Terence Cardinal Cooke Health Care Center. Financial Statements. December 31, 2008

Transcription

1 Financial Statements December 31, 2008

2 Independent Auditors Report Board of Directors We have audited the accompanying statement of financial position of Terence Cardinal Cooke Health Care Center as of December 31, 2008, and the related statements of operations and changes in net assets and cash flows for the year then ended. These financial statements are the responsibility of 's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of as of December 31, 2008, and the results of its operations and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Harrison, New York May 26, Mamaroneck Avenue, Harrison, NY Tel: Fax:

3 Statement of Financial Position December 31, 2008 ASSETS Current Assets Cash and cash equivalents $ 3,198,565 Investments 13,770 Accounts receivable, net 25,199,262 Inventory 289,459 Other 1,013,117 Due from third-party payors 2,196,780 Restricted cash - residents' funds 620,814 Total Current Assets 32,531,767 Assets limited as to use 4,620,085 Land, building and equipment, net 15,110,339 Deferred financing costs, net 716,467 Other 185,524 $ 53,164,182 LIABILITIES AND NET ASSETS Current Liabilities Current portion of long-term debt $ 5,050,000 Current portion of note payable to vendor 917,205 Current portion of capital lease payable 50,000 Accounts payable and accrued expenses 13,200,205 Accrued salaries and related benefits 6,772,128 Due to related parties 3,728,718 Funds held for residents 620,814 Total Current Liabilities 30,339,070 Long-term debt, net of current portion 6,248,333 Note payable to vendor, net of current portion 4,109,638 Capital lease payable, net of current portion 25,000 Accrued pension liability 5,107,711 Other 228,995 Total Liabilities 46,058,747 Net Assets Unrestricted 2,545,104 Temporarily restricted 944,202 Permanently restricted 3,616,129 Total Net Assets 7,105,435 See notes to financial statements 2 $ 53,164,182

4 Statement of Operations and Changes in Net Assets Year Ended December 31, 2008 UNRESTRICTED NET ASSETS Operating Revenue Net patient service revenue $ 121,026,633 Investment loss (10,900) Other revenue 1,113,528 Net assets released from restrictions 311,586 Total Operating Revenue 122,440,847 Operating Expenses Salaries 52,372,126 Employee benefits 18,748,314 Supplies and other expenses 38,957,656 Depreciation and amortization 2,850,114 Interest 913,209 Provision for bad debts 3,739,790 New York State cash receipts assessment 3,769,374 Total Operating Expenses 121,350,583 Excess of Operating Revenue Over Operating Expenses 1,090,264 Non-operating Revenue General contributions and fundraising, net of expenses of $232, ,195 Other investment loss (342,405) Total Non-operating Revenue 86,790 Pension liability adjustment (544,392) Change in Unrestricted Net Assets 632,662 UNRESTRICTED NET ASSETS Beginning of year 1,912,442 End of year $ 2,545,104 TEMPORARILY RESTRICTED NET ASSETS Contributions $ 224,936 Investment loss (536,261) Net assets released from restrictions (311,586) Change in temporarily restricted net assets (622,911) Temporarily Restricted Net Assets Beginning of year 1,567,113 End of year $ 944,202 PERMANENTLY RESTRICTED NET ASSETS Change in beneficial interest in trust $ 825,706 Permanently Restricted Net Assets Beginning of year 2,790,423 End of year $ 3,616,129 Change in Net Assets $ 835,457 NET ASSETS Beginning of year 6,269,978 End of year $ 7,105,435 See notes to financial statements 3

