CALIFORNIA-NEVADA METHODIST HOMES

Transcription

1 CALIFORNIA-NEVADA METHODIST HOMES ANNUAL REPORT FISCAL YEAR ENDED JUNE 30, 2017

2 ANNUAL REPORT CHECKLIST for FISCAL YEAR ENDED: 6/30/2017 PROVIDER: California-Nevada Methodist Homes, Inc. FACILITIES: Forest Hill, Lake Park CONTACT PERSON: Robert Leeper TELEPHONE NO.: (510) Your complete annual report must consist of 2 copies of all of the following: This cover sheet. Annual Provider Fee in the amount of: $ 16, If applicable, late fee in the amount of: $. Certification by the provider s chief executive officer that: The reports are correct to the best of his/her knowledge. Each continuing care contract form in use or offered to new residents has been approved by the Department. The provider is maintaining the required liquid reserve and refund reserve, if applicable. Evidence of the provider s fidelity bond. The provider s audited financial statements, with an accompanying certified public accountant s opinion thereon. The provider s audited reserve reports (prepared on Department forms), with an accompanying certified public accountant s opinion thereon. The provider s Continuing Care Retirement Community Disclosure Statement for each community. A copy of the Key Indicators Report. Disclosure details of reserves, specific funds, and per capita costs.

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10 CALIFORNIA-NEVADA METHODIST HOMES (A California Not-For-Profit Corporation) FINANCIAL STATEMENTS JUNE 30, 2017 AND JUNE 30, 2016

11 CALIFORNIA-NEVADA METHODIST HOMES TABLE OF CONTENTS JUNE 30, 2017 AND JUNE 30, 2016 Page(s) Independent auditors report 2-3 Statements of financial position 4-5 Statements of activities 6 Statements of functional expenses 7-8 Statements of cash flows 9 Notes to financial statements Supplemental Information: Statement of unrestricted revenue and expenses by division

12 RINA accountancy corporation 625 Market Street, 15 th Floor San Francisco, CA phone: fax: RINA.CPA web: Independent Auditors Report Board of Trustees California-Nevada Methodist Homes We have audited the accompanying financial statements of California-Nevada Methodist Homes (a California notfor-profit corporation), which comprise the statements of financial position as of June 30, 2017 and June 30, 2016, and the related statements of activities, 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 auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the 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 California-Nevada Methodist Homes as of June 30, 2017 and June 30, 2016, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. 2

13 Report on Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplemental information, Statement of Unrestricted Revenue and Expenses by Division, is presented for purposes of additional analysis and is 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. In our opinion, the information is fairly stated in all material respects in relation to the financial statements taken as a whole. Certified Public Accountants San Francisco, California October 30,

14 CALIFORNIA-NEVADA METHODIST HOMES STATEMENTS OF FINANCIAL POSITION - JUNE 30, 2017 Temporarily ASSETS Unrestricted Restricted Total CURRENT: Cash and cash equivalents $ 375,422 $ 42,226 $ 417,648 Investments, at fair value 4,627,758-4,627,758 Accounts and notes receivable (pledged): Trade, net of $45,000 allowance for uncollectible accounts 523, ,368 Other 64,764-64,764 Accrued interest 6,620-6,620 Prepaid expenses 306, ,920 Bond reserve funds 4,353,781-4,353,781 TOTAL CURRENT ASSETS 10,258,633 42,226 10,300,859 PROPERTY AND EQUIPMENT, at cost, net encumbered 50,836,428-50,836,428 OTHER: Charitable remainder trust, at present value 14,360-14,360 LIABILITIES AND NET ASSETS $ 61,109,421 $ 42,226 $ 61,151,647 CURRENT: Accounts payable - trade $ 856,559 $ - $ 856,559 Bond payable 550, ,000 Note payable 166, ,667 Accrued liabilities: Salaries and wages 150, ,552 Compensated absences 1,051,759-1,051,759 Accrued interest 796, ,325 Other 8,986-8,986 TOTAL CURRENT LIABILITIES 3,580,848-3,580,848 LONG-TERM: Accrued severance pay 155, ,815 Entrance deposits 854, ,255 Repayable entrance fees 21,525,528-21,525,528 Deferred revenue from entrance fees 12,077,058-12,077,058 Deferred compensation 110, ,129 Note payable 152, ,777 Bonds payable net of debt financing fees of $3,144,826 32,723,118-32,723,118 Other 152, ,079 TOTAL LIABILITIES 71,331,607-71,331,607 NET ASSETS (DEFICIT) (10,222,186) 42,226 (10,179,960) $ 61,109,421 $ 42,226 $ 61,151,647 See notes to financial statements. 4

