Report on Combined Financial Statements For the years ended
Contents Page Independent Auditor s Report... 1-2 Financial Statements Combined Statements of Financial Position... 3 Combined Statements of Activities... 4 Combined Statements of Cash Flows... 5... 6-21 Supplemental Schedules 1 - Combining Statement of Financial Position... 22 2 - Combining Statement of Activities... 23
Independent Auditor s Report Board of Trustees Wesley Commons Greenwood, South Carolina Report on the Financial Statements We have audited the accompanying combined financial statements of Wesley Commons and Greenwood Heritage Foundation (collectively Wesley Commons ) which comprise the combined statements of financial position as of, and the related combined statements of activities and cash flows for the years then ended and the related notes to the combined financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these combined 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 combined 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 combined 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 combined financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the combined 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 combined 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 combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Elliott Davis LLC www.elliottdavis.com
Opinion In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Wesley Commons as of, 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. Other Matter Our audits were conducted for the purpose of forming an opinion on the combined financial statements as a whole. The combining information is presented for purposes of additional analysis rather than to present the financial position and changes in net assets of the individual organizations and is not a required part of the combined 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 combined financial statements. The combining information has been subjected to the auditing procedures applied in the audit of the combined financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the combined financial statements or to the combined 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 combined financial statements as a whole. Columbia, South Carolina December 30, 2014 2
Combined Statements of Financial Position As of Assets Current assets Cash and cash equivalents $ 1,464,926 $ 1,306,639 Investments 10,119,079 10,033,969 Accounts receivable - net 645,620 494,825 Notes receivable 195,285 - Other receivables 94,899 169,254 Current portion of assets whose use is limited 2,065,294 2,037,120 Inventories 75,902 67,283 Prepaid expenses 95,298 90,206 Total current assets 14,756,303 14,199,296 Assets whose use is limited 2,371,651 2,321,824 Other assets 115,726 115,726 Property, plant, and equipment - net 33,890,512 33,845,793 Construction in progress 547,766 690,847 Deferred costs - net of amortization of $69,332 and $60,667 185,594 194,261 Interest in assets held by others 945,063 921,703 Total assets $ 52,812,615 $ 52,289,450 Liabilities and Net Assets Current liabilities Accounts payable $ 498,936 $ 468,679 Current portion of long-term debt 740,000 705,000 Accrued interest 814,073 831,981 Accrued expenses 921,315 768,683 Other liabilities 24,489 24,366 Total current liabilities 2,998,813 2,798,709 Long-term debt, less current portion 30,046,591 30,767,345 Entrance fee and miscellaneous deposits 243,269 296,445 Refundable entrance fees 12,496,132 12,954,824 Deferred revenue from entrance fees 2,770,229 1,523,097 Total liabilities 48,555,034 48,340,420 Net assets Unrestricted 3,321,196 3,085,315 Temporarily restricted 264,351 191,681 Permanently restricted 672,034 672,034 Total net assets 4,257,581 3,949,030 Total liabilities and net assets $ 52,812,615 $ 52,289,450 See 3
Combined Statements of Activities For the years ended Unrestricted Temporarily Restricted Permanently Temporarily Restricted Total Unrestricted Restricted Permanently Restricted Revenues, gains and other support Health care services $ 9,028,719 $ - $ - $ 9,028,719 $ 8,610,944 $ - $ - $ 8,610,944 Monthly service fees 6,105,066 - - 6,105,066 5,764,409 - - 5,764,409 Earned entrance fees 1,290,316 - - 1,290,316 1,948,311 - - 1,948,311 Food service income 106,011 - - 106,011 96,698 - - 96,698 Contributions 240,005 77,570-317,575 255,680 121,982-377,662 Investment income 580,312 29,572-609,884 531,783 30,371-562,154 Other revenues 394,868 - - 394,868 298,116 - - 298,116 17,745,297 107,142-17,852,439 17,505,941 152,353-17,658,294 Net assets released from restrictions 34,472 (34,472) - - 129,291 (129,291) - - Total revenues, gains and other support 17,779,769 72,670-17,852,439 17,635,232 23,062-17,658,294 Expenses Routine services 4,606,468 - - 4,606,468 4,375,437 - - 4,375,437 Special services 759,258 - - 759,258 679,811 - - 679,811 Dietary 2,106,380 - - 2,106,380 2,048,971 - - 2,048,971 Housekeeping and laundry 730,294 - - 730,294 689,583 - - 689,583 Maintenance and grounds 2,006,287 - - 2,006,287 2,099,009 - - 2,099,009 Marketing and public relations 899,624 - - 899,624 802,204 - - 802,204 Administration 2,978,795 - - 2,978,795 2,882,845 - - 2,882,845 Depreciation 1,800,723 - - 1,800,723 1,698,691 - - 1,698,691 Interest expense 1,628,146 - - 1,628,146 1,663,396 - - 1,663,396 Amortization 27,913 - - 27,913 27,912 - - 27,912 Total expenses 17,543,888 - - 17,543,888 16,967,859 - - 16,967,859 Increase in net assets 235,881 72,670-308,551 667,373 23,062-690,435 Net assets, beginning of year 3,085,315 191,681 672,034 3,949,030 2,417,942 168,619 672,034 3,258,595 Net assets, end of year $ 3,321,196 $ 264,351 $ 672,034 $ 4,257,581 $ 3,085,315 $ 191,681 $ 672,034 $ 3,949,030 Total See 4