5 Statement of Cash Flows Year Ended December 31, 2008 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 835,457 Adjustments to reconcile change in net assets to net cash from operating activities Depreciation and amortization 2,850,114 Provision for bad debts 3,739,790 Realized loss on investments 27,168 Unrealized loss on investments 937,234 Change in beneficial interest in trust (825,706) Pension liability adjustment 544,392 Changes in operating assets and liabilities Accounts receivable (1,374,593) Inventory (65,330) Due to related parties (132,116) Other assets (18,920) Accounts payable and accrued expenses (1,492,227) Accrued salaries and related benefits 57,636 Due to third-party payors (3,970,347) Other liabilities (180,787) Accrued pension liability 658,572 Net Cash from Operating Activities 1,590,337 CASH FLOWS FROM INVESTING ACTIVITIES Withdrawals of limited use assets 308,696 Purchases of building, equipment and construction in progress (1,277,658) Other assets 358,735 Net Cash from Investing Activities (610,227) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt (2,368,333) Principal payments on note payable to vendor (473,157) Principal payments on capital lease obligations (306,811) Net Cash from Financing Activities (3,148,301) Net Change in Cash and Cash Equivalents (2,168,191) CASH AND CASH EQUIVALENTS Beginning of year 5,366,756 End of year $ 3,198,565 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest $ 832,147 See notes to financial statements 4

6 1. Organization and Tax Status (the "Center") is a not-for-profit corporation which provides both inpatient and outpatient services. The Center s inpatient operations consist of a skilled nursing facility, skilled nursing facility AIDS, a sub-acute care unit and a Huntington s disease unit, all licensed under the New York State Department of Health ( DOH ). The Center also operates a specialty hospital program for the developmentally disabled, licensed under the New York State Office of Mental Retardation and Developmental Disabilities ( OMRDD ). Outpatient operations consist of an end stage hemodialysis program and a primary medical and specialty clinic for the developmentally disabled, also under OMRDD. In April 2003, the Center assumed the operating responsibilities of the Children s Rehabilitation Center ( CRC ), formerly an outpatient department of Saint Agnes Hospital. Operations at the CRC serve the physically disabled with programs consisting of an outpatient subspecialty clinic licensed under DOH as well as educational services to enrolled students, licensed under the New York State Department of Education. In 2004, the Center's Board of Directors entered into an administrative services agreement with Catholic Health Care System ("CHCS"). Under this agreement CHCS provides finance, information systems, human resources, legal and supply chain services for the Center. CHCS is a health care delivery system composed of a long term acute care hospital, nursing homes, and other entities that deliver health care services (the CHCS Institutions ) in the Greater New York Area and Hudson Valley. CHCS was established principally to provide support services and coordination of managed care, medical affairs, management information systems, and other services to CHCS Institutions. Tax Exempt Status The Center is recognized as tax exempt pursuant to Section 501(c)(3) of the Internal Revenue Code. 2. Summary of Significant Accounting Policies Basis of Accounting The financial statements of the Center have been prepared in accordance with accounting principles generally accepted in the United States of America and the accounting and financial statement presentation requirements of the Health Care Organizations audit and accounting guide published by the American Institute of Certified Public Accountants. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. 5

7 2. Summary of Significant Accounting Policies (continued) Basis of Presentation Resources are classified for accounting and reporting purposes into net asset classes according to donor imposed restrictions. Unrestricted net assets are those whose use is not subject to any donor imposed restrictions. Temporarily restricted net assets are those resulting from contributions and other inflows of assets whose use by the Center is limited by donor imposed stipulations that will be met either by passage of time or can be fulfilled and removed by actions of the Center pursuant to those stipulations. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of operations as net assets released from restrictions. Permanently restricted net assets are donor restricted gifts that must be maintained permanently by the Center to provide present and future income for operations. Generally, the donors of these assets permit the Center to use all or part of the income earned on any related investments for general or specific purposes. Beneficial Interest in Perpetual Trust The Center is named as beneficiary in a perpetual trust. The assets of this trust are held by others in perpetuity and the trust income is made available to the Center. The Center s share of the estimated fair value of the assets in the trust has been reported as beneficial interest in perpetual trusts in the permanently restricted net asset class in the accompanying financial statements. Annual distributions from the trust are restricted under the gift agreement and are reported as temporarily restricted revenue. Cash and Cash Equivalents Cash and cash equivalents include certain investments in highly liquid debt instruments with a maturity date of three months or less at the time of purchase. Cash and cash equivalents do not include cash and investments whose use is limited and restricted cash. Fair Value of Financial Instruments For the year ended December 31, 2008, the Center adopted FASB Statement of Financial Accounting Standards No. 157 Fair Value Measurements ( SFAS 157 ). SFAS 157 establishes a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FAS 157 are described below: Level 1 Inputs Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted instruments; 6