15 CALIFORNIA-NEVADA METHODIST HOMES STATEMENTS OF FINANCIAL POSITION - JUNE 30, 2016 Temporarily ASSETS Unrestricted Restricted Total CURRENT: Cash and cash equivalents $ 620,560 $ 25,573 $ 646,133 Investments, at fair value 5,534,201-5,534,201 Accounts and notes receivable (pledged): Trade, net of $21,360 allowance for uncollectible accounts 641, ,159 Other 18,207-18,207 Accrued interest 4,592-4,592 Prepaid expenses 274, ,452 Bond reserve funds 7,503,754-7,503,754 TOTAL CURRENT ASSETS 14,596,925 25,573 14,622,498 PROPERTY AND EQUIPMENT, at cost, net (encumbered) 50,149,297-50,149,297 OTHER: Charitable remainder trust, at present value 14,000-14,000 LIABILITIES AND NET ASSETS $ 64,760,222 $ 25,573 $ 64,785,795 CURRENT: Accounts payable - trade $ 1,357,227 $ - $ 1,357,227 Payroll payable 27,612-27,612 Bond payable 380, ,020 Line of credit 486, ,111 Accrued liabilities: Salaries and wages 129, ,851 Compensated absences 938, ,030 Accrued interest 800, ,125 Other 6,967-6,967 TOTAL CURRENT LIABILITIES 4,125,943-4,125,943 LONG-TERM: Accrued severance pay 152, ,316 Entrance deposits 126, ,010 Repayable entrance fees 22,503,604 22,503,604 Deferred revenue from entrance fees 12,595,208-12,595,208 Deferred compensation 110, ,129 Bonds payable net of debt financing fees of $3,295,770 33,456,646-33,456,646 Other 55,015-55,015 TOTAL LIABILITIES 73,124,871-73,124,871 NET ASSETS (DEFICIT) (8,364,649) 25,573 (8,339,076) $ 64,760,222 $ 25,573 $ 64,785,795 See notes to financial statements. 5

16 CALIFORNIA-NEVADA METHODIST HOMES STATEMENTS OF ACTIVITIES Year Ended Year Ended June 30, 2017 June 30, 2016 Temporarily Temporarily Unrestricted Restricted Total Unrestricted Restricted Total REVENUE: Resident fees $ 11,561,697 $ - $ 11,561,697 $ 12,097,810 $ - $ 12,097,810 Patient fees 4,506,217-4,506,217 3,599,616-3,599,616 Amortization of entrance fees 2,952,276-2,952,276 2,982,813-2,982,813 Interest and dividend income 89,273-89, , ,753 Rental income 105, , , ,531 Gifts, bequests and grants - 27,129 27,129-23,866 23,866 Change in present value of charitable remainder trust ,500-2,500 Unrealized gains (losses) on investments 319, ,405 68,003-68,003 Realized gains on sale of investments 12,484-12,484 12,759-12,759 Realized losses on bond retirement (1,060,125) - (1,060,125) Miscellaneous 114, ,384 94,848-94,848 Net assets released from restrictions: Satisfaction of program restrictions 10,476 (10,476) - 30,288 (30,288) - TOTAL REVENUE 19,672,063 16,653 19,688,716 18,056,796 (6,422) 18,050,374 EXPENSES: Program services: Forest Hill Manor 8,952,189-8,952,189 8,719,422-8,719,422 Lake Park Retirement Residence 11,548,266-11,548,266 10,608,436-10,608,436 Rental properties 34,555-34,555 37,999-37,999 Total program services 20,535,010-20,535,010 19,365,857-19,365,857 Supporting services: Management and general 984, ,090 1,023,648-1,023,648 Fundraising 10,500-10,500 17,700-17,700 TOTAL EXPENSES 21,529,600-21,529,600 20,407,205-20,407,205 INCREASE (DECREASE) IN NET ASSETS (1,857,537) 16,653 (1,840,884) (2,350,409) (6,422) (2,356,831) NET ASSETS, beginning of year (8,364,649) 25,573 (8,339,076) (6,014,240) 31,995 (5,982,245) NET ASSETS, end of year $ (10,222,186) $ 42,226 $ (10,179,960) $ (8,364,649) $ 25,573 $ (8,339,076) See notes to financial statements. 6

17 CALIFORNIA-NEVADA METHODIST HOMES STATEMENTS OF FUNCTIONAL EXPENSES - JUNE 30, 2017 Program Services Supporting Services Management Forest Rental and Total Hill Lake Park Properties Total General Fundraising Expenses Program expenses: Medical services $ 1,158,801 $ 1,655,693 $ - $ 2,814,494 $ - $ - $ 2,814,494 Food and food services 1,369,525 3,089,577-4,459, ,459,102 Administration 906,654 1,049,441 3,592 1,959, ,507-2,884,194 Marketing 559, ,595-1,245, ,245,724 Housekeeping 397, ,190-1,077, ,077,060 Utilities 355, ,264 10,402 1,027,996 16,506-1,044,502 Assisted living 353,728 1,068,437-1,422, ,422,165 Maintenance and operations 306, ,959 7,290 1,017,304 12,306-1,029,610 Medical care 491, , , ,158 Laundry 44,313 2,148-46, ,461 Activities 193, , , ,375 Social services - 35,010-35, ,010 Fundraising ,500 10,500 Property taxes and insurance 117, ,583 7, , ,090 Total program expenses 6,254,801 10,439,677 29,018 16,723, ,449 10,500 17,687,445 Other expenses: Depreciation 1,446, ,205 5,511 2,325,130 30,641-2,355,771 Amortization of bond issuance costs 134,460 16, , ,944 Investment expenses 3,858 6, , ,961 Interest 1,072, , ,280, ,280,152 Bad debt 39,861 5,466-45, ,327 Total other expenses 2,697,388 1,108,589 5,537 3,811,514 30,641-3,842,155 TOTAL EXPENSES $ 8,952,189 $ 11,548,266 $ 34,555 $ 20,535,010 $ 984,090 $ 10,500 $ 21,529,600 See notes to financial statements. 7