Combined Statements of Cash Flows For the years ended Operating activities Increase in net assets $ 308,551 $ 690,435 Adjustments to reconcile increase in net assets to net cash provided by operating activities Depreciation 1,800,723 1,698,691 (Gain) loss on disposal of property and equipment (4,165) 17,528 Amortization of deferred costs 8,667 8,667 Amortization of bond discount 19,246 19,245 Earned entrance fees (1,290,316) (1,948,311) Unrealized investment gains 60,801 116,804 Change in assets whose use is limited (78,001) (146,574) Increase in interest in assets held by others (23,360) (28,843) Provision for doubtful accounts (5,224) (53,867) Changes in deferred and accrued amounts: Accounts receivable (145,571) 146,545 Other receivables 74,355 29,682 Inventories (8,619) 1,550 Prepaid expenses (5,092) (4,367) Accounts payable 30,257 235,310 Accrued expenses 134,724 (135,855) Other liabilities 123 (888) Entrance fee and miscellaneous deposits (467,890) (18,483) Net cash provided by operating activities 409,209 627,269 Investing activities Proceeds from sales of investments 3,457,999 5,292,744 Purchases of investments (3,603,910) (4,944,200) Purchases of other assets - (115,726) Purchases of property, plant, equipment, and construction in progress (1,698,196) (1,433,339) Net cash used for investing activities (1,844,107) (1,200,521) Financing activities Repayment of bonds (705,000) (670,000) Entrance fees received 4,278,173 2,814,773 Refund of entrance fees (1,979,988) (1,616,877) Net cash provided by financing activities 1,593,185 527,896 Net increase (decrease) in cash and cash equivalents 158,287 (45,356) Cash and cash equivalents, beginning of year 1,306,639 1,351,995 Cash and cash equivalents, end of year $ 1,464,926 $ 1,306,639 Supplemental cash flow information Cash paid during the year for interest $ 1,646,054 $ 1,680,289 Supplemental noncash flow information Notes receivable issued for entrance fees $ 905,198 $ - See 5
Note 1. Summary of Significant Accounting Policies Wesley Commons is a not-for-profit organization exempt from federal and state income taxes under Section 501(c)(3) of the Internal Revenue Code. Wesley Commons provides housing, health care and other related services through the operation of a continuing-care retirement community in Greenwood, South Carolina. Wesley Commons provides services and extends credit to patients, most of who are residents and are covered by Medicare, Medicaid or private insurance. Greenwood Heritage Foundation is included in the combined financial statements of Wesley Commons. Greenwood Heritage Foundation is affiliated through common board members/management, and their operations are closely interrelated and economically interdependent. All material transactions and accounts between Wesley Commons and the Greenwood Heritage Foundation (collectively referred to as Wesley Commons ) have been eliminated in combination. Basis of accounting: Wesley Commons prepares its financial statements on the accrual basis of accounting. Reporting cash flows: For purposes of reporting cash flows, Wesley Commons considers all liquid non-equity investments with an original maturity of three months or less to be cash equivalents. Allowance for doubtful accounts: Wesley Commons estimates the allowance based on the age of the medical charges. Accounts of slow-paying patients are included in this allowance. Accounts and notes receivable are presented in the statements of financial position net of allowances for doubtful accounts. Inventories: Inventories consist of food products as well as medical, janitorial, maintenance, and information technology supplies. Inventories are stated at the lower of cost or market using the first-in, first-out method. Investments and assets whose use is limited: Investments in marketable securities with readily determinable fair values and all investments in debt securities are reported at their fair values in the statement of financial position. Unrealized gains and losses are included in the change in net assets. See Note 6 for additional discussion on fair value measurements. Property, plant and equipment: Property, plant and equipment is reflected at cost if purchased, and at fair market value as of the date of acquisition if donated and is depreciated over the estimated useful lives of the related assets using the straightline method over 3-40 years. Expenditures for maintenance and repairs are charged to income as incurred. Betterments and renewals are capitalized. 6