8 2. Summary of Significant Accounting Policies (continued) Fair Value of Financial Instruments (continued) Level 2 Inputs Quoted prices for similar instruments in active markets or quoted prices for similar instruments in markets that are not active whose inputs are observable, either directly or indirectly; Level 3 Inputs Prices or valuations that require inputs that are both significant to the fair value and unobservable. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Inventory Inventory of food and supplies is valued at cost using the first-in, first-out method. Assets Limited as to Use Assets limited as to use are recorded at fair value and primarily include cash and investments provided by donors whose gifts are either temporarily or permanently restricted, funds held on behalf of other parties pursuant to contractual agreement and reserve funds established by Board action. Residents' Funds Residents' funds are held by the Center on behalf of the residents. Such funds represent allowances received by residents as well as other residents' funds deposited with the Center for safekeeping. These funds are disbursed by the Center at the request of, or on behalf of, residents for their personal use. Land, Building and Equipment Items capitalized as part of land, building and equipment, are stated at cost. Maintenance and repairs of a routine nature are expensed while those that extend the life of existing properties are capitalized. Depreciation is provided over the estimated useful lives of each class of depreciable asset and is computed utilizing the straight-line method. The estimated lives by asset class are as follows: Land improvements Building and improvements Equipment 10 years years 3-20 years 7

9 2. Summary of Significant Accounting Policies (continued) Asset Impairment The Center evaluates its long-lived assets for impairment on an annual basis or whenever events or changes in circumstances would indicate that the carrying value of assets may not be recoverable. Long-lived assets would be deemed to be impaired if the estimate of undiscounted future net cash flows is less than the carrying value of the assets. There was no impairment losses recognized in Asset Retirement Obligations The Center accounts for Asset Retirement Obligations ( ARO ) in accordance with Financial Accounting Standards Board Interpretation No. 47 "Accounting for Conditional Asset Retirement Obligations" ( FIN 47 ). FIN 47 defines a conditional asset retirement obligation as a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. Uncertainty with respect to the timing and/or method of settlement of the asset retirement obligation, does not defer recognition of a liability. The fair value of the ARO is recorded on a discounted basis and accreted over time for the change in fair value. At December 31, 2008, the Center's conditional ARO was $145,800, which amount is included within other liabilities in the statement of financial position. Amortization Deferred financing costs are being amortized using the straight-line method over a period of approximately 20 years. Accounts Receivable and Net Patient Service Revenue Accounts receivable are stated net of an allowance for doubtful accounts. Bad debts are provided for on the allowance method based on historical experience and management's estimation of collection losses on outstanding receivables. Delinquent receivables are written off based on individual evaluation and specific circumstances of the resident. The Center has agreements with third-party payors that provide for payments to the Center at amounts different from its established rates. Payments are generally prospectively determined per-diem amounts. Net patient service revenue is reported at the estimated net realizable amounts from patients and third-party payors for services rendered, including retroactive adjustments under reimbursement agreements with third-party payors. 8

