The Christian and Missionary Alliance Foundation, Inc. d/b/a Shell Point

Transcription

1 Independent Auditor's Report and Consolidated Financial Statements

2 Contents Independent Auditor's Report on Consolidated Financial Statements and Supplementary Information... 1 Consolidated Financial Statements Balance Sheets... 3 Statements of Operations... 5 Statements of Changes in Net Assets... 6 Statements of Cash Flows... 7 Notes to Financial Statements... 9 Supplementary Information Consolidating Balance Sheet Information June 30, Consolidating Statement of Operations Information Year Ended June 30, Consolidating Statement of Cash Flows Information Year Ended June 30, Consolidating Balance Sheet Information June 30, Consolidating Statement of Operations Information Year Ended June 30, Consolidating Statement of Cash Flows Information Year Ended June 30,

3 Independent Auditor's Report on Consolidated Financial Statements and Supplementary Information Board of Directors The Christian and Missionary Alliance Fort Myers, Florida We have audited the accompanying consolidated financial statements of The Christian and Missionary Alliance (the CMAF), which comprise the consolidated balance sheets as of, and the related consolidated statements of operations, changes in net assets 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 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 consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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.

4 Board of Directors The Christian and Missionary Alliance Page 2 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Christian and Missionary Alliance Foundation, Inc. d/b/a Shell Point as of, and the results of its operations, 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. Supplementary Information Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying supplementary consolidation information listed in the table of contents is presented for purposes of additional analysis and is not a required part of the consolidated 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 consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated 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 consolidated financial statements as a whole. Houston, Texas September 7, 2017

5 Consolidated Balance Sheets Assets Current Assets Cash and cash equivalents $ 15,975,314 $ 18,553,675 Investments 56,642,193 59,666,578 Accounts receivable, net of allowance; $610,047 and $579,047 4,265,994 4,172,861 Other receivables 1,640,956 1,477,038 Inventories 1,126,533 1,005,885 Prepaid expenses 2,358,378 2,373,467 Total current assets 82,009,368 87,249,504 Assets Limited as to Use Under bond indenture agreement 1,385,931 15,989,039 Board-designated and donor-restricted 5,823,299 4,411,979 Under state statutes 38,691,297 30,823,099 Total assets limited as to use 45,900,527 51,224,117 Property and Equipment, Net 424,384, ,029,953 Other Assets, Net 2,891, ,157 Total assets $ 555,186,622 $ 546,924,731 See 3

6 Consolidated Balance Sheets (Continued) Liabilities and Net Assets Current Liabilities Accounts payable $ 9,336,081 $ 6,140,235 Accrued expenses 4,840,474 7,377,958 Other current liabilities - 1,675,000 Current maturities of long-term debt 7,493,000 15,365,000 Total current liabilities 21,669,555 30,558,193 Deposits on unoccupied units 4,731,451 2,638,517 Long-term debt, less current maturities 155,683, ,439,335 Resident reserves 4,454,067 4,185,681 Deferred revenue from advance fees 191,332, ,048,492 Refundable fees 67,448,497 62,528,685 Total liabilities 445,320, ,398,903 Net Assets Unrestricted 106,230,069 90,382,301 Temporarily restricted 3,371,928 1,879,058 Permanently restricted 264, ,469 Total net assets 109,866,466 92,525,828 Total liabilities and net assets $ 555,186,622 $ 546,924,731 See 4

7 Consolidated Statements of Operations Years Ended Unrestricted Revenues, Gains and Other Support Resident services, including amortization of advance fees; $23,205,224 and $21,432,390 $ 67,348,218 $ 63,911,058 Net patient service revenue 45,573,647 45,047,054 Other income 8,599,177 8,372,370 Contributions 157, ,555 Net assets released from restrictions used for operations 240, ,512 Total unrestricted revenues, gains and other support 121,919, ,021,549 Expenses Salaries and wages 44,882,949 41,569,339 Employee benefits 11,089,014 11,538,702 Medical supplies and drugs 3,682,479 3,745,865 Professional and contracted services 6,825,000 6,189,221 Utilities 4,696,357 4,460,894 Insurance 3,023,340 2,827,487 Other 13,034,466 11,394,099 Loss on disposal of assets 441, ,645 Depreciation and amortization 22,478,857 21,361,585 Interest 6,401,782 8,114,367 Provision for bad debts 320, ,388 Total expenses 116,875, ,995,592 Operating Income 5,043,472 6,025,957 Other Income (Loss) Other income (loss) (56,814) 900,000 Investment return 6,781,589 (1,437,463) Change in fair value of interest rate swaps 2,513,000 - Gain on extinguishment of debt 425,459 - Total other income (loss) 9,663,234 (537,463) Excess of Revenues Over Expenses 14,706,706 5,488,494 Net assets released from restrictions used for purchase of property and equipment 1,141, ,657 Increase in Unrestricted Net Assets $ 15,847,768 $ 5,887,151 See 5