Note 1. Summary of Significant Accounting Policies, Continued Deferred costs: Costs incurred related to the issuance of debt are capitalized and amortized over the bond s original payment period. Deferred costs are presented in the statements of financial position net of accumulated amortization. Estimated obligation to provide future services and use of facilities: Wesley Commons annually reviews 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 entrance fees and future monthly service fees. If the present value of the net cost of future services and use of facilities exceeds the deferred revenue from entrance fees and monthly service fees, a liability is recorded (obligation to provide future services and use of facilities). No liability has been recorded at, because the present value of the net cost of future services and use of facilities is less than deferred revenue from entrance fees and monthly service fees. Deferred entrance fees: Wesley Commons has classified entrance fees in accordance with accounting principles generally accepted in the United States of America ( GAAP ). Classification of net assets: Wesley Commons net assets have been grouped into the following three classes: Unrestricted net assets are free of donor-imposed restrictions and include all revenues, expenses and losses that are not changes in temporarily or permanently restricted net assets. Unrestricted net assets include Wesley Commons operating and plant accounts and board designated funds set aside for investment purposes. Temporarily restricted net assets include gifts, grants, income, gains and pledges for which donor-imposed restrictions have not been met. Permanently restricted net assets includes gifts and trusts which require that the corpus be invested in perpetuity in accordance with donor restrictions and gains which have been donor-stipulated to be permanently invested. Revenue recognition: Monthly service fees Service fees paid by residents, including basic maintenance, limited meals, and other services are assessed monthly and are recognized as revenue in the period services are rendered. 7
Note 1. Summary of Significant Accounting Policies, Continued Revenue recognition, continued: Entrance fees Wesley Commons leases apartments, duplexes, and individual homes under agreements which allow the tenants to live in the residence for life. Most of these agreements have a clause providing for partial refunds upon finding a replacement tenant when the present tenant no longer occupies the unit. The entrance fees are amortized to income at the rate of 1% per month for fifty months from the date of occupancy which approximates amortization over the useful life of the resident as required by GAAP. The refundable percentage of entrance fees will remain at 50% thereafter. In addition, other options exist whereby tenants pay higher or lower initial fees and are guaranteed 90%, 30% or 0% of the original entrance fee when a replacement tenant occupies the unit. Nonrefundable entrance fee contracts are amortized over the estimated life of the resident as required by GAAP. Entrance fee deposits represent amounts paid by prospective residents who have signed an admission agreement to reserve a specific living unit. Generally, a deposit of at least 10% of the entrance fee is collected when the admission agreement is signed. The balance of the fee is payable at the time of admission. Prospective residents may cancel their admission agreements at any time prior to admission and generally receive a full refund of the deposit, less an administrative fee. If all residents contracts had been terminated at, refunds approximating $15,266,000 and $14,478,000, respectively, would have been due to residents upon re-occupancy. Skilled nursing revenue Skilled nursing revenue is recognized based on the date of service and is reported at the estimated net realizable amounts from residents, third-party payors and others for services rendered. Under the Medicare program, providers of skilled nursing care are reimbursed under a prospective payment system where feebased schedules are used to determine the provider s payments based on the level of services provided. Revenue recognized under third-party payor agreements is generally subject to audit and retroactive adjustment by the payors or their intermediaries. Provisions for estimated third-party payor settlements are provided in the period the related services are rendered. Differences between the estimated amounts accrued and interim and final settlements are reported in operations in the year of settlement. Contributions Gifts of cash and other assets received with donor stipulations that limit the use of the donated assets are reported as restricted contributions. When a restriction ends, or the purpose of the restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities and changes in net assets as net assets released from restrictions. Donorrestricted contributions whose restrictions are met in the same reporting period are reported as unrestricted contributions in that period. 8