10 2. Summary of Significant Accounting Policies (continued) Operating Measure For purposes of display, transactions deemed by management to be ongoing, major, or central to the provision of health care services are reported as operating revenue and expenses in the statement of operations and changes in net assets. Peripheral or incidental transactions are reported as non-operating revenue and expenses. Advertising Costs Advertising costs are expensed as incurred. Advertising expense for 2008 approximated $1,500. Accounting for Uncertainty in Income Taxes The Center s accounting policy is to provide liabilities for uncertain tax positions when a liability is probable and estimable. Management is not aware of any violation of its tax status as an organization exempt from income taxes, nor of any exposure to unrelated business income tax. 3. Investments Investments consist of cash and cash equivalents valued using level 1 inputs totaling $13,770 at December 31, Total investment income (loss) earned on cash, investments and assets limited as to use for the year ended December 31, 2008 is comprised of the following: Interest and dividends $ 96,350 Realized loss (27,168) Unrealized loss (937,234) Investment fees (21,514) $ (889,566) 9

11 4. Assets Limited as to Use Certain of the Center s assets were limited as to use at December 31, 2008 as summarized below: Permanently restricted net assets (Note 12) Malta Volunteer Services Fund $ 1,336,035 Beneficial interest in trust - Langer 1,686,357 Endowment fund - miscellaneous 593,737 3,616,129 Temporarily restricted net assets (Note 11) Specific purpose and events funds 944,202 Unrestricted net assets Board designated: Capital and other improvements 6,963 Programs / operations 52,791 59,754 Total Assets Limited As to Use $ 4,620,085 The composition of assets limited as to use at December 31, 2008 is set forth as follows: Quoted Prices in Active Significant Significant Markets for Other Observable Unobservable Identical Assets Inputs Inputs (Level 1) (Level 2) (Level 3) Total Cash $ 290,259 $ - $ - $ 290,259 Money market and reserve funds 165, ,761 Fixed income securities - 454, ,791 Equities 1,381, ,381,272 Mutual funds 641, ,645 Beneficial interest in trust - - 1,686,357 1,686,357 $ 2,478,937 $ 454,791 $ 1,686,357 $ 4,620,085 10

12 4. Assets Limited as to Use (continued) The following is a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value using significant unobservable inputs (Level 3) during the period ended December 31, 2008: Beneficial Interest in Beginning balance $ 860,651 Change in beneficial interest in trust 825,706 Ending balance $ 1,686,357 The credit and liquidity crisis in the United States has resulted in substantial volatility in the global financial markets. Consequently, the Center s individual investments may fluctuate in response to changing market conditions. 5. Accounts Receivable, Net The Center provides an allowance for doubtful accounts based upon prior experience and management s assessment of the collectability of specific accounts. The allowance for doubtful accounts approximated $15,828,000 at December 31, Land, Building and Equipment Land, building and equipment consist of the following at December 31, 2008: Land $ 1,535,588 Building, building improvements and other development costs 80,004,552 Equipment 16,156,800 Construction in progress 436,866 98,133,806 Accumulated depreciation (83,023,467) $ 15,110,339 Depreciation expense for the year ended December 31, 2008 was $2,773,

13 7. Deferred Financing Costs The Center participated with Dormitory Authority of the State of New York ( DASNY ) in the issuance of a combination of serial and term bonds. The financing costs associated with the financing have been capitalized and are being amortized over the term of the bonds. At December 31, 2008, the balance of these capitalized costs was $716,467 net of accumulated amortization of $722,401. Amortization expense for the year ending December 31, 2008 was $76, Long-Term Debt Long-term debt at December 31, 2008 consists of the following: Bonds payable $ 3,965,000 Revolving line of credit 3,000,000 Mortgage loan payable 2,333,333 Archdiocese subvention loan 2,000,000 Total Long-term Debt 11,298,333 Less current portion of long-term debt 5,050,000 Bonds Payable $ 6,248,333 The Center is obligated to repay tax-exempt bonds issued through DASNY in December The bonds are a combination of serial bonds and term bonds with an average coupon rate of 4.53%. The bonds are secured by an irrevocable letter of credit issued by a commercial bank which is presently due to expire on December 21, By the provisions of the documents associated with the Center s bonds payable, the Center is required to meet certain covenants. At the December 31, 2008 test period for these covenants, the Center failed to meet the debt service coverage ratio covenant. A waiver of this covenant from the bank was granted. Revolving Line of Credit In June 2003, the Center entered into a loan agreement with Allied Irish Banks, p.l.c, providing for a revolving credit line of $3,000,000. Borrowings under the line bear interest at an annual rate of 4.75%. The line matures on September 27, 2009 or upon written demand of the bank. The revolving line of credit is guaranteed by the Roman Catholic Fund for Children and Other Purposes. 12

