Financial Statements (With Independent Auditors Report Thereon)
KPMG LLP Suite 3800 1300 South West Fifth Avenue Portland, OR 97201 Independent Auditors Report The Board of Directors Mary s Woods at Marylhurst, Inc.: We have audited the accompanying financial statements of Mary s Woods at Marylhurst, Inc., which comprise the statements of financial position as of, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mary s Woods at Marylhurst, Inc. as of, and the results of its activities and its cash flows for the years then ended, in accordance with U.S. generally accepted accounting principles. September 27, 2013 KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.
Statements of Financial Position Assets 2013 2012 Assets: Cash $ 386,166 710,670 Accounts receivable, less allowance for uncollectible accounts of $25,000 in 2013 and 2012 1,622,156 1,339,676 Prepaid expenses and other assets 359,486 323,904 Investments (note 2) 1,852,266 2,140,472 Investments limited as to use (note 2) 12,718,805 12,814,976 Property, plant, and equipment, net (note 3) 57,339,727 56,090,567 Prepaid land lease (note 6) 900,001 942,858 Deferred financing costs, net 675,683 924,210 Total assets $ 75,854,290 75,287,333 Liabilities and Net Deficit Liabilities: Accounts payable $ 556,213 1,129,810 Accrued liabilities 726,852 602,394 Interest payable 43,844 43,984 Gift annuity liability 44,669 Deposits 449,414 330,950 Deferred revenue (note 4) 59,948,866 60,246,148 Long term debt (note 5) 30,119,426 30,464,362 Total liabilities 91,889,284 92,817,648 Net deficit: Unrestricted (17,323,069) (17,530,315) Temporarily restricted 1,288,075 Total net deficit (16,034,994) (17,530,315) Total liabilities and net deficit $ 75,854,290 75,287,333 See accompanying notes to financial statements. 2
Statements of Activities Years ended 2013 2012 Temporarily Unrestricted restricted Total Revenues, gains, and other support: Resident services $ 16,019,526 16,019,526 15,310,592 Earned entrance fees 3,471,393 3,471,393 3,545,325 Income on investments 130,232 130,232 139,027 Net realized losses on investments (28,478) (28,478) Other 639,855 639,855 348,344 Total revenues, gains, and other support 20,232,528 20,232,528 19,343,288 Operating expenses: Administration 1,189,379 1,189,379 1,119,009 Marketing 597,829 597,829 522,651 Human resources 225,906 225,906 185,677 Pastoral care 178,481 178,481 166,622 Environmental services 2,224,649 2,224,649 1,936,484 Resident services 223,209 223,209 181,985 Dining services 2,605,829 2,605,829 2,358,983 Nursing services 3,687,396 3,687,396 3,295,022 In-home services 749,601 749,601 576,655 Facility costs 4,622,037 4,622,037 4,161,481 Ground lease (note 6) 944,236 944,236 903,377 Interest expense 546,279 546,279 499,441 Depreciation 2,330,355 2,330,355 2,143,984 Amortization 271,278 271,278 293,886 Total operating expenses 20,396,464 20,396,464 18,345,257 Excess (deficit) of revenue over expenses (163,936) (163,936) 998,031 Contributions 1,283,745 1,283,745 Assets released from restriction (129,240) (129,240) Change in net unrealized gains/losses (15,433) 65,369 49,936 (48,491) Change in beneficial interest in OCF (note 2) 386,615 386,615 (152,638) Income on restricted investments 68,201 68,201 Change in net assets (deficit) 207,246 1,288,075 1,495,321 796,902 Net deficit at beginning of year (17,530,315) (17,530,315) (18,327,217) Net deficit at end of year $ (17,323,069) 1,288,075 (16,034,994) (17,530,315) See accompanying notes to financial statements. 3
Statements of Cash Flows Years ended 2013 2012 Cash flows from operating activities: Change in net deficit $ 1,495,321 796,902 Adjustments to reconcile change in net deficit to net cash (used in) provided by operating activities: Depreciation and amortization 2,601,633 2,437,870 Amortization of prepaid land lease 42,857 42,857 Net realized and unrealized (gains) losses on investments (21,458) 48,491 Change in beneficial interest in OCF (386,615) 152,638 Noncash earned entrance fees (3,471,393) (3,545,325) Noncash contributions (1,080,922) Changes in: Accounts receivable (282,480) (211,890) Prepaid expenses and other assets (35,582) (26,317) Accounts payable and accrued liabilities (449,139) 540,634 Gift annuity liability 44,669 Interest payable (140) 4,540 Deposits 118,464 (47,100) Net cash (used in) provided by operating activities (1,424,785) 193,300 Cash flows from investing activities: Capital expenditures (3,579,515) (4,848,565) Proceeds from sale and maturity of investments 3,577,191 6,245,665 Purchase of investments (1,703,819) (6,393,823) Net cash used in investing activities (1,706,143) (4,996,723) Cash flows from financing activities: Financing costs paid (22,751) (52,005) Entrance fees received 8,676,179 8,343,960 Change in entrance fees receivable (178,910) 178,910 Refunded entrance fees (5,323,158) (5,670,980) Principal payments on long term debt (4,339,426) (780,000) Proceeds from long term debt 3,994,490 2,994,362 Net cash provided by financing activities 2,806,424 5,014,247 Net (decrease) increase in cash and cash equivalents (324,504) 210,824 Cash at beginning of year 710,670 499,846 Cash at end of year $ 386,166 710,670 Supplemental disclosures: Cash paid for interest $ 546,419 494,901 Change in accounts payable related to acquisition of property, plant, and equipment (592,986) 636,817 See accompanying notes to financial statements. 4