Note 1. Summary of Significant Accounting Policies, Continued Donated services: A substantial number of unpaid volunteers have made significant contributions of their time in conjunction with Wesley Commons programs and services. The value of these contributions is not included in these financial statements, since it is not susceptible to objective measurement. Income taxes: Wesley Commons has been recognized by the Internal Revenue Service as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code. Accordingly, income earned in furtherance of Wesley Commons tax-exempt purpose is exempt from federal and state income taxes. Any activities not directly related to Wesley Commons tax-exempt purpose are subject to taxation as unrelated business income. Wesley Commons did not pay any income taxes during the years ended. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. Management is not aware of any material uncertain tax positions and no liability has been recognized at September 30, 2014 or 2013. If applicable, interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statement of activity. Wesley Commons is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Management believes it is no longer subject to income tax examinations for the years prior to September 30, 2010. Use of estimates: The financial statements include estimates and assumptions that affect Wesley Commons financial position and results of operations and disclosure of contingent assets and liabilities. Actual results could differ from these estimates. Reclassifications: Certain amounts in the prior year financial statements have been reclassified for comparative purposes to conform to presentation in the current year financial statements. Such reclassifications had no effect on previously reported net assets, changes in net assets, or net increase (decrease) in cash and cash equivalents. Subsequent events: In preparing these financial statements, Wesley Commons has evaluated events and transactions for potential recognition or disclosure through December 30, 2014, the date the financial statements were available to be issued. 9
Note 2. Accounts and Notes Receivable Accounts receivable consist of the following: Residents $ 288,779 $ 275,971 Third party payors 514,903 382,140 803,682 658,111 Less allowance for doubtful accounts 158,062 163,286 $ 645,620 $ 494,825 Notes receivable consist of the following: Note receivable with an original amount of $144,054 from a resident bearing interest at 6%, payable in an installment of $60,000 in August 2014 with the remaining balance due no later than November 2014. $ 84,054 $ - Note receivable with an original amount of $111,231 from a resident bearing interest at 6%, payable no later than December 2014. 111,231 - Less current portion 195,285 - $ - $ - Note 3. Investments Investments consist of the following: Fixed income $ 7,336,312 $ 7,568,481 Equities 2,100,688 1,848,854 Mutual and exchanged traded funds 682,079 616,634 Investment income is summarized as follows: $ 10,119,079 $ 10,033,969 Interest and dividends $ 384,894 $ 306,286 Realized investment gains/losses, net 140,829 110,221 Unrealized investment gains/losses, net 60,801 116,804 Increase in interest in assets held by others 23,360 28,843 $ 609,884 $ 562,154 10
Note 4. Assets Whose Use is Limited Assets whose use is limited by provisions of trust indentures and other contractual obligations are summarized as follows (at fair market value): Cash and cash equivalents $ 4,436,945 $ 4,358,944 Assets limited to use by provisions of the trust indenture and other contractual obligations are held under the following restricted accounts: Deposit escrow accounts $ 253,521 $ 286,591 Interest fund 814,102 832,042 Debt service reserve fund 2,371,651 2,373,479 Principal fund 740,039 705,263 Other 257,632 161,569 4,436,945 4,358,944 Less current portion 2,065,294 2,037,120 $ 2,371,651 $ 2,321,824 Note 5. Interest in Assets Held by Others Interest in assets held by others are funds neither in the possession nor under the control of Wesley Commons, but are held and administered by outside fiscal agents with Wesley Commons deriving income from such funds on an annual basis. The funds held by others are not under the direct control of Wesley Commons and cannot be used to offset future obligations. Wesley Commons interests in such trusts are recorded at its proportionate share of the fair value of the net assets held. The amounts Wesley Commons will realize could differ materially from these recorded amounts and significant fluctuations in fair values could occur from year to year. At, the fair values of funds held by others for Wesley Commons benefit consist of the following: Moxley Trust $ 378,426 $ 382,165 Rosalie Anderson Trust 99,162 84,863 Mabel Lyon Davis Trust 88,676 94,897 Other funds 378,799 359,778 $ 945,063 $ 921,703 11