14 8. Long-Term Debt (continued) Mortgage Loan Payable The Center entered into a mortgage loan agreement with a bank in March 2006, which provided for a loan of $5,000,000. The mortgage note accrues interest at a rate equal at all times to the banks prime lending rate minus fifty basis points. The note is payable in sixty equal monthly installments of $83,333 and matures in March Archdiocese Subvention Loan The Center entered into a subvention agreement in March 2007 with the Archdiocese of New York in the amount of $2,000,000. This agreement requires the Center to repay the amount borrowed in periodic payments plus interest at the rate of 5% per annum. However, payments are not required if such payment will jeopardize the financial well being of the Center. A summary of all annual debt payments to satisfy maturities on all long-term obligations during the next five years and thereafter is as follows: 2009 $ 5,050, ,560, , , ,000 Thereafter 1,510, Note Payable to Vendor $ 11,298,333 In June 2008, the Center converted its accounts payable balance with a vendor into a promissory note agreement in the amount of $5,500,000. The note bears interest at an annual rate of 6%. The note is payable in sixty equal monthly installments of principal and interest of $106,453 and the note matures in July A summary of scheduled principal payments on the note during the next five years and thereafter is as follows: 2009 $ 917, ,059, ,125, ,194, ,487 $ 5,026,843 13

15 10. Capital Lease Obligation The Center leases equipment under various capital lease arrangements. The aggregate capitalized cost of this equipment under obligation at December 31, 2008 was $1,150,000 less accumulated depreciation of $646,594. Depreciation expense on this equipment was $186,381 in This equipment is included in land, building and equipment, net on the statement of financial position. Future minimum lease payments and the net present value of future minimum lease payments related to capital leases are as follows: 2009 $ 59, ,675 Total Lease Payments 89,026 Amount representing interest (14,026) Present Value of Future Minimum Payments 75,000 Less current portion 50,000 $ 25, Temporarily Restricted Net Assets Temporarily restricted net assets consist of the following at December 31, 2008: Huntington's disease programs $ 158,519 Volunteer programs 80,726 Research programs 198,646 Other 506,311 $ 944,202 Net assets released from restrictions during 2008 were released for the following programs: Huntington's disease programs $ 155,324 Volunteer programs 72,294 Other 83,968 $ 311,586 14

16 12. Permanently Restricted Net Assets Permanently restricted net assets consist of the following at December 31, 2008: Malta Volunteer Services Fund $ 1,336,035 Beneficial interest in trust - Langer 1,686,357 Endowment fund - miscellaneous 593,737 $ 3,616,129 A summary of the Center's individually significant permanently restricted net assets are as follows: Malta Volunteer Services Fund The Board of Directors agreed with the American Association of the Order of Malta (the Order ) to establish a permanent endowment with the net proceeds (approximately $1,504,000) received from a special event supported by the Order. An additional $172,150 was added to this corpus from gifts made in In April 2002, the Malta Volunteer Services Fund Committee (the Committee ) approved a reduction to the corpus to $1,336,035, effective December 31, 2002, as a result of the decline in the value of the portfolio. The annual earnings, including unrealized gains and losses above the original net proceeds are credited to temporarily restricted funds to cover the expenses of the Malta Volunteer Services program, as approved by the Committee. Beneficial Interest in the Langer Trust The Center has a beneficial interest in a perpetual trust established by the Langer Foundation with the Order as trustee. At December 31, 2008, the market value of the trust was approximately $1,686,000. The Trustee (the Order) generally makes annual distributions of income from the trust, to the Center, which is the sole beneficiary. Such distributions, which are restricted under the gift instrument for expenses of a medical research program for children with special care needs, amounted to $61,617 in Endowment Funds The Center maintains various donor-restricted funds whose purpose is to provide long term support for its charitable programs. In classifying such funds for financial statement purposes as either permanently restricted, temporarily restricted or unrestricted net assets, the Board of Directors looks to the explicit directions of the donor where applicable and the provisions of the laws of the State of New York. There are no board designated endowment funds. 15

