Consolidated Statements of Activities For the Years Ended December 31, Changes in Unrestricted Net Assets: Revenue, Gains and Other Support: Resident and patient rentals and services $ 49,172,356 49,299,292 Ancillary support services 2,184,042 1,299,370 Miscellaneous revenue 236, ,815 Gifts and memorials 82, ,357 Investment income 329, ,721 Amortization of life use fees 339, ,106 Change in obligation to provide future services ( 22,190) 148,053 Gain on investment 56,550 23,833 Total Revenue, Gains and Other Support 52,378,551 51,945,547 Expenses and Losses: Apartments and personal care 17,899,788 16,318,649 Nursing homes 26,336,569 31,410,791 Cottages and garden homes 656, ,383 Outreach services 145, ,382 General and administrative 2,654,626 2,568,396 Public relations and development 468, ,198 Ancillary support services 5,872,632 1,800,501 Total Expenses and Losses 54,034,537 53,367,300 Excess Revenue, Gains and Other Support Under Expenses and Losses ( 1,655,986) ( 1,421,753) Other Changes in Net Assets: Transfers of designated gifts 923, ,949 Decrease in Unrestricted Net Assets ( 732,167) ( 724,804) Changes in Temporarily Restricted Net Assets: Revenue and Other Support: Designated gifts/revenue 1,131, ,002 Investment income 40,715 97,815 Total Revenue and Other Support 1,171, ,817 Other Changes in Temporarily Restricted Net Assets: Transfers of designated gifts ( 923,819) ( 696,949) Increase (Decrease) in Temporarily Restricted Net Assets 248,122 ( 7,132) Decrease in Net Assets ( 484,045) ( 731,936) Net Assets, Beginning of Year as Restated 16,145,458 16,877,394 Net Assets, End of Year $ 15,661,413 $ 16,145,458 See accompanying notes to financial statements. 5

14 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Consolidated Statements of Cash Flows For the Years Ended December 31, Cash Flows From Operating Activities: Resident and patient rentals and services income $ 49,077,618 $ 49,418,973 Ancillary support services revenue 2,005,790 1,148,496 Miscellaneous income 240, ,106 Gifts and memorials received 1,184, ,410 Interest received 361, ,464 Apartments and personal care expense ( 15,614,707) ( 14,601,798) Nursing homes expense ( 24,532,244) ( 30,133,748) Cottages and garden homes expense ( 421,349) ( 327,348) Outreach services expense ( 141,316) ( 152,693) General and administrative expense ( 2,550,110) ( 2,541,828) Public relations and development expense ( 468,848) ( 593,198) Ancillary support services ( 5,408,280) ( 1,827,549) Refundable life use fees received 285, ,300 Escrow deposits funded ( 36,001) ( 38,505) Escrow deposit withdrawals 50,267 38,731 Decrease (Increase) in endowment fund ( 89,762) 571,006 Refundable life use fees repaid ( 3,000) ( 1,500) Increase in residents' refundable deposits 326, ,759 Net Cash Provided By Operating Activities 4,266,631 2,865,078 Cash Flows From Investing Activities: Additions to property and equipment ( 4,004,150) ( 7,222,030) Proceeds from disposal of fixed assets 10,700 4,500 Funding of restricted deposits ( 232,610) ( 231,084) Withdrawals from restricted deposits 37, ,498 Proceeds from house sold - 46,800 Investment in life insurance contracts 19,391 ( 20,000) Net Cash Used By Investing Activities ( 4,169,539) ( 7,185,316) Cash Flows From Financing Activities: Transfers to bond funds 1,247,520 4,662,435 Mortgages, bonds and notes payable issued 81, ,979 Payment of bonds, notes, capital leases and mortgages ( 2,395,726) ( 2,335,265) Net Cash Provided (Used) By Financing Activities ( 1,066,591) 2,709,149 Decrease in Cash and Cash Equivalents ( 969,499) ( 1,611,089) Cash and Cash Equivalents at Beginning of Year 7,003,027 8,614,116 Cash and Cash Equivalents at End of Year $ 6,033,528 $ 7,003,027 See accompanying notes to financial statements. 6