Note 6. Fair Value Measurements GAAP provides the 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 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 Wesley Commons 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. Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at. Cash and cash equivalents: Valued at cost, which approximates fair value. Mutual funds and exchange traded funds: Valued at the net asset value of units held by Wesley Commons at year end using closing prices reported in the active market. U.S. Government & Agency securities, corporate bonds, and debentures (fixed income): Certain investments may be valued at the closing price reported in the active market in which the investment is traded. If pricing is not available based on active markets, valued based on yields currently available on comparable securities of issuers with similar credit ratings. Common stock (equities): Valued at the closing price reported in the active market in which the individual securities are traded. 12
Note 6. Fair Value Measurements, Continued 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 Wesley Commons believes its valuation methods are appropriate and consistent with other market 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. The following table sets forth by level, within the fair value hierarchy, Wesley Commons fair value measurements at : 13 Fair value measurements at September 30, 2014 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ - $ 1,464,926 $ - $ 1,464,926 Investments Fixed income - Aaa - 206,818-206,818 Fixed income - Aa1-184,937-184,937 Fixed income - Aa2-259,396-259,396 Fixed income - Aa3-450,832-450,832 Fixed income - A1-1,517,255-1,517,255 Fixed income - A2-1,383,790-1,383,790 Fixed income - A3-1,291,692-1,291,692 Fixed income - Baa1-879,582-879,582 Fixed income - Baa2-260,972-260,972 Fixed income - Baa3-652,178-652,178 Fixed income - US Agency - 248,860-248,860 Total fixed income - 7,336,312-7,336,312 Equities - consumer discretionary 343,218 - - 343,218 Equities - consumer staples 159,685 - - 159,685 Equities - energy 157,169 - - 157,169 Equities - financials 285,099 - - 285,099 Equities - healthcare 283,606 - - 283,606 Equities - industrials 287,882 - - 287,882 Equities - information technology 474,019 - - 474,019 Equities - materials 110,010 - - 110,010 Total equities 2,100,688 - - 2,100,688 Mutual and exchanged traded funds 682,079 - - 682,079 Total investments 2,782,767 7,336,312-10,119,079 Assets whose use is limited Cash equivalents - 4,436,945-4,436,945 Interest in assets held by others Cash equivalents - 573,104-573,104 Other assets held in trust - 258,700-258,700 U.S. Treasury notes - 113,259-113,259 Total interest in assets held by others - 945,063-945,063 $ 2,782,767 $ 14,183,246 $ - $ 16,966,013
Note 6. Fair Value Measurements, Continued Fair value measurements at September 30, 2013 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ - $ 1,306,639 $ - $ 1,306,639 Investments Fixed income - Aaa - 315,326-315,326 Fixed income - Aa2-172,060-172,060 Fixed income - Aa3-1,049,160-1,049,160 Fixed income - A1-767,925-767,925 Fixed income - A2-1,282,340-1,282,340 Fixed income - A3-1,689,372-1,689,372 Fixed income - Baa1-1,921,406-1,921,406 Fixed income - Baa2-370,892-370,892 Total fixed income - 7,568,481-7,568,481 Equities - consumer discretionary 351,909 - - 315,909 Equities - consumer staples 137,813 - - 137,813 Equities - energy 80,257 - - 80,257 Equities - financials 250,494 - - 250,494 Equities - healthcare 254,830 - - 254,830 Equities - industrials 274,373 - - 274,373 Equities - information technology 431,270 - - 431,270 Equities - materials 67,908 - - 67,908 Total equities 1,848,854 - - 1,848,854 Mutual and exchanged traded funds 616,634 - - 616,634 Total investments 2,465,488 7,568,481-10,033,969 Assets whose use is limited Cash equivalents - 4,358,944-4,358,944 Interest in assets held by others Cash equivalents - 557,865-557,865 Other assets held in trust - 246,580-246,580 U.S. Treasury notes - 117,258-117,258 Total interest in assets held by others - 921,703-921,703 $ 2,465,488 $ 14,155,767 $ - $ 16,621,255 14
Note 7. Property, Plant, Equipment and Construction in Progress Property, plant and equipment are summarized as follows: Land $ 299,137 $ 299,137 Land improvements 2,337,948 2,187,171 Buildings 47,860,078 47,855,443 Building improvements 5,605,225 4,801,996 Equipment 2,947,188 2,350,488 Vehicles 236,957 225,601 Furnishings and fixtures 2,843,393 2,685,770 Office equipment 1,572,459 1,463,587 63,702,385 61,869,193 Less accumulated depreciation 29,811,873 28,023,400 $ 33,890,512 $ 33,845,793 Construction in progress of $547,766 and $690,847, at, respectively, primarily consisted of costs incurred related to common area improvements and refurbishing of reoccupied units. Note 8. Long-Term Debt A summary of long-term debt is as follows: 15 South Carolina Jobs-Economic Development Authority First Mortgage Health Facility Refunding Revenue Bonds, Series 2006 for $35,195,000, dated October 1, 2006, interest due semi-annually on April 1 and October 1, with rates ranging from 5.00% to 5.30%, principal due in varying installments through October 1, 2036, collateralized by the property and gross revenues of Wesley Commons. $ 31,210,000 $ 31,915,000 Less unamortized discount 423,409 442,655 Less current portion 740,000 705,000 Long-term debt $ 30,046,591 $ 30,767,345 Maturities of long-term debt are as follows: 2015 $ 740,000 2016 780,000 2017 815,000 2018 860,000 2019 900,000 Thereafter 27,115,000 $ 31,210,000