17 13. Endowment Funds (continued) The following is a reconciliation of the activity in the donor-restricted endowment funds for the year ended December 31, 2008: Unrestricted Temporarily Restricted Permanently Restricted Total Balance, December 31, 2007 $ 490,108 $ 576,486 $ 1,929,772 $ 2,996,366 Capital depreciation (397,286) (567,116) - (964,402) Investment income 19,705 12,334-32,039 Expenditures (40,475) (21,704) - (62,179) Balance, December 31, 2008 $ 72,052 $ - $ 1,929,772 $ 2,001,824 Certain of the Center s donor restricted endowments have experienced losses due to market fluctuations and the continuing requirements of funding the program. Generally accepted accounting principals require that such excess losses be absorbed by the unrestricted net assets of the Center and that future gains be allocated to unrestricted net assets until such losses have been restored. Aggregate, cumulative losses absorbed by the unrestricted net assets at December 31, 2008 amounted to $113, Net Patient Service Revenue The Center has agreements with third-party payors that provide for payments for services rendered by the Center. A summary of the payment arrangements with the major thirdparty payors follows: Medicaid Inpatient services rendered to Medicaid program beneficiaries are at prospectively determined per-diem rates. These rates vary according to a patient classification system that is based on clinical, diagnostic and other factors. In addition, a portion of the reimbursement rate is based on the actual capital-related costs of the Center. Medicare Inpatient services rendered to Medicare program beneficiaries are paid at prospectively determined per-diem rates. These rates vary according to a patient classification system that is based on clinical, diagnostic and other factors. Third-party payors retain the right to review and propose adjustments to reimbursement amounts received by the Center. Provision is made in the financial statements for anticipated adjustments that may vary from such revisions. In the normal course of business, the Center requests revisions to reimbursement amounts received under third-party payor agreements. No amounts are recorded unless the Center is reasonably assured that such revision is granted. 16

18 14. Net Patient Service Revenue (continued) Revenue from the Medicaid and Medicare programs accounted for approximately 81% and 11% of the Center s net patient service revenue for the year ended The current Medicaid and Medicare programs are based upon extremely complex laws and regulations that are subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term. Additionally, noncompliance with such laws and regulations could result in fines, penalties and exclusion from such programs. The Center is not aware of any allegations of non-compliance that could have a material adverse effect on the financial statements and believes that it is in compliance with all applicable laws and regulations. The Center has also entered into payment agreements with commercial insurance carriers. The basis for payment to the Center under these agreements generally is prospectively determined per-diem rates. 15. Pension The Center contributes to various pension plans for its employees; the Archdiocesan Pension Plan (the Archdiocesan Plan ), the Terrence Cardinal Cooke Retirement Income Plan (the TCC Plan ), three pension plans under union contracts and collective bargaining agreements ( Union Plan ) and a deferred compensation plan. The Archdiocesan Plan Participation in the Archdiocesan Plan, a multi-employer defined benefit plan, is limited to eligible non-union employees meeting the age and years of service requirements of the Plan. Pension expense was $448,741 for the year ended December 31, The Archdiocesan Plan is currently under funded by an undetermined amount. The Center has not evaluated the effect of such under funding on future contributions but believes that any increased contributions will not materially affect its financial condition or liquidity in the near term. The TCC Plan Participation in the TCC Plan, a defined benefit non-contributory pension plan, is limited to eligible non-union employees meeting the requirements of the TCC Plan. On December 31, 2007, the Center adopted the recognition and disclosure provisions of FASB Statement 158. Statement 158 required the Center to recognize the funded status, which is the difference between the fair value of plan assets and the projected benefit obligations in the December 31, 2007, statement of financial position, with a corresponding adjustment to other changes in net assets. 17