(1) Organization and Summary of Significant Accounting Policies (a) Organization Mary s Woods at Marylhurst, Inc. (Mary s Woods) is a not-for-profit corporation formed in 1997 and located in the Portland metropolitan area. Mary s Woods is a Continuing Care Retirement Community (CCRC), which opened in February 2001. (b) (c) (d) Basis of Presentation Net assets are classified based on the existence or absence of donor-imposed restrictions. All net assets are recorded as unrestricted, or, if subject to donor-imposed stipulations that may be met by future activity, as temporarily restricted. Cash Cash consists of petty cash and cash in demand bank accounts. Amounts held in demand bank accounts are often in excess of Federal Deposit Insurance Corporation (FDIC) coverage levels. Investments and Investment Income Investments limited as to use include designated assets set aside by the Board of Directors (the Board) to provide funding for future capital improvements. The Board retains control over these assets and may, at its discretion, use these assets for other purposes. It also includes assets held by the trustee under indenture agreements. Investments in debt and equity securities are reported at fair value. Fair value is determined primarily using quoted market prices. Investment return, including realized gains and losses on investments, is reported as a component of revenues, gains, and other support. Changes in unrealized gains and losses on investments are excluded from the determination of excess of revenue over expenses and are reported as a direct change in net assets unless an unrealized loss is determined to be other than temporary. For calculating gains and losses, cost is based on specific-identification. Management considers all investments to be other-than-trading securities. The investment in the Oregon Community Foundation (OCF) represents a beneficial interest in a recipient organization. Mary s Woods established an interest in OCF by contributing funds to its investment portfolio. The value of this interest is then adjusted at a rate proportional to the investment returns obtained by OCF on its investment portfolio. Mary s Woods recognizes their interest in the net assets of OCF and adjusts that interest for its share of the change in the value of the investment portfolio using a method that is similar to the equity method of accounting for investments in common stock. 5 (Continued)
(e) Property, Plant, and Equipment Property, plant, and equipment are stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the following estimated useful lives: Buildings and improvements Equipment and furniture 40 years 3 7 years Mary s Woods periodically reviews the carrying amount of their long-lived assets whenever events or circumstances provide evidence that suggests that the carrying amount of long-lived assets may not be recoverable. If this review indicates that long-lived assets may not be recoverable, Mary s Woods reviews the expected undiscounted future net operating cash flows from the use of these assets. If such assets are considered to be impaired, the impairment in value is recognized as a charge in the statements of activities. The impairment charge is the difference between the carrying amount of the long-lived asset and its estimated fair value. As of, Mary s Woods does not believe that there is any indication that the carrying value of long-lived assets has been impaired. (f) (g) (h) (i) Deferred Financing Costs Financing costs related to the issuance of bonds and other loans are capitalized and amortized over the term of the related debt or related credit agreement, whichever is shorter, using the effective-interest method. Amortization of deferred financing costs was $271,278 and $279,314 for the years ended, respectively. Accumulated amortization of deferred financing costs as of was $1,320,178 and $1,048,900, respectively. Charitable Gift Annuities A charitable gift annuity is an arrangement between a donor and Mary s Woods in which the donor contributes cash to Mary s Woods in exchange for a promise by Mary s Woods to pay a fixed amount for a specified period of time to the donor or to stated annuitants. Mary s Woods maintains the gift assets in an investment account of the Resident Fund. During the year ended June 30, 2013, Mary s Woods received three gifts with a total value of $95,000. The estimated annuity liability payable by Mary s Woods was calculated in accordance with commonly accepted actuarial standards and totaled $44,669 at June 30, 2013. Excess of Revenues over Expenses The statements of activities 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 unrealized gains and losses on investments in other-than-trading securities and change in the beneficial interest in the OCF. In the current year, all activities included in excess of revenues over expenses also represent operating activities. Deferred Revenue Entrance fees paid by a resident upon entering into a residency agreement are recorded as deferred revenue. Mary s Woods offers two types of plans, Plan A and Plan B. Under Plan A, upon 6 (Continued)