8 Consolidated Statements of Changes in Net Assets Years Ended Unrestricted Net Assets Excess of revenues over expenses $ 14,706,706 $ 5,488,494 Net assets released from restrictions used for purchase of property and equipment 1,141, ,657 Increase in unrestricted net assets 15,847,768 5,887,151 Temporarily Restricted Net Assets Contributions 2,837,026 1,407,907 Net assets released from restrictions (1,381,401) (724,169) Investment return 37,245 42,102 Increase in temporarily restricted net assets 1,492, ,840 Increase in Net Assets 17,340,638 6,612,991 Net Assets, Beginning of Year 92,525,828 85,912,837 Net Assets, End of Year $ 109,866,466 $ 92,525,828 See 6

9 Consolidated Statements of Cash Flows Years Ended Cash Flows From Operating Activities Change in net assets $ 17,340,638 $ 6,612,991 Adjustments to reconcile change in net assets to net cash provided by operating activities: Proceeds from advance and refundable fees 36,160,151 57,786,598 Amortization of bond issuance costs and bond premium 259, ,713 Net realized (gains) losses on investments (345,138) 57,045 Net unrealized (gains) losses on investments (5,943,618) 1,594,444 Depreciation 22,219,213 21,108,872 Loss on disposal of property and equipment 441, ,645 Amortization of deferred revenue from advance fees (23,205,224) (21,432,390) Changes in fair value of interest rate swaps (2,513,000) - Contributions for acquisition of property and equipment (2,235,911) (546,651) Provision for bad debts 320, ,388 Gain on extinguishment of debt (425,459) - Changes in: Accounts receivable (413,264) (795,930) Other receivables (163,918) (265,593) Inventories (120,648) (33,158) Prepaid expenses and other assets 57,506 (834,393) Accounts payable 2,006, ,059 Other liabilities (4,212,484) (170,769) Net cash provided by operating activities 39,226,674 64,994,871 Cash Flows From Investing Activities Acquisition of property and equipment (37,826,456) (35,070,341) Proceeds from disposition of property and equipment - 3,681 Change in assets limited as to use, under bond indenture agreement 14,747,217 (525,573) Change in assets limited as to use, under board-designated and donor-restricted (994,975) (450,196) Change in assets limited as to use, under state statutes (8,209,438) (63,571) Purchase of investments and assets limited as to use (32,479,701) (30,652,922) Proceeds from sale of investments and assets limited as to use 41,573,628 17,712,835 Net cash used in investing activities (23,189,725) (49,046,087) See 7

10 Consolidated Statements of Cash Flows (Continued) Years Ended Cash Flows From Financing Activities Net proceeds from resident reserves $ 268,386 $ 307,388 Payment of bond issuance costs (2,853,636) - Payments of long-term debt (166,122,020) (6,485,861) Proceeds from issuance of long-term debt 147,514,000 Refunds of entrance fees (1,750,885) (1,951,293) Proceeds from contributions for acquisition of property and equipment 2,235, ,651 Change in refundable fees and deposits 2,092,934 (2,879,416) Net cash used in financing activities (18,615,310) (10,462,531) Increase (Decrease) in Cash and Cash Equivalents (2,578,361) 5,486,253 Cash and Cash Equivalents, Beginning of Year 18,553,675 13,067,422 Cash and Cash Equivalents, End of Year $ 15,975,314 $ 18,553,675 Noncash Investing and Financing Activities Property and equipment included in accounts payable $ 3,052,426 $ 1,863,145 Supplemental Disclosure of Cash Flows Information Interest paid (net of amount capitalized) $ 7,082,522 $ 8,163,867 See 8

11 Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations The Christian and Missionary Alliance (the CMAF) is a nonprofit organization that principally provides housing, health care and other related services to its residents in Lee and Volusia Counties, Florida. The CMAF's sole member is The Christian and Missionary Alliance, Inc., a Colorado nonprofit corporation. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Shell Point Retirement Community (Shell Point), the Alliance Community for Retirement Living, Inc. (Alliance) and The Legacy Foundation at Shell Point (Legacy). A description of each entity is included below. All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated entity is collectively referred to as the CMAF. Shell Point Shell Point is a continuing care retirement center located in Ft. Myers, Florida. The operations include 1,268 independent living units, 357 assisted living units, a 219-bed skilled nursing facility, a physician practice, a church auditorium, dining and recreation facilities, guest house accommodations, an administrative center and various convenience centers. Alliance Alliance is a continuing care retirement center located in DeLand, Florida. The operations include an 80-bed skilled nursing facility, a 50-bed Alzheimer facility, 153 independent and assisted living units, dining and recreational facilities and an administrative center. Legacy Legacy is a not-for-profit corporation formed for the purpose of carrying out certain fundraising activities, primarily for the benefit of the CMAF. 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 those estimates. Cash Equivalents The CMAF considers all liquid investments with original maturities of three months or less to be cash equivalents. At, cash equivalents consisted primarily of money market accounts with brokers and certificates of deposit. 9