19 15. Pension (continued) The adjustment to other changes in net assets at adoption represents the net unrecognized actuarial losses and unrecognized prior service cost remaining from the initial adoption of FASB Statement 87 and will be subsequently recognized within net periodic pension cost pursuant to the Center s historical accounting policy for amortizing such amounts. Actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic pension cost in the same periods will be recognized as a component of other changes in net assets and, likewise, will be subsequently recognized as a component of net periodic pension cost on the same basis described above. The table below reflects the amounts recognized as changes in unrestricted net assets arising from the TCC Plan at December 31, 2008 that have not yet been recognized in net periodic pension cost and the portion of such amounts that are expected to be recognized in net periodic pension cost during the year ending December 31, Unrecognized prior service cost $ 107,508 $ 333,281 Unrecognized actuarial loss 117,612 1,689,354 $ 225,120 $ 2,022,635 The unrecognized actuarial loss increased by $651,900 from A summary of the TCC Plan for 2008 is as follows: Projected benefit obligation $ 5,602,757 Fair value of plan assets 495,046 Unfunded Status $ (5,107,711) Employer contribution $ - Benefits paid 156,494 Accumulated benefit obligation 5,310,797 Weighted Average Assumptions Discount rate 6.00 % Rate of compensation increase 3.00 Expected long-term rate on plan assets 7.75 Net periodic pension cost for 2008 was $658,572, inclusive of amortization of unrecognized prior service cost of $107,508 and amortization of actuarial loss of $104,

20 15. Pension (continued) The Center's expected long-term return on plan assets assumption is based on a periodic review of the plan's asset allocation and liability structure over a long-term horizon. Expectations of returns for each asset class are the most important of the assumptions used in the review and modeling and are based on comprehensive reviews of historical data and economic/financial market theory. The expected long-term rate of return on assets was selected from within the reasonable range of rates determined by (a) historical real returns, net of inflation, for asset classes covered by the investment policy, and (b) projections of inflation over the long-term period during which benefits are payable to plan participants. The weighted average fair value of plan assets at December 31, 2008 was as follows: Equity securities 57% Fixed income securities 43% 100% Since the principal purpose of the plan is to provide benefits at normal retirement age, the principal goal of the investment of the funds in the plan is both security and long-term stability with moderate growth commensurate with the anticipated retirement dates of participants. Investments, other than "fixed dollar" investments, are included among the plan's investments to prevent erosion by inflation. However, investments are sufficiently liquid to enable the plan, on short notice, to make large distributions. The Center s investment strategy is a conservative risk tolerance philosophy and is directed by the Supplemental Committee of the Archdiocese of New York. The objectives of the target allocations are designed to be consistent with the actuarial return assumptions. The Center s minimum funding requirement for the next fiscal year is $473,000. Expected future benefit payments for each of the next five years and in the aggregate for the subsequent five years are as follows at December 31, 2008: Year Benefit Payment Union Plan 2009 $ 240, , , , , ,079,387 The Center s union employees are covered by provisions of pension plans under union contracts and collective bargaining agreements. The contribution to pension funds administered by unions approximated $2,632,000 in