18 CALIFORNIA-NEVADA METHODIST HOMES STATEMENTS OF FUNCTIONAL EXPENSES - JUNE 30, 2016 Program Services Supporting Services Management Forest Rental and Total Hill Lake Park Properties Total General Fundraising Expenses Program expenses: Medical services $ 1,080,177 $ 1,471,215 $ - $ 2,551,392 $ - $ - $ 2,551,392 Food and food services 1,393,410 2,964,531-4,357, ,357,941 Administration 841, ,716 2,930 1,789, ,106-2,739,578 Marketing 548, ,374-1,104, ,105,168 Housekeeping 377, ,506-1,003, ,003,989 Utilities 321, ,368 9, ,665 14, ,494 Assisted living 354, ,570-1,343, ,343,676 Maintenance and operations 297, ,227 9, ,208 9,504-1,005,712 Medical care 502, , , ,588 Laundry 36,689 1,223-37, ,912 Activities 179, , , ,675 Social services - 35,175-35, ,175 Fundraising ,700 17,700 Property taxes and insurance 106, ,717 7, , ,991 Total program expenses 6,040,368 9,726,765 29,503 15,796, ,655 17,700 16,788,991 Other expenses: Depreciation 1,385, ,665 8,472 2,123,080 30,566-2,153,646 Amortization of bond issuance costs 122,921 14, , ,204 Investment expenses 3,756 5, , ,697 Interest 1,117,721 88, ,206,314 18,427-1,224,741 Bad debt 48,713 44,213-92, ,926 Total other expenses 2,679, ,671 8,496 3,569,221 48,993-3,618,214 TOTAL EXPENSES $ 8,719,422 $ 10,608,436 $ 37,999 $ 19,365,857 $ 1,023,648 $ 17,700 $ 20,407,205 See notes to financial statements. 8

19 CALIFORNIA-NEVADA METHODIST HOMES STATEMENTS OF CASH FLOWS Year Ended June 30, 2017 Year Ended June 30, 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Decrease in net assets $ (1,840,884) $ (2,356,831) Adjustments to reconcile decrease in net assets to net cash used by operating activities: Depreciation $ 2,355,771 $ 2,153,646 Amortization of bond issuance costs 150, ,204 Amortization of bond premium (334,472) (262,106) Amortization of entrance fees (2,952,276) (2,982,813) Entrance fees received, net 1,456,050 1,561,205 Realized losses on bond retirement - 1,060,125 Realized (gain) loss on sale of investments (12,484) (12,759) Unrealized (gain) loss on investments (319,405) (68,003) Change in present value of charitable remainder trust (360) (2,500) Decrease (increase) in: Accounts and notes receivable - trade 117,791 (153,594) Other receivables (46,557) 26,817 Accrued interest receivable (2,028) 2,017 Prepaid expenses (32,468) 36,001 Increase (decrease) in: Accounts payable (500,668) 151,094 Payroll payable (27,612) (118,162) Accrued liabilities 233,212 26,834 Entrance deposits 728, ,683 (71,914) 1,483,092 NET CASH USED BY OPERATING ACTIVITIES (1,027,201) (873,739) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (3,042,902) (2,314,886) Proceeds from sale of investments 1,402,103 1,600,845 Decrease (increase) in bond reserve funds 3,149,973 (4,838,386) Purchase of investments (163,771) (187,856) NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 1,345,403 (5,740,283) CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from line of credit - (500,000) Proceeds from long term debt - 500,000 Proceeds from bond issuance - 32,920,000 Bond issuance costs - (2,167,855) Bond premium - 4,238,125 Payments on long term debt (546,687) (29,038,889) NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (546,687) 5,951,381 NET DECREASE IN CASH AND CASH EQUIVALENTS (228,485) (662,641) CASH AND CASH EQUIVALENTS, beginning of year 646,133 1,308,774 CASH AND CASH EQUIVALENTS, end of year $ 417,648 $ 646,133 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 1,620,329 $ 1,486,847 See notes to financial statements. 9

20 CALIFORNIA-NEVADA METHODIST HOMES NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2017 AND JUNE 30, 2016 Note 1. NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Nature of activities: California-Nevada Methodist Homes (the Corporation) is a non-profit charitable corporation with a primary mission of enhancing the well-being of seniors for the remaining years of their lives through the creation and ethical administration of residential and health care facilities in which the independence, dignity, traditional values and individual rights of each person are held in high regard. Financial statement format: The Corporation classifies its net assets and activities into one of three categories: unrestricted, temporarily restricted and permanently restricted. Descriptions of these categories are as follows: Unrestricted: Those net assets and activities which represent the portion of expendable funds that are available to support operations. A portion of these net assets may be designated by the Board of Trustees for specific purposes. Temporarily Restricted: Those net assets and activities which are donor-restricted for (a) support of specific operating activities; (b) investment for a specified term; (c) use in a specified future period; or (d) acquisition of long-lived assets. Permanently Restricted: Those net assets and activities which are permanently donorrestricted for holdings of (a) assets donated with stipulations that they be used for a specified purpose, be preserved, and not sold; or (b) assets donated with stipulations that they be invested to provide a permanent source of income. Cash and cash equivalents: Cash and cash equivalents are considered to be short-term, highly liquid investments with original maturities of three months or less. Accounts receivable: Accounts receivable represent amounts billed but not yet collected. The Corporation provides an allowance for doubtful accounts based on management s evaluation of a current aging of the accounts. It is the corporation s policy to charge off uncollectible accounts receivable when management determines the receivable will not be collected. Investments: The Corporation reports investments in marketable securities with readily determinable fair values and all investments in debt securities at their fair values in the statement of financial position. Unrealized gains and losses are included in the change in net assets. The Corporation invests in various investments. Investments are exposed to various risks, such as interest rate, market and credit risk. Due to the level of risk associated with certain investments, it is at least reasonably possible that changes in the value of investments will occur in the near term and that such changes could materially affect the amounts reported in the statement of financial position. 10