termination of the residency agreement due to cancellation, death, or other reason, an amount not less than 80% of the original entrance fee or current entrance fee, whichever is lower, would be refunded to the resident only at the time of reoccupancy of the vacated unit. Under Plan B, the amount of entrance fees that are refundable is prorated based on length of stay of the resident, and after a certain length of stay, no refund is provided. Mary s Woods no longer actively offers Plan B to residents. The nonrefundable portion of entrance fees is amortized to revenue using the straight-line method over the estimated life expectancy of the resident. The refundable entrance fees are amortized to revenue using the straight-line method over the remaining useful life of the building. Amortization of deferred revenue is reported as earned entrance fees revenue in the accompanying statements of activities. (j) Revenue Recognition Resident services revenue is recognized when services are rendered. It consists of residents fees for basic housing and support services and fees associated with additional services such as routine healthcare and personalized assistance on a fee for service basis. The collectibility of the accounts receivable is assessed periodically and a provision for doubtful accounts is recorded as considered necessary. Additionally, Mary s Woods provides services without charge or at amounts less than its established rates to residents who meet the criteria of its charity care policy. As Mary s Woods does not pursue collection of amounts determined to quality as charity care, those amounts are not reported as resident service revenue. (k) (l) Obligation to Provide Future Services Mary s Woods annually calculates the present value of the net cost of future services and the use of facilities to be provided to current residents and compares that amount with the balance of deferred revenue from advance fees. If the present value of the net cost of future services and the use of facilities exceeds the deferred revenue from advance fees, a liability is recorded with the corresponding charge to income. No such liability was recorded as of June 30, 2013 or 2012. Income Taxes The Internal Revenue Service (IRS) has recognized Mary s Woods as exempt from federal income taxes under Section 501(a) of the IRC as an organization described in Section 501(c)(3) of the IRC, except to the extent of unrelated business income tax under Internal Revenue Code Sections 511 515. There is no unrelated business income, and therefore, no provision for income tax is reflected in the accompanying financial statements. Accounting principles generally accepted in the United States of America require Mary s Woods management to evaluate tax positions taken by Mary s Woods and recognize a tax liability (or asset) if Mary s Woods has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. Management has analyzed tax positions taken by Mary s Woods and has concluded that as of June 30, 2013, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. Mary s Woods is subject to routine audits by taxing jurisdictions; however, there are currently no 7 (Continued)
audits for any tax periods in progress. Mary s Woods management believes it is no longer subject to income tax examinations for years prior to 2010. (m) Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. (2) Investments Investments at are as follows: 2013 2012 Investments whose use is limited by the Board $ 12,718,805 12,814,976 Investments 1,852,266 2,140,472 Total investments $ 14,571,071 14,955,448 Investments consist of the following as of : 2013 2012 Cash and cash equivalents $ 748,313 2,130,764 U.S. government treasuries 355,273 922,463 Equity securities 1,460 2,433 U.S. government agencies 1,203,943 721,834 Mortgage-backed securities 63,815 96,894 Corporate obligations 6,641,886 7,242,937 Investment in pooled account 1,331,643 Beneficial interest in the Oregon Community Foundation 4,224,738 3,838,123 $ 14,571,071 14,955,448 A portion of Mary s Woods assets are invested in an investment pool. The funds are held by a bank custodian, and are managed by professional investment managers. The investment pool invests in fixed income and equity securities with readily determinable fair values. 8 (Continued)