15 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Consolidated Statements of Cash Flows (Continued) For the Years Ended December 31, Reconciliation of Decrease in Net Assets to Net Cash Provided by Operating Activities: Decrease in Net Assets $ ( 484,045) $ ( 731,936) Depreciation 3,699,156 3,301,332 Unrealized gain on investments ( 65,368) ( 21,906) Estimated obligation to provide future services 22,190 ( 148,053) Gain on sale of fixed assets ( 5,736) ( 4,500) Net amortization of financing costs and bond issue costs 63,174 52,566 Amortization of refundable life use fees ( 339,718) ( 320,105) (Increase) decrease in: Accounts receivable ( 299,255) ( 25,560) Other receivables ( 323,207) ( 232,124) Deposits ( 8,260) 3,659 Inventory 54,140 ( 180,979) Prepaid expenses 146,629 19,256 Increase (decrease) in: Accounts payable 613, ,104 Other payables 398,563 32,456 Rent deferred credits 13,550 ( 13,120) Accrued taxes and expenses 268,306 ( 35,747) Residents' refundable deposits 326, ,759 Accrued interest on bonds ( 4,345) 17,191 Refundable life use fees 282, ,800 Decrease in escrow deposits 14, Decrease (Increase) in endowment fund ( 89,762) 571,006 Decrease in annuities payable ( 16,208) ( 5,247) Net Cash Provided By Operating Activities $ 4,266,631 $ 2,865,078 Supplemental Data: Interest paid $ 2,214,990 $ 2,272,480 See accompanying notes to financial statements. 7

16 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Consolidated Statement of Functional Expenses For the Year Ended December 31, 2013 Program Services Apartments General Public Support Services and Cottages Total and Relations Ancillary Total Personal Nursing and Garden Outreach Program Admin- and Dev- Support Support Total Care Homes Homes Services Services istrative elopment Services Services Expenses Salaries $ 6,507,325 12,216,959-50,681 18,774,965 1,682, ,655 3,116,382 5,053,554 23,828,519 Payroll taxes 517, ,574-3,900 1,488, ,784 18, , ,543 1,843,530 Fringe benefits 1,228,221 2,534,730-8,769 3,771, ,997 19, , ,086 4,194,806 Workers compensation 113, , ,754 4, ,947 82, ,257 Total personnel 8,366,333 16,019,217-63,876 24,449,426 1,968, ,646 3,651,908 5,913,686 30,363,112 Legal and accounting 92,659 89,848 8,628 1, ,752 27, , ,503 Supplies 365, ,541 7,192 2,849 1,286,688 47,983 26,042 63, ,057 1,423,745 Maintenance and repairs 1,138, , , ,781,624 57, ,382 63,321 1,844,945 Utilities 1,399, , ,284-2,099,093 12, ,652 2,111,745 Insurance 494, ,873 36,097 3,758 1,064,101 17,099-3,862 20,961 1,085,062 Travel and automotive 39,101 63,859-15, , ,305 28,568 25, , ,744 Staff development 7,923 25, ,351 20,411 4,409 6,192 31,012 65,363 Food 1,104,473 1,532,655-55,680 2,692, ,692,808 Professional & consulting fees 4, , , ,410 Medicaid assessment - 578, , ,800 Telephone 103, ,916 2,501 1, ,668 17,835-8,508 26, ,011 Other 1,559,352 1,669,265 27, ,257, , ,709 2,047,214 2,386,348 5,643,669 Interest 1,315, , ,148,375 2, ,166 2,151,541 Bad Debt 31,453 1,129, ,160, ,160,775 Depreciation and amortization 1,878,275 1,477, , ,594, ,805-59, ,085 3,774,304 Total expenses by program $ 17,899,788 26,336, , ,493 45,038,431 2,654, ,848 5,872,632 8,996,106 54,034,537 See accompanying notes to financial statements. 8