21 CALIFORNIA-NEVADA METHODIST HOMES NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2017 AND JUNE 30, 2016 Note 1. NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): Investments (continued): Professional accounting standards established a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under professional accounting standards are described as follows: Level 1 Level 2 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Corporation has the ability to access. Inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; inputs that are derived principally from or corroborated by observable market data, by correlation or other means. If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Equity securities, debt securities, and U.S. government securities: Valued at the closing price reported on the active market on which the individual securities are traded. The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Corporation believes its valuation methods are appropriate and consistent with other participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Depreciation: The Corporation computes depreciation on its property and equipment using the straight-line method of accounting over useful lives ranging from 5 to 50 years. Depreciation is a non-cash adjustment to assets on the "Statement of Financial Position". As of June 30, 2017, cumulative depreciation is $36,778,687 (see Note 8). 11

22 CALIFORNIA-NEVADA METHODIST HOMES NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2017 AND JUNE 30, 2016 Note 1. NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): Amortization of deferred income - entrance fees: The Entrance Fee and Continuing Care Agreements between the Corporation and the residents provide for the payment of an entrance fee. Entrance fees are used for general purposes, including support of operations, debt retirement and capital acquisitions. Repayable entrance fees are held on the balance sheet and not amortized. The amortizable fees are recognized as revenue on a straightline method of accounting over the expected remaining life of the residents as recomputed actuarially at the end of each year. In the case of repayable entrance fee contracts, and upon the death of the resident, the unamortized amount of the entrance fee taken into income is reduced by the amount of the repayment embodied in the contract. Deferred revenue from entrance fees is treated as a long-term liability on the "Statement of Financial Position". Only a portion of this deferred revenue, however, is subject to repayment provisions. As of June 30, 2017, the amount of deferred revenue not subject to repayment provisions is $9,448,470 (see Note 13). Amortization of bond issuance cost: Certain costs related to the bond issue have been capitalized and are being amortized using the straight-line method over the life of the bond. Amortization of bond premium: The premium on issuance of the bonds is being amortized to offset interest expense over the life of the bonds. Income taxes: The Corporation has received tax-exempt status under the Internal Revenue Code Section 501(c) (3) and under the California Revenue Code Section 23701(d). Recent accounting pronouncements: In August 2015 the Financial Accounting Standards Board ( FASB ) issued Accounting Standards Update No , Interest Imputation of Interest, which requires entities to present debt issuance costs related to recognized debt liability as a direct deduction from the carrying amount of that debt liability. Debt issuance costs represent financing fees and expenses that have been capitalized in conjunction with financing arrangements. These costs are amortized to interest expense over the term of the respective loans. Debt issuance costs are reported on the balance sheet as a direct deduction from the carrying amount of the debt. The pronouncement is effective for fiscal years beginning after December 15, Reclassifications: Certain comparative figures have been reclassified to conform to the financial statement presentation adopted for the current year. Subsequent events: Management has evaluated subsequent events through October 30, 2017, the date which the financial statements were available for issue. No significant events were identified that require any additional disclosure. 12

23 CALIFORNIA-NEVADA METHODIST HOMES NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2017 AND JUNE 30, 2016 Note 2. Note 3. Note 4. Note 5. NATURE 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 certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. CONCENTRATIONS OF CREDIT RISK: Financial instruments that potentially subject the Corporation to concentrations of credit risk consist principally of cash and cash equivalents, investments and trade accounts receivable. Cash and cash equivalents were held in financial institutions in amounts exceeding the guaranteed amounts of the Federal Deposit Insurance Corporation. Trade accounts receivable are due from Medicare and private sources. Investments are held at brokerage firms in amounts which may exceed the guaranteed amount of the Securities Investor Protection Corporation. STATUTORY LIQUID ASSET RESERVE: Effective January 1, 2005 the State of California Health and Safety Code Section 1792 requires the Corporation to hold reserves to cover its annual long-term debt service and seventy-five days of net operating expenses. The Corporation is not required to segregate these reserves, and the reserves may be held as cash, investments or letters of credit. The Corporation's assets held by the Tax Exempt Bond Trustee, Union Bank, can be used to satisfy this requirement. At June 30, 2017 and June 30, 2016, the Corporation had a required reserve of $4,801,271 and $5,177,771, respectively, which were held as cash, cash equivalents and investments. INVESTMENTS: Investments are stated at fair value. Fair value and cost as of June 30, 2017 and June 30, 2016 are summarized as follows: June 30, 2017 June 30, 2016 Fair Fair Investment Type Value Cost Value Cost Corporate equities $ 1,179,067 $ 754,166 $ 1,043,119 $ 1,029,677 Debt securities 2,796,498 2,381,100 2,520,388 2,458,565 Certificate of deposits 652, ,152 1,970,694 1,957,729 $ 4,627,758 $ 3,804,418 $ 5,534,201 $ 5,445,971 13