12 At June 20, 2017, the CMAF's cash accounts exceeded federally insured limits by approximately $21,600,000. Investments and Investment Return Investments in equity securities having a readily determinable fair value and in all debt securities are carried at fair value. Other investments are valued at the lower of cost (or fair value at time of donation, if acquired by contribution) or fair value. Investment return includes dividend, interest and other investment income; realized and unrealized gains and losses on investments carried at fair value; and realized gains and losses on other investments. Investment return that is initially restricted by donor stipulation and for which the restriction will be satisfied in the same year is included in unrestricted net assets. Other investment return is reflected in the statements of operations and changes in net assets as unrestricted, temporarily restricted or permanently restricted based upon the existence and nature of any donor or legally imposed restrictions. Unrealized gains and losses on investments are included in excess of revenues over expenses as management considers all investments to be trading securities. Assets Limited as to Use Assets limited as to use include (1) assets held by trustees, (2) assets required to be held under Florida state statutes, (3) assets restricted by donors and (4) assets set aside by the Board of Directors for future capital improvements, over which the Board retains control and may, at its discretion, subsequently use for other purposes. Accounts Receivable The CMAF reports accounts receivable for services rendered at net realizable amounts from third-party payers, residents and others. The CMAF provides an allowance for doubtful accounts based upon a review of outstanding receivables, historical collection information and existing economic conditions. Resident accounts receivable are due in full when billed. Accounts are considered delinquent and subsequently written-off as bad debts based on individual credit evaluation and specific circumstances of the account. Inventories The CMAF states supply inventories at the lower of cost, determined using the first-in, first-out method, or market. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Property and equipment are depreciated on a straight-line basis over the estimated useful life of each asset. Expenditures for repairs that extend the estimated useful lives of assets and betterments of such assets are 10

13 capitalized. Other expenditures for maintenance and repairs are charged to income. Upon disposal of property and equipment, the cost and accumulated depreciation are eliminated from the accounts and a credit or charge to income reflecting the gain or loss on disposal, if any, is recorded. Assets under capital lease obligations and leasehold improvements are depreciated over the shorter of the lease term or their respective estimated useful lives. Donations of property and equipment are reported at fair value as an increase in unrestricted net assets unless use of the assets is restricted by the donor. Monetary gifts that must be used to acquire property and equipment are reported as restricted support. The expiration of such restrictions is reported as an increase in unrestricted net assets when the donated asset is placed in service. Long-lived Asset Impairment The CMAF evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. No asset impairment was recognized during the years ended. Bond Issuance Costs Bond issuance costs represent costs incurred in connection with the issuance of long-term debt. Such costs are being amortized over the term of the respective debt using the straight-line method. The net capitalized bond issuance costs are included in long-term debt, less current maturities in the consolidated balance sheets. Advance Fees and Resident Reserves Upon becoming a resident of the CMAF, an individual pays an advance fee. The advance fee varies according to the size and location of the unit which the resident is to occupy. The advance fee serves as the resident's right not only to occupy an apartment for the duration of his or her stay at the CMAF, but also to receive life care. A monthly maintenance fee is charged to cover costs of maintaining the CMAF's operations. Under the standard "no refund" contract (which is the CMAF's primary resident contract), upon the demise of the resident, no reimbursement or other benefits inure to the estate of the decedent. The advance fees are, and remain, the absolute property of the CMAF. The CMAF is also entitled to reassign the occupancy rights of the apartment and facilities so vacated. The CMAF also markets 100 percent, 90 percent and 75 percent refund contracts that are refundable upon re-occupancy, which are included as other long-term liabilities. 11