21 15. Pension (continued) Deferred Compensation During 2003, the Center also established a nonqualified deferred compensation plan under IRS Code section 457(b). The plan is currently only offered to senior management. Under the plan, eligible employees may defer an additional $13,000 annually above the current IRS Code section 403(b) limitation. The funds are held in a "rabbi trust," and are segregated from the assets of the Center for the exclusive purpose of paying the plan benefits. During the year ended December 31, 2008, there were no contributions made to this plan. At December 31, 2008, the plan had a value of approximately $83,000 and is included in other assets on the statement of financial position, with the offsetting liability included in other liabilities. 16. Concentration of Credit Risk Financial instruments that potentially subject the Center to concentrations of credit risk consist principally of cash and accounts receivable. The Center places its cash with various financial institutions and limits the amount of credit exposure by any one financial institution. At times, the cash balance may be in excess of the FDIC insurance limit. The Center grants credit without collateral to its patients, most of whom are insured under third-party payor agreements. The mix of receivables from patients and third-party payors at December 31, 2008, was as follows: Medicaid 39 % Medicare 30 Self-pay and other % 17. Related Party Transactions During the year ended December 31, 2008, CHCS charged the Center approximately $5,356,000 in fees for services provided under an administrative services agreement. These amounts represent finance, information systems, human resources, legal and supply chain services. At December 31, 2008, the Center has liabilities of approximately $1,296,000 related to these charges which have been included in due to related parties. During the years of 1996 through 2004, the Center and a number of other skilled nursing facilities participated in a self insured workers' compensation program administered by CHCS. The Center has continued to accrue expenses related to claims incurred in excess of premiums paid under the trust. At December 31, 2008, the Center has liabilities of approximately $1,229,000 related to these claims, which have been included in due to related parties. Under this program, the Center is contingently liable for its share of a $2,575,000 irrevocable letter of credit. 20

22 17. Related Party Transactions (continued) The Center's share of the letter of credit approximates $961,000. At December 31, 2008, the Center has incurred fees of $14,615 related to this letter of credit. In 2008, the Center was charged health insurance premiums of approximately $1,088,000 from Benefice Advantage, Inc. ( Benefice ). Benefice is an affiliated company established as a self-insured trust for health insurance for CHCS and its affiliates. At December 31, 2008, the Center has a liability of approximately $596,000 which has been included in due to related parties. The Center participates in a professional and general liability self-insurance trust administered by CHCS. Prior to June 30, 2008, CHCS purchased excess insurance in the amount of $5 million over the limits retained in the CHCS self-insurance trust. For the period January 1, 2008 to June 30, 2008, the Center was charged premiums of approximately $2,165,000 and has accrued a liability of $609,000 for any future claims related to June 30, 2008 and prior. Effective June 30, 2008, CHCS purchased an insurance policy that is premium based. At December 31, 2008, the Center has a receivable from St. Theresa s Residence Inc., of approximately $2,000 which has been classified in due to related parties in the Center s statement of financial position. 18. Functional Expenses The Center provides general health care services to residents within its geographic location. Expenses relating to providing these services for the year ended December 31, 2008 were as follows: Patient care $ 101,982,482 Administrative and general 19,368, Commitments and Contingencies $ 121,350,583 The Center rents office space for the CRC program under a month-to-month lease agreement. Rent expense for this program was approximately $236,000 for The Center is involved in litigation arising in the normal course of business. Management estimates that such matters will be resolved without material adverse effect on the Center s future financial position, liquidity and results from operations. 21

23 19. Commitments and Contingencies (continued) The health care industry is subject to numerous laws and regulations of federal, state and local governments. Recently, government activity has increased with respect to investigations concerning possible violations by health care providers of fraud and abuse statutes and regulations. Compliance with such laws and regulations are subject to future government review and interpretations as well as potential regulatory actions. At this time, the Center is not aware nor have they been notified of any pending regulatory inquiries. 20. New York State Cash Receipts Assessment An assessment was imposed on substantially all nursing home cash receipts effective April 1, 2002 as part of the New York State Health Care Work Force Recruitment and Retention Act of The assessment was 6% for Medicaid rates were increased to reimburse nursing homes the portion of the assessment related to Medicaid cash receipts. Revenue recognized approximated $3,531,000 for