24 CALIFORNIA-NEVADA METHODIST HOMES NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2017 AND JUNE 30, 2016 Note 6. FAIR VALUE MEASUREMENTS: The following tables sets forth by level, the fair value hierarchy, the Corporation s assets at fair value as of June 30, 2017 and June 30, 2016: Assets at Fair Value as of June 30, 2017 Significant Quoted Prices Other Significant In Active Observable Unobservable Markets Inputs Inputs (Level 1) (Level 2) (Level 3) Total Corporate equities $ 1,179,067 $ - $ - $ 1,179,067 Debt securities 2,796, ,796,498 Charitable remainder trust ,360 14,360 $ 3,975,565 $ - $ 14,360 $ 3,989,925 Assets at Fair Value as of June 30, 2016 Significant Quoted Prices Other Significant In Active Observable Unobservable Markets Inputs Inputs (Level 1) (Level 2) (Level 3) Total Corporate equities $ 1,043,119 $ - $ - $ 1,043,119 Debt securities 2,520, ,520,388 Charitable remainder trust ,000 14,000 $ 3,563,507 $ - $ 14,000 $ 3,577,507 Level 3 Gains and Losses: The following table sets forth a summary of changes in the fair value of the Corporation s level 3 assets for the years ended June 30, 2017 and June 30, 2016: June 30, 2017 June 30, 2016 Charitable Charitable Remainder Trust Remainder Trust Balance, beginning of year $ 14,000 $ 11,500 Unrealized gains/losses relating to instruments held at reporting date 360 2,500 Balance, end of year $ 14,360 $ 14,000 14

25 CALIFORNIA-NEVADA METHODIST HOMES NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2017 AND JUNE 30, 2016 Note 7. BOND RESERVE FUNDS: The bond reserve funds are held by a trustee in the following accounts: June 30, Interest fund $ 796,943 $ 800,164 Bond reserve 2,148,634 2,161,839 Project 857,641 4,161,731 Principal 550, ,020 $ 4,353,781 $ 7,503,754 The trustee has invested the funds in marketable certificates of deposit. These earnings will be accumulated and used to fund bond bi-annual interest payments. During the years ended June 30, 2017 and June 30, 2016, bond payments in the amount of $380,000 and $755,000, respectively, were made from the principal fund. The project fund in the amount of $6,001,500 was established with the 2015 bonds. During the years ended June 30, 2017 and June 30, 2016, $3,307,887 and $1,839,769 was expended on ongoing projects, respectively. Note 8. PROPERTY AND EQUIPMENT: Property and equipment consists of the following at June 30: June 30, Land $ 834,624 $ 834,624 Land improvements 337, ,306 Buildings and improvements 80,503,159 77,841,692 Furniture and equipment 5,617,455 4,366,768 Construction in progress 322,240 1,260,823 Totals 87,615,115 84,572,213 Less accumulated depreciation (36,778,687) (34,422,916) Property and equipment, net $ 50,836,428 $ 50,149,297 15

26 CALIFORNIA-NEVADA METHODIST HOMES NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2017 AND JUNE 30, 2016 Note 8. PROPERTY AND EQUIPMENT (Continued): The balances of accumulated depreciation by category are as follows: June 30, Land improvements $ 200,106 $ 190,246 Buildings and improvements 32,827,097 30,721,005 Furniture and equipment 3,751,484 3,511,665 Totals $ 36,778,687 $ 34,422,916 Note 9. CHARITABLE TRUSTS: The Corporation has been named as a beneficiary of a Charitable Remainder Trust. The income beneficiaries of the Trust are entitled to a payment each year calculated at 6% of the fair market value of the trust assets as of the first day of each taxable year of the trust. The Trusts are stated at the present value of the projected balance of the Trusts at termination, net of the amounts due to the income beneficiaries over the term of the Trusts. Changes in the calculated net present value are reported in the statement of activities annually. The key assumptions used in net present value calculations for the Trusts are as follows: June 30, 2017 June 30, 2016 Present value $ 14,360 $ 14,000 Trust assets at fair value $ 20,215 $ 20,000 Projected term of the trusts based on actuarial tables years years Projected growth rate net of payments to income beneficiaries 0.00 % 0.00 % Risk-free discount rate 3.40 % 3.40 % Note 10. LINE OF CREDIT: The Corporation had available a $500,000 line of credit with a bank that matured January 31, The interest rate on the line was the prime rate plus.5% (currently 3.30%). During the year ended June 30, 2016 the line of credit was converted to a note. Note 11. NOTE PAYABLE: The Corporation has a note payable to a financial institution, payable in monthly installments of $13,889 principle plus interest at 1% plus prime, currently 4.75%. The note payable balance was $319,444 as of June 30, 2017 and matures in May

27 CALIFORNIA-NEVADA METHODIST HOMES NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2017 AND JUNE 30, 2016 Note 11. NOTE PAYABLE (Continued): Maturities of long-term debt for the five years subsequent to June 30, 2017, are as follows: Year Ending June 30, Amount 2018 $ 166, , Total $ 319,444 Note 12. TAX EXEMPT BOND PAYABLE: The construction of the new buildings at Forest Hill and a portion of the costs incurred in the expansion of the Lake Park skilled nursing unit were financed by the Corporation through the issuance of taxexempt California Health Facilities Financing Authority Insured Revenue Bonds (California-Nevada Methodist Homes), Series 2006 (the 2006 Bonds ), in the aggregate principal amount of $42,280,000. The Office of Statewide Health Planning and Development of the State of California insures the principal and interest payments on the Bonds. Union Bank of California serves as the trustee. October 1, 2015 the 2006 Bonds were refinanced by the Corporation through the issuance of taxexempt California Health Facilities Financing Authority Insured Revenue Bonds (California-Nevada Methodist Homes), Series 2015 (the Bonds ), in the aggregate principal amount of $32,920,000. The Office of Statewide Health Planning and Development of the State of California insures the principal and interest payments on the Bonds. Wilmington Trust serves as the trustee. The Bonds are secured by the property, accounts receivable and equipment of the Corporation. The Bonds have a final maturity date of 2045, but were subject to mandatory redemptions beginning in For the year ended June 30, 2016, the Corporation made eleven payments. Three payments were made on the 2006 Bonds and following the refinance eight payments were made on the 2015 Bonds. The Serial Bonds for the years will be repaid by the Corporation making twelve monthly payments each year to the Trustee. The payments will be equal to the sum of two future interest payments (January 1 and July 1) and the one annual redemption payment (July 1). The Term Bonds due in 2030, 2035 and 2045 have sinking fund requirements that start in The payments each year will begin with $850,000 in 2027 to $2 million in For all bonds, according to the indenture requirements, the monthly payments made by the Corporation, as calculated and administered by the trustee, include both interest and principal amounts. Thus, at the time of each bond redemption, all principal due will have been accumulated and no additional principal payment will be required. 17