Note 8. Long-Term Debt, Continued In March 2007, Wesley Commons and the Greenwood Heritage Foundation (the Foundation ) entered into an agreement whereby a portion of the Foundation s funds could be used to offset future obligations of Wesley Commons. At, these funds amounted to $1,188,731 and $1,131,740, respectively, and are included in Wesley Commons days cash on hand for bond covenant purposes. See Note 12 for additional information on debt covenants. No interest expense was capitalized for the years ended. Note 9. Endowments Wesley Commons endowments consist of individual funds established for a variety of purposes. As required by GAAP, net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of relevant law: The Board of Trustees of Wesley Commons has interpreted the South Carolina Uniform Prudent Management of Institutional Funds Act ( SCUPMIFA ) as requiring the preservation of the fair value of the original gift as of the gift date of the endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, Wesley Commons classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by Wesley Commons in a manner consistent with the standard of prudence prescribed by SCUPMIFA. In accordance with SCUPMIFA, Wesley Commons considers the following factors in making a determination to appropriate or accumulate endowment funds: 1) The duration and preservation of the fund 2) The purposes of Wesley Commons and the donor-restricted endowment fund 3) General economic conditions 4) The possible effect of inflation and deflation 5) The expected total return from income and the appreciation of investments 6) Other resources of Wesley Commons 7) The investment policies of Wesley Commons. 16
Note 9. Endowments, Continued Funds with deficiencies: From time to time, the fair value of assets associated with individual Board-designated endowment funds may fall below the level that the donor or SCUPMIFA requires Wesley Commons to retain as a fund of perpetual duration. Deficiencies can result from unfavorable market fluctuations that occurred shortly after the investment of new permanently restricted contributions and continued appropriation for certain programs that were deemed prudent by the Board of Trustees. Return objectives and risk parameters: Wesley Commons has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of Board-designated funds that Wesley Commons must hold in perpetuity or for donor-specified periods. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce reasonable investment returns while assuming a moderate level of investment risk. Strategies employed for achieving objectives: To satisfy its long-term rate-of-return objectives, Wesley Commons relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). Wesley Commons targets a diversified asset allocation that places a greater emphasis on equity and fixed income investments to achieve its long-term return objectives within prudent risk constraints. Spending policy and how the investment objectives relate to spending policy: Wesley Commons has a policy of appropriating for distribution each year approximately 5% percent of its endowment fund s fair value over the fiscal year-end proceeding the fiscal year in which the distribution is planned. In establishing this policy, Wesley Commons considered the long-term expected return on its endowment. Accordingly, over the long term, Wesley Commons expects the current spending policy to allow its endowment to grow at a reasonable rate. This is consistent with Wesley Commons objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return. Endowment Net Asset Composition by Type of Fund as of September 30, 2014: Temporarily Permanently Unrestricted Restricted Restricted Total Board-designated endowment funds $ 3,639,484 $ - $ - $ 3,639,484 Donor-restricted endowment funds (14,203) 264,351 672,034 922,182 Total $ 3,625,281 $ 264,351 $ 672,034 $ 4,561,666 17