14 Non-refundable advance fees are recorded as deferred revenue and are amortized to income using the straight-line method over the estimated remaining life expectancy of each resident, or joint and last survivor life expectancy of each pair of residents occupying the same unit. Upon the demise of a resident, the amount of unamortized advance fees is recognized as revenue. The State of Florida requires the refund of a portion of a resident's advance fees if the resident contract is canceled within 48 months. The difference between the unamortized advance fees and the amount refunded is recognized as revenue or expense, as appropriate. The estimated amount of advance fees subject to refund in accordance with this Florida statute and the re-occupancy contracts were $125,703,000 and $118,282,000 at, respectively. Although advance fees are subject to refund, the CMAF has not reclassified any amount as refundable fees since the CMAF has historically experienced negligible actual refunds. Upon admission, each resident is also required to establish a reserve account with the CMAF. This account is refundable to the resident or the resident's estate upon cancellation of residency or death, provided such resident has no outstanding debts due the CMAF. Obligation to Provide Future Services The CMAF calculates the present value of the net cost of future services and use of facilities to be provided to current residents and compares that amount with the balance of deferred revenue from advance fees. If the present value of the net cost of future services and use of facilities exceeds deferred revenue from advance fees, a liability is recorded (obligation to provide future services and use of facilities) with the corresponding charge to income. The obligation is discounted at 5 percent for the years ended, based on the CMAF's current rate of return on invested assets. The CMAF has determined that no liability existed at June 30, 2017 and Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are those whose use by the CMAF has been limited by donors to a specific time period or purpose. Permanently restricted net assets have been restricted by donors to be maintained by the CMAF in perpetuity. Net Patient Service Revenue The CMAF has agreements with third-party payers that provide for payments to the CMAF at amounts different from its established rates. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payers and others for services rendered and includes estimated retroactive revenue adjustments. Retroactive adjustments are considered in the recognition of revenue on an estimated basis in the period the related services are rendered and such estimated amounts are revised in future periods, as adjustments become known. 12

15 Contributions Unconditional promises to give cash and other assets are accrued at estimated fair value at the date each promise is received. Gifts received with donor stipulations are reported as either temporarily or permanently restricted support. When a donor restriction expires, that is, when a time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified and reported as an increase in unrestricted net assets. Conditional contributions are reported as liabilities until the condition is eliminated or the contributed assets are returned to the donor. Estimated Malpractice Costs An annual estimated provision is accrued for the self-insured portion of medical malpractice claims and includes an estimate of the ultimate costs for both reported claims and claims incurred but not reported. Income Taxes Shell Point, Alliance and Legacy have been recognized by the Internal Revenue Service as not-for-profit corporations as described in Section 501(c)(3) of the Internal Revenue Code (IRC) and are exempt from federal income taxes pursuant to Section 501(a) of the IRC. The IRC provides for taxation of unrelated business income under certain circumstances. Shell Point, Alliance and Legacy report unrelated business taxable income resulting from their enterprise activities. Donated Services A number of unpaid volunteers have made significant contributions of their time to the CMAF. The value of this contributed time is not reflected in these statements, as it does not meet the criteria required by the codification of Financial Accounting Standards. Excess of Revenues Over Expenses The consolidated statements of operations include excess of revenues over expenses. Changes in unrestricted net assets which are excluded from excess of revenues over expenses, consistent with industry practice, include contributions of long-lived assets (including assets acquired using contributions which, by donor restriction, were to be used for the purpose of acquiring such assets). Reclassifications Certain reclassifications have been made to the 2016 consolidated financial statements for the adoption of Accounting Standards Update , Interest Imputation of Interest (Subtopic ): Simplifying the Presentation of Debt Issuance Costs. These reclassifications had no effect on earnings. 13

16 Subsequent Events Subsequent events have been evaluated through the date of the Independent Auditor's Report which is the date the consolidated financial statements were available to be issued. Note 2: Net Patient Service Revenue The components of net patient service revenue for the years ended, are as follows: Medicaid $ 7,862,533 $ 8,669,719 Medicare 11,325,145 10,625,392 Other resident service revenue 47,542,069 43,856,572 66,729,747 63,151,683 Contractual adjustments and other deductions (21,156,100) (18,104,629) Net patient service revenue $ 45,573,647 $ 45,047,054 The CMAF has agreements with third-party payers that provide for payments to the CMAF at amounts different from its established rates. Contractual adjustments under third-party payment programs represent the difference between the CMAF's established rates for services and amounts reimbursed by third-party payers. Contractual adjustments are deducted from the CMAF's established rates to arrive at net patient service revenue. The CMAF files Medicare and Medicaid cost reports with the intermediary on an annual basis. Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation and change. As a result, it is reasonably possible that recorded estimates will change in the near term. Note 3: Concentration of Credit Risk The CMAF grants credit without collateral to its residents, many of whom are insured under third-party payer agreements. The mix of accounts receivable from residents and third-party payers at, are as follows. 14

17 Medicaid 20% 14% Medicare 51% 30% Private pay and other 29% 56% 100% 100% Note 4: Investments and Assets Limited as to Use Investments and Assets Limited as to Use Board-designated and Donor-restricted The carrying value of the CMAF's investments and assets limited as to use board-designated and donor-restricted consists of the following at June Cash and cash equivalents $ 2,154,865 $ 2,154,069 Certificate of deposit 470, ,863 Mutual funds: Domestic securities 23,480,540 20,897,946 Foreign securities 7,076,070 3,823,135 Fixed income 7,780,555 15,015,972 Mortgage-backed securities 4,352,031 4,461,241 Alternative investments 17,150,568 17,255,331 62,465,492 64,078,557 Less assets limited to use: Board-designated and donor-restricted (5,823,299) (4,411,979) Investments $ 56,642,193 $ 59,666,578 15