17 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Consolidated Statement of Functional Expenses For the Year Ended December 31, 2012 Program Services Apartments General Public Support Services and Cottages Total and Relations Ancillary Total Personal Nursing and Garden Outreach Program Admin- and Dev- Support Support Total Care Homes Homes Services Services istrative elopment Services Services Expenses Salaries $ 5,979,833 12,595,743-50,675 18,626,251 1,560, , ,449 2,228,641 20,854,892 Payroll taxes 499,161 1,045,682-4,249 1,549, ,345 17,302 29, ,263 1,700,355 Fringe benefits 1,226,224 2,656,248-6,074 3,888, ,180 17,118 34, ,106 4,121,652 Workers compensation 108, , ,281 4, ,323 9, ,335 Total personnel 7,813,337 16,608,240-61,593 24,483,170 1,851, , ,196 2,622,064 27,105,234 Legal and accounting 94,997 40,644 8,676 1, ,941 16, , ,138 Supplies 237, , ,812 1,195,719 50,550 24,719 30, ,476 1,301,195 Maintenance and repairs 1,048, , , ,640,400 56, ,998 63,400 1,703,800 Utilities 1,278, , ,941-1,962,399 12, ,978 1,975,377 Insurance 464, ,314 33,073 3,966 1,034,629 16, ,716 1,051,345 Travel and automotive 26,785 47,382-15,817 89, ,865 32,724 9, , ,521 Staff development 16,353 44, ,006 21,711 6,993 2,069 30,773 91,779 Food 1,039,984 1,455,925-52,165 2,548, ,548,074 Professional & consulting fees 3,244 3,848, ,851, ,851,945 Medicaid assessment - 1,596, ,596, ,596,292 Telephone 88, , ,116 18,343-7,995 26, ,454 Other 1,441,132 1,927,769 23,639 12,068 3,404, , ,992 1,196,614 1,741,638 5,146,246 Interest 1,172, , ,020,822 4, ,510 2,025,332 Bad debt 29, , , ,275 Depreciation and amortization 1,563,312 1,453, , ,226, ,317-41, ,468 3,377,293 Total expenses by program $ 16,318,649 31,410, , ,382 48,405,205 2,568, ,198 1,800,501 4,962,095 53,367,300 See accompanying notes to financial statements. 9

18 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Notes to Financial Statements December 31, 2013 and 2012 Note 1: Description of Reporting Entity and Summary of Significant Accounting Policies Nature of Organization - Mississippi Methodist Senior Services, Inc. (MMSS) (a nonprofit organization) and affiliates are organized to provide housing, personal care and nursing home facilities and other services for the elderly. The consolidated financial statements included all funds of the following organizations: Mississippi Methodist Senior Services, Inc. (nonprofit organization) United Methodist Senior Services Health Care, Inc. (nonprofit organization) United Methodist Senior Services of Clarksdale Area, Inc. (nonprofit organization) United Methodist Senior Services of Columbus Area, Inc. (nonprofit organization) United Methodist Senior Services of Clay County, Inc. (nonprofit organization) Henry Clay Partners, L.P. (partnership) United Methodist Senior Services of Tupelo Area, Inc. (nonprofit organization) Lauderdale Senior Services, Inc. (nonprofit organization) United Methodist Senior Services of Jackson Area, Inc. (nonprofit organization) Hattiesburg Area Senior Services, Inc. (nonprofit organization) Seashore Campgrounds Retirement Home, Inc. (nonprofit organization) United Methodist Senior Services of Desoto County, Inc. (nonprofit organization) Aldersgate Retirement Community, Inc. (nonprofit organization) Greene County Retirement Systems, Inc. (nonprofit organization) Wesley Manor Retirement Community, Inc. (nonprofit organization) Meridian Senior Services, Inc. (nonprofit organization) United Methodist Senior Services of Golden Triangle Area, Inc. (nonprofit organization) Aldersgate Personal Care, Inc. (nonprofit organization) Dugan Memorial Home, Inc. (nonprofit organization) Martha Coker Home, Inc. (nonprofit organization) MMSS Ancillary Services, Inc. (for-profit corporation) All significant intercompany accounts and transactions have been eliminated in consolidation. Property and Equipment - Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Designated Gifts - Mississippi Methodist Senior Services, Inc. has adopted the policy that all designated gifts will be recorded and maintained in the Administrative and Development Fund. All transfers of gifts from the Administrative and Development Fund are recorded by capital transfers in the net assets of the applicable funds. Refundable Life Use Fees - United Methodist Senior Services of Tupelo Area, Inc., United Methodist Senior Services of Clarksdale Area, Inc., Aldersgate Personal Care, Inc., and United Methodist Senior Services of Jackson Area, Inc. amortize the life use fees of Lakeside Cottages, Flowers Cottages, Aldersgate Cottages, and The Garden Homes at Riggs respectively, over the period under which the fees, or a portion thereof, may be refundable as described in Note