Pooled investments held at Mary s Woods are recorded at Mary s Woods share of the carrying value of the investment pool. The investment pool is invested as follows at June 30, 2013 (in percentages): Board-designated cash and investments: Cash and cash equivalents 1% U.S. government treasuries 2 Mutual funds 23 Equity securities 40 U.S. government agencies 5 Corporate obligations 5 Alternative investments 24 Total pooled investments held 100% Investment income and losses from the investment pool are allocated between the members of the pool, including Mary s Woods, based upon investment balances. Mary s Woods recognizes changes in its interest in the investment pool using a method that is similar to the equity method of accounting. Mary s Woods maintains investments with OCF. The investments are used solely to support the operations of Mary s Woods, and are recorded as a beneficial interest by Mary s Woods in accordance with the provisions of FASB ASC 958-20, regarding financially interrelated not-for-profit entities. The investments, which represent an endowment fund that is legally owned by OCF, primarily include equity securities and fixed-income investments; however, approximately $500,000 of the investments at June 30, 2013 and $432,000 of the investments at June 30, 2012 are not readily marketable. Mary s Woods investment in OCF is recorded based on their initial contribution to OCF, adjusted for subsequent changes. All earnings of the investments held by OCF, less investment management fees charged by OCF, are allocated to Mary s Woods, and are recorded by Mary s Woods as change in beneficial interest in OCF in the statements of activities. Earnings consist of interest, dividends, realized gains and losses, and changes in unrealized gains and losses. Funds held by OCF may be distributed once per quarter, subject to approval by the OCF board of directors. Amounts reported as income on investments consist of interest income. The following table summarizes Mary s Woods investments with unrealized losses as of June 30, 2013: Unrealized Less than 12 months Fair value Cost basis loss Corporate obligations $ 1,072,304 1,079,334 7,030 U.S. government agencies 744,597 751,350 6,753 Mortgage-backed securities 52,998 53,617 619 Total temporarily impaired securities $ 1,869,899 1,884,301 14,402 9 (Continued)
The following table summarizes Mary s Woods investments with unrealized losses as of June 30, 2012: Unrealized Less than 12 months Fair value Cost basis loss Corporate obligations $ 2,608,042 2,621,759 13,717 Total temporarily impaired securities $ 2,608,042 2,621,759 13,717 The number of separate investment positions held by Mary s Woods that were at an unrealized loss for the years ended was 12 and 9, respectively. The individual securities included in the above tables that have unrealized losses have been deemed to not require an adjustment for other-than-temporary impairment as the unrealized losses have resulted due to changes in interest rates rather than the creditworthiness of the issuer of the securities or other decreases in fair value that are not significant enough to warrant recognition under Mary s Woods policy for other-than-temporary impairment. Mary s Woods is required, as a CCRC in the State of Oregon, to set aside liquid reserves per the State of Oregon Annual Disclosure and Reserve Requirement Statement. Liquid reserves must equal or exceed the total of all projected principal and interest payments due during the next fiscal year from any mortgage loan or other long-term financing, plus the total of the projected operating expenses for three months of the next fiscal year. At, Mary s Woods had $15,247,750 and $17,005,794, respectively, in liquid reserves as defined by the State of Oregon, which primarily includes cash, certain investments, and accounts receivable. These amounts meet the State of Oregon requirements, as defined above. (3) Property, Plant, and Equipment Property, plant, and equipment, net, consists of the following as of : 2013 2012 Buildings and improvements $ 76,194,600 68,653,039 Equipment and furniture 6,848,396 5,336,425 Construction in progress 129,515 5,603,532 83,172,511 79,592,996 Less accumulated depreciation (25,832,784) (23,502,429) $ 57,339,727 56,090,567 10 (Continued)
(4) Deferred Revenue Deferred revenue, net, consists of the following as of : 2013 2012 Nonrefundable $ 20,042,747 20,124,890 Refundable 66,245,788 64,837,742 86,288,535 84,962,632 Less accumulated amortization (26,339,669) (24,716,484) $ 59,948,866 60,246,148 (5) Long-Term Debt Long-term debt consists of the following as of : 2013 2012 2010 Series Bank-Qualified Debt, interest at variable monthly interest rate determined by the remarketing agent 1.68% and 1.68% at, respectively) $ 26,625,000 27,470,000 Term loan, interest at fixed annual rate of 2.29% as of June 30, 2013 3,494,426 Construction loan, interest at variable monthly interest rate (2.37% at June 30, 2012) 2,994,362 $ 30,119,426 30,464,362 During the year ended June 30, 2011, Mary s Woods issued the tax-exempt 2010 Series of Variable Rate Demand Senior Living Facility Revenue Refunding Bonds issued by the State of Oregon Facilities Authority in the amount of $28,730,000. These Bonds were issued