28 CALIFORNIA-NEVADA METHODIST HOMES NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2017 AND JUNE 30, 2016 Note 12. TAX EXEMPT BOND PAYABLE (Continued): The Corporation is required to maintain a debt service fund equal to approximately one year s debt service with the trustee, which was met at June 30, 2017 and June 30, The Corporation is required to meet certain covenants. The Corporation anticipates receiving a waiver for these covenants as measured on June 30, The stated fixed interest rate of the Bonds varies from 2.0% to 5.0%. The bonds were issued at a premium of $4,238,125 which is being amortized over the life of the bonds. Bond maturity dates are as follows: Type of Maturity Date Amount Bonds 2017 $ 550,000 Serial ,000 Serial ,000 Serial ,000 Serial ,000 Serial ,000 Serial ,000 Serial ,000 Serial ,000 Serial ,000 Serial ,655,000 Term ,700,000 Term ,560,000 Term Subtotal 32,540,000 Less unamortized debt issuance costs (3,144,826) Bond payable less debt issuance costs 29,395,174 Premium on bond payable 3,877,944 Total $ 33,273,118 Note 13. DEFERRED REVENUE FROM ENTRANCE FEES: The Corporation has several different types of contracts. Type A entrance fee agreements provides for the right of each resident to terminate the agreement and be entitled to a refund of the original fee less 1.5% of the original fee for each month of residency. A Type B entrance fee agreement provides for the right of each resident to terminate the agreement and be entitled to a refund of the original fee less 2.08% of the original fee for each month of residency. For guaranteed repayment contracts the repayment is 90%, 80% or 50% of the original fee. At June 30, 2017 and June 30, 2016, unamortized entrance fees (deferred revenue) were $12,077,058 and $12,595,208, respectively. At June 30, 2017 and June 30, 2016, repayable entrance fees were $21,525,528 and $22,503,604, respectively. 18

29 CALIFORNIA-NEVADA METHODIST HOMES NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2017 AND JUNE 30, 2016 Note 14. SELECTIVE MANAGEMENT COMPENSATION PLAN: The Corporation has agreements with certain of its key employees. The agreements are designed to provide benefits to be paid to these employees in installments upon retirement or in the event of their death, to a designated beneficiary. Accordingly, the Corporation has accrued deferred compensation of $110,129 at June 30, 2017 and June 30, Note 15. FUTURE SERVICE OBLIGATION: Professional accounting standards require the Corporation to record a liability recognizing an obligation to provide future services and the use of the facilities to all current residents if the net present value of future net cash out-flows, adjusted for certain noncash items, exceeds the present value of future net cash in-flows. At June 30, 2017 and June 30, 2016 the estimated future service obligation was $0. The interest rate used to discount the liability was 5.5% in both 2017 and Note 16. TEMPORARILY RESTRICTED NET ASSETS: Temporarily restricted net assets consisted of the following for the year ended June 30, 2017: Beginning Released from Ending Balance Contributions Restriction Balance Forest Hill: Service enhancement $ 1,046 $ - $ - $ 1,046 Resident support 5,000 8,000 6,500 6,500 Facility undesignated , ,045 Capital improvement 9, ,262 Total Forest Hill 15,465 26,864 7,476 34,853 Lake Park: Service enhancement 10,068-3,000 7,068 Capital improvement Facility undesignated Total Lake Park 10, ,000 7,373 Total temporarily restricted net assets $ 25,573 $ 27,129 $ 10,476 $ 42,226 19

30 CALIFORNIA-NEVADA METHODIST HOMES NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2017 AND JUNE 30, 2016 Note 16. TEMPORARILY RESTRICTED NET ASSETS (Continued): Temporarily restricted net assets consisted of the following for the year ended June 30, 2016: Beginning Released from Ending Balance Contributions Restriction Balance Forest Hill: Service enhancement $ 1,046 $ - $ - $ 1,046 Resident support 5,250 6,000 6,250 5,000 Facility undesignated ,826 18, Capital improvement 10, ,075 Total Forest Hill 17,142 23,826 25,503 15,465 Lake Park: Service enhancement 11,568-1,500 10,068 Capital improvement 3, , Facility undesignated Total Lake Park 14, ,785 10,108 Total temporarily restricted net assets $ 31,995 $ 23,866 $ 30,288 $ 25,573 Note 17. MULTI-EMPLOYER RETIREMENT PLAN: The Corporation contributes to a multi-employer defined benefit union pension plan that covers all Lake Park employees under collective bargaining agreements. In accordance with the plans, the Corporation makes monthly contributions based on employee hours worked. For the years ended June 30, 2017 and June 30, 2016, the Corporation contributed to the union pensions in the amount of $217,268 and $47,742, respectively. Management is not able to determine whether or not there is any unfunded union pension liability at June 30, 2017 as information relating to the plan s funded status each year is not available at the date the financial statements are available to be issued. Balances will vary depending on market conditions. The Corporation has made all required payments during the year. The risks of participating in this multi-employer plan are different from single-employer plans in the following aspects: Assets contributed to a multi-employer plan by one employer may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. If the Corporation chooses to stop participating in its multi-employer plan, the Corporation may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability. 20