18 The board-designated and donor-restricted funds are summarized as follows at June 30: Friendship Fund $ 439,960 $ 471,368 CMA Benevolent Fund, including Reeder Endowment 30,000 30,000 Ministers Discount Fund 1,890,969 1,856,496 Alliance board-designated 54, ,471 Workers' compensation 470, ,863 Donor-restricted for property 2,491, ,967 Self-insurance Fund for General and Professional Liabilities 446, ,814 $ 5,823,299 $ 4,411,979 Assets Limited as to Use Under Bond Indenture Agreement The CMAF's debt agreements for its Revenue Bonds provide for funds to be established at various times by the CMAF and held by the trustee. These funds are invested as follows at June 30: Cash and cash equivalents $ 179,767 $ 3,734,463 U.S. Government agencies 253,615 3,454,773 U.S. Treasury notes 259,144 1,833,652 Corporate bonds 693,405 6,966,151 $ 1,385,931 $ 15,989,039 Assets Limited as to Use Under State Statutes The CMAF is required to maintain minimum liquid reserves in accordance with the guidelines established under Chapter 651 of the Florida statutes. The CMAF met the reserve requirements at. Chapter 651 also requires deposits for advance continuing care fees to be placed in an escrow account. 16

19 The CMAF has funds restricted for these purposes at June 30, as follows: Liquid reserve requirements pursuant to state law $ 32,298,955 $ 24,231,371 Deposit escrow account 6,392,342 6,591,728 $ 38,691,297 $ 30,823,099 The carrying value and composition of these investments are as follows at June 30: Cash and cash equivalents $ 6,459,853 $ 6,938,292 Mutual funds: Domestic securities 4,723,838 2,043,743 Foreign securities 219, ,354 Fixed income 24,508,834 18,166,643 Alternative investments 2,779,639 3,489,067 Investment Return Total investment return is composed of the following: $ 38,691,297 $ 30,823, Interest and dividend income $ 530,078 $ 256,128 Net realized gains (losses) on sales of trading securities 345,138 (57,045) Net unrealized gains (losses) 5,943,618 (1,594,444) $ 6,818,834 $ (1,395,361) Total investment return is reflected in the consolidated statements of operations and consolidated statements of changes in net assets as follows. 17

20 Unrestricted net assets $ 6,781,589 $ (1,437,463) Temporarily restricted net assets 37,245 42,102 $ 6,818,834 $ (1,395,361) Note 5: Property and Equipment Property and equipment consisted of the following at June 30: Land and improvements $ 79,594,637 $ 76,942,034 Buildings 545,668, ,954,728 Foundation homes and lots 9,530,702 9,469,169 Furniture and fixtures 10,362,433 8,998,319 Equipment and vehicles 34,057,391 30,534, ,213, ,898,504 Less accumulated depreciation (270,938,841) (250,076,159) 408,274, ,822,345 Construction-in-progress 16,110,461 13,207,608 Property and equipment, net $ 424,384,987 $ 408,029,953 During the year ended June 30, 2017, the CMAF began construction of Phase II of The Estuary at Shell Point consisting of 23 independent living units (single family homes and villas). The total cost of the project is approximately $10 million of which $6 million was incurred as of June 30, The CMAF also began construction of the expansion and renovation of The Springs assisted living facility. This project will add 55 new assisted living units (including 28 Memory Care units), as well as completely renovating the existing 105 beds at The Springs. The total estimated cost of the project is $27.6 million, and is projected for completion in August Project cost of $2.9 million was incurred as of June 30, Note 6: Other Assets Other assets consisted of the following at June

21 Fair value of interest rate swaps $ 2,513,000 $ - Contributions receivable, net 339, ,097 Other 39, Total other assets $ 2,891,740 $ 421,157 Contributions receivable consists of the estimated present value of certain irrevocable gift annuities and charitable trust funds that name the CMAF as a beneficiary. Note 7: Long-term Debt Long-term debt is comprised of the following at June 30: Healthcare Facilities Revenue Refunding Bonds, Series 2007 (A) $ - $ 87,325,000 Healthcare Facilities Revenue Bonds, Series 2006 (B) - 47,320,000 Healthcare Facilities Revenue Bonds, Series 2011A (C) - 28,865,000 Healthcare Facilities Revenue Bonds, Series 2011B (C) 11,296,000 11,475,000 Healthcare Facilities Revenue Bonds, Series 2016 (D) 145,300,000 - Bank Term Loan (E) 8,737,549 9,240, ,333, ,225,000 Unamortized premium - 2,915,667 Unamortized discount (90,679) (96,919) Unamortized bond issuance costs (2,066,006) (2,239,413) Less current maturities (7,493,000) (15,365,000) $ 155,683,864 $ 169,439,335 19