to refinance the 2005 Series of Variable Rate Demand Senior Living Facility Revenue Refunding Bonds. The Series 2010 Bonds are Bank-Qualified Debt, whereby a financial institution has agreed to hold all of the bonds for a minimum term of five years from the date of issuance. The Bank-Qualified Debt was issued by U.S. Bank National Association. The bond agreement includes a material adverse change clause in the credit agreement, which, if triggered, would result in a covenant violation, allowing the lender to call the debt on demand. The 2010 Series Bank-Qualified Debt bears interest at an adjustable rate, which is 2.25% plus LIBOR, multiplied by the Initial Holder s Tax-Exempt Factor, as of the reprice date, such rate to be reset monthly on each reprice date. Mary s Woods purchased an interest rate cap, which limits the interest rate paid on the bonds to 2.00% per annum. Subsequent to the five-year term of the Bank-Qualified Bonds, the bondholders would be able to put the bonds back to Mary s Woods at any future bond remarketing. The 2010 Bond documents contain certain covenants, which include the certain financial ratios, as defined in the agreements. 11 (Continued)
Mary s Woods entered into a construction loan during the year ending June 30, 2012 for the expansion of their Health Center, which permitted draws of up to $3,500,000 as costs were incurred for the construction project. The loan incurred interest at a variable rate and was payable in full upon completion of the construction, which occurred during fiscal year 2013. During the fiscal year ending June 30, 2013, Mary s Woods replaced the construction loan with a term loan requiring monthly interest and principal payments. The 2013 loan bears interest at a fixed rate of 2.29%. Future principal payments by fiscal year based on scheduled repayments within the bond indenture and construction loan as of June 30, 2013 are as follows: 2014 $ 949,382 2015 1,011,831 2016 28,158,213 $ 30,119,426 (6) Commitments and Contingencies (a) Land Lease Mary s Woods leases approximately 17.75 acres of land from the Society of the Sisters of the Holy Names of Jesus and Mary (the Sisters) (a related party) for a term of 35 years under an operating lease agreement. Mary s Woods has the right to extend the term for three successive 10-year periods, based on specific criteria. The ground lease has three components: (1) Initial Base Rent: On September 1, 1999, Mary s Woods paid an initial base rent payment of $1,500,000, of which $42,857 is recognized each year as expense. The remaining unamortized balance is $900,001 at June 30, 2013, which is recorded as prepaid land lease and will be recognized over the remaining life of the lease. (2) Mary s Woods pays annual base rent of $75,000 in equal monthly installments. Future minimum rent payments under the operating land lease as of June 30, 2013 are as follows: 2014 $ 75,000 2015 75,000 2016 75,000 2017 75,000 2018 75,000 Thereafter 1,312,500 Total minimum rent payments required $ 1,687,500 12 (Continued)
(3) Additional Rent: Additional rent is also assessed at the rate of $150 per month, subject to annual increase, for each independent living unit, assisted living unit, specialty care bed, and skilled nursing bed in the facility. Additional rent totaled $826,379 and $785,520 in 2013 and 2012, respectively. Total rent expense under this land lease was $944,236 and $903,377 in 2013 and 2012, respectively. (b) Equipment Leases Mary s Woods has operating lease arrangements to lease one passenger vehicle and seven copiers for a term of three to five years. Future minimum lease payments under these operating leases as of June 30, 2013 are as follows: 2014 $ 94,361 2015 93,793 2016 43,795 Total minimum lease payments required $ 231,949 Rent expense under these equipment leases was $109,536 and $103,884 in 2013 and 2012, respectively. (c) (d) Legal Proceedings From time to time, Mary s Woods is involved in various claims and legal actions arising in the ordinary course of business. Liabilities are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. HealthCare Reform The Patient Protection and Affordable Care Act (PPACA) and the Heath Care and Education Reconciliation Act (Reconciliation Act) were both signed by President Obama in the first calendar quarter of 2010. On June 28, 2012, the Supreme Court ruled on the constitutionality of the PPACA and largely upheld the law. The State of Oregon has also initiated broad legislative actions related to delivery of healthcare within the state primarily impacting the Medicaid program. As a result, as these actions are implemented, they may impact Mary s Woods future operations. (7) Retirement Plan Mary s Woods has a tax-sheltered annuity plan available to all full-time, and certain part-time, employees who have met certain employment and age requirements. The plan document allows for a discretionary matching contribution of up to 5% after the first year of employment to all eligible employees. Mary s Woods contributions, which have been recognized as retirement benefit expense, were $180,239 and $163,387 in 2013 and 2012, respectively. 13 (Continued)