31 CALIFORNIA-NEVADA METHODIST HOMES NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2017 AND JUNE 30, 2016 Note 17. MULTI-EMPLOYER RETIREMENT PLAN (Continued): The Corporation s participation in this plan for the annual period ended June 30, 2017, is outlined in the table below. The EIN/Pension Plan Number column provides the Employee Identification Number (EIN) and three digit plan number. Unless otherwise noted, the most recent Pension Protection Act (PPA) zone status available to 2013 is for the plan s year end at December 31, The zone status is based on information that the Corporation received from the plan and is certified by the plan s actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The FIP/RP Status Pending/Implemented column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration date(s) of the collective-bargaining agreements to which the plan is subject. The Corporation s contributions do not represent more than 5 percent of total contributions to the plan. Pension Fund EIN/Pension Plan Number Pension Protection Act Zone Status 2012 FIP/RP Status Implemented Surcharge Imposed Expiration Date of Collective- Bargaining Agreement SEIU National Industry Pension Fund Red/Critical Yes Yes 9/30/2017 Note 18. INTEREST EXPENSE: Interest expense consists of the following at June 30: Bond interest $ 1,592,650 $ 1,464,660 Amortized bond premium (334,493) (262,106) Credit line interest 19,513 20,041 Short term note 2,481 2,146 $ 1,280,151 $ 1,224,741 Note 19. PRO FORMA INFORMATION: Pro forma of the Statement of Financial Position without deferred income and depreciation: In the absence of depreciation, total assets on the "Statement of Financial Position" as of June 30, 2017 would change from $61,151,647 to $97,930,334. If deferred income from entrance subscriptions was reduced by the amount not subject to refund provisions, total liabilities on the "Statement of Financial Position" as of June 30, 2017 would change from $71,331,607 to $61,883,137. Thus, Total Net Assets would change from ($10,179,960) to $36,047,

32 CALIFORNIA-NEVADA METHODIST HOMES SUPPLEMENTAL INFORMATION 22

33 CALIFORNIA-NEVADA METHODIST HOMES STATEMENT OF UNRESTRICTED REVENUE AND EXPENSES BY DIVISION YEAR ENDED JUNE 30, 2017 Interest and Forest Rental Hill Lake Park Properties Total REVENUE: Resident fees $ 3,643,647 $ 7,918,050 $ - $ 11,561,697 Patient fees: Medicare 1,710, ,481-2,205,461 Private 800,799 1,499,957-2,300,756 Amortization of entrance fees 1,144,384 1,807,892-2,952,276 Interest and dividend income 42,043 47, ,273 Rental income 37,679-67, ,491 Gifts, bequests and grants, net Unrealized gains (losses) on investments , ,405 Realized gains on investments ,484 12,484 Realized gains (losses) on bond retirement Miscellaneous 24,716 89, ,384 Net assets released from restrictions 7,476 3,000-10,476 TOTAL REVENUE 7,411,724 11,860, ,877 19,672,063 EXPENSES: Facility operations: Medical services 1,158,801 1,655,693-2,814,494 Food and food services 1,369,525 3,089,577-4,459,102 Administration 906,654 1,049,441 3,592 1,959,687 Marketing 559, ,595-1,245,594 Housekeeping 397, ,190-1,077,060 Utilities 355, ,264 10,402 1,027,996 Assisted living 353,728 1,068,437-1,422,165 Maintenance and operations 306, ,959 7,290 1,017,304 Medical care 491, , ,158 Laundry 44,313 2,148-46,461 Activities 193, , ,375 Social services - 35,010-35,010 Property taxes and insurance 117, ,583 7, ,090 Total operating expenses before management and general allocation 6,254,801 10,439,677 29,018 16,723,496 Management and general allocation 381, ,082 1, ,090 Fundraising allocation 4,074 6,426-10,500 Total operating expenses $ 6,640,013 $ 11,047,185 $ 30,888 $ 17,718,086 See notes to financial statements. 23

34 CALIFORNIA-NEVADA METHODIST HOMES STATEMENT OF UNRESTRICTED REVENUE AND EXPENSES BY DIVISION YEAR ENDED JUNE 30, 2017 Interest and Forest Rental Hill Lake Park Properties Total Other expenses: Depreciation $ 1,446,414 $ 873,205 $ 5,511 $ 2,325,130 Amortization of bond issuance costs 134,460 16, ,944 Interest 1,072, , ,280,152 Investment costs 3,858 6, ,961 Bad debts 39,861 5,466-45,327 Total other expenses 2,697,388 1,108,589 5,537 3,811,514 TOTAL EXPENSES 9,337,401 12,155,774 36,425 21,529,600 INCREASE (DECREASE) IN UNRESTRICTED NET ASSETS $ (1,925,677) $ (295,312) $ 363,452 $ (1,857,537) See notes to financial statements. 24