22 (A) On April 5, 2007, the Lee County Industrial Development Authority (the Issuer) issued $117,695,000 of Healthcare Facilities Revenue Refunding Bonds, Series 2007 (the Series 2007 Bonds), the proceeds of which were loaned to the CMAF pursuant to a loan agreement dated March 1, 2007, between the Issuer and the CMAF. The proceeds from the series 2007 Bonds were primarily used to refund all of the Series 1999A and 1999C Bonds. The Series 2007 Bonds were refunded by the Series 2016 Bonds in May (B) On November 15, 2006, the Lee County Industrial Development Authority (the Issuer) issued $47,320,000 of Healthcare Facilities Revenue Bonds, Series 2006 (the Series 2006 Bonds), the proceeds of which were loaned to the CMAF pursuant to a loan agreement dated November 1, 2006 between the Issuer and the CMAF. The proceeds from the Series 2006 Bonds were used primarily to finance certain costs related to the construction of a 132-unit assisted living facility, the renovation of the existing skilled nursing facility, the acquisition of capital equipment and the completion of certain other facility replacement projects. The Series 2006 Bonds were refunded by the Series 2016 Bonds in September (C) On December 13, 2011, the Lee County Industrial Development Authority (the Issuer) issued $47,065,000 of Healthcare Facilities Revenue Bonds, Series The proceeds were loaned to the CMAF pursuant to a loan agreement dated December 13, 2011 between the Issuer and the CMAF. The proceeds of the 2011 Bonds were used to refund the Series 1999B and 2002 Bonds, and reimburse Shell Point for certain capital expenditures incurred. The Series 2011 Bonds consist of the following: Series 2011A Original issuance of $35,000,000 of private placement revenue bonds. The Series 2011A Bonds were refunded by the Series 2016 Bonds in September Series 2011B Original issuance of $12,065,000 of revenue bonds. At June 30, 2017, the Series 2011B Bonds consist of $2,380,000 of intermediate term bonds maturing in 2021 and 2026 at interest rates of percent and 6.25 percent, and $8,930,000 of final term bonds maturing in 2031 at an interest rate of 6.60 percent. (D) On September 9, 2016, the Lee County Industrial Development Authority (the Issuer) issued $147,514,000 of Healthcare Facilities Refunding and Improvement Revenue Bonds, Series The proceeds were loaned to the CMAF pursuant to a loan agreement dated September 9, 2016 between the Issuer and the CMAF. The proceeds of the 2016 Bonds were used to refund the Series 2006, 2007 and 2011A Bonds, and reimburse Shell Point for certain capital expenditures incurred. The Series 2016 Bonds consist of the following: Series 2016A Original issuance of $47,228,000 of private placement revenue bonds. The bonds incur interest on a monthly basis at a rate set at 67 percent of one month LIBOR plus a fee spread. At June 30, 2017, the effective interest rate was 1.78 percent. The bonds mature November 1, 2032, with principal and interest payable monthly. 20

23 Series 2016B Original issuance of $100,286,000 of private placement revenue bonds. The bonds incur interest on a monthly basis at a rate set at 67 percent of one month LIBOR plus a fee spread. At June 30, 2017, the effective interest rate was 1.88 percent. The bonds mature November 1, 2036, with principal and interest payable monthly. (E) On April 18, 2012, the CMAF obtained an $11,000,000 term loan from a financial institution. The purpose of the loan was to refinance existing debt, finance capital expenditures, and for general corporate purposes of Shell Point. The term loan was amended in March 2017, to extend the maturity date to February 1, 2030, decrease the interest rate from 5.5 percent to 4.0 percent, and modify the payments from quarterly payments of $110,000 to monthly payments of $57,484. The loan is collateralized by the assets of CMAF. In conjunction with the Revenue Bonds, the Issuer received as collateral a mortgage interest on, and a security interest in, all of the real and personal property of the Obligated Group, which consists of Shell Point and Alliance only. The bond and loan agreements require the Obligated Group to maintain a debt service coverage ratio of at least 1.1 to 1, in addition to several other restrictive covenants. At June 30, 2017 and 2016, the Obligated Group was in compliance with these covenants. The scheduled maturities of long-term debt at June 30, 2017, are as follows: 2018 $ 7,493, ,582, ,740, ,917, ,094,000 Thereafter 126,507,549 $ 165,333,549 Note 8: Derivative Financial Instruments As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flows due to interest rate fluctuations, the CMAF entered into interest rate swap agreements for a portion of its floating rate debt during the year ended June 30, The agreement with the 2016A Bonds holder provides for the CMAF to receive interest from the counterparty at 67 percent of LIBOR and to pay interest to the counterparty at a fixed rate of 1.06 percent on notional amounts of $34,761,000 at June 30, The agreement with the 2016B Bonds holder 21