19 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Notes to Financial Statements (Continued) December 31, 2013 and 2012 Note 1: Description of Reporting Entity and Summary of Significant Accounting Policies (Continued) Obligation to Provide Future Services - United Methodist Senior Services of Tupelo Area, Inc., United Methodist Senior Services of Clarksdale Area, Inc., Aldersgate Personal Care, Inc., and United Methodist Senior Services of Jackson Area, Inc. annually calculate the present value of the net cost of future services and the use of facilities to be provided to current residents and compares that amount with the balance of deferred revenue from refundable life use fees. If the present value of the net cost of future services and the use of facilities exceeds the deferred revenue from refundable life use fees, a liability is recorded (obligation to provide future services) with the corresponding charge to income. The obligation is discounted based on the expected return on investments. Bond Issue Costs - Bond issue costs relating to United Methodist Senior Services Health Care, Inc., United Methodist Senior Services of Tupelo Area, Inc., United Methodist Senior Services of Jackson Area, Inc., United Methodist Senior Services of Desoto County, Inc., Aldersgate Retirement Community, Inc., Wesley Manor Retirement Community, Inc., United Methodist Senior Services of Golden Triangle Area, Inc., Aldersgate Personal Care, Inc., Dugan Memorial Home, Inc., Martha Coker Home, Inc. and Seashore Campgrounds Retirement Home, Inc. are being amortized over the terms of the related bond issues using the straight-line method. Premium and Discount on Bonds Payable - Premium and discount on bonds payable is being amortized over the life of the related bond issue using the interest method. Cash and Cash Equivalents - For purposes of the statement of cash flows, the corporation considers cash on hand, checking accounts, money market funds, certificates of deposit, and short-term investments to be cash equivalents. Income Taxes - Mississippi Methodist Senior Services, Inc. and all of its related nonprofit affiliates listed on Page 10 are exempt from federal and state income taxes under I.R.C. Section 501(c)(3). The related for-profit affiliate is taxed from both federal and state income taxes at applicable rates. Functional Allocation of Expenses - The costs of providing the various programs and other activities of MMSS have been summarized on a functional basis in the statement of activities. On the statements of functional expenses certain costs have been allocated among the programs benefited. Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Basis of Accounting - The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. Risk Management - The organization is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The organization purchases coverage of risks of loss related to torts and malpractice from Caring Communities Insurance Company. The organization purchases coverage of risks of loss related to theft of, damage to, and destruction of assets from Traveler s Insurance. The organization purchases coverage of risks of loss related to workers compensation claims from LUBA. Inventories of Supplies - Inventories of supplies are stated at the lower of cost (first-in, first-out) or market. 11

20 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Notes to Financial Statements (Continued) December 31, 2013 and 2012 Note 2: Cash and Other Deposits Cash and other deposits are partially insured. The bank balances of cash and other deposits at December 31, 2013 and 2012 are as follows: Cash on deposit $ 3,900,001 $ 5,561,194 Cash - Money market funds 1,824,104 1,148,389 MS United Methodist Foundation, Inc. investments 544, ,673 Replacement reserves 1,427,444 1,258,391 Painting reserves 70,546 63,959 Escrow deposits 44,630 58,896 Residual receipts reserve 44,222 51,632 Other bond funds 535,542 1,783,061 Endowment funds 1,261,234 1,302,915 $ 9,652,456 $ 12,124,110 The bank balances are categorized as follows: Amounts insured by the Federal Deposit Insurance Corporation or collateralized $ 3,505,676 $ 2,901,488 Deposits uninsured and uncollateralized 6,146,780 9,222,622 $ 9,652,456 $ 12,124,110 Note 3: Property and Equipment Depreciation of property and equipment is provided on a straight-line method over the estimated useful lives of the assets, as follows: Land improvements Buildings Equipment Vehicles Years Years 3-20 Years 3-5 Years Depreciation and amortization expense for 2013 and 2012 amounted to $3,699,156 and $3,301,332 respectively. Note 4: Capitalization of Interest Cost Interest charges are capitalized on major construction projects at the lesser of interest expense incurred in total or the accumulated average expenditure for the construction times the interest rate charged on specific borrowings applicable to the construction, until such time the project becomes operational. In accordance with this policy, total interest expense of $2,151,541 and $2,025,332 was incurred for the years ended December 31, 2013 and 2012, of which $69,786 and $255,210 was capitalized during the years ended December 31, 2013 and 2012, respectively. 12