(8) Related-Party Transactions Mary s Woods was constructed on a portion of land owned by the Sisters. Mary s Woods has entered into a ground lease agreement with the Sisters (note 6). Currently, the Sisters occupy 5 of the 13 board of directors positions. Mary s Woods has contracted with the Sisters to provide resident services in exchange for monthly service fees. These services include housekeeping, meals, transportation, security, activities, and wellness. These fees are for the Sisters occupied apartments (owned by the Sisters) on the 3rd and 4th floors of the Provincial House and were $289,253 and $293,128 in 2013 and 2012, respectively. Mary s Woods has contracted with the Sisters to provide up to 33 beds in the Marie Rose Center, including 20 assisted living, 8 skilled, and 5 special care beds, for use by the Sisters. When these beds are not occupied, they can be made available for use by Mary s Woods residents. Certain general and administrative functions were shared by the Sisters with Mary s Woods. In return for these services, Mary s Woods paid expenses totaling $75,000 in both of the years ended June 30, 2013 and 2012. Other related-party accounts receivable balances, relating to operating costs that require repayment by the Sisters to Mary s Woods, totaled $66,567 and $50,910 as of, respectively. These amounts are included in accounts receivable in the accompanying statements of financial position. (9) Fair Value of Financial Instruments The carrying amount reported in the statements of financial position for cash and cash equivalents, patient accounts receivable, other receivables, line of credit, accounts payable, accrued salaries, wages, and benefits, and estimated third-party payor settlements approximates fair value because of the short maturity of these instruments. Financial assets and liabilities are measured at fair value and grouped in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to estimate fair value. These levels are: Level 1 Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Level 2 Valuations for assets and liabilities traded in less active dealer or broker markets. Level 2 valuations are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 Valuations for assets and liabilities that are derived from other valuation methodologies, including discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. 14 (Continued)
The following table presents the balances of assets measured at fair value on a recurring basis at June 30, 2013: Fair value Level 1 Level 2 Level 3 Assets: Cash and cash equivalents $ 748,313 748,313 U.S. government treasuries 355,273 355,273 Equity securities 1,460 1,460 U.S. government agencies 1,203,943 1,203,943 Mortgage-backed securities 63,815 63,815 Corporate obligations 6,641,886 6,641,886 Total assets $ 9,014,690 1,103,586 7,911,104 The following table presents the balances of assets measured at fair value on a recurring basis at June 30, 2012: Fair value Level 1 Level 2 Level 3 Assets: Cash and cash equivalents $ 2,130,764 2,130,764 U.S. government treasuries 922,463 922,463 U.S. government agencies 721,834 721,834 Mortgage-backed securities 96,894 96,894 Corporate obligations 7,242,937 7,242,937 Equity securities 2,433 2,433 Total assets $ 11,117,325 3,053,227 8,064,098 The beneficial interest in OCF and pooled investment fund are not included in the above tables as they are measured using principles similar to the equity method, rather than fair value. (10) Restricted Net Assets Temporarily restricted net assets at June 30, 2013 are available for charity care to residents who are unable to pay their monthly service fees. Additionally, the Board of Mary s Woods has determined that the funds received for this purpose will be treated as a board-designated endowment, and funds will be allocated for expenditure in a manner that protects the purchasing power of the donated funds. To the extent that earnings on endowment funds exceed identified expenditures on which to apply those earnings, the earnings are classified as unrestricted net assets as restrictions are established by the Board rather than by the donors. As of June 30, 2013, unspent earnings on endowment funds totaling $92,635 are included in unrestricted net assets. 15 (Continued)
A rollforward of board-designated endowment funds is as follows: Unrestricted Temporarily restricted Balance as of June 30, 2012 $ Investment returns 133,570 Contributions 1,283,745 Appropriated for expenditure (36,605) Reclassifications and other 129,240 (129,240) Balance as of June 30, 2013 $ 92,635 1,288,075 (11) Subsequent Events In connection with the preparation of the financial statements, Mary s Woods evaluated subsequent events after the statements of financial position date of June 30, 2013 through September 27, 2013, which was the date the financial statements were available to be issued. 16