24 provides for the CMAF to receive interest from the counterparty at 67 percent of LIBOR and to pay interest to the counterparty at a fixed rate of 1.21 percent on notional amounts of $74,212,500 at June 30, Under the agreement, CMAF pays or receives the net interest amount monthly, with the monthly settlements included in interest expense. The table below presents certain information regarding the CMAF's interest rate swap agreements as of and for the year ended June 30, Fair value of interest rate swap agreement $ 2,513,000 Consolidated balance sheet location of fair value amount Other Assets, Net Gain recognized in change in net assets 2,513,000 Location of gain recognized in consolidated statement of operations Other Income (Loss) Note 9: Self-insurance The CMAF maintains professional and general liability insurance coverage through a commercial insurer on a claims-made basis with policy limits of $600,000 per incident and in the aggregate. The CMAF is self-insured for claims in excess of these limits. Alliance is similarly self-insured for professional and general liability claims in excess of $25,000. A liability of approximately $446,000 and $471,000 has been recorded at, respectively, representing management's best estimate of expected losses, based upon actuarial computations. This amount has been included in accrued expenses in the accompanying consolidated balance sheets. The CMAF purchases commercial insurance for workers' compensation coverage through a paid loss retrospective policy. The CMAF records liabilities for all reported and unpaid claims and for estimated claims incurred but not yet reported for this plan. A liability of approximately $459,000 and $380,000 has been recorded at, respectively, and is included in accrued expenses in the accompanying consolidated balance sheets. Pursuant to the terms of the workers' compensation self-insurance plan, the State of Florida requires a letter of credit. At, the CMAF had obtained a letter of credit in satisfaction of this requirement with a maximum available amount of $425,000. The CMAF self-insures certain costs related to employee health claims. The CMAF purchases annual stop-loss insurance coverage for all individual claims in excess of $175,000. Costs resulting from noninsured losses are charged to income when incurred. A liability of approximately $215,000 and $315,000 has been recorded at, respectively, and is included in accrued expenses in the accompanying consolidated balance sheets. 22

25 Note 10: Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are available for the following purposes: Friendship Fund $ 317,103 $ 236,899 Special projects 3,054,825 1,642,159 $ 3,371,928 $ 1,879,058 Net assets were released from donor restrictions by incurring expenses, satisfying the restricted purposes in the amounts of $1,370,209 and $724,169 for the years ended, respectively. Permanently restricted net assets are available for the following purposes: Investment in perpetuity, the income from which is expendable to support: Friendship Fund $ 234,469 $ 234,469 Reeder Endowment 30,000 30,000 $ 264,469 $ 264,469 Note 11: Functional Expenses The CMAF provides services primarily to residents within its geographic area. Expenses related to providing these services are as follows: Program expenses $ 102,591,384 $ 99,972,248 Administrative expenses 13,664,100 11,361,181 Legacy 620, ,163 Total expenses $ 116,875,865 $ 111,995,592 23

26 Note 12: Pension Plan Effective July 1, 1991, Shell Point established the Thrift Plan for Employees of The Christian and Missionary Alliance (the Plan). The Plan is a qualified annuity plan under Section 403(b) of the IRC. Upon meeting age and service requirements, Shell Point contributes for each employee an amount equal to 3 percent of the employee's compensation. The Plan also provides for a Shell Point matching contribution equal to 50 percent of the first 10 percent of an employee's earnings that are voluntarily contributed by the employee to the Plan, not to exceed a maximum matching contribution of $3,000. Participants may make additional nonmatched contributions up to limits established by federal regulations. Vesting occurs as follows: 25 percent after two years of service, 50 percent after three years, 75 percent after four years and 100 percent after five years of service. Retirement expense under the Plan for the years ended was approximately $1,575,000 and $1,404,000, respectively. Note 13: Endowment The State of Florida passed the Uniform Prudent Management of Institutional Funds Act (UPMIFA or the Act). The Act provides statutory guidance for the management, investment and expenditures of endowment funds held by not-for-profit organizations. Amongst other provisions, the Act eliminates the "historical dollar value" rule for endowment funds, in favor of guidelines regarding what constitutes prudent spending and explicitly requires consideration of the following factors (if relevant): 1. Duration and preservation of the fund 2. Purposes of the CMAF and the fund 3. General economic conditions 4. Possible effect of inflation and deflation 5. Expected total return from investment income and appreciation or depreciation of investments 6. Other resources of the CMAF 7. Investment policies of the CMAF 24