Note 9. Endowments, Continued Changes in Endowment Net Assets for the Fiscal Year Ended September 30, 2014: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 3,385,720 $ 191,681 $ 672,034 $ 4,249,435 Investment return 319,230 29,572-348,802 Other activity: Contributions - 50,000-50,000 Release from restrictions 6,902 (6,902) - - Board approved withdrawals (86,571) - - (86,571) Endowment net assets, end of year $ 3,625,281 $ 264,351 $ 672,034 $ 4,561,666 Endowment Net Asset Composition by Type of Fund as of September 30, 2013: Temporarily Permanently Unrestricted Restricted Restricted Total Board-designated endowment funds $ 3,396,184 $ - $ - $ 3,396,184 Donor-restricted endowment funds (10,464) 191,681 672,034 853,251 Total $ 3,385,720 $ 191,681 $ 672,034 $ 4,249,435 Changes in Endowment Net Assets for the Fiscal Year Ended September 30, 2013: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 3,095,700 $ 168,619 $ 672,034 $ 3,936,353 Investment return 294,608 30,371-324,979 Other activity: Contributions 74,012 - - 74,012 Release from restrictions 7,309 (7,309) - - Board approved withdrawals (85,909) - - (85,909) Endowment net assets, end of year $ 3,385,720 $ 191,681 $ 672,034 $ 4,249,435 18
Note 10. Restrictions on Net Assets Temporarily restricted net assets consist of: Endowment funds subject to time restrictions by SCUPMIFA $ 214,351 $ 191,681 Endowment funds subject to donor stipulation 50,000 - $ 264,351 $ 191,681 Permanently restricted net assets consist of: Endowment funds - portion required to be retained permanently either by explicit donor stipulation or by SCUPMIFA $ 672,034 $ 672,034 The income from permanently restricted net assets is held in temporarily restricted net assets. Once appropriated, any income is expendable for Wesley Commons day to day operations. Note 11. Retirement Plan Wesley Commons contributes to a defined contribution plan on behalf of participating employees. Employees become eligible to join after one year of service. Employees electing to participate contribute 2% or more of their salary. Wesley Commons contributes 100% of the first 4% of employee contributions and 50% of the next 2% of employee contributions for a total of up to 5% of the employee contributions. The contribution expense for the plan totaled approximately $171,000 and $166,000 for the years ended, respectively. Note 12. Contingencies and Commitments Debt covenants: The 2006 bonds require that, among other things, Wesley Commons must comply with certain restrictive covenants which include the maintenance of certain occupancy levels, restrictions on capital expenditures, amount of days cash on hand, and debt service coverage ratio. At September 30, 2014, Wesley Commons was not in compliance with the Independent Living and Healthcare Center occupancy covenants. Pursuant to the bond document and occupancy covenants, Wesley Commons provided a written report setting forth in detail the reasons for such deficiencies and recommended corrective action with respect to the marketing of such units. Pursuant to the covenant requirement, the report was delivered within 30 days to the master trustee. The failure of Wesley Commons to achieve any occupancy covenant shall not be deemed to constitute an event of default so long as Wesley Commons prepares all required plans and reports, as well as takes all action within its control to implement such plans. 19
Note 12. Contingencies and Commitments, Continued Credit risk: Financial instruments, which potentially subject Wesley Commons to concentrations of credit risk, consist principally of cash and investments deposited in financial institutions in excess of federally insured limits, assets whose use is limited, accounts receivable and pledges receivable. Wesley Commons also has significant accounts receivable in which collectability or realiability is dependent upon the performance of certain governmental programs, primarily Medicaid and Medicare. Management does not believe there is significant credit risk associated with these governmental programs. Wesley Commons continually monitors and adjusts receivables as necessary, and anticipates performance by its counterparties. Furthermore, Wesley Commons is economically dependent on third-party Medicare and Medicaid programs in addition to private pay patients, including insurance. During the years ended, approximately 29% and 31%, respectively, of Wesley Commons health care services revenue resulted from reimbursements from the Medicare program. Laws and regulations governing the program are complex and are subject to interpretation. Wesley Commons believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future governmental review and interpretation, as well as significant regulatory action, including fines, penalties and exclusion from the Medicare program. Governmental funding for health care programs is subject to statutory and regulatory changes, administrative rulings, interpretations of policy, intermediary determinations and governmental funding restrictions, all of which may materially affect program reimbursement to health care facilities. Changes in the reimbursement policies of the Medicare program as a result of legislative and regulatory actions could adversely affect the revenues of Wesley Commons. Litigation: From time to time, Wesley Commons is a party to various legal proceedings arising from normal operations. Management believes that no material, uninsured losses are anticipated in connection with any of these matters at September 30, 2014. Operating lease commitments: Wesley Commons leases copiers and information technology equipment under non-cancelable operating leases. During the year, lease payments totaled approximately $36,000. In addition to the regular monthly rental amount on the copier leases, Wesley Commons may have additional monthly charges on a per copy basis. The leases will have remaining minimum payments of approximately $36,000 per year through 2016. 20