21 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Notes to Financial Statements (Continued) December 31, 2013 and 2012 Note 5: Replacement and Painting Reserves Reserve funds for the replacement of property and equipment and painting are maintained as required by the Department of Housing and Urban Development and are funded by monthly payments to designated depositories. Replacement and painting reserves at December 31, 2013 and 2012 consisted of the following: Mississippi Methodist Senior Services, Inc.: Traceway Manor Fund $ 176,228 $ 156,915 Traceway Villas Fund 141, ,951 United Methodist Senior Services of Columbus Area, Inc.: Trinity Place Fund 47,114 44,993 Trinity Terrace Fund 98,090 86,206 Lauderdale Senior Services, Inc. 195, ,637 Hattiesburg Area Senior Services, Inc. 304, ,853 Aldersgate Retirement Community, Inc. 103,165 88,295 Greene County Retirement Systems, Inc. 128, ,751 Wesley Manor Retirement Community, Inc. 119, ,905 Meridian Senior Services, Inc. 183, ,596 $ 1,497,991 $ 1,295,102 Note 6: Escrow Deposits In general escrow deposits are maintained as required by the Department of Housing and Urban Development or other loan agreements. In such cases, monthly payments are made to the mortgagee of the related projects to fund the annual disbursements for insurance and other mortgage related expenses. Escrow deposits at December 31, 2013 and 2012 consisted of the following: Aldersgate Retirement Community, Inc. $ 20,687 $ 21,457 Wesley Manor Retirement Community, Inc. 23,943 37,439 $ 44,630 $ 58,896 13

22 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Notes to Financial Statements (Continued) December 31, 2013 and 2012 Note 7: Other Bond Funds Other bond funds consisted of the following at December 31, 2013 and 2012: United Methodist Senior Services Health Care, Inc. $ 26,386 $ 60,280 United Methodist Senior Services of Tupelo Area, Inc.: Guy Mitchell, Jr. Personal Care Center Fund 6,095 13,457 United Methodist Senior Services of Jackson Area, Inc. Riggs Manor 20,930 77,033 The Greenhouses at Riggs 8,000 10,599 Seashore Campgrounds Retirement Home, Inc. 30,090 1,288,938 United Methodist Senior Services of Desoto County, Inc. 84,008 34,064 Aldersgate Retirement Community, Inc. 174, ,303 Wesley Manor Retirement Community, Inc. 29,285 29,798 United Methodist Senior Services of Golden Triangle Area, Inc.: Trinity Personal Care 11,466 2,228 Trinity Nursing Center 25,486 7,268 Aldersgate Personal Care, Inc. 16,946 16,931 Dugan Memorial Home, Inc. 8,297 18,919 Martha Coker Home, Inc. 94,294 71, ,542 1,783,061 Less current portion ( 535,542) ( 494,124) $ - $ 1,288,937 Hancock Bank and Trustmark Bank are the trustees for the bond issues for the years ending December 31, 2013 and The bond funds are restricted for the payment of principal and interest on the outstanding bonds and for the payment of trustee fees. Note 8: Endowment Fund The Board of Directors of Mississippi Methodist Senior Services, Inc. (MMSS) has established a MMSS Endowment Fund from designated contributions and bequests. The purpose of this fund is (1) to support the effort to make MMSS's services available to the rapidly growing number of older Mississippians who cannot pay the cost of needed services and (2) to serve as a source of low interest loans to MMSS and its subsidiary corporations for a portion of the initial costs of property acquisitions, capital improvements and start-up funds for new developments. The fund had net assets of $2,862,287 and $2,708,610 at December 31, 2013 and 2012, respectively. 14