27 The CMAF has also adopted Financial Accounting Standards Board Accounting Standards Codification Topic 958, Endowments of Not-For-Profit Organizations. This standard provides guidance on the net asset classification of donor-restricted endowment funds for a not-for-profit organization that is subject to the enacted version of UPMIFA. The CMAF's endowment consists of two funds established to support residents, and minister and missionary applicants in financial need. The endowments are donor-restricted. As required by accounting principles generally accepted in the United States of America, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. The CMAF's governing body has interpreted the State of Florida's UPMIFA as requiring preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds, absent any donor stipulations to the contrary. As a result of this interpretation, the CMAF classifies as permanently restricted net assets the original value of gifts donated to the permanent endowment. The composition of net assets by type of endowment fund at was: Unrestricted Temporarily Restricted 2017 Permanently Restricted Total Donor-restricted endowment funds $ 0 $ 0 $ 264,469 $ 264,469 Unrestricted Temporarily Restricted 2016 Permanently Restricted Total Donor-restricted endowment funds $ 0 $ 0 $ 264,469 $ 264,469 25

28 Changes in endowment net assets for the years ended were: Unrestricted Temporarily Restricted 2017 Permanently Restricted Total Endowment net assets, beginning of year $ - $ - $ 264,469 $ 264,469 Investment income - 37,245-37,245 Appropriations - (37,245) - (37,245) Endowment net assets, end of year $ 0 $ 0 $ 264,469 $ 264,469 Unrestricted Temporarily Restricted 2016 Permanently Restricted Total Endowment net assets, beginning of year $ - $ - $ 264,469 $ 264,469 Investment income - 42,102-42,102 Appropriations - (42,102) - (42,102) Endowment net assets, end of year $ 0 $ 0 $ 264,469 $ 264,469 The CMAF has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs while seeking to maintain the purchasing power of the endowment. Endowment assets include those assets of donor-restricted endowment funds the CMAF must hold in perpetuity. Under the CMAF's policies, endowment assets are invested in a manner that is intended to produce results that earn a total return appropriate to each fund's time horizon, liquidity needs, risk tolerance and investment limitations. Actual returns in any given year may vary. 26

29 To satisfy its long-term rate of return objectives, the CMAF relies on a total return strategy in which investment returns are achieved through both current yield (investment income such as dividends and interest) and capital appreciation (both realized and unrealized). The CMAF targets a diversified asset allocation that balances several different investment types including mutual funds, mortgage-backed securities and hedge funds. This is intended to achieve its long-term return objectives within prudent risk constraints. The CMAF has a policy (the spending policy) of appropriating for expenditure each year the investment return on the endowment funds in accordance with donor intent. In establishing this policy, the CMAF considered the long-term expected return on its endowment. This is consistent with the CMAF's objective to maintain the purchasing power of endowment assets held in perpetuity or for a specified term. Note 14: Disclosures About Fair Value of Assets and Liabilities The Codification of Financial Accounting Standards defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value. Level 1 Level 2 Level 3 Quoted prices in active markets for identical assets or liabilities. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Recurring Measurements The following table presents the fair value measurement of assets recognized in the accompanying consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2017 and

30 Fair Value Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs (Level 1) (Level 2) (Level 3) Money market accounts $ 7,265,506 $ 7,265,506 $ - $ - Mutual funds - equity securities 4,352,031 4,352, Mutual funds - domestic securities 28,204,378 28,204, Mutual funds - fixed income 32,289,389 32,289, Mutual funds - foreign securities 7,295,203 7,295, U.S. government agencies 253, ,615 - U.S. Treasury notes 259, , Corporate bonds 693, , Gift annuities 66,308-66,308 - Interest rate swap agreements 2,513,000-2,513,000 - Alternative investments (A) 19,930,207 Total fair value of recurring measurements $ 103,122, Fair Value Measurements Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) Money market accounts $ 10,425,060 $ 10,425,060 $ - $ - Mutual funds - mortgage-backed securities 4,461,241 4,461, Mutual funds - domestic securities 22,941,689 22,941, Mutual funds - fixed income 33,182,615 33,182, Mutual funds - foreign securities 4,008,489 4,008, U.S. government agencies 3,454,773-3,454,773 - U.S. Treasury notes 1,833,652 1,833, Corporate bonds 6,966,151 6,966, Gift annuities 109, ,300 - Alternative investments (A) 20,744,398 Total fair value of recurring measurements $ 87,382, Fair Value Measurements Using 28

31 (A) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts included above are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets. Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the years ended June 30, 2017 and Investments and Assets Limited as to Use Where quoted market prices are available in an active market, investments are classified within Level 1 of the valuation hierarchy. Level 1 investments include money market accounts, corporate bonds, mutual funds and U.S. Treasury notes. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include U.S. government agencies and gift annuities. In certain cases where Level 1 or Level 2 inputs are not available, investments are classified within Level 3 of the hierarchy. Alternative Investments As permitted by Topic 825, the CMAF has elected to measure their alternative investments at fair value. Management has elected the fair value option for these items because they believe that fair value more accurately reflects the net asset value of the investments. The value of certain investments, classified as alternative investments, is determined using net assets value as a practical expedient. At, alternative investments consist primarily of investments in equity long/short hedge funds and investments in multi-strategy hedge funds and investments in real estate income funds. Alternative investments held at June 30 consist of the following. 29