Note 12. Contingencies and Commitments, Continued Contractual commitments: As part of business and expansion planning, Wesley Commons signed multiple contracts during the year ended September 30, 2014. These contracts primarily related to architectural design, engineering, advisory, and land acquisition activities. Contractual commitments under these contracts totaled approximately $1,800,000 at September 30, 2014 of which approximately $900,000 had been paid or billed through December 30, 2014, and the remaining amounts are expected to be paid through fiscal years 2015 and 2016. Note 13. Related Party Transactions During the years ended, the Foundation paid Wesley Commons $79,433 and $78,928, respectively, for unrestricted support. During the year ended September 30, 2011, the Foundation provided an advance on annual donations totaling $200,000. The advance bears interest at 0.37% with an original maturity of July 2014. Wesley Commons and the Foundation are in the process of amending the agreement to extend the maturity. 21
Schedule 1 Wesley Commons Combining Statement of Financial Postion As of September 30, 2014 Assets Greenwood Wesley Heritage Commons Foundation Eliminations Combined Current assets Cash and cash equivalents $ 1,225,096 $ 239,830 $ - $ 1,464,926 Investments 6,785,151 3,333,928-10,119,079 Accounts receivable - Net 645,620 - - 645,620 Notes receivable 195,285 200,000 (200,000) 195,285 Other receivables 94,899 - - 94,899 Current portion of assets whose use is limited 2,065,294 - - 2,065,294 Inventories 75,902 - - 75,902 Prepaid expenses 95,298 - - 95,298 Total current assets 11,182,545 3,773,758 (200,000) 14,756,303 Assets whose use is limited 2,371,651 - - 2,371,651 Other assets - 115,726-115,726 Property, plant, and equipment - net 33,890,512 - - 33,890,512 Construction in progress 547,766 - - 547,766 Deferred costs - net of amortization 185,594 - - 185,594 Interest in assets held by others 541,096 403,967-945,063 Total assets $ 48,719,164 $ 4,293,451 $ (200,000) $ 52,812,615 Liabilities and Net Assets Current liabilities Accounts payable $ 498,936 $ - $ - $ 498,936 Current portion of long-term debt 740,000 - - 740,000 Accrued interest 814,073 - - 814,073 Accrued expenses 921,315 - - 921,315 Other liabilities 24,489 - - 24,489 Total current liabilities 2,998,813 - - 2,998,813 Long-term debt, less current portion 30,246,591 - (200,000) 30,046,591 Entrance fee deposits and miscellaneous deposits 243,269 - - 243,269 Refundable entrance fees 12,496,132 - - 12,496,132 Deferred revenue from entrance fees 2,770,229 - - 2,770,229 Total liabilities 48,755,034 - (200,000) 48,555,034 Net assets Unrestricted (504,647) 3,825,843-3,321,196 Temporarily restricted 209,372 54,979-264,351 Permanently restricted 259,405 412,629-672,034 Total net assets (35,870) 4,293,451-4,257,581 Total liabilities and net assets $ 48,719,164 $ 4,293,451 $ (200,000) $ 52,812,615 22
Schedule 2 Wesley Commons Combining Statement of Activities For the year ended September 30, 2014 Unrestricted net assets Greenwood Wesley Heritage Commons Foundation Eliminations Combined Revenues, gains and other support Health care services $ 9,028,719 $ - $ - $ 9,028,719 Monthly service fees 6,105,066 - - 6,105,066 Earned entrance fees 1,290,316 - - 1,290,316 Food service income 106,011 - - 106,011 Contributions 319,438 - (79,433) 240,005 Investment income 260,522 319,790-580,312 Other revenues 394,868 - - 394,868 17,504,940 319,790 (79,433) 17,745,297 Net assets released from restrictions 30,969 3,503-34,472 Total revenues, gains and other support 17,535,909 323,293 (79,433) 17,779,769 Expenses Routine services 4,606,468 - - 4,606,468 Special services 759,258 - - 759,258 Dietary 2,106,380 - - 2,106,380 Housekeeping and laundry 730,294 - - 730,294 Maintenance and grounds 2,006,287 - - 2,006,287 Marketing and public relations 899,624 - - 899,624 Administration 2,978,795 - - 2,978,795 Support to Wesley Commons - 79,433 (79,433) - Depreciation 1,800,723 - - 1,800,723 Interest expense 1,628,146 - - 1,628,146 Amortization 27,913 - - 27,913 Total expenses 17,543,888 79,433 (79,433) 17,543,888 Increase (decrease) in unrestricted net assets (7,979) 243,860-235,881 Temporarily restricted net asssets Contributions 27,570 50,000-77,570 Investment income (loss) 29,779 (207) - 29,572 Net assets released from restrictions (30,969) (3,503) - (34,472) Increase in temporarily restricted net assets 26,380 46,290-72,670 Increase in net assets 18,401 290,150-308,551 Net assets, beginning of year (54,271) 4,003,301-3,949,030 Net assets, end of year $ (35,870) $ 4,293,451 $ - $ 4,257,581 23