35 CALIFORNIA-NEVADA METHODIST HOMES STATEMENT OF UNRESTRICTED REVENUE AND EXPENSES BY DIVISION YEAR ENDED JUNE 30, 2016 Interest and Forest Rental Hill Lake Park Properties Total REVENUE: Resident fees $ 3,929,818 $ 8,167,992 $ - $ 12,097,810 Patient fees: Medicare 1,770, ,071-2,484,543 Private 319, ,691-1,115,073 Amortization of entrance fees 1,543,690 1,439,123-2,982,813 Interest and dividend income 68,376 57, ,753 Rental income 37,532-64, ,531 Gifts, bequests and grants, net - 2,500-2,500 Unrealized gains (losses) on investments ,003 68,003 Realized gains on investments ,759 12,759 Realized gains (losses) on bond retirement - - (1,060,125) (1,060,125) Miscellaneous 26,613 68, ,848 Net assets released from restrictions 25,503 4,785-30,288 TOTAL REVENUE 7,721,386 11,249,524 (914,114) 18,056,796 EXPENSES: Facility operations: Medical services 1,080,177 1,471,215-2,551,392 Food and food services 1,393,410 2,964,531-4,357,941 Administration 841, ,716 2,930 1,789,472 Marketing 548, ,374-1,104,952 Housekeeping 377, ,506-1,003,989 Utilities 321, ,368 9, ,665 Assisted living 354, ,570-1,343,676 Maintenance and operations 297, ,227 9, ,208 Medical care 502, , ,588 Laundry 36,689 1,223-37,912 Activities 179, , ,675 Social services - 35,175-35,175 Property taxes and insurance 106, ,717 7, ,991 Total operating expenses before management and general allocation 6,040,368 9,726,765 29,503 15,796,636 Management and general allocation 396, ,244 1,945 1,023,648 Fundraising allocation 6,868 10,832-17,700 Total operating expenses $ 6,443,695 $ 10,362,841 $ 31,448 $ 16,837,984 See notes to financial statements. 25

36 CALIFORNIA-NEVADA METHODIST HOMES STATEMENT OF UNRESTRICTED REVENUE AND EXPENSES BY DIVISION YEAR ENDED JUNE 30, 2016 Interest and Forest Rental Hill Lake Park Properties Total Other expenses: Depreciation $ 1,385,943 $ 728,665 $ 8,472 $ 2,123,080 Amortization of bond issuance costs 122,921 14, ,204 Interest 1,117,721 88, ,206,314 Investment costs 3,756 5, ,697 Bad debts 48,713 44,213-92,926 Total other expenses 2,679, ,671 8,496 3,569,221 TOTAL EXPENSES 9,122,749 11,244,512 39,944 20,407,205 INCREASE (DECREASE) IN UNRESTRICTED NET ASSETS $ (1,401,363) $ 5,012 $ (954,058) $ (2,350,409) See notes to financial statements. 26

37 RINA accountancy corporation 625 Market Street, 15 th Floor San Francisco, CA phone: fax: RINA.CPA web: Independent Auditors Report Board of Trustees California-Nevada Methodist Homes We have audited the accompanying continuing care contract report of California-Nevada Methodist Homes as of June 30, 2017 and the supplemental statement of cash flow - direct method for the year then ended. The continuing care contract report and supplemental statement are the responsibility of California-Nevada Methodist Homes management. Our responsibility is to express an opinion on the continuing care contract report and supplemental statement 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 continuing care contract report and supplemental statement are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the continuing care contract report and supplemental statement. An audit of a continuing care contract report and supplemental statement also includes assessing conformity with the provisions of California Health and Safety Code Section 1792 in so far as it relates to accounting and reporting matters. We believe that our audit provides a reasonable basis for our opinion. The continuing care contract report was prepared in conformity with the accounting practices prescribed by the California Department of Social Services pursuant to provisions of the California Health and Safety Code. This report is not intended to be a complete presentation of California-Nevada Methodist Homes assets and liabilities on the basis of accounting described above. In our opinion, such continuing care contract report and supplemental statement of cash flows present fairly, in all material respects, the continuing care contract requirements and cash flows of California-Nevada Methodist Homes as of and for the year ended June 30, 2017, in conformity with the report preparation provisions of California Health and Safety Code Section This report is intended solely for the information and use of the board of directors and management of California- Nevada Methodist Homes and for filing with the California Department of Social Services and is not intended to be and should not be used by anyone other than these specified parties. Certified Public Accountants San Francisco, California October 30, 2017

38 Line Continuing Care Residents TOTAL [1] Number at beginning of fiscal year 77 [2] Number at end of fiscal year 68 [3] Total Lines 1 and [4] Multiply Line 3 by ".50" and enter result on Line 5. x.50 [5] Mean number of continuing care residents 72.5 All Residents [6] Number at beginning of fiscal year 80 [7] Number at end of fiscal year 82 [8] Total Lines 6 and [9] Multiply Line 8 by ".50" and enter result on Line 10. x.50 [10] Mean number of all residents 81 [11] Divide the mean number of continuing care residents (Line 5) by the mean number of all residents (Line 10) and enter the result (round to two decimal places) Line FORM 1-2 ANNUAL PROVIDER FEE TOTAL [1] Total Operating Expenses (including depreciation and debt service - interest only) $9,456,106 [a] Depreciation $1,446,414 [b] Debt Service (Interest Only) $1,369,679 [2] Subtotal (add Line 1a and 1b) $2,816,093 [3] Subtract Line 2 from Line 1 and enter result. $6,640,013 [4] Percentage allocated to continuing care residents (Form 1-1, Line 11) 90% [5] Total Operating Expense for Continuing Care Residents (multiply Line 3 by Line 4) $5,943,222 x.001 [6] Total Amount Due (multiply Line 5 by.001) $5,943 PROVIDERCalifornia-Nevada Methodist Homes, Inc. COMMUNITForest Hill