23 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Notes to Financial Statements (Continued) December 31, 2013 and 2012 Note 9: Investments Investments at December 31, 2013 and 2012 consisted of the following: Mississippi Methodist Senior Services, Inc.: Administrative and Development Fund $ 364,232 $ 318,255 Endowment Fund Caring Communities Insurance Company 396, ,240 $ 760,472 $ 714,495 Mississippi Methodist Senior Services, Inc. is a shareholder in Caring Communities Insurance Company (CCIC), a domestic captive insurance company formed with approximately thirty other similar organizations to provide general and professional liability insurance coverage for the shareholders. The investment is carried at cost. Note 10: Mortgages and Notes Payable - Long-Term Long-term mortgages and notes payable at December 31, 2013 and 2012 consisted of the following: Mississippi Methodist Senior Services, Inc.: Administrative and Development Fund: Note payable, dated April 5, 2009, to Merchants & Farmers Bank. Secured by equipment. Due $1,725 monthly, including interest at 5.50% for 5 years. Total, less current maturities of $6,820 in 2013 and $19,719 in $ - $ 6,589 Note payable, dated July 26, 2010, to Renasant Bank. Secured by an automobile. Due $386 monthly, including interest at 6% for 5 years. Total, less current maturities of $4,318 in 2013 and $4,067 in ,785 7,286 Note payable, dated December 15, 2010, to Renasant Bank. Secured by an automobile. Due $361 monthly, including interest at 5.50% for 5 years. Total, less current maturities of $3,768 in (Transferred to Senior Tx in 2013) - 8,139 Note payable, dated November 30, 2012, to Toyota Motor Credit. Secured by an automobile. Due $329 monthly, including interest at 0% for 5 years. Total, less current maturities of $3,938 in 2013 and $3,938 in ,813 15,752 Note payable, dated April 26, 2013, to Toyota Motor Credit. Secured by an automobile. Due $383 monthly, including interest at 0% for 4 years. Total, less current maturities of $4,597 in ,108-15

24 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Notes to Financial Statements (Continued) December 31, 2013 and 2012 Note 10: Mortgages and Notes Payable - Long-Term (Continued) Mississippi Methodist Senior Services, Inc.: (Continued) Administrative and Development Fund: (Continued) Note payable, dated December 27, 2013, to Toyota Motor Credit. Secured by an automobile. Due $416 monthly, including interest at 0% for 5 years. Total, less current maturities of $4,574 in ,374 - Note payable, dated February 7, 2013, to Ford Motor Credit Company. Secured by an automobile. Due $599 monthly, including interest at 4.24% for 4 years. Total, less current maturities of $6,414 in ,871 - Traceway Manor Fund: First mortgage payable, dated May 1969, to U.S. Department of Housing and Urban Development. Secured by real estate. Due $3, monthly, including interest at 3% for 50 years. Total, less current maturities of $34,624 in 2013 and $33,602 in , ,066 Traceway Villas Fund: First mortgage payable, dated December 31, 1981, to U.S. Department of Housing and Urban Development. Secured by real estate. Due $6, monthly, including interest at 8.5% for 40 years. Total, less current maturities of $38,998 in 2013 and $35,831 in , ,957 Senior Tx: Note payable, dated December 15, 2010, to Renasant Bank. Secured by an automobile. Due $361 monthly, including interest at 5.50% for 5 years. Total, less current maturities of $3,981 in (Transferred from Administrative and Development in 2013) 4,158 - United Methodist Senior Services of Columbus Area, Inc.: Trinity Place Fund: First mortgage payable, dated October 1980, to U. S. Department of Housing and Urban Development. Secured by real estate. Due $14, monthly, including interest at 6.875% for 40 years. Total, less current maturities of $126,979 in 2013 and $118,565 in , ,662 Trinity Terrace Fund: First mortgage payable, dated March 1985, to U. S. Department of Housing and Urban Development. Secured by real estate. Due $7, monthly, including interest at 9.25% for 40 years. Total, less current maturities of $35,196 in 2013 and $32,098 in , ,545 16

25 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Notes to Financial Statements (Continued) December 31, 2013 and 2012 Note 10: Mortgages and Notes Payable - Long-Term (Continued) United Methodist Senior Services of Clay County, Inc.: First deed of trust on commercial property, dated July 27, 1995, to Cadence Bank. Due $2,125 monthly, including interest at 7.25% for 30 years. Total, less current maturities of $13,412 in 2013 and $8,181 in , ,576 United Methodist Senior Services of Clarksdale Area, Inc.: Roy Flowers Manor Fund: Note payable, dated May 1, 2012, to Covenant Bank. Secured by building improvements. Due $1,798 monthly, including interest at 3.95% for 15 years. Total, less current maturities of $15,270 in 2013 and $14,962 in , ,341 Lauderdale Senior Services, Inc.: First mortgage payable, dated September 1986, to U. S. Department of Housing and Urban Development. Secured by real estate. Due $10, monthly, including interest at 9.25% for 40 years. Total, less current maturities of $41,110 in 2013 and $37,492 in , ,506 Hattiesburg Area Senior Services, Inc.: First mortgage payable, dated September 1986, to U. S. Department of Housing and Urban Development. Secured by real estate. Due $12, monthly, including interest at 9.25% for 40 years. Total, less current maturities of $49,567 in 2013 and $45,204 in ,086,784 1,136,351 Greene County Retirement Systems, Inc.: First mortgage payable, dated July 1986, to U. S. Department of Housing and Urban Development. Secured by real estate. Due $7, monthly, including interest at 9.25% for 40 years. Total, less current maturities of $25,887 in 2013 and $23,608 in , ,143 Meridian Senior Services, Inc.: First mortgage payable, dated February 1989, to U. S. Department of Housing and Urban Development. Secured by real estate. Due $6, monthly, including interest at 9% for 40 years. Total, less current maturities of $19,376 in 2013 and $17,714 in , ,137 $ 5,394,706 $ 5,779,050 17

26 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Notes to Financial Statements (Continued) December 31, 2013 and 2012 Note 10: Mortgages and Notes Payable - Long-Term (Continued) A schedule of mortgage and note maturities follows: Year Ending December 31, 2014 $ 435, , , , , Thereafter 3,462,583 $ 5,829,767 Note 11: Bonds Payable Bonds payable at December 31, 2013 and 2012 consisted of the following: United Methodist Senior Services Health Care, Inc. Mississippi Business Finance Corporation Revenue Bonds, with a variable interest rate, dated December 2004, secured by real estate. Interest and principal are paid in varying amounts on an annual basis beginning December 1, 2005, with a final payment due on December 1, Total, including unamortized discount of $63,416 in 2013 and $67,216 in 2012 and net of current maturities of $286,181 in 2013 and $277,474 in $ 7,229,688 $ 7,512,069 United Methodist Senior Services of Tupelo Area, Inc.: Guy Mitchell, Jr. Personal Care Center Fund: Mississippi Business Finance Corporation Revenue Bonds, with a variable interest rate, dated December 2004, secured by real estate. Interest and principal are paid in varying amounts on an annual basis beginning December 1, 2005, with a final payment due on December 1, Total, including unamortized discount of $17,576 in 2013 and $18,629 in 2012 and net of current maturities of $58,719 in 2013 and $56,306 in ,485,803 1,543,469 United Methodist Senior Services of Jackson Area, Inc.: Riggs Manor Fund: Mississippi Business Finance Corporation Revenue Refunding Bonds, dated December 2010, secured by real estate. Interest and principal are paid in varying amounts on a quarterly basis beginning March 2011, with a final payment due on December Total, including unamortized premium of $9,905 in 2013 and $16,056 in 2012 and net of current maturities of $452,000 in 2013 and $434,543 in ,438,212 3,896,363 18

27 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Notes to Financial Statements (Continued) December 31, 2013 and 2012 Note 11: Bonds Payable (Continued) United Methodist Senior Services of Jackson Area, Inc.: (Continued) The Greenhouses at Riggs: Mississippi Business Finance Corporation Revenue Bonds, with a variable interest rate, dated December 2004, secured by real estate. Interest and principal are paid in varying amounts on an annual basis beginning December 1, 2005, with a final payment due on December 1, Total, including unamortized discount of $4,585 in 2013 and $4,860 in 2012 and net of current maturities of $44,382 in 2013 and $43,753 in ,495 1,029,601 Seashore Campgrounds Retirement Home, Inc. Urban Renewal Revenue Bonds, dated December 2011, secured by real estate. Interest and principal are paid in varying amounts on a monthly basis beginning February 2012, with a final payment due on December 1, Total, net of current maturities of $112,850 in 2013 and $81,565 in ,805,585 5,918,435 United Methodist Senior Services of Desoto County, Inc.: Mississippi Business Finance Corporation Revenue Refunding Bonds, dated December 2010, secured by real estate. Interest and principal are paid in varying amounts on a quarterly basis beginning March 2011, with a final payment due on December Total, including unamortized premium of $9,603 in 2013 and $14,740 in 2012 and net of current maturities of $325,000 in 2013 and $315,000 in ,801,131 3,131,268 Aldersgate Retirement Community, Inc.: Mississippi Business Finance Corporation Revenue and Taxable Revenue Refunding Bonds, dated May 1999, with interest rates between 5.45% %, secured by real estate. Interest payable semiannually on May 20 and November 20. Principal due in varying amounts each year beginning on November 20, 1999, with final payment due on May 20, Total, less current maturities of $195,000 in 2013 and $175,000 in ,940,000 1,980,000 Wesley Manor Retirement Community, Inc.: Mississippi Business Finance Corporation Revenue and Taxable Revenue Refunding Bonds, dated May 1999, with interest rates between 5.45% %, secured by real estate. Interest payable semiannually on May 20 and November 20. Principal due in varying amounts each year beginning on November 20, 1999, with final payment due on May 20, Total, less current maturities of $55,000 in 2013 and $60,000 in ,325,000 2,380,000 19

28 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Notes to Financial Statements (Continued) December 31, 2013 and 2012 Note 11: Bonds Payable (Continued) United Methodist Senior Services of Golden Triangle Area, Inc.: Trinity Personal Care Fund: Mississippi Business Finance Corporation Revenue Refunding Bonds, dated December 2010, secured by real estate. Interest and principal are paid in varying amounts on a quarterly basis beginning March 2011, with a final payment due on December Total, including unamortized premium of $1,773 in 2013 and $2,721 in 2012 and net of current maturities of $60,000 in 2013 and $58,000 in , ,291 Trinity Nursing Center Fund: Mississippi Business Finance Corporation Revenue Refunding Bonds, dated December 2010, secured by real estate. Interest and principal are paid in varying amounts on a quarterly basis beginning March 2011, with a final payment due on December Total, including unamortized premium of $3,891 in 2013 and $5,988 in 2012 and net of current maturities of $132,000 in 2013 and $130,000 in ,250 1,097,347 Aldersgate Personal Care, Inc.: Aldersgate Personal Care Center Fund: Mississippi Business Finance Corporation Revenue Refunding Bonds, dated December 2010, secured by real estate. Interest and principal are paid in varying amounts on a quarterly basis beginning March 2011, with a final payment due on December Total, including unamortized premium of $459 in 2013 and $1,990 in 2012 and net of current maturities of $186,000 in 2013 and $182,000 in , ,365 Dugan Memorial Home, Inc.: Mississippi Business Finance Corporation Revenue Bonds, with a variable interest rate, dated December 2004, secured by real estate. Interest and principal are paid in varying amounts on an annual basis beginning December 1, 2007, with a final payment due on December 1, Total, including unamortized discount of $23,675 in 2013 and $25,094 in 2012 and net of current maturities of $80,718 in 2013 and $77,467 in ,034,762 2,114,061 20

29 MISSISSIPPI METHODIST SENIOR SERVICES, INC. Notes to Financial Statements (Continued) December 31, 2013 and 2012 Note 11: Bonds Payable (Continued) Martha Coker Home, Inc.: Mississippi Business Finance Corporation Revenue Refunding Bonds, dated December 2010, secured by real estate. Interest and principal are paid in varying amounts on a quarterly basis beginning March 2011, with a final payment due on December Total, including unamortized discount of $59,733 in 2013 and $57,074 in 2012 and net of current maturities of $175,000 in 2013 and $170,457 in ,412,128 7,589,788 A schedule of bond maturities follows: Year Ending December 31, 2014 $ 2,162, ,027, ,597, ,828, ,918, Thereafter 29,818,364 $ 39,353,435 $ 37,047,231 $ 39,067,057 Debt service payments on each bond issue will be used by the bond trustee for payment of the bond principal, interest, escrow deposit and trustee fees. Year Ending December 31, 2014 $ 4,032, ,127, ,456, ,620, ,611,086 21